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, 1997 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
_______ to ______
Commission file 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
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(Title of class)
Warrants to Purchase One Share of Common Stock
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(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.
Document Incorporated by Reference:
Part III incorporated by reference to the definitive proxy statement for
the annual meeting of stockholders to be held on April 22, 1998.
As of March 27, 1998, 2,210,494 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, 1998, as reported on the American Stock Exchange, held by
non-affiliates of the Registrant was approximately $15,136,452.
Page 1 of
Exhibit Index Appears on Page 42 Hereof.
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BOGEN COMMUNICATIONS INTERNATIONAL, INC.
FORM 10-K
TABLE OF CONTENTS
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PAGE
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PART I
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Item 1. Business............................................................ 1
Item 2. Properties ......................................................... 14
Item 3. Legal Proceedings .................................................. 15
Item 4. Submission of Matters to a Vote of Security Holders................. 15
PART II
Item 5. Market Price for Registrant's Common Equity and Related
Stockholder Matters.........................................16
Item 6. Selected Financial Data............................................. 19
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................20
Item 8. Financial Statements and Supplementary Data......................... 27
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure......................29
PART III
Item 10. Directors and Executive Officers of the
Registrant...................................................29
Item 11. Executive Compensation................................................29
Item 12. Security Ownership of Certain Beneficial
Owners and Management........................................29
Item 13. Certain Relationships and Related Transactions........................29
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K........................................................30
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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, projected sources and uses of cash, and 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 direct subsidiaries, Bogen
Corporation, a Delaware corporation ("Bogen") and subsidiaries thereof, and
Speech Design GmbH, a German corporation ("Speech Design"), as well as
subsidiaries of Bogen and 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, speakers and
intercom systems for background and foreground music applications, as well as
for security and educational applications, and, since 1991, has produced voice
processing systems, including message/music-on-hold systems ("MOH").
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.
Bogen's products are sold primarily through a network of distributors,
dealers and contractors. Speech Design sells 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, China, Israel, Germany, and the United States, produce
sub-assemblies and finished products for the Company.
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.
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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").
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 and approximately 99% of the outstanding capital stock of Bogen.
As a result of that Business Combination, Geotek acquired an approximately 64%
controlling interest in the Company. As consideration for such acquisitions,
Geotek received from the Company: (i) 3,701,919 shares of Common Stock; (ii)
200,000 Warrants to purchase Common Stock; (iii) $7,000,000 in cash; and (iv) a
convertible promissory note in the principal amount of $3,000,000 due in
February 1997 and (v) rights to certain contingent payments.
In May 1996, the Company and Geotek amended the Stock Purchase Agreement
effective January 1, 1996. Pursuant to such amendment: (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
and paid in July 1997; (ii) the earnout formula was revised to reflect an
increase in the amount the Company might have had 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. This option expired on October 31, 1997, and was not
exercised. Based on a review of the earnout calculation by the Company's
independent accountants, which took 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, no contingent consideration payment was paid to Geotek.
On November 26, 1997, the Company acquired and retired all of the
outstanding Common Stock and Warrants held by Geotek, including 3,701,919 shares
of Common Stock and Warrants to purchase 200,000 shares of Common Stock, for
$18,500,000. The purchase price equated to a price of approximately $5.00 per
share of Common Stock outstanding or $4.74 on a diluted basis, including the
Warrants. Coincidental with the stock repurchase, Geotek's nominees to the
Company's Board of Directors resigned and the Company was no longer included in
the consolidated financial statements of Geotek. The repurchase of Geotek's
interest in the Company will enable it to pursue its own independent strategic
development, hence focusing closely on the Company's core competencies.
Simultaneous with the repurchase of the Common Stock and Warrants held by
Geotek, the Company sold 200,000 shares of 9% Series A Convertible Preferred
Stock (the "Preferred Stock") to a group of independent investment funds. The
Preferred Stock was sold at $100 per share, for total proceeds to the Company of
$20,000,000. The Preferred Stock carries a 9% semi-annual cumulative
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dividend which may be paid in cash or in-kind at the sole discretion of the
Company. Each share of Preferred Stock is automatically convertible into 18.605
shares of Common Stock (or 3,721,000 shares of Common Stock based on an initial
conversion price of $5.375) on December 1, 2002 or at the option of the holder
of Preferred Stock at any time. At the option of the Company, the Preferred
Stock may be redeemed prior to the mandatory conversion date if the bid price of
Common Stock closes above 150% of the initial conversion price, or $8.0625 per
share, for 20 consecutive trading days. The redemption price will be $100 per
share plus accrued dividends. If the Company redeems the Preferred Stock prior
to December 1, 2000, the Company must pay in cash 50% of the dividends that
would have been payable through December 1, 2000, in addition to any accrued,
unpaid dividends.
Except as otherwise provided in the Certificate of Incorporation of the
Company or the General Corporation Law of the State of Delaware, the Preferred
Stock can vote together with all other classes of voting capital stock of the
Company as a single class on all actions to be taken by the stockholders of the
Company. Each share of Preferred Stock entitles the holder thereof to 18.605
votes per share.
As of the date hereof, there are 2,210,494 shares of Common Stock, 200,000
shares of Preferred Stock and 4,260,285 Warrants outstanding.
As a result of the November 1997 transaction described above, a new
management team was put in place and the Board of Directors was reconstituted.
Bogen
Bogen develops, sources, 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 speakers; related sound and intercom systems equipment for professional,
industrial and commercial system applications; background and foreground music
applications; and intercom and communications systems for the security and
educational industries, and telephone paging systems.
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.
On July 1, 1997, Bogen acquired substantially all the net assets of New
England Audio Resources, Inc. ("NEAR") for approximately $242,000 in cash and
assumption of certain liabilities. The acquisition has been accounted for by the
purchase method of accounting. The operating results of NEAR are included in the
Company's consolidated statements of operations from the date of acquisition.
NEAR is a leading manufacturer of high performance, all environment speakers.
NEAR is a part of the Company's Commercial Sound unit and their products will be
marketed with Bogen's product lines.
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Product Lines
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, restaurants, hotels, stores, etc. For example, a recent Commercial
Sound product, the PROMATRIX amplifier, was introduced to the market in the
third quarter of 1996 and 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. Also added to Commercial Sound's product line during 1997 were the
all environment speakers produced at Bogen's newly acquired entity, NEAR.
Commercial Sound net sales for the years ended December 31, 1997, 1996 and
1995 were $11,250,000, $9,315,000, and $8,436,000, respectively. Commercial
Sound provided 22.6%, 20.1%, and 19.0% of the Company's net sales for the years
ended December 31, 1997, 1996 and 1995, respectively.
Engineered Systems
Bogen's Engineered Systems product line features custom designed
intercom/paging systems that are sold to contractors for installation in
schools. For example, introduced in late 1996, the MULTICOM-DCS? (Digital
Communication System) provides system users with high quality controlled speaker
and telephony functions through a single user interface. MULTICOM-DCS? provides
full integration of the Company's MULTICOM paging technology with COMDIAL PABX
systems.
Engineered Systems net sales for the years ended December 31, 1997, 1996 and
1995 were $8,082,000, $6,682,000, and $5,629,000, respectively. Engineered
Systems net sales amounted to 16.2%, 14.5%, and 12.6% of the Company's net sales
for the years ended December 31, 1997, 1996 and 1995, respectively.
Telco
Bogen's Telco products consist of telephone paging systems and equipment and
digital message/music-on-hold players. These products allow installers to
increase the value of their telephone system offerings by providing users with
enhanced efficiency and convenience. In the fourth quarter of 1997, Bogen
introduced a new MOH system, Pro-Hold DRDX.
Bogen's Telco net sales were $12,402,000, $14,674,000, and $16,613,000,
which include $214,000, $1,552,000 and $4,444,000 of the Company's discontinued
Office Automated Systems product line, for the years ended December 31, 1997,
1996 and 1995, 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 $30,447,000, $30,272,000, and $30,453,000
for the years ended December 31, 1997, 1996 and 1995, respectively. Telco net
sales through Bogen provided 24.9%, 31.7%, and 37.3% of the Company's net sales
for these respective years. Combined Telco sales provided 61.2%, 65.4%, and
68.4% of the Company's net sales for these respective years.
Sales and Marketing
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
system solutions designed to satisfy an end-user's specific sound and
communications needs. In addition, a network of approximately 200 major
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contractors and dealers 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,
commercial and civic concerns and institutions such as schools, nursing homes,
correctional facilities, retail stores, restaurants and churches. Bogen's
management believes that these user markets are relatively stable and that Bogen
has developed significant name recognition in these markets.
Telco
Bogen distributes its Telco products to approximately 25 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 private label on-hold
systems to Lucent Technologies ("Lucent").
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 Bogen sales and service staff.
Bogen's 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. Telco's 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
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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 elsewhere in East Asia, and the
United States. The Company is currently monitoring the economical crisis in
South Korea closely and will take all measures within its control to ensure that
production of the Company's products will continue without interruption. Should
production by the Company's suppliers be curtailed, the Company believes
suitable suppliers in other parts of the world will be available to satisfy its
production requirements. However, there can be no assurances that events beyond
the Company's control will not disrupt production or that suitable alternative
sources of production can be identified on a timely basis, thereby resulting on
material adverse effects on the Company's results of operations. 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(TM)" 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. The company is currently taking
steps to renew this trademark. Bogen has also obtained U.S. trademark
registration for the trade name "Multicom2000." 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(TM)",
which will expire on December 31, 2006 and which can be renewed at that time for
an additional ten years. The Company believes that these trademarks provide
substantial value to the Company. The Company has two provisional patent
applications, one for an on-hold system and the other for an automatic paging
system. In addition, the Company has two pending patent applications, one for an
on-hold system and the other for an amplifier system. The Company has been
notified that the amplifier system may be patented and is awaiting further
notification with respect to the other patent applications.
Research and Development
Bogen's in-house engineering department is responsible for research and
development and production engineering. In 1997, the R&D Department focused on
new innovative solutions for the Telco paging market by developing the pro-Hold
DRDX, a digitally produced, remote downloadable MOH system which was introduced
in the fourth quarter of 1997. In addition, it developed a call completion
system, incorporating paging, voice messaging and wireless messaging into one
integrated system, the APS 2000. There can be no assurance however, that Bogen
will be able to complete the development of APS 2000, nor can there be any
assurance that the new systems will be able to compete with similar products
offered by other manufacturers. Research and development expenditures for the
years ended December 31, 1997, 1996 and 1995 were $1,665,000, $1,865,000, and
$1,415,000, 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, delivery, availability,
innovation and product features and 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 a significant market share, be one 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 MOH voice paging niches of the Telco
market.
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In the Music-On-Hold market, Bogen's competitors are relatively small
companies that offer basic systems. 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 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 believes it has increased its share 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, which market and sell products such as
microphones, speakers, horns and other non-amplifier items. Bogen believes
itself to be a leading competitor in this 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. TOA 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
and have well established name recognition and distribution channels. Rauland
Borg Corp. is currently the acknowledged market leader.
Graybar, Bogen's largest customer, accounted for more than 10% of the
Company's net sales. The loss of Graybar as a customer would likely have a
material adverse effect on the Company.
Backlog of Orders
As of December 31, 1997, Bogen had a backlog of firm orders of approximately
$373,000, all of which it expects to fill within 1998. As of December 31, 1996,
Bogen had a backlog of firm orders of approximately $425,000.
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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.
In 1994, Speech Design launched a program to establish an international
market presence. Speech Design signed distribution contracts with partners in
ten European countries and gained national Telecom, Telegraph and Telephone
approval in most major markets. The Company believes that such approval
constitutes a significant 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. In late 1996, Speech Design
signed a distribution agreement with GEC, a partially owned Siemens subsidiary,
the second largest distributor of PABX peripherals in the UK. Sales outside of
Germany increased from 20% of total sales in 1995 to 24% in 1996 to 26% in 1997
and are expected to reach 40% of total sales within the next 2 to 3 years. There
can be no assurance, however, that Speech Design will achieve such goals and
that Speech Design's growth outside of 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 was 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 $18,045,000,
$15,598,000, and $13,840,000 for the years ended December 31, 1997, 1996 and
1995, respectively. Speech Design Telco sales amounted to 36.3%, 33.7%, and
31.1% 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 of voice mail in Europe is very low compared to the U.S. levels.
PABXs are multiple-line business telephone systems, which are installed at end
users' businesses to facilitate internal and external
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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 50-200 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
Siemens, Alcatel, Bosch Telecom, DeTeWe and Philips. 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.
Speech Design has obtained central pricing agreements and technical as well as
commercial endorsements from the headquarters of each of these 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 wholly-owned 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 transferred 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.
9
<PAGE>
Operations
Speech Design manufactures its products in cooperation with a network of
German subcontractors and its Israeli subsidiary. 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, 1997,
1996 and 1995 were $926,000, $1,027,000, and $892,000, respectively.
Competition
In Germany, Speech Design is the acknowledged market leader in the small to
mid-size PABX peripherals. Speech Design's main competitor in Germany is 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, Lucent
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.
Bosch, Speech Design's largest customer, accounted for more than 10% of the
Company's net sales. The loss of Bosch as a customer would likely have a
material adverse effect on the Company.
10
<PAGE>
Backlog of Orders
As of December 31, 1997, Speech Design had a backlog of firm orders of
approximately $1,452,000, all of which it expects to fill in 1998. As of
December 31, 1996, Speech Design had a backlog of firm orders of approximately
$496,000.
Strategy for Growth and Expansion
Management of the Company is seeking to enhance shareholder value through
growth and cost reduction.
The Company's plan for growth includes expansion of its core product line
through both internal and external expansion. Management is focused on
increasing the Company's market share in each market in which it currently
operates. In furtherance of this effort, the Company is implementing a new
marketing focus and is exploring product development and innovation through its
own research and development capabilities. The Company also plans to grow
through acquisitions and joint ventures focused on opportunities which can
enhance the Company's position in its core markets, have immediate near term
synergies with the Company's existing operations, and provide strong management
capability. The Company has retained Helix Capital Services, Inc. ("Helix
Services"), a successor to Helix Capital Services, LLC to be a non-exclusive
advisor in advising the Company on acquisition opportunities and Helix Services
has targeted several potential candidates. In order to support the Company's
plan of acquisitions, the Company is attempting to secure additional lines of
credit for such purposes.
Also in order to further increase the Company's profitability, management is
exploring cost savings through concentration on core products lines, possible
overhead cost reductions and negotiating favorable agreements with its
suppliers.
There can be no assurances that the Company will be able to implement its
internal growth and cost reduction plans or consummate any acquisitions or joint
ventures.
Government Regulations and Industry Certifications
The federal government regulates domestic telecommunications equipment and
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 ("UL"). 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.
11
<PAGE>
To successfully access the Canadian market, Bogen must obtain Underwriters
Laboratory Canada and Canadian Standards Association approvals for all AC
powered products, which it did for all of its current 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.
In 1996, the Quality Mark was extended to include Speech Design's Israel and
U.K. subsidiaries.
Employees
As of December 31, 1997, the Company had approximately 196 full-time
employees engaged in its businesses. The Company also uses temporary and/or
part-time employees, as required. Twenty-one of Bogen's U.S. employees are
subject to collective bargaining agreements which expire in mid-2000. The
Company considers its relationship with its employees to be good.
Year 2000
The Company is in the process of evaluating the effect of modifying its
computer software systems to accommodate Year 2000 transactions. The Company
expects to expend up to $1,000,000, which may be necessary for systems upgrade
projects that will, among other things, address concerns about the Year 2000.
Item 2. PROPERTIES
The Registrant's principal place of business is located at 50 Spring Street,
Ramsey, New Jersey 07446. 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.
Speech Design leases its facilities in Munich, Germany under leases expiring
in 1999 and 2005. Speech Design also has subsidiaries which have leases in
Israel, the UK and Switzerland. Speech Design and subsidiaries' aggregate annual
rental payments are approximately $450,000.
NEAR leases approximately 10,500 square feet for its facility in Lewiston,
Maine under a lease, which commenced on August 1, 1996 and expires on July 31,
1999. Current annual rental payments are approximately $32,000.
Management of the Company believes that the facilities occupied by the
Company and its subsidiaries are adequate to meet current needs.
Item 3. LEGAL PROCEEDINGS
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or of which any of its property is subject.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
12
<PAGE>
PART II
Item 5. MARKET PRICE FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's Common Stock and Warrants currently trade on the American
Stock Exchange under the symbols "BGN" and "BGNW," respectively. Between October
7, 1993 and August 21, 1995, the Registrant's Common Stock, Warrants and Units
were quoted on the OTC Bulletin Board under the symbols EGAQ, EGAQW and EGAQU,
respectively. A Unit consisted of one common share and two warrants. The Units
were traded on the American Stock Exchange under the symbol "BGNE" from August
21, 1995 until they were de-registered in December 1996.
The following table sets forth the range of high and low bid prices for the
Common Stock, Warrants and Units for each of the fiscal quarters during the
period from January 1, 1995 through December 31, 1997, as reported by the OTC
Bulletin Board. The quoted prices represent "inter-dealer" prices without retail
markups, markdowns or commissions and may not necessarily represent actual
transactions. Subsequent to August 21, 1995, the quotes represent the high and
low sales prices on the American Stock Exchange for BGN, BGNW and BGNE (from
August 21, 1995 until the Units were de-registered in December 1996).
January 1, 1995 to March 31, 1995
Security High ($) 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 ($)
------------- ------------- -------
Common Stock 5 1/2 5
Warrants 7/8 5/8
Units 7 1/4 5 3/4
October 1, 1995 to December 31, 1995
Security High ($) Low ($)
------------- -------------- -------
Common Stock 6 2 15/16
Warrants 1 3/16 1/4
Units 6 3/4 4 1/2
13
<PAGE>
January 1, 1996 to March 31, 1996
Security High ($) 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 ($)
------------- -------------- -------
Common Stock 4 1/4 2 15/16
Warrants 15/16 1/2
Units 5 7/8 3 1/2
January 1, 1997 to March 31, 1997
Security High ($) Low ($)
------------- ----------- -------
Common Stock 4 1/4 3 1/8
Warrants 15/16 9/16
April 1, 1997 to June 30, 1997
Security High ($) Low ($)
------------- ----------- -------
Common Stock 5 3 1/8
Warrants 1 1/16 9/16
July 1, 1997 to September 30, 1997
Security High ($) Low ($)
------------- ------------- -------
Common Stock 5 13/16 4 1/8
Warrants 1 7/16 11/16
14
<PAGE>
October 1, 1997 to December 31, 1997
Security High ($) Low ($)
------------- -------------- -------
Common Stock 7 3/8 4 5/8
Warrants 2 7/8
*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, BCI's $7 million line of credit
with Summit Bank, obtained in the first quarter of 1997, prohibits BCI from
declaring or paying any dividends on its capital stock. In November 1997, the
Company issued 200,000 shares of 9% Convertible Preferred Stock at a purchase
price of $100 per share. The Preferred Stock pays a semi-annual dividend, which
may be paid in cash or in-kind, at the sole discretion of the Company. The
Registrant does not anticipate 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 20, 1998, there were 25 record holders of the Common Stock and
15 record holders of Preferred Stock.
15
<PAGE>
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 acquirer 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, 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------
Net sales $49,779 $46,269 $44,518 $45,922 $30,072
Gross profit $23,094 $21,265 $17,180 $16,183 $11,623
Income (loss) from operations $ 5,093 $ 3,568 $ (637) $ 1,205 $ 769
Net income $ 2,665 $ 2,008 $(4,543) $ (355) $ (37)
Preferred dividends $ 178 $ - $ - $ - $ -
Net income (loss) available
to common shareholders $ 2,487 $ 2,008 $(4,543) $ (355) $ (37)
Net income (loss) per common
share - Basic and Diluted $ 0.46 $ 0.35 $ (1.37) $ (0.18) $ (0.04)
- --------------------------------------------------------------------------------
As of December 31, 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------
Total assets(1) $31,970 $31,386 $31,304 $32,866 $14,420
Long-term debt (net
of current maturities) $ 212 $ 369 $ 3,458 $ 5,039 $ 5,570
(1) Refer to footnote 2 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.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The consolidated financial statements and the following discussion include
Bogen Corporation ("Bogen") and Bogen's wholly-owned subsidiary, Bogen
Communications, Inc. ("BCI"), BCI's wholly-owned subsidiary, New England Audio
Resource Corp. ("NEAR"), as well as Speech Design, GmbH, a 67% owned subsidiary
("Speech Design"), its 67% owned subsidiary Satelco AG ("Satelco"), and its
wholly-owned subsidiaries, Speech Design (Israel) and Speech Design (UK), Ltd.
All significant intercompany balances and transactions have been eliminated in
consolidation.
16
<PAGE>
RESULTS OF OPERATIONS 1997 COMPARED TO 1996
NET SALES
Net sales of $49,779,000 for 1997 increased 7.6% from net sales of
$46,269,000 for 1996. The increase in sales primarily resulted from increased
sales of $4,848,000 in the Company's core products, which includes Telco,
Commercial Sound and Engineered Systems product lines. This increase was
partially offset by the final phase out of the Office Automated Systems ("OAS")
product line, which accounted for $214,000 and $1,552,000 of net sales for the
years ended December 31, 1997 and 1996, respectively. The increased sales were
primarily a result of the maturation of new products, increased sales volume of
the Company's products to existing and new customers, and an increase in the
sales price in the Engineered Systems product line.
Telco net sales in 1997 amounted to $30,233,000 compared to $28,720,000 in
1996, an increase of $1,513,000 or 5.3%. The increase in Telco sales is
primarily attributable to continued successful deployment of the Company's
music/message on hold systems products in the European market. Foreign net sales
stated in local currency increased to 31,345,000 Deutsche Marks ("DM") during
1997, or 33.6% over net sales of 23,467,000 DM for 1996.
Net sales of Commercial Sound products amounted to $11,250,000 in 1997, an
increase of $1,935,000, or 20.8%, from net sales of $9,315,000 of such products
in 1996. This increase is primarily due to the inclusion of NEAR products since
July 1997, the date of acquisition, which are sold through the Commercial Sound
product line and amounted to $804,000, as well as an increase in the number of
units sold due to an aggressive sales and marketing plan implemented in early
1997.
The Engineered System line of products also had an increase in net sales for
the year ended 1997 as compared to 1996. Net sales of the Engineered System line
increased $1,400,000 or 21.0% from $6,682,000 in 1996 to $8,082,000 in 1997.
This increase of $1,400,000 is primarily attributed to the maturation of the
MULTICOM-DCS product which was introduced in late 1996, as well as an average
of a 3% price increase during 1997.
All of the Company's product lines are distributed domestically through
Bogen. Some products are distributed in both domestic and overseas markets.
European Telco distributions are made through Speech Design.
GROSS PROFIT
The Company's gross profit in 1997 was $23,094,000, or approximately 46.4%
of sales, an increase of $1,829,000, compared to $21,265,000, or approximately
46% of sales, in 1996.
The increase in gross profit is attributable to the following cost reduction
measures which were implemented at varying points during 1997: (i) a reduction
in the cost of direct materials due to successful renegotiation with suppliers
in the later part of 1996; (ii) organizational changes which were aimed at
profit enhancement, which were implemented in the beginning of 1997; (iii)
elimination of lower margin products and (iv) price increases on some of Bogen's
products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased by $579,000,
or 4.0% during 1997 as compared to 1996. SG&A was $14,939,000 or 30% of sales in
1997 compared to $14,360,000 or 31% of sales in 1996. This increase is a result
of increased personnel and professional services directly
17
<PAGE>
attributable to the Company's increased net sales. This increase was partially
offset by decreased commissions paid to outside representatives since sales are
now consummated by Bogen employees for the Engineered Systems product line.
RESEARCH AND DEVELOPMENT
Research and Development expense ("R&D") was $2,591,000 or 5.2% of sales in
1997, compared to $2,892,000, or 6.3% of sales in 1996. This represents a
$301,000 decrease from 1996. The decrease is primarily attributable to
refocusing R&D on specific projects during 1997. The Company anticipates
introducing additional products mainly to the Telco product line. There can be
no assurance, however, that the Company will be able to successfully introduce
additional products.
INTEREST EXPENSE
Interest expense, including interest expense to related parties, was
$429,000 in 1997, a decrease of $239,000 or 35.8%, as compared to $668,000 in
1996. The decrease primarily relates to the new revolving credit line BCI
entered into in February 1997, which decreased BCI's borrowing rate by 2% to 9%
at December 31, 1997, compared to 11% at December 31, 1996, as well as the final
repayment of a $500,000 note to Geotek on July 3, 1997, which accrued interest
at 11% per annum.
INCOME TAXES
The Company incurred approximately $1,494,000 in taxes during 1997, a
$939,000 increase from 1996. The increase is due to increased profits, both
domestic and foreign. Foreign taxes increased by $500,000 which is directly
attributable to increased profits. Domestic taxes increased by $439,000
principally reflecting the utilization of preacquisition tax benefits.
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.
18
<PAGE>
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.
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."
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 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.
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.
INCOME TAXES
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.
19
<PAGE>
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. In December 1997, the Company eliminated all
OAS related inventories.
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.
LIQUIDITY, CAPITAL RESOURCES AND FINANCIAL CONDITION
During 1997, the Company focused its efforts on long-term growth by
strengthening its profitable product lines. Cash utilization focused on current
working capital requirements, the paydown of related party debt and subordinated
notes, and the purchase of equipment and leasehold improvements.
The Company's operating activities generated $2,118,000 of cash. The
Company's net income of $2,665,000 includes net non-cash charges of $1,605,000,
which principally consisted of: (i) depreciation and amortization of $1,332,000;
(ii) a decrease in reserves for accounts receivable and inventory obsolescence
of $703,000; (iii) minority interest of consolidated subsidiaries of $537,000;
and (iv) utilization of acquired tax benefits credited to goodwill of $439,000.
Additionally, inventory increased by $1,315,000, accounts payable and accrued
expenses decreased by $1,078,000, accounts receivable decreased by $118,000 and
net changes in other operating assets and liabilities amounted to $123,000.
Net cash used in investing activities amounted to $1,195,000. During 1997,
the Company purchased equipment and other fixed assets for $953,000. Also,
during 1997, the Company acquired substantially all the net assets of NEAR for a
net cash payment of approximately $242,000, which includes direct costs such as
legal and accounting fees which arose from the acquisition and the assumption of
certain liabilities.
Net cash used in financing activities amounted to $695,000. The Company paid
down $2,385,000 of debt, of which $765,000 was paid to Geotek. The Company
received $20,440,000 from the sale of certain equities principally preferred
stock, of which the Company utilized $18,750,000 (including $250,000 of
acquisition expenses) to repurchase shares and warrants owned by Geotek.
As of December 31, 1997, the Company's total liabilities were $10,548,000,
of which $8,773,000 is due and payable within one year.
In the first quarter of 1997, BCI obtained, from Summit Bank, a $7,000,000
revolving credit line for a period of two years. This line is collateralized by
the accounts receivable, inventory, property and equipment and general
intangibles of BCI and is guaranteed by the Company. As of December 31, 1997,
Bogen had short-term domestic borrowings outstanding under the line of credit of
$737,000. The amount available under the credit line based upon eligible
accounts receivable and inventory was approximately $4,000,000 at December 31,
1997.
The Company's previous credit facility of $10,000,000, which had an
outstanding balance of $1,545,000 at December 31, 1996, was paid in full with
proceeds from the new credit facility obtained in 1997, as well as through
proceeds from operations.
20
<PAGE>
At December 31, 1997 and 1996, Speech Design had short term lines of credit
and overdraft facilities of $3,988,000 and $4,344,000 respectively, of which
short term borrowings amounted to $2,154,000 and $3,283,000 respectively. The
amounts available under these credit lines were $1,834,000 and $1,061,000 at
December 31, 1997 and 1996, 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, 1997 interest rates on these short term lines ranged from 4.4% to
7.25%.
In November 1997, the Company issued 200,000 shares of 9% Convertible
Preferred Stock at $100 per share. The 9% dividend is payable semi-annually in
cash or in-kind at the sole discretion of the Company. The Company plans to
evaluate its liquidity prior to each semi-annual dividend payment date and
determine at that time, whether to pay the dividend in cash or in-kind.
The Company believes that it has adequate liquidity to finance its ongoing
activities and capital expenditures for the near term but will be required to
seek additional capital in the event it wishes to expand its operations through
acquisitions or otherwise attempting to secure additional lines of credit for
such purpose.
ECONOMIC ENVIRONMENT
Bogen relies principally upon an established network of suppliers and
subcontractors primarily located in the Republic of South Korea, and to a lesser
extent in the Asia Pacific Region, and in the United States. During 1997, the
effects of the adverse economic conditions in the Republic of South Korea and
other countries in the Asia Pacific Region included a national liquidity crisis,
significant depreciation in the value of the Won, high interest rates and a
general reduction in spending throughout the region. The Company is currently
monitoring this situation closely and will take all measures within its control
to ensure that production of the Company's products will continue without
interruption. Should production by the Company's suppliers be curtailed, the
Company believes suitable suppliers in other parts of the world will be
available to satisfy its production requirements. However, there can be no
assurances that events beyond the Company's control will not disrupt production
or that suitable alternative sources of production can be identified on a timely
basis, thereby resulting on material adverse effects on the Company's results of
operations.
INFLATION
Inflation did not have a material effect on the Company's results during the
periods discussed.
CURRENCY FLUCTUATIONS
Approximately thirty six percent of the Company's revenues are derived
outside of the United States, primarily in Germany. Accordingly, currency
fluctuations may impact the Company's earnings. Over the course of 1997, the
Deutsche Mark remained relatively steady to the U.S. dollar. 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 stockholders' 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.
21
<PAGE>
YEAR 2000
The Company is in the process of evaluating the effect of modifying computer
software systems to accommodate year 2000 transactions. The Company expects to
expend up to $1,000,000, which may be necessary for systems upgrade projects
that will, among other things, address concerns about the Year 2000. The Company
plans to complete such modification and conversions prior to June 30, 1999.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130") and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information"("SFAS
131").
SFAS 130 establishes standards for the reporting and display of
comprehensive income in the financial statements. Comprehensive income is the
total of net income and all other non-owner changes in equity. SFAS 131 requires
that companies disclose segment data based on how management makes decisions
about allocating resources to segments and measuring their performance. SFAS 130
and 131 are effective for fiscal years beginning after December 15, 1997.
Adoption of these standards is expected to result in additional disclosures,
but will not have an effect on the Company's financial position or results of
operations or cash flows.
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 17 to the Company's Consolidated Financial
Statements.
23
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Pages
-----
Financial Statements:
Report of Independent Auditors F-1
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996 F-3
Consolidated Statements of Operations for the years ended
December 31, 1997, 1996 and 1995 F-5
Consolidated Statements of Changes in Stockholders' Equity
for the years ended December 31, 1997, 1996 and 1995 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 F-8
Notes to Consolidated Financial Statements F-10
The following consolidated financial statement schedules of Bogen Communications
International, Inc. are included in Item 14(a)2:
I. Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only) 31
II. Valuation and Qualifying Accounts 37
All other schedules are omitted as the required information is inapplicable or
the information is presented in the consolidated financial statements or related
notes.
24
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
Bogen Communications International, Inc.:
We have audited the consolidated financial statements of Bogen Communications
International, Inc. and subsidiaries as listed in the accompanying index as of
December 31, 1997 and for the year then ended. In connection with our audit of
the consolidated financial statements, we also have audited the financial
statement schedules for 1997 as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audit. We did not audit the financial statements and
financial statement schedules of Speech Design GmbH, a 67% owned subsidiary,
which financial statements reflect total assets constituting 21% as of December
31, 1997 and total revenues constituting 36%, for the year then ended of the
related consolidated total. Those financial statements and financial statement
schedules were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to the amounts included for Speech Design
GmbH, is based solely on the report of the other auditors.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, based on our audit and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bogen Communications International,
Inc. and subsidiaries as of December 31, 1997, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also in our opinion, based on our
audit and the report of other auditors, the related financial statement
schedules for 1997, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects,
the information set forth therein.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
March 18, 1998
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
of Bogen Communications International, Inc.:
We have audited the accompanying consolidated financial statements and financial
statement schedules of Bogen Communications International, Inc. and Subsidiaries
(formerly European Gateway Acquisition Corp.) (the "Company") as of December 31,
1996 and for each of the two years in the period ended December 31, 1996. 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
mistatement. 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
the results of its operations and its cash flows for each of the two 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-2
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
-------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 964 $ 885
Accounts receivable (less allowance for doubtful accounts of $376 and
$470 at December 31, 1997 and 1996, respectively) 6,291 6,517
Inventories, net 8,285 6,519
Prepaid expenses and other current assets 468 780
------- -------
TOTAL CURRENT ASSETS 16,008 14,701
Property, equipment and leasehold improvements, net 2,136 2,130
Goodwill and intangible assets, net 13,569 14,308
Other assets 257 247
------- -------
TOTAL ASSETS $31,970 $31,386
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-3
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 and 1996
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreement $ 2,891 $ 4,828
Accounts payable 2,376 3,707
Accrued expenses 3,084 3,026
Income taxes payable 238 --
Preferred dividends payable 178 --
Advances and notes payable to related parties 6 746
Current maturities of notes payable to non-related parties -- 5
-------- --------
TOTAL CURRENT LIABILITIES 8,773 12,312
Advances and notes payable to related parties 212 361
Notes payable to non-related parties -- 8
Other liabilities 433 536
Minority interest 1,130 593
-------- --------
TOTAL LIABILITIES 10,548 13,810
-------- --------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized;
200,000 shares issued and outstanding at December 31, 1997, none
issued and outstanding in 1996 (Liquidation preference of $100 per
share plus accrued dividends - $20,178) -- --
Common stock - $.001 par value; 50,000,000 shares authorized;
2,118,226 and 5,758,850 shares issued and outstanding at December
31, 1997 and 1996, respectively 2 6
Additional paid-in-capital 23,468 21,774
Accumulated deficit (1,690) (4,177)
Currency translation adjustments (358) (27)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 21,422 17,576
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 31,970 $ 31,386
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-4
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net sales $ 49,779 $ 46,269 $ 44,518
Cost of goods sold 26,685 25,004 27,338
----------- ----------- -----------
Gross profit 23,094 21,265 17,180
Operating expenses:
Research and development 2,591 2,892 2,307
Selling, general and administrative 14,939 14,360 15,067
Amortization of goodwill and intangible assets 471 445 443
----------- ----------- -----------
Income (loss) from operations 5,093 3,568 (637)
Other (income) expenses:
Interest expense, net 414 596 587
Interest expense to related parties 15 72 619
Transaction costs -- -- 1,491
Minority interest of consolidated subsidiaries 537 337 184
Other income (32) -- (237)
----------- ----------- -----------
Income (loss) before provision for income taxes 4,159 2,563 (3,281)
Provision for income taxes 1,494 555 1,262
----------- ----------- -----------
Net income (loss) $ 2,665 $ 2,008 $ (4,543)
Preferred dividends 178 -- --
----------- ----------- -----------
Net income (loss) available to common shareholders $ 2,487 $ 2,008 $ (4,543)
=========== =========== ===========
Basic net income (loss) per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Diluted net income (loss) per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Weighted average number of common
shares outstanding-Basic and Diluted 5,399,199 5,759,075 3,311,668
=========== =========== ===========
</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 STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 -- -- 1,615,155 $ 2 $ 12,638
Recapitalization by foreign subsidiary -- -- -- -- (967)
Accretion of redemption value of common stock
subject to redemption -- -- -- -- (52)
Reclass of common stock subject to redemption
to common stock upon the Company's
acquisition of Bogen and Speech Design -- -- 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 -- -- -- -- --
Translation adjustments
Net loss -- -- -- -- --
-------- -------- ----------- ----------- -----------
Balance at December 31, 1995 -- -- $ 5,759,350 $ 6 $ 19,175
Restructuring of $3,000 related party
note with related interest -- -- -- -- 2,602
Repurchased and cancelled common
Stock -- -- (500) -- (3)
Translation adjustments -- -- -- -- --
Net income -- -- -- -- --
-------- -------- ----------- ----------- -----------
Balance at December 31, 1996 -- -- 5,758,850 $ 6 $ 21,774
<CAPTION>
Currency
Accumulated Translation
Deficit Adjustments Total
------- ----------- -----
Balance at December 31, 1994 $ (2,428) $ 37 $ 10,249
Recapitalization by foreign subsidiary 967 -- --
Accretion of redemption value of common stock -- -- (52)
Reclass of common stock subject to redemption
to common stock upon the Company's
acquisition of Bogen and Speech Design -- -- 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 -- -- (1,962)
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 -- -- 740
Dividend paid by subsidiary to minority shareholders (181) -- (181)
Translation adjustments 110 110
Net loss (4,543) -- (4,543)
----------- ----------- -----------
Balance at December 31, 1995 $ (6,185) $ 147 $ 13,143
Restructuring of $3,000 related party
note with related interest -- -- 2,602
Repurchased and cancelled common
stock -- -- (3)
Translation adjustments -- (174) (174)
Net income 2,008 -- 2,008
----------- ----------- -----------
Balance at December 31, 1996 $ (4,177) $ (27) $ 17,576
</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 CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Sale of preferred stock 200,000 -- -- -- 20,000
Acquisition and retirement of
common stock held by Geotek,
including acquisition costs of $250 -- -- (3,701,919) (4) (18,746)
Sale of common stock and warrants -- -- 61,295 -- 440
Translation adjustments -- -- -- -- --
Preferred dividends -- -- -- -- --
Net income -- -- -- -- --
------- ------ ---------- ---------- ----------
Balance at December 31, 1997 200,000 -- 2,118,226 $ 2 $ 23,468
======= ====== ========= ========== ==========
<CAPTION>
Currency
Accumulated Translation
Deficit Adjustments Total
------- ----------- -----
Sale of preferred stock -- -- 20,000
Acquisition and retirement of
common stock held by Geotek,
including acquisition costs of $250 -- -- (18,750)
Sale of common stock and warrants -- -- 440
Translation adjustments -- (331) (331)
Preferred dividends (178) -- (178)
Net income 2,665 -- 2,665
---------- ---------- ----------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-7
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,665 $ 2,008 $ (4,543)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Non-cash transaction costs -- -- 740
Depreciation and amortization 861 978 868
Amortization of goodwill and intangible assets 471 445 443
Provisions for doubtful accounts and
inventory obsolescence (703) (1,362) 1,344
Utilization of acquired tax benefits credited to goodwill 439 -- --
Minority Interest 537 337 184
Change in operating assets and liabilities
(net of effects from acquisitions):
Accounts receivable 118 (1,703) 984
Inventories (1,315) 2,269 (49)
Prepaid expenses and other current assets 260 (532) 200
Payables and accrued expenses (1,078) (1,040) 1,901
Other (137) (138) --
-------- -------- --------
Net cash provided by operating activities 2,118 1,262 2,072
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, equipment and leasehold improvements (953) (1,017) (1,035)
Cash obtained in the acquisition of Speech Design
and Bogen -- -- 8,149
Acquisition of New England Audio Resource, Inc. (242) -- --
Acquisition of investments and intangibles -- (102) (60)
Other -- 18 37
-------- -------- --------
Net cash provided by (used) in investing activities (1,195) (1,101) 7,091
-------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Acquisition of common stock and warrants held by Geotek (18,750) -- --
Proceeds from sale of preferred stock, common stock and warrants 20,440 -- --
Amounts (paid to) non-related parties, net -- (161) (688)
Amounts (paid) borrowed under revolving credit agreements (1,506) 23 (691)
Dividend paid to Geotek related to combination
of Bogen and Speech Design -- -- (7,000)
Dividend paid by subsidiary to minority shareholders -- (294) (181)
Advances and notes payable - related parties (879) (341) 415
-------- -------- --------
Net cash used in financing activities (695) (773) (8,145)
-------- -------- --------
Effects of foreign exchange rate on cash (149) 221 110
-------- -------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 79 (391) 1,128
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 885 1,276 148
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 964 $ 885 $ 1,276
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-8
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 496 $ 609 $ 829
Cash paid for income taxes 490 2,175 4
NON CASH INVESTING AND FINANCING ACTIVITIES
Preferred stock dividends accrued 178 -- --
Restructuring of $3,000 related party note and related interest -- 2,602 --
Forgiveness of Bogen debt by Geotek treated
as an equity contribution -- -- 7,155
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
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
F-9
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
1. Organization
Bogen Communications International, Inc. (and, together with its
subsidiaries, the "Company") is engaged in the development, manufacturing
and marketing of sound and telecommunication products. Product lines sold
by the Company include; Telephone Paging Products ("Telco"), Commercial
Audio Products ("Commercial Sound") and Intercom/Paging Equipment
("Engineered Systems"). The Company's operations are located in the
northeastern United States, Germany, England, Switzerland and Israel.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of the Company include the accounts
of Bogen Corporation ("Bogen") and Bogen's wholly-owned subsidiary, Bogen
Communications, Inc. ("BCI"), BCI's wholly-owned subsidiary, New England
Audio Resource Corp. ("NEAR"), as well as Speech Design GmbH, a 67% owned
subsidiary ("Speech Design"), its 67% owned subsidiary Satelco AG
("Satelco"), 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.
The ownership interest of minority owners in the equity and earnings of
the Company's less than 100 percent-owned consolidated subsidiaries is
recorded as minority interest.
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 reported amounts of revenues and
expenses during the reporting period. Some of the more significant
estimates made by management involve the reserve for doubtful accounts,
provision for slow moving and obsolete inventory and evaluation of the
recoverability of assets. Actual results could differ from those
estimates.
Basis of Presentation
On August 21, 1995, the Company acquired a 99% interest in Bogen and a 67%
interest in Speech Design from Geotek Communications, Inc.
F-10
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
("Geotek"). The Company paid Geotek $7,000 in cash, a convertible
promissory note in the aggregate principal amount of $3,000, 3,701,919
shares of the Company's common stock and warrants to acquire 200,000
shares of common stock of the Company plus contingent consideration based
on attainment of specified levels of operating performance of Bogen and
Speech Design. As a result, Geotek acquired approximately 64% of the stock
of the Company, thereby giving it a controlling interest in the Company.
In addition, Geotek contributed approximately $7,155 of intercompany
indebtedness from Bogen to equity as part of the transaction. The Company
incurred transaction costs of $1,491 in connection with the acquisition of
Bogen and Speech Design which were 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.
In May 1996, the Company and Geotek amended 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
note due and paid in July 1997, (ii) the contingent consideration formula
was revised, 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. This option expired unexercised on
October 31, 1997.
For accounting purposes, the acquisition was treated as a joint
acquisition of the Company by Bogen and Speech Design, companies under the
common control of Geotek. The transaction was 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.
On November 26, 1997, the Company acquired and retired all of the
outstanding common stock and warrants held by Geotek for an aggregate
purchase price of $18,500. The total common shares and warrants acquired
amounted to 3,701,919 and 200,000, respectively. In connection with the
transaction, the Company cancelled all outstanding options held by Geotek,
terminated all financing arrangements with Geotek and reconstituted its
Board of Directors effectively severing all ties with Geotek. Financing
for the transaction was obtained through the sale of 200,000 shares of
Preferred Stock to a group of investors (see Note 11).
Revenue Recognition
Sales, net of expected returns, are recognized upon shipment.
Goodwill
Goodwill represents the excess of cost over the fair value of net assets
acquired in purchase transactions. Goodwill also includes the effect of
F-11
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
push-down accounting, 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 a period of 20 to 40 years.
The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its
remaining life can be recovered through undiscounted future cash flows of
the acquired operation and other considerations. The amount of impairment
of goodwill, if any, is measured based on projected discounted cash flows.
Cash and Cash Equivalents
Cash includes cash on-hand and all highly-liquid debt instruments
purchased with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market and are valued using
the first-in, first-out method. Reserves are established for valuation
purposes or determined by management on a periodic basis, as required by
conditions of obsolescence.
Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are recorded at cost, less
accumulated depreciation and amortization. Depreciation of property and
equipment is provided using the straight-line method over the estimated
useful lives ranging from three to ten years. Leasehold improvements are
amortized on a straight-line basis over the shorter of the term of the
lease or the estimated useful life of the improvement.
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.
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.
Under SFAS 109, the effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Income (Loss) Per Common Share
Income (loss) per common share ("EPS") has been computed based upon
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS 128").
Basic EPS is calculated by dividing net income (loss) available to common
shareholders by the weighted-average number of common shares outstanding
for the periods presented. Diluted EPS is calculated by dividing net
income (loss) available to common shareholders by the weighted-average
number of common shares outstanding and all common stock equivalents for
the periods presented.
F-12
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Stock-Based Compensation
Stock-based compensation is recognized using the intrinsic value method.
For disclosure purposes, pro forma net income available to common
shareholders and net income per common share are provided in accordance
with Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" as if the fair value method had been applied.
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.
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 stockholders' 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.
Fair Value of Financial Instruments
The recorded amount of cash and cash equivalents, notes payable and
advances, approximates fair value due to the short-term maturities of
these assets and liabilities.
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" ("SFAS 130") and Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and
Related Information" ("SFAS 131").
SFAS 130 establishes standards for the reporting and display of
comprehensive income in the financial statements. Comprehensive income is
the total of net income and all other non-owner changes in equity. SFAS
131 requires that companies disclose segment data based on how management
makes decisions about allocating resources to segments and measuring their
performance. SFAS 130 and 131 are effective for fiscal years beginning
after December 15, 1997.
Adoption of these standards is expected to result in additional
disclosures, but will not have an effect on the Company's financial
position or results of operations.
F-13
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Reclassifications
Certain 1996 and 1995 balances have been reclassified to conform with the
current year presentation.
3. Acquisition
On July 1, 1997, the Company, through its wholly-owned subsidiary Bogen,
acquired substantially all of the net assets of NEAR, a leading
manufacturer of high performance, weather-proof speakers. The total
purchase price, including direct costs incurred as result of the
acquisition, amounted to $242 in cash and assumption of certain
liabilities. Excess of the purchase price over the estimated fair values
of the net assets acquired was $236 and has been recorded as goodwill,
which is being amortized over 20 years.
The acquisition has been accounted for by the purchase method of
accounting, and accordingly, the purchase price has been allocated to the
assets acquired based on estimates of fair values at the date of
acquisition. The operating results of this acquisition are included in the
Company's consolidated statements of operations from the date of
acquisition and are immaterial. Had the acquisition occurred on January
1, 1997, there would not have been any material effect on consolidated
results of operations for 1997 or 1996.
4. Inventories
Inventories, at the lower of cost or market and valued on a first in,
first out basis, as of December 31, 1997 and 1996, are as follows:
1997 1996
------ ------
Raw materials and supplies $1,874 $1,525
Work in progress 742 701
Finished goods 5,669 4,293
----- -----
$8,285 $6,519
====== ======
The inventory balances are net of a reserve for inventory valuation and
obsolescence of $529 and $1,126 at December 31, 1997 and 1996,
respectively.
5. Property, Equipment and Leasehold Improvements
Property, equipment and leasehold improvements at December 31, 1997 and
1996 is comprised of the following items:
1997 1996
------ ------
Machinery, equipment and tooling $4,111 $3,581
Furniture and office equipment 1,669 1,774
Leasehold improvements 760 694
------ ------
6,540 6,049
Less: accumulated depreciation
and amortization (4,404) (3,919)
------ ------
$2,136 $2,130
====== ======
Depreciation and amortization expense was approximately $861, $978, and
$868 for the years ended December 31, 1997, 1996 and 1995, respectively.
6. Goodwill and Intangible Assets
Goodwill and intangible assets consist of the following, at December 31,
1997 and 1996:
1997 1996
---- ----
Goodwill $16,137 $16,295
Other intangibles 101 220
------ ------
16,238 16,515
Less: accumulated amortization (2,669) (2,207)
------ -------
$13,569 $14,308
======= =======
F-14
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
As explained above in Note 2, 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 goodwill in the amount of $15,044 in the first
quarter of 1994. The goodwill is being amortized over its then remaining
life of approximately 38 years.
Goodwill in the amount of $563 relates to Bogen. This goodwill is being
amortized using the straight-line method over 40 years.
Goodwill in the amount of $733 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.
Goodwill in the amount of $236 represents the excess of cost over the fair
value of net assets acquired in connection with the acquisition of NEAR in
1997. This goodwill is being amortized using the straight-line method over
20 years.
During 1997, Goodwill was reduced in the amount of $439 to reflect the
utilization of pre-acquisition tax benefits (see Note 9).
Amortization of goodwill and other intangibles was $471, $445, and $443
for the years ended December 31, 1997, 1996 and 1995, respectively.
7. Revolving Credit Agreements
In the first quarter of 1997, BCI entered into a revolving credit facility
(the "Facility") with a bank, which matures on February 5, 1999. The
Facility provides, subject to certain terms and conditions, for borrowings
up to a maximum of $7,000 with a $700 sub-limit for letters of credit,
unreimbursed time drafts and/or bankers acceptances, and are limited to
specified levels of eligible accounts receivable and inventory. Borrowings
under the Facility are available for working capital and general corporate
purposes and bear interest at the bank's prime rate plus .50% (9.00% at
December 31, 1997).
Obligations under the Facility are collateralized by all of the accounts
receivable, inventory, property and equipment, and general intangibles of
BCI and is guaranteed by the Company. The Facility contains certain
covenants, which restrict the ability of BCI to declare or pay dividends,
return capital to its stockholders or redeem or repurchase any of its
outstanding capital stock. Net assets of BCI restricted under the Facility
were $9,710 at December 31, 1997.
F-15
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
The Facility also requires compliance with certain financial convenants
including maintenance of specified minimum levels of tangible net worth,
debt to tangible net worth and pre-tax profitability. At December 31, 1997
borrowings outstanding under the Facility amounted to $737. Availability
under the Facility based on eligible accounts receivable and inventory was
approximately $4,000 as of December 31, 1997.
BCI's prior revolving credit facility (the "Previous Facility") provided
for borrowings up to a maximum of $10,000 over a two year term expiring in
August 1997. Borrowings under the Previous Facility were limited to
eligible levels of accounts receivable and inventory, were collateralized
by substantially all the assets of BCI and guaranteed by Geotek. Advances
under the Previous Facility required interest at a rate of 2% to 2.75%
over the lender's prime rate. The Previous Facility contained certain
covenants, which limited the ability of BCI to declare or pay dividends,
return capital to its stockholders or redeem or repurchase any of its
outstanding capital stock. Net assets of BCI restricted under the Previous
Facility were $16,655 at December 31, 1996. At December 31, 1996
borrowings outstanding under the Previous Facility amounted to $1,545.
At December 31, 1997 and 1996, Speech Design had short term lines of
credit and overdraft facilities of $3,988, and $4,344, respectively, of
which short term borrowings amounted to $2,154 and $3,283, respectively.
The amounts available under these credit lines were $1,834 and $1,061 at
December 31, 1997 and 1996, respectively, with rates tied to short-term
bank notes and Euromarket loans. Speech Design's short-term lines of
credit are collateralized by all of Speech Design's accounts receivable
and inventory. At December 31, 1997 interest rates on these short-term
lines ranged from 4.4% to 7.25%.
Total outstanding revolving lines of credit are summarized as follows at
December 31, 1997 and 1996:
1997 1996
---- ----
Domestic Lines of Credit Utilized $ 737 $1,545
Foreign Lines of Credit Utilized:
Speech Design 2,017 2,805
Satelco 137 478
----- ------
$2,891 $4,828
====== ======
8. Advances and Notes Payable to Related Parties
Advances and notes payable to related parties at December 31, 1997 and
1996 consist of the following:
1997 1996
---- ----
Advances from Geotek $ -- $ 152
Loan from Speech Design Shareholders (at
German discount rate + 2%) -- 129
Loan from Related Party (at Zurich Kantonal
Bank rate) 212 232
Other Notes Payable 6
Notes Payable - Geotek (at 13%) -- 594
------ ------
Total 218 1,107
Less: Current Maturities (6) (746)
------ ------
$212 $ 361
====== ======
F-16
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Advances from Geotek
Advances from Geotek consisted of net non-interest bearing advances made
to Bogen, which were paid in full during 1997.
Loan from Speech Design Shareholders
This note payable to Speech Design's minority shareholders was to mature
on December 31, 1999. Interest was paid in quarterly installments and was
charged at 2% over the German discount rate. This note was paid in full
during 1997.
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
noteholders) 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 and paid in July 1997.
F-17
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
9. Income Taxes
The Company's pre-tax book income (loss) is as follows for the years ended
December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Domestic U.S. Operations $1,966 $ 1,322 $(4,886)
Foreign Operations 2,193 1,241 1,605
------ ------ ------
Total $4,159 $ 2,563 $(3,281)
====== ======= ========
The components of income tax expense are as follows for the years ended
December 31, 1997, 1996 and 1995:
1997 1996 1995
---- ---- ----
Current Income Tax
(Foreign Only) $1,055 $ 555 $1,262
Utilization of acquired
tax benefits credited
to goodwill 439 - -
------ ------ ------
Total Income Tax Expense $1,494 $ 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:
1997 1996 1995
---- ---- ----
Provision at U.S. Statutory Rate $1,414 $ 871 $(1,116)
Non-deductible Expenses 151 338 785
Change in Valuation Allowance (820) (793) 998
German Taxes 307 162 604
Utilization of acquired
tax benefits credited
to goodwill 439 - -
Other 3 (23) (9)
----- ------ -------
Tax Provision as Reported $1,494 $ 555 $ 1,262
====== ======= =======
The Company has net operating loss ("NOL") carryforwards of approximately
$6,466 for U.S. Federal tax purposes and approximately $1,045 for U.S.
state tax purposes, as of December 31, 1997, which expire between the
years 2002 through 2010. Under Section 382 of the Internal Revenue Code of
1986, as amended, the net Federal 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, 1997 and 1996, are
as follows:
1997 1996
---- ----
Deferred Tax Assets:
NOL Carryforwards $2,262 $2,808
Deferred Rent 144 191
F-18
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Inventory Items 325 592
Allowance for Doubtful Accounts 124 157
Accrued Liabilities 201 196
Property & Equipment 141 137
Other - 56
----- ------
TOTAL DEFERRED TAX ASSETS $3,197 $4,137
Less, Valuation Allowance (3,197) (4,137)
------ ------
NET DEFERRED TAX ASSETS $ 0 $ 0
====== ======
The Company has established a valuation allowance of $3,197 and $4,137 for
the years ended December 31, 1997 and 1996, respectively. The valuation
allowance was established due to the uncertainty of the realization of the
deferred tax assets principally as a result of limitations imposed on the
use of operating losses under Section 382 and a lack of history of
consistent domestic taxable earnings. A significant portion of the
deferred tax assets which are currently subject to a valuation allowance
may be allocated to reduce goodwill or other non-current intangible assets
when subsequently recognized due to the application of SFAS No. 109 and
purchase accounting.
10. 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.
F-19
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
The minimum annual rental commitments over the next five years under
operating leases are as follows:
Year Ending
December 31,
------------
1998 $ 1,359
1999 1,221
2000 1,015
2001 244
2002 236
Thereafter 553
-------
$4,628
=======
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 $358 and $478 at December 31, 1997 and
1996, respectively, is classified as a long-term liability.
Rent expense charged to operations totaled approximately $1,297, $1,151,
and $1,055 for the years ended December 31, 1997, 1996 and 1995,
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, two Board members received $50,000
each as members of the Company's Executive Committee.
Employment Contracts
The Company has employment agreements with certain of its key executive
officers. The employment agreements provide for among other things,
specified levels of annual base salary, and the granting of stock options.
Certain employment agreements provide for the payment of bonuses based
upon certain criteria. Such employment agreements generally extend through
December 2000.
Litigation
The Company is not aware of any material pending or threatened legal
proceedings to which it is a party or to which any of its property is
subject.
Commitments
At December 31, 1997, the Company had commitments to purchase merchandise
from foreign vendors of $897 under open purchase orders and $132 under
other sight documents.
11. Stockholders' Equity
F-20
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
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.
On November 26, 1997, the Company sold 200,000 shares of 9% Cumulative
Series A Convertible Preferred Stock (the "Preferred Stock") to a group of
unrelated independent third party investors (the "Investors"). The 200,000
shares of Preferred Stock were sold for $100 per share for total proceeds
to the Company of $20,000 of which $18,500 was used to finance the
acquisition and retirement of common stock and warrants held by Geotek
(see Note 2) and $1,500 was to be used for general corporate purposes. The
Preferred Stock carries a redemption value of $100 per share. Each share
of Preferred Stock plus any accrued dividends is convertible, at the
option of the holder, at any time prior to the close of business on the
third day prior to the date on which notice of conversion is given, into
18.605 shares of common stock (or 3,721,000 shares) based on an initial
conversion price of $5.375 per common share ("Conversion Price"). Any
shares of Preferred Stock still outstanding as of December 1, 2002, will
automatically convert into common stock at the rate specified above.
The Preferred Stock may be redeemed by the Company provided the closing
bid price of the common stock on the primary exchange on which the common
stock is traded on each such day for 20 consecutive trading days, exceeds
150% of the Conversion Price, or $8.0625 per share of common stock. The
redemption price paid by the Company will equal the redemption value of
the Preferred Stock plus all accrued dividends through the date of
redemption, plus, in the event the Preferred Stock is redeemed prior to
December 1, 2000, 50% of the dividends that would have accrued or been
payable through December 1, 2000 if such redemption had not occurred.
In the event of liquidation, dissolution or winding up of the Company,
holders of Preferred Stock are entitled to be paid, before any
distribution or payment is made on common stock, an amount equal to the
greater of (i) the redemption value per share of Preferred Stock plus any
accrued dividends, or (ii) such amount of cash, securities or other
property per share of Preferred Stock as would have been payable had each
share been converted to, and treated equally with shares of common stock
immediately prior to such liquidation, dissolution or winding up. If the
assets to be distributed among the holders of the Preferred Stock pursuant
to (i) above are insufficient to permit repayment of the liquidation
preference, then the entire assets of the Company shall be distributed
ratably to holders of the Preferred Stock.
Holders of Preferred Stock are entitled to one vote for each share of
common stock into which such shares can be converted. The Preferred Stock
carries a 9% semi-annual cumulative dividend which may be paid in cash or
in-kind at the option of the Company. Dividends on Preferred Stock must be
paid before any dividends on common stock and accrue on any unpaid
amounts.
Common Stock
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
F-21
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
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 were 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 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
F-22
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
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.
On November 26, 1997, D&S Capital, LLC, a limited liability company whose
interests are owned by the Chief Executive Officer and President of the
Company, acquired 46,295 shares of unregistered common stock and warrants
to purchase 250,000 shares of restricted common stock at an exercise price
of $5.00 per share, for an aggregate purchase price of $250,000. The
warrants are exercisable in specified increments through January 1, 2003.
At December 31, 1997 and 1996, 4,285,885 and 3,660,000 shares of common
stock, respectively, were reserved for issuance upon exercise of
redeemable warrants.
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. These warrants were repurchased and retired by the Company on
November 26, 1997 (see Note 2). Another 60,000 Warrants were issued as
consideration for providing certain financings and services provided to
the Company to facilitate the Business Combination.
Warrants to purchase 250,000 shares of common stock were issued on
November 26, 1997 as part of the sale of common stock to D&S Capital, LLC,
an entity owned by the Chief Executive Officer and President of the
Company. Another 575,885 warrants to purchase common stock were issued on
November 28, 1997, to Helix Capital II, LLC ("Helix II")(see Note 14).
F-23
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
At December 31, 1997, the Company had the following warrants outstanding:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
Warrants to purchase common stock: Shares Price Expiration
--------- ----- --------------
<S> <C> <C> <C> <C>
1993 warrants 3,400,000 $5.50 October 2000
1995 warrants 60,000 $5.50 October 2000
1997 warrants 825,885 $5.35 November 2002,
January 2003
4,285,885
=========
</TABLE>
12. Stock 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 but not less
than the fair market value of the stock at the date of grant and none may
be exercised more than 10 years from the date of grant.
From time to time, the Company grants additional stock options to
individuals outside of the 1996 Plan. During 1997, discretionary grants of
325,885 options in the aggregate were made to the Company's newly
appointed Chief Executive Officer and President outside the 1996 Plan. The
options were granted at an exercise price of $5.00 per share, vest at a
specified rate over a three year period and expire 10 years from the date
of grant.
In 1994, Bogen adopted an Employee Stock Option Plan (the "Bogen Plan")
and granted a total of 1,400,000 options at a price of $1.14 per share,
which approximated fair value. All options granted under the Bogen Plan
were outstanding at December 31, 1996 and 1995. In 1997, the Company
cancelled all the options granted under the Bogen Plan and granted certain
participants under the Bogen Plan one option for a share of common stock
under the 1996 Plan in exchange for every three options of Common Stock of
Bogen granted to a participant in the Bogen Plan. Options for an aggregate
of 253,335 shares of common stock were granted under the 1996 Plan to
former participants of the Bogen Plan.
Information with respect to the Company's stock options under the 1996
Plan and discretionary grants are as follows:
Average
Stock Options Shares Price(1)
------------- --------- --------
Outstanding at December 31, 1996 - -
Granted 1,264,220 5.48
Cancelled 279,667 6.14
Exercised 15,000 5.00
--------- ----
Outstanding at December 31, 1997 969,553 5.30
========= ====
F-24
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
(1) Weighted average exercise price.
The number of shares and weighted average price of options exercisable at
December 31, 1997 was 222,668 shares at $5.74 per share and had a weighted
average contractual life remaining of 8.5 years. At December 31, 1997,
609,667 shares were available for future grants under the terms of the
1996 Plan. Outstanding options expire prior to December 31, 2007 and are
exercisable at prices ranging from $5.00 to 10.00 per share.
Effective November 1, 1996, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). This statement defines a fair
value method of accounting for an employee stock option or similar equity
instrument. However, it allows an entity to continue to measure
compensation cost for those instruments using the intrinsic-value-based
method of accounting prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" provided it discloses the
effect of SFAS 123 in footnotes to the financial statements. The Company
has chosen to continue to account for stock-based compensation using the
intrinsic value method. Accordingly, no stock option related compensation
expense has been recognized for its stock-based compensation plans.
However, had the Company elected to recognize compensation cost based on
fair value of the stock options at the date of grant under SFAS 123, such
costs would have been recognized ratably over the vesting period of the
underlying instruments and the Company's net income available to common
shareholders and net income per common share would have decreased to the
pro forma amounts indicated in the table below.
F-25
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
Pro forma net income available to common shareholders and net income per
common share for the year ended December 31, 1997 was as follows:
Net Income available to common shareholders:
As reported 2,487
Pro forma 2,190
Net Income per common share:
Basic:
As reported .46
Pro forma .41
Diluted:
As reported .46
Pro forma .41
The fair value of the options granted was estimated using the
Black-Scholes option-pricing model based on the weighted average exercise
price at date of grant of $5.48 in fiscal 1997 and the following weighted
average assumptions: risk-free interest rate of 6.25%; expected option
life of 6.8 years; volatility of 46% and no dividend yield. The average
fair value of options granted during 1997 was $2.31.
13. Income (Loss) Per Common Share
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128). SFAS 128 establishes
standards for computing and presenting earnings per share and is effective
for financial statements for both interim and annual periods ending after
December 15, 1997.
Under SFAS 128, the Company is required to present two earnings per share
amounts for each period presented, and all prior period earnings per share
amounts are required to be restated to conform with the provisions of SFAS
128.
Basic income (loss) per common share is computed by dividing net
income (loss) available to common shareholders by the weighted average
number of common shares outstanding during the period. Diluted net
income (loss) per common share gives effect to all dilutive potential
common shares that were outstanding during the period. Potential
common shares are not included in the calculation of diluted income
(loss) per common share if their inclusion would be anti-dilutive.
Potential common shares attributable to the Preferred Stock as a result of
applying the if-converted method (see Note 11) and outstanding options and
warrants have not been included in the calculation of diluted net income
(loss) per common share for the years ended December 31, 1997, 1996 and
1995 since their inclusion would be anti-dilutive. Such outstanding
options, warrants and Preferred Stock, could potentially dilute Basic
income per common share in the future.
14. 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.
F-26
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
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 2 "Basis of Presentation").
In August 1997, the Company entered into a Mergers and Acquisition
Engagement Agreement (the "Agreement"), with Helix Capital Services, Inc.
("Helix Services"), the successor to Helix Capital Services, LLC. The
Agreement, as amended on November 28, 1997, extends through December 2000
and provides for, among other things, (i) Helix Services to serve as a
non-exclusive financial advisor and finder for the Company's merger and
acquisition transactions, (ii) specifies levels of effort and resources on
the part of Helix Services in connection with performing its duties under
the Agreement, (iii) monthly retainer payable to Helix Services in the
amount of $20 per month, and (iv) success fees payable to Helix Services
based upon transaction consideration. Certain partners of Helix Services
are members of the Company's Board of Directors.
In connection with entering into the amendment, Helix II, an affiliate of
Helix Services, was provided with an opportunity to invest in the Company.
As of November 28, 1997, Helix II purchased non-transferable Warrants (the
"Warrants") to purchase 575,885 shares of the Company's common stock, for
a purchase price of $115. The exercise price of the Warrants is $5.50 per
share of common stock. Subject to certain exceptions in the event of a
change of control, the Warrants will not be exercisable until the one-year
anniversary of the date of issuance and expire on November 27, 2002. The
shares of common stock to which the Warrants are exercisable into, are
restricted as to tradability for a specific period of time.
F-27
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
15. Economic Dependency
During the years ended December 31, 1997, 1996 and 1995, the Company
purchased audio components in the amount of approximately $9,194, $12,072,
and $8,853, respectively, from four suppliers located in the Republic of
South Korea. The Company is currently monitoring the economical crisis in
South Korea closely and will take all measures within its control to
ensure that production of the Company's products will continue without
interruption. Should production by the Company's suppliers be curtailed,
the Company believes suitable suppliers in other parts of the world will
be available to satisfy its production requirements. However, there can be
no assurances that events beyond the Company's control will not disrupt
production or that suitable alternative source of production can be
identified on a timely basis, thereby resulting on material adverse
effects on the Company's results of operations.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 two customers accounted for more than 10% individually of the
Company's net sales in 1997. Sales to one customer accounted for more than
10% of the Company's net sales in 1996 and 1995.
1997 1996 1995
------ ------ ------
Customer A $5,147 $4,506 $4,440
Customer B $6,357 -- --
Twenty-one of Bogen's employees are subject to collective bargaining
agreements which expire in mid-2000.
16. Employee Benefit Plans
Bogen participates in multi-employer pension plans, which cover all union
employees. Contributions for the periods ended December 31, 1997, 1996 and
1995 were approximately $18, $17, and $15, respectively.
Employees of the Company are also eligible to participate in a Company
sponsored defined contribution 401(k) plan. The Company provides a
matching contribution to a portion of funds contributed by employees.
Amounts charged to expense were $122, $83, and $82 for the years ended
December 31, 1997, 1996 and 1995, respectively.
F-28
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In Thousands of Dollars, Except Share and Per Share Amounts)
17. Segments
The Company's operations are conducted in one segment in the United States
(Bogen) and Germany (Speech Design). Information about the Company for
1997, 1996, and 1995 has been presented geographically as follows:
1997 1996 1995
------ ------- ------
Geographic Segments:
Revenues:
United States $31,734 $30,671 $30,677
Foreign 18,045 15,598 13,841
------- ------- -------
$49,779 $46,269 $44,518
Operating income (loss):
United States $ 2,288 $ 1,862 $(2,405)
Foreign 2,805 1,706 1,768
------- ------- -------
Income (loss) from operations $ 5,093 $ 3,568 (637)
======= ======= =======
Identifiable assets:
United States $25,148 $23,604 $24,425
Foreign 6,822 7,782 6,879
------- ------- -------
$31,970 $31,386 $31,304
======= ======= =======
F-29
<PAGE>
Item 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
Disclosure responsive to this item has been previously reported (as that
term is defined under the Securities Exchange Act of 1934, as amended) in the
Company's Current Report on Form 8-K dated December 19, 1997.
PART III
Certain information required by Part III is omitted from this report in that
the Company will file a definitive proxy statement pursuant to Regulation 14A
(the "Proxy Statement") not later than 120 days after the end of the fiscal year
covered by this Report, and certain information included therein is incorporated
herein by reference.
Item 10. Directors and Executive Officers of the Registrant
The information required by the Item is incorporated herein by reference to
the Company's Proxy Statement.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to the
Company's Proxy Statement, including the Stock Price Performance Graph and the
Board of Directors Report on Executive Compensation.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated herein by reference to
the Company's Proxy Statement.
25
<PAGE>
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
26
<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, 1997 and 1996
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
Assets
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 257 $ 305
Advances to subsidiary 1,540 --
Prepaid expenses and other current assets 32 --
-------- --------
TOTAL CURRENT ASSETS 1,829 305
Organization costs, net 8 19
Investment in subsidiaries 20,282 17,643
Note receivable from subsidiary -- 553
-------- --------
TOTAL ASSETS $ 22,119 $ 18,520
======== ========
Liabilities & Stockholders' Equity
CURRENT LIABILITIES:
Accounts payable and accrued expenses 169 181
Preferred dividends payable 178 --
Advances from related party -- 169
-------- --------
TOTAL CURRENT LIABILITIES 347 350
Notes payable to subsidiary and related party 350 594
-------- --------
TOTAL LIABILITIES 697 944
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value;
1,000,000 shares authorized; 200,000 shares issued and outstanding at
December 31, 1997, none issued and outstanding in 1996 (Liquidation
preference of $100 per share plus accrued dividends - $20,178) -- --
Common stock - $.001 par value; 50,000,000 shares authorized; 2,118,226
and 5,758,850 shares issued and outstanding at December 31,
1997 and 1996, respectively 2 6
Additional paid-in capital 23,468 21,774
Accumulated deficit (1,690) (4,177)
Currency translation adjustments (358) (27)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 21,422 17,576
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,119 $ 18,520
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company only)
STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997, 1996
AND FOR THE PERIOD FROM AUGUST 21, 1995 TO DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1997 1996 1995
---- ---- ----
Net Sales $ -- $ -- $ --
Operating expenses:
General and administrative 331 371 173
Amortization 11 11 4
----------- ----------- -----------
Loss from operations (342) (382) (177)
Other (income) expenses:
Equity in (income) loss of
subsidiaries (3,019) (2,496) 2,740
Acquisition costs -- -- 1,491
Interest expense, net 12 42 135
----------- ----------- -----------
Income (loss) before provision
for income taxes 2,665 2,072 (4,543)
Provision for income taxes -- 64 --
----------- ----------- -----------
Net income (loss) 2,665 2,008 (4,543)
Preferred dividends 178 -- --
----------- ----------- -----------
Net income (loss) available
to common shareholders $ 2,487 $ 2,008 $ (4,543)
=========== =========== ===========
Basic net income (loss)
per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Diluted net income (loss)
per common share $ 0.46 $ 0.35 $ (1.37)
=========== =========== ===========
Weighted average number of
common shares outstanding-Basic
and Diluted 5,399,199 5,759,075 3,311,668
=========== =========== ==========
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
(PARENT COMPANY ONLY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
--------------- ------------ ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 -- -- 1,615,155 $ 2 $ 12,638
Recapitalization by foreign subsidiary -- -- -- -- (967)
Accretion of redemption value
of common stock subject to redemption -- -- -- -- (52)
Reclass of common stock subject to
redemption to common stock upon
the Company's acquisition of
Bogen and Speech Design -- -- 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 -- -- -- -- --
Translation adjustments
Net loss -- -- -- -- --
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1995 -- -- 5,759,350 $ 6 $ 19,175
Restructuring of $3,000 related party
note with related interest -- -- -- -- 2,602
Repurchased and cancelled common
stock -- -- (500) -- (3)
Translation adjustments -- -- -- -- --
Net income -- -- -- -- --
---------- ----------- ----------- ---------- -----------
Balance at December 31, 1996 -- -- 5,758,850 $ 6 $ 21,774
<CAPTION>
Currency
Accumulated Translation
Deficit Adjustments Total
------------- -------------- ------------
Balance at December 31, 1994 $ (2,428) $ 37 $ 10,249
Recapitalization by foreign subsidiary 967 -- --
Accretion of redemption value
of common stock -- -- (52)
Reclass of common stock subject to
redemption to common stock upon
the Company's acquisition of
Bogen and Speech Design -- -- 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 -- -- (1,962)
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 -- -- 740
Dividend paid by subsidiary to minority shareholders (181) -- (181)
Translation adjustments 110 110
Net loss (4,543) -- (4,543)
----------- ----------- -----------
Balance at December 31, 1995 $ (6,185) $ 147 $ 13,143
Restructuring of $3,000 related party
note with related interest -- -- 2,602
Repurchased and cancelled common
stock -- -- (3)
Translation adjustments -- (174) (174)
Net income 2,008 -- 2,008
----------- ----------- -----------
Balance at December 31, 1996 $ (4,177) $ (27) $ 17,576
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
(PARENT COMPANY ONLY)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands of Dollars, Except Share and Per Share Amounts)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
Number of Number of Paid-in
Shares Amount Shares Amount Capital
--------- ------ ------------ ------ ----------
<S> <C> <C> <C> <C> <C>
Sale of preferred stock 200,000 -- -- -- 20,000
Acquisition and retirement of common stock held by
Geotek, including acquisition costs of $250 -- -- (3,701,919) (4) (18,746)
Sale of common stock and warrants -- -- 61,295 -- 440
Translation adjustments -- -- -- -- --
Preferred dividends -- -- -- -- --
Net income -- -- -- -- --
------- ------ ---------- ------ ----------
Balance at December 31, 1997 200,000 -- 2,118,226 $ 2 $ 23,468
======= ====== ========== ====== ==========
<CAPTION>
Currency
Accumulated Translation
Deficit Adjustments Total
---------- ----------- -----------
Sale of preferred stock -- -- 20,000
Acquisition and retirement of common stock held by
Geotek, including acquisition costs of $250 -- -- (18,750)
Sale of common stock and warrants -- -- 440
Translation adjustments -- (331) (331)
Preferred dividends (178) -- (178)
Net income 2,665 -- 2,665
---------- ---------- ----------
Balance at December 31, 1997 $ (1,690) $ (358) $ 21,422
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
Schedule I - Condensed Financial Information of Bogen Communications
International, Inc. (Parent Company Only)
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
(Parent Company Only)
STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997, 1996 AND
FOR THE PERIOD FROM AUGUST 21, 1995 to DECEMBER 31, 1995
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $ (268) $ (75) $ (383)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITES:
Cash obtained in the acquisition of
Bogen and Speech Design -- -- 8,149
-------- -------- --------
NET CASH PROVIDED BY INVESTMENT
ACTIVITIES -- -- 8,149
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of preferred stock,
common stock and warrants 20,440 -- --
Acquisition of common stock and
warrants held by Geotek (18,750) -- --
Dividend paid to Geotek related to
the combination -- -- (7,000)
Payment on debt to non-related party -- -- (115)
Advances and notes to subsidiaries
and related parties (1,398) (593) 317
-------- -------- --------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 292 (593) (6,798)
-------- -------- --------
Effects of Foreign Exchange Rate on Cash (72) 5 --
-------- -------- --------
INCREASE (DECREASE) IN CASH (48) (663) 968
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 305 968 --
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 257 $ 305 $ 968
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
NON CASH INVESTING CASH FINANCING ACTIVITIES
Restructuring of $3,000 related party note and
related interest $ -- $ 2,602 $ --
======== ======== ========
Preferred stock dividends accrued $ 178 $ -- $ --
======== ======== ========
Common Stock and warrants issued as
consideration for certain services
provided to the Company in connection
with the combination $ -- $ -- $ 740
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<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:
Bogen Communications International, Inc. (and, together with its
subsidiaries, the "Company") is engaged in the development,
manufacturing and marketing of sound and telecommunication products.
Product lines sold by the Company include; Telephone Paging Products
("Telco"), Commercial Audio Products ("Commercial Sound") and
Intercom/Paging Equipment ("Engineered Systems"). The Company's
operations are located in the northeastern United States, Germany,
England, Switzerland and Israel.
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 years ended
December 31, 1997, 1996 and 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. Income (Loss) Per Common Share
Income (loss) per common share ("EPS") has been computed based upon
Financial Accounting Standards No. 128, "Earnings Per Share" ("FAS
128"). Basic EPS is calculated by dividing net income (loss) available
to common shareholders by the weighted-average number of common shares
outstanding for the periods presented. Diluted EPS is calculated by
dividing net income (loss) available to common shareholders by the
weighted-average number of common shares outstanding and all common
stock equivalents for the periods presented.
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 equivalents.
32
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F
- --------- -------- -------- -------- -------- --------
Balance at Charged to Balance at
Beginning Costs and End of
of Period Expenses Other Deduction Period
--------- --------- ----- --------- ----------
Description
- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful
Accounts $ 470 $ 184 $ 20(c) $ (298)(a) $ 376
Reserve for inventory
Obsolescence 1,126 383 10 (990)(b) 529
Allowance for tax valuation 4,137 (940) -- -- 3,197
------- ------- ------- ------- -------
$ 5,733 $ (373) $ 30 $(1,288) $ 4,102
======= ======= ======= ======= =======
Year ended December 31, 1996:
Allowance for doubtful
Accounts $ 424 $ 153 $ (1)(c) $ (106)(a) $ 470
Reserve for inventory
Obsolescence 2,552 257 (16)(c) (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(c) (937)(b) 2,552
Allowance for tax valuation 3,132 1,631 68 -- 4,831
------- ------- ------- ------- -------
$ 4,764 $ 4,158 $ 74 $(1,189) $ 7,807
======= ======= ======= ======= =======
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
(b) Write-off of obsolete inventory.
(c) Currency exchange effect.
33
<PAGE>
(b) Reports on Form 8-K
Two reports on Form 8-K were filed in the fourth quarter 1997.
No financial statements were included with such Forms 8-K. The
following is a list of the Forms 8-K filed and the dates
thereof.
(i) A Form 8-K was filed on December 11, 1997 reporting that the Company
re-purchased Geotek Communications, Inc. investment in the Company and
that the Company issued $20,000,000 of 9% Convertible Preferred Stock.
(ii) A Form 8-K was filed on December 19, 1997 reporting, among other
things, that the Company had changed independent accountants.
(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 Bogen Communications, International, Inc. 1996 Incentive Stock
Option Plan. 5
4.6 Certificate of Designation, Preferences and Rights of Convertible
Preferred Stock of Bogen Communications International, Inc. 7
4.7 Certificate of Correction to the Certificate of Designation,
Preferences and Rights of Convertible Preferred Stock of Bogen
Communications International, Inc. 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 Option Agreement, dated August 21, 1995, among Geotek
Communications, Inc., European Gateway Acquisition Corp., Mr.
Kasimir Arciszewski and Mr. Hans Meiler.
10.7 Summary of Agreement for Business Credit between Speech Design
GmbH and Statelparkasse Munchen. 6
10.8 Secured Revolving Promissory Note dated February 6, 1997 between
Summit Bank and Bogen Communications, Inc. 6
10.9 Loan and Security Agreement dated February 6, 1997 between Summit
Bank and Bogen Communications, Inc. 6
34
<PAGE>
10.10 Corporate Guaranty of Bogen Communications International, Inc. 6
10.11 Corporate Guaranty of Bogen Corporation. 6
*10.12 Asset Purchase Agreement, dated as of July 1, 1997, between
Bogen Communications International, Inc. Bog-Comm Acquisition
Corporation, New England Audio Resource, Inc., Mr. William
Kieltyka and Mr. Lee Lareau.
*10.13 First Amendment to the Loan and Security Agreement, dated
July 1, 1997, between Summit Bank and Bogen Communications,
International, Inc.
10.14 Stock Purchase Agreement, dated November 26, 1997, between the
Company and Geotek. 7
10.15 Convertible Preferred Stock Purchase Agreement, dated November 26,
1997, between the Company and the Investors.7
10.16 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Jonathan Guss. 7
10.17 Employment Agreement, dated November 26, 1997, between the Company
and Mr. Michael Fleischer. 7
10.18 Option Agreement, dated November 26, 1997, between the Company and
Mr. Jonathan Guss. 7
10.19 Option Agreement, dated November 26, 1997, between the Company and
Mr. Michael Fleischer. 7
10.20 Common Stock and Warrant Purchase Agreement, dated November 26,
1997 between the Company and D&S Capital, LLC. 7
10.21 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC. 7
10.22 Mergers and Acquisition Engagement Agreement, dated August, 1997,
as amended as of November 28, 1997 between Helix Capital Services,
LLC and Bogen Communications International, Inc. 8
10.23 Warrant Purchase Agreement, dated as of November 28, 1997, between
Helix Capital II, LLC and Bogen Communications International,
Inc. 8
10.24 Warrant, dated November 28, 1997, issues by Bogen Communications
International, Inc. to Helix Capital II, LLC. 8
*21.1 Subsidiaries of the Company.
*23.1 Consent of KPMG Peat Marwick LLP.
*23.2 Consent of Coopers & Lybrand L.L.P.
*23.3 Consent of Coopers & Lybrand L.L.P.
*23.4 Consent of Coopers & Lybrand L.L.P.
*23.5 Report of Independent Auditor
- ------------
*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 Registration
Statement on Form S-8 (File No. 333-21245), dated February 4, 1997.
6. Incorporated by reference to the Exhibits to the Company's Annual report on
Form 10-K for the year ended December 31, 1996.
7. Incorporated by reference to the Exhibits to the Company's Current Report
on Form 8-K, dated November 25, 1997.
8. Incorporated by reference and the Exhibits to the Company's Current report
on Form 8-K, dated December 12, 1997.
35
<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/ Jonathan Guss By: /s/ Yoav M. Cohen
---------------------------- ---------------------------
Jonathan Guss, Yoav M. Cohen,
Chief Executive Officer Chief Financial Officer,
(Principal Executive Officer) and Secretary
(Principal Financial Officer)
By: /s/ Michael P. Fleischer
----------------------------
Michael P. Fleischer,
President
(Principal Executive Officer)
Date: March 31, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on March 31, 1998 by the following persons on behalf
of the Registrant in the capacities indicated.
/s/ Jonathan Guss Director, Chief Executive Officer
- ------------------------------
Jonathan Guss
/s/ Michael P. Fleischer Director, President
- ------------------------------
Michael P. Fleischer
/s/ Jeffrey Schwarz Director, Co-Chairman of the Board
- ------------------------------ of Directors
Jeffrey Schwarz
/s/ Yoav Stern Director, Co-Chairman of the Board
- ------------------------------ of Directors
Yoav Stern
/s/ David Jan Mitchell Director
- ------------------------------
David Jan Mitchell
/s/ Zivi R. Nedivi Director
- ------------------------------
Zivi R. Nedivi
/s/ Daniel Schwartz Director
- ------------------------------
Daniel Schwartz
36
<PAGE>
EXHIBIT INDEX
Exhibit
No.
10.6 Option Agreement, dated August 21, 1995, among Geotek Communications,
Inc., European Gateway Acquisition Corp., Mr. Kasimir Arciszewski and Mr.
Hans Meiler
10.12 Asset Purchase Agreement, dated as of July 1, 1997, between Bogen
Communications International, Inc., Bog-Comm Acquisition Corporation, New
England Audio Resource, Inc., Mr. William Kieltyka and Mr. Lee Lareau.
10.13 First Amendment to the Loan and Security Agreement dated July 1, 1997,
between Summit Bank and Bogen Communications, Inc.
21.1 Subsidiaries of the Company
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Coopers & Lybrand L.L.P.
23.3 Consent of Coopers & Lybrand L.L.P.
23.4 Consent of Coopers & Lybrand L.L.P.
23.5 Report of Independent Auditor
37
================================================================================
ASSET PURCHASE AGREEMENT
between
BOGEN COMMUNICATIONS, INC.,
BOG-COMM ACQUISITION CORPORATION,
NEW ENGLAND AUDIO RESOURCE, INC.,
MR. WILLIAM KIELTYKA
and
MR. LEE LAREAU
---------------------
Dated as of July 1, 1997
---------------------
======================================
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. Sale of Assets........................................................................ 1
1.1 Assets to be Sold............................................................ 1
1.2 Excluded Assets.............................................................. 2
2. Assumption of Liabilities............................................................. 2
2.1 Liabilities Assumed by the Buyer............................................. 2
2.2 Liabilities Not Assumed by the Buyer......................................... 3
3. Purchase Price and Payment............................................................ 4
4. Closing............................................................................... 4
5. Representations and Warranties of the Seller and the Principals....................... 4
5.1 Due Incorporation and Qualification.......................................... 4
5.2 Subsidiaries................................................................. 5
5.3 Certificate of Incorporation and By-laws..................................... 5
5.4 Financial Statements......................................................... 5
5.5 No Material Adverse Change................................................... 6
5.6 Tax Matters.................................................................. 6
5.7 Compliance with Laws......................................................... 6
5.8 Authority to Execute and Perform Agreements.................................. 7
5.9 Loan Agreements.............................................................. 8
5.10 Litigation................................................................... 9
5.11 Agreements................................................................... 9
5.12 Real Estate.................................................................. 11
5.13 Accounts and Notes Receivable................................................ 12
5.14 Inventory Valuation.......................................................... 12
5.15 Tangible Property............................................................ 13
5.16 Intangible Property.......................................................... 13
5.17 Lists of Suppliers and Customers............................................. 14
5.18 Liens........................................................................ 14
5.19 Indebtedness................................................................. 15
5.20 Liabilities.................................................................. 15
5.21 Pension and Benefit Plans and Compliance with ERISA.......................... 16
5.22 Insurance.................................................................... 17
5.23 Officers, Directors and Employees............................................ 18
5.24 Operations of the Seller..................................................... 18
5.25 Potential Conflicts of Interest.............................................. 20
5.26 Banks, Brokers and Proxies................................................... 21
5.27 Environmental Matters........................................................ 21
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
5.28 No Broker.................................................................... 26
5.29 Full Disclosure.............................................................. 26
6. Representations and Warranties of the Buyer and Bogen................................. 26
6.1 Due Incorporation............................................................ 27
6.2 Corporate Power of the Buyer and Bogen....................................... 27
6.3 No Broker.................................................................... 27
7. Covenants and Agreements.............................................................. 27
7.1 Corporate Examinations and Investigations; Confidentiality................... 27
7.2 Change and Use of Name....................................................... 28
7.3 Bonuses...................................................................... 29
7.4 Delta Stock.................................................................. 29
7.5 Employee Benefits............................................................ 29
7.6 Expenses of Sale............................................................. 29
7.7 Consent to Jurisdiction and Service of Process............................... 29
7.8 Further Assurances........................................................... 30
8. Conditions Precedent to the Obligation of the Buyer to Close.......................... 30
8.1 Representations and Covenants................................................ 30
8.2 Governmental Permits and Approvals........................................... 31
8.3 Third Party Consents......................................................... 31
8.4 Opinion of Counsel to the Seller............................................. 31
8.5 Payment of Debts to Seller................................................... 31
8.6 Employment and Bonus Agreements.............................................. 31
8.7 Patent Agreement............................................................. 32
8.8 Patent Assignment............................................................ 32
8.9 Redemption of Convertible Preferred Stock.................................... 32
9. Conditions Precedent to the Obligation of the Seller to Close......................... 32
9.1 Representations and Covenants................................................ 32
9.2 Employment and Bonus Agreements.............................................. 33
9.3 Patent Agreement............................................................. 33
10. Post-Closing Settlement............................................................... 33
10.1 Inventory, Receivables, and Payables......................................... 33
10.2 Preparation of Post-Closing Balance Sheet; Loan Statements;
Arbitration.................................................................. 33
10.3 Post-Closing Settlement...................................................... 35
10.4 Determination and Payment of Post-Closing Adjustments........................ 35
10.5 Expenses of Post-Closing Adjustments......................................... 35
10.6 Payment of Accounts and Notes Receivable..................................... 36
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
11. Covenants of Seller and the Principals................................................ 36
11.1 Against Competition.......................................................... 36
11.2 Rights and Remedies Upon Breach.............................................. 39
11.3 Unenforceability of Restrictive Covenants.................................... 40
11.4 Enforceability in Jurisdictions.............................................. 40
12. Survival of Representations, Warranties, Covenants and Agreements..................... 41
12.1 The Seller and the Principals................................................ 41
12.2 The Buyer and Bogen.......................................................... 41
13. Indemnification....................................................................... 42
13.1 Obligation of the Seller and the Principals to Indemnify..................... 42
13.2 Obligation of the Buyer and Bogen to Indemnify............................... 43
13.3 Notice to Indemnifying Party................................................. 44
13.4 Set-off Rights............................................................... 44
14. Miscellaneous......................................................................... 45
14.1 Certain Definitions.......................................................... 45
14.2 Publicity.................................................................... 46
14.3 Notices...................................................................... 46
14.4 Entire Agreement............................................................. 48
14.5 Waivers and Amendments....................................................... 48
14.6 Governing Law................................................................ 48
14.7 No Assignment................................................................ 49
14.8 Variations in Pronouns....................................................... 49
14.9 Counterparts................................................................. 49
14.10 Exhibits and Schedules....................................................... 49
EXHIBITS
Exhibit A: Form of Bill of Sale and Assignment
Exhibit B: Form of Opinion of Counsel to the Seller
Exhibit C: Form of Patent Agreement
Exhibit D: Form of Patent Assignment
</TABLE>
- iii -
<PAGE>
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement") dated as of July 1, 1997,
by and among Bogen Communications, Inc., a Delaware corporation ("Bogen"),
Bog-Comm Acquisition Corporation, a Delaware corporation (the "Buyer"), New
England Audio Resource, Inc., a Maine corporation (the "Seller"), Mr. William
Kieltyka ("Kieltyka"), and Mr. Lee Lareau ("Lareau" and together with Kieltyka
the "Principals").
The Buyer wishes to purchase from the Seller, and the Seller wishes to sell
to the Buyer, substantially all of the assets, properties, rights and business
of the Seller, subject to certain liabilities, upon the terms and conditions of
this Agreement.
Accordingly, the parties hereto agree as follows:
1. Sale of Assets.
1.1 Assets to be Sold. Except as otherwise provided in Section 1.2, at the
Closing (as defined in Section 4), the Seller shall sell, assign, transfer and
deliver to the Buyer all of the assets, properties, rights and business of the
Seller of every type and description, real, personal and mixed, tangible and
intangible, wherever located and whether or not reflected on the books and
records of the Seller (all of such assets, properties, rights and business being
hereinafter sometimes collectively called the "Purchased Assets"), including,
without limitation:
(i) those assets, properties and rights reflected on the Balance Sheet
(as defined in Section 5.4) (subject to changes therein through the Closing
Date (as defined in Section 4)) or otherwise referred to in this Agreement
or any Schedule hereto, including, without limitation, all inventory of the
Seller;
(ii) the Seller's lists of customers;
<PAGE>
(iii) the Seller's right to use the names New England Audio Resource,
Inc., NEAR and all variants thereof;
(iv) all of the Seller's interest in and claims and rights under
contracts and other agreements, Permits (as hereinafter defined), titles,
and patents, trademarks, copyrights and other intellectual property and
applications therefor which are referred to in this Agreement or any
Schedule hereto (subject to changes therein through the Closing Date);
(v) the books and records of the Seller relating to the Purchased
Assets;
(vi) the goodwill of the Seller; and
(vii) all other assets, properties, rights and business of every kind
and nature owned or held by the Seller, or in which the Seller has an
interest, on the Closing Date, known or unknown, fixed or unfixed, choate
or inchoate, accrued, absolute, contingent or otherwise, whether or not
specifically referred to in this Agreement. In confirmation of the
foregoing sale, assignment and transfer, the Seller shall execute and
deliver to the Buyer at the Closing a bill of sale and assignment agreement
(the "Bill of Sale and Assignment") substantially in the form attached
hereto as Exhibit A.
1.2 Excluded Assets. Notwithstanding anything in Section 1.1 to the
contrary, there shall be excluded from the assets, properties, rights and
business to be transferred to the Buyer those assets, properties and rights set
forth on Schedule 1.2.
2. Assumption of Liabilities.
2.1 Liabilities Assumed by the Buyer. In partial payment of the Purchase
Price (as defined in Section 3), the Buyer shall assume, as of the Closing Date,
the following
- 2 -
<PAGE>
liabilities and obligations of the Seller to the extent existing on the Closing
Date, other than as specifically excepted in Section 2.2:
(i) any indebtedness owed by the Seller to financial institutions or
other lenders not to exceed an aggregate amount of $200,000;
(ii) any accounts payable on the Balance Sheet not to exceed an
aggregate amount of $170,000; and
(iii) all liabilities and obligations under contracts and other
agreements to which the Seller is a party or by or to which it or its
assets, properties or rights are bound or subject and which are reflected
on Schedules 5.9, 5.11, 5.12, 5.15, 5.16, 5.20, 5.21, and 5.22.
2.2 Liabilities Not Assumed by the Buyer. Notwithstanding anything in this
Agreement to the contrary, the Buyer shall not assume, or in any way be liable
or responsible for, any liabilities or obligations of the Seller except as
specifically provided in Section 2.1. Without limiting the generality of the
foregoing, the Buyer shall not assume the following:
(i) any liability or obligation of the Seller arising out of or in
connection with the negotiation and preparation of this Agreement and the
consummation and performance of the transactions contemplated hereby,
including, without limitation on the foregoing, any tax liability so
arising; and
(ii) any liability or obligation of the Seller, or any consolidated
group of which the Seller is a member, for any foreign, federal, state,
county or local taxes, or any interest or penalties thereon, accrued for,
applicable to or arising from any fiscal or calendar period ending on or
prior to the Closing Date.
- 3 -
<PAGE>
3. Purchase Price and Payment. The aggregate purchase price for
the Purchased Assets (the "Purchase Price") shall be an amount equal
to (i) One Hundred and Seventy Thousand Dollars ($170,000), to be paid
by the Buyer to the Seller at the Closing by certified check or wire
transfer of funds, and (ii) the aggregate amount of the Assumed
Liabilities on the Closing Date; provided that the Purchase Price is
subject to adjustment in accordance with Section 10 hereof.
4. Closing. The closing of the sale and purchase of the Purchased
Assets (the "Closing") shall take place at the offices of McDermott,
Will & Emery, 50 Rockefeller Plaza, New York, New York 10020, on July
3, 1997 at 10:00 a.m. local time, or at such other place, date, or
time as the Buyer and the Seller mutually agree in writing. The date
upon which the Closing occurs is herein called the "Closing Date."
5. Representations and Warranties of the Seller and the
Principals. Each of the Seller and the Principals, jointly and
severally, represents and warrants to the Buyer as follows:
5.1 Due Incorporation and Qualification. The Seller is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Maine and has the corporate power and
lawful authority to own, lease and operate its assets and properties
and to carry on its business as now conducted. The Seller is qualified
to transact business and is in good standing in each jurisdiction in
which the nature of its business or location of its properties
requires such qualification and in which the failure so to qualify
could have a material adverse effect on the Seller or its assets,
properties or business. The Seller does not own or lease property in
any jurisdiction other than its jurisdiction of incorporation and the
jurisdictions set
- 4 -
<PAGE>
forth on Schedule 5.1, and is not required to be qualified or
otherwise authorized to do business in any other jurisdiction.
5.2 Subsidiaries. The Seller does not, directly or indirectly,
own or have the power to vote, or to exercise a controlling influence
with respect to, 50% or more of the securities of any class of any
person the holders of which class are entitled to vote for the
election of directors (or persons performing similar functions) of
such person, and except as so set forth, the Seller is not an
affiliate of any person engaged in the same business as the Seller or
any business related to the business of the Seller.
5.3 Certificate of Incorporation and By-laws. The copies of the
Certificate of Incorporation and By-laws of the Seller, and all
amendments to each, which have been delivered to the Buyer are true
and complete copies of the originals thereof.
5.4 Financial Statements. The balance sheets of the Seller as at
December 31, 1994, December 31, 1995, December 31, 1996 and April 30,
1997, and the related statements of income, retained earnings and
changes in financial position for the fiscal periods then ended,
including the footnotes thereto, which have been delivered to the
Buyer, fairly present the financial position of the Company as at such
dates and the results of its operations and the changes in its
retained earnings and its financial position for the periods then
ended in accordance with generally accepted accounting principles
consistently applied. (The foregoing financial statements of the
Seller as at April 30, 1997 and for the period then ended being
sometimes herein called the "Financials," the balance sheet included
in the Financials being sometimes herein called the "Balance Sheet,"
and April 30, 1997 being sometimes herein called the "Balance Sheet
Date".)
- 5 -
<PAGE>
5.5 No Material Adverse Change. Since the Balance Sheet Date,
there has been no material adverse change in the assets, properties,
business or condition, financial or otherwise, of the Seller, and
neither the Seller nor either Principal knows of any such change which
is threatened, nor has there been any damage, destruction or loss
materially affecting the assets, properties, business or condition of
the Seller, whether or not covered by insurance.
5.6 Tax Matters. Except as set forth on Schedule 5.6, the Seller
has filed all income tax, excise tax, sales tax, use tax, gross
receipts tax, franchise tax, employment and payroll related tax,
property tax, and all other tax returns which the Seller is required
to file and has paid or provided for all deficiencies or other
assessments of tax, interest or penalties owed by it. Neither the
Seller nor either Principal knows of any unassessed tax deficiency
proposed or threatened against the Seller. Except as set forth on
Schedule 5.6, no audit of any tax return of the Seller is in progress
and no extensions of time with respect to any date on which any tax
return was or is to be filed by the Seller is in force, and no waiver
or agreement by the Seller is in force for the extension of time for
the assessment or payment of any tax.
5.7 Compliance with Laws. The Seller has complied with all
federal, state, county, local and foreign laws, ordinances,
regulations and orders applicable to it or its business. Except as set
forth on Schedule 5.7, no license, permit, order or approval of any
governmental or regulatory body (collectively the "Permits") is
material to or necessary for the conduct of the business of the
Seller. All Permits of the Seller are set forth on Schedule 5.7 and
are in full force and effect, no violations are or have been recorded
in respect of any Permit and no proceeding is pending, or to the
knowledge of the Seller or either Principal threatened, to revoke or
limit any Permit. Except as set forth on Schedule 5.7, neither the
Seller nor either
- 6 -
<PAGE>
Principal has received any allegation, complaint or notice alleging
that it has violated any law, ordinance, regulation, Permit, or order,
and, to the knowledge of Seller and the Principals, no such
allegation, complaint or notice is threatened. The Seller is in
compliance with all applicable and controlling laws and regulations
relating to labor and employment practices, including those related to
terms and conditions of employment, wages, hours, collective
bargaining, discrimination, occupational safety and health, and the
payment of Social Security or similar taxes. To its knowledge, (i) the
Seller is not engaged in any unfair labor practice, (ii) there are no
unfair labor practice claims or charges pending involving or affecting
the Seller, (iii) the Seller is not a party to any collective
bargaining agreement or bound by any other agreement with a labor
union, (iv) there are no proceedings pending for certification or
representation of the Seller's employees before the National Labor
Relations Board nor has there been any attempt to organize the
employees of the Seller into a collective bargaining unit, (v) there
is no labor strike, dispute, slowdown or stoppage actually pending or
threatened against or involving the Seller, and (vi) no grievance that
might have a material adverse effect on the business or operations of
the Seller is pending and no claim therefor exists.
5.8 Authority to Execute and Perform Agreements. Each of the
Seller and the Principals has the full legal right and power and all
authority and approval required to enter into, execute and deliver
this Agreement and each other document contemplated hereby to which it
is or will be a party (the "Transaction Documents") and to perform
fully its and their obligations hereunder and thereunder. This
Agreement has been duly executed and delivered by and constitutes the
valid and binding obligation of each of the Seller and the Principals
and is enforceable in accordance with its terms. No approval or consent of
any foreign, federal, state,
- 7 -
<PAGE>
county, local or other governmental or regulatory body, and no
approval or consent of any other person (except as otherwise specified
in this Agreement or any Schedule hereto, which approvals and comments
have been obtained and are in full force and effect) is required in
connection with the execution and delivery by each of the Seller and
the Principals of this Agreement and the consummation and performance
by it of the transactions contemplated hereby. The execution and
delivery of this Agreement and the Transaction Documents, the
consummation of the transactions contemplated hereby and thereby, and
the performance by each of the Seller and the Principals of each of
this Agreement and the Transaction Documents in accordance with its
terms and conditions will not conflict with or result in the breach or
violation of any of the terms or conditions of, or constitute (or with
notice or lapse of time or both would constitute) a default under, (i)
the Certificate of Incorporation or By-laws of the Seller, (ii) any
instrument, contract or other agreement to which the Seller or a
Principal is a party or by or to which it or its assets or properties
are bound or subject, (iii) any statute or any regulation, order,
judgment or decree of any court or governmental or regulatory agency
or body, or (iv) any Permit.
5.9 Loan Agreements.
5.9.1 List of Agreements. Set forth on Schedule 5.9 is a list of
all of the contracts or other agreements relating to borrowed money to
which the Seller is a party or by or to which it or its assets or
properties are bound or subject (each, a "Loan Agreement").
5.9.2 No Defaults. The Seller is not in default under any Loan
Agreement, nor does any condition exist which with notice or lapse of
time or both would constitute such a default, and each such Loan
Agreement is in full force and effect, and neither
- 8 -
<PAGE>
the execution of this Agreement nor the consummation of the
transactions contemplated hereby will result in any breach or
acceleration of, or constitute a default under, any such Loan
Agreement.
5.9.3 Payments Current. The Seller is current on all payments of
principal and interest under all of its Loan Agreements.
5.10 Litigation. The Seller is not a party to nor, to the
knowledge of the Seller and the Principals, threatened with, any
litigation or judicial, administrative or arbitration proceeding.
Neither the Seller nor either Principal knows of any dispute with any
person under contract with the Seller which materially and adversely
affects, or may materially and adversely affect, the Seller's assets,
properties, business or condition.
5.11 Agreements. Schedule 5.11 sets forth all of the following
contracts and other agreements to which the Seller is a party or by or
to which it or its assets or properties are bound or subject, true and
complete copies of which have been delivered to the Buyer: (i)
contracts and other agreements with any current or former officer,
director, employee, consultant or shareholder; (ii) agreements with
any labor union or association representing any employee; (iii)
contracts and other agreements for the sale of audio equipment or
other materials, supplies, equipment, merchandise or services; (iv)
contracts and other agreements for the purchase or acquisition of
materials, supplies, equipment, merchandise or services; (v) licenses,
royalty agreements or similar contracts; (vi) warehousing,
distributorship, depository, representative, management, marketing,
sales agency, printing or advertising agreements; (vii) contracts and
other agreements for the sale of any of its assets or properties other
than in the ordinary course of business or for the grant to any person
of any preferential rights to purchase
- 9 -
<PAGE>
any of its assets or properties; (viii) joint venture agreements
relating to the assets, properties or business of the Seller or by or
to which it or its assets or properties are bound or subject; (ix)
contracts and other agreements whereby the Seller, either Principal or
any of the Purchased Assets is or at the Closing shall be, directly or
indirectly, (a) liable, by guarantee or otherwise, upon or with
respect to, (b) obligated by discount or repurchase agreement or in
any other way to provide funds with respect to, or (c) obligated to
guarantee or assume, any debt, dividend or other obligation of any
person including, without limitation, any affiliate of the Seller,
except endorsements made in the ordinary course of business in
connection with the deposit of items for collection; (x) any other
material contract or other agreement whether or not made in the
ordinary course of business (other than those reflected on Schedules
5.9, 5.12, 5.15, 5.16, 5.20, 5.21, and 5.22). All of the contracts and
other agreements set forth on Schedule 5.11 and elsewhere referred to
in this Agreement are in full force and effect and the Seller has paid
in full or accrued all amounts due thereunder and has satisfied in
full or provided for all of its liabilities and obligations
thereunder, and is not in default under any of them, nor is any other
party to any such contract or other agreement in default thereunder,
nor does any condition exist which with notice or lapse of time or
both would constitute a default thereunder. Except as separately
identified on Schedule 5.11, the Seller is not a party to or bound by
any contract or other agreement which either individually or in the
aggregate materially and adversely affects its assets, properties,
business, or condition, financial or otherwise, or which was entered
into other than in the ordinary course of its business. Except as
separately identified on Schedule 5.11, no approval or consent of any
person is needed in order that the
- 10 -
<PAGE>
contracts or other agreements set forth on Schedule 5.11 and other
Schedules hereto continue in full force and effect following the
consummation of the transactions contemplated by this Agreement.
Except as set forth in Schedule 8.11 hereto, each of the contracts or
other agreements referred to in this Section 5.11 can be terminated
upon 90 days notice without payment of premium or penalty or any other
kind of payment.
5.12 Real Estate. Schedule 5.12 sets forth a list and summary
description of (i) all real property owned by the Seller and all
buildings and other structures located on such real property; (ii) all
leases, subleases or other agreements under which the Seller is lessor
or lessee of any real property; (iii) all options held by the Seller
or contractual obligations on the part of the Seller to purchase or
acquire any interest in real property; and (iv) all options granted by
the Seller or contractual obligations on the part of the Seller to
sell or dispose of any interest in real property. The Seller is the
owner of record, lessee under the leases or holder of the options, as
the case may be, as set forth on Schedule 5.12. Such leases, subleases
and other agreements are in full force and effect and the Seller has
not received any notice of any default thereunder. The Seller's
leasehold interests are subject to no lien or other encumbrance and
enjoy a right of quiet possession against any lien or encumbrance on
the property. Except as otherwise set forth on Schedule 5.12, all
improvements, structures and fixtures on the real property described
in clause (i) above or subject to the leases described in clause (ii)
above comply with all applicable ordinances, regulations or other
laws, except where the failure to be in compliance would not have a
material adverse effect on the Company Business (as defined in Section
11.1). As of the date hereof, the Seller has received no written
communications from any governmental or regulatory agency or body
regarding any alleged violation of any such ordinance, regulation or
zoning or other law affecting any such owned or leased property, and
to
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the knowledge of the Seller and the Principals, there is no pending or
threatened condemnation of any such property.
5.13 Accounts and Notes Receivable. All accounts and notes
receivable reflected on the Balance Sheet and all accounts and notes
receivable arising subsequent to the Balance Sheet Date have arisen in
the ordinary course of business, represent valid obligations to the
Seller and, subject only to consistently recorded reserves for bad
debts, have been collected or are collectible in the aggregate
recorded amounts thereof in accordance with their terms. All items
which are required by generally accepted accounting principles to be
reflected as accounts and notes receivable on the Financials and on
the books of the Seller are so reflected.
5.14 Inventory Valuation. The inventory of the Seller as set
forth on the Balance Sheet was, and the inventory of the Seller
currently is, in usable or salable condition in the ordinary course of
business at the amounts carried on the Balance Sheet and currently on
the books and records of the Seller, respectively. The materials,
supplies and work-in-process, and additions thereto, included in such
inventory are of at least the standard quality for such items in the
industry and are not in excess of the normal purchasing patterns of
the Seller. Neither the Seller nor either Principal knows of any
adverse condition affecting the supply of materials available to the
Seller. The amounts of the inventories reflected on the Balance Sheet
and on the books and records of the Seller have been determined in
accordance with generally accepted accounting principles consistently
applied.5.15 Tangible Property. Schedule 5.15 sets forth all interests
owned or claimed by the Seller (including, without limitation,
options) in or to the plant, machinery, equipment, furniture,
leasehold improvements, fixtures, vehicles, structures, any related
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capitalized items and other tangible property material to the business
of the Seller and which is treated by the Seller as depreciable or
amortizable property ("Tangible Property") not reflected on the
Balance Sheet and not sold or disposed of in the ordinary course of
business since the Balance Sheet Date. All material leases,
conditional sale contracts, franchises or licenses pursuant to which
the Seller may hold or use any interest owned or claimed by it
(including, without limitation, options) in or to Tangible Property
are in full force and effect and, with respect to the Seller's
performance, there is no default or event of default or event which
with notice or lapse of time or both would constitute a default. The
Tangible Property of the Seller is in good operating condition and
repair, and the Seller has received no notice that any of it is in
violation of any existing law or any building, zoning, health, safety
or other ordinance, code or regulation. There has never been any
significant interruption of the Seller's operations due to inadequate
maintenance of the Tangible Property.
5.16 Intangible Property. Schedule 5.16 sets forth all patents,
trademarks, service marks, trade names and franchises, all
applications for any of the foregoing, and all permits, grants and
licenses or other rights running to or from the Seller relating to any
of the foregoing which are material to its business including, without
limitation, any patents held by Kieltyka and used in the Company
Business (the "Kieltyka Patents"). Except as set forth on Schedule
5.16, the rights of the Seller in the property set forth on Schedule
5.16 are free and clear of any liens or other encumbrances. Except as
set forth on Schedule 5.16, the Seller has no notice of any adversely
held patent, invention, trademark, service mark or trade name of any
other person or notice of any claim of any other person relating to
any of the property set forth
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on Schedule 5.16 or any process or confidential information of the
Seller, and neither the Seller nor either Principal knows of any basis
for any such charge or claim.
5.17 Lists of Suppliers and Customers. Schedule 5.17 sets forth
all suppliers and customers of the Seller who have sold to or
purchased from the Seller, as the case may be, supplies, materials,
products or services during the past five years. No single supplier or
customer is of material importance to the business of the Seller. The
relationships of the Seller with its suppliers and customers are good
commercial working relationships and no supplier or customer of the
Seller has cancelled or otherwise terminated, or threatened in writing
to cancel or otherwise terminate, its relationship with the Seller or
has during the last 12 months decreased materially, or threatened to
decrease or limit materially, its services, supplies or materials to
the Seller or its usage of the Seller's services or products, as the
case may be. The Seller does not have any notice that any such
supplier or customer intends to cancel or otherwise modify its
relationship with the Seller or to decrease materially or limit its
services, supplies or materials to the Seller or its usage of the
services or products of the Seller, and the acquisition of the
Purchased Assets by the Buyer will not, to the best of the knowledge
and belief of the Seller and the Principals, adversely affect the
relationship of the Buyer (as successor to the business of the Seller)
with any such supplier or customer.
5.18 Liens. The Seller owns outright and has good and marketable
title to all of its assets and properties, including, without
limitation, all of the assets and properties reflected on the
Financials, in each case free and clear of any lien or other
encumbrance, except for (i) immaterial assets and properties; (ii)
assets and properties disposed of, or subject to purchase or sales
orders, in the ordinary course of business since the Balance Sheet
Date; (iii)
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liens or other encumbrances securing taxes, assessments, governmental
charges or levies, or the claims of materialmen, carriers, landlords
and like persons, which are not yet due and payable; or (iv) minor
liens or other encumbrances of a character which do not substantially
impair the assets or properties of the Seller or materially detract
from its business.
5.19 Indebtedness. All Indebtedness (as herein defined) of the
Seller as at the Balance Sheet Date is set forth in the Financials.
Schedule 5.19 sets forth a true and correct aged list of all accounts
payable of the Seller as of the end of the month prior to the date
hereof. All Indebtedness reflected in the Financials or on Schedule
5.19 or which has arisen after the Balance Sheet Date has arisen in
the ordinary course of business and represents valid Indebtedness of
the Seller. As used herein, the term "Indebtedness" means all items
which, in accordance with generally accepted accounting principles,
would be included on a financial statement of the Seller.
5.20 Liabilities. As at the Balance Sheet Date, except as set
forth on Schedule 5.20, the Seller did not have any direct or indirect
indebtedness, liability, claim, loss, damage, deficiency, obligation
or responsibility, known or unknown, fixed or unfixed, choate or
inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise, including, without limitation,
liabilities on account of taxes, other governmental charges or
lawsuits brought, whether or not of a kind required by generally
accepted accounting principles to be set forth on a financial
statement ("Liabilities"), which were not fully and adequately
reflected on the Financials. Except as listed on Schedule 5.20, the
Seller does not have any Liabilities, other than (i) Liabilities fully
and adequately reflected on the Financials and (ii) Liabilities
incurred since the Balance Sheet Date in the ordinary course of
business.
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Neither the Seller nor either Principal has any knowledge of any
circumstances, conditions, events or arrangements which may hereafter
give rise to any Liabilities of the Seller or any successor to the
business of the Seller except in the ordinary course of business or as
otherwise set forth on Schedule 5.20.
5.21 Pension and Benefit Plans and Compliance with ERISA. Except
as set forth on Schedule 5.21, the Seller is not party to, and neither
makes nor is required to make employer contributions to, any employee
benefit plan as that term is defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), educational
assistance, auto use, fringe benefit, deferred compensation, bonus,
stock purchase, severance, stock option, vacation policy or other
employee benefit plan, agreement, arrangement or understanding
maintained for the benefit of its employees (each, an "Employee
Benefit Plan"). Each Employee Benefit Plan set forth or described on
Schedule 5.21 is in full force and effect in accordance with its terms
and complies with all applicable laws. The Seller is not in default
under any Employee Benefit Plan and, to the knowledge of the Seller
and the Principals, no other party is in default thereunder. The
Seller has made or provided for all payments due with respect to
employees of the Seller under each Employee Benefit Plan to date, and
all amounts properly accrued to date as liabilities of the Seller
under each Employee Benefit Plan in the current plan years have been
recorded on the Seller's books. The Seller maintains no "employee
pension benefit plans" (within the meaning of section 3(2) of ERISA).
The Seller maintains no multiemployer plan within the meaning of
section 3(37) of ERISA or section 414(f) of the Internal Revenue Code
of 1986, as amended (the "Code"), and has no withdrawal liability
under ERISA. All employer contributions required to be made to the
Employee Benefit Plans with
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respect to the Seller for all plan years-on or before the Closing will
have been made before or as of the Closing Date. To the best knowledge
of the Seller and the Principals, the Seller has satisfied all
material reporting and disclosure requirements applicable to it under
the Code or ERISA, and the Department of Labor and the Internal
Revenue Service regulations promulgated thereunder, with respect to
the Employee Benefit Plans. Nothing has occurred that would subject
any Employee Benefit Plan to liability, taxes, or penalties under
Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA
("COBRA"). No amendment has been made increasing obligations under an
Employee Benefit Plan since the Financials. The Seller offers no
Employee Benefit Plan that provides benefits after termination of
service or retirement other than as required under COBRA. No payments
under Employee Benefit Plans will be triggered as a result of this
Agreement or the transactions contemplated hereby. No Employee Benefit
Plan has engaged in any "prohibited transaction" (within the meaning
of section 406 of ERISA or section 4975 of the Code) which could
subject such plans, the Buyer, the Seller, any trustee, administrator
or other fiduciary of such plans or any other party dealing with such
plans, to any penalty or excise tax imposed on prohibited transactions
by section 502(i) of ERISA or section 4975 of the Code.
5.22 Insurance. Schedule 5.22 sets forth all policies or binders
of fire, liability, workmen's compensation, vehicular or other
insurance held by or on behalf of the Seller (specifying the insurer
and the policy number or covering note number with respect to binders,
and describing each pending claim thereunder). Such policies and
binders are in full force and effect. The Seller is not in default
with respect to any provision contained in any such policy
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or binder and has not failed to give any notice or present any claim
under any such policy or binder in due and timely fashion. Except for
claims set forth on Schedule 5.22, there are no outstanding unpaid
claims under any such policy or binder. The Seller has not received a
notice of cancellation or non-renewal of any such policy or binder.
Neither the Seller nor either Principal has any knowledge of any
inaccuracy in any application for such policies or binders, any
failure to pay premiums when due or any similar state of facts which
might form the basis for termination of any such policy or binder.
5.23 Officers, Directors and Employees. Schedule 5.23 sets forth
the name and current annual rate of compensation of each employee,
consultant or agent of the Seller. The Seller has no present, future
or contingent liability to pay compensation for loss of office or
employment to any ex-director, ex-officer or ex-employee involved in
the Company Business. There are no amounts owing to any current or
former directors, officers or employees of Seller, other than
remuneration accrued (but not yet due for payment) in respect of the
calendar month in which the execution hereof takes place and no
current or former directors, officers or employees of Seller are
entitled to accrued holiday pay other than in respect of the Company
Business' current calendar year.
5.24 Operations of the Seller. Except as set forth on Schedule
5.24, from the Balance Sheet Date through the date hereof the Seller
has not:
(i) amended its Certificate of Incorporation or By-Laws or merged
with or into or consolidated with any other person, or changed or
agreed to change in any manner the character of its business;
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(ii) entered into or amended any employment agreement, entered into
any agreement with any labor union or association representing any
employee or entered into or amended any Employee Benefit Plan;
(iii) except for short-term bank borrowings in the ordinary course of
business, incurred any indebtedness for borrowed money;
(iv) declared or paid any dividends or declared or made any
distributions of any kind to its shareholders;
(v) reduced its cash or short-term investments or their equivalent,
other than to meet cash needs arising in the ordinary course of
business, consistent with past practices;
(vi) waived any right of material value to its business;
(vii) made any change in its accounting methods or practices or made
any change in depreciation or amortization policies or rates adopted
by it;
(viii) materially changed any of its business policies, including,
without limitation, advertising, marketing, pricing, purchasing,
personnel, sales, returns, budget or product acquisition policies;
(ix) made any wage or salary increase or bonus, or increase in any
other direct or indirect compensation, for or to any officer,
director, employee, consultant or agent of the Seller, or any accrual
for or commitment or agreement to make or pay the same, other than to
persons not officers, directors or shareholders of the Seller made in
the ordinary course of business;
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(x) made any loan or advance to any officer, director, employee,
consultant, agent or shareholder of the Seller, other than travel
advances made in the ordinary course of business;
(xi) made any payment or commitment to pay any severance or
termination pay to any officer, director, employee, consultant or
agent of the Seller, other than to persons not officers, directors or
shareholders of the Seller made in the ordinary course of business;
(xii) other than in the ordinary course of business: (a) entered into
any lease (as lessor or lessee); (b) sold, abandoned or made any other
disposition of any of its assets or properties; (c) granted or
suffered any lien or other encumbrance on any of its assets or
properties; or (d) entered into or amended any contract or other
agreement to which it is a party or by or to which it or its assets or
properties are bound or subject or pursuant to which it agrees to
indemnify any party or refrain from competing with any party;
(xiii) except in the ordinary course of business, incurred or assumed
any debt, obligation or liability (whether absolute or contingent and
whether or not currently due and payable);
(xiv) except for inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part of the
assets, properties, capital stock or business of any other person; or
(xv) except in the ordinary course of business, entered into any other
material contract or other agreement or other material transaction.
5.25 Potential Conflicts of Interest. No officer or director of
the Seller (i) owns, directly or indirectly, any interest in (other
than not more than 1% stock holdings for investment purposes in
securities of publicly held and traded companies), or is an officer,
director, employee or consultant of any person which is a competitor,
lessor, lessee, customer or supplier of, the Seller, (ii) owns,
directly or indirectly, in whole or in part, any copyright,
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trademark, trade name, service mark, franchise, patent, invention,
permit, license or secret or confidential information which the Seller
is using or the use of which is necessary for the business of the
Seller, other than the Kieltyka Patents, or (iii) has any cause of
action or other claim whatsoever against, or owes any amount to, the
Seller, except for claims in the ordinary course of business, such as
for accrued vacation pay, accrued benefits under Employee Benefit
Plans and similar matters and agreements existing on the date hereof.
5.26 Banks, Brokers and Proxies. Schedule 5.26 sets forth (i) the
name of each bank, trust company and securities or other broker with
which the Seller maintains relations, (ii) the name of each person
authorized by the Seller to effect transactions therewith or to have
access to any safe deposit box or vault, and (iii) all proxies, powers
of attorney or other like instruments to act on behalf of the Seller
in matters concerning its business or affairs.
5.27 Environmental Matters. Except as set forth on Schedule 5.27:
(i) The Seller complies and at all times has complied with all
Environmental Laws applicable to the Company Business or the Property
including, without limitation, the use, maintenance and operation of
the Property, and all activities and conduct of business by the Seller
related thereto, including, without limitation, the treatment,
remediation, removal, transport, storage and/or disposal of any
Contaminant;
(ii) The Seller has obtained or has taken appropriate steps, as
required by Environmental Laws, to obtain all environmental, health
and safety permits, consents, licenses and other authorizations
necessary for the operation of the Company Business and the ownership
and operation of the Property (collectively, "EHS Permits"), all EHS
Permits are in good standing, and the Seller is currently in
compliance with all terms and conditions of EHS
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Permits. No material change in the facts or circumstances reported or
assumed in the applications for or the granting of EHS Permits exists.
There are not any proceedings threatened which would jeopardize the
validity of any of the EHS Permits;
(iii) All of the third parties with which the Seller has
arranged, engaged or contracted to accept, treat, transport, store,
dispose or remove any Contaminant generated or present at the
Property, or which otherwise participate or have participated in
activities or conduct related to the Seller, the Company Business or
the Property, were properly permitted at the relevant time to perform
the foregoing activities or conduct;
(iv) The Seller is not subject to any investigation, or any
judicial or administrative proceeding, notice, order, judgment, decree
or settlement, alleging or addressing in connection with the Company
Business or the Property, nor has the Seller received, and is not
otherwise aware of, any notice, claim or other communication
concerning (a) any violation of any Environmental Laws, (b) any
Remedial Action, (c) any claims or liabilities and costs arising from
a Release or threatened Release at the Property or any other location,
or (d) any claims or liabilities and costs for personal injury or
threatened personal injury, or injury or threatened injury to property
or natural resources;
(v) No Environmental Lien has attached to the Property;
(vi) There has been no Release in reportable quantities at, to or
from the Property;
(vii) The Property is not listed or proposed for listing on the
National Priorities List ("NPL") pursuant to CERCLA, or listed on the
Comprehensive Environmental Response Compensation Liability
Information System List ("CERCLIS") or any similar state
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list of sites, and the Seller is not aware of any conditions at the
Property which, if known to a Governmental Authority, would qualify
the Property for inclusion on any such list;
(viii) The Seller has no contingent liability in connection with
the ownership or operation of the Company Business or the Property for
a Release or threatened Release at any location;
(ix) The Seller has not disposed, as such term is defined in the Resource
Conservation and Recovery Act, 42 U.S.C. ss.6901 et seq. ("RCRA"), of any
Contaminant at the Property;
(x) The Seller has not transported or arranged for the transport
of any Contaminant to any facility or site for the purpose of
treatment or disposal which (a) is or was, at the time of disposal,
subject to a Remedial Action requirement (other than routine,
anticipated, closure-related corrective action obligations affecting
closed solid waste management units at such facility) issued under
RCRA or any state or local solid or hazardous waste regulatory law or
(b) at the time of the disposal had received a notice of violation or
was otherwise subject to a governmental enforcement action with
respect to alleged violations of any Environmental Laws;
(xi) Neither the Seller nor any other person has ever engaged in
or permitted any operations or activities upon, or any use or
occupancy of, the Property or any portion thereof, for the purpose of
or in any way involving the manufacture, treatment, remediation,
emoval, generation, Release, discharge, refining or dumping of any
Contaminant (whether legal or illegal, accidental or intentional) or
the illegal or improper handling, storage, use or disposal of any
Contaminant, nor has the Seller or any other person caused any
Contaminant to
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be constructed, deposited, released, stored, disposed, leaching or
otherwise located on, under, in or about the Property onto or
underneath other properties, nor has any Contaminant migrated or
threatened to migrate from other properties upon, about or beneath the
Property;
(xii) There is not constructed, placed, deposited, stored,
disposed of nor located on the Property any asbestos in any form which
has become or threatens to become friable;
(xiii) No underground improvements, including but not limited to
treatment of storage tanks, sumps, or water, gas or oil wells, or
associated piping, are or have ever been located on the Property; and
(xiv) There is not constructed, placed, deposited, released,
stored, disposed, leaching nor located on the Property any
polychlorinated biphenyls ("PCBs") or transformers, capacitors,
ballasts, or other equipment which contain dielectric fluid containing
PCBs, or any other insulating material containing urea formaldehydes.
For the purposes of this Agreement, the following terms shall
have the following meanings:
(a) "Contaminant" shall mean any pollutant, hazardous substance,
radioactive substance, toxic substance, hazardous waste, medical
waste, radioactive waste, special waste, petroleum orpetroleum-derived
substance or waste, asbestos, polychlorinated biphenyls, or any
hazardous or toxic constituent thereof and includes, but is not
limited to, any substance defined in or regulated under Environmental
Laws.
(b) "Environmental Laws" shall mean all federal, state, and local
laws, statutes, codes, ordinances, rules, regulations, permits, or
orders relating to or addressing the
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environment, health or safety, which shall include, but not be limited
to, the use, handling or disposal of any Contaminant, or workplace or
worker safety and health.
(c) "Environmental Lien" shall mean any lien in favor of any
Governmental Authority for any (1) liability under any Environmental
Laws or (2) damages arising from, or costs incurred by, such
Governmental Authority in response to a Release or threatened Release
into the environment.
(d) "Governmental Authority" shall mean any agency, department,
court or any other administrative, legislative or regulatory authority
of any federal, state or local governmental body.
(e) "Property" shall mean all real or personal property of any
kind or description presently owned, leased, operated or otherwise
under the control of the Seller and used in the operation of the
Company Business.
(f) "Release" shall mean the release, spill, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migrating into the indoor or outdoor environment of any Contaminant
through or in the air, soil, surface water, groundwater or Property.
(g) "Remedial Action" means actions required to (1) clean up,
remove, treat or in any other way address Contaminants in the indoor
or outdoor environment, (2) prevent a Release or threat of Release or
minimize the further Release of Contaminants, or (3) investigate and
determine if a remedial response is needed, design such a response and
post-remedial investigation, monitoring, operation, maintenance and
care.
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5.28 No Broker. No broker, finder, agent or similar intermediary
has acted for or on behalf of the Seller or the Principals in
connection with this Agreement or the transactions contemplated
hereby, and no broker, finder, agent or similar intermediary is
entitled to any broker's, finder's or similar fee or other commission
in connection therewith based on any agreement, arrangement or
understanding with the Seller or the Principals or any action taken by
the Seller or the Principals.
5.29 Full Disclosure. All documents and other papers delivered by
or on behalf of the Seller in connection with this Agreement and the
transactions contemplated hereby are true, complete and authentic and
all contracts and other agreements or instruments included thereunder
are valid, subsisting and binding on the parties thereto in accordance
with their terms. The information furnished by or on behalf of the
Seller to the Buyer in connection with this Agreement and the
transactions contemplated hereby does not contain any untrue statement
of a material fact and does not omit to state any material fact
necessary to make the statements made, in the context in which made,
not false or misleading. There is no fact which the Seller has not
disclosed to the Buyer in writing which materially adversely affects,
or so far as the Seller can now foresee will materially adversely
affect, the business or condition (financial or otherwise) of the
Seller or the ability of the Seller to perform this Agreement.
6. Representations and Warranties of the Buyer and Bogen. Each of the Buyer
and Bogen, jointly and severally, represents and warrants as follows:
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6.1 Due Incorporation. It is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power and lawful authority to own, lease and operate its assets and
properties and to carry on its business as now conducted.
6.2 Corporate Power of the Buyer and Bogen. It has the full legal right and
power and all authority and approval required to enter into, execute and deliver
this Agreement and each Transaction Document to which it is a party and to
perform fully its obligations hereunder and thereunder. This Agreement has been
duly executed and delivered by and constitutes the valid and binding obligation
of the Buyer and Bogen and is enforceable in accordance with its terms.
6.3 No Broker. No broker, finder, agent or similar intermediary has acted
for or on behalf of the Buyer and Bogen in connection with this Agreement or the
transactions contemplated hereby, and no broker, finder, agent or similar
intermediary is entitled to any broker's, finder's or similar fee or other
commission in connection therewith based on any agreement, arrangement or
understanding with the Buyer or Bogen or any action taken by the Buyer or Bogen.
7. Covenants and Agreements. The parties hereto covenant and agree as
follows:
7.1 Corporate Examinations and Investigations; Confidentiality. Prior to
the Closing Date, the Buyer shall be entitled, through its employees and
representatives, including, without limitation, McDermott, Will & Emery and
Coopers & Lybrand, to make such investigation of the property and plant and such
examination of the books, records and financial condition of the Seller as the
Buyer wishes. Any such investigation and examination shall be conducted at
reasonable times and under reasonable circumstances and the Seller shall
cooperate fully therein. No investigation by the Buyer shall, however, diminish
or obviate in
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any way any of the representations, warranties, covenants or other agreements of
the Seller under this Agreement. In order that the Buyer may have full
opportunity to make such business, accounting and legal review, examination or
investigation as it may wish of the business and affairs of the Seller, the
Seller shall furnish the representatives of the Buyer during such period with
all such information concerning the affairs of the Seller as such
representatives may reasonably request and cause its officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such review and examination and to make full
disclosure to the Buyer of all material facts affecting the financial condition
and business operations of the Seller. If this Agreement terminates, the Buyer
and its affiliates shall keep confidential and shall not use in any manner any
information obtained from the Seller concerning its assets, properties,
operations and business, unless readily ascertainable from public or published
information, or trade sources, or already known or subsequently developed by the
Buyer independently of any investigation of the Seller, or received from a third
party not under an obligation to the Seller to keep such information
confidential.
7.2 Change and Use of Name. The Seller shall change its corporate name to
any name other than New England Audio Resource, Inc., NEAR or any variant or
abbreviation thereof and at the Closing shall deliver to the Buyer evidence that
whatever filings are necessary in its jurisdiction of organization and those
jurisdictions, if any, in which the Seller is licensed or qualified to do
business to effect such name change have been made.
7.3 Bonuses. The Buyer shall pay to Ms. Jean Ropella a bonus of $4,100
on December 31, 1997.
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7.4 Delta Stock. Kieltyka shall sell all of his capital stock in Delta
Speaker Systems, Inc., a Maine corporation, to the other shareholders of said
corporation on or before December 31, 1997.
7.5 Employee Benefits. The Buyer agrees that it shall provide any employee
of the Seller that is hired by the Buyer on or after the date hereof (a "Hired
Employee") with the same or comparable benefits that such Hired Employee
received from the Seller prior to the date hereof. The parties hereto agree that
no Hired Employee shall be entitled to participate, and the Buyer shall be under
no obligation to provide the opportunity for any such employee to participate,
in any employee benefit plan offered by Bogen or any other affiliate of the
Buyer to its employees, except as may otherwise be required by any such plan or
by law.
7.6 Expenses of Sale. Each of the parties hereto agrees that it shall bear
its own direct and indirect expenses incurred in connection with the negotiation
and preparation of this Agreement and the consummation and performance of the
transactions contemplated hereby. All transfer, documentary, gross receipts,
sales and use taxes and similar liabilities, if any, resulting from the sale,
assignment, transfer and delivery hereunder of the Purchased Assets shall be
paid by the Seller.
7.7 Consent to Jurisdiction and Service of Process. Any legal action, suit
or proceeding arising out of or relating to this Agreement or the transactions
contemplated hereby may be instituted in any state or federal court in the State
of New Jersey, and each party waives any objection which such party may now or
hereafter have to the laying of the venue of any such action, suit or
proceeding, and irrevocably submits to the jurisdiction of any such court in any
such action, suit or proceeding. Any and all service of process and any other
notice in any
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such action, suit or proceeding shall be effective against any party if given by
registered or certified mail, return receipt requested, or by any other means of
mail which requires a signed receipt, postage prepaid, mailed to such party as
herein provided.
7.8 Further Assurances. Each of the parties hereto shall execute such
documents and other papers and perform such further acts as may be reasonably
required or desirable to carry out the provisions hereof and the transactions
contemplated hereby. Each such party shall use its best efforts to fulfill or
obtain the fulfillment of the conditions to the Closing, including, without
limitation, the execution and delivery of any documents or other papers, the
execution and delivery of which are conditions precedent to the Closing.
8. Conditions Precedent to the Obligation of the Buyer to Close. The
obligation of the Buyer to consummate the Closing is subject to the fulfillment
on or prior to the Closing Date of the following conditions, any one or more of
which may be waived by it:
8.1 Representations and Covenants. The representations and warranties of
the Seller contained in this Agreement shall be true on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date. The Seller shall have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing Date. The Seller shall have delivered to the Buyer a
certificate, dated the Closing Date and signed by an officer of the Seller, to
the foregoing effect and stating that all conditions to the Buyer's obligations
hereunder have been satisfied.
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8.2 Governmental Permits and Approvals. Any and all permits and approvals
from any governmental or regulatory agency or body required for the lawful
consummation of the Closing shall have been obtained.
8.3 Third Party Consents. All consents, permits and approvals from parties
to any contracts or other agreements with the Seller which may be required in
connection with the performance by the Seller of its obligations under this
Agreement or the continuance of such contracts or other agreements after the
Closing shall have been obtained, except as the Buyer may otherwise provide.
8.4 Opinion of Counsel to the Seller. The Buyer shall have received the
favorable opinion of Ranger, Copeland & Willcox, P.A., counsel to the Seller,
dated the Closing Date, addressed to the Buyer, substantially in the form
attached hereto as Exhibit B.
8.5 Payment of Debts to Seller. Each shareholder of the Seller and each
affiliate of the Seller or shareholders of the Seller shall have paid to the
Seller any amounts owed by such person to the Seller and all amounts owing from
the Seller to such person shall have been paid by the Seller, except as the
Buyer may otherwise provide.
8.6 Employment and Bonus Agreements. Simultaneously with the Closing,
Kieltyka shall enter into an employment agreement with the Buyer (the
"Employment Agreement") and Lareau shall enter into a bonus agreement with the
Buyer (the "Bonus Agreement"), each of which shall be dated the date hereof and
in a form to be agreed upon by the parties thereto.
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8.7 Patent Agreement. Simultaneously with the Closing, Kieltyka shall enter
into an agreement with the Buyer substantially in the form attached hereto as
Exhibit C (the "Patent Agreement").
8.8 Patent Assignment. Simultaneously with the Closing, Kieltyka shall
assign the Kieltyka Patents to the Buyer pursuant to an assignment of patents
agreement (the "Patent Assignment") substantially in the form attached hereto as
Exhibit D.
8.9 Redemption of Convertible Preferred Stock. Simultaneously with the
Closing, the Seller shall deliver to the Buyer evidence of the redemption of the
convertible preferred stock of the Seller held by Coastal Enterprises Inc. and
the convertible preferred stock of the Seller held by Coastal Ventures Limited
Partnership.
9. Conditions Precedent to the Obligation of the Seller to Close. The
obligation of the Seller to consummate the Closing is subject to the fulfillment
on or prior to the Closing Date of the following conditions, any one or more of
which may be waived by it:
9.1 Representations and Covenants. The representations and warranties of
the Buyer contained in this Agreement shall be true on and as of the Closing
Date with the same force and effect as though made on and as of the Closing
Date. The Buyer shall have performed and complied with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Closing Date. The Buyer shall have delivered to the Seller a
certificate, dated the Closing Date and signed by an officer of the Buyer, to
the foregoing effect and stating that all conditions to the Seller's obligations
hereunder have been satisfied.
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9.2 Employment and Bonus Agreements. Simultaneously with the Closing, the
Buyer shall enter into the Employment Agreement and the Bonus Agreement.
9.3 Patent Agreement. Simultaneously with the Closing, the Buyer shall
enter into the Patent Agreement.
10. Post-Closing Settlement.
10.1 Inventory, Receivables, and Payables. The sum of the inventory and
receivables of the Seller less the accounts payable of the Seller as reflected
on the Post-Closing Balance Sheet (as herein defined) shall not be less than
$170,000, and there shall not be any accrued and unpaid principal, interest,
fees, or penalties on any Loan Agreement as at the Closing Date.
10.2 Preparation of Post-Closing Balance Sheet; Loan Statements;
Arbitration.
10.2.1 Delivery of Post-Closing Balance Sheet and Loan Statements. Within
30 days following the Closing Date, a balance sheet of the Seller as at the
Closing Date prepared in accordance with generally accepted accounting
principles consistently applied shall be delivered to the Seller and the Buyer
by independent certified public accountants to be retained by the Buyer (the
"Accountants"). In addition, the Seller shall provide to the Buyer a statement
concerning each Loan Agreement setting forth the amounts of any accrued and
unpaid principal, interest, fees, penalties, or other amounts due under each
such Loan Agreement as at the Closing Date (each, a "Loan Statement").
10.2.2 Disagreements and Arbitration. The Post-Closing Balance Sheet and
each Loan Statement shall become final and binding upon the parties hereto
unless any of them delivers written notice of its disagreement (a "Notice of
Disagreement") to the other
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parties hereto within 20 days following receipt thereof. Any such Notice shall
specify in reasonable detail the nature of any disagreement so asserted. During
a period of 30 days following that date on which a Notice of Disagreement is
delivered, the Buyer and the Seller shall attempt to resolve in writing any
differences which they may have with respect to any matter specified in any
Notice of Disagreement. If at the end of such 30-day period the Buyer and the
Seller have failed to reach written agreement with respect to all of such
matters, then all such matters as specified in any Notice of Disagreement as to
which a written agreement has not been reached (the "Disputed Matters") shall be
submitted to and reviewed by an arbitrator (the "Arbitrator"), which shall be an
accounting firm (other than the Accountants) selected by the Buyer and the
Seller. If within five days following the expiration of such 30- day period the
Buyer and the Seller have failed to agree in writing upon the selection of the
Arbitrator or any Arbitrator selected by them has not agreed to perform and the
services called for hereunder, the Arbitrator shall thereupon be selected by the
American Arbitration Association (the "AAA"). The Arbitrator shall consider only
the Disputed Matters. The Arbitrator shall act promptly to resolve all Disputed
Matters and its decision with respect to all Disputed Matters shall be final and
binding upon the Seller and the Buyer. Upon resolution by the Arbitrator of all
Disputed Matters, the Arbitrator shall cause to be prepared and shall deliver to
the Buyer and the Seller the Post-Closing Balance Sheet and each Loan Statement,
which shall be final and binding upon the Buyer and the Seller. As used in this
Agreement, the term "Post-Closing Balance Sheet" means the balance sheet of the
Seller as at the Closing Date and for the period then ended delivered by the
Seller to the Buyer pursuant hereto, as adjusted to reflect any written
agreement
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between the parties with respect thereto and any determination of the Arbitrator
with respect to any Disputed Matter.
10.3 Post-Closing Settlement. If any post-closing adjustment is required to
be made pursuant hereto, the settlement thereof (the "Post-Closing Settlement")
shall take place at the offices of McDermott, Will & Emery at the address set
forth in Section 4 at 10:00 a.m. local time on the fifth business day following
the date upon which the Post-Closing Balance Sheet becomes final and binding
upon the parties hereto, or at such other time and place as the Buyer and the
Seller may mutually agree in writing.
10.4 Determination and Payment of Post-Closing Adjustments. If the sum of
the inventory and receivables of the Seller less the accounts payable of the
Seller as reflected on the Post-Closing Balance Sheet is less than $170,000,
then the aggregate Purchase Price shall be reduced by the amount of such
deficiency. If there are any accrued and unpaid amounts set forth in the Loan
Statements, then the aggregate Purchase Price shall be reduced by an amount
equal to the amount of such accrued and unpaid amounts. The amount of any such
reductions in the Purchase Price shall be paid by the Seller or the Principals
to the Buyer at the Post-Closing Settlement by the delivery to the Buyer of a
certified or bank cashier's check in the amount of any balance due payable to
the order of the Buyer or pursuant to Section 13.4 hereof.
10.5 Expenses of Post-Closing Adjustments. The fees and expenses of the
Accountants incurred in connection with their examination of and report with
respect to the Post-Closing Balance Sheet shall be borne by the Buyer. The fees
and expenses of the rbitrator incurred in connection with its review and
determination of any Disputed Matter shall be borne one-half by the Buyer and
one-half by the Seller.
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10.6 Payment of Accounts and Notes Receivable. If more than 20% of the
value of the accounts and notes receivable reflected on the Balance Sheet or
arising subsequent thereto, but prior to the Closing Date, are uncollectible 180
days after the Closing Date, the Seller shall pay to the Buyer the amount of
such deficiency. Such amount shall be paid by delivery to the Buyer of a
certified or cashier's check payable to the order of the Buyer.
11. Covenants of Seller and the Principals.
11.1 Against Competition. Each of the Principals and the Seller
acknowledges that: (i) the principal business of the Seller is the manufacture
and sale of loudspeakers (the "Company Business"); (ii) each of the Principals
is one of the limited number of persons who has developed such business; (iii)
the business of the Seller is national and international in scope; (iv) the work
of each of the Principals for the Seller has brought him and his work for the
Buyer will continue to bring him into close contact with many confidential
affairs not readily available to the public; and (v) the Buyer would not
purchase the Purchased Assets but for the agreements and covenants of the Seller
and the Principals contained in this Section 11. Accordingly, each Principal
covenants and agrees, with respect to himself and the Seller, and the Seller
covenants and agrees with respect to itself, to the following:
11.1.1 Non-Compete. During the term of the Principal's employment with the
Buyer or with any affiliate of the Buyer, as successor in interest to the
business of the Seller, and for a period of (1) as to Kieltyka, two years, and
(2) as to Lareau, one year, following the later of (a) the termination (whether
for cause or otherwise) of the Principal's employment with the Buyer or any of
the Buyer's affiliates or (b) the end of the period with respect to which the
Principal is compensated by the Buyer or any of the Buyer's affiliates through
salary, bonus
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or otherwise (the "Restricted Period"), the Principal shall not and shall not
cause the Seller to, and the Seller shall not, in the United States of America
or in any foreign country, directly or indirectly: (i) engage in the Company
Business for the Principal's or the Seller's own account; (ii) enter the employ
of, or render any services to, any person engaged in such activities; or (iii)
become interested in any such person as an individual, partner, shareholder,
officer, director, principal, agent, employee, trustee, consultant or in any
other relationship or capacity; provided, however, that the Principal may own,
directly or indirectly, solely as an investment, securities of any person which
are traded on any national securities exchange if the Principal (A) is not a
controlling person of, or a member of a group which controls, such person or (B)
does not, directly or indirectly, own 1% or more of any class of securities of
such person; and provided, further, however, that Kieltyka may own shares of
Delta Speaker Systems, Inc. until and including December 31, 1997; and provided,
further, that, after termination of his employment with the Buyer or any of the
Buyer's affiliates, Lareau may engage in the activities described in clauses (i)
through (iii) of this Section 11.1.1 so long as, during the Restricted Period,
he does not do any act that could reasonably be construed as, directly or
indirectly, soliciting business from any person (a "Restricted Person") that is
a customer of, or has been solicited for business by Lareau or otherwise by, the
Seller, the Buyer, or any of the Seller's or the Buyer's affiliates during the
final year of Lareau's term of employment with the Seller and/or the Buyer or
any of the Buyer's affiliates; provided, however, that a person shall not be
deemed a Restricted Person for purposes hereof if such person is a customer of a
future employer of Lareau's prior to such future employer's employment of
Lareau.
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11.1.2 Confidential Information. During and after the Restricted Period,
the Principal shall and shall cause the Seller to, and the Seller shall, keep
secret and retain in strictest confidence, and shall not use for its own benefit
or others except in connection with the business and affairs of the Buyer and
its affiliates, all confidential matters relating to the Company Business and to
the Buyer and its affiliates, including, without limitation, trade "know-how,"
secrets, customer and supplier lists, pricing policies, operational methods,
marketing plans or strategies, product development techniques or plans, business
acquisition plans, new personnel acquisition plans, methods of manufacture,
technical processes, designs and design projects, inventions and research
projects, intellectual property, and other business affairs relating to the
Company Business and to the Buyer and its affiliates learned by the Principal or
the Seller heretofore or hereafter, and shall not disclose them to anyone
outside of the Buyer and its affiliates, either during or after employment of
the Principal by the Buyer or any of its affiliates, except as required in the
course of performing duties hereunder or with the Buyer's express written
consent.
11.1.3 Property of the Buyer. All memoranda, notes, lists, records and
other documents (and all copies thereof) made or compiled by the Principal or
made available to the Principal or the Seller concerning the Company Business or
the Buyer or any of its affiliates shall be the Buyer's property and shall be
delivered to the Buyer promptly upon the termination of the Principal's
employment with the Buyer or any of its affiliates or at any other time on
request.
11.1.4 Employees of the Buyer. During the Restricted Period, the Principal
shall not and shall cause the Seller to not, and the Seller shall not, directly
or
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indirectly, hire, solicit or encourage to leave the employment of the Buyer or
any of its affiliates any employee of the Buyer or any of its affiliates or hire
any such employee who has left the employment of the Buyer or any of its
affiliates within one year of the termination of such employee's employment with
the Buyer or any of its affiliates.
11.1.5 Consultants of the Buyer. During the Restricted Period, the
Principal shall not and shall cause the Seller to not, and the Seller shall not,
directly or indirectly, hire, solicit or encourage to cease to work with the
Buyer or any of its affiliates any consultant then under contract with the Buyer
or any of its affiliates.
11.2 Rights and Remedies Upon Breach. If the Principal or the Seller
breaches, or threatens to commit a breach of, any of the provisions of Section
11.1 (the "Restrictive Covenants"), the Buyer shall have the following rights
and remedies, each of which shall be independent of the other and individually
or severally enforceable, and all of which shall be in addition to, and not in
lieu of, any other rights and remedies available to the Buyer under law or in
equity:
11.2.1 Specific Performance. The right and remedy to have the Restrictive
Covenants specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Buyer and that money damages will not provide
adequate remedy to the Buyer.
11.2.2 Accounting. The right and remedy to require the Principal or the
Seller, as the case may be, to account for and pay over to the Buyer all
compensation, profits, monies, accruals, increments or other benefits
(collectively, "Benefits") derived or received by the Principal or the Seller as
the result of any transactions constituting a breach of any of the
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Restrictive Covenants, and the Principal or the Seller, as the case may be,
shall account for and pay over any Benefits to the Buyer.
11.3 Unenforceability of Restrictive Covenants. (i) If any court determines
that any of the Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Restrictive Covenants shall not thereby be
affected and shall be given full effect, without regard to the invalid
Restrictive Covenant or part thereof.
(ii) If any court determines that any of the Restrictive Covenants, or any
part thereof, is unenforceable because of the duration of such Restrictive
Covenant or the scope of such Restrictive Covenant, such court shall have the
power to reduce the duration or scope of such Restrictive Covenant and, in its
reduced form, such Restrictive Covenant shall then be enforceable and may be
enforced.
11.4 Enforceability in Jurisdictions. The Buyer, the Principals, and the
Seller intend to and hereby confer jurisdiction to enforce the Restrictive
Covenants upon the courts of any jurisdiction within the geographical scope of
such Covenants. If the courts of any one or more of such jurisdictions hold the
Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or otherwise, it is the intention of the Buyer, the Principals, and the
Seller that such determination not bar or in any way affect the Company's right
to the relief provided above in the courts of any other jurisdiction within the
geographical scope of such Covenants, as to breaches of such Covenants in such
other respective jurisdictions, such Covenants as they relate to each
jurisdiction being, for this purpose, severable into diverse and independent
covenants.
12. Survival of Representations, Warranties, Covenants and Agreements.
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12.1 The Seller and the Principals. Notwithstanding any right of the Buyer
fully to investigate the affairs of the Seller and notwithstanding any knowledge
of facts determined or determinable by the Buyer pursuant to such investigation
or right of investigation, the Buyer has the right to rely fully upon the
representations, warranties, covenants and other agreements of the Seller and
the Principals contained in this Agreement or in any other document delivered to
the Buyer by the Seller or any of its representatives or either Principal, in
connection with the transactions contemplated by this Agreement. All such
representations, warranties, covenants and agreements shall survive the
execution and delivery hereof and the Closing hereunder.
12.2 The Buyer and Bogen. Notwithstanding any right of the Seller fully to
investigate the affairs of the Buyer and notwithstanding any knowledge of facts
determined or determinable by the Seller pursuant to such investigation or right
of investigation, the Seller has the right to rely fully upon the
representations, warranties, covenants and other agreements of the Buyer and
Bogen contained in this Agreement or in any other document delivered to the
Seller by either of the Buyer or Bogen or any of its representatives, in
connection with the transactions contemplated by this Agreement. All such
representations, warranties, covenants and agreements shall survive the
execution and delivery hereof and the Closing hereunder.
13. Indemnification.
13.1 Obligation of the Seller and the Principals to Indemnify. Subject to
the limitations contained in Section 12, the Seller and the Principals shall
indemnify, defend and hold harmless the Buyer and any of its affiliates and
assigns from and against any losses,
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liabilities, damages or deficiencies (including interest, penalties and
reasonable attorneys' fees) ("Losses") arising out of or due to:
(i) a breach of any representation, warranty, covenant or other
agreement of the Seller or either Principal contained in this Agreement or
in any document or other writing delivered by the Seller or either
Principal pursuant hereto;
(ii) any liability or obligation not assumed by the Buyer pursuant to
Section 2.1, including, without limitation, any liability to which it may
become subject as a result of the fact that the transactions contemplated
by this Agreement are being effected, at the request of the Seller, without
compliance with the provisions of any Bulk Sales Act or any similar statute
as enacted in any jurisdiction, domestic or foreign; or
(iii) any Products Liability (as hereinafter defined) arising at any
time on or prior to the Closing Date. For purposes of this Agreement, the
term "Products Liability" means any liability to which the Seller (or the
Buyer or any affiliate thereof as successor to any business of the Seller)
may become subject insofar as such liability arises out of or otherwise
relates to any express or implied representation, warranty, agreement or
guaranty made or claimed to have been made by the Seller (or the Buyer or
any affiliate thereof as successor to any business of the Seller), or
imposed or asserted to be imposed by operation of law, in connection with
any service or product prepared, created or sold by the Seller (or the
Buyer or any affiliate thereof as successor to any business of the Seller);
or
(iv) any Taxes (as hereinafter defined) arising at any time and
relating to the business of the Seller. For purposes of this Agreement, the
term "Taxes" or "Tax" means all taxes, however denominated, including any
interest, penalties or other additions to tax that may
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become payable in respect thereof, imposed by any federal, territorial,
state, local or foreign government, which taxes shall include, without
limiting the generality of the foregoing, all income or profits taxes
(including federal income taxes and state income taxes), real property
gains taxes, payroll and employee withholding taxes, unemployment insurance
taxes, social security taxes, sales and use taxes, ad valorem taxes, excise
taxes, franchise taxes, occupation taxes, real and personal property taxes,
stamp taxes, environmental taxes, transfer taxes, workers' compensation,
Pension Benefit Guaranty Corporation premiums and other governmental
charges, and other obligations of the same or of a similar nature to any of
the foregoing.
13.2 Obligation of the Buyer and Bogen to Indemnify. The Buyer and Bogen
shall indemnify, defend and hold harmless the Seller and the Principals from and
against any Losses arising out of or due to:
(i) a breach of any representation, warranty, covenant or other
agreement of the Buyer contained in this Agreement or in any document or
other writing delivered by the Buyer pursuant hereto; or
(ii) any liability or obligation assumed by the Buyer pursuant to
Section 2.1.
13.3 Notice to Indemnifying Party. If any party hereto (the "Indemnitee")
receives notice of any claim or other commencement of any action or proceeding
with respect to which any other party (or parties) hereto is obligated to
provide indemnification (the "Indemnifying Party") pursuant to Section 13.1 or
13.2, the Indemnitee shall promptly give the Indemnifying Party notice thereof.
Such notice shall be a condition precedent to any liability of the Indemnifying
Party under the provisions for indemnification contained in this Agreement.
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The Indemnifying Party may compromise or defend, at such Indemnifying Party's
own expense and by such Indemnifying Party's own counsel, any such matter
involving the asserted liability of the Indemnitee. In any event, the
Indemnitee, the Indemnifying Party and the Indemnifying Party's counsel shall
cooperate in the compromise of, or defense against, any such asserted liability.
Both the Indemnitee and the Indemnifying Party may participate in the defense of
such asserted liability and neither may settle or compromise any claim over the
objection of the other. If the Indemnifying Party chooses to defend any claim,
the Indemnitee shall make available to the Indemnifying Party any books, records
or other documents within its control that are necessary or appropriate for such
defense.
13.4 Set-off Rights. Each of the Seller and the Principals agrees that the
Buyer shall have the right to set-off against the Buyer's payment obligations or
the payment obligations of any of its affiliates to the Seller and the
Principals, including, without limitation, the Buyer's payment obligations under
Section 3.2 hereof and any amounts payable by the Buyer as salary or bonus to
the Principals (the "Payment Obligations"), all or any portion of the amount of
any Losses required to be paid by the Seller and/or the Principals pursuant to
Section 13.1, if such Losses are not otherwise paid within 30 days after the
Buyer has requested payment therefor. If the Buyer elects to exercise its
set-off rights hereunder, it shall give the Seller, Kieltyka, and Lareau written
notice of such election (including the amount to be set-off), and upon giving of
such notice, the amount of any Payment Obligations shall automatically be
reduced by the amount set forth in such notice; provided that any set-off
against Lareau shall be limited to 25% of the amount set forth in such notice.
In the event there is a "final determination" by a court of competent
jurisdiction that the Buyer was not entitled to
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indemnification under this Section 13.4 with respect to the set-off amount, the
Payment Obligations shall be readjusted by the Buyer in the amount to be
set-off. For purposes of this Section, a "final determination" shall mean a
determination with respect to which any and all appeals therefrom shall have
been resolved or a determination with respect to which 30 days shall have passed
from the rendering of such determination (or of any determination on appeal
therefrom) and no party shall have commenced any such appeal therefrom.
14. Miscellaneous.
14.1 Certain Definitions. As used in this Agreement, the following terms
have the following meanings unless the context otherwise requires:
(i) "affiliate" with respect to any person, means and includes any
person controlling, controlled by or under common control with such person.
(ii) "contracts and other agreements" means and includes all
contracts, agreements, indentures, bonds, leases, mortgages, franchises,
licenses, commitments or binding arrangements, express or implied.
(iii) "document(s) or other papers" means and includes any document,
agreement, instrument, certificate, notice, consent, affidavit, letter,
telegram, telex, statement, schedule (including any Schedule to this
Agreement), exhibit (including any Exhibit to this Agreement) or any other
paper whatsoever.
(iv) "knowledge" means, with respect to the Buyer or the Seller, the
actual knowledge of any officer, director or shareholder of such person.
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(v) "lien or other encumbrance" means and includes any lien, pledge,
mortgage, security interest, claim, lease, charge, option, right of first
refusal, easement or any other encumbrance whatsoever.
(vi) "person" means any individual, corporation, partnership, firm,
joint venture, association, joint-stock company, trust, unincorporated
organization or other entity.
(vii) "property" means real, personal or mixed property.
14.2 Publicity. Except as may otherwise be required by law, no publicity
release or announcement concerning this Agreement or the transactions
contemplated hereby shall be issued without advance approval of the form and
substance thereof by the Buyer and the Seller, which approval shall not be
unreasonably withheld.
14.3 Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally,
telegraphed or telexed, or sent by certified, registered or express mail,
postage prepaid, and shall be deemed given when so delivered personally,
telegraphed or telexed, or if mailed, two days after the date of mailing, as
follows:
(i) if the Buyer or Bogen, to:
c/o Bogen Communications, Inc.
50 Spring Street
Ramsey, New Jersey 07446
attn: Yoav M. Cohen
telephone: 201-934-8500
facsimile: 201-236-0224
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with a copy to:
McDermott, Will & Emery
50 Rockefeller Plaza
New York, New York 10020
attn: Cheryl Reicin, Esq.
telephone: 212-547-5400
facsimile: 212-547-5444
(ii) if to Seller or the Principals to:
c/o New England Audio Resource, Inc.
12 Foss Road
Lewiston, Maine 04240
attn: William Kieltyka
telephone: 207-795-0609
facsimile: 207-795-0613
with a copy to:
Peter G. Cary, Esq.
Mittel, Asen, Eggert, Hunter & Cary
97 State Street
Portland, Maine 04101
telephone: 207-775-3301
facsimile: 207-871-0683
Any party hereto may notify the other parties of a change of address for
purposes hereof in accordance with the provisions of this Section 14.3.
14.4 Entire Agreement. This Agreement (including the Exhibits
and Schedules hereto) contains the entire agreement among the parties with
respects to the purchase of the Purchased Assets and related transactions and
supersedes all prior agreements, written or oral, with respect thereto.
14.5 Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be
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<PAGE>
waived, only by a written instrument signed by all of the parties hereto or, in
the case of a waiver, the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a
waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder, preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder. The rights and
remedies herein provided are cumulative and are not exclusive of any rights or
remedies which any party may otherwise have at law or in equity. The rights and
remedies of any party arising out of or otherwise in respect of any inaccuracy
in or breach of any representation, warranty, covenant or other agreement
contained in this Agreement shall in no way be limited by the fact that the act,
omission, occurrence or other state of facts upon which any claim of any such
inaccuracy or breach is based may also be the subject matter of any other
representation, warranty, covenant or other agreement contained in this
Agreement (or in any other agreement between the parties) as to which there is
no inaccuracy or breach.
14.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
14.7 No Assignment. This Agreement is not assignable except by operation of
law.
14.8 Variations in Pronouns. All pronouns and any variations thereof refer
to the masculine, feminine or neuter, singular or plural, as the identity of the
person or persons may require.
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<PAGE>
14.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
14.10 Exhibits and Schedules. The Exhibits and Schedules to this Agreement
are hereby made a part of this Agreement as if set forth in full herein.
14.11 Headings. The headings in this Agreement are intended solely for
convenience of reference and shall be given no effect in the interpretation of
this Agreement.
[the balance of this page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
BOGEN COMMUNICATIONS, INC.
By ________________________________
Name:
Title:
BOG-COMM ACQUISITION CORPORATION
By ________________________________
Name:
Title:
NEW ENGLAND AUDIO RESOURCE, INC.
By ________________________________
Name:
Title:
MR. WILLIAM KIELTYKA
-----------------------------------
MR. LEE LAREAU
-----------------------------------
[Signature Page to Asset Purchase Agreement]
- S-1 -
<PAGE>
EXHIBIT A
Form of Bill of Sale and Assignment
BILL OF SALE AND ASSIGNMENT
This BILL OF SALE AND ASSIGNMENT (this "Bill of Sale"), made as of July 1,
1997, by New England Audio Resource, Inc., a Maine corporation (the "Seller"),
for the benefit of Bog-Comm Acquisition Corporation, a Delaware corporation (the
"Buyer").
1. ASSIGNMENT. FOR VALUE RECEIVED, the Seller, pursuant to the Asset
Purchase Agreement (the "Agreement"), dated as of July 1, 1997, by and among
Bogen Communications, Inc., a Delaware corporation, the Buyer, the Seller, Mr.
William Kieltyka, and Mr. Lee Lareau, does, as of the date hereof, hereby sell,
convey, assign, transfer, and deliver to the Buyer all of Seller's right, title,
and interest in and to all of the assets, properties, rights and business of the
Seller of every type and description, real, personal and mixed, tangible and
intangible, wherever located and whether or not reflected on the books and
records of the Seller (all of such assets, properties, rights and business being
hereinafter sometimes collectively called the "Purchased Assets"), including,
without limitation, the following (all capitalized terms used but not defined
herein shall have the meaning set forth in the Agreement):
(i) those assets, properties and rights reflected on the Balance Sheet
(subject to changes therein through the Closing Date) or otherwise referred
to in the Agreement or any Schedule thereto, including, without limitation,
all inventory of the Seller;
(ii) the Seller's lists of customers;
(iii) the Seller's right to use the names New England Audio Resource,
Inc., NEAR and all variants thereof;
(iv) all of the Seller's interest in and claims and rights under
contracts and other agreements, Permits, titles, and patents, trademarks,
copyrights and other intellectual property and applications therefor which
are referred to in the Agreement or any Schedule thereto (subject to
changes therein through the Closing Date);
(v) the books and records of the Seller relating to the Purchased
Assets;
(vi) the goodwill of the Seller; and
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<PAGE>
(vii) all other assets, properties, rights and business of every kind
and nature owned or held by the Seller, or in which the Seller has an
interest, on the Closing Date, known or unknown, fixed or unfixed, choate
or inchoate, accrued, absolute, contingent or otherwise, whether or not
specifically referred to in the Agreement.
2. EXCLUDED ASSETS. Notwithstanding anything in this Bill of Sale to the
contrary, there shall be excluded from the assets, properties, rights and
business to be transferred to the Buyer those assets, properties and rights set
forth on Exhibit A to this Bill of Sale.
3. POWER OF ATTORNEY. The Seller appoints the Buyer, its successors and
assigns as the Seller's true and lawful attorney and attorneys, with full power
of substitution, in the Seller's name and stead, on behalf and for the benefit
of the Buyer, its successors and assigns, to demand and receive any and all of
the Purchased Assets, and to give receipts and releases for and in respect of
the same, and any part thereof, and from time to time to institute and prosecute
in the Seller's name, or otherwise, for the benefit of the Buyer, its successors
and assigns, any and all proceedings at law, in equity or otherwise, which the
Buyer, its successors or assigns may deem proper for the collection or reduction
to possession of any of the Purchased Assets or for the collection and
enforcement of any claim or right of any kind hereby sold, conveyed, assigned,
transferred and delivered, or intended so to be, and to do all acts and things
relating to the Purchased Assets which the Buyer, its successors or assigns
shall deem desirable, the Seller hereby declaring that the foregoing powers are
coupled with an interest and are and shall be irrevocable by the Seller or by
its dissolution or in any manner or for any reason whatsoever.
4. FURTHER ASSURANCES. The Seller hereby covenants that, from time to time
after the delivery of this instrument, at the Buyer's request and without
additional consideration, the Seller at its expense will execute, acknowledge
and deliver such further instruments of conveyance and transfer and take such
other actions as the Buyer may reasonably require to more effectively convey and
transfer to the buyer any and all of the Purchased Assets.
5. MISCELLANEOUS. The agreements, covenants and terms contained herein
shall be binding upon and inure to the benefit of the successors and assigns of
the Seller and the Buyer and shall be construed and enforced according to the
laws of the State of New Jersey.
IN WITNESS WHEREOF, the Seller has executed this Bill of Sale as of the
date first above written.
NEW ENGLAND AUDIO RESOURCE, INC.
By:/s/_____________________________
Name:
Title:
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<PAGE>
EXHIBIT B
Form of Opinion of Counsel to the Seller
[Letterhead of Ranger, Copeland & Willcox, P.A.,
Counsel to the Seller]
July 1, 1997
Bogen Communications, Inc.
Bog-Comm Acquisition Corporation
c/o Bogen Communications, Inc.
50 Spring Street, P.O. Box 575
Ramsey, New Jersey 07446
Ladies and Gentlemen:
We refer to the Asset Purchase Agreement dated as of July 1, 1997 (the
"Agreement"), among Bogen Communications, Inc., a Delaware corporation
("Bogen"), Bog-Comm Acquisition Corporation, a Delaware corporation (the
"Buyer"), New England Audio Resource, Inc., a Maine corporation (the "Seller"),
Mr. William Kieltyka ("Kieltyka"), and Mr. Lee Lareau ("Lareau" and together
with Kieltyka the "Principals"). For purposes of this opinion, terms used herein
have the respective meanings assigned them in the Agreement.
We have examined the Agreement (together with the Exhibits and Schedules
thereto) and copies of the Certificate of Incorporation, By-laws and minutes of
the Seller. We have also made such other investigations of law and fact as we
have deemed necessary and relevant for the basis of our opinion.
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<PAGE>
Based upon the foregoing, we are of opinion that:
1. The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maine and has the corporate power and
lawful authority to own, lease and operate its assets and properties and to
carry on its business as now conducted. The Seller is qualified to transact
business and is in good standing in each jurisdiction in which the nature of its
business or location of its properties requires such qualification and in which
the failure so to qualify could have a material adverse effect on the Seller or
its assets, properties or business.
2. The Seller is authorized to issue [____] shares of Common Stock, par
value [$_______], [_______] of which are issued and outstanding. No other class
of capital stock of the Seller is authorized or outstanding. All of the issued
shares are duly authorized and are legally and validly issued, fully paid and
nonassessable. To our knowledge, there are no outstanding options, warrants,
convertible securities, subscriptions or other commitments or rights of any
nature to acquire any securities of the Seller from the Seller.
3. Each of the Seller, Kieltyka and Lareau has the full legal right and
power and all authority and approval required to enter into, execute and deliver
the Agreement and the Transaction Documents and to perform fully its obligations
thereunder, all such actions by the Seller have been duly authorized by all
necessary corporate proceedings on its part, and the Agreement has been duly
executed and delivered by each of the Seller, Kieltyka and Lareau and
constitutes the valid and binding obligation of each of them and is enforceable
in accordance with its terms.
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<PAGE>
4. No approval or consent of any foreign, federal, state, county, local or
other governmental or regulatory body, and no approval or consent of any other
person (except as otherwise specified in the Agreement or Schedules thereto,
which approvals and consents have been obtained and are in full force and
effect) is required in connection with the execution and delivery by the Seller,
Kieltyka and Lareau of this Agreement and the consummation and performance by
each of them of the transactions contemplated hereby.
5. The execution and delivery of the Agreement and the Transaction
Documents and the consummation of the transactions contemplated thereunder and
the performance by the Seller of each of the Agreement and the Transaction
Documents in accordance with its terms and conditions will not (a) conflict with
or result in the breach or violation of any of the terms or conditions of, or
constitute (or with notice or lapse of time or both would constitute) a default
under, (i) the Certificate of Incorporation or By-laws of the Seller, (ii) any
instrument, contract, license or other agreement known to us, after due inquiry,
to which the Seller is a party or by or to which it or any of its assets or
properties is bound or subject, (iii) any statute or any regulation, order,
judgment or decree of any court or governmental or regulatory agency or body, or
(iv) any Permit or (b) result in the creation or imposition of any lien, claim,
charge, restriction, security interest or encumbrances upon any of the Purchased
Assets.
6. The instruments of sale, conveyance, assignment and transfer executed
and delivered by the Seller to the Buyer pursuant to the Agreement have been
duly executed and such documents effectively vest in the Buyer all of the
Purchased Assets, all free and clear of any lien, claim, charge, restriction,
security interest and other encumbrance. The Patent Assignment executed and
delivered by Kieltyka to the Buyer has been duly executed and such document
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<PAGE>
effectively vests in the Buyer the Kieltyka Patents, free and clear of
any lien, claim, charge, restriction, security interest or other encumbrance.
7. To our knowledge, after due inquiry, none of the Seller, Kieltyka and
Lareau is a party to, or threatened with, any litigation or judicial,
administrative or arbitration proceeding or has incurred or been charged with or
been under investigation with respect to any violation of any foreign, federal,
state, county, or local law or administrative regulation.
We express no opinion as to the effect of (i) applicable bankruptcy and
other similar laws affecting the rights of creditors generally, or (ii) rules of
law governing specific performance, injunctive relief or other equitable
remedies.
We are members of the Bar of the State of Maine and in this letter we
express no opinion with respect to the laws of any jurisdiction other than those
of the State of Maine and the federal laws of the United States of America.
Without limiting the foregoing qualification, I have expressly assumed with your
permission that the applicable laws of any jurisdiction other than the State of
Maine and the United States of America are substantially the same as those of
the State of Maine.
Very truly yours,
Ranger, Copeland & Willcox, P.A.
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<PAGE>
EXHIBIT C
Form of Patent Agreement
PATENT AGREEMENT
PATENT AGREEMENT (this "Agreement") dated as of July 1, 1997, between
Bog-Comm Acquisition Corporation, a Delaware corporation (the "Company"), and
William Kieltyka ("Kieltyka").
WHEREAS, the parties hereto have entered into the Asset Purchase Agreement,
dated as of the date hereof, among Bogen Communications, Inc., the Company, New
England Audio Resource, Inc. ("NEAR"), Kieltyka and Mr. Lee Lareau (the "Asset
Agreement") as well as a related Employment Agreement, dated as of the date
hereof (the "Employment Agreement"); and
WHEREAS, Kieltyka is a principal stockholder of NEAR; and
WHEREAS, in consideration of the Company entering into the Asset Agreement
and the Employment Agreement, Kieltyka will transfer and assign all of his
right, title, and interest in and to U.S. Patent No. 5,335,287, relating to
audio loudspeakers (the "Current Patent"), to the Company pursuant to an
agreement of assignment dated the date hereof between Kieltyka and the Company
(the "Assignment Agreement"); and
WHEREAS, Kieltyka currently has a pending U.S. patent application for an
additional patent relating to audio loudspeakers, which application is attached
hereto as Exhibit A (the "Pending Application" and together with the Current
Patent the "Patents"), and in
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<PAGE>
consideration of the Company entering into the Asset Agreement and the
Employment Agreement and paying the Pending Application expenses as provided
herein, Kieltyka has agreed to transfer and assign all of his right, title, and
interest in and to the Pending Application upon receipt of a Notice of Allowance
from the U.S. Patent and Trademark Office to the Company; and
WHEREAS, in consideration of Kieltyka entering into the Asset Agreement,
the Employment Agreement and the Assignment Agreement, the Company has agreed to
transfer and assign the Patents back to Kieltyka or license the Patents to
Kieltyka upon the occurrence of certain events as specified in Section 2 of this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Pending Application. On the Closing Date (as defined in the Asset
Agreement), the Company will pay to Kieltyka $2,000 in cash for expenses related
to the Pending Application. In consideration of such payment and of the Company
entering into the Asset Agreement and the Employment Agreement, Kieltyka hereby
agrees that if the Pending Application is allowed, but before issuance thereof,
and in consideration of an additional payment by the Company to Kieltyka of
$2,225 in cash, Kieltyka will convey, assign, transfer, and deliver to the
Company pursuant to an assignment agreement substantially in the form attached
hereto as Exhibit B all of Kieltyka's right, title, and interest in and to the
Pending Application and any patent issuing therefrom.
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<PAGE>
2. Conditions Precedent to Reassignment or License to Kieltyka. The Company
shall reassign or license, as specified below, the Patents to Kieltyka upon the
occurrence of the following events:
(i) If, at the later of (A) five (5) years from the date hereof and
(B) termination of Kieltyka's employment with the Company and its
affiliates (the later of (A) and (B) being the "Patent Determination
Date"), the Company has not produced any product falling within the scope
of the claims of a Patent or otherwise made a commercial use of such
Patent, the Company shall sell, convey, assign, transfer, and deliver to
Kieltyka all of the Company's right, title, and interest in and to such
Patent (the "Assignment") in consideration of a payment by Kieltyka to the
Company of $1.00 (One Dollar), which Assignment shall be effective only
upon the Patent Determination Date; or
(ii) If, at the Patent Determination Date, the Company has produced
any product falling within the scope of the claims of a Patent or otherwise
made a commercial use of such Patent, the Company shall negotiate in good
faith a non-exclusive license for Kieltyka to utilize the Company's right,
title, and interest in and to such Patent for a period of ten (10) years
(the "License") in consideration of royalty payments by Kieltyka to the
Company equal to 0.5% of any gross revenues resulting from sales of
products that utilize such Patent pursuant to or in connection with the
License, which License shall be effective only upon the later of (A) the
Patent Determination Date and (B) the expiration of any non-competition
agreement between the Company and Kieltyka. The License shall be granted
pursuant to a license agreement to be mutually agreed to by the parties
hereof and shall include, without limitation, the following provisions: (1)
royalty payments shall be accounted for and paid quarterly within
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<PAGE>
thirty (30) days following the close of each quarter together with
financial statements of the licensee, which shall be prepared and
maintained in a manner to allow them to be audited in accordance with
generally accepted accounting principles; (2) Company access to the
licensee's books and records during normal business hours; (3) provisions
prohibiting sublicense or assignment; (4) quality control provisions; and
(5) other customary provisions in similar agreements. For purposes of
determining whether clause (i) or (ii) hereof is applicable, the Current
Patent and the Pending Application (or any patent resulting from the
Pending Application) shall be treated separately.
3. Other Provisions.
3.1 Notices. Any notice or other communication required or which may be
given hereunder shall be in writing and shall be delivered personally or sent by
certified, registered or express mail, postage prepaid, and shall be deemed
given when so delivered personally or if mailed, two days after the date of
mailing, as follows:
(i) if to the Company:
Bog-Comm Acquisition Corporation
c/o Bogen Communications, Inc.
50 Spring Street
Ramsey, New Jersey 07446
Attention: Chief Financial Officer
and with a copy to:
McDermott, Will & Emery
50 Rockefeller Plaza, 13th Floor
New York, New York 10020-1605
Attention: Cheryl V. Reicin, Esq.
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<PAGE>
(ii) if to Kieltyka, to:
Mr. William Kieltyka
18 Meredith Drive
Brunswick, Maine 04011
Any party hereto may notify the other party of a change of address for
purposes hereof in accordance with the provisions of this Section.
3.2 Entire Agreement. This Agreement contains the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements, written or oral, with respect thereto.
3.3 Waivers and Amendments. This Agreement may be amended, modified,
superseded, cancelled, renewed or extended, and the terms and conditions hereof
may be waived, only by a written instrument signed by the parties hereto or, in
the case of a waiver, by the party waiving compliance. No delay on the part of
any party in exercising any right, power or privilege hereunder shall operate as
a waiver thereof, nor shall any waiver on the part of any party of any right,
power or privilege hereunder, nor any single or partial exercise of any right,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, power or privilege hereunder.
3.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New Jersey.
3.5 Assignment. This Agreement, and Kieltyka's rights and obligations
hereunder, may not be assigned by Kieltyka. The Company may assign this
Agreement and its rights, together with its obligations hereunder, in connection
with any sale, transfer or other
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<PAGE>
disposition of all or substantially all of its assets or business, whether by
merger, consolidation or otherwise.
3.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
3.7 Headings. The headings in this Agreement are for reference purposes
only and shall not in any way affect the meaning or interpretation of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
BOG-COMM ACQUISITION
CORPORATION
/s/_________________________ BY:/s/
WILLIAM KIELTYKA ------------------------
NAME:/s/
------------------------
TITLE:/s/
------------------------
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<PAGE>
EXHIBIT A TO PATENT AGREEMENT
PENDING APPLICATION
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<PAGE>
EXHIBIT B TO PATENT AGREEMENT
FORM OF ASSIGNMENT
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<PAGE>
EXHIBIT D
Form of Patent Agreement
ASSIGNMENT OF PATENT RIGHTS
WHEREAS, William J. Kieltyka (hereinafter called the "Assignor") is an
owner of the entire right, title and interest in and to U.S. Patent No.
5,335,287 dated August 2, 1994, entitled LOUDSPEAKER UTILIZING MAGNETIC LIQUID
SUSPENSION OF THE VOICE COIL (hereinafter called the "Patent") as evidenced by
an Assignment document duly recorded at the U.S. Patent and Trademark Office at
Reel 7541, Frames 0286 to 0289; and
WHEREAS, Bog-Comm Acquisition Corporation, a corporation organized and
existing under the laws of Delaware, having a place of business at 50 Spring
Street, P.O. Box 575, Ramsey, N.J. (hereinafter called the "Assignee") is
desirous of acquiring the Assignor's entire right, title and interest for the
United States, its territories, dependencies and possessions, in, to and under
said Patent (and/or U.S. or foreign patents that may be granted or claim
priority therefrom), and any divisions, continuations, reexaminations, reissues
or extensions of the same;
NOW, THEREFORE, TO ALL WHOM IT MAY CONCERN, be it known that for and in
consideration of the sum of One Dollar ($1.00) to the Assignor in hand paid by
the Assignee, and for other good and valuable considerations moving from the
Assignee to the Assignor, the receipt of all of which is hereby acknowledged,
the Assignor has sold, assigned, transferred and set over, and by these presents
does hereby sell, assign, transfer and set over, unto the Assignee, its
successors, legal representatives and assigns, the entire right, title and
interest for the United
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<PAGE>
States, its territories, dependencies and possessions, in and to the Patent
(and/or U.S. or foreign patents that may be granted or claim priority
therefrom), and any divisions, continuations, reissues or extensions thereof;
the same to be held and enjoyed by the Assignee, its successors, legal
representatives and assigns, as fully and entirely as the same would have been
held and enjoyed by the Assignor had this assignment and sale not been made,
together with the right to grant licenses and all claims for damages by reason
of past infringement of the Patent with the right to sue for, and collect the
same for its own use and for the use of its successors, legal representatives
and assigns.
Assignor hereby covenants and warrants that it has the full right to convey
the interest herein assigned and that it has not executed and will not execute
any assignment, understanding, agreement, or encumbrance in conflict herewith.
Assignor hereby covenants and agrees, for himself and his legal
representatives, that he will cooperate with the Assignee such that Assignee may
enjoy to the fullest extent the rights conveyed hereunder, including, without
limitation, executing and delivering to the Assignee any and all additional
papers that may be requested and desired by the Assignee to fully perfect in
Assignee the conveyed rights.
Assignor hereby agrees to execute all papers necessary in connection with
any interference which may be declared concerning the Patent or any continuation
or reissue thereof, and to cooperate with the Assignee in every way possible in
obtaining evidence and going forward with such interference, continuation or
reissue thereof.
Assignor hereby grants the law firm of MCDERMOTT, WILL & EMERY the
power to insert on this Assignment document any further identification that may
be necessary or desirable to
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<PAGE>
comply with the rules of the United States Patent and Trademark Office for
recordation of this document.
IN TESTIMONY WHEREOF, the Assignor has hereunto set his hand.
Date: _____________________ _________________________________
William J. Kieltyka
Date: _____________________ _________________________________
Notary Public
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Exhibit 10.12
Attachment B to the
Deed No. 204/1995
Notary Eckart Wileke in
Frankfurt am Main
Share Transfer and Option Agreement
between
1. Geotek
2. EGAC
3. Mr. Kasimir Arciszewski
4. Mr. Hans Meiler
A.
Share Transfer Agreement
Between
Geotek and EGAC
1. Geotek holds shares in the aggregate amount of DM 1,330,000 Speech Design
Gesellschaft fur elektronische Sprachverabeitung mbH which is registered
in department B of the Commercial-Register of the Lower Court of Munich,
folio HRB 69353, and has its main place of business at Germering
(hereinafter referred to as the "Company"). This includes the following
shares (hereinafter referred to as the "Shares"):
o one share of DM 383,000
o one share of DM 137,500
o one share of DM 30,200
o one share of DM 238,900
o one share of DM 383,000
o one share of DM 107,000
o one share of DM 20,800
o one share of DM 29,600
2. Geotek herewith assigns to EGAC the Shares including all ancillary rights.
EGAC accepts such assignment.
3. The assignment of the Shares herewith agreed becomes effective
immediately.
4. The profit of the current fiscal year as well as the profit of previous
fiscal years which has not been distributed to shareholders (i.e. profits
carried forward and
<PAGE>
profits of previous fiscal years with respect to which no resolution on
the appropriation of results (Ergebnisverwendung) has been passed) shall
be exclusively for the account of EGAC.
5. A copy of the declaration of consent of the Shareholder Meeting and a
waiver of rights of first refusal in connection with the sale and
assignment of the Shares to EGAC is attached as Attachment B1 hereto.
6. EGAC submits to and acknowledges all provisions of the Articles of
Association of the Company, a copy of which is attached as Attachment B2
hereto. The parties hereto namely Geotek, EGAC, Mr. Arciszewski, and Mr.
Meiler, will replace the denomination "Geotek" by "EGAC" in ss.12.2.1 and
ss.16.4 of the Articles of Association.
B.
Option Agreement
between
Geotek, EGAC, Mr. Kasimir Arciszewski and Mr. Hans Meiler
1.
Preamble:
Geotek, Mr. Kasimir Arciszewski and Mr. Meiler have entered into a share option
agreement (hereinafter referred to as the "Share Option Agreement") dated
February 10, 1993 (Roll of Deeds no. 348/F/1993/ARO of the Notary Public Dr.
Alexander Fauvet). Reference is made to the Share Option Agreement, a copy of
which is attached hereto as Attachment B3.
At present, the following shareholders are participating in the share capital of
the Company with the shares indicated hereinafter:
<TABLE>
<S> <C> <C> <C> <C>
EGAC nominal value DM 1,330,000.00 67.86%
Kasimir Arciszewski, Munich nominal value DM 378,000.00 19.29%
Hans Meiler, Munich nominal value DM 252,000.00 12.86%
- --------------------------------------------------------------------------------------------
total share capital DM 19,960,000.00
=============
</TABLE>
The shareholders and Geotek agree that the Share Option Agreement be replaced
with immediate effect by the provisions of Part B of this deed.
II.
Options:
1. Mr. Kasimir Arciszewski and Mr. Hans Meiler hereby offer to EGAC their
shares in the Company for sale (the "Call Option").
<PAGE>
2. EGAC hereby offers to Mr. Kasimir Arciszewski and Mr. Hans Meiler the
acquisition of these shares in the Company (the "Put Option").
3. The offers are irrevocable. The acceptance of the offers requires notarial
recording. The contract of purchase governed by the law obligations
becomes effective upon recording of the declaration of acceptance.
4. The acceptance can be declared effectively subject to the provisions
stated under para. B. III. of this deed. In the event of an effective
declaration of acceptance the parties to the contract are obligated
reciprocally and simultaneously to declare and to accept the (eventually
partial) assignment in a notarial form against payment of the purchase
price and in strict compliance with the provisions stated under para. B.
III and B. IV of this deed. The real transfer of the shares shall not be
effected until this declaration of assignment and its acceptance are
recorded.
5. Any disposal of the offers contained in this deed, in particular
assignment, pledging, lending against collateral security, etc., is
excluded.
6. Mr. Kasimir Arciszewski and Mr. Hans Meiler assume the obligations set
forth in this deed as partial debtors (Teilschuldner) and are entitled to
the rights set forth hereunder as partial creditors (Teilglaubiger).
7. the transfer of shares shall be effected each time against payment of a
purchase price. The purchase price shall be calculated on the basis of the
following formula whereas the multiplier for the respective transfers is
described in detail in para. B. III of this deed:
Company's net income for the year (Jahresuberschuss) plus taxes on
income (Steuren vom Einkommen und vom Ertrag) obtained during the
Company's three fiscal years preceding the date of the assignment
: three
-------------------------------------------------------------------
= average net income for the year (Jahresuberschuss) before deduction
of taxes on income (Steuren vom Einkommen und vom Ertrag)
x multiplier as set forth in para. B. III
-------------------------------------------------------------------
= respective value of the Company
x nominal value of the assigned shares
: total of the nominal value of the Company's existing shares
-------------------------------------------------------------------
= purchase price
================
8. Geotek, by way of a suretyship (selbstchuldnerische Burgschaft) hereby
secures the payment obligations of EGAC in the case of the exercise of the
Put Option. Geotek will be obligated to pay under such suretyship only if
thirty days have expired after
<PAGE>
the respective payment has become due. There is no obligation under the
suretyship in the case of para. B. III 2.2.1. If the Call Option is
exercised, the agreement for the transfer of shares (Anteilsabtretung)
shall be subject to the condition precedent that the payment obligations
of EGAC are duly satisfied within three weeks, otherwise it shall be null
and void.
III.
Conditions, purchase Price Multiplier, Further Stipulations.
1. General Acceptance Possibilities Limited in Time
1.1 The offers indicated in para. B. 11., 1. and 2. can be accepted by each
party entitled without particular requirements taking effect as of the
following dates - such acceptance, however, cannot be declared
subsequently and must take effect as of March 31, 1999 at the latest:
31 March 1996
31 March 1997
31 March 1998
31 March 1999
1.2 Unless expressly otherwise provided herein (in particular in para.
B III. 2) EGAC may declare acceptance only to both Mr. Arciszewki and Mr.
Meiler together, and Mr. Arciszewski and/or Mr. Meiler may declare
acceptance to EGAC jointly.
1.3 In the event of a declaration of acceptance, the respective shares of
which each one amount to one third of the total nominal value owned by Mr.
Arciszewski and/or Mr. Meiler, shall be transferred to EGAC as follows:
- one third on the following March 31.
- another third on each March 31 of the following two years (if
applicable, also on 03/31/2000 and 03/31/2001).
The purchase price shall be determined separately in accordance with para.
B II. 7 hereof for each partial assignment pursuant to the results
obtained during the respective preceding three fiscal years.
1.4 As set forth in para. B. II., 7. the multiplier is
- in the event of an acceptance of the Call Option by EGAC according to
para. II. 1.:12 (twelve)
- in the event of an acceptance of the Put Option by Mr. Arciszewski or
Mr. Meiler according to para. II., 2.:6 (six).
<PAGE>
1.5 EGAC is entitled to pay the purchase price in Deutsch Marks or,
alternatively, by transfer of Geotek shares (common stock) if at the due
date of the purchase price Geotec shares are traded on the official Nasdaq
stock exchange; provided, however, that this clause does not create any
obligation of Geotek to issue or transfer Geotek shares. Rather, EGAC will
have to agree with Geotek on the terms and conditions pursuant to which
such shares can be furnished. In the event of the acceptance of the Call
Option by EGAC according to para. B. II. 1 it is further required that
during the 60 trading sessions preceding the due date of the purchase
price the average market value of the daily trading volume of Geotek
shares on the Nasdaq Stock Market exceeds US $50,000.00. The valuation of
the Geotek shares shall in any case be effected on the basis of the
weighted average stock exchange price evaluated during the preceding
60-day-period; the conversion into Deutsch Marks shall be effected on the
basis of the foreign exchange selling rate determined in Frankfurt/Main on
the due date of the purchase price.
2. Acceptance Possibilities Depending on the Termination of the Management
Agreements
2.1 Notice of termination given by Speech Design
2.1.1 If the management agreement between the Company and Mr. Arciszewski and/or
Mr. Meiler is terminated due to a notice of dismissal given before
12/31/2002 by Speech Design, with regard to the respective (former)
manager, EGAC is entitled to exercise the Call Option in compliance with
para. B. II., 1. of this deed within a period of 30 days from the
termination of the agreement. Otherwise, para. B. III., 1. of this deed
applies analogously.
2.1.2 If EGAC does not exercise this Call Option, the respective manager may
himself exercise the Put Option within a further period of 30 days in
compliance with para. B. II., 2. of this deed. Otherwise, para.
B. III., 1. of this deed applies analogously, however, with the following
divergences:
- Notwithstanding 1.3 hereof, the purchase price shall be determined
exclusively on the basis of the results obtained during the three fiscal
years preceding the exercise of the option.
- Notwithstanding 1.4 hereof the multiplier is: 9 (nine).
- Notwithstanding 1.5 hereof, EGAC can only pay in the form of Geotek
shares if the requirements stated under 1.5, sentence 3 are met.
2.1.3 EGAC can avoid the execution of the Put Option by Mr. Arciszewski and/or
Mr. Meiler by offering for sale to the persons entitled under the Put
Option all shares held by EGAC in Speech Design on the following basis:
<PAGE>
- purchase price multiplier: 7 (seven) based on the average results
obtained during the three fiscal years of Speech Design preceding the
offer,
- payment of the purchase price by means of a promissory note with a term
of 5 years bearing an interest in the amount of the prime rate of the
following banking institution: Citibank, New York, N.Y., which becomes
due and payable at the end of each calendar year,
- securing the purchase-money claim by pledging the shares of Speech
Design as collateral security.
The offer must be drawn up in a notarial form within 30 days after
notifying EGAC of the exercise of the option according to para. B. 2.1.2.
2.2 Notice of termination given by the management
2.2.1 If the management agreements between the Company and Mr. Arciszewski
and/or Mr. Meiler are terminated due to a notice of termination given
before 12/31/2002 by Mr. Arciszewski and/or Mr. Meiler, the (former)
manager concerned is entitled to exercise the Put Option in compliance
with para. B. II., 2. within a period of 30 days from the termination of
the respective management agreement. Otherwise, para. B. III., 1. of this
deed applies correspondingly, however, subject to the following
provisions:
- payment of the purchase price by means of a promissory note with a term
of three years bearing an interest at the prime rate of the following
banking institution: Citibank, New York., N.Y., which becomes due and
payable at the end of each calendar year.
- securing the purchase-money by pledging the existing shares as
collateral security.
- in the event of non-fulfillment of the purchase-money claim satisfaction
may only be sought through the pledged shares. If the party entitled
under the purchase-money claim so requires, such satisfaction must be
obtained by a transfer of such shares. EGAC shall not be personally
liable otherwise.
2.2.2 If Mr. Arciszewski or Mr. Meiler do not exercise this Put Option, EGAC for
its part can exercise the Call Option within a further period of 30 days
in compliance with para. B. II., 1. of this deed. Otherwise, para.
B. III. 1. of this deed applies correspondingly, however with the
following divergences:
- Notwithstanding 1.3 hereof, the purchase price shall be determined
exclusively on the basis of the results obtained during the three fiscal
years preceding the exercise of the option.
<PAGE>
- Notwithstanding 1.4 hereof, the multiplier is: 9 (nine).
- payment of the purchase price may be made by means of a promissory note
with a term of three years bearing an interest in the amount of the
prime rate of the following banking institution: Citibank, New York,
N.Y.; which becomes due and payable at the end of each calendar year;
provided that such note is secured by Geotek. Otherwise payment of the
purchase price shall be governed by para. B. III. 1.5. This provision
shall not be construed as obliging Geotek to provide such security.
- in the event of payment of the purchase price by means of a promissory
note as provided in the preceding paragraph, such promissory note shall
be secured by pledging the sold shares as collateral security.
2.2.3 Mr. Arciszewski and/or Mr. Meiler may avoid the execution of the Call
Option by EGAC by offering EGAC the acquisition of all participations held
by EGAC in the Company on the following basis:
- purchase price multiplier: 12 (twelve) based on the average results
obtained during the three fiscal years of Speech Design preceding the
offer of acquisition.
- payment of the purchase price in cash within 30 days from the acceptance
of the offer.
The offer must be drawn up in a notarial form within 30 days after
notifying Mr. Arciszewski and/or Mr. Meiler of the exercise of the Option
according to para. B. III. 2.2.2.
IV.
Further Terms of the Purchase Agreements
The purchase agreements to be concluded in the event of exercising the option
must furthermore mention the following points.
1. Due date of the purchase price (if not regulated otherwise hereinbefore):
contemporaneously with the recording of the notarial assignment deed.
2. Assignment of the right to participate in the profits: from the beginning
of the Company's fiscal year current at the recording date of the notarial
assignment deed.
3. Warranty: given only for the existence of the assigned shares, for its
freedom from third party rights and for the fact that the share has been
fully paid-up. Any further warranties are excluded.
<PAGE>
4. Any transfer of shares sold is subject to the transfer of the respective
consideration as a condition precedent (aufschiebende Bedingung).
5. Costs: The respective purchaser shall bear the cost of this deed or any
follow-up deed eventually to be drawn up in connection herewith (i.e.
declarations of acceptance, declarations of assignment) as well as the
costs of their execution.
V.
Voting
In the event that according to para. III., 1.3 or arising from a reference to
para. III., 1.3 of this agreement, the shares of Mr. Areiszewski and/or Mr.
Meiler shall be transferred in three thirds to EGAC, EGAC commits itself
regarding all shareholders' meetings of the Company to exercise the total number
of voting rights to which EGAC is entitled only to an extent allowing that at
least 26% of the votes participating in the shareholders' meeting are held by
Mr. Arciszewski and Mr. Meiler. EGAC's exceeding voting rights shall be
forfeited. This commitment is limited to the period starting with the assignment
of the first third and ending with the assignment of the last third according to
para. B. III., 1.3 of this deed.
VI.
Right of Pre-emption Consent
1. Exercising the option rights regulated in para. III. of this agreement
results in the preemption rights guaranteed by the Company's Articles of
Association. These preemption rights take priority over the option rights
according to para. III.
This does not apply if EGAC legitimately exercises its option rights with
regard to all the shares which Mr. Arciszewski and Mr. Meiler are entitled
to.
2. Furthermore, EGAC, Mr. Arciszewski and Mr. Meiler and, solely in the
default case set out in para. B. II. 8 with regard to the put option,
Geotek are obligated to agree to any purchase and assignment agreement
that might arise under this deed.
C.
General Provisions
1. The costs of the legal advisers of Messrs. Arciszewski and Meiler up to
the signing of this deed (which costs shall not exceed DM 8,000.00) as
well as the costs of the legal advisers of Geotek shall be borne by
Geotek. EGAC shall bear the cost of its legal advisers. The cost of the
notarial recording of this deed as well as other transaction costs
triggered by the conclusion or consummation of this Agreement including
any transfer taxes shall, as between the parties, be borne by EGAC.
2. This Agreement, including this provision, may only be amended by written
or, if necessary, notarial instrument.
<PAGE>
3. Each party shall appoint a process agent (Zustellungsbevollmachtigter) for
the initiation of a legal action or services which need to be made in a
pending legal dispute as well as for the receipt of any declarations of
will requiring receipt (empfansbedurftige Willenserklarung) within 6 weeks
after the recording date of this deed.
4. Should any provision of this Agreement be held wholly or in part invalid
or unenforceable, the validity or enforceability of the other parts shall
not be affected thereby. The invalid or unenforceable provision shall be
deemed replaced by such valid and enforceable provision which serves best
the economic interest of the contract parties originally pursued by the
invalid or unenforceable provision.
5. Any agreements made heretofore between the parties to this Agreement are
superseded by the conclusion of this Agreement.
6. This Agreement shall be governed by the laws of the Federal Republic of
Germany. In the event of any dispute between the parties arising out of
this Agreement the parties agree on Germering (Landkreis Furstenfeldbruck)
as the non-exclusive place of jurisdicition.
Attachments:
B1. Shareholder Assembly protocop/Waiver of rights of first refusal
B2. Articles of Association of the Company
B3. Optionsvertrag
EXHIBIT 10.13
FIRST AMENDMENT TO THE
LOAN AND SECURITY AGREEMENT
DATED FEBRUARY 6, 1997
THIS FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT DATED
FEBRUARY 6, 1997 ("First Amendment") made as of the 1st day of July, 1997,
between BOGEN COMMUNICATIONS, INC., having its principal place of business at 50
Spring Street, Ramsey, New Jersey 07446 ("Bogen") and NEW ENGLAND AUDIO RESOURCE
CORP., having its principal place of business at 12 Foss Avenue, Lewiston, Maine
04240 ("NEAR" and, collectively, jointly and severally with Bogen, the
"Borrower"), both corporations of the State of Delaware, and SUMMIT BANK
(hereinafter referred to as "Lender") with a location at 750 Walnut Avenue,
Cranford, New Jersey 07016.
WITNESSETH:
WHEREAS, Bogen and Lender are engaged in a commercial lending
relationship as evidenced by a certain Loan and Security Agreement dated
February 6, 1997 (the "Loan Agreement"); and
WHEREAS, NEAR was formed as a wholly-owned Subsidiary of Bogen
as Bog-Comm Acquisition Corporation and has acquired substantially all the
assets of New England Audio Resource, Inc., a Maine corporation ("Oldco") and is
operating its business at the location set forth above; and
WHEREAS, NEAR has changed its corporate name from Bog-Comm
Acquisition Corporation; and
WHEREAS, Bogen and NEAR have determined that it is in the best
interest of both entities to become co-borrowers with respect to the Revolving
Loan pursuant to the terms of the Loan Agreement; and
WHEREAS, it is necessary to amend certain of the terms and
conditions of the Loan Agreement; and
WHEREAS, Borrower and Lender wish to memorialize the terms of
the amendment to their agreement by this writing,
NOW, THEREFORE, for and in consideration of the mutual
covenants and agreements herein contained and for other good and valuable
consideration, the receipt of which is hereby acknowledged, it is agreed as
follows:
1. NEAR AS CO-BORROWER.
(a) Assumption of Loan Agreement/Grant of Security. NEAR
hereby (i) assumes and accepts, as a joint and several obligor, all of the
Obligations, covenants, terms
<PAGE>
and conditions of the Loan Agreement; (ii) as of the date hereof, makes the
representations and warranties set forth in the Loan Agreement as if set forth
herein at length, in the same manner and to the same extent as Bogen excepting
Sections 6.15, 6.16 and 6.19 which are set forth in this Amendment as to NEAR;
(iii) grants to Lender a continuing security interest in and to all of the
Collateral as set forth in the Loan Agreement; and (iv) agrees to be bound by
and perform in accordance with the Loan Agreement as if an original party
thereto.
(b) No Release of Bogen. It is hereby understood and agreed
that NEAR's assumption and acceptance of the Obligations under the Loan
Agreement does not diminish or release and shall not in any way affect any of
the Obligations, duties or liabilities of Bogen to Lender, whether now existing
or hereafter arising.
(c) Use of term "Borrower". Anything herein or in the Loan
Agreement to the contrary notwithstanding, any use of the term "Borrower" in the
Loan Agreement, or in any document or instrument related thereto or executed in
furtherance thereof, shall be deemed to refer to Bogen and NEAR, collectively,
jointly and severally unless otherwise inconsistent with the context thereof
(d) Representations by NEAR. NEAR hereby represents and
warrants that:
(i) all of the locations where NEAR conducts business and/or
where the Collateral owned by NEAR is now, or shall in the future be, located
are set forth on Schedule 1 attached hereto and made a part hereof,
(ii) all of the names by which NEAR is known or under which it
conducts business are also set forth on Schedule 1; and
(iii) all of the liens or other encumbrances with respect to
the assets of NEAR (after giving effect to the acquisition of the Oldco assets)
are listed on Schedule 2 attached hereto and made a part hereof.
2. AMENDMENT OF DEFINITION OF TERM "BORROWER".
Section I., DEFINITIONS:, Subsection I, is hereby amended and
changed to read in its entirety as follows:
I. The term "Borrower" shall mean Bogen Communications, Inc.
and New England Audio Resource Corp., both corporations of the State of
Delaware, collectively and jointly and severally.
3. CONDITIONS TO MAKING EXTENSION OF CREDIT.
The obligation of Lender to make the first Advance with
respect to the Qualified Accounts and/or Qualified Inventory of NEAR is subject
to the satisfaction of each of the following conditions precedent:
(a) Receipt by Lender of fully executed counterparts, in form
and substance acceptable to Lender and its counsel, of. (1) this First
Amendment; (ii) the Amended and
-2-
<PAGE>
Restated Secured Revolving Note; (iii) Continuing Corporate Guarantees by Bogen
Communications International, Inc. and Bogen Corporation; (iv) a Pledge of
Patents as Security by NEAR; and (v) Corporate Resolutions and other documents
or instruments related to the above as Lender may require;
(b) 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) Receipt by Lender of landlord's waivers, in form and
substance acceptable to Lender, for each real property location occupied by
NEAR, executed by the owner and/or lessor of such location;
(d) Receipt by Lender of copies of NEAR's insurance policies
containing a long-form lender loss payable endorsement satisfactory to Lender
and which in all other respects comply with the requirements of the Loan
Agreement;
(e) Receipt by Lender of satisfactory lien, judgment and
standing searches with respect to NEAR and Oldco;
(f) Receipt by Lender of an officer's certificate for NEAR,
showing the names of its officer, directors and shareholders and appending as
exhibits all governing documents and enabling resolutions for this transaction;
(g) Receipt by Lender of an opinion of the counsel to NEAR,
addressed to Lender and in all respects satisfactory to Lender and its counsel;
(h) Receipt by Lender of Uniform Commercial Code Termination
Statements and other documents and instruments of termination and release
necessary so that the security interests granted to Lender by NEAR are first and
prior liens and security interests;
(i) Receipt by Lender of all reasonable fees and expenses
which are payable to its counsel or to third-party providers of services related
to the closing of this transaction; and
(j) Verification, satisfactory to Lender, that the amount paid
by NEAR for the assets of Oldco does not exceed the sum of Five Hundred
Seventy-Five Thousand ($575,000.00) Dollars.
4. MISCELLANEOUS AGREEMENTS OF BORROWER.
Borrower hereby agrees, represents and acknowledges that:
(a) this is an amendment only to the terms and conditions of
the Loan Agreement and not a new loan agreement;
(b) all of the terms and conditions of the Loan Agreement
shall remain in full force and effect to the extent not inconsistent with this
amendment;
-3-
<PAGE>
(c) Borrower is in full compliance with the terms and
conditions of the Loan Agreement and all of the representations and warranties
applicable to each of them set forth in the Loan Agreement are true and correct
as of the date hereof,
(d) as of the close of business on June 30, 1997, the
outstanding principal balance of the Revolving Loan, plus the aggregate undrawn
face amount of all Letters of Credit, was $2,458,666.00; and
(e) such sum is due and payable by Borrower to Lender without
any defense, offset, counterclaim or recoupment whatsoever.
IN WITNESS WHEREOF, the undersigned have set their hands and
seals or caused these presents to be executed by their proper corporate officers
and sealed with their seals the day and year first written above.
BOGEN COMMUNICATIONS, INC.
BY: /s/ Yoav M. Cohen
----------------------------------------
YOAV M. COHEN, Vice President of Finance
NEW ENGLAND AUDIO RESOURCE CORP.
BY: /s/ Yoav M. Cohen
----------------------------------------
YOAV M. COHEN, Treasurer
SUMMIT BANK
By: /s/ Robert Munns
----------------------------------------
ROBERT MUNNS, Vice President
Exhibit 21.1
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.
(b) New England Audio Resource Corp.(2) Delaware New England Audio Resource Corp./NEAR
Speech Design GmbH Gremering, Germany Speech Design GmbH
(c) Satelco AG(3) Switzerland Satelco AG
(d) Speech Design (Israel) Ltd.(4) Israel Speech Design (Israel)
(e) Speech Design (UK) Ltd.(5) United Kingdom Speech Design (UK)
</TABLE>
(1) Bogen Communications, Inc. is a wholly owned subsidiary of Bogen Corporation
(2) New England Audio Resource Corp. is a wholly owned subsidiary of Bogen
Communications, Inc.
(3) Satelco AG is a 67% owned subsidiary of Speech Design GmbH
(4) Speech Design (Israel) Ltd. is a 100% owned subsidiary of Speech Design GmbH
(5) Speech Design (UK) Ltd. is a 100% owned subsidiary of Speech Design GmbH
Exhibit 23.1
Independent Auditors' Consent
The Stockholders and Board of Directors
Bogen Communications International, Inc.:
We consent to the incorporation by reference in the registration statements (No.
333-21245) on Form S-8 and (No. 33-99662) on Form S-3 of Bogen Communications
International, Inc. of our report dated March 18, 1998, relating to the
consolidated balance sheet of Bogen Communications International, Inc. and
subsidiaries as of December 31, 1997, and the related consolidated statements of
operations, changes in stockholders' equity and cash flows for the year then
ended and related financial statement schedules for 1997, which report appears
in the December 31, 1997, annual report on Form 10-K of Bogen Communications
International, Inc. Our report expresses reliance on the report of other
auditors.
KPMG Peat Marwick LLP
Short Hills, New Jersey
March 30, 1998
Exhibit 23.2
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-3 (No. 33-99662) and Form S-8 (No. 333-21245) of
our report dated March 7, 1997, on our audits of the consolidataed financial
statements and financial statement schedules of Bogen Communications
International, Inc. as of December 31, 1996, and for each of the two 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 30, 1998
Exhibit 23.3
INDEPENDENT AUDITORS' CONSENT
To the Stockholders and Board of Directors
Bogen Communications International, Inc.:
We consent to the incorporation by reference in the registration statements
(No. 333-21245) on Form S-8 and (No. 33-99662) on Form S-3 of Bogen
Communications International, Inc of our report dated March 7, 1998, with
respect to the consolidataed balance sheets of Speech Design GmbH and
Subsidiaries as of December 31, 1997 and 1996, and the related statements of
income and cash flows for the two years then ended.
Coopers & Lybrand
Munich, Germany
March 31, 1998
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
To the Stockholders and Board of Directors
Bogen Communications International, Inc.:
We consent to the use of our report included herein dated March 17, 1998, with
respect to the consolidated balance sheets of Speech Design GmbH and
Subsidiaries as of December 31, 1997 and 1996, and the related statements of
income and cash flows for the two years then ended.
Coopers & Lybrand
Munich, Germany
March 31, 1998
Exhibit 23.5
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
of Speech Design GmbH
We have audited the consolidated balance sheets of Speech Design Gmbh and
Subsidiaries as of December 31, 1997 and 1996, adn the related statements of
income and cash flows for the two years in the period ended December 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above fairly,
in all material respects, the consolidated financial position of Speech Design
GmbH and Subsidiaries as of December 31, 1997 and 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1997, in conformity with accounting principles
generally accepted in the United States of America.
Coopers & Lybrand
Munich, Germany
March 17, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 964
<SECURITIES> 0
<RECEIVABLES> 6,667
<ALLOWANCES> 376
<INVENTORY> 8,285
<CURRENT-ASSETS> 16,008
<PP&E> 2,136
<DEPRECIATION> 0
<TOTAL-ASSETS> 31,970
<CURRENT-LIABILITIES> 8,773
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 21,420
<TOTAL-LIABILITY-AND-EQUITY> 31,970
<SALES> 49,779
<TOTAL-REVENUES> 49,779
<CGS> 26,685
<TOTAL-COSTS> 18,001
<OTHER-EXPENSES> 505
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 429
<INCOME-PRETAX> 4,159
<INCOME-TAX> 1,494
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,487
<EPS-PRIMARY> 0.46
<EPS-DILUTED> 0.46
</TABLE>
