SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1997.
[ ] 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 33-59598
DIALOGIC CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2476114
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1515 Route 10, Parsippany, New Jersey 07054 (973) 993-3000
(Address and telephone number, including area code, of registrant's
principal executive office)
Securities registered pursuant to Section 12(b) of the Act: none.
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Aggregate market value of voting stock held by non-affiliates as of
February 1, 1998 was approximately $352,203,000.
Number of shares of Common Stock outstanding as of February 1, 1998:
16,122,367.
Documents incorporated by reference: Annual report to shareholders for the
year ended December 31, 1997 (Part II); Definitive proxy statement for the
registrant's 1998 annual meeting of shareholders (Part III).
<PAGE>
DIALOGIC CORPORATION
TABLE OF CONTENTS
PART I Page
Item 1 Business of the Company 3
Item 2 Properties 25
Item 3 Legal Proceedings 25
Item 4 Submission of Matters to a Vote of Security Holders 27
Item 4A Executive Officers of the Registrant 27
PART II
Item 5 Market for the Registrant's Common Equity
and Related Stockholder Matters 30
Item 6 Selected Financial Data 30
Item 7 Management's Discussion and Analysis of Results of
Operations and Financial Condition 30
Item 7A Quantitative and Qualitative Disclosure About Market
Risk 30
Item 8 Financial Statements and Supplementary Data 30
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 30
PART III
Item 10 Directors of the Registrant 31
Item 11 Executive Compensation 31
Item 12 Security Ownership of Certain Beneficial Owners and Management 31
Item 13 Certain Relationships and Related Transactions 31
PART IV
Item 14 Exhibits, Financial Statements Schedules and Reports on Form 8-K 32
Signatures ......................................................... 39
<PAGE>
Item 1. Business of the Company
Introduction
Incorporated in New Jersey in 1983, Dialogic Corporation has its principal
executive offices located at 1515 Route 10, Parsippany, New Jersey 07054. The
terms "Company" and "Dialogic" used in this report refer to the Registrant and
its consolidated subsidiaries unless the context indicates otherwise(1).
Acquired companies include GammaLink, a manufacturer of facsimile boards
("GammaLink"), and Dianatel Corporation, a manufacturer of digital network
interface and other signal computer products ("Dianatel"), each of which have
been merged into the Company.
On February 17, 1998, the Company sold the assets of its Spectron
Microsystems, Inc. subsidiary to Texas Instruments, Inc. for approximately $26
million in cash and the assumption of substantially all of Spectron
Microsystems' liabilities. Spectron Microsystems was in the business of
developing software for DSP operating systems.
This Annual Report contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995
("Forward-Looking Statements"). Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in such Forward-Looking Statements. Certain factors which could
materially affect such results and the future performance of the Company are
described below under "-- Risk Factors".
General
Dialogic designs, manufactures and markets hardware and software signal
computing components for "computer telephony" systems. "Computer telephony" is
the term used to encompass a wide variety of technologies and applications that
use the information processing capabilities of a computer (often a server) to
add intelligence to telephone functions and to combine these functions with data
processing. The Company's products are offered as modular building blocks that
enable its customers--primarily VARs, OEMs, systems integrators, service
providers and applications developers--to design computer telephony systems that
meet the applications demands of their end-user customers. Dialogic has promoted
the acceptance of open, non-proprietary computer telephony systems, enabling its
customers to respond to end-user demand for standards-based systems and
expanding the types of systems into which the Company's products may be
incorporated. The Company's customers vary in size from small ventures to major
computer and telecommunications companies worldwide.
The Company's signal computing products receive and process signals from
telecommunications networks and perform computing functions to convert the
signals to data
_________________
(1) Dialogic, GammaLink, Dianatel and many of the Company's product names
referred to herein are trademarks or trade names of the Company. This Annual
Report also includes references to trademarks and trade names of other
companies.
<PAGE>
appropriate for various types of computer systems. These computing functions are
based upon algorithms for a variety of features, including voice compression,
voice storage, speech recognition, tone recognition and facsimile compression.
Conversely, the Company's signal computing products also take computer data and
convert it to signals compatible with telecommunications networks by using
algorithms for features such as speech synthesis, voice decompression, tone
signaling and facsimile generation. Dialogic's signal computing products
typically combine two elements--a signal processing resource and a network
interface. Signal processing resources perform specific functions. Network
interfaces connect a system, normally a personal computer, to telephone and data
networks. Dialogic's hardware products are offered in the form of circuit
boards/platforms to be installed in a variety of computer chassis. The Company
also licenses the use of various software products.
Dialogic offers a broad product line, allowing its customers to develop
computer telephony applications with components that are compatible and
scaleable across different ranges of density and performance. Such applications
include:
Database interaction applications, which query and make changes to
databases based on touchtone or voice input, including:
Audiotex - giving 24-hour telephone access to a menu-selected
database of recorded (spoken) information
Fax-on-demand - giving 24-hour telephone access to a menu-selected
database of printed information
Interactive voice response - giving 24-hour telephone access, with
update privileges, to an indexed database of records
Interactive fax response - faxing hard-copy confirmations of
touchtone queries or transactions
Fax and voice messaging applications, including:
Voice mail
Fax servers, which pool fax resources across a network of users, for
the purpose of broadcasting fax messages and storing fax messages
for later retrieval
Paging
Unified messaging, which presents e-mail, fax and voice messages
through one screen interface and converts from e-mail to fax or
voice for remote telephone access
Intelligent call control applications, which automate services that
once required the intervention of an operator, including:
Call centers, where a large number of agents process inbound
requests or outbound sales calls
Help desk automation, which directs a call to the support staffer
with the appropriate expertise
Conferencing, which enables more than two parties to call a control
number, with active or passive (i.e., listening) privileges
Predictive/autodialing, which dials out to lists of phone numbers,
screens out certain calls (e.g., no-answers) and delivers
live prospects to telemarketing agents
Personal communications agents, which screen and forward calls
based on a user's itinerary and instructions
Internet gateway applications, including:
Voice over the Internet
Fax over the Internet
Strategy
The first computer telephony systems, like the first computing
systems, were built using proprietary hardware and software. Over the last few
years numerous computer telephony vendors have adopted open, or non-proprietary,
personal computer ("PC") platforms and standard operating systems, such as
Windows NT, Windows 95, UNIX, OS/2, or DOS, as elements of their computer
telephony systems. This shift toward open platforms has been driven by the rapid
increase in performance and power of standard microprocessors, the general
availability of add-on hardware and software components, growth in the
functionality of the PC and cost savings due to lower PC prices.
The Company's strategy is to position Dialogic to benefit from the
growing acceptance of open call processing systems. The Company seeks to support
this strategy through the following approaches:
Advocate Open Systems. The Company believes that open architectures
provide many advantages to systems developers, including (i) reducing
the time needed to bring new products to market, (ii) reducing
customers' maintenance and continuing engineering costs, (iii)
providing access to a variety of technologies from third-party
vendors, (iv)
<PAGE>
enabling customers to focus their efforts on marketing and end-user
applications, (v) protecting customers so that they will not be
dependent upon a particular technology and therefore be precluded from
accessing new technologies and (vi) enabling customers and end-users
to benefit from the economies associated with open architectures. As
part of its commitment to open architectures, Dialogic designs its
modular components to satisfy established industry standards. Its
products work in a variety of PC platforms and form factors and
support standard operating systems. Furthermore, to support its
international sales efforts, the Company designs its products to meet
international telecommunications standards. At the same time, Dialogic
advocates the value to end users of requesting their computer
telephony vendors to provide open systems, thereby encouraging the
"pull through" of open components.
Develop Signal Computing Technologies. Dialogic believes that voice,
image and data processing technologies are converging at a rapid rate.
This convergence is reflected in the demand for unified messaging
systems in the telecommunications and computing industries. In the
telecommunications field, voice processing systems are being designed
to integrate voice, fax and e-mail messages; similarly, within the
computing industry, unified messaging may be addressed by servers that
provide the client with access to voice, fax and e-mail messages. By
focusing on signal computing technologies, such as the Company's DM3
Mediastream Architecture, Dialogic seeks to have its products
incorporated in a wide variety of business computing applications that
address one or more voice, image and data processing functions. As PC
platforms decline in price and continue to be widely deployed, and as
reliable, user-friendly multi-tasking operating systems become more
widely accepted, the Company intends to provide its customers with
products that support multi-application uses and that benefit from
this technological convergence. This statement regarding the Company's
intent constitutes a Forward-Looking Statement. Actual results may
differ from the Company's intentions as a result of a number of
factors, including the extent to which the Company is able to respond
to technological developments and competitive responses. See "--Risk
Factors".
Initiate and Promote Uniform Standards. Dialogic's Signal Computing
System Architecture ("SCSA") reflects the Company's commitment to the
expansion of existing call processing technology through open
architectures. The goal of SCSA is to develop and gain broad domestic
and international acceptance for a variety of computer telephony
standards and technologies. The essential elements of SCSA are the
development of (i) software standards for use by the computer
telephony industry, (ii) buses with increased bandwidth and capability
to support high capacity platforms, (iii) a wide range of products
available from multiple vendors that enable systems developers to
integrate voice, image and data technologies in order to build unified
messaging solutions and (iv) technologies that will permit
scaleability from single node stand-alone systems to multi-node
distributed systems, thereby allowing customers to expand from low to
high capacity products with relative ease. SCSA participants include
computer suppliers, component manufacturers, hardware suppliers,
algorithm and technology developers, call processing systems suppliers
and leading telecommunications equipment manufacturers. Substantially
all of the major products in Dialogic's current product line
incorporate one
<PAGE>
or more aspects of SCSA. In 1995, Dialogic joined Digital Equipment
Corporation, Ericsson Business Networks, Hewlett-Packard and Northern
Telecom in forming the Enterprise Computer Telephony Forum ("ECTF").
The principal goal of the ECTF is to oversee the evolution of
industry-wide standards implementation for computer telephony.
Dialogic has contributed to ECTF its Telephone Application Object
(TAO) software framework to assist in the development of a series of
open interfaces. In the Internet field, Dialogic has been active in
the VON Coalition, the International Multimedia Teleconferencing
Consortium and other bodies advocating standards for Internet products
that will enable different vendors' gateways and products to
interoperate.
Leverage Technological Expertise in Computer Telephony. Dialogic's
core technical competence is the development of computer telephony
technologies that are embedded in the Company's hardware, software and
digital signal processing algorithms. Dialogic believes that its
future success depends upon its ability to continually expand its
technical capabilities and to provide technically advanced components
that are responsive to technological advances and changes in industry
standards. Accordingly, the Company spends, and intends to continue to
spend, substantial amounts on research and development. Statements in
this Annual Report regarding future research and development spending
constitute Forward Looking Statements. See "--Risk Factors". Factors
that could affect the level of research and development spending
include market conditions, the nature of customer demand, competitors'
product announcements, patent and/or license availability and claims
and regulatory requirements.
Provide Customers with a Broad Range of Products. Dialogic enables its
systems developer customers to develop and offer a broad range of
applications by providing its customers with building blocks that are
designed to conform to widely accepted standards, much in the same way
that the standardization of PC platforms has resulted in an entire
industry of data processing software developers. The Company's modular
approach also enables systems developers and integrators to build
progressively larger systems with more application features without
making significant changes in the underlying technologies.
Develop Collaborative Customer Relationships. Dialogic believes that
it is essential to maintain close communications with its customers in
order to understand their needs. Through contacts at both the field
and management levels, the Company reviews application design and
hardware configuration issues and application objectives with its
customers. Dialogic seeks to serve as a problem solver in helping to
construct new and enhanced call processing systems. The Company also
seeks to educate systems developers about the broad range of
applications that may be provided through use of the Company's
computer telephony components, in part by conducting seminars to train
customers' engineers in the use and potential applications of Dialogic
modules. To this end, Dialogic has helped create Dialogic User Forum,
Inc., a body designed to facilitate customer feedback to Dialogic.
<PAGE>
Expand International Presence. Dialogic believes that advances in
voice, image and data processing technologies, growing international
acceptance of the benefits available from these technologies and
deregulation and privatization of international telecommunications
networks will drive increased acceptance of computer telephony
technology in international markets. Thus, during February 1997,
negotiators at the World Trade Organization in Geneva signed a
telecommunications pact designed to open telephony markets to
competition. Statements on future market acceptance are Forward
Looking Statements. See "--Risk Factors." No assurances can be given
with respect to the pace of deregulation and privatization, which may
differ significantly from country to country or the degree to which
deregulation and privatization will result in demand for Company
products. The Company's familiarity with international regulatory
requirements has enabled it to gain approvals for its products in
several international markets, thus providing its customers with the
opportunity to reduce the time necessary to market their products
internationally.
Complement Internal Growth with Strategic Acquisitions and
Investments. Prior to the acquisition of GammaLink in June 1994,
Dialogic's growth had occurred principally through internal
development. However, as reflected in its past transactions, Dialogic
believes that opportunities exist to extend and enhance its current
lines of business and distribution capabilities through investments in
or acquisitions of businesses in the computer telephony industry and
related fields. Management intends to analyze acquisition
opportunities that become available to the Company and to consider
pursuing those opportunities that complement or supplement its
business strategies.
Dialogic's presentation above of its business strategies reflects the Company's
planning for the future and thus may constitute a Forward-Looking Statement. No
assurance can be given as to whether or as to the extent that the Company will
be successful in the pursuit of its business strategies. Factors which could
impact the Company's ability to pursue such strategies are set forth below under
"--Risk Factors".
Products
Dialogic's signal computing products are computer expansion boards
which typically fit in a PC chassis and operate under the control of an industry
standard PC operating system, such as Windows NT, Windows 95, UNIX, OS/2 or DOS.
With its emphasis on developing modular building blocks for computer telephony
systems, Dialogic offers products that operate over a continuum in performance
and density. Its traditional products enable developers to create call
processing systems with voice processing, facsimile, data, speech recognition,
and speech synthesis capabilities. Its high density products, introduced during
1994 as the Company's first implementation of SCSA, provide advanced switching
and computer telephony features that enable Dialogic's customers to extend their
product offerings into call center and enhanced services environments. Its VME
platform products, consisting of high density products based on the VME computer
bus and form factor, are designed to support existing call processing features
with significant enhancements for telephone central office use.
<PAGE>
Dialogic's products typically include two elements - a network
interface and signal processing resources. Network interfaces connect a call
processing system to telephone and data networks. Signal processing resources
use digital signal processing techniques to perform useful computing functions,
such as digitalization and compression, on telephony and data signals. The
Company's product line includes network interfaces and signal processing
resources for voice processing, fax and data processing, speech recognition and
speech synthesis, as well as an open signal processing platform for a wide
variety of Dialogic and third party algorithms. The product line also includes
system software for developing applications.
Technologies Supported by Dialogic Products
Dialogic's platforms support a variety of technologies, whose
functionality in finished products is largely driven by application software and
middleware supplied by the Company's customers and other third-parties. These
technologies include:
Voice. Voice technology involves processing and manipulating audio signals
in a computer telephony system. Voice technology functions include
filtering, analyzing, recording, digitizing, compressing, storing,
expanding and replaying such signals, as well as receiving, recognizing and
generating specific telephone and network tones. In addition, this
technology includes multiparty voice conferencing.
Network Interfaces. A call coming from the telephone network to a computer
telephony system can be carried on a variety of lines, from analog loop
start to digital, T-1 and E-1 and primary rate integrated services digital
network (ISDN) lines. These calls can be routed to analog and digital basic
rate interface (BRI) station devices for call center applications. Dialogic
manufactures and sells platforms that are compatible with various popular
network interfaces utilized throughout the world.
Facsimile. Fax technology transmits a copy of paper-based documents and
images over telephone lines. In a PC-based system, fax technology can also
transmit and receive computer-generated files.
Automatic Speech Recognition ("ASR"). ASR is an algorithm that recognizes
human speech. Speaker-independent ASR can recognize a limited group of
words and numbers from any caller. Speaker-dependent ASR can identify a
large vocabulary of commands from a specific speaker.
Text-to-Speech ("TTS"). TTS is an algorithm that generates intelligible,
synthetic speech from text stored in computer files, designed to provide
access to information that would be too expensive or impractical to record
using voice technology.
Switching. Switching involves routing, transferring and connecting voice
signals between multiple chassis.
<PAGE>
Low and Medium Density Voice Processing Resources
Dialogic's platforms span a range of system densities. By developing
products in a modular approach that allows customers to expand the performance
capabilities of their systems in a scaleable manner, Dialogic seeks to enable
its customers to select a performance range that most suits their systems and
their target markets. Dialogic's basic low density voice processing platforms,
the D/21H and D/41H, provide voice processing and analog network interface
functions simultaneously on two or four independent telephone lines. These
products connect directly to the telephone lines, automatically answer inbound
calls, detect touchtones, play voice messages to a caller, digitize, compress
and record voice signals, make outbound calls, and automatically report the
results of outbound calls. The D/21H and D/41H provide standard features
required for most voice processing applications, including voice mail and voice
messaging, interactive voice response, audiotex, inbound and outbound
telemarketing, operator services, dictation, auto dialers, telecomputing
services, notification systems and on-line data entry and query.
During 1996, Dialogic introduced the DIALOG/4, a half size four port
voice processing platform designed for computer telephony installations that
cannot support full-size voice boards. This product provides four telephone line
interface circuits that connect directly to analog loop start lines. The
functions and applications are similar to the D/21H and D/41H and, like the
D/41H, is scaleable up to 64 ports. Dialogic also introduced its Proline/2V two
port voice processing board during 1996. Designed for small computer telephone
system development, multiple Proline/2V boards can be installed in a single PC
chassis for system expansion up to 32 ports.
The D/42-SX, D/42D-SL, D/42-NS and D/42-NE2 are voice processing
boards with network interface daughterboards which emulate proprietary PBX
station sets and provide connections to four PBX lines. These products connect
to the Mitel SX, Northern Telecom SL-1, Northern Telecom Norstar and NEC NEAX
switches, respectively. These products are used to provide special integration
features in a call processing application.
Dialogic's low and medium density voice processing resources typically
reflect a dual-processor architecture, consisting of a DSP and a general purpose
microprocessor. This imbedded architecture handles all telephony signaling and
performs touchtone and audio/voice signal processing tasks.
High Density Products
Voice Processing
Dialogic's D/160SC-LS, D/240SC-TI, D/300SC-E1, D/480SC-T1, and
D/600SC-E1 are 16, 24, 30, 48 and 60 port DSP - based voice boards with onboard
analog, digital T-1 and digital E-1 telephone interfaces. Based upon SCSA
standards, these platforms enable developers to build high density systems by
configuring multiple boards in a single PC. Applications include voice
messaging, interactive voice response, voice/audio response, audiotex, operator
services,
<PAGE>
telemarketing/call centers, dictation, auto dialers, notification systems and
on-line data entry and query. The Company's 1996 introduction of Dual Span
boards doubled the available density.
In 1997, the Company introduced its QuadSpan series of digital voice
and network interface boards. These platforms provide four E-1 or T-1 lines of
service termination and call processing for up to 120 voice channels in a single
PC slot. The QuadSpan boards are functionally equivalent to four single-span
boards, such as the D/300SC-E1, combined into one single-slot board.
Network Interfaces
The Company offers several high capacity network interfaces to connect
computer telephony applications to public and private telephone networks. These
network interfaces connect a telephone line and handle all of the network
signaling necessary between the call processing system and the telephone line.
Telephone lines vary in complexity, from a normal analog tip-and-ring line found
in most homes to an integrated services digital network (ISDN) line that can
carry more than two million digital bits per second. Dialogic's network
interface products include the following:
The LSI/81SC and LSI/160SC are analog interface boards which provide
loop start telephone network connections for 8 and 16 lines,
respectively. These boards connect to other call processing boards
over a digital bus and are designed for SCSA-based computer telephony
systems.
The DT1/240SC, DT1/241SC, DT1/300SC, and DT1/301SC are digital
interface boards which provide T1/E1 network connections for 24 T-1
and 30 E-1 lines. These boards, which connect to other call processing
boards over a digital bus, support Dialogic's SCbus and also provide
access to worldwide ISDN networks. Dual span configurations (the
DT1/480SC, DT1/600SC, DT1/960SC, and DT1/1200SC) permit similar
connections for 48 and 96 T-1 and 60 and 20 E-1 lines.
The D/240PCI-T1 and D/300PCI-E1, introduced in 1997, are high density
PCI versions of the D/240SC-T1 and D/300SC-E1 CT boards. These boards
provide the network protocol support, voice processing features and
sophisticated switching fabric required to bridge multiple technology
resources like fax, IP connectivity and speech technologies on PCI
servers.
The MS1/240SC is a station interface board which provide connections
to telephones and headsets. These products are used to connect agents
to a call processing system for call center applications. The
MS1/240SC supports Dialogic's SCbus.
<PAGE>
Antares
The Antares Open Platform is a general purpose signal processing
platform which connects to other call processing platforms over a digital bus.
This platform was designed to be compatible with SCSA standards and to
facilitate the integration of a wide variety of technologies from Dialogic and
third parties into a single call processing system. It runs the SPOX realtime
DSP operating system, and is sold with a set of software development tools. An
Antares development kit consists of an Antares card, SPOX, DSP tools and SCSA
software.
Application developers can use Antares' single standardized
programming interface to port their technologies to the Antares platform. The
Antares platform can be used in various stages of technology implementation,
from initial algorithm development and rapid prototyping through large-scale
deployment.
Each of the four DSPs on the Antares platform provides enough
processing power to support one or more types of technology. Therefore,
application developers can download algorithms supporting different technologies
to each of the DSPs, allowing the creation of a multifunctional platform that
can support, for example, both ASR and TTS. These technologies can be used to
support multiple applications on a single platform, or they may be used at
different times within a single application. Technologies that can be used to
develop applications on the Antares platform include ASR, TTS, call processing,
data communications and fax image processing.
Various third-parties have developed enhanced software for the Antares
platform. Speech recognition capability, provided by companies such as Voice
Control Systems, Lernout & Hauspie, PureSpeech, Telefonica, CSELT and France
Telecom/CNET, enables call processing applications to interpret words spoken by
a telephone caller. Enhanced capabilities include continuous speech recognition,
alphabet recognition and speaker verification. Text-to-speech software has been
developed for the Antares platform by Lernout & Hauspie, Centigram, Telefonica
and CSELT. These products convert ASCII text to synthesized speech, enabling
call processing applications to play back information files which are too large
or dynamic to be pre-recorded.
Open Buses
Many of the Company's products incorporate buses that embody
technology developed by Dialogic. Buses connect resource modules and network
interfaces to enable VARs and OEMs to expand their systems in a modular manner.
The Company's buses are utilized not only for connecting Dialogic components,
but also for connecting products made by third parties.
Dialogic's SCbus signal computing bus is a third generation system bus
that is implemented on a custom integrated circuit (the SC 2000), made available
to all SCSA developers and designed for systems that require especially fast
connections. The SCbus has compatibility modes for the PEB, the Siemens PCM
Highway, the Mitel STbus and other communications buses. The SCbus provides up
to 131 megabits per second, equivalent to 2,048
<PAGE>
channels, for interconnecting sophisticated SCSA-based systems. While the
Company continues to support the earlier Analog Expansion Bus (AEB) and PCM
Expansion Bus (PEB), its principal bus focal point is on the switching
capabilities of the SCbus. As a result, the Company is seeking to expand the
number and types of its products that are SCbus-compatible.
VME Products
Dialogic has developed a family of high density platforms supplied in
the VME form factor. "VME" represents a global industrial standard for computer
chassis that allows easy front access for maintenance purposes. Dialogic's VME
products support standard features of the Company's product line and are
intended to furnish technology enhancements for advanced intelligent networks,
including higher port density for lower cost per port efficiency, SCbus
integration, non-PC telephony grade hardware, central office switching
capability and multiple operating system support.
Facsimile and Data Resources
Prior to its acquisition of GammaLink in June 1994, the Company's
facsimile products were designed primarily for voice-processing intensive
applications that require facsimile capability. The newest generation of these
products are the VFX/40SC, VFX/40ESC and VFX/40ESC-plus four-port fax boards.
These boards are four channel daughter-boards which connect to the D/41ESC to
provide integrated voice and fax processing in a single PC slot. By integrating
voice and fax processing, these products enable users to take advantage of a
variety of applications, including fax-on-demand, facsimile broadcasting and
facsimile messaging.
With the GammaLink acquisition, the Company expanded its facsimile
product line to include products that provide scaleable facsimile density for
facsimile-only applications or for applications with significant facsimile
volume, including LAN faxing, image servers, broadcast servers, host servers and
service bureaus. GammaLink's enterprise fax family of products are utilized in
small and medium-sized facsimile systems, fax gateways and LAN-based facsimile
servers. GammaLink's telco fax family of products are high performance boards
used in high volume fax broadcast, interactive voice/fax response and T-1
connections for fax. These telco products can be used in a resource-sharing
manner with Dialogic's voice processing products through the switching
capabilities of the Company's bus products.
CT-Connect
CT-Connect is a computer telephony call control server capable of
connecting a wide range of telephone switches to a variety of data processing
environments. CT-Connect is based on Digital Equipment Corporation's computer
integrated telephony ("CIT") technology acquired by Dialogic in February 1995.
The software runs under the Microsoft Windows NT operating system, either on
Intel architecture or with Digital Equipment Corporation's Alpha processors. In
1997, Dialogic introduced a newer version of CT-Connect which enables developers
to use either Windows NT or SCO Unixware. It is intended to be used by
application developers, VARs and
<PAGE>
OEMs to construct end-user computer-telephone solutions for call control
purposes. Dialogic also offers CT consulting services through its Synapse Group.
System Software
Dialogic's board level products are supported by device drivers and
Application Programming Interfaces ("APIs") for the leading PC operating
systems, including Windows 95, Windows NT, MS-DOS, UNIX, OS/2 and Netware. The
device drivers and APIs enable an application to access the features of a board
through standard programming language function calls.
The Company's SCSA software module enables a call processing system to
function as a media server in a client-server environment. In February 1997, the
Company announced CT Media, an open standards-based client-server product for
computer telephony server design. CT Media is designed to streamline the
development process by handling the details of media resource control and
functions internal to the computer telephony server. Developers and integrators
are spared from managing these low-level functions from within their
applications, thereby enabling Dialogic's customers to focus on the requirements
of application development and integration.
Dialogic works with many third parties to provide software toolkits
which simplify application development. Toolkits are available in each of the
supported operating systems.
DM3 Products
Dialogic has begun shipments of the first products based on its DM3
(trademark) Mediastream architecture, including DM3 IPLink, a standards based
Internet Protocol telephony server development system. DM3 IPLink servers link
the Public Switched Telephone Network with TCP/IP networks, thus enabling
individuals to communicate directly over the data network in a variety of ways -
from telephone to telephone; fax to fax; PC to telephone; telephone to PC; and
Web browser to telephone. In December 1997, Dialogic announced the industry's
first enhanced IP telephony platform with an integrated on-board high speed
Ethernet interface, resulting in reduced latency while increasing scalability
and system reliability for developers. In addition, also in December 1997,
Dialogic announced the release of the QuadSpan family of products, high density
voice and digital network interface products based on the DM3 Mediastream
Resource Architecture. The QuadSpan (trademark) products enables OEMs,
integrator and developers to build large-scale, standards-based CT systems for
various applications, including switching and routing, call centers and
intelligent peripherals with media processing capabilities. Volume shipment of
such new products is subject to a number of risks, including technical problems,
market acceptance, intellectual property risks and competitive resources. See
"-Risk Factors" and "-Research and Product Development."
Research and Product Development
The Company believes that the timely enhancement of its existing
products and development of new products is critical to maintain its competitive
position. The Company's ongoing product development goals include the
enhancement (in terms of performance and cost efficiency) of current products,
the adaptation of third-party technologies to Dialogic's products and the
development of new product options and features. Dialogic's product development
teams work closely with customers in an effort to define necessary improvements
and enhancements and to analyze potential new products.
The Company has announced several research and development
initiatives, including the following:
DM3 Mediastream Resource Architecture. On January 27, 1997, Dialogic
announced the development of a new set of specifications and core
firmware modules that are intended to govern how the Company's next
generation of products will be designed. The core elements of this
architecture are general purpose embedded processors designed to
manage multiple application technologies from multiple vendors
simultaneously. The technologies contemplated include real time and
message-based media processing for firmware resources such as voice,
fax, voice over the Internet, automatic speech recognition,
text-to-speech and real time network signaling. The DM3 architecture
is intended to further expand the density of computer telephony
platforms, contemplating "quad span" boards with up to 96 ports
available for a variety of applications. Such boards are functionally
equivalent to four single-span boards combined into one single-slot
board. For the system developer, the availability of products meeting
the Company's DM3 goals are intended to allow the creation of bigger,
faster and more cost-efficient products and to allow the combination
of functions on a single board (as opposed to current configurations
which require such combinations to be placed on multiple boards).
No assurance can be given that all of the Company's DM3 architecture
development projects will result in market accepted products or
profitable ventures. Like any announcement in the computer telephony
industry, Dialogic's DM3 initiative is subject to a variety of risks,
including the length of time required for Dialogic to bring products
to market, competitive responses, customer acceptance, development or
manufacturing difficulties, the availability of regulatory approvals,
and general market conditions. See "--Products" above.
Internet Access. Dialogic is pursuing the development of technology
and components to enable the transmission of voice and fax messages
over the Internet. The Company is working with vendors of
voice-over-the-Internet software to develop hardware and software for
Internet and "intranet" servers. Such servers would combine Dialogic's
board level components with the vendor's software to enable standard
telephones to send and receive calls over the Internet.
<PAGE>
In January 1997, the Company announced the availability of a
development kit to enable systems developers to create fax
applications for the Internet. There is substantial competition with
respect to the development of Internet telephony products. No
assurance can be given that Dialogic will be successful in competing
against other companies (many of whom have substantially greater
resources than the Company) with respect to Internet telephony
products. Factors which may influence the success of Dialogic's
Internet telephony initiative include the rapid and unpredictable
changes in Internet technology and usage, regulatory initiatives which
may affect costs, chassis, interfaces and access services, competitive
responses, market acceptance of standards and market conditions.
Dialogic's research and development staff included 401 persons as of
December 31, 1997. For the years ended December 31, 1995, 1996 and 1997,
research and development expenses amounted to $29.0 million, $40.7 million, and
$51.5 million, respectively, representing 17.2% of revenues in 1995, 19% of
revenues in 1996 and 19.7% of revenues in 1997.
International Business
Dialogic's international market opportunities are defined in
significant part by the nature of the telephone networks in particular countries
(which affect the types of network interfaces that can be utilized) and a
variety of regulatory issues. These regulatory issues center around the
homologation (or approval) process and service offering regulations that affect
the ability of the Company's customers to sell their products in particular
countries. In certain countries, approvals can be granted at the component
level. Such approvals are not dependent upon the particular PC or application
being utilized. Accordingly, once such approvals are obtained, specific products
can be utilized by customers in the applicable country without further
interaction with regulatory officials. Other countries require platform or
system level approvals. As of December 31, 1997, Dialogic had received approvals
in more than 60 countries throughout the world. The Company believes that its
success in obtaining component, platform or system level approvals constitutes a
significant competitive advantage, in that it permits Dialogic's products to be
sold in the applicable countries while the products of competitors which have
not successfully completed the approval process cannot be sold in those
countries.
In 1995, 1996 and 1997, international sales (excluding exports from
North America) accounted for approximately 23%, 23% and 24%, respectively, of
the Company's revenues. See Note 8 of the Notes to the Company's Consolidated
Financial Statements incorporated by reference herein.
The Company conducts its international operations primarily through
foreign subsidiaries. These entities are managed by local managing directors who
are given substantial autonomy in order to assure that product offerings and
customer contacts are sensitive to the needs of local customers. Efforts are
made to match product capabilities offered in particular countries with local
product needs, networks and infrastructures.
<PAGE>
International sales are subject to inherent risks, including changes
in regulatory and standards requirements, exchange rates, economic conditions,
tariffs and other barriers, difficulties in staffing and managing foreign
subsidiary operations, potentially adverse tax consequences and specialized
inventory requirements applicable to particular foreign countries. There can be
no assurance that these factors will not have an adverse impact on the Company's
future international sales or operating results. As the Company expands its
international operations, exposure to gains and losses on international currency
transactions may increase. Dialogic does not currently engage in international
currency hedging transactions. A substantial percentage (but not all) of the
Company's international sales have been billed and collected in U.S. dollars.
Sales, Marketing, Customers and Customer Support
Dialogic markets its products primarily to VARs, OEMs, systems
integrators, service providers and applications developers. In the United
States, Dialogic sells to these customers through its own sales force and
distributors, as well as through telemarketing and advertising efforts.
Internationally, the Company utilizes its own sales force and selected sales
representatives and agents. As of December 31, 1997, the Company had 160 direct
sales employees. Increased reliance has been placed on distributors, sales
representatives and sales agents in recent periods. Such reliance may subject
the Company to the uncertainties that affect the businesses of these independent
third-parties.
Dialogic's United States sales personnel are based in various field
sales offices, including offices in Arizona, California, Georgia, Illinois,
Massachusetts, New Jersey, Texas and Washington. These offices are staffed with
individuals that have sales and/or customer support backgrounds. The Company's
international sales offices include locations in Argentina, Australia, Belgium,
Brazil, Canada, China, France, Germany, Hong Kong, India, Ireland, Israel,
Italy, Japan, Korea, New Zealand, Singapore, Taiwan and the United Kingdom.
These international offices also provide technical support to the Company's
international customer base and, in certain instances, perform development
activities.
The Company's marketing activities include participation in industry
trade shows and seminars, advertising in selected trade publications, public
relations activities with the trade and business press, publication of technical
articles and distribution of sales literature and product specifications. The
Company's Internet website, http://www.dialogic.com, has become an increasingly
important vehicle for Dialogic's marketing and customer support functions. As of
December 31, 1997, the Company's marketing group consisted of 95 employees.
The Company sold products to more than 3,000 customers during 1997. A
total of 58 of these customers represented approximately 50% of Dialogic's
revenues, and no customer accounted for 10% or more of revenues in 1997.
The Company believes that customer service and support have been a
significant factor in distinguishing the Company from other computer telephony
component manufacturers. Given the need to blend signal computing component
technology with applications software, it is
<PAGE>
important for Dialogic to maintain close communication with its customers. This
communication enables Dialogic to educate existing and potential customers with
respect to the functionality of the Company's product line and new product
offerings and enables Dialogic to assess and understand the needs of its
customers.
The Company's technical developments are communicated to customers by
its sales engineering group, its field applications engineering group, its
technical support group, its design group and its website. The Company also
furnishes its customers with documentation that provides performance and other
data regarding complex systems configurations and alerts customers to the market
opportunities available through utilization of Dialogic's products. Moreover,
Dialogic's processor-driven products typically are software upgradeable. Thus,
as developments in the technology for such products are introduced by the
Company, that new technology typically can be incorporated into an existing call
processing system by changing the software provided by Dialogic.
In addition to having its sales representatives personally meet with
larger customers in the field and having headquarters telemarketing
representatives contact other developers by telephone, the Company provides
engineering assistance to its customers and helps obtain any required
certifications from regulatory authorities. The Company also offers extensive
documentation describing its products and provides telephone support to assist
its customers in their support of end users.
Competition
The computer telephony industry is highly competitive. Moreover, the
Company believes that competition is likely to intensify in the future. Dialogic
believes that its principal competitors are (i) companies that specialize in
particular computer telephony functions, (ii) companies that provide a broad
range of computer telephony products and (iii) companies, many of which have
substantially greater resources than Dialogic, which have chosen to, or which
may choose to, produce computer telephony components in-house. Within the second
group, Dialogic's principal competitors include Brooktrout Technology, Natural
Microsystems and Rhetorex (a subsidiary of Lucent Technologies Inc.'s Octel
business). In the future, the Company may also face competition from new market
entrants, including those with substantially greater resources and name
recognition than Dialogic and industry companies in the third group which elect
to supply not only their own needs but to enter the merchant market.
New and enhanced products can be expected from the Company's
competitors in the future. The competitive factors in the computer telephony
components industry include the time required to produce a market-ready product,
engineering expertise, product quality, reliability and performance, price,
brand name awareness, customer support and service and access to distribution
channels. The Company believes that it competes or may compete on the basis of
the breadth and quality of its product line, its customer service and support,
its technical capabilities, its name recognition and price.
<PAGE>
In high-volume facsimile applications, Dialogic faces competition from
companies which offer multi-line products. In the LAN fax market, Dialogic faces
competition from manufacturers of fax cards and fax modems. Other competitors
have announced multi-channel fax cards combining voice and fax on the same
processor
While the Company believes that its commitment to open computer
telephony architectures positions Dialogic as a "technology enabler" for the
computer telephony industry, this commitment may reduce the technical
constraints that otherwise would limit the entry of additional competitors to
the market and may commoditize Dialogic's market.
Proprietary Rights
The Company holds patents covering certain aspects of its technology
and has applied for additional patent protection. While Dialogic believes that
its technology provides it with certain competitive advantages, there can be no
assurance that the Company's competitors will not be able to develop similar
technology. Dialogic currently licenses certain technology from third parties
and plans to continue to do so in the future as warranted by business
conditions. This statement regarding future licensing arrangements constitutes a
Forward-Looking Statement. See "--Risk Factors." There can be no assurance that
in the future the Company will be able to obtain licenses of intellectual
property rights owned by third parties or that such licenses can be obtained on
terms favorable to the Company. If the Company is unable to obtain licenses of
protected technology, it could be prohibited from manufacturing and marketing
products incorporating that technology. Factors which could affect the Company's
ability to maintain such licensing arrangements in the future include the
strength of third-parties' patent protections, the willingness of such
third-parties to contract with Dialogic, the availability of competing products
and technologies, the cost of manufacturing alternative solutions and other
competitors' responses.
Dialogic has received from time to time, and may receive in the
future, communications from third parties asserting intellectual property rights
relating to certain of the Company's products and technologies. To date, most of
these claims have been based on application-oriented patents that the Company
would not directly infringe. However, application-oriented patents may be used
by the holder to restrict the types of markets in which Dialogic or Dialogic's
customers are able to compete. Application-oriented patents may also be used to
induce customers and potential customers to purchase computer telephony
components from competitors of the Company that are affiliated with the holders
of such patents.
The Company has received certain claims from holders of
application-oriented patents asserting that Dialogic, as opposed to customers
using the Company's components to build applications, may violate existing
patent rights. Other claims may be asserted in the future. There can be no
assurance that in the future, other similar claims will not be made against
Dialogic. Further, there can be no assurance that the Company will be able to
resolve such claims, either by convincing the claimants that the Company's
technology is non-infringing, obtaining a license on terms favorable to the
Company, redesigning its products or defending any legal action taken against
it. The costs that may be incurred by Dialogic in pursuing any such
<PAGE>
response could have a material adverse effect upon Dialogic. Should the Company
or its customers be found to infringe the proprietary rights of others, the
Company could be required to pay substantial damages to the infringed party,
which in turn could have a material adverse effect upon Dialogic.
From time to time, the Company considers steps to be taken with
respect to outstanding patents prior to any claim being made by the patent
holder against Dialogic or its customers. Such steps may include obtaining a
license or joining or sponsoring litigation to challenge the validity of an
outstanding patent. No assurances can be given that the commencement of any such
litigation will not result in counterclaims being made directly or indirectly
against the Company.
For information regarding legal proceedings involving Dialogic and
Brooktrout Technology, Inc., see "Legal Proceedings".
Manufacturing
The Company utilizes contract manufacturing for substantially all of
its manufacturing processes, thereby allowing Dialogic to focus resources on its
product development and customer support efforts. During 1997, Dialogic moved a
significant percentage of its manufacturing to a turnkey contract manufacturer,
Jabil Circuit, Inc. The Company also employs other suppliers. The activities of
these suppliers are coordinated by Dialogic's manufacturing personnel. The
Company's internal manufacturing-related operations consist primarily of
production of prototypes, test engineering, materials purchasing and inspection,
final product configuration and testing, quality control and service repair.
At present, Dialogic does not have a long-term supply contract with
any of its manufacturing subcontractors, turnkey manufacturer or component
suppliers. Certain key components incorporated in the Company's products
(including the digital signal processors used throughout Dialogic's product
lines) are supplied by only one source, and others are available from limited
sources. To date, Dialogic has been able to obtain supplies of products and
components in a timely manner, in part because Dialogic's principal sole source
products are acquired from well-established vendors with long-standing
relationships with Dialogic. However, in the event that any of its sole source
suppliers or contract manufacturers were unable or unwilling to perform,
Dialogic's results of operations could be materially affected until the Company
establishes alternative sources. The Company owns all of the engineering and
sourcing documentation and functional test equipment used in the manufacturing
of its principal products and believes that it could shift product assembly to
alternate suppliers or in-house if it experienced difficulties with its contract
manufacturers. This statement regarding the availability of alternate approaches
to contract manufacturing may constitute a Forward Looking Statement. The
Company could be materially adversely affected by several factors, including the
demands imposed upon, and the sophistication of, alternate suppliers, the lead
time available to such suppliers, unanticipated difficulties in transferring
production and market acceptance of the products made by means of such alternate
approaches. Accordingly, actual results could differ materially from the
Company's expectations. See "-- Risk Factors."
<PAGE>
Risk Factors
This Annual Report contains, and Dialogic may make in the future,
certain Forward-Looking Statements. Such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected in such Forward-Looking Statements. Risks and uncertainties applicable
to Dialogic include the following:
Risks Relating to Technological Developments. The market for the
Company's products is characterized by rapid technological advances, changes in
customer requirements and frequent new product introductions and enhancements.
Dialogic's future success will depend upon its ability to (i) enhance its
current products, (ii) achieve the objectives of its DM3 Mediastream Resource
Architecture, (iii) develop and introduce new products that keep pace with rapid
technological developments and evolving industry and regulatory standards, (iv)
respond to changes in customer requirements and (v) achieve market acceptance.
In particular, the Company believes it must continue to respond to customers'
needs for broad functionality and multiple platform support. There can be no
assurance that Dialogic will be successful in developing and marketing new
products or product enhancements on a timely basis or that the Company will not
experience significant delays in the introduction of new products. In addition,
there can be no assurance that new products or product enhancements developed by
the Company will achieve market acceptance. An additional technology risk may
result from companies in adjacent fields integrating CT functionality into their
products, making it more difficult for the Company to compete or commoditizing
its products.
Year 2000. The Company has undertaken a major company-wide study and
testing program to locate and cure any Year 2000 issues in the products or
systems on which it relies. The Company believes its financial operating systems
are currently Year 2000 compliant. The Company continues to work with other
third-party suppliers to identify exposure and obtain compliance. The Company
anticipates no material adverse effect resulting from Year 2000 problems. This
statement represents a forward-looking statement under the Private Securities
Litigation Reform Act of 1997. Undiscovered issues related to the Year 2000
issues could have an adverse impact.
Competition. The computer telephony industry is highly competitive.
Moreover, the Company believes that competition is likely to intensify in the
future. For information regarding such competition, see "-- Competition". No
assurance can be given that the Company will be able to compete successfully in
the future or that price competition will not affect the Company's consolidated
results of operations and financial condition.
Fluctuations in Quarterly Operating Results. The Company's total
revenues may vary significantly from quarter to quarter due to a variety of
factors, including the timing of customer orders, changes in Dialogic's
products, geographic and customer mix, the introduction of new products by the
Company or its competitors, pricing pressures, regulatory developments,
unanticipated development and/or manufacturing difficulties or expenses, and
worldwide or regional economic conditions. The Company typically operates with
relatively little backlog and
<PAGE>
substantially all of its revenues in each quarter ordinarily result from orders
received in that quarter. In addition, the Company often incurs significant
development, sales and marketing expenses in anticipation of future revenues. A
shortfall in revenues or earnings from the levels anticipated by analysts could
have an impact on the market price of Dialogic's Common Stock.
Uncertainties Relating to Proprietary Matters. For information
regarding risks relating to the availability of licenses to the Company and
relating to potential intellectual property and related claims by third parties,
see "-- Proprietary Rights."
Dependence on Sales by Third Parties. The Company's revenues are
dependent upon the ability of its OEM and VAR customers to develop and sell
computer telephony systems that incorporate Dialogic's modular components.
Factors, including worldwide economic conditions, patent positions, regulatory
requirements and other marketing restrictions, that adversely affect the
revenues of Dialogic's OEM and VAR customers can have an impact upon the
Company's financial results. No assurances can be given that Dialogic's OEM and
VAR customers will not experience financial or other difficulties that will
materially and adversely affect their purchases from Dialogic and, in turn, the
results of operations and financial condition of the Company.
Risks Associated with International Operations. International
operations are subject to certain risks, including changes in regulatory and
standards requirements, exchange rates, worldwide and regional economic
conditions, tariffs and other barriers, difficulties in staffing and managing
foreign subsidiary operations, potentially adverse tax consequences and
specialized inventory requirements applicable to particular foreign countries.
There can be no assurance that these factors will not have an adverse impact on
the Company's future international sales or operating results. A substantial
percentage (but not all) of the Company's international sales have been billed
and collected in U.S. dollars. As the Company continues to expand its
international operations, exposures to gains and losses on international
currency transactions may increase. Dialogic does not currently engage in
international currency hedging transactions. The Company is unable to predict
with accuracy the impact of recent Asian economic problems.
Dependence on Third-Party Suppliers. During 1997, the Company
contracted a large percentage of its manufacturing to a turnkey manufacturer,
Jabil Circuit, Inc. Dialogic also employs other domestic manufacturing
subcontractors in the manufacture of its remaining production. Certain key
components incorporated in the Company's products (including the DSPs used
throughout Dialogic's product lines) are supplied by only one source, and others
are available from limited sources. The Company does not have a long-term
agreement with any of these suppliers of services or components. The Company is
currently negotiating a written agreement with Jabil Circuit, Inc. Although the
Company has not experienced any material difficulties in obtaining supplies in
the past, any reduction or interruption in supply from these third-party
contractors could materially and adversely affect Dialogic's results of
operations until alternative sources are established. Moreover, operating
results could be materially and adversely affected by the receipt of defective
components or products, an increase in prices from suppliers or the inability of
Dialogic to obtain lower prices in response to competitive price reductions.
<PAGE>
Uncertainties Regarding Regulatory Matters. The Company seeks to
obtain regulatory approvals for its products as a means of enabling its
customers to bring their systems to market as rapidly as possible. Changes in
regulations or in interpretations of regulations or delays in deregulation may
substantially hamper end-users and Dialogic's customers and may cause such
customers to delay or cancel orders.
Dependence on Key Personnel. The Company depends substantially on key
personnel involved in engineering, research and development, marketing, sales,
finance and administration. The loss of the services of key persons in any
functional area could have a material adverse effect on Dialogic's current
operations and on new product development efforts. Dialogic's success depends
upon its ability to attract and retain skilled employees. Its success also
depends upon the ability of Dialogic's officers and key employees to manage
growth successfully and to continue successful development of product
enhancements and new products. There can be no assurance that the Company will
be able to hire or retain sufficient qualified staff to meet its goals. The
Company does not maintain key-person life insurance for any of its personnel.
Risks Associated with Potential Acquisitions. Since the date of its initial
public offering in 1994, Dialogic has acquired GammaLink, Spectron Microsystems,
Inc. (the net assets of which were subsequently sold in February 1998), and
Dianatel and certain computer integrated telephony technology from Digital
Equipment Corporation. The Company's business strategy contemplates that
Dialogic will continue to seek to complement its internal growth with additional
acquisitions of and investments in businesses in the computer telephony industry
and related fields. Although management expects to carefully analyze any such
opportunity before committing the Company's resources, there can be no assurance
that such transactions will result in long-term benefits to Dialogic.
Excess or Obsolete Inventory. Dialogic's customers typically expect
delivery of the Company's hardware and software products from stock. Because the
manufacturing lead-time for several of Dialogic's products can be significant,
the Company builds its products to meet forecasted demand. Although a portion of
customer demand is ascertainable from volume purchase arrangements, the
Company's forecasts also depend upon management's estimates of sales to existing
and potential customers. Several factors could affect the accuracy of such
estimates, including unanticipated changes in customer demand, new developments
in the computer telephony industry, unanticipated development delays and
competitive inroads into the Company's business. Should management's predictions
prove to be inaccurate, the Company could have excess or obsolete inventory.
Volatility of Stock Price. The market price of Dialogic's Common Stock
has fluctuated significantly since its initial public offering in April 1994.
Factors such as announcements of technological innovations or new products by
Dialogic, its competitors or other third parties, consolidations within the
computer telephone industry, quarterly variations in the Company's consolidated
results of operations, shortfalls in the Company's revenues, gross margins or
earnings from analysts' expectations, regulatory conditions, worldwide economic
conditions, capital market conditions and general industry conditions, may all
affect the market price of the Common Stock and cause it to fluctuate
significantly. In addition, in recent years, the stock
<PAGE>
market in general, as well as the market prices of the stocks of many high
technology companies in particular, experienced wide fluctuations which have not
necessarily been related to the operating performance of individual companies.
There can be no assurance that the market price of the Company's Common Stock
will not continue to experience significant volatility.
Backlog
Because the Company's products are typically shipped within one month
of receipt of the order, the Company does not believe that its backlog as of any
particular date is indicative of future sales levels.
Employees
As of December 31, 1997, the Company had 994 full-time employees. The
Company's continued success will depend in part upon its ability to attract and
retain skilled employees. Dialogic has never had a work stoppage and no
employees are represented by a labor organization. The Company considers its
employee relations to be good.
Environmental factors
Federal, state and local laws or regulations which have been enacted
or adopted regulating the discharge of materials into the environment have not
had, and under present conditions the Company does not foresee that they will
have, a material adverse effect on capital expenditures, earnings, or the
competitive position of the Company.
Subsequent event
On February 17, 1998, Dialogic Corporation completed the sale of the
principal assets and operations of Spectron Microsystems, a wholly owned
subsidiary, to Texas Instruments Incorporated for approximately $26 million. The
transaction will result in pre-tax gain to be recognized in the first quarter of
1998 in the range of $18 to $25 million. The sale will not have a significant
effect on reported sales or earnings of the Company in future periods.
<PAGE>
Item 2. Properties
The Company's corporate headquarters are located in Parsippany, New
Jersey, in two leased facilities which cover approximately 262,000 square feet
of space. There are two separate leases for the facilities. The primary lease
covers 220,000 square feet and expires in 2005, with options to renew for two
subsequent five-year terms. The second lease covers 19,000 square feet and
expires in 2002, with options to renew for two subsequent three-year terms. The
second lease was amended to cover an additional 23,000 square feet. The
amendment covering this additional space expires in 2005 with an option to renew
for one subsequent three-year term. The Company also leases all of its domestic
and foreign offices. See Note 7 of the Notes to the Company's Consolidated
Financial Statements incorporated by reference herein.
Item 3. Legal Proceedings
In June 1995, the Company entered into a settlement agreement that
resulted in the dismissal of various legal proceedings involving, among others,
the Company and Brooktrout Technology, Inc. ("Brooktrout"). In November 1995,
Brooktrout filed a complaint in the United States District Court for the
District of Massachusetts naming the Company, its GammaLink subsidiary and its
Chairman of the Board as defendants. The complaint sought to rescind the
settlement agreement and obtain unspecified compensatory and punitive damages on
the basis of allegations that the defendants fraudulently induced Brooktrout to
enter into the settlement agreement. The defendants deny the substantive
allegations of this complaint and have filed a counterclaim seeking damages from
Brooktrout. In December 1996, the District Court entered an order of summary
judgment against Brooktrout dismissing its fraud claims, but leaving unresolved
a statutory unfair practice claim by Brooktrout and leaving unresolved all of
the defendants' counterclaims. Such order remains appealable at this time.
Separately, the Company's Spectron subsidiary sued Brooktrout for patent
infringement. The Company has retained the rights to maintain this lawsuit
despite the February 1998 sale of the Spectron assets. Although outcomes of
legal proceedings are difficult to predict and cannot be assured, the Company
does not believe that such proceedings will materially adversely affect its
consolidated financial condition, results of operations or liquidity.
During the third quarter of 1996, a complaint was filed in New Jersey
Superior Court against the Company and certain of its directors alleging that
the defendants breached principles of common law fraud in connection with
certain public statements made prior to the Company's July 8, 1996, press
release announcing preliminary results for the quarter ended June 30, 1996. The
complaint seeks monetary damages on behalf of a purported class of purchasers of
the Company's Common Stock. On February 18, 1998, on motion by the defendants,
the complaint was dismissed by the court with prejudice.
The Company is also engaged in other legal proceedings arising in the
ordinary course of business, the results of which proceedings are not expected
to have a material adverse effect on the Company's consolidated financial
condition, results of operations or liquidity.
<PAGE>
Management intends to defend each of the above-mentioned legal
proceedings vigorously. The Company's statements in this Item 3 regarding the
potential effect of each of these legal proceedings constitute Forward-Looking
Statements. See "-Risk Factors." Actual results could differ materially from
these statements, depending upon uncertainties that exist in any litigation
relating to interpretations of legal issues and the development and presentation
of factual issues.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 4A. Executive Officers of the Registrant
The Company's executive officers, their respective ages (as of January
31, 1998) and their positions with the Company are set forth below:
Name Age Title
Nicholas Zwick 45 Chairman of the Board
Howard G. Bubb 43 President and Chief Executive
Officer; Director
John G. Alfieri 38 Vice President, Sales and Service,
the Americas
Thomas G. Amato 52 Vice President, Chief Financial
Officer and Treasurer
Kenneth J. Burkhardt, Jr. 52 Executive Vice President, New
Business Development; Director
Darrayl E. Cannon 50 Vice President, Operations
Charles House 57 Vice President, Core-Systems
Development
John E. Landau 44 Vice President, Strategic Marketing
Samuel T. Liss 39 Vice President, Corporate Marketing
Theodore M. Weitz 51 Vice President, General Counsel and
Secretary
Jean M. Beadle 47 Chief Accounting Officer, and
Controller
Mr. Zwick, a co-founder of the Company, has been a Director of the
Company since Dialogic's inception in 1983, its President and Chief Executive
Officer from 1985 to May 1993 and its Chairman of the Board since March 1993.
Mr. Bubb joined the Company as an Executive Vice President in July
1991. In August 1992, Mr. Bubb was promoted to Chief Operating Officer. In June
1993, he was promoted again to President and Chief Executive Officer. Prior to
joining the Company, Mr. Bubb was a consultant from February 1991 to July 1991
and Senior Vice President and General Manager of Lexar Business Systems, a
marketer of PBX products and an affiliate of Telenova, Inc., from December 1989
to January 1991. He served as Vice President of the telecommunications business
of Memorex Telex, N.V. from January 1986 to December 1989. Mr. Bubb is currently
on the board of Pairgain Technologies, Inc.
Mr. Alfieri was named Vice President, Sales and Services, the Americas
in January 1993. He has been employed by the Company since 1988, first as the
Eastern Regional Manager and
<PAGE>
then (in 1990) as Manager of North American Sales. Prior to joining Dialogic,
Mr. Alfieri held various sales and marketing positions within IBM from 1983 to
1988.
Mr. Amato was hired by Dialogic as its Vice President, Chief Financial
Officer and Treasurer in April of 1997. Prior to joining Dialogic, he served as
Senior Vice President and Chief Financial Officer of Symbol Technologies, Inc.,
from 1990 to 1997. From 1979 to 1990 he served as Senior Vice President, Finance
and Administration of Amcast Industrial Corporation. From 1971-1979, Mr. Amato
held various financial positions with Rockwell International Corporation.
Dr. Burkhardt, a co-founder of the Company, served as the Executive
Vice President of Operations of the Company through October 1992, when he
assumed his current position as Executive Vice President of New Business
Development. He has been a Director of the Company since 1983.
Mr. Cannon was hired by Dialogic as its Vice President, Operations in
September 1995. Prior to joining the Company, he served as the Vice President,
Manufacturing and Quality Assurance, at McDATA Corporation (a supplier of data
communications products) from 1992 to 1995 and as Vice President, Engineering
and Manufacturing, at McDATA from 1990 to 1992. From 1983 to 1989, he served as
a director of a power systems division of the NCR Corporation. From 1969 to
1983, Mr. Cannon held various manufacturing positions with NCR and Magnavox.
Mr. House was named Executive Vice President of Core Systems
Development in February 1998. He has been employed by the Company since December
of 1995 as Vice President and General Manager for Spectron Microsystems, Inc.
Prior to joining Dialogic, he served as Senior Vice President and General
Manager of Veritas Software from 1994 to 1995 and Senior Vice President for
Product Management and Development at Informix Software from 1991 to 1994. From
1962 to 1991, Mr. House held various management positions at Hewlett-Packard
including General Manager at both the Software Engineering Systems Division and
Logic Systems Operation.
Mr. Landau was named Vice President, Strategic Marketing in October
1997. He was previously Vice President and General Manager, Dialogic
Architecture Labs, since 1995 and, he served as Vice President, Marketing of the
Company from February 1993 until 1995. Mr. Landau was as an area sales manager
for Dialogic from May 1988 until February 1989. From February 1989 to 1990, he
was the Director of Marketing at Benchmarq Microelectronics (a semiconductor
manufacturer) and from 1990 until he rejoined Dialogic in February 1993, Mr.
Landau was Vice President, Marketing at Benchmarq Microelectronics. From
November 1983 until May 1988, he held various marketing positions at Advanced
Micro Devices (a semiconductor manufacturer) and from June 1978 until November
1983, he held various operations and product marketing responsibilities at
Mostek Corporation (a semiconductor manufacturer).
Mr. Liss joined Dialogic in February 1995 and was named to his present
position in September 1995. Prior to joining Dialogic, he served as the Manager
of Channel Marketing
<PAGE>
within the Advanced Services Division of Novell from 1994 to 1995, the Eastern
Region Sales Manager and then Director of Business Development of Fluent, Inc.
(a multi-media software and hardware company which ultimately was acquired by
Novell) from 1990 to 1994, an associate with the consulting firm of Booz, Allen
& Hamilton from 1987 to 1990, a Product Line Marketing Manager for Analog
Devices, Inc., (a semiconductor manufacturer) from 1984 to 1987 and as a sales
engineer for Intel Corporation (a semiconductor manufacturer) from 1980 to 1982.
Mr. Weitz joined the Company in January 1997 as its General Counsel
and was named a Vice President and Secretary in February 1997. Prior to joining
the Company, he served in senior counsel positions for Lucent Technologies Inc.
in 1996, for AT&T from 1993 to 1996, for UNIX System Laboratories from 1991 to
1993 and for various AT&T affiliates from 1978 to 1991.
Ms. Beadle joined Dialogic in March of 1997 as Controller and was
named Chief Accounting Officer in February of 1998. Prior to joining the
Company, she was employed at Dynatech Corporation as Director of Finance from
1995 to 1997, as Director of Taxation from 1990 to 1995 and as an Assistant
Corporate Controller from 1985 to 1990. From 1972 to 1985, Ms. Beadle held
various financial positions at General Electric Corporation and Metcalf & Eddy
Engineering, Inc.
Executive officers of the Company are appointed by the Board of
Directors on an annual basis and serve until their successors have been duly
elected and qualified. There are no family relationships among any of the
executive officers or directors of the Company.
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
The registrant incorporates by reference herein information set forth
in its Annual Report to Shareholders for the year ended December 31, 1997, that
is responsive to the information required with respect to this Item.
Item 6. Selected Financial Data
The registrant incorporates by reference herein information set forth
in its Annual Report to Shareholders for the year ended December 31, 1997, that
is responsive to the information required with respect to this Item.
Item 7. Management's Discussion and Analysis of Dialogic's Financial Condition
and Results of Operations
The registrant incorporates by reference herein information set forth
in its Annual Report to Shareholders for the year ended December 31, 1997, that
is responsive to the information required with respect to this Item.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data
The registrant incorporates by reference herein information set forth
in its Annual Report to Shareholders for the year ended December 31, 1997, that
is responsive to the information required with respect to this Item.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
<PAGE>
PART III
Item 10. Directors of the Registrant
The registrant incorporates by reference herein information set forth
in its definitive proxy statement for its 1998 annual meeting of shareholders
that is responsive to the information required with respect to this Item.
Item 11. Executive Compensation
The registrant incorporates by reference herein information set forth
in its definitive proxy statement for its 1998 annual meeting of shareholders
that is responsive to the information required with respect to this Item.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The registrant incorporates by reference herein information set forth
in its definitive proxy statement for its 1998 annual meeting of shareholders
that is responsive to the information required with respect to this Item.
Item 13. Certain Relationships and Related Transactions
The registrant incorporates by reference herein information set forth
in its definitive proxy statement for its 1998 annual meeting of shareholders
that is responsive to the information required with respect to this Item.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following financial statements and related report are
incorporated by reference into Item 8 of this Annual Report on Form 10-K (page
references are to the Company's Annual Report to Shareholders for the year ended
December 31, 1997):
Page
Independent Auditors' Report 8
Consolidated Balance Sheets as of December 31, 1996 and
1997 10
Consolidated Statements of Income for the Years Ended
December 31, 1995, 1996 and 1997 12
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1995, 1996 and 1997 13
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 14
Notes to Consolidated Financial Statements. 15
(b) The following financial statement schedule is filed as part of
this Annual Report:
Schedule Description Page
Independent Auditors' Report S-1
II Valuation and Qualifying Accounts S-2
All other schedules have been omitted because they are not applicable
or the required information is included in the financial statements or notes
thereto.
(c) The following exhibits are incorporated by reference herein or
annexed to this Annual Report:
Exhibit Description
3.1 Restated Certificate of Incorporation is incorporated by reference to
Exhibit 3.1 to the Registrant's Registration Statement on Form S-1
(No. 33-59598).
3.2 By-laws, as amended, are incorporated by reference to Exhibit 3.2 to
the Registrant's Registration Statement on Form S-1 (No. 33-59598).
10.1 1988 Incentive Compensation Plan, as amended and restated through
March 28, 1997 (the "1988 Plan") is incorporated by reference to
Exhibit 10.2 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1996.
10.2 Proposed amendments to the 1988 Plan as amended are incorporated
by reference to Exhibit 10.3 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996.
10.3 1993 Non-Employee Director Stock Option Plan (the "1993 Plan") is
incorporated by reference to Exhibit 10.4 of the Registrant's
Registration Statement on Form S-1 (No. 33-59598).
10.4 Amended and Restated 1993 Plan is incorporated by reference to
Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996.
10.5 1997 Director Stock Election/Deferral Plan is incorporated by
reference to Exhibit 10.6 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1996.
10.6 Employment Agreement between the Registrant and Howard G. Bubb,
as amended.
10.7 Registrant's loan agreement, as amended
10.8 Registrant's headquarters lease, dated August 31, 1993, as amended,
is incorporated by reference to Exhibit 10.9 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1996.
10.9 Amendment to headquarters lease.
<PAGE>
10.10 1997 Incentive Benefit Plan is incorporated by reference to Exhibit
10.11 of the Registrant's, Annual Report on Form 10-K for
the year ended December 31, 1996.
10.11 Asset Purchase Agreement, by and among the Registrant, Texas
Instruments Incorporated and Spectron Microsystems, Incorporated,
dated as of January 22, 1998.
11.1 Calculation of Income Per Share.
13.1 Incorporated portions of the Annual Report to Shareholders for
the year ended December 31, 1997.
21.1 Principal subsidiaries of the Registrant.
23.1 Independent Auditors' Consent.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
(d) During the quarter ended December 31, 1997, the Company did not
file any Current Reports on Form 8-K.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, this 27th day of
March, 1998.
DIALOGIC CORPORATION
By: /s/ Thomas G. Amato
___________________________
Thomas G. Amato, Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title Date
s/Howard G. Bubb* President, Chief Executive March 27, 1998
Howard G. Bubb Officer and Director
/s/Nicholas Zwick* Director March 27, 1998
Nicholas Zwick
/s/Kenneth J. Burkhardt, Jr.* Director March 27, 1998
Kenneth J. Burkhardt, Jr.
/s/Thomas G. Amato Vice President, Chief March 27, 1998
Thomas G. Amato Financial Officer and
Treasurer
/s/Jean M. Beadle Chief Accounting Officer March 27, 1998
Jean M. Beadle and Controller
/s/Masao Konomi* Director March 27, 1998
Masao Konomi
/s/John N. Lemasters* Director March 27, 1998
John N. Lemasters
/s/Francis G. Rodgers* Director March 27, 1998
Francis G. Rodgers
/s/James J. Shinn* Director March 27, 1998
James J. Shinn
* By /s/Theodore M. Weitz*
Theodore M. Weitz, Attorney in Fact
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders
of Dialogic Corporation
Parsippany, New Jersey
We have audited the consolidated financial statements of Dialogic Corporation
and Subsidiaries as of December 31, 1997 and 1996, and for each of the three
years in the period ended December 31, 1997, and have issued our report thereon
dated February 10, 1998 (except Notes 7 and 9 as to which the date is February
18, 1998); such financial statements and report are included in your 1997 Annual
Report to Shareholders and are incorporated herein by reference. Our audits also
included the financial statement schedule of Dialogic Corporation, listed in
Item 14. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 18, 1998
S-1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - Valuation and Qualifying Accounts
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E
Balance at Charged to Charged to
beginning of costs and other (1) Balance at
Description year expenses accounts Deductions end of year
Allowance for Doubtful Accounts
December 31, 1995 $ 549 $ 724 $ 37 $ 416 $894
December 31, 1996 894 724 57 846 829
December 31, 1997 829 1,272 (27) 794 1,280
</TABLE>
(1) Amounts represent write-offs of accounts receivable deemed uncollectible.
S-2
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
10.6 Employment Agreement between the Registrant
and Howard G. Bubb as amended
10.7 Registrant's Loan Agreement, as amended
10.9 Amendment to Registrant's Headquarters Lease
10.11 Asset Purchase Agreement, by and among the
Registrant, Texas Instruments Incorporated and
Spectron Microsystems, Incorporated, dated as of
January 22, 1998.
11.1 Calculation of Income Per Share
13.1 Incorporated portions of the Annual Report to
Shareholders for the Year ended December 31, 1997
21.1 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent
24.1 Power of Attorney
27.1 Financial Data Schedule
EXHIBIT 10.6
Employment Agreement
Agreement dated as of the first day of January 1997 between Dialogic
Corporation, a New Jersey corporation having its principal place of business in
Parsippany, New Jersey, (the "Company") and Howard G. Bubb currently residing at
21 Fernwood Place, Mountain Lakes, NJ 07046 (the "Employee")
WITNESSETH:
WHEREAS, the Company considers the establishment and maintenance of a
sound and vital management to be essential to protecting and enhancing the best
interests of the Company and its stockholders; and
WHEREAS, as of the date of this Agreement Employee is the President
and Chief Executive Officer of the Company and has developed an intimate and
thorough knowledge of the Company's business methods and operations; and
WHEREAS, the retention of Employee's services, for and on behalf of
the Company, is materially important to the preservation and enhancement of the
value of the Company's business; and
WHEREAS, the Company is desirous of extending Employee's employment
upon the terms and conditions contained herein; and Employee is desirous of
continuing to be employed by the Company in accordance with such terms and
conditions.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, and for other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto do hereby agree as follows:
1. Employment. The Company hereby agrees to employ Employee, and
Employee agrees to be employed by the Company in accordance with and pursuant to
the terms and conditions set forth below.
2. Term of Employment. This Agreement shall be for an initial term of
three (3) years. Upon the third anniversary hereof, (and upon each successive
anniversary thereafter) this Agreement shall be automatically renewed for a one
(1) year term, commencing on the date of each such renewal, unless either party
hereto notifies the other in writing of its intent not to renew this Agreement
upon not less than six (6) months notice prior to the renewal date hereof. In
the event either party gives the other proper notice of non_renewal, this
Agreement shall only continue for the balance of the then existing term.
Notwithstanding anything contained herein to the contrary, any term of
employment may be earlier terminated as provided in Section 8 hereof.
3. Position and Responsibilities.
(a) Employee will occupy the position of President and Chief Executive
Officer of the Company. During such period he occupies said position, the
Company shall apply its best efforts to effectuate the nomination of Employee to
the Company's Board of Directors subject to the terms of the Company's By-laws
and Articles of Organization, as amended from time to time.
(b) Employee will report directly to the Board of Directors and shall
have such duties and responsibilities as are set forth in the By-laws of the
Company, which duties and responsibilities shall include, but not be limited to,
overall management responsibilities for the operation and administration of the
Company as well as such other duties and responsibilities, consistent with
Employee's position as President and Chief Executive Officer, as shall be
defined by the Board of Directors.
(c) Employee will be expected to be in the full-time employment of the
Company, to devote substantially all of his business time and attention, and
exert his best efforts to the performance of his duties hereunder, and to serve
the Company diligently and to the best of his ability; provided, however,
nothing set forth herein shall prohibit Employee from engaging in other
activities to the extent that such activities do not impair the ability of
Employee to perform his duties and obligations under this Agreement.
4. Compensation. The Company shall pay to Employee a salary (the "base
salary") at an annual rate of $275,000, subject to deductions for social
security, payroll withholding and all other legally required or authorized
deductions and withholdings. Employee's salary shall be payable at the same time
and on the same basis as the Company pays its executive employees in general.
The Board of Directors shall review Employee's base salary no less frequently
than annually. Unless Employee consents, in no event shall his base salary be
decreased during his period of employment.
5. Quarterly Incentive Payments. In addition to the base salary
referenced in Section 4, Employee shall be entitled to quarterly bonuses if the
Company achieves its quarterly performance goals and Employee satisfies agreed
upon discreet goals/objectives to be established by the Board of Directors at
its sole and absolute discretion in consultation with Employee. The amount of
such bonuses, if any, shall be determined by the Board of Directors. Unless
Employee consents, in no event shall his target bonus opportunity be decreased
during his period of employment.
6. Stock Options and Other Long Term Incentive Programs. Employee
shall continue to be entitled to receive stock options pursuant to the Company's
1988 Incentive Compensation Plan and the 1997 Incentive Benefit Plan, including
any amendments thereto. The number of shares covered by any such option grants,
the exercise price per share and other terms and conditions governing such
options shall be determined by the Compensation Committee, subject however to
the terms of such Plans, and to the extent applicable, the provisions of this
Agreement. In addition, Employee shall also be eligible to participate in any
other long term incentive program covering executive employees. For purposes of
this Section 6, "cause" as used in the Company's Incentive Benefit Plans shall
be determined with reference to Section 8(b) of this Agreement.
7. Benefits; Expenses; Vacations.
(a) Employee shall be entitled to receive the same standard employee
benefits, perquisites and services as other executive employees of the Company
receive. Employee shall also be entitled to fully participate in all of the
Company's future employee benefit programs, perquisites and services in
accordance with their then existing terms.
(b) Employee shall be entitled to reimbursement for all approved and
reasonable travel and other business expenses incurred by him in connection with
his services to the Company pursuant to the terms of this Agreement. All
business expenses for which Employee seeks reimbursement from the Company shall
be adequately documented by Employee in accordance with the Company's procedures
covering expense reimbursement, and in compliance with regulations of the U.S.
Internal Revenue Service. In the event any such reimbursements shall be
includable in Employee's income, the Company shall pay Employee such additional
amounts as are necessary so that after taking into account any taxes payable on
such reimbursements, the Employee is in the same after-tax position he would
have been had such reimbursement not been so includable.
(c) Employee shall be entitled to vacation days in accordance with the
Company's employment policies and practices applicable to executive employees of
the Company, as such policies and practices are from time to time in effect.
8. Employment Termination. The employment of Employee pursuant to this
Agreement shall terminate upon the occurrence of any of the following:
(a) Expiration of the employment period set forth in Section 2, unless
the employment of Employee is continued pursuant to this Agreement, or
otherwise;
(b) For cause upon written notice by the Company to the Employee. For
the purposes of this Section 8(b), cause for termination shall be fraud,
embezzlement, or other acts in intentional disregard of the Company's interests.
(c) Death or thirty (30) days after the disability of Employee. For
purposes of this Agreement, the term "disability" shall mean the inability of
Employee due to a physical or mental disability, for a period of ninety
(90) days (whether or not consecutive) during any three hundred sixty five
(365) day period to perform the services contemplated under this Agreement. A
determination of disability shall be made by a physician satisfactory to both
Employee and the Company; provided, however, if Employee and the Company do not
agree on a physician, Employee and the Company shall each select a physician and
these two together shall select a third physician, and such third physician's
determination as to disability shall be binding on all parties.
(d) At the election of either party without cause, upon not less than
six (6) months prior written notice of termination.
(e) At the election of Employee if there is a material breach of this
Agreement by the Company.
9. Effect of Termination.
(a) Termination for Cause or at Election of Employee. In the event
Employee's employment is terminated for cause pursuant to Section 8(b), or at
the election of the Employee pursuant to Section 8(a) or Section 8(d), the
Company shall pay Employee within thirty (30) days of his termination a lump-sum
equal to his base salary (less applicable deductions), incentive payments and
benefits, perquisites and services otherwise payable to him through the last day
of his actual employment by the Company, or such other period as may be required
by law.
All previously granted but unexercised vested stock options which are
outstanding on Employee's date of termination shall remain fully vested and
exercisable in accordance with their terms and all non-vested stock options
shall be canceled. In addition, any other vested amounts or awards to which
Employee may be entitled under any other long term incentive program referenced
in Section 6 shall be paid to Employee within thirty (30) days of his
termination and all non-vested amounts or awards shall be canceled.
(b) Termination at the Election of the Company or at the Election of
Employee for Sufficient Reason or Upon a Change of Control. In the event that
Employee's employment is terminated at the election of the Company pursuant to
Section 8 (a) or Section 8(d), or at the election of the Employee for sufficient
reason pursuant to Section 8(e), or upon a Change of Control pursuant to Section
10, the Company shall pay Employee within thirty (30) days of his termination a
lump-sum equal to his then base salary (less applicable deductions), incentive
payments and benefits, perquisites and services otherwise payable to him through
the later of: (i) the last day of the term of this Agreement pursuant to Section
2 or (ii) the period ending twelve (12) months after his termination. Additional
base salary (less applicable deductions) shall be payable on a monthly basis,
commencing on the later of the two (2) dates referenced in the preceding
sentence and ending on the date of Employee's employment with an employer othe r
than the Company, or the date of his self-employment; provided, however, in no
event shall the total period of base salary payments under this Section 9(b),
exceed twenty-four (24) months, unless the last day of the term of this
Agreement is more than twenty-four (24) months after Employee's termination.
The incentive payments referred to in the preceding paragraph shall be
determined on a calendar quarter basis as follows:
For the last full calendar quarter in which Employee was employed for
the entire quarter, the incentive payment shall be equal to the amount otherwise
payable to the Employee in accordance with Section 5 of this Agreement.
For each other full calendar quarter with respect to which Employee is
entitled to incentive payments under the first paragraph of this Section 9 (b),
the incentive payment shall be equal to the greater of: (i) Employee's target
incentive award for the quarter in which Employee has a termination from
employment or (ii) twenty_five percent (25%) of his actual incentive payment for
the immediately preceding calendar year.
If the period with respect to which Employee is entitled to incentive
payments under the first paragraph of this Section 9 (b) ends on a day other
than the last day of a calendar quarter, the incentive payment with respect to
such partial calendar quarter shall be an amount equal to the amount determined
immediately above with respect to full calendar quarters, multiplied by a
fraction the numerator of which is the number of days in such calendar quarter,
with respect to which Employee is entitled to payment and the denominator of
which is the total number of days in such calendar quarter.
All previously granted, but unexercised stock options which are
outstanding on Employee's date of termination shall be fully vested and
exercisable as of such date, and shall be exercisable in accordance with their
terms, or for a period of twelve (12) months after such termination, whichever
period is longer. In addition, any amounts or awards to which Employee may be
entitled under any other long term incentive program referenced in Section 6
(whether or not vested) shall be paid to Employee in a lump_sum within thirty
(30) days of his termination.
(c) Termination for Death or Disability. In the event Employee's
employment is terminated by death or disability pursuant to Section 8(c), the
Company shall pay to the estate of Employee, or to Employee, as the case may be
, within thirty (30) days of Employee's death, or disability a lump-sum equal to
his then base salary and benefits, perquisites and services otherwise payable to
him through the last day of the term of this Agreement pursuant to Section 2, or
such other period as may be required by law; provided, however, any amounts
payable hereunder as a result of Employee's disability shall be reduced by any
Company provided long term disability payments received by him. The Company
shall also pay to the estate of Employee, or to Employee as the case may be,
within such thirty (30) day period, an incentive payment pursuant to Section 5
determined as if Employee were neither dead, nor disabled on the last day of the
calendar quarter, prorated for the quarter in which the Employee's death or
disability occurs, or such longer period as may be required by law.
All vested stock options shall remain exercisable in accordance with
their terms and all non-vested stock options shall be canceled. In addition, any
amounts or awards to which Employee may be entitled under any other long term
incentive program referenced in Section 6 as a result of Employee's death or
disability, shall be paid to the estate of Employee, or to Employee, as the case
may be, in a lump-sum within thirty (30) days of Employee's death or sixty (60)
days after he terminates for disability.
10. Change of Control. If a Change of Control Event (as defined in
Section 14 of the 1997 Incentive Benefit Plan of Dialogic Corporation) occurs,
and as a result thereof Employee terminates his employment within twelve (12)
months of the change, because: (a) there is a significant diminution, without
mutual agreement of the parties, in the nature and scope of Employee's
authority, power, functions or duties, or (b) the Company assigns to Employee,
without mutual agreement of the parties substantial additional duties or
responsibilities which are inconsistent with the duties of the Employee under
this Agreement, or (c) the Company transfers Employee without mutual agreement
of the parties to an office more than twenty_five (25) miles from the principal
office of the Company; or Employee is terminated for reasons other than for
cause within such twelve (12) month period, Employee shall be entitled to
payment pursuant to Section 9(b) hereof. In addition, any expenses incurred by
Employee in connection with a sserting his rights under this Agreement upon a
Change of Control shall be paid by the Company as and when Employee receives a
judgment in his favor from a court of competent jurisdiction.
11. Gross-up Provision. If any portion of any payments received by
Employee from the Company (whether payable pursuant to the terms of this
Agreement or any other plan, agreement or arrangement with the Company, its
successors or any person whose actions result in a change of control of the
Company) shall be subject to tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended or any successor statutory provision, the Company shall
pay to Employee such additional amounts as are necessary so that, after taking
into account any tax imposed by Section 4999 (or any successor statutory
provision), and any federal and state income taxes payable on any such tax, the
Employee is in the same after-tax position that he would have been if such
Section 4999 or any successor statutory provision did not apply and no payments
were made pursuant to this Section 11.
12. Confidentiality. The parties acknowledge that Employee has
previously entered into an Amended Employment Agreement as of January 1, 1993
(the January 1993 Agreement) in connection with Employee's employment by the
Company, and that such Agreement at paragraphs 9 through 16 imposes restraints
necessary for the reasonable and proper protection for the Company and that each
and every one of said restraints is reasonable in respect to subject matter,
length of time, and area. Accordingly, such paragraphs are incorporated herein
and made a part hereof as if set forth herein, in their entirety and shall
continue for a period of (i) three (3) years from and after the date hereof, or
(ii) three (3) years after the end of any employment relationship between
Employee and the Company (including any affiliate of the Company), whichever
period is longer.
13. Waivers. This Agreement may be modified, and the rights and
remedies of any provision hereof may be waived, only in writing, signed by both
the Company and Employee. No waiver by either party of any breach by the other
or any provision hereof shall be deemed to be a waiver of any later or other
breach hereof, or as a waiver of any other provision of this Agreement.
14. Governing Law. This Agreement shall be construed in accordance
with the laws of the State of New Jersey.
15. Severability. In case any one or more of the provisions contained
in this Agreement for any reason shall be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provision of this Agreement, but this Agreement shall
be construed as if such invalid, illegal or unenforceable provisions had never
been contained herein.
16. Termination of All Prior Agreements; Entire Agreement. Upon
execution of this Agreement, all prior employment agreements shall be terminated
and of no further force or effect, except for paragraphs 9 through 16 of the
January 1993 Agreement, which are incorporated herein by reference. This
Agreement constitutes the entire agreement and understanding between the Company
and Employee with respect to the subject matter hereof and supersede any other
prior agreements or understandings, whether oral or written.
17. Expenses. The Company shall reimburse Employee for any reasonable
expenses incurred by Employee in connection with the negotiation of this
Agreement.
18. Notices. Any notice required or permitted to be given pursuant to
this Agreement shall be in writing, and sent to the party for whom (or which) it
is intended at the address of such parties set forth below by registered or
certified mail, return receipt requested, or at such other address either party
shall designate by notice to the other in the manner provided herein for giving
notice.
If to the Company Dialogic Corporation
1515 Route Ten
Parsippany, NJ 07054
Attn: Chairman of Compensation Committee
If to the Employee Howard G. Bubb
21 Fernwood Place
Mountain Lakes, NJ 07046
IN WITNESS WHEREOF, each of the parties hereto has executed this
Employment Agreement as of the date and year first above written.
DIALOGIC CORPORATION
/s/
HOWARD G. BUBB
/s/
EXHIBIT 10.7
LOAN AGEEEMENT, AS AMENDED
UNSECURED CREDIT AGREEMENT
AGREEMENT by and between SUMMIT BANK ("BANK") and Dialogic Corporation, a New
Jersey Corporation ("BORROWER"), dated as set forth.
1. DEFINITIONS
The terms set forth below shall be defined as follows:
1.1 "Date of Agreement" is: as of November 1, 1997.
1.2 "Borrower" means: Dialogic Corporation, a New Jersey Corporation.
1.3 "Borrower's Address" is: 1515 Route 10, Parsippany, New Jersey 07054.
1.4 "Bank's Address" is: 210 Main Street, Hackensack, New Jersey 07601.
1.5 "Event of Default" means each and every event specified in Section 6 of
this Agreement.
1.6 "Loan Document(s)" means any Credit Agreement, Note, Security Agreement,
Mortgage or any other document heretofore, now or hereafter executed
by Borrower to Bank, together with all modifications, extensions
and/or renewals thereof.
1.7 "Obligations" means all indebtedness, obligations and liabilities of
Borrower to Bank of every kind and description, direct or indirect,
secured or unsecured, joint or several, absolute or contingent, due
or to become due, including any overdrafts, whether for payment or
performance, now existing or hereafter arising, whether presently
contemplated or not, regardless of how the same arise or by what
instrument, agreement or book account they may be evidenced, or
whether evidenced by any instrument, agreement or book account,
including, but not limited to all loans (including any loan by
modification, renewal or extension), all indebtedness, all undertakings
to take or refrain from taking any action, all indebtedness,
liabilities or obligations owing from Borrower to others which Bank
may have obtained by purchase, negotiation, discount, assignment or
otherwise; and all interest, taxes, fees, charges, expenses and
attorney's fees (whether or not such attorney is a regularly salaried
employee of Bank, any parent corporation or any subsidiary or
affiliate thereof, whether now existing or hereafter created),
chargeable to Borrower or incurred by Bank under this Agreement, or
any other document or instrument delivered in connection herewith or
therewith.
1.8 "Termination Date" is November 1, 1998, unless such date is extended
on one or more occasions, then the last date of the last such
extension.
To the extent not defined in Section 1 (or any other Loan Document), unless the
context otherwise requires, all other terms contained in this Agreement shall
have the meanings attributed to them by the Uniform Commercial Code in force in
the State of New Jersey, as of the Date of Agreement, to the extent that same
are used or defined therein.
To the extent not defined in Section 1 (or any other Loan Document), unless the
context otherwise requires, all accounting terms in this Agreement shall be
construed in accordance with Generally Accepted Accounting Principles as of the
Date of Agreement, to the extent that same are used or defined therein.
2. COMMITMENTS
Subject to the terms and conditions of the Loan Documents, Bank agrees to
lend to Borrower and Borrower agrees to borrow from Bank an aggregate
principal amount at any one time outstanding not to exceed $30,000,000.00
from the Date of Agreement to the Termination Date. Within such limits the
Borrower may borrow, repay and re-borrow at any time or from time to time.
The face amount of all commercial or standby letters of credit issued by
Bank and drafts accepted by Bank for the account of Borrower is included in
the aggregate principal amount. There is a $3,000,000 sublimit for standby
letters of credit. Borrowings hereunder are to be used soley for working
cpital.
3. REPRESENTATIONS AND WARRANTIES
3.1 Borrower represents and warrants to Bank, and such representations and
warranties shall be continuing so long as any Obligations shall remain
outstanding, as follows:
3.1.1 Borrower has the power and authority to enter into and perform
the Loan Documents and to incur the Obligations. If a
corporation, Borrower has been duly incorporated and organized
and is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and is duly
qualified as a foreign corporation in those jurisdictions where
the conduct of its business or the ownership of its properties
requires qualification. If a limited liability company, Borrower
has been duly formed and organized as a limited liability
company in good standing under the laws of its jurisdiction of
formation and is duly qualified as a foreign limited liability
company in those jurisdictions where the conduct of its business
or the ownership of its properties requires qualification. If a
partnership or a limited partnership, Borrower has been validly
formed, is validly existing as a partnership in good standing
under the laws of its jurisdiction, is legally authorized to
transact business in New Jersey and in those jurisdictions where
the conduct of its business or ownership of its properties
requires qualification, is not incorporated, and has never
changed its name or used any other name and has filed all
tradename certificates as required or appropriate. If a
proprietorship, Borrower is validly existing, is legally
authorized to transact business in New Jersey and in those
jurisdictions where the conduct of its business or ownership of
its properties requires qualification, is not incorporated, has
never changed its name or used any other name and has filed all
tradename certificates as required or appropriate and Borrower
is the sole owner of the business.
3.1.2 Borrower has not changed its name, form, identity or structure.
3.1.3 This Agreement and any other Loan Documents constitute valid and
legally binding Obligations of Borrower and are enforceable
against Borrower in accordance with their respective terms.
3.1.4 Borrower has filed all Federal, state and local tax returns and
other reports it is required to file and has paid or made
adequate provision for payment of all such taxes, assessments
and other governmental charges.
3.1.5 All property owned or utilized by Borrower is in compliance and
will continue to be in compliance with all requirements of all
applicable environmental laws, including, without limitation,
the Industrial Site Recovery Act f/k/a the Environmental Cleanup
Responsibility Act (N.J.S.A.13:1K-6 et seq., as amended) and the
Spill Compensation and Control Act (N.J.S.A.58:10-23.11b et seq.
as amended) and the Hazardous and Solid Waste Amendments of 1984
Pub. L98-616 (42 U.S.C. 699 et seq., as amended); and a certain
statute adopted by New Jersey for registration of underground
storage tanks (N.J.S.A. 58:10A-21 et seq.); the Resource
Conservation and Recovery Act (42 U.S.C. 6901 et seq., as
amended) and the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. 9601 et seq., as
amended); (all such Federal, state, county, municipal or other
laws, ordinances or regulations are hereinafter collectively
referred to as the "Environmental Laws").
3.1.6 Borrower has good and marketable title to all of its properties
and assets. The execution and performance of this Agreement and
any Loan Document will not violate or result in a default or in
the creation or imposition of any lien or encumbrance upon any
of the assets of Borrower (immediately, with the passage of time
or with the giving of notice and the passage of time) under any
other contract, agreement or instrument to which Borrower is a
party or by which Borrower is bound, nor will it result in the
acceleration of any obligation under any mortgage, lien, lease,
franchise, license, permit, agreement, instrument, order,
arbitration award, judgment, or decree, or in the termination of
any license, franchise, lease, or permit to which Borrower is a
party or by which it is bound; and it will not violate or
conflict with any other restriction of any kind or character to
which Borrower is subject.
3.1.7 Borrower incurs the Obligations herein from Bank for business
purposes only and shall not incur the Obligations for personal,
household or family purposes.
3.1.8 There is no claim, loss, contingency, litigation, or proceeding
whether or not pending, threatened or imminent against or
otherwise affecting Borrower that involves the possibility of
any judgment or liability not fully covered by insurance, and
there is no claim, loss, contingency, litigation, or proceeding
whether or not pending, threatened or imminent against or
otherwise affecting Borrower that may result in material adverse
change in the business, properties, operation or condition
(financial or otherwise) of Borrower.
3.1.9 Borrower has complied with all applicable statutes, regulations,
ordinances, court decrees or other directives of the United
States of America, and all states, counties, municipalities and
agencies with respect to the manufacture and sale of its goods,
the rendition of its services and/or the conduct of its
business.
3.1.10 Borrower has heretofore delivered to Bank current financial
statements, acceptable to Bank, which were prepared by
independent certified public accountants. The financial
statements were true, correct and complete and were prepared in
accordance with Generally Accepted Accounting Principles,
consistently applied and present fairly the financial position
and results of operations of Borrower as of the date of and for
the period involved. The financial statements make full and
adequate provision for all obligations, liabilities, and
commitments (fixed and contingent) of Borrower as of the date of
the financial statements. Since the date of the financial
statements, there has been no material adverse change in the
business, properties, prospects, operation or condition
(financial or otherwise) of Borrower.
3.1.11 With respect to each Employee Benefit Plan maintained by
Borrower, no Prohibited Transaction or Reportable Event (as
defined in Title IV of the Employee Retirement Income Security
Act of 1974, as amended) has occurred and is continuing;
Borrower is not subject to thirty (30) days notice to the
Pension Benefit Guaranty Corporation, and Borrower will comply
with the provisions of the Employee Retirement Income Security
Act of 1974, as amended and the Internal Revenue Code of 1986,
as amended.
3.1.12 Borrower is in compliance with all requirements of the Americans
With Disabilities Act of 1990, 42 U.S.C. 12101 et seq.,
including but not limited to those regulations promulgated by
the Architectural and Transportation Barrier Compliance Board at
36 CFR 1191 et seq., and by the Department of Justice at 28 CFR
36 et seq.
3.1.13 Borrower is not a "foreign person" within the meaning of Section
1445(f)(3) of the Internal Revenue Code of 1986 as amended and
the related Treasury Department regulations, including temporary
regulations.
4. GENERAL COVENANTS
4.1 Borrower covenants and agrees that so long as any Obligations shall
remain outstanding:
4.1.1 Borrower shall not permit any further mortgage, pledge, grant,
Security Interest in or lien or encumbrance upon any of the
property, assets or rights of Borrower.
4.1.2 Borrower shall not merge or consolidate with or sell, assign,
lease or otherwise transfer or dispose of (whether in one
transaction or in a series of transactions) all or substantially
all of its assets (whether now owned or hereafter acquired or
arising) to, any person or entity or acquire all or
substantially all the assets or the business of any person or
entity;
4.1.3 Borrower shall continue to engage in an efficient and economical
manner in a business of the same general type as conducted by it
on the Date of Agreement.
4.1.4 Borrower shall furnish to Bank:
4.1.4.1 Within ninety (90) days after the last day of each
fiscal year of Borrower, a financial statement including
a balance sheet and statements of income, retained
earnings and changes in financial position, each
prepared in accordance with Generally Accepted
Accounting Principles consistently applied, with a
report signed by an independent certified public
accountant satisfactory to Bank and a 10K report;
4.1.4.2 Within forty-five (45) days after the close of each
quarter of each fiscal year of Borrower, financial
statements similar to those required under paragraph
4.1.4.1, prepared by Borrower and certified by the chief
financial officer of Borrower and a 10Q report;
4.1.4.3 Together with the financial statements set forth in
Section 4.1.4.1, a letter executed by the aforesaid
accountant acknowledging Bank's reliance on said
financial statements and Borrower's knowledge of such
reliance; 4.1.4.4 Promptly and in form satisfactory to
Bank, such other information as Bank may reasonably
request from time to time.
4.1.5 Borrower shall comply with all present and future laws, rules
and regulations applicable to Borrower in the operation of its
business and the ownership of its assets, and all material
agreements to which it is subject.
4.2 Borrower further covenants and agrees to:
4.2.1 Promptly notify Bank of any condition or event which
constitutes, or would constitute with the passage of time or
giving of notice or both, an Event of Default under this
Agreement or any Loan Document and promptly inform Bank of any
events or change in the financial condition of Borrower
occurring since the date of the last financial statement of
Borrower delivered to Bank, which individually or cumulatively
when viewed in light of prior financial statements, could result
in a material adverse change in the business, properties,
prospects, operation or condition (financial or otherwise) of
Borrower;
4.2.2 If a corporation, maintain in good standing its corporate
existence in its jurisdiction of incorporation and its status as
a foreign corporation qualified to do business in those
jurisdictions where Borrower is required to be qualified; if a
partnership or a limited partnership, maintain in good standing
its partnership existence in its jurisdiction of formation and
its status as a foreign limited partnership qualified to do
business in those jurisdictions where Borrower is required to be
qualified; if a limited liability company, maintain in good
standing its limited liability company existence in its
jurisdiction of formation and its status as a foreign limited
liability company qualified to do business in those
jurisdictions where Borrower is required to be qualified.
4.2.3 Pay or deposit promptly when due all sales, use, excise,
personal property, income, withholding, corporate, franchise and
other taxes, assessments and governmental charges and, when
requested by Bank, submit to Bank proof satisfactory to Bank
that such payments and/or deposits have been made;
4.2.4 Notify Bank in writing within ten (10) days, of any claim,
litigation, action or proceeding filed or commenced by or
against Borrower that could result in a material adverse change
in the business, properties, prospects, operation or condition
(financial or otherwise) of Borrower; or a material adverse
occurrence, in each case, together with a complete description
of the action taken or proposed to be taken with respect
thereto;
4.2.5 Notify Bank in writing immediately of any amendments or other
changes to any by-laws, articles of incorporation, certificates
of formation, operating agreements, partnership agreements,
limited partnership agreements or any other document (or other
arrangement, whether or not in writing) governing the
organization or operation of Borrower or the respective
interests of its shareholders, members or partners, provided,
however, that if Borrower is a limited liability company, no
amendments to the Operating Agreement will be made without the
prior written consent of Bank.
5. FINANCIAL COVENANTS
5.1 Borrower covenants and agrees that so long as any Obligations shall
remain outstanding Borrower shall:
5.1.1 Not incur any indebtedness from any source other than Bank,
except normal trade debts and accruals in the ordinary course of
business.
6. EVENTS OF DEFAULT AND ACCELERATION
6.1 The occurrence of any one or more of the following events shall
constitute an Event of Default hereunder:
6.1.1 Failure to pay any principal, interest or any of the Obligations
as and when due;
6.1.2 Failure to perform or observe any covenant, term or agreement
herein set forth or set forth in any Loan Document; (other than
Section 5 of this Agreement) and the continuance of such failure
for a period of five (5) days after notice thereof to Borrower
from Bank.
6.1.3 Any representation or warranty made or deemed made by the
Borrower herein or in any Loan Document or which is contained in
any certificate, document, opinion or other statement furnished
now or at any time shall prove to be incorrect in any material
respect on or as of the date made or deemed to be made;
6.1.4 Failure to pay or perform any Obligation of any Borrower to
Bank, whether by maturity or acceleration, set forth herein or
in any Loan Document;
6.1.5 A proceeding being filed or commenced against Borrower for
dissolution or liquidation; or any Borrower voluntarily or
involuntarily terminating or dissolving or being terminated or
dissolved; insolvency of Borrower, or Borrower fails to pay its
debts as they become due in the ordinary course of business; or
a creditor's committee is appointed for the business of
Borrower, or Borrower makes an assignment for the benefit of
creditors, or a petition in bankruptcy or for reorganization or
to effect a plan of arrangement with creditors is filed by
Borrower; or Borrower applies for or permits the appointment of
a receiver or trustee for any or all of its property, assets or
rights, or any such receiver or trustee shall have been
appointed for any or all of its property, assets or rights; or
any of the above actions or proceedings whatsoever are commenced
by or against any other party liable for the Obligations;
6.1.6 Any final judgment, order or decree rendered against Borrower
exceeding $25,000 and remaining undischarged, unstayed or
outstanding against Borrower for a period of thirty (30) days;
6.1.7 Any investigation undertaken by any governmental entity which
may have a material adverse effect on Borrower or if any
indictment, charge or proceeding is filed or commenced, whether
criminal or civil, pursuant to Federal or state law against
Borrower for which forfeiture of any of the property or assets
of Borrower is a penalty;
6.1.8 Any Reportable Event as defined in the Employee Retirement
Income Security Act of 1974, as amended occurs or if any
Employee Benefit Plan is terminated or Bank reasonably believes
that such plan may be terminated pursuant to and as defined in
the Employee Retirement Income Security Act of 1974, as amended;
6.1.9 Bank reasonably deems itself insecure; the occurrence of a
material adverse change in the business, properties, prospects,
operation or condition (financial or otherwise) of Borrower; or
a material adverse occurrence; or
6.1.10 Any member of Borrower that is a limited liability company
resigns or any such member's interest terminates.
6.2 If any Event of Default shall occur, then or at any time thereafter,
while such Event of Default shall continue, Bank may declare all
Obligations to be due and payable, without notice, protest,
presentment, dishonor or demand, all of which are hereby expressly
waived by Borrower.
7. RIGHTS AND REMEDIES
Bank shall have the following rights and remedies at any time:
7.1 Bank, and any officer or agent of Bank is hereby constituted and
appointed as true and lawful attorney-in-fact of Borrower with power:
7.1.1 To endorse the name of Borrower upon any instrument of payment
(including payments made under any policy of insurance) that may
come into possession of Bank in full or part payment of any
Obligation;
7.2 Bank shall have the right to setoff, without notice to Borrower, any
and all deposits or other sums at any time or times credited by or due
from Bank to Borrower, whether in a special account or other account
or represented by a certificate of deposit (whether or not matured)
which deposits and other sums shall at all times constitute additional
security for the Obligations and may be set-off against all or any
part of the Obligations at any time. Borrower does hereby authorize
Bank and any other member of Summit Bancorp on behalf of Bank to
likewise setoff without notice, any or all deposits or other sums on
behalf of Bank, hereby granting to all such members of Summit Bancorp
as necessary to effectuate the foregoing, a lien on and a security
interest in and to such deposits or other sums. Bank agrees promptly
to notify Borrower after any such setoff and application, provided
that the failure to give such notice shall not affect the validity of
such setoff and application.
7.3 Bank shall have any and all remedies not enumerated above, available
at law or in equity, all of which rights and remedies shall be
cumulative and non-exclusive, to the extent permitted by law.
7.4 If at any time Bank determines that any applicable law, regulation,
condition or directive, or the interpretation of any thereof, relating
to capital adequacy (including but not limited to, any request,
guideline or policy, whether or not having the force of law and
including but not limited to, any regulation promulgated by the Board
of Governors of the Federal Reserve System as now or from time to time
hereafter in effect) by any authority charged with the administration
or interpretation thereof, or any change in any of the foregoing, has
or would have the effect of reducing the rate of return on Bank's
capital as a consequence of Bank's obligations under this Agreement to
a level below that which Bank would have achieved but for such law,
regulation, condition, directive, interpretation or change (taking
into consideration Bank's policies with respect to capital adequacy)
by an amount deemed by Bank to be material, then from time to time
Borrower shall pay to Bank on demand such additional amount(s) as will
compensate Bank for such reduction.
7.4.1 Bank will promptly notify Borrower of any event of which it has
knowledge, occurring after the date hereof, which will entitle
Bank to compensation pursuant to Section 7.4. A certificate or
notice from Bank claiming compensation under Section 7.4 and
setting forth the additional amount(s) to be paid to it
hereunder shall be conclusive in the absence of manifest error.
In determining such amount, Bank may use any reasonable
averaging and attribution methods.
7.4.2 Borrower's failure to pay such additional amount(s), shall
result in Borrower becoming liable for the difference between
the actual return achieved and what Bank had expected to achieve
and shall become a part of Borrower's Obligations herein.
7.5 In the event that Borrower's credit relationship with Bank is rated
substandard or lower on Bank's rating system(s), all of which ratings
shall be in Bank's absolute and sole discretion, Borrower shall pay to
Bank, upon receipt of notice from Bank to such effect, an additional
1% per annum in excess of each payment to be made under this Agreement
and any other Loan Document until such rating is upgraded to above
substandard. Borrower's failure to pay such additional amount(s) shall
become a part of Borrower's Obligations payable on demand and secured
by the Collateral.
8. GENERAL PROVISIONS
8.1 The failure of Bank at any time or times hereafter to require strict
performance by Borrower of any of the provisions, warranties, terms
and conditions contained herein or in any Loan Document shall not
waive, affect or diminish any right of Bank at any time or times
thereafter to demand strict performance thereof. No rights of Bank
hereunder or in any Loan Document shall be deemed to have been waived
by any act or knowledge of Bank, its agents, officers or employees,
unless such waiver is contained in an instrument in writing signed by
an officer of Bank and directed to Borrower specifying such waiver. No
waiver by Bank of any of its rights shall operate as a waiver of any
other of its rights or any of its rights on a future occasion.
8.2 Any demand or notice required or permitted to be given hereunder or in
any Loan Document shall be deemed effective when deposited in the
United States mail, and sent by certified mail, return receipt
requested, postage prepaid, addressed to Bank, ATTN: Branch Manager,
at Bank's Address or to Borrower at Borrower's Address, as applicable,
or to such other address as may be provided by the party to be
notified, on ten (10) days prior written notice to the other party.
8.3 Any notice required to be given by Bank made in accordance with the
terms herein or any Loan Document at least ten (10) days prior to such
proposed action, shall constitute fair and reasonable notice to
Borrower of any such action.
8.4 This Agreement and the Loan Documents contain the entire understanding
between the parties hereto with respect to the transactions
contemplated herein and such understanding shall not be modified
except in writing signed by or on behalf of the parties hereto.
8.5 Borrower shall not hold Bank liable due to any action or failure to
act by Bank herein or in any Loan Document including any action or
failure to act as a result of Bank's gross negligence or willful
misconduct. This provision shall survive the termination or expiration
of this Agreement or any Loan Document and the repayment in full of
Borrower's Obligations.
8.6 Wherever possible, each provision herein or in any Loan Document shall
be interpreted in such manner as to be effective and valid under
applicable law. Should any portion of this Agreement or any Loan
Document be declared invalid for any reason in any jurisdiction, such
declaration shall have no effect upon the remaining portions of this
Agreement or any Loan Document. Furthermore, the entirety of this
Agreement or any Loan Document shall continue in full force and effect
in all other jurisdictions and said remaining portions herein or in
any Loan Document shall continue in full force and effect in the
subject jurisdiction as if this Agreement or any Loan Document had
been executed with the invalid portions thereof deleted.
8.7 The provisions of this Agreement or any Loan Document shall be binding
upon and shall inure to the benefit of the heirs, personal
representatives, administrators, successors and assigns of Bank and
Borrower; provided, however, Borrower may not assign any of its rights
or delegate any of its Obligations hereunder or in any Loan Document
without the prior written consent of Bank.
8.8 This Agreement or any Loan Document is and shall be deemed to be a
contract entered into and made pursuant to the laws of the State of
New Jersey and shall in all respects be governed, construed, applied
and enforced in accordance with the laws of said State.
8.9 If, prior hereto and/or at any time or times hereafter, Bank shall
employ counsel in connection with the execution and consummation of
the transactions contemplated herein or in any Loan Document or to
commence, defend or intervene, file a petition, complaint, answer,
motion or other pleadings, or to take any other action in or with
respect to any suit or proceeding (bankruptcy or otherwise) relating
to this Agreement or any Loan Document, or to enforce any rights of
Bank hereunder or in any Loan Document, whether before or after the
occurrence of any Event of Default, or to collect any of the
Obligations then, in any of such events, Borrower agrees to pay
attorney fees, (whether or not such attorney is a regularly salaried
employee of Bank, any parent corporation or any subsidiary or
affiliate thereof, whether now existing or hereafter created), not to
exceed 20% of the Obligations, which shall be deemed reasonable and
any expenses, costs and charges relating thereto, and such shall be
part of the Obligations payable on demand.
8.10 With respect to all or any part of the Obligations, in the event that
Bank seeks to enter into a participation, intercreditor and/or
assignment agreement, then Borrower hereby authorizes Bank to release
all or part of any financial or credit information provided by
Borrower to Bank to any other bank or financial institution without
notice.
8.11 Each reference herein or in any Loan Document to Bank shall be deemed
to include its successors and assigns, and each reference to Borrower
and any pronouns referring thereto as used herein shall be construed
in the masculine, feminine, neuter, singular or plural as the context
may require, and shall be deemed to include the heirs, personal
representatives, administrators, successors and assigns of Borrower,
all of whom shall be bound by the provisions hereof or in any Loan
Document. The term "Borrower" as used herein shall, if this Agreement
or any Loan Document is signed by more than one Borrower, mean, unless
this Agreement or any Loan Document otherwise provides or unless the
context otherwise requires, the "Borrower" and each of them and each
and every representation, promise, agreement and undertaking shall be
joint and several, except that the right of set-off and lien shall be
by each Borrower in and to its several respective properties.
8.12 The section headings herein are included for convenience only and
shall not be deemed to be a part of this Agreement or any Loan
Document.
9. ASSIGNMENT BY BANK
Bank may from time to time without notice to Borrower, sell, assign,
transfer or otherwise dispose of all or any part of the Obligations. In
such event, each and every immediate and successive purchaser, assignee,
transferee or holder of all or any part of the Obligations shall have the
right to enforce this Agreement, by legal action or otherwise, for its own
benefit as fully as if such purchaser, assignee, transferee or holder were
herein by name specifically given such rights. Bank shall have an
unimpaired right to enforce this Agreement for its benefit to that portion
of the Obligations as Bank has not sold, assigned, transferred or otherwise
disposed of.
10. WAIVER OF JURY TRIAL BORROWER WAIVES TRIAL BY JURY AND CONSENTS TO AND
CONFERS PERSONAL JURISDICTION ON COURTS OF THE STATE OF NEW JERSEY OR OF
THE FEDERAL GOVERNMENT, AND EXPRESSLY WAIVES ANY OBJECTIONS AS TO VENUE IN
ANY OF SUCH COURTS, AND AGREES THAT SERVICE OF PROCESS MAY BE MADE ON
BORROWER BY MAILING A COPY OF THE SUMMONS TO BORROWER AT BORROWER'S
ADDRESS. BANK LIKEWISE WAIVES TRIAL BY JURY.
===========================================================================
ATTEST: BORROWER Dialogic Corporation, a New
Jersey Corporation
/s/ /s/
___________________________ ___________________________
Theodore Weitz, Secretary Thomas G. Amato, CFO
ATTEST: SUMMIT BANK
/s/ /s/
_________________________________ ___________________________________
Assistant Treasurer Susan Wright-Kail, Vice President
SUMMIT BANK
MASTER ADVANCE NOTE
$30,000,000.00
As of November 1, 1997
================================================================================
LOAN
FOR VALUE RECEIVED, the Undersigned, ("BORROWER"), unconditionally (and jointly
and severally, if more than one) promise(s) to pay to SUMMIT BANK ("BANK"), or
order, at its offices at 210 Main Street, Hackensack, New Jersey 07601, or at
such other place as may be designated in writing by Bank, the principal
aggregate sum of Thirty Million Dollars and No Cents ($30,000,000.00) or such
lesser amount of advances as may have been borrowed, repaid and reborrowed (or
for such other financial accommodations as may have been made) together with
interest from the date hereof on the unpaid principal balance hereunder,
computed daily, at the RATES per annum indicated below, payable in accordance
with the particular PAYMENT SCHEDULE indicated below. Any advance(s) shall be
conclusively presumed to have been made to and for the benefit and at the
request of Borrower when made in accordance with the oral or written
instructions of Borrower, or of any one of them if more than one, or of any one
signing below for or on behalf of Borrower. This Note is subject to an annual
30-day clean-up requirement where outstandings under this Note shall be -$0- for
such annual 30-day period.
================================================================================
RATE
Provided, that no Event of Default (as hereinafter defined) shall have occurred
and be then continuing, advances under this Note shall bear interest on the
unpaid principal amount thereof at the following RATE(S) per annum: (i) the
Prevailing Base Rate (as defined in Exhibit A attached hereto and made a part
hereof) minus .75% or (ii) the LIBOR Rate (as defined in Exhibit A attached
hereto and made a part hereof) or (iii) any combination thereof. Interest will
be calculated on the basis of the actual number of days elapsed over a year of
360 days, unless otherwise prohibited by law. To the extent permitted by law,
whenever there is any Event of Default under this Note, or non-payment upon
demand, the RATE of interest on the unpaid principal balance shall, at the
option of Bank, be 2% over the interest RATE provided herein. Borrower
acknowledges that (i) such default rate is a material inducement to Bank to make
the loan, (ii) Bank would not have made the loan in the absence of the agreement
of the Obligors (as defined in Section 1 of the Additional Terms and Conditions
hereto) to pay such default rate and (iii) such default rate is not a penalty
and represents a reasonable estimate of the cost to Bank in allocating its
resources (both personnel and financial) to the on-going review, monitoring,
administration and collection of the loan. Notwithstanding any other limitations
contained in this Note, Bank does not intend to charge and Borrower shall not be
required to pay any interest or other fees or charges in excess of the maximum
permitted by applicable law. Any payments in excess of such maximum shall be
refunded to Borrower or credited against principal.
================================================================================
PAYMENT SCHEDULE
In the event that any payment shall not be received by Bank within TEN (10) days
of the due date, Borrower shall, to the extent permitted by law, pay Bank a late
charge of 5% of the overdue payment (but in no event to be less than $25.00 nor
more than $2,500.00). Any such late charge assessed is immediately due and
payable. All payments received hereunder may be applied first to the payment of
any expenses or charges payable hereunder and accrued interest, and the balance
only applied to principal. Principal shall be paid in a single payment on
November 1, 1998. Interest shall be paid monthly commencing on February 1, 1998
and continuing on the same day of each successive month thereafter with a final
payment of all unpaid interest at the time of the final payment of the unpaid
principal.
================================================================================
SECURITY
As security for this Note, or any modifications, extensions and/or renewals,
Borrower grants to Bank a lien on, a continuing security interest in, and a
right to set-off at any time, without notice, all property and deposit accounts
at, under the control of or in transit to Bank which belong to Borrower, any
Guarantor or Endorser hereof.
================================================================================
WAIVER OF JURY TRIAL
BORROWER WAIVES TRIAL BY JURY AND CONSENTS TO AND CONFERS PERSONAL JURISDICTION
ON COURTS OF THE STATE OF NEW JERSEY OR OF THE FEDERAL GOVERNMENT, AND EXPRESSLY
WAIVES ANY OBJECTIONS AS TO VENUE IN ANY OF SUCH COURTS, AND AGREES THAT SERVICE
OF PROCESS MAY BE MADE ON BORROWER BY MAILING A COPY OF THE SUMMONS TO BORROWER
AT BORROWER'S ADDRESS. BANK LIKEWISE WAIVES TRIAL BY JURY.
================================================================================
THE ADDITIONAL TERMS AND CONDITIONS SET FORTH IN THIS NOTE ARE A PART OF THIS
NOTE.
================================================================================
ATTEST: BORROWER Dialogic Corporation, a New
Jersey Corporation
/s/ /s/
___________________________________ ___________________________________
Theodore Weitz, Secretary Thomas G. Amato, CFO
with its place of business or chief executive office (if it has more than one
place of business) at 1515 Route 10, Parsippany, New Jersey 07054.
================================================================================
ADDITIONAL TERMS AND CONDITIONS
1. Borrower and any Co-Borrowers, or Guarantor, or any Endorser hereof
(collectively "Obligors") and each of them: (i) waive(s) presentment,
dishonor, demand, notice of demand, protest, notice of protest and notice
of nonpayment and any other notice required to be given under law to any
Obligors in connection with the delivery, acceptance, performance, default
or enforcement of this Note, or any endorsement or guaranty of this Note or
any document or instrument evidencing any security for payment of this
Note; (ii) consent(s) to any and all delays, extensions, renewals or other
modifications of this Note or waivers of any term hereof or release or
discharge by Bank of any Obligors or release, substitution or exchange of
any security for the payment hereof or the failure to act on the part of
Bank or any indulgence shown by Bank from time to time and in one or more
instances, (without notice to or further assent from any Obligors) and
agree(s) that no such action, failure to act or failure to exercise any
right or remedy on the part of Bank shall in any way affect or impair the
obligations of any Obligors or be construed as a waiver by Bank of, or
otherwise affect, any of Bank's rights under this Note, under any
endorsement or guaranty of this Note or under any document or instrument
evidencing any security for payment of this Note; and (iii) (jointly and
severally, if more than one) agree(s) to pay, on demand, all costs and
expenses of collection of this Note or of any endorsement or any guaranty
hereof and/or the enforcement of Bank's rights with respect to, or the
administration, supervision, preservation, protection of, or realization
upon, any property securing payment hereof, (including any costs and
expenses incurred in any bankruptcy or other insolvency proceedings of any
Obligors), including reasonable attorney's fees (whether or not such
attorney is a regularly salaried employee of Bank, any parent corporation
or any subsidiary or affiliate thereof, whether now existing or hereafter
created), not to exceed 20% of all liabilities hereunder, which shall be
deemed reasonable.
2. This Note is delivered in and shall be construed under the laws of the
State of New Jersey and in any litigation in connection with, or
enforcement of, this Note or of any endorsement or guaranty of this Note or
any security given for payment hereof. The term "Bank" as used in this Note
shall include Bank's successors, endorsers and assigns.
3. The occurrence of any one or more of the following events shall constitute
an Event of Default hereunder: (i) failure to pay any principal, interest
or any of the Obligations as and when due; (ii) failure to pay or perform
any Obligation of any of the Obligors to Bank, whether by maturity or
acceleration, set forth in this Note or in any Loan Document; (Iii) a
proceeding being filed or commenced against any Obligor for dissolution or
liquidation; or any of the Obligors voluntarily or involuntarily
terminating or dissolving or being terminated or dissolved; (iv) insolvency
of any Obligor, or any Obligor fails to pay its debts as they become due in
the ordinary course of business; or a creditor's committee is appointed for
the business of any Obligor, or any Obligor makes an assignment for the
benefit of creditors, or a petition in bankruptcy or for reorganization or
to effect a plan of arrangement with creditors is filed by any Obligor; or
any Obligor applies for or permits the appointment of a receiver or trustee
for any or all of its property, assets or rights or any such receiver or
trustee shall have been appointed for any or all of its property, assets or
rights or any of the above actions or proceedings whatsoever are commenced
by or against any Obligor; (v) any attachments, liens or additional
security interests being placed upon any of the Collateral; (vi)
acquisition at any time or from time to time of title to the whole or any
part of the Collateral by any person, partnership, limited liability
company or corporation other than any of the Obligors; (vii) any final
judgment, order or decree rendered against any Obligor exceeding $25,000.00
and remaining undischarged, unstayed, or outstanding against any Obligor
for a period of thirty (30) days; (viii) any investigation undertaken by
any governmental entity which may have a material adverse affect on any
Obligor or if any indictment, charge or proceeding is filed or commenced,
whether criminal or civil pursuant to Federal or state law against any
Obligor for which forfeiture of any of the property or assets of such
Obligor is a penalty; (ix) any Reportable Event occurs or if any Employee
Benefit Plan is terminated or Bank reasonably believes such plan may be
terminated pursuant to and as defined in the Employee Retirement Income
Security Act of 1974, as amended; (x) Bank reasonably deems itself
insecure; the occurrence of a material adverse change in the business,
properties, prospects, operation or condition (financial or otherwise) of
any Obligor; or a material adverse occurrence; (xi) any member of an
Obligor that is a limited liability company resigns or any such member's
interest terminates.
4. If any Event of Default shall occur, then or any time thereafter, while
such Event of Default shall continue, Bank may declare all Obligations to
be due and payable, without notice, protest, presentment, dishonor or
demand, all of which are hereby expressly waived by Obligors. Failure of
Bank to declare all Obligations due and payable upon the occurrence of an
Event of Default shall not be deemed a waiver, and no rights of Bank
hereunder shall be deemed to have been waived by an act or knowledge of
Bank, its agents, officers or employees, unless such waiver is contained in
an instrument in writing signed by an officer of Bank and directed to
Borrower specifying such waiver. No waiver by Bank of any of its rights
shall operate as a waiver of any other of its rights or any of its rights
on a future occasion.
5. In the event any one or more of the provisions of this Note shall for any
reason be held to be invalid, illegal or unenforceable, in whole or in part
or in any respect, or in the event that any one or more of the provisions
of this Note operate or would prospectively operate to invalidate this
Note, then and in either of those events, such provision or provisions only
shall be deemed null and void and shall not affect any other provision of
this Note and the remaining provisions of this Note shall remain operative
and in full force and effect and shall in no way be affected, prejudiced or
discharged thereby.
EXHIBIT 10.9
SIXTH AMENDMENT TO LEASE AGREEMENT PRIVATE
This Sixth Amendment to Lease Agreement ("Agreement") is made and entered
into as of this 1st day of October, 1997, by and between The Mutual Life
Insurance Company of New York with offices at 1740 Broadway, New York, New York
10019 (the "Landlord"), and Dialogic Corporation, a New Jersey corporation, with
offices and a principal place of business located at 1515 Route 10, Parsippany,
New Jersey 07054 (the "Tenant").
W I T N E S S E T H
WHEREAS, Landlord is the owner of the real property and all the
improvements thereon located at 1515 Route 10, Parsippany, New Jersey (the
"Building"); and,
WHEREAS, Tenant desired to lease from Landlord and Landlord desired to
lease to Tenant approximately 115,000 square feet of office space on the first
and second floors of the Building and 10,000 square feet of storage space on the
basement level (the "Original Premises"); and,
WHEREAS, on or about September 1, 1993 Landlord and Tenant entered into a
written Lease Agreement (the "Original Lease") for the Premises; and,
WHEREAS, during January 1994 a first amendment to the Original Lease (the
"First Amendment") was proposed, but never agreed upon or effective; and,
WHEREAS, as of January 20, 1994 Landlord and Tenant entered into a Second
Amendment to Lease Agreement (the "Second Amendment"); and,
WHEREAS, as of July 19, 1994 (notwithstanding that the Fourth Amendment, as
defined below, references the date of the Third Amendment as of March 10, 1994)
Landlord and Tenant entered into a Third Amendment to Lease Agreement (the
"Third Amendment"); and,
WHEREAS, as of December 20, 1994 Landlord and Tenant entered into a Fourth
Amendment to Lease Agreement (the "Fourth Amendment"); and,
WHEREAS, as of April 15, 1996, Landlord and Tenant entered into a Fifth
Amendment to Lease Agreement (the "Fifth Amendment", the Second Amendment, Third
Amendment, Fourth Amendment and Fifth Amendment are collectively referred to as
the "Amendments"; and the Original Lease, as modified by the Amendments, is
referred to as the "Lease"); and,
WHEREAS, Landlord and Tenant do now hereby desire to amend and modify
certain terms of the Lease as more particularly set forth below.
NOW, THEREFORE, it is hereby agreed that in consideration of the mutual
covenants contained herein, and for such other good and valuable consideration,
the sufficiency of which are hereby mutually acknowledged by the parties hereto,
Landlord and Tenant agree as follows:
1. Capitalized terms used but not otherwise defined herein shall have their
meanings described to them in the Lease. Furthermore, in addition to the terms
elsewhere defined herein, the following terms shall have the following meanings:
(a) "Seventh Expansion Space" shall mean approximately 19,630 square feet on the
third floor of the Building, as shown on the floor plan annexed hereto as
Exhibit A and made a part hereof. (b) "Eighth Expansion Space" shall mean
approximately 8,053 square feet on the first floor of the Building, as shown on
the floor plan annexed hereto as Exhibit B and made a part hereof. (c) "Basement
Expansion Space" shall mean approximately 8,000 square feet of the basement of
the Building as shown on the floor plan annexed hereto as Exhibit C and made a
part hereof. (d) "Seventh Rental Commencement Date" shall mean the earlier of
(i) the date upon which Landlord's Work (as defined below) in connection with
the Seventh Expansion Space has been substantially completed, or (ii) the date
Tenant shall occupy any of the Seventh Expansion Space. (e) "Eighth Rental
Commencement Date" shall mean the earlier of (i) the date upon which Landlord's
Work in connection with the Eighth Expansion Space has been substantially
completed, or (ii) the date Tenant shall occupy any of the Eighth Expansion
Space.
2. Tenant warrants, covenants and acknowledges that as of the date hereof,
to the best of its knowledge: a) Landlord is not in default under the Lease and
no event has occurred which, with the giving of notice or the passage of time or
both, would constitute a default under the Lease as modified by this Agreement
on the part of the Landlord; b) Tenant does not contest the validity or
enforceability of the Lease and this Agreement, and Tenant has no claims or
defenses as to obligations under the Lease and this Agreement and is not
entitled to any offset or abatement with respect thereto, except for Landlord's
obligation under Section 12 of this Agreement; c) Landlord has performed all of
its obligations of an executory nature (including all construction required
under the Lease) pursuant to the terms and provisions of the Lease (including
Landlord's obligations with respect to the Fourth Expansion Space, Fifth
Expansion Space and Sixth Expansion Space [as such terms are defined below]); d)
the Commencement D ate, as such term is defined in the Lease was June 13, 1994,
and the Expiration Date, as defined in the Lease (without giving effect to any
renewal options, but giving effect to paragraphs 10 and 22 of the Fourth
Amendment) is June 14, 2005; e) the Lease is in full force and effect and has
not been amended or modified except by this Agreement; f) Tenant is not in
default in the performance of the Lease and has not committed any breach of the
Lease and Tenant is not the subject of any federal or state, bankruptcy,
insolvency or liquidation proceeding; and g) Except for the Seventh Expansion
Space, and the Eighth Expansion Space, Tenant has accepted and is in full
possession of the Premises (as defined below), including all improvements,
additions, and alterations thereto required to be made by Landlord under the
Lease.
3. (a) In addition to those premises that Landlord has previously leased to
Tenant and Tenant has previously leased from Landlord pursuant to the Original
Lease and the Amendments, Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord the following additional premises: (i) the Seventh
Expansion Space, (ii) the Eighth Expansion Space, and (iii) the Basement
Expansion Space. Within thirty (30) days of the signing of this Agreement,
Landlord shall cause the Seventh Expansion Space, the Eighth Expansion Space and
the Basement Expansion Space to be measured pursuant to the BOMA method and the
exact square footage shall be deemed fixed. Promptly thereafter, landlord shall
deliver tenant the measured dimensions.
(b) It is the intent of the parties hereto that the "Premises", as such
term is defined in the Original Lease and which has been redefined and increased
pursuant to certain of the Amendments, shall be further redefined and increased
and shall now incorporate the Seventh Expansion Space, the Eighth Expansion
Space and the Basement Expansion Space as well as all of the space previously
demised to the Tenant, including the following: the Original Premises, the First
Expansion Space (as such term is defined in the Third Amendment), the Second
Expansion Space and Third Expansion Space (as such terms are defined in the
Fourth Amendment), the Fourth Expansion Space, Fifth Expansion Space and Sixth
Expansion Space (as such terms are defined in the Fifth Amendment). All
references to the Premises in the Lease as modified herein, shall refer to the
Premises as defined in this Agreement, unless the context clearly requires
otherwise.
4 (a) In addition to the Fixed Rent previously reserved by the Original
Lease and certain of the Amendments, Tenant shall pay to Landlord, without any
prior notice or demand therefore and without any abatement, deduction or setoff
whatsoever, in lawful money of the United States of America, by check, at
Landlord's office or such other place Landlord may designate, additional annual
base rent, (such additional annual base rent shall be incorporated into the
defined term "Fixed Rent") payable in equal monthly installments in advance on
the first day of each and every month during the term of this lease as follows:
(i) Fixed Rent for the Seventh Expansion Space ("Seventh Expansion
Space Rent") shall be payable:
(1) from the Seventh Rental Commencement Date through and
including May 31, 1999, at the annual rate of $304,265.00, payable in
equal monthly installments each in the amount of $25,355.42;
(2) from June 1, 1999, through and including May 31, 2004, at the
annual rate of $343,525.00, payable in equal monthly installments each
in the amount of $28,627.08; and
(3) from June 1, 2004, through and including June 14, 2005, at
the annual rate of $395,151.90, payable in equal monthly installments
each in the amount $32,929.33;
(ii) Fixed Rent for the Basement Expansion Space ("Basement Expansion
Space Rent") shall be payable from the date hereof through and including
June 14, 2005, at the annual rate of $32,000.00, payable in equal monthly
installments each in the amount $2,666.67;
(iii) Fixed Rent for the Eighth Expansion Space ("Eighth Expansion
Space Rent") shall be payable:
(1) from the Eighth Rental Commencement Date through and
including May 31, 1999, at the annual rate of $136,901.00, payable in
equal monthly installments each in the amount of $11,408.42;
(2) from June 1, 1999, through and including May 31, 2004, at the
annual rate of $140,927.50, payable in equal monthly installments each
in the amount of $11,743.96; and (3) from June 1, 2004, through and
including June 14, 2005, at the annual rate of $162,106.89, payable in
equal monthly installments each in the amount $13,508.91.
(b) Tenant shall be obligated to pay its electrical costs in
accordance with the terms of the Lease, as amended herein.
(c) Notwithstanding anything else contained in this Agreement, the
parties acknowledge that the Seventh Expansion Space and Eighth Expansion Space,
might not be substantially completed simultaneously. Should such completion
dates not be simultaneous, the obligation of the Tenant to pay Fixed Rent and
Additional Rent, respectively, in accordance with Section 4(a) above and Section
9 below for the space that is substantially completed is independent of its
obligations regarding the space not yet substantially completed. Tenant shall be
obligated to accept such substantially completed premises and to pay Fixed Rent
and Additional Rent in accordance with this Agreement for the space that is then
substantially completed. (By way of example and not of limitation, should the
Seventh Expansion Space be substantially completed prior to the Eighth Expansion
Space, commencing on the Seventh Rental Commencement Date, Tenant shall pay the
Seventh Expansion Space Rent, in addition to the Fixed Rent otherwise required
pursuant to the terms of the Lease, as amended herein, and Tenant's
Proportionate Share shall increase by 9%).
(d) Intentionally Omitted.
(e) If the Seventh Rental Commencement Date and/or the Eighth Rental
Commencement Date is a date other than the first date of the calendar month,
then the Seventh Expansion Space Rent and/or the Eighth Expansion Space Rent, as
the case may be, shall be prorated on a per diem basis for the calendar month in
which the respective commencement date occurs. A similar credit shall be granted
against the Fixed Rent installment due during the month which is the month of
the Expiration Date.
5. (a) Within ten (10) days from the date Tenant executes this
Agreement, Tenant shall (i) prepare and deliver to Landlord line drawings and
any and all related plans and specifications (collectively the "Seventh
Expansion Plans and Specifications") for the Seventh Expansion Space, and (ii)
prepare and deliver to Landlord line drawings and any and all related plans and
specifications, including Tenant's selection of paint color and carpet color
(collectively the "Eighth Expansion Plans and Specifications") for the Eighth
Expansion Space, provided, however, the Eighth Expansion Plans and
Specifications shall not include any demolition plans. Landlord will prepare and
deliver to Tenant construction drawings ("Construction Drawings") for the
Seventh Expansion Space and Eighth Expansion Space consistent with the Seventh
Expansion Plans and Specifications and the Eighth Expansion Plans and
Specifications (the cost of such Construction Drawings shall be the
responsibility of the parties as stated in Section 5(c) below). Within five (5)
business days (the fifth business day shall be referred to as the "Outside
Construction Drawing Approval Date") of receipt of the Construction Drawings
from Landlord, Tenant will deliver to Landlord written notice that it has
approved or disapproved the Construction Drawings, provided, however, that
Tenant's disapproval must be in Tenant's reasonable discretion, and, if it
disapproves of the Construction Drawings, Tenant shall specify in writing and in
reasonable detail, any objections to the Construction Drawings. In the event
that Tenant disapproves of the Construction Drawings, Landlord and Tenant shall
promptly meet and use good faith efforts to resolve such disagreement. That
period of time from the day following the Outside Construction Drawing Approval
Date through the date that the Tenant approves the Construction Drawings, but
only to the extent that such period is not the result of the Construction
Drawings being materially inconsistent with the Seventh Expansion Plans an d
Specifications and the Eighth Expansion Plans and Specifications, shall be
referred to as "Approval Delay". Landlord shall not proceed with Landlord's Work
(as defined below) until Tenant has provided written approval of the
Construction Drawings.
(b) Landlord shall perform the following work ("Landlord's Work"): (i)
prepare the Seventh Expansion Space (including the demolition thereof) in
accordance with the Seventh Expansion Plans and Specifications and the
Construction Drawings, and (ii) prepare the Eighth Expansion Space in accordance
with the Eighth Expansion Plans and Specifications and the Construction
Drawings. Except as provided in this Subsection (b), Landlord shall have no
obligation to perform any work with respect to the balance of the Premises,
including, but not limited to, the Basement Expansion Space.
(c) Landlord shall, in connection with Landlord's Work, be solely
responsible for the following: (i) up to but no more than $39,260.00 of the
costs and expenses ("Design Allowance") associated with architectural and
engineering design and plans and Construction Drawings with respect to the
Seventh Expansion Space; (ii) up to but no more than $392,600.00 of the costs
and expenses ("Seventh Construction Allowance") associated with substantially
completing the Seventh Expansion Space in accordance with the Seventh Expansion
Plans and Specifications and the Construction Drawings (provided, however, that
none of the Seventh Construction Allowance shall be allocated for demolition of
the Seventh Expansion Space); (iii) all costs and expenses in excess of
$21,593.00 with respect to the demolition of the Seventh Expansion Space,
provided, however Landlord's liability shall not exceed $25,000; and (iv) up to
but no more than $40,265.00 of the costs and expenses ("Eighth Construction
Allowance") associated with subs tantially completing the Eighth Expansion Space
in accordance with the Eighth Expansion Plans and Specifications and the
Construction Drawings, (the amounts which Landlord has agreed to incur in order
to perform Landlord's Work shall be referred to as "Landlord's Allowance"). The
Design Allowance, Seventh Construction Allowance and Eighth Construction
Allowance may not be used for any purpose other than for the purpose
specifically provided for herein, and to the extent the costs and expenses
associated with the work to be done thereunder are less than the respective
allowance, the excess of each, if any, shall accrue for the benefit of Landlord,
and Tenant shall have no claim to same. Tenant shall be solely responsible for
all costs and expenses which exceed Landlord's Allowance; it being the intent of
the parties that Tenant pay said excess as Additional Rent and such sum(s) shall
be payable by Tenant within thirty (30) days after receipt of an invoice from
Landlord, provided, however, such payment date shall in no event be earlier than
thirty(30) days from the substantial completion of the space for which the
particular payment applies. Except as provided in this Subsection (c) and except
in accordance with Section 12, Landlord shall have no obligation to pay for any
work with respect to the Premises, including, but not limited to, any work for
the Basement Expansion Space and any costs and expenses associated with
architectural and engineering design and plans and Construction Drawings with
respect to the Eighth Expansion Space.
(d) Landlord shall use reasonable efforts, including the solicitation
of at least three (3) competitive bids where appropriate from reputable
contractors to obtain the construction of Landlord's Work at a reasonable cost.
Landlord agrees to solicit bids from March Associates, DDB Interior Contracting
and Turner Construction Company. Landlord shall promptly deliver to Tenant
copies of all bids that Landlord receives with respect to the foregoing. Tenant
shall, within seven (7) business days of receipt of said information, select the
winning bidder ("Winning Bidder") from the bids delivered to Landlord and
Landlord shall award the contract to such bidder. If the Winning Bidder is not
March Associates, Tenant shall pay to Landlord, as Additional Rent, on demand
upon substantial completion of Landlord's Work, an oversight and plan review fee
of three (3%) percent of the contract price entered into with Winning Bidder in
effecting Landlord's Work.
(e) If Tenant requests to amend, modify or change the Construction
Drawings, after such Construction Drawings have been approved by Landlord and
Tenant ("Change Order"), Tenant shall submit to Landlord for its approval (which
shall not be unreasonably withheld) a reasonably detailed description of the
proposed Change Order in writing. Within seven (7) business days after receipt,
Landlord shall notify Tenant whether it approves or disapproves the Change
Order. If Landlord approves the Change Order, Landlord shall evidence its
approval of such Change Order by executing the Change Order or a memorandum
thereof. Failure by Landlord to notify Tenant within seven (7) business days of
its approval or disapproval of the Change Order shall be deemed to mean that
Landlord has disapproved the Change Order. Landlord may require changes to the
Construction Drawings if necessary as a result of any Change Order or to comply
with changes, revisions or additions to applicable building codes and other laws
(collectively, ("Landlord Change Orders"). Within five(5) business days after
receipt, Tenant shall notify Landlord in writing of its approval (which approval
will not be unreasonably withheld) or disapproval of all Landlord Change Orders;
Landlord shall not proceed with such Landlord Change Orders without Tenant's
approval. If Tenant shall so notify Landlord of its disapproval of any Landlord
Change Order, such written notice shall include reasonable detail as to the
reason for such disapproval. Landlord shall, within seven (7) business days
after receipt thereof, make the necessary revisions requested by Tenant
(provided, however, that such revisions are in full compliance with law and
otherwise reasonably acceptable to Landlord) and resubmit the same for Tenant's
approval ("Revised Landlord Change Order"). Upon receipt of the Revised Landlord
Change Order, Tenant shall within three (3) business days, notify Landlord in
writing of its approval or disapproval of the Revised Landlord Change Order. In
the event Tenant disapproves of the Revised Landlord Change Order, Landlord and
Tenant shall promptly meet and use good faith efforts to resolve any
disagreement. The period of time from the day following Tenant's disapproval of
the Revised Landlord Change Order through the day that Tenant shall approve the
Landlord Change Order shall be deemed an Approval Delay.
(f) Subject to Unavoidable Delays (as defined in Section 38.2 of the
Original Lease) and Tenant Delays, (as defined herein), Landlord shall
substantially complete Landlord's Work (i) in connection with the Seventh
Expansion Space, on or before May 1, 1998, and (ii) in connection with the
Eighth Expansion Space, on or before May 1, 1998, provided, however, that the
Lease, as modified herein, and the obligations of the Landlord and Tenant
hereunder shall nevertheless continue in full force and effect. Notwithstanding
the foregoing, if the Eighth Expansion Plans and Specifications provide that
only painting and carpeting of the Eighth expansion Space be performed then,
subject to Unavoidable Delays and Tenant Delays Landlord shall substantially
complete painting and carpeting the Eighth Expansion Space on or before March 1,
1998. Except as provided below, Landlord shall have no liability to Tenant for
any delay in delivering the Seventh Expansion Space and/or the Eighth Expansion
Space. Notwithstanding the f oregoing, (x) if delivery of the Seventh Expansion
Space is delayed by the acts or omissions of Landlord beyond June 1, 1998, (or,
if the Winning Bidder is March Associates, May 1, 1998) as such date has each
been extended by the number of days attributable to a Tenant Delay and/or an
Unavoidable Delay ("Seventh Outside Date"), then the Tenant shall receive one
day of free Seventh Expansion Space Rent for each two days during the period
from the Seventh Outside Date to the substantial completion of the Seventh
Expansion Space, and (y) if delivery of the Eighth Expansion Space is delayed by
the acts or omissions of Landlord beyond June 1, 1998, (or, if the Winning
Bidder is March Associates, May 1, 1998) as such date has each been extended by
the number of days attributable to a Tenant Delay and/or an Unavoidable Delay
("Eighth Outside Date"), then the Tenant shall receive one day of free Eighth
Expansion Space Rent for each two days during the period from the Eighth Outside
Date to the substantial completion of the Eighth Expansion Space.
(g) Landlord's Work shall be deemed substantially completed,
notwithstanding the fact that minor details of construction, mechanical
adjustments or decoration remain to be performed that do not materially
interfere with Tenant's use of the Seventh Expansion Space and/or the Eighth
Expansion Space, as the case may be, or its business, provided that a
Certificate of Occupancy (whether permanent or temporary) has been issued (if
required). Notwithstanding the foregoing, to the extent that the Seventh
Expansion Space is not ready for occupancy by Tenant on May 1, 1998 and/or the
Eighth Expansion Space is not ready for occupancy by Tenant on May 1, 1998 (or
on March 1, 1998, if the Eighth Expansion Plans and Specifications provide that
only painting and carpeting of the Eighth expansion Space be performed), solely
due to one or more Tenant Delays (as defined below), then the Seventh Expansion
Space and/or the Eighth Expansion Space (as the case may be) shall be deemed
substantially completed on the date when s aid space would otherwise have been
substantially completed but for such Tenant Delay. Landlord shall be responsible
for obtaining the initial permanent Certificate of Occupancy, if required, even
if Tenant assumes occupancy under a temporary Certificate of Occupancy;
provided, however, if a permanent Certificate of Occupancy is conditioned upon
the performance of additional work to the Seventh Expansion Space and/or the
Eighth Expansion Space, as the case may be, said work shall be performed by
Tenant at its sole cost and expense (to the extent Landlord's Allowance has been
exceeded, and if Landlord's Allowance has not been exceeded, if said work is not
within the scope of Landlord's Work), subject to Section 7 of the Original
Lease, as amended.
(h) The term "Tenant Delay" shall mean any delay in substantially
completing Landlord's Work and/or any delay in the date that the Seventh
Expansion Space and/or the Eighth Expansion Space shall be available for
Tenant's occupancy, which is solely due to any act or omission of Tenant, its
agents, employees, contractors or anyone acting under or for Tenant. Tenant
Delay shall also include the following, (but only to the extent that any such
delays are the cause of Landlord's inability to substantially complete
Landlord's Work and/or are the cause of the any delay in the date that the
Seventh Expansion Space and/or the Eighth Expansion Space shall be available for
Tenant's occupancy): (i) delays by Tenant in delivering the Seventh Expansion
Plans and Specifications and/or the Eighth Expansion Plans and Specifications;
(ii) delays arising solely from changes by Tenant to the Seventh Expansion Plans
and Specifications and/or the Eighth Expansion Plans and Specifications; (iii)
delays resulting from Tenant's direction to Landlord to suspend Landlord's Work;
(iv) delays by Tenant in delivering approval or disapproval to the Construction
Drawings; (v) any Approval Delay; (vi) delays arising as result of a Change
Order requested by Tenant; (vii) delays by Tenant in approving any Landlord
Change Orders; and (viii) delays by Tenant in selecting the Winning Bidder.
(i) Notwithstanding anything to the contrary contained herein, if (i)
the Seventh Rental Commencement Date does not occur on or before September 1,
1998, as such date is extended by the number of days attributable to a Tenant
Delay and/or Unavoidable Delay, (such date, as extended is referred to as
"Seventh Tenant Outside Date") then the Tenant may, as its sole and exclusive
remedy, terminate the portion of this Agreement relating to the Seventh
Expansion Space by giving written notice to Landlord no later than twenty-one
(21) days from such Seventh Tenant Outside Date and the portion of this
Agreement relating only to the Seventh Expansion Space shall terminate on the
date which is fifteen (15) days after Landlord's receipt of such notice, unless
prior to such date the Seventh Rental Commencement Date occurs, in which case
Tenant's termination notice shall be null and void and this Agreement shall
continue in full force and effect; and/or (ii) the Eighth Rental Commencement
Date does not occur on or befor e September 1, 1998, as such date is extended by
the number of days attributable to a Tenant Delay and/or Unavoidable Delay,
(such date, as extended is referred to as "Eighth Tenant Outside Date") then the
Tenant may, as its sole and exclusive remedy, terminate the portion of this
Agreement relating to the Eighth Expansion Space by giving written notice to
Landlord no later than twenty-one (21) days from such Eighth Tenant Outside Date
and the portion of this Agreement relating only to the Eighth Expansion Space
shall terminate on the date which is fifteen (15) days after Landlord's receipt
of such notice, unless prior to such date the Eighth Rental Commencement Date
occurs, in which case Tenant's termination notice shall be null and void and
this Agreement shall continue in full force and effect. If Landlord is unable to
deliver the Seventh Expansion Space and/or the Eighth Expansion Space, as the
case may be, in accordance with the terms of this Agreement, and Tenant
terminates the portion of this Agreeme nt relating to the Seventh Expansion
Space and/or the Eighth Expansion Space, in accordance with the terms of this
Section, then, Landlord shall reimburse Tenant for Tenant's actual and
reasonable costs and expenses incurred with respect to the demolition, design
and construction of the space so terminated. 6. Notwithstanding anything
contained in the Lease, including Section 6.1 of the Original Lease as such
section may have been modified, Tenant agrees that Landlord shall have no
obligation to provide any additional funds with respect to Landlord's Work,
except as specifically provided in Section 5(c) above and in Section 12 below.
7. Landlord will, at its own cost and expense separately meter the
Seventh Expansion Space and Eighth Expansion Space for electric usage. Tenant
will, at its own cost and expense, continue to have all electrical uses for the
Basement Expansion Space and the portion of the basement demised under the
Original Lease (the "Original Basement Space") connected to Tenant's separate
electrical meter.
8. Notwithstanding anything else contained in the Original Lease or
any of the Amendments, or herein, should Tenant exercise its option(s) to renew
the term of the leased premises, as provided for in Section 2.5 of the Original
Lease, said renewal term(s) shall be operative for the entire Premises (as such
term is defined herein).
9. Tenant's obligation to pay Tenant's Proportionate Share (as such
share shall be increased giving effect to the transaction contemplated herein)
of Operating Expenses and Taxes, as such obligations are expressed in the Lease,
shall commence, (a) with respect to the Seventh Expansion Space, on the Seventh
Rental Commencement Date, and (b) with respect to the Eighth Expansion Space, on
the Eighth Rental Commencement Date. Tenant and Landlord agree that Tenant's
Proportionate Share with respect to the Seventh Expansion Space is 9%, and
Tenant's Proportionate Share with respect to the Eighth Expansion Space is 4%.
Notwithstanding anything to the contrary contained in the Lease or in this
Agreement, after both the Seventh Rental Commencement Date and the Eighth Rental
Commencement Date, Tenant's Proportionate Share with respect to the Premises
shall equal 100%. All other items of Additional Rent shall be payable in
accordance with the terms of the Lease as modified herein. The Base Tax Year and
the Base Oper ating Expense Year, as defined in the Lease, shall remain
unchanged for the purpose of calculating any and all charges to Tenant.
10. Tenant has inspected the Premises, including, but not limited to,
the Seventh Expansion Space, Eighth Expansion Space and the Basement Expansion
Space and accepts the same "As Is" in its present condition subject to
Landlord's Work. Acceptance of possession by Tenant of the Seventh Expansion
Space and/or the Eighth Expansion Space shall be the conclusive evidence that
Landlord's obligation to construct said accepted premises has been fully
performed in accordance with the requirements of this Agreement, except for
normal punch list items and except if within thirty (30) days after such
acceptance date Tenant shall give written notice to Landlord specifying the
respects in which the same was not in such condition.
11. All tenant improvements constructed in the Seventh Expansion
Space, Eighth Expansion Space and the Basement Expansion Space, whether by
Landlord or by (or on behalf of) Tenant, and whether at Landlord's or Tenant's
expense, shall be subject to Section 7.4 of the Original Lease, as it may have
been amended. Notwithstanding the foregoing, all of Landlord's Work and other
tenant improvements which are a part of this Agreement shall become the property
of the Landlord and shall remain upon and be surrendered with the Premises upon
the Expiration Date and need not be removed.
12. Notwithstanding anything to the contrary contained in this
Agreement, Landlord has consented to the erection of a certain chain link fence
and to the installation of lighting in the Basement Expansion Space which is of
the same nature and quality as such items were previously supplied to Tenant for
the Original Basement Space. Tenant represents that all such work was performed
by Tenant in a good and workmanlike manner, in compliance with all federal,
state, municipal and other statutes, laws, ordinances, regulations, rules and
requirements relating to the Building, in accordance with all standards
established by Landlord and otherwise in compliance with the terms and
conditions of the Lease, as modified hereby. Within thirty (30) days after (a)
submission to Landlord of a complete and final release and lien waiver with
respect to the Building executed by all parties with legal standing to file a
lien, and (b) submission to Landlord of all invoices for the work so performed
and other items reasonably r equested, Landlord shall reimburse Tenant for the
actual costs and expenses Tenant has incurred in performing the work described
in this Section 12 in an amount not to exceed $21,825.00.
13. Tenant shall use the Basement Expansion Space exclusively for
storage and otherwise in compliance with the terms and conditions of the Lease,
as modified herein.
14. (a) The address set forth for Landlord (including the those
parties to receive copies of notices, consents, approvals, requests, and other
communications delivered to Landlord) in Section 28.1 of the Original Lease is
hereby modified and amended as follows:
To Landlord:
MONY REAL ESTATE INVESTMENT MANAGEMENT
c/o The Mutual Life Insurance Company of New York
1740 Broadway
Ninth Floor
New York, New York 10019
Attn.: Real Estate Asset Management
with a copy to:
The Mutual Life Insurance Company of New York
1740 Broadway
New York, New York 10019
Attn: Real Estate Counsel
(b) The address set forth for Tenant in Section 28.1 of the Original
Lease is hereby modified and amended as follows: To Tenant: Dialogic Corporation
1515 Route Ten Parsippany, New Jersey 07054-4596 Attn: Real Estate Facilities
Manager
Copies to Tenant shall be delivered as specified in the Original
Lease.
15. Tenant and Landlord, each respectively warrants and represents
that it has not dealt with any broker or real estate agent in connection with
this Sixth Amendment to Lease Agreement or its negotiation, other than Edward S.
Gordon of New Jersey and Cushman & Wakefield of New Jersey (collectively
"Broker"), and Landlord agrees to pay the Broker pursuant to a separate
agreement. Each party shall indemnify and hold the other harmless from any cost,
expense or liability (including costs of suit and reasonable attorneys' fees)
for any compensation, commission or fees claimed by any real estate broker or
agent or other intermediary, other than Broker, in connection with this
Agreement or its negotiation by reason of any act of the indemnifying party.
16. Tenant agrees, confirms and acknowledges that (a) there is no
remaining expansion space square footage that Tenant has the option to lease as
such right was specifically set forth in Section 2.6 of the Original Lease, as
such section was modified by the Second Amendment, and (b) Landlord has fully
complied with the provisions of Section 2.7 (which provides for Tenant to have a
right of first refusal) and Tenant agrees that it has no further right of first
refusal with respect to any space in the Building other than that right of first
refusal (as said right is more accurately described in Section 2.7 of the
Original Lease "Right of First Refusal") for space that is currently unleased in
the basement of the Building ("Remaining Basement Space"), provided, however,
that with respect to the Right of First Refusal for the Remaining Basement
Space, (i) the last two sentences of Section 2.7 of the Original Lease are
deleted in their entirety, (ii) Tenant, at its sole cost and expense shall cause
to have all electrical uses for any of the Remaining Basement Space it so
leases, connected to Tenant's separate electrical meter, (iii) Tenant agrees to
accept the Remaining Basement Space in its condition and state of repair as of
the date of the commencement of the lease for the Remaining Basement Space and
Tenant agrees that Landlord shall not be required to perform any work, supply
any materials or incur any expense to prepare such space for Tenant's occupancy,
(iv) the term of the lease for the Remaining Basement Space shall be co-terminus
with the Lease, as modified herein, and (v) Tenant shall use the Remaining
Basement Space exclusively for storage and otherwise in compliance with the
terms and conditions of the Lease, as modified herein. Time shall be of the
essence with respect to Tenant's notice in response to the Refusal Notice (as
defined in Section 21 below) with respect to the Right of First Refusal, and
Tenant's failure to give any such notice within the ten (10) business day period
shall be deemed a re jection of Landlord's offer, any principles of law or
equity to the contrary notwithstanding. A Refusal Notice may only be accepted in
whole, not in part. If Tenant rejects, or is deemed to have rejected, Landlord's
offer with respect to the Right of First refusal, Landlord shall be free to
lease the Remaining Basement Space to any party upon any terms and conditions
that Landlord may determine from time to time during the Term, with no further
obligation to Tenant under this Section with respect to the Remaining Basement
Space.
17. Section 4.8 of the original Lease is modified as of the date of
this Sixth Amendment to Lease Agreement to provide Tenant with ninety (90) days
following Tenant's receipt of Landlord's Statement in which to dispute the
correctness of such Statement. Within ten (10) business days of request
therefore (such tenth day is referred to herein as "Document Delivery Date"),
Landlord shall furnish supporting documentation reasonably requested by Tenant
in respect of the information reflected on Landlord's Statement. Landlord shall
have no liability for failing to timely deliver the supporting documentation by
the Document Delivery Date, except that upon such failure, Tenant's time in
which to dispute Landlord's Statement shall be extended by one (1) day for each
day during the period between the Document Delivery Date and the delivery of the
supporting documentation.
18. The covenants, agreements, terms and conditions contained in this
Agreement shall bind and inure to the benefit of the parties hereto and their
respective legal successors and assigns.
19. This Amendment may not be changed orally, but only by writing
signed by the party against which the enforcement thereof is sought.
20. Except as expressly modified by this Agreement, the Lease and all
the covenants, agreements, terms and conditions thereof shall remain in full
force and effect and are hereby in all respects ratified and confirmed.
21. (a) Tenant shall have the option to include as part of the
Premises, the Remaining Basement Space pursuant to the terms of the Lease, as
amended hereby.
(b) Any such option shall be exercised by a written notice
(hereinafter called the "Expansion Notice") from Tenant to Landlord given at any
time prior to the date Landlord delivers to Tenant the notification required in
Section 2.7 of the Original Lease with respect to the Right of First Refusal
(such notification hereinafter referred to as "Refusal Notice").
(c) In the event that Tenant shall give Landlord the Expansion Notice,
Tenant shall be deemed to have irrevocably agreed to have the Remaining Basement
Space added to and included in the Premises effective as of the thirtieth (30th)
day after the delivery of the Expansion Notice (the "Inclusion Date").
(d) In the even that Tenant shall properly exercise its option in
accordance with the provisions hereof, then in such event, effective as of the
Inclusion Date:
(i) The Remaining Basement Space shall be deemed added to and
included in the Premises for the period commencing on the Inclusion Date
and ending on the Expiration Date (as such date may be extended pursuant to
the terms of the Lease, as amended hereby). The inclusion of such space
shall be on all the terms and subject to the conditions of the Lease, as
amended hereby (other than Section 6 of the Original Lease, as amended) and
on such additional terms and conditions as is hereinafter set forth in this
Section 21. Tenant shall use the Remaining Basement Space exclusively for
storage and otherwise in compliance with the terms and conditions of the
Lease, as modified herein;
(ii) Fixed Rent for the Remaining Basement Space shall be at the
annual rate of $4.00 per square foot, payable in equal monthly
installments.
(iii) Tenant, at its sole cost and expense, shall cause to have
all electrical uses of the Remaining Basement Space connected to Tenant's
separate electrical meter;
(iv) Landlord and Tenant shall execute an amendment to the Lease
setting forth without limitation the exercise of the expansion option, the
inclusion of the Remaining Basement Space in the Premises, the Inclusion
Date and other appropriate items.
(e) Tenant agrees to accept the Remaining Basement Space in its
condition and state of repair existing as of the Inclusion Date and understands
and agrees that Landlord shall not be required to perform any work, supply any
materials or incur any expense to prepare such space for Tenant occupancy.
Notwithstanding the foregoing, in the event that Tenant exercises its expansion
right as contemplated by this Section and as of the date of such Expansion
Notice is given, the remaining Term of the Lease is not less than three (3)
years (including all renewal options which have been exercised), Landlord shall
provide an allowance ("Expansion Basement Allowance") in an amount not to exceed
the lesser of (1) $2.58 per square foot calculated for the Remaining Basement
Space so leased by Tenant pursuant to this Section ("Leased Expansion Space"),
or (2) Tenant's actual costs in performing certain work ("Expansion Basement
Work"). The Expansion Basement Work shall consist solely of: (i) erecting a
chain link fence ar ound the portion of the Leased Expansion Space, and (ii)
installing lighting in the Leased Expansion Space. The Expansion Basement Work
shall be of like nature and quality of such items currently existing in the
basement. All Expansion Basement Work shall be performed by Tenant in a good and
workmanlike manner, in compliance with all federal, sate, municipal and other
statutes, laws, ordinances, regulations, rules and requirements relating to the
Building, in accordance with all standards established by Landlord and otherwise
in compliance with the terms and conditions of the Lease, as modified hereby.
Provided Tenant is not in default of the Lease, as amended hereby at the time
payment is due by Landlord, Landlord shall pay to Tenant the Expansion Basement
Allowance within thirty (30) days after Landlord's receipt of (x) notice that
the Expansion Basement work has been completed, (y) submission to Landlord of a
complete and final release and lien waiver with respect to the Building executed
by all partie s with legal standing to file a lien, and (z) submission to
Landlord of all invoices for the work so performed and other items reasonably
requested.
(f) Tenant's expansion option pursuant to this Section 21 shall expire
and be of no further force and effect as of the date Landlord delivers to Tenant
the Refusal Notice, but only as to the basement space identified in said Refusal
Notice.
(g) The termination of the Lease, as amended hereby shall also
terminate Tenant's option pursuant to this Section 21 whether or not the same
shall have been exercised. Nothing contained in this Section shall prevent
Landlord from exercising any right or action granted to or reserved by Landlord
in the Lease, as amended hereby to terminate the Lease, as amended hereby.
Tenant's option set forth in this Section 21 may not be severed from the Lease
or separately sold, assigned or transferred and is only exercisable by Dialogic
Corporation or a successor corporation.
(h) Tenant shall have no right to exercise the expansion option
pursuant to this Section 21 if: (i) the named Tenant has assigned the Lease or
has at any time subleased, in the aggregate, more than fifty percent (25%) of
the Premises, or (ii) Tenant shall be in default hereunder and such default
shall not have been cured at the time of the exercise of its option or, if such
default occurs after Tenant's attempted leasing, as of the Inclusion Date.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have here onto set their hands
and seals or caused their presence to be signed by its proper corporate officers
and caused its proper corporate seal to be here onto affixed, the day and the
year first above written.
THE MUTUAL LIFE INSURANCE
WITNESS: COMPANY OF NEW YORK
/s/
___________________ By: /s/_________________________
Name: Debra Kloper, Vice President
WITNESS: DIALOGIC CORPORATION
/s/
___________________ By: /s/__________________________________
Name: _____________________________________
Its: _____________________________________
EXHIBIT 10.11
ASSET PURCHASE AGREEMENT
by and among
Texas Instruments Incorporated
Dialogic Corporation
Spectron Microsystems, Incorporated
dated as of
January 22, 1998
<PAGE>
ASSET PURCHASE AGREEMENT
This ASSET PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 22nd day of January, 1998, by and among Texas Instruments
Incorporated, a Delaware corporation ("TI" or "Purchaser"), Dialogic
Corporation, a New Jersey corporation ("Parent"), and Spectron Microsystems,
Incorporated, a California corporation ("Seller").
RECITALS:
WHEREAS, Seller presently conducts the business (the "Business") of
designing, developing, manufacturing and selling software products and services
which comprise operating systems for digital signal processors and related
software tools and services (the "Products"); and
WHEREAS, Seller desires to sell and Purchaser desires to purchase
substantially all the assets, rights and properties of Seller used or useful in
the operation of the Business and, in connection with such purchase and sale,
Purchaser is willing to assume certain obligations and liabilities relating to
the Business, all on the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements herein contained, the parties hereto agree as follows:
I. PURCHASE OF ASSETS
1.1 Purchase and Sale of Assets. On the terms and subject to the conditions
hereof and subject to Sections 1.2 and 1.3, at the Closing (as defined in
Section 8.1), Seller will sell, transfer, convey, assign and deliver, and
Purchaser will purchase and accept, all right, title and interest of Seller in
and to all rights, properties and assets of Seller used in connection with the
Business and existing at the Closing, wherever located (collectively, the
"Assets"), free and clear of all liens, security interests, encumbrances,
mortgages, pledges and similar restrictions ("Liens"), except Permitted Liens
(as defined in Section 4.18(a)). The Assets include, without limitation, all of
Seller's right, title and interest in and to the following rights, properties
and assets of the Seller:
(a) Cash. Cash and cash equivalents;
(b) Contract Rights. Subject to Sections 1.2(c) and 1.3, all rights
and incidents of interest in and to all contracts, licenses, leases, agreements
and other instruments and obligations (whether oral or written, pending or
executory) ("Contracts") to which Seller is a party or by which Seller or its
properties or assets are or may be bound relating to the Business; such
Contracts include, without limitation, the Contracts set forth on Schedule
1.1(b) hereto;
(c) Inventories and Stores and Supplies. All raw materials,
components, work-in-process, finished products, packaging materials, stores and
supplies, spare parts and samples, wherever located;
(d) Tangible Personal Property. All machinery and equipment, tools,
spare and maintenance parts, furniture, vehicles and all other tangible personal
property owned by Seller, wherever located, used in the Business; such assets
include, without limitation, the assets set forth in Schedule 1.1(d) hereto;
(e) Manufacturers' and Vendors' Warranties. Subject to Section 1.3,
all of Seller's rights under manufacturers' and vendors' warranties relating to
items included in the Assets and all of Seller's similar rights against third
parties relating to items included in the Assets;
(f) Intellectual Property. Subject to the provisions of the license
agreement described in Section 8.2(f), all of Seller's right, title and interest
in and to all Intellectual Property (as hereinafter defined). "Intellectual
Property" shall mean and include (i) all domestic and foreign patents (including
certificates of invention and other patent equivalents), patent applications and
patents issuing therefrom as well as any division, continuation or
continuation-in-part thereof, and any reissue, reexamination, extension, revival
or renewal of any patent; (ii) all domestic and foreign marks, trademarks, trade
names, service marks, assumed names, trade dress, and logos, in each case
whether registered or at common law, and registrations for and applications to
register any of the same; (iii) all copyrights and registration of claim to
copyright and applications for registration of claim to copyright; (iv)
inventions or discoveries for novel devices, processes, compositions of matter,
methods, techniques, observations, discoveries, apparatuses, designs,
expressions, theories and ideas, whether or not patentable; (v) the Software (as
hereinafter defined) ("Software" shall mean the expression of an organized set
of instructions in a natural or coded language that is contained on a physical
media of any nature (e.g., written, electronic, magnetic, optical or otherwise)
and that may be used with a computer or other automated data processing
equipment device of any nature which is based on digital technology, to make
such computer or other device operate in a particular manner and for a certain
purpose, as well as any related documentation for such set of instructions and
its subsystems and shall include computer programs in source and object code,
test or other significant data libraries, user documentation for computer
programs, and any of the following that is contained on a physical media of any
nature and that is used in the design, development, modification, enhancement,
testing, installation, maintenance, diagnosis or assurance of the same: flow
diagrams, masks, input and output formats, file layouts, development tools,
database formats, interfaces, test programs, installation and operating
instructions, diagnostic and maintenance instructions, and other similar
materials and information); (vi) any and all works of authorship fixed in any
tangible medium of expression, regardless of whether copyrighted ("Works of
Authorship"); (vii) any formula, design, device or compilation of information
that is used or held for use in the exploitation of the Intellectual Property
which gives the holder thereof an advantage or opportunity for advantage over
competitors which do not have or use the same, and which is not generally known
by, and has not been disclosed to, the public ("Trade Secrets"); provided,
however, that the term "Trade Secrets" shall not include any formula, design,
device or compilation that was created by, or for the exclusive benefit of,
Parent, regardless of whether or not employees of Seller are aware of any such
formula, design, device or compilation; and (viii) scientific, engineering,
programming, mechanical, electrical, financial, marketing or practical knowledge
or experience useful in the exploitation of the Intellectual Property
("Know-How").
(g) Real Property. All rights and incidents of interest of Seller in
and to all real property leases (the "Real Property Leases") relating to the
operations of the Business, a true and complete list of which leases as of the
date hereof is set forth in Schedule 1.1(g) hereto (the real property subject to
such Real Property Leases being hereinafter referred to as the "Real Property"),
and all of Seller's rights in all of the structures, fixtures and improvements
located on the Real Property;
(h) Government Licenses, Permits and Approvals. Subject to Section
1.3, all rights and incidents of interest of Seller in and to all permits issued
to Seller by any Governmental Authority (as hereinafter defined) to the extent
that such permits ("Permits") are assignable; such Permits include, without
limitation, the Permits set forth on Schedule 1.1(h) hereto;
(i) Books and Records. Except for the assets described in Section 1.2,
all the books and records of Seller, including without limitation all books and
records relating to employees (but, with respect to employees, only to the
extent and in the manner permitted by law), the purchase of materials, supplies
and services, financial, accounting and operations matters, product engineering,
research and development, manufacture and sale of products and all customer and
vendor lists relating to the operation of the Business and all files and
documents (including credit information) relating to customers and vendors of
the Business;
(j) Seller's Name. All Seller's rights to the name "Spectron
Microsystems Incorporated" and any derivative or variant thereof; and
(k) Prepaid Items. All prepaid items..
1.2 Excluded Assets Notwithstanding anything contained in this Agreement to
the contrary, the following rights, properties and assets of Seller will not be
included in the Assets:
(a) Corporate Documents. Seller's corporate seal, minute books,
charter documents, corporate stock record books and such other books and records
as pertain to the organization, existence or share capitalization of Seller, any
other records or materials relating to (i) any asset excluded pursuant to any
other sub-paragraph of this Section 1.2, (ii) any Retained Liabilities or (iii)
Seller generally (provided that such records and materials do not involve or
relate to the Assets or the operation or operations of the Business) and
duplicate copies of (A) such other records as Seller or Parent shall reasonably
require in order to satisfy their tax, accounting, securities and other
applicable regulatory requirements and (B) books and records pertaining to
Intellectual Property covered by the license agreement described in Section
8.2(f).
(b) Benefit Plans. Any and all employee benefit plans (and assets held
thereunder) maintained or otherwise sponsored, in whole or in part, by Seller or
Parent for the benefit of Seller's employees.
(c) Other Scheduled Assets. Any right, property or asset which is
described in Schedule 1.2(d) hereto and any Contract which is dependent on
another Contract which latter Contract (a) cannot be assigned hereunder and (b)
the financial and business benefits of which cannot be transferred to Purchaser
pursuant to Section 1.3(c).
1.3 Nonassignable Contracts and Permits.
(a) Nonassignability. Without limiting or otherwise affecting the
rights of Purchaser pursuant to Article X to obtain indemnification in the event
that Seller fails to perform its obligations under this Section 1.3, to the
extent that any Contract or Permit to be assigned pursuant hereto is not capable
of being assigned without the consent, approval or waiver of a third person or
entity (including without limitation any agency, court or instrumentality of any
foreign, federal, state or local governmental authority (each, a "Governmental
Authority")), nothing in this Agreement will constitute an assignment or require
the assignment thereof except to the extent provided in this Section 1.3,
nothing in this Agreement will afford Purchaser the right to terminate this
Agreement or the right to refuse to perform its obligations at Closing by virtue
of the inability to obtain any such consent, approval or waiver (provided that
Seller performs its obligations under this Section 1.3) and nothing in this
Agreement will subject Seller or Parent to any liability by virtue of the
failure to obtain any such consent, approval or waiver (provided that Seller
performs its obligations under this Section 1.3).
(b) Seller to Use Reasonable Commercial Efforts. Notwithstanding
anything contained in this Agreement to the contrary, Seller will not be
obligated to assign to Purchaser any of its rights and obligations in and to any
of the Contracts or Permits without first having obtained all consents,
approvals and waivers necessary for such assignment; provided, however, that
Seller shall use reasonable commercial efforts to obtain all such consents,
approvals and waivers prior to and, if the Closing occurs, after the Closing
Date (as defined in Section 8.1). Such reasonable commercial efforts shall not
include the payment of any consideration by Seller to obtain any such consents,
approvals or waivers.
(c) If Waivers or Consents Cannot Be Obtained. To the extent that the
consents, approvals and waivers referred to in Section 1.3(a) are not obtained
by Seller, Seller shall use its reasonable commercial efforts (subject to the
limitation set forth in the last sentence of Section 1.3(b)) to (i) provide to
Purchaser the financial and business benefits of any Contract or Permit referred
to in Section 1.3(a) and (ii) enforce, at the request and expense of Purchaser,
for the account of Purchaser, any rights of Seller arising from any such
Contract or Permit (including without limitation the right to elect to terminate
such Contract or Permit in accordance with the terms thereof upon the advice,
and at the expense, of Purchaser), provided, however, that Seller shall not be
required to take any action which would constitute a breach of any such Contract
or Permit other than an action to terminate any such Contract or Permit in
accordance with the terms of this Section 1.3(c). With respect to Contracts and
Permits for which such waivers or consents cannot be obtained but as to which
Seller is able to pass on the financial and business to Purchaser, Purchaser
shall assume Seller's obligations thereunder. With respect to Contracts and
Permits for which such waivers or consents cannot be obtained and as to which
Seller is unable to pass on the financial and business to Purchaser, Seller
shall retain its obligations thereunder.
II. ASSUMPTION OF LIABILITIES
2.1 Assumed Liabilities. As of the Closing, Purchaser will assume and
thereafter in due course pay and fully satisfy the following liabilities and
obligations of Seller (the "Assumed Liabilities") and no other liabilities or
obligations:
(a) all liabilities of Seller in respect of paid time off accrued by
the Seller's employees who accept offers of employment from Purchaser prior to
Closing in respect of vacation, sick time, personal leave and family leave,
provided that Purchaser shall not be liable for more than $140,000 of
liabilities pursuant to this Section 2.1(a);
(b) the obligations of Seller arising after the Closing in respect of
the Real Property Leases and the Contracts described in Section 1.1, other than
Contracts and Leases executed by the Seller subsequent to the date hereof
outside the ordinary course of business (consistent with the past practice of
Seller) or otherwise not in accordance with Section 6.6;
(c) the obligations of Seller under any written or oral purchase order
or sale order outstanding on the Closing Date, provided that such purchase order
or sale order was given in the ordinary course of business consistent with past
practice and in accordance with Section 6.6;
(d) intentionally omitted
(e) all accounts payable of Seller outstanding on the Closing Date,
provided that such accounts payable (1) have arisen in the ordinary course of
business, (2) do not constitute bank debt or other indebtedness for borrowed
money or indebtedness to Parent and (3) do not exceed, in the aggregate,
$250,000; and
(f) the obligations described in Schedule 2.1(f) hereto.
2.2 Retained Liabilities. Notwithstanding anything contained in this
Agreement to the contrary, Purchaser does not assume or agree to pay, satisfy,
discharge or perform, and will not be deemed by virtue of the execution and
delivery of this Agreement or any document delivered at the Closing pursuant to
this Agreement, or as a result of the consummation of the transactions
contemplated by this Agreement, to have assumed, or to have agreed to pay,
satisfy, discharge or perform, any liability, obligation or indebtedness of
Seller, whether primary or secondary, direct or indirect, other than the Assumed
Liabilities (such liabilities and obligations retained by Seller being referred
to herein as the "Retained Liabilities"). It is specifically agreed that such
Retained Liabilities shall include, without limitation, (a) liabilities and
obligations arising from or relating to Employee Plans (as hereinafter defined),
including, but not limited to, workers compensation and disability benefits
arising from or related to an injury, illness or other physical or mental
condition incurred prior to the Closing (regardless of when reported) and (b)
all liabilities and obligations of Seller relating to Taxes, whether applicable
to the Business or otherwise, attributable to periods (or portions thereof)
ending on or prior to the Closing Date or to the pre-Closing portion of any
period that includes but does not end on the Closing Date (allocable to such
pre-Closing portion of a period by closing the books of Seller at the close of
business on the Closing Date or, where not susceptible to such allocation, pro
rata on the basis of the number of days elapsed in the period).
III. PURCHASE PRICE
3.1 Purchase Price. In consideration of the conveyance to Purchaser of the
Assets and the other rights granted to Purchaser pursuant hereto and subject to
the conditions and in accordance with the terms hereof, Purchaser shall (a) pay
to Seller the Purchase Price (as defined in Section 3.2(a)) and (b) assume the
Assumed Liabilities.
3.2 Payment of Purchase Price.
(a) Subject to adjustment as provided in Section 3.2(b), the purchase
price payable by Purchaser hereunder (the "Purchase Price") will consist of U.S.
$26,000,000 payable in cash at Closing (the "Closing Date Payment"). The Closing
Date Payment will be paid by wire transfer of immediately available funds to
such account as shall have been designated by Seller to Purchaser at or prior to
the Closing.
(b) The Purchase Price shall be subject to adjustment in accordance
with Schedule 3.2(b) hereto.
3.3 Seller and Purchaser agree to consult with each other with respect to
the allocation of the Purchase Price and Assumed Liabilities to the Assets and
the other rights granted to Purchaser pursuant hereto, provided that such
undertaking shall in no way obligate either party to agree on such allocation.
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND SELLER
Each of Parent and Seller, jointly and severally, makes the following
representations and warranties to Purchaser, each of which is true and correct
as of the date hereof, and shall be unaffected by any investigation heretofore
or hereafter made by or on behalf of Purchaser. Parent and Seller acknowledge
that Purchaser is relying on such representations and warranties in connection
with the entering into of this Agreement and the purchase of the Assets.
4.1 Organization and Good Standing. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of California.
Seller has the requisite corporate power and authority to own, lease or
otherwise hold the assets owned, leased or otherwise held by it and to carry on
its business as presently conducted by it. Seller is in good standing and duly
qualified to conduct business as a foreign corporation in every jurisdiction in
which its ownership or lease of property or conduct of the Business makes such
qualification necessary and where the failure to so qualify would have a
"Material Adverse Effect" on Seller (as hereinafter defined). Each of the
foregoing jurisdictions are listed on Schedule 4.1 hereto.
4.2 Authorization and Effect of Agreement. Each of Seller and Parent has
the requisite corporate power to execute and deliver this Agreement and the
agreements to be entered into by such party at the Closing (the "Seller
Ancillary Documents") and to perform the transactions contemplated hereby and
thereby to be performed by it. The execution and delivery by each of Seller and
Parent of this Agreement and the Seller Ancillary Documents and the performance
by each of them of the transactions contemplated hereby and thereby to be
performed by it have been, or, in the case of the Seller Ancillary Documents,
will at the Closing be, duly authorized by all necessary corporate and
shareholder action on the part of Seller and Parent. This Agreement has been,
and each Seller Ancillary Document will at the Closing be, duly executed and
delivered by duly authorized officers of each of Seller and, as applicable,
Parent and, assuming the due execution and delivery of this Agreement and, as
applicable, any Seller Ancillary Document, by Purchaser, this Agreement
constitutes, and each Seller Ancillary Document will at the Closing constitute,
a valid and binding obligation of Seller and, as applicable, Parent, enforceable
against Seller and, as applicable, Parent in accordance with its terms, except
as may be limited by bankruptcy, insolvency, reorganization, moratorium, or
other similar laws affecting the enforcement of creditors' rights in general and
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
4.3 No Interests in Other Entities. The Seller does not own or hold any
shares of any corporation or any other ownership or investment interests,
whether owned or held of record, beneficially or equitably, in any Person (as
hereinafter defined).
4.4 No Conflicts. The execution and delivery of this Agreement and each
Seller Ancillary Document by Seller or, as applicable, Parent does not or, in
the case of the Seller Ancillary Documents, will not, and the performance by
Seller or Parent of the transactions contemplated hereby or thereby to be
performed by either of them will not (a) conflict with or violate any provision
of the articles or certificate of incorporation or by-laws of Seller or Parent,
(b) conflict with, or result in any violation of, or constitute a default (with
or without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation, or acceleration of any obligation or to loss of a
benefit under, any provision of any material document to which Parent or Seller
or any of their respective assets or properties is bound (including, without
limitation, any Contract listed or required to be listed on any schedule
hereto), (c) constitute a violation of any law applicable to Seller or Parent or
any the Assets or (d) result in the creation of any Lien (other than any
Permitted Liens) upon any of the Assets. No consent, approval, order, or
authorization of, or registration, declaration, or filing with, any Governmental
Authority or any individual, corporation, partnership, limited liability
company, joint venture or other form of business or legal entity (collectively,
a "Person"), whether pursuant to Contract or otherwise, is required to be
obtained or made by or with respect to Seller or Parent in connection with the
execution and delivery of this Agreement or any Seller Ancillary Document or the
performance by Seller or Parent of any of their obligations hereunder or
thereunder, except for (i) such of the foregoing as are listed or described on
Schedule 4.4, which Schedule 4.4 shall be provided to Purchaser on or before
January 30, 1998 and (ii) any filings, if required, with the Federal Trade
Commission and Department of Justice pursuant to the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act") (such filings in clause
(ii) being hereinafter referred to as the "Governmental Approvals").
4.5 No Third-Party OptionsIV.5No Third-Party Options. There are no existing
agreements, options, commitments or rights with, of or to any person to acquire
any of the Assets or any interest therein, except for Contracts, purchase orders
and sales orders entered into in the ordinary course of business consistent with
past practice.
4.6 Financial Statements. Seller has delivered to Purchaser true and
complete copies of its unaudited balance sheet as of November 30, 1997 (the
"November Balance Sheet"), and the related statements of income, changes in
stockholder's equity and cash flow for the eleven months then ended
(collectively, the "Financial Statements"), all of which, except as set forth on
Schedule 4.6 hereto, have been prepared in accordance with U.S. generally
accepted accounting principles ("GAAP") consistently applied throughout the
periods involved. The November Balance Sheet fairly presents the financial
position, assets and liabilities (whether accrued, absolute, contingent or
otherwise) of Seller at November 30, 1997, and the statements of income, changes
in stockholder's equity, and cash flow included in the Financial Statements
fairly present the results of operations, changes in stockholder's equity and
cash flow for the eleven months ended November 30, 1997. The Financial
Statements contain all adjustments, which are solely of a normal recurring
nature, necessary to present fairly the financial position and results of
operations of Seller at and for the eleven months ended November 30, 1997.
References in this Agreement to the "Interim Balance Sheet Date" shall be deemed
to refer to November 30, 1997.
4.7 Absence of Undisclosed Liabilities. Seller has no liabilities or
obligations related to the Business other than liabilities or obligations
incurred in or as a result of the normal and ordinary course of business
consistent with past practice. For purposes of this Agreement, the term
"liabilities" or "obligations" shall include, without limitation, any
indebtedness, guaranty, endorsement, claim, loss, damage, deficiency, cost,
expense, obligation or responsibility.
4.8 Contracts and CommitmentsIV.8 Contracts and Commitments.
(a) Except as listed or described on Schedule 4.8(a) hereto, Seller is
not a party to any written or oral:
(1) agreement, contract or commitment for the future purchase of,
or payment for, supplies or products, or for the performance of services by a
third party which supplies, products or services are used in the conduct of the
Business involving in any one case $10,000 or more;
(2) in connection with the Business involving in any one case
$10,000 or more;rvices Contractscts ("Goods Contracts
(3) agreement, contract or commitment relating to the Business
(other than the agreements described in any other clause of this Section 4.8(a))
continuing over a period of more than six months from the date hereof and
exceeding $10,000 in value;
(4) distribution, dealer, representative or sales agency
agreement, contract or commitment relating to the Business;
(5) lease or sublease involving rental payments of at least
$1,000 per month, under which Seller is either lessor or lessee, or sublessor or
sublessee, relating to the Assets or any Real Property;
(6) note, debenture, bond, equipment trust agreement, letter of
credit agreement, loan agreement or other contract or commitment for the
borrowing or lending of money relating to the Business or agreement or
arrangement for a line of credit or guarantee, pledge or undertaking of the
indebtedness of any other Person relating to the Business;
(7) agreement, contract or commitment in excess of $2,500 for any
charitable or political contribution relating to the Business;
(8) commitment or agreement for any capital expenditure or
leasehold improvement in excess of $10,000 relating to the Business;
(9) agreement, contract or commitment limiting or restraining
Seller, the Business or any successor thereto from engaging in any business ,
nor, to Seller's Knowledge (as hereinafter defined), is any employee of Seller
(other than Excluded Employees (as hereinafter defined)) engaged in the conduct
of the Business subject to any such agreement, contract or commitment other than
agreements identified as such in such Schedule 4.8(a);
(10) distributorship agreement (regardless of the dollar amount
involved) or license, franchise or other Contract involving payments to or by
Seller which are reasonably expected to be more than $100,000 per year which, in
the case of any such distributorship agreement, license, franchise or other
Contract, relates in whole or in part to any Software of Seller (including any
Contract (regardless of the dollar amount involved) by which Seller has licensed
or otherwise provided access to its source code, including by way of any escrow
or similar arrangement), patent, trademark, trade name, service mark or
copyright or to any ideas, technical assistance or other Know-How of or used by
Seller in the conduct of the Business;
(11) joint development or joint venture agreement or agreement
obligating the Seller to perform research for a third-party in exchange for
compensation; or
(12) any other material agreement, contract or commitment
relating to the Business not made in the ordinary course of business.
(b) Each of the agreements, contracts, commitments, leases, plans and
other instruments, documents and undertakings listed on Schedule 4.8(a) is a
valid and binding obligation of the Seller and, to Seller's Knowledge, is a
valid and binding obligation of each other party thereto. Seller is, and to
Seller's Knowledge all other parties thereto are, in substantial compliance with
the provisions of the agreements, contracts, commitments, leases, plans and
other instruments, documents and undertakings listed on Schedule 4.8(a); and to
Seller's Knowledge, no event has occurred which, with or without the giving of
notice or lapse of time, or both, would constitute a default thereunder.
(c) Except as disclosed on Schedule 4.8(c), each Service Contract is
substantially in the form referred to in Schedule 4.8(c).
(d) Schedule 4.8(d) accurately discloses with respect to each Services
Contract disclosed in Schedule 4.8(a), the customer name; and the total billings
as of December 31, 1997 under such contract.
4.9 Intellectual Property.
(a) Schedule 4.9(a) hereto sets forth a true and complete list of all
items of Intellectual Property which both (i) are owned by Seller and (ii) are
used or held for use in the Business (collectively, the "Owned IP"), except for
the Know-How and Trade Secrets of Seller. Schedule 4.9(a) includes, without
limitation, a complete list of all United States and foreign patents, registered
trademarks, registered copyrights, registered trade names, registered service
marks and any other registered Intellectual Property rights of Seller, and any
applications therefor, owned by Seller ("Registered Owned IP") and specifies,
where applicable, the jurisdictions in which each item of Registered Owned IP
has been issued or registered or in which an application for such issuance and
registration has been filed, including the respective registration or
application numbers and the names of all registered owners.
(b) Schedule 4.9(a) hereto sets forth a true and complete list of all
items of Intellectual Property which both (i) Seller does not own, but in which
Seller has valid license or other rights, and (ii) are used or held for use in
the Business (collectively, the "Not-Owned IP"), other than generally available
Software used on personal computers having an individual acquisition cost of
$1,000 or less. The right of Seller to use the Not-Owned IP in the Business is
evidenced solely by the written license agreements identified pursuant to
Section 4.8 and license agreements for such generally available Software.
(c) The Owned IP, Not-Owned IP, Know-How, Owned Software (as
hereinafter defined), Not-Owned Software (as hereinafter defined) and Trade
Secrets include all of the Intellectual Property rights reasonably necessary to
conduct the Business as it is now conducted, and includes all of the
Intellectual Property rights used in the development, marketing, licensing or
support of the Software.
(d) To the Knowledge of Seller, the development, license, use, sale,
distribution and modification of the Owned IP and Not-Owned IP by Seller in
connection with the Business has not infringed on or otherwise violated any
presently existing patent or any other intellectual property rights of any other
Person or constituted an unlawful disclosure, use or misappropriation of the
rights of any other Person. To the Knowledge of Seller, Seller is not in
violation of, or in default (with or without notice or lapse of time or both)
under, any legal requirement relating to Seller's Intellectual Property.
(e) Except as set forth in Schedule 4.9(e) hereto, there is no pending
or, to the Knowledge of Seller, threatened claims or actions of any nature
affecting the Intellectual Property of Seller or any rights therein. Schedule
4.9(e) hereto also lists all written notices currently pending or received by
Seller since February 28, 1995 (or relating to any unresolved claim received at
any time with respect to which any correspondence has been received since
February 28, 1995) which claim infringement or misappropriation or breach, as
the case may be, of any Intellectual Property of any third party. None of the
Intellectual Property of Seller is subject to any outstanding decree, order,
judgment or stipulation to which Seller is a party restricting in any respect
the exploitation or licensing thereof by Seller and, to Seller's Knowledge, none
of the Intellectual Property of Seller is subject to any outstanding decree,
order, judgment or stipulation to which Seller is not a party restricting in any
material respect the exploitation or licensing thereof by Seller.
(f) Except as set forth in Schedule 4.9(f) hereto, (i) there are no
material restrictions to which Seller is a party, and, to Seller's Knowledge, no
material restrictions to which Seller is not a party, on the ability of Seller,
or any successor or assign of Seller, to sell, market, license, distribute,
exploit or use the Owned IP in the manner and geographical scope and in
connection with the goods and services in which the Owned IP is presently sold,
marketed, licensed, distributed, exploited or used , and (ii) subject to
licenses given by Seller to other Persons as disclosed pursuant to Sections 4.8,
4.9 or 4.10, Seller is the sole and exclusive owner of, with all right, title
and interest in and to (free and clear of any Liens), the Owned IP, and has sole
and exclusive rights (and is not contractually obligated to pay any compensation
to any third party in respect thereof) to the use thereof or the material
covered thereby in connection with the services or products in respect of which
the Owned IP of Seller is being used. At the Closing, Purchaser will acquire all
of such rights on the same basis and geographic scope as that enjoyed by Seller
immediately prior to the Closing Date.
(g) Except as set forth in Schedule 4.9(g) hereto (and subject only to
the express terms of those license agreements identified pursuant to Section
4.8), Seller is the licensee of, with all right, title and interest in and to
(free and clear of any Liens), the Not-Owned IP, and has non-exclusive rights
(and is not contractually obligated to pay any compensation to any third party
in respect thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect of which the Owned IP of
Seller is being used. At the Closing, Purchaser will acquire all of such rights
on the same basis and geographic scope as that enjoyed by Seller immediately
prior to the Closing Date.
(h) Except as disclosed pursuant to Section 4.8, Seller has not
granted or, to Seller's Knowledge, obligated itself to grant to any Person any
license, option or other right to develop, license, sell, distribute or modify
(including any rights under any source code escrow agreement) in any manner, in
whole or in part, any of the Owned IP or Not-Owned IP.
(i) To Seller's Knowledge, there has been no material unauthorized
use, infringement or misappropriation of any Intellectual Property of Seller by
any third party, including any employee or former employee of Seller.
(j) To Seller's Knowledge all patent, trademark and copyright
registrations constituting part of the Owned IP are valid and subsisting, have
been properly maintained, and are in full force and effect in accordance with
their terms, and neither Seller, nor to Seller's Knowledge any other Person, is
in default or violation thereunder. To Seller's Knowledge, no Person, other than
Seller, has applied for any patent or registered any claim to copyright or
trademark with respect to any part of the Owned IP. Purchaser acknowledges that
Seller has not followed a practice of registering copyrights.
4.10 Software.
(a) Schedule 4.9(a) or Schedule 4.10(a) hereto sets forth a true and
complete list of all items of Software which both (i) are owned by Seller and
(ii) are used or held for use or under development in the Business (the "Owned
Software"). Except as set forth on such Schedule 4.9(a), the Owned Software
shall include without limitation all earlier or predecessor versions of any of
such Software.
(b) Schedule 4.9(b) or Schedule 4.10(b)hereto sets forth a true and
complete list of all items of Software which both (i) Seller does not own but in
which Seller has rights to use (by license or otherwise), and (ii) are used or
held for use in the Business, other than licenses for generally available
commercial Software used on personal computers having an individual acquisition
cost of $1,000 or less (excluding such licenses for such generally available
commercial Software, the "Not-Owned Software").
(c) Except as set forth in Schedule 4.10(c) hereto, to Seller's
Knowledge there are no defects in the most recent generally distributed
commercial versions of the Owned Software (excluding any computer Software in
the process of development and any versions distributed as beta, test or
evaluation releases) (after such exclusion, the "Commercial Owned Software")
that would prevent the Commercial Owned Software from substantially performing
the functions in the documentation accompanying such Commercial Owned Software
as updated(the "Documentation") when such Commercial Owned Software is used in
its unmodified form, from undamaged media, and in accordance with the
instructions and specifications stated in the Documentation.
(d) Except as qualified in the last sentence of this Section 4.10(d)
and as set forth in Schedule 4.10(d), the Commercial Owned Software is capable
of identifying, manipulating and calculating data and information correctly
using dates within and outside of the 1990-1999 year range. In addition, except
as qualified in the last sentence of this Section 4.10(d) and as set forth in
Schedule 4.10(d), the Commercial Owned Software is not expected by Seller to (i)
have any operational impediments, (ii) malfunction, (iii) cease to perform, (iv)
generate incorrect or ambiguous data or (v) produce incorrect or ambiguous
results, in each case with respect to same-century and multi-century formulas,
functions, date values and date-data interfaces. With respect to the period
beginning on the first anniversary of the Closing Date and expiring on the
second anniversary of the Closing Date (as set forth in Section 10.1 hereof),
this representation is made to Seller's Knowledge.
4.11 Development and Protection of Intellectual Property.
(a) The Owned Software consists exclusively of (i) "works made for
hire" as that term is used in Title 17 of the United States Code, and Seller is
considered the author of each of such works, and (ii) works developed by
independent contractors or consultants engaged by Seller or a predecessor in
interest to Seller that have assigned to Seller all of their right, title and
interest in and to the work or works produced, including all copyright and other
intellectual property rights therein pursuant to a valid and enforceable written
Contract.
(b) Seller has taken reasonable and appropriate measures to protect in
all material respects the confidential and proprietary nature of the Trade
Secrets and the source code and access codes for the Owned Software and the
Not-Owned Software (the "Confidential Software"). All employees, agents and
consultants of Seller who have had access to any of the Trade Secrets or
Confidential Software have executed and delivered a proprietary information and
confidentiality agreement substantially in Seller's standard form or, with
respect to agents of Seller are otherwise obligated to Seller to maintain the
confidentiality of the Trade Secrets and Confidential Software. To Seller's
Knowledge, no Person that is a party to any such proprietary information and
confidentiality agreement or confidentiality obligation is in breach or default
thereunder in any material respect.
(c) To Seller's Knowledge, no employee of Seller is in violation of
any confidentiality agreement with any former employer or business associate.
(d) Seller has taken reasonable and appropriate measures to protect in
all material respects the confidential and proprietary nature of the information
related to the business strategy, finances, marketing plans or employees of
Seller that has not been published and is not generally known to the public.
4.12 Conduct of the Business Since the Interim Balance Sheet Date. Except
as described on Schedule 4.12 hereto and except for actions which would not
constitute a breach of Section 6.6 if occurring subsequent to the date hereof,
since the Interim Balance Sheet Date Seller has not
(a) incurred any liabilities, other than liabilities incurred in the
ordinary course of business consistent with past practice, or failed to pay or
discharge when due any liabilities of which the failure to pay or discharge has
caused or will cause any material damage or risk of material loss to Seller or
any of its assets or properties;
(b) sold, encumbered, assigned, or transferred any assets or
properties which would have been included in the Assets, except for the
replacement or betterment of obsolete or worn out equipment and the sale of
inventory or other Assets in the ordinary course of business consistent with
past practice;
(c) made or suffered any amendment or termination of any Contract
listed on Schedule 1.1(b) or Schedule 4.8(a) or of any Permit, or canceled,
modified, or waived any substantial debts or claims held by it or waived any
rights of substantial value, except in any case for acts or omissions arising in
the ordinary course of business;
(d) made or suffered any amendment or termination of any license,
franchise, distributorship or other Contract, whether or not in the ordinary
course of business, by which Seller has licensed or otherwise provided access to
its source code, including by way of escrow or other similar arrangement;
(e) received notice or had Knowledge of any actual or threatened
strike, material labor trouble or other material employment-related occurrence,
event or condition of any similar character;
(f) made commitments or Contracts for capital expenditures, capital
additions or betterments, or research and development, exceeding $10,000
individually or $50,000 in the aggregate, except such as may be involved in
ordinary repair, maintenance, or replacement of the Assets;
(g) increased the salaries or other compensation of, or made any
advance (excluding advances for ordinary and necessary business expenses) or
loan to, any of its employees or made any increase in, or any addition to, other
benefits to which any of its employees may be entitled, except in any such
instance for increases and advances arising in the ordinary course of business
in amounts consistent with past practices;
(h) entered into any transaction other than in the ordinary course of
business consistent with past practice; or
(i) suffered any one or more events or circumstances that individually
or in the aggregate has had or could reasonably be expected to have a Material
Adverse Effect on Seller..
4.13 Personnel Information.
(a) Except for contracts listed on Schedule 4.13(a) hereto, Seller is
not a party to or bound by any employment, consulting or agency agreement with
any employee or consultant or any collective bargaining agreement or other labor
agreement, or any pension, retirement, stock option, stock purchase, savings,
profit sharing, deferred compensation, bonus, group insurance or other incentive
or welfare contract, plan or arrangement.
(b) Schedule 4.13(b) hereto contains a true and complete list of all
persons employed by Seller other than Excluded Employees, setting forth for each
such employee such employee's date of hire, job title, department, monthly base
salary and 1997 bonuses (showing separately profit-sharing payments,
performance-based bonuses and non-performance-based bonuses). Such Schedule also
sets forth, with respect to each stock option granted by Parent to each such
employee, the number of Shares of Parent's Common Stock subject to such stock
option, the plan pursuant to which such stock option was granted, whether or not
such option constitutes an "incentive stock option", the exercise price thereof,
the date of grant, the expiration date, the vesting schedule and a summary
reference to the terms and conditions governing such stock option. Except as
otherwise set forth in Schedule 4.13(b), to Seller's Knowledge no employee of
Seller is a party to or is bound by a non-competition agreement, confidentiality
agreement or any similar agreement or arrangement that would affect the ability
of Purchaser to utilize the Intellectual Property, prohibit such employee from
becoming an employee of Purchaser or interfere with such employee's performance
of his duties as an employee of Purchaser.
(c) Seller has not agreed to recognize any union or other collective
bargaining unit, nor has any union or other collective bargaining unit been
certified as representing any of Seller's employees. To Seller's Knowledge,
there has been no organizational effort since February 28, 1995 by or on behalf
of any labor union with respect to employees of Seller other than efforts which
have not resulted in any material impact upon the Business.
(d) Except as listed or described on Schedule 4.13(d) hereto, Seller
(i) has no written or oral personnel policy applicable to its employees, (ii) is
and has been in material compliance since its inception with all applicable laws
regarding employment and employment practices, including without limitation the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and those
laws relating to terms and conditions of employment, wages and hours,
occupational safety and health and workers' compensation and, to Seller's
Knowledge, is not engaged in any unfair labor practices, (iii) has no unfair
labor practice charges or complaints pending or, to Seller's Knowledge,
threatened against it before the National Labor Relations Board, (iv) has no
material grievances pending or, to Seller's Knowledge, threatened against it,
and (v) has no charges pending against it before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices.
(e) As of the date hereof, Seller employs the persons referred to as
Tier Employees and Potential Tier Employees in the Letter (as such term is
defined in Schedule 3.2(b) hereto. As of the date hereof, to Seller's Knowledge,
neither Parent nor Seller has received any notice or otherwise has any reason to
believe that any specific Tier Employee (as such term is defined in such
Schedule 3.2(b)) intends to terminate his or her employment with the Business as
a result of the execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby, or otherwise.
4.14 Employee Benefit Plans.
(a) All "employee benefit plans," as defined by Section 3(3) of ERISA,
maintained by Seller or Parent for the benefit of Seller's employees (the
"Employee Plans"), are identified as such on Schedule 4.13(a) hereto. Each
Employee Plan complies in all material respects with the requirements provided
by any and all statutes, orders or governmental rules or regulations currently
in effect and applicable to such Employee Plan, including without limitation
ERISA and the Internal Revenue Code of 1986, as amended (the "Code"). Any
Employee Plans which constitute "employee pension benefit plans" as defined in
Section 3(2) of ERISA (the "Pension Plans") are so designated on Schedule
4.13(a) hereto. No Pension Plan constitutes a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA.
(b) Except as set forth in Schedule 4.14(b) hereto, each Pension Plan
that is intended to qualify under Section 401 of the Code has received a
favorable determination letter from the Internal Revenue Service indicating that
it is so qualified.
(c) All contributions required by law to have been made under any
Pension Plan (without regard to any waivers granted under Section 412 of the
Code) have been made in all material respects.
(d) To Seller's Knowledge, there has been no "reportable event" as
that term is defined in Section 4043 of ERISA and the regulations thereunder
that is not exempt from the thirty-day notice requirement under the regulations
with respect to any Pension Plan subject to Title IV of ERISA.
4.15 Litigation; Decrees. There are no judicial or administrative actions,
proceedings or investigations pending or, to Seller's Knowledge, threatened that
question the validity of this Agreement or any action taken or to be taken by
Seller in connection with this Agreement. Except as set forth in Schedule 4.15,
there are no (i) lawsuits, claims, administrative or other proceedings or
investigations pending or, to Seller's Knowledge, threatened by or against or
affecting Seller or any of the assets of Seller or (ii) orders of any
Governmental Authority binding on Seller or any of the assets of Seller.
4.16 Compliance With Law; Permits. Seller has complied in all material
respects with each law and order of any Governmental Authority to which Seller
or its business, operations, assets or properties is subject and is not
currently in violation of any of the foregoing. Seller owns, holds, possesses or
lawfully uses in the operation of its business all governmental permits which
are in any manner necessary for it to conduct the business as now conducted or
for the ownership and use of its assets, free and clear of all Liens and in
compliance with all laws. Seller is not in default in any material respect under
any Permits, nor has it received any notice of any claim of any default under
any Permits, other than defaults which have been cured prior to the date hereof.
No Person owns or has any proprietary, financial or other interest (direct or
indirect) in any governmental Permits which Seller owns, possesses or uses in
the operation of the Business as now conducted.
4.17 Environmental Matters. (A) Except as disclosed in Schedule 4.17
hereto, (a) the operations of Seller have been and are in compliance in all
material respects with all Environmental Laws and permits, authorizations or
licenses required by Environmental Laws; (b) there are no judicial or
administrative actions, proceedings or investigations pending or, to Seller's
Knowledge, threatened against Seller or its operations alleging the violation of
or seeking to impose liability pursuant to any Environmental Law; (c) Seller is
not subject to any material Environmental Costs and Liabilities and to Seller's
Knowledge there are no facts, circumstances or conditions relating to, arising
from, associated with, or attributable to the operations of Seller or any real
property owned, operated or leased by Seller that could reasonably be expected
to result in Seller's incurring material Environmental Costs and Liabilities;
(d) to Seller's Knowledge, there is not now, nor has there been at any time, on,
in or under any real property owned, leased or operated by Seller (i) any
underground storage tanks, above-ground storage tanks, dikes or impoundments
containing Hazardous Materials, (ii) any asbestos-containing materials, or (iii)
any polychlorinated biphenyls; and (e) Seller has provided Purchaser copies of
all environmentally related audits, assessments, studies, reports, analyses, and
results of investigations of any real property currently or formerly owned,
operated or leased by Seller that are in Seller's possession, custody or
control.
(B) For the purposes of this Agreement:
"Environmental Costs and Liabilities" shall mean any and all
losses, liabilities, obligations, damages, fines, penalties,
judgments, actions, claims, costs, and expenses (including fees,
disbursements, and expenses of legal counsel, experts, engineers, and
consultants and the costs of investigation and feasibility studies,
remedial, or removal actions and cleanup activities) arising from or
under any Environmental Law or any order or agreement now in effect
with any Governmental Authority or other Person.
"Environmental Law" means any law (including common law) relating
to the environment, natural resources, or public and employee health
and safety and includes, but is not limited to, the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601, et seq., the Hazardous Materials Transportation Act, 49
U.S.C. Section 1801, et seq., the Resource Conservation and Recovery
Act, 42 U.S.C. Section 6901, et seq., the Clean Water Act, 33 U.S.C.
Section 1251 et seq., the Clean Air Act, 33 U.S.C. Section 2601, et
seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601, et
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7
U.S.C. Section 136, et seq., the Oil Pollution Act of 1990, 33 U.S.C.
Section 2701, et seq., the Federal Safe Drinking Water Act, 42 U.S.C.
Section 300F, et seq., and the Occupational Safety and Health Act, 29
U.S.C. Section 651, et, seq., as such Laws have been amended or
supplemented, and the regulations promulgated pursuant thereto, and
all analogous state or local statutes.
"Hazardous Material" means any substance, material, or waste
which is regulated by any Governmental Authority, including, without
limitation, any material, substance, or waste which is defined as a
"hazardous waste," "hazardous material," "hazardous substance,"
"extremely hazardous substance," "restricted hazardous waste,"
"contaminant," "toxic waste," or "toxic substance" under any provision
of Environmental Law, which includes, but is not limited to,
petroleum, petroleum products (including crude oil and any fraction
thereof), asbestos, asbestos-containing materials, urea formaldehyde,
and polychlorinated biphenyls.
4.18 Title to Assets.
(a) Except as listed or described in Schedule 4.18(a) hereto, Seller
has, and following the Closing, Purchaser will have, good, valid and marketable
title to the Assets, other than Assets which are not assignable in accordance
with Section 1.3, free and clear of all Liens, other than (a) Liens for Taxes,
assessments and other governmental charges which are not due and payable or
which may thereafter be paid without penalty, (b) mechanics', carriers',
workmen's, repairmen's, and other like Liens arising or incurred in the ordinary
course of business consistent with past practice and (c) purchase money security
interests. The items described in Schedule 4.18(a) hereto and the items referred
to in clauses (a), (b) and (c) of the immediately preceding sentence are
hereinafter referred to as "Permitted Liens".
(b) The Assets constitute all the assets and rights necessary to
operate the Business as currently conducted.
4.19 Taxes.
(a) All Tax Returns required to be filed by or with respect to Seller
and the Assets for the past three years have been duly and timely filed with the
appropriate Federal, state, local and foreign governments or foreign agencies.
All such Tax Returns are true, correct and complete in all material respects.
Seller has duly and timely paid (or is challenging in good faith, pursuant to
challenges described in Schedule 4.19 hereto, the payment of) all Taxes that are
due, or claimed or asserted by any taxing authority to be due, from or with
respect to it. Except as set forth in Schedule 4.19 hereto, for the past three
years Seller has not executed or filed with the Internal Revenue Service or any
other taxing authority any agreement extending the period for filing any Tax
Return.
(b) To Seller's Knowledge, for the past three years no material claim
for assessment or collection of Taxes has been asserted against Seller or any of
its assets, other than claims which were resolved on or before the Interim
Balance Sheet Date. Except as set forth in Schedule 4.19 hereto, no audit,
investigation, or other proceeding by any court, governmental or regulatory
authority, or similar person is pending or, to Seller's Knowledge, threatened
with respect to the assessment or collection of Taxes with respect to Seller and
the Assets.
(c) Except as set forth in Schedule 4.19 hereto, no waivers of
statutes of limitation in respect of any Tax Returns have been given or
requested by Seller, nor has Seller agreed to any extension of time with respect
to a Tax assessment or deficiency during the past three years. To Seller's
Knowledge, no claim has been made or threatened within the past three years by a
Governmental Authority in a jurisdiction where Seller does not currently file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
(d) Intentionally omitted.
(e) The performance of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent event)
result in any payment that would constitute an "excess parachute payment" within
the meaning of Section 280G of the Code. Except as set forth in Schedule 4.19
hereto, none of the Assets is (i) "tax-exempt use" property within the meaning
of Section 168(h) of the Code; (ii) required to be treated as owned by another
person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue
Code of 1954, as amended and in effect immediately prior to the enactment of the
Tax Reform Act of 1986; or (iii) "tax exempt bond financed property" within the
meaning of Section 168(g) of the Code.
(f) Except as described on Schedule 4.19 hereto, Seller is not a party
to any tax allocation agreement, tax sharing agreement, tax indemnity agreement,
or similar agreement, arrangement, or practice with respect to Taxes (including
any advance pricing agreement, closing agreement, private letter ruling, or
other agreement relating to Taxes with any Governmental Authority).
(g) Seller is not a foreign person within the meaning of Section 1445
of the Code.
(h) "Tax" and "Taxes" shall mean all taxes, charges, fees, levies, or
other similar assessments or liabilities, including without limitation (a)
income, gross receipts, ad valorem, premium, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll, Medicare, and
franchise taxes imposed by the United States of America, or by any state, local,
or foreign government, or any subdivision, agency, or other similar Person of
the United States or any such government; and (b) any interest, fines,
penalties, assessments, or additions to taxes resulting from, attributable to,
or incurred in connection with any Tax or any contest, dispute, or refund
thereof. "Tax Returns" shall mean any report, return or statement required to be
supplied to a taxing authority in connection with Taxes.
4.20 Real Property.
(a) Owned Real Property. Seller does not own any real property.
(b) Leased Real Property. With respect to the Real Property leased by
Seller:
(1) each Real Property Lease is, and at Closing shall be, in full
force and effect and has not been assigned, modified, supplemented or
amended, and to Seller's Knowledge no circumstances or state of facts
presently exists which, with the giving of notice or passage of time, or
both, would permit the landlord or sublandlord under any Real Property
Lease to terminate any Real Property Lease; and
(2) subject to Section 1.3, at the Closing, Seller shall assign
to the Purchaser all right, title and interest of Seller in and to all Real
Property Leases (and shall deliver to Purchaser original copies of all
consents obtained with respect to such assignments) and all security
deposits made by Seller pursuant to any of the Real Property Leases,
together with all accrued and unpaid interest earned on such deposits.
(c) Zoning. To Seller's Knowledge, the Real Property complies with all
applicable zoning and other land use requirements.
(d) Utility Services. The water, electric, gas and sewer utility
services and the septic tank and storm drainage facilities currently available
to the Real Property are adequate for the present use of the Real Property by
Seller in conducting the Business, are being supplied to Seller by utility
companies or municipalities, and to Seller's Knowledge there is no condition
which will result in the termination of the present access from the Real
Property to such utility services and other facilities.
(e) Access. Seller has obtained all Permits and rights-of-way,
including proof-of-dedication, which are necessary to ensure vehicular and
pedestrian ingress and egress to and from the Real Property. To Seller's
Knowledge, there are no conditions which will result in the termination of the
present access from the Real Property to neighboring existing highways and
roads.
(f) Intentionally omitted.
(g) Eminent Domain. Seller has received no notices, oral or written,
and has no Knowledge, that any Governmental Authority having the power of
eminent domain over the Real Property has commenced to exercise the power of
eminent domain or a similar power with respect to all or any part of the Real
Property.
(h) No Violations. Seller has received no written notices from any
Governmental Authority, and has no Knowledge, that the Real Property or any
improvements erected or situate thereon, or the uses conducted thereon or
therein, violate in any material respect any laws of any Governmental Authority
having jurisdiction over the Real Property.
(i) Improvements. The improvements located on the Real Property are
generally in good condition and are structurally sound, and all mechanical and
other systems located therein are in good operating condition, subject to normal
wear and tear. To Seller's Knowledge no condition exists requiring material
repairs, alterations or corrections with respect to the Real Property.
(j) Intentionally omitted.
(k) Flood Plain. No part of the Real Property contains, is located
within, or abuts any flood plain, navigable water or other body of water,
tideland, wetland, marshland or any other area which is subject to special
state, federal or municipal regulation, control or protection.
4.21 Brokers. Neither Seller nor any of Seller's Affiliates (as hereinafter
defined) have made any Contract with any Person or taken any action which would
cause any Person to claim an agent's, broker's or finder's fee or commission
from Purchaser in connection with the transactions contemplated hereby. For
purposes of this Agreement, the term "Affiliate", when used in reference to a
party, shall mean any entity directly or indirectly controlling, controlled by,
or under common control with, such party.
4.22 Agents. Seller has not designated or appointed any Person to act for
it or on its behalf pursuant to any power of attorney other than with respect to
any power of attorney granted with respect to any filing related to Taxes.
4.23 Books and Records. Copies of all the minute books and stock record
books of Seller have been delivered to Purchaser for inspection and contain
accurate records of all meetings of, and written consents by, the boards of
directors (and any committees thereof) and stockholders of Seller since February
28, 1995. The stock ledger and transfer books of Seller are complete and correct
and properly reflect all transfers of the capital stock of Seller. All
accounting, financial, reporting, business, tax, corporate and other similar
books and records of Seller accurately reflect in all material respects the
business and financial condition of Seller.
4.24 Insurance. Seller has insurance policies in full force and effect for
such amounts as are sufficient for material compliance with all requirements of
law and of all contracts and agreements to which Seller is a party or by which
it is bound. Set forth in Schedule 4.24 hereto is a list of all fire, liability
and other forms of insurance and all fidelity bonds held by or applicable to
Seller, setting forth, in respect of each such policy, the policy name, policy
number, carrier, term, type of coverage and annual premium. Excluding insurance
policies that have expired and been replaced in the ordinary course of business,
none of Seller's insurance policies have been canceled within the last two years
and to Seller's Knowledge no threat has been made to cancel any insurance policy
of Seller during such period. To Seller's Knowledge, no event has occurred,
including, without limitation, the failure by Seller to give any notice or
information or Seller's giving any inaccurate or erroneous notice or
information, which limits or impairs in any material respect the rights of
Seller under any such insurance policies.
4.25 Condition of Assets. All the Assets are in good operating condition
and repair, subject to normal wear, tear and maintenance and are usable in the
regular and ordinary course of business. No Person other than Seller owns any
equipment or other tangible assets or properties necessary to the operation of
the Business of Seller, except for leased items disclosed pursuant to Section
4.8(a)(5) or below the disclosure threshold set forth in Section 4.8(a)(5).
4.26 Disclosure. No representation or warranty by Seller contained in this
Agreement (including without limitation representations and warranties set forth
in the Financial Statements and the Schedules referenced in this Article IV), in
the documents to be delivered by Seller at the Closing pursuant to Article VIII
and in any other instrument furnished or to be furnished by or on behalf of
Seller or Parent to Purchaser or any of its representatives in connection with
the transactions contemplated hereby, contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary, in light of the circumstances under which it was or will be made, in
order to make the statements herein or therein not misleading or necessary in
order fully and fairly to provide the information required to be provided in any
such document or other instrument.
V. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby makes the following representations and warranties to
Parent and Seller, each of which is true and correct as of the date hereof and
shall be unaffected by any investigation heretofore or hereafter made by Parent
or Seller. Purchaser acknowledges that Parent and Seller are relying on such
representations and warranties in connection with the entering into of this
Agreement and the sale of the Assets contemplated hereby.
5.1 Corporate Organization. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation and has the requisite corporate power and authority to own, lease
or otherwise hold its properties and assets and to carry on its business as
presently conducted.
5.2 Authorization and Effect of Agreement. Purchaser has the requisite
corporate power to execute and deliver this Agreement and the agreements to be
entered into by it at the Closing pursuant hereto (the "Purchaser Ancillary
Documents") and to perform the transactions contemplated hereby and thereby to
be performed by it. The execution and delivery by Purchaser of this Agreement
and the Purchaser Ancillary Documents and the performance by it of the
transactions contemplated hereby and thereby to be performed by it have been or,
in the case of the Purchaser Ancillary Documents will at the Closing be, duly
authorized by all necessary corporate action on the part of Purchaser. This
Agreement has been, and each Purchaser Ancillary Document will at the Closing
be, duly executed and delivered by duly authorized officers of Purchaser and,
assuming the due execution and delivery of this Agreement and, as applicable,
any Purchaser Ancillary Document, by Parent and Seller, this Agreement
constitutes, and each Purchaser Ancillary Document will at the Closing
constitute, a valid and binding obligation of Purchaser, enforceable against
Purchaser in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization, moratorium, or other similar laws affecting the
enforcement of creditors' rights in general and subject to general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or at law).
5.3 No Conflicts. The execution and delivery of this Agreement and each
Purchaser Ancillary Document by Purchaser does not or in the case of the
Purchaser Ancillary Documents will not, and the performance by Purchaser of the
transactions contemplated hereby or thereby to be performed by it will not,
(a) conflict with the certificate or articles of incorporation (or other
organizational documents) or by-laws of Purchaser, (b) conflict with, or result
in any violation of, or constitute a default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation, or
acceleration of any obligation or to loss of a benefit under, any provision of
any material document to which Purchaser or any of its assets or properties is
bound, or (c) constitute a violation of any law applicable to Purchaser. No
consent, approval, order, or authorization of, or registration, declaration, or
filing with, any Governmental Authority or other Person whether pursuant to
contractual obligation or otherwise, is required to be obtained or made by or
with respect to Purchaser in connection with the execution and delivery of this
Agreement or any Purchaser Ancillary Document or the performance by Purchaser of
any of its obligations hereunder or thereunder, except for the Governmental
Approvals.
5.4 Brokers. Neither Purchaser nor any of Purchaser's Affiliates has made
any agreement with any Person or taken any action which would cause any Person
to claim an agent's, broker's or finder's fee or commission from Seller in
connection with the transactions contemplated hereby.
VI. PRE-CLOSING COVENANTS
6.1 No Inconsistent Action. Neither Purchaser, on the one hand, nor Parent
or Seller, on the other hand, shall take any action which is materially
inconsistent with their respective obligations under this Agreement.
6.2 Injunctions. If any United States, state or foreign court having
jurisdiction over any party issues or otherwise promulgates any order which
prohibits the consummation of the transactions contemplated hereby, the parties
will use their respective reasonable efforts to have such injunction dissolved
or otherwise eliminated as promptly as possible and to pursue the underlying
litigation diligently and in good faith.
6.3 Governmental Filings. Purchaser, on the one hand, and Parent and
Seller, on the other hand, shall as promptly as practicable following the
execution and delivery of this Agreement, file with the United States Federal
Trade Commission and the United States Department of Justice, the notification
and report form under the HSR Act required for the transactions contemplated
hereby and any supplemental information requested in connection therewith
pursuant to the HSR Act. Purchaser, on the one hand, and Parent and Seller, on
the other hand, shall as promptly as practicable comply with any other laws
which are applicable to any of the transactions contemplated hereby and pursuant
to which any consent, approval, order, or authorization of, or registration,
declaration, or filing with, any Authority or any other Person in connection
with the transactions contemplated hereby is necessary. Purchaser, on the one
hand, and Parent and Seller, on the other hand, shall furnish to the other such
necessary information and reasonable assistance as the other may reasonably
request in connection with its preparation of any filing, registration, or
declaration which is necessary under the HSR Act or any other similar laws.
Purchaser, on the one hand, and Parent and Seller, on the other hand, shall keep
each other reasonably apprised of the status of any communications with, and any
inquiries or requests for additional information from, any Governmental
Authority, and shall use reasonable efforts to comply promptly with any such
inquiry or request. Purchaser agrees that any filing fee required to be paid in
connection with any filing under the HSR Act shall be paid fully by Purchaser..
6.4 Third Party Consents. Purchaser, on the one hand, and Seller, on the
other hand, will cooperate and use their respective reasonable efforts to obtain
as promptly as practicable all consents, approvals, and waivers required by
third Persons to transfer the Assets (other than consents, approvals and waivers
relating to Contracts and Permits, which consents, approvals and waivers are
governed by Section 1.3) to Purchaser in a manner that will avoid any default,
conflict, or termination of rights in respect thereof.
6.5 Access. Except as otherwise required by the confidentiality obligations
of Seller, prior to the Closing, upon reasonable notice from Purchaser to
Seller, Seller will afford to the officers, attorneys, accountants, or other
authorized representatives (including, without limitation, environmental
consultants) of Purchaser reasonable access during normal business hours to the
employees, Assets, facilities, and the books and records of Seller so as to
afford Purchaser a full opportunity to make such review, examination, and
investigation of the Business as Purchaser may desire to make. Except as
otherwise required by the confidentiality obligations of Seller, Purchaser will
be permitted to make such extracts from or to make such copies of such books and
records as may be reasonably necessary in connection therewith. Except as
otherwise required by the confidentiality obligations of Seller, prior to the
Closing, Seller will promptly furnish or cause to be furnished to Purchaser such
financial and operating data and other information as Purchaser shall reasonably
request pursuant to this Section 6.5.
6.6 Conduct Prior to Closing. During the period between the date hereof and
the Closing, (1) Parent shall have all the rights and obligations granted to it
pursuant to the Patent License Agreement referred to in Section 8.2(h) hereof as
though such Patent License Agreement had been executed on the date hereof, (2)
Seller shall be permitted to take the Permitted Actions (as hereinafter defined)
in its discretion and (3) without in any way limiting any other obligations of
Seller hereunder, except as consented to by Purchaser in writing (which consent
shall not be unreasonably withheld, other than consents relating to the license
or granting of access to source code described in Section 6.6(a)(ix) below,
which may be withheld or granted in Purchaser's sole discretion):
(a) Seller shall:
(i) (A) use reasonable efforts to conduct the Business and the
operations and affairs of Seller only in the ordinary and normal
course of business consistent with past practice; (B) not enter into
any transaction or take any action which, if effected before the date
of this Agreement, would constitute a breach of any representation,
warranty, covenant or other obligation of Seller contained herein or
would have required disclosure under Article IV, other than
transactions or actions which would not have a Material Adverse Effect
upon Seller and Permitted Actions; and (C) not enter into any supply
arrangements requiring the purchase of goods or services by Seller in
the amount (with respect to any such arrangement) of more than $50,000
per year per arrangement or Contracts contemplating the payment to or
by Seller in the amount (with respect to any such Contract) of more
than $250,000 per year per Contract (arrangements and Contracts
falling below the thresholds set forth in this Section 6.6(a)(i)(C),
unless otherwise expressly prohibited in clauses (ii) through (x)
below, being hereinafter referred to as "Permitted Actions");
(ii) use reasonable efforts to continue to maintain in full force
and effect all policies of insurance or renewals thereof now in
effect, take out, at the expense of the Purchaser, such additional
insurance as may be reasonably requested by the Purchaser and give all
notices and present all claims under all policies of insurance in a
due and timely fashion (except if the failure to give such notices and
present such claims would not have a Material Adverse Effect upon
Seller);
(iii) pay and discharge the liabilities of Seller in the ordinary
course of business in accordance and consistent with the previous
practices of Seller, except those contested in good faith by Seller;
(iv) except for pay increases and bonuses made to Excluded
Employees, not increase the compensation or benefits of or make any
advance (excluding advances for ordinary and necessary business
expenses) or loan to any director, officer or employee of Seller;
(v) not sell, assign, or transfer any of the Assets, except for
the replacement or betterment of obsolete or worn out equipment and
sales of inventory in the ordinary course of business consistent with
past practice, and not permit any of the Assets to be subjected to any
Lien (other than Permitted Liens);
(vi) not make commitments or Contracts for capital expenditures
or capital additions or betterments which exceed $10,000 individually
or $50,000 in the aggregate, except such as may be involved in
ordinary repair, maintenance or replacement of the Assets;
(vii) not acquire or agree to acquire any assets that would
constitute Assets except in the ordinary course of business consistent
with past practices;
(viii) not enter into any Contract or other transaction with
Parent or any Affiliate of Parent or any officer or director of Parent
or of any Affiliate of Parent;
(ix) not amend, modify or terminate any of the Contracts listed
on Schedule 6.6(a)(ix) hereto, enter into any Contracts by which
Seller proposes to license or otherwise provide access to its source
code (including by way of escrow or other similar arrangement) or
enter into any Contracts that grant any exclusive rights to any
Person; or
(x) not agree, in writing or otherwise, to do any of the
foregoing.
(b) Seller shall use its reasonable efforts to preserve intact the
Business and the property, assets, operations and affairs of Seller and carry on
the Business and the affairs of Seller as currently conducted, keep available to
Seller the services of the present employees of Seller, preserve and protect its
Intellectual Property and the value thereof, and promote and preserve for the
Purchaser the goodwill of suppliers, customers, creditors and others having
business relations with Seller.
6.7 Notification.
(a) Seller shall provide prompt written notice to Purchaser, and
Purchaser shall provide prompt written notice to Seller (in each case within
five (5) business days), of any litigation, arbitration, or administrative
proceeding pending or, to its Knowledge, threatened against Parent or Seller, on
the one hand, or Purchaser, on the other hand, which challenges the transactions
contemplated hereby.
(b) Seller will provide prompt written notice to Purchaser (in any
event within five (5) business days) of any development or information causing
or which constitutes or would at the Closing constitute a material breach of any
of its representations and warranties contained herein or any Schedules referred
to herein or attached hereto and shall promptly furnish any information which
Purchaser may reasonably request in relation to such development or information;
provided, however, that such notice shall not operate to cure any breach of the
representations and warranties made herein or in any Schedules referred to
herein or attached hereto.
6.8 No Solicitation. Except for the transactions contemplated by this
Agreement, from and after the date of this Agreement until the Closing or the
termination of this Agreement, neither Parent nor Seller shall, nor shall they
authorize or permit any officer, director, or employee of, or any investment
banker, attorney, accountant, or other representative retained by, Parent or
Seller to, directly or indirectly, solicit, initiate, encourage or entertain
(including by way of furnishing information) discussions, inquiries, offers, or
proposals, or participate in any discussions or negotiations for the purpose or
with the intention of leading to any proposal or offer from any Person which
constitutes or concerns, or may reasonably be expected to lead to, any
proposals, for a merger or other business combination constituting an
acquisition of Seller or any proposal or offer to acquire any of the outstanding
shares of capital stock of Seller or any material portion of the Assets.
6.9 Publicity. Prior to the Closing, neither party will issue or cause the
publication of any press release or other public announcement with respect to
this Agreement or the transactions contemplated hereby without the prior consent
of the other party, which consent will not be unreasonably withheld; provided,
however, that nothing herein will prohibit either party from issuing or causing
publication of any such press release or public announcement to the extent that
such party determines such action to be required by law or the rules of any
national stock exchange or self-regulatory organization applicable to it or its
Affiliates, in which event the party making such determination will, if
practicable in the circumstances, use reasonable efforts to allow the other
party reasonable time to comment on such release or announcement in advance of
its issuance.
6.10 Satisfaction of Conditions. Without limiting the generality or effect
of any provision of Article VI, prior to the Closing, each of the parties will
use reasonable best efforts with due diligence and in good faith to satisfy
promptly all conditions required hereby to be satisfied by such party in order
to expedite the consummation of the transactions contemplated hereby.
6.11 Seller's Employees. Purchaser shall have the right to interview and
offer employment, such employment to commence immediately after the Closing, to
all persons employed by Seller as of the date hereof other than the Excluded
Employees. Notwithstanding the foregoing, Purchaser shall have the right to
interview and offer employment (to commence immediately after the Closing) to
Excluded Employees to the extent, and in the manner, permitted in Schedule
3.2(b) hereto. All initial offers of employment made pursuant to this Section
6.11 shall be made on terms consistent with the terms described in Schedule 6.11
hereto. Seller shall not offer employment to any of Seller's employees to whom
employment has been offered by Purchaser (such persons are hereinafter referred
to as "Offerees" provided that they are not Excluded Employees) unless (a) this
Agreement is terminated or (b) such offer complies with Section 9.10.
6.12 Transferred Employees. Purchaser covenants the following with respect
to Transferred Employees (as defined in Section 6.12(a) hereof):
(a) Purchaser shall give service credit under all of its employee
benefit plans, for purposes of determining eligibility to participate, vesting,
satisfaction of pre-existing medical conditions exclusion provisions, and
calculation of vacation and severance benefits, to all employees of Seller who
become employees of Purchaser immediately after the Closing ("Transferred
Employees") for all of their service with Seller and its Affiliates.
(b) Purchaser shall give credit under its employee medical plans for
any deductibles, co-payments, and other out-of-pocket expenses paid by
Transferred Employees and credited under Seller's medical plan prior to the
Closing.
(c) Intentionally omitted.
(d) Intentionally omitted.
(e) Intentionally omitted.
(f) As of the Closing, Purchaser shall provide all Transferred
Employees with an employee benefits package that Purchaser reasonably believes
to be, in the aggregate, no less valuable to the Transferred Employee than the
employee benefits package provided to such employees as of the Closing Date.
6.13 Excluded Employees. For purposes of this Agreement, the term "Excluded
Employees" shall mean Chuck House, Mark Grosen, Gilbert Pitney (but only after
it is determined that Mr. Pitney will not be an "Accepting Tier Employee" within
the meaning of Schedule 3.2(b) hereto), Kalon Kelley (but only after it is
determined that Mr. Kelley will not be an "Accepting Tier Employee" within the
meaning of Schedule 3.2(b) hereto), Chris Ring, Lane McMains and Jeff Mark.
Except as provided below, the Purchaser shall not offer employment to the
Excluded Employees for a period of two years after the Closing Date:
(a) The Purchaser shall be permitted to offer employment to Gilbert
Pitney, Kalon Kelley and the Excluded Employees to the extent, and in the
manner, provided for in Schedule 3.2(b) hereto.
(b) The Seller and Parent shall use reasonable efforts to make Chuck
House available to assist Purchaser during the first six months after the
Closing, at no cost to Purchaser. Such availability shall not extend to any more
than 10 days during such six month period. Such services shall be provided to
Purchaser pursuant to the Transition Services Agreement described in Section
8.2(h).
(c) At Purchaser's request, the Seller and Parent shall use reasonable
efforts to make Mark Grossen available to assist Purchaser, in the areas of
requirements and products definition, specifications review and design review,
during the first two years after the Closing, at no cost to Purchaser. Such
availability shall not extend to any more than 5 days during any three month
period during such two year period. Such services shall be provided to Purchaser
pursuant to the Transition Services Agreement described in Section 8.2(i).
VII. CLOSING CONDITIONS
7.1 Conditions to Obligations of Each of the Parties. The obligation of
each party to effect the transactions contemplated hereby (the "Transaction")
and to consummate the Closing shall be subject to the fulfillment, at or prior
to the Closing Date, of the following conditions:
7.1.1 No Prohibition of Transaction.
(a) No third party shall have instituted any suit or proceeding to
restrain, enjoin or otherwise prevent the consummation of the Transaction.
(b) The waiting period required by Section 7(b)(1) of the HSR Act and
the regulations promulgated thereunder shall have expired without any
administrative or judicial proceeding having been instituted by the Federal
Trade Commission or the Department of Justice with respect to the Transaction.
(c) No order shall have been issued by any court or administrative
body to restrain, enjoin or otherwise prevent consummation of the Transaction.
7.1.2 Compliance with Law. All Governmental Approvals shall have been
obtained.
7.2 Conditions to the Obligations of the Purchaser. The obligations of the
Purchaser hereunder are subject to the satisfaction, on or prior to the Closing
Date, of all the following conditions, compliance with which or the occurrence
of which may be waived in whole or in part by the Purchaser in writing:
7.2.1 Representations and Warranties True at the Closing Date. Except
for (i) changes expressly contemplated by this Agreement, (ii)
misrepresentations which individually or in the aggregate do not, or could not
reasonably be expected to, have a Material Adverse Effect upon the Seller and
(iii) representations made as of a particular date, the representations and
warranties of the Seller and the Parent contained in Article IV of this
Agreement shall be deemed to have been made again at and as of the Closing Date
and shall then be true and correct in all material respects (except for
representations and warranties which are qualified as to materiality, which
representations and warranties shall be true in all respects). At the Closing,
the Seller shall have delivered to the Purchaser a certificate to the foregoing
effect signed by the Seller and dated the Closing Date.
7.2.2 No Material Adverse Change. During the period from December 1,
1997 through the Closing Date, (a) there shall not have been any adverse change
in the financial condition or results of operations of the Seller, nor any loss
or damage to its assets, whether or not insured, in either case which affects
the Seller's ability to conduct the Business, (b) none of the events described
in Section 4.12 of this Agreement shall have occurred and (c) the Seller shall
not have taken any action outside of the ordinary course of business, other
than, in any such case covered by clauses (a), (b) or (c) of this Section 7.2.2,
changes, losses, damages, events or actions which, individually and in the
aggregate, do not constitute a Material Adverse Effect upon Seller. At the
Closing, the Seller shall have delivered to the Purchaser a certificate, dated
the Closing Date and signed by the Seller, to the foregoing effect.
7.2.3 Seller's and Parent's Performance. Each of the obligations of
the Seller and the Parent to be performed on or before the Closing Date pursuant
to the terms of this Agreement shall have been duly performed in all material
respects as of the Closing Date, and, at the Closing Date, the Seller and Parent
shall have delivered to the Purchaser a certificate to the foregoing effect
dated on and as of the Closing Date.
7.2.4 Necessary Corporate Approvals. As of the date of execution of
this Agreement, the board of directors and stockholders of the Seller and the
board of directors of the Parent have duly authorized and approved the execution
and delivery of this Agreement, and all corporate actions necessary or proper to
authorize the execution, delivery and performance of this Agreement by Seller
and Parent have been taken. All such actions shall be in full force and effect
and shall not have been revoked as of the Closing Date and the Seller and Parent
shall have delivered to the Purchaser a certificate to that effect.
7.2.5 Resolutions Authorizing the Execution of this Agreement. As of
the date hereof, the Seller has furnished to the Purchaser copies of the
resolutions or consents of the Seller's board of directors and its sole
stockholder and the Parent has furnished to the Purchaser copies of the
resolutions or consents of the Parent's board of directors , authorizing the
execution, delivery, and performance of this Agreement. As of the Closing Date,
the Seller and Parent shall have delivered to the Purchaser certificate of the
Secretaries of the Seller and Parent confirming that such resolutions or
consents (in substantially the same form and substance as heretofore delivered)
remain in full force and effect as of the Closing Date.
7.2.6 Documents. The Seller and Parent shall have furnished the
Purchaser with each of the documents contemplated by Section 8.2 and 8.4.
7.2.7 Intentionally omitted.
7.2.8 Consents to Assignment. Notwithstanding any provision herein to
the contrary, provided that Seller complies with its obligations under Section
1.3 and Section 6.4, Purchaser's obligations herein shall not be conditioned on
the receipt of any consent to the assignment of any Contract or Permit.
7.3 Conditions to the Obligations of the Seller and Parent. The obligations
of the Seller and the Parent hereunder are subject to the satisfaction, on or
prior to the Closing Date, of all the following conditions, compliance with
which or the occurrence of which may be waived in whole or in part by the Seller
and Parent in writing:
7.3.1 Representations and Warranties True at the Closing Date. Except
for (i) changes expressly contemplated by this Agreement, (ii)
misrepresentations which individually or in the aggregate do not, or could not
reasonably be expected to, have a Material Adverse Effect upon the Purchaser and
(iii) representations made as of a particular date, the representations and
warranties of the Purchaser contained in Article V of this Agreement shall be
deemed to have been made again at and as of the Closing Date and shall then be
true and correct in all material respects (except for representations and
warranties which are qualified as to materiality, which representations and
warranties shall be true in all respects). At the Closing, the Seller shall have
delivered to the Purchaser a certificate to the foregoing effect signed by the
Seller and dated the Closing Date.
7.3.2 Purchaser's Performance. Each of the obligations of the
Purchaser to be performed on or before the Closing Date pursuant to the terms of
this Agreement shall have been duly performed in all material respects as of the
Closing Date, and, at the Closing Date, the Purchaser shall have delivered to
the Seller a certificate to the foregoing effect dated on and as of the Closing
Date.
7.3.3 Necessary Corporate Approvals. As of the date of execution of
this Agreement, a committee of the board of directors of the Purchaser has duly
authorized and approved the execution and delivery of this Agreement, and all
corporate actions necessary or proper to authorize the execution, delivery and
performance of this Agreement by the Purchaser have been taken. All such actions
shall be in full force and effect and shall not have been revoked as of the
Closing Date and the Purchaser shall have delivered to the Seller a certificate
to that effect.
7.3.4 Resolutions Authorizing the Execution of this Agreement. As of
the date hereof, the Purchaser has furnished to the Seller copies of the
resolutions or consents of a committee of the Purchaser's board of directors,
authorizing the execution, delivery, and performance of this Agreement. As of
the Closing Date, the Purchaser shall have delivered to the Seller a certificate
of the Secretary of the Purchaser confirming that such resolutions or consents
(in substantially the same form and substance as heretofore delivered) remain in
full force and effect as of the Closing Date.
7.3.5 Documents. The Purchaser shall have furnished the Seller and
Parent with each of the documents contemplated by Section 8.3 and 8.4.
VII.A. TERMINATION
7A.1 Right to Terminate. This Agreement may be terminated at any time
until completion of the Closing as follows:
(a) by mutual consent of the Purchaser, Seller and Parent;
(b) by the Purchaser, Seller or Parent if the Closing shall not
have occurred on or before April 30, 1998 (the "Outside Date"), but no party
shall be entitled to terminate pursuant to this Section 7A.1(b) if its own acts
or failures to act should delay the Closing beyond the Outside Date or if all
conditions to its obligation to consummate the Closing shall have been satisfied
at least five business days prior to the Outside Date;
(c) by the Purchaser or the Seller, respectively, if it shall
have discovered that (x) any representation or warranty made herein for its
benefit, or in any certificate, schedule or document furnished to it pursuant to
this Agreement, is untrue in any respect, provided that such untruth,
individually or in the aggregate, constitutes a Material Adverse Effect with
respect to the party making such representation, or (y) the Seller or the Parent
(in the case of a termination by Purchaser) or the Purchaser (in the case of a
termination by Seller or Parent) shall have defaulted in the performance of any
material obligation under this Agreement; provided, however, that in order to
terminate this Agreement under this Section 7A.1(c), the party seeking to
terminate this Agreement shall give written notice of such breach or default to
the other party and the other party shall fail to cure the breach or default by
the earlier of ten (10) days after receipt of such notice or the Outside Date;
(d) by the Purchaser or Seller if it shall have reasonably
determined that a condition to its obligation to consummate the Closing cannot
be satisfied; or
(e) by the Purchaser or Seller to the extent that such party is
afforded the right to terminate this Agreement pursuant to the terms of Schedule
3.2(b).
7A.2 Liability on Termination. Upon any termination of this Agreement
pursuant to Section 7A.1, the provisions of this Agreement shall cease to be
effective (except that the provisions of this Section 7A.2, Section 9.10 and
Article XI of this Agreement shall remain in full force and effect).
Notwithstanding the foregoing, all arrangements among the parties relating to
the subject of confidentiality shall remain in full force and effect. In the
event of any such termination, no party shall have liability to any other party
hereto, except that in the event of a termination of this Agreement pursuant to
Sections 7A.1(b), 7A.1(c) or 7A.1(d), a breaching party hereunder shall be
liable to any party damaged by such breach for such damages as shall be
permitted by law.
7A.3 Specific Enforcement. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that, in addition to any other remedy to
which they are entitled at law or in equity, the parties hereto will be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction over the parties, subject to the forum
selection provisions set forth in Section 11.18.
VII. CLOSING ARRANGEMENTS
8.1 The Closing. The consummation of the purchase and sale of the Assets
contemplated hereby (the "Closing") shall take place (i) on February 16, 1998,
or, if all conditions to Closing have not been satisfied or waived by the fifth
business day prior to February 16, 1998, on the fifth business day after all
conditions to Closing have been satisfied or waived, or (ii) on such other date
as shall be mutually acceptable to Seller and Purchaser, at the offices of Weil,
Gotshal & Manges LLP, 100 Crescent Court, Suite 1300, Dallas, Texas (or at such
other place as shall be acceptable to Seller and Purchaser). The date on which
the Closing is consummated is referred to in this Agreement as the "Closing
Date." At the Closing, the parties shall execute and deliver the documents
referred to in this Article VIII.
8.2 Documents to be Delivered by Seller and Parent. At the Closing, Seller
and Parent will deliver to Purchaser, as applicable, the following, in proper
form for recording when appropriate:
(a) Transfer Documents. Patent and trademark assignments, executed by
Seller, in form and substance reasonably satisfactory to Purchaser (which form
shall be satisfactory for filing with appropriate Governmental Authorities)
(such assignments and the bill of sale and assumption agreement referred to in
Section 8.4 hereof being hereinafter referred to as "Transfer Documents").
(b) Certified Resolutions. Certified resolutions of the Boards of
Directors (or committees thereof) of each of Parent and Seller approving the
execution and delivery of this Agreement and each of the other documents
delivered by Parent and Seller pursuant hereto and authorizing the consummation
of the transactions contemplated hereby and thereby.
(c) Good Standing Certificates. Governmental certificates showing that
Seller is duly incorporated and in good standing in the state of its
incorporation and in good standing in each state listed in Schedule 4.1 hereto,
certified as of a recent date.
(d) Officer's Certificate. A certificate, dated the Closing Date,
executed on behalf of Seller by an executive officer of Seller, certifying as to
the satisfaction of the conditions precedent set forth in Sections 7.2.1, 7.2.2
and 7.2.3; such certificate shall be in form and substance reasonably
satisfactory to Purchaser.
(e) Intentionally omitted.
(f) License Agreement. An intellectual property, license and support
agreement, dated the Closing Date, between Purchaser and Parent, in the form and
substance of the license agreement annexed hereto as Exhibit 8.2(f) (the
"License Agreement"), duly executed by Parent.
(g) Intentionally Omitted.
(h) Patent License Agreement. A patent license agreement, dated the
Closing Date, among Purchaser, Parent and Seller, the form and substance of the
management agreement annexed hereto as Exhibit 8.2(h) (the "Patent License
Agreement"), duly executed by Parent and Seller.
(i) Transition Services Agreement. A transition services agreement,
dated the Closing Date, among Purchaser, Parent and Seller, in form and
substance reasonably satisfactory to Purchaser, Parent and Seller, covering
services to be provided among the parties hereto after the Closing (the
"Transition Services Agreement"), duly executed by Parent and Seller.
(j) Other Documents. Such additional information and materials as
Purchaser shall reasonably request.
8.3 Documents to be Delivered by Purchaser. At the Closing, Purchaser will
deliver to Seller:
(a) Cash Amount. Payment to Seller in the amount of the Closing Date
Payment , by wire transfer in accordance with Section 3.2.
(b) Good Standing Certificates. Governmental certificates showing that
Purchaser is duly incorporated and in good standing in the state of its
incorporation certified as of a recent date.
(c) Officer's Certificate. A certificate, dated the Closing Date,
executed on behalf of Purchaser by an executive officer of Purchaser, certifying
as to the satisfaction of the conditions precedent set forth in Sections 7.3.1
and 7.3.2; such certificate shall be in form and substance reasonably
satisfactory to Seller.
(d) Transition Documents. The License Agreement, the Patent License
Agreement and the Transition Services Agreement, duly executed by Purchaser.
(e) Intentionally Omitted.
(f) Other Documents. Such additional information and materials as
Seller shall reasonably request.
8.4 Documents to be Delivered by Purchaser and Seller. At the Closing, each
of Purchaser and Seller shall execute and deliver, or cause to be executed and
delivered, to the other a general bill of sale and assumption agreement, in form
and substance reasonably satisfactory to the parties hereto.
IX. POST-CLOSING COVENANTS
9.1 Covenant Not to Compete. Each of Parent and Seller agrees that from the
time that the Closing is consummated pursuant to the terms hereof until the
fifth anniversary of the date hereof (the "Covenant Termination Date"), each of
Parent and Seller will not, directly or indirectly, anywhere in the world, own,
manage, operate, control or participate in the ownership, management, operation
or control of any business, whether in corporate, proprietorship or partnership
form or otherwise, engaged in the design, manufacturing or marketing of real
time operating systems software products as stand-alone products; provided,
however, that this covenant against competition shall not apply to actions which
Seller is required to take with existing customers of Seller with respect to
Contracts that cannot be assigned by Seller to Purchaser. In the event that
prior to the Covenant Termination Date, Parent is acquired by a third party in a
transaction pursuant to which Parent survives as a separate and distinct entity
from such acquiring third party, then this covenant against competition shall
continue to apply to Parent until the Covenant Termination Date but shall not
apply to such acquiring third party. Each of Parent and Seller severally
acknowledge that the geographic boundaries and the term and scope of prohibited
activities contained in this Section 9.1 are reasonable and no broader than
necessary to protect the investment by Purchaser in the Assets being acquired
pursuant to this Agreement and will not impose any unreasonable burden upon any
of Parent, Seller or their respective Affiliates. The parties hereto
specifically acknowledge and agree that the remedy at law for any breach of the
foregoing will be inadequate and that the Purchaser, in addition to any other
relief available to it, shall be entitled to temporary and permanent injunctive
relief without the necessity of proving actual damage or posting any bond
whatsoever. In the event that the provisions of this Section 9.1 should ever be
deemed to exceed the limitations provided by applicable law, then the parties
hereto agree that such provisions shall be reformed to set forth the maximum
limitations permitted.
9.2 Confidentiality. Each of Parent and Seller agrees that after the
Closing it will not disclose, reveal, divulge or communicate to any person or
entity other than authorized officers, directors and employees of Purchaser, or
use or otherwise exploit for its own benefit or for the benefit of anyone other
than Purchaser, any Confidential Information (as defined below). Each of Parent
and Seller shall not have any obligation to keep confidential any Confidential
Information if and to the extent disclosure thereof is specifically required by
law; provided, however, that in the event disclosure is required by applicable
law, each of Parent and Seller shall, to the extent reasonably possible, provide
Purchaser with prompt notice of such requirement prior to making any disclosure
so that Purchaser may seek an appropriate protective order. For purposes of this
Section 9.2, "Confidential Information" shall mean any confidential information
with respect to the conduct or details of the Business, including, without
limitation, methods of operation, customers and customer lists, products,
proposed products, former products, proposed, pending or completed acquisitions
of any company, division, product line or other business unit, prices, fees,
costs, plans, designs, technology, inventions, Trade Secrets, Know-How,
Software, marketing methods, policies, plans, personnel, suppliers, competitors,
markets or other specialized information or proprietary matters; provided,
however, that the term Confidential Information does not include, and there
shall be no obligation hereunder with respect to, information that (a) is
generally available to the public on the date of this Agreement, (b) becomes
generally available to the public other than as a result of a disclosure by
Seller or Parent not otherwise permissible hereunder, (c) is independently
developed by Seller as established by documentary evidence, or (d) Seller learns
from other sources where such sources have not violated their confidentiality
obligation to Purchaser. The parties hereto specifically acknowledge and agree
that the remedy at law for any breach of the foregoing will be inadequate and
that Purchaser, in addition to any other relief available to it, shall be
entitled to temporary and permanent injunctive relief without the necessity of
proving actual damage or posting any bond whatsoever.
9.3 Discharge of Business Obligations. From and after the Closing Date,
Seller shall pay and discharge, in accordance with past practice but not less
than on a timely basis, all Retained Liabilities in respect of the Business, its
operations or the assets and properties used therein. From and after the Closing
Date, Purchaser shall pay and discharge, in the ordinary course but not less
than on a timely basis, the Assumed Liabilities.
9.4 Maintenance of Books and Records. Each of Parent, Seller and Purchaser
shall preserve, from and after the Closing Date until the sixth anniversary of
the Closing Date, all records possessed or to be possessed by such party
relating to any of the assets, liabilities or business of the Business prior to
the Closing Date. After the Closing Date, where there is a legitimate purpose,
such party shall provide the other parties with access, upon prior reasonable
written request specifying the need therefor, during regular business hours, to
(i) the officers and employees of such party and (ii) the books of account and
records of such party, but, in each case, only to the extent relating to the
assets, liabilities or business of the Business prior to the Closing Date, and
the other parties and their representatives shall have the right to make copies
of such books and records; provided, however, that the foregoing right of access
shall not be exercisable in such a manner as to interfere unreasonably with the
normal operations and business of such party; and further provided that, as to
such portion of such information as constitutes trade secrets or confidential
business information of such party, the requesting party and its officers,
directors and representatives will use due care to not disclose such information
except (i) as required by law, (ii) with the prior written consent of such
party, which consent shall not be unreasonably withheld, or (iii) where such
information becomes available to the public generally, or becomes generally
known to competitors of such party, through sources other than the requesting
party, its Affiliates or its officers, directors or representatives. Such
records may nevertheless be destroyed by a party if such party sends to the
other parties written notice of its intent to destroy records, specifying with
particularity the contents of the records to be destroyed. Such records may then
be destroyed after the 30th day after such notice is given unless another party
objects to the destruction, in which case the party seeking to destroy the
records shall deliver such records to the objecting party.
9.5 Payments Received. Parent, Seller and Purchaser each agree that after
the Closing they will hold and will promptly transfer and deliver to the other,
from time to time as and when received by them, any cash, checks with
appropriate endorsements (using their reasonable efforts not to convert such
checks into cash), or other property that they may receive on or after the
Closing which properly belongs to the other party, including without limitation
any insurance proceeds, and will account to the other for all such receipts.
From and after the Closing, Purchaser shall have the right and authority to
endorse without recourse the name of Seller on each check or any other evidences
of indebtedness received by Purchaser on account of the Business and the Assets
transferred to Purchaser hereunder.
9.6 Post-Closing Notifications. Purchaser, Parent and Seller will comply
with any post-Closing notification or other requirements, to the extent then
applicable to such party, of any antitrust, trade competition, investment or
control, export or other law of any Governmental Authority having jurisdiction
over Seller.
9.7 Certain Tax Matters. All sales, use, transfer, stamp, conveyance, value
added or other similar taxes, duties, excises or governmental charges imposed by
any taxing jurisdiction, domestic or foreign, and all recording or filing fees,
notarial fees and other similar costs of Closing with respect to the transfer of
the Assets or otherwise on account of this Agreement or the transactions
contemplated hereby will be borne by Purchaser.
9.8 Insurance. With respect to any loss, liability or damage relating to,
resulting from or arising out of the conduct of the Business on or prior to the
Closing Date for which Seller would be entitled to assert a claim for recovery
under any policy of insurance maintained by or for the benefit of Seller in
respect of the Business or the Assets, at the request and expense of Purchaser,
Seller will, after the Closing, use reasonable efforts to assert, or to assist
Purchaser to assert, one or more claims under such insurance covering such loss,
liability or damage if Purchaser is not itself entitled to assert such claim but
Seller is so entitled.
9.9 Use of Name. From and after thirty (30) days following the Closing
Date, Parent and Seller will sign such consents and take such other action as
Purchaser shall reasonably request in order to permit Purchaser to use the name
"Spectron Microsystems Incorporated" and variants thereof. From and after the
Closing Date, Seller will not itself use the name Spectron Microsystems
Incorporated" or any derivative or variants thereof and shall promptly amend its
articles of incorporation to remove such reference.
9.10 Non-Solicitation/No-Hire. For a term of two years after the Closing
Date, neither Parent nor Seller nor their representatives on their behalf will
directly solicit any of Seller's employees hired by Purchaser (unless such
employees are no longer employed by Purchaser) and neither Purchaser nor its
representatives on its behalf will directly solicit any of Seller's employees
not hired by Purchaser as of the Closing Date (unless such employees are no
longer employed by Seller). For a term of one year after the Closing Date,
neither Parent nor Seller nor their representatives on their behalf will offer
employment to any of the Seller's employees hired by Purchaser (unless such
employees are no longer employed by Purchaser). In the event that this Agreement
is terminated for any reason, for a term of two years after the termination
date, neither Purchaser nor its representatives on its behalf will directly
solicit any of Seller's employees and for a term of one year after the
termination date, neither Purchaser nor its representatives on its behalf will
offer employment to any of Seller's employees (unless, in either such case, such
employees are no longer employed by Seller).
X. SURVIVAL AND INDEMNIFICATION
10.1 Survival of Representations, Warranties and CovenantsX.1 Survival of
Representations, Warranties and Covenants.
(a) Except as to (i) the representations and warranties contained in
Section 4.18 relating to title to the Assets, which shall survive the Closing
and remain in effect indefinitely, (ii) the representations and warranties
contained in Section 4.17 relating to environmental matters and the
representations and warranties contained in Sections 4.13 and 4.14 relating to
employees and employee benefit plans, which shall survive the Closing until the
expiration of the statute of limitations applicable thereto, and (iii) the
representations and warranties contained in Section 4.19 relating to Taxes,
which shall survive the Closing until the expiration of the last day on which
any Tax may be validly assessed by the Internal Revenue Service or any other
Governmental Authority against the Assets or the Business, the representations
and warranties of Seller, Parent and Purchaser contained in this Agreement or in
any Transfer Document shall survive the Closing until the expiration of two
years from the Closing Date. Any claim for an Indemnifiable Loss (as defined in
Section 10.2) asserted within such period of survival as herein provided will be
timely made for purposes hereof.
(b) Unless a specified period is set forth in this Agreement (in which
event such specified period will control), the covenants in this Agreement will
survive the Closing and remain in effect indefinitely.
10.2 Limitations on Liability.
(a) For purposes of this Agreement, (i) "Indemnity Payment" means any
amount of Indemnifiable Losses required to be paid pursuant to this Agreement,
(ii) "Indemnitee" means any person or entity entitled to indemnification under
this Agreement, (iii) "Indemnifying Party" means any person or entity required
to provide indemnification under this Agreement, (iv) "Indemnifiable Losses"
means any and all damages, losses, liabilities, obligations, costs and expenses,
and any and all claims, demands or suits (by any person or entity, including,
without limitation, any Governmental Authority), including, without limitation,
the costs and expenses of any and all actions, suits, proceedings, demands,
assessments, judgments, settlements and compromises relating thereto and
including reasonable attorneys' fees and expenses in connection therewith and
(v) "Third Party Claim" means any claim, action or proceeding made or brought by
any person or entity who or which is not a party to this Agreement or an
Affiliate of a party to this Agreement.
(b) Notwithstanding any other provision hereof or of any applicable
law, (i) no Indemnitee will be entitled to make a claim against an Indemnifying
Party in respect of any breach of a representation or warranty (other than the
representations and warranties contained in Section 4.18 relating to title to
the Assets) under Sections 10.3(a)(i) or 10.3(b)(i) unless and until the
aggregate amount of claims in respect of breaches of representations and
warranties asserted for Indemnifiable Losses under Section 10.3(a)(i), with
respect to claims by Purchaser, or Section 10.3(b)(i), with respect to claims by
Seller, exceeds $400,000, in which event the Indemnitee will be entitled to make
a claim against the Indemnifying Party to the extent the amount of Indemnifiable
Losses exceeds $400,000; and (ii) no Indemnitee shall be liable for Indemnity
Payments in respect of breaches of representations or warranties asserted for
Indemnifiable Losses under Sections 10.3(a)(i) or 10.3(b)(i), as applicable, to
the extent such aggregate Indemnity Payments by such Indemnifying Party exceeds
the Closing Date Payment.
(c) An Indemnity Payment shall subsequently be reduced by a payment by
the Indemnitee to the Indemnifying Party in an amount equal to any net reduction
in liability for Taxes that is actually realized or, at the Indemnitee's
election, could be realized by an Indemnitee with respect to the payment or
accrual of an Indemnifiable Loss and by any net proceeds of insurance claims
that are actually received by an Indemnitee with respect to the payment or
accrual of an Indemnifiable Loss; provided, however, that in the event a taxing
authority disallows in whole or in part such net reduction in liability for
Taxes, an Indemnifying Party shall promptly repay to the Indemnitee the amount
of such increase in Taxes.
10.3 Indemnification.
(a) Subject to Sections 10.1 and 10.2, from and after the Closing
Date, Parent and Seller agree, jointly and severally, to indemnify, defend and
hold harmless Purchaser and its Affiliates and their respective directors,
officers, partners, employees, agents and representatives from and against any
and all Indemnifiable Losses to the extent relating to, resulting from or
arising out of:
(i) any misrepresentation or breach of warranty on the part of
Parent and Seller under the terms of this Agreement, the License Agreement,
the Patent License Agreement and the Transition Services Agreement;
(ii) any nonfulfillment of any agreement or covenant on the part
of Parent and Seller under the terms of this Agreement, the License
Agreement, the Patent License Agreement and the Transition Services
Agreement;
(iii) any Retained Liabilities;
(iv) any failure to comply with any "bulk sales" laws applicable
to the transactions contemplated hereby; and
(v) the conduct of the Business or any portion thereof or the use
or ownership of any of the Assets prior to or on the Closing Date (other
than the Assumed Liabilities), including without limitation the breach of
any Contract by Seller prior to the Closing.
(b) Subject to Sections 10.1 and 10.2, from and after the Closing
Date, Purchaser agrees to indemnify, defend and hold harmless Seller and its
Affiliates, and their respective directors, officers, partners, employees,
agents and representatives from and against any and all Indemnifiable Losses to
the extent relating to, resulting from or arising out of:
(i) any misrepresentation or breach of warranty on the part of
Purchaser under the terms of this Agreement, the License Agreement, the
Patent License Agreement and the Transition Services Agreement;
(ii) any nonfulfillment of any agreement or covenant on the part
of Purchaser under the terms of this Agreement, the License Agreement, the
Patent License Agreement and the Transition Services Agreement;
(iii) any Assumed Liabilities;
(iv) the conduct of the Business or any portion thereof or use or
ownership of any of the Assets after the Closing Date(including without
limitation the breach of any Contract by Purchaser after the Closing); and
(v) any liability that may arise as a result of Seller's
delivering employment records and files to Purchaser.
10.4 Defense of Claims.
(a) If any Indemnitee receives notice of assertion or commencement of
any Third Party Claim against such Indemnitee with respect to which an
Indemnifying Party is obligated to provide indemnification under this Agreement,
the Indemnitee will give such Indemnifying Party reasonably prompt written
notice thereof, but in any event not later than 15 calendar days after receipt
of such notice of such Third Party Claim. Such notice will describe the Third
Party Claim in reasonable detail, will include copies of all material written
evidence thereof and will indicate the estimated amount, if reasonably
practicable, of the Indemnifiable Loss that has been or may be sustained by the
Indemnitee. The Indemnifying Party will have the right to participate in or, by
giving written notice to the Indemnitee, to assume the defense of any Third
Party Claim at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel (provided that such counsel is reasonably satisfactory to
the Indemnitee), and the Indemnitee will cooperate in good faith in such
defense.
(b) If, within 10 calendar days after giving notice of a Third Party
Claim to an Indemnifying Party pursuant to Section 10.4(a), an Indemnitee
receives written notice from the Indemnifying Party that the Indemnifying Party
has elected to assume the defense of such Third Party Claim as provided in the
last sentence of Section 10.4(a), the Indemnifying Party will not be liable for
any legal expenses subsequently incurred by the Indemnitee in connection with
the defense thereof; provided, however, that if the Indemnifying Party fails to
take reasonable steps necessary to defend diligently such Third Party Claim
within 10 calendar days after receiving written notice from the Indemnitee that
the Indemnitee believes the Indemnifying Party has failed to take such steps, or
if the Indemnifying Party has not undertaken fully to indemnify the Indemnitee
in respect of all Indemnifiable Losses relating to the matter, the Indemnitee
may assume its own defense, and the Indemnifying Party will be liable for all
reasonable costs or expenses paid or incurred in connection therewith. Without
the prior written consent of the Indemnitee, the Indemnifying Party will not
enter into any settlement of any Third Party Claim which would lead to liability
or create any financial or other obligation on the part of the Indemnitee for
which the Indemnitee is not entitled to indemnification hereunder. If a firm
offer is made to settle a Third Party Claim without leading to liability or the
creation of a financial or other obligation on the part of the Indemnitee for
which the Indemnitee is not entitled to indemnification hereunder and the
Indemnifying Party desires to accept and agree to such offer, the Indemnifying
Party will give written notice to the Indemnitee to that effect. If the
Indemnitee fails to consent to such firm offer within 10 calendar days after its
receipt of such notice, the Indemnitee may continue to contest or defend such
Third Party Claim and, in such event, the maximum liability of the Indemnifying
Party as to such Third Party Claim will not exceed the amount of such settlement
offer, plus costs and expenses paid or incurred by the Indemnitee through the
end of such 10 calendar day period.
(c) A failure to give timely notice or to include any specified
information in any notice as provided in Sections 10.4(a) or 10.4(b) will not
affect the rights or obligations of any party hereunder except and only to the
extent that, as a result of such failure, any party which was entitled to
receive such notice was deprived of its right to recover any payment under its
applicable insurance coverage or was otherwise damaged as a result of such
failure.
(d) The Indemnifying Party will have a period of 30 calendar days
within which to respond in writing to any claim by an Indemnitee on account of
an Indemnifiable Loss which does not result from a Third Party Claim (a "Direct
Claim"). If the Indemnifying Party does not so respond within such 30 calendar
day period, the Indemnifying Party will be deemed to have rejected such claim,
in which event the Indemnitee will be free to pursue such remedies as may be
available to the Indemnitee on the terms and subject to the provisions of this
Article X.
(e) If the amount of any Indemnifiable Loss, at any time subsequent to
the making of an Indemnity Payment, is reduced by recovery, settlement or
otherwise under or pursuant to any insurance coverage, or pursuant to any claim,
recovery, settlement or payment by or against any other entity, the amount of
such reduction, less any costs, expenses, premiums or taxes incurred in
connection therewith (together with interest thereon from the date of payment
thereof at the annualized rate of interest equal to the "prime" or "reference"
rate of interest as publicly announced by Chemical Bank, N.A. and in effect from
time to time during the relevant period, calculated on the basis of the actual
number of days elapsed over 365) will promptly be repaid by the Indemnitee to
the Indemnifying Party. Upon making any Indemnity Payment the Indemnifying Party
will, to the extent of such Indemnity Payment, be subrogated to all rights of
the Indemnitee against any third party that is not an Affiliate of the
Indemnitee in respect of the Indemnifiable Loss to which the Indemnity Payment
related; provided, however, that (i) the Indemnifying Party shall then be in
compliance with its obligations under this Agreement in respect of such
Indemnifiable Loss, and (ii) until the Indemnitee recovers fully payment of its
Indemnifiable Loss, any and all claims of the Indemnifying Party against any
such third party on account of said Indemnity Payment will be subrogated and
subordinated in right of payment to the Indemnitee's rights against such third
party. Without limiting the generality or effect of any other provision hereof,
each such Indemnitee and Indemnifying Party will duly execute upon request all
instruments reasonably necessary to evidence and perfect the above described
subrogation and subordination rights.
10.5 Tax Consequences of Indemnity Payment. Any Indemnity Payment hereunder
shall be treated on the respective tax returns of Seller and Purchaser as an
adjustment to the Purchase Price. In the event that, notwithstanding such
treatment, any Indemnity Payment is determined to be taxable to the Purchaser,
then Seller and Parent shall indemnify Purchaser for any additional Taxes
payable by Purchaser by reason of the receipt or accrual of such Indemnity
Payment (including any payment made pursuant to this Section 10.5).
XI. MISCELLANEOUS PROVISIONS
11.1 Notices. All notices and other communications required or permitted
hereunder will be in writing and, unless otherwise provided in this Agreement,
will be deemed to have been duly given when delivered in person or when
dispatched by electronic facsimile transfer (confirmed in writing by mail
simultaneously dispatched) or one business day after having been dispatched by a
nationally recognized overnight courier service to the appropriate party at the
address specified below:
(a) If to Seller, to:
Dialogic Corporation
1515 Route 10
Parsippany, New Jersey
Attention: Thomas Amato
Facsimile No.: 973-993-3060
with a copy to:
Theodore M. Weitz, Esq.
Vice President and General Counsel
Dialogic Corporation
1515 Route 10
Parsippany, New Jersey
Facsimile No.: 973-993-3060
(b) If to Purchaser, to:
Texas Instruments Incorporated
7839 Churchill Way
Dallas, Texas 75251
P.O. Box 650311, M/S 3995
Dallas, Texas 75265
Facsimile No. (972) 917-3804
Attention: Charles D. Tobin
with a copy to:
Texas Instruments Incorporated
8505 Forest Lane
Dallas, Texas 75243
P.O. Box 660199, M/S 8658
Dallas, Texas 75266-0199
Facsimile No. (972) 480-5061
Attention: Richard J. Agnich, Esq.
or to such other address or addresses as any such party may from time to time
designate as to itself by like notice.
11.2 Expenses. Except as otherwise expressly provided herein, each party
hereto will pay any expenses incurred by it incident to this Agreement and in
preparing to consummate and consummating the transactions provided for herein.
Parent shall bear all of the attorneys' fees and disbursements of the counsel
for Seller and Parent in the transaction contemplated by this Agreement.
11.3 Successors and Assigns. Except as otherwise provided in Section 9.1
hereof, this Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but will
not be assignable or delegable by any party without the prior written consent of
the other party; provided, however, that upon notice to Seller, Purchaser may
assign or delegate any or all of its rights or obligations under this Agreement
to any Affiliate thereof (provided that Purchaser expressly agrees to remain
liable hereunder on terms reasonably satisfactory to Seller) or to any Person
that directly or indirectly acquires, after the Closing, all or substantially
all of the assets or voting stock of Purchaser (provided that such Person
expressly agrees to assume all of Purchaser's obligations hereunder on terms
reasonably satisfactory to Seller).
11.4 Waiver. Purchaser may, by written notice to Seller, and Seller may, by
written notice to Purchaser, (a) extend the time for performance of any of the
obligations of the other party under this Agreement, (b) waive any inaccuracies
in the representations or warranties of the other party contained in this
Agreement, (c) waive compliance with any of the conditions or covenants of the
other party contained in this Agreement, or (d) waive or modify performance of
any of the obligations of the other party under this Agreement; provided,
however, that no such party may, without the prior written consent of the other
parties, make or grant such extension of time, waiver of inaccuracies or
compliance or waiver or modification of performance with respect to its (or any
of its Affiliates') representations, warranties, conditions or covenants
hereunder. Except as provided in the immediately preceding sentence, no action
taken pursuant to this Agreement will be deemed to constitute a waiver of
compliance with any representations, warranties, conditions or covenants
contained in this Agreement and will not operate or be construed as a waiver of
any subsequent breach, whether of a similar or dissimilar nature.
11.5 Entire Agreement; Disclosure Schedules This Agreement (which includes
the Schedules and Exhibits hereto and the Letter, as such term is defined in
Schedule 3.2(b) hereto), the confidentiality agreement executed by the parties
hereto on August 29, 1997 and any other side letter executed by Seller and
Purchaser as of the date hereof relating to this Agreement supersede any other
agreement, whether written or oral, that may have been made or entered into by
any party or any of their respective Affiliates (or by any director, officer or
representative thereof) relating to the matters contemplated hereby and
constitutes the entire agreement by and among the parties hereto. Unless
otherwise specified, references to "Schedules" herein refer to the corresponding
schedule set forth in the disclosure Schedules attached hereto.
11.6 Amendments, Supplements, Etc. This Agreement may be amended or
supplemented at any time by additional written agreements as may mutually be
determined by Purchaser, Parent and Seller to be necessary, desirable or
expedient to further the purposes of this Agreement or to clarify the intention
of the parties.
11.7 Rights of the Parties. Nothing express or implied in this Agreement is
intended or will be construed to confer upon or give any Person other than the
parties hereto and their Affiliates any rights or remedies under or by reason of
this Agreement or any transaction contemplated hereby.
11.8 Further AssurancesXI.8 Further Assurances. From time to time after the
Closing, as and when requested by any party hereto, the other parties will
execute and deliver, or cause to be executed and delivered, all such documents
and instruments as may be reasonably necessary to consummate the transactions
contemplated by this Agreement.
11.9 Applicable Law This Agreement and the legal relations among the
parties hereto will be governed by and construed in accordance with the rules
and substantive laws of the State of Texas, United States of America, without
regard to conflicts of law provisions thereof.
11.10 Execution in CounterpartsXI.10 Execution in Counterparts. This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original, but all of which together will constitute one and the same
agreement.
11.11 Titles and HeadingsXI.11 Titles and Headings. Titles and headings to
Sections herein are inserted for convenience of reference only, and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
11.12 Invalid ProvisionsXI.12 Invalid Provisions. If any provision of this
Agreement is held to be illegal, invalid, or unenforceable under any present or
future law, and if the rights or obligations under this Agreement of Seller on
the one hand and Purchaser on the other hand will not be materially and
adversely affected thereby, (a) such provision will be fully severable; (b) this
Agreement will be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; (c) the remaining
provisions of this Agreement will remain in full force and effect and will not
be affected by the illegal, invalid, or unenforceable provision or by its
severance from this Agreement; and (d) in lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid, and enforceable provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible.
11.13 Bulk Sales. Purchaser waives compliance by Seller with the provisions
of the so-called bulk sales laws of any jurisdiction; provided, however, that
Seller will indemnify, defend and hold harmless Purchaser and its Affiliates in
respect of any Indemnifiable Loss relating to, resulting from or arising out of
Seller's failure so to comply with such laws in connection with the transactions
contemplated by this Agreement.
11.14 Transfers. After the Closing, Purchaser, Parent and Seller will
cooperate and take such action as may be reasonably requested by the other in
order to effect an orderly transfer of the Assets and the Business with a
minimum of disruption to the operations and employees of Purchaser and Seller.
11.15 Passage of Title and Risk of Loss Legal title, equitable title and
risk of loss with respect to the Assets will not pass to Purchaser until such
Assets are transferred at the Closing, which transfer, once it has occurred,
will be deemed effective for tax, accounting and other computational purposes as
of 11:59 P.M. (Central Time) on the Closing Date.
11.16 Material Adverse Effect. For purposes of this Agreement, an event or
matter shall be deemed to have a "Material Adverse Effect" upon a party if such
event or matter had, or could reasonably be expected to have, a material adverse
effect on (a) the consolidated or, in the case of Seller, unconsolidated,
results of operations or financial condition or total assets of such party or
(b) the ability of Purchaser to conduct the Business after the Closing;
provided, however, that notwithstanding the foregoing, an event or matter shall
not be deemed to have a "Material Adverse Effect" upon Seller if either (x) such
event or matter has a substantially similar impact upon Seller's business and
other businesses in Seller's industry or (y) such event or matter involves a
loss of one or more customers as a result of the fact that Purchaser, Seller and
Parent have executed this Agreement and plan to consummate the transactions
contemplated hereby.
11.17 Knowledge. Parent and Seller shall be deemed to have "Knowledge" of a
matter or event if, and only if, such matter or event is actually known, after
reasonable inquiry under the circumstances (it being understood that such
inquiry shall not require any Person to access any information that appears on a
database that is not maintained by Seller), by either Charles House, Michael
Stein, Robert Frankel, David Russo, Michael Mercadante, Howard Bubb, Thomas
Amato, Theodore Weitz (but, as to Mr. Weitz, only with respect to matters that
may be disclosed by Mr. Weitz without breaching any privilege or confidentiality
obligation owed by Mr. Weitz to Seller, Parent or their Affiliates), Ken
Cardinal (but, as to Ken Cardinal, only with respect to matters pertaining to
employment benefits and other employment matters), Ray Wagstaff, Robert Howry
(but, as to Messrs. Wagstaff and Howry, only with respect to matters pertaining
to sales and marketing), Mark Grossen or Jeffrey Kaplan (but, as to Messrs.
Grossen and Kaplan, only with respect to matters pertaining to Intellectual
Property and, as to Mr. Kaplan, only with respect to matters that may be
disclosed by Mr. Kaplan without breaching any privilege or confidentiality
obligation owed by Mr. Kaplan to Seller, Parent or their Affiliates).
11.18 Forum. IN THE EVENT THAT PURCHASER ELECTS TO COMMENCE LEGAL
PROCEEDINGS HEREUNDER AGAINST SELLER OR PARENT, SUCH ACTION SHALL BE BROUGHT IN
A STATE COURT OR FEDERAL COURT SITTING IN OR COVERING MORRIS COUNTY, NEW JERSEY.
IN THE EVENT THAT SELLER OR PARENT ELECT TO COMMENCE LEGAL PROCEEDINGS HEREUNDER
AGAINST PURCHASER, SUCH ACTION SHALL BE BROUGHT IN A STATE COURT OR FEDERAL
COURT SITTING IN DALLAS COUNTY, TEXAS.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
TEXAS INSTRUMENTS INCORPORATED
By:/s/_________________________
Name:
Title:
DIALOGIC CORPORATION
By:/s/_________________________
Name:
Title:
SPECTRON MICROSYSTEMS, INCORPORATED
By:/s/_________________________
Name:
Title:
<PAGE>
Page
(XLV)
LIST OF DEFINED TERMS
Affiliate...........................................................Section 4.21
Agreement............................................................ Preamble
Assets.............................................................. Section 1.1
Assumed Liabilities................................................. Section 2.1
Business Recitals
Closing Date Payment..............................................Section 3.2(a)
Closing Date........................................................ Section 8.1
Closing..............................................................Section 8.1
Code............................................................ Section 4.14(a)
Commercial Owned Software....................................... Section 4.10(c)
Confidential Information............................................ Section 9.2
Confidential Software............................................Section 4.11(b)
Contracts.........................................................Section 1.1(c)
Direct Claim.................................................... Section 10.4(d)
Documentation................................................... Section 4.10(c)
Employee Plans..................................................... Section 4.13
Employee Plans...................................................Section 4.14(a)
Employment Term Sheets..............................................Section 6.11
Environmental Costs and Liabilities............................. Section 4.17(b)
Environmental Law............................................... Section 4.17(b)
ERISA........................................................... Section 4.12(d)
Financial Statements................................................ Section 4.6
GAAP................................................................ Section 4.6
Goods Contracts............................................... Section 4.8(a)(2)
Governmental Approval............................................... Section 4.4
Governmental Authority........................................... Section 1.3(a)
Hazardous Material.............................................. Section 4.17(b)
HSR Act............................................................. Section 4.4
Indemnifiable Losses............................................... Section 10.2
Indemnifying Party................................................. Section 10.2
Indemnitee......................................................... Section 10.2
Indemnity Payment.................................................. Section 10.2
Intellectual Property............................................ Section 1.1(f)
Interim Balance Sheet Date......................................... Section 4.6
Know-How......................................................... Section 1.1(f)
Knowledge........................................................ Section 11.17
liabilities......................................................... Section 4.7
License Agreement................................................ Section 8.2(f)
Liens............................................................... Section 1.1
Patent License Agreement......................................... Section 8.2(h)
Material Adverse Effect............................................. Section 4.1
Material Adverse Effect........................................... Section 11.16
Not-Owned IP..................................................... Section 4.9(b)
Not-Owned Software.............................................. Section 4.10(b)
November Balance Sheet.............................................. Section 4.6
Obligations........................................................ Section 4.7
Opinion of Seller's counsel...................................... Section 8.2(e)
Outside Date........................................................ Section7A.1
Owned IP......................................................... Section 4.9(a)
Owned Software...................................................Section 4.10(a)
Parent ................................................................ Preamble
Pension Plans................................................... Section 4.13(a)
Pension Plans................................................... Section 4.14(a)
Permits......................................................... Section 1.1(h)
Permitted Actions...........................................Section 6.6(a)(i)(C)
Permitted Liens.................................................... Section 4.18
Person.............................................................. Section 4.4
Products............................................................... Recitals
Purchase Price...................................................... Section 3.1
Purchaser Ancillary Documents....................................... Section 5.2
Purchaser............................................................. Preamble
Real Property Leases............................................. Section 1.1(g)
Real Property.....................................................Section 1.1(g)
Registered Owned IP...............................................Section 4.9(a)
Retained Liabilities................................................ Section 2.2
Seller Ancillary Documents.......................................... Section 4.2
Seller................................................................. Preamble
Service Contracts............................................. Section 4.8(a)(2)
Software......................................................... Section 1.1(f)
Tax Returns..................................................... Section 4.19(h)
Tax ............................................................ Section 4.19(h)
Taxes........................................................... Section 4.19(h)
Third Party Claim.................................................. Section 10.2
TI..................................................................... Preamble
Trade Secrets.................................................... Section 1.1(f)
Transaction......................................................... Section 7.1
Transfer Documents............................................... Section 8.2(a)
Transferred Employees........................................... Section 6.12(a)
Transition Services Agreement.................................... Section 8.2(i)
Works of Authorship.............................................. Section 1.1(f)
<PAGE>
EXHIBIT 11.1
DIALOGIC CORPORATION
CALCULATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
Twelve months ended
December 31,
1997 1996 1995
Basic Earnings
Income applicable to shares used in
calculation of net income per share $ 21,752 $ 25,548 $ 16,302
========= ======== =======
Shares used in calculation of net income
per share:
Weighted average shares outstanding 15,931 15,654 15,340
======= ====== ======
Net income per share $ 1.37 $ 1.63 $ 1.06
========= ======== ========
Diluted Earnings
Income applicable to shares used in
calculation or net income per share $ 21,752 $ 25,548 $ 16,302
========= ======== ========
Shares used in calculation of net income
per share:
Weighted average shares outstanding 15,931 15,654 15,340
Dilutive effect of stock options after
application of treasury
stock method 667 763 699
------- ------ ------
Number of shares in calculation of net
income per share 16,598 16,417 16,039
======= ====== ======
Net income per share $ 1.31 $ 1.56 $ 1.02
========= ======== ========
The following selected consolidated financial data should be read in conjunction
with the Company's Consolidated Financial Statements and the Notes to the
Consolidated Financial Statements. All financial information presented for
periods prior to the 1994 acquisition of GammaLink by Dialogic have been
retroactively adjusted in order to account for that transaction as a pooling of
interests.
<TABLE>
<CAPTION>
EXHIBIT 13.1
INCORPORATED PORTIONS OF THE ANNUAL REPORT TO SHAREHOLDERS
Amounts in thousands, except per share data
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1997 1996 1995 1994 1993
Statement of Income Data:
Revenues $261,310 $213,604 $168,652 $127,235 $ 95,613
Cost of goods sold 98,329 84,764 66,829 50,841 38,151
------- ------- ------- ------- ------
Gross profit 162,981 128,840 101,823 76,394 57,462
Research and development expense 51,530 40,666 29,045 21,650 16,687
Selling, general and administrative
expenses 78,107 59,666 47,617 34,646 27,409
Amortization of goodwill 991 386 56 - -
------- ------- ------- ------- ------
Operating income 32,353 28,122 25,105 20,098 13,366
Merger costs - - 1,294 - -
Interest (expense) income - net 1,637 2,440 2,036 1,214 75
Net realized (losses) gains on
available for sale securities (4) 9,175 309 (15) -
------- ------- ------- ------- ------
Income before provision for income
taxes 33,986 39,737 26,156 21,297 13,441
Provision for income taxes 12,234 14,189 9,854 5,408 1,317
------- ------- ------- ------- ------
Net income $ 21,752 $ 25,548 $ 16,302 $ 15,889 $ 12,124
Income per share:
Basic $ 1.37 $ 1.63 $ 1.06
Diluted $ 1.31 $ 1.56 $ 1.02
------- ------- ------- ------- ------
Shares used in the calculation of pro
forma income per share:
Basic 15,931 15,654 15,340
Diluted 16,598 16,417 16,039
Pro Forma Data:(1)
Income before provision for income
taxes as reported $21,297 $ 13,441
Provision for income taxes 7,689 4,986
Net income $13,608 $ 8,455
Income per share:
Basic $ .99 $ .85
Diluted $ .94 $ .69
Shares used in the calculation of pro
forma income per share:
Basic 13,774 9,996
Diluted 14,509 12,282
Balance Sheet Data:
Working capital $119,920 $103,909 $ 76,997 $ 55,711 $ 14,903
Total assets 182,404 147,270 117,362 81,864 38,572
Long-term obligations, net of
current maturities 2,481 2,926 2,259 2,465 630
Shareholders' equity(2) 144,865 124,842 92,757 66,796 21,418
________________________
</TABLE>
(1) During 1993 through the IPO in April 1994 (the "S Period"), the Company
was an S corporation and, accordingly, was not subject to federal and certain
state corporate income taxes. The pro forma statement of income information has
been computed as if the Company had been subject to federal and all applicable
state corporate income taxes during the S period, based on the statutory tax
rates and the tax laws then in effect.
(2) The Company declared an aggregate of $8.7 million and $2.5 million in S
corporation dividends in 1993 and 1994, respectively. No other dividends were
declared during the periods presented.
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Business: Dialogic designs, manufactures and sells high performance,
standards-based computer telephony (CT) components. Computer telephony systems
built with Dialogic products manage telephone, facsimile and multi-media calls
answered by computer over wireless and wired networks worldwide. The Company is
headquartered in Parsippany, New Jersey, with regional headquarters in Tokyo,
Japan; Brussels, Belgium; and Buenos Aires, Argentina. Dialogic employs
approximately 1,000 people worldwide and has offices in major industrial centers
around the world.
The following table and commentary should be read in conjunction with the
Consolidated Financial Statements and related Notes to the Consolidated
Financial Statements.
Percentage of Revenues
The following table sets forth, for the periods indicated, certain
statements of income data as a percentage of total revenues:
<TABLE>
<CAPTION>
Percent of Sales Percent of Change
Year ended December 31, 1997 1996 1995 1997 1996 1995
vs. vs. vs.
1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Revenues 100.0% 100.0% 100.0% 22.3% 26.7% 32.6%
Gross profit 62.4 60.3 60.4 26.5 26.5 33.3
Research and
development expense 19.7 19.0 17.2 26.7 40.0 34.2
Selling, general and administrative
expenses (including amortization
of goodwill) 30.3 28.1 28.3 31.7 26.0 38.8
Merger costs - - 0.8 - 100.0 (100.0)
Interest income - net 0.6 1.1 1.2 (32.9) 19.8 67.7
Net realized gains on available
for sale securities - 4.3 0.2 (100.0) 100.0 100.0
----- ----- --- ------ ----- ------
Income before provision for income
taxes 13.0 18.6 15.5 (14.5) 51.9 22.8
Provision for income taxes 4.7 6.6 5.8 (13.8) 44.0 82.2
----- ----- ---- ------ ---- ----
Net income 8.3 12.0 9.7 (14.9)(1) 56.7(1) 2.6
</TABLE>
_______________________
(1) During 1996, the Company recorded a pre-tax gain of $9.1 million as a result
of its first quarter sale of a portion of its equity position in VCS. Excluding
this gain, the percentage increase of 1997 compared with 1996 would have been
10.1%. The percentage increase for 1996 as compared to 1995 would have been
21.8%. See Note 3 of the Company's Notes to the Consolidated Financial
Statements.
Fiscal 1997 Compared to Fiscal 1996
Revenue: For the year ended December 31, 1997, consolidated revenue increased
22.3% to $261.3 million from $213.6 million in fiscal 1996. Revenue growth in
the Americas increased 18.6% or $38.1 million. Revenue growth in the Americas
was impacted by longer than originally anticipated cycles for new product design
wins. International revenues, primarily Europe and Asia/Pacific, increased 29.6%
to $62.7 million from $48.4 million the preceding year. During 1997, Dialogic's
worldwide revenue growth was favorably impacted by increased sales of high
density products. Sales from high density products represented 55.6% of total
1997 revenue versus 48.7% of the total revenue in 1996.
Gross Profit: Consolidated gross profit for 1997 was 62.4% compared to 60.3% for
the prior year. The increase in margins reflects the continued effects of the
Company's cost reduction efforts across all product lines. During 1997, the
Company substantially completed its move of production to a selected turnkey
manufacturer resulting in further cost savings. In addition, margins were
impacted by favorable product mix related to the increased volume of high
density products, offset partially by a one-time charge of $600 thousand for the
settlement of royalties related to a potential patent infringement.
Expenses: As a percentage of consolidated revenues, selling, general and
administrative expenses increased to 30.3% in fiscal 1997 as compared to 28.1%
in the previous year. The increase in selling, general and administrative
expenses is attributable to the continuing growth
<PAGE>
of domestic and international sales and marketing efforts associated with new
product launches and establishment of additional sales offices, costs associated
with internal technology infrastructure and the costs associated with the hiring
and relocation of executive staff members.
Research and development expense increased $10.9 million to 19.7% of
revenue as compared to 19.0% of revenue in fiscal 1996. The increase reflects
the Company's continued investment of engineering resources related to
Dialogic's DM3 Mediastream Resource Architecture ("DM3") announced in the first
quarter of 1997.
The Company recognized amortization expense of goodwill associated with the
acquisition of Dianatel Corporation of approximately $1.0 million in fiscal 1997
as compared to $386 thousand in the prior year.
Interest Income: The Company recorded $1.6 million net interest income for the
fiscal year ended December 31, 1997, as compared to $2.4 million in the previous
fiscal year. Interest income in 1997 of $1.8 million was primarily generated
from the Company's investments in tax free securities as compared to $2.5
million in 1996 from tax free investments and from the Company's election to
convert accrued interest on the note of Voice Control Systems, "VCS." The
Company continues to invest a majority of its available cash in tax free
securities.
Taxes: The effective tax rate for fiscal 1997 was 36.0% as compared to 35.7% for
fiscal 1996.
Net Income: Net income for fiscal 1997 was $21.8 million or $1.31 per diluted
share as compared to $25.5 million and $1.56 per diluted share for the previous
year. Net income in fiscal 1996 included an after-tax gain on the sale of
securities of VCS of $5.8 million or $0.35 per diluted share.
Fiscal 1996 Compared to Fiscal 1995
Revenues: Consolidated revenues increased 26.7% to $214 million from $169
million in fiscal 1995. Revenues in the Americas increased 27.6% year over year
while Europe and Asia/Pacific grew 24.6%.
During 1996, revenue growth, primarily attributable to new customers, was
driven by the sales of high density products, principally T-1 and E-1 Single and
Dual Span cards. The Company also experienced unit growth and, to a lesser
extent, revenue growth in its low density product lines.
Gross Profit: Consolidated gross profit for fiscal 1996 was 60.3% compared to
60.4% for the prior year. During 1996, the Company continued its efforts to cost
reduce many of its products and benefited from reductions in overall material
costs. These reductions in cost of goods sold were partially offset at the gross
profit level by the reduced revenues resulting from the Company's 1996 price
reductions and a one-time charge of $1.0 million related to a patent licensing
agreement.
Expenses: As a percentage of consolidated sales, selling, general and
administrative expenses decreased to 28.1% as compared to 28.3% in the previous
year. The decrease is primarily attributable to the continued growth of domestic
and international sales and marketing efforts, offset partially by marketing
expenditures associated with new product launches, expenses related to the
Company's expansion of distribution channels and the development of enhanced
financial and distribution systems necessary to support the Company's expanded
business activities. Research and development expense represented 19.0% of sales
in fiscal 1996 as compared to 17.2% in fiscal 1995. The 1996 increase reflects
the Company's DM3 initiative, engineering efforts with the development and
roll-out of low and high density products, GammaLink fax products and the
development of software products.
Interest Income: Dialogic recorded net interest income of $2.4 million in 1996
as compared to $2.0 million in 1995. The amounts recorded represent interest
earned on cash balances and interest earned from the Company's elections in 1996
and 1995 to convert accrued interest on the note of VCS. During 1996, the
Company invested a majority of its available cash in tax-free securities. Such
securities generated a
<PAGE>
lower pre-tax yield than the pre-tax yield received by the Company in prior
years on fully taxable instruments. See Note 3 of the Company's Notes to the
Consolidated Financial Statements.
Net Realized Gains On Available For Sale Securities: During 1996, the Company
recorded a net gain of $9.1 million, primarily as a result of its first quarter
sale of a portion of its equity position in VCS. At December 31, 1996, the
Company's balance sheet reflected an unrealized gain of $5.6 million associated
with the balance of Dialogic's equity position in VCS.
Taxes: The effective tax rate declined in fiscal 1996 to 35.7% compared to 37.7%
in fiscal 1995. The reduction in rate is due to tax savings generated from
implementation of a FSC and the effect of Dialogic's investment in tax-free
securities.
Net Income: Net income for fiscal 1996 was $25.5 million or $1.56 per diluted
share, as compared to $1.02 per diluted share in fiscal 1995. Net income in
fiscal 1996 included an after-tax gain on the sale of securities of VCS of $5.8
million or $0.35 per diluted share.
Inflation, Foreign Currency Exchange and Other Matters
Inflation has not had a significant impact on the Company's operating results to
date. Foreign currency transaction gains and losses are included within the
Company's selling, general and administrative expenses. While the amounts of
such gains or losses have not been significant to the Company's results to date,
as the Company continues to expand its international operations, exposure to
gains and losses on international currency transactions may increase and may be
material to quarterly and annual results. The consolidated financial statements
of the Company reflect the translation of the functional currencies of its
foreign subsidiaries under Statement of Financial Accounting Standards ("SFAS")
No. 52.
Year 2000
The Company has undertaken a major company-wide study and testing program to
locate and cure any Year 2000 issues in the products or systems on which it
relies. The Company believes its financial operating systems are currently Year
2000 compliant. The Company continues to work with other third-party suppliers
to identify exposure and obtain compliance. The Company anticipates no material
adverse effect resulting from Year 2000 problems. This statement represents a
forward-looking statement under the Private Securities Litigation Reform Act of
1997. Undiscovered issues related to the Year 2000 issues could have an adverse
impact.
Liquidity and Capital Resources
As of December 31, 1997, the Company had working capital of $120 million and a
current ratio (i.e., the ratio of current assets to current liabilities) of 4.7
to 1 as compared with working capital of $104 million and a current ratio of 7.5
to 1 at December 31, 1996.
The Company's consolidated cash, cash equivalents and short-term
investments increased by $24.2 million during fiscal 1997. Cash provided from
operations was $30.6 million, while $24.2 million was used in investing
activities and $500 thousand provided by financing activities.
The Company's investing activities in fiscal 1997 included expenditures of
$10.7 million for property and equipment associated with the expansion of the
Company's headquarters and costs associated with Dialogic's move of its
GammaLink and Dianatel operations from Sunnyvale to Santa Clara, California.
Cash provided by financing activities was $500 thousand, consisting
primarily of proceeds from the exercise of stock options and issuance of common
stock. On November 6, 1997, the Board of Directors authorized a share repurchase
program of up to 800,000 shares to be bought over the next three years. During
1997, an aggregate of 50,000 shares of treasury stock was purchased for $1.9
million cash.
The Company has financed its operations primarily through cash flows from
operations as well as from the net proceeds of its initial public offering and
the net realized gain from its sale of VCS securities. Dialogic is a party to
two credit facilities pursuant to which the Company may borrow up to $35 million
on an unsecured basis for working capital purposes. See Note 5 and 9 of the
Notes to the Company's Consolidated Financial Statements.
<PAGE>
The Company believes that the combination of its current liquidity, cash
generated from operations and the credit available under its existing bank lines
will be sufficient to meet its liquidity and capital requirements. This
statement represents a forward looking statement under the Private Securities
Litigation Reform Act of 1995. The actual sufficiency of such capital resources
could differ materially from the Company's expectations, depending primarily
upon the extent to which unanticipated capital requirements may arise and the
extent to which unanticipated events may have a materially adverse effect on the
Company's profitability.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for the Company beginning
January 1, 1998. This statement establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. The Company
believes that the information to be included in deriving comprehensive income,
although not currently presented in a separate financial statement, is disclosed
as a part of these financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
effective for the Company beginning January 1, 1998. This statement establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company is currently evaluating
the impact that the adoption of SFAS No. 131 will have on its consolidated
financial statements.
Risks and Uncertainties
Dialogic's business is subject to certain risks which are described in detail in
Item 1 of the Dialogic Annual Report on Form 10-K for its year ended December
31, 1997. Such risks include but are not limited to, product demand and market
acceptance risks, the effect of worldwide economic conditions, the impact of
competitive products and pricing, the Company's ability to enter new markets,
the adoption of new standards and the Company's ability to meet those standards,
product development, effects of competitive forces and pace of deregulation in
the telecommunications industry, the status of intellectual property rights,
commercialization and technological difficulties, capacity and supply
constraints or difficulties, consolidating of capital resources, general
business conditions and the effect of the Company's accounting policies. Such
factors, as well as announcements of technological innovations or new products
by Dialogic, its competitors or third-parties, consolidations or other
substantial changes within or affecting the computer telephony industry,
quarterly variations in the Company's results of operations, shortfalls in
Dialogic revenues, gross margins or earnings as compared with investment
analysts' expectations, regulatory development, capital market conditions and
general and economic conditions, may also cause substantial volatility in the
market price of the Company's common stock. The Company continually reevaluates
its operations and business structure and may, from time to time, take actions
to restructure operations accordingly.
<PAGE>
Independent Auditors' Report
Deloitte &
Touche LLP
To the Board of Directors and Shareholders of
Dialogic Corporation
Parsippany, New Jersey 07054
We have audited the accompanying consolidated balance sheets of Dialogic
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Dialogic Corporation and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
February 10, 1998
(except for Notes 7 and 9, as to which
the date is February 18, 1998)
<PAGE>
Consolidated Balance Sheets Dialogic Corporation and Subsidiaries
Assets
(Amounts in thousands, except share data
December 31, 1997 1996
Current assets:
Cash and cash equivalents $ 18,764 $ 11,848
Marketable securities 43,774 26,443
Convertible note - 11,030
Accounts receivable (net of allowance
for doubtful accounts of $1,280 \
and $829, respectively) 45,186 34,706
Inventory:
Raw materials 8,827 10,399
Work in process 6,724 4,607
Finished goods 14,941 12,756
------ ------
30,492 27,762
Deferred income taxes 7,190 2,817
Other current assets 6,842 5,161
------- --------
Total current assets 152,248 119,767
Property and equipment:
Leasehold improvements 5,049 3,059
Furniture and fixtures 6,809 5,843
Equipment 35,084 27,328
------ -------
46,942 36,230
Less accumulated depreciation and amortization (24,327) (15,822)
------- -------
22,615 20,408
Excess of cost over net assets acquired
(less accumulated amortization of $1,488
and $497, respectively) 3,443 4,434
Other assets 4,098 2,661
------- --------
TOTAL ASSETS $182,404 $147,270
======= =======
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
Consolidated Balance Sheets Dialogic Corporation and Subsidiaries
Liabilities and Shareholders' Equity
(Amounts in thousands except share data)
December 31, 1997 1996
Current liabilities:
Accounts payable $ 14,361 $ 7,043
Accrued salaries and benefits 6,390 3,145
Accrued royalties 1,825 248
Accrued expenses 7,986 4,518
Income taxes payable 1,237 345
Current maturities of long-term liabilities 529 559
------ -------
Total current liabilities 32,328 15,858
------ -------
Long-term liabilities 2,481 2,926
Deferred income taxes 2,730 3,644
Commitments and contingencies (Note 7)
SHAREHOLDERS' EQUITY:
Preferred stock, par value $0.01 - 10,000,000
shares authorized: none issued - -
Common stock, par value $0.01 - 60,000,000
shares authorized; 16,100,862 and
15,774,222 shares issued, respectively 207 203
Additional paid-in capital 51,948 46,740
Retained earnings 94,023 72,271
Net unrealized gains on available for sale
securities 985 5,614
Cumulative translation adjustments (386) 14
Treasury stock, at cost; 50,000 shares at
December 31, 1997 (1,912) -
------- -------
Total shareholders' equity 144,865 124,842
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $182,404 $ 147,270
======== =========
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
Consolidated Statements of Income Dialogic Corporation and Subsidiaries
(Amounts in thousands except per share data)
December 31, 1997 1996 1995
Revenues $261,310 $213,604 $168,652
Cost of goods sold 98,329 84,764 66,829
------- ------- -------
Gross profit 162,981 128,840 101,823
Research and development expense 51,530 40,666 29,045
Selling, general and administrative
expenses 78,107 59,666 47,617
Amortization of goodwill 991 386 56
------- ------- -------
Operating income 32,353 28,122 25,105
Merger costs - - 1,294
Interest expense 177 95 44
Interest income 1,814 2,535 2,080
Net realized (losses) gains on available
for sale securities (4) 9,175 309
------- ------- -------
Income before provision for income taxes 33,986 39,737 26,156
Provision for income taxes 12,234 14,189 9,854
------- ------- -------
Net income $21,752 $ 25,548 $ 16,302
====== ======= =======
Net income per share:
Basic $ 1.37 $ 1.63 $ 1.06
Diluted $ 1.31 $ 1.56 $ 1.02
====== ======= =======
Weighted average number of common
shares outstanding:
Basic 15,931 15,654 15,340
Diluted 16,598 16,417 16,039
====== ====== ======
The accompanying notes are an integral part of the Consolidated Financial
Statements.
<PAGE>
Consolidated Statements of Shareholders' Dialogic Corporation and Subsidiaries
Equity
<TABLE>
<CAPTION>
Unrealized
Gains/Losses
on Total
Note Additional Cumulative Available Share-
Number of Shares Common Receivable Paid-in Retained Translation Treasury for Sale holders'
(In thousands) Common Treasury Stock for Stock Capital Earnings Adjustment Stock Securities Equity
Balance, January 1, 1995 14,709 - $195 $(285) $34,523 $29,852 $210 $ - $ 2,301 $66,796
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exercise of stock options 352 - 4 - 888 - - - - 892
Issuance of common stock
in connection with
acquisitions 430 - - - 1,201 569 - - - 1,770
Currency translation gain - - - - - - 163 - - 163
Repayment of note
receivable for stock - - - 285 - - - - - 285
Net unrealized gains on
available for sale securities - - - - - - - - 4,464 4,464
Issuance of common stock under
employee stock purchase plan 15 - - - 220 - - - - 220
Purchase and retirement
of treasury stock (14) - - - - - - - - -
Tax benefit from exercise of
stock options - - - - 1,865 - - - - 1,865
Net income - - - - - 16,302 - - - 16,302
------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 15,492 - 199 - 38,697 46,723 373 - 6,765 92,757
------------------------------------------------------------------------------------------------------
Exercise of stock options 180 - 3 - 1,201 - - - - 1,204
Issuance of common stock
in connection with
acquisitions 55 - 1 - 3,794 - - - - 3,795
Currency translation (loss) - - - - - - (359) - - (359)
Net unrealized (losses) on
available for sale securities - - - - - - - - (1,151) (1,151)
Issuance of common stock under
employee stock purchase plan 47 - - - 1,368 - - - - 1,368
Tax benefit from exercise of
stock options - - - - 1,680 - - - - 1,680
Net income - - - - - 25,548 - - - 25,548
------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 15,774 - 203 - 46,740 72,271 14 - 5,614 124,842
------------------------------------------------------------------------------------------------------
Purchases of treasury stock - (50) - - - - - (1,912) - (1,912)
Exercise of stock options 234 - 3 - 1,431 - - - - 1,434
Issuance of common stock as
Directors' fees 3 - - - 85 - - - - 85
Currency translation (loss) - - - - - - (400) - - (400)
Net unrealized (losses) on
available for sale securities,
net of tax - - - - - - - - (4,629) (4,629)
Issuance of common stock under
employee stock purchase plan 90 - 1 - 1,716 - - - - 1,717
Tax benefit from exercise of
stock options - - - - 1,976 - - - - 1,976
Net income - - - - - 21,752 - - - 21,752
------ --- ---- --- ------ ------ ---- ------ --- -------
Balance, December 31, 1997 16,101 (50) $207 $ - $51,948 $94,023 ($386) ($1,912) $ 985 $144,865
------ --- ---- --- ------ ------ ---- ------ --- --------
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
<PAGE>
Consolidated Statements of Cash Flows Dialogic Corporation and Subsidiaries
<TABLE>
<CAPTION>
(In thousands)
Year ended December 31, 1997 1996 1995
Cash flows from operating activities:
<S> <C> <C> <C>
Net income $21,752 $ 25,548 $ 16,302
Adjustments for non-cash items included in net income:
Depreciation and amortization 9,496 6,103 3,223
Deferred income taxes (2,642) (587) (1,107)
Non-cash interest income - (1,069) (532)
Net realized (gain) loss on available for sale
securities 4 (9,175) (309)
Non-cash merger costs - - 609
Other 509 2,134 2,683
Changes in operating assets and liabilities 1,496 (15,504) (15,483)
----- -------- --------
Net cash flows provided by operating
activities 30,615 7,450 5,386
------ -------- --------
Investing Activities:
Capital expenditures (10,712) (10,722) (7,614)
Purchase of short-term investments (25,656) (45,937) (23,257)
Proceeds from sales of short-term
investments 12,187 44,044 21,808
Proceeds from sales of other investments - 10,100 -
Acquisition of business, net of cash acquired - (820) 378
----- -------- --------
Net cash flows used in investing
activities (24,181) (3,335) (8,685)
----- -------- --------
Financing Activities:
Proceeds from short-term
borrowings - 12,625 2,157
Repayments on short-term borrowings - (12,625) (2,157)
Exercise of stock options 1,434 982 892
Purchase of treasury stock (1,912) - -
Issuance of common stock 1,717 1,368 220
Repayment of note receivable for stock - - 285
Other (757) (604) (392)
----- -------- --------
Net cash flows provided by financing
activities 482 1,746 1,005
----- -------- --------
Increase (decrease) in cash and cash equivalents 6,916 5,861 (2,294)
Cash and cash equivalents, beginning of year 11,848 5,987 8,281
------ -------- --------
Cash and cash equivalents, end of year $ 18,764 $ 11,848 $ 5,987
======= ========= =======
Change in operating assets and liability components:
(Increase) in accounts receivable $(10,480) $ (8,510) $ (8,169)
(Increase) in inventory (2,731) (3,480) (11,958)
(Increase) in other current assets (1,680) (1,910) (951)
Increase (decrease) in accounts payable 7,318 (2,393) 2,503
Increase in accrued expenses 9,069 789 3,092
------ -------- --------
Change in operating assets
and liabilities $ 1,496 $ (15,504) $(15,483)
======= ========== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 108 $ 95 $ 28
Income taxes 14,379 13,739 8,264
Tax benefit from exercise of stock
options 1,979 1,680 1,865
Supplemental disclosures of non-cash investing
and financing activities:
Change in net unrealized (losses)/gains on
available for sale securities (4,629) (1,151) 4,464
Stock and options issued for acquisition of business - 3,795 -
The accompanying notes are an integral part of the Consolidated Financial Statements.
</TABLE>
Notes to Consolidated Financial Statements Dialogic Corporation and Subsidiaries
1. Summary of Significant Accounting Policies
Nature of Business - Dialogic designs, manufactures and sells high performance,
standards-based computer telephony (CT) components sold globally to original
equipment manufacturers, value-added resellers and service providers through
both a direct sales force and distributors. Dialogic products are used in voice,
fax, data, voice recognition, speech synthesis and call center management CT
applications. Dialogic products are offered as modular building blocks that
enable its customers to design CT systems that meet the application demands of
their end-user customers and include software integral to or provided with
hardware products and stand-alone system software.
Principles of Consolidation - The consolidated financial statements include the
accounts of Dialogic Corporation and its subsidiaries (collectively, the
"Company"). Intercompany accounts and transactions have been eliminated.
<PAGE>
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reported period. Actual results could differ from these estimates.
Reclassifications - Certain reclassifications were made to the 1995 and 1996
consolidated financial statements to conform to the 1997 presentation.
Revenue Recognition - The Company recognizes revenues on the date of shipment.
Inventory - Inventory is stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment - Property and equipment are carried at cost and include
expenditures for major improvements which substantially increase their useful
life. Repairs and maintenance are expensed as incurred. When assets are retired
or otherwise disposed of, the assets and related allowances for depreciation and
amortization are eliminated from the accounts, and any resulting gain or loss is
recognized in the Statement of Operations.
Depreciation and Amortization - For financial reporting purposes, depreciation
of equipment, software and fixtures is computed on the straight-line method over
estimated useful lives of one to seven years. Equipment under capital lease and
leasehold improvements are amortized over the shorter of lease terms or
estimated useful life.
Intangible Assets - Intangible assets acquired are primarily from business
acquisitions and represent the excess of cost over the fair value of net assets
acquired. Excess of cost over fair market value of net assets is being amortized
on a straight-line basis over five years. Amortization expense was $991 thousand
in 1997, $386 thousand in 1996 and $56 thousand in 1995.
Fair Value of Financial Instruments - The estimated fair value of the Company's
financial instruments, which include cash equivalents and accounts receivable,
approximates their carrying value.
Foreign Currency Translation - The functional currency for the majority of the
Company's foreign operations is the applicable local currency. The translation
from the applicable foreign currencies to U.S. dollars is performed for balance
sheet accounts using the exchange
<PAGE>
rates in effect at the balance sheet date and for revenue and expense accounts
using a weighted average exchange rate during the period. The gains and losses
resulting from such translations are included in shareholders' equity. Gains or
losses resulting from foreign currency transactions are included in the
Statement of Operations.
Income Taxes - The Company has adopted the provisions of Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No.
109 requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of temporary differences between the financial
reporting and tax bases of existing assets and liabilities. Deferred income tax
assets are recognized to the extent realization of such benefits is more likely
than not.
Research and Development Expenses - Research and development is charged to
expense in the year incurred.
Software Development Expenses - The development of new software products and
substantial enhancements to existing software products is expensed as incurred
until technological feasibility has been established, at which time any
additional costs would be capitalized in accordance with SFAS No. 86. Because
the Company believes its current process for developing software is essentially
completed concurrently with the establishment of technological feasibility, no
costs have been capitalized to date.
Cash Equivalents and Investments - Cash equivalents include certificates of
deposit, government securities and time deposits, with maturities of three
months or less at the time of purchase. Short-term investments are similar
investments with maturities of more than three months. Cash equivalents are
stated at cost which approximates market value.
The Company classifies its short-term investments and holdings of VCS
common stock as available-for-sale securities in accordance with the provisions
of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Unrealized gains and losses for these securities are excluded from
earnings and reported net of tax as a separate component of stockholders'
equity. Realized gains and losses on sales of investments, as determined on a
specific identification basis, are included in the consolidated statements of
income. Fair values are determined by reference to market prices for securities
as quoted based on publicly traded exchanges or as determined by a municipal
bond pricing service which utilizes current trade, bids, offers and other
specific data at the valuation date.
Other Assets - Other assets include amounts associated with long-term royalties,
license fees, notes related to executive relocation and deposits.
Concentration of Credit Risk - Financial instruments which potentially subject
the Company to concentration of credit risk consist principally of accounts
receivable from customers in the computer telephony industry. This risk is
mitigated by the large number of customers in the Company's customer base and
the Company's procedures for extending credit and collection of receivables.
Income Per Share - During the fiscal year ended December 31, 1997, the Company
adopted SFAS No. 128, "Earnings per Share." SFAS No. 128 requires the dual
presentation of basic and diluted earnings per share ("EPS"). Basic EPS excludes
dilution and is computed by dividing net income available to common stockholders
by the weighted average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if stock options or
other contracts to issue common stock were exercised and resulted in the
issuance of common stock that then shared in the earnings of the Company.
Diluted EPS is computed using the treasury stock method when the effect of
common stock equivalents would be dilutive. All prior periods have been restated
to comply with the provisions of SFAS No. 128. The only reconciling item between
the denominator used to calculate basic EPS and the denominator used to
calculate diluted EPS is the dilutive effect of stock options issued to
employees of the Company. The Company has issued no other potentially dilutive
common stock equivalents.
<PAGE>
Accounting Pronouncements - In June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income," which is effective
for the Company beginning January 1, 1998. This statement establishes standards
for reporting and display of comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general-purpose financial
statements. The Company believes that the information to be included in deriving
comprehensive income, although not currently presented in a separate financial
statement, is disclosed as a part of these financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which is
effective for the Company beginning January 1, 1998. This statement establishes
standards for the way that public business enterprises report information about
operating segments in annual financial statements and requires that these
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. The Company is currently evaluating
the impact that the adoption of SFAS No. 131 will have on its consolidated
financial statements.
2. Acquisitions
On June 27, 1996, the Company acquired all of the outstanding common stock
of Dianatel Corporation in exchange for 55,424 shares of Dialogic Common Stock,
$1.1 million in cash and options to purchase 29,874 shares of Dialogic Common
Stock. The merger has been accounted for as a purchase. The merger resulted in
goodwill of approximately $4.7 million which is being amortized over five years
beginning with the date of the acquisition.
3. Available For Sale Securities
The following is a summary of the available for sale securities as of December
31, 1997 and 1996:
<TABLE>
<CAPTION>
Amounts in thousands Cost Gross Gross Estimated
Unrealized Unrealized Fair Value
1997 Gains Losses
<S> <C> <C> <C> <C>
Municipal bonds $39,863 $ 149 $ - $40,012
Equity investments 1,954 1,808 - 3,762
----------------------------------------------
Total available for sale securities $41,817 $ 1,957 $ - $43,774
----------------------------------------------
1996
Municipal bonds $26,395 $ 48 $ - $26,443
Convertible note and shares 1,954 9,076 - 11,030
----------------------------------------------
Total available for sale securities $28,349 $ 9,124 $ - $37,473
----------------------------------------------
Included in the convertible note and shares
are equity securities of $792, net of
unrealized gains of $274.
</TABLE>
<PAGE>
The cost and estimated fair value of debt securities at December 31, 1997, by
contractual maturity, are as follows:
Amounts in thousands
Cost Estimated
Fair Value
1998 $ 11,608 $ 11,646
1999 11,558 11,608
2000 15,974 16,035
2001 723 723
2002 - -
Thereafter - -
------ -----
The gross realized gains on sales of securities
totaled approximately $9,345 in 1996, and the gross
realized losses totaled approximately $170 in 1996
and $4 in 1997. $ 39,863 $ 40,012
In 1991, the Company completed a series of agreements with VCS which were
subsequently amended as of March 14, 1994; such agreements provide, among other
things, as follows:
(a) The Company paid $900 thousand in cash for a convertible note in the
principal amount of $1.2 million with interest at "prime" plus 2% and having a
maturity date of January 1, 1997. In addition, the Company received a security
interest in certain technology. Under the note agreement, the Company had the
right to convert all or any part of the principal amount of the note and accrued
interest into shares of VCS stock at a rate of one share for each $.92 of
principal and interest accrued.
(b) VCS granted to the Company an option to purchase up to 914,231 shares
of VCS common stock at a purchase price of $.61 per share.
During 1996, the Company recognized interest income in the amount of
$1,069,000 based on the estimated fair values of the VCS stock which the Company
elected to receive in lieu of cash on each of the interest payment dates of the
convertible note. During 1996, the Company sold 1,150,000 shares of stock in
VCS's public offering for proceeds of $10.1 million by exercising its option and
by selling additional shares held. The Company realized a pre-tax gain on
available for sale securities of $9.1 million. On January 1, 1997, the Company
converted the principal of the note into 1,264,474 shares of capital stock of
VCS after which the Company's total holdings in VCS amounted to 1,399,715 shares
of capital stock.
The fair values of the Company's investments in VCS have been determined by
reference to the market prices for VCS stock as quoted on publicly traded
exchanges on the respective valuation dates. Prior to December 31, 1997, such
fair values included discounts to reflect the possible liquidity in the market
for VCS stock.
VCS is a supplier to the Company of certain proprietary voice recognition
technologies. During 1997, 1996 and 1995, the Company's purchases from VCS
amounted to $3,075,000, $2,953,000 and $5,825,000, respectively.
4. Employee Benefit Plans
Bonus Plan - The Company has a quarterly bonus program in which all employees
participate, except certain members of senior management. Each quarter, a pool
is created based upon the achievement of targeted profit goals. Payments are
made to employees on a quarterly basis. For the years ended December 31, 1997,
1996 and 1995, the Company recorded expenses under the program of $1.5 million,
$978 thousand and $990 thousand, respectively.
<PAGE>
Savings Plan - The Company has a savings plan, which qualifies under Section
401(k) of the Internal Revenue Code. Under the plan, participating U.S.
employees may defer up to 15% of their pre-tax salary, but no more than
statutory limits. The Company contributes forty cents for each dollar
contributed by a participant, with a maximum contribution of 2% of a
participant's earnings. The Company's matching contributions to the savings plan
were $725 thousand, $458 thousand and $311 thousand in 1997, 1996 and 1995,
respectively.
Stock Compensation Plans - At December 31, 1997, the Company had certain
stock-based compensation plans which are described below. The Company applies
APB Opinion No. 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for either type of plan.
Had compensation cost been determined in accordance with the method of SFAS No.
123, "Accounting for Stock-Based Compensation," based on the fair value at the
grant date for awards during 1997, 1996 and 1995, under those plans, the
Company's net income and income per share would have been reduced to the pro
forma amounts indicated below:
Amounts in thousands, except per share amounts
1997 1996 1995
Net income:
As reported $21,752 $ 25,548 $ 16,302
Pro forma $19,126 $ 22,340 $ 14,818
------- ------- -------
Income per share:
As reported
Basic $ 1.37 $ 1.63 $ 1.06
Diluted $ 1.31 $ 1.56 $ 1.02
Pro forma:
Basic $ 1.20 $ 1.43 $ 0.97
Diluted $ 1.15 $ 1.36 $ 0.92
The effects of applying SFAS No. 123 for providing pro forma disclosures
are not likely to be representative of the effects on reported net income for
the future years because options vest over several years and additional awards
generally are made each year. The fair value of the 29,874 stock options issued
in connection with the 1996 acquisition of Dianatel is included in the Dianatel
purchase price and therefore does not affect the pro forma amounts indicated
above.
Stock Option Plans - The Company has stock option plans for directors, officers
and other employees which provides for non-qualified and incentive stock
options. At December 31, 1997, 1,886,231 shares were available for future grants
under the plans. All options have been granted at exercise prices at or above
fair market value at the date of grant and vest over periods of up to seven
years. All options have a maximum term of ten years.
For the purposes of the pro forma amounts indicated above and other
disclosures, the fair value of each option grant was estimated on the date of
grant using the Black-Scholes option pricing model with the following
assumptions:
Year of grant 1997 1996 1995
Volatility 66% - 98% 75% 75%
Weighted average risk free interest
rate 6.5% 6.3% 6.4%
Expected life (yrs) 5 6 6
No dividends are assumed to be paid during the expected life of any option.
<PAGE>
A summary of the status of the Company's stock option plans as of December
31, 1997, 1996 and 1995, and changes during the years ending on those dates is
presented below:
<TABLE>
<CAPTION>
1997 1996 1995
Shares Weighted-Average Shares Weighted-Average Shares Weighted-Average
000) Exercise Price (000) Exercise Price (000) Exercise Price
Options outstanding
<S> <C> <C> <C> <C> <C> <C>
at beginning of year~ 2,269 $ 16.00 1,962 $ 12.00 1,850 $7.00
Granted 711 34.36 626 31.00 511 23.00
Exercised (235) 6.12 (173) 5.00 (351) 3.00
Forfeited/canceled (116) 27.80 (146) 29.00 (48) 10.00
------ ------ ------
Options outstanding
at end of year 2,629 $ 21.56 2,269 $ 16.00 1,962 $12.00
===== ===== =====
Options exercisable at year end 925 855 759
Weighted average fair
value of options granted
during the year $ 23.83 $23.00 $16.00
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Number Weighted-Average
Outstanding Remaining Weighted-Average Number Exercisable Weighted-Average
Range of Exercise Prices at 12/31/97 Contractual life(yrs) Exercise Price at 12/31/97 Exercise Price
<C> <C> <C> <C> <C> <C> <C>
$ 1.33 to $ 4.93 358,000 3.6 $ 3.68 322,000 $ 3.68
5.73 to 9.33 374,000 5.6 7.21 265,000 7.44
10.67 to 18.88 343,000 6.3 15.10 200,000 14.55
19.00 to 28.75 806,000 8.0 24.56 136,000 23.81
30.00 to 55.75 748,000 8.8 36.99 2,000 31.34
</TABLE>
Employee Stock Purchase Plan - On April 28, 1995, the Company's stockholders
approved the establishment of the Employee Stock Purchase Plan (the "ESPP").
Under the ESPP, employees meeting certain eligibility requirements may elect to
contribute up to ten percent of their compensation to purchase the Company's
common stock at a purchase price equal to 85% of the fair market value of the
stock at the beginning or end of each offering period, whichever is lower.
Persons holding more than 5% of common stock in the Company are not eligible to
participate in the ESPP. Under the ESPP, the Company reserved for issuance a
total of 300,000 shares. Approximately 50% of eligible employees have
participated in the ESPP during the last three years. Under the ESPP, the
employees purchased or committed to purchase 90,181, 49,770 and 15,119 shares in
1997, 1996 and 1995, respectively. For the purpose of the pro forma amounts
indicated above, compensation cost was based on the fair value of the employee's
purchase rights on the date of grant which was estimated using the Black-Scholes
model with the following assumptions for 1997, 1996 and 1995; no dividends, an
expected life of .25 years, expected volatility range of 66% to 98% and weighted
average risk-free interest rates of 6.5% and 5.1%. The fair value of those
purchase rights granted in 1997 and 1996 was $508 thousand and $588 thousand,
respectively.
5. Credit Facilities
The Company maintains credit facilities, with two different lenders, pursuant to
which the Company may borrow up to $35 million on an unsecured basis for working
capital purposes.
Loans made under these agreements bear interest, at the option of the
Company, primarily at the rate equal to the lenders' base rate less
three-quarter percent or LIBOR. At December 31, 1997 and 1996, no borrowings
were outstanding pursuant to these credit facilities. Future borrowing under
these facilities will be due and payable on November 1, 1998.
<PAGE>
6. Provision for Income Taxes
Components of the provision for income taxes are as follows:
Amounts in thousands 1997 1996 1995
Provision for income taxes:
Federal $ 7,848 $ 11,744 $8,798
Foreign 2,273 868 147
State 2,113 1,577 909
------ ------ -----
Total $ 12,234 $ 14,189 $9,854
====== ======= =====
Components of income tax provision:
Current
Federal $10,447 $ 12,343 $9,724
Foreign 2,259 824 134
State 2,170 1,616 1,136
------ ------ ------
Total current 14,876 14,783 10,994
Deferred
Federal (2,599) (599) (926)
Foreign 14 44 13
State (57) (39) (227)
------ ------- --------
Total deferred (2,642) (594) (1,140)
------- ------- -------
Total $12,234 $14,189 $ 9,854
====== ====== ======
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts calculated for income tax purposes.
<PAGE>
The principal components of the deferred tax assets and deferred tax
liabilities are as follows:
Amounts in thousands 1997 1996
Deferred tax assets:
Bad debt allowance $ 424 $ 222
Inventory reserves 1,256 645
Credit memo reserve 1,104 557
Self insurance reserve 353 291
Warranty reserve 289 144
Foreign tax credit carryforward 2,271 -
Deferred revenue and deferred rent 746 701
Other reserves 2,122 595
Other 1,066 716
----- -----
9,631 3,871
Deferred tax liabilities:
Unrealized gains on available
for sale securities (973) (3,507)
Undistributed earnings of foreign
subsidiaries (3,332) -
Depreciation (695) (633)
Other (171) (558)
------- -------
(5,171) (4,698)
------- -------
Net deferred tax assets
(liabilities) $4,460 $ (827)
===== ======
Reconciliations between U.S. federal statutory rate and the effective tax
rate are as follows:
December 31, 1997 1996 1995
Federal taxes at statutory rate 35.0% 35.0% 35.0%
State taxes, net of federal
income tax benefit 4.7 2.6 2.3
Foreign income subject to a rate
different from U.S. rate 1.4 0.5 -
Research and development tax credit (4.0) (1.8) (1.7)
Acquisition costs - - 1.6
Foreign sales corporation
benefit (2.6) (0.8) -
Tax exempt income (1.4) (0.6) -
Non-deductible amortization 1.0 0.3 .1
Other 1.9 0.5 0.4
---- ---- ----
Total effective tax rate 36.0% 35.7% 37.7%
The Company has provided for U.S. federal income taxes on the undistributed
earnings of its non-U.S. subsidiaries. The Company has a net operating loss
carryforward of approximately $746,000 in Japan expiring in year 2002.
<PAGE>
7. Commitments and Contingencies
(a) Lease Commitments - Equipment with a net book value of $202 thousand and
$282 thousand at December 31, 1997 and 1996, respectively (net of accumulated
depreciation of $681 thousand and $601 thousand), is leased under capital
leases.
The Company leases certain office/warehouse space and equipment under
operating leases which expire at various times through 2005. Total rent expense
under operating leases amounted to approximately $6.8 million, $5.8 million and
$4.5 million for the years ended December 31, 1997, 1996 and 1995, respectively.
At December 31, 1997, future minimum lease payments are as follows:
Amounts in thousands
Operating Capital
Year Ending December 31, Leases Leases
1998 $7,472 $40
1999 7,920 40
2000 7,476 40
2001 6,517 30
2002 6,207 -
Thereafter 15,320 -
------ ---
Total $50,912 150
------ ---
Amounts representing interest 25
---
Present value of minimum lease payments 125
---
Current portion $ 29
---
(b) Legal Proceedings - In June 1995, the Company entered into a settlement
agreement that resulted in the dismissal of various legal proceedings involving,
among others, the Company and Brooktrout Technology, Inc. ("Brooktrout"). In
November 1995, Brooktrout filed a complaint in the United States District Court
for the District of Massachusetts naming the Company, its GammaLink subsidiary
and its Chairman of the Board as defendants. The complaint sought to rescind the
settlement agreement and obtain unspecified compensatory and punitive damages on
the basis of allegations that the defendants fraudulently induced Brooktrout to
enter into the settlement agreement. The defendants deny the substantive
allegations of this complaint and have filed a counterclaim seeking damages from
Brooktrout. In December 1996, the District Court entered an order of summary
judgment against Brooktrout dismissing its fraud claims, but leaving unresolved
a statutory unfair practice claim by Brooktrout and leaving unresolved all of
the defendants' counterclaims. Such order remains appealable at this time.
Separately, the Company's Spectron subsidiary sued Brooktrout for patent
infringement. The Company has retained the rights to maintain this lawsuit
despite the sale of the Spectron assets. Although outcomes of legal proceedings
are difficult to predict and cannot be assured, the Company does not believe
that such proceedings will materially adversely affect its consolidated
financial condition, results of operations or liquidity.
During the third quarter of 1996, a complaint was filed in New Jersey
Superior Court against the Company and certain of its directors alleging that
the defendants breached principles of common law fraud in connection with
certain public statements made prior to the Company's July 8, 1996, press
release announcing preliminary results for the quarter ended June 30, 1996. The
complaint sought monetary damages on behalf of a purported class of purchasers
of the Company's common stock. On February 18, 1998, on motion by the
defendants, the complaint was dismissed by the court with prejudice.
The Company is also engaged in other legal proceedings arising in the
ordinary course of business, the results of which proceedings are not expected
to have a material adverse effect on the Company's consolidated financial
condition, results of operations or liquidity.
<PAGE>
8. Operations in Geographic Areas
Information about the Company's operations in different geographic areas at
December 31, 1997, 1996 and 1995, and the years then ended is presented below:
Amounts in thousands
<TABLE>
<CAPTION>
Adjustments
Asia/ and
1997 Americas Pacific Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Customers $205,975 $ 13,271 $ 42,064 $ - $261,310
Intercompany 36,354 6,083 1,292 (43,729) -
------ ------ ------ -------- -------
Total revenues $242,329 $ 19,354 $ 43,356 $ (43,729) $261,310
------- ------- ------- -------- -------
Net income $ 20,392 $ (631) $ 2,795 $ (804) $ 21,752
Identifiable assets $222,805 $ 6,154 $ 15,830 $ (62,385) $182,404
</TABLE>
<TABLE>
<CAPTION>
Adjustments
Asia/ and
1996 Americas Pacific Europe Eliminations Consolidated
Revenues:
<S> <C> <C> <C> <C> <C>
Customers $171,517 $12,282 $ 29,805 $ - $213,604
Intercompany 32,752 4,212 2,071 (39,035) -
------- ------ ------ ---------- -------
Total revenues $204,269 $16,494 $ 31,876 $ (39,035) $213,604
------- ------ ------ ---------- -------
Net income $ 24,788 $ 400 $ 686 $ (326) $ 25,548
Identifiable assets $193,337 $ 6,297 $ 11,531 $ (63,895) $147,270
</TABLE>
<TABLE>
<CAPTION>
Adjustments
Asia/ and
1995 Americas Pacific Europe Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
Revenues:
Customers $133,930 $ 9,439 $25,283 $ - $168,652
Intercompany 26,144 2,688 1,412 (30,244) -
------- ------ ------ ---------- -------
Total revenues $160,074 $12,127 $26,695 $ (30,244) $168,652
------- ------ ------ ---------- -------
Net income $ 16,667 $ 223 $ 26 $ (614) $ 16,302
Identifiable assets $131,924 $ 4,063 $ 8,163 $ (26,788) $117,362
</TABLE>
The above-mentioned revenues for the Americas included export sales to
customers (in Asia/Pacific and Europe): aggregating $33.5 million, $20.2 million
and $14.6 million for fiscal years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>
9. Subsequent Event
On February 17, 1998, Dialogic Corporation completed the sale of the principal
assets and operations of Spectron Microsystems, a wholly owned subsidiary, to
Texas Instruments Incorporated for approximately $26 million. The transaction
will result in pre-tax gain to be recognized in the first quarter of 1998 in the
range of $18 to $25 million. The sale will not have a significant effect on
reported sales or earnings of the Company in future periods.
Supplementary Financial Information
Selected Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>
Amounts in thousands, except per share data 1997
Quarter ended: March 31, June 30, Sept 30, Dec 31,
<S> <C> <C> <C> <C>
Total revenues $57,089 $63,196 $68,760 $72,265
Gross profit 35,320 39,826 42,878 44,957
Net income 3,227 4,778 6,352 7,395
Income per share:
Basic $ .20 $ .30 $ .40 $ .46
Diluted $ .20 $ .29 $ .38 $ .44
1996
Quarter ended: March 31, June 30, Sept 30, Dec 31,
Total revenues $48,732 $50,054 $55,432 $59,386
Gross profit 19,751 19,908 22,733 22,372
Net income(1) 10,612 4,566 4,793 5,577
Income per share:(1)
Basic $ .68 $ .29 $ .31 $ .35
Diluted $ .65 $ .28 $ .29 $ .34
</TABLE>
_________________
(1) Net of $9.1 million pre-tax or $ .35 per share gain on sale of 1,150,000
shares of Voice Control Systems, Inc., in the first quarter and a $1.0 million
pre-tax or $ .04 per share one-time charge related to the Company's patent
licensing agreement with Syntellect Technology Corp. in the third quarter.
Market Price and Dividend Data
High Low
Quarter ended March 31, 1996 $41.50 $25.50
Quarter ended June 30, 1996 60.00 36.75
Quarter ended September 30, 1996 55.25 22.50
Quarter ended December 31, 1996 38.00 27.00
Quarter ended March 31, 1997 36.75 19.38
Quarter ended June 30, 1997 29.25 16.06
Quarter ended September 30, 1997 43.00 26.87
Quarter ended December 31, 1997 49.87 36.25
As of January 31, 1998, there were approximately 224 holders of record of the
Common Stock. Since its IPO, the Company has not paid any cash dividends on its
capital stock. The Company's current policy is to retain earnings for its use in
the business. Accordingly, the Company does not anticipate paying cash dividends
in the future. Any payment of cash dividends in the future will depend upon the
financial condition, capital requirements, potential growth and earnings of the
Company as well as other factors as the Board of Directors deem relevant.
Exhibit 21.1
DIALOGIC CORPORATION
PRINCIPAL SUBSIDIARIES OF THE REGISTRANT
NAME OF SUBSIDIARY JURISDICTION OF ORGANIZATION
Dialogic Investment Corporation New Jersey
Dialogic (NZ) Limited New Zealand
Dialogic Telecom Europe S.A. Belgium
Dialogic Systems K. K. Japan
Dialogic FSC, Ltd. Barbados
Dialogic Israel, Ltd. Israel
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
Dialogic Corporation
Parsippany, New Jersey 07054
We consent to the incorporation by reference in Registration Statements No.
333-08183, No. 333-11373, and No. 333-26993 of Dialogic Corporation of Form S-8
and Registration Statement No. 333-11369 and Amendment No. 1 to Registration No.
333-11369 of Dialogic Corporation on Form S-3 of our report dated February 10,
1998 (except for Notes 7 and 9, as to which the date is February 18, 1998),
incorporated by reference in this Annual Report on Form 10-K of Dialogic
Corporation for the year ended December 31, 1997.
Parsippany, New Jersey DELOITTE & TOUCHE LLP
March 27, 1998
POWER OF ATTORNEY
WHEREAS, the undersigned officers and directors of Dialogic Corporation
desire to authorize Howard G. Bubb, Thomas G. Amato and Theodore M. Weitz to act
as their attorneys-in-fact and agents, for the purpose of executing and filing
an Annual Report on Form 10-K, including all amendments thereto,
NOW, THEREFORE,
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Howard G. Bubb, Thomas G. Amato and Theodore M.
Weitz, and each of them, his true and lawful attorney-in-fact and agent, with
full power of substitution and resubstitution, to sign the Dialogic Corporation
Annual Report on Form 10-K for the year ended December 31, 1997, including any
and all amendments and supplements thereto, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully and to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned have executed this power of attorney in
the following capacities on this 25 day of February, 1998.
SIGNATURE TITLE
/s/Howard G.Bubb
______________________ President, Chief Executive Officer and Director
Howard G. Bubb
Director
/s/Kenneth J. Burkhardt
______________________
Kenneth J. Burkhardt, Jr.
/s/Masao Konomi
______________________ Director
Masao Konomi
Director
/s/John N. Lemasters
_____________________
John N. Lemasters
Director
/s/Francis G. Rodgers
_____________________
Francis G. Rodgers
Director
/s/James J. Shinn
_____________________
James J. Shinn
/s/Nicholas Zwick
_____________________ Director
Nicholas Zwick
/s/Thomas G. Amato
______________________________ Treasurer, Vice President and Chief Financial
Officer(Chief Financial and Accounting Officer)
Thomas G. Amato
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This financial data schedule contains a summary of financial information
extracted from Dialogic Corporation's Balance Sheet at December 31, 1997, and
twelve months income statement ending December 31, 1997, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 18,764
<SECURITIES> 43,774
<RECEIVABLES> 46,466
<ALLOWANCES> 1,280
<INVENTORY> 30,492
<CURRENT-ASSETS> 152,248
<PP&E> 46,942
<DEPRECIATION> (24,327)
<TOTAL-ASSETS> 182,404
<CURRENT-LIABILITIES> 32,328
<BONDS> 0
0
0
<COMMON> 207
<OTHER-SE> 144,658
<TOTAL-LIABILITY-AND-EQUITY> 148,249
<SALES> 261,310
<TOTAL-REVENUES> 261,310
<CGS> 98,329
<TOTAL-COSTS> 98,329
<OTHER-EXPENSES> 130,628
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177
<INCOME-PRETAX> 33,986
<INCOME-TAX> 12,234
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,752
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.31
</TABLE>
