<PAGE> 1
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended December 31, 1997.
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 0-23212
TELULAR CORPORATION
(Exact name of Registrant as specified in its charter)
Delaware 36-3885440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
647 North Lakeview Parkway
Vernon Hills, Illinois
60061
(Address of principal executive offices)
(Zip Code)
(847) 247-9400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
-----
The number of shares outstanding of the Registrant's common stock, par value
$.01, as of December 31, 1997, the latest practicable date, was 32,828,306
shares.
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TELULAR CORPORATION
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NO.
--------
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets
December 31, 1997 and September 30, 1997 3
Consolidated Statements of Operations
Three Months Ended December 31, 1997 and
December 31, 1996 4
Consolidated Statement of Stockholders' Equity
Period from September 30, 1997 to December 31, 1997 5
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1997 and
December 31, 1996 6
Notes to the Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk 13
PART II - OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 18
Exhibit Index 19
</TABLE>
2
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TELULAR CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
----------------- --------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 27,714 $ 28,451
Receivables:
Trade, net of allowance for doubtful accounts of
$426 and $362 at September 30, 1997
and December 31, 1997, respectively 8,611 6,527
Related parties 577 4,670
----------------- -------------
9,188 11,197
Inventories, net 9,542 9,431
Prepaid expenses and other current assets 519 500
----------------- -------------
Total current assets 46,963 49,579
Property and equipment, net 4,515 3,611
Other assets:
Intangible assets, net 464 461
Goodwill 4,639 -
Investment in Affiliate - 3,851
Deposits and other 80 51
----------------- -------------
5,183 4,363
----------------- -------------
Total assets $ 56,661 $ 57,553
================= =============
LIABILITIES, REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable:
Trade $ 4,760 $ 3,764
Related parties 2,235 3,640
Accrued liabilities 2,744 3,142
----------------- -------------
Total current liabilities 9,739 10,546
Commitments and contingencies - -
Redeemable Preferred Stock:
Series A convertible preferred stock, $.01 par value
at December 31, 1997 and September 30, 1997;
$20,625 liquidation preference at December 31, 1997 and
September 30, 1997; 21,000 shares authorized at
December 31, 1997 and September 30, 1997, respectively;
18,800 shares and 20,000 shares issued and outstanding
at December 31, 1997 and September 30, 1997, respectively. 19,946 21,308
Stockholders' equity:
Preferred stock, $.01 par value; 9,979,000 and 10,000,000
shares authorized at December 31, 1997 and September 30, 1997;
none outstanding - -
Common stock; $.01 par value; 40,000,000 shares
authorized; 32,828,306 and 31,684,073 outstanding
at December 31, 1997 and September 30, 1997, respectively 334 322
Additional paid-in capital 114,691 111,143
Deficit (86,442) (84,159)
Treasury stock, 560,000 shares at cost (1,607) (1,607)
----------------- -------------
Total stockholders' equity 26,976 25,699
----------------- -------------
Total liabilities, redeemable preferred stock and stockholders' equity $ 56,661 $ 57,553
================= =============
</TABLE>
See accompanying notes
3
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TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
--------------- --------------
(unaudited) (unaudited)
<S> <C> <C>
Net sales to third parties $ 12,584 $ 6,797
Net sales to related parties 103 11,801
--------------- --------------
Total net sales 12,687 18,598
Cost of sales 9,913 13,797
--------------- --------------
2,774 4,801
Engineering and development expenses 2,162 1,340
Selling and marketing expenses 1,664 1,080
General and administrative expenses 1,076 1,511
Provision for doubtful accounts 25 184
Amortization 223 54
--------------- --------------
Income (loss) from operations (2,376) 632
Other income 332 108
--------------- --------------
Net income (loss) $ (2,044) $ 740
Less: Cumulative dividend on redeemable preferred stock (239) -
Net income (loss) applicable to common shares $ (2,283) $ 740
=============== ==============
Basic and diluted net income (loss) per common share $ (0.07) $ 0.02
=============== ==============
Weighted average number of common shares outstanding 32,668,037 31,442,993
=============== ==============
</TABLE>
See accompanying notes
4
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TELULAR CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
( Dollars in thousands)
<TABLE>
<CAPTION>
Additional Total
Preferred Common Paid-In Treasury Stockholders'
Stock Stock Capital Deficit Stock Equity
------------ ----------- ------------- ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30, 1997 $ - $ 322 $ 111,143 $ (84,159) $ (1,607) $ 25,699
Proceeds from the issuance of
common stock - 2 200 - - 202
Stock issued in connection with
services - - 38 - - 38
Conversion of preferred stock
to common stock - 4 1,410 - - 1,414
Stock issued in connection with the
equity investment in Wireless Domain - 5 1,714 - - 1,719
Stock issued in connection with
services relating to redeemable
preferred stock - 1 186 - - 187
Cumulative dividend on redeemable
preferred stock - - - (239) - (239)
Net loss for period from October 1,
1997 to December 31, 1997 - - - (2,044) - (2,044)
--------------- ----------- ------------ ------------ ------------- -----------
Balance at December 31, 1997 $ - $ 334 $ 114,691 $ (86,442) $ (1,607) $ 26,976
=============== =========== ============ ============ ============= ===========
</TABLE>
See accompanying notes
5
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TELULAR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
--------------- --------------
OPERATING ACTIVITIES: (unaudited) (unaudited)
<S> <C> <C>
Net income (loss) $ (2,044) $ 740
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation 436 186
Amortization 223 54
Interest on debentures - 3
Stock issued for compensation and services 38 -
Equity in net income of affiliate (84) -
Changes in assets and liabilities:
Receivables, net 2,009 (566)
Inventories, net (111) 1,562
Prepaid expenses, deposits and other (69) (139)
Accounts payable (113) 821
Accrued liabilities (504) 103
--------------- --------------
Net cash provided by (used in) operating activities (219) 2,764
INVESTING ACTIVITIES:
Acquisition of property and equipment (720) (466)
--------------- --------------
Net cash used in investing activities (720) (466)
FINANCING ACTIVITIES:
Proceeds from the issuance of common stock 202 -
--------------- --------------
Net cash provided by financing activities 202 -
--------------- --------------
Net increase (decrease) in cash and cash equivalents (737) 2,298
Cash and cash equivalents, beginning of period 28,451 12,838
--------------- --------------
Cash and cash equivalents, end of period $ 27,714 $ 15,136
=============== ==============
</TABLE>
See accompanying notes
6
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TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation
have been included. Operating results for the three months ended December
31, 1997, are not necessarily indicative of the results that may be
expected for the full fiscal year ending September 30, 1998. For further
information, refer to the consolidated financial statements for the fiscal
year ended September 30, 1997.
2. INVENTORIES
The components of inventories consist of the following (000's):
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
----------- -------------
(unaudited)
<S> <C> <C>
Raw materials $ 6,551 $ 6,344
Work in process 795 455
Finished goods 2,723 3,155
------- -------
10,070 9,954
Less: Reserve for obsolescence 527 524
------- -------
$ 9,542 $ 9,431
======= =======
</TABLE>
3. INVESTMENT IN WIRELESS DOMAIN CORPORATION (FORMERLY TELEPATH CORPORATION)
On June 28, 1996, the Company entered into an agreement and acquired a 33%
interest in Wireless Domain Incorporated (WD) in exchange for $1 million
in cash and common stock of the Company valued at approximately $2.2
million. During the year ended September 30, 1997, the Company increased
its equity portion in WD to 50% by purchasing an additional 17% of WD in
exchange for $0.5 million in cash and 150,000 shares of common stock of
the Company valued at approximately $0.7 million.
On November 10, 1997, the Company acquired the remaining 50% of WD. Under
the terms of the merger, the Company issued 500,000 shares of common stock
to the shareholders of WD and relinquished control of the 500,000 shares
of common stock held by WD. This acquisition was accounted for using the
purchase method of accounting. The excess of consideration paid over the
fair value of net assets purchased of $4.7 million was recorded as
goodwill, which is being amortized over ten years. Prior to the November
10, 1997 transaction, the Company had accounted for its investment in WD
using the equity method.
The following unaudited pro forma results of operations assumes the
acquisition of Wireless Domain occurred as of October 1, 1996, after
giving effect to certain adjustments including amortization of goodwill
and equity income recorded for the periods in which the Company owned less
than 100% of WD.
7
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TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Three months ended December 31,
1998 1997
------- ------
(000's)
<S> <C> <C>
Revenues $ 0 $ 0
Net income (loss) (2,411) 204
Basic and diluted net income (loss)
per common share (0.08) 0.01
</TABLE>
Revenues would not change as a result of the acquisition as WD's revenues
related entirely to amounts billed to the Company. The pro forma
financial information does not purport to be indicative of the results of
operations that would have occurred had the transaction taken place at the
beginning of the periods indicated or of future results of operations.
4. CONVERTIBLE DEBENTURES
On December 11, 1995, the Company issued $18 million in convertible
debentures (the "Debentures") at 4% per annum, which matured on December
11, 1997. The Debentures were issued under the provisions of Regulation S
as promulgated under the United States Securities Act of 1933, as amended.
Holders of the Debentures were entitled, at their option any time after
issuance until December 10, 1997, to convert principal and interest
accrued thereon, in whole or in part, into shares of common stock using
defined conversion formulas based on NASDAQ closing bids for the Company's
common stock. The Company was entitled, at its option any time commencing
one year after issuance (and under certain circumstances prior to that
date) through maturity, to require the holders to convert the principal
and accrued interest into shares of common stock of the Company using
defined conversion formulas based on NASDAQ closing bids for the Company's
common stock. As of November 30, 1996, the entire issuance of convertible
debentures and all interest accrued thereon had been converted into
approximately 7,033,000 shares of common stock.
5. REDEEMABLE PREFERRED STOCK
During fiscal 1997, the Company issued 20,000 shares (10,000 shares, on
April 16, 1997 and 10,000 shares on June 6, 1997) of Series A Convertible
Preferred Stock (the "Preferred Stock") for $18.8 million which is net of
issuance cost of $1.2 million. The Preferred Stock automatically converts
to Common Stock on April 16, 1999, or October 16, 1999, depending on the
conversion price, and includes the equivalent of a 5% annual stock
dividend. Holders of the Preferred Stock are entitled, at their option,
subject to trading volume and other restrictions, to convert Preferred
Stock into shares of Common Stock using defined conversion formulas based
on the NASDAQ closing bid prices for the Company's Common Stock. In
addition, the holders have the option to redeem the Preferred Stock upon
the occurrence of: (i) a consolidation or merger with another company;
(ii) sale or transfer of substantially all assets; or (iii) 50% change in
ownership. The redemption price upon holder redemption is the greater of
$1,250 per share and the cash equivalent of the defined conversion formula
on the date of redemption. The Company is entitled to require the holders
to convert the Preferred Stock and accrued dividends into shares of common
stock of the Company using a defined conversion formula based upon the
NASDAQ closing bid prices for the Company's common stock. In addition,
the Company has the right to redeem the Preferred Stock after April 15,
1999 for $1,200 per share plus 120% of the accrued dividends. Holders of
the Preferred Stock are not entitled to vote on matters submitted for vote
to the stockholders of the Company.
8
<PAGE> 9
TELULAR CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997
The Preferred Stock reflects a beneficial conversion feature that allows
holders to convert the security to common stock of the Company at a
discount. The amount of the discount is determined using NASDAQ closing
bid prices for the Company's common stock. During fiscal year 1997, the
Company recorded $2.2 million of amortization of preferred stock
beneficial conversion discount. The offset entry to amortization of
preferred stock beneficial conversion discount increased redeemable
preferred stock by $2.2 million. This amount will accrete to the
Company's common stock and additional paid in capital accounts as shares
of redeemable preferred stock are converted into shares of common stock
of the Company. As of December 31, 1997, 1,200 shares of Preferred Stock
had been converted to common stock.
6. EARNINGS PER SHARE
On October 1, 1997, the Company adopted Financial Accounting Standards
Board SFAS No. 128, "Earnings Per Share." SFAS No. 128 replaced the
previously reported primary and fully diluted earnings per share with
basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes any dilutive effects of options,
warrants and convertible securities. Diluted earnings per share is very
similar to the previously reported fully diluted earnings per share. When
necessary, previously reported earnings per share amounts have been
restated to conform to SFAS No. 128.
7. CONTINGENCIES
The Company is involved in legal proceedings that arise in the ordinary
course of business. While any litigation contains an element of
uncertainty, based upon discussion with the Company's counsel, management
believes that the outcome of such proceedings will not have a material
adverse effect on the Company's consolidated financial position and
results of operations.
8. RECLASSIFICATION
Certain amounts in the December 31, 1996 financial statements have been
reclassified to conform to the December 31, 1997 presentation.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company is in the fixed wireless telecommunications industry. The Company
designs, develops, manufactures and markets products based on its proprietary
interface technologies, which provide the capability to bridge wireline
telecommunications customer premises equipment ("CPE") with cellular-type
transceivers for use in wireless communication networks, whether cellular,
personal communications services ("PCS"), or satellite-based. Applications of
the Company's technology include fixed wireless telecommunications as a primary
service where wireline systems are unavailable, unreliable or uneconomical, as
well as wireless backup systems for wireline telephone systems and wireless
alarm signaling ("WAS"). The Company's principal product lines - PHONECELL(R),
a line of fixed wireless terminals ("FWTs"); and TELGUARD(R), a line of WAS
products - allow CPE designed for traditional wireline networks to send and
receive voice, data and facsimile signals over wireless networks.
The Company is investing in new product development for both analog and digital
fixed wireless terminals. As with any emerging market, it is difficult to
predict the timing of the market demand. If anticipated sales in any quarter
do not occur as expected, expenditure and inventory levels could be
disproportionately high, and the Company's operating results for that quarter,
and potentially for future quarters, could be adversely affected. Certain
factors that could significantly impact expected results are described in
"Cautionary Statements Pursuant to the Securities Litigation Reform Act" which
is attached as exhibit 99 to the Form 10-K filed for the period ended September
30, 1997.
RESULTS OF OPERATIONS
FIRST QUARTER FISCAL 1998 COMPARED TO FIRST QUARTER FISCAL 1997
Net Sales. First quarter fiscal 1998 sales decreased by approximately 32% from
$18.6 million for the three months ended December 31, 1996 to $12.7 million for
the three months ended December 31, 1997. Sales of FWTs decreased 39% and
sales of wireless security alarm products increased 39%. The relative decrease
in first quarter fiscal 1998 FWT sales compared to first quarter fiscal 1997
reflects the impact of a large order from Motorola for a wireless local loop
(WLL) project in Hungary that was partially offset by increasing sales to third
parties in the first quarter fiscal 1998. There were no shipments to the
project in Hungary during the first quarter of fiscal 1998, compared to $11.6
million during the first quarter of fiscal 1997. FWT sales, excluding sales to
the project in Hungary in fiscal 1996, increased 98% from $4.7 million for the
three months ended December 31, 1997 to $9.1 million for the three months ended
December 31, 1998. This increase primarily resulted from shipments to the WLL
project in Guinea, West Africa.
Gross Profit. First quarter fiscal 1998 gross profit decreased by $2.0 million
compared to the same period of fiscal 1997. The decrease was primarily due to
lower sales during the three months ended December 31, 1997 compared to the
same period of fiscal 1997. For the first quarter of fiscal 1998, the
Company's gross margin percentage was 22% compared to 26% in fiscal 1997.
Higher fiscal 1997 sales volumes increased throughput and resulted in the
absorption of fixed cost over more units in fiscal 1997 compared to fiscal
1998.
Engineering and Development Expenses. Engineering and development expenses of
$2.2 million during the first quarter of fiscal 1998, increased approximately
61% over the first quarter of fiscal 1997. The increase relates to the
Company's increased focus on developing additional analog and digital FWTs,
including its acquisition of Wireless Domain Incorporated, which increased the
Company's engineering staff by 30 engineers.
10
<PAGE> 11
Selling and Marketing Expenses. Selling and marketing expenses for the first
quarter of fiscal 1998 increased 54% compared to the same quarter of fiscal
1997. The increase was primarily a result of the Company beginning to market
its next generation of products, as well as, staffing up of marketing sales
forces to support worldwide sales coverage.
General and Administrative Expenses (G&A). G&A for the first quarter of fiscal
1998 decreased 29% compared to the same quarter of fiscal 1997. The decrease
is primarily attributable to the reduction or elimination of expenditures,
primarily through personnel reductions, as well as leveraging resources.
Provision for doubtful accounts. The provision for doubtful accounts expense
decreased from the same quarter of fiscal 1997 due to improvement in the
Company's collections experience.
Other Income. Other income during the fiscal quarter of fiscal 1998 increased
by $0.2 million compared to the same quarter of fiscal 1997. The increase is
primarily due to higher interest income due to higher cash balances during the
first quarter of fiscal 1998 compared to the same quarter of fiscal 1997.
Net Income (loss). The Company recorded a net loss of ($2.0) million or
($0.06) per share for the first quarter in fiscal 1998 compared to a profit of
$0.7 million or $0.02 per share in the same quarter of fiscal 1997.
Net income (loss) applicable to common shares. After giving effect to the
cumulative preferred stock dividend of $0.2 million for the first quarter of
fiscal 1998, net loss applicable to common shares of ($2.3) million or ($0.07)
per share compares to a profit of $0.7 million or $0.02 per share in the same
quarter of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1997, the Company had $27.7 million in cash and cash
equivalents with a working capital surplus of $37.2 million.
From an operating standpoint, the Company used $0.2 million of cash during the
three months ended December 31, 1997, compared to the $2.8 million cash
generated during the same fiscal period last year.
Cash used for capital spending was approximately $0.7 million during the three
months ended December 31, 1997 compared to $0.5 million during the same period
last fiscal year. The increase during the first quarter of fiscal 1998
primarily relates to upgrades to the Company's information systems.
Financing activities provided $0.2 million during the first three months of
fiscal 1998, compared to zero during the same period in fiscal 1997. The $0.2
million provided during the three months ended December 31, 1997 resulted from
the issuance of common stock in connection with stock option exercises in
accordance with the Company's Amended and Restated Stock Option Plan.
On April 23, 1997, the Company entered into a Loan and Security Agreement with
Sanwa Business Credit Corporation that, among other things, provides a credit
facility with a loan limit of $20.0 million (the "Loan"). Borrowings under the
Loan are subject to borrowing base requirements and other restrictions. Under
the Loan and Security Agreement, the Company is required to comply with certain
affirmative and negative covenants. The Loan matures on April 23, 2000.
During fiscal 1997, the Company issued 20,000 shares (10,000 shares, on April
16, 1997 and 10,000 shares on June 6, 1997) of Series A Convertible Preferred
Stock (the "Preferred Stock") for $18.8 million, which is net of issuance cost
of $1.2 million. The Preferred Stock automatically converts to Common Stock on
April 16, 1999, or October 16, 1999, depending on the conversion price and
includes the equivalent of a 5% annual stock dividend. Holders of the Preferred
Stock are entitled, at their option, subject to trading volume and other
restrictions, to convert Preferred Stock into shares of Common Stock using
defined conversion formulas based on the NASDAQ closing
11
<PAGE> 12
bid prices for the Company's Common Stock. In addition, the holders have the
option to redeem the Preferred Stock upon the occurrence of a (i) consolidation
or merger with another company; (ii) sale or transfer of substantially all
assets; or (iii) 50% change in ownership. The redemption price upon holder
redemption is the greater of $1,250 per share and the cash equivalent of the
defined conversion formula on the date of redemption. The Company is entitled
to require the holders to convert the Preferred Stock and accrued dividends
into shares of common stock of the Company using a defined conversion formula
based upon the NASDAQ closing bid prices for the Company's common stock. In
addition, the Company has the right to redeem the Preferred Stock after April
15, 1999 for $1,200 per share plus 120% of the accrued dividends. Holders of
the Preferred Stock are not entitled to vote on matters submitted for vote to
the stockholders of the Company. As of December 31, 1997, 1,200 shares of
preferred stock have been converted to common stock.
The Company will use much of the capital raised in fiscal 1997 to fund new
product development. Beyond its specific research and product development
needs, expected future uses of cash include working capital requirements,
marketing and sales support programs in anticipation of future revenues and
certain capital expenditures. Based upon its current operating plan, the
Company believes its existing capital resources, including the credit facility
and proceeds from the issuance of Preferred Stock, should enable it to maintain
its current and planned operations. Cash requirements may vary and are
difficult to predict given the nature of the developing markets targeted by the
Company. The amount of royalty income from the Company's licensees is
unpredictable, but could have an impact on the Company's actual cash flow.
The Company requires letters of credit or qualification for export credit
insurance underwritten by third party credit insurance companies or the
Export-Import Bank of the United States on a substantial portion of its
international sales orders. Also, to mitigate the effects of currency
fluctuations on the Company's results of operations, the Company endeavors to
conduct all of its international transactions in U.S. dollars. To date, the
Company's sales have not been adversely affected by currency fluctuations;
however, as the Company's international operations grow, foreign exchange or
the inflation of a foreign currency may pose greater risks for the Company, and
the Company may be required to develop and implement additional strategies to
manage these risks.
OUTLOOK
The statements contained in this outlook are based on current expectations.
These statements are forward looking, and actual results may differ materially.
The Company expects fiscal 1998 sales levels to be about the same as in fiscal
1997. Sales to the Hungary project accounted for over $21.2 million, or
approximately 44%, of total sales for fiscal 1997. Although sales to the
Hungary project are not expected to be significant in fiscal 1998, the Company
anticipates that new WLL business will replace the Hungary project business.
Comparison of the first quarter of fiscal 1998, with the first quarter of
fiscal 1998 does not fully reflect the performance trend for fiscal 1997.
Sales for the first quarter of fiscal year 1997 were unusually high as a result
of sales to the Hungary project of $11.6 million, more than in any other
quarter of fiscal 1997, and representing 24% of total fiscal 1997 sales. The
absence of sales to the Hungary project in first quarter fiscal 1998 was
partially offset by increased sales to new projects. During the quarter ended
December 31, 1997, the Company announced that it received approximately $11
million of new WLL business in the Philippines and Guinea, West Africa. The
Company expects demand for FWTs to continue to grow and is cultivating other
revenue opportunities that it believes will contribute to future revenue
growth.
To capitalize on the anticipated growth in the market for FWTs, the Company
accelerated its product development plan for fiscal 1998. On November 10,
1997, the Company added an additional 30 engineers to its staff when it
acquired the remaining 50% of Wireless Domain Incorporated. The Company's
strategy continues to be to introduce fixed wireless terminals that will
address the radio standards serving 85 percent of all cellular subscribers by
the year 2000. The Company plans to continue to devote substantial resources
to product development.
12
<PAGE> 13
Based upon observed trends, the Company believes that the market for FWTs is
undergoing substantial growth. The Company is seeking to capitalize on the
anticipated growth by devoting resources across the Company to meet the
anticipated needs of the market.
Statements contained in this filing, other than historical statements, consist
of forward-looking information. The Company's actual results may vary
considerably from those discussed in the "Outlook" section and elsewhere in
this filing as a result of various risks and uncertainties. For example, there
are a number of uncertainties as to the degree and duration of the revenue
momentum, which could impact the Company's ability to be profitable as lower
sales may likely result in lower margins. In addition, product development
expenditures, which are expected to benefit future periods, are likely to have
a negative impact on near term earnings. Other risks and uncertainties, which
are discussed in Exhibit 99 to the Company's Annual Report on Form 10-K for the
period ended September 30, 1997, include the risk that technological change
will render the Company's technology obsolete, the risk of litigation, the
Company's ability to develop new products, the Company's dependence on
contractors and Motorola, the Company's ability to maintain quality control,
the risk of doing business in developing markets, the Company's dependence on
research and development, the uncertainty of additional funding, the potential
for redemption of preferred stock, the effects of control by existing
shareholders, the effect of changes in management, intense industry
competition, and uncertainty in the development of wireless service generally.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
CHANGES IN SECURITIES
Under the terms of the Series A Convertible Preferred Stock issued on April 16,
1997 and June 6, 1997, for so long as such stock is outstanding, dividends may
be paid on the Common Stock only out of retained earnings of the Company
generated after April 1, 1997.
Under the terms of the Loan and Security Agreement with Sanwa Business Credit
Corporation that provides a credit facility up to $20 million, the Company is
prohibited from paying dividends during the term of the loan.
USE OF PROCEEDS - RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal quarter ended December 31, 1997, the Company issued: (i)
10,954 shares of Common Stock valued at $37,682 to the law of firm of Hamman
and Benn for legal services; and (ii) 38,653 shares of Common Stock valued at
approximately $187,273 to Lehman Brothers in connection with the June 10, 1997
sale of Series A Convertible Preferred Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits (listed by number according to Exhibit table of Item 601 in
Regulation S-K)
<TABLE>
<CAPTION>
Number Description Reference
------ ----------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation Filed as Exhibit 3.1 to
Registration Statement No.
33-72096 (the "Registration
Statement")
3.2 Amendment No. 1 to Certificate of Filed as Exhibit 3.2 to the
Incorporation Registration Statement
3.3 Amendment No. 2 to Certificate of Filed as Exhibit 3.3 to the
Incorporation Registration Statement
3.4 By-Laws Filed as Exhibit 3.4 to the
Registration Statement
4.1 Loan Agreement with LaSalle Filed as Exhibit 4.1 to Form
National Bank and Amendment 10-K filed December 27, 1995
thereto
4.2 Debenture Agreements dated Filed as Exhibit 4.2 to Form
December 11, 1995 10-K filed December 27, 1995
</TABLE>
14
<PAGE> 15
<TABLE>
<S> <C> <C>
4.3 Certificate of Designations, Filed as Exhibit 99.2 to Form
Preferences, and Rights of Series 8-K filed April 25, 1997
A Convertible Preferred Stock
4.4 Loan and Security Agreement with Filed as Exhibit 4.2 to Form
Sanwa Business Credit Corporation 10-Q filed August 14, 1997
10.1 Consulting Agreement with William Filed as Exhibit 10.1 to the
L. DeNicolo Registration Statement
10.2 Employment Agreement with Kenneth Filed as Exhibit 10.1 to Form 10-
E. Millard Q filed August 14, 1996
10.3 Stock Option Agreement with Filed as Exhibit 10.2 to Form 10-
Kenneth E. Millard Q filed August 14, 1996
10.4 Stock Purchase Agreement By and Filed as Exhibit 10.2 to Form 10-
Among Telular Corporation and Q filed August 14, 1996
TelePath Corporation (which has
changed its name to Wireless
Domain, Incorporated)
10.5 Appointment of Larry J. Ford Filed as Exhibit 10.2 to Form 10-
Q filed May 1, 1995
10.6 Option Agreement with Motorola Filed as Exhibit 10.6 to Form 10-
Dated November 10, 1995 K filed December 26, 1996(1)
10.7 Stock Purchase Agreement between Filed as Exhibit 10.11 to the
Motorola, Inc. and Telular Registration Statement
Corporation dated September 20,
1993
10.8 Patent Cross License Agreement Filed as Exhibit 10.12 to the
between Motorola, Inc. and Registration Statement (1)
Telular Corporation, dated March
23, 1990 and Amendments No. 1, 2
and 3 thereto
10.9 Exclusive Distribution and Filed as Exhibit 10.14 the
Trademark License Agreement Registration Statement (1)
between Telular Canada Inc. and
Telular Corporation, dated April
1, 1989, and Amendments thereto
10.10 Amended and Restated Shareholders Filed as Exhibit 10.15 to the
Agreement dated November 2, 1993 Registration Statement (1)
</TABLE>
15
<PAGE> 16
<TABLE>
<S> <C> <C>
10.11 Amendment No. 1 to Amended and Filed as Exhibit 10.24 to the
Restated Shareholders Agreement, Registration
dated January 24, 1994
10.12 Amendment No. 2 to Amended and Filed as Exhibit 10.5 to the Form
Restated Shareholders Agreement, 10-Q filed July 28, 1995
dated June 29, 1995
10.13 Amended and Restated Registration Filed as Exhibit 10.16 to the
Rights Agreement dated November Registration Statement
2, 1993
10.14 Amendment No. 1 to Amended and Filed as Exhibit 10.25 to the
Restated Registration Rights Registration Statement
Agreement, dated January 24, 1994
10.15 Amended and Restated Employee Filed as Exhibit 10.17 to Form
Stock Option Plan 10-K filed December 26, 1996
10.16 Stock Option Grant to Independent Filed as Exhibit 10.7 to Form 10-
Directors Q filed July 28, 1995
10.17 Securities Purchase Agreement Filed as Exhibit 99.1 to Form
dated April 16, 1997, by and 8-K filed April 25, 1997
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.18 Registration Rights Agreement Filed as Exhibit 99.3 to Form
dated April 16, 1997, by and 8-K filed April 25, 1997
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
10.19 Securities Purchase Agreement Filed as Exhibit 99.3 to
dated June 6, 1997, by and Registration Statement on Form S-
between Telular Corporation and 3, Registration No. 333-27915, as
purchasers of the Series A amended by Amendment No. 1 filed
Convertible Preferred Stock June 13, 1997, and further
Amended by Amendment No. 2 filed
July 8, 1997 ("Form S-3")
10.20 Registration Rights Agreement Filed as Exhibit 99.4 to Form
dated June 6, 1997, by and S-3
between Telular Corporation and
purchasers of the Series A
Convertible Preferred Stock
</TABLE>
16
<PAGE> 17
<TABLE>
<S> <C> <C>
10.21 Agreement and Plan of Merger by Filed as Exhibit 10.21 to Form
and among Wireless Domain 10-K filed December 19, 1997
Incorporated (formerly TelePath),
Telular-WD (a wholly-owned
subsidiary of Telular) and
certain stockholders of Wireless
Domain Incorporated
10.22 Employment Agreement with Filed herewith
Dan Giacopelli
10.23 Employment Agreement with Robert Filed herewith
Montgomery
11 Statement regarding computation Filed herewith
of per share earnings
27 Financial data schedule Filed herewith
99 Cautionary Statements Pursuant to Filed as Exhibit 99 to Form
the Securities Litigation Act of 10-K filed December 19, 1997
1995
</TABLE>
(1) Confidential treatment granted with respect to certain portions of
documents.
17
<PAGE> 18
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended December 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this Report on Form 10-Q to be signed on its behalf by
the undersigned, thereunto duly authorized.
Telular Corporation
-------------------
Date February 13, 1998 By: /s/ Kenneth E. Millard
---------------------- -------------------------------
Kenneth E. Millard
President & Chief Executive Officer
Date February 13, 1998 /s/ Jeffrey L. Herrmann
---------------------- -------------------------------
Jeffrey L. Herrmann
Senior Vice President & Chief Financial Officer
18
<PAGE> 19
EXHIBIT INDEX
<TABLE>
<CAPTION>
NUMBER DESCRIPTION REFERENCE
------ ----------- ---------
<S> <C> <C>
3.1 Certificate of Filed as Exhibit
Incorporation 3.1 to Registration
Statement No.
33-72096 (the
"Registration
Statement")
3.2 Amendment No. 1 to Filed as Exhibit
Certificate of 3.2 to the
Incorporation Registration
Statement
3.3 Amendment No. 2 to Filed as Exhibit
Certificate of 3.3 to the
Incorporation Registration
Statement
3.4 By-Laws Filed as Exhibit
3.4 to the
Registration
Statement
4.1 Loan Agreement with Filed as Exhibit
LaSalle National 4.1 to Form
Bank and Amendment 10-K filed December
thereto 27, 1995
4.2 Debenture Filed as Exhibit
Agreements dated 4.2 to Form
December 11, 1995 10-K filed December
27, 1995
4.3 Certificate of Filed as Exhibit
Designations, 99.2 to Form
Preferences, and 8-K filed April 25,
Rights of Series A 1997
Convertible
Preferred Stock
4.4 Loan and Security Filed as Exhibit
Agreement with 4.2 to Form
Sanwa Business 10-Q filed August
Credit Corporation 14, 1997
10.1 Consulting Filed as Exhibit
Agreement with 10.1 to the
William L. DeNicolo Registration
Statement
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C> <C>
10.2 Employment Filed as Exhibit
Agreement with 10.1 to Form 10-Q
Kenneth E. Millard filed August 14,
1996
10.3 Stock Option Filed as Exhibit
Agreement with 10.2 to Form 10-Q
Kenneth E. Millard filed August 14,
1996
10.4 Stock Purchase Filed as Exhibit
Agreement By and 10.2 to Form 10-Q
Among Telular filed August 14,
Corporation and 1996
TelePath
Corporation (which
has changed its
name to Wireless
Domain,
Incorporated)
10.5 Appointment of Filed as Exhibit
Larry J. Ford 10.2 to Form 10-Q
filed May 1, 1995
10.6 Option Agreement Filed as Exhibit
with Motorola dated 10.6 to Form 10-K
November 10, 1995 filed December 26,
1996(1)
10.7 Stock Purchase Filed as Exhibit
Agreement between 10.11 to the
Motorola, Inc. and Registration
Telular Corporation Statement
dated September 20,
1993
10.8 Patent Cross Filed as Exhibit
License Agreement 10.12 to the
between Motorola, Registration
Inc. and Telular Statement (1)
Corporation, dated
March 23, 1990 and
Amendments No. 1, 2
and 3 thereto
10.9 Exclusive Filed as Exhibit
Distribution and 10.14 the
Trademark License Registration
Agreement between Statement (1)
Telular Canada Inc.
and the Company,
dated April 1,
1989, and
Amendments thereto
10.10 Amended and Filed as Exhibit
Restated 10.15 to the
Shareholders Registration
Agreement dated Statement (1)
November 2, 1993
10.11 Amendment No. 1 to Filed as Exhibit
Amended and 10.24 to the
Restated Registration
Shareholders Statement
Agreement, dated
January 24, 1994
10.12 Amendment No. 2 to Filed as Exhibit
Amended and 10.5 to the
Restated Form 10-Q filed
Shareholders July 28, 1995
Agreement, dated
June 29, 1995
</TABLE>
20
<PAGE> 21
<TABLE>
<S> <C> <C>
10.13 Amended and Filed as Exhibit
Restated 10.16 to the
Registration Rights Registration
Agreement dated Statement
November 2, 1993
10.14 Amendment No. 1 to Filed as Exhibit
Amended and 10.25 to the
Restated Registration
Registration Rights Statement
Agreement, dated
January 24, 1994
10.15 Amended and Filed as Exhibit
Restated Employee 10.17 to Form 10-K
Stock Option Plan filed December 26,
1996
10.16 Stock Option Grant Filed as Exhibit
to Independent 10.7 to Form 10-Q
Directors filed July 28, 1995
10.17 Securities Purchase Filed as Exhibit
Agreement dated 99.1 to Form
April 16, 1997, by 8-K filed April 25,
and between Telular 1997
Corporation and
purchasers of the
Series A
Convertible
Preferred Stock
10.18 Registration Rights Filed as Exhibit
Agreement dated 99.3 to Form
April 16, 1997, by 8-K filed April 25,
and between Telular 1997
Corporation and
purchasers of the
Series A
Convertible
Preferred Stock
10.19 Securities Purchase Filed as Exhibit
Agreement dated 99.3 to
June 6, 1997, by Registration
and between Telular Statement on Form
Corporation and S-3, Registration
purchasers of the No. 333-27915, as
Series A amended by
Convertible Amendment No. 1
Preferred Stock filed June 13,
1997, and further
Amended by
Amendment No. 2
filed July 8, 1997
("Form S-3")
10.20 Registration Rights Filed as Exhibit
Agreement dated 99.4 to Form
June 6, 1997, by S-3
and between Telular
Corporation and
purchasers of the
Series A
Convertible
Preferred Stock
</TABLE>
21
<PAGE> 22
<TABLE>
<S> <C> <C>
10.21 Agreement and Plan Filed as Exhibit
of Merger by and 10.21 to Form 10-K
among Wireless filed December 19,
Domain Incorporated 1997
(formerly TelePath),
Telular-WD (a
wholly-owned
subsidiary of
Telular) and
certain
stockholders of
Wireless Domain
Incorporated
10.22 Employment Filed herewith
Agreement with Dan
Giacopelli
10.23 Employment Filed herewith
Agreement with
Robert Montgomery
11 Statement regarding Filed herewith
computation of per
share earnings
27 Financial data Filed herewith
schedule
99 Cautionary Filed as Exhibit 99
Statements Pursuant to Form 10-K filed
to the Securities December 19, 1997
Litigation Act of
1995
</TABLE>
(1) Confidential treatment granted with respect to certain portions of
documents.
22
<PAGE> 1
Exhibit 10.22
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of November 10, 1997, by
and between Telular Corporation, a Delaware corporation (the "Company"), and
Dan Giacopelli, (the "Executive");
WITNESSETH:
WHEREAS, the Company wishes to employ the Executive as its
Executive Vice President and Chief Technical Officer; and
WHEREAS, the Executive wishes to be employed in this capacity
by the Company, on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual obligations set
forth herein, the parties hereto hereby agree as follows:
1. Engagement. The Company hereby agrees to employ the
Executive and the Executive hereby accepts such employment, on the terms and
conditions hereinafter set forth.
2. Term of Employment. The Executive's employment by the
Company shall commence on the date hereof (the "Effective Date"). Employment
shall be for four (4) years, subject to the provisions set forth herein. The
period of employment of the Executive by the Company is referred to herein as
the "Term".
3. Duties. During the Term, the Executive shall serve as the
Company's Executive Vice President and Chief Technical Officer and shall have
such duties and responsibilities as may be assigned to him from time to time by
the Chief Executive Officer of the Company. The Executive shall use his best
efforts and shall act in good faith in performing all duties reasonably
required to be performed under this Agreement.
<PAGE> 2
- 2 -
4. Availability. The Executive shall devote his entire
working time, attention and energies to the Company's business and, during the
term of this Agreement, shall not be engaged in any other business activity
without the express written approval of the Board.
5. Expenses. The Company shall reimburse the Executive,
promptly upon presentation of itemized vouchers, for all ordinary and necessary
business expenses incurred by the Executive in the performance of this duties
hereunder.
6. Compensation. As compensation for the services to be
rendered hereunder, the Company agrees as follows:
(a) The Company shall pay to the Executive an annual base
salary (the "Base Salary") which shall be at the annual rate of $200,000.00.
The Base Salary shall be paid in semi-monthly installments or in such other
installments as to which the Company and the Executive may agree. The Base
Salary will be reviewed each year on the same basis as all other salaried
employees, but may not be reduced.
(b) Performance targets shall be established by the Company
for the Executive for each fiscal quarter during which the Executive remains
employed by the Company. A bonus shall be paid to the Executive pursuant to
the Company's Senior Management Bonus Plan, based on the degree to which the
established performance targets are achieved, per the table below:
<PAGE> 3
- 3 -
Senior Management
Bonus Plan
<TABLE>
<CAPTION>
% of Planned Performance % of Target Bonus
------------------------ -----------------
<S> <C>
0 - 99.0% None
100.0% - 124.9% 100.0%
125.0% - 149.9% 150.0%
150.0% and above 200%
</TABLE>
Executive's annual target bonus shall be $100,000.00, half of which to be paid
in cash and the other half of which to be paid in Telular Corporation Stock.
Bonuses will be payable for any fiscal quarter only if the Executive remains
employed by the Company through the last day of such fiscal quarter.
(c) The Company shall permit the Executive to participate in
such pension, 401 (k), and other employee benefit plans as are made available
to employees of the Company generally. The Executive shall be entitled to
three weeks of paid vacation per year.
7. Stock Options. Under an Option Agreement extend into in
connection herewith, the Telular Corporation is granting to the Executive an
option to purchase 250,000.00 shares under the Telular Corporation's Stock
Incentive Plan.
8. Ownership of Material Information. All right, title and
interest of every kind and nature whatsoever in and to discoveries, inventions,
improvements, patents (and applications therefor), copyrights, ideas, know-how,
laboratory notebooks, creations, properties and all other proprietary rights
arising from, or in any way related to, the Executive's employment hereunder
shall become and remain the exclusive property of the Company, and the
Executive shall have no interest therein.
<PAGE> 4
- 4 -
9. Trade Secrets. The Executive shall not, during the term of
this Agreement or thereafter, disclose to anyone (except to the extent
reasonably necessary for the Executive to perform his duties hereunder or as
many be required by law) any confidential information concerning the business
or affairs of the Company (or of any affiliate or subsidiary of the Company),
including by not limited to lists of customers, business plans, joint ventures,
financial or cost information, and confidential scientific and technological
information (whether of the Company or entrusted to the Company by a third
party under a confidentiality agreement or understanding) which the Executive
shall have acquired in the course of, or incident to, the performance of his
duties pursuant to the terms of this Agreement or pursuant to any prior
dealings with the Company or any affiliate or subsidiary of the Company. In
the event of a breach or threatened breach by the Executive of the provisions
of this Section 9, the Company shall be entitled to an injunction restraining
the Executive from disclosing, in whole or in part, such information or from
rendering any services to any person, firm, corporation, association or other
entity to whom such information has been disclosed or is threatened to be
disclosed. Nothing herein shall be construed as prohibiting the Company from
pursuing any other remedies available to the Company for such breach or
threatened breach, including the recovery of damages from the Executive.
Nothing herein shall be construed as prohibiting the Executive from disclosing
to anyone any information which is, or which becomes, available to the public
(other than by reason of a violation of this Section 9) or which is a matter of
general business knowledge or experience.
10. Termination for Cause. The Company may terminate the
employment of the Executive under this Agreement if it determines that the
Executive (a) has materially and
<PAGE> 5
- 5 -
substantially breached his obligations to the Company under this Agreement or
otherwise, provided that the employment of the Executive shall not be
terminated under this clause (a) unless the Executive is given notice in
writing that the conduct in question constitutes grounds for termination under
this Section 10 and the Executive is allowed at least thirty (30) days to
remedy the refusal or failure, (b) has been convicted of a felony constituting
a crime of moral turpitude (whether or not in conjunction with the performance
by the Executive of his duties under this Agreement), or (c) has through
willful misconduct or gross negligence engaged in an act or course of conduct
that causes material injury to the Company (or any affiliate or subsidiary of
the Company). Refusal by the Executive to relocate his principal place of
employment outside of Long Island, New York, shall not constitute "Cause" for
termination. If the employment of the Executive under this Agreement is
terminated under this Section 10, the Company shall give written notice to the
Executive specifying the cause of such action. Upon termination of employment
under this Section 10, the Company shall be relieved of all further obligations
under this Agreement. Notwithstanding such termination of employment, the
Executive shall continue to be bound by the provisions of Sections 8, 9, and
13.
11. Termination Without Cause.
(a) If, except as otherwise provided in Section 12, the
employment of the Executive is terminated by the Company other than for Cause
or by resignation of the Executive, or if the responsibilities and duties of
the Executive are, other than for Cause, materially diminished or changed by
the Company in a manner that materially impairs the Executive's ability to
function as the Executive Vice President and Chief Technical Officer,
<PAGE> 6
- 6 -
the Executive shall be entitled to receive, upon such termination, severance
payments in amounts equal to a continuation of Executive's salary for a period
of six (6) months and continuation of Company paid medical benefits for a
period of six (6) months, provided however that severance payments shall
terminate when Executive obtains other employment.
(b) Termination of employment under this Section 11 shall not
terminate the Executive's obligations under Sections 8, 9, and 13.
12. Death or Disability of the Executive. In the event that
the Executive, during the period while employed under this Agreement, shall die
or at any time become unable, due to ill-health, accident, injury or similar
cause, to carry out his duties under this Agreement, the Company may terminate
this Agreement and be relieved of all further obligations hereunder other than
for obligations arising under employment discrimination laws including but not
limited to the Americans with Disabilities Act and/or Family Medical Leave Act
and other than compensation for services provided prior to such termination,
reimbursement for expenses incurred prior to such termination, and, other than
in the case of death, payment of the severance payment specified in Section
11(a) and, in the case of disability, payment of the severance payment
specified in Section 11(a) minus the amount of any disability insurance
proceeds that the Executive is entitled to receive for the six-month period
following termination of employment by reason of disability. Termination of
employment under this Section 12 shall not terminate the Executive's
obligations under Section 8, 9, and 13.
13. Non-Competition. The Executive hereby agrees that, during
the Term and for a period of twelve (12) months following the termination of
his employment under this
<PAGE> 7
- 7 -
Agreement, he will not, directly or indirectly and in any way, (a) own, manage,
operate, control, be employed by, participate in, or be connected in any manner
with the ownership, management, operation or control of any business engaging
in the design, development, manufacture, marketing or distribution of fixed
wireless terminal products, (b) interfere with, solicit on behalf of another
or attempt to entice away from the Company (or any affiliate or subsidiary of
the Company) (i) any project, financing or customer that the Company (or any
affiliate or subsidiary of the Company) has under contract (including
unfulfilled purchase orders), or any letter of supply or other supplier
contract or arrangement entered into by the Company (or any affiliate or
subsidiary of the Company), and all extensions, renewals and resolicitations of
such contracts or arrangements, (ii) any contract, agreement or arrangement
that the Company (or any affiliate or subsidiary of the Company) is actively
negotiating with any other party, or (iii) any prospective business opportunity
that the Company (or any affiliate or subsidiary of the Company) has
identified, or (c) for himself or another, hire, attempt to hire, or assist in
or facilitate in any way the hiring of any employee of the Company (or any
affiliate or subsidiary of the Company), or any employee of any person, firm or
other entity, the employees of which the Company (or any affiliate or
subsidiary of the Company) has agreed not to hire or endeavor to hire. The
effective time of the limitations imposed by this Section 13 shall be extended
for the period of time equal to any period of time during which the Executive
acts in circumstances that court of competent jurisdiction finds to have
violated the terms of this Section 13.
Because of the Executive's knowledge of the Company's business,
in the event of the Executive's actual or threatened breach of the provisions
of this Section 13, the
<PAGE> 8
- 8 -
Company shall be entitled to, and the Executive hereby consents to, an
injunction restraining the Executive from any of the foregoing. However,
nothing herein shall be construed as prohibiting the Company from pursuing any
other available remedies for such breach or threatened breach, including the
recovery of damages from the Executive. The Executive agrees that the
provisions of this Section 13 are necessary and reasonable to protect the
Company in the conduct of its business. If any restriction contained in this
Section 13 shall be deemed to be invalid or unenforceable by reason of the
extent, duration of geographic scope thereof, then the Company shall have the
right to reduce such extent, duration, geographic scope of other provisions
thereof, and in their reduced form such restrictions shall then be enforceable
in the manner contemplated hereby.
14. Capacity. The Executive represents and warrants to the
Company that he is not now under any obligation, of a contractual nature or
otherwise, to any person, firm, corporation, association or other entity that
is inconsistent or in conflict with this Agreement or which would prevent,
limit or impair in any way the performance by him of his obligations hereunder.
15. Withholding. The Executive acknowledges that salary and
all other compensation payable under this Agreement shall be subject to
withholding for income and other applicable taxes to the extent required by law,
as determined by the Company in its reasonable judgment.
16. Indemnification. To the greatest extent permitted by
applicable law, and in a manner consistent with any procedures required by
applicable law, the Corporation shall indemnify and hold the Executive harmless
from and against any liability (including, without
<PAGE> 9
- 9 -
limitation, reasonable attorneys' fees) incurred by the Executive in any claim,
action, suit, or proceeding instituted or brought against the Executive as a
result of or arising out of service by the Executive as an officer, director,
trustee or employee of the Company, or of any other corporation or other entity
at the request or direction of the Company, except to the extent that such
liability is the result of the criminal action or willful misconduct on the
part of the Executive.
17. Waiver. No act, delay, omission or course of dealing on
the part of any party hereto in exercising any right, power or remedy hereunder
shall operate as, or be construed as, a waiver thereof or otherwise prejudice
such party's rights, powers and remedies under this Agreement.
18. Notice. Any and all notices referred to herein shall be
sufficient if furnished in writing and delivered by hand, by facsimile
transmission or by overnight delivery service maintaining records of receipt,
to the respective parties at the following addresses:
If to the Company: Telular Corporation
647 North Lakeview Parkway
Vernon Hills, IL 60061
Attention: Kenneth Millard
Facsimile #: 847-247-9577
If to the Executive: Dan Giacopelli
c/o Telular Corporation
580 Old Willets Path
Hauppage, NY 11788
Facsimile #: 516-234-8474
or to such other address or addresses as either party may from time to time
designate by notice given as aforesaid. Notices shall be effective when
delivered.
<PAGE> 10
- 10 -
19. Assignability. The rights and obligations contained
herein shall be binding on and inure to the benefit of the successors and
assigns of the Company. The Executive may not assign his rights or obligations
hereunder without the express written consent of the Company.
20. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
21. Completeness. This Agreement and the Option Agreement
entered into pursuant hereto set forth all, and are intended by each party to
be an integration of all, of the promises, agreements and understandings
between the parties hereto with respect to the subject matter hereof.
22. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one agreement binding on the parties hereto.
23. Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision that is not essential
to the effectuation of the basic purpose of the Agreement is determined to be
invalid or contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those provisions of this Agreement that are
valid.
24. Headings; Construction. Headings contained in this
Agreement are inserted for reference and convenience only and in no way define,
limit, extend or describe the scope of this Agreement or the meaning or
construction of any of the provisions hereof. As used herein, unless the
context otherwise requires, the single shall include the plural and vice versa,
<PAGE> 11
- 11 -
words of any gender shall include words of any other gender, and "or" is used
in the inclusive sense.
25. Survival of Terms. If this Agreement is terminated for
any reason, the provisions of Sections 8, 9 and 13 shall survive and the
Executive and the Company, as the case may be, shall continue to be bound by
the terms thereof to the extent provided therein.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
TELULAR CORPORATION
/s/Dan Giacopelli By: /s/Kenneth Millard
- ---------------------------- ----------------------------
Dan Giacopelli Kenneth Millard
President and C.E.O.
<PAGE> 1
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT, dated as of April 22, 1997, by and between
TELULAR CORPORATION, a Delaware corporation (the "Company"), and Robert C.
Montgomery, a resident of the state of Georgia (the "Executive");
WITNESSETH:
WHEREAS, the Company wishes to employ the Executive as its Executive
Vice President and Chief Operating Officer; and
WHEREAS, the Executive wishes to be employed in this capacity by the
Company, on the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the mutual obligations set forth
herein, the parties hereto hereby agree as follows:
1. Engagement. The Company hereby agrees to employ the Executive
as its Executive Vice President and Chief Operating Officer and the Executive
hereby accepts such employment, on the terms and condition hereinafter set
forth. The Executive's principal place of business shall be at the
headquarters of the Company, and the Executive shall promptly establish a
residence in the Chicago metropolitan area.
2. Term of Employment. The Executive's employment by the Company
shall commence on April 22, 1997 (the "Effective Date"). Employment shall be
on an "at-will" basis and shall continue in effect until termination by either
party upon at least 60 days prior notice. The period of employment of the
Executive by the Company is referred to herein as the "Term".
<PAGE> 2
2
3. Duties. During the Term, the Executive shall serve as the
Company's Executive Vice President and Chief Operating Officer and shall have
such duties and responsibilities as may be assigned to him from time to time by
the Chief Executive Officer. The Executive shall use his best efforts and
shall act in good faith in performing all duties reasonably required to be
performed under this Agreement.
4. Availability. The Executive shall devote his entire working
time, attention and energies to the Company's business and, during the term of
this Agreement, shall not be engaged in any other business activity without the
express written approval of the Board.
5. Expenses. (a) The Company shall reimburse the Executive,
promptly upon presentation of itemized vouchers, for all ordinary and necessary
business expenses incurred by the Executive in the performance of this duties
hereunder.
(b) The Company shall reimburse the Executive for
his reasonable costs and expenses incurred in connection with the relocation of
his residence from Atlanta, Georgia, to the Chicago metropolitan area
(including without limitation costs of selling the Executive's Atlanta
residence and closing costs and points incurred in the Executive's purchase of
a Chicago residence), up to a maximum reimbursement of $50,000. The Executive
shall provide the Company with reasonable supporting documentation for all
expenses for which reimbursement is sought.
6. Compensation. As compensation for the services to be rendered
hereunder, the Company agrees as follows:
(a) The Company shall pay to the Executive an annual base salary
(the "Base Salary") which shall be at the annual rate of $ 205,000. The Base
Salary shall be paid in bi-
<PAGE> 3
3
monthly installments or in such other installments as to which the Company and
the Executive may agree.
(b) In addition, Executive is eligible to earn an incentive
bonus, under the company's Management Bonus Plan. The Board shall establish
performance targets for the Executive for each fiscal year during which the
Executive remains employed by the Company, and for the partial fiscal year
between the date of this Agreement and September 30, 1997 (the "Partial Year").
For any fiscal quarter for which the Executive achieves 100% of the performance
targets established for the quarter, the Company shall pay to the Executive,
not later than 30 days after the end of such fiscal quarter, an incentive bonus
(the "Incentive Bonus") of $25,000 of which $12,500 shall be paid in cash and
$12,500 in the form of Common Stock, par value $.01 per share, of the Company
("Common Stock"), having a Market Value (as defined below) of $12,500.
(c) For purposes of Section 6 (b), the "Market Value" of a share of
Common Stock shall be the average closing bid price of the Common Stock over
the five consecutive trading days ending on the last day of period for which
objectives are set. (For example, in the case of objectives established for
the period ending September 30, 1997, the Market Value would be the average
closing bid price on September 24, 25, 26, 27, and 30, 1997).
(d) No Incentive Bonus shall be payable for any fiscal quarter or
partial fiscal quarter if (i) the Executive for any reason was not an employee
of the Company for at least one-half of such fiscal quarter or partial fiscal
quarter or (ii) the Executive was not an employee of the Company at the end of
such fiscal quarter or partial fiscal quarter by reason of either the prior
resignation of the Executive or the prior termination of the Executive by the
Company for Cause (as defined below).
<PAGE> 4
4
(e) The Company shall permit the Executive to participate in such
pension, 401 (k), and other employee benefit plans as are made available to
employees of the Company generally. The Executive shall be entitled to four
weeks of paid vacation per year.
7. Stock Options. Under an Option Agreement of even date herewith,
the Company is granting to the Executive certain stock options under the
Company's Stock Incentive Plan.
8. Ownership of Material Information. All right, title and
interest of every kind and nature whatsoever in and to discoveries, inventions,
improvements, patents (and applications therefor), copyrights, ideas, know-how,
laboratory notebooks, creations, properties and all other proprietary rights
arising from, or in any way related to, the Executive's employment hereunder
shall become and remain the exclusive property of the Company, and the
Executive shall have no interest therein.
9. Trade Secrets. The Executive shall not, during the term of this
Agreement or thereafter, disclose to anyone (except to the extent reasonably
necessary for the Executive to perform his duties hereunder or as many be
required by law) any confidential information concerning the business or
affairs of the Company (or of any affiliate or subsidiary of the Company),
including by not limited to lists of customers, business plans, joint ventures,
financial or cost information, and confidential scientific and technological
information (whether of the Company or entrusted to the Company by a third
party under a confidentiality agreement or understanding) which the Executive
shall have acquired in the course of, or incident to, the performance of his
duties pursuant to the terms of this Agreement or pursuant to any prior
dealings with the Company or any affiliate or subsidiary of the Company. In
the event of a breach or threatened breach by the Executive of the provisions
of this Section 9, the Company shall be
<PAGE> 5
5
entitled to an injunction restraining the Executive from disclosing, in whole
or in part, such information or from rendering any services to any person,
firm, corporation, association or other entity to whom such information has
been disclosed or is threatened to be disclosed. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to the Company for such breach or threatened breach, including the recovery of
damages from the Executive. Nothing herein shall be construed as prohibiting
the Executive from disclosing to anyone any information which is, or which
becomes, available to the public (other than by reason of a violation of this
Section 9) or which is a matter of general business knowledge or experience.
10. Termination for Cause. The Company may terminate the employment
of the Executive under this Agreement in the event that the Board determines
that the Executive (a) has materially and substantially breached his
obligations under Section 4, 9, or 13 of this Agreement, provided that the
employment of the Executive shall not be terminated under this clause (a)
unless the Executive is given notice in writing that the conduct in question
constitutes grounds for termination under this Section 10 and the Executive is
allowed at least thirty (30) days to remedy the refusal or failure, (b) has
been convicted of a felony constituting a crime of moral turpitude (whether or
not in conjunction with the performance by the Executive of his duties under
this Agreement), or (c) has through willful misconduct or gross negligence
engaged in an act or course of conduct that causes material injury to the
Company (or any affiliate or subsidiary of the Company). If the employment of
the Executive under this Agreement is terminated under this Section 10, the
Chief Executive Officer shall give written notice to the Executive specifying
the cause of such action. Upon termination of employment under this Section
10, the Company shall be relieved of all further obligations under this
Agreement.
<PAGE> 6
6
Notwithstanding such termination of employment, the Executive shall continue to
be bound by the provisions of Sections 8, 9, and 13.
11. Termination Without Cause.
(a) If, except as otherwise provided in Section 12, the employment
of the Executive is terminated by the Company other than for Cause or by
resignation of the Executive, or if the responsibilities and duties of the
Executive are, other than for Cause, materially diminished or changed by the
Company in a manner that materially impairs the Executive's ability to function
as the Executive Vice President and Chief Operating Officer of the Company, the
Executive shall be entitled to receive severance payments aggregating up to
$205,000; said severance payments are to be paid as continuation of monthly
salary payments until such time as Executive secures other employment at which
time the payments shall cease. In no event will severance payments continue
for more than 12 months or exceed in the aggregate $205,000.
(b) Termination of employment under this Section 11 shall not
terminate the Executive's obligations under Sections 8, 9, and 13.
12. Death or Disability of the Executive. In the event that the
Executive, during the period while employed under this Agreement, shall die or
at any time become unable, due to ill-health, accident, injury or similar
cause, to carry out his duties under this Agreement, the Company may terminate
this Agreement and be relieved of all further obligations hereunder, other than
compensation for services provided prior to such termination, reimbursement for
expenses incurred prior to such termination, and, other than in the case of
death, payment of the severance payment specified in Section 11 (a).
Termination of employment under this Section 12 shall not terminate the
Executive's obligation under section 8, 9 and 13.
<PAGE> 7
7
13. Non-Competition. The Executive hereby agrees that, during the
Term and for a period of eighteen (18) months following the termination of his
employment under this Agreement, he will not, directly or indirectly and in any
way, (a) own, manage, operate, control, be employed by, participate in, or be
connected in any manner with the ownership, management, operation or control of
any business competing with the business of the Company, (b) interfere with,
solicit on behalf of another or attempt to entice away from the Company (or any
affiliate or subsidiary of the Company) (i) any project, financing or customer
that the Company (or any affiliate or subsidiary of the Company) has under
contract (including unfulfilled purchase orders), or any letter of supply or
other supplier contract or arrangement entered into by the Company (or any
affiliate or subsidiary of the Company), and all extensions, renewals and
resolicitations of such contracts or arrangements, (ii) any contract,
agreement or arrangement that the Company (or any affiliate or subsidiary of
the Company) is actively negotiating with any other party, or (iii) any
prospective business opportunity that the Company (or any affiliate or
subsidiary of the Company) has identified, or (c) for himself or another, hire,
attempt to hire, or assist in or facilitate in any way the hiring of any
employee of the Company (or any affiliate or subsidiary of the Company), or any
employee of any person, firm or other entity, the employees of which the
Company (or any affiliate or subsidiary of the Company) has agreed not to hire
or endeavor to hire. The effective time of the limitations imposed by this
Section 13 shall be extended for the period of time equal to any period of time
during which the Executive acts in circumstances that court of competent
jurisdiction finds to have violated the terms of this Section 13.
Because of the Executive's knowledge of the Company's business, in the
event of the Executive's actual or threatened breach of the provisions of this
Section 13, the Company shall be entitled to, and the Executive hereby consents
to, an injunction restraining the Executive
<PAGE> 8
8
from any of the foregoing. However, nothing herein shall be construed as
prohibiting the Company from pursuing any other available remedies for such
breach or threatened breach, including the recovery of damages from the
Executive. The Executive agrees that the provisions of this Section 13 are
necessary and reasonable to protect the Company in the conduct of its
business. If any restriction contained in this Section 13 shall be deemed to
be invalid or unenforceable by reason of the extent, duration of geographic
scope thereof, then the Company shall have the right to reduce such extent,
duration, geographic scope of other provisions thereof, and in their reduced
form such restrictions shall then be enforceable in the manner contemplated
hereby.
14. Capacity. The Executive represents and warrants to the
Company that he is not now under any obligation, of a contractual nature or
otherwise, to any person, firm, corporation, association or other entity that
is inconsistent or in conflict with this Agreement or which would prevent,
limit or impair in any way the performance by him of his obligations hereunder.
15. Withholding. The Executive acknowledges that salary and all
other compensation payable under this Agreement shall be subject to withholding
for income and other applicable taxes to the extent required by law, as
determined by the Company in its reasonable judgment.
16. Indemnification. To the greatest extent permitted by applicable
law, and in a manner consistent with any procedures required by applicable law,
the Corporation shall indemnify and hold the Executive harmless from and
against any liability (including, without limitation, reasonable attorneys'
fees) incurred by the Executive in any claim, action, suit, or proceeding
instituted or brought against the Executive as a result of or arising out of
service by
<PAGE> 9
9
the Executive as an officer, director of the Company, or of any other
corporation or other entity at the request or direction of the Company, except
to the extent that such liability is the result of the criminal action or
willful misconduct on the part of the Executive.
17. Waiver. No act, delay, omission or course of dealing on the
part of any party hereto in exercising any right, power or remedy hereunder
shall operate as, or be construed as, a waiver thereof or otherwise prejudice
such party's rights, powers and remedies under this Agreement.
18. Notice. Any and all notices referred to herein shall be
sufficient if furnished in writing and delivered by hand, by facsimile
transmission or by overnight delivery service maintaining records of receipt,
to the respective parties at the following addresses:
If to the Company: Telular Corporation
920 Deerfield Parkway
Buffalo Grove, Illinois 60089
Attention: Kenneth E. Millard
Facsimile #: 847-465-4555
with a copy to: Covington & Burling
1201 Pennsylvania Ave., N.W.
P.O. Box 7566
Washington, D.C. 20044
Attn: Michael E. Cutler, Esq.
Facsimile #: 202-778-5258
If to the Executive: Robert C. Montgomery
5280 New London Trace NW
Atlanta, Georgia 30327
or to such other address or addresses as either party may from time to time
designate by notice given as aforesaid. Notices shall be effective when
delivered.
19. Arbitration. Except as provided otherwise in this Agreement,
all disputes arising under or in connection with this Agreement may be
submitted to arbitration in Chicago,
<PAGE> 10
10
Illinois under the rules of the American Arbitration Association, and the
decision of the arbitrator shall be final and binding upon the parties.
Judgment upon the award rendered may be entered and enforced in any court
having jurisdiction.
20. Assignability. The rights and obligations contained herein
shall be binding on and inure to the benefit of the successors and assigns of
the Company. The Executive may not assign his rights or obligations hereunder
without the express written consent of the Company.
21. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Illinois.
22. Completeness. This Agreement and the Option Agreement entered
into pursuant hereto set forth all, and are intended by each party to be an
integration of all, of the promises, agreements and understandings between the
parties hereto with respect to the subject matter hereof.
23. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, and all of which
together shall constitute one agreement binding on the parties hereto.
24. Severability. Each provision of this Agreement shall be
considered severable and if for any reason any provision that is not essential
to the effectuation of the basic purpose of the Agreement is determined to be
invalid or contrary to any existing or future law, such invalidity shall not
impair the operation of or affect those provisions of this Agreement that are
valid.
25. Headings; Construction. Headings contained in this Agreement
are inserted for reference and convenience only and in no way define, limit,
extend or describe the scope of this Agreement or the meaning or construction
of any of the provisions hereof. As used
<PAGE> 11
11
herein, unless the context otherwise requires, the single shall include the
plural and vice versa, words of any gender shall include words of any other
gender, and "or" is used in the inclusive sense.
26. Survival of Terms. If this Agreement is terminated for any
reason, the provisions of Sections 8, 9 and 13 shall survive and the Executive
and the Company, as the case may be, shall continue to be bound by the terms
thereof to the extent provided therein.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
TELULAR CORPORATION
/s/ ROBERT C. MONTGOMERY By: /s/ KENNETH E. MILLARD
- ---------------------------- -----------------------------
Robert C. Montgomery Kenneth E. Millard
President and C.E.O.
<PAGE> 1
EXHIBIT (11) - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE AND PRO FORMA
EARNINGS PER SHARE
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
1997 1996
<S> <C> <C>
Average number of shares outstanding.............. 32,668,037 31,442,993
================ ==============
Net loss $ (2,044,000) $ 740,000
================ ==============
Less: Cumulative dividend on redeemable
preferred stock $ (239,000) $ -
---------------- --------------
Loss applicable to common shares $ (2,283,000) $ 740,000
================ ==============
Net loss per share $ (0.07) $ 0.02
================ ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 27,714,000
<SECURITIES> 0
<RECEIVABLES> 9,550,000
<ALLOWANCES> 362,000
<INVENTORY> 9,542,000
<CURRENT-ASSETS> 46,963,000
<PP&E> 4,951,000
<DEPRECIATION> 436,000
<TOTAL-ASSETS> 56,661,000
<CURRENT-LIABILITIES> 9,739,000
<BONDS> 0
19,946,000
0
<COMMON> 334,000
<OTHER-SE> 26,642,000
<TOTAL-LIABILITY-AND-EQUITY> 56,661,000
<SALES> 12,687,000
<TOTAL-REVENUES> 12,687,000
<CGS> 9,913,000
<TOTAL-COSTS> 9,913,000
<OTHER-EXPENSES> 4,793,000
<LOSS-PROVISION> 25,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,044,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,044,000)
<DISCONTINUED> 0
<EXTRAORDINARY> (239,000)
<CHANGES> 0
<NET-INCOME> (2,283,000)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
