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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 2, 1999
Registration No. 333- _____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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VISUAL NETWORKS, INC.
(Exact Name of Registrant as Specified in Its Charter)
2092 GAITHER ROAD
ROCKVILLE, MD 20850
(301) 296-2300
(Address of Principal Executive Offices)
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DELAWARE 3576 52-1837515
(State or Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification Number)
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SCOTT E. STOUFFER
PRESIDENT AND CHIEF EXECUTIVE OFFICER
VISUAL NETWORKS, INC.
2092 GAITHER ROAD
ROCKVILLE, MARYLAND 20850
(301) 296-2300
(Name, Address, Including Zip Code and Telephone Number,
Including Area Code of Agent for Service)
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COPIES TO:
NANCY A. SPANGLER, ESQUIRE
PIPER & MARBURY L.L.P.
1200 NINETEENTH STREET, N.W.
WASHINGTON, D.C. 20036
(202) 861-3900
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED AMOUNT TO BE MAXIMUM AGGREGATE AMOUNT OF
REGISTERED OFFERING PRICE REGISTRATION FEE
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Common Stock, par value $.01 per share 2,075,277 $79,574,421.28(1) $22,121.70
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(1) Pursuant to Rule 457(c), the proposed maximum aggregate offering price and
registration fee are based upon the closing price of $38.344 per share of
Visual Networks, Inc.'s Common Stock on February 24, 1999, as reported on
the Nasdaq National Market.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED MARCH 2, 1999
PROSPECTUS
MARCH __, 1999
2,075,277 SHARES
VISUAL NETWORKS, INC.
COMMON STOCK
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This Prospectus relates to the public offering from time to time of up
to an aggregate of 2,075,277 shares (the "Shares") of Common Stock, par value
$.01 per share (the "Common Stock"), of Visual Networks, Inc., a Delaware
corporation ("Visual"), by various stockholders. See "Selling Stockholders" on
page 11.
Visual's Common Stock is traded on the Nasdaq National Market under the
symbol "VNWK." On February 24, 1999, the reported closing price of Visual's
Common Stock on the Nasdaq National Market was $38.344 per share.
BEGINNING ON PAGE 5, VISUAL HAS LISTED SEVERAL "RISK FACTORS" WHICH
YOU SHOULD CONSIDER. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY BEFORE YOU
MAKE YOUR INVESTMENT DECISION.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
VISUAL HAS NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM
THAT CONTAINED IN THIS PROSPECTUS. NO ONE MAY SELL THESE SECURITIES UNTIL THE
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE
"SEC" OR THE "COMMISSION") IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
NEITHER THE SEC NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
WHERE YOU CAN FIND MORE INFORMATION
Visual is subject to the informational requirements of the Securities
Exchange Act of 1934, and in accordance with the Securities Exchange Act, files
reports, proxy statements and other information with the SEC. You may obtain
such reports, proxy statements and other information from the SEC's Public
Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549, or by calling
the SEC at 1-800-SEC-0330, or from the SEC's Internet web site at
http:\\www.sec.gov.
This Prospectus is a part of a registration statement that Visual filed
with the SEC. The registration statement contains more information than this
Prospectus, including certain exhibits. You can get a copy of the registration
statement from the SEC at the address listed above or from its web site.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows Visual to "incorporate" into this Prospectus information
Visual periodically files with the SEC in other documents. This means that we
can disclose important information to you by referring to other documents that
contain that information. The information may include documents filed after the
date of this Prospectus which update and supersede the information you read in
this Prospectus. We incorporate by reference the documents listed below, and all
future documents filed with the SEC under Sections 13(a), 13(c), 14 or 15(d) of
the Securities Exchange Act until we terminate the offering of these securities.
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SEC File No.: 000-23699 Period/Filing Date
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Annual Report on Form 10-K........................... Year ended December 31, 1997
Quarterly Reports on Form 10-Q....................... Quarters ended March 31, 1998, June 30, 1998, and
September 30, 1998
Definitive Proxy Statement .......................... Filed on April 29, 1998
Current Report on Form 8-K .......................... Filed May 19, 1998
Current Report on Form 8-K/A......................... Filed July 14, 1998
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You may request a copy of these documents, at no cost, by writing to:
Angela Tandy
Manager of Investor Relations
Visual Networks, Inc.
2092 Gaither Road
Rockville, Maryland 20850
(301) 296-2300
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OUR BUSINESS
Visual designs, manufactures and sells wide-area-network ("WAN")
service level management systems for statistically multiplexed technologies such
as Frame Relay, Asynchronous Transfer Mode ("ATM") and IP/Internet. Our Visual
UpTime system combines WAN access functionality with innovative software for
performance monitoring, troubleshooting and network capacity planning. Visual
UpTime provides instrumentation for network performance measurement and analysis
that allows WAN service providers to achieve the service levels required by
their customers and to lower operating costs associated with statistically
multiplexed services. The availability of performance monitoring and
troubleshooting instrumentation also allows subscribers to verify the service
levels being supplied by their service provider and monitor traffic traversing
the WAN, a requirement for many subscribers wishing to use statistically
multiplexed services to carry mission-critical data traffic. We believe Visual
UpTime systems are deployed in configurations managing up to 1,600 circuits and
the system is currently designed to support configuration of up to 45,000
circuits on a single managed network.
We believe that we are a worldwide leader in providing WAN service
level management systems and we have shipped systems for deployment on an
aggregate of over 50,000 WAN circuits. We have developed relationships with
major service providers such as AT&T Corp., Sprint/United Management Company,
MCI Worldcom, Inc., Ameritech Corporation, Bell Atlantic Network Integration,
Inc., BellSouth Communication Systems, Inc., Intermedia Communications, Inc. and
GTE Communication Systems Corporation. These service providers either resell
Visual UpTime to their subscribers or integrate Visual UpTime into their network
infrastructure to enable them to offer enhanced data transport service levels.
Visual UpTime has been deployed in Frame Relay networks utilized by over 425
subscribers, including ABN-AMRO Bank, Cargill, Inc., Delta Air Lines, Inc., EDS
Electronic Commerce Division, Federal Express Corporation, Household
International, Inc., Marriott International, Inc., Reynolds Metals, Inc. and
Waste Management, Inc. For the year ended December 31, 1998, we had revenue of
approximately $50.9 million.
Vertical Systems Group, a leading WAN industry analyst, estimates that
approximately 1,000,000 Frame Relay circuits and 45,000 ATM circuits will be
installed worldwide from 1999 through 2001. To take advantage of this projected
growth in these markets, we plan to expand our relationships with our service
provider customers which together account for the majority of statistically-
multiplexed traffic worldwide. The percentage of revenue attributable to sales
to service providers increased from approximately 40% of revenue for the year
ended December 31, 1997, to approximately 65% of revenue for the year ended
December 31, 1998. Sprint, AT&T and MCI accounted for 27% , 7% and 2%,
respectively, of revenue for the year ended December 31, 1997. Sales of
products or services to Sprint, AT&T and MCI accounted for 30%, 17% and 14%,
respectively, of revenue for the year ended December 31, 1998.
Visual was incorporated in Maryland in August 1993 under the name Avail
Networks, Inc. and reincorporated in Delaware in December 1994 as Visual
Networks, Inc. On May 15, 1998, we acquired Net2Net Corporation ("Net2Net").
This acquisition was accounted for as a pooling of interests transaction.
References herein to Visual are on a consolidated basis. Our principal executive
offices are located at 2092 Gaither Road, Rockville, Maryland 20850, and our
telephone number is (301) 296-2300.
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RISK FACTORS
In addition to the other information contained in this Prospectus, you
should consider carefully the following factors in evaluating Visual and its
business before purchasing shares of our Common Stock offered hereby.
OUR SUCCESS DEPENDS ON SERVICE PROVIDERS INCORPORATING OUR PRODUCT INTO THEIR
INFRASTRUCTURE
While we have begun implementation of a sales and marketing strategy to sell
Visual UpTime to service providers which will deploy the product as part of
their network infrastructure ("provider deployment model"), a significant
portion of our revenue continues to come from sales of our products to
subscribers. We expect that sales directly to subscribers will continue to
account for a significant portion of our revenue through at least the end of
1999. We anticipate that a significant portion of our future revenue will be
attributable to sales of Visual UpTime using the provider deployment model. Our
future performance will therefore be substantially dependent on incorporation of
Visual UpTime by service provides into their service offerings to subscribers.
Service providers have not typically offered solutions that enable the
subscriber to measure and test the WAN service levels offered by the service
provider, and we could encounter resistance on the part of some service
providers to offering these solutions. There can be no assurance that we will be
successful in persuading service providers to adopt the provider deployment
model. We believe the success or failure of the provider deployment model, and
the timing of success, if achieved, will depend on a number of factors over
which we may have little or no control, including: service provider and
subscriber acceptance of and satisfaction with our systems; the realization of
operating cost efficiencies for service providers when service level management
systems are deployed and our ability to demonstrate such operational benefits;
generation of demand for these systems from subscribers and support for the
systems within the service providers' sales forces; competitive dynamics between
WAN service providers and the development of the WAN services market overall;
our successful development of systems and products which address the
requirements for systems deployed as part of a service provider's
infrastructure; the timing and successful completion of integration development
work by service providers to incorporate our service level management
functionality into their operational support systems; and the absence of new
technologies which make our products and systems obsolete before they can
achieve broad acceptance. The failure of our products to become an accepted part
of the service providers' service offerings or a slower than expected increase
in the volume of sales by us to service providers would have a material adverse
effect upon our business, financial condition and results of operations.
WE ARE SUBJECT TO LENGTHY SALES CYCLES
The provider deployment model is characterized by a lengthy sales
cycle. We expect that sales of Visual UpTime will require a substantial
commitment of capital from service providers, with the attendant delays
frequently associated with service providers' internal procedures to approve
large capital expenditures and lengthy decision-making processes. The sales
cycle can also be expected to be subject to a number of significant risks,
including service providers' budgetary constraints and technology assessment and
other internal acceptance reviews over which we have little or no control. Sales
of Visual UpTime generally involve significant testing by and education of both
service providers and subscribers as well as a substantial commitment of our
sales and marketing resources. As a result, we may expend significant resources
pursuing potential sales opportunities that will not be consummated. Even if the
provider deployment model is implemented, curtailment or termination of service
provider marketing programs, decreases in service provider capital budgets or
reduction in the purchasing priority assigned to products such as Visual UpTime,
particularly if significant and unanticipated by us, could have a material
adverse effect on our business, financial condition and results of operations.
WE ARE DEPENDENT ON CERTAIN MAJOR CUSTOMERS
We are dependent on a small number of customers for a substantial
portion of our revenue. For the year ended December 31, 1997, sales of products
or services to Sprint accounted for 27% of our revenue. For the year ended
December 31, 1998, sales of products or services to Sprint,
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AT&T and MCI accounted for 30%, 17% and 14%, respectively, of our revenue. If
our evolution to the provider deployment model is successful, our customer base
will consist predominantly of large public network service providers. There are
only a small number of these service providers, and the substantial capital
requirements involved in the establishment of public networks significantly
limit additional entrants into this market. In addition, the number of these
service providers may decrease if and as service providers merge or acquire one
another. Accordingly, the loss of any service provider customer, or the
reduction, delay or cancellation of orders or a delay in shipment of our
products to any service provider customer, could materially and adversely affect
our business, financial condition and results of operations.
Our anticipated dependence on sizable orders from a limited number of
service providers will make the relationship between us and each service
provider critically important to our business. As our relationships with these
service providers evolve over time, adjustments to product specifications,
forecasts and delivery timetables may be made by us in response to service
provider demands and expectations. Further, because none of our agreements
contain minimum purchase requirements, there can be no assurance that the
issuance of a purchase order will result in significant repeat business. Any
inability to manage our service provider relationships successfully could have a
material adverse effect on our business, financial condition and results of
operations.
OUR INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE AND WE ARE DEPENDENT
ON CONTINUED MARKET ACCEPTANCE OF OUR EXISTING PRODUCTS AND OUR ABILITY TO
DEVELOP NEW, MARKETABLE PRODUCTS
Visual UpTime is focused on service level management for WANs that
utilize statistically multiplexed technologies. Accordingly, our future
financial performance will depend in large part on continued growth in the
number of enterprises adopting solutions based on Frame Relay, ATM and
IP/Internet services. The market for these services is characterized by rapid
changes, including continuing advances in technology, frequent new product
introductions, changes in customer requirements and preferences and changes in
industry standards. The introduction of new technologies or advances in
techniques for statistically multiplexed WAN services or the integration of WAN
service level management functionality into other network hardware components
could render Visual UpTime obsolete or unmarketable. Further, we will be
required to make enhancements and refinements to the product for wide scale
implementation through the provider deployment model. There can be no assurance
that (i) Visual UpTime will continue to compete successfully; (ii) our future
product offerings will keep pace with the technological changes implemented by
our competitors; (iii) our products will satisfy evolving industry standards or
preferences of existing or prospective customers; or (iv) we will be successful
in developing and marketing products for any future technology. Failure to
develop and introduce new products and product enhancements in a timely fashion
could have a material adverse effect on our business, financial condition and
results of operations.
Because Visual UpTime is deployed predominantly on Frame Relay networks, our
near-term success will depend on the continued market acceptance of Frame Relay
technology as a preferred networking solution. The failure of Frame Relay-based
services to maintain widespread market acceptance would have a material adverse
effect on our business, financial condition and results of operations. We are
currently devoting significant resources toward the development of additional
products. There can be no assurance that we will complete the development of
these or any future products in a timely fashion, that we will successfully
manage the transition from existing products, that our future products will
achieve market acceptance, or if market acceptance is achieved, that we will be
able to maintain such acceptance for a significant period of time. Any inability
to develop products on a timely basis that address changing customer needs and
technologies, may result in a loss of market share to competitors or may require
us to substantially increase development expenditures. Such an increase in
research and development expenditures may have a material adverse effect on our
business, financial condition and results of operations. There also can be no
assurance that products or technologies developed by others will not adversely
affect our competitive position or render our products or technologies
noncompetitive or obsolete.
Products as complex as those offered by us may contain undetected
errors or failures when first introduced or as new versions are released. There
can be no assurance that, despite testing by us and by current and potential
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customers, errors will not be found in new products after commencement of
commercial shipments. The occurrence of such errors could result in the loss of
or delay in market acceptance of our products, diversion of development
resources, damage to our reputation or increases in service or warranty costs,
any of which could have a material adverse effect upon our business, financial
condition and results of operations.
WE FACE INTENSE AND EVOLVING COMPETITION IN THE WAN EQUIPMENT MARKET
The WAN equipment market is highly competitive. We face competition
from participants in three distinct market segments: the WAN access equipment
market, the network test and analysis market and the market for
telecommunications support systems. Companies participating in these market
segments which compete or can be expected to compete with us include ADC
Telecommunications, Inc., Adtran, Inc., Concord Communications, Inc., Digital
Link Corp., NetScout Systems, Inc., Network Associates, Inc., Paradyne
Corporation, Sync Research, Inc., and Hewlett-Packard Company.
We expect that we may experience price competition from products and
services that provide a portion of the functionality provided by Visual UpTime.
In particular, as prices for network equipment components such as data service
units/channel service units decrease, customers may decide to purchase these
less expensive products even though they lack certain features offered by our
products. We expect that, in some cases, participants with strong capabilities
in these various segments may partner with each other to offer products that
supply functionality approaching that provided by Visual UpTime. We are aware of
such arrangements between Digital Link and NetScout, and NetScout and Paradyne.
Many of our current and possible competitors have greater financial,
technical, marketing and other resources than us, and some have well established
relationships with our current and potential customers. As a result, these
competitors may be able to respond to new or emerging technologies and changes
in customer requirements more effectively than us, or devote greater resources
than us to the development, promotion and sale of products. Increased
competition may result in price reductions, reduced profitability and loss of
market share, any of which could have a material adverse effect on our business,
financial condition and results of operations.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO POTENTIAL FLUCTUATIONS
Our revenue and operating results may vary significantly from quarter
to quarter and from year to year as a result of a number of factors, including
the size and timing of orders, product mix and shipment of systems. The timing
of order placement, size of orders, satisfaction of contractual customer
acceptance criteria, as well as order delays or deferrals and shipment delays
and deferrals, may cause material fluctuations in revenue. Operating results may
also fluctuate on a quarterly basis based upon factors such as the continued
acceptance of Frame Relay-based products, demand for our current and future
product offerings, the introduction of product enhancements by us or our
competitors, market acceptance of new products offered by us or our competitors
and the size, timing, cancellation or delay of customer orders, including
cancellation or delay in anticipation of new product offerings. Our quarterly
operating results are also affected by the budgeting cycles of customers, the
relative percentages of products sold through our sales channels, product
pricing and competitive conditions in the industry. Any unfavorable changes in
these or other factors could have a material adverse effect on our business,
financial condition and results of operations. Accordingly, we believe that
period-to-period comparisons of our results of operations may not be meaningful
and should not be relied upon as an indication of future performance.
Furthermore, there can be no assurance that we will be able to achieve
profitability on a quarterly or annual basis.
WE HAVE A HISTORY OF LOSSES AND AN ACCUMULATED DEFICIT
Visual was organized in 1993 and introduced Visual UpTime in mid-1995.
Accordingly, we have only a limited operating history upon which an evaluation
of our product and prospects can be based. As of December 31, 1998, we had an
accumulated deficit of approximately $26.1 million. We incurred losses from
operations for the years ended December 31, 1996, 1997 and 1998 of approximately
$12.4 million, $7.1 million and $2.3 million,
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respectively. The losses in 1996 and 1997 related primarily to our expenditures
associated with the development and marketing of the Visual UpTime product and
the losses in 1998 related primarily to our acquisition of Net2Net.
There can be no assurance that our revenue will continue to grow or be
sustained in future periods. Although we have recently experienced an increase
in revenue from service providers, such growth should not be considered
indicative of future revenue growth, if any, or of future operating results. Our
revenue in any period depends primarily on the volume and timing of orders
received during the period, which are difficult to predict. Our expense levels
are based, in part, on the expectation of future revenue. If revenue levels are
below expectations due to delays associated with customers' decision-making
processes or for any other reason, operating results are likely to be materially
and adversely affected. Results of operations may be affected disproportionately
by a reduction in revenue because a large portion of our expenses are fixed and
cannot be easily reduced without adversely affecting our business. In addition,
we currently intend to increase funding of research and product development,
sales, marketing and customer support operations and expand distribution
channels. To the extent such expenses precede or are not promptly followed by
increased revenue, our business, financial condition and results of operations
could be materially and adversely affected. For the foregoing reasons, there can
be no assurance that we will be profitable in any future period.
WE ARE DEPENDENT ON SOLE AND LIMITED SOURCE SUPPLIERS AND MAY FACE FLUCTUATIONS
IN COMPONENT PRICING
Certain key components used in the manufacture of our products are
currently purchased only from sole, single or limited sources. At present,
sole-source components, where we have identified no other supplier for the
components, include framers, certain semiconductors, embedded communications
processors, communication controllers and line interface components. While
alternative suppliers have been identified for certain key components, those
alternative sources have not been qualified by us. The qualification process
could be lengthy and no assurance can be given that any additional sources would
become available to us on a timely basis, or, if such sources were to become
available, that we would not experience a degradation in the quality of
components provided by such new suppliers. We generally do not have long-term
agreements with our suppliers that guarantee the continuity of supply for sole,
single or limited source components or that provide protection against sudden
increases in component prices. We have from time to time experienced minor
delays in the receipt of key components, and any future difficulty in obtaining
sufficient and timely delivery of them could result in delays or reductions in
product shipments, which, in turn, could have a material adverse effect on our
business, financial condition and results of operations. In the event any
significant supplier becomes unable or unwilling to continue to supply required
components for our products, we would have to identify and qualify acceptable
replacements. In addition, although our sole or limited source suppliers are all
based in the United States, some of them may manufacture components, or acquire
components from, outside of the United States. If events in a country where a
key component is produced reduce or eliminate the supply of such component, and
our supplier is unable to obtain the component from another country, we would
have to identify and qualify acceptable replacements. Any interruption in the
supply of required or key components, or the inability to procure these
components from alternate sources at acceptable prices and within a reasonable
time, could have a material adverse effect upon our business, financial
condition and results of operations. In the event of significant increases in
the cost of components, we would be forced either to increase the price of our
products or accept lower gross profit margins. In particular, certain of Visual
UpTime's key components, including dynamic random access memories and embedded
communications processors, are subject to fluctuations in pricing. An increase
in prices for our products resulting from such component price fluctuations
would make our products less competitive with products which do not incorporate
such components. Lower gross margins or less competitive product pricing could
have a material adverse effect on our business, financial condition and results
of operations.
WE CONTINUE TO FACE CERTAIN CHALLENGES IN INTEGRATING NET2NET INTO OUR BUSINESS
We acquired Net2Net in May 1998. Since that time, we have been working to
integrate the two companies' businesses in an efficient and effective manner. We
continue to face challenges of integrating the Net2Net product
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into our product line and expect that this will continue for some time. There
can be no assurance that such integration will be accomplished smoothly or
successfully. The difficulties of integration of the companies are increased by
the necessity of coordinating geographically separated organizations and
addressing possible differences in corporate cultures and management
philosophies. The integration of certain operations will require the dedication
of management resources which may temporarily distract attention from the
day-to-day business of the combined companies. The business of the combined
companies may also be disrupted by employee uncertainty and lack of focus during
such integration. The inability of management to successfully integrate the
operations and product lines of the two companies and, in particular to
integrate and retain key engineering personnel, could have a material adverse
effect on our business, results of operations and financial condition.
OUR SUCCESS DEPENDS ON OUR ABILITY TO MANAGE CHANGE AND EXPANSION
Since our inception, we have experienced rapid and significant growth,
including a significant increase in the number of employees. This growth and
change in our operations have placed significant demands on our administrative,
operational, technical and financial resources. To compete effectively, and to
manage future growth, if any, we must continue to strengthen, on a timely basis,
our operational, financial and management information reporting systems and its
controls and procedures and to expand, train and manage our work force. There
can be no assurance that we will be able to take such actions successfully. The
failure of our management team to effectively manage growth could have a
material adverse effect on our business, financial condition and results of
operations.
WE ARE DEPENDENT ON CERTAIN KEY PERSONNEL
Our success depends to a significant degree upon the continuing
contributions of our key management and technical employees, particularly Scott
E. Stouffer, Chairman, President and Chief Executive Officer. The loss of the
services of any key employee would adversely affect our business, financial
condition and results of operations. We maintain, and are the beneficiary under,
$2.0 million of key person life insurance on Mr. Stouffer. We believe that our
future success will depend in large part upon our ability to attract and retain
highly-skilled managerial, sales, marketing, customer support and product
development personnel. We require technically trained sales and product
development personnel, and the competition for these individuals is intense. We
have at times experienced, and continue to experience, difficulty in recruiting
qualified personnel. There can be no assurance that we will be successful in
retaining our key employees or that we can attract or retain additional skilled
personnel as required. Failure to attract and retain key personnel could have a
material adverse effect on our business, financial condition and results of
operations.
WE RELY ON INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
As the number of products in the network management industry increases
and the functionality of these products further overlaps, companies may
increasingly become subject to claims of infringement or misappropriation of the
intellectual property or proprietary rights of others. There can be no assurance
that third parties will not assert infringement or misappropriation claims
against us in the future with respect to current or future products, or that any
such assertion will not require us to enter into royalty arrangements or
litigation that would be costly to us. Any claims or litigation, with or without
merit, could result in a diversion of management's attention and our financial
resources, which could have a material adverse effect on our business, financial
condition and results of operations. Adverse determinations in such claims or
litigation could also have a material adverse effect on our business, financial
condition and results of operations.
While we believe that our success will depend principally upon our
ability to develop and effectively market products that meet the requirements of
customers for service level management functionality, our ability to compete is
also dependent in part upon our proprietary technology and rights. We hold two
patents and also rely on copyright and trade secret laws, trademarks,
confidentiality procedures and contractual provisions to protect our proprietary
software, documentation and other proprietary information. There can be no
assurance that the confidentiality agreements and other methods on which we rely
to protect our trade secrets and proprietary
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information and rights will be adequate to prevent competitors from developing
similar technology. Moreover, in the absence of patent protection, our business
may be adversely affected by competitors that develop functionally equivalent
technology. Furthermore, we may be subject to additional risk as we enter into
transactions in countries where intellectual property laws are not well
developed or enforced effectively. Legal protection of our rights may be
ineffective in such countries, and technology developed or used in such
countries may not be protectable in jurisdictions where protection is ordinarily
available. Litigation to defend and enforce our intellectual property rights,
regardless of the final outcome of such litigation, could result in substantial
costs and diversion of resources and could have a material adverse effect on our
business, financial condition and results of operations. There can also be no
assurance that our trade secrets or non-disclosure agreements will provide
meaningful protection of our proprietary information. Our inability to protect
our proprietary rights would have a material adverse effect on our business,
financial condition and results of operations.
OUR COMMON STOCK MAY BE SUBJECT TO GREAT PRICE VOLATILITY
Between February 1998 when our Common Stock became publicly traded and
the date hereof, the closing sales price has ranged from a low of $16.81 per
share to a high of $43.50 per share. The offering of shares of Common Stock
pursuant to this Prospectus, the limited trading history of the Common Stock,
the relatively small size of our stockholder base, announcements concerning us
or our competitors, quarterly fluctuations in operating results, announcements
of technological innovations, the introduction of new products or changes in
product pricing policies by us or our competitors, changes in proprietary rights
or changes in earnings estimates or recommendations by analysts could cause the
market price of the Common Stock to fluctuate substantially. In addition, stock
prices for many technology companies fluctuate widely for reasons which may be
unrelated to operating results. Such fluctuations in the market price of our
Common Stock may affect our visibility and credibility in the market. These
fluctuations, as well as general economic, political and market conditions such
as recessions, international instabilities or military conflicts, may materially
and adversely affect the market price of the Common Stock.
WE HAVE CERTAIN ANTITAKEOVER PROTECTIONS WHICH MAY DELAY OR PREVENT A CHANGE IN
CONTROL AND WHICH MAY ADVERSELY AFFECT YOUR RIGHTS AS A STOCKHOLDER.
Our Board of Directors has the authority to issue up to 5,000,000
shares of preferred stock ("Preferred Stock") and to determine the price,
rights, preferences, privileges and restrictions, including voting rights, of
those shares without any further vote or action by the stockholders. The rights
of the holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued in the
future. The issuance of Preferred Stock could have the effect of making it more
difficult for a third party to acquire a majority of our outstanding voting
stock. Furthermore, certain provisions of our Certificate of Incorporation and
Bylaws and of Delaware law could delay or make more difficult a merger, tender
offer or proxy contest. We are subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Our Certificate of Incorporation contains other provisions that may
have the effect of delaying or preventing a change in control, including a
classified Board of Directors and a limitation on stockholder action by written
consent. In addition, our credit facility with Silicon Valley Bank prohibits us
from engaging in a merger with or being acquired by another entity without the
Bank's consent, unless we are the surviving entity.
10
<PAGE> 11
THE FAILURE OF OUR CUSTOMERS TO BE YEAR 2000 COMPLIANT COULD NEGATIVELY IMPACT
OUR BUSINESS
Many currently installed operating systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields need additional digits to distinguish accurately dates prior to January
1, 2000 and those after December 31, 1999. As a result, computer systems and
software used by many companies may need to be upgraded to comply with such
"Year 2000" requirements. Significant uncertainty exists in the software
industry concerning the potential effects associated with such compliance. We
believe that the purchasing patterns of customers and potential customers may be
significantly affected by Year 2000 issues. Many companies are expending
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by us. Conversely, Year 2000
issues may cause other companies to accelerate purchases, thereby causing an
increase in short-term demand and a consequent decrease in long-term demand for
software products.
Additionally, Year 2000 compliance issues could cause a significant
number of companies, including our current customers, to re-evaluate their
current systems' needs, and as a result, consider switching to other systems or
suppliers. This could have a material adverse effect on our business, operating
results and financial condition.
OUR FAILURE TO BE YEAR 2000 COMPLIANT COULD NEGATIVELY IMPACT OUR BUSINESS
GENERAL
Many of the world's computer systems (including those in non-information
technology equipment and systems) currently record years in a two-digit format.
If not addressed, such computer systems will be unable to properly interpret
dates beyond the year 1999, which could lead to business disruptions. The
potential costs and uncertainties associated with the Year 2000 issue will
depend on a number of factors, including software, hardware and the nature of
the industry in which a company operates.
We have instituted a company-wide project for addressing the Year 2000
issue (the "Project"). The Project is divided into four major sections -Product
Compliance, Oracle Implementation and System Infrastructure Upgrades, Vendor
Compliance and Customer Assessment. Each of these sections is discussed
separately below. We have engaged third party consultants to assist in
program management of the Project and in testing of critical business systems.
The Project is on schedule for completion by the end of the third quarter, 1999.
PRODUCT COMPLIANCE
We believe that the products that we are currently shipping have
already achieved Year 2000 compliance as defined within the requirements
established by the U.S. Government detailed in the Federal Acquisition
Regulations (FAR) Section 39 -- Final. Should a Year 2000 compliance issue arise
in the future, we will take whatever steps we deem necessary to correct it
in accordance with our Year 2000 product warranty.
Although all previously shipped products are believed to be compliant,
we do not commit to perform tests on product versions that we are no
longer shipping. Should such non-shipping products be found non-compliant,
we will not update them to make them compliant.
We do not guarantee and specifically disclaim any liability for the
Year 2000 compliance of operating systems, hardware, software or other products
not developed by us.
ORACLE IMPLEMENTATION & SYSTEM INFRASTRUCTURE UPGRADES
Early in 1998, in order to improve access to business information through
scaleable, integrated computing systems across our company, we began a
business systems replacement project. The new Oracle Enterprise Resources
Planning (ERP) application software system has replaced the core legacy
systems, and is expected to make approximately 75 percent of our systems Year
2000 compliant. The implementation of the ERP software was substantially
completed in January 1999.
Following replacement of the core legacy systems with Oracle software,
we will seek to achieve Year 2000 compliance for other application software,
computer hardware, network equipment and miscellaneous components of our
internal business systems. We anticipate that this effort will be less
significant compared to the replacement of core applications with ERP software.
We intend to achieve Year 2000 compliance for our remaining internal
systems as soon as possible after the Oracle implementation. Our
limited number of personal computers and application systems is anticipated to
facilitate rapid progress toward full Year 2000 compliance after ERP is
successfully implemented.
We intend to continue to work to achieve Year 2000 compliance for our
systems using a methodology that incorporates the following steps:
Update the inventory of computer hardware, software and miscellaneous
network components,
Evaluate application development environment compliance,
Conduct overall assessment of systems infrastructure compliance,
Complete business risk analysis,
Take remedial actions (upgrade, repair, replace, retire or retain),
Develop appropriate contingency plans, and develop and implement regimes to
test Year 2000 compliance for mission-critical systems.
We currently anticipate completion of this process by the end of the
third quarter 1999 in order to avoid Year 2000 impact on remaining core legacy
systems.
VENDOR COMPLIANCE
This section includes the process of identifying and prioritizing critical
suppliers at the direct interface level and communicating with them about their
plans and progress in addressing the Year 2000 problem. This process will
include not only component part suppliers for our products, but also
providers of insurance, financial and other services.
Our vendor compliance program will include the following steps:
Catalog and classify all vendors,
On-site review and testing of out-sourced services or systems,
Review responses from vendors to determine the level of compliance,
Determine the timing, method and cost of vendor solutions,
Assess vendor Year 2000 compliance and business risks, and
Develop remedial actions or contingency plans, as necessary.
Achievement of vendor Year 2000 compliance is anticipated to be an on-going
effort during 1999. The current target to achieve compliance or complete
contingency plans is the end of the third quarter 1999.
CUSTOMER ASSESSMENT
We are developing a program to assess the impact that Year 2000 issues
may have upon our customers and their purchasing decisions. We expect to
complete customer assessment by the end of the third quarter 1999.
COSTS
The estimated total cost of the Year 2000 compliance project, exclusive of
the ERP implementation, is approximately $300,000. These costs are expected to
be incurred throughout 1999. These costs will be incurred primarily for the use
of outside consultants, setting up Year 2000 testing environments and the
replacement of existing software and hardware.
RISKS
The failure to correct a material Year 2000 problem could result in an
interruption in, or a failure of, certain normal business activities or
operations. Such failures could materially and adversely affect our business,
financial condition and results of operations. Moreover, even if we successfully
remediate our Year 2000 issues, we can be materially and adversely affected by
failures of third parties to remediate their own Year 2000 issues. The failure
of third parties with which we have financial or operational relationships (such
as our customers and vendors) to remediate their computer and non-information
technology systems issues in a timely manner could result in a material
financial risk to us. In addition, we believe that the purchasing patterns of
customers and potential customers may be significantly affected by Year 2000
issues. Due to the general uncertainty inherent in the Year 2000 problem,
resulting in part from the uncertainty of the Year 2000 readiness of third-party
customers and vendors, we are unable to determine at this time whether the
consequences of Year 2000 failures will have a material impact on our business,
financial condition and results of operations. Accordingly, we may experience
business interruption or shutdown, financial loss, damage to our reputation and
legal liability. We believe that, with the implementation of new business
systems and completion of the Project as scheduled, the possibility of
significant interruptions of normal operations should be reduced.
Our expectations about future costs and the timely completion of our
Year 2000 Project are subject to uncertainties that could cause actual results
to differ materially from what has been discussed above. Factors that could
influence the amount of future costs and the effective timing of remediation
efforts include our success in identifying computer programs and non-information
technology systems that contain two-digit year codes, the nature and amount of
programming and testing required to upgrade or replace each of the affected
programs and systems, the rate and magnitude of related labor and consulting
costs, and the success of our vendors and customers in addressing the Year 2000
issue.
USE OF PROCEEDS
Visual will not receive any proceeds from the sale of the shares
hereunder.
SELLING STOCKHOLDERS
Each of the Selling Stockholders was a stockholder or creditor of Net2Net.
On May 15, 1998, Visual Acquisitions, Inc., our wholly owned subsidiary ("Merger
Sub") merged into Net2Net under the terms of an Agreement and Plan of Merger
dated April 15, 1998 (the "Merger"). In the Merger, the shares of capital stock
of Net2Net owned by the Selling Stockholders and certain obligations of Net2Net
to creditors were converted, on a pro rata basis, into shares of Visual's Common
Stock, and Net2Net became our wholly owned subsidiary. The Selling Stockholders
received, in the aggregate, 2,075,277 shares of Common Stock in the Merger, all
of which may be offered for sale from time to time by the Selling Stockholders
pursuant to the registration statement of which this Prospectus is a part.
The following table sets forth the name of each of the Selling
Stockholders, the positions, offices and other material relationships, if any,
of the Selling Stockholders with Net2Net prior to the merger, the number of
Shares held by such Selling Stockholder as a result of the Merger, and the
number of Shares being offered by such Selling Stockholder.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
HELD AS A POSITION, OFFICE OR
RESULT OF NUMBER OF OTHER MATERIAL
THE SHARES RELATIONSHIP WITH
NAME MERGER OFFERED NET2NET(1)
---- --------- ---------- --------------------
<S> <C> <C> <C>
Amerindo Technology Growth Fund II ............ 180,207 180,207
Richard J. Arena .............................. 98,740 98,740
Michael Barza ................................. 18,092 18,092
Ralph L. Beck ................................. 54,118 54,118
Jeffrey Bellanger ............................. 634 634
Clark Bernard ................................. 18,513 18,513
Margaret and Nicholas Bik ..................... 4,451 4,451
Columbia Ventures Trust ....................... 7,935 7,935
Commonwealth Capital Ventures L.P. ............ 198,627 198,627
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
NUMBER OF
SHARES
HELD AS A POSITION, OFFICE OR
RESULT OF NUMBER OF OTHER MATERIAL
THE SHARES RELATIONSHIP WITH
NAME MERGER OFFERED NET2NET(1)
---- --------- ---------- --------------------
<S> <C> <C> <C>
Nicholas Cooke ................................ 857 857
Robert M. and Carol M. Cotter ................. 7,829 7,829
Frederick R. Cronin ........................... 23,805 23,805 (2)
Culter Associates, Inc. ....................... 15,870 15,870
Tesuko De La Vega ............................. 126 126
The Duclos Family Trust ....................... 7,300 7,300
Peter Dumas ................................... 4,166 4,166 (3)
Thomas Dungan ................................. 800 800
Roberta Farrell ............................... 126 126
David H. Feinberg ............................. 3,967 3,967
Mark Galvin ................................... 3,650 3,650
Abbott Gilman ................................. 15,870 15,870
Independence Trust ............................ 28,884 28,884
Kathleen Jacobelli ............................ 1,269 1,269
Paul W. Kelley ................................ 98,714 98,714 (4)
Dennis A. Kirshy .............................. 51,579 51,579 (5)
Allan M. Kline ................................ 4,364 4,364
Richard A. Kline .............................. 317 317
Alexander E. Kukielka ......................... 52,531 52,531
Jeffrey S. Lang ............................... 7,935 7,935
Herbert A. and Rose Lerner .................... 2,777 2,777
Le Serre ...................................... 3,615 3,615
Kevin C. Little ............................... 34,915 34,915
Litton Master Trust ........................... 60,069 60,069
Stuart MacEachern ............................. 5,395 5,395
Nigel C. Machin ............................... 1,745 1,745
(Custodian for Carey
Machin under UGMA)
Nigel C. Machin ............................... 1,745 1,745
(Custodian for Haley
Machin under UGMA)
Nigel C. Machin ............................... 10,791 10,791
Ernest Magaro ................................. 7,300 7,300
Lauren Maschio ................................ 634 634
Arnold M. McCalmont ........................... 15,394 15,394
James A. and Regina M. McCalmont .............. 15,870 15,870
Jennifer N. McCalmont ......................... 7,935 7,935
Rebekah R. McCalmont .......................... 23,329 23,329
Stephen A. McCalmont .......................... 197,429 197,429 (6)
Norman B. Meisner ............................. 7,935 7,935 (7)
MHS Sylvan Fund ............................... 33,853 33,853
Charles J. and Virginia R. Nagle .............. 8,259 8,259
Fred S. and Nancee J. Nixdorf ................. 7,776 7,776
Rodger Nordblom ............................... 19,995 19,995
The Ocean Fund(8) ............................. 358,784 358,784
Vincent M. O'Reilly ........................... 9,124 9,124
Raymond E. Palmer ............................. 3,650 3,650
</TABLE>
12
<PAGE> 13
<TABLE>
<CAPTION>
NUMBER OF
SHARES
HELD AS A POSITION, OFFICE OR
RESULT OF NUMBER OF OTHER MATERIAL
THE SHARES RELATIONSHIP WITH
NAME MERGER OFFERED NET2NET(1)
---- --------- ---------- --------------------
<S> <C> <C> <C>
Pioneer Capital Corporation .................... 32,361 32,361
Pioneer Ventures Limited Partnership II ........ 164,337 164,337
David Robbins .................................. 1,904 1,904
Howard Salwen .................................. 4,761 4,761
Howard Salwen .................................. 4,761 4,761
(1986 Children's Trust FBO
Andre Salwen)
Howard Salwen .................................. 4,761 4,761
(1986 Children's Trust FBO
David Salwen)
Larry S. and Eileen Samburg .................... 2,380 2,380
Morey Schapira ................................. 991 991
Nathaniel P. Schildbach ........................ 95 95
Keith Schofield ................................ 253 253
Peter K. Schofield ............................. 7,935 7,935
Silicon Valley Bank(9) ......................... 2,225 2,225
William L. and Esther M. Steele ................ 1,587 1,587
Richard Steinberg .............................. 8,463 8,463
Technical Communications ....................... 36,184 36,184
Corporation
Waterline Capital LLC .......................... 39,676 39,676
Lars Widstrand ................................. 158 158
Worcester Venture Group Trust .................. 12,850 12,850
</TABLE>
If all the shares of Common Stock being offered by the Selling
Stockholders are sold, none of the Selling Stockholders will own any Common
Stock that they acquired as part of the Merger upon completion of this offering.
- -------------------------------
(1) Other than as listed above, none of the Selling Stockholders holds a
position, office or other material relationship with Net2Net, other than that of
employee.
(2) Prior to the merger, Frederick Cronin was a director of Net2Net.
(3) Prior to the merger, Peter Dumas was the Treasurer and Director of Finance
and Administration of Net2Net.
(4) Prior to the merger, Paul Kelley was the Vice President of Engineering of
Net2Net.
(5) Prior to the merger, Dennis Kirshy was a director of Net2Net.
(6) Prior to the merger, Stephen McCalmont was a director, Chairman, President
and Chief Executive Officer of Net2Net.
(7) Prior to the merger, Norman Meisner was Vice President of World-Wide Sales
and Service of Net2Net.
(8) The Ocean Fund received 16,848 of these shares upon repayment of a note
issued by Net2Net.
(9) Silicon Valley Bank received the 2,225 shares of Visual upon exercise of a
warrant issued by Net2Net.
13
<PAGE> 14
PLAN OF DISTRIBUTION
An aggregate of 2,075,277 shares of Common Stock are being registered
to permit public secondary sales of the shares of Common Stock by the Selling
Stockholders, or any of them, from time to time after the date of this
Prospectus. Visual anticipates that the Selling Stockholders may sell all or a
portion of the Common Stock from time to time through the Nasdaq National Market
and may sell Common Stock to or through one or more broker-dealers at prices
prevailing on such Nasdaq National Market at the times of such sales. The
Selling Stockholders may also make private sales directly or through one or more
broker-dealers. Broker-dealers participating in such transactions may receive
compensation in the form of discounts, concessions or commissions (including,
without limitation, customary brokerage commissions) from the Selling
Stockholders effecting such sales. The Selling Stockholders and any
broker-dealers who act in connection with sales of Common Stock may be deemed to
be "underwriters" as that term is defined in the Securities Act, and any
commissions received by them and profit on any resale of the Common Stock might
be deemed to be underwriting discounts and commissions under the Securities Act.
In effecting sales, broker-dealers engaged by a Selling Stockholder may arrange
for other broker-dealers to participate.
The Selling Stockholders will pay all discounts and selling commissions
(if any), fees and expenses of counsel and other advisors to the Selling
Stockholders, or any of them, and any other expenses incurred in connection with
the registration and sale of the Common Stock, other than the registration fee
payable to the SEC hereunder, the listing fee to be paid for listing the shares
of Common Stock on the Nasdaq National Market, fees and expenses relating to the
registration or qualification of the shares of Common Stock pursuant to any
applicable state securities or "blue sky" laws and the fees and expenses of
Visual's counsel and independent accountants, which will be paid by Visual.
LEGAL MATTERS
Counsel for Visual, Piper & Marbury L.L.P., Washington, D.C., has
rendered an opinion to the effect that the Visual Common Stock offered hereby is
duly and validly issued, fully paid and nonassessable.
EXPERTS
Our financial statements and schedules as of December 31, 1997 and
1996, and for each of the three years in the period ended December 31, 1997,
included in our Annual Report on Form 10-K for the year ended December 31, 1997,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are incorporated by
reference in reliance upon the authority of said firm as experts in giving said
reports.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling
Visual pursuant to the foregoing provisions, we have been informed that in the
opinion of the SEC, such indemnification is against public policy as expressed
in the Securities Act and is therefore unenforceable.
14
<PAGE> 15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses and costs expected
to be incurred in connection with the sale and distribution of the securities
offered hereby, other than underwriting discounts and commissions.
All of the amounts shown are estimated except the SEC registration fee.
<TABLE>
<S> <C>
SEC registration fee..................................... $22,121.70
----------
Nasdaq listing fees...................................... 17,500
Printing expenses........................................ 5,000
Legal fees and expenses.................................. 20,000
Accounting fees and expenses............................. 5,000
----------
Total $69,621.70
==========
</TABLE>
All expenses will be borne by Visual Networks, Inc.
15. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 145 of the Delaware General Corporation Law ("Section 145")
permits indemnification of directors, officers, agents and controlling persons
of a corporation under certain conditions and subject to certain limitations.
Our Bylaws include provisions to require us to indemnify our directors and
officers to the fullest extent permitted by Section 145, including circumstances
in which indemnification is otherwise discretionary. Section 145 also empowers
us to purchase and maintain insurance that protects our officers, directors,
employees and agents against any liabilities incurred in connection with their
service in such positions.
At present, there is no pending litigation or proceeding involving a
director or officer of Visual as to which indemnification is being sought nor
are we aware of any threatened litigation that may result in claims for
indemnification by any officer or director.
16. EXHIBITS
The following exhibits are filed or incorporated by reference, as
stated below:
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- ------------
<S> <C>
3.1* Restated Certificate of Incorporation of Visual.
3.2* Restated By-Laws of Visual.
5.1 Opinion of Piper & Marbury L.L.P., regarding legality of securities being registered.
10.1* 1994 Stock Option Plan.
10.2* 1997 Omnibus Stock Plan.
10.3* Amended and Restated 1997 Directors' Stock Option Plan.
10.4* Third Amended and Restated Stockholders and Registration Rights Agreement, dated as of
September 19, 1996, by and among Visual and certain stockholders.
10.5*+ Reseller/Integration Agreement, dated August 29, 1997 by and between Visual and MCI
Telecommunications Corporation.
10.6*+ Master Reseller Agreement, dated as of August 23, 1996, between Sprint/United Management
Company and Visual.
</TABLE>
II-1
<PAGE> 16
<TABLE>
<S> <C>
10.7*+ General Agreement for the Procurement of Equipment, Services and Supplies between Visual
and AT&T Corp.
10.8* Lease Agreement, dated December 12, 1996, by and between Visual and The Equitable Life
Assurance Society of The United States.
10.8.1* Lease Amendment, dated September 2, 1997, by and between Visual and The Equitable Life
Assurance Society of The United States (relating to Exhibit 10.8)
10.10* Employment Agreement dated December 15, 1994, by and between Visual and Scott E. Stouffer,
as amended.
10.11* Employment Agreement dated December 15, 1994, by and between Visual and Robert Troutman,
as amended.
10.12* Terms of Employment dated June 11, 1997, by and between Visual and Peter J. Minihane, as
amended.
10.13* Terms of Employment dated March 5, 1997, by and between Visual and Henri A. Cheli, as
amended.
10.14* Terms of Employment dated November 12, 1996, by and between Visual and Gregory J.
Langford, as amended.
10.15* Loan and Security Agreement dated January 8, 1998, by and between Silicon Valley Bank and
Visual.
10.15.1* Revolving Promissory Note issued by Visual as of January 8, 1998, to Silicon Valley Bank
(relating to Exhibit 10.15).
10.15.2@ First Amendment to Loan and Security Agreement dated June 30, 1998, by and between Silicon
Valley Bank and Visual (relating to Exhibit 10.15).
10.15.3@ Amended and Restated Revolving Promissory Note issued by Visual as of June 30, 1998 to
Silicon Valley Bank (relating to Exhibit 10.15).
10.15.4 Second Amendment to Loan and Security Agreement dated December 28, 1998, by and between
Silicon Valley Bank and Visual (relating to Exhibit 10.15).
10.15.5 Second Amended and Restated Revolving Promissory Note issued by Visual on December 28,
1998 to Silicon Valley Bank (relating to Exhibit 10.15).
10.16** Agreement and Plan of Merger dated April 15, 1998 by and among Visual, Visual Acquisition,
Inc. and Net2Net.
10.17*** Net2Net 1994 Stock Option Plan
16.1* Letter regarding change in certified accountants.
21.1 Subsidiaries of Visual.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Piper & Marbury L.L.P. (included in Exhibit 5.1)
24.1 Power of Attorney (included in signature pages).
</TABLE>
- ----------
@ Incorporated herein by reference to our Registration Statement on Form
S-1, No. 333-58443.
* Incorporated herein by reference to our Registration Statement on Form
S-1, No. 333-41517.
** Incorporated herein by reference to Exhibit 2.1 to our Current Report
on Form 8-K dated May 19, 1998.
*** Incorporated herein by reference to Exhibit 10.1 to our Registration
Statement of Form S-8, No. 333-53153.
+ Portions of these Exhibits were omitted and have been filed separately
with the Secretary of the SEC pursuant to our Applications Requesting
Confidential Treatment under Rule 406 of the Act, filed on December 22,
1997, January 28, 1998 and February 4, 1998.
II-2
<PAGE> 17
17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with
respect to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-3
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3 and has duly caused this
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Rockville, State of Maryland, on March 1, 1999.
VISUAL NETWORKS, INC.
By: /s/ Scott E. Stouffer
---------------------------
Scott E. Stouffer
Chief Executive Officer and
President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Scott E. Stouffer, Peter J. Minihane and Nancy A.
Spangler, and each of them, his or her true and lawful attorney-in-fact and
agent, with full power of substitution and resubstitution, from such person and
in each person's name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this registration
statement, any registration statement relating to this registration statement
under Rule 462 and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done as
fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed below by the following persons in
the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ------- ----
<S> <C> <C>
/s/ Scott E. Stouffer President, Chief Executive Officer February 25, 1999
------------------------------- and Director (Principal Executive -----------------
Scott E. Stouffer Officer)
/s/ Peter J. Minihane Executive Vice President, February 25, 1999
------------------------------- Chief Financial Officer and -----------------
Peter J. Minihane Treasurer (Principal Financial
Officer)
</TABLE>
II-4
<PAGE> 19
<TABLE>
<S> <C> <C>
/s/ Grant G. Behrman Director February 25 , 1999
---------------------------- ------------------
Grant G. Behrman
Director , 1999
---------------------------- ------------------
Marc F. Benson
/s/ Theodore R. Joseph Director February 24 , 1999
---------------------------- ------------------
Theodore R. Joseph
Director , 1999
---------------------------- ------------------
Ted H. McCourtney
Director , 1999
---------------------------- ------------------
Thomas A. Smith
/s/ William J. Smith Director February 25 , 1999
---------------------------- ------------------
William J. Smith
</TABLE>
II-5
<PAGE> 1
EXHIBIT 5.1
[PIPER & MARBURY LETTERHEAD]
March 2, 1999
Visual Networks, Inc.
2092 Gaither Road
Rockville, Maryland 20850
Ladies and Gentlemen:
We have acted as counsel to Visual Networks, Inc., a Delaware
corporation (the "Company"), in connection with the Company's Registration
Statement on Form S-3 (the "Registration Statement") filed on the date hereof
with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended (the "Act"). The Registration Statement
relates to 2,075,277 shares of the Company's Common Stock, par value $.01 per
share (the "Shares"), which were previously issued by the Company and are being
registered for resale by the holders thereof.
In this capacity, we have examined the Company's Certificate of
Incorporation and By-laws, the proceedings of the Board of Directors of the
Company relating to the issuance of the Shares and such other documents,
instruments and matters of law as we have deemed necessary to the rendering of
this opinion. In such examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, and
the conformity with originals of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion and advise you that
each of the Shares described in the Registration Statement has been duly
authorized and validly issued and is fully paid and nonassessable.
We hereby consent to the use of our name in the Registration Statement
and under the caption "Legal Matters" in the related Prospectus and consent to
the filing of this opinion as an exhibit to the Registration Statement.
Very truly yours
/s/ Piper & Marbury L.L.P.
<PAGE> 1
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement")
is entered into as of December 28, 1998, by and among SILICON VALLEY BANK, a
California-chartered bank ("Bank") with its principal place of business at 3003
Tasman Drive, Santa Clara, California 95054 and with a loan production office
located at One Central Plaza, 11300 Rockville Pike, Suite 1205, Rockville,
Maryland 20852 and VISUAL NETWORKS, INC., a Delaware corporation ("Company"),
VISUAL NETWORKS OPERATIONS, INC., a Delaware corporation ("Visual Operations"),
VISUAL NETWORKS INVESTMENTS, INC., a California corporation ("Visual
Investments"), VISUAL NETWORKS TECHNOLOGIES, INC., a California corporation
("Visual Technologies") and VISUAL NETWORKS OF TEXAS, LP, a Texas limited
partnership ("Visual Texas", together with Visual Operations, Visual
Investments, Visual Technologies and the Company being called collectively, the
"Borrowers" and each a "Borrower").
RECITALS.
The Company and Bank have entered into that certain Loan and
Security Agreement dated January 8, 1998 (as amended by this Agreement, the
"Loan Agreement"), pursuant to which Bank agreed to establish a revolving credit
facility (as the same may be increased from time to time, the "Committed
Revolving Line") in favor of the Company in the maximum principal amount of
Seven Million and No/100 Dollars ($7,000,000.00).
Visual Networks (Second amendment to Loan and Security Agreement)
<PAGE> 2
The Company has requested that the Bank revise certain provisions of
the Loan Agreement and the Bank has agreed to, on the condition, among others,
that this Agreement be executed and delivered by the Borrowers to Bank.
Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrowers and Bank do hereby agree as follows:
1. Recitals. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. Exhibit. From and after the effective date of this Agreement,
Exhibit E to the Loan Agreement is replaced in its entirety with Exhibit E
attached hereto. The Borrowers shall execute and deliver to the Bank on the date
hereof their Second Amended and Restated Revolving Promissory Note in the form
of Exhibit E attached hereto and incorporated herein by reference (the
"Replacement Note") in substitution for and not satisfaction of, the issued and
outstanding Note; and the Replacement Note shall be the "Note" and/or the
"Revolving Promissory Note" for all purposes of the Loan Documents.
3. Conditions Precedent. This Agreement shall become effective on the
date Bank receives the following documents, each of which shall be satisfactory
in form and substance to Bank:
(a) The fully executed Replacement Note;
2
<PAGE> 3
(b) Proof that Borrowers have paid all costs and expenses to
Bank in connection with this Agreement, including but not limited to Bank's
reasonable attorneys fees; and
(c) Such other information, instruments, opinions, documents,
certificates and reports as Bank may deem necessary.
4. Representations. Each Borrower hereby confirms that the covenants
set forth in Section 5 of the Loan Agreement, are true and correct as of the
date hereof, and that no Event of Default has occurred or is continuing
immediately prior to or upon the execution of this Agreement.
5. Counterparts. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
6. Loan Documents; Governing Law; Etc. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance with the laws of the State of Maryland. The headings and captions
in this Agreement are for the convenience of the parties only and are not a part
of this Agreement.
7. Acknowledgments. Each Borrower hereby confirms to Bank the
enforceability and validity of each of the Loan Documents. In addition, each
Borrower hereby agrees that the execution and delivery of this Agreement and the
terms and provisions, covenants or agreements contained in this Agreement shall
not in any manner release, impair, lessen, modify, waive or otherwise limit the
joint and several liability and obligations of Borrowers under the terms of any
of the Loan Documents, except as otherwise specifically set forth in this
Agreement. Each Borrower issues, ratifies and confirms the representations,
warranties and covenants contained in the Loan Documents.
3
<PAGE> 4
8. Modifications. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS/ATTEST: VISUAL NETWORKS, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- -----------------------------------
Name: Peter J. Minihane
Title: Chief Financial Officer
WITNESS/ATTEST: VISUAL NETWORKS OPERATIONS, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- -----------------------------------
Name: Peter J. Minihane
Title: Treasurer
WITNESS/ATTEST: VISUAL NETWORKS TECHNOLOGIES, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- -----------------------------------
Name: Peter J. Minihane
Title: Treasurer
WITNESS/ATTEST: VISUAL NETWORKS INVESTMENTS, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- ------------------------------------
Name: Peter J. Minihane
Title: Treasurer
4
<PAGE> 5
WITNESS/ATTEST: VISUAL NETWORKS OF TEXAS, L.P.
By: Visual Networks of Texas
Operations, Inc., its general partner
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- -----------------------------------
Name: Peter J. Minihane
Title: Treasurer
SILICON VALLEY BANK
By: /s/ SHAWN BECKERMAN
-------------------------------------
Shawn Beckerman
Assistant Vice President
SILICON VALLEY BANK
By: /s/ MICHAEL D. GIANNINI
-------------------------------------
Name: Michael D. Giannini
Title: Assistant Vice President
(Signed in Santa Clara, California))
5
<PAGE> 1
SECOND AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$7,000,000 Rockville, Maryland
December 28 , 1998
FOR VALUE RECEIVED, the undersigned, VISUAL NETWORKS TECHNOLOGIES,
INC., a California corporation, VISUAL NETWORKS OPERATIONS, INC., a Delaware
corporation, VISUAL NETWORKS INVESTMENTS, INC., a California corporation, VISUAL
NETWORKS, INC., a Delaware corporation and VISUAL NETWORKS OF TEXAS, L.P., a
Texas limited partnership (each a "Borrower" and collectively, the "Borrowers")
jointly and severally promise to pay to the order of SILICON VALLEY BANK, a
California-chartered bank ("Bank"), at such place as the holder hereof may
designate, in lawful money of the United States of America, the aggregate unpaid
principal amount of all advances ("Advances") made by Bank to Borrowers in
accordance with the terms and conditions of the Loan and Security Agreement
among Borrowers and Bank dated as of January 8, 1998 (as amended from time to
time, the "Loan Agreement"), up to a maximum principal amount of Seven Million
and No/100 Dollars ($7,000,000.00) ("Principal Sum"), or so much thereof as may
be advanced or readvanced and remains unpaid. Borrowers shall also pay interest
on the aggregate unpaid principal amount of such Advances, as follows:
Commencing as of the date hereof and continuing until repayment in full
of all sums due hereunder, the unpaid Principal Sum shall bear interest at the
variable rate of interest, per annum, most recently announced by Bank as its
"prime rate," whether or not such announced rate is the lowest rate available
from Bank (the "Prime Rate"). The rate of interest charged under this Note shall
change immediately and contemporaneously with any change in the Prime Rate. All
interest payable under the terms of this Note shall be calculated on the basis
of a 360-day year and the actual number of days elapsed.
The unpaid Principal Sum, together with interest thereon at the rate or
rates provided above, shall be payable as follows:
(a) Interest only on the unpaid principal amount shall be due
and payable monthly in arrears, commencing January 5, 1999, and continuing on
the first day of each calendar month thereafter to maturity; and
(b) Unless sooner paid, the unpaid Principal Sum, together
with interest accrued and unpaid thereon, shall be due and payable in full on
April 5, 1999.
The fact that the balance hereunder may be reduced to zero from time to
time pursuant to the Loan Agreement will not affect the continuing validity of
this Note or the Loan Agreement, and the balance may be increased to the
Principal Sum after any such reduction to zero.
<PAGE> 2
This Note amends and restates in its entirety that certain Amended and
Restated Revolving Promissory Note (the "Restated Note") in the maximum
principal amount of $7,000,000 dated as of June 30, 1998 from the Borrowers in
favor of the Bank. It is expressly agreed that the indebtedness evidenced by the
Restated Note has not been extinguished or discharged hereby. The Borrowers
agree that the execution of this Agreement is not intended to and shall not
cause or result in a novation with respect to the Restated Note. This Note is
secured as provided in the Loan Agreement. All capitalized terms used herein and
not otherwise defined shall have the meanings given to such terms in the Loan
Agreement.
Borrowers irrevocably waive the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of
Borrowers and Borrowers irrevocably agree that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrowers as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrowers to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrowers with respect to Advances
made hereunder, and payments of principal by Borrowers shall be credited to
Borrowers notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
The occurrence of any one or more of the following events shall
constitute an event of default (individually, an "Event of Default" and
collectively, the "Events of Default") under the terms of this Note:
(a) The failure of Borrowers to pay to Bank when due any and
all amounts payable by Borrowers to Bank under the terms of this Note; or
(b) The occurrence of an event of default (as defined therein)
under the terms and conditions of any of the other Loan Documents.
Upon the occurrence of an Event of Default, at the option of Bank, all
amounts payable by Borrowers to Bank under the terms of this Note shall
immediately become due and payable by Borrowers to Bank without notice to
Borrowers or any other person, and Bank shall have all of the rights, powers,
and remedies available under the terms of this Note, any of the other Loan
2
Visual Networks (2nd Restated Note to Reduce Rate)
<PAGE> 3
Documents and all applicable laws. Borrowers and all endorsers, guarantors, and
other parties who may now or in the future be primarily or secondarily liable
for the payment of the indebtedness evidenced by this Note hereby severally
waive presentment, protest and demand, notice of protest, notice of demand and
of dishonor and non-payment of this Note and expressly agree that this Note or
any payment hereunder may be extended from time to time without in any way
affecting the liability of Borrowers, guarantors and endorsers.
Borrowers jointly and severally promise to pay all costs and expense of
collection of this Note and to pay all reasonable attorneys' fees incurred in
such collection, whether or not there is a suit or action, or in any suit or
action to collect this Note or in any appeal thereof. Borrowers waive
presentment, demand, protest, notice of protest, notice of dishonor, notice of
nonpayment, and any and all other notices and demands in connection with the
delivery, acceptance, performance default or enforcement of this Note, as well
as any applicable statutes of limitations. No delay by Bank in exercising any
power or right hereunder shall operate as a waiver of any power or right. Time
is of the essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of Borrowers with respect to all obligations
hereunder.
Borrowers acknowledge and agree that this Note shall be governed by the
laws of the State of Maryland, excluding conflicts of laws principles, even
though for the convenience and at the request of Borrowers, this Note may be
executed elsewhere.
EACH BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE OF MARYLAND IN ANY ACTION, SUIT, OR
PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF MARYLAND, EACH BORROWER ACCEPTS JURISDICTION OF THE COURTS AND
VENUE IN SANTA CLARA COUNTY, CALIFORNIA. EACH BORROWER AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
3
<PAGE> 4
Until such time as the Bank is not committed to extend further credit
to the Borrowers and all Obligations of the Borrowers to the Bank have been
indefeasibly paid in full in cash, and subject to and not in limitation of the
provisions set forth in the next following paragraph below, no Borrower shall
have any right of subrogation (whether contractual, arising under the Bankruptcy
Code or otherwise), reimbursement or contribution from any Borrower or any
guarantor, nor any right of recourse to its security for any of the debts and
obligations of any Borrower which are the subject of this Note. Except as
otherwise expressly permitted by the Loan Agreement, any and all present and
future debts and obligations of any Borrower to any other Borrower are hereby
subordinated to the full payment and performance of all present and future debts
and obligations to the Bank under this Note and the Loan Agreement and the Loan
Documents, provided, however, notwithstanding anything set forth in this Note to
the contrary, prior to the occurrence of a payment Default, the Borrowers shall
be permitted to make payments on account of any of such present and future debts
and obligations from time to time in accordance with the terms thereof.
Each Borrower further agrees that, if any payment made by any Borrower
or any other person is applied to this Note and is at any time annulled, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or
otherwise required to be refunded or repaid, or the proceeds of any property
hereafter securing this Note is required to be returned by the Bank to any
Borrower, its estate, trustee, receiver or any other party, including, without
limitation, such Borrower, under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
such Borrower's liability hereunder (and any lien, security interest or other
collateral securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, or, if prior thereto
any such lien, security interest or other collateral hereafter securing such
Borrower's liability hereunder shall have been released or terminated by virtue
of such cancellation or surrender, this Note (and such lien, security interest
or other collateral) shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, release, discharge, impair
or otherwise affect the obligations of such Borrower in respect of the amount of
such payment (or any lien, security interest or other collateral securing such
obligation).
The JOINT AND SEVERAL obligations of each Borrower under this Note
shall be absolute, irrevocable and unconditional and shall remain in full force
and effect until the outstanding principal of and interest on this Note and all
other Obligations or amounts due hereunder and under the Loan Agreement and the
Loan Documents shall have been indefeasibly paid in full in cash in accordance
with the terms thereof and this Note shall have been canceled.
4
<PAGE> 5
IN WITNESS WHEREOF, Borrowers have caused this Note to be executed
under seal by their duly authorized officers as of the date first written above.
WITNESS/ATTEST: VISUAL NETWORKS, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- ----------------------------------- (SEAL)
Name: Peter J. Minihane
Title: Chief Financial Officer
WITNESS/ATTEST: VISUAL NETWORKS OPERATIONS, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- ----------------------------------- (SEAL)
Name: Peter J. Minihane
Title: Treasurer
WITNESS/ATTEST: VISUAL NETWORKS TECHNOLOGIES, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- ----------------------------------- (SEAL)
Name: Peter J. Minihane
Title: Treasurer
WITNESS/ATTEST: VISUAL NETWORKS INVESTMENTS, INC.
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- ----------------------------------- (SEAL)
Name: Peter J. Minihane
Title: Treasurer
WITNESS/ATTEST: VISUAL NETWORKS OF TEXAS, L.P.
By: Visual Networks Texas Operations, Inc., its
general partner
/s/ RICHARD H. DEILY By: /s/ PETER J. MINIHANE
- ---------------------------- ----------------------------------- (SEAL)
Name: Peter J. Minihane
Title: Treasurer
5
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
JURISDICTION OF
NAME INCORPORATION
---------------
<S> <C>
Visual Networks Technologies, Inc. California
Visual Networks Investments, Inc. California
Visual Networks Texas Operations, Inc. Delaware
Visual Networks Operations, Inc. Delaware
Net2Net, LLC Delaware
Visual Networks Insurance, Inc. Vermont
Visual Networks, Ltd. Bermuda
Visual Networks of Texas, L.P. Texas
Visual Networks Protection, Inc. Vermont
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our reports dated February 10, 1998
included in Visual Networks Inc.'s Form 10-K for the year ended December 31,
1997 and to all references to our Firm included in this registration statement
(Form S-3 No. 333- ).
Washington, D.C.
February 26, 1999
