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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
__________ to ___________
Commission file number 0-22046
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
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(Exact name of registrant as specified in its charter)
Delaware 38-3114641
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(State of Incorporation) (I.R.S. Employer Identification No.)
50 Spring Street, Ramsey, New Jersey 07446
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 934-8500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.001 Par Value
(Title of class)
Warrants to Purchase One Share of Common Stock
(Title of Class)
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 Registration S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or amendment
to this Form 10-K. [X]
As of March 27, 1997, 5,758,850 shares of the Registrant's Common Stock,
par value $.001 per share were outstanding. The aggregate market value of the
voting stock, based on the closing price of the Registrant's common stock on
March 27, 1997, as reported on the American Stock Exchange, held by
non-affiliates of the Registrant was approximately $5,685,505.
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Page 1 of 143
Exhibit Index Appears on Page 47 Hereof.
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BOGEN COMMUNICATIONS INTERNATIONAL, INC.
FORM 10-K
TABLE OF CONTENTS
PAGE
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PART I
Item 1. Business...................................................... 1
Item 2. Properties ................................................... 12
Item 3. Legal Proceedings ............................................ 13
Item 4. Submission of Matters to a Vote of Security Holders........... 13
PART II
Item 5. Market Price for Registrant's Common Equity and
Related Stockholder Matters............................... 14
Item 6. Selected Financial Data....................................... 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 17
Item 8. Financial Statements and Supplementary Data................... 23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.................... 24
PART III
Item 10. Directors and Executive Officers of the
Registrant.................................................. 25
Item 11. Executive Compensation........................................ 27
Item 12. Security Ownership of Certain Beneficial
Owners and Management....................................... 34
Item 13. Certain Relationships and Related Transactions................ 36
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.................................................... 36
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PART I
All statements contained herein that are not historical facts, including,
but not limited to, statements regarding the Company's current business
strategy, the Company's projected sources and uses of cash, and the Company's
plans for future development and operations, are based upon current
expectations. These statements are forward-looking in nature and involve a
number of risks and uncertainties. Actual results may differ materially. Among
the factors that could cause actual results to differ materially are the
following: competitive factors, including the fact that the Company's
competitors are highly focused and may have greater resources and/or name
recognition than the Company; changes in technology and the Company's ability to
develop or acquire new or improved products and/or modify and upgrade its
existing products; changes in labor, equipment and capital costs; changes in
access to suppliers; currency fluctuations; changes in regulations affecting the
Company's business; future acquisitions or strategic partnerships; the
availability of sufficient capital to finance the Company's business plans on
terms satisfactory to the Company; general business and economic conditions;
political instability in certain regions; and other factors described from time
to time in the Company's reports filed with the Securities and Exchange
Commission. The Company wishes to caution readers not to place undue reliance on
any such forward-looking statements which statements are made pursuant to the
Private Litigation Reform Act of 1995 and, as such, speak only as of the date
made.
Item 1. BUSINESS
Bogen Communications International, Inc., formerly European Gateway
Acquisition Corp., (the "Registrant", and, together with its subsidiaries, the
"Company"), develops, produces and sells sound processing equipment and
telecommunications peripherals, through its subsidiaries, Bogen Corporation, a
Delaware corporation ("Bogen"), and Speech Design GmbH, a German corporation
("Speech Design").
Bogen focuses on commercial and engineered sound equipment and
telecommunication peripherals for the voice and sound processing market. For
over six decades, Bogen has been a leader in commercial amplifiers and intercom
systems for background and foreground music applications, as well as for the
security and educational industry, and, since 1991, has produced voice
processing systems, including voice mail systems, message/music-on-hold systems,
digital announcers, call distributors and automated attendants.
Speech Design focuses on digital voice processing systems for the mid-sized
Private Branch Exchange ("PABX") market, targeting the rapidly growing European
voice processing market. With the launch, in late 1995, of its new product
family called "Memo", Speech Design has added innovative non-PC based voice mail
systems to its existing line of telecommunication peripheral products, which
includes voice-mail, automated attendants, digital announcers and message/music-
on-hold systems. The initial market reception for Memo has been positive and
approximately 1,500 systems were shipped in 1996.
Bogen's products are sold primarily through a network of distributors,
dealers and contractors. Speech Design sells directly, through leading European
telephone switch manufacturers in Germany, and through major independent dealers
outside Germany.
Suppliers and subcontractors, located primarily in the Republic of South
Korea, as well as Taiwan, Israel, Germany, and the United States, produce
sub-assemblies and finished products for the Company.
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The Company is a Delaware corporation whose principal executive offices are
located at 50 Spring Street, Ramsey, New Jersey 07446 and its telephone number
is (201) 934-8500.
Company History
The Registrant was formed on May 6, 1993 as a Specified Purpose Acquisition
Company ("SPAC") with the objective of acquiring a medium-sized operating
business engaged in industrial manufacturing or industrial services and located
in Germany, Switzerland or Austria. On October 13, 1993, the Registrant
consummated an initial public offering (the "IPO")of 1,550,000 units, which
resulted in $8,120,000 in net proceeds to the Registrant. Each unit consisted of
one share of the Registrant's common stock, $.001 par value per share ("Common
Stock"), and two warrants (the "Warrants"), each entitling the holder thereof to
purchase one share of Common Stock for $5.50 per share (the "Units"). As of the
date hereof, there are 5,758,850 shares of Common Stock and 3,660,000 Warrants
outstanding.
Until April 6, 1995, the Registrant did not engage in any substantive
commercial business other than evaluating prospective companies for acquisition.
On such date, the Registrant entered into an agreement (as amended, the "Stock
Purchase Agreement") with Geotek Communications, Inc. ("Geotek"), to acquire
controlling interests in two communications products companies then held by
Geotek (the "Business Combination").
Pursuant to the Stock Purchase Agreement, on August 21, 1995, the
Registrant acquired from Geotek approximately 67% of the outstanding capital
stock of Speech Design GmbH and approximately 99% of the outstanding capital
stock of Bogen Corporation. As consideration for such acquisitions, Geotek
received from the Company: (i) 3,701,919 shares of Common Stock; (ii) 200,000
Warrants; (iii) $7,000,000; and (iv) a convertible promissory note in the
principal amount of $3,000,000 due in February, 1997. Furthermore, depending on
whether Speech Design and Bogen in the aggregate achieve or fail to achieve
certain earnings goals during the period from July 1, 1995 to June 30, 1997, the
Company may be obligated to make an additional payment to Geotek of up to $11
million in cash or Common Stock or Geotek may be obligated to make a payment to
the Company of up to $2.5 million in cash (or at Geotek's option, a ten-year, 4%
loan in the principal amount of up to $5 million). Based on management's review
of the earnout calculation, the anticipated contingent consideration payment, if
any, will not have a material effect on the Company's financial position and
operating results. Geotek also acquired the right to receive 70% of any cash
proceeds received by the Company upon exercise of the 3,660,000 Warrants
outstanding if exercised by June 30, 1997. As a result of the Business
Combination, Geotek acquired an approximately 64% controlling interest in the
Company.
In May 1996, the Company and Geotek entered into the most recent amendment
to the Stock Purchase Agreement effective January 1, 1996. Pursuant to such
agreement, (i) the $3,000,000 convertible promissory note payable by the Company
to Geotek, due February 1997, was reduced and restructured to a $500,000
non-convertible promissory note due July 1997, (ii) the earnout formula was
revised to reflect an increase in the amount the Company could be liable to pay
Geotek from $11,000,000 to $13,500,000 in connection with the reduction of the
principal amount of the promissory note, and (iii) Geotek was granted an option
to purchase, at any time through October 31, 1997, from the Company $3,000,000
worth of Common Stock with exercise prices ranging from 100% to 65% of market
price, depending on the date of exercise.
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Bogen
Bogen develops, assembles and distributes sound processing equipment and
telecommunication peripherals through its wholly owned subsidiary, Bogen
Communications, Inc. ("BCI"). Since its founding in 1932, Bogen has been
involved in the commercial sound industry, concentrating its efforts on the
development and sale of equipment for commercial, industrial, professional and
institutional markets and applications.
Traditionally, Bogen's core products (which are sold through the Engineered
Systems and Commercial Sound product lines) include: commercial audio amplifiers
and related sound and intercom systems equipment for professional, industrial
and commercial system applications, including background and foreground music
applications, intercommunications and administrative communications systems for
the security and educational industry, and telephone paging.
During 1991, Bogen introduced its first product in a line of
telecommunications peripherals, the Telco product line. The first product in
this line was the MMT, a digital announcer with automatic microprocessor
controlled tape download for "on-hold" applications. During 1992, Bogen
introduced various products in the digital telephone peripherals area, including
the Automated Attendant and the Digital Announcer. These products are used in
message/music on-hold and voice mail systems.
During 1993, Bogen began marketing to the retail and end-user markets a new
product line, resulting in the Company's Office Automated Systems ("OAS"). In
December 1995, the Company's management decided to phase-out the OAS product
line and to concentrate on its traditional commercial and institutional customer
base. See also "Product Lines - OAS".
Product Lines
Telco
Bogen's Telco products consist of telephone paging systems and equipment,
digital message/music-on-hold players, one port voice mail systems and digital
telecommunication peripherals such as auto-attendants, digital announcers, call
buffers and others. These products allow installers to increase the value of
their telephone system offerings by providing users with enhanced efficiency and
convenience. Management believes that the Company's latest Telco product,
MiniMail, introduced in late 1996, is well positioned as the most economical yet
full featured voice mail system available today. MiniMail delivers many of the
features typically associated with high-end voice mail systems, yet is priced
competitively enough to appeal to owners of small telephone systems. MiniMail is
compatible with all leading PABX and key and hybrid key telephone systems.
Bogen Telco net sales were $13,122,000, $12,169,000, and $11,065,000 for
the years ended December 31, 1996, 1995 and 1994, respectively. Speech Design
also has a Telco line of products, see "Speech Design - Product Line". The
Company's combined Telco net sales through Bogen and Speech Design amounted to
$28,720,000, $26,010,000 and $19,242,000 for the years ended December 31, 1996,
1995 and 1994, respectively. Telco net sales through Bogen provided 28.4%,
27.3%, and 24.1% of the Company's net sales for these respective years. Combined
Telco sales provided 62.1%, 58.4%, and 41.9% of the Company's net sales for
these respective years.
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Commercial Sound
Bogen's Commercial Sound product line consists of amplifiers, speakers,
microphones, intercom systems and other sound equipment used in non-consumer
applications, such as industrial public address systems, and background music in
offices. This line's newest product, the PROMATRIX amplifier, which was
introduced to the market in the third quarter 1996, incorporates three
independent amplifier channels in a single package. The Company believes that
the product's user interface sets new standards in ease of use and provides
customers with superior control over sophisticated background music and paging
applications. The PROMATRIX is a one-box solution for installations that usually
require a rack full of costly equipment.
Commercial Sound net sales for the years ended December 31, 1996, 1995 and
1994 were $9,315,000, $8,436,000, and $8,749,000, respectively. Commercial Sound
provided 20.1%, 19.0%, and 19.1% of the Company's net sales for the years ended
December 31, 1996, 1995 and 1994, respectively.
Engineered Systems
Bogen's Engineered Systems product line features custom designed
intercom/paging systems that are sold to contractors for installation in
schools. Introduced in late 1996, this line's newest product, MULTICOM-DCS(TM)
(Digital Communication System), provides system users with high quality control
speaker and telephony functions through a single user interphase.
MULTICOM-DCS(TM) provides full integration of the Company's MULTICOM paging
technology with COMDIAL PABX systems.
Engineered Systems net sales for the years ended December 31, 1996, 1995
and 1994 were $6,682,000, $5,629,000, and $5,679,000, respectively. Engineered
Systems net sales amounted to 14.4%, 12.6%, and 12.4% of the Company's net sales
for the years ended December 31, 1996, 1995 and 1994, respectively.
Office Automated Systems
The OAS line was designed for the small office/home office environment.
FRIDAY Home Office Receptionist, an all-digital office communications manager,
was Bogen's leading product in this category and was intended to serve as a hub
for phone messages, faxes and links to pagers and cellular phones. The OAS
product line targeted the retail and end-user marketplace in contrast to the
commercial and institutional focus for Bogen's other product lines.
For the years ended December 31, 1996, 1995 and 1994, OAS net sales
amounted to $1,552,000, $4,444,000, and $12,252,000, respectively. OAS net sales
were 3.4%, 10.0%, and 26.7% of the Company's net sales for the years ended
December 31, 1996, 1995 and 1994, respectively.
Due to intense competition from (i) central voice mail services offered by
local telephone companies and answering service companies and (ii) products
which benefited from better brand recognition in the marketplace and which were
frequently offered at lower retail prices than the Company's products, in
December 1995, the Company's management decided to phase out Bogen's entire OAS
product line and to concentrate on its traditional commercial and institutional
customer base.
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Sales and Marketing
Telco
Bogen distributes its Telco products to approximately 12 distributors who
operate more than approximately 200 telecommunications distribution centers.
These distributors sell to hundreds of telecommunications installers or
interconnects across North America. The major distributors are Graybar Electric
Co., Inc. ("Graybar"), Alltel Corp. and Sprint/North Supply. In addition to its
distribution network, Bogen has a relationship with approximately 25
message/music-on-hold studios that specialize in creating custom messages. These
studios sell their services along with Bogen's Telco products. Bogen also has an
original equipment manufacturer (OEM) agreement to supply AT&T with AT&T-branded
on-hold systems.
Bogen markets its Telco products through a group of independent
manufacturer's representatives comprised of organizations with approximately 40
salespeople who sell Bogen's Telco and other complementary products to
distributors and interconnects in their territory on an exclusive basis. These
representatives are supported by a 4-person Bogen sales and support staff.
Commercial Sound and Engineered Systems
Bogen distributes its Commercial Sound products through a network of
approximately 2,000 distributors, dealers and contractors, often as complete
systems designed to satisfy an end-user's specific sound and communications
needs. In addition, a network of approximately 200 major contractors market
Bogen's school intercom systems on a territory-exclusive basis.
Bogen's Commercial Sound products are stocked by virtually every major
sound master distributor, industrial equipment distributor, and commercial
security products distributor in North America.
Bogen's Commercial Sound and Engineered Systems products are marketed
generally through a field sales organization and several independent
manufacturers representatives under the direction of Bogen's internal sales
force. Both the field sales group and the representatives are responsible for
assigned territories. The field sales personnel receive a salary and bonus based
on performance and the representatives are compensated on a commission basis.
Sales agreements are maintained with all of Bogen's independent sales
representatives and engineered systems contractors. The sales representative
agreements typically permit the sale of Bogen products by the representative in
a specific territory assigned to one or more sales representatives. Similarly,
the engineered systems contractor agreements typically allow the contractor to
purchase and install specific product lines in a designated territory.
The principal users of these products are industrial, professional and
commercial concerns and institutions such as schools, nursing homes and
correctional facilities. Bogen management believes that these user markets are
relatively stable and that Bogen has developed significant name recognition in
these markets.
OAS
Bogen sold its OAS products to nearly 2,000 retail outlets, distributors
and catalogers in North America, including major consumer electronic retailers.
Bogen marketed its OAS products through independent manufacturer's
representatives who sold Bogen's OAS and other complementary products to
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distributors and retailers in their territory on an exclusive basis.
Sales Outside the U.S.
Although Bogen's sales are primarily in the United States, Bogen also sells
its products in Canada through a stocking representative that has its
headquarters in Ontario and branch offices throughout Canada. Export sales to
Europe are handled through the Company's subsidiaries in Europe. Export sales to
other foreign countries are handled in the same manner as sales within the
United States (i.e., through distributors, dealers and contractors that purchase
the products and sell them to an established account base overseas).
Operations
All components and materials used in the construction of Bogen's products
are of standard commercial quality or better, and are readily available from
overseas and United States suppliers. Bogen relies principally upon an
established network of suppliers and subcontractors primarily located in the
Republic of South Korea, and to a lesser extent Taiwan, Israel and the United
States. These suppliers and sub-contractors either produce sub-assemblies for
use in the final assembly of a finished product or produce the finished products
themselves. Products are based on Bogen designs and are built in accordance with
Bogen drawings and specifications. There can be no assurances that disruptions
in supplies will not occur from time to time, or that any such disruptions will
not have a material adverse effect on the Company.
Patents and Trademarks
"Bogen" is a trademark of the Company which is registered in the United
States and in certain foreign countries throughout the world. This trademark
expires in the United States in March 2000. Bogen has also obtained U.S.
trademark registration for the trade name "Multicom2000(TM)." This trademark is
utilized in connection with Engineered Systems and expires in July 2001. In
addition, during 1996, Bogen obtained a U.S. trademark for the tradename "Speech
Design", which will expire on December 31, 2006 and which can be renewed at that
time for an additional ten years.
Research and Development
Bogen's in-house engineering department is responsible for research and
development, production engineering and sales engineering. In 1997, the R&D
Department will focus on new innovative solutions for the Telco paging market by
developing a unified messaging system incorporating paging, voice messaging and
wireless peripherals into one integrated product. There can be no assurance
however, that Bogen will be able to develop such system, nor can there be any
assurance that it will be able to compete with similar products offered by other
manufacturers. Research and development expenditures for the years ended
December 31, 1996, 1995 and 1994 were $1,865,000, $1,415,000, and $1,463,000,
respectively.
Competition and Major Customers
Bogen's competition varies from market to market and product to product. In
areas in which it faces competition, Bogen competes on the basis of several
different factors, including name recognition, price, innovation and product
quality. However, such factors vary in relative importance depending on the
markets and products involved. Bogen's management has concentrated on markets in
which it believes that Bogen can obtain at least a 10% market share, be one
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of the top two or three suppliers or which have substantial growth potential.
Bogen's key strength continues to be its distribution channels and name
recognition, especially in the school, background/foreground, and security
markets.
Bogen's Telco products compete in the voice processing and voice paging
niches of the Telco market.
In the voice processing market, Bogen's competitors are relatively small
companies that offer basic voice mail systems up to four ports. Competition also
comes from the many telephone system manufacturers which offer small voice mail
systems as options to their telephone equipment. The Message-On-Hold voice
processing market provides Bogen with three small but tough competitors, NelTech
Labs, Premier, Inc., and Mackenzie Labs.
In the voice paging market, Bogen's main competitor is Valcom, Inc., a
company which has been established in this market for several decades. Other
competition comes from several other U.S. companies which have been losing
market share over the past few years, and from several companies attempting to
enter the market. Bogen has increased its share in the voice paging market from
18% to 33% in recent years.
The Commercial Sound customer market is characterized by intense
competition, particularly from several overseas companies, with no one company
accounting for more than 10% of the U.S. market. Bogen's principal competitor is
TOA Electronics, a Japanese Company ("TOA"), and University Sound, a U.S. based
manufacturer ("University"). Bogen also competes with comparatively small
manufacturers that rely mainly on established account relationships. Bogen
concentrates on customer needs to design, manufacture and market tailored
packaged solutions for each particular vertical market. Bogen focuses on
durability and reliability as opposed to state-of-the-art performance in its
product design and positioning.
Bogen's Commercial Sound competition can be divided into two categories:
General Line/Master Distributor competitors, and competitors at the Sound and
Systems Contractor level.
In the distributor channel, Bogen faces full line competitors such as Paso,
Inc., University, Speco, Inc. and others, as well as specialized competitors
such as Atlas Soundolier, Inc., Quam Nichols, Inc., Lowell, Inc., Shure
Brothers, Inc., and CTI/Astatic who market and sell products such as
microphones, speakers, horns and other non-amplifier items. Bogen garners
greater than 50% market share versus all of these competitors selling to the
distributor channel.
At the contractor level, Bogen faces competition from many sources, a
number of them overseas companies. Bogen's principal competitor at the
contractor level is TOA, comprising approximately 10% of the U.S. market, which
invests considerable effort in developing sound systems. Bogen competes with a
number of other amplifier manufacturers such as QSC Electronics, none of which
has secured more than approximately 10% of the market. There are a number of
comparatively small manufacturers Bogen competes with, whose sales and market
share depend upon established reputation for quality and support and solid
relationships with their account base.
The Engineered System customer market is a highly specialized market
characterized by low unit volume and high dollar sales. Bogen's principal
competition comes from Rauland Borg Corp., the market leader in this area, and
Dukane Corporation, which, like Bogen, have been in the market for several years
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and have well established name recognition and distribution channels. Rauland
Borg Corp. is currently the acknowledged market leader.
The OAS market is characterized by intense competition from central voice
mail services offered by local telephone companies and answering service
companies and other competitors with greater brand recognition in the
marketplace whose products are frequently offered at lower retail prices than
the Company's products. Accordingly, in late 1995, the Company's management
decided to phase out Bogen's entire OAS product line.
Graybar, Bogen's largest customer, accounted for more than 10% of the
Company's gross sales. The loss of Graybar as a customer is likely to have a
material adverse effect on the Company.
Backlog of Orders
As of December 31, 1996, Bogen had a backlog of firm orders of approximately
$425,000, all of which it expects to fill within 1997. As of December 31, 1995,
Bogen had a backlog of firm orders of approximately $1,090,000.
Speech Design
Speech Design, located in Munich, Germany, develops, manufactures and
markets telephone peripheral hardware utilizing digital voice processing
technologies. Speech Design products include voice mail systems, automated
attendants, digital announcers and message/music-on-hold systems. Until 1992,
Speech Design was engaged primarily in selling peripheral equipment for cellular
telephones utilized in connection with an analog network. With the advent of the
European GSM digital standard and the related decline in prices of ancillary
subscriber equipment, Speech Design's management decided to refocus its
activities from the cellular market to the telephone peripherals market.
In late 1995, Speech Design launched a new product family called "Memo",
which consists of stand-alone non-PC based voice mail peripherals for
small-to-medium PABXs. The high-end Memo-CDA model includes a CD based music and
information on hold system. Memo offers full integration with most of the
popular PABX models on the European market. Management expects Memo to
contribute significantly to Speech Design's strategic goal of becoming a market
leader in the rapidly growing European voice processing market. Memo has been
well-accepted in the marketplace and approximately 1,500 systems were shipped in
1996, contributing approximately 23% to Speech Design's 1996 net sales.
In 1994, Speech Design launched a major program to establish an
international market presence. Speech Design signed distribution contracts with
partners in ten European countries and gained national Post, Telegraph and
Telephone ("PTT") approval in most major markets. The Company believes that such
approval constitutes a major market entry barrier to non-European and small
European companies. Also on July 1, 1994, Speech Design acquired a 67% interest
in Satelco AG, a Swiss company, which is a marketer of telephone peripherals and
a distributor of Speech Design's and Bogen's products. In order to further
support its efforts to enter the UK market, Speech Design founded a sales
subsidiary, Speech Design (UK) Ltd., in early 1996. With a staff of four, the UK
branch has had some initial sales. In the last quarter of 1996, Speech Design
signed a distribution agreement with GEC, partially owned Siemens subsidiary,
the second largest distributor in the UK. Sales outside of Germany increased
from 11% of total sales in 1994 to 20% in 1995 to 24% in 1996 and are expected
to reach 40% of total sales within the next 3 years. There can be no assurance,
however, that Speech Design will achieve such goal and that Speech Design's
growth outside of
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Germany will continue.
In mid-1996, a manufacturing subsidiary, Speech Design (Israel) Ltd., was
founded in Israel. It has begun to assume the production of certain product
lines from Speech Design Germany, resulting in reduced manufacturing cost and
tax levels. The Israeli facility has been granted a 10-year tax exemption,
effective January 1, 1997.
Product Line
Speech Design's products are in the Telco line of products and include
voice mail, automated attendants, digital announcers and message/music-on-hold
systems. Telco net sales provided by Speech Design were $15,598,000,
$13,841,000, and $8,177,000 for the years ended December 31, 1996, 1995 and
1994, respectively. Speech Design Telco sales amounted to 33.7%, 31.1% and 17.8%
of the Company's net sales for these years.
Sales and Marketing
The general market for Speech Design's products is the under-developed, but
rapidly growing, European voice processing market for commercial and industrial
end users. According to the Company's estimates, the current penetration of such
applications as voice mail in Europe is less than 1% of the installed telephone
system PABX base and less than 5% of new PABX shipments (as compared to between
20%-40% in the U.S.A.). PABXs are multiple-line business telephone systems which
are installed at end users' businesses to facilitate internal and external
communications. The PABX is an alternative to providing each employee in a
company with his or her own direct line.
Speech Design markets its PABX peripherals to major manufacturers and
distributors of PABX systems throughout Europe for use by mid-size companies
consisting of approximately 20-200 employees. The major manufacturers integrate
Speech Design products with their PABXs for sale to the end-user as part of a
new system. The increased visibility of Speech Design's products had led to more
Speech Design peripherals being sold to owners of previously installed PABXs.
Speech Design attempts to differentiate itself both from high-end suppliers
of large customized systems and suppliers of semi-professional, price-sensitive
solutions for the small company sector by providing standard, high-quality,
affordable and easy-to-use products for the small to mid-size PABX.
Speech Design sells its products through resellers. In Germany, Speech
Design's main customers are sales organizations of leading PABX manufacturers
and major independent dealers. In other European countries, Speech Design has
exclusive agreements with national distributors, which in Switzerland and the UK
are Speech Design subsidiaries, which market to the reseller base in their
respective territories. In the United States, Bogen is the exclusive distributor
of Speech Design products.
Germany
In Germany, Speech Design has developed an effective approach for local
distribution of voice processing products. Speech Design sells directly to the
regional sales offices of the leading manufacturers of PABX equipment including
Alcatel, Siemens, Philips, Bosch Telecom and DeTeWe. Over 75% of Speech Design's
sales are to these customers (which percentage corresponds to these
manufacturers' approximate joint share of the PABX market). The loss of any one
of these customers is likely to have a material adverse effect on the Company.
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Speech Design has achieved central pricing agreements and technical as well as
commercial endorsements from the headquarters of each of the companies. The
regional offices of these companies consist of approximately 200 locations and a
combined sales force of approximately 3,000 people. Speech Design's own sales
and technical team of 15 individuals supports and motivates the regional sales
forces of the large PABX companies to actively market Speech Design's products.
Speech Design routinely updates its data bank of all PABX sales representatives
in Germany to help the sales team optimize communications and efficiency.
Speech Design considers its sales network in Germany, Europe's largest
telecommunications market, to be one of its most valuable assets and a major
market entry barrier to potential competitors.
Outside of Germany
Speech Design utilizes exclusive national distributors in all major
European markets (Austria, Belgium, Denmark, Finland, France, Italy, The
Netherlands, The United Kingdom, Sweden and Switzerland). These distributors,
other than Satelco AG, in which Speech Design holds approximately 67% of the
equity, and Speech Design's U.K. subsidiary, are independent resellers of
telecommunications equipment, who market Speech Design's products to local
manufacturers and distributors of PABXs. In the United States, Bogen is the
designated distributor. In order to achieve the Company's planned rate of growth
in export sales, Speech Design has employed some of the marketing methods used
in Germany to its other markets. There can be no assurance, however, that such
methods will prove successful in achieving further growth in these markets.
Operations
Speech Design manufactures its products in cooperation with a network of
German subcontractors and an Israeli subcontractor that was retained in 1995.
Speech Design purchases all mechanical and electronic components for its
products and ships them for board-level assembly work by its subcontractors.
Speech Design's own manufacturing group assembles finished products from
pre-tested modules and performs final quality tests. In mid-1996, Speech Design
(Israel) Ltd. assumed the production of certain product lines.
Speech Design maintains a computerized order processing and warehouse
system and a level of product availability that generally enables it to deliver
products in Germany an average of three days after receipt of an order and
within two weeks after receipt of an order for other countries.
Patents and Trademarks
"Speech Design" is a registered trademark in Germany and the U.S. Several
of Speech Design's products also have registered trademarks.
Research and Development
Speech Design's engineering group is responsible for the development,
production engineering and sales engineering of all Speech Design products.
Research and development expenditures for the years ended December 31, 1996,
1995 and 1994 were $1,027,000, $892,000, and $536,000, respectively.
Competition
In Germany, Speech Design is the acknowledged market leader in the small to
mid-size PABX peripherals, with an estimated market share of 60%. Speech
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Design's main competitor in Germany is Beyer KG, a provider of telephone
peripherals primarily at the low-end of the Speech Design product range (simple
music-on-hold units and announcers). Speech Design's management believes that
its new Memo family of voice mail and related products will increase its
competitive advantage in Germany.
There is no single dominating company in the European market for small to
mid- size PABX peripherals. With the exception of Octel, Northern Telecom, AT&T
and a handful of other competitors who are highly focused on the large,
customized systems market, Speech Design's competition comes from a large number
of smaller companies offering PC-based voice mail systems. These companies tend
to be highly focused on their national markets and generally cannot afford to be
global players due to the cost of establishing distribution channels and gaining
regulatory approval for selling telecommunications products in each country.
Some of Speech Design's competitors include Beyer KG (Germany) and Vox S.A.
(France); the only company offering a non-PC-based solution similar to Speech
Design's is VOX S.A.of France.
Management believes that the combination of Speech Design's mid-size PABX
focus, broad and unique product range and Europe-wide distribution presence may
enable Speech Design to become a leading provider of telephone peripherals in
many European countries. There can be no assurance, however, that such results
will occur or that the Memo family of voice mail and related products will
increase Speech Design's competitive advantage in Germany, because this industry
is highly sensitive to general economic conditions and is characterized by rapid
technological change. Speech Design's ability to compete successfully may depend
in substantial measure on its ability to develop or acquire new or improved
equipment, techniques and products and/or to modify and upgrade its existing
equipment, techniques and products, none of which can be assured.
Backlog of Orders
As of December 31, 1996, Speech Design had a backlog of firm orders of
approximately $496,000, all of which it expects to fill in 1997. As of December
31, 1995, Speech Design had a backlog of firm orders of approximately $918,000.
Strategy for Growth and Expansion
Bogen's goal is to increase its market share in each niche market in which
it is operating. For the 1997 fiscal year, Bogen restructured its organization
into three separate Business Units (each a "BU"). The Commercial Sound BU, the
Telco Messaging BU and the School Systems BU with each BU assuming its own
profit and loss responsibility. Management believes that such structure will
enable Bogen to focus on each of the business segments. Bogen plans to achieve
growth through internal innovation and possible acquisitions.
Speech Design management believes that the growing demand for mid-size
voice mail in the rest of Western Europe will create opportunities for Speech
Design to export its product outside of Germany. Speech Design will focus its
efforts on duplicating its success in Germany into other West European countries
along with developing the Memo family to fit larger PBXs. There can be no
assurance, however, that it will be able to duplicate its success outside of
Germany or expand Memo's potential customer base.
Government Regulations and Industry Certifications
The federal government regulates domestic telecommunications equipment and
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related industries. The federal agency vested with primary jurisdiction over the
telecommunication industry is the Federal Communications Commission (the "FCC").
Many telephone peripheral industries, while not directly regulated by the FCC,
are nevertheless substantially affected by the enforcement of its regulations
and changes in its regulatory policy.
The FCC has adopted regulations regarding attachments to the telephone
networks as well as regulations imposing radio frequency emanation standards for
computing and radio equipment and many of Bogen's products require certification
by the FCC. In addition, many of Bogen's products also require the approval of
the Underwriter's Laboratory. All such required certifications and/or approvals
have been obtained. As a result of modifications and improvements to Bogen's
products, Bogen will be obligated to seek new certifications and/or approvals
where there is a degradation in the radio frequency emissions. Failure to obtain
such certifications and/or approvals may preclude Bogen from selling its
products in the U.S. Bogen makes all reasonable efforts to ensure that its
products comply with such requirements.
To successfully access the Canadian market, Bogen must obtain Underwriters
Laboratory Canada and Canadian Standards Association approvals for all AC
powered products.
All Speech Design products have been adopted to the technical
(PTT-approvals) and commercial sound requirements of West European markets.
In 1995, Speech Design received the ISO 9001 Quality Certificate for its
research and development, production and customer support operations in Germany.
This certification is becoming an increasingly important international "Quality
Mark" and competitive advantage. In 1996, the Quality Mark was extended to
include Speech Design's Israel and U.K. subsidiaries.
Employees
As of December 31, 1996, the Company had approximately 173 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. Twenty of Bogen's employees are subject to
collective bargaining agreements, which expire in mid-1997. The Company
considers its relationship with its employees to be good.
Item 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring
Street, Ramsey, New Jersey. Bogen also maintains its principal warehouse and
executive offices at that location which is subleased from an unaffiliated third
party. The lease, which covers approximately 70,000 square feet, commenced on
January 1, 1987 and expires on December 31, 2000. Annual base rental payments
over the remainder of the lease are approximately $670,000, plus taxes and other
expenses.
Bogen also maintains inventory in the State of Washington at a warehouse
managed by one of Bogen's independent sales representatives.
Speech Design leases its facilities in Munich, Germany under leases
expiring in 2005 and 1999. Speech Design also has subsidiaries which have leases
in Israel, the UK and Switzerland. Speech Design and subsidiaries' aggregate
annual rental payments are approximately $458,000.
Management of the Company believes that the facilities occupied by the
Company and its subsidiaries are adequate to meet current needs.
12
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Item 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1996 Annual Meeting of Stockholders of the Registrant was held on
December 13, 1996 for the purpose of (i) electing three Class 1 Directors to
serve until the 1998 Annual Meeting of Stockholders, (ii) adopting the Company's
1996 Incentive Stock Option Plan, and (iii) ratifying the selection of Coopers &
Lybrand, LLP as the Company's auditors.
Set forth below are the names of the class 1 directors whose term of office
continued after the annual meeting:
For Against Abstain
--- ------- -------
Dr. Leonard Lodish 3,976,634 -0- -0-
Michael McCoy 3,976,634 -0- -0-
David Jan Mitchell 3,976,634 -0- -0-
Set forth below is the tabulation of the votes cast with reference to the
adoption of the Company's 1996 Incentive Stock Option Plan:
For Against Abstain
--- ------- -------
4,046,335 -0- -0-
Set forth below is the tabulation of the votes cast with reference to the
ratification of the selection of Coopers & Lybrand, LLP as the Company's
auditors.
For Against Abstain
--- ------- -------
3,921,385 131,250 1,000
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PART II
Item 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's Common Stock and Warrants currently trade on the American
Stock Exchange under the symbols "BGN" and "BGNW," respectively. Between October
7, 1993 and August 21, 1995, the Registrant's Common Stock, Warrants and Units
were quoted on the OTC Bulletin Board under the symbols EGAQ, EGAQW and EGAQU,
respectively. The Units were traded on the American Stock Exchange under the
symbol "BGNE" from August 21, 1995 until they were de-registered in December
1996.
The following table sets forth the range of high and low bid prices for the
Common Stock, Warrants and Units for each of the fiscal quarters during the
period from January 1, 1995 through December 31, 1996, as reported by the OTC
Bulletin Board. The quoted prices represent "inter-dealer" prices without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions. Subsequent to August 21, 1995, the quotes represent the high and
low sales prices on the American Stock Exchange for BGN and BGNW and BGNE (from
August 21, 1995 until the Units were de-registered in December 1996).
January 1, 1995 to March 31, 1995
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 1/4 4 3/8
Warrants 1 1/16 1/8
Units 6 5 1/2
April 1, 1995 to June 30, 1995
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 3/16 4 7/8
Warrants 15/16 1/2
Units 7 6
July 1, 1995 to September 30, 1995*
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 1/2 5
Warrants 7/8 5/8
Units 7 1/4 5 3/4
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October 1, 1995 to December 31, 1995
Security High ($) Low ($)
- -------- -------- -------
Common Stock 6 2 15/16
Warrants 1 3/16 1/4
Units 6 3/4 4 1/2
January 1, 1996 to March 31, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 4 1/2 2 7/8
Warrants 1 3/8
Units 4 4
April 1, 1996 to June 30, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 4 13/16 3 1/8
Warrants 1 3/16 7/16
Units 5 7/8 3 3/4
July 1, 1996 to September 30, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 5 3 3/4
Warrants 1 3/16 9/16
Units 4 3/4 4 1/4
October 1, 1996 to December 31, 1996
Security High ($) Low ($)
- -------- -------- -------
Common Stock 4 1/4 2 15/16
Warrants 15/16 1/2
Units 5 7/8 3 1/2
*Securities were exchanged on August 21, 1995, the date of the Business
Combination.
The Registrant has not declared or paid any cash dividends on its Common
Stock since commencing operations. In addition, Bogen's $7 million line of
credit with Summit Bank, obtained the first quarter of 1997, prohibits Bogen
from declaring or paying any dividends on its capital stock. The Registrant does
not anticipate
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paying any dividends on the Common Stock in the foreseeable future and intends
to retain any earnings for possible future expansion of the Company's business.
As of March 1, 1997, there were 25 record holders of the Common Stock.
Item 6. SELECTED FINANCIAL DATA
For accounting purposes, the Business Combination was treated as a joint
acquisition of the Company by Bogen and Speech Design, companies that were under
the common control of Geotek. The transaction is considered a reverse
acquisition ("Reverse Acquisition") with Geotek as the acquiror for accounting
purposes. The selected financial data of the Company presented below reflect the
combination of Bogen and Speech Design in a manner similar to a
pooling-of-interests. Accordingly, the selected financial data of the Company
presented below reflects the operations of Bogen which was acquired by Geotek in
1991, and Speech Design which was acquired by Geotek in 1993.
In 1994, Speech Design acquired a 67% interest in Satelco AG, and its
financial statements are consolidated with the Company's financial statements in
accordance with pooling-of-interests.
The following table summarizes certain selected consolidated financial
information for the Company and should be read in conjunction with the more
detailed consolidated financial statements and the notes thereto. See "Item 8.
Financial Statements and Supplementary Data."
(In thousands, except per share data)
- ------------------------------------------------------------------------------
For the Year
Ended December 31, 1996 1995 1994 1993 1992(1)
- ------------------------------------------------------------------------------
Net Sales $ 46,269 $ 44,518 $ 45,922 $ 30,072 $ 19,501
Net income (loss) $ 2,008 $ (4,543) $ (355) $ (37) $ (214)
Net income (loss)
per common share $ 0.35 $ (1.37) $ (0.18) $ (0.04) $ --
- ------------------------------------------------------------------------------
As of December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------
Total Assets(2) $ 31,386 $ 31,304 $ 32,866 $ 14,420 $ 9,437
Long-term debt (net
of current
maturities) $ 370 $ 3,458 $ 5,039 $ 5,570 $ 5,809
(1) The net loss per common share for 1992 is not presented, because the Common
Stock was not issued until 1993. Accordingly, such calculations prior to
1993 are not meaningful.
(2) Refer to footnote 1G in the consolidated financial statements for a
discussion of the "Push-Down" of goodwill to Bogen.
The Company did not pay a cash dividend on the Common Stock during any
period indicated.
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Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The financial statements and the following discussion include Bogen, the
Company's 99% owned subsidiary, and Speech Design, its 67% owned subsidiary, as
well as the subsidiaries of Speech Design, which are Satelco, Speech Design
(Israel) Ltd. and Speech Design (UK) Ltd. All significant intercompany accounts
and transactions have been eliminated in consolidation.
RESULTS OF OPERATIONS 1996 COMPARED TO 1995
NET SALES
Net sales of $46,269,000 for 1996 increased 4% from net sales of
$44,518,000 for 1995. The increase in net sales is principally due to an
increase in net sales across all product lines (other than OAS, which was phased
out in 1995) as a result of the introduction of new products, increased sales
volume of the Company's products to existing and new customers, and an increase
in the sales price for most of the Company's domestic products, and was
partially offset by a decline in OAS sales.
Telco net sales in 1996 amounted to $28,720,000 compared to $26,010,000 in
1995, an increase of $2,710,000 or 10%. Domestic Telco sales increased $953,000
in 1996 or 8% over comparable sales in 1995. Foreign Telco sales increased
$1,757,000 in 1996 or 13% over comparable sales in 1995. The increase in both
markets is attributable to the release of new products as well as increased
volume to existing and new customers.
Net sales of Commercial Sound products amounted to $9,315,000 in 1996,
increased $879,000, or 10%, from net sales of $8,436,000 of such products in
1995. The increase of $879,000 is a result of an increase in the number of units
sold due to growth in the consumer sales market and a three percent sales price
increase implemented during the first quarter of 1996.
The Engineered System line of products also had an increase in net sales
for the year ended 1996 as compared to 1995. Net sales of the Engineered System
line increased $1,053,000 or 19% from $5,629,000 in 1995 to $6,682,000 in 1996.
This increase of $1,053,000 is attributed to the introduction of the
MULTICOM-DCS(TM).
Net sales for the OAS product line for 1996 were $1,552,000, a decrease of
$2,892,000 from sales of $4,444,000 for 1995. The decrease in 1996 as compared
to 1995 is primarily related to the phase-out of this product line. See "-Phase-
Out of OAS Product Line."
All of the Company's product lines are distributed domestically through
Bogen. Telco products are distributed in both domestic and overseas markets.
Overseas distributions are made through Speech Design.
GROSS PROFIT
The Company's gross profit in 1996 was $21,265,000, or approximately 46% of
sales, an increase of $4,085,000, compared to $17,180,000, or approximately 39%
of sales, in 1995.
The increase is mainly due to the following: (i)charges of $2.2 million in
1995 to reduce certain inventory to market value; (ii)an increase in 1996 in the
sales price of most of the Company's domestic products; (iii) a reduction in the
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<PAGE>
cost of direct materials due to successful renegotiation with suppliers.
Gross profit as a percentage of sales for all the Company's product lines
excluding OAS, amounted to 46% in 1996 and 44% in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") decreased in absolute
dollars and as a percentage of sales in 1996 as compared to 1995. SG&A was
$14,360,000 or about 31% of sales in 1996 compared to $15,067,000 or 34% of
sales in 1995. This decrease of $707,000 is due to the decrease in selling costs
relating to OAS sales, which, in 1995, included an intense marketing effort.
This decrease was partially offset by an increase in administrative expenses
primarily due to additional administrative expenses at Speech Design in
connection with its expansion into Europe.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,892,000 or 6% of sales in
1996, compared to $2,307,000, or 5% of sales in 1995. This represents a $585,000
increase from 1995. The Company's R&D programs are designed to efficiently
introduce innovative products in a timely manner and support the Company's
planned growth. The Company anticipates introducing additional products to the
Telco and Engineered System product lines. There can be no assurance, however,
that the Company will be able to successfully introduce additional products. The
inability to introduce such additional products may have a material adverse
effect on the Company.
AMORTIZATION OF INTANGIBLES
Amortization expense increased less than 1%, or $2,000 to $445,000 in 1996
from $443,000 in 1995. The increase is mainly a result of amortization relating
to Speech Design's 1996 purchase of intangible assets.
INCOME (LOSS) FROM OPERATIONS
Operating income in 1996 amounted to $3,568,000, a $4,205,000 increase from
operating losses of $637,000 in 1995. The increase is due to a $1,751,000
increase in net sales; a 7% increase in gross profit margin percentage; and a 1%
decrease in operating expenses.
INTEREST EXPENSE
Interest expense, including interest expense payable to related parties,
was $668,000 in 1996, a decrease of $538,000, as compared to $1,206,000 in 1995.
This decrease was attributable to (i) a reduction in notes payable to Geotek in
August 1995 in connection with the Company's acquisition of Bogen, and (ii) the
reduction and restructuring of the $3,000,000 Geotek note in 1996.
TAXES ON INCOME
The Company incurred approximately $555,000 in taxes, a $707,000 decrease
from 1995. The decrease is due to more efficient tax planning at Speech Design
which resulted in a 14% decrease in the effective tax rate at Speech Design, as
well as a $214,000 refund of taxes paid in 1995.
NET INCOME(LOSS)
After deducting its minority interest in the earnings of its subsidiaries
of $337,000, the Company's net income for 1996 increased by $6,551,000 to
$2,008,000 in 1996 as compared to losses of $4,543,000 in 1995. The $6,551,000
increase is due to the following: (i) a $1,491,000 decrease in acquisition
costs; (ii) a $4,205,000 increase in income from operations; (iii) a $538,000
decrease in interest expense; and (iv) a $707,000 reduction in income taxes, and
was partially offset by a $237,000 reduction in other income.
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<PAGE>
EARNINGS PER SHARE
Primary earnings per common share for the year ended December 31, 1996 were
$0.35 compared to $(1.37) for the year ended December 31, 1995. The weighted
average number of shares outstanding in the calculation for primary earnings per
share was 5,759,075 in 1996 as compared to 3,311,668 in 1995.
PHASE-OUT OF OAS PRODUCT LINE
Effective December 31, 1995 the Company's management decided to phase-out
the OAS product line. This decision was based on the intense competition that
the Company faced from local telephone companies and answering service
companies, both of which offer central voice mail services. The Company's OAS
product line competed with products that were frequently offered at a lower
retail price than the Company's products. In addition, competitors' products
benefited from better brand recognition in the marketplace, which is dominated
by AT&T, Panasonic and PhoneMate.
Net OAS sales of $1,552,000 in 1996 decreased $2,892,000 from $4,444,000 of
sales in 1995. Gross profit (deficit) of OAS products of $630,000 in 1996
increased by $1,118,000 from a gross deficit of $(488,000) in 1995. Net income
(loss) from the OAS product line increased by $4,786,000 to $272,000 in 1996
from a net loss of $(4,514,000) in 1995.
RESULTS OF OPERATIONS 1995 COMPARED TO 1994
NET SALES
Net sales of $44,518,000 for 1995 decreased 3% from net sales of
$45,922,000 for 1994. The decrease in net sales is principally due to poor sales
in the Company's OAS product line, and to a lesser extent, due to poor sales in
the Commercial Sound and Engineered Systems product lines and was partially
offset by increased sales in the Telco product line.
Telco net sales in 1995 amounted to $26,010,000 compared to $19,242,000 in
1994, an increase in 1995 as compared to 1994 of $6,768,000 or 35%. Domestic
Telco sales increased $1,105,000 in 1995 or 10% over comparable sales in 1994.
Foreign Telco sales increased $5,664,000 in 1995 or 69% over comparable sales in
1994. The increase in both markets is attributable to the release of new
products as well as increased volume to existing and new customers.
Net sales of Commercial Sound products amounting to $8,436,000 in 1995,
decreased $313,000, or 4%, from net sales of $8,749,000 of such products in
1994.
Net sales of the Engineered System line decreased $50,000 or 1% from
$5,679,000 in 1994 to $5,629,000 in 1995.
Net sales for the OAS product line for 1995 were $4,444,000, a decrease of
$7,808,000 from sales of $12,252,000 for 1994. The decrease in 1995 as compared
to 1994 is primarily related to a one-time sale to AT&T during 1994 of
approximately $5,300,000. See "-Phase-Out of OAS Product Line."
All of the Company's product lines are distributed domestically through
Bogen. Telco products are distributed in both domestic and overseas markets.
Overseas distributions are made through Speech Design.
GROSS PROFIT
Gross profit was $17,180,000 in 1995, or 39% of sales compared to
$16,183,000, or 35% of sales in 1994. The increase is mainly due to a change in
product mix, see "-Net Sales," and was partially offset by the write-off of
certain inventories, the majority of which related to the OAS product line.
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Sales from the Telco product line, which has the highest gross profit of
all of the Company's product lines, amounted to 58% of total sales in 1995 as
compared to 42% of total sales in 1994. However, the Telco product line's
positive contribution to gross profit was offset by a significantly lower gross
margin on OAS products, which resulted primarily from a $1,500,000 provision in
1995 to reduce OAS inventory to its market value. See "-Phase-Out of OAS Product
Line."
Gross profit as a percentage of sales for all the Company's product lines
excluding OAS, amounted to 44% in 1995 and 40% in 1994.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased in absolute
dollars and as a percentage of sales in 1995 as compared to 1994. SG&A was
$15,067,000 or about 34% of sales in 1995 compared to $12,555,000 or 27% of
sales in 1994. This increase of $2,512,000, or 20% is attributable primarily to
an intensive marketing campaign to promote declining sales of OAS products and
increased consulting and payroll expense required to facilitate the continued
growth and operations of a public company.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,307,000 or 5% of sales in
1995, compared to $1,999,000 or 4% of sales in 1994. This represents a $308,000
increase from 1994. Expenditures in 1995 were made in connection with the
development of additional products to the Telco and Engineered System product
lines.
INCOME (LOSS) FROM OPERATIONS
Operating losses in 1995 amounted to $637,000, a $1,842,000 decrease from
operating income of $1,205,000 in 1994. The decrease is due primarily to a
decrease in OAS sales and increases in R&D and OAS SG&A expenses. See " - Net
Sales; -Selling, General and Administrative Expenses."
TRANSACTION COSTS
In 1995, the Company incurred $1,491,000 in non-recurring transaction costs
for legal and other professional services in connection with the acquisition of
Bogen and Speech Design. A portion of these costs, approximately $740,000,
related to the issuance of the Common Stock and Warrants and for professional
fees incurred in facilitating the Business Combination.
AMORTIZATION OF INTANGIBLES
Amortization expense increased $19,000, or 5% to $443,000 in 1995 from
$424,000 in 1994. The increase reflects a full year of goodwill amortization
relating to Speech Design's investment in Satelco AG versus six months of
amortization in 1994.
TAXES ON INCOME
The Company incurred approximately $1,262,000 in foreign taxes, a
$1,183,000 increase from 1994. The increase is attributable to the utilization
of loss carryfowards in 1994, which offset most of the taxable income from that
year.
NET INCOME(LOSS)
After deducting its minority interest in the earnings of its subsidiaries
of $184,000, the Company's net loss for 1995 increased by $4,188,000 to
$4,543,000 in 1995 as compared to $355,000 in 1994. The increase in net loss is
mainly due to the lack of success of the OAS product line in the marketplace, an
increase in income taxes and the effect of non-recurring transaction costs in
connection with the Business Combination.
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EARNINGS PER SHARE
Primary earnings per common share for the year ended December 31, 1995 were
$(1.37) compared to $(0.18) in the year ended December 31, 1994. The weighted
average number of shares outstanding in the calculation for primary earnings per
share was 3,311,668, respectively in 1995 as compared to 1,925,000, respectively
in 1994.
PHASE-OUT OF OAS PRODUCT LINE
Effective December 31, 1995 the Company's management decided to phase-out
the OAS product line. This decision was based on the intense competition that
the Company faced from local telephone companies and answering service
companies, both of which offer central voice mail services. The Company's OAS
product line competed with products that were frequently offered at a lower
retail price than the Company's products. In addition, competitors' products
benefited from better brand recognition in the marketplace, which is dominated
by AT&T, Panasonic and PhoneMate.
Net OAS sales of $4,444,000 in 1995 decreased $7,808,000 from $12,252,000
of sales in 1994, principally due to a one-time sale to AT&T during 1994 of
approximately $5,300,000. Losses on sales of OAS products of $488,000 in 1995
decreased by $3,309,000 from a gross profit of $2,821,000 in 1994. The decrease
in gross profit is attributable to a decrease in sales volume and a provision to
reduce certain OAS inventory to its market value. OAS research and development
expenditures decreased by 40% to $487,000 in 1995 from $815,000 in 1994, because
the Company focused its R&D efforts on other product lines during 1995. SG&A
expenses attributable to OAS of $3,539,000 in 1995 increased 20% from $2,958,000
in 1994 due to an intensive marketing program that the Company instituted during
1995 to improve lagging sales results. Due to the above factors, the operations
of the OAS product line resulted in a net loss of $4,514,000 in 1995, an
increase of 374% from the net loss of $952,000 in 1994.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 1996, the Company focused on long term growth. Accordingly, cash
utilization focused primarily on operations, investments in equipment and other
fixed assets and the pay down of debt.
There was a net decrease in the Company's cash and cash equivalents from
$1,276,000 at the end of 1995 to $885,000 at the end of 1996.
The Company's operating activities generated $1,262,000 of cash. The
Company's net income of $2,008,000 was reduced by non-cash adjustments for the
following items: (i) depreciation and amortization of $1,423,000; (ii)
reductions in reserves for accounts receivable and inventory obsolescence of
$1,362,000; and (iii) loss from minority interest of consolidated subsidiaries
of $337,000. Additionally, inventory decreased by $2,269,000, accounts payable
decreased by $1,040,000, accounts receivable increased by $1,703,000 and net
changes in other operating assets and liabilities amounted to $670,000.
Net cash used in investing activities amounted to $1,101,000. During 1996,
the Company purchased equipment and other fixed assets of $1,017,000 and
intangibles of $102,000. Other investing activities provided $18,000 in cash.
Net cash used in financing activities amounted to $773,000. The Company
paid down $502,000 of notes payable, of which $341,000 was paid to related
parties. Net borrowings of $23,000 were made under revolving credit agreements.
In addition, Speech Design made a $294,000 distribution to its minority
shareholders.
21
<PAGE>
As of December 31, 1996, the Company's total liabilities were $13,810,000,
of which $12,312,000 was due and payable within one year. Such indebtedness
included loans from third parties and loans and advances from Geotek.
Bogen had a $10,000,000 asset based revolving credit line which would have
expired in August 1997. In the first quarter of 1997, BCI obtained, from Summit
Bank, a new $7,000,000 revolving credit line for a period of two years. This new
line is collateralized by the accounts receivable, inventory and general
intangibles of BCI. This line is guaranteed by the Company. This new line, which
meets Bogen's needs, is lower than the previous line thereby substantially
decreasing the associated fees to be paid on an annual basis. In addition, Bogen
has an established working capital line of credit with Geotek in the aggregate
amount of $2,000,000. At December 31, 1996, Bogen had no borrowings outstanding
under the working capital line with Geotek.
Speech Design has credit lines and overdraft facilities of approximately
$4,300,000. At December 31, 1996 borrowing and availability under these lines
amounted to $3,300,000 and $1,000,000, respectively. These lines are
collateralized by all of Speech Design's accounts receivable and inventory.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term but may be required to
seek additional capital in the event it wishes to expand its operations through
acquisitions or otherwise.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement 128, Earnings per Share, effective for financial statements issued for
periods ending after December 15, 1997. This statement establishes standards for
computing and presenting earnings per share ("EPS"), and replaces the current
presentation of primary EPS with basic EPS, which excludes the effect of common
stock equivalents. The Company will adopt this standard in 1997, and is
presently analyzing the impact of this new standard on its financial statements
and related disclosures.
INFLATION
Inflation did not have a material effect on the Company's results during
the periods discussed.
CURRENCY FLUCTUATIONS
Approximately one-third of the Company's revenues are derived outside of
the United States, mostly in Germany. Accordingly, currency fluctuations may
impact the Company's earnings. Over the course of 1996, the Deutsche Mark fell
steadily against the U.S. dollar. As a result, the earnings for Speech Design
and the Company are lower when translated into U.S. dollars. Local currencies
are considered to be the functional currencies of the Company and its
subsidiaries. Translation adjustments that arise from translation of the Company
and its subsidiaries' financial statements are accumulated in a separate
component of shareholder's equity. Transaction gains and losses that arise from
exchange rate changes on transactions denominated in a currency other than local
currencies are included in income as incurred.
22
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Information
The Company's consolidated operations are considered one segment, engaged
in the development and manufacturing of communication and telecommunication
products in the United States (Bogen) and Germany (Speech Design). Financial
information regarding the breakdown of the Company's foreign and domestic
operations is disclosed in footnote 13 to the Company's Consolidated Financial
Statements.
23
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
-----
Financial Statements:
Report of Independent Accountants F-1
Consolidated Balance Sheets as of December 31, 1996 and 1995 F-2
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 F-4
Consolidated Statements of Changes in Common Stock Subject
to Possible Redemption and Stockholders' Equity for the years
ended December 31, 1996, 1995 and 1994 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 F-7
Notes to Consolidated Financial Statements F-9
24
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Bogen Communications International, Inc.:
We have audited the consolidated financial statements and the financial
statement schedules of BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
(formerly European Gateway Acquisition Corp.) (the "Company") listed in Item
14(a)(2) of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Bogen
Communications International, Inc. and Subsidiaries as of December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
COOPERS & LYBRAND L.L.P.
March 7, 1997
New York, New York
F-1
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 and 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
ASSETS
1996 1995
------- -------
CURRENT ASSETS:
Cash and cash equivalents $885 $ 1,276
Accounts receivable (less allowance
for doubtful accounts of $470
and $424 at December 31, 1996 and
1995, respectively) 6,517 4,992
Inventory, net 6,519 7,598
Prepaid expenses and other current
assets 780 366
------ -------
TOTAL CURRENT ASSETS 14,701 14,232
Property and equipment, net 2,130 2,191
Goodwill and intangible assets, net 14,308 14,706
Other assets 247 175
------- -------
TOTAL ASSETS $31,386 $31,304
======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-2
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 and 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
LIABILITIES
1996 1995
------- -------
CURRENT LIABILITIES:
Amounts outstanding under revolving credit
agreements $4,828 $4,944
Accounts payable 3,707 2,861
Accrued expenses 3,026 3,610
Income taxes payable - 1,353
Advances and notes payable to related parties 746 537
Current maturities of notes payable to
non-related parties 5 174
------- -------
TOTAL CURRENT LIABILITIES 12,312 13,479
Advances and notes payable to related parties 361 3,458
Notes payable to non-related parties 8 -
Other long term liabilities 536 674
Minority interest 593 550
------- -------
TOTAL LIABILITIES 13,810 18,161
------- -------
Commitments and contingencies (Note 8)
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares
authorized; none issued and outstanding at
December 31, 1996 and 1995, respectively - -
Common stock - $.001 par value; 50,000,000 shares
authorized; 5,758,850 and 5,759,350 shares issued
and outstanding at December 31, 1996 and 1995,
respectively. 6 6
Additional paid-in capital 21,774 19,175
Accumulated deficit (4,177) (6,185)
Currency translation adjustments (27) 147
------- -------
TOTAL STOCKHOLDERS' EQUITY 17,576 13,143
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $31,386 $31,304
======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1996 1995 1994
------- ------- ------
Net sales $ 46,269 $ 44,518 $ 45,922
Cost of goods sold 25,004 27,338 29,739
--------- --------- ---------
Gross profit 21,265 17,180 16,183
Operating expenses:
Research and development 2,892 2,307 1,999
Selling, general and administrative 14,360 15,067 12,555
Amortization of goodwill and
intangible assets 445 443 424
--------- --------- ---------
Income (loss) from operations 3,568 (637) 1,205
Other (income) expenses:
Other (income) - (237) (39)
Interest expense, net 596 587 498
Interest expense - related parties 72 619 696
Transaction costs - 1,491 -
Minority interest of consolidated
subsidiaries 337 184 326
--------- --------- ---------
Income(loss) before provision
for income taxes 2,563 (3,281) (276)
Provision for income taxes 555 1,262 79
--------- --------- ---------
Net Income (loss) $2,008 $(4,543) $(355)
========= ========= =========
Net Income (loss) per common share:
Net Income (loss) $ 0.35 $ (1.37) $ (0.18)
========= ========= =========
Weighted average number of common
shares outstanding 5,759,075 3,311,668 1,925,000
========= ========= =========
The accompanying notes are an integral part of these
consolidated financial statements
F-4
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
SUBJECT TO ------------ ADDITIONAL CURRENCY
POSSIBLE NUMBER OF PAID-IN ACCUMULATED TRANSLATION
REDEMPTION SHARES AMT CAPITAL DEFICIT ADJUSTMENTS
---------- ------ --- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 1,575 1,615,155 $ 2 $ 12,638 $ (2,428) $ 37
Recapitalization by foreign subsidiary -- -- -- (967) 967 --
Accretion of redemption value
of common stock 52 -- -- (52) -- --
Reclass of common stock subject to
redemption to common stock
upon the Company's acquisition
of Bogen and Speech Design (1,627) 309,845 -- 1,627 -- --
Forgiveness of Bogen inter-
company debt by Geotek -- -- -- 7,155 -- --
Issuance of common stock and other
adjustments to effect combination
of Bogen and Speech Design -- 3,701,919 4 (1,966) -- --
Issuance of common stock and warrants
to purchase 60,000 shares of
common stock for services provided
to facilitate the acquisition of
Bogen and Speech Design -- 132,431 -- 740 -- --
Dividend paid by subsidiary to minority
shareholders -- -- -- -- (181) --
Translation adjustments -- -- -- -- -- 110
Net loss -- -- -- -- (4,543) --
--------- --------- -------- --------- --------- --------
Balance at December 31, 1995 $ -- 5,759,350 $ 6 $ 19,175 $ (6,185) $ 147
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-5
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
SUBJECT TO ------------ ADDITIONAL CURRENCY
POSSIBLE NUMBER OF PAID-IN ACCUMULATED TRANSLATION
REDEMPTION SHARES AMT CAPITAL DEFICIT ADJUSTMENTS
---------- ------ --- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Restructuring of $3,000 related
party note with related interest -- -- -- 2,602 -- --
Repurchased and canceled common
stock -- (500) -- (3) -- --
Translation adjustments -- -- -- -- -- (174)
Net Income -- -- -- -- 2,008 --
----------- --------- ---------- -------- -------- --------
Balance at December 31, 1996 $ -- 5,758,850 $ 6 $ 21,774 $ (4,177) $ (27)
=========== ========= ========== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-6
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 2,008 $(4,543) $ (355)
Adjustments to reconcile net income (loss)to net
cash provided by(used in)operating activities:
Non-cash transaction costs -- 740 --
Depreciation and amortization 978 868 574
Amortization of goodwill and intangible assets 445 443 424
Provisions for doubtful accounts and
inventory obsolescence (1,362) 1,344 1,281
Minority interest 337 184 326
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable (1,703) 984 (405)
Inventories 2,269 (49) (2,914)
Prepaid expenses and other current assets (532) 200 (230)
Payables and accrued expenses (1,040) 1,901 412
Other (138) -- 145
------- ------- -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 1,262 2,072 (742)
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment (1,017) (1,035) (892)
Acquisition of Satelco -- -- (392)
Cash obtained in the acquisition of
Speech Design and Bogen -- 8,149 --
Proceeds on the sale of property, plant and
equipment 3 -- --
Acquisition of investments and intangibles (102) (60) --
Collection of notes receivable 15 37 38
------- ------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,101) 7,091 (1,246)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Amounts(paid to) non-related parties, net (161) (688) (509)
Amounts borrowed (paid) under revolving credit
agreements, net 23 (691) 1,875
Dividend paid to Geotek related to combination
of Bogen and Speech Design -- (7,000) --
Dividend paid by subsidiary to minority shareholders (294) (181) --
Amounts borrowed from (paid to) related parties, net (341) 415 552
Cash overdraft receipts -- -- 118
------- ------- -------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES (773) (8,145) 2,036
------- ------- -------
INCREASE (DECREASE) IN CASH (612) 1,018 48
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,276 148 87
Effects of Exchange Rate on Cash 221 110 13
------- ------- -------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 885 $ 1,276 $ 148
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-7
<PAGE>
BOGEN COMMUNCATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 and 1994
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
1996 1995 1994
---- ---- ----
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest $ 609 $ 829 $ 654
Cash paid for income taxes 2,175 4 6
Non Cash Investing and Financing Activities:
Restructuring of $3,000 debt by Geotek
treated as equity contribution 2,602 -- --
Forgiveness of Bogen debt by
Geotek treated as an equity
contribution -- 7,155 --
Goodwill pushed down from parent -- -- 14,252
Adjustments to combine companies -- 1,966 --
Notes payable to Geotek in
consideration for acquiring
Bogen and Speech Design -- 3,000 --
Common stock issued to Geotek in
consideration for acquiring Bogen
and Speech Design -- 4 --
Common stock and warrants issued as
consideration for certain services
provided to the Company in connection
with the acquisition of Bogen and
Speech Design -- 740 --
Assets acquired (net of cash):
Prepaid assets -- 8 --
Intangible assets -- 34 --
Liabilities assumed:
Accrued expenses -- 160 --
Note payable to non-related party -- 115 --
Advances from Geotek -- 33 --
------- ------- -------
Net liabilities assumed $ -- $ (266) $ --
======= ======= =======
The accompanying notes are an integral part of these
consolidated financial statements
F-8
<PAGE>
(All Footnote information is in thousands of dollars, except share amounts)
1. Summary of Significant Accounting Policies
A. Principles of Consolidation
The consolidated financial statements of Bogen Communications
International, Inc., formerly European Gateway Acquisition Corp. (the
"Company"), include the accounts of Bogen Corporation ("Bogen") and Bogen's
wholly owned subsidiary, Bogen Communications, Inc. ("BCI"), as well as
Speech Design GmbH ("Speech Design"), its 67%-owned subsidiary Satelco AG,
and its wholly owned subsidiaries, Speech Design (Israel), Ltd. And Speech
Design (UK), Ltd. All significant intercompany balances and transactions
have been eliminated in consolidation. Certain 1995 and 1994 balances have
been reclassified to conform with the 1996 presentation.
B. Nature of Operations
The Company's operations are conducted in one segment engaged in
developing, manufacturing, and marketing sound and communication products.
Product lines sold by the company are as follows:
Telephone Products ("Telco"), Commercial Audio Products, ("Commercial
Sound"), and Intercom/Paging Equipment, ("Engineered Systems")
C. Use of Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting periods. Actual results could differ from
those estimates.
D. Basis of Presentation
On August 21, 1995, the Company acquired a 99% interest in Bogen
Corporation ("Bogen") and a 67% interest in Speech Design GmbH ("Speech
Design") from Geotek Communications, Inc. ("Geotek"). The Company paid
Geotek $7,000 in cash, a convertible promissory note in the aggregate
principal amount of $3,000, 3,700,000 shares of the Company's common stock
and warrants to acquire 200,000 shares of common stock of the Company. As a
result, Geotek acquired approximately 64% of the stock of the Company,
thereby giving it a controlling interest in the Company. Geotek, in
addition, contributed approximately $7,155 of intercompany indebtedness
from Bogen to equity as part of the transaction. Further, as contingent
consideration, the Company could be liable to pay Geotek an amount up to
$11,000, based upon a calculation of operating results of Bogen and Speech
Design during the two years after the acquisition. Based on management's
review of the earnout calculation, which takes into account Speech Design
and Bogen's operating results for the last two quarters of 1995, all of
1996 and the first two quarters of 1997, the anticipated contingent
consideration payment, if any, will not have a material effect on the
Company's financial position and operating results.
In May 1996, the Company and Geotek entered into the most recent amendment
to the Stock Purchase Agreement effective January 1, 1996. Pursuant to such
agreement, (i) the $3,000 convertible promissory note payable by the
Company to Geotek, due February 1997, was reduced and restructured to a
$500 non-convertible promissory
The accompanying notes are an integral part of these
consolidated financial statements
F-9
<PAGE>
note due July 1997, (ii) the earnout formula was revised to reflect an
increase in the amount the Company could be liable to pay Geotek from
$11,000 to $13,500 in connection with the reduction of the principal amount
of the promissory note, and (iii) Geotek was granted an option to purchase,
at any time through October 31, 1997, from the Company $3,000 worth of
Common Stock with exercise prices ranging from 100% to 65% of market price,
depending on the date of exercise.
For accounting purposes, the acquisition is being treated as a joint
acquisition of the Company by Bogen and Speech Design, companies under the
common control of Geotek. The transaction is considered a reverse
acquisition with Geotek as the acquiror for accounting purposes. The
historical financial statements reflect the combination of Bogen and Speech
Design in a manner similar to a pooling of interests. Accordingly, the
historical financial statements reflect the combined operations of Bogen
and Speech Design prior to the transaction.
E. Transaction Costs
The Company incurred transaction costs of $1,491 in connection with the
acquisition of Bogen and Speech Design which have been charged to
non-operating expenses for the year ended December 31, 1995. These costs
consist of non-recurring legal and other professional fees and other costs
of the transaction amounting to $751 and a non-cash charge of $740 for the
estimated fair value of 132,400 shares of common stock of the Company and
warrants to purchase 60,000 shares of the Company's common stock at $5.25
per share, for services provided to the Company by various unrelated
parties in connection with facilitating the acquisition of Bogen and Speech
Design.
F. Revenue Recognition
Sales, net of expected returns, are recognized upon shipment.
G. Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired. Goodwill also includes the effect of push-down accounting
described below, by which Bogen recorded in its financial statements
Geotek's goodwill associated with its purchase of Bogen. Goodwill is being
amortized using the straight-line method over 40 years at Bogen and over 20
years at Speech Design. The Company periodically evaluates the
recoverability of goodwill and measures any impairment by comparison to
estimated undiscounted cash flows from future operations.
H. Cash and Cash Equivalents
Cash includes cash on-hand and all highly-liquid debt instruments purchased
with original maturities of three months or less.
I. Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Reserves are established for valuation purposes or determined by
management on a periodic basis, as required by conditions of obsolescence.
The accompanying notes are an integral part of these
consolidated financial statements
F-10
<PAGE>
J. Property and Equipment
Property and equipment is recorded at cost. Depreciation is provided on a
straight-line basis over the estimated useful lives of the asset which
generally ranges from three to ten years. Leasehold improvements are
amortized ratably over their remaining lease terms, or estimated useful
lives, if shorter.
Expenditures for maintenance, repairs and renewals of minor items are
charged to operations as incurred. Major renewals and improvements are
capitalized. Upon disposition, the cost and related accumulated
depreciation is removed from the accounts and the resulting gain or loss is
reflected in operations for the period.
K. Income Taxes
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (FAS 109). FAS 109 is an asset and liability
approach that requires the recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that have
been recognized in the Company's financial statements or tax returns.
L. Net Income (Loss) Per Share
Net income (loss) per common share is computed by dividing net income
(loss) by the weighted average number of shares of common stock and common
stock equivalents outstanding during the year, (unless anti-dilutive).
M. Credit Risk
The Company develops, produces, markets and sells commercial audio,
electronic, paging, communications and other equipment and
telecommunications peripherals. The Company performs on-going credit
evaluations of its customers. The accounts receivable resulting from its
sales transactions generally are not collateralized. The Company provides
reserves for potential losses from these receivables.
N. Translation of Foreign Currencies
Foreign denominated assets and liabilities of the Company are translated
from local currencies into U.S. dollars at the exchange rates in effect at
the end of the period. Revenues and expenses are translated at average
exchange rates prevailing during the period. Local currencies are
considered to be the functional currencies of the Company and its
subsidiaries. Translation adjustments that arise from translation of the
Company and its subsidiaries' financial statements are accumulated in a
separate component of shareholder's equity. Transaction gains and losses
that arise from exchange rate changes on transactions denominated in a
currency other than local currencies are included in income as incurred.
O. Fair Value of Financial Instruments
The recorded amount of cash, cash equivalents, notes payable and advances,
approximates fair value due to the short term maturities of these assets
and liabilities.
The accompanying notes are an integral part of these
consolidated financial statements
F-11
<PAGE>
P. Recently Issued Accounting Pronouncements
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement 128, Earnings per Share, effective for periods ending after
December 15, 1997. This statement establishes standards for computing and
presenting earnings per share ("EPS"), and replaces the current
presentation of primary EPS with basic EPS, which excludes the effect of
common stock equivalents. The Company will adopt this standard in 1997, and
is presently analyzing the impact of this new standard on its financial
statements and related disclosures.
2. Inventory
Inventory, at the lower of cost (first in, first out) or market, as of
December 31, 1996 and 1995, is as follows:
1996 1995
------- ------
Raw materials and supplies $1,525 $1,864
Work in progress 701 1,155
Finished goods 4,293 4,579
----- -----
TOTAL $6,519 $7,598
====== ======
The inventory balances are net of a reserve for inventory valuation and
obsolescence of $1,126 and $2,552 at December 31, 1996 and 1995,
respectively.
3. Property and Equipment
Property and equipment at December 31, 1996 and 1995 is comprised of the
following items:
1996 1995
------- ------
Machinery, equipment and tooling $ 3,581 $ 3,363
Furniture and office equipment 1,774 1,485
Leasehold improvements 694 600
------- -------
6,049 5,448
Less: accumulated depreciation
and amortization, net of
disposals (3,919) (3,257)
------- -------
$ 2,130 $ 2,191
======= =======
Depreciation and amortization expense was approximately $978, $868, and
$574 for the years ended December 31, 1996, 1995 and 1994, respectively.
4. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following, at December 31,
1996 and 1995:
1996 1995
------- ------
Goodwill $16,295 $16,345
Other intangibles 220 123
------- --------
Total intangibles 16,515 16,468
The accompanying notes are an integral part of these
consolidated financial statements
F-12
<PAGE>
Less: accumulated amortization (2,207) (1,762)
------- -------
$14,308 $14,706
======= =======
As explained above in Note 1D, the acquisition of Bogen and Speech Design
was accounted for as a reverse acquisition by Geotek. No goodwill was
recorded in connection with this transaction.
In January 1994 Geotek acquired a greater than 95% interest in Bogen, and
pursuant to the rules of push-down accounting, the acquisition gave rise to
a new basis of accounting and the goodwill related to Geotek's acquisition
was "pushed-down" to the financial statements of Bogen. Accordingly, Bogen
recorded net goodwill in the amount of $14,300 in the first quarter of
1994. The goodwill is being amortized over its then remaining life of
approximately 38 years. The related amortization expense for the pushed
down goodwill was approximately $378 for the year ended December 31, 1996,
and $376 for the years ended December 31, 1995 and 1994.
Goodwill in the amount of $685 represents the excess of cost over the fair
value of net assets acquired by Speech Design related to the acquisition of
its 67% owned subsidiary Satelco. This Goodwill is being amortized using
the straight-line method over 20 years.
Amortization of goodwill and other intangibles was approximately $445,
$443, and $424 for the years ended December 31, 1996, 1995 and 1994,
respectively.
5. Revolving Credit Agreements
In August 1995, Bogen Communications, Inc. ("BCI"), a wholly owned
subsidiary of Bogen, extended a $10,000 domestic revolving senior line of
credit for a two year term expiring August 1997. The line is collateralized
by substantially all the assets of Bogen and is guaranteed by Geotek.
Advances bear interest at the rate of 2% to 2.75% over the lender's prime
rate. At December 31, 1996, the lender's prime rate was 8.25%. Advances to
Bogen were made based on a percentage of accounts receivable and inventory.
As of December 31, 1996 and 1995, Bogen had short term domestic borrowings
outstanding under the line of credit of $1,545 and $3,670, respectively.
The amounts available under the credit line, based upon accounts receivable
and inventory, were $2,126 and $437 at December 31, 1996 and 1995,
respectively. Under the terms of the line of credit, Bogen cannot, among
other actions, declare or pay any dividends, return capital to its
stockholders or redeem or repurchase any of its outstanding capital stock.
Net assets of Bogen restricted under this agreement were $16,655 and
$14,910 at December 31, 1996 and 1995, respectively.
In the first quarter of 1997, BCI obtained a new revolving senior credit
line for a period of two years. The new credit line has a maximum line of
borrowing of $7,000 and bears an annual interest rate of .75% over the
lenders prime rate, and replaces Bogen's previous line of $10,000 which had
an annual interest rate of 2.5% over the lender's prime rate. The senior
loan is collaterized by all of the accounts receivable, inventory,
property, plant and equipment, and general intangibles of BCI and is
guaranteed by the Company. Under the terms of this line of credit, BCI
cannot, among other actions, declare or pay dividends, return capital to
its stockholders or redeem or repurchase any of its outstanding capital
stock.
The accompanying notes are an integral part of these
consolidated financial statements
F-13
<PAGE>
In August 1995, in connection with the Company's acquisition of Bogen and
Speech Design, Geotek also agreed to provide Bogen with a working capital
line of credit for two years in the aggregate principal amount of $2,000.
Amounts drawn under the line bear interest at 1% per annum above the rate
Bogen pays for its then largest credit facility. There were no borrowings
under this facility at December 31, 1996 or 1995.
At December 31, 1996 and 1995, Speech Design had short term lines of credit
and overdraft facilities of $4,344, and $3,453, respectively, of which
short term borrowings amounted to $3,283 and $1,274, respectively. The
amounts available under these credit lines were $1,061 and $2,179 at
December 31, 1996 and 1995, respectively, with rates tied to short-term
bank notes and Euromarket loans. Speech Design's short term lines of credit
are collaterized by all of Speech Design's accounts receivable and
inventory. At December 31, 1996 interest rates on these short term lines
ranged from 4.4% to 6.3%.
Total outstanding revolving lines of credit are summarized as follows at
December 31, 1996 and 1995:
1996 1995
---- ----
Domestic Lines of Credit Utilized $1,545 $3,670
Foreign Lines of Credit Utilized:
Speech Design 2,805 627
Satelco 478 647
------ ------
$4,828 $4,944
====== ======
6. Long-Term Debt
A: ADVANCES and NOTES PAYABLE TO RELATED PARTIES
Advances and notes payable to related parties at December 31, 1996 and 1995
consist of the following:
1996 1995
-------- ------
Advances from Geotek $152 $ 138
Notes Payable - Geotek (at prime rate + 1%) - 133
Notes Payable - Geotek (at Swiss prime rate
+ 1%) - 266
Loan from Speech Design Shareholder (at
German discount rate + 2%) 129 -
Loan from Related Party (at Zurich Kantonal
Bank rate) 232 317
Notes Payable - Geotek (at 13%) 594 3,141
------ ------
Total 1,107 3,995
Less: Current Maturities (746) (537)
------ ------
$361 $3,458
====== ======
The accompanying notes are an integral part of these
consolidated financial statements
F-14
<PAGE>
Advances from Geotek
Advances from Geotek consist of net non-interest bearing advances made to
Bogen.
Notes Payable - Geotek (at prime rate + 1%)
This note payable to Geotek from Speech Design is payable in quarterly
installments of $33 plus interest at the prime rate plus 1%.
Notes Payable - Geotek
This note payable to Geotek is from Satelco, a 67% owned subsidiary of
Speech Design, and is payable in quarterly installments of $87 beginning in
September, 1995 plus annual payments of interest at the Swiss prime rate
plus 1%.
Loan from Speech Design Shareholders
This note payable to Speech Design's minority shareholders matures on
December 31, 1999, at which date it can be renewed or called in at three
months notice. Interest is paid in quarterly installments and is charged at
2% over the German discount rate.
Loan from Related Party
This $315 original note from the minority shareholders of Satelco is
payable in quarterly installments of $31 plus interest at the Zurich
Kantonal Bank rate with installments beginning February, 1995. The payments
of this note have been suspended (with the approval of the noteholder)
until such time as the Satelco subsidiary becomes profitable. Accordingly,
this note payable has been classified as long-term.
Notes Payable (by the Company) to Geotek
This note payable to Geotek from the Company was incurred at the date of
acquisition for $3,000 plus interest payable quarterly in arrears at
varying rates equal to the Company's highest borrowing rate plus 2%. In May
1996, the $3,000 note plus accrued interest was reduced and restructured,
retroactive to January 1, 1996, to a $500 non-convertible promissory note
due July 1997.
B: NOTES PAYABLE TO NON-RELATED PARTIES
Notes payable to non-related parties at December 31, 1996 and 1995 consist
of the following:
1996 1995
------- ------
Various Notes Payable (at prime rate) $ - $ 60
Notes Payable (with imputed interest at 9%) - 37
Notes Payable (at 12% interest rate) - 12
Notes Payable to Bank (at Libor
plus 2.5% interest) 13 -
Notes Payable to Bank (at 8.5% interest rate) - 65
---- ------
Total 13 174
Less: Current Maturities (5) (174)
------ ------
$ 8 $ -
====== ======
Various Notes Payable (at prime rate)
Payable in monthly installments of $12 plus interest at the prime rate.
Notes Payable (with imputed interest at 9%)
Payable in annual installments of $150 including imputed interest at 9%.
The accompanying notes are an integral part of these
consolidated financial statements
F-15
<PAGE>
Notes Payable (at 12% interest rate)
Payable in monthly installments of $4 plus interest at 12%.
Notes Payable to Bank (at Libor plus 2.5%)
Payable in monthly installments of $.4 plus interest at the Libor rate plus
2.5%.
Notes Payable to Bank (at 8.5% interest rate)
Payable by Speech Design in quarterly installments plus interest at 8.5%.
Principal maturities of long-term debt over the next five years and
thereafter are as follows:
Related
Parties Other Total
------- ----- -----
1997 $ 746 $ 5 $ 751
1998 -- 8 8
1999 129 -- 129
2000 -- -- --
2001 -- -- --
Thereafter 232 -- 232
------ ------ ------
$1,107 $ 13 $1,120
====== ====== ======
7. Income Taxes
The Company's pre-tax book income is as follows for the years ended
December 31, 1996 and 1995:
1996 1995
---- ----
Domestic U.S. Operations $1,322 $(4,886)
Foreign Operations 1,241 1,605
------ ------
Total $2,563 $(3,281)
====== =======
The components of income tax expense are as follows for the years ended
December 31, 1996 and 1995:
1996 1995
---- ----
Current Income Tax
(Foreign Only) $ 555 $1,262
Deferred Income Tax - -
------ -----
Total Income Tax Expense $ 555 $1,262
====== ======
The difference between the provision for income taxes computed at the U.S.
federal statutory rate and the provision as reported are as follows:
1996 1995
---- ----
Provision at U.S. Statutory Rate $ 871 $(1,116)
Non-deductible Expenses 338 785
Change in Valuation Allowance (793) 998
German Taxes 162 604
The accompanying notes are an integral part of these
consolidated financial statements
F-16
<PAGE>
Other (23) (9)
---- ------
Tax Provision as Reported $555 $1,262
==== ======
The Company has net operating loss ("NOL") carryforwards for U.S. tax
purposes of approximately $7,847 as of December 31, 1996, which expire
between the years 2004 through 2010. Under Section 382 of the Internal
Revenue Code of 1986, as amended, the net operating loss carryforwards are
subject to certain limitations on their utilization as a result of the
changes in control of the Company in 1991 and 1995.
The components of deferred tax assets at December 31, 1996 and 1995, were
as follows:
1996 1995
---- ----
Deferred Tax Assets:
NOL Carryforwards $2,808 $2,601
Deferred Rent 191 251
Inventory Items 592 1,185
Allowance for Doubtful Accounts 157 163
Accrued Liabilities 196 470
Property, Plant & Equipment 137 103
Other 56 58
----- -----
TOTAL DEFERRED TAX ASSETS $4,137 $4,831
Less, Valuation Allowance (4,137) (4,831)
------- ------
NET DEFERRED TAX ASSETS $ 0 $ 0
======= =====
In accordance with SFAS No. 109, the Company has established a valuation
allowance of $4,137 and $4,831 for the years ended December 31, 1996 and
1995, respectively. The valuation allowance was established due to the
uncertainty of the realization of the deferred tax assets. A significant
portion of the deferred tax assets which are currently subject to a
valuation allowance may be allocated to reduce goodwill or other noncurrent
intangible assets when subsequently recognized due to the application of
SFAS No. 109 and purchase accounting.
8. Commitments and Contingencies
Operating Leases
The Company occupies its plant and office facilities and operates certain
equipment under leases expiring at various dates through 2005. The facility
lease contains an escalation clause and provides for payments of taxes and
expenses over base rent. The facility lease also contains a five year
renewal option.
The minimum annual rental commitments over the next five years under
operating leases are as follows:
The accompanying notes are an integral part of these
consolidated financial statements
F-17
<PAGE>
Year Ending
December 31,
------------
1997 $ 1,351
1998 1,307
1999 1,214
2000 1,043
2001 368
Thereafter 975
------
$6,258
======
Bogen's facility lease includes scheduled rent increases over the lease
term. Rent expense has been recorded on a straight-line basis and the
related deferred rent obligation of $478 and $597 at December 31, 1996 and
1995, respectively, is classified as a long-term liability.
Rent expense charged to operations totaled approximately $1,151, $1,055,
and $779 for the years ended December 31, 1996, 1995 and 1994,
respectively.
Employment and Consulting Agreements
Compensation of Directors
Directors, other than non-employee directors who are members of the
Executive Committee of the Board, receive no compensation for acting as
directors to the Company. During 1996, Messrs. Rosenfeld and Stern received
$50,000 each as members of the Company's Executive Committee.
Employment Contracts
In January 1996, the Company entered into an agreement with Mr. Zvi Peled
generally setting forth the terms and provisions of his employment as
President and Chief Executive Officer of the Company. Mr. Peled joined the
Company in such capacity in March 1996. Mr. Peled's base salary is $150,000
per annum and he is entitled to a minimum annual bonus of $50,000,
contingent upon the satisfaction of performance criteria established by the
Company's Board of Directors and Mr. Peled at the start of each year. In
addition, the Company agreed to grant Mr. Peled stock options to purchase
175,000 shares of the Company's Common Stock, at the following prices:
75,000 shares at an exercise price of $5.00 per share, 75,000 shares at an
exercise price of $7.50 per share, and 25,000 shares at an exercise price
of $10.00 per share. Such options will vest in equal installments over a
five year period. In addition, the Company provides Mr. Peled with $2,000
per month towards home rental payments, as well as a car. Effective January
1, 1997, and in lieu of participating in the Company's 401(k) Retirement
Savings Plan and the Company's life and disability insurance plans, Mr.
Peled receives an additional $2,300 per month, which amount is applied
towards Mr. Peled's personal benefits program. In the event that Mr.
Peled's employment is terminated without cause, Mr. Peled will continue to
receive his salary and benefits until he obtains a replacement position or
for six months, whichever is sooner. Pursuant to the employment agreement,
Mr. Peled was provided with a $10,000 relocation allowance.
The Company also has a written agreement with Mr. Yoav M. Cohen, dated
August 1, 1996, generally setting forth the terms and provisions of his
employment as Chief Financial Officer of the Company. Mr. Cohen joined the
Company in such capacity on July 31, 1996. Mr. Cohen's annual base salary
is $110,000 and he may receive an annual bonus equal to 1 - 1.5% of the
profits of the Company during the relevant fiscal year. Pursuant to the
employment agreement, the Company agreed to grant Mr. Cohen stock options,
in accordance with the terms and provisions of the Company's
The accompanying notes are an integral part of these
consolidated financial statements
F-18
<PAGE>
1996 Incentive Stock Option Plan, to purchase 50,000 shares of the
Company's Common Stock. Mr. Cohen also participates in the Company's 401(k)
Retirement Savings Plan, health and dental plans, and disability and life
insurance plans and is provided with Life Insurance with an annual premium
of up to $3,000 annually. In addition, Mr. Cohen is provided with a Company
car, insured by the Company. In the event that Mr. Cohen is terminated
without cause, he is entitled to a severance package pursuant to which he
would continue to receive his base salary and related benefits for six
months.
Mr. Menashe Ben-David is employed by the Company pursuant to a written
agreement with Geotek, dated June 7, 1991, which has no definite term. The
agreement provides for Mr. Ben-David to receive a base salary of $75,000
per year, subject to periodic review and increase by Geotek. Geotek has
also agreed to provide life and health insurance to Mr. Ben-David as well
as an automobile. Mr. Ben-David also received a total of 50,000 stock
options to purchase shares of common stock of Geotek. Geotek is entitled to
terminate the employment agreement at any time upon thirty days prior
written notice; provided, however, that Geotek continues to pay Mr. Ben-
David his base salary for a period of six months from termination of the
agreement, unless Mr. Ben-David is terminated as a result of certain
conditions. Mr. Ben-David has agreed not to compete with Geotek for a
period of two years after his employment is terminated. The Company has
assumed all of Geotek's obligations under this agreement.
Mr. Kasimir Arciszewski is employed by Speech Design pursuant to a written
agreement dated February 9, 1993 which has no definite term. The agreement
provides for Mr. Arciszewski to receive a base salary of DM 180,000
($119,682 as of December 31, 1996), subject to review and increase by the
parties at the end of each calendar year. In addition, Mr. Arciszewski is
entitled to annual bonuses based on Speech Design's pre-tax profits. Speech
Design has agreed to provide Social Security and health insurance benefits
to Mr. Arciszewski and agreed to furnish an automobile to him. Mr.
Arciszewski has agreed not to compete with Speech Design during the term of
the agreement and for one year thereafter and Speech Design has agreed to
compensate Mr. Arciszewski during this noncompetition period. Mr.
Arciszewski has agreed not to disclose any of Speech Design's business or
trade secrets.
Commitments
At December 31, 1996, the Company had commitments to purchase merchandise
from foreign vendors of $627 under documentary letters of credit and $394
under other sight documents. Pursuant to the sale of Aryt Optronics, Ltd.
by Geotek in 1992, the Company obtained certain benefits and concessions
from Reshef Technologies, Ltd. ("Reshef"), formerly a related company to
Bogen. Such concessions and benefits would be lost by the Company if
certain target purchases from Reshef were not met. Purchases made under
this agreement complied with the target purchase requirements and
approximated $3,612, and $6,284 in 1995 and 1994, respectively. The
concessions and benefits from Reshef expired on December 31, 1995.
Litigation
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is
subject.
The accompanying notes are an integral part of these
consolidated financial statements
F-19
<PAGE>
9. Stockholder's Equity
Common Stock and Common Stock Subject to Possible Redemption
The following discussion summarizes the incorporation of the Company, the
capitalization, and the requirements and privileges of the shareholders in
the periods preceding the consummation of the acquisition of Bogen and
Speech Design on August 21, 1995.
The Company was incorporated in Delaware on May 6, 1993 with the objective
of acquiring a medium-sized operating business engaged in industrial
manufacturing or industrial services and located in Germany, Switzerland or
Austria (a "Business Combination"). The Company's founding directors and
advisors purchased 500,000 common shares, $.001 par value, for five hundred
dollars during the three month period after incorporation. On September 30,
1993, 125,000 shares were returned to the Company by the founding
shareholders and was retroactively reflected in the financial statements as
a net issuance of 375,000 shares.
On October 15, 1993, the Company sold 1,550,000 units ("Units") in an
initial public offering ("Offering") of the Company's common stock. Each
unit consisted of one share of the Company's common stock, $.001 par value,
and two Redeemable Common Stock Purchase Warrants ("Warrants"). Each
Warrant entitled the holder to purchase, during the period commencing on
the later of the consummation by the Company of its Business Combination or
one year from the effective date of the Offering and ending seven years
from the effective date of Offering, from the Company one share of common
stock at an exercise price of $5.50. The Warrants are redeemable at a price
of $.01 per Warrant upon 30 days notice at any time, only in the event that
the last sale price of the common stock is at least $10.00 per share for 20
consecutive trading days ending on the third day prior to date on which
notice of redemption is given. The proceeds of the offering were deposited
in a Trust Fund to fund a Business Combination or liquidation of the
Company.
The Company, after signing a definitive agreement for a Business
Combination, submitted such transaction for shareholder approval. In the
event that 20% or more of the shareholders excluding, for this purpose,
those persons who were shareholders prior to the Offering, had voted
against the Business Combination, the Business Combination would not have
been consummated. For the first Business Combination consummated by the
Company, all of the Company's shareholders prior to the Offering, including
all of the officers, directors and advisors of the Company ("Initial
Shareholders") agreed to vote their shares of common stock in accordance
with the vote of the majority in interest of all other shareholders of the
Company ("Public Shareholders") with respect to any Business Combination.
After consummation of the Company's first Business Combination, these
voting safeguards were no longer applicable.
When the Business Combination was approved and consummated, any Public
Shareholder who had voted against the Business Combination could have
demanded that the Company redeem his shares. The per share redemption price
equaled the amount in the Trust Fund, as of the record date for
determination of shareholders entitled to vote on the Business Combination,
divided by the number of shares held by Public Shareholders. Accordingly,
Public Shareholders holding 19.99% of the aggregate number of shares owned
by all Public Shareholders could have had their shares redeemed at the time
of the Business Combination. The Company classified the value
The accompanying notes are an integral part of these
consolidated financial statements
F-20
<PAGE>
of this redemption as common stock, subject to possible redemption, on its
balance sheet at December 31, 1994 prior to the consummation of the
Business Combination. Such Public Shareholders were entitled to receive
their per share interest in the Trust Fund computed without regard to
shares held by Initial Shareholders. On August 21, 1995, in connection with
the Company's acquisition of Bogen and Speech Design, the Company
reclassified the common stock subject to possible redemption to common
stock. No shares of stock were redeemed as discussed above.
The Company's Certificate of Incorporation had provided for mandatory
liquidation of the Company, without shareholder approval, in the event that
the Company did not consummate a Business Combination.
Warrants
In June 1993, 300,000 Warrants were issued to various individuals in
consideration for providing the Company bridge financing until its offering
in October 1993. As referred to above, the Company issued 3,100,000
Warrants to purchase its common stock in connection with the Offering.
Warrants to purchase 200,000 shares of common stock were issued to Geotek
in August 1995 in connection with the acquisition of Bogen and Speech
Design. Another 60,000 Warrants were issued as consideration for providing
certain financings and services provided to the Company to facilitate the
Business Combination. At December 31, 1996, 3,660,000 Warrants were
outstanding.
Options
In 1996, the Company adopted the 1996 Incentive Stock Option Plan (the
"1996 Plan") pursuant to which an aggregate of 1,253,335 shares of the
Company's Common Stock were reserved for issuance pursuant to the plan. The
1996 Plan can award stock options to eligible employees of the Company and
its subsidiaries (including employee directors), non-employee directors,
and independent contractors and consultants who perform services for the
Company. The options vest over a period of five years and are exercisable
at prices determined on a case by case basis. The Company will apply the
intrinsic value based method permitted by Statement of Financial Accounting
Standard No. 123, "Accounting for Stock-Based Compensation." During 1996,
there were no options granted, exercised or exercisable under the 1996
Plan.
In 1994, Bogen adopted an Employee Stock Option Plan (the "Bogen Plan").
Under the Bogen Plan, an aggregate of 3,000,000 shares may be issued to
members of its Board of Directors, designated officers and employees and
independent contractors or consultants who perform services for the
Company. No option granted under the Bogen Plan is intended to be an
incentive stock option within the meaning of section 442A(b) of the
Internal Revenue Code of 1986 for income tax purposes. During 1994,
1,400,000 options were granted under the Bogen Plan at a price of $1.14 per
share which approximated fair value. These options vest over a five (5)
year period.
The accompanying notes are an integral part of these
consolidated financial statements
F-21
<PAGE>
All options granted under the Bogen Plan were outstanding at December 31,
1996, 1995, and 1994. In 1997, the Company intends to cancel all the
options granted under the Bogen Plan and grant certain participants under
the Bogen Plan one option for a share of Common Stock of the Company under
the 1996 Plan in exchange for every three options granted to a participant
in the Bogen Plan. Options for an aggregate of 253,335 shares of Common
Stock will be granted under the 1996 Plan to former participants of the
Bogen Plan.
Push-Down of Goodwill
Pursuant to Accounting Principles Board No. 16 "Business Combinations"
("APB 16"), the accumulated deficit of Bogen was required to be restated on
the date of applying push-down accounting (see Note 1G, Goodwill). The
restated accumulated deficit includes Geotek's recorded equity in the
income and losses of Bogen since its original acquisition and all goodwill
amortization recorded by Geotek relating to the acquisition of Bogen.
Therefore, a reclassification of $8,524 was made from accumulated deficit
to additional paid-in capital in January 1994.
Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock with
such designations, voting and other rights and preferences as may be
determined from time to time by the Board of Directors.
Common Stock
At December 31, 1996 and 1995, 3,960,000 shares of common stock were
reserved for issuance upon exercise of redeemable warrants.
10. Related Party Transactions
In 1995, the Company issued 132,431 shares of its common stock for services
received in connection with the acquisition of Bogen and Speech Design. Of
these shares, 19,565 were issued to a member of the Board of Directors of
Geotek.
During 1995, in conjunction with the acquisition of Bogen and Speech Design
Geotek forgave $7,155 in long-term debt due Geotek, which was recorded as
an increase in additional paid-in capital. As part of this acquisition, the
Company issued $3,000 in convertible promissory notes to Geotek which was
reduced and restructured to a $500 non-convertible promissory note due July
1997 (see Note 1D "Basis of Presentation").
11. Economic Dependency
During the years ended December 31, 1996, 1995 and 1994, the Company
purchased audio components of approximately $12,072, $8,853, and $14,016,
respectively, from three suppliers located in the Republic of South Korea.
Any future inability of any of these suppliers to provide the Company with
a sufficient level of components may have a negative impact on the
Company's operations.
Sales to one customer approximated $4,506 and $4,400 and accounted for more
than 10% of the Company's net sales in 1996 and 1995, respectively. Sales
to a different customer approximated $7,100 and accounted for more than 10%
of the Company's net sales in 1994.
The accompanying notes are an integral part of these
consolidated financial statements
F-22
<PAGE>
Twenty of Bogen's employees are subject to collective bargaining agreements
which expire in mid-1997.
12. Employee Benefit Plans
Bogen participates in multi-employer pension plans which cover all union
employees. Contributions for the periods ended December 31, 1996, 1995 and
1994 were approximately $17, $15, and $18, respectively.
Employees of the Company are also eligible to participate in a defined
contribution 401(K) plan sponsored by Geotek. The Company provides a
matching contribution to a portion of funds contributed by employees.
Amounts charged to expense were $83, $82, and $108 for the years ended
December 31, 1996, 1995 and 1994, respectively.
13. Segments
The Company's operations are conducted in one segment in the United States
(Bogen) and Germany (Speech Design). Information about the Company for
1996, 1995, and 1994 has been presented geographically as follows:
1996 1995 1994
------ ------- ------
Geographic Segments:
Revenues:
United States $30,671 $30,677 $37,745
Foreign 15,598 13,841 8,177
------- ------- -------
$46,269 $44,518 $45,922
======= ======= =======
Operating income (loss):
United States $ 1,862 $(2,405) $ (18)
Foreign 1,706 1,768 1,223
------- ------- -------
Income (loss) from operations $ 3,568 $ (637) $ 1,205
======= ======== =======
Identifiable assets:
United States $23,604 $24,425 $27,467
Foreign 7,782 6,879 5,399
------- ------- -------
$31,386 $31,304 $32,866
======= ======= =======
14. Fourth Quarter Adjustments
Certain adjustments and provisions amounting to $1,500, primarily related
to inventory valuations for the OAS product line, were recorded in the
fourth quarter of 1995.
F-23
<PAGE>
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
N/A
24
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors, executive officers and significant employees of the
Registrant are as follows:
Name Age Position
- ---- --- --------
Yoram Bibring 39 Director
Yaron Eitan 40 Director and Chairman of the Board of
Directors
Dr. Leonard Lodish 53 Director
Michael McCoy 43 Director
David Jan Mitchell 35 Director
Yoav Stern 43 Director
Zvi Peled 47 President and Chief Executive Officer
Yoav M. Cohen 39 Chief Financial Officer and Secretary
Kasimir Arciszewski 45 Co-Founder and Co-Managing Director of
Speech Design
Hans Meiler 49 Co-Founder and Co-Managing Director of
Speech Design
The members of the Board of Directors of the Registrant (the "Board") are
divided into two classes and serve for a term of two years until their
successors are duly elected and qualified. Officers serve for a term of one year
until their successors are duly elected and qualified.
Based solely upon a review of the Forms 3 and 4 furnished to the Registrant
during its most recent fiscal year, and Forms 5 and related written
representations furnished to the Company with respect to its most recent fiscal
year, the Company knows of no director, officer, or beneficial owner of more
than ten percent (10%) of its Common Stock who failed to file on a timely basis
reports required by Section 16(a) of the Securities and Exchange Act of 1934, as
amended, during the most recent fiscal year.
Yoram Bibring, age 39, has served as a director of the Registrant since
1995. Mr. Bibring is President and Chief Executive Officer of Geotek
International Networks, Inc., a wholly owned subsidiary of Geotek. Mr. Bibring,
was Executive Vice President and Chief Operating Officer of Geotek from June
1993 to March 1996, Chief Financial Officer of Geotek from February 1990 to
September 1995 and Vice President of Aryt Optronics Industries, Ltd. from
December 1990 to April 1991.
Yaron Eitan, age 40, has served as Chairman of the Board and a director of
the Registrant since 1995. Mr. Eitan was Chairman of the Board of Bogen and its
subsidiary, BCI, from April 1991 to August 1995. Since October 1996, Mr. Eitan
has been Chairman of the Board of Geotek. From March 1989 until October 1996,
Mr. Eitan was President, Chief Executive Officer and a director of Geotek. Since
1992, Mr. Eitan also serves as a director and Chief Executive Officer of Power
Spectrum, Inc., and was Chairman of the Board from 1992-1995, and since 1993,
Mr. Eitan also serves as Chairman of the Board and Chief Executive Officer of
National Band Three Limited, each of which is a wholly owned subsidiary of
Geotek. Mr. Eitan also serves as a director of GMSI, Inc., a majority owned
subsidiary of Geotek.
Dr. Leonard Lodish, age 53, has served as a director of the Registrant
since 1995. Dr. Lodish is the Samuel R. Harrell Professor in the Marketing
Department of The Wharton
25
<PAGE>
School, University of Pennsylvania where he has held academic positions since
1968. Dr. Lodish is a Director of Information Resources, Inc., Chicago, Illinois
(since 1985), Franklin Electronic Publishers, Inc., Burlington, New Jersey
(since 1987), J&J Snack Foods, Inc., Pennsauken, New Jersey (since 1993), Walsh
International, New York (since 1996) and is a former director of Geotek. Dr.
Lodish has a Ph.D. in Marketing and Operations Research from M.I.T.
Michael McCoy, age 43, has served as a director of the Registrant since
1995. Since February 1997, Mr. McCoy serves as President and CEO of Geotek's
U.S. operations. Since September 1995, Mr. McCoy had been Senior Vice President
and Chief Financial Officer of Geotek. From November 1994 to September 1995, Mr.
McCoy was Vice President of the Northeast Region of Geotek. From September 1992
to November 1994, Mr. McCoy was President of Greenlake Associates, Inc., a high
technology consulting company. From November 1988 through September 1992, Mr.
McCoy was a member of the Office of the Chairman and Senior Vice President of
Business Development for LCI International, Inc., a facilities based long
distance telecommunications company.
David Jan Mitchell, age 35, has served as a director of the Registrant
since 1995. Since 1991, Mr. Mitchell has been President of Mitchell & Company,
Ltd., a New York-based merchant banking company that he founded and, since March
1992, a partner of Petherton Capital Corporation, a privately held real estate
investment company. From April 1988 to December 1990, Mr. Mitchell was a
management principal and a director of Rodman & Renshaw, Inc., a publicly held
investment banking and brokerage firm. Mr. Mitchell is a director of Holmes
Protection Group, a security alarm system company and Kellstrom Industries, Inc.
("Kellstrom"), a distributor of jet engine parts. Mr. Mitchell also serves as
director of several private companies, including Madah-Com, an Israeli-based
technology company, and First Home, a company that develops and markets houses
to first-time homeowners. Mr. Mitchell also serves as President of Americash,
LLC, a national network of Automated Teller Machines in non-bank locations.
During the last ten years, Mr. Mitchell has served as an officer and/or director
of several not-for-profit universities and foundations.
Yoav Stern, age 43, has served as a director of the Registrant since 1995.
From March 1995 to August 1995, Mr. Stern, along with Joram Rosenfeld, served as
Co-Chief Executive Officer and Co-President of the Registrant. Mr. Stern has
been a managing partner of Helix since August 1995. Mr. Stern served as
Co-Chairman and Chief Executive Officer of Kellstrom from its inception in
December 1993 until June 1995 and has served as Co- Chairman of the Board of
Kellstrom since then. From January 1993 to September 1993, Mr. Stern was
President and, from January 1992 until May 1995, a director of WordStar
International, Inc. (now SoftKey International, Inc.), which is engaged in
research and development and worldwide marketing and distribution of software
for business and consumer applications. From April 1989 to December 1992, Mr.
Stern was Vice President of Business Development of Elron Electronic Industries
Ltd., a multinational public holding company based in Israel that is engaged in
operating and investing in high technology companies.
Zvi Peled, age 47, has been President and CEO of the Registrant since March
1996. From 1994 through February 1996, Mr. Peled was General Manager of Telenet
Group, a Division of Elbit, Ltd. ("Elbit"), Haifa, Israel. Mr. Peled was also
President and CEO of Fibronics, a subsidiary of Elbit, as well as a director of
Polish Communications Company, a company also owned by Elbit. Mr. Peled was
employed by Elbit from 1977 to March 1996.
Yoav M. Cohen, age 39, is the Chief Financial Officer and Secretary of the
Registrant. Prior to joining the Company, Mr. Cohen was Chief Financial Officer
of Target Capital Group LLC ("Target"), Garden City, N.Y., and Managing Director
of FEMI International Limited, a subsidiary of Target. From 1993 to 1994, Mr.
Cohen was Corporate Vice
26
<PAGE>
President, Chief Financial Officer and Management Information Systems Director
of Taro Pharmaceuticals Ltd. From 1990 to 1993, Mr. Cohen was Vice President and
Controller of Global Investment Bank at Bankers Trust Company and from 1985 to
1990, Mr. Cohen was Assistant Vice President and Controller of
CitiCorp/Citibank.
Kasimir Arciszewski, age 45, is the Co-Founder and Co-Managing Director of
Speech Design since 1983. Mr. Arciszewski is responsible for Speech Design's
strategic planning, sales and financial activities. Mr. Arciszewski is an
outside director of Docunet AG, a privately-held German company.
Hans Meiler, age 49, is the Co-Founder and Co-Managing Director of Speech
Design since 1983. Mr. Meiler is responsible for Speech Design's operational
matters, including subcontracting, manufacturing and quality assurance.
Recent Events
Joram Rosenfeld, who served as a director of the Registrant since 1995 and,
along with Mr. Stern, was Co-Chief Executive Officer and Co-President of the
Registrant for the period of March 1995 to August 1995, passed away on February
19, 1997. Mr. Rosenfeld was a member of the Executive Committee of the Board.
The members of the Board have not yet elected a successor to Mr. Rosenfeld's
seat on the Board and its committee.
Committees and Meetings of the Board of Directors
During 1996, the Board held three meetings. Messrs. Bibring, Eitan and
Mitchell attended each of the meetings. Messrs. McCoy and Stern attended two of
the three meetings and Dr. Lodish attended one of the three meetings. The Board
has an Executive Committee and an Audit Committee, but does not have a standing
nominating committee.
Executive Committee
The Executive Committee of the Board was established in August 1995 and
currently consists of Messrs. Bibring, Eitan and Stern. A vacancy now exists due
to the death of Joram Rosenfeld. The Executive Committee is authorized by the
entire Board to exercise all of the authority of the Board in the management of
the Registrant between Board meetings, unless otherwise provided in the
Registrant's by-laws. The Executive Committee also functions as the Registrant's
Compensation/Stock Option Committee and, in that capacity, administers the
Registrant's 1996 Incentive Stock Option Plan and provides general oversight in
all employee personnel matters through periodic meetings with management of the
Company.
Audit Committee
The Audit Committee of the Board was established in August 1995 and
currently consists of Messrs. McCoy, Lodish and Mitchell. The Audit Committee
provides general financial oversight in financial reporting and the adequacy of
the Registrant's internal controls through periodic meetings with Registrant's
management and its external auditors.
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for 1996,
1995 and 1994, of
27
<PAGE>
those persons who were during 1996 (i) the Chief Executive Officer and (ii) the
other four most highly compensated executive officers of the Company.
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
---------------------------------------------- ---------------------------
Other Securities All Other
Name and Fiscal Annual Underlying Compensation
Principal Position(1) Year(1) Salary($) Bonus($) Compensation($) Options(#) ($)
- --------------------- ------- --------- -------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Zvi Peled 1996 124,038 60,000 21,820(11) -- 3,750
President and Chief 1995 -- -- -- -- --
Executive Officer 1994 -- -- -- -- --
Yoav M. Cohen 1996 44,000 13,000 461(10) -- 2,462(6)
Chief Financial Officer 1995 -- -- -- -- --
& Secretary 1994 -- -- -- -- --
Menashe Ben-David (2) 1996 98,000 30,000 18,658(9) -- 1,970(6)
Chief Operating Officer 1995 98,000 5,000 24,066(4) -- 5,635(5)
and Executive VP of 1994 95,115 10,654(3) 25,280(7) 200,000** 5,876(8)
Operations of Bogen
Kasimir Arciszewski 1996 119,682 128,971 * -- --
Co-Founder and Co- 1995 125,820 163,565 * -- --
Managing Director of 1994 110,880 180,432 * -- --
Speech Design
Hans Meiler 1996 119,682 128.971 * -- --
Co-Founder and Co- 1995 125,820 163,565 * -- --
Managing Director of 1994 110,880 180,432 * -- --
Speech Design
</TABLE>
* Did not receive prerequisites or other personal benefits, securities, or
property having an aggregate value of greater than the lower of $50,000 or
10% of the total salary and bonus reported for such executive officer.
** Securities underlying options to purchase 200,000 shares of Common Stock of
Bogen. In 1997 the Registrant intends to convert such options into options
to acquire 66,667 shares of Common Stock of the Registrant. The shares of
Common Stock of Bogen have no readily ascertainable market value.
(1) Prior to April 6, 1995, the Registrant was a Specified Purpose Acquisition
Company, which did not engage in any substantive commercial business other
than evaluating prospective companies for acquisition. During this time,
Messrs. Rosenfeld and Stern were the Registrant's Co-Chief Executive
Officers and did not receive any material compensation from the Company for
such services. Accordingly, in order to provide meaningful comparative
information, this table presumes that the Business Combination occurred as
of January 1, 1994 and sets forth the relevant compensation information, as
paid by Bogen or Speech Design, as the case may be, with respect to each
executive officer from said date.
(2) Mr. Ben-David was the Acting President and Chief Executive Officer from
November
28
<PAGE>
1995 to March 1996. Mr. Ben-David is currently the Executive Vice President
of Bogen Communications, Inc.
(3) $5,654 of this bonus consists of compensation paid to Mr. Ben-David for
unused vacation days accrued in 1995.
(4) Includes a housing expense allowance of $19,097.
(5) Consists of $3,866 in contributions by Geotek to Geotek's 401 plan on
behalf of Mr. Ben-David and $1,787 in disability insurance premiums paid by
the Company on behalf of Mr. Ben-David.
(6) Includes disability and/or life insurance premiums paid by the Company on
behalf of the employees.
(7) Includes a housing expense allowance of $20,320.
(8) Represents $4,168 in contributions by Geotek to Geotek's 401 plan on behalf
of Mr. Ben-David and $1,708 in disability insurance premiums paid by the
Company on behalf of Mr. Ben-David.
(9) Includes a housing expense allowance of $17,628.
(10) Includes car allowance.
(11) Includes a housing expense allowance of $20,000, and car allowance of
$1,820.
Option/SAR Grants in 1996
At the Annual Meeting of Stockholders of the Registrant, held on December
13, 1996, the Stockholders adopted the Company's 1996 Incentive Stock Option
Plan (the "Plan"). Pursuant to which the Registrant may grant employees of the
Registrant and its subsidiaries (including employee directors), non-employee
directors and independent contractors and consultants option to shares of the
Company's Common Stock. The Company has reserved 1,253,335 shares of Common
Stock for issuance pursuant to the Plan. The exercise price of all stock options
granted pursuant to the Plan will be determined by a committee of the Board of
Directors on a case by case basis. See "Item 4. Submission of Matters to a Vote
of Security Holders".
No stock options were granted to or exercised by any of the named executive
officers during the 1996 fiscal year. In addition, the Company has no SAR Plan
and has not issued SAR rights during 1996. Pursuant to its employment agreement
with Mr. Peled, however, the Company has agreed to grant him options to purchase
175,000 shares of Common Stock with
29
<PAGE>
exercise prices ranging from $5.00 to $10.00. In addition, upon their
employment, the Company agreed to grant to Mr. Cohen options to purchase 50,000
shares of Common Stock. (See "Employment Agreements.") In July 1994, Mr.
Ben-David was granted options to purchase 200,000 shares of Common Stock of
Bogen. In lieu of such stock options, the Company has agreed to grant Mr. Ben
David options to purchase 66,667 shares of the Company's Common Stock with an
exercise price of $5.50 per share.
The Registrant does not offer its employees any long-term incentive
plans, other than stock options, nor does it offer any defined benefit or
actuarial plans.
Compensation of Directors
Directors, other than non-employee directors who are members of the
Executive Committee of the Board, receive no compensation for acting as
directors to the Registrant. During 1996, Messrs. Rosenfeld and Stern received
$50,000 each as members of the Registrant's Executive Committee.
Employment Contracts
In January 1996, the Registrant entered into an agreement with Mr. Zvi
Peled generally setting forth the terms and provisions of his employment as
President and Chief Executive Officer of the Registrant. Mr. Peled joined the
Registrant in such capacity in March 1996. Mr. Peled's base salary is $150,000
per annum and he is entitled to a minimum annual bonus of $50,000, contingent
upon the satisfaction of performance criteria established by the Registrant's
Board of Directors and Mr. Peled at the start of each year. In addition, the
Registrant agreed to grant Mr. Peled stock options to purchase 175,000 shares of
the Registrant's Common Stock, at the following prices: 75,000 shares at an
exercise price of $5.00 per share, 75,000 shares at an exercise price of $7.50
per share, and 25,000 shares at an exercise price of $10.00 per share. Such
options will vest in equal installments over a five year period. In addition,
the Registrant provides Mr. Peled with $2,000 per month towards home rental
payments, as well as a car. Effective January 1, 1997, and in lieu of
participating in the Company's 401(k) Retirement Savings Plan and the
Registrant's life and disability insurance plans, Mr. Peled receives an
additional $2,300 per month, which amount is applied towards Mr. Peled's
personal benefits program. In the event that Mr. Peled's employment is
terminated without cause, Mr. Peled will continue to receive his salary and
benefits until he obtains a replacement position or for six months, whichever is
sooner. Pursuant to the employment agreement, Mr. Peled was provided with a
$10,000 relocation allowance.
The Company also has a written agreement with Mr. Yoav M. Cohen, dated
August 1, 1996, generally setting forth the terms and provisions of his
employment as Chief Financial Officer of the Registrant. Mr. Cohen joined the
Registrant in such capacity on July 31, 1996. Mr. Cohen's annual base salary is
$110,000 and he may receive an annual bonus equal to 1 - 1.5% of the profits of
the Company during the relevant fiscal year. Pursuant to the
30
<PAGE>
employment agreement, the Company agreed to grant Mr. Cohen stock options, in
accordance with the terms and provisions of the Company's 1996 Incentive Stock
Option Plan, to purchase 50,000 shares of the Registrant's Common Stock. Mr.
Cohen also participates in the Registrant's 401(k) Retirement Savings Plan,
health and dental plans, and disability and life insurance plans as well as
additional disability and life insurance with an annual premium of up to $3,000.
In addition, Mr. Cohen is provided with a Company car, insured by the Company.
In the event that Mr. Cohen is terminated without cause, he is entitled to a
severance package pursuant to which he would continue to receive his base salary
and related benefits for six months.
Mr. Ben-David is employed by the Company pursuant to a written agreement
with Geotek, dated June 7, 1991, which has no definite term. The agreement
provides for Mr. Ben-David to receive a base salary of $75,000 per year, subject
to periodic review and increase by Geotek. Geotek has also agreed to provide
life and health insurance to Mr. Ben-David as well as an automobile. Mr.
Ben-David also received a total of 50,000 stock options to purchase shares of
common stock of Geotek. Geotek is entitled to terminate the employment agreement
at any time upon thirty days prior written notice; provided, however, that
Geotek continues to pay Mr. Ben-David his base salary for a period of six months
from termination of the agreement, unless Mr. Ben-David is terminated as a
result of certain conditions. Mr. Ben-David has agreed not to compete with
Geotek for a period of two years after his employment is terminated. The Company
has assumed all of Geotek's obligations under this agreement.
Mr. Arciszewski is employed by Speech Design pursuant to a written
agreement dated February 9, 1993 which has no definite term. The agreement
provides for Mr. Arciszewski to receive a base salary of DM 180,000 ($119,682 as
of December 31, 1995), subject to review and increase by the parties at the end
of each calendar year. In addition, Mr. Arciszewski is entitled to annual
bonuses based on Speech Design's pre-tax profits. Speech Design has agreed to
provide Social Security and health insurance benefits to Mr. Arciszewski and
agreed to furnish an automobile to him. Mr. Arciszewski has agreed not to
compete with Speech Design during the term of the agreement and for one year
thereafter and Speech Design has agreed to compensate Mr. Arciszewski during
this noncompetition period.
Mr. Meiler is employed by Speech Design pursuant to a written agreement
dated February 9, 1993 which has no definite term. The agreement provides for
Mr. Meiler to receive a base salary of DM 180,000 ($119,682 as of December 31,
1995), subject to review and increase by the parties at the end of each calendar
year. In addition, Mr. Meiler is entitled to annual bonuses based on Speech
Design's pre-tax profits. Speech Design has agreed to provide Social Security
and health insurance benefits to Mr. Meiler and agreed to furnish an automobile
to him. Mr. Meiler has agreed not to compete with Speech Design during the term
of the agreement and for one year thereafter and Speech Design has agreed to
compensate Mr. Meiler during this noncompetition period. Mr. Meiler has agreed
not to disclose any of Speech Design's business or trade secrets.
31
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Executive Committee of the Board also functions as the Board's
Compensation Committee. During the 1996 fiscal year, the Executive Committee of
the Board consisted of Messrs. Bibring, Eitan, Rosenfeld and Stern. During the
past fiscal year, none of the members of the Executive Committee was an officer
or employee of the Company. From March 1995 to August 1995, Messrs. Rosenfeld
and Stern were Co-Chief Executive Officers and Presidents of the Registrant.
Compensation Committee Report on Executive Compensation
Overview and Philosophy
The Executive Committee is responsible for, among other things, developing
and making recommendations to the Board with respect to the Company's executive
compensation policies. In addition, the Executive Committee, pursuant to
authority delegated by the Board, determines on an annual basis the compensation
to be paid to the Chief Executive Officer and each of the other executive
officers of the Company. Decisions with respect to awards of stock options to
executive officers are also made by the Executive Committee.
The Company's Executive Compensation Program is based on guiding principles
designed to align executive compensation with the values and objectives,
business strategy, management initiatives, and the business and financial
performance of the Company. In applying these principles the Executive Committee
has established a program to:
o Attract and retain key executives critical to the long-term success of
the Company and each of its business groups.
o Reward executives for long-term strategic management and the
enhancement of stockholder value.
o Integrate compensation programs with both the Company's annual and
long-term strategic planning and measuring processes.
o Support a performance-oriented environment that rewards achievement
with respect to the Company's goals and also as compared to others in
the industry.
In making compensation decisions, the Executive Committee focuses on the
individual contributions of executive officers to the Company's strategic goals,
including, but not limited to, the execution by such officers of the Company's
business plan. The Executive Committee uses its discretion to set executive
compensation where, in its judgment, external, internal or an individual's
circumstances warrant it.
32
<PAGE>
The Executive Committee also periodically reviews the compensation policies
of other similarly situated companies, as set forth in the proxy statements of
such companies, to determine whether the Company's compensation decisions are
competitive within the telecommunications and electronics industries, as well as
with a broader group of companies of comparable size and complexity. This
comparison group includes the companies in the Standard & Poor's Small Cap 600
and the Standard & Poor's Telephone 500. The Executive Committee focuses on
companies engaged in these industries because these are the areas where the
Company has recently devoted, and expects to continue to devote, a substantial
portion of its efforts and resources.
Executive Officer Compensation Program
The Company's executive officer compensation program is comprised of base
salary, bonus, long-term incentive compensation in the form of stock options and
various benefits, including medical and pension plans generally available to
employees of the Company.
Base Salary, Options and Bonus. Base salary levels for the Company's
executive officers are competitively set relative to companies in the
electronics industries and other comparable companies. In determining salaries,
the Executive Committee also takes into account individual experience and
performance and specific issues particular to the Company. The Executive
Committee generally sets base salary for executive officers at the median to low
end of the range at which comparable companies compensate their executive
officers. The Executive Committee believes that executive officers should
receive a significant portion of their compensation in the form of discretionary
bonuses and stock options as these types of compensation awards provide a better
incentive to executive officers to achieve long-term value for the Company and
its stockholders. The Executive Committee believes they have achieved a proper
balance between providing enough immediate cash compensation to retain and
attract top quality managers and providing long term incentives, in the form of
stock options and cash bonuses, to promote long-term growth for the Company's
stockholders.
Benefits. The Company provides medical and pension benefits to its
executive officers that are generally available to the Company's employees. The
Executive Committee does not consider benefits and perquisites to be a
significant portion of the Company's executive officer compensation.
Section 162(m) of the Internal Revenue Code. In general, Section 162(m) of
the Internal Revenue Code of 1986, as amended (the "Code"), limits the ability
of public corporations to deduct remuneration in excess of certain thresholds
paid to certain executive officers. The Executive Committee continuously
monitors and reviews the compensation of the Company's highest paid executive
officers to ensure that the Company's deduction for remuneration is not subject
to the limitations imposed by Section 162(m) of the Code. For example,
remuneration to executive officers in the form of stock options is intended to
qualify as performance-based compensation within the meaning of Section 162(m)
of the Code and, thus, would not be subject to deduction limitations imposed
thereunder.
33
<PAGE>
Chief Executive Officer Compensation
Mr. Peled, who was appointed President and CEO as of February 22, 1996,
received an annual base salary of $150,000 in the fiscal year ended December 31,
1996. A minimum annual bonus of $50,000 will be paid provided certain
predetermined annual milestones have been met. These milestones are determined
and agreed upon by the Board and Mr. Peled, annually. Mr. Peled was also granted
175,000 Company stock options (for further details regarding options granted
please refer to Part III, Employment Contracts). Mr. Peled has been granted rent
payments in the amount of $2,000 per month, a Company car including related
business expenses, the ability to participate in various Company insurance and
pension plans. The Compensation Committee believes that Mr. Peled's total
compensation package is reasonable in light of the demands which were, and will
continue to be, placed on him during the coming years. In addition, this
compensation level reflects the Compensation Committee's confidence in Mr. Peled
and the Company's desire to attract and retain his talents, as the President and
Chief Executive Officer of the Company. (See "Item 11." - Employment Contracts.)
The foregoing report has been furnished by the Executive Committee
consisting of Messrs. Bibring, Eitan and Stern.
Performance Comparison Graph
The following graph compares the cumulative total stockholder return on the
Registrant's Common Stock since October 5, 1995 (the first day of trading in the
Registrant's Common Stock on the American Stock Exchange) with the cumulative
return on the S&P Smallcap 600 Index and the S&P Telephone - 500 over the same
period (assuming the investment of $100 in the Company's Common Stock, the S&P
Smallcap 600 Index and the S&P Telephone - 500 on October 5, 1995, and
reinvestment of all dividends). The cumulative total of stockholder return
represents the value that such investments would have had on December 31, 1996.
Total return calculations for the S&P Smallcap 600 Index and for the S&P
Telephone - 500 were performed for Standard & Poor's Compustat Services, Inc.
This graph will not be deemed to be incorporated by reference by any
general statement incorporating by reference this Annual Report on Form 10-K
into any filing under the Securities Act of 1933 or under the Securities
Exchange Act of 1934, except to the extent that the Registrant specifically
incorporates this information by reference, and shall not otherwise be deemed to
be filed under such Acts.
TOTAL SHAREHOLDER RETURNS
(Dividends Reinvested)
ANNUAL RETURN PERCENTAGE
Years Ending
Company/Index Dec-95 Dec-96
- ------------- ------ ------
Bogen Communications Intl -40.98 18.39
S&P Telephone 500 25.48 1.00
S&P Smallcap 600 Index 9.64 21.32
INDEXED RETURNS
Years Ending
Base Period
Company/Index October 5, 1995 Dec-95 Dec-96
- ------------- --------------- ------ ------
Bogen Communications Intl 100 59.02 69.87
S&P Telephone 500 100 125.48 126.74
S&P Smallcap 600 Index 100 109.64 133.01
Prepared by Standard & Poor's Compustat
Custom Products Division - 3/28/97
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors to file initial reports of ownership and
reports of changes in ownership of the Company's securities with the Securities
and Exchange Commission and the American Stock Exchange. Executive officers and
directors are required by the SEC regulations to furnish the Company with copies
of all Section 16(a) forms they file. Based solely on a review of the copies of
such forms furnished to the Company and written representations from the
Company's executive officers and directors, the Company believes that each of
Messrs. Mitchell and Stern failed to file a report in connection with the
release of shares of common stock of the Registrant from an escrow account. The
Company has been advised that Messrs. Mitchell and Stern will make all the
necessary filings promptly.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership (as determined in accordance with Rule 13d-3 promulgated under the
Exchange Act of the Common
34
<PAGE>
Stock as of March 1, 1996, for (a) directors and executive officers of the
Company, (b) all directors and executive officers of the Company, as a group,
and (c) each person who is known by the Registrant to own beneficially 5% or
more of the Registrant's Common Stock. Except as otherwise noted, each person
listed below has sole voting and dispositive power with respect to the shares of
Common Stock listed next to such person's name.
Total Number of Shares Percentage of
Directors, Nominees and of Common Stock Class of Common Stock
Executive Officers Beneficially Owned Beneficially Owned(1)
- ------------------ ------------------ ---------------------
Yoram Bibring 0 0
Yaron Eitan(2) 0 0
Dr. Leonard Lodish 0 0
Michael McCoy 0 0
David Jan Mitchell(3) 170,001 2.95%
Yoav Stern(4) 357,500 6.21%
Zvi Peled 0 0
Yoav M. Cohen 0 0
Kasimir Arciszewski 0 0
Hans Meiler 0 0
All directors and
executive officers
as a group (12 persons) 527,501 9.16%
Other Beneficial Owners
Geotek Communications, Inc. 3,901,919(5) 65.48%
102 Chestnut Ridge Road
Montvale, NJ 07645
(1) The percentage column represents the percentage of Common Stock
beneficially owned calculated in accordance with the Securities Exchange
Act of 1934, whether presently issued and outstanding or reserved for
issuance pursuant to exercise of acquisition rights.
(2) Mr. Eitan is President, Chairman of the Board of Directors of Geotek.
Geotek is the record and beneficial owner of 3,701,919 shares of Common
Stock and 200,000 Warrants. Due to his positions with Geotek, Mr. Eitan may
be in a position to direct the voting and disposition of Common Stock and
warrants held by Geotek. Mr. Eitan disclaims beneficial ownership of such
shares and Warrants.
(3) Consists of 75,001 shares directly owned by Mr. Mitchell and 95,000 shares
beneficially owned by EGAC II. Messrs. Stern and Mitchell each own one
third of the issued and outstanding capital stock of EGAC II and, as such,
may be deemed to beneficially own those securities held by EGAC II. EGAC II
is the beneficial owner of 95,000 shares of Common Stock.
(4) Consists of 262,500 shares beneficially owned by Helix Capital LLC, which
may be
35
<PAGE>
deemed to be beneficially owned by Mr. Stern and 95,000 shares beneficially
owned by EGAC II, which Mr. Stern may be deemed to beneficially own.
(5) Includes 200,000 shares of Common Stock issuable upon exercise of currently
exercisable warrants.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the 1996 fiscal year, the Company did not enter into any transaction
with any director, officer, nominee for election, or any security holder who is
known to the Company to own more than five percent of the Registrant's Common
Stock or any family member of any of the foregoing.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements See "Item 8. Financial Statements and Supplementary
Data."
(a)(2) Financial Statement Schedules:
Schedule I: Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
Schedule II: Valuation and Qualifying Accounts
36
<PAGE>
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company only)
BALANCE SHEETS
AS OF DECEMBER 31, 1996 and 1995
(IN THOUSANDS OF DOLLARS)
Assets
1996 1995
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 305 $ 968
Prepaid expenses and other current assets -- 3
-------- --------
Total Current Assets 305 971
Organization costs, net 19 30
Investment in subsidiaries 17,643 15,945
Note Receivable from related party 553 --
-------- --------
TOTAL ASSETS $ 18,520 $ 16,946
======== ========
Liabilities & Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable & accrued expenses 181 453
Advances to related parties 169 209
-------- --------
Total Current Liabilities 350 662
Notes payable to related parties 594 3,141
TOTAL LIABILITIES 944 3,803
-------- --------
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value;
1,000,000 shares authorized; none
issued and outstanding at December 31,
1996 and 1995, respectively -- --
Common stock - $.001 par value; 50,000,000
shares authorized; 5,758,850 and 5,759,350
shares issued and outstanding at December 31,
1996 and 1995, respectively 6 6
Additional paid-in capital 21,774 19,175
Accumulated deficit (4,177) (6,185)
Currency translation adjustments (27) 147
-------- --------
TOTAL STOCKHOLDERS' EQUITY 17,576 13,143
-------- --------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 18,520 $ 16,946
======== ========
The accompanying notes are an integral part of these financial statements.
37
<PAGE>
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company only)
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996 and FOR THE PERIOD
FROM AUGUST 21, 1995 to DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS EXCEPT PER SHARE AMOUNTS)
1996 1995
---- ----
Revenues: $ -- $ --
Operating Expenses:
General and Administrative 371 173
Amortization expense 11 4
----------- -----------
Loss From Operations (382) (177)
Other expenses:
Equity in (income) loss of
subsidiaries (2,496) 2,740
Acquisition costs -- 1,491
Interest expense, net 42 135
----------- -----------
Income (loss) before provision for
income taxes 2,072 (4,543)
Provision for income taxes 64 --
----------- -----------
Net Income (loss) $ 2,008 $ (4,543)
=========== ===========
Net Income (loss) per common share:
Net Income (loss) $ 0.35 $ (1.37)
=========== ===========
Weighted average number of
common shares outstanding $ 5,759,075 $ 3,311,668
=========== ===========
The accompanying notes are an integral part of these financial statements.
38
<PAGE>
Schedule I - Condensed Financial Information of
Bogen Communications International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENT OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AMOUNTS)
For the Period August 21, 1995 through December 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK COMMON STOCK
SUBJECT TO ------------- ADDITIONAL CURRENCY
POSSIBLE NUMBER PAID-IN ACCUMULATED TRANSLATION
REDEMPTION OF SHARES AMT CAPITAL DEFICIT ADJUSTMENTS
---------- --------- --- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 21, 1995
(Date of Acquisition) $ 1,575 1,615,155 $ 2 $ 6,613 $ (351) $ --
Accretion of redemption value
of common stock 52 -- -- (52) -- --
Reclass of common stock subject to
redemption to common stock upon
the Company's acquisition of
Bogen and Speech Design (1,627) 309,845 -- 1,627 -- --
Issuance of common stock and
other adjustment to effect
combination with Bogen and
Speech Design -- 3,701,919 4 10,247 (1,291) 37
Issuance of common stock and warrants
to purchase 60,000 shares of common stock
for services provided to facilitate the
acquisition of Bogen and Speech Design -- 132,431 -- 740 -- --
Translation adjustments -- -- -- -- -- 110
Net loss for the period -- -- -- -- (4,543) --
--------- --------- -------- -------- -------- ---------
Balance at December 31, 1995 -- 5,759,350 $ 6 $ 19,175 $ (6,185) $ 147
</TABLE>
The accompanying notes are an integral part of these financial statements.
39
<PAGE>
Schedule I - Condensed Financial Information of
Bogen Communications International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENT OF CHANGES IN COMMON STOCK SUBJECT TO
POSSIBLE REDEMPTION AND STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS EXCEPT SHARE AMOUNTS)
For the Period August 21, 1995 through December 31, 1996
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK COMMON STOCK
SUBJECT TO ------------- ADDITIONAL CURRENCY
POSSIBLE NUMBER PAID-IN ACCUMULATED TRANSLATION
REDEMPTION OF SHARES AMT CAPITAL DEFICIT ADJUSTMENT
---------- --------- --- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Restructuring of $3,000 related
party note with related interest -- -- -- 2,602 -- --
Repurchased and canceled common
stock -- (500) -- (3) -- --
Translation adjustments -- -- -- -- -- (174)
Net Income for the period -- -- -- -- 2,008 --
----- ---------- -------- ---------- ---------- ----------
Balance at December 31, 1996 $-- 5,758,850 $ 6 $ 21,774 $ (4,177) $ (27)
===== ========== ======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
40
<PAGE>
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND
FOR THE PERIOD AUGUST 21, 1995 to DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS)
1996 1995
---- -----
NET CASH(USED IN)OPERATING ACTIVITIES $ (75) $ (383)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash obtained in the acquisition of Bogen and
Speech Design -- 8,149
Notes receivable from subsidiary (553) --
------- -------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (553) 8,149
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividend paid to Geotek related to the combination -- (7,000)
Proceeds from debt issued to related parties -- 317
Payment on debt to non-related parties -- (115)
Advances to subsidiaries (40) --
------- -------
NET CASH (USED IN) FINANCING ACTIVITIES (40) (6,798)
------- -------
INCREASE (DECREASE) IN CASH (668) 968
------- -------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 968 --
------- -------
Effects of Exchange Rate on Cash 5 --
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 305 $ 968
======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Non-Cash Investing Activities
Restructuring of $3,000 related party note and
related interest $ 2,602 $ --
======= =======
Common stock and warrants issued as consideration
for certain services provided to the Company in
connection with the combination $ -- $ 740
======= =======
The accompanying notes are an integral part of these financial statements.
41
<PAGE>
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc.(Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
Notes to Financial Statements
1. Organization and Business Operations:
On April 6, 1995 Bogen Communications International, Inc. (The "Company")
announced that it had entered into a definitive agreement concerning the
proposed acquisition by the Company of Geotek Communications, Inc.'s ("Geotek")
67% interest in Speech Design GmbH ("Speech Design"), a German company which
focuses on telephone peripherals utilizing digital voice processing
technologies, and Geotek's 99% interest in Bogen Corporation ("Bogen"), a New
Jersey-based corporation which focuses on telecommunications peripherals and
sound and communications equipment. This combination was consummated on August
21, 1995 and results of operations are recorded since the date of acquisition.
2. Summary of Significant Accounting Policies:
a. Basis of Presentation
These parent company only comparative financial statements reflect the
operations and financial position of the Company for the year ended December 31,
1996 and for the period from August 21, 1995 through December 31, 1995. As
described in the footnotes to the consolidated financial statements, the
acquisition of Bogen and Speech Design on August 21, 1995 has been accounted for
as a reverse acquisition by Bogen and Speech Design, companies under the common
control of Geotek.
b. Organization Costs
Organization costs incurred in 1993 are being amortized over 60 months.
c. Net Income (Loss) per Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common shares outstanding, including common stock
equivalents (unless anti-dilutive).
d. Cash and Cash Equivalents
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalent.
42
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Column A Column B Column C Column C Column D Column E
- -------- --------- ---------- ----------- -------- ---------
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Other Deduction Period
----------- --------- -------- ----- --------- ------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1996:
Allowance for doubtful
accounts $ 424 $ 153 $ (1)(d) $ (106)(a) $ 470
Reserve for inventory
obsolescence 2,552 257 (16)(d) (1,667)(b) 1,126
Allowance for tax valuation 4,831 (694) -- -- 4,137
------- ------- ------- ------- -------
$ 7,807 $ (284) $ (17) $(1,773) $ 5,733
======= ======= ======= ======= =======
Year ended December 31, 1995:
Allowance for doubtful
accounts $ 365 $ 311 $ -- $ (252)(a) $ 424
Reserve for inventory
obsolescence 1,267 2,216 6(d) (937)(b) 2,552
Allowance for tax valuation 3,132 1,631 68(c) -- 4,831
------- ------- ------- ------- -------
$ 4,764 $ 4,158 $ 74 $(1,189) $ 7,807
======= ======= ======= ======= =======
Year ended December 31, 1994:
Allowance for doubtful
accounts $ 220 $ 283 $ 3(c) $ (141)(a) $ 365
Reserve for inventory
obsolescence 60 1,273 -- (66)(b) 1,267
Allowance for tax valuation 2,070 1,062 -- -- 3,132
------- ------- ------- ------- -------
$ 2,350 $ 2,618 $ 3 $ (207) $ 4,764
======= ======= ======= ======= =======
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Assumed through acquisition.
(d) Currency exchange effect.
43
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1996.
(c) Exhibits
The following exhibits are filed as part of this report (Exhibit
numbers correspond to the exhibits required by Item 601 of Regulation
S-K for an Annual Report on Form 10-K):
Exhibit
No. Description
---- -----------
3.1 Certificate of Incorporation.1
3.2 By-laws.1
3.3 Certificate of Correction to the Certificate of
Incorporation, dated March 8, 1995 and
filed with the Secretary of State of the
State of Delaware on March 10, 1995.2
3.4 Certificate of Amendment to the Certificate of
Incorporation, dated August 21, 1995 and filed with
the Secretary of State of the State of Delaware on
August 21, 1995.3
4.1 Form of Common Stock Certificate.1
4.2 Form of Warrant Certificate.1
4.3 Unit Purchase Option Granted to GKN Securities Corp.1
4.4 Warrant Agreement between Continental Stock Transfer
& Trust Company and the Company.1
4.5 Voting Agreement, dated August 21, 1995, by and among
Geotek Communications, Inc., Yoav Stern, Joram D.
Rosenfeld and David Jan Mitchell.4
4.6 Bogen Communications, International, Inc. 1996 Incentive
Stock Option Plan 7
10.1 Form of Agency Agreement, dated as of June 28, 1993,
between the Company and GKN Securities Corp.
(without schedules).1
10.2 Letter Agreement among each of the Stockholders of the
Company, the Company and GKN Securities Corp.
(without schedules).1
10.3 Form of Investment Management Trust Agreement between
United States Trust Company of New York and the
Company.1
10.4 Form of Share Escrow Agreement between the Company and
Continental Stock Transfer & Trust Company.1
10.5 Form of Indemnification Agreement between the Company
and its officers, directors and advisors.4
10.6 Stock Purchase Agreement, dated April 6, 1995, by and
between Geotek Communications, Inc. and European
Gateway Acquisition Corp.2
10.7 Letter Amendment, dated May 10, 1995, to the Stock
Purchase Agreement.5
10.8 Side Letter Agreement, dated May 10, 1995, between
Geotek Communications, Inc. and European Gateway
Acquisition Corp. regarding the issuance of certain
stock warrants.6
44
<PAGE>
10.9 Letter Amendment, dated May 30, 1995, to the Stock
Purchase Agreement.5
10.10 Letter Amendment, dated June 27, 1995, to the Stock
Purchase Agreement.5
10.11 Letter Amendment, dated August 21, 1995, to the Stock
Purchase Agreement.4
10.12 Letter Agreement, dated August 21, 1995, to the Stock
Purchase Agreement.4
10.13 Letter Agreement, dated May 8, 1996, to the Stock
Purchase Agreement.
10.14 Summary of Agreement for Business Credit between Speech
Design GmbH and Statelparkasse Munchen.
10.15 Secured Revolving Promissory Note dated February 6, 1997
between Summit Bank and Bogen Communications, Inc.
10.16 Loan and Security Agreement dated February 6, 1997
between Summit Bank and Bogen Communications, Inc.
10.17 Corporate Guaranty of Bogen Communications
International, Inc.
10.18 Corporate Guaranty of Bogen Corporation.
* 21.1 Subsidiaries of the Company.
* 23.1 Consent of Coopers & Lybrand L.L.P.
----------
*Filed Herewith
1. Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-1 (File No. 33-65294), dated
October 7, 1993.
2. Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994.
3. Incorporated by reference to the Exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1995.
4. Incorporated by reference to the Exhibits to the Company's
Current Report on form 8-K dated August 21, 1995.
5. Incorporated by reference to the Exhibits to the Company's
Proxy Statement, dated July 12, 1995, for a Special Meeting
of Stockholders, as amended by addendum, dated July 18,
1995.
6. Incorporated by reference to the Exhibits to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1995.
7. Incorporated by reference to the Exhibits to the Company's
Registration Statement on Form S-8 (File No. 333-21245),
dated February 4, 1997.
45
<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.
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
By: /s/ Zvi Peled
-------------------------------
Zvi Peled, President
and Chief Executive Officer
Date: March 31, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed on March__, 1997 by the following persons on behalf of
the Registrant in the capacities indicated.
/s/ Zvi Peled President and Chief Executive Officer
- --------------------------------
Zvi Peled
/s/ Yoav M. Cohen Chief Financial Officer, and Secretary
- --------------------------------
Yoav M. Cohen
/S/ Yaron I. Eitan Director, Chairman of the Board of Directors
- --------------------------------
Yaron I. Eitan
/s/ Yoram Bibring Director
- --------------------------------
Yoram Bibring
/s/ Michael McCoy Director
- --------------------------------
Michael McCoy
/s/ David Jan Mitchell Director
- --------------------------------
David Jan Mitchell
/s/ Yoav Stern Director
- --------------------------------
Yoav Stern
/s/ Dr. Leonard Lodish Director
- --------------------------------
Dr. Leonard Lodish
46
<PAGE>
EXHIBIT INDEX
Exhibit
No.
- ------
10.14 Summary of Agreement for Business Credit between Speech Design GmbH and
Statelparkasse Munchen.
10.15 Secured Revolving Promissory Note dated February 6, 1997 between Summit
Bank and Bogen Communications, Inc.
10.16 Loan and Security Agreement dated February 6, 1997 between Summit Bank
and Bogen Communications, Inc.
10.17 Corporate Guaranty of Bogen Communications International, Inc.
10.18 Corporate Guaranty of Bogen Corporation.
21.1 Subsidiaries of the Company
23.1 Consent of Coopers & Lybrand L.L.P.
47
Summary of Credit Agreement between Speech Design GmbH and Stadtsparkasse
Munchen
Pursuant to the terms of the Credit Agreement, dated December 11, 1995 (the
"Credit Agreement"), between Speech Design GmbH ("Speech Design") and
Stadtsparkasse Munchen (the "Lender"), Lender agrees to extend to Speech Design
a credit line in the aggregate amount of DM 4,000,000. Interest on any borrowing
under the credit line is payable at 8.25% per annum. The term of this agreement
is December 31, 1999, subject to earlier termination. As security for any
extension of credit pursuant to the Credit Agreement, Speech Design made a
general assignment of claims, receivables and inventory in favor of the Lender.
The Credit Agreement also contains customary provisions regarding Speech
Design's duty to disclose information to the Lender, choice of forum and the
validity of the agreement.
SECURED REVOLVING PROMISSORY NOTE
$7,000,000.00 February 6th, 1997
Florham Park, New Jersey
FOR VALUE RECEIVED, BOGEN COMMUNICATIONS, INC., a corporation of the State
of Delaware (hereinafter the "Borrower"), promises to pay in lawful monies of
the United States of America, in immediately available funds, to the order of
SUMMIT BANK (hereinafter called the "Lender"), at its office at 750 Walnut
Avenue, Cranford, New Jersey 07016, or such other place as the holder hereof
may, from time to time, designate in writing, the principal sum of SEVEN MILLION
($7,000,000.00) DOLLARS, together with interest as herein provided, or so much
thereof as shall from time to time be advanced hereunder to the Borrower
pursuant to the terms and conditions of the Loan and Security Agreement between
the parties being executed contemporaneously herewith (the "Security
Agreement"), on February 5, 1999.
1. All such advances shall be made in accordance with the terms of the
Security Agreement and the date and amount of each advance shall be recorded in
the separate ledgers maintained by Lender. All such advances whether or not so
recorded shall be due as part of this Note.
2. The Borrower shall pay to Lender interest upon any unpaid principal
balance advanced hereunder or under the terms of the Security Agreement at the
close of each day, which interest shall be due and payable to Lender on the
fifth (5th) day of the following month. Any failure or delay by Lender in
presenting invoices for interest shall not discharge or relieve the Borrower of
its obligation to make such interest payments. The interest rate which shall be
used to calculate the amount of interest due each month shall be the Summit Bank
Floating Base Rate of interest in effect during the period for which interest is
being calculated plus one-half (1/2) percentage point per annum. The interest
due shall be paid by Borrower or, at the option of Lender, charged to any
checking or loan account maintained by Borrower at Lender, but if not paid
within ten (10) days of the close of each month, interest may, at Lender's
discretion, be added to Borrower's Loan account balance. Borrower hereby
consents to Lender's making such charge. Interest shall be calculated on the
basis that one day represents 1/360th of a year. For the purposes of this
obligation the term "Summit Bank Floating Base Rate" is defined as the rate of
interest established by Lender from time to time as its Floating Base Rate. The
Summit Bank Floating Base Rate is neither linked to any external rate of
interest or index nor does it necessarily reflect the lowest rate of interest
charged by Lender to its most creditworthy customers. The Summit Bank Floating
Base Rate may be changed from time to time by Lender without notice to Borrower
and, with respect to the interest rate applicable hereto, shall be effective on
the date any such change is made.
3. This Note is subject to and governed by the terms and conditions of the
Security Agreement, all of which terms and conditions are incorporated herein by
reference with the same force and effect as though set forth herein at length.
All sums due hereunder are secured by the
<PAGE>
Collateral described in the Security Agreement. All capitalized terms shall be
defined as set forth in the Security Agreement.
4. Anything herein to the contrary notwithstanding, upon the occurrence and
during the continuance of an Event of Default hereunder, the interest rate
charged to Borrower on the Revolving Loans shall, at Bank's discretion, be
increased by two and three-quarters (2.75) percentage points per annum in excess
of the then applicable rate. In no event, however, shall the interest rate due
hereon exceed the maximum allowable by law. In the event Lender should receive
such excess, same shall be applied to reduce Borrower's Obligations in such
order as Lender shall elect.
5. Any payment of interest or principal due hereunder which is received
more than ten (10) days after the date due shall be subject to a late charge of
five (5%) percent of the amount of such payment, which shall not be less than
$25.00 nor more than $2,500.00. Such late charge represents reimbursement of
various costs incurred by Lender in processing late payments generally and shall
not be deemed to be additional interest hereon. Imposition of a late charge
shall be in addition to, and not in lieu of any other remedies available to
Lender under this Note, the Security Agreement and the Relevant Documents, at
law, equity or otherwise.
6. The Borrower shall be in default under this Note upon the occurrence of
any of the events which constitute an Event of Default pursuant to the terms of
the Security Agreement. Upon the occurrence of any Event of Default, then the
aforesaid principal sum or so much thereof as shall then remain unpaid, with all
arrearages of interest thereon, shall, without notice or demand, at the option
of Lender, become due and payable immediately thereafter, anything hereinbefore
contained to the contrary notwithstanding. Furthermore, Lender shall thereupon
be entitled to exercise all of the remedies of a secured party at law or in
equity, together with the rights and remedies provided to it under the Security
Agreement.
7. The Borrower shall be liable for all costs, charges and expenses, and
other sums incurred or advanced by Lender (including legal fees and
disbursements) to preserve the Collateral, collect on the Obligations, protect
Lender's interest in or realize on the Collateral or to enforce Lender's rights
against the Borrower or any Guarantor.
8. The Borrower, and all other parties who at any time may be liable hereon
in any capacity, jointly and severally, waive presentment, demand for payment,
protest and notice of protest, and notice of dishonor of this Note, and
authorize Lender, without notice, to grant any extension, postponement of time
of payment, indulgence or any substitution, exchange or release of Collateral
and to the addition to or release of any party or persons primarily or
secondarily liable or acceptance of partial payments on any accounts or
instruments and the settlement, compromising or adjustment thereof.
9. As further security for the performance of the obligations hereunder,
the Borrower hereby gives Lender a general lien upon all property and assets
heretofore or hereafter delivered to Lender, and Lender shall have the right of
set-off, in addition to any other rights conferred by statute or operation of
law, with respect to any accounts of the Borrower with Lender, and any
2
<PAGE>
other funds or tangible assets which may, at any time, be in possession of or
under Lender's custody and control.
10. Lender is hereby authorized to disclose any financial or other
information about the Borrower to any regulatory body or agency having
jurisdiction over the Lender, or to any present, future or prospective
participant or successor in interest in any loan or other financial
accommodation made by Lender to the Borrower.
11. Lender shall not, by any act, be deemed to have waived any of its
rights or remedies hereunder, unless such waiver is in writing and signed by
Lender, and then only to the extent set forth therein. A waiver as to any one
event shall in no way be construed as continuing or as preventing the waiver or
enforcement of such rights or remedies available to Lender on a subsequent
event.
12. The liability of the Borrower and any guarantor shall be joint and
several, absolute and unconditional and without regard to the liability of any
other party.
13. The provisions herein contained shall bind and inure to the benefit of
the Borrower and Lender and their respective legal representatives, successors
and assigns (provided, however, that the Borrower shall not assign this Note
without first obtaining the written consent of Lender). Lender (or any
subsequent assignee) may transfer and assign this Note and deliver the
Collateral to the assignee, who shall thereupon have all of the rights of
Lender; and Lender (or any such subsequent assignee that in turn assigns as
aforesaid) shall then be relieved and discharged of any responsibility or
liability with respect to this Note and said Collateral.
14. For the purposes of this Note wherever the term "Lender" shall be used
it shall refer to any subsequent holder, successor or assignee hereof unless the
context requires otherwise.
15. THE BORROWER HEREBY WAIVES ITS RIGHT TO A TRIAL BY JURY IN ANY
LITIGATION RELATING TO THIS OBLIGATION.
16. The provisions hereof shall be governed by and construed in accordance
with the laws of the State of New Jersey.
IN WITNESS WHEREOF, the undersigned have hereunto caused these presents to
be signed by their proper corporate officers and their proper corporate seals to
be hereto affixed the day and year first written above.
ATTEST: BOGEN CORPORATION
BY: FRANK DIPALMA BY: YOAV M. COHEN
---------------------------------- ------------------------------
FRANK DIPALMA, Assistant Secretary YOAV M. COHEN, Vice President,
Finance
3
LOAN AND SECURITY AGREEMENT
This is a Loan and Security Agreement made this 6th day of February, 1997,
between SUMMIT BANK ("Lender"), a banking corporation of the State of New
Jersey, having an address at 750 Walnut Street, Cranford, New Jersey 07016, and
BOGEN COMMUNICATIONS, INC., a corporation of the State of Delaware, having its
principal place of business at 50 Spring Street, Ramsey, New Jersey 07446
("Borrower").
RECITAL:
WHEREAS, Borrower and Lender, wish to enter into a commercial lending
arrangement whereby Lender shall make loans to Borrower on a revolving basis and
Borrower shall repay same under the terms and conditions set forth herein; and
WHEREAS, the loans and other financial accommodations to be provided to
Borrower by Lender are to be secured by substantially all of the assets of
Borrower including, without limitation, all accounts receivable, equipment,
inventory and the other personal property of Borrower; and
WHEREAS, by this writing Borrower and Lender wish to set forth the terms
and conditions of the lending arrangement between Borrower and Lender.
NOW, THEREFORE, in consideration of the mutual covenants herein contained
and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties agree as follows:
1. DEFINITIONS:
For the purposes of this Agreement, the following definitions shall apply
to the terms set forth below:
A. The term "Account Debtor" shall mean and include all customers of
Borrower or other Persons who are indebted to Borrower.
B. The term "Acceptable Conditional Sales" shall mean sales to Sprint or
other Account Debtors who are satisfactory to Lender in its
commercially reasonable discretion, who are allowed to return certain
merchandise which remains unsold by such Account Debtor for six (6)
months after delivery of the merchandise and who receive credit for
the value of the returned merchandise against future Inventory
purchases, but who also are required to pay Borrower, in the ordinary
course of business, the entire amount invoiced by Borrower for such
merchandise in accordance with the terms of the invoice.
<PAGE>
C. The term "Accounts Receivable" shall mean all accounts as defined in
the Uniform Commercial Code of the State of New Jersey, and, in
addition, any and all obligations of any kind at any time due and/or
owing to Borrower and all rights of Borrower to receive payment or any
other consideration (whether classified under the Uniform Commercial
Code of the State of New Jersey or any other State as accounts,
accounts receivable, contract rights, chattel paper, General
Intangibles, or otherwise) including without limitation, invoices,
contract rights, accounts receivable, choses in action, notes, drafts,
acceptances, instruments and all other debts, obligations and
liabilities in whatever form owing to Borrower from any Person, firm,
governmental authority, corporation or any other entity, all security
therefor, and all Borrower's rights to goods sold (whether delivered,
undelivered, in transit or returned), which may be represented
thereby, whether now existing or hereafter arising, together with all
proceeds and products of any and all of the foregoing.
D. The term "Advances" shall mean all loans made to Borrower pursuant to
Section 2.1 hereof.
E. The term "Advance Limit" shall mean the maximum amount of the
Revolving Loans and Advances Borrower may request of Lender based upon
the percentages and/or amounts of Advance with respect to Borrower's
Qualified Accounts Receivable and Qualified Inventory against which
Lender is willing to make Revolving Loans.
F. The term "Affiliate" shall mean and include any Person in which one or
more of the stockholders owning ten percent (10%) or more of Borrower,
any subsidiary and/or any parent, now or at any time or times
hereafter hold, individually, jointly or severally, an equity or other
ownership interest in excess of ten percent (10%) of the total equity
or ownership interest in such Person.
G. The term "Agreement" shall mean this Loan and Security Agreement and
any extensions or renewals thereof or modifications or amendments
thereto.
H. The term "Banking Day" shall mean any day other than a Saturday,
Sunday or other day on which Lender is closed for a United States of
America or any state declared bank holiday.
I. The term "Borrower" shall mean Bogen Communications, Inc., a
corporation of the State of Delaware.
J. The term "Borrowing Base Certificate" shall mean a certificate,
substantially in the form of Exhibit "A" attached hereto and made a
part hereof, which shall be completed and signed by a authorized
officer of Borrower and shall be utilized by
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Borrower and Lender to calculate the sums available to be borrowed as
Revolving Loans.
K. The term "Collateral" shall mean and include Borrower's Accounts
Receivable, Inventory, General Intangibles, Machinery, Equipment,
returned or repossessed merchandise, and all other property of
Borrower or others, which or in which Lender, by this Agreement or
otherwise, is given a security interest or the right to hold as
security for or to apply to the payment of Borrower's Obligations and
all proceeds of same, all as more fully described on Schedule 1.K
hereto.
L. The term "Equipment" shall mean all equipment as defined in the
Uniform Commercial Code of the State of New Jersey and, in addition,
all equipment, machinery, furniture, fixtures, and all other tangible
assets, and all replacements, repairs, modifications, alterations,
additions, controls and operating accessories therefor, all
substitutions and replacements therefor, and all accessions and
additions thereto and all proceeds and products of the foregoing now
owned or hereafter acquired by Borrower.
M. The term "Event of Default" shall mean a default as set forth in
Section 11 of this Agreement.
N. The term "GAAP" shall mean generally accepted accounting principles.
O. The term "General Intangibles" shall mean and include all of
Borrower's now owned or hereafter acquired choses in action, causes of
action and all other intangible personal property including, without
limitation, corporate or other business records, inventions, designs,
patents, patent applications, trademarks, trademark applications,
trade names, trade secrets, good will, registrations, copyrights,
licenses, franchises, customer lists, tax refunds, tax refund claims,
insurance claims, rights and claims against carriers and shippers and
rights to indemnification.
P. The term "Guarantors" shall mean Bogen Communications International,
Inc., Bogen Corporation and any other Person who shall at any time
agree to be a guarantor and/or surety for Borrower.
Q. The term "Inventory" shall mean all items described in the Uniform
Commercial Code of the State of New Jersey definition thereof and all
of the following, whether or not so described (in all cases whether
now owned or hereafter acquired by Borrower and wherever located): all
goods, merchandise or other personal property held by Borrower for
sale or lease or to be furnished under labels and other devices, names
or marks affixed thereto for purposes of selling or identifying the
same or the seller or manufacturer thereof, and all right, title and
interest of Borrower therein and thereto; all raw materials, work or
goods in
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process; and all materials and supplies of any kind or description
used or usable in connection with the manufacture, packaging,
shipping, advertisement, sale or finishing of any of the foregoing,
together with all proceeds and products of any of the foregoing.
R. The term "Lender" shall mean Summit Bank, a banking corporation
organized and existing under the laws of the State of New Jersey, its
successors and assigns.
S. The term "Letter of Credit" shall mean any and all irrevocable
documentary or stand-by letters of credit issued by Lender for the
account and at the request of Borrower which shall not exceed Seven
Hundred Thousand ($700,000.00) Dollars in aggregate undrawn face
amounts at any time.
T. The term "Line of Credit" shall mean the maximum amount Lender could
be requested to lend to Borrower under the terms and conditions of
this Agreement as evidenced by the face amount of the Secured
Revolving Note in effect from time to time.
U. The term "Machinery" shall mean and include, without limitation, all
inanimate mechanisms for utilizing or applying power, including the
appurtenances thereto, used by or for Borrower in the operation of its
business and all accessories, substitutions, additions, replacements
and parts thereof, whether now owned or hereafter acquired.
V. The term "Obligation" or "Obligations" shall mean all indebtedness,
obligations, liabilities, and agreements of every kind and nature of
Borrower to or with Lender, or to or with any affiliate of Lender, or
any guaranty of Borrower of any other Person's indebtedness,
liabilities and agreements to or with Lender, or to or with any
affiliate of Lender, now existing or hereafter arising, and now or
hereafter contemplated, pursuant to this Agreement, the Relevant
Documents (as hereinafter defined) or otherwise, whether in the form
of refinancing, letters of credit, bankers acceptances, guarantees,
loans, interest, charges, expenses or otherwise, direct or indirect,
(including without limitation, any participation or interest of Lender
[or of any affiliate of Lender] in any obligations of Borrower to
others), acquired outright, conditionally or as collateral security
from another, absolute or contingent, joint or several, liquidated or
unliquidated, secured or unsecured, arising by operation of law or
otherwise, including without limitation any future advances, renewals,
extensions or changes in form of, or substitutions for, any of said
indebtedness, obligations or liabilities, the other sums and charges
to be paid to Lender pursuant to Sections 2, 3 and 4 hereof, and all
interest and late charges on any of the foregoing.
W. The term "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, limited liability
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company, corporation, institution, entity, party or government
(including any political subdivision thereof).
X. The term "Qualified Account", "Qualified Accounts" or "Qualified
Accounts Receivable" shall mean the Accounts Receivable as to which
Borrower has furnished to Lender information adequate to identify the
same, at such times and in such form as has been or, from time to time
may be, requested by Lender, which meet all of the following criteria
on the origination date of the said Accounts and continuing thereafter
until collected, and which are in all other respects acceptable to
Lender:
(i) Borrower is the sole owner of the Accounts Receivable and has not
sold, assigned, mortgaged or hypothecated, nor released from
Lender's security interest, all or any portion thereof, nor are
they subject to any claim, lien or security interest of any
Persons or entities, including without limitation the United
States, or any agencies or instrumentalities thereof;
(ii) They shall be valid and legally enforceable, owing to Borrower
for the performance of services or the sale of goods arising in
the ordinary course of business for which Borrower has delivered
or, at the time of origination of the said Accounts, if required
by Lender, will deliver to the Lender invoices, billings and
shipping documents and other documents evidencing the obligation
of the Borrower's customer to pay the Account Receivable;
(iii)They do not represent a conditional sale (except Acceptable
Conditional Sales which must be disclosed as such on each
Borrowing Base Certificate), sale on consignment, bill and hold
or other sale on a basis other than that of absolute sale, are
not evidenced by any note, instrument, chattel paper or like
document, and do not arise out of a contract with the United
States or any of its departments, agencies, or instrumentalities,
unless accepted by Lender and Borrower has complied with the
Federal Assignment of Claims Act in all respects to assign such
Account to Lender;
(iv) No financing statement covering any Account Receivable or its
proceeds, except in favor of Lender, is on file in any public
office, and neither Borrower nor Lender has received any notice
of any proposed acquisition, of any Account Receivable security
interest therein;
(v) The goods or services were shipped or supplied on the invoice
date and the invoice for the Account Receivable is dated less
than ninety (90) days or, as Lender in its discretion may allow
from time to time with respect to Accounts Receivable with
extended terms, dated less than one-hundred twenty (120) days
prior to the date on which the amount of the Accounts Receivables
are being determined;
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(vi) If the aggregate amount of an Account Debtor's indebtedness to
Borrower in calculating the Advance Limit exceeds twenty (20%)
percent of Borrower's total Accounts at the time outstanding,
then such excess shall not be eligible to be classified as a
Qualified Account Receivable;
(vii) They are not subject to any offsets, credits, allowances or
adjustments due the Account Debtor except usual and customary
prompt payment discounts, nor has any Account Debtor returned the
goods or indicated any dispute or complaint concerning them and
the Account is not otherwise subject to any right of set-off;
(viii) Not more than fifty (50%) percent of the total amount of the
Accounts Receivable due from the Account Debtor has been
classified not Qualified by Lender;
(ix) Borrower has not received any notice, nor has it any knowledge of
any facts which adversely affect the credit of the Account
Debtor;
(x) The Account Debtor is not a Subsidiary or other Affiliate of
Borrower nor a director or officer of Borrower or an Affiliate of
any director or officer;
(xi) The Account Debtor is located in the United States of America or
Canada;
(xii)The Account Receivable does not arise from the sale of the Friday
Home Office Receptionist Line; and
(xiii)Lender has not notified Borrower that either the Account
Receivable or the Account Debtor is not qualified.
Y. The term "Qualified Inventory" shall mean the Inventory which has been
identified and described to Lender's satisfaction, is represented by
Borrower (by its acceptance of Revolving Loans thereon) as meeting all
of the following criteria on the date of any Revolving Loan based
thereon and thereafter while any of the Obligations are outstanding
and is in all other respects acceptable to Lender:
(i) Borrower is the sole owner of the Inventory; none of the
Inventory is being held by Borrower on a consignment basis;
Borrower has not sold, assigned or otherwise transferred all or
any portion thereof, and none thereof is subject to any claim,
lien or security interest;
(ii) If any of the Inventory is represented or covered by any document
of title, instrument or chattel paper, Borrower is the sole owner
of all such documents, instruments and paper, all thereof are in
the possession of the
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Lender, none thereof has been sold, assigned or otherwise
transferred and none thereof is subject to any claim, lien or
security interest;
(iii)The Inventory shall consist of saleable raw materials and
finished goods manufactured or acquired by Borrower in the
ordinary course of Borrower's business, subject to its contract
or sole possession, stored in locations with respect to which
landlord or warehousemen waivers, as applicable, satisfactory to
Lender have been obtained; and
(iv) The Inventory does not constitute part of the Friday Home Office
Receptionist Line.
Z. The term "Relevant Documents" shall mean any and all documents and
instruments executed or delivered by Borrower to Lender pursuant or
incident to this Agreement, or heretofore or hereafter executed or
delivered by Borrower with respect to its Revolving Loan and other
financial accommodations extended to Borrower by Lender.
AA. The term "Revolving Loan" or "Revolving Loans" shall mean the loans
made pursuant to Section 2 of this Agreement and the indebtedness of
Borrower to Lender incurred pursuant to this Agreement.
BB. The term "Secured Revolving Note" shall mean the Secured Revolving
Promissory Note executed contemporaneously herewith and any renewal,
extension, modification or amendment thereto or substitution therefor.
CC. The term "Subsidiary" shall mean any Person at least a majority of
whose issued and outstanding equity now or at any time or times
hereafter is owned by the Borrower and/or one or more Subsidiaries
thereof.
DD. The term "Summit Bank Floating Base Rate" shall mean the rate of
interest established from time to time by Lender as its "floating base
rate". This rate of interest is determined from time to time by Lender
as a means of pricing some loans to its customers and is neither tied
to any external rate of interest or index, nor does it necessarily
reflect the lowest rate of interest actually charged by Lender to any
particular class or category of customers of Lender.
2. REVOLVING LOAN:
2.1 (a) Amount. During the term of this Agreement, provided there has not
occurred an Event of Default hereunder (as hereinafter defined) or an event
which, with the giving of notice or the lapse of time, or both, would become an
Event of Default hereunder, Lender will provide, at one time or from time to
time, at the request of Borrower, Revolving Loans to
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Borrower in an aggregate amount up to but not in excess of the Borrower's
Advance Limit, which Revolving Loans may be borrowed, repaid and reborrowed
pursuant to the terms of this Agreement and which Revolving Loans shall be
payable, in full together with all accrued and unpaid interest, fees and costs,
if any, on February 5, 1999. If the outstanding aggregate amount of the
Revolving Loans shall exceed the Advance Limit at any time, such excess shall be
deemed secured by the Collateral (as hereinbefore defined), shall be payable
immediately upon demand and shall be subject to the terms of this Agreement.
(b) Advance Request Procedure. Each Advance under the Revolving Loan shall
be requested telephonically, not later than 2:00 P.M. Eastern Time on any
Banking Day, by a Person authorized in writing by Borrower to make Advance
requests, and each such request shall be confirmed in writing, via facsimile
transfer, prior to the close of business on such Banking Day.
(c) Advance Limit. The Advance Limit shall not in the aggregate at any time
outstanding exceed the lesser of:
(i) Seven Million ($7,000,000.00) Dollars; or
(ii) The result of the following calculation: (x) eighty-five percent
(85%) of the face amount of Borrower's Qualified Accounts Receivable, plus
(y) the lesser of (A) thirty-five percent (35%) of the value (at
the lower of cost or market values then prevailing) of Borrower's
Qualified Inventory consisting of raw materials, not to exceed Three
Hundred Fifty Thousand ($350,000.00) Dollars plus fifty percent (50%)
of the value (at the lower of cost or market values then prevailing)
of Borrower's Qualified Inventory consisting of finished goods, or (B)
Two Million ($2,000,000.00) Dollars; minus
(z) the aggregate of the undrawn face amounts of all outstanding
Letters of Credit plus unreimbursed time drafts and/or bankers
acceptances, if any, which sum shall not exceed Five Hundred Thousand
($500,000.00) Dollars at any time; provided also, however,
(iii) Loans outstanding with respect to Acceptable Conditional Sales
shall not exceed One Hundred Seventy-Five Thousand ($175,000.00) Dollars,
in the aggregate, at any time.
(d) Lender shall have the right, from time to time, in its commercially
reasonable discretion, to increase and/or decrease the percentages or amounts of
advance or amount of the Advance Limit and/or establish such reserves as it
shall deem necessary from time to time; and the sums advanced pursuant thereto
shall nevertheless be secured by the Collateral and subject to the terms of this
Agreement.
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<PAGE>
(e) It is understood that the total of the aggregate outstanding principal
balance of Revolving Loans plus the aggregate of the undrawn face amounts of
Letters of Credit unreimbursed time drafts and/or bankers acceptances, if any,
shall not, at any time, exceed Seven Million ($7,000,000.00) Dollars.
2.2 Collateral and Proceeds of Collateral. (a) Borrower shall promptly
deliver or cause to be delivered to Lender or to a dominion account or lockbox,
over which Lender shall have the sole power of withdrawal, all proceeds of the
Collateral, in the form received. Upon receipt thereof, Lender shall deposit
said proceeds to a cash collateral account over which Lender shall have the sole
power of withdrawal. In the event any proceeds are received directly by
Borrower, such proceeds shall be deposited, in the form received, to a
collection account to be opened with Lender.
(b) Such cash collateral account and collection account, if any, shall be
swept daily and the amount of each such sweep shall be applied to the
Obligations, notwithstanding that the sums credited may constitute uncollected
funds. All such credits shall be conditioned upon final payment to Lender of the
items giving rise to them and, if any items are not so paid, the amount of any
credit given shall be charged as a debit to Borrower's Revolving Loan account
(or to any deposit account of Borrower with Lender) whether or not the item is
returned. The Borrower shall not commingle any proceeds of the Collateral with
any other funds or property of the Borrower, and shall hold such proceeds
separate and apart therefrom and upon an express trust for Lender until
deposited in the cash collateral account. Credit for the proceeds deposited in
the cash collateral account shall be conditioned upon final payment of the
deposited item, notwithstanding the application by Lender of the proceeds of the
Collateral to the Obligations.
2.3 Determination of Loan Balance.
(a) In determining the Borrower's outstanding Revolving Loan balance, the
following shall govern:
(i) Domestic checks received by the Lender on or before 12:00 Noon of
any Banking Day, shall be credited against the balance of the Obligations
on such Banking Day;
(ii) Domestic checks received by the Lender after 12:00 Noon of any
Banking Day, shall be credited against the balance of the Obligations on
the following Banking Day;
(iii) Any other form of proceeds received by the Lender shall be
credited against the balance of the Obligations when the Lender has
received notification of collection (it being understood, that if the
Lender receives notice of collection on or before 12:00 Noon of any such
Banking Day, such proceeds shall be deemed to have been received by the
Lender on such day, and if Lender receives notice of collection after 12:00
Noon of any such Banking Day, such proceeds shall be deemed to have been
received by the Lender as of the following Banking Day);
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(iv) Such credits shall be conditioned upon final payment to Lender at
its own office in cash or solvent credits of the items giving rise to them
and if any item is not so paid, the amount of any credit given for it shall
be charged to the Revolving Loan balance whether or not the item is
returned.
(b) For the purpose of computing interest on the Revolving Loan, interest
shall continue to accrue on the amount of any domestic checks received by the
Lender for a period of two (2) Banking Days after receipt (it being understood
that if a domestic check is received on or before 12:00 Noon of any Banking Day,
it shall be deemed received by the Lender on such Banking Day, and if received
after 12:00 Noon of such Banking Day, it shall be deemed received by the Lender
on the following Banking Day), notwithstanding that the Lender has credited the
amount thereof against the outstanding Revolving Loan balance on the Banking Day
of receipt.
2.4 Monthly and Interim Statements. Once each month Lender shall render a
statement of account to Borrower showing the current status of the Revolving
Loan account and the interest thereon. If these statements or any interim
statements indicate that the outstanding balance of the Revolving Loan exceeds
the Advance Limit, such excess shall at all times be governed and secured by
this Agreement and Borrower forthwith either shall furnish additional
collateral, which shall be satisfactory to Lender in its sole discretion, or pay
the difference in cash. The statement of account rendered by Lender shall be
considered correct, accepted by Borrower and conclusively binding upon the
Borrower, unless Borrower gives notice to Lender to the contrary in writing
within twenty (20) Banking Days after the sending of said statement by the
Lender. If Borrower disputes the correctness of Lender's statement, Borrower's
notice shall specify in detail the particulars of why it contends Lender's
statement of account is incorrect.
2.5 Negative Balances. In the event Borrower's operating account(s) with
Lender contain a negative balance at any time, then Lender shall be deemed to
have made an Advance to Borrower in the amount of such deficiency, pursuant to
the terms hereof, on the Lender's Banking Day immediately preceding the day on
which such deficiency occurs. Nothing contained herein shall be deemed or be
construed to (a) obligate the Lender to honor any items presented to Lender for
payment against any account of Borrower in which a deficiency exists, whether or
not it has ever done so in the past; or (b) relieve Borrower of its obligations
to pay usual and customary charges of Lender imposed generally with respect to
such deficiencies in addition to the interest accrued as the result of any
Advances made pursuant to this subsection.
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3. LETTERS OF CREDIT:
3.1 Issuance of Letters of Credit. From time to time, subject to
satisfaction by Borrower of the terms and conditions hereinafter set forth,
Lender may, at its discretion, upon the request of Borrower, issue one or more
Letters of Credit for the account of Borrower. Each Letter of Credit shall be in
form and substance satisfactory to Lender. Without limiting the generality of
the preceding sentence, issuance of all Letters of Credit shall be on the
following terms and conditions:
(a) Stated Amount. The aggregate undrawn face amount(s) of all
outstanding Letters of Credit plus outstanding time drafts and/or bankers
acceptance shall not exceed the sum of Seven Hundred Thousand ($700,000.00)
Dollars at any one time.
(b) Term. No Letter of Credit shall have a stated term of more than
one (1) year as to stand-by Letters of Credit and ninety (90) days as to
documentary Letters of Credit.
(c) Application. Each Letter of Credit shall be issued in accordance
with Lender's then current practices relating to the issuance by Lender of
standby or documentary letters of credit, including, but not limited to,
the payment by Borrower of all applicable fees and other charges as
customarily imposed by Lender generally upon the issuance of Letters of
Credit. Each Letter of Credit shall be issued only after receipt by Lender
of its then current application and agreement for a standby or documentary
letter of credit, properly completed and executed by Borrower and delivered
to Lender at least three (3) Banking Days prior to the requested issuance
date.
(d) Requests for Letters of Credit; Conditions Precedent. Letters of
Credit may be requested by the Borrower at any time during which this
Agreement is in effect so long as (i) no Event of Default has occurred, and
(ii) no demand for payment has been made by Lender. Once requested, Letters
of Credit will be issued, at Lender's discretion, only after all conditions
precedent to the issuance thereof, have been satisfied, and all fees have
been paid.
(e) No Violation of Advance Limit. At no time may a Letter of Credit
be issued if such issuance would cause Borrower to be in violation of the
Advance Limit.
(f) Payment Obligations. The payment obligations of Borrower under
this Section 3 shall be absolute, unconditional and irrevocable and shall
be paid strictly in accordance with the terms of this Agreement under all
circumstances, including, without limitation, the following circumstances:
(i) the existence of any claim, set-off, defense or other right
which Borrower may have at any time against any beneficiary, or any
transferee, of any Letter of Credit (or any persons or entities for
whom any such beneficiary or any such transferee may be
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acting), or Lender or any other person or entity, whether in
connection with this Agreement, the transactions contemplated herein
or any unrelated transaction;
(ii) any statement or any other document presented under any
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iii) payment by Lender under any Letter of Credit against
presentation of a draft or certificate which does not comply with the
terms of such Letter of Credit, except payment where a court of
competent jurisdiction determines in a final, non-appealable judgment
to have resulted primarily and directly from the gross negligence or
willful misconduct of Lender; and
(iv) any other circumstances or occurrences whatsoever, whether
or not similar or dissimilar to any one or more of the foregoing,
except circumstances or occurrences which a court of competent
jurisdiction determines in a final, non-appealable judgment to have
resulted primarily and directly from the gross negligence or willful
misconduct of Lender.
(v) Supplemental Provisions. The provisions of any application
and agreement for any Letter of Credit are supplemental to, and not in
derogation of, any rights and remedies of Lender under this Agreement,
at law, in equity, by arbitration or otherwise.
3.2. Payments Under Letters of Credit
(a) Payments upon Draw. Upon the occurrence of any draw on any Letter of
Credit, Borrower hereby agrees to repay immediately to Lender on the same day
such draw is honored by Lender, in immediately available funds, the amount of
such draw, together with any and all costs or expenses which Lender may incur in
connection with such Letter of Credit, without any requirement of notice,
presentment or demand by Lender, all of which are hereby waived by Borrower. In
order to implement the foregoing, upon the occurrence of a draw under any Letter
of Credit, unless Lender is immediately so reimbursed by Borrower, Borrower
hereby irrevocably authorizes and directs Lender to treat such draw as a request
for a Revolving Loan in the amount of such draw, and Borrower hereby irrevocably
authorizes and directs Lender to make a Revolving Loan, bearing interest as set
forth in this Agreement, in the aggregate amount of such draw. Borrower further
hereby irrevocably authorizes and directs Lender to retain the proceeds of any
such Revolving Loan and credit such proceeds so as to immediately eliminate the
liability of Borrower to Lender pertaining to such draw.
(b) Payment Upon Bankruptcy Etc. If any Event of Default occurs,
specifically including those pursuant to Section 11.5, and at such time there
are outstanding unexpired Letters of Credit, Borrower hereby irrevocably
authorizes and directs Lender to make a Revolving Loan in the amount of the
aggregate undrawn face amount(s) of such unexpired Letters of Credit, the
proceeds of which Revolving Loan shall be placed in an interest-bearing
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deposit account for the sole benefit of and under the sole dominion and control
of Lender (the "Reimbursement Deposit Amount"), which shall be used to reimburse
Lender for draws upon any such unexpired Letters of Credit. If from time to
time, as draws on outstanding Letters of Credit have been honored and as
outstanding Letters of Credit expire, funds remain in the Reimbursement Deposit
Account in excess of the then aggregate undrawn face amount(s) of the remaining
Letters of Credit, those funds shall be returned to Lender and shall be applied
by Lender to reduce the outstanding Obligations.
(c) Payments After Termination of Facility. If all Obligations have been
paid and this Agreement terminated for any reason, Borrower shall either
immediately cause to be issued a standby letter of credit for the benefit of
Lender which shall be in all respects acceptable to Lender in its sole
discretion or immediately upon demand by Lender, deposit into, and keep on
deposit in, the Reimbursement Deposit Account, for the sole benefit of and under
the sole dominion and control of Lender, an amount equal to at least 105% of the
aggregate undrawn face amount(s) of all outstanding Letters of Credit, for the
purpose of providing Lender with a means of repayment of draws under any of the
Letters of Credit. At such time as Lender shall have no further obligations
under and pursuant to any Letter of Credit, Lender, after reimbursing itself for
all draws under any Letter of Credit and any customary fees or other expenses
due and owing in connection therewith, shall promptly remit the balance of the
Reimbursement Deposit Account, if any, to the order of Borrower.
(d) Reserve to Revolving Loan/Advances Not Discretionary. (i) Anything in
this Agreement to the contrary notwithstanding, the Advance Limit shall be
reduced at all times by the aggregate amounts to be drawn upon plus the
aggregate amounts drawn and remaining unpaid under all Letters of Credit; and
(ii) in no event shall any Revolving Loan made by Lender pursuant to and in
compliance with the terms and provisions of this Section 3 be deemed to be
discretionary or voluntary and Borrower covenants and agrees to pay, protect,
indemnify and hold harmless Lender from and against any and all costs and
expenses, including but not limited to, reasonable attorneys' fees and experts'
costs and expenses, incurred by Lender as a result of the allegation by any
Person or entity that the Revolving Loan in question was discretionary or
voluntary on the part of Lender.
3.3 Uniform Customs and Practices for Documentary Credits. Each Letter of
Credit shall be governed by, construed and enforced in accordance with the
Uniform Customs and Practices for Documentary Credits, 1993 Revision, ICC
Publication No. 500 as amended, updated or superseded from time to time (the
"UCP"). Anything in this Agreement to the contrary notwithstanding, in no event
shall Lender have any obligation to (a) issue a revolving documentary credit;
(b) issue an authenticated teletransmission or pre-advice of any Letter of
Credit; or (c) issue any Letter of Credit if Lender determines, which
determination shall be final and conclusive and binding on Borrower, that the
terms and conditions of the Letter of Credit sought by Borrower are not in
compliance with the internal policies of Lender, including, but not limited to,
if Lender determines that the use of proceeds of the Letter of Credit being
sought by Borrower, if drawn upon, are not in compliance with such internal
policies.
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4. INTEREST AND OTHER CHARGES:
4.1 Interest Rate. Except as herein provided, the Revolving Loan shall bear
interest during each calendar month at a fluctuating interest rate per annum
equal at all times to the Summit Bank Floating Base Rate plus one-half (1/2)
percentage point per annum. Each change in such rate shall take effect
contemporaneously with the corresponding change in the Summit Bank Floating Base
Rate, without notice to Borrower. Interest shall be calculated on a daily basis
upon the unpaid balance with each day representing 1/360th of a year.
4.2 Payment of Interest. Interest on the Revolving Loan shall be calculated
as at the end of each calendar month, is due on the fifth Banking Day of the
following month and shall be charged by Lender to any checking or loan account
maintained by Borrower. Any failure or delay by Lender in submitting invoices
for interest payments shall not discharge or relieve Borrower of the obligation
to make such interest payments.
4.3 Default Rate. Anything herein to the contrary notwithstanding, upon the
occurrence and during the continuance of an Event of Default hereunder, the
interest rate charged to Borrower on the Revolving Loan shall, at Lender's
discretion, be increased by two and three-quarters (2.75) percentage points per
annum in excess of the then applicable rate.
4.4 Maximum Rate. In no event shall the interest rate charged under this
Agreement be higher than the maximum lawful rate. In the event the interest rate
exceeds the maximum lawful rate, any such excess received by Lender shall be
deemed and applied as a payment of the principal balance.
4.5 Late Charge. Any payment of interest or principal due hereunder which
is received more than ten (10) days after the date due shall be subject to a
late charge of five (5%) percent of the amount of such payment which shall not
be less than $25.00 nor more than $2,500.00. Such late charge represents
reimbursement of various costs incurred by Lender in processing such late
payments and shall not be deemed to be additional interest hereunder.
4.6 Collateral Management Fee. Borrower shall pay to Lender a collateral
management fee in the sum of Fifteen Thousand ($15,000.00) Dollars per annum
which shall be deemed fully earned and non-refundable upon receipt. Such fee
shall be due and payable upon the execution hereof and annually, upon each
anniversary date hereof thereafter during the term of this Agreement.
4.7 Letter of Credit Fees. There shall be due and payable upon the issuance
and renewal of each standby Letter of Credit a fee of one (1%) percent of the
face amount of each such Letter of Credit together with the customary fees
generally charged to Lender's customers and upon issuance of each documentary
Letter of Credit, such customary fees only.
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5. SECURITY INTEREST:
5.1 Security Interest. (a) As collateral security for (i) the due and
punctual payment of the Revolving Loan, all interest thereon and any and all
extensions, renewals, substitutions and changes in form thereof; (ii) all other
Obligations of Borrower to Lender; and (iii) all costs and expenses incurred or
paid by Lender to enforce its rights pursuant to this Agreement, the Relevant
Documents or otherwise (including without limitation attorney's fees), Borrower
hereby pledges, transfers, assigns, sets over and grants to Lender, a security
interest in the Collateral, whether now existing or hereafter created and
whether now owned or hereafter acquired, wherever located, and all accessions
and additions thereto, replacements and substitutions therefor and proceeds and
products thereof.
(b) All Collateral heretofore, herein or hereafter given to the Lender
shall secure payment of the Revolving Loan and all of the Borrower's other
Obligations to Lender. Lender shall be under no obligation to proceed against
any or all of the Collateral before proceeding directly against Borrower, any
Guarantor or against any item of Collateral prior to any other item of
Collateral.
5.2 Continuation of Security Interest. The security interest granted in
this Agreement shall continue in full force and effect until the Borrower has
fully paid and discharged all Obligations.
5.3 Further Assurances. Borrower shall take such steps and execute and
deliver such financing statements and other documents all in form and substance
satisfactory to Lender relating to the creation, validity or perfection of the
security interests provided for herein, under the Uniform Commercial Code or
other laws of the State of New Jersey or of any other state or states as Lender
may from time to time request.
6. REPRESENTATIONS AND WARRANTIES:
6.1 Organization and Qualification. Borrower hereby represents and warrants
to Lender, knowing and intending that Lender shall rely thereon in making the
Loans contemplated hereby, that:
(a) Borrower has been and will continue to be a corporation duly
organized and validly existing and in good standing under the laws of the
State of Delaware and is and will continue to be qualified and in good
standing in all jurisdictions wherein the character of the property owned
or the nature of the business transacted by Borrower makes licensing or
qualification as a foreign entity necessary.
(b) A true, accurate and complete copy of Borrower's valid resolution
authorizing the transaction contemplated herein, and Borrower's certificate
of incorporation and by-laws all
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as in effect on the date hereof and certified by the Secretary of Borrower
have heretofore been delivered to Lender.
6.2 Due Authorization; No Default. (a) The execution, delivery and
performance of this Agreement and the Relevant Documents has been duly
authorized by all necessary action on the part of Borrower; is not inconsistent
with its certificate of incorporation, by-laws and other governing documents;
does not contravene any law, governmental rule, regulation or order applicable
to Borrower; and does not and will not contravene any provision of, or
constitute a default under, any indenture, mortgage, contract or other
instrument or any order, writ, injunction or decree to which Borrower is a party
or by which it or its properties or assets are bound.
(b) This Agreement and the Relevant Documents, upon their execution and
delivery, will constitute the legal, valid and binding agreements of Borrower,
enforceable in accordance with their terms.
6.3 No Governmental Consent Necessary. No consent or approval of, giving of
notice to, registration with or taking of any other action in respect of any
governmental authority or agency is required with respect to the execution,
delivery and performance by Borrower of this Agreement and the Relevant
Documents.
6.4 No Proceedings. There are no actions, suits, or proceedings pending or,
to the best of Borrower's knowledge, threatened against or affecting Borrower in
any court or before any governmental commission, board or authority which, if
adversely determined, will have an adverse effect on the ability of Borrower to
perform its responsibilities under this Agreement or the Relevant Documents; the
Borrower is not in default with respect to any order of any court, arbitrator or
governmental or non-governmental body; and the Borrower is not subject to or a
party to any order of any court or governmental or non-governmental body arising
out of any action, suit or proceeding under any statute or other law respecting
antitrust, monopoly, restraint of trade, unfair competition or similar matters.
6.5 Financial Statements. (a) Subject to any limitation stated therein, all
balance sheets, income statements and other financial data which have been or
shall hereafter be furnished to Lender to induce it to enter into this
Agreement, and to continue to provide financing under this Agreement or
otherwise in connection herewith, do and will truly and accurately represent the
financial condition of Borrower as at the respective dates thereof and the
results of its operations for the periods for which the same are furnished to
Lender. All other information, reports and other papers and data furnished to
Lender are, or will be at the time the same are so furnished, true, accurate and
complete in all material respects to the best of Borrower's knowledge. All such
financial statements and other information have been, or will have been at the
time of issuance: (i) as to annual financial statements, prepared by certified
public accountants in accordance with GAAP consistently applied; and (ii) as to
all other financial statements, internally prepared generally in accordance with
GAAP consistently applied.
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(b) Except as shown on the most recent financial statements which have been
delivered to Lender and are set forth on Schedule 6.5 annexed hereto and made
part hereof, Borrower has no other liabilities as of the date hereof which would
materially and adversely affect the financial condition of Borrower or the
Collateral.
6.6 Changes in Financial Condition. (a) There has been no material change
in Borrower's financial condition since the date of its last financial
statements as are set forth on Schedule 6.5.
(b) Borrower's assets, at fair valuation, exceed Borrower's liabilities
(including without limitation contingent liabilities); Borrower is paying its
debts as they become due; and Borrower has capital and assets sufficient to
carry on its business.
6.7 Accounts Receivable. The most recent list of Accounts Receivable of
Borrower delivered to Lender is complete as of the date thereof, and contains an
accurate aging thereof. All of said Accounts Receivable are collectible subject
only to the reserves established by Borrower, are subject to no counterclaims or
setoffs of any nature whatsoever except for bona fide disputes arising in the
ordinary course of business, and require no further act on the Borrower's part
to make such accounts owing by the Account Debtors. None of the Accounts
Receivable include any conditional sales (unless disclosed as to such Lender),
consignments or sales on any basis other than that of absolute sale in the
ordinary and usual course of business, except as otherwise set forth on said
list. No agreement has been made under which any deductions or discounts may be
claimed as to any such account except customary discounts or rebates in the
ordinary course of business.
6.8 Inventory. Borrower's Inventory (except as to the values of obsolete
items, items below standard quality and items in the process of repair all of
which have been written down to realizable market value, or adequate reserves
have been provided therefore) consists of items of a quality and quantity usable
or saleable in the ordinary course of its business and the values carried on
Borrower's balance sheet are set at the lower of cost or market, in accordance
with GAAP consistently applied.
6.9 Taxes and Assessments. Borrower has paid and discharged when due all
taxes, assessments and other governmental charges which may lawfully be levied
or assessed upon its income and profits, or upon all or any portion of any
property belonging to it, whether real, personal or mixed, to the extent that
such taxes, assessments and other charges have become due. Borrower has filed
all tax returns, federal, state and local, and all related information, required
to be filed by it.
6.10 ERISA. Borrower is in compliance in all material respects with the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), and the related provisions of the Internal Revenue Code, and with all
regulations and published interpretations issued thereunder by the United States
Treasury Department, the United States Department of Labor and the Pension
Benefit Guaranty Corporation ("PBGC"). Neither a reportable event as
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defined in Section 4043 of ERISA, nor a prohibited transaction as defined in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code, has occurred
and is continuing with respect to any employee benefit plan subject to ERISA
established or maintained, or to which contributions have been or may be made,
by Borrower or by any trade or business (whether or not incorporated) which
together with Borrower would be treated as a single employer under Section 4001
of ERISA (any such trade or business being referred to hereinafter as an "ERISA
Affiliate," and any such employee benefit plan being referred to hereinafter as
a "Plan"). No notice of intention to terminate a Plan has been filed nor has any
Plan been terminated; the PBGC has not instituted proceedings to terminate, or
to appoint a trustee to administer, any Plan, nor do circumstances exist that
constitute grounds for any such proceedings; and neither Borrower nor any ERISA
Affiliate has completely or partially withdrawn from any multiemployer Plan
described in Section 4001(a)(3) of ERISA. Borrower and each ERISA Affiliate has
met the minimum funding standards under ERISA with respect to each of its Plans;
no Plan of Borrower or of any ERISA Affiliate has an accumulated funding
deficiency or waived funding deficiency within the meaning of ERISA; and no
material liability to the PBGC under ERISA has been incurred by Borrower or any
ERISA Affiliate.
6.11 O.S.H.A/EPA. Borrower has duly complied with, and its facilities,
business assets, property, leaseholds and equipment are in compliance in all
material respects with, the provisions of the Federal Occupational Safety and
Health Act and the Environmental Protection Act, and all rules and regulations
thereunder and all similar state and local laws, rules and regulations; and
there have been no outstanding citations, notices or orders of noncompliance
issued to Borrower or relating to its business, assets, property, leaseholds or
equipment under any such laws, rules or regulations.
6.12 Environmental Matters. (a) Except as disclosed in Schedule 6.12 to
this Agreement, no property owned or used by Borrower and located in the State
of New Jersey is an "industrial establishment" within the meaning of the New
Jersey Industrial Site Recovery Act ("ISRA") or is or has been used for the
generation, manufacture, refining, transportation, treatment, storage, handling
or disposal of any "hazardous substances" or "hazardous wastes" within the
meaning of ISRA. The following are all of the Standard Industrial Classification
Codes applicable to the properties and operations of Borrower: 3651.
(b) Borrower is in compliance in all material respects with all applicable
federal, state and local statutes, rules, regulations, orders and other
provisions of law relating to air emissions, water discharge, noise emissions,
solid and liquid disposal, hazardous waste and substances, and other
environmental, health and safety matters.
6.13 No Other Violation. Borrower is not in violation of any term of its
certificate or articles of incorporation or by-laws and no event or condition
has occurred and is continuing which constitutes or results in, (or would
constitute or result in, with the giving of notice, lapse of time or other
condition):
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(a) A breach of or a default under any material agreement, undertaking or
instrument to which Borrower is a party or by which it may be affected; or
(b) The imposition of any lien, encumbrance or restriction on any property
of Borrower, except as noted in Schedule 6.16 hereof.
6.14 Margin Stock. No part of the proceeds of any Revolving Loan will be
used, directly or indirectly, to purchase or carry any "margin stock" (as
defined in Regulation U issued by the Board of Governors of the Federal Reserve
System), to extend credit to others for the purpose of purchasing or carrying
any such margin stock, or for any purpose that violates any provision of
Regulations G, T, U or X issued by the Board of Governors of the Federal Reserve
System.
6.15 Location of Collateral. As of the date hereof, none of the Collateral
to be granted to Lender pursuant to this Agreement or any Relevant Document, or
to be hereafter conveyed, is or will be located in or on any premises other than
those premises set forth on Schedule 6.15 annexed hereto and made part hereof.
Said Schedule contains an accurate record of all of the landlords of property
leased by and mortgagees of property owned by Borrower.
6.16 Other Liens. Borrower has good and marketable title to and owns all of
the Collateral and Inventory free and clear of any and all liens, encumbrances
or security interests whatsoever, except (a) those encumbrances created pursuant
to this Agreement; and (b) those encumbrances set forth on Schedule 6.16 annexed
hereto and made part hereof. None of the Collateral or Inventory is subject to
any prohibition against encumbering, pledging, hypothecating or assigning the
same or requires notice or consent prior to Borrower's doing of the same.
6.17 Books and Records. Borrower maintains its books and records relative
to the Collateral at 50 Spring Street, Ramsey, New Jersey 07446.
6.18 Representations and Warranties True, Accurate, and Complete.
(a) None of the representations, warranties or statements made to Lender
pursuant hereto or in connection with this Agreement or the transactions
contemplated hereby contains any untrue statement of a material fact, or omits
or will omit to state a material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances in which they are
made, not misleading.
(b) All warranties and representations made herein or in the Relevant
Documents by Borrower will be true and accurate at the time it requests Lender
to make Advances to it hereunder.
6.19 Names; Location of Office. Schedule 6.19 annexed hereto and made part
hereof sets forth a complete and accurate list of:
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(a) All names by which the Borrower is known or under which the
Borrower is conducting business, including, without limitation, its
corporate names and all trade names; and
(b) All offices and locations at or out of which the Borrower conducts
any of its business or operations, said Schedule 6.19 identifies each of
Borrower's chief executive offices if there are more than one.
7. AFFIRMATIVE COVENANTS:
Until payment in full of all Obligations and the termination of this
Agreement, Borrower covenants and agrees that it will:
7.1 Notify Lender. Promptly inform Lender if any one or more of the
representations and warranties made by Borrower in this Agreement or in any
documents related hereto shall no longer be entirely true, accurate and
complete.
7.2 Pay Taxes and Liabilities; Comply with Agreements, Promptly pay, when
due, all indebtedness, sums and liabilities of any kind now or hereafter owing
by Borrower to any party however created, incurred, evidenced, acquired, arising
or payable, including without limitation the Obligations, income and excise
taxes and taxes with respect to any of the Collateral, or any wages or salaries
paid by Borrower or otherwise, except such taxes or liabilities which are being
disputed in good faith in an appropriate forum for which adequate reserves have
been set aside.
7.3 Observe Covenants. etc. Observe, perform and comply with the covenants,
terms and conditions of this Agreement, the Relevant Documents and any other
agreement or document entered into between Borrower and Lender.
7.4 Maintain Corporate Existence and Qualifications. Maintain and preserve,
and cause any Subsidiary to maintain and preserve, in full force and effect, its
corporate existence and rights, franchises, licenses and qualifications
necessary to continue its businesses, and comply in all material respects with
all applicable statutes, rules and regulations pertaining to the operation,
conduct and maintenance of its existence and business including, without
limitation, all federal, state and local laws relating to Benefit Plans,
environmental, safety, or health matters, and hazardous or liquid waste or
chemicals or other liquids (including use, sale, transport and disposal
thereof).
7.5 Information and Documents to Be Furnished to Lender. Borrower shall
furnish to Lender:
(a) Annual Financial Statements. As soon as delivered to any other
creditor, but in no event later than ninety-five (95) days after the end of
each fiscal year, Borrower's balance
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sheet as at the end of such fiscal year, Borrower's statements of cash flow
for such fiscal year and Borrower's income and surplus statements for such
fiscal year, all in reasonable detail, all prepared in accordance with GAAP
consistently applied, on a consolidated and consolidating basis with the
Guarantors, and all audited without qualification by independent certified
public accountants of recognized standing selected by Borrower and
reasonably satisfactory to Lender, all in the form of the Form 10K
delivered by Borrower to the Securities and Exchange Commission, and
certified by the Chief Financial Officer of Borrower, which certification
shall include evidence of the method of calculating compliance with
financial covenants (if applicable) and shall affirmatively state as to all
quarterly statements that (i) such statements are true, accurate and
correct, (ii) such statements were internally prepared generally in
accordance with GAAP applied on a consistent basis and will be subject to
revisions only to the extent of immaterial year-end adjustments imposed by
Borrower's accountants; and (iii) as of the date of such statements no
Event of Default or event which, but for the lapse of time or giving of
notice or both, would constitute an Event of Default existed, and in
addition to such statements, any supplementary information to the financial
reports as Lender shall reasonably require.
(b) Quarterly Financial Statements. As soon as delivered to any other
creditor but in no event later than sixty (60) days after the end of each
quarterly fiscal period of Borrower, except the fourth such period in any
fiscal year, Borrower's balance sheet as at the end of such period, and
Borrower's cumulative income and surplus statements for the period
beginning on the first day of such fiscal year and ended on the date of
such balance sheet, all in reasonable detail all internally prepared
generally in accordance with GAAP consistently applied, on a consolidated
and consolidating basis with the Guarantors, all in the form of Form 10Q
delivered by Borrower to the Securities and Exchange Commission, and
certified by the Chief Financial Officer of Borrower, which certification
shall include evidence of the method of calculating compliance with
financial covenants and shall affirmatively state that (i) such statements
are true, accurate and correct, (ii) such statements were internally
prepared generally in accordance with GAAP applied on a consistent basis
and will be subject to revisions only to the extent of immaterial year-end
adjustments imposed by Borrower's accountants; and (iii) as of the date of
such statements no Event of Default or event which, but for the lapse of
time or giving of notice or both, would constitute an Event of Default
existed, and in addition to such statements, any supplementary information
to the financial reports as Lender shall reasonably require.
(c) Accountant Privity Letter. Contemporaneous with the delivery of
each of the audited financial statements required by Subsection 7.5(a)
above, a written acknowledgment by the accountants auditing such statements
of Lender's reliance upon such statements in making the Revolving Loans and
other accommodations contemplated by this Agreement.
(d) Attestation Form. Contemporaneously with the delivery of each
financial statement required by Sections 7.5(a) and (b) above, an
attestation form substantially in the form of Exhibit "B" attached hereto
and made a part hereof, signed by an authorized officer of Borrower and
attesting to the truthfulness and accuracy of the information set forth in
such financial statements.
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(e) Borrowing Base Certificate. Not less than weekly, or more
frequently if Lender shall require at any time during the continuance of an
Event of Default and/or when the aggregate outstanding Revolving Loan
exceeds the Advance Limit, a complete, dated and signed Borrowing Base
Certificate in form and substance acceptable to Lender.
(f) Daily Reports. Daily, if Lender shall require at any time during
the continuance of an Event of Default and/or the aggregate outstanding
Revolving Loan exceeds the Advance Limit, reports of all sales and receipts
for the previous business day together with copies of all invoices
evidencing such sales.
(g) Inventory Reports. (i) On or before the tenth (10th) day of each
month (but on or before the thirtieth (30th) day of the last month in each
fiscal year only), or (ii) more frequently if Lender shall require at any
time during the continuance of an Event of Default and/or when the
aggregate outstanding Revolving Loan exceeds the Advance Limit, a report
satisfactory to Lender setting forth the type and value of Inventory (which
value shall be determined on the basis of the lower of cost of market
values then prevailing) and the location of said Inventory.
(h) Accounts Receivable Aging Reports. On or before the tenth (10th)
day of each month (but on or before the thirtieth (30th) day of the last
month in each fiscal year only), a detailed and summary aging report
setting forth the amount due and owing on Accounts Receivable on Borrower's
books as of the close of the preceding month, together with a
reconciliation report satisfactory to Lender showing all sales,
collections, payments and adjustments to Accounts Receivable on Borrower's
books and showing a reconciliation, substantially in the form of Exhibit
"C" attached hereto and made a part hereof to Borrower's bank statement(s),
all as of the close of the preceding month.
(i) Accounts Payable Reports. On or before the tenth (10th) day of
each month (but on or before the thirtieth (30th) day of the last month in
each fiscal year only), a detailed report setting forth the amount due and
owing on the Borrower's accounts payable on Borrower's books as of the
close of the preceding month, in a form satisfactory to Lender.
(j) Customer Lists. Within thirty (30) days of the execution hereof
and annually on the same date of each year thereafter, a detailed customer
list setting forth each of Borrower's customers to whom sales were made
during the immediately preceding twelve (12) month period, including the
address, telephone number and contact person for each.
(k) Income Tax Return. Within ten (10) days of filing with the
Internal Revenue Service, a true and complete copy of its signed Federal
income tax return and of the signed Federal income tax returns of the
Guarantors.
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(l) Change in Status, Immediately, notice of any change in the status
of an Account Receivable or Inventory from that which is Qualified to that
which is not, if such change would result in the outstanding Revolving Loan
exceeding the Advance Limit.
(m) Rejection, Delay, Claims. Immediately, notice of the rejection of
goods, delay in performance, or claims made in regard to Accounts
Receivable which, would result in the outstanding Revolving Loan exceeding
the Advance Limit.
(n) ERlSA Documents. All ERISA reports, notices, returns and all other
documents filed as required by or in compliance with ERISA, whether to the
Internal Revenue Service, the Department of Labor, the Pension Benefit
Guaranty Corporation or any other appropriate agency, and all documents and
information distributed to participants in any Plan.
(o) Notice of Environmental, Health or Safety Complaints. Within five
(5) Banking Days of receipt, notice or copies if written of all claims,
complaints, orders, citations or notices, whether formal or informal,
written or oral, from any governmental body or private person or entity,
relating to air emissions, water discharge, noise emission, solid or liquid
waste disposal, hazardous waste or materials, or any other environmental,
health or safety matter. Such notices shall include, among other
information, the name of the party who filed the claim, the potential
amount of the claim, and the nature of the claim.
(p) Other Information. Immediately upon demand:
(i) Certificates of insurance for all policies of insurance to be
maintained by Borrower pursuant hereto;
(ii) An estoppel certificate executed by an authorized officer of
the Borrower indicating that there then exists no Event of Default and
no event which, with the giving of notice or lapse of time, or both,
would constitute an Event of Default under any agreement to which
Borrower is a party;
(iii) All original and other documents evidencing right to
payment, including but not limited to invoices, original orders,
shipping and delivery receipts;
(iv) All information received by Borrower indicating an adverse
change in the financial status or condition of any Account Debtor;
(v) Assignments, in form acceptable to Lender, of all Accounts
Receivable, and of the monies due or to become due on specific
contracts relating to the same in any instance where such an
assignment is required in order for Lender to act upon its security
interest in such Accounts; and
(vi) From time to time, such other information as Lender may
reasonably request.
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7.6 Access to Records and Property. At any time and from time to time, upon
request by Lender, give any representatives of Lender access during normal
business hours to, and permit any of them to examine, copy or make extracts
from, any and all books, records and documents in the possession of Borrower or
any independent contractor relating to Borrower's affairs and the Collateral,
and to inspect any of its properties wherever located.
7.7 Comply With Laws. Comply with the requirements of all applicable laws,
rules, regulations and orders of any governmental authority, compliance with
which is necessary to maintain its corporate existence or the conduct of its
business or noncompliance with which would materially and adversely affect its
ability to perform its responsibilities or any security given to secure its
Obligations.
7.8 Insurance Required. (a) Cause to be maintained, in full force and
effect on all property given as collateral security for all Obligations,
insurance in such amounts and against such risks as is satisfactory to Lender,
including, but without limitation, product liability, fire, boiler, theft,
burglary, pilferage, loss in transit, and hazard insurance. Said insurance
policy or policies shall:
(i) Be in a form and with insurers which are satisfactory to Lender;
(ii) Be for such risks and for such insured values as Lender or its
assigns may require in order to replace the property in the event of actual
or constructive total loss;
(iii) Designate Lender and its assignees, as additional insureds and
lender loss payees as their interests may from time to time appear;
(iv) Contain a "breach of warranty clause" whereby the insurer agrees
that a breach of the insuring conditions or any negligence by Borrower or
any other person shall not invalidate the insurance as to Lender and its
assigns; and
(v) Provide that they may not be canceled or materially altered
without thirty (30) days prior notice to the Lender and its assigns.
(b) Additional Insurance. Obtain such additional insurance as Lender may
reasonably require.
(c) Notice of Loss. In the event of loss or damage, forthwith notify Lender
and file proofs of loss with the appropriate insurer. Borrower hereby authorizes
Lender to endorse any checks or drafts constituting insurance proceeds.
(d) Policies and Proof of Payment. Upon demand, deliver to Lender the
original of each policy evidencing insurance required to be maintained under
this Agreement, together with evidence of payment of all premiums therefor.
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(e) Proceeds, Forthwith upon receipt of insurance proceeds endorse and
deliver the same to Lender.
(f) No Duty for Lender. In no event shall Lender be required either to (i)
ascertain the existence of or examine any insurance policy or (ii) advise
Borrower in the event such insurance coverage shall not comply with the
requirements of this Agreement.
7.9 Condition of Property; No Liens. Maintain all property conveyed to
Lender as collateral security for any Obligations in good condition and repair
at all times, preserve it against any loss, damage, or destruction of any nature
whatsoever relating to said property or its use, and keep said property free and
clear of any liens and encumbrances whatsoever, except those liens and
encumbrances created pursuant hereto or disclosed herein.
7.10 Payment of Proceeds. Forthwith upon receipt of all proceeds of
Collateral, pay such proceeds over to Lender in the form received, and such
proceeds shall thereupon become Lender's sole property.
7.11 Further Assurances. At any time or from time to time upon request of
Lender, execute and deliver such further documents and do such other acts and
things as Lender may reasonably request in order to effectuate more fully the
purposes of this Agreement, the Relevant Documents and any other instruments,
documents and agreements which shall be executed simultaneously herewith, or
which may hereafter be executed by Borrower with regard to the transactions
contemplated hereby.
7.l2 Pay Legal Fees and Expenses. Pay to Lender, upon demand, together with
interest at the rate set forth in Section 4.3 hereof, from the date when billed
or advanced by Lender until repaid by Borrower all costs, expenses or other sums
billed or advanced by Lender (including reasonable legal fees and disbursements)
to preserve, collect, protect its interest in or realize on the Collateral, and
to enforce Lender's rights as against Borrower, any Account Debtor or Guarantor,
or in the prosecution or defense of any action or proceeding related to the
subject matter of this Agreement or the Relevant Documents, including without
limitation legal fees, expenses and disbursements unless a court determines
otherwise. All such expenses, costs and other sums shall be deemed Obligations
secured by the Collateral.
7.13 Records. At all times keep accurate and complete records of the
Collateral and the status of each Account Receivable.
7.14 Banking Relationship. Borrower shall maintain its primary operating
account(s) at a branch of Lender.
7.15 Delivery of Documents. If any proceeds of Accounts Receivable shall
include or any of the Accounts Receivable shall be evidenced by notes, trade
acceptances or instruments or documents, or if any Inventory is covered by
documents of title or chattel paper, whether or not
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negotiable, Borrower shall immediately deliver them to Lender appropriately
endorsed. Borrower waives protest regardless of the form of the endorsement. If
Borrower fails to endorse any instrument or document, Lender is authorized to
endorse it on Borrower's behalf.
7.16 United States Contracts. If any of the Qualified Accounts Receivable
arise out of contracts with the United States or any of its departments,
agencies or instrumentalities, Borrower will notify Lender, and if required by
Lender, execute any necessary instruments in order that all money due or to
become due under such contract shall be assigned to Lender and proper notice of
the assignment given under the Federal Assignment of Claims Act.
8. NEGATIVE COVENANTS:
Until payment in full of all Obligations, Borrower covenants and agrees
that it will not:
8.1 No Consolidation, Merger, Acquisition. Consolidate with, merge with, or
acquire the stock or assets of any Person, firm, joint venture, partnership,
corporation, or other entity, whether by merger, consolidation, purchase of
stock or otherwise, provided, however, that Borrower (a) may merge with
Guarantor, Bogen Corporation, so long as: (i) Borrower is the survivor of such
merger; (ii) Borrower does not change its name; (iii) there are no encumbrances
on the assets of Bogen Corporation existing as of the effective date of such
merger; and (d) the consummation of such merger will not cause or result in the
occurrence of an Event of Default hereunder; and (b) may request Lender's
consent for acquisitions in the future which Lender shall consider on a
case-by-case basis and any such request shall be subject to Lender's consent.
8.2 Disposition of Assets or Collateral. Sell, lease, transfer, convey or
otherwise dispose of any or all of its assets or Collateral, other than the sale
or lease of Inventory in the ordinary course of business.
8.3 Other Liens Incur, create or permit to exist any mortgage, assignment,
pledge, hypothecation, security interest, lien or other encumbrance on any of
its property or assets, whether now owned or hereafter acquired, except (a)
liens for taxes not delinquent; (b) those liens in favor of Lender created by
this Agreement and Relevant Documents; and (c) those liens set forth on Schedule
6.16 annexed hereto and made part hereof.
8.4 Negative Pledges. Incur, create or permit to exist any negative pledge
in any other mortgage, security agreement, pledge, hypothecation or other
agreement entered into between Borrower with any other Person.
8.5 Other Liabilities, Incur, create, assume or permit to exist any
indebtedness or liability on account of either borrowed money or the deferred
purchase price of property, except (a) Obligations to Lender; or (b)
indebtedness subordinated to payment of the Obligations on terms approved by
Lender in writing; or (c) those liabilities existing on the date hereof.
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8.6 Loans. Make loans to any Person, except loans to Bogen Communications
International, Inc. which shall not, in the aggregate, exceed Three Hundred
Fifty Thousand ($350,000.00) Dollars per annum, so long as the making of such
loan does not cause or result in the occurrence of an Event of Default.
8.7 Guarantees. Except for the benefit of Lender, assume, guarantee,
endorse, contingently agree to purchase or otherwise become liable upon the
obligation of any Person, firm or entity except (a) by the endorsement of
negotiable instruments for deposit or collection or similar transactions in the
ordinary course of business; or (b) contingent obligations under letters of
credit entered into in the ordinary course of business for the purchase of
merchandise for resale.
8.8 Remove Property. Remove, or cause or permit to be removed any of its
Collateral or assets from those premises set forth on Schedule 6.15 annexed
hereto and made part hereof, except for sales of Inventory in the ordinary
course of Borrower's business.
8.9 Transfers of Notes or Accounts Receivable. Sell, assign, transfer,
discount or otherwise dispose of any Accounts Receivable or any promissory note
payable to it with or without recourse, except for collection without recourse
in the ordinary course of business.
8.10 Dividends. Declare or pay any cash dividend or make any distribution
on, or redeem, retire or otherwise acquire directly or indirectly, any share of
its stock, including all payments to any Person of which Borrower or Borrower's
parent is a Subsidiary, whether characterized as management fees or interest, or
any other upstreaming of funds, however characterized except as expressly
permitted by Subsection 8.6 above.
8.11 Modification of Documents. Change, alter or modify, or permit any
change, alteration or modification of its certificate of incorporation, by-laws
or other governing documents.
8.12 Change Business. Materially change or alter the nature of its
business.
8.13 Settlements. Compromise, settle or adjust any claims in a material
amount relating to any of the Collateral.
8.14 Change Location or Name. Change the place where its books and records
are maintained or change its name or transact business under any other names.
8.15 Transactions With Affiliates. Enter into any transaction with an
Affiliate or Subsidiary on terms less advantageous to Borrower than those that
could be obtained from any other Person in an arms-length transaction.
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8.16 Sale of Inventory. Sell any of its Inventory on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval or consignment basis, or any
other basis subject to a repurchase obligation or right to return, except
Acceptable Conditional Sales.
8.17 Tangible Net Worth. Cause, suffer or permit Tangible Net Worth (as
hereinafter defined) to be or become less than Four Million ($4,000,000.00)
Dollars as at June 30, 1997, Six Million Seven Hundred Fifty Thousand
($6,750,000.00) Dollars as at December 31, 1997, and Six Million Nine Hundred
Thousand ($6,900,000.00) Dollars as at June 30, 1998, and as at the time of any
determination thereof thereafter. For the purposes of this Agreement the term
"Tangible Net Worth" shall mean, as of the time of any determination thereof,
the difference between (a) the sum of (i) the par value (or value stated on the
books of Borrower) of the capital stock of all classes of Borrower plus (or
minus in the case of a deficit) (ii) the amount of Borrower's surplus, whether
capital or earned, minus (b) the sum of treasury stock, unamortized debt
discount and expense, good will, trademarks, trade names, patents, deferred
charges and other intangible assets, and any write-up of the value of any
assets, all determined in accordance with GAAP applied on a consistent basis.
8.18 Leverage Ratio. Cause, suffer, or permit the ratio of Borrower's
Indebtedness (as hereinafter defined) to Borrower's Tangible Net Worth (as
hereinabove defined), as determined in accordance with GAAP applied on a
consistent basis, to exceed: 2.00 to 1.00 as at June 30, 1997, 1.50 to 1.00 as
at December 31, 1997; 1.25 to 1.00 as at June 30, 1998 and as at the time of any
determination thereof thereafter. For the purposes of this Agreement, the term
"Indebtedness" shall mean all obligations of Borrower, which, in accordance with
GAAP, should be classified upon the balance sheet of Borrower as liabilities, or
to which reference should be made by footnotes thereto, including without
limitation, in any event and whether or not so classified: all debt and similar
monetary obligations; all obligations arising or incurred under or in respect of
any guarantees (whether direct or indirect) of liabilities of any other Person;
all obligation arising or incurred under or in respect of any mortgage, lien,
pledge, charge, security interest or other encumbrance upon or in property owned
by Borrower for the benefit of any other Person, even though Borrower has not
assumed or become liable for the payment of the obligations secured thereby.
8.19 Pretax Profit. Cause, suffer or permit Borrower's net profit,
determined in accordance with GAAP applied on a consistent basis (but prior to
deductions for taxes and extraordinary items), to be or become less than Seven
Hundred Fifty Thousand ($750,000.00) Dollars as at June 30, 1997, One Million
Two Hundred Fifty Thousand ($1,250,000.00) Dollars as at December 31, 1997, and
Eight Hundred Fifty Thousand ($850,000.00) Dollars as at June 30, 1998 and as at
any time of the determination thereof thereafter.
8.20 Capital Expenditures. Enter into any agreements to purchase or pay for
or become obligated to pay for capital expenditures, long term leases, capital
leases and/or sale lease-backs during any fiscal year in an amount aggregating
in excess of One Million ($1,000,000.00) Dollars.
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9. MISCELLANEOUS RIGHTS AND DUTIES OF LENDER:
9.1 Charges Against Credit Balances. Lender, without demand and acting in
its sole and absolute discretion, in each instance, may charge and withdraw from
any credit balance which Borrower may then have with Lender or any of its
branches, or which Borrower may have with any affiliate of Lender, any amount
which shall become due from Borrower to the Lender under this Agreement.
9.2 Remittances. Borrower covenants and agrees (a) to receive in trust for
Lender, all payments for the sale of goods or the performance of services and in
each case, whether by cash, checks, drafts, notes, acceptances or other forms of
payment; and (b) deliver such payments to Lender in the identical form in which
received.
9.3 Collections; Modification of Terms. Lender may, in its sole and
absolute discretion, and at any time after the occurrence or during the
continuance of an Event of Default, with respect to any of the Collateral,
demand, sue for, collect or receive any money or property, at any time payable
or receivable on account of or in exchange for, or make any compromises it deems
desirable including without limitation extending the time of payment, arranging
for payment in installments, or otherwise modifying the terms or rights with
respect to any of the Collateral, all of which may be effected without notice to
or consent by Borrower and without otherwise discharging or affecting the
Obligations, the Collateral or the security interests granted hereunder.
9.4 Notification of Account Debtors. At any time after the occurrence and
during the continuance of an Event of Default, Lender may notify the Account
Debtors on any of the Accounts Receivable to make payment directly to Lender,
and Lender may endorse all items of payment received by it which are payable to
Borrower. Borrower, at the request of Lender, shall notify the Account Debtors
of Lender's security interest in its Accounts Receivable. Until such time as
Lender elects to exercise its right of notification, Borrower is authorized to
collect and enforce the Accounts Receivable under the terms and conditions set
forth in Section 9.2 hereof.
9.5 Uniform Commercial Code. At all times prior and subsequent to an Event
of Default, Lender shall be entitled to all the rights and remedies of a secured
party under the Uniform Commercial Code as enacted in New Jersey, as the same
may be amended from time to time, (N.J.S.A. 12A:9-101 et seq.), with respect to
all Collateral.
9.6 Preservation of Collateral. At all times prior and subsequent to an
Event of Default hereunder, Lender may take any and all action which in its sole
and absolute discretion is necessary and proper to preserve its interest in the
Collateral, including without limitation the payment of debts of Borrower which
might in Lender's sole and absolute discretion, impair the Collateral or
Lender's security interest therein, purchasing insurance on the Collateral,
repairing the Collateral, or paying taxes or assessments thereon, and the sums
so expended by Lender shall be secured by the Collateral, shall be added to the
amount of the Obligation due Lender and shall
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be payable on demand with interest at the rate set forth in Section 4.3 hereof
from the date expended by Lender until repaid by Borrower.
9.7 Mails. From and after an Event of Default, Lender is authorized to (and
Borrower shall, upon request of Lender) notify the postal authorities to deliver
all mail, correspondence or parcels addressed to Borrower to Lender at such
address as Lender may direct, provided, however, that Lender shall promptly
forward all mail to Borrower which is unrelated to the Collateral.
9.8 Lender's Right to Cure. In the event Borrower shall fail to perform any
of its responsibilities hereunder or under any of the Relevant Documents, then
Lender, in addition to all of its rights and remedies hereunder, may perform the
same, but shall not be obligated to do so, at the cost and expense of Borrower.
In any such event, Borrower shall promptly reimburse Lender together with
interest at the rate set forth in Section 4.3 hereof from the date such sums are
expended until repaid by Borrower.
9.9 Test Verifications. Lender shall have the right to make test
verifications of any and all Accounts Receivable in any manner, whether oral or
written, and through any medium, including telephonically, which Lender
considers advisable, and Borrower shall render any necessary assistance to
Lender.
9.10 Power of Attorney. Lender is hereby irrevocably appointed by Borrower
as its lawful attorney and agent in fact to execute financing statements and
other documents and agreements as Lender may deem necessary for the purpose of
perfecting any security interests, mortgages or liens under any applicable law.
Further, Lender is hereby authorized to file on behalf of Borrower, in its name,
and at its expense, such financing statements, documents or agreements in any
appropriate governmental office. Borrower hereby grants a Power of Attorney to
Lender to endorse Borrower's names on checks, notes, acceptances, drafts and any
other instruments requiring Borrower's endorsement, to change the address where
Borrower's mail should be sent and to open all mail and to do such other acts
and things necessary to effectuate the purposes of this Agreement. All acts by
the Lender or its designee are hereby ratified and approved, and neither the
Lender, nor its designee shall be liable for any acts of omission or commission,
or for any error of judgment or mistake, except for gross negligence or willful
misconduct. Borrower hereby grants a Power of Attorney to Lender to file proofs
of loss respecting the Collateral with the appropriate insurer and to endorse
any checks or drafts constituting insurance proceeds. The powers of attorney
granted to Lender in this Agreement are coupled with an interest and are
irrevocable so long as this Agreement is in force or any Obligation shall remain
unpaid. Although fully vested hereby as Borrower's attorney-in-fact, Lender
shall refrain from exercising such powers unless and until an Event of Default
occurs hereunder.
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10. CONDITIONS TO MAKING EXTENSIONS OF CREDIT:
10.1 Initial Extension of Credit. The obligation of Lender to make the
first Advance hereunder is subject to the satisfaction of each of the following
conditions precedent:
(a) Loan Documents. Receipt by Lender of a fully executed copy of this
Agreement with complete Schedules and all Related Documents.
(b) Financing Statements. Receipt by Lender of verification that all
required Uniform Commercial Code Financing Statements requested by it have
been filed in the appropriate jurisdiction(s).
(c) Landlord's Waivers. Receipt by Lender of landlord's waivers for
each real property location occupied by Borrower, executed by the owner
and/or lessor of such location.
(d) Guaranty Agreement. Receipt by Lender of a guaranty agreement
executed by the Guarantors in form and substance acceptable to Lender and
its counsel and any Relevant Document to be delivered in connection
therewith.
(e) Deposit Account; Lockbox Agreements. Receipt by Lender of (i)
evidence satisfactory to it that Borrower has opened a deposit account with
Lender, and (ii) the fully executed lockbox agreement.
(f) Insurance. Receipt by Lender of copies of Borrower's insurance
policies containing a long-form lender loss payable endorsement
satisfactory to Lender and which in all other respects comply with the
requirements hereof.
(g) Searches. Receipt by Lender of lien, judgment and standing
searches with respect to Borrower and each Guarantor satisfactory to
Lender.
(h) Inventory Appraisal. Receipt by Lender of Inventory appraisals for
all locations operated by Borrower in form and substance satisfactory to
Lender.
(i) Field Examination. Completion by Lender of its field examinations
of Borrower's Accounts and Inventory, with results satisfactory to Lender.
(j) Accountant Review Letter. Receipt by Lender of a written review by
Borrower's accountant, of Borrower's financial statement for the third
quarterly fiscal period of 1996.
(k) Completion of Due Diligence. Receipt by Lender of all information
requested from Borrower in connection with Lender's due diligence review of
Borrower and all other parties, and completion of such review by Lender,
with results satisfactory to Lender.
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(l) Officer's Certificate. Receipt by Lender of an officer's
certificate for Borrower and each Guarantor, showing the names of the
officers, directors and shareholders (except for any public company) of
such Person with their respective titles and appending as exhibits all
governing documents and enabling resolutions for this transaction.
(m) Opinion of Counsel. Receipt by Lender of an opinion of the counsel
to Borrower and the Guarantors, addressed to Lender and in all respects
satisfactory to Lender and its counsel including, without limitation,
confirmation of the status of the outstanding accounts payable to
Borrower's supplier, Reshef, Inc.
(n) Borrowing Base Certificate. Receipt by Lender of a Borrowing Base
Certificate, dated as of the date hereof and executed by an authorized
officer of Borrower, evidencing sufficient availability to support the
initial Advance requested hereunder.
(o) Payoff Letters/Termination. Receipt by Lender of (i) pay-off
letters from each existing lender to Borrower whose loans are being repaid
with proceeds of the Loans in form satisfactory to Lender; and (ii) receipt
of all UCC Termination Statements and other documents and instruments of
termination and release necessary so that the security interests granted to
Lender pursuant to this Agreement and the Relevant Documents are first and
prior liens and security interests.
(p) Fees. Receipt by Lender of all fees and expenses which are payable
to Lender, its counsel, or to third-party providers of services related to
the closing of this transaction.
(q) Existing Lockbox. Receipt by Lender, within forty-five (45) days
of the date hereof, written confirmation that Borrower's lockbox at PNC
Bank, N.A. has been closed.
(r) Miscellaneous. Receipt by Lender of such other documents,
instruments, records, opinions, assurances and papers as Lender or its
counsel may reasonably require, all in form and substance satisfactory to
Lender and its counsel.
10.2 Conditions to All Advances.
(a) Lender's obligation to advance any Revolving Loan or to issue any
Letter of Credit is subject to the condition that, as of the date of such
advance or issuance, no Event of Default or event which, for the lapse of time
or giving of notice or both would constitute an Event of Default, shall have
occurred and be continuing.
(b) Borrower's acceptance of each Revolving Loan under this Agreement shall
constitute reaffirmation of all representations and warranties set forth herein.
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11. DEFAULT:
The occurrence of any of the following shall constitute an Event of Default:
11.1 Failure to Pay. Borrower fails to pay, when due any payment of
principal, interest or other charges due and owing to Lender pursuant to any
Obligations of Borrower to Lender including, without limitation, those
Obligations arising pursuant to this Agreement or any Relevant Document, or
under any other agreement for the payment of monies then due and payable to
Lender;
11.2 Failure to Perform. Borrower's failure to perform or observe any
covenant, term or condition of this Agreement or under any Relevant Documents to
be performed or observed by Borrower;
11.3 Cross Default; Default on Other Debt. A default on any of the
Obligations (with the exception of defaults covered by Subsection 11.1 and 11.2
above) or any default on any other obligation or indebtedness of Borrower or any
Guarantor to any Person so that the holder of such indebtedness declares such
indebtedness due prior to its date of maturity because of Borrower's or such
Guarantor's default thereunder;
11.4 False Representation or Warranty. Borrower or any Guarantor shall have
made any statement, representation or warranty in this Agreement or in any
document or certificate executed by Borrower incident to this Agreement, which
is at any time found to have been false in any material respect at the time such
representation or warranty was made;
11.5 Petition by or Against Borrower. Borrower or any Guarantor ceases to
do business as a going concern, or there is filed by or against Borrower or any
Guarantor, any petition with respect to its own financial condition under any
bankruptcy law or any amendment thereto (including without limitation a petition
for reorganization, arrangement or extension) or under any other insolvency laws
providing for the relief of debtors and, in the case of involuntary proceedings
only, such proceeding is not stayed or dismissed within forty-five (45) days of
its filing;
11.6 Appointment of Receiver. A receiver, custodian, trustee, conservator
or liquidator is appointed for Borrower or any Guarantor, or all or a
substantial part of its assets; or Borrower or any Guarantor shall be
adjudicated bankrupt, insolvent or in need of any relief provided to debtors by
any court;
11.7 Judgments; Levies. If any final judgment or judgments (except those
covered by insurance), or any levy, sequestration, or attachment, which in the
aggregate exceed $25,000.00, against Borrower or its property, remains unpaid,
undischarged, unsatisfied, unbonded or undismissed for a period of thirty (30)
days after Borrower has received notification of the entry thereof;
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11.8 Change in Condition. There occurs any material and adverse change in
the condition or affairs, financial or otherwise, of Borrower or of any
Guarantor which, in the opinion of Lender, impairs Lender's security or
increases its risk;
11.9 Change in Ownership/Management. At any time there is any change in the
ownership of a controlling or significant interest (more than 30%) of the issued
and outstanding voting stock of Borrower or any material and adverse change (as
reasonably determined by Lender) in the management of Borrower;
11.10 Liquidation or Dissolution. The liquidation and/or dissolution of
Borrower or any Guarantor;
11.11 Environmental Claim. At any time the Lender determines that an
environmental claim will have a potentially material adverse effect on the
financial condition of Borrower; or
11.12 Failure to Notify. If at any time the Borrower fails to provide
Lender immediately with notice or copies, if written, of all complaints, orders,
citations or notices with respect to environmental, health or safety complaints
as required by Section 7.5.
12. REMEDIES:
12.1 Acceleration; Proceed Against Collateral. Upon the occurrence of an
Event of Default:
(a) The total amount (the "Default Amount") of (i) the aggregate
amount of all Obligations for principal and interest, including late
charges thereon, and all other sums which are then due and unpaid; and (ii)
an amount equal to the aggregate amount of all principal remaining to be
repaid on all Obligations; and (iii) interest on the foregoing sums, at the
rate provided for in Section 4.3 hereof, from said occurrence until paid in
full shall, at the option of Lender, become immediately due and payable
without notice or demand; and
(b) Lender may forthwith give written notice to Borrower, whereupon
Borrower shall, at its expense, promptly deliver any or all Collateral to
such place as Lender may designate, or Lender shall have the right to enter
upon the premises where the Collateral is located and take immediate
possession of and remove the Collateral without liability to Lender except
such as is occasioned by the gross negligence of Lender, its employees or
agents. In the event Lender obtains possession of the Collateral, Lender
may sell, lease or otherwise dispose of any or all of the Collateral at
public or private sale, at such price or prices as Lender may deem best,
either for cash, on credit, or for future delivery, in bulk or in parcels
and/or lease or retain the Collateral repossessed using it or keeping it
idle. Notice of any sale or other disposition shall be given to the
Borrower at least ten (10) days before the time of any intended sale or
disposition of the Collateral is to be made, which the Borrower hereby
agrees shall be reasonable notice of such sale or other disposition. Lender
may also elect to retain the Collateral or any part thereof
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in satisfaction of Borrower's Obligations. The proceeds, if any, of any
such sale or leasing by Lender shall be applied: First, to the payment of
all fees and expenses incurred by Lender, including without limitation any
reasonable legal fees and expenses; Second, to pay the Default Amount to
the extent not previously paid by Borrower; and Third, to pay any excess
remaining thereafter to Borrower.
12.2 Set-off.
(a) Upon the occurrence of an Event of Default, Lender shall have the
right, immediately and without notice or other action to set-off against any of
the Borrower's liabilities to Lender any money owed by Lender (or any affiliate
of Lender) in any capacity to Borrower, whether or not due, and Lender shall be
deemed to have exercised such right of set-off and to have made a charge against
any such money immediately upon the occurrence of such Event of Default even
though the actual book entries may be made at a time subsequent thereto.
(b) If other lenders have participated with the Lender with respect to the
Lender's making loans to the Borrower pursuant to the terms hereof, then,
Borrower hereby authorizes such other participating lenders, upon the occurrence
of an Event of Default, immediately and without notice or other action, at the
request of Lender, to set off against any of the Borrower's liabilities to
Lender any money owed by such participating lenders in any capacity to Borrower,
whether or not due, and to remit the monies set off to the Lender.
12.3 Cumulative Remedies; Waivers. No remedy referred to herein is intended
to be exclusive, but each shall be cumulative and in addition to any other
remedy referred to above or otherwise available to Lender at law or in equity.
No express or implied waiver by Lender of any default or Event of Default
hereunder shall in any way be, or be construed to be, a waiver of any future or
subsequent default or Event of Default. The failure or delay of Lender in
exercising any rights granted it hereunder upon any occurrence of any of the
contingencies set forth herein shall not constitute a waiver of any such right
upon the continuation or recurrence of any such contingencies or similar
contingencies and any single or partial exercise of any particular right by
Lender shall not exhaust the same or constitute a waiver of any other right
provided herein. The Events of Default and remedies thereon are not restrictive
of and shall be in addition to any and all other rights and remedies of Lender
provided for by this Agreement and applicable law.
12.4 WAIVE JURY TRIAL. LENDER AND BORROWER HEREBY WAIVE ALL RIGHT TO A
TRIAL BY JURY IN ANY LITIGATION RELATING TO THIS AGREEMENT, THE RELEVANT
DOCUMENTS OR OTHER AGREEMENTS OR INSTRUMENTS BETWEEN THEM.
12.5 Costs and Expenses. Borrower shall be liable for all costs, charges
and expenses, including reasonable attorney's fees and disbursements, incurred
by Lender by reason of the occurrence of any Event of Default or the exercise of
the Lender's remedies with respect thereto.
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12.6 No Marshalling. Lender shall be under no obligation whatsoever to
proceed first against any of the Collateral before proceeding against any other
of the Collateral. It is expressly understood and agreed that all of the
Collateral stands as equal security for all Obligations, and that Lender shall
have the right to proceed against any or all of the Collateral in any order, or
simultaneously, as in its sole and absolute discretion it shall determine. It is
further understood and agreed that Lender shall have the right, as it in its
sole and absolute discretion shall determine, to sell any or all of the
Collateral in any order or simultaneously.
l3. WAIVERS, CONSENTS:
13.1 Waivers. Borrower waives demand, presentment, notice of dishonor or
protest of any instruments either of Borrower or others which may be included in
the Collateral or which may evidence the Obligations.
l3.2 Consents. Borrower consents:
(a) To any extension, postponement of time of payment, indulgence or
to any substitution, exchange or release of Collateral.
(b) To any addition to, or release of, any party or persons primarily
or secondarily liable, or acceptance of partial payments on any Accounts
Receivable or instruments and the settlement, compromising or adjustment
thereof which shall be in compliance with Section 9.3 at all times.
14. SURVIVAL;
All representations and warranties made herein or in any certificate or
instrument contemplated hereby shall survive any independent investigation made
by Lender and the execution and delivery of this Agreement, and said
certificates or instruments and shall continue so long as any Obligations are
outstanding and unsatisfied, applicable statutes of limitation to the contrary
notwithstanding.
15. EFFECT OF HOLIDAYS:
If any payment pursuant to this Agreement becomes due and payable on a
Saturday, Sunday or legal holiday under the laws of the State of New Jersey, the
maturity thereof shall be extended to the next succeeding Banking Day.
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16. NOTICES:
16.1 Written; Effective Date. All notices and other communications
hereunder shall be in writing, shall be deemed to have been duly given either
when sent, postage prepaid, by certified mail, return receipt requested or when
deposited with a recognized overnight courier and shall be deemed received three
(3) Banking Days after deposit with the United States Postal Service and one (1)
Banking Day after deposit with a recognized overnight courier. Any notification
of a sale or other disposition of Collateral or any other action by Lender
required to be given by Lender shall be sufficient if given not less than ten
(10) days prior to the days on which such sale or other disposition would be
made, and such notification shall be deemed reasonable notice.
16.2 To Lender. Notices to Lender shall be directed to the following
address:
Summit Bank
750 Walnut Avenue
Cranford, New Jersey 07016
Attn: Asset-Based Lending
16.3 To Borrower. Notice to Borrower shall be directed to the following
address:
Bogen Communications, Inc
50 Spring Street
Ramsey, New Jersey 07446
Attn: Chief Financial Officer
17. TERMINATION OF AGREEMENT:
17.1 Termination by Lender. Lender may terminate this Agreement at any time
on or after February 5, 1999, whereupon the Obligations shall be due and payable
immediately.
17.2 Termination by Borrower. (a) Borrower may terminate this Agreement
without premium or penalty at any time on or after February 5, 1999, upon not
less than ninety (90) days' prior written notice to Lender. Upon giving such
notice, this Agreement shall thereafter terminate if and only if the Borrower
has paid to the Lender in full all of the Obligations.
(b) Anything contained in Subsection 17.2(a) above to the contrary
notwithstanding, Borrower may terminate this Agreement at any time by repaying,
in full, all of the Obligations accompanied by a prepayment fee calculated as
follows:
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(i) If this Agreement is terminated at any time prior to February 5,
1998, then there shall be due a prepayment fee equal to one and one-half
(1 1/2%) percent of the Line of Credit; and
(ii) If this Agreement is terminated at any time on or after February
5, 1998 but prior to February 5, 1999, or at any time thereafter with less
than ninety (90) days' prior written notice, then there shall be due a
prepayment fee of one-half (1/2%) percent of the Line of Credit.
(c) No prepayment fee shall be due (i) upon any termination of this
Agreement in conjunction with Borrower's refinancing of the Revolving Loans with
another department of Lender; or (ii) upon payment in full upon the maturity
date whether or not prior written notice is given.
17.3 Rights Upon Termination. Notwithstanding the termination of this
Agreement as herein provided, Lender's security interest, rights and remedies
herein set forth shall remain in full force and effect until all Borrower's
Obligations are paid in full.
18. INDEMNITIES BY BORROWER:
18.1 (a) Yield Protection. If any statute or governmental regulation, or
the interpretation or application thereof by any court or any governmental
authority charged with the administration thereof, or the compliance with any
guideline or request from any central bank or other governmental authority,
whether or not having the force of law:
(i) subjects the Lender to any tax, levy, impost, charge, fee, duty,
deduction or withholding of any kind hereunder (other than any tax imposed
or based upon the income of the Lender and payable to any governmental
authority or taxing authority of the United States of America or any state
thereof) or changes the basis of taxation of the Lender with respect to
payments by the Borrower of principal, interest or other amounts due from
the Borrower hereunder (other than any change which affects, and to the
extent that it affects, the taxation by the United States of America or any
state thereof of the total net income of the Lender); or
(ii) imposes, modifies or deems applicable any reserve, special
deposit, special assessment or similar requirements against assets held by,
deposits with or for the account or credit extended by the Lender; or
(iii) imposes upon the Lender any other condition with respect to this
Agreement, and the result of any of the foregoing is to increase the cost
to the Lender, reduce the income receivable by the Lender, reduce the rate
of return on the Lender's capital or impose any expense upon the Lender by
an amount which the Lender in its discretion deems to be material, the
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<PAGE>
Lender shall from time to time notify the Borrower of the amount determined
by the Lender (which determination, absent manifest error, shall be
conclusive) to be reasonably necessary to compensate the Lender (on an
after-tax basis) for such increase in cost, reduction in income, reduction
in rate of return or additional expense, setting forth the calculations
therefor, and the Borrower shall pay such amount to the Lender, as
additional consideration hereunder, within ten (10) days of the Borrower's
receipt of such notice. All such amounts shall be part of the Obligations
and shall bear interest at the rate set forth in Section 4.3 if not paid
when due.
(b) Method of Calculation. In determining the amount due the Lender
hereunder by reason of the application of this Subsection, the Lender may use
any reasonable averaging or attribution method; provided, however, that the
Lender must use reasonable efforts to minimize such losses and costs.
18.2 Capital Adequacy. If (a) any adoption of, change in or interpretation
of any statute or governmental regulation applicable to Lender, or (b)
compliance with any guideline, request or direction of any central bank or other
governmental authority or quasi-governmental authority exercising control over
banks or financial institutions generally, or any court requires the agreements
of Lender hereunder be treated as an asset or otherwise be included for purposes
of calculating the appropriate amount of capital to be maintained by the Lender
or any corporation controlling the Lender (a "Capital Adequacy Event"), the
result of which is to reduce the rate of return on the Lender's capital as a
consequence of such requirement to a level below that which the Lender could
have achieved but for such Capital Adequacy Event, taking into consideration the
Lender's policies with respect to capital adequacy, by an amount which the
Lender deems to be material, the Lender shall promptly deliver to the Borrower a
statement of the amount necessary to compensate the Lender for the reduction in
the rate of return on its capital attributable to such commitments (the "Capital
Compensation Amount"). The Lender shall determine the Capital Compensation
Amount in good faith, using reasonable attribution and averaging methods. The
Lender shall from time to time notify the Borrower of the amount so determined
(which determination, absent manifest error, shall be conclusive). Such amount
shall be due and payable by the Borrower to the Lender ten (10) business days
after such notice is given. All such amounts shall be part of the Obligations
and shall bear interest at the rate set forth in Subsection 4.3 if not paid when
due.
18.3 Indemnification of Lender. Borrower hereby covenants and agrees to
indemnify, defend and hold harmless Lender and its officers, directors,
employees and agents from and against any and all claims, damages, liabilities,
costs and expenses (including, without limitation, the reasonable fees and
out-of-pocket expenses of counsel) which may be incurred by or asserted against
Lender or any such other individual or entity, except as a result of their gross
negligence or willful misconduct in connection with:
(a) any investigation, action or proceeding arising out of or in any
way relating to this Agreement, any Relevant Documents, any of the
Revolving Loans, any of the Collateral, or any act or omission relating to
any of the foregoing; or
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<PAGE>
(b) any taxes (except taxes imposed with reference to Lender's income
or continued corporate existence), liabilities, claims or damages relating
to the Collateral or Lender's liens thereon; or
(c) the correctness, validity or genuineness of any instruments or
documents that may be released or endorsed to Borrower by Lender (which
shall automatically be deemed to be without recourse to Lender in any
event), or the existence, character, quantity, quality, condition, value or
delivery of any goods purporting to be represented by any such documents;
or
(d) any broker's commission, finder's fee or similar charge or fee in
connection with the transactions contemplated in this Agreement.
18.4 Claims by Borrower Limited. To the extent permitted by applicable law,
no claims may be made by Borrower or any other person against Lender or any of
its Affiliates, directors, officers, employees, agents, attorneys or consultants
for any special, indirect, consequential or punitive damages in respect of any
claim for breach of contract, tort or any other theory of liability arising out
of or related to the transactions contemplated by this Agreement or any act,
omission or event occurring in connection therewith except those arising as a
result of the gross negligence or willful misconduct of Lender or any of its
affiliates, directors, officers, employees, agents, attorneys or consultants;
and Borrower hereby waives, releases and agrees not to sue upon any claim for
any such damages, whether or not accrued and whether or not known or suspected
to exist in its favor. Neither Lender nor any of its Affiliates, directors,
officers, employees or agents shall be liable for any action taken or omitted to
be taken by it or them under or in connection with this Agreement or the
transactions contemplated hereby, except for its or their own gross negligence
or willful misconduct.
19. AMENDMENTS AND MISCELLANEOUS:
19.1 Amendment. The terms of this Agreement shall not be waived, altered,
modified, amended, supplemented or terminated in any manner whatsoever except by
a written instrument signed by Lender and Borrower.
19.2 Binding on Successors. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
assigns.
19.3 Invalidity. Any provision of this Agreement which may be determined by
competent authority to be prohibited or unenforceable in any jurisdiction shall,
as to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
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<PAGE>
19.4 Gender. Throughout this Agreement, the masculine shall include the
feminine and vice versa and the singular shall include the plural and vice
versa, unless the context of this Agreement indicates otherwise.
19.5 Cross Default/Cross Collateral. All other agreements between Borrower
and Lender and/or any of Lender's affiliates or subsidiaries are hereby amended
so that a default under this Agreement is a default under all other agreements
and a default under any one of the other agreements is a default under this
Agreement. Further, such agreements are amended so that the Collateral under
this Agreement secures the Obligations now or hereafter outstanding under all
other agreements of Borrower with Lender and/or Lender's affiliates or
subsidiaries and the collateral pledged under any other agreement with Lender
and/or its affiliates or subsidiaries secures the Obligations under this
Agreement.
19.6 Expenses of Lender. Borrower agrees to pay all costs and expenses of
the Lender in connection with the preparation, execution, delivery and
administration of this Agreement or any amendments, extensions or modifications
thereto and other instruments and documents to be executed contemporaneously
herewith, including reasonable attorney's fees and out of pocket expenses of
counsel for Lender, which fees and costs shall not, in the aggregate, exceed
Twenty Thousand ($20,000.00) Dollars for the documentation, negotiation and
closing of this Agreement.
19.7 Section and Paragraph Headings. Section and paragraph headings are for
convenience only and shall not be construed as part of this Agreement.
19.8 Law/Forum. (a) This Agreement shall be construed in accordance with,
and shall be governed by, the laws of the State of New Jersey.
(b) Lender and Borrower hereby consent to the jurisdiction of the State
Courts of the State of New Jersey or the Federal Courts of the District of New
Jersey and hereby agree that the defense of forum non conveniens shall not be
brought in response to any action brought in such Courts.
IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed by their proper corporate officers and sealed with their seals the day
and year first above written.
ATTEST: BOGEN COMMUNICATIONS, INC.
BY: /s/ Frank DiPalma BY: /s/ Yoav M. Cohen
---------------------------------- ------------------------------
FRANK DIPALMA, Assistant Secretary YOAV M. COHEN, Vice President,
Finance
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<PAGE>
SUMMIT BANK
By: /s/ Robert Munns
------------------------------
ROBERT MUNNS, Vice President
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<PAGE>
SCHEDULE 1.K
Description of Collateral
(a) Accounts, as that term is defined by the Uniform Commercial Code of the
State of New Jersey and in addition thereto, all obligations of any kind at any
time due and/or owing to Borrower and all rights of Borrower to receive payment
or any other consideration (whether classified under the Uniform Commercial Code
of the State of New Jersey or any other state as accounts, contract rights,
chattel paper, General Intangibles, leases or otherwise) including without
limitation, invoices, contract rights, accounts receivable, General Intangibles,
leases choses-in-action, notes, drafts, acceptances, instruments, and all other
debts, obligations and liabilities in whatever form owing to Borrower from any
person, firm, governmental authority, corporation or any other entity, all
security therefor, and all Borrower's rights to goods sold (whether delivered,
undelivered, in transit or returned), which may be represented thereby, whether
now existing or hereafter arising, together with all proceeds and products of
any and all of the foregoing.
(b) Equipment, which shall mean, in addition to the definition thereof
contained in the Uniform Commercial Code of the State of New Jersey, all
equipment, machinery, furniture, fixtures, and all other tangible assets, and
all replacements, repairs, modifications, alterations, additions, controls and
operating accessories therefor, all substitutions and replacements therefor, and
all accessions and additions thereto and all proceeds and products of the
foregoing now owned or hereafter acquired by Borrower.
(c) General Intangibles, which shall mean and include all of the Borrower's
now owned or hereafter acquired choses in action, causes of action and all other
intangible personal property including, without limitation, corporate or other
business records, inventions, designs, patents, patent applications, trademarks,
trademark applications, trade names, trade secrets, good will, registrations,
copyrights, licenses, franchises, customer lists, tax refunds, tax refund
claims, insurance claims, rights and claims against carriers and shippers and
rights to indemnification.
(d) Inventory, which shall have the meaning set forth in the Uniform
Commercial Code of the State of New Jersey and in addition thereto, all goods,
merchandise or other tangible personal property held by Borrower for sale or
lease or to be furnished under labels and other devices, the names or marks
affixed thereto for purposes of selling or identifying the same or the seller or
manufacturer thereof, and all right, title and interest of Borrower therein and
thereto, all raw materials, work or goods in process, or materials and supplies
of every nature used, consumed or to be consumed in the Borrower's business, all
packaging and shipping materials, and all proceeds and products of any of the
foregoing, whether now owned or hereafter acquired by Borrower, and wherever
located.
(e) Machinery, which shall mean and include, without limitation, all
inanimate mechanisms for utilizing or applying power including the appurtenances
thereto used by or for
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<PAGE>
Borrower in the operation of its businesses and all accessories, substitutions,
additions, replacements and parts thereof, whether now owned or hereafter
acquired.
(f) Merchandise, which shall include all goods, inventory, chattels and
other personal property of Borrower, now owned or hereafter acquired.
(g) Any claims of Borrower against third parties for loss or damage to, or
destruction of, any and all of the foregoing, all guarantees, security and liens
for payment of any Accounts Receivable and documents of title, policies,
certificates of insurance, insurance proceeds, securities, chattel paper, and
other documents and instruments evidencing or pertaining thereto, and all files,
correspondence, computer programs, tapes, discs and related data processing
software owned by Borrower or in which Borrower has an interest which contain
information identifying any one or more of the items in (a), (b) and (c) above,
this subsection (d), or (e), (f) or (g) below, or any Account Borrower, showing
the amounts owed by each, payments thereon or otherwise necessary or helpful in
the realization thereon or the collection thereof.
(h) Any and all monies, securities, drafts, notes, contracts leases,
licenses, General Intangibles, and other property of Borrower, including
customer lists and all proceeds and products thereof, and all other assets of
Borrower, now or hereafter held or received by or in transit to the Lender from
or for Borrower, or which may now or hereafter be in the possession of Lender or
as to which Lender may now or hereafter control possession, by documents of
title or otherwise, whether for safekeeping, custody, pledge, transmission,
collection or otherwise, and any and all deposits, general or special, balances,
sums, proceeds and credits of Borrower, and all rights and remedies which the
Borrower might exercise with respect to any of the foregoing, but for the
execution of this Agreement in favor of Lender.
(i) All Borrower's right, title and interest throughout the world, in and
to the trade secrets' rights in the information regarding computer software
programs developed by or for the Borrower, including without limitation, the
right to prevent all persons, including Borrower, from using the programs or
from using and transferring the information contained therein without
authorization.
(j) All proceeds, including insurance proceeds, and products of the
Collateral.
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<PAGE>
SCHEDULE 6.5
Financial Statements
September 30, 1996 10Q
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<PAGE>
SCHEDULE 6.12
Environmental Matters
NONE
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<PAGE>
SCHEDULE 6.15
Location of Collateral
50 Spring Street
Ramsey, New Jersey 07446
16610 Southeast 128th
Renton, Washington 98059
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<PAGE>
SCHEDULE 6.16
Other Liens
The lien of the CIT Group Credit Finance, Inc. in and to substantially all
assets of the Borrower as evidenced by various UCC financing statements (which
are to be terminated as a result of this transaction) as follows:
(a) Secretary of State of Washington
(i) No. 921430553 filed May 22, 1992,
(ii) No. 942100000 filed July 29, 1994
(b) Secretary of State of New Jersey
(i) No. 1584573 filed July 29, 1994;
(ii) No. 1273446 filed June 21, 1989
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<PAGE>
SCHEDULE 6.19
Names, Locations of Officer
Names under which Borrower conducts business:
BOGEN COMMUNICATIONS, INC.
Locations where Borrower conducts Business or Operations:
Chief Executive Office:
50 Spring Street
Ramsey, New Jersey 07446
Other locations.
16610 Southeast 128th
Renton, Washington 98059
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<PAGE>
ACCOUNTS RECEIVABLE AND INVESTORY BORROWING BASE CERTIFICATE
[SUMMIT BANK LOGO] [ ] Certificate No. __________
[ ] Your Date ________________
To induce Summit Bank - (herein called "Bank") to make a loan pursuant to the
Loan and Security Agreement between the undersigned and Bank, and any amendments
thereto, the undersigned hereby certifies, as of the above date, as follows:
A. Summary of Collateral:
1. Balance of Accounts Receivable previously certified to Bank .....$__________
a) Plus new sales since last certificate date __________
through______ ......................................$__________
b) Plus debit memos_____; other______ .................$__________
c) Less credits ____________; other _______ ...........$__________
d) Less returns and allowances ______; other _______ ..$__________
e) Less net receivable reductions since last
certificate ........................................$__________
2. Total of all Accounts Receivable now being certified to Bank ....$__________
3. Less total amount of unqualified Accounts Receivable
Dated __________ .........................................$__________
4. Net amount of qualified Accounts Receivable ..............$__________
5. Total loan value of Accounts Receivable @ ___% (of item 4) ......$__________
6. Value of Inventory as of ________________, 19__
a) Raw Materials .......$__________
b) Work in Process .....$__________
c) Finished Goods ......$__________
d) Other (+/-) .........$__________
e) Total Inventory .....$__________
f) Total Inventory value @ __% of item ___ or limit of $__________
whichever is lower $__________
7. Other Availability (Explain _________) Amount __________@ __% ...$__________
8. Other Availability (Explain _________) Amount __________@ __% ...$__________
9. Total loan value of Accounts Receivable (item 5) and Inventory
(item 6) and Other (items 7&8) ..................................$__________
B. Summary of Loan:
1. Previous loan balance ....................................$__________
2. Less collections: Deposits $__________
Wires .......$__________
Non-A/R .....$__________
Total ......................................$__________
3. Plus today's borrowing ...................................$__________
4. New principal loan balance ...............................$__________
5. Plus Bankers Acceptance ...$__________
6. Plus Letters of Credit ....$__________
7. Total loan outstandings (which may not exceed item A9 or
limit whichever is lower) .......................................$__________
8. Remaining Availability (item A9 less B7) ...........$__________
The undersigned certifies that they are not in default under the Security
Agreement and any amendments thereto, or on any of the loans made thereunder, or
on any other liability.
- ------------------------------ ------------------------------
(Prepared By) (Authorized Signature and Title)
EXHIBIT A
<PAGE>
- --------------------------------------------------------------------------------
STATEMENT ATTESTATION
TO: SUMMIT BANK
I hereby submit to Summit Bank (the "Bank"), on behalf of: _____________ BOGEN
COMMUNICATIONS. INC.________________ (the "Borrower"), Reviewed, Compilation,
House-prepared(1) financial statements dated ________ for the purpose of either
applying for credit of for supporting its continuing credit accommodations.
I am submitting this statement to the bank as being true, accurate and not
misleading as of the date it has been submitted and understand that the Bank
will rely on this statement in making its credit decision.
Company: BOGEN COMMUNICATIONS, INC.
------------------------------------------
Signature & Title
Date:
-------------------------------------
(1) The scope of the Statement listed above should be indicated by crossing out
options that do not apply.
- --------------------------------------------------------------------------------
EXHIBIT B
<PAGE>
Account Receivable & Loan Reconciliation
As of ___________
Company Name ______________________________________________________
Please furnish the information requested below which details should be in
agreement with the books and records of the company.
A. Accounts Receivable Reconciliation
Balance: Beginning of month ________________
Add: Sales (invoices) ________________
Miscellaneous Sales ________________
Other Debits ________________
Less: Credit Memos ________________
Less: Net Cash (Applied) ________________
Discounts, Allowances, etc. ________________
Others ________________
1) Balance: General Ledger as of End of Month ________________
2) Accounts Receivables Aging Balance at Month End
If there is a difference between A/R Aging & G/L, please explain:
___________________________________________________________________________
___________________________________________________________________________
3) Account Receivable balance reported to bank
at months end per BBCS _____________
If item (3) does not agree with item (1) & (2), please complete the
information below.
3a) Sales and/or debits reported to 3b) Accounts Receivables, credits or other
the Bank after month end: reductions reported to bank after
month end:
Certificate # ___________________ Certificate # ______________________
Certificate # ___________________ Certificate # ______________________
Certificate # ___________________ Certificate # ______________________
Certificate # ___________________ Certificate # ______________________
Certificate # ___________________ Certificate # ______________________
Total In-Transit Total In-Transit
sales are: ___________________ reductions are: ____________________
4) Adjusted Bank collateral figure: (Add (3) & (3a),
Less (3b) equals (4)) ________________
If there is a difference, please explain:
___________________________________________________________________________
___________________________________________________________________________
================================================================================
B) Inventory
Inventory value: End of Month _______________
Method of Computation
RM ________ FG ________ WIP ________ Other ________
================================================================================
C) Loan Reconciliation
As of ____________ loan balance per Bank Statement
As of ____________ loan balance per Company G/L
Difference between (1) & (2) and breakdown:
___________________________________________________________________________
___________________________________________________________________________
Other Liabilities
EOM LC(s) (if any):_________________ EOM BA's (if any):_________________
- ------------------------- -----------------
Prepared by; Name & Title Date
EXHIBIT C
CONTINUING UNLIMITED CORPORATE GUARANTY
Date: February 6th, 1997
To: SUMMIT BANK (the "Lender")
For Valuable Consideration, and to induce Lender to loan money and/or
extend credit in reliance hereon, the undersigned, hereby guarantees,
unconditionally, the payment, when due, of each and every obligation, direct or
contingent, now existing or hereafter arising, owing to Lender by BOGEN
COMMUNICATIONS, INC., a corporation of the State of Delaware (the "Borrower").
This Guaranty shall be primary, absolute and unconditional and extend to
and cover every extension or renewal of, and every obligation accepted in
substitution for any obligation guaranteed hereby, and the undersigned shall be
bound hereby irrespective of (i) the existence, value or condition of any
collateral security Lender may at any time hold; (ii) the invalidity,
irregularity or enforceability of any instrument, writing or arrangement
relating to any such credit, loan of money or financial accommodation or of the
obligations thereunder; (iii) the inability or failure of Lender to fully
establish or perfect its lien or security interest in any collateral pledged to
it; (iv) any other circumstance that might constitute a defense to, or discharge
of, the Borrower with respect to any of the obligations hereby guarantied, or
the undersigned in regard to this Guaranty other than payment in full of the
obligations guaranteed hereby; or (v) any present or future law or order of any
government (whether of right or in fact) or of any agency thereof, purporting to
reduce, amend or otherwise affect any obligation of the Borrower or to vary the
terms of payment of the obligations of the Borrower hereby guaranteed.
Without limiting the generality of the foregoing, enforcement of this
Guaranty shall not be contingent upon pursuit by the Lender of any remedies it
may have against any other guarantor or the Borrower, whether pursuant to the
terms of any loan documents or by law, and the Lender, in this regard, shall not
be required to (i) institute any judicial action against Borrower, (ii) enforce
any other remedy against Borrower, or (iii) take any action to realize upon any
property or collateral assigned, pledged or otherwise available to Lender as
security for performance of the obligations of Borrower.
The undersigned hereby waives (i) notice of acceptance of this Guaranty;
(ii) presentment, demand, protest and notice of dishonor of any note or other
obligation hereby guaranteed; and (iii) demand by Lender for observance or
performance of, or enforcement by Lender of any terms or provisions of the loan
documents evidencing the obligations of Borrower, or any terms or provisions of
this Guaranty.
This Guaranty is a continuing guaranty and shall remain in force until
revoked by notice in writing to Lender, and revocation hereof shall not
prejudice Lender's claim hereunder with respect to any obligation arising prior
to revocation.
<PAGE>
The undersigned hereby consents and agrees that Lender may, without
prejudice to any claim against the undersigned hereunder, at any time, or from
time to time, in Lender's discretion, and without notice to the undersigned: (i)
waive compliance with, or any defaults under, or grant any other indulgences
with respect to the loan documents evidencing the obligations of the Borrower;
(ii) modify, amend, or change any provisions of the loan documents evidencing
the obligations of the Borrower; (iii) extend or change the time of payment, and
the manner, place or terms of payment of any obligation hereby guaranteed; (iv)
make advances for the purpose of performing any term or covenant pertaining to
the obligations hereby guaranteed with respect to which the Borrower shall be in
default; (v) assign or otherwise transfer the obligations hereby guaranteed, or
any interest therein or herein; (vi) exchange, release, impair or surrender all
or any collateral security which Lender may at any time hold in connection with
any obligation hereby guaranteed; (vii) sell, and purchase, any such collateral
at public or private sale or at any broker's board, crediting net proceeds upon
any obligation secured thereby; (viii) release, discharge, settle or compromise
with the Borrower, or with any other person primarily or secondarily liable with
the Borrower, any obligation hereby guaranteed; or (ix) deal in all respects
with the Borrower as if this Guaranty were not in effect.
The undersigned represents and warrants that (i) the undersigned is a
corporation organized and existing and in good standing under the laws of the
State of Delaware and under the laws of any other state wherein the business,
properties or operations of the undersigned make it necessary to so qualify (ii)
the undersigned has the full power, authority and legal right to enter into,
execute and deliver this Guaranty; (iii) this Guaranty is a valid and binding
legal obligation of the undersigned and is fully enforceable against the
undersigned in accordance with its terms and, as of the date hereof, the
undersigned has no defense to any action or proceeding that may be brought
hereunder; (iv) the execution, delivery and performance by the undersigned of
this Guaranty has been duly authorized by all requisite corporate action, will
not violate any term or condition of the Certificate of Incorporation or By-Laws
of the undersigned and will not violate or constitute a default under any
indenture, note, loan, credit agreement or any other document or instrument to
which the undersigned is a party or by which the undersigned is bound in any
manner which would materially and adversely affect its ability to carry out any
of the terms, covenants and conditions of this Guaranty; (iv) the undersigned
has a direct interest in the financial well-being of the Borrower; and (v) there
has been no material adverse change in the financial condition of the
undersigned from that shown on the most recent financial statements delivered to
Lender.
The undersigned is not in violation of any decree, ruling, judgment, order
or injunction applicable to it, or any law, ordinance, rule or regulation of
whatever nature which taken alone or in the aggregate, would materially and
adversely affect its ability to carry out any of the terms, covenants and
conditions of this Guaranty. There are no actions, proceedings or investigations
pending or to the best of its knowledge threatened against or affecting the
undersigned before or by any court, arbitrator, administrative agency or other
governmental authority or entity, which, taken alone or in the aggregate, if
adversely decided, would materially and adversely affect its ability to carry
out any of the terms and conditions of this Guaranty.
2
<PAGE>
This Guaranty and the undersigned's liability hereunder shall continue to
be effective or be reinstated, as the case may be, if at any time, prepayment,
payment or other value received by the Lender from any source, or any part
thereof, of any of the obligations guaranteed hereunder is rescinded or
otherwise restored or returned by the Lender by reason of (i) any judgment,
decree or order by any court or administrative body having competent
jurisdiction; (ii) any settlement or compromise of any such claim; or (iii)
otherwise, all as though such payment had not been made, notwithstanding any
termination hereof or the cancellation of any instrument or writing or other
agreement evidencing the obligations of the undersigned.
No delay on the Lender's part in exercising any right hereunder, or in
taking any action to collect or enforce payment of any obligation hereby
guaranteed, either as against the Borrower or any other person primarily or
secondarily liable with the Borrower, shall operate as a waiver of any such
right or in any manner prejudice the Lender's rights against the undersigned.
THE UNDERSIGNED HEREBY WAIVES THE FOLLOWING IN ANY ACTION OR PROCEEDING OF
ANY KIND OR NATURE, ARISING UNDER OR BY REASON OF OR RELATING TO THIS GUARANTY:
(i) THE RIGHT TO A TRIAL BY JURY; (ii) THE RIGHT TO CLAIM A FAIR MARKET VALUE
CREDIT AS TO ANY AND ALL COLLATERAL NOW OR HEREAFTER PLEDGED TO LENDER TO SECURE
THE OBLIGATIONS HEREBY GUARANTEED: AND (iii) ANY RIGHT OF SUBROGATION TO WHICH
GUARANTOR MIGHT OTHERWISE BE ENTITLED.
YMC
--------
(Initial)
The undersigned agrees that, if the maturity of any obligation hereby
guaranteed is accelerated, by bankruptcy or otherwise, as against the Borrower,
such maturity shall also be deemed accelerated for the purposes of this
Guaranty, and without demand upon or notice to the undersigned.
As security for its obligation hereunder, Guarantor hereby gives Lender a
general lien upon and right of setoff with respect to any deposit account of the
undersigned with Lender and any other of the undersigned's funds or assets at
any time in Lender's custody or control.
The undersigned hereby authorizes Lender, in its sole discretion, to
disclose any financial or other information about the undersigned to any
present, future or prospective participant or successor in interest in any loan,
advance or other financial accommodation to Borrower from Lender, or any
regulatory body or agency having jurisdiction over Lender.
In the event any proceedings are undertaken by Lender to effect collection
hereunder, the undersigned shall pay all costs and expenses of every kind for
collection, including reasonable attorney's fees incurred by Lender in
connection with the enforcement of this Guaranty.
If the obligations of the Borrower are also guaranteed by any other person
or entity by continuing guaranty or by endorsement of any note of the Borrower
or otherwise, the obligation of
3
<PAGE>
such other person or entity and the undersigned's obligation hereunder shall be
deemed to be several, and the release by Lender of any such other guarantor, or
settlement with such guarantor, or the revocation or impairment of such
guaranty, shall not operate to prejudice Lender's rights against the undersigned
hereunder.
The undersigned agrees to allow Borrower to deliver to Lender, those
financial statements required, from time to time pursuant to the continuing
commercial lending relationship of the Borrower with Lender, as, when and in the
form and substance required thereby, and not later than ten (10) days after
filing with the Internal Revenue Service, Guarantor shall deliver to Lender true
and complete copies of its signed Federal income tax return and such other
financial information as Lender shall, from time to time, reasonably request.
No delay on the Lender's part in exercising any of the Lender's options,
powers or rights or partial or single exercises thereof, shall constitute a
waiver thereof. No waiver of any of the Lender's rights hereunder and no
modification or amendment of this Guaranty, shall be deemed to be made by Lender
unless the same shall be in writing, duly signed on the Lender's behalf by its
duly authorized officers, and each such waiver, if any, shall apply only with
respect to the specific instance involved, and shall in no way impair the
Lender's rights or the undersigned's obligations to Lender in any other respect
at any other time.
If any provision (or any part of any provision) contained in this Guaranty
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Guaranty,
but this Guaranty shall be construed as if such invalid, illegal, or
unenforceable provision (or part thereof) had never been contained herein, but
only to the extent such provision is invalid, illegal, or unenforceable.
The undersigned agrees that: (i) this Guaranty shall be construed in
accordance with and governed by the laws of the State of New Jersey; (ii) any
action or proceeding to enforce this Guaranty may be commenced in state or
federal court in any county in the State of New Jersey; and (ii) it generally,
irrevocably and unconditionally submits to and accepts for itself (and its
successors and assigns) the jurisdiction of the aforesaid courts for the purpose
of any such suit, action or other proceeding and agrees not to contest the
validity of any judgment rendered thereby in any other jurisdiction. The
undersigned further waives, and agrees not to assert, by way of motion as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of the aforesaid courts or is
otherwise immune from legal proceedings, or that the suit, action or proceeding
is brought in an inconvenient forum, that the venue of the suit, action or
proceeding is improper, or that the loan documents of the Borrower or the
subject matter hereof may not be enforced by any such court.
This Guaranty shall be binding upon the undersigned, as well as its
successors or assigns (except that no such assignment shall be effective without
the prior written consent of Lender).
This Guaranty shall inure to the benefit of, and be enforceable by the
Lender, its successors and assigns, including any subsequent holder of the
obligations hereby guaranteed.
4
<PAGE>
For the purposes of this Guaranty, the singular shall be deemed to include
the plural, and the neuter shall be deemed to include the masculine and the
feminine, and vice versa, as the context may require.
IN WITNESS WHEREOF, the undersigned has caused these presents to be signed
by its proper corporate officers and sealed with its seal of the day and year
first above written.
ATTEST: BOGEN COMMUNICATIONS INTERNATIONAL, INC.
BY: /s/ Frank DiPalma BY: /s/ Yoav M. Cohen
---------------------------------- ------------------------------
FRANK DIPALMA, Assistant Secretary YOAV M. COHEN, Vice President,
Finance
STATE OF NEW JERSEY :
: SS
COUNTY OF MORRIS :
BE IT REMEMBERED, that on this 6th day of February, 1997, before me the
subscriber, an attorney at law of the State of New Jersey, personally appeared
FRANK DIPALMA, who, being by me duly sworn on his oath, deposes and makes proof
to my satisfaction that he is the Assistant Secretary of BOGEN COMMUNICATIONS
INTERNATIONAL, INC., and that YOAV M. COHEN is the Vice President, Finance of
said corporation which is named in the within instrument; that the execution as
well as the making of this instrument, has been duly authorized by a proper
resolution of the Board of Directors of the said corporation; that deponent well
knows the corporate seal of said corporation; and that the seal affixed to said
instrument is the proper corporate seal and was thereto affixed and said
instrument signed and delivered by said officer as and for the voluntary act and
deed of said corporation.
/s/ Jordan S. Solomon
--------------------------------------
JORDAN S. SOLOMON, ESQ.
5
CONTINUING UNLIMITED CORPORATE GUARANTY
Date: February 6th, 1997
To: SUMMIT BANK (the "Lender")
For Valuable Consideration, and to induce Lender to loan money and/or
extend credit in reliance hereon, the undersigned, hereby guarantees,
unconditionally, the payment, when due, of each and every obligation, direct or
contingent, now existing or hereafter arising, owing to Lender by BOGEN
COMMUNICATIONS, INC., a corporation of the State of Delaware (the "Borrower").
This Guaranty shall be primary, absolute and unconditional and extend to
and cover every extension or renewal of, and every obligation accepted in
substitution for any obligation guaranteed hereby, and the undersigned shall be
bound hereby irrespective of (i) the existence, value or condition of any
collateral security Lender may at any time hold; (ii) the invalidity,
irregularity or enforceability of any instrument, writing or arrangement
relating to any such credit loan of money or financial accommodation or of the
obligations thereunder; (iii) the inability or failure of Lender to fully
establish or perfect its lien or security interest in any collateral pledged to
it; (iv) any other circumstance that might constitute a defense to, or discharge
of, the Borrower with respect to any of the obligations hereby guarantied, or
the undersigned in regard to this Guaranty other than payment in full of the
obligations guaranteed hereby; or (v) any present or future law or order of any
government (whether of right or in fact) or of any agency thereof, purporting to
reduce, amend or otherwise affect any obligation of the Borrower or to vary the
terms of payment of the obligations of the Borrower hereby guaranteed.
Without limiting the generality of the foregoing, enforcement of this
Guaranty shall not be contingent upon pursuit by the Lender of any remedies it
may have against any other guarantor or the Borrower, whether pursuant to the
terms of any loan documents or by law, and the Lender, in this regard, shall not
be required to (i) institute any judicial action against Borrower, (ii) enforce
any other remedy against Borrower, or (iii) take any action to realize upon any
property or collateral assigned, pledged or otherwise available to Lender as
security for performance of the obligations of Borrower.
The undersigned hereby waives (i) notice of acceptance of this Guaranty;
(ii) presentment, demand, protest and notice of dishonor of any note or other
obligation hereby guaranteed; and (iii) demand by Lender for observance or
performance of, or enforcement by Lender of any terms or provisions of the loan
documents evidencing the obligations of Borrower, or any terms or provisions of
this Guaranty.
<PAGE>
This Guaranty is a continuing guaranty and shall remain in force until
revoked by notice in writing to Lender, and revocation hereof shall not
prejudice Lender's claim hereunder with respect to any obligation arising prior
to revocation.
The undersigned hereby consents and agrees that Lender may, without
prejudice to any claim against the undersigned hereunder, at any time, or from
time to time, in Lender's discretion, and without notice to the undersigned: (i)
waive compliance with, or any defaults under, or grant any other indulgences
with respect to the loan documents evidencing the obligations of the Borrower;
(ii) modify, amend, or change any provisions of the loan documents evidencing
the obligations of the Borrower; (iii) extend or change the time of payment, and
the manner, place or terms of payment of any obligation hereby guaranteed; (iv)
make advances for the purpose of performing any term or covenant pertaining to
the obligations hereby guaranteed with respect to which the Borrower shall be in
default; (v) assign or otherwise transfer the obligations hereby guaranteed, or
any interest therein or herein; (vi) exchange, release, impair or surrender all
or any collateral security which Lender may at any time hold in connection with
any obligation hereby guaranteed; (vii) sell, and purchase, any such collateral
at public or private sale or at any broker's board, crediting net proceeds upon
any obligation secured thereby; (viii) release, discharge, settle or compromise
with the Borrower, or with any other person primarily or secondarily liable with
the Borrower, any obligation hereby guaranteed; or (ix) deal in all respects
with the Borrower as if this Guaranty were not in effect.
The undersigned represents and warrants that (i) the undersigned is a
corporation organized and existing and in good standing under the laws of the
State of Delaware and under the laws of any other state wherein the business,
properties or operations of the undersigned make it necessary to so qualify (ii)
the undersigned has the full power, authority and legal right to enter into,
execute and deliver this Guaranty; (iii) this Guaranty is a valid and binding
legal obligation of the undersigned and is fully enforceable against the
undersigned in accordance with its terms and, as of the date hereof, the
undersigned has no defense to any action or proceeding that may be brought
hereunder; (iv) the execution, delivery and performance by the undersigned of
this Guaranty has been duly authorized by all requisite corporate action, will
not violate any term or condition of the Certificate of Incorporation or By-Laws
of the undersigned and will not violate or constitute a default under any
indenture, note, loan, credit agreement or any other document or instrument to
which the undersigned is a party or by which the undersigned is bound in any
manner which would materially and adversely affect its ability to carry out any
of the terms, covenants and conditions of this Guaranty; (iv) the undersigned
has a direct interest in the financial well-being of the Borrower; and (v) there
has been no material adverse change in the financial condition of the
undersigned from that shown on the most recent financial statements delivered to
Lender.
The undersigned is not in violation of any decree, ruling, judgment, order
or injunction applicable to it, or any law, ordinance, rule or regulation of
whatever nature which taken alone or in the aggregate, would materially and
adversely affect its ability to carry out any of the terms, covenants and
conditions of this Guaranty. There are no actions, proceedings or investigations
pending or to the best of its knowledge threatened against or affecting the
undersigned before or by any court, arbitrator, administrative agency or other
governmental authority or entity, which,
2
<PAGE>
taken alone or in the aggregate, if adversely decided, would materially and
adversely affect its ability to carry out any of the terms and conditions of
this Guaranty.
This Guaranty and the undersigned's liability hereunder shall continue to
be effective or be reinstated, as the case may be, if at any time, prepayment,
payment or other value received by the Lender from any source, or any part
thereof, of any of the obligations guaranteed hereunder is rescinded or
otherwise restored or returned by the Lender by reason of (i) any judgment,
decree or order by any court or administrative body having competent
jurisdiction; (ii) any settlement or compromise of any such claim; or (iii)
otherwise, all as though such payment had not been made, notwithstanding any
termination hereof or the cancellation of any instrument or writing or other
agreement evidencing the obligations of the undersigned.
No delay on the Lender's part in exercising any right hereunder, or in
taking any action to collect or enforce payment of any obligation hereby
guaranteed, either as against the Borrower or any other person primarily or
secondarily liable with the Borrower, shall operate as a waiver of any such
right or in any manner prejudice the Lender's rights against the undersigned.
THE UNDERSIGNED HEREBY WAIVES THE FOLLOWING IN ANY ACTION OR PROCEEDING OF
ANY KIND OR NATURE, ARISING UNDER OR BY REASON OF OR RELATING TO THIS GUARANTY:
(i) THE RIGHT TO A TRIAL BY JURY; (ii) THE RIGHT TO CLAIM A FAIR MARKET VALUE
CREDIT AS TO ANY AND ALL COLLATERAL NOW OR HEREAFTER PLEDGED TO LENDER TO SECURE
THE OBLIGATIONS HEREBY GUARANTEED: AND (iii) ANY RIGHT OF SUBROGATION TO WHICH
GUARANTOR MIGHT OTHERWISE BE ENTITLED.
YMC
--------
(Initial)
The undersigned agrees that, if the maturity of any obligation hereby
guaranteed is accelerated, by bankruptcy or otherwise, as against the Borrower,
such maturity shall also be deemed accelerated for the purposes of this
Guaranty, and without demand upon or notice to the undersigned.
As security for its obligation hereunder, Guarantor hereby gives Lender a
general lien upon and right of setoff with respect to any deposit account of the
undersigned with Lender and any other of the undersigned's funds or assets at
any time in Lender's custody or control.
The undersigned hereby authorizes Lender, in its sole discretion, to
disclose any financial or other information about the undersigned to any
present, future or prospective participant or successor in interest in any loan,
advance or other financial accommodation to Borrower from Lender, or any
regulatory body or agency having jurisdiction over Lender.
3
<PAGE>
In the event any proceedings are undertaken by Lender to effect collection
hereunder, the undersigned shall pay all costs and expenses of every kind for
collection, including reasonable attorney's fees incurred by Lender in
connection with the enforcement of this Guaranty.
If the obligations of the Borrower are also guaranteed by any other person
or entity by continuing guaranty or by endorsement of any note of the Borrower
or otherwise, the obligation of such other person or entity and the
undersigned's obligation hereunder shall be deemed to be several, and the
release by Lender of any such other guarantor, or settlement with such
guarantor, or the revocation or impairment of such guaranty, shall not operate
to prejudice Lender's rights against the undersigned hereunder.
The undersigned agrees to allow Borrower to deliver to Lender, those
financial statements required, from time to time pursuant to the continuing
commercial lending relationship of the Borrower with Lender, as, when and in the
form and substance required thereby, and not later than ten (10) days after
filing with the Internal Revenue Service, Guarantor shall deliver to Lender true
and complete copies of its signed Federal income tax return and such other
financial information as Lender shall, from time to time, reasonably request.
No delay on the Lender's part in exercising any of the Lender's options,
powers or rights or partial or single exercises thereof, shall constitute a
waiver thereof. No waiver of any of the Lender's rights hereunder and no
modification or amendment of this Guaranty, shall be deemed to be made by Lender
unless the same shall be in writing, duly signed on the Lender's behalf by its
duly authorized officers, and each such waiver, if any, shall apply only with
respect to the specific instance involved, and shall in no way impair the
Lender's rights or the undersigned's obligations to Lender in any other respect
at any other time.
If any provision (or any part of any provision) contained in this Guaranty
shall for any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not affect any
other provision (or remaining part of the affected provision) of this Guaranty,
but this Guaranty shall be construed as if such invalid, illegal, or
unenforceable provision (or part thereof) had never been contained herein, but
only to the extent such provision is invalid, illegal, or unenforceable.
The undersigned agrees that: (i) this Guaranty shall be construed in
accordance with and governed by the laws of the State of New Jersey; (ii) any
action or proceeding to enforce this Guaranty may be commenced in state or
federal court in any county in the State of New Jersey; and (ii) it generally,
irrevocably and unconditionally submits to and accepts for itself (and its
successors and assigns) the jurisdiction of the aforesaid courts for the purpose
of any such suit, action or other proceeding and agrees not to contest the
validity of any judgment rendered thereby in any other jurisdiction. The
undersigned further waives, and agrees not to assert, by way of motion as a
defense, or otherwise, in any such suit, action or proceeding, any claim that it
is not personally subject to the jurisdiction of the aforesaid courts or is
otherwise immune from legal proceedings, or that the suit, action or proceeding
is brought in an inconvenient forum, that the
4
<PAGE>
venue of the suit, action or proceeding is improper, or that the loan documents
of the Borrower or the subject matter hereof may not be enforced by any such
court.
This Guaranty shall be binding upon the undersigned, as well as its
successors or assigns (except that no such assignment shall be effective without
the prior written consent of Lender).
This Guaranty shall inure to the benefit of, and be enforceable by the
Lender, its successors and assigns, including any subsequent holder of the
obligations hereby guaranteed.
For the purposes of this Guaranty, the singular shall be deemed to include
the plural, and the neuter shall be deemed to include the masculine and the
feminine, and vice versa, as the context may require.
IN WITNESS WHEREOF, the undersigned has caused these presents to be signed
by its proper corporate officers and sealed with its seal of the day and year
first above written.
ATTEST: BOGEN CORPORATION
BY: /s/ Frank DiPalma BY: /s/ Yoav M. Cohen
---------------------------------- ------------------------------
FRANK DIPALMA, Assistant Secretary YOAV M. COHEN, Vice President,
Finance
STATE OF NEW JERSEY :
: SS
COUNTY OF MORRIS :
BE IT REMEMBERED, that on this 6th day of February, 1997, before me the
subscriber, an attorney at law of the State of New Jersey, personally appeared
FRANK DIPALMA, who, being by me duly sworn on his oath, deposes and makes proof
to my satisfaction that he is the Assistant Secretary of BOGEN CORPORATION, and
that YOAV M. COHEN, is the Vice President, Finance of said corporation which is
named in the within instrument; that the execution as well as the making of this
instrument, has been duly authorized by a proper resolution of the Board of
Directors of the said corporation, that deponent well knows the corporate seal
of said corporation; and that the seal affixed to said instrument is the proper
corporate seal and was thereto affixed and said instrument signed and delivered
by said officer as and for the voluntary act and deed of said corporation.
/s/ Jordan S. Solomon
--------------------------------------
JORDAN S. SOLOMON, ESQ.
5
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Names Under
State or Other Jurisdiction of Which the Subsidiary
Subsidiary Incorporation or Organization Does Business
- ---------- ----------------------------- -------------
<S> <C> <C>
Bogen Corporation Delaware Bogen Corporation
(a) Bogen Communications, Inc.(1) Delaware Bogen Communications, Inc.
Speech Design GmbH Gremering, Germany Speech Design GmbH
(b) Satelco AG (2) Switzerland Satelco AG
(c) Speech Design (Israel) Ltd.(3) Israel Speech Design (Israel)
(d) Speech Design (UK) Ltd.(4) United Kingdom Speech Design (UK)
</TABLE>
(1) Bogen Communications, Inc. is a wholly owned subsidiary of Bogen Corporation
(2) Satelco AG is a 67% owned subsidiary of Speech Design GmbH
(3) Speech Design (Israel) Ltd. is a 100% owned subsidiary of Speech Design GmbH
(4) Speech Design (UK) Ltd. is a 100% owned subsidiary of Speech Design GmbH
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Bogen Communications International, Inc. (formerly European Gateway Acquisition
Corp.) on Form S-1 (No. 33-65294) and Form S-3 (No. 33-99662) of our report
dated March 7, 1997, on our audits of the consolidated financial statements and
financial statement schedules of Bogen Communications International, Inc. as of
December 31, 1996 and 1995 and for each of the three years in the period ended
December 31, 1996, which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
New York, New York
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 885
<SECURITIES> 0
<RECEIVABLES> 6,987
<ALLOWANCES> 470
<INVENTORY> 6,519
<CURRENT-ASSETS> 14,701
<PP&E> 2,130
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,386
<CURRENT-LIABILITIES> 12,312
<BONDS> 0
0
0
<COMMON> 6
<OTHER-SE> 17,570
<TOTAL-LIABILITY-AND-EQUITY> 31,386
<SALES> 46,269
<TOTAL-REVENUES> 46,269
<CGS> 25,004
<TOTAL-COSTS> 17,697
<OTHER-EXPENSES> 337
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 668
<INCOME-PRETAX> 2,563
<INCOME-TAX> 555
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,008
<EPS-PRIMARY> 0.35
<EPS-DILUTED> 0
</TABLE>
