UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 2000
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
COMMISSION FILE NUMBER: 0-22046
Bogen Communications International, Inc.
(Exact name of registrant as specified in its charter)
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Delaware 38-3114641
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(State or other jurisdiction of
incorporation or organization) (IRS Employer Identification Number)
50 Spring Street, Ramsey, New Jersey 07446
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(Address of principal executive offices) (Zip Code)
(201) 934-8500
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year, if changed since
last report)
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
--- ---
As of November 6, 2000, 10,112,956 shares of the registrant's common stock, par
value $.001 per share, were outstanding.
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC.
AND SUBSIDIARIES
INDEX
PAGE
PART 1. FINANCIAL INFORMATION:
Item 1. Financial Statements
o Consolidated Balance Sheets as of September 30, 2000
and December 31, 1999 3
o Consolidated Statements of Operations for the three
and nine months ended September 30, 2000 and 1999 4
o Consolidated Statement of Changes in Stockholders'
Equity for the nine months ended September 30, 2000 5
o Consolidated Statements of Cash Flows for the nine
months ended September 30, 2000 and 1999 6
o Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3. Market Risk Discussion 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 15
Item 2. Changes in Securities 15
Item 3. Defaults Upon Senior Securities 15
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 16
Item 6. Exhibits and Reports on Form 8-K 16
2
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,023 $ 792
Accounts receivable (less allowance for doubtful accounts of $869 and $650
at September 30, 2000, and December 31, 1999, respectively) 9,220 8,455
Inventories, net 14,268 9,310
Prepaid expenses and other current assets 1,201 658
Deferred income taxes 958 882
------------- -------------
TOTAL CURRENT ASSETS 35,670 20,097
Equipment and leasehold improvements, net 4,227 3,837
Goodwill and intangible assets, net 18,976 19,730
Other assets 361 214
------------- -------------
TOTAL ASSETS $ 59,234 $ 43,878
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Amounts outstanding under revolving credit agreements $ 664 $ 2,339
Current maturities of capital lease obligations 243 224
Accounts payable 2,226 4,199
Accrued expenses 3,305 3,167
Income taxes payable 824 1,431
------------- -------------
TOTAL CURRENT LIABILITIES 7,262 11,360
Advances and notes payable to related parties 178 194
Deferred income taxes 1,024 1,024
Capital lease obligations 355 505
------------- -------------
TOTAL LIABILITIES 8,819 13,083
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 1,000,000 shares authorized; none issued and
outstanding at September 30, 2000 or December 31, 1999 - -
Common stock - $.001 par value; 50,000,000 shares authorized; 10,087,756 and 6,784,121
shares outstanding at September 30, 2000, and December 31, 1999, respectively 10 7
Additional paid-in-capital 48,123 30,093
Retained earnings 3,556 1,252
Accumulated other comprehensive loss (1,242) (557)
Treasury stock at cost- 3,572 shares at September 30, 2000 (32) -
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 50,415 30,795
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 59,234 $ 43,878
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
--------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 16,548 $ 16,045 $ 50,089 $ 42,328
Cost of goods sold 7,889 7,520 24,512 20,293
--------------- --------------- --------------- --------------
Gross profit 8,659 8,525 25,577 22,035
Operating expenses:
Research and development 530 1,109 2,296 3,096
Selling, general and administrative 6,051 4,936 18,479 13,606
Amortization of goodwill and intangible assets 235 192 714 545
--------------- --------------- --------------- --------------
Income from operations 1,843 2,288 4,088 4,788
Other (income) expenses, net:
Interest (income) expense, net (97) 41 (173) 126
Other income, net (50) (8) (29) (5)
--------------- --------------- --------------- --------------
Income before provision for income taxes 1,990 2,255 4,290 4,667
Provision for income taxes 860 677 1,986 1,483
--------------- --------------- --------------- --------------
Net income $ 1,130 $ 1,578 $ 2,304 $ 3,184
=============== =============== =============== ==============
Basic net income per common share $ 0.11 $ 0.24 $ 0.26 $ 0.48
=============== =============== =============== ==============
Diluted net income per common share $ 0.11 $ 0.22 $ 0.25 $ 0.41
=============== =============== =============== ==============
Weighted average number of common
shares outstanding-Basic 10,040,409 6,709,971 8,866,714 6,690,859
=============== =============== =============== ==============
Weighted average number of common
shares outstanding-Diluted 10,170,004 7,245,594 9,381,388 7,765,915
=============== =============== =============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK ACCUMULATE
--------------------------- ADDITIONAL OTHER
NUMBER OF PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS LOSS
------------- ------------ ------------ ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1999 6,784,121 $ 7 $ 30,093 $ 1,252 $ (557)
Proceeds from sales of 3,303,635 3 18,030
Options and Warrants
Treasury Stock
COMPREHENSIVE INCOME:
Net income 2,304
Translation adjustments (685)
Total comprehensive income
------------- ------------ ------------ ------------ -----------
Balance at September 30, 2000 10,087,756 $ 10 $ 48,123 $ 3,556 $ (1,242)
============= ============ ============ ============ ===========
<CAPTION>
TREASURY STOCK
--------------
NUMBER OF
SHARES AMOUNT TOTAL
------------- ------------ ------------
<S> <C> <C> <C>
Balance at December 31, 1999 - $ - $ 30,795
Proceeds from sales of 18,033
Options and Warrants
Treasury Stock 3,572 (32) (32)
COMPREHENSIVE INCOME:
Net income
Translation adjustments
Total comprehensive income 1,619
------------- ------------ ------------
Balance at September 30, 2000 3,572 $ (32) $ 50,415
============= ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,304 $ 3,184
Adjustments to reconcile net income to net
cash used in operating activities:
Depreciation and amortization 1,204 689
Amortization of goodwill and intangible assets 714 545
Provisions for doubtful accounts and
inventory obsolescence 383 (488)
Utilization of pre-acquisition NOL charged to goodwill - 34
Deferred income taxes (80) 105
Changes in operating assets and liabilities (net of effects from
acquisitions):
Accounts receivable (1,295) (3,479)
Inventories (5,525) 546
Prepaid expenses and other current assets (535) (1,234)
Accounts payable and other current liabilities (2,093) 131
Other (178) (21)
------------- -------------
Net cash (used in) operating activities (5,101) 12
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements (1,725) (901)
Acquisition of intangibles (313) -
------------- -------------
Net cash used in investing activities (2,038) (901)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sales of common stock and warrants 18,033 234
Principal payments under capital lease obligations (178) -
(Decrease) increase in borrowings under revolving credit agreements (1,565) 356
------------- -------------
Net cash provided by financing activities 16,290 590
------------- -------------
Effects of foreign exchange rate on cash 80 (104)
------------- -------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 9,231 (403)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 792 1,048
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 10,023 $ 645
============= =============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ 135 $ 116
Cash paid for income taxes 2,448 1,208
NON-CASH FINANCING ACTIVITIES
Capital lease obligations related to new office equipment $ 59 -
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet of Bogen Communications International,
Inc. and its subsidiaries (the "Company") as of December 31, 1999 has
been derived from the audited consolidated balance sheet contained in
the Company's Annual Report on Form 10-K and is presented for
comparative purposes. The consolidated balance sheet as of September
30, 2000, the consolidated statements of operations for the three and
nine months ended September 30, 2000 and 1999, and the consolidated
statements of cash flows and the consolidated statement of changes in
stockholders' equity for the nine months ended September 30, 2000, are
unaudited. In the opinion of management, all significant adjustments,
including normal recurring adjustments necessary to present fairly the
financial position, results of operations and cash flows for all
periods presented have been made. Certain prior year balances have been
reclassified to conform to the current year's presentation. The results
of operations for interim periods are not necessarily indicative of the
operating results for the full year.
Footnote disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
substantially omitted in accordance with the published rules and
regulations of the Securities and Exchange Commission ("SEC"). These
consolidated financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999.
2. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the
accounts of the Company's 99.3% owned subsidiary, Bogen Corporation
("Bogen"); Bogen's wholly-owned subsidiary, Bogen Communications, Inc.
("BCI"); BCI's wholly-owned subsidiaries: New England Audio Resource
Corp. ("NEAR") and Apogee Sound International, LLC ("Apogee"); the
Company's wholly-owned subsidiary, Speech Design GmbH ("Speech
Design"); Speech Design's 67% owned subsidiary, Satelco AG ("Satelco");
and Speech Design's wholly-owned subsidiaries: Speech Design (Israel),
Ltd.; Speech Design (UK), Ltd., and Digitronic Computersysteme GmbH
("Digitronic"). All significant inter-company 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 are recorded as minority
interest.
3. COMPREHENSIVE INCOME
Comprehensive income has been calculated in accordance with the
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income". The Company has determined total comprehensive
income to be $674 and $1,619 for the three and nine months ended
September 30, 2000, respectively, and total comprehensive income to be
$1,691 and $2,939 for the three and nine months ended September 30,
1999. The Company's total comprehensive income represents net income
plus the change in the cumulative translation adjustment equity account
for the periods presented.
4. SEGMENTS
The Company operates in two reportable business segments, Bogen
(domestic) and Speech Design (foreign). The domestic segment is
primarily engaged in commercial and engineered sound equipment and
telecommunications peripherals. The foreign segment focuses on digital
voice processing systems for the mid-sized PBX market and in unified
messaging products and services, targeting the rapidly growing European
voice processing and unified messaging markets.
7
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
The following table presents information about the Company by segment area.
Inter-segment revenues and transfers are not considered material:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, 2000 SEPTEMBER 30, 1999
------------------ ------------------ ------------------
BOGEN SPEECH DESIGN BOGEN SPEECH DESIGN
----- ------------- ----- -------------
<S> <C> <C> <C> <C>
Revenue from external customers $ 12,092 $ 4,456 $ 10,594 $ 5,451
Operating profit 1,491 559 1,807 697
NINE MONTHS ENDED
Revenue from external customers $ 35,700 $ 14,389 $ 26,447 $ 15,881
Operating profit 3,224 1,518 3,426 1,912
</TABLE>
A reconciliation of reportable segment operating profit to the Company's
consolidated totals for the three and nine months ended September 30, 2000 and
1999, are as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating profit
Total operating profit for
reportable segments $ 2,050 $ 2,504 $ 4,742 $ 5,338
Other corporate expenses (207) (216) (654) (550)
------ ------- ------- -------
Operating profit $ 1,843 $ 2,288 $ 4,088 $ 4,788
====== ======= ======= =======
</TABLE>
5. INVENTORIES
Inventories are stated at the lower of cost or market and are valued using the
first-in, first-out method. As of September 30, 2000, and December 31, 1999,
inventories are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
------------------ ----------------
<S> <C> <C>
Raw materials and supplies $ 3,640 $ 3,649
Work in progress 738 770
Finished goods 9,890 4,891
------- -------
Total $ 14,268 $ 9,310
======= =======
</TABLE>
8
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
6. INCOME PER SHARE
Income per common share ("EPS") has been computed based upon SFAS No.
128, "Earnings Per Share". Basic EPS is calculated by dividing net
income 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 available to common shareholders by
the weighted-average number of common shares outstanding and all
potential common shares, consisting of outstanding warrants and stock
options, for the periods presented.
7. INCOME TAX
Domestic and foreign earnings before taxes on income from operations
include income derived from operations in the respective U.S. and
foreign geographic areas, whereas provisions for taxes on income
include all income taxes payable to U.S., foreign and other governments
as applicable. Income tax expense for the first nine months of fiscal
2000 and 1999 differs from the amount computed by applying the U.S.
federal statutory rates due to higher tax rates in Europe for which no
U.S. tax benefit has been provided and the utilization of U.S.
pre-acquisition loss carryforwards for which the benefit reduces
goodwill. In accordance with SFAS No. 109, "Accounting for Income
Taxes", the Company has established a valuation allowance covering
certain of its net deferred tax assets as of September 30, 2000 and
December 31, 1999. The valuation allowance was established due to the
uncertainty of the realization of the deferred tax assets. A 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.
8. REVOLVING CREDIT AGREEMENTS
On April 21, 1998, BCI and the Company entered into a $27,000 credit
facility (the "New Facility") with KeyBank N.A., which matures on
April 30, 2001. The New Facility replaces a previous facility. The New
Facility provides, subject to certain criteria, a $20,000 revolving
line for acquisition financing and a $7,000 working capital line. The
New Facility bears interest at either the bank's prime rate or, at the
Company's option, LIBOR plus 125 to 200 basis points, based on certain
financial conditions. At September 30, 2000, there were no borrowings
under either the working capital line of the New Facility or the
acquisition revolving line.
Speech Design has short-term credit lines and overdraft facilities of
approximately 8,000 DM, or $3,600, from three area banks. These lines
of credit are collateralized by all of Speech Design's accounts
receivable and inventory. At September 30, 2000, 1,477 DM
(approximately $664) was outstanding under the short-term credit lines.
Speech Design has also secured 15,000 DM (approximately $6,750) credit
facility for acquisition financing from D.G. Bank of Frankfurt. The
interest rate under the new credit facility is up to 200 basis points
above the German LIBOR rate. There were no borrowings under the
acquisition financing line at September 30, 2000.
9
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(UNAUDITED)
As of September 30, 2000, and December 31, 1999, total outstanding
lines of credit are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
2000 1999
-------------- --------------
<S> <C> <C>
Domestic Lines of Credit Utilized $ 0 $1,150
Foreign Lines of Credit Utilized 664 1,189
----- -----
$664 $2,339
=== =====
</TABLE>
9. WARRANT CALL
On March 31, 2000, the Company announced that it had determined to call
all outstanding Redeemable Common Stock Purchase Warrants for
redemption for $0.01 per Warrant, effective May 1, 2000. Such
redemption was authorized by the terms of the Warrant Agreement dated
as of October 7, 1993, following any period of twenty trading days on
which the Company's Common Stock market price closes at $10 per share
or higher. As a result of the Warrant call, 3,395,385 Warrants were
exercised and the remaining 64,615 Warrants were cancelled.
10. FORWARD CONTRACTS
The Company enters into forward foreign exchange contracts principally
to serve as economic hedges of the currency risk associated with the
purchase of inventory. Gains or losses related to contracts accounted
for as hedges are deferred until the contracts mature.
11. TREASURY STOCK
In conjunction with the final adjustments related to the 1998
acquisition of Speech Design GmbH minority interest, during the quarter
ended September 30, 2000, 3,572 shares of the Company's common stock
previously held in escrow were returned to the Company and recorded as
treasury stock.
ALL STATEMENTS CONTAINED HEREIN THAT ARE NOT HISTORICAL FACTS, INCLUDING, BUT
NOT LIMITED TO, STATEMENTS REGARDING BOGEN COMMUNICATIONS INTERNATIONAL, INC.
AND ITS SUBSIDIARIES, (COLLECTIVELY THE "COMPANY"), AND ITS 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, INCLUDING, BUT NOT LIMITED TO, THE
INTRODUCTION AND DEVELOPMENT OF THE COMPANY'S PRODUCTS; CHANGES IN LABOR,
EQUIPMENT AND CAPITAL COSTS; CHANGES IN ACCESS TO SUPPLIERS AND SUB-CONTRACTORS,
INCLUDING THE RECURRENCE OF INSTABILITY IN ASIA WHICH MAY ADVERSELY AFFECT THE
COMPANY'S SUPPLIERS AND SUBCONTRACTORS; CURRENCY FLUCTUATIONS; CHANGES IN UNITED
STATES AND FOREIGN 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; EMPLOYEE TURNOVER; ISSUES RELATING TO THE COMPANY'S INTERNAL SYSTEMS;
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 ARE MADE PURSUANT TO THE PRIVATE LITIGATION REFORM ACT OF 1995 AND, AS
SUCH, SPEAK ONLY AS OF THE DATE MADE.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion addresses the financial condition of the Company as of
September 30, 2000, and the results of its operations for the three and
nine-month periods ended September 30, 2000, compared to the same periods last
year. The discussion should be read in conjunction with Management's Discussion
and Analysis of Financial Condition and Results of Operations for the fiscal
year ended December 31, 1999, included in the Company's 1999 Annual Report on
Form 10-K for the year ended December 31, 1999.
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES
Net sales increased by $503 or 3.1% to $16,548 for the three months ended
September 30, 2000, as compared to $16,045 for the same period in 1999. The
increase came from growth in the Company's domestic product lines of
approximately 9% and the inclusion of Apogee, which was acquired in the third
quarter of 1999. Apogee had revenues of $1,172 in the third quarter of 2000 and
$563 in the same period in 1999. In U.S. dollars, Speech Design revenues
decreased approximately 18%.
Net sales from the Commercial Audio product line, including the Apogee product
line, increased to $3,831 for the three months ended September 30, 2000, or 5.2%
over net sales of $3,640 for the same period in 1999. Excluding Apogee, sales
from the Commercial Audio product line decreased $419 when compared to the same
period in 1999. Net sales from the Engineered Systems product line increased to
$3,743 for the three months ended September 30, 2000, or 10.5% over net sales of
$3,386 for the same period in 1999. Net sales from the Telco product line
decreased to $8,974 for the three months ended September 30, 2000, from net
sales of $9,019 for the same period in 1999. The Telco product line includes
foreign sales from Speech Design. Domestic sales increased to $4,518 for the
three months ended September 30, 2000, or 26.6% from net sales of $3,568 for the
three months ended September 30, 1999. Foreign sales translated into U.S.
dollars decreased to $4,456 for the three months ended September 30, 2000, or
18.3% below net sales of $5,451 for the same period in 1999. Foreign net sales
stated in local currency were 9,645 Deutsche Marks ("DM") for the three months
ended September 30, 2000, 5.1% below net sales of 10,163 DM for the three months
ended September 30, 1999.
GROSS PROFIT
Gross profit increased to $8,659, or 52.3% as a percentage of total net sales,
for the three months ended September 30, 2000, compared to $8,525, or 53.1% for
the same period in 1999. Excluding the Apogee product line, which has
historically lower profit margins, gross profit as a percentage of sales rose to
54%. Additionally, a greater proportion of sales was generated by the domestic
business segment, which generates lower gross profit margins than the foreign
business segment, compared to the same period last year.
Bogen's gross profit increased to $5,829, or 48.2% of sales, in the third
quarter of 2000 from $5,262, or 49.7% of sales, in the third quarter of 1999.
The improvement is attributable in part to cost reductions achieved throughout
1999 and the better absorption of fixed costs related to sales volume, offset by
the aforementioned lower margins on the Apogee product line.
Speech Design's gross profit as a percent of sales increased to 63.5% in the
third quarter of 2000 from 59.9% of sales in the third quarter of 1999. The
increase is partially attributable to better margins on Speech Design's
Teleserver Pro TM and Thor TM product lines. Speech Design's gross profit in
local currency was basically flat compared to the prior year.
11
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, General and Administrative Expenses ("SG&A") increased by $1,115 or
22.6%, for the three months ended September 30, 2000, compared to the same
period in 1999. SG&A was $6,051, or 36.6% of net sales in 2000, as compared to
$4,936, or 30.8% of net sales in 1999. SG&A expenses include $397 of additional
costs due to the inclusion of Apogee for the full quarter. Approximately $306
represents sales and support costs incurred as a result of the original
equipment manufacturers (OEM) agreement with Lucent Technologies which was
established late in 1999. The remainder of the increase represents the
establishment of a sales force at Speech Design to address the PABX
after-market, investment in Speech Design's Unified Messaging business,
increased depreciation and maintenance related to the 1999 installation of an
Enterprise Resource Planning (ERP) system in the United States, and the
increased expense necessary to support the higher sales levels, in particular
sales and administrative compensation and its related costs.
RESEARCH AND DEVELOPMENT
The Company's Research and Development ("R&D") programs are designed to
efficiently introduce innovative products in a timely manner. R&D expense was
$530, or 3.2% of net sales, for the three months ended September 30, 2000, as
compared to $1,109 or 6.9% of net sales, for the three months ended September
30, 1999. The reduction in the third quarter 2000 is primarily due to the
reimbursement of certain development costs from customers.
INTEREST EXPENSE, NET
Net interest income was $97 for the three months ended September 30, 2000, as
compared to net interest expense of $41 for the three months ended September 30,
1999. The increase in interest income primarily reflects the Company's
investment of the net cash proceeds from the warrants exercised in the first
half of 2000.
INCOME TAXES
Income tax expense increased by $183 for the three months ended September 30,
2000, to $860, as compared to $677 for the comparable period in 1999. The
increase is primarily the result of the reduction of a portion of the U.S.
operation's valuation allowance in 1999, which did not recur in 2000.
GOODWILL AND INTANGIBLE ASSET AMORTIZATION
On August 26, 1999, Bogen Communications, Inc. through ASI Acquistions, LLC, a
newly formed Bogen subsidiary, acquired substantially all of the assets of
Apogee Sound, Inc., a privately-owned company headquartered in Petaluma,
California. Consideration for the acquisition was the assumption of payment of
approximately $2.6 million of Apogee Sound Inc.'s liabilities. The acquisition
has been accounted for by the purchase method of accounting and accordingly, the
purchase price has been allocated to the assets acquired and liabilities assumed
based on estimate of fair market values at the date of acquisition. In
connection with the acquisition, the Company has recorded a non-cash investment
in goodwill of approximately $1,836. The increase in amortization of goodwill
and intangible assets for the three months ended September 30, 2000, from the
same period in 1999 is primarily attributable to the Apogee acquisition.
NINE MONTHS ENDED SEPTEMBER 30, 2000, COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1999
NET SALES
Net sales increased by $7,761 or 18.3% to $50,089 for the nine months ended
September 30, 2000, as compared to $42,328 for the same period in 1999. The
increase came from growth in the Company's domestic product lines of
approximately 20% and the inclusion of Apogee, which was acquired in the third
quarter of 1999. Apogee had revenues of $4,738 in 2000 versus $563 in 1999. In
U.S. dollars, Speech Design revenues decreased approximately 9%.
12
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Net sales from the Commercial Audio product line, including the Apogee product
line, increased to $12,206 for the nine months ended September 30, 2000, or
24.4% over net sales of $9,813 for the same period in 1999. Excluding Apogee,
sales from the Commercial Audio product line decreased $1,782 when compared to
the same period in 1999. Net sales from the Engineered Systems product line
increased to $10,043 for the nine months ended September 30, 2000, or 32.1% over
net sales of $7,602 for the same period in 1999. Net sales from the Telco
product line increased to $27,840 for the nine months ended September 30, 2000,
or 11.7% from net sales of $24,913 for the same period in 1999. The Telco
product line includes foreign sales from Speech Design. Domestic sales increased
to $10,202 for the nine months ended September 30, 2000, or 13.0% from net sales
of $9,032 for the nine months ended September 30, 1999. Foreign sales translated
into U.S. dollars decreased to $14,389 for the nine months ended September 30,
2000, or 9.4% below net sales of $15,881 for the same period in 1999. However,
foreign net sales stated in local currency increased to 29,913 Deutsche Marks
("DM") for the nine months ended September 30, 2000, or 2.4% over net sales of
29,219 DM for the nine months ended September 30, 1999.
GROSS PROFIT
Gross profit, increased to $25,577, or 51.1% as a percentage of total net sales,
for the nine months ended September 30, 2000, compared to $22,035, or 52.1% for
the same period in 1999. Excluding the Apogee product line, which has
historically lower profit margins, gross profit as a percentage of sales rose to
53.1%. Additionally, a greater proportion of sales was generated by the domestic
business segment, which generates lower gross profit margins than the foreign
business segment, compared to the same period last year.
Bogen's gross profit increased to $16,695 or 46.8% of sales, in the first nine
months of 2000 from $12,605, or 47.7% of sales, in the first nine months of
1999. The improvement is attributable in part to cost reductions achieved
throughout 1999 and the better absorption of fixed costs relative to sales
volume, offset by lower margins on the Apogee product line.
Speech Design's gross profit increased to 61.7% of sales in the first nine
months of 2000, up from 59.4% of sales in the comparable period of 1999. The
increase is partially attributable to better margins on Speech Design's
Teleserver Pro TM and Thor TM product lines. Speech Design's gross profit in
local currency increased 1,112 DM, or 6.4%.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, General and Administrative Expenses ("SG&A") increased by $4,873, or
35.8%, for the nine months ended September 30, 2000, from the nine months ended
September 30, 1999. SG&A was $18,479, or 36.9% of net sales, for the nine months
ended September 30, 2000, as compared to $13,606, or 32.1% of net sales, in
1999. SG&A expenses include $1,500 of additional costs due to the inclusion of
Apogee in 1999. Approximately $1,050 represents the increase of sales and
support costs incurred as a result of the original equipment (OEM) agreement
with Lucent Technologies, which was established late in 1999. The remainder of
the increase represents the establishment of a sales force at Speech Design to
address the PABX after-market, investment in Speech Design's Unified Messaging
business, increased depreciation and maintenance related to the 1999
installation of an Enterprise Resource Planning (ERP) system in the United
States, and the increased expense necessary to support the higher sales levels,
in particular sales and administrative compensation and its related costs.
RESEARCH AND DEVELOPMENT
The Company's Research and Development ("R&D") programs are designed to
efficiently introduce innovative products in a timely manner, R&D expense was
$2,296, or 4.6% of net sales for the nine months ended September 30, 2000, as
compared to $3,096 or 7.3% of net sales for the comparable period in 1999. The
reduction for the nine months ended September 30, 2000, versus the prior year is
primarily due to the reimbursement of certain development costs from customers.
13
<PAGE>
INTEREST EXPENSE, NET
Net interest income was $173 for the nine months ended September 30, 2000, as
compared to net interest expense of $126 for the nine months ended September 30,
1999. The increase in interest income primarily reflects the Company's
investment of the net cash proceeds from the warrants exercised in the first
half of 2000.
INCOME TAXES
Income tax expense increased by $503 for the nine months ended September 30,
2000, to $1,986, as compared to $1,483 for the comparable period in 1999. The
increase is primarily the result of the reduction of a portion of the U.S.
operation's valuation allowance in 1999, which did not recur in 2000.
Additionally, a higher foreign effective tax rate has contributed to the
increase.
GOODWILL AND INTANGIBLE ASSET AMORTIZATION
The increase in amortization of goodwill and intangible assets for the nine
months ended September 30, 2000, from the same period in 1999 is primarily
attributable to the August 1999 Apogee acquisition.
LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2000, cash utilization was focused on
working capital requirements, including inventory stock levels, the pay-down of
accounts payable, accrued expenses and tax payments, and the purchase of
equipment and other fixed assets.
The Company's operating activities utilized $5,101 of cash. The Company's net
income of $2,304 includes net non-cash charges of $2,221, which were (i)
depreciation and amortization expenses of $1,918 and (ii) an increase of $383
for inventory reserves and allowance for doubtful accounts, offset by (iii)
deferred income tax benefits of $80. Accounts receivable increased $1,295;
inventories increased $5,525, prepaid expenses and other assets increased $535;
accounts payable and accrued expenses decreased $2,093; and net changes in other
operating assets and liabilities were $178.
Net cash used in investing activities amounted to $2,038, including $1,725 for
the purchase of equipment, computer hardware and software, and other fixed
assets and $313 for intangible assets.
Net cash provided by financing activities amounted to $16,290. The Company
received $18,033 from the exercise of warrants, which were partly offset by
repayments of $178 on capitalized lease obligations and $1,565 of existing lines
of credit.
As of September 30, 2000, the Company's total liabilities were $8,819, of which
$7,262 is due and payable within one year.
On April 21, 1998, BCI and the Company entered into a $27,000 credit facility
(the "New Facility") with KeyBank N.A., which matures on April 30, 2001. The New
Facility replaces a previous facility. The New Facility provides, subject to
certain criteria, a $20,000 revolving line for acquisition financing and a
$7,000 working capital line. The New Facility bears interest at either the
bank's prime rate or, at the Company's option, LIBOR plus 125 to 200 basis
points, based on certain financial conditions. At September 30, there were no
borrowings under either the working capital line of the New Facility or the
acquisition revolving line.
Speech Design has short-term credit lines and overdraft facilities of
approximately 8,000 DM, or $3,600 from three banks. These lines of credit are
collateralized by all of Speech Design's accounts receivable and inventory. At
September 30, 2000, 1,477 DM (approximately $664) was outstanding under the
short-term credit lines.
14
<PAGE>
Speech Design has also secured a 15,000 DM (approximately $6,750) credit
facility for acquisition financing from D.G. Bank of Frankfurt. The interest
rate under the new credit facility is up to 200 basis points above the German
LIBOR rate. There were no borrowings under the acquisition financing line at
September 30, 2000.
The Company believes that it has adequate liquidity to finance its normal
business activities and capital expenditures for the near term.
OTHER MATTERS
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, SFAS No. 133 "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES", was issued to establish standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. This statement was amended so that it is
effective for all quarters of fiscal years beginning after June 15, 2000. The
Company does not believe that this statement will have a material impact on the
consolidated financial statements.
ITEM 3. MARKET RISK DISCUSSION
Since the Company operates on a global basis, it is exposed to various foreign
currency risks, primarily from the operations of the Company's German
subsidiary, Speech Design. The Company's consolidated financial statements are
denominated in U.S. dollars, whereas Speech Design and its subsidiaries are
denominated in various foreign currencies, as follows: Speech Design's currency
is the DM, Satelco's currency is the Swiss Franc, Speech Design U.K.'s currency
is the British Pound and Speech Design Israel's currency is the Israeli Shekel.
All Speech Design subsidiaries' financial statements are first translated into
DM; then Speech Design's consolidated financial statements are translated into
U.S. dollars.
Accordingly, changes in exchange rates between the applicable foreign currency
and the DM, and changes in the exchange rates between the DM and the U.S. dollar
will affect the translation of each foreign subsidiary's financial results into
U.S. dollars for the purposes of reporting the Company's consolidated financial
results.
The above discussion should be read in conjunction with Management's discussion
of market risk as reported on Form 10-K for the year ended December 31, 1999,
filed with the Securities and Exchange Commission on March 30, 2000.
PART II - OTHER INFORMATION
ITEM 1. 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 2. CHANGES IN SECURITIES
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
15
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None
16
<PAGE>
EXHIBIT INDEX
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 Amendment to Unit Purchase Option Granted to GKN Securities
Corp. (12)
10.1 Form of Agency Agreement, dated as of June 28, 1993, between
the Company and GKN Securities Corp. (without schedules) (1)
10.2 Form of Indemnification Agreement between the Company and its
officers, directors and advisors. (4)
10.3 Summary of Agreement for Business Credit between Speech Design
GmbH and Statelparkasse Munchen. (6)
10.4 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. (9)
10.5 Stock Purchase Agreement, dated November 26, 1997, between the
Company and Geotek. (7)
10.6 Convertible Preferred Stock Purchase Agreement, dated November
26, 1997, between the Company and the Investors. (7)
10.7 Employment Agreement, dated November 26, 1997, between the
Company and Mr. Jonathan Guss. (7)
17
<PAGE>
10.8 Employment Agreement, dated November 26, 1997, between the
Company and Mr. Michael Fleischer.(7)
10.9 Option Agreement, dated November 26, 1997, between the Company
and Mr. Jonathan Guss. (7)
10.10 Option Agreement, dated November 26, 1997, between the Company
and Mr. Michael Fleischer. (7)
10.11 Common Stock and Warrant Purchase Agreement, dated November
26, 1997 between the Company and D&S Capital, LLC. (7)
10.12 Warrant, dated November 26, 1997, issued by the Company to D&S
Capital, LLC. (7)
10.14 Warrant Purchase Agreement, dated as of November 28, 1997,
between Helix Capital II, LLC and Bogen Communications
International, Inc. (8)
10.15 Warrant, dated November 28, 1997, issued by Bogen
Communications International, Inc. to Helix Capital II,
LLC. (8)
10.16 Share Transfer Agreement, dated May 20, 1998, by and among
Bogen Communications International, Inc., Kasimir Arciszewski
and Hans Meiler. (10)
10.17 Management Agreement, dated May 20, 1998, between Speech
Design GmbH and Kasimir Arciszewski. (10)
10.18 Management Agreement, dated May 20, 1998, between Speech
Design GmbH and Hans Meiler.
10.19 Credit Agreement, dated as of April 21, 1998, among Bogen
Communications International, Inc., Bogen Communications,
Inc., various financial institutions and KeyBank National
Association. (10)
10.20 Guaranty of Payment and Performance, dated April 21, 1998, by
Bogen Corporation. (10)
10.21 Guaranty of Payment and Performance, dated April 21, 1998, by
New England Audio Resource Corp. (10)
10.22 Security Agreement, dated April 21, 1998, by Bogen
Communications International, Inc. in favor of KeyBank
National Association. (10)
10.23 Security Agreement, dated April 21, 1998, by Bogen
Communications, Inc. in favor of KeyBank National Association.
(10)
10.24 Security Agreement, dated April 21, 1998, by Bogen Corporation
in favor of KeyBank National Association. (10)
10.25 Security Agreement, dated April 21, 1998, by New England Audio
Resource Corp. in favor of KeyBank National Association. (10)
10.26 Borrower Pledge Agreement, dated April 21, 1998, by and
between Bogen Communications International, Inc. and KeyBank
National Association. (10)
10.27 Borrower Pledge Agreement, dated April 21, 1998, by and
between Bogen Communications International, Inc. and KeyBank
National Association. (10)
18
<PAGE>
10.28 Guarantor Pledge Agreement, dated April 21, 1998, by and
between Bogen Corporation and KeyBank National
Association.(10)
10.29 Guarantor Pledge Agreement, dated April 21, 1998, by and
between Bogen Communications, Inc. and KeyBank National
Association. (10)
10.30 Term Sheet for Acquisition Line, dated September 18, 1998,
between Speech Design GmbH and DG Bank. (11)
10.31 Amended and Restated Mergers and Acquisition Engagement
Agreement, dated as of October 1, 1998, between Helix Capital
Services, Inc. and Bogen Communications International, Inc.
(11)
10.32 Mergers and Acquisition Engagement Agreement, dated as of
October 1, 1998, between Speech Design GmbH and Helix Capital
Services, Inc. (11)
10.33 Amendment to Employment Agreement dated November 26, 1997
between the Company and Mr. Jonathon Guss. (12)
10.34 Amendment to Employment Agreement dated November 26, 1997
between the Company and Mr. Michael Fleischer. (12)
*10.35 Bogen Communications International, Inc. Amended and Restated
Stock Incentive Plan
*27.1 Financial Data Schedule
------------
*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 to the Exhibits to the Company's
Current Report on Form 8-K, dated December 12, 1997.
9. Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31,
1997.
10.Incorporated by reference to the Exhibits to the Company's
Current Registration Form 8-K, dated May 20, 1998.
11.Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998.
12.Incorporated by reference to the Exhibits to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999.
19
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
(Registrant)
Date: November 13, 2000 By: /s/ Michael P. Fleischer
-------------------------------------
Name: Michael P. Fleischer
Title: President
Date: November 13, 2000 By: /s/ Maureen A. Flotard
-------------------------------------
Name: Maureen A. Flotard
Title: Acting Chief Financial Officer
(Principal Financial and
Accounting Officer
<PAGE>
BOGEN COMMUNICATIONS INTERNATIONAL INC.
STOCK INCENTIVE PLAN AMENDED AND RESTATED
AS OF MARCH 29, 2000
1. PURPOSE OF THE PLAN. The purpose of this Stock Option Incentive Plan
("Plan") of Bogen Communications International Inc. (the "Company"), is to
promote the interests of the Company by providing incentives to enable the
Company to attract and retain employees and executives of high quality and to
encourage them to acquire or increase their proprietary interest in the Company
and to maximize the Company's performance during the term of their employment or
period of service with the Company.
2. DEFINITIONS. As used in the Plan, unless the context requires
otherwise, the following terms shall have the following meanings:
(a) "Award" shall mean the grant of any Option or Restricted Share
Award made hereunder.
(b) "Board" shall mean the Board of Directors of the Company.
(c) The "Committee" shall mean a committee composed of two or more
members of the Board at least of majority of whom shall be "Outside Directors"
for the purpose of any regulatory requirements then applicable to the attain any
desired beneficial tax or securities trading treatment available to the
optionee, including Section 162 (m) of the Code.
(d) "Common Stock" shall mean the common stock, par value $.001 per
share of the Company, or if, pursuant to the adjustment provisions set forth in
Section 11 hereof, another security is substituted for, or issuable in
connection with ownership of the Common Stock, such other additional security.
<PAGE>
(e) "Fair Market Value" shall mean the fair market value of the
Common Stock on the Grant Date (as hereinafter defined) or other relevant date.
If on such date the Common Stock is listed on a stock exchange or is quoted on
the National Market segment of the Nasdaq Stock Market (the "National Market"),
the Fair Market Value shall be the closing sale price (or if such price is
unavailable, the average of the high bid price and the low asked price) on such
date. If on such date the Common Stock is traded in the over the counter market
(but not on the National Market), the Fair Market Value shall be the average of
the high bid and the low asked price on such date (or if there are no reported
bid and asked prices on the Grant Date, then the average between the high bid
price and the low asked price on the next preceding day for which such
quotations exist). If the Common Stock is neither listed or admitted to trading
on any stock exchange, quoted on the National Market or traded in the over the
counter market, the Fair Market Value shall be determined in good faith by the
Committee in accordance with generally accepted valuation principles and such
other factors as the Committee reasonably deems relevant.
(f) "Grant Date" shall mean the date on which an Award is granted.
(g) "Option" shall mean the right, granted pursuant to the Plan, to
purchase one or more shares of Common Stock. "Incentive Stock Option" shall mean
an Option granted pursuant to Section 6(I) hereof and intended to be qualified
for incentive stock option treatment under the Internal Revenue Code of 1986, as
amended (the "Code"). "Nonqualified Stock Option" shall mean all other Options
granted under the Plan, including any Options granted under Section 6 which do
not qualify for treatment as incentive stock options under the Code.
2
<PAGE>
(h) "Optionee" or "Grantee" shall mean a person to whom an Option
has been granted, or an Award has been made, under the Plan, as the case may be.
(i) "Participant" shall mean (i) designated officers and other key
employees of the Company or a Subsidiary Corporation (as such term is defined
under Section 424(f) of the Internal Revenue Code of 1986 as amended (the
"Code")), and (ii) members of the Company's Board of Directors, and (iii)
independent contractors and consultants (who may be individuals or entities) who
perform services for the Company.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for issuance upon
the exercise of Awards granted from time to time under the Plan an aggregate of
1,500,000 shares of Common Stock and other securities or property to be
delivered upon exercise of Options (as may be required under Section 11 hereof.)
The Board shall determine from time to time whether all or part of such
1,500,000 shares shall be authorized but unissued shares of Common Stock or
issued shares of Common Stock which shall have been reacquired by the Company
and which are held in its treasury. If any Award granted under the Plan should
expire or terminate for any reason without having been exercised in full, the
Common Stock or other securities or property subject to such Award shall again
become available for the grant of Award under the Plan, other than as may be
prohibited by the Code or other applicable statute or regulation.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Committee.
(a) Subject to the provisions of the Plan, the Committee shall have
full discretion and sole authority:
(i) To designate the Participants to whom Awards shall be granted,
to determine whether individual Grantees shall be granted Incentive Stock
Options or
3
<PAGE>
Nonqualified Stock Options or Restricted Share Awards, to designate
the number of shares to be covered by each of the Awards, and to determine the
time or times at which Awards shall be granted;
(ii) To determine the exercise price of Options granted hereunder,
subject to Section 6 hereof;
(iii) To interpret the Plan;
(iv) To promulgate, amend and rescind rules, regulations, agreements
and instruments relating to the Plan, provided, however, that no such rules or
regulations shall be inconsistent with any of the material terms of the Plan;
(v) To subject any Award to such additional terms and conditions
(not inconsistent with the Plan) as may be specified when granting the Award,
including without limitation additional restriction or conditions on the
exercise of an Option or receipt of an Award;
(vi) To determine circumstances upon which Options shall become
immediately exercisable, or a Restricted Share Award earned, and to accelerate
the exercisability of any Option, or the vesting of a Restricted Share Award;
and
(vii) To make all other determinations in connection with the
administration and application of the Plan.
(b) The Committee's interpretations of the Plan and all determinations
made by the Committee pursuant to the powers vested in it hereunder shall be
conclusive and binding on all persons having interests in the Plan or in any
Award granted under the Plan.
4
<PAGE>
(c) Each member of the Committee shall be indemnified and held
harmless by the Company against any cost or expense (including counsel fees)
reasonably incurred by him or her, or liability (including any sum paid in
settlement of a claim with the approval of the Company) arising out of any act
or omission to act in connection with the Plan, unless arising out of such
member's own fraud or bad faith, to the extent permitted by applicable law. Such
indemnification shall be in addition to any rights of indemnification the
members may have as directors or otherwise under the Certificate of
Incorporation, as amended, or By-Laws of the Company, any agreement of
shareholders or disinterested directors or otherwise.
5. ELIGIBILITY. Officers and other employees of the Company or a
Subsidiary Corporation, including persons who have accepted written offers of
employment with the Company, non-employee members of the Board, and independent
contractors and consultants who perform services for the Company shall be
eligible to participate in the Plan. Only Participants who are officers or other
employees of the Company or a Subsidiary Corporation shall be eligible to
receive Incentive Stock Options pursuant to Section 6(I) hereof. All
Participants shall be eligible to receive Nonqualified Stock Options or
Restricted Share Awards.
6. TYPES OF OPTIONS.
(I) INCENTIVE STOCK OPTIONS. The following provisions shall apply
solely with respect to Options which are designated by the Committee as
"Incentive Stock Options" at the time of grant:
(a) OPTION EXERCISE PRICE. The price at which shares of Common Stock
shall be purchased upon exercise of any Incentive Stock Option shall be not less
than the Fair Market Value of such shares on the Grant Date, except that if on
the Grant Date an Optionee
5
<PAGE>
owns Common Stock (as determined under section 424(d) of the Code) possessing
more than 10% of the total combined voting power of all classes of stock of the
Company or of the Company's Parent Corporation (as such term is defined under
Section 424(e) of the Code), if any, or any Subsidiary Corporations, then the
price at which shares of Common Stock shall be purchased upon exercise of an
Incentive Stock Option granted to such Optionee shall not be less than 110% of
the Fair Market Value of such shares on the Grant Date and, notwithstanding
Section 6(I)(b) hereof, such Incentive Stock Option shall cease to be
exercisable five (5) years after the Grant Date.
(b) EXPIRATION. Except as otherwise provided in Section 6(I)(a) and
Section 11 hereof, each Incentive Stock Option granted hereunder shall cease to
be exercisable ten years after the date on which it is granted.
(c) RESTRICTION ON EXERCISE. The Fair Market Value (as determined on
the Grant Date) of Common Stock with respect to which Incentive Stock Options
are exercisable for the first time by any person during any calendar year (under
this Plan and all other plans of the Company and its Subsidiary Corporations)
cannot be greater than $100,000.
(II) NONQUALIFIED STOCK OPTIONS. The following provision shall apply
with respect to Options which are designated by the Committee as "Nonqualified
Stock Options" at the time of grant:
(a) OPTION EXERCISE PRICE. The price at which shares of Common Stock
shall be purchased upon exercise of a Nonqualified Stock Option shall be
determined by the Committee but shall be not less than Fair Market Value of such
shares on the Grant Date.
6
<PAGE>
(b) EXPIRATION. Except as otherwise provided in Section 11 hereof,
each Nonqualified Stock Option granted hereunder shall cease to be exercisable
ten years after the Grant Date.
(c) DESIGNATION. Any Option which is not designated by the Committee
as an Incentive Stock Option under Section 6(I) shall automatically be deemed to
be a Nonqualified Stock Option.
7. RESTRICTED SHARE AWARDS.
(a) TIME, AMOUNT AND FORM OF AWARD. The Committee shall be
authorized to grant to any Participant an Award of Restricted Shares of Common
Stock, on such terms and conditions as it shall determine. Each grant of
Restricted Shares under the Plan shall be evidenced by a Restricted Share
Agreement between the recipient and the Company. Such Restricted Shares shall be
subject to all applicable terms of the Plan and may be subject to any other
terms that are consistent with the Plan. The provisions of the various
Restricted Share Agreements need not be identical.
(b) PAYMENT FOR AWARD. To the extent that an Award is granted in the
form of Restricted Shares, the Award recipient, as a condition to the grant of
such Award, may be required to pay the Company in cash or cash equivalents an
amount equal to the par value of such Restricted Shares.
(c) VESTING CONDITIONS. Each Award of Restricted Shares may or may
not be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Share Agreement. The
Committee may include among such conditions the requirement that the performance
of the Company or a business unit of the
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Company for a specified period equal or exceed a target or performance standard
determined by the Committee. A Restricted Share Agreement may provide for
accelerated vesting in the event of the Participant's death, disability or
retirement or other events. The Committee may determine, at the time of granting
Restricted Shares or thereafter, that all or part of such Restricted Shares
shall become vested in the event that a change in control, as may be defined by
the Committee, occurs with respect to the Company.
(d) VOTING AND DIVIDENDS. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
8. VESTING OF OPTION. The vesting period, if any, for all Options
granted hereunder shall commence on the Grant Date and shall end on the date or
dates, determined by the Committee.
9. METHOD OF EXERCISE. Optionees may exercise their Options from time
to time by giving written notice to the Company. The date of exercise shall be
the date on which the Company receives such notice, or such later date as may be
set forth in such notice, so long as the Option is still then outstanding. Such
notice shall be on a form furnished by the Company and shall state the number of
shares to be purchased and the exercise date. Upon exercise, or as soon
thereafter as is practicable, the Company shall deliver to the Optionee (or
other person entitled to exercise the Option) at the principal office of the
Company, or such other place as shall be
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mutually acceptable, a certificate or certificates for such shares against
payment in full of the Option price for the number of shares to be delivered,
such payment to be by a certified or bank cashier's check and/or, if permitted
by the Committee in its discretion, by delivery of such other form of
consideration, including capital stock of the Company, promissory notes or other
property, and may permit the cashless exercise of Options based upon the value
of the Common Stock subject to Options, either pursuant to terms then determined
in the discretion of the Committee or pursuant to any plan for such exercise
then available to the Optionee, or made available to the Optionee in the
Committee's discretion. If the Optionee (or other person entitled to exercise
the Option) shall fail to accept delivery of and pay for all or any part of the
shares specified in his notice when the Company shall tender such shares to him,
his right to exercise the Option with respect to such unpurchased shares may be
terminated.
10. TERMINATION OF EMPLOYMENT. Except as set forth below or otherwise
set forth in an Option Grant approved by the Committee, in the event that an
Optionee's employment terminates for any reason, any Options then exercisable
shall automatically terminate sixty days after the date on which such employment
terminates.
(a) In the event that an Optionee's employment terminates by reason
of retirement, the Committee shall have the right to extend such Optionee's
Options until the earlier of (x) three months after the date of retirement or
(y) the date on which such Options would terminate pursuant to Section 6.
(b) In the event that an Optionee's employment terminates by reason
of disability, an Option exercisable by him shall terminate one year after the
date of disability of the
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Optionee, but in any event not later than the date on which such Options would
terminate pursuant to Section 6 hereof.
(c) In the event that an Optionee's employment terminates by reason
of death, an Option exercisable by him shall terminate one year after the date
of death, but in any event not later than the date on which such Options would
terminate pursuant to Section 6 hereof.
During such time after death, an Option may only be exercised by the
Optionee's personal representative, executor or administrator, as the case may
be. Unless vesting on an Option is otherwise provided for by the terms of an
Option or the Committee, no exercise permitted by this Section 10 shall entitle
an Optionee or his personal representative, executor or administrator to
exercise any Option which is not (on the date of exercise) then exercisable.
11. CHANGES IN CAPITAL STRUCTURE. In the event that, by reason of a
stock dividend, recapitalization, reorganization, merger, consolidation,
reclassification, stock split-up, spin off, combination of shares, exchange of
shares, or the like, the outstanding shares of Common Stock of the Company are
hereafter increased or decreased, or changed into or exchanged for, or entitle
the holder to a different number or kind of shares or other securities of the
Company or of any other corporation, then appropriate adjustments shall be made
by the Board to the number and kind of shares reserved for issuance under the
Plan upon the grant and to be delivered upon exercise of Options or receipt of
other Awards. In addition, the Board shall make appropriate adjustments to the
number and kind of shares subject to outstanding Options or other Awards, and
the purchase price per share or Options shall be appropriately adjusted
consistent with such change. Unless otherwise determined by the Committee, in no
event shall fractional shares be
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issued or issuable pursuant to any adjustment made under this Section 11. The
determination of the Board as to any adjustment shall be final and conclusive.
12. MANDATORY EXERCISE. Notwithstanding anything to the contrary set
forth in the Plan, in the event that:
(a) the Company should adopt a plan of reorganization pursuant to
which it shall merge into, consolidate with, or sell its assets to, any other
corporation or entity (an "Acquiring Entity"), the Company may give an Optionee
written notice thereof:
(i) requiring such Optionee to exercise his or her Options
within thirty days after receipt of such notice, (including any unvested Options
which would, except for this Section 12, otherwise be unexercisable at that
date); or
(ii) requiring such Optionee to consent to the conversion of
such Options into an option to purchase the same number of shares of the
Acquiring Entity's common stock as would have been received by the Optionee if
the Optionee had exercised such Option; or
(iii) deeming such Options to have been exercised, in which case
the Optionee shall be entitled to receive the same consideration per share as
received by other holders of the Company's stock but reduced by an amount equal
to the Fair Market Value on the Grant Date.
(b) the Company should adopt a plan of complete liquidation, the
Company shall give an Optionee written notice thereof requiring such Optionee to
exercise his or her Options within thirty days after receipt of such notice,
(including any invested Options which would, except for this Section 12,
otherwise be unexercisable at that date).
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Those Options which the Company requests to be exercised and which
shall not have been exercised in accordance with the provisions of the Plan by
the end of such 30 day period shall automatically lapse irrevocably and the
Optionee shall have no further rights with respect to such Options.
13. OPTION GRANT. Each grant of an Option under the Plan will be
evidenced by a document in such form as the Committee may from time to time
approve. Such document will contain such provisions as the Committee may in its
discretion deem advisable, including without limitation additional restrictions
or conditions upon the exercise of an Option. The Committee may require an
Optionee, as a condition to the grant or exercise of an Option or the issuance
or delivery of shares upon the exercise of an Option or the payment therefore,
to make such representations and warranties and to execute and deliver such
notices of exercise and other documents as the Committee may deem consistent
with the Plan or the terms and conditions of the Option Agreement. Not in
limitation of any of the foregoing, in any such case referred to in the
preceding sentence the Committee may also require the Optionee to execute and
deliver documents (including the investment letter described in Section 14),
containing such representations, warranties and agreements as the Committee or
counsel to the Company shall deem necessary or advisable to comply with any
exemption from registration under the Securities Act of 1933, as amended, the
(the "Securities Act") any applicable State securities laws, and any other
applicable law, regulation or rule.
14. INVESTMENT LETTER. If required by the Committee, each Optionee
shall agree to execute a statement directed to the Company, upon each and every
exercise by such Optionee of any Options, that shares issued thereby are being
acquired for investment purposes only and not
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with a view to the redistribution thereof, and containing an agreement that such
shares will not be sold or transferred unless either (1) registered under the
Securities Act, or (2) exempt from such registration in the opinion of Company
counsel. If required by the Committee, certificates representing shares of
Common Stock issued upon exercise of Options shall bear a restrictive legend
summarizing the restrictions on transferability applicable thereof.
15. REQUIREMENT OF LAW. The granting of Awards, the issuance of shares
upon the exercise of an Option, and the delivery of shares upon the payment
therefore shall be subject to compliance with all applicable laws, rules, and
regulations. Without limiting the generality of the foregoing, the Company shall
not be obligated to sell, issue or deliver any shares unless all required
approvals from governmental authorities and stock exchanges shall have been
obtained and all applicable requirements of governmental authorities and stock
exchanges shall have been complied with.
16. TAX WITHHOLDING. The Company, as and when appropriate, shall have
the right to require each Grantee purchasing or receiving shares of Common Stock
under the Plan to pay any federal, state, or local taxes required by law to be
withheld or to take whatever action it deems necessary to protect the interests
of the Company in respect to such tax obligations.
17. NONASSIGNABILITY. A Grantee may transfer the rights granted
hereunder by (i) bona fide gift, (ii) will or by the laws of descent and
distribution or, (iii) pursuant to a qualified domestic relations order as
defined under the Code or Title I of ERISA or the rules thereunder. Upon the
death of an Optionee, the personal representative or other person entitled to
succeed to the rights of the Optionee ("Successor Optionee") may exercise such
rights. A Successor
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Optionee shall furnish proof satisfactory to the Company of such person's right
to receive the Option under the Optionee's will or under the applicable laws of
descent and distribution.
18. OPTIONEE'S RIGHTS AS SHAREHOLDER AND EMPLOYEE. An Optionee shall
have no rights as a shareholder of the Company with respect to any shares
subject to an Option until the Option has been exercised and the certificate
with respect to the shares purchased upon exercise of the Option has been duly
issued and registered in the name of the Optionee. Nothing in the Plan shall be
deemed to give an employee any right to continued employment nor shall it be
deemed to give any employee any other right not specifically and expressly
provided in the Plan.
19. TERMINATION AND AMENDMENT.
(a) AMENDMENT. The Board may amend or terminate the Plan at
any time, subject to the limitation that the approval by the shareholders of the
Company shall be required in respect of any amendment that (A) materially
increases the benefits accruing to Participants under the Plan, (B) increases
the aggregate number of shares of Common Stock that may be issued or transferred
under the Plan (other than by operation of Section 11 above), (C) increases the
maximum number of shares of Common Stock for which any Optionee may be granted
options under this Plan or (D) materially modifies the requirements as to
eligibility for participation in the Plan; (E) materially modifies the
provisions for determining the Fair Market Value; and (ii) the Board may not
amend the Plan if such amendment would cause the Plan, or any Award of an
Incentive Stock Option under Section 6(I) to fail to comply with the
requirements of Section 422 of the Code including, without limitation, a
reduction of the option price or an extension of the period during which an
Incentive Stock Option may be exercised.
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(b) TERMINATION OF PLAN. The Plan shall terminate on the tenth
anniversary of its effective date (as set forth in Section 20 below) unless
earlier terminated by the Board or unless extended by the Board with approval of
the stockholders.
(c) TERMINATION AND AMENDMENT OF OUTSTANDING GRANTS. Except as
otherwise provided in Section 12 hereof or in any document evidencing the grant
of an Award hereunder, a termination or amendment of the Plan that occurs after
an Award has been granted shall not result in the termination or amendment of
the Award unless the Grantee consents or unless the Committee acts under Section
21(b) below. The termination of the Plan shall not impair the power and
authority of the Committee with respect to an outstanding Award. Whether or not
the Plan has terminated, an outstanding Option may be terminated or amended
under Section 21(b) below or may be amended by agreement of the Company and the
Grantee which is consistent with the Plan.
20. SHAREHOLDER APPROVAL. This Amended and Restated Plan is subject to
approval by the holders of a majority of the shares of stock of the Company
present or represented in proxy in a vote at a duly held meeting of the
shareholders of the Company. If the Plan is not so approved by shareholders, the
original Plan as hereinbefore in place, shall remain in full force and effect.
Subsequent to such approval, the effective date of the Amended and
Restated Plan shall be March 29, 2000.
21. MISCELLANEOUS.
(a) SUBSTITUTE GRANTS. The Committee may grant an Award to an
employee or a non-employee director of another corporation, if such person shall
become an employee or non-employee director of the Company, or a Subsidiary
Corporation, by reason of a corporate
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merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company or a Subsidiary Corporation and such other
corporation. Any Award so granted shall be made in substitution for a stock
option granted by the other corporation, but the terms and conditions of the
Award so granted may vary from the terms and conditions required by the Plan and
from those of the Award granted by the other corporation. The Committee shall
prescribe the provisions of the Award so granted.
(b) COMPLIANCE WITH LAW. The Plan, the grant of Awards and the
obligations of the Company to issue shares of Common Stock upon exercise of
Options shall be subject to all applicable laws and required approvals by any
governmental or regulatory agencies. With respect to persons subject to Section
16 of the Exchange Act, it is the intent of the Company that the Plan and all
transactions under the Plan shall comply with all applicable conditions of Rule
16b-3 or any successor provisions under the Exchange Act. The Committee may
revoke the grant of any Award if it is contrary to law or modify any Award to
bring it into compliance with any valid and mandatory government regulations.
The Committee may also adopt rules regarding the withholding of taxes on
payments to Grantees. The Committee may, in its sole discretion, agree to limit
its authority under this section.
(c) SUNDAY OR HOLIDAY. In the event, that the time for the
performance of any action or the giving of any notice is called for under the
Plan within a period of time which ends or falls on a Sunday or legal holiday,
such period shall be deemed to end or fall on the next date following such
Sunday or legal holiday which is not a Sunday or legal holiday.
842288.1
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