<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 7, 1996
REGISTRATION NO. 333-10741
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
ADMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
------------------------
ACCESS BEYOND, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
Delaware 3661 52-1987873
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
Richard D. Rose
Chief Financial Officer and Secretary
1300 Quince Orchard Blvd. 1300 Quince Orchard Blvd.
Gaithersburg, MD. 20878 Gaithersburg, MD. 20878
(301) 921-8600 (301) 921-8600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE (NAME, ADDRESS, INCLUDING ZIP CODE, AND
NUMBER, INCLUDING AREA CODE, OF TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) AGENT FOR SERVICE)
</TABLE>
------------------------
Copy to:
Irv Berliner
Douglas E. Haas
Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
(216) 363-4500
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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, check the following box: / /
------------------------
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please 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 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. / /
------------------------
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 OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD, NOR
MAY OFFERS TO BUY BE ACCEPTED, PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROXY STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY
SALE OF THESE SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR
QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH JURISDICTION.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED OCTOBER 7, 1996
11,993,000 SHARES
ACCESS BEYOND, INC.
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
This Prospectus is being furnished in connection with the contemplated
distribution in the form of a dividend (the "Distribution") by Penril DataComm
Networks, Inc. ("Penril") to holders of record of its Common Stock, par value
$.01 per share ("Penril Stock") as of the close of business on the record date
to be set by the Board of Directors of Penril (the "Record Date") (which is
expected to be on or about November 15, 1996) of all of the outstanding shares
of Common Stock, par value $.01 per share ("Company Stock"), of its subsidiary,
Access Beyond, Inc. (the "Company"). The Company will operate all businesses
owned by Penril immediately prior to the Distribution other than Penril's modem
business.
The Distribution will be made beginning on or about the Distribution Date
(defined below) to holders of record of Penril Stock as of the Record Date on
the basis of one share of Company Stock for each share of Penril Stock held. The
Distribution will be on the day prior to or the day of the merger discussed
below (the "Distribution Date") (which is expected to be on or about November
19, 1996). The Distribution is being undertaken in connection with, and the
consummation of the Distribution is conditioned upon the consummation of, the
merger of Penril with a subsidiary of Bay Networks, Inc. ("Bay") whereby Penril
stockholders will receive shares of common stock of Bay in exchange for their
Penril Stock (the "Merger"). No consideration will be required to be paid by
Penril stockholders for the shares of Company Stock to be received in the
Distribution. Although Penril is separately seeking approval by Penril
stockholders of the Merger and the Distribution, no additional action will be
required to be taken by Penril stockholders in order to receive the shares of
Company Stock. Neither Penril nor the Company will receive any proceeds from the
Distribution. The Company has applied to have the Company Stock listed for
trading on the Nasdaq National Market under the symbol "ACCB".
PENRIL STOCKHOLDERS WHO WILL RECEIVE SHARES OF COMPANY STOCK IN THE
DISTRIBUTION SHOULD CAREFULLY CONSIDER THE MATTERS SET FORTH UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Stockholders of Penril with inquiries related to the Distribution should
contact Penril's Stockholder Relations Department, 1300 Quince Orchard
Boulevard, Gaithersburg, Maryland 20878. After the Distribution Date,
stockholders of the Company with inquiries related to the Distribution should
contact the Company or its transfer agent.
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
Through , 1996, all dealers effecting transactions in the
securities offered hereby may be required to deliver a copy of this Prospectus.
This is in addition to the obligations of the Company to deliver this Prospectus
at the time of the initial distribution of the securities.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
security other than the securities offered hereby, nor does it constitute an
offer to sell or a solicitation of an offer to buy the securities by anyone in
any jurisdiction in which such offer or solicitation is not authorized, or in
which the person making such offer or solicitation is not qualified to do so, or
to any person to whom it is unlawful to make such offer or solicitation. Neither
the delivery of this Prospectus nor any offer or sale made hereunder shall,
under any circumstances, create any implication that there has been no change in
the affairs of the Company since the date hereof.
AVAILABLE INFORMATION
The Company has filed a registration statement on Form S-1 ("Form S-1")
with the Securities and Exchange Commission ("Commission") under the Securities
Act of 1933, as amended (the "Securities Act") with respect to the shares of
Company Stock being received by Penril stockholders in the Distribution. This
Prospectus does not contain all of the information set forth in the Form S-1 and
the exhibits and schedules thereto. Statements made in this Prospectus as to the
contents of any contract, agreement or other document referred to herein are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an exhibit to the Form S-1, reference is made to such exhibit
for a more complete description of the matter involved, and each such statement
shall be deemed qualified in its entirety by such reference.
The Form S-1 and the exhibits and schedules thereto filed by the Company
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, as well
as at the Regional Offices of the Commission at Suite 1400, Citicorp Center, 500
West Madison Street, Chicago, Illinois 60661 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such information can also be obtained
by mail from the Public Reference Branch of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549 at prescribed rates. The Commission maintains a web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission.
The Commission's web site can be accessed at http://www.sec.gov. It is
anticipated that Company Stock will also be quoted on The Nasdaq Stock Market
("Nasdaq"). Following the Distribution, such reports, proxy statements and other
information to be filed by the Company can also be inspected at the offices of
the National Association of Securities Dealers, Inc., Market Listing Section,
1735 K Street, N.W., Washington, D.C. 20006.
The Company intends to furnish to holders of Company Stock each fiscal year
an annual report which contains consolidated financial statements prepared in
accordance with United States generally accepted accounting principles and
audited and reported on, with an opinion expressed by, an independent public
accounting firm, and such other reports as may be required by law.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
ELECTRO-METRICS, TECHNIPOWER, ACCESS BEYOND, CONSTANT POWER, MULTIVERTER,
FORSITE, MUX/ROUTER AND SUNUPS ARE THE UNITED STATES TRADEMARKS, TRADENAMES AND
SERVICEMARKS OWNED BY THE COMPANY, PENRIL OR ONE OF PENRIL'S SUBSIDIARIES. THE
FOREIGN TRADEMARKS, TRADENAMES AND SERVICE MARKS OWNED BY THE COMPANY, PENRIL OR
ONE OF PENRIL'S SUBSIDIARIES INCLUDE TECHNIPOWER IN FRANCE, THE UNITED KINGDOM
AND ITALY. THIS PROSPECTUS MAY ALSO INCLUDE TRADEMARKS, TRADENAMES AND
SERVICEMARKS WHICH ARE PROPERTY OF THEIR RESPECTIVE OWNERS.
THIS PROSPECTUS MAY CONTAIN ESTIMATES, PROJECTIONS AND OTHER
FORWARD-LOOKING STATEMENTS. THESE STATEMENTS ARE SUBJECT TO CERTAIN RISKS,
TRENDS AND OTHER UNCERTAINTIES, INCLUDING THOSE DISCUSSED IN THIS PROSPECTUS
THAT COULD CAUSE ACTUAL RESULTS TO VARY FROM THOSE PROJECTED. STOCKHOLDERS ARE
CAUTIONED NOT TO PLACE UNDUE RELIANCE ON FORWARD-LOOKING STATEMENTS, WHICH ARE
BASED ONLY ON CURRENT JUDGMENTS AND CURRENT KNOWLEDGE.
2
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION................................................................. 2
</TABLE>
<TABLE>
<S> <C>
SUMMARY............................................................................... 5
Access Beyond, Inc............................................................... 5
Transactions..................................................................... 5
The Distribution................................................................. 6
Summary Consolidated Financial Data.............................................. 8
RISK FACTORS.......................................................................... 9
Stand Alone Company.............................................................. 9
Absence of Trading Market for Company Stock...................................... 9
Dependence on Key Management..................................................... 9
Technological Changes............................................................ 9
Competition...................................................................... 10
Product Protection and Intellectual Property..................................... 10
Certain Antitakeover Effects..................................................... 10
Important Considerations Related to Forward-Looking Statements................... 10
Dividends........................................................................ 11
Certain Tax Considerations....................................................... 11
Relationship with Penril......................................................... 11
THE DISTRIBUTION...................................................................... 11
Background of the Transfer and the Distribution.................................. 11
Manner of Effecting the Distribution............................................. 12
Listing and Trading of Company Stock............................................. 12
Certain Federal Income Tax Consequences of the Distribution...................... 13
Certain Consequences of the Distribution......................................... 14
Reason for Furnishing this Prospectus............................................ 14
CAPITALIZATION........................................................................ 15
SELECTED PROFORMA FINANCIAL DATA...................................................... 16
Proforma Balance Sheet........................................................... 16
Proforma Statements of Operations................................................ 17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF PENRIL AND THE COMPANY........................................................... 19
General Business Developments.................................................... 19
New Accounting Pronouncements.................................................... 19
Results of Operations............................................................ 20
Liquidity and Capital Resources.................................................. 23
BUSINESS.............................................................................. 24
General.......................................................................... 24
Products......................................................................... 25
Discontinued Operations.......................................................... 26
Suppliers........................................................................ 26
Patents, Copyrights And Licenses................................................. 26
Backlog.......................................................................... 27
Competition...................................................................... 27
Sales and Marketing.............................................................. 27
Customer Support, Service and Warranty........................................... 28
Research and Development......................................................... 28
Properties....................................................................... 28
</TABLE>
3
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Employees........................................................................ 29
Legal Proceedings................................................................ 29
MANAGEMENT............................................................................ 30
Directors and Executive Officers................................................. 30
Committees of the Board of Directors............................................. 32
Compensation of Directors........................................................ 32
Executive Compensation........................................................... 33
Employment and Consulting Agreements............................................. 34
Penril Benefit Plans............................................................. 35
Company Benefit Plans............................................................ 38
SECURITY OWNERSHIP.................................................................... 41
DESCRIPTION OF CAPITAL STOCK.......................................................... 43
Authorized Capital Stock......................................................... 43
Company Stock.................................................................... 43
Preferred Stock.................................................................. 44
Antitakeover Provisions of the Company Certificate and Company By-laws........... 44
COMPARISON OF RIGHTS OF STOCKHOLDERS OF THE COMPANY AND PENRIL........................ 46
Business Combinations............................................................ 47
Amendments to Charters........................................................... 47
Amendments to By-laws............................................................ 47
Redemption of Capital Stock...................................................... 48
Stockholder Action............................................................... 48
Special Stockholder Meetings..................................................... 48
Number and Election of Directors................................................. 48
Antitakeover Provisions.......................................................... 49
LIABILITY AND INDEMNIFICATION OF OFFICERS AND DIRECTORS OF THE COMPANY................ 49
General.......................................................................... 49
Elimination of Liability in Certain Circumstances................................ 49
Indemnification and Insurance.................................................... 50
CERTAIN TRANSACTIONS.................................................................. 52
Distribution Agreement........................................................... 52
Development and License Agreement................................................ 52
Technology License Agreement..................................................... 52
Sublease Agreement............................................................... 53
Transitional Services Agreement.................................................. 53
Indemnification Agreement........................................................ 53
LEGAL MATTERS......................................................................... 54
EXPERTS............................................................................... 54
</TABLE>
4
<PAGE> 6
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus and is qualified by the more detailed information set forth
elsewhere in this Prospectus which should be read in its entirety. Unless the
context otherwise indicates, all references to the operations of the Company in
this Prospectus shall include the operations of the Remote Access Business (as
hereinafter defined) by Penril prior to the Distribution and assumes that the
actions set forth under "The Distribution" have taken place. Capitalized terms
used in this Summary but not defined in this Summary have the respective
meanings ascribed to them elsewhere in this Prospectus.
ACCESS BEYOND, INC.
The Company is a wholly owned subsidiary of Penril, organized by Penril for
the sole purpose of effecting the Distribution and the Merger. The Company was
incorporated on July 23, 1996. The mailing address of the Company's principal
executive offices is currently 1300 Quince Orchard Boulevard, Gaithersburg,
Maryland 20878, and the phone number is (301) 921-8600.
TRANSACTIONS
Penril has entered into a Plan and Agreement of Merger dated as of June 16,
1996, as amended on August 5, 1996 (the "Merger Agreement") among Penril, Bay
and a subsidiary of Bay, pursuant to which, upon the terms and subject to the
conditions set forth therein, Penril will be merged with the subsidiary of Bay,
with Penril surviving as a wholly-owned subsidiary of Bay. Prior to consummation
of the Merger, the Board of Directors of Penril will declare a distribution in
the form of a dividend to holders of Penril Stock, as of the close of business
on the Record Date, on the basis of one share of Company Stock for each share of
Penril Stock held on the Record Date. The shares to be distributed will
constitute all of the issued and outstanding shares of Company Stock immediately
following the Distribution. Following the Distribution, the Company will be an
independent company and the Company Stock will be publicly traded on Nasdaq. See
"The Distribution" and "Description of Capital Stock." The Distribution is
intended to be tax-free to Penril stockholders for federal income tax purposes.
Pursuant to the Merger Agreement, at the effective time of the Merger (the
"Effective Time"), each issued and outstanding share of Penril Stock (other than
shares of Penril Stock that are owned by Penril as treasury stock and other than
any shares of Penril Stock that are owned beneficially by Bay or any wholly
owned subsidiary of Bay, which will be automatically cancelled without
consideration) will be converted into the number of shares of common stock, par
value $.01 per share, of Bay (the "Bay Stock") equal to a specified ratio
determined by dividing $10 by the average closing price for Bay Stock for a
specified period prior to the Effective Time. Each of the options to purchase
Penril Stock outstanding at the Effective Time will be assumed by Bay and,
immediately after the Effective Time, will be deemed to constitute, without any
action on the part of the holder thereof, an option to acquire, as of the
Effective Time, Bay Stock on the same terms and conditions as were applicable
under such option at the Effective Time, subject to adjustment of the number of
shares and the exercise price for the conversion ratio referred to above. The
terms of the Merger are as described under "The Merger Agreement -- The Merger"
in the Proxy Statement/Prospectus of Penril and Bay (the "Proxy
Statement/Prospectus") to which this Prospectus is Annex II.
Immediately prior to the Distribution, Penril will transfer (the
"Transfer") to the Company substantially all of its assets and liabilities other
than assets and liabilities related to Penril's modem business (the "Modem
Business"). In addition, the Company and Penril have agreed to indemnify each
other after the Distribution with respect to certain losses, damages, claims and
liabilities arising primarily from their respective businesses. See "Certain
Transactions -- Indemnification Agreement."
The foregoing is a brief summary of certain terms of the Merger affecting
Penril. A more complete description of the Merger and the Merger Agreement may
be found in the Proxy Statement/Prospectus. The Distribution Agreement between
Penril and the Company is more fully described herein under "Certain
Transactions -- Distribution Agreement."
5
<PAGE> 7
THE DISTRIBUTION
<TABLE>
<S> <C>
Distributing Company.................. Penril DataComm Networks, Inc., a Delaware corporation
("Penril").
Distributed Company................... Access Beyond, Inc., a Delaware corporation (the "Com-
pany"). The Company will engage in the development and
marketing of network access devices which enable
local, remote or mobile users to access network
resources located at remote sites, central sites or
any other point in the network (the "Remote Access
Business"). In addition, Penril is currently in the
process of selling two subsidiaries, Technipower, Inc.
("Technipower"), a manufacturer of uninterruptible
power supplies and power regulating equipment, and
Electro-Metrics, Inc. ("EMI"), a manufacturer of
sophisticated high frequency instrumentation
equipment. Although it is anticipated that Technipower
will be sold prior to the Transfer, it is unlikely
that EMI will be sold prior to the Transfer. In the
event Technipower or EMI is not sold prior to the
Transfer, the assets and liabilities of the unsold
subsidiary will be transferred to the Company as part
of the Transfer. See "Business -- Discontinued
Operations."
Shares to be Distributed.............. 11,993,000 shares of Company Stock based on 11,993,000
shares of Penril Stock expected to be outstanding on
the Record Date. See "Description of Capital Stock."
Such shares will constitute all of the issued and
outstanding shares of Company Stock immediately
following the Distribution.
Distribution Ratio.................... One share of Company Stock for each share of Penril
Stock held on the Record Date. See "The
Distribution -- Manner of Effecting the Distribution."
Risk Factors.......................... Stockholders should consider certain factors discussed
under the heading "Risk Factors" beginning on page 9.
Relationship with Penril
After the Distribution.............. As of the Distribution Date, the Company and Penril
will enter into several agreements to define their
ongoing relationships. These agreements relate to the
provision of certain administrative services by the
Company to Penril, the license of certain trademarks,
trade names and service marks for use in the business
of the Company, indemnification for various claims and
development of certain technology. See "Certain
Transactions."
</TABLE>
6
<PAGE> 8
<TABLE>
<S> <C>
Federal Income Tax Consequences....... The Board of Directors of Penril has received an
opinion from its tax counsel to the effect that, on
the basis of the facts, representations and
assumptions set forth in the opinion, for federal
income tax purposes, it is more likely than not that
(i) the Distribution will qualify as a tax-free
spin-off pursuant to Section 355 of the Internal
Revenue Code of 1986, as amended (the "Code") and (ii)
the Merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(B) of the Code. If the
tax-free nature of the Merger in invalidated, it would
reduce the likelihood that the Distribution will
qualify as a tax-free spin-off pursuant to Section 355
of the Code. No ruling from the Internal Revenue
Service ("IRS") has been or will be sought with
respect to any aspect of the Distribution. For a more
detailed discussion of the federal income tax conse-
quences of the Distribution to the Penril
stockholders, see "Risk Factors -- Certain Tax
Considerations" and "The Distribution -- Certain
Federal Income Tax Consequences of the Distribution."
Post-Distribution Dividend Policies... The Company does not anticipate paying dividends for
the foreseeable future.
Company Stock Listing................. The Company has applied to have the Company Stock
listed for trading on Nasdaq under the symbol "ACCB."
Record Date........................... It is expected that the Record Date will be on or
immediately after receipt of approval by the Penril
stockholders of the Merger, the Transfer and the
Distribution.
Distribution Agent, Transfer Agent
and Registrar....................... Continental Stock Transfer & Trust Company
Distribution Date..................... It is expected that the Distribution Date will be on
or about November 19, 1996. As soon as practicable
thereafter, Penril will commence mailing certificates
representing shares of Company Stock. Holders of
Penril Stock will not be required to make any payment
or take any action, including tendering stock
certificates, in order to receive Company Stock. See
"The Distribution -- Manner of Effecting the
Distribution."
</TABLE>
7
<PAGE> 9
SUMMARY CONSOLIDATED FINANCIAL DATA
The following Summary Consolidated Financial Data of Penril should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations of Penril and the Company" included elsewhere herein
and Penril's consolidated financial statements and the notes thereto included
herein. The statement of operations data for the years ended July 31, 1996,
1995, 1994, 1993 and 1992 and the balance sheet data as of the same dates have
been derived from the audited consolidated financial statements of Penril.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PENRIL -- HISTORICAL STATEMENT OF OPERATIONS
DATA:
Net revenues(1)................................ $39,435 $52,611 $61,838 $44,108 $32,966
Net income (loss)
Continuing operations(2)..................... (20,668) (4,614) 2,344 1,027 188
Discontinued operations...................... 404 (1,661) (828) (896) 906
Loss on disposal of discontinued
operations................................ (640) (1,400) -- -- --
Earnings (loss) per share
Continuing operations........................ (2.14) (0.62) 0.30 0.15 0.03
Discontinued operations...................... .04 (0.22) (0.11) (0.13) 0.13
Loss on disposal............................. (.07) (0.19) -- -- --
Cash dividends per share....................... -- -- 0.02 -- 0.02
PENRIL -- HISTORICAL BALANCE SHEET DATA:
Total assets(3)................................ $33,780 $44,387 $51,061 $49,178 $28,689
Long-term debt................................. 905 5,681 8,890 10,217 1,875
Stockholders' equity........................... 18,215 21,723 28,580 27,501 22,177
<FN>
- ---------------
(1) Included in net revenues are the following net revenues relating to the
Modem Business, including $4.5 million paid in the fourth quarter of fiscal
1996 to Penril for a license agreement with Bay:
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net revenues............................... $19,519 $18,974 $22,828 $21,768 $16,789
<FN>
(2) Net income from continuing operations for fiscal 1996 includes a charge of
$9.7 million for restructuring costs and $500,000 for costs incurred through
July 31, 1996 related to the Merger.
(3) Included in total assets are the following net assets relating to the
discontinued operations (Technipower and EMI):
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31,
---------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net assets................................. $ 7,337 $ 5,145 $ 6,830 $ 7,299 $ 6,883
</TABLE>
8
<PAGE> 10
RISK FACTORS
Holders of Penril Stock should be aware that the Distribution and ownership
of Company Stock involves certain risks, including those described below, which
could adversely affect the value of their holdings of Company Stock. Neither
Penril nor the Company makes, nor have they authorized any other person to make,
any representation about the future market value of Company Stock.
STAND ALONE COMPANY
The Company was recently incorporated for the purpose of effecting the
Distribution and the Merger and, as a corporation, does not have any operating
history. However, the Remote Access Business, as conducted by Penril prior to
the Distribution, has an operating history consisting of the development and
sales of local area network ("LAN") and host access products (the "LAN and Host
Access products") and the development of a new product family called Access
Beyond. See "Business -- Products."
ABSENCE OF TRADING MARKET FOR COMPANY STOCK
There is currently no established public trading market nor has there been
any established public trading market for Company Stock. The Company has applied
to have the Company Stock listed for trading on Nasdaq. There can be no
assurance as to the prices at which Company Stock will trade after the
Distribution Date. Until Company Stock is fully distributed and an orderly
trading market develops (if one does), the prices at which such stock trades may
fluctuate significantly. Prices for Company Stock will be determined in the
marketplace and may be influenced by many factors, including the operating
performance of the Company, the depth and liquidity of the market for Company
Stock, investor perception of the Company and general economic and market
conditions.
DEPENDENCE ON KEY MANAGEMENT
If the Company is to be successful, its success will be due in large part
to the performance of Ronald A. Howard, the Company's President and Chief
Executive Officer, and, to a lesser extent, of other key management personnel.
The loss of Mr. Howard's services could adversely affect the Company's ability
to achieve profitability and growth. Although the Company anticipates it will
have an employment contract with Mr. Howard which will provide for his continued
employment, no assurance can be given that the Company will be able to retain
the services of Mr. Howard or any other key management personnel. See
"Management -- Executive Compensation" and "Management -- Employment and
Consulting Agreements."
TECHNOLOGICAL CHANGES
The market for networking products is subject to rapid technological
change, evolving industry standards and frequent new product introductions, and
therefore requires a high level of expenditures for research and development.
The Company may be required to incur significant expenditures to develop new
integrated product offerings. There can be no assurance that customer demand for
products integrating network connectivity and remote access technologies will
grow at the rate expected by the Company, that the Company will be successful in
developing, manufacturing and marketing new products or product enhancements
that respond to these customer demands or to evolving industry standards and
technological change, that the Company will not experience difficulties that
could delay or prevent the successful development, introduction, manufacture and
marketing of these products (especially in light of the increasing design and
manufacturing complexities associated with the integration of technologies), or
that its new products and product enhancements will adequately meet the
requirements of the marketplace and achieve market acceptance. The Company's
business, operating results and financial condition may be materially and
adversely affected if the Company encounters delays in developing or introducing
new products or product enhancements or if such product enhancements do not gain
market acceptance. In order to maintain a competitive position, the Company must
also continue to enhance its existing products and there is no assurance that it
will be able to do so. A major portion of future revenues is expected to come
from new products and services. The Company cannot determine the ultimate effect
that new products will have on its revenues or earnings.
9
<PAGE> 11
COMPETITION
The networking industry is highly competitive and competition is expected
to intensify. There are numerous companies competing in various segments of the
network management and remote access markets. Competitors include Ascend
Communications, Shiva Corporation, Cisco Systems, Inc., U.S. Robotics
Corporation, Microcom, Inc. and Bay, among others. Many of the Company's
competitors have greater name recognition, more extensive engineering,
manufacturing and marketing capabilities and greater financial, technological
and personnel resources than those available to the Company. In addition,
certain companies in the networking industry have expanded their product lines
or technologies in recent years as a result of acquisitions. There can be no
assurance that the Company will be able to compete successfully in the future
with existing or new competitors.
PRODUCT PROTECTION AND INTELLECTUAL PROPERTY
The Company, like many other companies in the network access industry,
anticipates it will rely upon rights granted through licenses from third parties
for a substantial amount of proprietary information used to develop its
products; however, some companies may determine not to grant such licenses and
may seek to protect their proprietary rights in such technological information.
Accordingly, there can be no assurance that the Company will be able to continue
obtaining additional rights to utilize proprietary technological information
necessary to develop its products. Because of the existence of a large number of
patents in the networking field and the rapid rate of issuance of new patents,
it is not economically practical to determine in advance whether a product or
any of its components infringe patent rights of others. In the event of any
infringement, the Company believes that, based upon industry practice, necessary
licenses or rights under such patents may be obtained on terms that should not
have a material adverse effect on the Company's consolidated financial position
or results of operations. However, there can be no assurance in this regard.
CERTAIN ANTITAKEOVER EFFECTS
The Company's Restated Certificate of Incorporation (the "Company
Certificate") includes certain provisions that are intended to prevent or delay
the acquisition of the Company by means of a tender offer, proxy contest or
otherwise. Specifically, the Company Certificate provides for a classified Board
of Directors, classified into three classes with terms of three years each. In
addition, the Company Certificate authorizes the Board of Directors of the
Company to issue preferred stock without further stockholder approval, which
could have dividend, redemption, liquidation, conversion, voting or other rights
that could adversely affect the voting power or other rights of the holders of
Company Stock. Finally, the Company is subject to Section 203 of the Delaware
General Corporation Law (the "DGCL") which limits transactions between a
publicly held company and "interested stockholders" (generally those
stockholders who, together with their affiliates and associates, own 15% or more
of a company's outstanding capital stock). Any one of, or a combination of, the
above anti-takeover provisions could discourage a third party from attempting to
acquire control of the Company. See "Description of Capital Stock." The
Company's 1996 Long-Term Incentive Plan and the Company's 1996 Non-Employee
Directors' Stock Option Plan will provide for acceleration of stock options and
restricted stock awards upon a change in control of the Company, which will have
the effect of making an acquisition of control of the Company more expensive.
See "Management -- Company Benefit Plans." These plans may also inhibit a change
in control of the Company. In addition, certain Company officers will have
severance compensation agreements with the Company that will provide for
substantial cash payments and acceleration of other benefits in the event of
specified corporate changes related to the Company, including a change in
control of the Company. See "Management -- Employment and Consulting
Agreements."
IMPORTANT CONSIDERATIONS RELATED TO FORWARD-LOOKING STATEMENTS
With the exception of historical information, the matters discussed in this
document may include forward-looking statements that involve risks and
uncertainties. The Company wishes to caution readers that a number of important
factors, including those identified in this section as well as factors discussed
elsewhere in this filing and in other filings with the Commission, could affect
the Company's actual results and cause actual results to differ materially from
those in the forward-looking statements.
10
<PAGE> 12
DIVIDENDS
The Company does not anticipate paying dividends for the foreseeable
future.
CERTAIN TAX CONSIDERATIONS
As described below, the Board of Directors of Penril has received an
opinion from its tax counsel to the effect that, on the basis of the facts,
representations and assumptions set forth in the opinion, for federal income tax
purposes, it is more likely than not that (i) the Distribution will qualify as a
tax-free spin-off pursuant to Section 355 of the Code and (ii) the Merger will
qualify as a reorganization within the meaning of Section 368(a)(1)(B) of the
Code. No ruling from the IRS to that effect has been or will be sought. If the
tax-free nature of the Merger is invalidated, it would reduce the likelihood
that the Distribution will qualify as a tax-free spin-off pursuant to Section
355 of the Code. See "The Distribution -- Certain Federal Income Tax
Consequences of the Distribution." If the Distribution were not to qualify for
tax-free treatment under Section 355 of the Code, then, in general, although not
entirely free from doubt, for federal income tax purposes it is likely that each
Penril stockholder would be required to recognize income or gain on the receipt
of Company Stock in the Distribution in an amount up to the fair market value of
the shares of Company Stock received in the Distribution. Each member of the
Penril consolidated group (including the Company and its subsidiaries) would
remain jointly and severally liable for any tax liability of Penril or its
subsidiary incurred prior to the Merger.
RELATIONSHIP WITH PENRIL
The Company does not have an operating history as an independent public
company. The operations of the Company historically have relied on the rest of
Penril for certain necessary administrative services. As of the Distribution
Date, Penril and the Company will enter into several agreements for purposes of
governing certain of the ongoing relationships between the two companies
following the Distribution, including indemnification obligations. Pursuant to
the Indemnification Agreement to be entered into between Penril and the Company
in connection with the Transfer (the "Indemnification Agreement"), the Company
will agree to indemnify Penril against all expenses and liabilities resulting
from (i) the operation of the Company from and after the Distribution, (ii)
Penril's operations prior to the Transfer other than those based upon, arising
out of or in connection with (a) the Modem Business, (b) the Merger and
transactions relating to the Merger or (c) the tax consequences of the
Distribution, (iii) the termination of employment of employees (other than those
employees identified as remaining with Penril after the Transfer) by Penril or
(iv) information furnished by Penril or the Company relating to the Company
contained in the Registration Statement filed by Bay in connection with the
Proxy Statement/Prospectus. Included within the potential liabilities against
which the Company will indemnify Penril are those referred to in "Business-Legal
Proceedings". Although the Company is not aware of any pending or threatened
material liability for which the Company anticipates becoming obligated to make
payments in connection with its obligation to indemnify Penril except for
possible payments resulting from the termination of employment of certain
employees (which payments management anticipates will not exceed approximately
$400,000), there can be no assurance that such indemnification obligations could
not arise or that such indemnification obligations would not be material to the
Company. These agreements were negotiated while the Company was owned by Penril
and consequently are not the result of arm's-length negotiations between
independent parties. Nonetheless, the Company believes that the agreements are
fair to the parties and contain terms which are generally comparable to those
which would result from arm's-length negotiations, although there can be no
assurance thereof.
THE DISTRIBUTION
BACKGROUND OF THE TRANSFER AND THE DISTRIBUTION
Because the Modem Business was all that Bay desired to acquire, Penril
determined to effect the Distribution, which is intended to be tax-free to
Penril stockholders for federal income tax purposes and which was a condition to
Bay's willingness to enter into the Merger Agreement. Penril believes the
Distribution will enable Penril stockholders to participate in the values and
prospects of the assets and business of the Company.
11
<PAGE> 13
Although the Transfer and Distribution will not be effected unless the
Merger is approved and is about to occur, the Transfer and Distribution are
separate from the Merger and the Company Stock to be received by holders of
Penril Stock in the Distribution does not constitute a part of the consideration
to be received in the Merger.
Until shortly before the Merger, the Company will own no material assets
and will conduct no significant business activity. Prior to the Merger, Penril
and the Company will enter into a Distribution Agreement and an Indemnification
Agreement pursuant to which agreements Penril will transfer to the Company as a
capital contribution all of Penril's right, title and interest in the Remote
Access Business and all of the other assets of Penril unrelated to the Modem
Business, as well as a portion of Penril's total net operating loss
carryforward; and the Company will (a) assume, pay, perform and discharge all of
the liabilities of Penril other than (i) liabilities relating to the Modem
Business; and (ii) the bank debt of Penril (which may not exceed $4,000,000 at
the Effective Time); and (b) indemnify Penril for any and all claims and
liabilities arising as a result of or in connection with the sale by Penril (if
consummated prior to the Distribution) of either Technipower or EMI. At the time
of the Transfer, Penril will own all of the Company's outstanding stock. See
"Certain Transactions."
MANNER OF EFFECTING THE DISTRIBUTION
Pursuant to the Distribution, Penril will distribute as a dividend to its
stockholders of record as of the Record Date ("Holders") one share of Company
Stock for each share of Penril Stock then held. On the Distribution Date, Penril
will deliver to Continental Stock Transfer & Trust Company, as distribution
agent, certificates evidencing all of the issued and outstanding shares of
Company Stock owned by Penril, which will represent all of the issued and
outstanding shares of Company Stock. All shares of Company Stock distributed
will be fully paid, nonassessable and free of preemptive rights.
As a result of the Distribution, all of the issued and outstanding shares
of Company Stock will be distributed to Holders. The Record Date is expected to
be on or about November 15, 1996 and the Distribution Date will be on or about
November 19, 1996. It is presently anticipated that certificates representing
Company Stock will be mailed to Holders on or about the Distribution Date. After
the Distribution Date, Holders will hold their Penril Stock (until converted
into Bay Stock) as well as Company Stock. The Distribution will not affect the
number of, or the rights attaching to, outstanding shares of Penril Stock.
No Holder will be required to pay any cash or other consideration for the
shares of Company Stock received in the Distribution nor will any action be
required to be taken by any Holder, including tendering stock certificates, in
order to receive shares of Company Stock. Penril has accounted for the
Distribution as a dividend and has reduced its stockholders' equity by the net
book value of the Company Stock distributed.
IN ORDER TO BE ENTITLED TO RECEIVE THE DISTRIBUTION OF COMPANY STOCK, A
PENRIL STOCKHOLDER RECEIVING THIS PROSPECTUS MUST HAVE BEEN A HOLDER OF RECORD
OF PENRIL STOCK ON THE RECORD DATE.
LISTING AND TRADING OF COMPANY STOCK
The Company has applied to have the Company Stock listed for trading on
Nasdaq under the symbol "ACCB". The transfer agent and registrar for the Company
Stock is Continental Stock Transfer & Trust Company.
No current public trading market for the Company Stock exists, although a
"when-issued" market could develop several days prior to the Distribution Date.
The extent of the market for the Company Stock and the prices at which the
Company Stock may trade prior to or after the Distribution cannot be predicted.
See "Risk Factors -- Absence of Trading Market for Company Stock."
The Company Stock distributed to Holders will be freely transferable,
except for Company Stock received by persons who may be deemed to be
"affiliates" of the Company under the Securities Act. Persons who may be deemed
to be affiliates of the Company after the Distribution generally include
individuals or entities that control, are controlled by or are under common
control with the Company and may include
12
<PAGE> 14
certain officers and directors of the Company as well as principal stockholders
of the Company. Persons who are affiliates of the Company will be permitted to
sell their Company Stock only pursuant to an effective registration statement
under the Securities Act or an exemption from the registration requirements of
the Securities Act, such as the exemptions provided by Section 4(2) of the
Securities Act or Rule 144 thereunder. It is not expected that Rule 144 will be
available for the sale of Company Stock by affiliates of the Company until at
least 90 days after the effectiveness of the Company's registration statement
registering Company Stock under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). See "Description of Capital Stock -- Company Stock."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
General. The following is a summary of the material federal income tax
consequences of the Distribution to the holders of shares of Penril Stock. The
federal income tax discussion set forth below is for general information only
and may not apply to particular categories of holders of shares of Penril Stock
subject to special treatment under the Code, including without limitation,
foreign holders and holders whose Penril securities were acquired pursuant to
the exercise of any employee stock option or otherwise as compensation. EACH
HOLDER OF SHARES OF PENRIL STOCK AND PENRIL OPTIONS IS URGED TO CONSULT HIS TAX
ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO HIM OF THE DISTRIBUTION,
INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND
OTHER TAX LAWS.
Consequences of Proposed Transaction. As described in the Summary, the
Distribution is being made in preparation for, and in conjunction with, the
Merger. The Board of Directors of Penril has received an opinion from its
counsel Benesch, Friedlander, Coplan & Aronoff P.L.L. ("Counsel") to the effect
that, on the basis of the facts, representations and assumptions set forth in
the opinion, for federal income tax purposes, it is more likely than not that
(i) the Distribution will qualify as a tax-free spin-off pursuant to Section 355
of the Code and (ii) the Merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(B) of the Code. If the tax-free nature of the
Merger is invalidated, it would reduce the likelihood that the Distribution will
qualify as a tax-free spin-off pursuant to Section 355 of the Code.
The representations (among others) relied upon by Counsel in giving its
opinion contain statements or agreements to the effect that: the Modem Business
and Remote Access Business have each been actively conducted for five years and
will continue to be conducted as separate, active businesses after the proposed
transactions; certain transactions between Penril and Bay in effect prior to the
closing of the Distribution and the Merger are fair market value transactions
entered into for valid business reasons independent of the Merger, and all of
the transactions between the Company and Bay or Penril in effect after the
closing of the Distribution and the Merger (other than certain contributions
made to the Company by Penril prior to the Distribution) will also be fair
market value transactions entered into for valid business reasons; the transfer
of certain cash and liquid assets to the Company (and the retention of certain
debt by Penril) is necessitated by the ongoing business needs of the Company;
the liquid assets being received by the Company will be used in the operation of
its Remote Access Business and will not be used to make distributions to, or
redeem the shares of Company Stock held by stockholders of the Company; Penril
will be maintained as a separate corporation by Bay; and Bay owns no Penril
Stock and has no intention to reacquire any stock issued in the Merger.
The favorable tax treatment of both the Distribution and the Merger also
depends upon the historic stockholders of Penril maintaining a so-called
"continuity of interest" in both the Bay Stock received in the Merger and the
Company Stock received in the Distribution. Under Revenue Procedures issued by
the IRS, continuity of interest is maintained in each transaction if the
historic stockholders of Penril continue to maintain at least one-half their
stock investment in Penril in the modified form of each of the Company Stock and
Bay Stock received by them in the proposed transactions. Penril has represented
that it knows of no plan or intent by any stockholder to sell more than one-half
of his Bay Stock or Company Stock received in the proposed transactions. There
are no court cases or published rulings by the Service giving guidance on how to
measure the continuity of interest of historic stockholders in publicly owned
corporations, such as Penril, where 5% stockholders own, in the aggregate, less
than 50% of the stock of the corporation. However, Counsel
13
<PAGE> 15
is of the opinion, based upon Penril's representations regarding the plans and
intentions of its stockholders, that both the Distribution and the Merger meet
the continuity of interest requirement. It should be noted that Penril has not
sought representations (as required by the IRS from taxpayers seeking private
letter rulings in reorganizations) from each of its 5% stockholders as to their
plans and intentions with respect to their Penril Stock or the Bay Stock and the
Company Stock to be received in the proposed transactions.
Consequences of the Distribution to Penril Stockholders. If the
distribution qualifies as a tax-free spin-off for federal income tax purposes:
1. A Penril stockholder will not recognize any income, gain or loss in
connection with the Distribution.
2. Following the Distribution, a Penril stockholder will apportion the
tax basis for his shares of Penril Stock between such Penril Stock and the
Company Stock received in the Distribution in proportion to the relative
fair market values of such Penril Stock and Company Stock on the
Distribution Date. A Penril stockholder's holding period for the Company
Stock received or deemed received in the Distribution will include the
period during which such stockholder held the Penril Stock with respect to
which the Company Stock was received or deemed received, provided that such
Penril Stock is held as a capital asset by such stockholder as of the time
of the Distribution.
Counsel's opinion with respect to the Distribution is based upon certain
representations and assumptions and represents Counsel's best legal judgment,
and is not binding upon the IRS or the courts. If any representation or
assumption relied upon in rendering Counsel's opinion is inaccurate, or if the
IRS were to challenge successfully the federal income tax treatment of the
Distribution set forth in Counsel's opinion, then, in general, although not
entirely free from doubt, for federal income tax purposes it is likely that each
Penril stockholder would be required to recognize income or gain on the receipt
of the shares of Company Stock in the Distribution in an amount up to the fair
market value of the shares of Company Stock received in the Distribution. In
such event (a) the tax basis of the shares of Company Stock received by a Penril
stockholder in the Distribution would be the fair market value of such shares on
the date the Distribution is consummated and (b) the holding period for such
shares of Company Stock would begin the day after the date the Distribution is
consummated.
Current treasury regulations require that each Penril stockholder who
receives Company Stock pursuant to the Distribution attach to his federal income
tax return for the year in which the Distribution occurs a detailed statement
setting forth such information as may be appropriate in order to demonstrate the
applicability of Section 355 of the Code to the Distribution. Penril or its
successor, Bay, will convey the appropriate information to each Penril
stockholder of record as of the Record Date.
CERTAIN CONSEQUENCES OF THE DISTRIBUTION
After the Distribution, Penril stockholders of record as of the Record Date
and the Effective Time will own two securities (shares of Penril Stock, until
they are converted into shares of Bay Stock, and shares of Company Stock) and
will be able to increase or decrease their respective holdings in either Bay or
the Company without affecting their holdings in the other company. The Company
will be an independent, publicly traded company, owning and operating the Remote
Access Business and, if not disposed of prior to the Distribution, Technipower
and EMI.
REASON FOR FURNISHING THIS PROSPECTUS
This Prospectus is being prepared in order to provide information for
Holders, each of whom will receive shares of Company Stock in the Distribution.
It is not to be construed as an inducement or encouragement to buy or sell any
securities of Penril, the Company or any other corporation. The information
contained herein is provided as of the date of this Prospectus unless otherwise
indicated. Neither Penril nor the Company will update the information contained
in this Prospectus to effect any changes that may occur subsequent to the date
hereof, except in the normal course of their respective public disclosure
practices.
14
<PAGE> 16
CAPITALIZATION
The capitalization of the Company following the Distribution will reflect
the net book value of the assets transferred to and the liabilities assumed by
the Company from Penril in connection with the Transfer. The following table
sets forth the proforma adjusted capitalization of the Company at July 31, 1996.
This table has been prepared based upon the historical consolidated balance
sheet of Penril as of July 31, 1996 giving effect to the Transfer and the
Distribution. This table also reflects adjustments to the proforma
capitalization, as referred to in the note following the table. This table does
not reflect results of operations from and after July 31, 1996. This table
should be read in conjunction with the unaudited proforma consolidated financial
statements and notes thereto included elsewhere herein (dollars in thousands).
<TABLE>
<CAPTION>
AS
PROFORMA ADJUSTMENTS ADJUSTED
-------- ----------- --------
<S> <C> <C> <C>
Long-term debt (capitalized lease obligations)............ $ 633 $ 633
======= =======
Stockholders' equity:
Common stock, par value $.01 per share, 30,000,000
authorized, 11,993,000 outstanding................... $ 109 $ 11(1) $ 120
Additional paid-in capital.............................. 39,837 6,240(1) 46,077
Retained earnings....................................... (21,581) (21,581)
-------- --------
Total stockholders' equity................................ $ 18,365 $ 24,616
======= =======
Total capitalization...................................... $ 18,998 $ 25,249
======= =======
</TABLE>
- ---------------
(1) Adjustment for the issuance of 1,143,000 shares as a result of the exercise
of employee and non-employee director stock options with a value of
$6,251,000 that the Company assumes will be exercised from July 31, 1996 to
the Transfer.
15
<PAGE> 17
SELECTED PROFORMA CONSOLIDATED FINANCIAL DATA
While the Transfer and the Distribution will take place as described above,
the following unaudited pro forma financial statements have been prepared from
Penril's historical financial statements to show the Modem Business being sold
to Bay as a pro forma adjustment and the Company, on a proforma basis, as the
continuing entity.
With the exception of historical information, the matters discussed in this
section include forward-looking statements that involve risks and uncertainties.
The Company wishes to caution readers that a number of important factors,
including those identified in this section as well as factors discussed in "Risk
Factors" and elsewhere in this Prospectus, could affect the Company's actual
results and cause actual results to differ materially from those in the
forward-looking statements.
PROFORMA BALANCE SHEET
The following unaudited proforma consolidated balance sheet for the Company
has been prepared based upon the historical consolidated balance sheet for
Penril as of July 31, 1996 and giving effect to the Transfer and the
Distribution and the events that are directly attributable to those
transactions. In the opinion of Penril's management, all material adjustments
necessary to reflect the effects of the Transfer and the Distribution have been
made. Such unaudited proforma information should be read in conjunction with
Penril's financial statements and the notes thereto included elsewhere in this
Prospectus.
The unaudited proforma consolidated balance sheet has been prepared based
upon assumptions deemed appropriate by the management of Penril, does not
purport to represent what the actual financial position would have been if the
Transfer and the Distribution had been consummated at July 31, 1996, may not be
indicative of actual results and does not purport to represent the future
financial position of the Company.
16
<PAGE> 18
UNAUDITED PROFORMA CONSOLIDATED BALANCE SHEET AS OF JULY 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PENRIL ADJUSTMENTS AS ADJUSTED
AS -- MODEM -- THE
REPORTED BUSINESS COMPANY
-------- ----------- -----------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......................... $ 4,237 $ $ 4,237
Accounts receivable, net........................... 7,044 3,099(1) 3,945
Inventories........................................ 9,684 4,261(2) 5,423
Deferred income taxes.............................. 1,700 1,700(3) --
Net assets of discontinued operations.............. 7,337 -- 7,337
Other current assets............................... 249 75(2) 174
------- ------- -------
TOTAL CURRENT ASSETS............................ 30,251 9,135 21,116
Property and Equipment, net.......................... 2,457 346(2) 2,111
Other Assets......................................... 1,072 197(2) 875
------- ------- -------
TOTAL ASSETS......................................... $33,780 $ 9,678 $24,102
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings.............................. $ 4,000 $ 4,000(4) $ --
Current portion of long-term debt.................. 272 272
Accounts payable................................... 6,076 2,673(5) 3,403
Accrued compensation and commission................ 1,347 121(2) 1,226
Other accrued expenses............................. 1,758 251(2) 1,507
------- ------- -------
TOTAL CURRENT LIABILITIES....................... 13,453 7,045 6,408
Long-Term Debt, net of current portion............... 633 -- 633
Other Noncurrent Liabilities......................... 1,479 -- 1,479
------- ------- -------
TOTAL LIABILITIES.................................... 15,565 7,045 8,520
Stockholders' Equity
Common stock....................................... 109 -- 109
Additional paid-in capital......................... 39,837 -- 39,837
Retained earnings (deficit)........................ (21,581 ) 2,633 (24,214)
------- ------- -------
18,365 2,633 15,732
Equity adjustment from foreign currency
translation..................................... (150 ) -- (150)
------- ------- -------
TOTAL STOCKHOLDERS' EQUITY........................... 18,215 2,633 15,582
------- ------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY............................................. $33,780 $ 9,678 $24,102
======= ======= =======
</TABLE>
- ---------------
(1) Adjustments to eliminate estimated Modem Business receivables as of July 31,
1996 based on assumed turnover of receivables to sales.
(2) Adjustments to eliminate specifically identified Modem Business related
assets and liabilities to remain with Penril after the Transfer and the
Distribution.
(3) Adjustments to eliminate deferred income taxes and other tax benefits to
remain with Penril after the Transfer and the Distribution.
(4) Adjustments to eliminate the bank debt to remain with Penril after the
Transfer and the Distribution.
(5) Adjustments to eliminate Modem Business related trade payables to remain
with Penril after the Transfer and the Distribution.
PROFORMA STATEMENTS OF OPERATIONS
The following unaudited proforma consolidated statement of operations for
the Company has been prepared from the historical results of operations of
Penril. The proforma adjustments have been computed assuming the Transfer and
the Distribution had been consummated August 1, 1995. This statement should be
read in conjunction with the historical financial statements of Penril including
the notes thereto, which are
17
<PAGE> 19
included elsewhere in this Prospectus, the unaudited proforma consolidated
balance sheet appearing above and the notes to this unaudited proforma
consolidated statement of operations.
The unaudited proforma consolidated statement of operations has been
prepared based upon an identification of those costs that could be directly
attributed to the Modem Business. Expenses which were not specifically
identified with either the Modem Business or the Remote Access Business remain
with the Company; consequently the expenses shown for the Company are in excess
of those that would have been incurred had the Company been a stand alone
company. This statement does not purport to represent what the actual results of
operations would have been for the Company had the Transfer and the Distribution
been consummated at the beginning of the period, is not indicative of actual
results and does not purport to represent what the results of operations of the
Company may be for future periods.
UNAUDITED PROFORMA CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JULY 31, 1996
----------------------------------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
PENRIL, ADJUSTMENTS AS ADJUSTED
AS -- MODEM -- THE
REPORTED BUSINESS(1) COMPANY
-------- ----------- -----------
<S> <C> <C> <C>
Net Revenues from Continuing Operations.............. $39,435 $ 19,519(2) $ 19,916
Cost and Expenses:
Cost of revenues................................... 22,409 9,869(2) 12,540
Selling, general and administrative................ 18,611 2,321(6) 15,917
373(7)
Product development and engineering................ 7,389 370(3) 5,624
176(4)
1,219(5)
Amortization of cost over net assets acquired...... 734 734
Provision for restructuring costs.................. 9,718 9,718
Merger related expenses............................ 500 500
------ ------ ------
59,361 14,328 45,033
Operating Income (Loss) from Continuing Operations... (19,926 ) 5,191 (25,117)
Other Expenses:
Interest expenses.................................. (698 ) (698)
Other, net......................................... (44 ) (44)
------ ------ ------
(742 ) -- (742)
Income (Loss) from Continuing Operations Before
Income Taxes....................................... (20,668 ) 5,191 (26,859)
Benefit from Income Taxes............................ -- -- --
------ ------ ------
Income (Loss) from Continuing Operations............. $(20,668) $ 5,191 $ (26,859)
====== ====== ======
Net income (loss) per common and equivalent shares... $ (2.78)
======
Shares used in per share calculations................ $ 9,650
======
</TABLE>
- ---------------
(1) The adjustments for the Modem Business are only for those items that can be
directly attributed to the Modem Business.
(2) Adjustments to exclude the Modem Business revenues and associated costs of
sales.
(3) Adjustments to eliminate rent expense related to Modem Business product
development and engineering.
(4) Adjustments to eliminate Modem Business related depreciation, amortization
and other operating costs.
(5) Adjustments to eliminate Modem Business related engineering labor.
(6) Adjustments to exclude expenses of Penril DataComm, Ltd. and Penril
International Ltd. which are attributable to the Modem Business.
(7) Adjustments to exclude marketing and advertising relating to the Modem
Business.
18
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF PENRIL AND THE COMPANY
GENERAL BUSINESS DEVELOPMENTS
Beginning in fiscal year 1994, Penril began to focus its business on remote
access connectivity products. Out of this strategy came Penril's new Remote
Access Business. The first phase of the new Remote Access Business includes the
Ram Rack and the Access Beyond 1000 Remote Access Server.
As part of this strategy, Penril's Board of Directors made the decision to
sell EMI and consequently, EMI has been classified as a discontinued business.
Penril continues to operate EMI and expects EMI to operate at least at a
break-even level through the anticipated disposition date, which Penril's
management believes will be completed by December 31, 1996. Prior to the end of
fiscal 1996, Penril entered into an agreement, subject to certain contingencies,
to sell Technipower. The completion of the sale is expected during the first
quarter of fiscal 1997. Penril recorded a charge of $640,000 in the fourth
quarter of fiscal 1996 for the estimated loss on disposal of both these
businesses. No assurance can be given that either or both of EMI and Technipower
will be sold or that the timing or terms of any such sale will be favorable to
and as anticipated by Penril.
On June 16, 1996, as amended August 5, 1996, Penril entered into the Merger
Agreement with Bay and a subsidiary of Bay. Under the terms of the Merger
Agreement, Penril will transfer all of its Remote Access Business and any other
assets unrelated to the Modem Business to the Company and then distribute all of
the shares of Company Stock to Penril's stockholders. Following the Transfer and
the Distribution, the subsidiary of Bay will merge with and into Penril, whose
primary remaining operations will consist of the Modem Business, with Penril
becoming a wholly owned subsidiary of Bay.
As a result of all of the above items, in the fourth quarter of fiscal
1996, Penril took actions to strategically restructure the business to focus on
the remote access connectivity products, to reduce costs and to improve
competitiveness for the long term. This restructuring plan includes the
elimination of the VCP and BRX product lines and the introduction of the new
Remote Access Business. The decision to restructure and refocus is not dependent
upon consummation of the Merger. As a result of this decision to restructure the
business, Penril recorded a charge in the fourth quarter of fiscal 1996 of $9.7
million. This charge consisted of a write-down of costs in excess of net assets
acquired ($5.0 million), a provision for costs associated with contractual
obligations for leased facilities in Hong Kong and Carlstadt, New Jersey ($1.0
million), a provision for the write-down of purchased technology ($1.0 million),
a provision for the write-down of inventories and fixed assets ($2.3 million),
and a provision for costs associated with termination of approximately 90
employees ($400,000).
On an annualized basis this plan is expected to reduce labor costs by
approximately $3 million, reduce amortization and depreciation expenses by
approximately $700,000, and reduce facilities expenses by approximately
$300,000. The Company anticipates completion of the employee terminations and
consolidation of leased facilities by the end of the second quarter of fiscal
1997, and does not anticipate any additional costs associated with this
restructuring plan.
With the exception of historical information, the matters discussed in this
section include forward-looking statements that involve risks and uncertainties.
The Company wishes to caution readers that a number of important factors,
including those identified in this section as well as factors discussed in "Risk
Factors" and elsewhere in this Prospectus, could affect the Company's actual
results and cause actual results to differ materially from those in the
forward-looking statements.
NEW ACCOUNTING PRONOUNCEMENTS
During fiscal 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of",
which requires the Company to review long-lived assets, certain identifiable
intangibles, and goodwill related to those assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. As a result of events occurring in the fourth quarter of
19
<PAGE> 21
fiscal 1996, the Company decided to restructure and refocus its remaining
businesses. Due to these events, the Company determined that the excess of costs
over net assets acquired would not be recoverable, and a charge of $5.0 million
was taken in the fourth quarter of fiscal 1996 against the carrying value of
this asset. This charge was the remaining balance in the account "Excess of
Costs over Fair Value of Net Assets Acquired."
During fiscal 1996, Statement of Financial Accounting Standard No. 123
("SFAS 123"), "Accounting for Stock Based Compensation," which establishes a
fair value based method for stock-based compensation plans, was issued. SFAS 123
includes both recognition and measurement provisions and disclosure requirements
for stock based compensation. The Company has elected not to adopt the
recognition and measurement provisions of SFAS 123. The effect of adopting this
statement in fiscal 1997 is not deemed to be material.
RESULTS OF OPERATIONS
As a result of the Merger Agreement with Bay and the spin-off of the LAN
and Host Access products business in the Transfer, the following discussion is
based on the Penril historical financial statements, with revenues and expenses
which could be specifically identified with the modem products shown separately
from the LAN and Host Access products. All revenues and expenses which could not
be specifically identified with the modem products were included with the LAN
and Host Access products, consequently the expenses for the LAN and Host Access
products are in excess of those that would have been incurred had the Company
been a stand alone company. As noted above, Technipower and EMI are classified
as discontinued operations and are not included in this discussion unless
otherwise noted. Dollar amounts are reported in thousands.
FISCAL 1996 COMPARED TO FISCAL 1995
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1996 1995 CHANGE
------- ------- --------
<S> <C> <C> <C>
Revenues:
LAN and Host Access products......................... $19,916 $33,637 $(13,721)
Modem products....................................... 19,519 18,974 545
------- ------- --------
$39,435 $52,611 $(13,176)
======= ======= ========
</TABLE>
The decrease in revenues for Penril's LAN and Host Access products was
primarily attributable to the continued decline in market demand for terminal
servers and multiplexers which resulted in lower volumes and more competitive
pricing. The Company intends to phase out these products, which represent older
technology, and introduce its new Remote Access Business. The new Remote Access
Business is designed to meet the growing demand for remote access technology.
The Company believes that its new Remote Access Business has a unique product
architecture that combines both remote access and internetworking capabilities
which will offer expanded and fully compatible capabilities to the existing
customer base as well as offering new customers a product line which will be
state of the art in remote access. The Company believes that this new Remote
Access Business will be competitively priced and will generate revenues over the
next fiscal year to offset the decline in revenue from its older LAN and Host
Access products.
In the fourth quarter of fiscal 1996, Penril and Bay entered into a License
Agreement whereby Bay acquired a license to certain intellectual property rights
related to its modem technology, and Penril was paid $4.5 million. Revenues for
the Modem Business without this license agreement would have been $15,019,000 in
fiscal 1996 compared with $18,974,000 in fiscal 1995. The decrease in revenue
from the sale of modem products was due to slower than expected sales of
Penril's V.34 modems, and a decline in sales of older modem products. The
Company believes that more competitive pricing of its new V.34 modems will
result in higher revenues for fiscal 1997 compared to fiscal 1996, and that
these higher revenues should offset the continued decline in sales of older
modem products.
Exports represented 44% of Penril's total revenues in fiscal 1996 and 45%
of Penril's revenues in fiscal 1995. Approximately 60% of Penril's exports
related to modem products in both fiscal 1996 and fiscal 1995. Revenues from
Penril's foreign subsidiaries, which are primarily sales and marketing
operations (in England and Hong Kong) represented 7% of Penril's total revenues
in fiscal 1996 and 5% of Penril's total revenues in
20
<PAGE> 22
fiscal 1995 and over 95% of those revenues were generated from the subsidiary in
England. Due to the growing demand worldwide for data communications products,
Penril believes it will continue to generate revenue from exports of both its
LAN and Host Access products and its modem products. Because of the location of
its primary foreign subsidiary, Penril does not believe it has any significant
exposure to exchange rate risk.
As a result of the restructuring plan, the Hong Kong subsidiary will be
phased out in fiscal 1997, and sales and marketing operations will be performed
from the U.S. Penril does not anticipate that the restructuring plan will have a
material effect on revenues for either the modem products or the LAN and Host
Access products.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1996 1995 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Gross Profit Margin:
LAN and Host Access products.......................... 37% 46% (9%)
Modem products........................................ 49% 41% 8%
</TABLE>
The decrease in the gross profit margins for LAN and Host Access products
was due to reductions in product pricing in order to remain competitive in the
market place, and increases in manufacturing inefficiencies due to lower sales
volumes. As noted above, Penril entered into a License Agreement with Bay in the
fourth quarter of fiscal 1996 for $4.5 million. Gross profit margins without
this License Agreement would have been 34% in fiscal 1996 compared to 41% in
fiscal 1995. The decrease in gross profit margins for modem products was due to
higher costs of materials in the V.34 modem product line as well as pricing
competition and lower manufacturing efficiencies related to the lower sales
volume.
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1996 1995 CHANGE
------- ------- -----
<S> <C> <C> <C>
Selling, general and administrative expenses:
LAN and Host Access products............................ $16,417 $16,479 $ (62)
Modem products.......................................... 2,694 2,286 408
------- ------- -----
$19,111 $18,765 $ 346
======= ======= =====
</TABLE>
Selling, general and administrative expenses decreased for the LAN and Host
Access products primarily from lower commissions paid due to lower sales volume.
There was also a reduction in personnel costs as a result of eliminating several
administrative positions in Penril's Gaithersburg, Maryland facilities during
fiscal 1995. This reduction was partially offset by a charge of $500,000 during
the fourth quarter of fiscal 1996, for costs incurred related to the Merger. All
expenses which could not be specifically identified with the modem products were
included with the LAN and Host Access products, consequently the expenses for
the LAN and Host Access products are in excess of those that would have been
incurred had the Company been a stand alone company.
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1996 1995 CHANGE
------ ------ -----
<S> <C> <C> <C>
Product development expenses:
LAN and Host Access products.............................. $5,624 $5,520 $ 104
Modem products............................................ 1,765 1,918 (153)
------ ------ -----
$7,389 $7,438 $ (49)
====== ====== =====
</TABLE>
Product development expenses for the LAN and Host Access products increased
because of an increase in personnel costs related to development of the new
Remote Access Business. Modem product development expenses decreased because of
reductions in personnel costs as a result of Penril's cost reduction efforts in
fiscal 1995. All expenses which could not be specifically identified with the
modem products were included with the LAN and Host Access products, consequently
the expenses for the LAN and Host Access products are in excess of those that
would have been incurred had the Company been a stand alone company.
21
<PAGE> 23
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1996 1995 CHANGE
---- ------ -----
<S> <C> <C> <C>
Interest expense............................................. $698 $1,228 $(530)
</TABLE>
During fiscal 1996, Penril sold common stock in private placements which
generated approximately $14.7 million in cash. A portion of the proceeds was
used to repay all term debt during fiscal 1996, which resulted in decreased
interest expense.
FISCAL 1995 COMPARED TO FISCAL 1994
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1995 1994 CHANGE
------- ------- -------
<S> <C> <C> <C>
Revenues:
LAN and Host Access products.......................... $33,637 $39,011 $(5,374)
Modem products........................................ 18,974 22,827 (3,853)
------- ------- -------
$52,611 $61,838 $(9,227)
======= ======= =======
</TABLE>
The decrease in revenues for Penril's LAN and Host Access products was
primarily attributable to the declining market for terminal servers and
multiplexers as these products were reaching the end of the product life cycle,
and to a decrease in orders from some of Penril's OEM customers. The decrease in
revenues from modem products was due to unexpected delays in shipment of the
V.34 and V.34bis modems. Part of this delay resulted in a decline in total
exports to $23.6 million in fiscal 1995 from $25.6 million in fiscal 1994.
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1995 1994 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Gross Profit Margin:
LAN and Host Access products........................ 46% 54% (8%)
Modem products...................................... 41% 45% (4%)
</TABLE>
The decrease in gross profit margins for LAN and Host Access products was due to
lower manufacturing efficiencies. The decrease in gross profit margins for modem
products was due to costs associated with the initial production of the V.34
modem product line, lower manufacturing efficiencies and pricing competition
related to the decrease in sales.
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1995 1994 CHANGE
------- ------- -----
<S> <C> <C> <C>
Selling, general and administrative expenses:
LAN and Host Access products.......................... $16,479 $16,965 $(486)
Modem products........................................ 2,286 1,850 436
------- ------- -----
$18,765 $18,815 $ (50)
======= ======= =====
</TABLE>
Selling, general and administrative expenses decreased for LAN and Host
Access products primarily because of a reduction in personnel costs as a result
of eliminating several administrative positions in Penril's Gaithersburg,
Maryland facilities during fiscal 1995 as part of Penril's cost reduction
program. Selling, general and administrative expenses for modem products
increased primarily due to additional allowances for bad debts.
<TABLE>
<CAPTION>
JULY JULY
31, 31,
1995 1994 CHANGE
------ ------ -------
<S> <C> <C> <C>
Product development expenses:
LAN and Host Access products........................... $5,520 $6,797 $(1,277)
Modem products......................................... 1,918 2,020 (102)
------ ------ -------
$7,438 $8,817 $(1,379)
====== ====== =======
</TABLE>
Product development expenses decreased because of reductions in personnel
costs as a result of Penril's cost reduction efforts in fiscal 1995 and 1994.
22
<PAGE> 24
<TABLE>
<CAPTION>
JULY 31, JULY 31,
1995 1994 CHANGE
-------- -------- ------
<S> <C> <C> <C>
Interest expense...................................... $1,228 $908 $320
</TABLE>
Interest expense increased because of the increase in the prime rate from
7% in fiscal 1994 to 9% in fiscal 1995, and because the rate charged Penril by
its principal bank was raised from prime plus 1/2% to prime plus 2%.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1996, Penril sold 2,607,000 shares of Penril Stock in two
unrelated series of private placements which generated aggregate proceeds of
$14,744,000. The aggregate proceeds were used to repay all of Penril's bank term
debt and all its outstanding subordinated debt, which together totaled $4.8
million, and to fund general working capital needs including the loss of $11.1
million (excluding restructuring charges) for fiscal 1996.
As a result of the strategic business plan to restructure Penril, Penril
recorded a restructuring charge of $9.7 million in the fourth quarter of fiscal
1996. This restructuring charge included non-cash items for the write-down of
costs in excess of net assets acquired ($5.0 million), a provision for the
write-down of purchased technology ($1.0 million) and a provision for the
write-down of inventory ($2.2 million). This restructuring charge also included
items that will require future cash expenditures by the Company for employee
severance ($400,000) and obligations for leased facilities ($1.0 million). The
severance payments to employees will occur in the fiscal 1997 second quarter and
the payments under the leased facilities obligations will occur over the
remaining life of the lease with $282,000 due in fiscal 1997, $289,000 due in
fiscal 1998 and $440,000 due after fiscal 1998.
As a result of lower than expected sales and the buildup of inventory to
support the new Remote Access Business, inventory levels of Penril increased
$1.3 million during the first nine months of fiscal 1996. Consequently, Penril
started a program to reduce inventories that resulted in a fourth quarter
reduction of approximately $750,000. In addition, as noted above, Penril
recorded an inventory write-down provision of $2.2 million as part of the
restructuring charge. These actions resulted in Penril's inventory levels
declining to $9.7 million at July 31, 1996, or a reduction of $1.7 million below
the July 31, 1995 inventory level of $11.4 million.
Contributing to Penril's cash flow in fiscal 1996 was a reduction in
accounts receivable of $6.5 million. This reduction was the result of the lower
sales volumes in fiscal 1996 compared to fiscal 1995 and an aggressive
collection effort that reduced the average collection time from 94 days in
fiscal 1995 to 65 days in fiscal 1996.
Penril's accounts payable declined by $2.1 million, also as a result of the
lower level of business.
As part of the Transfer, the Company is to receive all the cash and cash
equivalents of Penril. As of September 25, 1996, Penril had cash and cash
equivalents of approximately $3.8 million. In addition, Penril is expected to
generate cash from several non-operating sources. These anticipated sources
include the following:
Penril settled a law suit with Standard Micro Systems Corp. on
September 24, 1996. This settlement will result in Penril receiving, in
October 1996, $3.5 million in cash after all related expenses have been
paid.
Penril has entered into a contract to sell Technipower for $4.3
million, subject to various contingencies. Penril expects this transaction
to close during the first quarter of fiscal 1997 with the payment to Penril
of $1.5 million in cash. The remaining $2.8 million payment is due,
pursuant to the terms of the contract, on or prior to December 31, 1996.
Penril is in discussions with a potential buyer of EMI. Although there
can be no assurance that a sale of EMI will occur, Penril's management
believes that the sale of EMI will be completed by December 31, 1996 with
expected net cash proceeds of $3.0 million to $3.5 million after
transaction expenses.
23
<PAGE> 25
As part of the Merger Agreement with Bay, the Company will receive $1.5
million at the closing pursuant to the Transitional Services Agreement with
Penril.
Prior to the Distribution, Penril also anticipates receiving approximately
$5 million from the exercise of employee and non-employee director stock
options. Of this amount, approximately $2.9 million is anticipated to be
received from certain officers of the Company and from certain directors of
Penril, each of whom has advised Penril of his intention to exercise all of his
stock options. The cash generated from the exercises is expected to be used for
the expenditures related to the Merger and the Transfer. These expenditures
include legal and accounting fees of approximately $650,000, investment banker
fees of approximately $1.3 million and change of control payments due to certain
officers of Penril of $1.3 million.
Penril currently has a line of credit with its principal bank. The
agreement provides a maximum working capital facility of $5.5 million with
borrowing based on qualified accounts receivable and secured by substantially
all of Penril's assets. Interest accrues at the bank's prime rate plus 2% with a
commitment fee of 3/8% on the unused portion of the facility. In the event the
facility is canceled prior to its expiration, there is a fee due the bank equal
to 3% of the total facility. As of July 31, 1996, Penril had borrowed $4 million
under the line and had utilized another $90,000 in connection with a standby
letter of credit. Pursuant to the Merger Agreement, after the Merger Penril will
retain bank debt up to a maximum of $4 million.
Currently there are discussions with lending institutions regarding a line
of credit for the Company after the Transfer. Management believes the Company
will be able to secure a line of credit after the Transfer, although there can
be no assurances that a line of credit will be secured, and if secured will be
on economic terms favorable to the Company.
Penril's management believes that during the first 12 months following the
Distribution the Company will have cash expenditures of approximately $2.2
million for fixed assets and capitalized technology purchases and $700,000
related to the employee severance and lease obligations noted above.
Immediately following the Distribution, management believes the Company
could have $7.8 million in cash as well as the right to receive a payment of
$2.8 million from the sale of Technipower and possibly proceeds from the sale of
EMI. Based on the Company's expectation with respect to product development and
production, the Company's cash from operations alone will not satisfy the
Company's cash requirements during the first 12 months following the
Distribution. However, the Company expects that cash on hand as noted above,
cash from operations and cash from the sources discussed above, will satisfy the
Company's cash requirements during the first 12 months after the Distribution.
There can be no assurance that product development will proceed at the expected
pace, that the Company's sales will achieve expected levels, that staffing and
facilities required will be able to be maintained at the reduced levels expected
under the restructuring plan referred to above, or that other competitive
factors will not result in cash from operations being less than expected by
management. However, the Company has the ability to defer product development
and marketing expenditures if necessary, to match with cash flow. The deferral
of these expenditures could have a negative impact on future sales of the
Company's products. The Company believes, based on its expected cash on hand,
cash from operations, cash from the sources discussed above and the anticipated
bank line of credit, that there will be adequate cash flow to fund the Company's
operations.
BUSINESS
GENERAL
The Company, which is a wholly-owned subsidiary of Penril, was recently
formed by Penril solely for the purpose of effecting the Merger and the
Distribution. Until shortly before the Merger, the Company will own no material
assets and will not conduct any business activities other than in connection
with the Distribution and the Merger. Prior to the Merger, Penril will transfer
to the Company, as a capital contribution, all of the right, title and interest
in all of Penril's Remote Access Business and all other businesses and assets
and corresponding liabilities of Penril unrelated to the Modem Business. Upon
consummation of the Merger, a subsidiary of Bay will merge with and into Penril,
Penril will become a wholly-owned subsidiary of Bay, and the Company will
continue with its own separate corporate existence unaffiliated with Penril.
24
<PAGE> 26
While the Company is a newly formed corporate entity, the Remote Access
Business to be contributed to the Company by Penril has an operating history
consisting of the development and sales of LAN and Host Access products and the
development of a new product family called Access Beyond. In connection with the
Remote Access Business, the Company engages in the development and marketing of
network access devices which enable local, remote or mobile users to access
network resources located at remote sites, central sites or any other point in
the network.
PRODUCTS
The Company's product line consists largely of products which serve the LAN
and Host Access markets and a new product family called Access Beyond, serving
the remote access market.
The LAN and Host Access products currently sold by the Company include
statistical multiplexers and host access servers (VCX), Ethernet terminal
servers (CSX), Ethernet local and remote bridge routers (BRX), and a line of
CSU/DSU wide area products. The Company's new Access Beyond product family is
targeted at the remote access market, providing a scaleable, modular platform
into which a variety of connectivity options are expected to be offered. The
Access Beyond family of products is expected to replicate the function of most
of the LAN and Host Access Products, allowing the Company to phase out LAN and
Host Access Products models in favor of new Access Beyond models. Each of the
LAN and Host Access Products provides the Company with an existing revenue
stream as well as an installed base. Sales of LAN and Host Access Products will
initially provide a significant portion of the revenues of the Company.
The VCX product line of multiplexers ranges from 4-port remote site
multiplexers to enterprise solutions providing up to 304 ports or 36 trunk lines
and multipurpose communication servers that combine both wide area network
("WAN") and LAN capabilities. These products can function as a data PBX, X.25
PAD, statistical multiplexer, terminal server or any combination of these.
Although the market for these products is in decline, the Company continues to
serve the installed base and fulfill customer applications.
The CSX Ethernet communications server family provides local and dialup
access to Ethernet LANs. Available as either 8-port or 16-port stand alone units
or as a modular chassis based solution, the CSX server provides terminal and
dialup access for TCP/IP networks. The BRX family includes modular switching
routers that provide up to 16 LAN ports and 2 WAN ports. A key element to the
BRX product line is in the Constellation software which provides a scaleable
router/switching solution. The Company believes that the Constellation software
uses an innovative architecture called Logical Bridge Routing, enabling network
managers to optimize bridge/router port configurations for efficient high
performance. The Constellation software is one of the key elements in the new
Access Beyond product line.
The Access Beyond product line is a scaleable, modular family of remote
access products that integrate WAN transmission and LAN access technologies into
a single modular architecture, while allowing room for growth and investment
protection.
The Company anticipates that a wide range of Access Beyond models will be
available to meet varying site requirements, with chassis sizes ranging from
small 4-port units to completely modular 196-port units, thus allowing the user
to customize the chassis-based units to provide a unique mix of local area and
wide area network interfaces that meet the specific demands of its network
environment. Interface options will include: Ethernet backbone and end user
ports, integrated wide area network interfaces, analog modems, digital modems,
CSU/DSU and ISDN interfaces. The modularity and scaleability of the Access
Beyond product family is intended to give the customer flexibility in network
configuration and expansion potential.
The first phase of Access Beyond includes Ram Rack, a high density modem
product and Access Beyond 1000 Remote Access Servers, which are now being
shipped to customers. These products provide remote users with competitively
priced remote access to Novell, TCP/IP and Appletalk networks. The next phase of
the Access Beyond rollout is expected to include the Access Beyond 2400 and
Access Beyond 4400 modular chassis systems. These products are designed to
expand the flexibility of the product line with optional interfaces for direct
terminal connections, integrated V.34 modems and integrated ISDN terminal
adapters, along with LAN and high speed WAN (T1/E1/PRI) connectivity.
25
<PAGE> 27
The Company anticipates that future enhancements to its remote access
software will provide integration of the remote access capabilities with full
multi-protocol routing. This combination is expected to provide additional
connectivity options and reduced access costs for corporate remote access
networks by allowing a single Access Beyond server to replace several separate
competitive devices. The software features of Access Beyond are and will be
focused on solving the problems of corporate remote LAN access. With the growth
of the Internet and the World Wide Web, corporate telecommuters and traveling
employees now require simultaneous support for multiple networking protocols
allowing access to a wide variety of applications. Networking security is
provided via a collection of security options.
All Access Beyond products will be monitored and configured with a
graphical, menu-driven Windows-based management tool that provides real-time
management control over the Access Beyond products. This management tool will be
based on the industry standard SNMP protocol to ensure interoperability with
equipment and management systems from other vendors.
The Company believes that it will deliver the industry's first unified
approach to remote access, with one comprehensive product line that can supply
both LAN and WAN technologies required in a single architecture, with complete
management control, and new levels of investment protection for end users.
Existing applications will be changed from dedicated services to faster, lower
cost and more flexible services such as Frame Relay and Ethernet. Access Beyond
is intended to provide a migration path from these older networks to the remote
access networks of the future.
DISCONTINUED OPERATIONS
Technipower. Technipower, a wholly-owned subsidiary of Penril, manufactures
uninterruptible power supplies and power regulating equipment. In July 1995, the
Penril Board decided to focus more of Penril's resources on its main business of
data communications and therefore determined to treat Technipower as a
discontinued operation. On July 16, 1996, Penril announced it had entered into
an agreement to sell Technipower subject to certain contingencies. Penril
anticipates that the sale of Technipower will be completed in the first quarter
of fiscal 1997 with a payment to Penril of approximately $1.5 million in cash at
closing and approximately $2.8 million to be paid pursuant to the agreement
prior to December 31, 1996. All liabilities related to Technipower which
otherwise would be the obligations of Penril will, from and after the Transfer,
be the obligations of the Company. In the event Technipower is not sold prior to
the Distribution, the assets and liabilities of Technipower will be contributed
to the Company as part of the Transfer.
EMI. Another wholly-owned subsidiary of Penril, EMI, specializes in the
production of sophisticated high frequency electronic instrumentation equipment.
The Penril Board of Directors determined to sell EMI and therefore EMI has been
classified as a discontinued operation. Penril is in the process of selling EMI.
However, because it is unlikely that EMI will be sold prior to consummation of
the Distribution, it is anticipated that the assets and liabilities of EMI will
be contributed to the Company as part of the Transfer.
SUPPLIERS
Material and components for the Company's products are purchased from
outside suppliers. While most components are available from several suppliers, a
few are provided from sole-source vendors. The Company believes that in most
cases alternative sources of supply could be obtained within a reasonable time
period; however, an interruption in the supply of such components could have a
temporary adverse effect on the Company's operations.
PATENTS, COPYRIGHTS AND LICENSES
The Company owns, or is licensed or otherwise possesses legally enforceable
rights to use, several patents, patent applications, trademarks, trade names,
service marks, copyrights, schematics, technology, know-how, computer software
programs or applications, and tangible or intangible proprietary information or
material essential and necessary to the business of the Company. The Company may
desire in the future to obtain additional licenses related to its products and
believes, based on industry practice, that any necessary licenses
26
<PAGE> 28
could be obtained. The costs of such licenses may vary significantly depending
on the nature of the technology involved.
The patents owned by EMI and Technipower include patents entitled "Fiber
Optic Connector", "Uninterruptible Power Supply", and "Guard Time Elimination in
a Time-Division Multiplexed, Active Star-coupled, Half-duplex Mode, Synchronous
Communications Network." The United States trademarks, tradenames and service
marks owned by EMI or Technipower include ELECTRO-METRICS, TECHNIPOWER, CONSTANT
POWER and MUX/ROUTER. The foreign trademarks, trade names, and service marks
owned by the Company include TECHNIPOWER in France, the United Kingdom and
Italy. These patents, trademarks, tradenames and service marks are currently
intended to be sold as part of the assets of EMI and Technipower. If the sale of
these subsidiaries are not consummated prior to the Transfer, these patents,
trademarks, tradenames, and service marks will be contributed to the Company as
part of EMI and Technipower.
The United States trademarks, tradenames and service marks owned by the
Company include ACCESS BEYOND, MULTIVERTER, FORSITE and SUNUPS.
The Company currently licenses technology including integrated access
software; CSU/DSU technology; frame relay assembler disassembler technology;
PC/TCP SNMP technology; terminal emulation software; remote access software;
router card technology and software; network management software; and basic
frame relay software for LAN interconnect products.
On June 16, 1996, Penril and Bay entered into a Development and License
Agreement on behalf of the Company whereby Bay licensed to Penril, on behalf of
the Company certain intellectual property, software, and technical know-how
relating to certain 24-port Digital Modem Cards. The agreement contemplates that
Bay will develop a 24-port Digital Modem Card for the Company, train the
Company's personnel in the underlying technology, and provide technical
assistance where necessary to permit the Company to market this digital
technology.
In connection with the Transfer, Penril and the Company will enter into a
Technology License Agreement whereby Penril will license to the Company certain
intellectual property, software and technical know-how, including those relating
to a patent jointly owned by Penril and the University of Maryland. The
Technology License Agreement will also obligate Penril to use its best efforts
to obtain for the Company all rights obtained by Penril pursuant to cross
licensing agreements involving such jointly owned patent.
BACKLOG
A significant portion of data communications revenues are based on customer
purchase orders with immediate shipment requirements. Backlog, which tends not
to be significant in data communications products, is a result of the occasional
customer order with future scheduled shipment requirements or misalignment of
demand and production of a particular product. Because data communications
revenues constitute such a significant portion of the revenues of the Company,
the Company believes that the dollar amount of backlog at any given time is not
indicative of the actual level of revenues which will ultimately be realized
during future periods. Consequently, the Company believes that the amount of
backlog is not a material consideration in understanding the Company's business
operations.
COMPETITION
The Company encounters substantial competition in the marketing of its
products and many of its competitors have greater financial, marketing and
technical resources. Important competitive factors in the markets for the
Company's products are established customer base, product performance and
features, service and support as well as price. The Company believes that it
competes favorably with respect to these factors. There can be no assurance that
the Company's products will compete successfully with competitive products that
may be offered in the future or that aggressive pricing will not negatively
impact the profitability of the Company.
27
<PAGE> 29
SALES AND MARKETING
The Company's distribution channel is composed of value-added resellers
(VARs), original equipment manufacturers (OEMs) and distributors in more than 40
countries. Sales to end-user customers account for less than 10% of the
Company's revenues. This multi-channel strategy allows the Company to meet
specific customer needs while giving coverage to the worldwide markets.
Value Added Resellers. VARs integrate the Company's products with products
of other vendors, into networking systems that are sold directly to end-users.
VARs also sell the Company's products as stand-alone units. Sales to VARs are
made at discounts based on purchase volumes and other incentive programs.
Original Equipment Manufacturers. The Company also customizes its product
for sale through OEMs. This customization may range from simple private labeling
of existing products to complete customization of software and/or hardware to
fit the product lines of the OEM.
Distributors. The Company also sells its products to distributors who
generally resell to VARs and other dealers. Distributors generally provide a
minimal level of systems integration. The Company offers sales and marketing
programs to assist distributors in promoting, selling and supporting the
Company's products.
Many of the Company's VARs and distributors carry products which are
complementary to, or compete with, those of the Company, and may choose to give
higher priority to products of other suppliers or competitors of the Company.
CUSTOMER SUPPORT, SERVICE AND WARRANTY
The Company services, repairs and provides technical support for its
products. A large portion of these support activities, provided through a 24
hour United States support center, are related to software and hardware
configuration. The Company sells products with end-user warranty periods of up
to sixty months. Following the expiration of the warranty period, if any, the
Company offers services on a time and materials basis, or under maintenance
contracts.
RESEARCH AND DEVELOPMENT
Under its own sponsorship, the Company is continuously engaged in the
development of new products as well as the development and enhancement of its
existing products. The Company expensed approximately $5,624,000 (28% of
consolidated revenues) for product development and engineering during fiscal
1996 compared to $5,520,000 (16% of consolidated revenues) in fiscal 1995 and
$6,797,000 (17% of consolidated revenues) in fiscal 1994.
PROPERTIES
The Company's executive offices will be located in Gaithersburg, Maryland
in facilities which the Company will sublease from Penril. The overlease between
Penril and Real Estate Income Partners III is for 54,874 square feet and expires
in September 1999. The sublease between Penril and the Company will commence on
the date of the Distribution, or upon the Company's occupancy of the property,
whichever is earlier, and will provide for the sublease of all the premises with
an expiration date of September 30, 1999. The Company will assume all costs and
expenses under the overlease including rental payments. The Company's monthly
payment for rent and additional charges will be approximately $66,219. See
"Certain Transactions -- Sublease Agreement".
The Company will lease a research and development facility in Carlstadt,
New Jersey. The lease is for approximately 44,403 square feet and expires in
September 2001. In addition to the facilities mentioned above, the Company will
also lease several sales offices throughout the United States. The Company
believes its properties will be adequate for its needs.
In addition, EMI is a party to a lease for a manufacturing facility located
in Johnstown, New York containing approximately 40,400 square feet (the "EMI
Lease"). The EMI Lease expires in August 2005. Technipower is a party to a lease
for a manufacturing facility located in Danbury, Connecticut containing
28
<PAGE> 30
approximately 30,000 square feet (the "Technipower Lease"). The Technipower
Lease expires in February 1998. In the event either EMI or Technipower is not
sold prior to the Distribution, the aforementioned lease obligations of EMI or
Technipower, as the case may be, will be contributed by Penril to Access Beyond
as part of the Transfer.
EMPLOYEES
It is expected that the Company will employ approximately 170 employees as
of the Distribution Date. The Company believes that its future success will
depend largely on its ability to retain certain key personnel and to recruit and
retain additional highly skilled employees who are in great demand. The Company
will have employment contracts with certain officers, but does not have
employment contracts with its other employees. See "Management -- Employment and
Consulting Agreements".
LEGAL PROCEEDINGS
Penril is involved in various claims and lawsuits incidental to its
business. The Company has assumed the liabilities which may arise out of certain
lawsuits to which Penril is a party, the more significant of which lawsuits are
discussed below. All costs, expenses, liabilities and obligations of the
litigation discussed below have been assumed by the Company and all recoveries
from such litigation will be realized by the Company. In the opinion of
management, the Company is adequately reserved against such claims and lawsuits,
and any ultimate liability arising out of such claims and lawsuits will not have
a material adverse effect on the financial condition or operations of the
Company.
On June 1, 1993 Penril initiated a lawsuit against Standard Microsystems
Corp. ("SMC"), SMC Massachusetts, Inc., Ashraf M. Dahad and Kwabena Akufo (the
"SMC Defendants") in the Circuit Court of Maryland for Montgomery County for
breach of contract including, among other things, failure to transfer
technology, unfair competition and false representations. Penril sought relief
in an aggregate amount of approximately $50 million. The SMC Defendants
subsequently brought a counterclaim alleging fraud and breach of contract and
seeking recovery of amounts due under the contract which are alleged to be
approximately $1,650,000 in compensatory damages plus unspecified punitive
damages. In September 1996, Penril and the SMC Defendants agreed to drop the
fraud charges and to settle the contractual dispute. Penril will receive from
SMC, in settlement of the litigation, $3.5 million, net of legal payments, in
the first quarter of fiscal 1997.
On December 24, 1994, Penril filed a complaint against Network Systems
Corporation of Minneapolis, Minnesota ("NSC") in the Circuit Court of Maryland
for Montgomery County. The litigation arises out of a contract in which Penril
agreed to develop certain computer hardware and software to NSC's
specifications. Penril alleges breach of contract, fraudulent inducement and
defamation and is seeking specific performance, compensatory damages of
$2,000,000 and punitive damages of $5,000,000. On March 28, 1995, NSC filed an
answer and counterclaim in which NSC alleges negligent misrepresentation, fraud
and breach of contract by Penril. NSC is seeking rescission of the contract,
restitution of monies paid by NSC to Penril, compensatory damages of $5,000,000
and punitive damages in an unspecified amount. As of September 30, 1996, the
litigation was in the discovery stage.
Digital Equipment Corporation ("DEC") has claimed, through a series of
written communications, that Penril has violated DEC patents related to DEC LAT
technology. Penril has taken the position that Datability, Inc., prior to its
acquisition by Penril, had a relationship with DEC that involved the development
of LAT for which Datability has not collected. Both DEC and Penril have taken
the position that it is in the best interests of both parties to work toward a
fair resolution. As of September 30, 1996 no formal claims have been filed.
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<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Pursuant to the Company Certificate and the Company's By-laws ("By-laws"),
the Board of Directors of the Company (the "Board of Directors") is divided into
three classes with each director serving a three year term (after the initial
term). The following table sets forth certain information as to persons who will
serve as directors and executive officers of the Company after the Distribution.
The directors of Class I will hold office until the first scheduled annual
meeting of stockholders in 1997, the directors of Class II will hold office
until the annual meeting of stockholders in 1998 and the director of Class III
will hold office until the annual meeting of stockholders in 1999. Thereafter,
stockholders will elect the directors of each Class at the appropriate
succeeding annual meeting of stockholders.
Directors
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION INFORMATION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
Class I -- Term Expiring at 1997
Annual Meeting
Barbara Perrier, 41 Ms. Perrier has served as Vice President and Chief
Financial Officer of Communication Systems
Technology, Inc., a developer of software and
hardware communications and control equipment, since
March 1996. Ms. Perrier served as President of
VideoGrafects, Inc., a multimedia communications
company specializing in the production of video and
computer based material, from its founding in August
1992 until the Company was sold to French Bray in
March 1996. Prior to founding VideoGrafects, Inc.,
Ms. Perrier was a special (investing) partner with
New Enterprise Associates, a venture capital firm.
Ms. Perrier is a director of French Bray, a printing
and multimedia firm.
Paul Schaller, 48 Mr. Schaller has served as President of Schaller
Associates, a management consulting firm, since
March, 1996. From September, 1995 to March 1996, Mr.
Schaller was Vice President of Business Development
with the LAN Switching Division of FORE Systems,
Inc., a provider of ATM switching solutions. From
August 1993 to August 1995, Mr. Schaller was the
Vice President of Marketing at Alantec, Inc., a
provider of routing switches for the internetworking
market. Mr. Schaller was Vice President of Sales and
Marketing at Harmonic Lightwaves, Inc., a fiber
optic equipment provider from 1992 to 1993. From
1982 to 1991 Mr. Schaller was Vice President of
Sales and Marketing and General Manager of the
Digital Division of Vitalink Corporation, a provider
of remote internetworking equipment.
</TABLE>
30
<PAGE> 32
<TABLE>
<CAPTION>
NAME AND AGE PRINCIPAL OCCUPATION INFORMATION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
Class II -- Term Expiring at 1998
Annual Meeting
John Howard, 43 Mr. Howard has served as Chief Executive Officer of
Gryphon Capital Partners Corporation, an investment
firm, since February 1996. He served as Co-Chief
Executive Officer of Vestar Capital Partners, a
leveraged buyout firm, from 1990 to February 1996.
Mr. Howard is also a director of Celestial
Seasonings, Inc., a manufacturer of herbal teas,
Dyersburg Fabrics, Inc., a textile manufacturer, and
Clark Schwebel Inc., a fiberglass and Kevlar weaver.
Mr. Howard is the brother of Ronald A. Howard.
Arthur Samberg, 55 Mr. Samberg has served as President of
Dawson-Samberg Capital Management, Inc., a
registered investment advisor, since 1985. Mr.
Samberg is a General Partner and senior portfolio
manager of Pequot Partners Fund, L.P., Pequot
International Fund Inc. and Pequot Endowment Fund,
L.P.
Class III -- Term Expiring at 1999
Annual Meeting
Ronald A. Howard, 40, Prior to the Distribution, Mr. Howard will be named
Chairman of the Board, Chairman of the Board, President and Chief Executive
President and Chief Officer of the Company. Mr. Howard has served as
Executive Officer President of the Datability Networks Division of
Penril since 1994, and as Co-President of the
Division from May 1993 until November 1994. He has
held the position of Executive Vice President of
Penril from May 1993. Mr. Howard was President of
Datability Inc. from its founding in 1977 until it
was acquired by Penril in May 1993.
</TABLE>
Executive Officers (other than Directors)
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL POSITION PRINCIPAL OCCUPATION INFORMATION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
Richard D. Rose, 41, Mr. Rose was named Senior Vice President, Chief
Senior Vice President, Chief Financial Officer and Treasurer of the Company in
Financial Officer and Treasurer August 1996 after having served as Senior Vice
President and Chief Financial Officer of Penril
since April 1996 and as Chief Financial Officer of
Penril since November 1994. He held the position of
Vice President Finance of Penril from February 1994
until April 1996 and Corporate Controller from 1988
until February 1994. Mr. Rose was named Vice
President-Controller and Principal Accounting
Officer of Penril in December 1990 and served in
said capacity until February 1994.
John Clary, 50, Mr. Clary was named Vice President of Strategic
Senior Vice President and Chief Planning of Penril in August 1996. From May 1995
Operating Officer until joining Penril, he was President and
co-founder of Outsource Solutions, Inc., an
electronics manufacturing services company. For more
than five years prior to May 1995, Mr. Clary held
several senior level management positions, most
recently as Senior Vice President, Product
Operations, with Network Equipment Technologies, a
WAN equipment manufacturing company.
</TABLE>
31
<PAGE> 33
<TABLE>
<CAPTION>
NAME, AGE AND PRINCIPAL POSITION PRINCIPAL OCCUPATION INFORMATION
- ---------------------------------------- ----------------------------------------------------
<S> <C>
James P. Gallagher, 52, Mr. Gallagher was named Vice President -- Worldwide
Vice President -- Worldwide Sales Sales of the Penril Datability Networks Division of
Penril in November 1994. From May 1993, when Penril
acquired Datability, Inc, until November 1994, Mr.
Gallagher was Vice President, North and South
American Sales of the Datability Networks Division.
At Datability, Inc, he was Vice President of Sales
from April 1990 until May 1993.
Mark Silverman, 34, Mr. Silverman has been employed for more than five
Vice President -- Research and years by either the Datability Networks Division of
Development Penril or Datability, Inc. In January 1996, he was
named Vice President, Product Development for
Internetworking Products. His prior positions with
Penril and Datability, Inc. included Director of
Product Development from September 1992 to January
1996, Manager of Hardware Development from March
1990 to September 1992 and Hardware Engineer from
October 1987 to March 1990.
</TABLE>
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Audit Committee and a
Compensation Committee.
The general functions of the Audit Committee include selecting the
independent auditors (or recommending such action to the Board of Directors),
evaluating the performance of the independent auditors and their fees for
services, reviewing the scope of the annual audit with the independent auditors
and the results of the audit with management and the independent auditors,
consulting with management, internal auditors and the independent auditors as to
the systems of internal accounting controls, and reviewing the nonaudit services
performed by the independent auditors and considering the effect, if any, on
their independence. The members of the Audit Committee will be outside directors
and will be determined by the full Board of Directors of the Company.
The Compensation Committee is authorized and directed to (i) review and
approve the compensation and benefits of the Company's executive officers, (ii)
review and approve the annual salary plans, (iii) review management organization
and development, (iv) review and advise management regarding the benefits,
including bonuses, and other terms and conditions of employment of other
employees, (v) administer the Incentive Plan (defined below) and the granting of
options under that plan, the Directors' Plan (defined below) and any other plans
that may be established, (vi) review and recommend for the approval of the Board
of Directors of the Company the compensation of directors, and (vii) determine
the compensation and benefits of the Chief Executive Officer and review and
approve, or modify if appropriate, the recommendations of the Chief Executive
Officer with respect to compensation and benefits of other executive officers.
The members of the Compensation Committee will be outside directors and will be
determined by the full Board of Directors.
COMPENSATION OF DIRECTORS
Members of the Board of Directors of the Company who are also employees of
the Company will not receive any additional compensation for service on the
Board of Directors or any committees of the Board of Directors. Members of the
Board of Directors of the Company who are not employees will receive an annual
retainer of $5,000 plus a stipend of $1,000 for each Board meeting attended.
Non-employee directors will receive additional stipends for service on
committees of the Board of Directors of the Company of $1,000 per committee
meeting not held on the same day as a Board meeting.
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<PAGE> 34
EXECUTIVE COMPENSATION
The following tables show information with respect to the annual
compensation for services in all capacities to Penril for the fiscal years ended
July 31, 1996, 1995 and 1994 of those persons who will be at the Distribution
Date, (i) the chief executive officer and (ii) the other four most highly
compensated executive officers of the Company (the "named executive officers")
who were employed by Penril during fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION AWARDS
COMPENSATION -----------------------------------
NAME AND ----------------- STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY OPTIONS(1) COMPENSATION(2)
----------------------------------- ---- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Ronald A. Howard................... 1996 $221,877 250,000 $ 784
Chairman of the Board, 1995 $200,000 30,000 $ 5,458
President and Chief 1994 $203,333 -- $ 250
Executive Officer
John Clary (3)..................... -- -- -- --
Senior Vice President
and Chief Operating Officer
Richard D. Rose.................... 1996 $153,768 30,000 $ 4,746
Senior Vice President and 1995 $125,848 20,000 $ 4,547
Chief Financial Officer 1994 $115,335 5,000 $ 4,311
James Gallagher.................... 1996 $188,293 20,000 $ 300
Vice President -- Worldwide Sales 1995 $167,786 10,000 $ 250
1994 $168,858 -- $ 250
Mark Silverman..................... 1996 $109,577 15,000 $ 300
Vice President -- Research 1995 $105,674 5,000 $ 250
and Development 1994 $101,923 -- $ 250
</TABLE>
- ---------------
(1) Number of shares granted under the 1986 Incentive Plan of Penril. The
options are exercisable at prices ranging from $2.31 to $8.00 per share, the
fair market value at the date of grant. Penril does not grant SARs.
(2) Includes for fiscal 1996, $300 paid for the benefit of each of the named
executives pursuant to the Company's 401(k) Plan. Also includes $274 each
for Mr. Howard and Mr. Rose, under the Company's Split-Dollar Life Insurance
Program and for Mr. Howard and Mr. Rose, $210 and $3,172 respectively, paid
to the Exec-U-Care Medical Insurance Trust.
(3) Mr. Clary joined Penril on August 5, 1996, as Vice President of Strategic
Planning, at an annual salary of $150,000.
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<PAGE> 35
PENRIL OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
% OF ANNUAL RATES OF STOCK
TOTAL OPTIONS PRICE APPRECIATION FOR
GRANTED TO OPTION TERM(2)
OPTIONS EMPLOYEES IN EXERCISE OR MARKET PRICE ON ----------------------
GRANTED(1) FISCAL YEAR(1) BASE PRICE DATE OF GRANT EXPIRATION DATE 5% 10%
---------- -------------- ----------- --------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald A. Howard....... 250,000 44.3% $ 7.875 $ 7.875 09/08/2005 $1,238,136 $3,137,680
Richard D. Rose........ 20,000 3.5% 6.440 6.440 04/09/2006 $ 81,002 $ 205,274
Richard D. Rose........ 10,000 1.8% 5.690 5.690 11/03/2005 $ 35,784 $ 90,684
James Gallagher........ 10,000 1.8% 6.440 6.440 04/09/2006 $ 40,501 $ 102,637
James Gallagher........ 10,000 1.8% 7.875 7.875 09/08/2005 $ 49,525 $ 125,507
Mark Silverman......... 10,000 1.8% 6.440 6.440 04/09/2006 $ 40,501 $ 102,637
Mark Silverman......... 5,000 0.9% 8.000 8.000 12/19/2005 $ 25,156 $ 63,750
</TABLE>
- ---------------
(1) Reflects only options; Penril does not grant SARs.
(2) Assumed annual appreciation rates are set by the Commission and are not a
forecast of future appreciation. The actual realized value depends on the
market value of Penril Common Stock on the exercise date, and no gain to the
optionees is possible without an increase in the price of Penril Common
Stock. All assumed values are pre-tax and do not include dividends.
AGGREGATED PENRIL OPTION EXERCISES IN FISCAL YEAR 1996
AND FISCAL 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF IN-THE-MONEY
UNEXERCISED OPTIONS PER SHARE OPTIONS AT
AT FISCAL YEAR-END EXERCISE PRICE OF FISCAL YEAR-END
SHARES ACQUIRED VALUE EXERCISABLE/ UNEXERCISED OPTIONS EXERCISABLE/
NAME ON EXERCISE REALIZED UNEXERCISABLE(1) AT FISCAL YEAR-END UNEXERCISABLE(1)(2)
- ---------------------- --------------- -------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C> <C>
Ronald A. Howard...... 99,000 $520,875 271,000/-- $2.875-$7.875 $ 1,393,605/--
Richard D. Rose....... 96,667 $571,852 0/0 -- --
James Gallagher....... 12,000 $ 43,820 36,000/27,000 $2.310-$7.875 $ 303,375/$181,690
Mark Silverman........ 8,000 $ 14,440 13,500/18,500 $4.125-$8.000 $ 111,817/$114,818
</TABLE>
- ---------------
(1) Reflects only stock options; Penril does not grant SARs.
(2) Based on the Year-End per share closing price of $12.63 (as reported on
Nasdaq on July 31, 1996). Represents the difference between the per share
option exercise price and $12.63.
EMPLOYMENT AND CONSULTING AGREEMENTS
Upon consummation of the Distribution, the Company anticipates that it will
enter into an employment contract with Mr. Howard for Mr. Howard to serve as
Chairman of the Board, President and Chief Executive Officer (the "Howard
Employment Agreement"). The Howard Employment Agreement will provide, among
other things, a two year term of employment, an annual salary of $175,000, an
opportunity for bonus compensation pursuant to a plan to be established by the
Board of Directors, and benefits consistent with those normally provided by the
Company to its executive employees including, without limitation, a $5,000,000
term life insurance policy. The Howard Employment Agreement will also provide
that options to purchase 300,000 shares of Company Stock are to be granted to
Mr. Howard and that, upon a change of control of the Company, Mr. Howard will
receive a payment equal to two and one-half times his last full annual
compensation, including bonus.
Also upon consummation of the Distribution, the Company anticipates that it
will enter into an employment agreement with Mr. Rose for Mr. Rose to serve as
Senior Vice President, Chief Financial Officer and Treasurer (the "Rose
Employment Agreement"). The Rose Employment Agreement will provide for Mr. Rose
to serve as the Company's Chief Financial Officer at an annual salary of
$150,000. The Rose
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<PAGE> 36
Employment Agreement also will provide that options to purchase 75,000 shares of
Company Stock are to be granted to Mr. Rose, that Mr. Rose will receive a
payment of between .5 to 1.0 times his base salary in the event of a change in
control of the Company, that Mr. Rose will receive between four and twelve
months notice of termination and that Mr. Rose will participate in any executive
bonus plan and other benefits consistent with those normally provided by the
Company to its executive officers.
Upon consummation of the Distribution, an employment agreement between the
Company and Mr. Clary ("Clary Employment Agreement") will become effective. The
agreement will provide for a salary at the rate of $150,000 plus an opportunity
for bonus compensation of up to $150,000 pursuant to a plan to be established by
the Board of Directors. The term of this agreement will be terminable by either
party at will and will provide that options to purchase 125,000 shares of
Company Stock are to be granted to Mr. Clary. The agreement also will provide
for reimbursement of certain living expenses and travel expenses.
Effective as of the Distribution, Henry D. Epstein will be a consultant to
the Company under the terms of a consulting agreement (the "Epstein Agreement")
between the Company and Ideonics, a financial and technology consulting firm
owned by Mr. Epstein. The Epstein Agreement will provide, among other things,
for a four year consulting term with an annual consulting fee of $137,500. In
addition, pursuant to the Epstein Agreement, the Company will provide Ideonics
with office space, secretarial assistance and health care benefits for Mr.
Epstein. Mr. Epstein is Chairman of the Board of both Penril and the Company
until the Merger and the Distribution, respectively.
Pursuant to change of control provisions contained in current Penril
employment agreements, Penril will pay Mr. Howard, Mr. Rose and Mr. Epstein,
$562,500, $150,000 and $550,000, respectively, upon the consummation of the
Merger. The Distribution Agreement to be entered into by Penril and the Company
will confirm Penril's obligation to make these payments at or immediately prior
to the Merger.
PENRIL BENEFIT PLANS
Retirement and Savings Plan. Penril's Retirement and Savings Plan ("401(k)
Plan") is a defined contribution plan including provisions of Section 401(k) of
the Internal Revenue Code. Employees of Penril who have completed 90 days of
eligibility service ("Participants") are eligible to participate in the 401(k)
Plan. The 401(k) Plan permits, but does not require Penril to make matching
contributions. In addition, Penril may make discretionary contributions to the
401(k) Plan which will be allocated to each Participant based on the ratio of
such Participant's eligible compensation to the total of all Participants'
eligible compensation. Amounts contributed by Penril vest as to 30% after 1 year
of eligible service, 60% after 2 years of eligible service and 100% after 3
years of eligible service. Participants may elect to direct the investment of
their contributions in accordance with the provisions of the 401(k) Plan. As a
part of the Transfer, the 401(k) Plan will be transferred to the Company and
active participation in the 401(k) Plan will be limited to eligible employees of
the Company. The Company intends to split up the 401(k) Plan so that the portion
of the plan representing the benefits of participants not employed by the
Company can be terminated and distributed to participants.
The 1986 Incentive Plan of Penril. On October 8, 1986, the Board of
Directors of Penril adopted the 1986 Incentive Plan of Penril (the "1986 Plan").
The 1986 Plan is intended to encourage officers and other key employees of
Penril to acquire or increase their ownership of Penril Stock.
The 1986 Plan authorizes the grant to officers and key employees of awards
("Awards") consisting of "incentive stock options," as that term is defined
under the provisions of Section 422 of the Code, non-qualified stock options (or
a combination of the two) and restricted stock awards. There are 1,587 shares of
Penril Stock available for granting Awards under the 1986 Plan. The Stock
Option/Compensation Committee of the Board of Directors of Penril (the "Penril
Committee") administers the 1986 Plan and has sole discretion to determine those
employees to whom Awards will be granted, the number of Awards granted, the
provisions applicable to each Award and the time periods during which Awards may
be exercisable.
The exercise price of each incentive stock option may not be less than the
fair market value of Penril Stock at the date of grant. Under the 1986 Plan,
fair market value is generally the closing price of Penril Stock
35
<PAGE> 37
on the last business day prior to the date on which the value is to be
determined. Unless the Penril Committee determines otherwise, the option price
per share of any non-qualified stock option shall be the fair market value of
the shares of Penril Stock on the date the option is granted. The exercise price
of each incentive stock option granted to any stockholder possessing more than
10% of the combined voting power of all classes of capital stock of Penril, or,
if applicable, a parent or subsidiary of Penril, on the date of grant must not
be less than 110% of the fair market value on that date, and no such option may
be exercisable more than five years after the date of grant.
Options granted are exercisable for a term of not more than ten years from
the date of grant. No employee may be granted an incentive stock option to the
extent the aggregate fair market value, as of the date of grant, of the stock
with respect to which incentive stock options are first exercisable by such
employee during any calendar year exceeds $100,000.
Restricted stock awards are rights granted by the Penril Committee to
receive shares of Penril Stock subject to forfeiture and other restrictions
determined by the Penril Committee. Until the restrictions with respect to any
restricted stock award lapse, the shares will be held by Penril and may not be
sold or otherwise transferred by the employee. Except as otherwise determined by
the Penril Committee, until the restrictions lapse, the shares will be forfeited
if the employee's employment is terminated for any reason other than a "change
in control" or "trigger event," death, disability or retirement on or after the
employee's attainment of 65 years of age. Except as otherwise determined by the
Penril Committee, all restrictions will lapse upon the earliest of the death,
disability or retirement of the recipient employee on or after the employee's
attainment of 65 years of age. Unless the Penril Committee determines otherwise,
30% of the shares subject to a restricted stock award will vest on the first
anniversary of the date of the grant, 60% on the second anniversary and 100% on
the third anniversary of the grant.
Awards granted under the 1986 Plan are subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend or other similar event affecting Penril
Stock such as the Distribution. An Award will not be transferable, other than by
will or the laws of descent and distribution or, in certain circumstances,
pursuant to a qualified domestic relations order, and an Award may be exercised,
during the lifetime of the holder of the Award, only by the holder, or the
holder's personal representative in the event of disability.
In the case of a "change in control" of Penril or a "trigger event," an
option holder will generally have the right, commencing at least five days prior
to the "change in control" or "trigger event" and subject to any other
limitation on the exercise of the option in effect on the date of exercise, to
immediately exercise any options in full to the extent they previously have not
been exercised, without regard to any vesting limitations. On July 2, 1996, the
Penril Committee took action which caused all of the outstanding Penril options
held by directors and executive officers of Penril to vest.
The 1986 Plan will terminate on October 8, 1996, and Awards will not be
granted under the 1986 Plan after that date although the terms of any Award may
be amended in accordance with the 1986 Plan at any date prior to the end of the
term of such Award. Any Awards outstanding at the time of termination of the
1986 Plan will continue in full force and effect according to the terms and
conditions of the Award and the 1986 Plan.
The 1986 Plan may be amended by the Board of Directors of Penril, provided
that stockholder approval will be necessary as required under Section 422 of the
Code or Rule 16b-3 of the regulations of the Exchange Act, and provided further
the no amendment may impair any rights of any holder of an Award previously
granted under the 1986 Plan without the holder's consent.
The 1995 Long-Term Incentive Plan of Penril. On December 13, 1995, Penril
adopted the 1995 Long-Term Incentive Plan of Penril (the "1995 Plan"). The 1995
Plan is intended to encourage officers and other key employees of Penril and its
subsidiaries to acquire or increase their ownership of Penril Stock.
The 1995 Plan authorizes the grant to officers and key employees of awards
("Awards") consisting of "incentive stock options," as that term is defined
under the provisions of Section 422 of the Code, non-
36
<PAGE> 38
qualified stock options and restricted stock awards. There are 930,000 shares of
Penril Stock available for granting Awards under the 1995 Plan. The Penril
Committee administers the 1995 Plan and has sole discretion to determine those
employees to whom Awards will be granted, the number of Awards granted, the
provisions applicable to each Award and the time periods during which Awards may
be exercisable.
The Penril Committee may grant incentive stock options, non-qualified stock
options, or a combination of the two. The exercise price of each incentive stock
option may not be less than the fair market value of Penril Stock at the date of
grant. Under the 1995 Plan, fair market value is generally the closing price of
Penril Stock on the last business day prior to the date on which the value is to
be determined. Unless the Penril Committee determines otherwise, the option
price per share of any non-qualified stock option will be the fair market value
of the shares of Penril Stock on the date the option is granted. The exercise
price of each incentive stock option granted to any stockholder possessing more
than 10% of the combined voting power of all classes of capital stock of Penril,
or, if applicable, a parent or subsidiary of Penril, on the date of grant must
not be less than 110% of the fair market value on that date, and no such option
may be exercisable more than five years after the date of grant.
Options granted will be exercisable for a term of not more than ten years
from the date of grant. In addition, no employee may be granted an incentive
stock option to the extent the aggregate fair market value, as of the date of
grant, of the stock with respect to which incentive stock options are first
exercisable by such employee during any calendar year, exceeds $100,000.
Restricted stock awards are rights granted by the Penril Committee to
receive shares of Company Stock subject to forfeiture and other restrictions
determined by the Penril Committee. Until the restrictions with respect to any
restricted stock award lapse, the shares will be held by Penril and may not be
sold or otherwise transferred by the employee. Except as otherwise determined by
the Penril Committee, until the restrictions lapse, the shares will be forfeited
if the employee's employment is terminated for any reason other than death,
disability or retirement on or after the employee's attainment of 65 years of
age. Except as otherwise determined by the Penril Committee, all restrictions
will lapse upon the earliest of the death, disability or retirement of the
recipient employee on or after the employee's attainment of 65 years of age.
Unless the Penril Committee determines otherwise, 30% of the shares subject to a
restricted stock award will vest on the first anniversary of the date of grant,
60% on the second anniversary and 100% on the third anniversary of the grant.
Awards granted under the 1995 Plan will be subject to adjustment upon a
recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend, or other similar event affecting Penril
Stock. An Award will not be transferable, other than by will or the laws of
descent and distribution or, in certain circumstances, pursuant to a qualified
domestic relations order, and an Award may be exercised, during the lifetime of
the holder of the Award, only by the holder, or the holder's personal
representative in the event of disability.
In the case of a "change in control" of Penril, an option holder will
generally have the right, commencing at least five days prior to the "change in
control" and subject to any other limitation on the exercise of the option in
effect on the date of exercise, to immediately exercise any options in full to
the extent they previously have not been exercised, without regard to any
vesting limitations. On July 2, 1996 the Penril Committee took action which
caused all of the outstanding Penril options held by directors and executive
officers of Penril to vest.
Penril, in its sole discretion, may establish procedures, subject to
certain restrictions, whereby an option holder, subject to the requirements of
Rule 16b-3, Regulation T, and certain other laws, may exercise an option or a
portion thereof without making a direct payment of the option price to Penril,
without regard to any vesting limitations.
The 1995 Plan will terminate on December 13, 2005, and Awards may not be
granted under the 1995 Plan after that date, although the terms of any Award may
be amended in accordance with the 1995 Plan at any date prior to the end of the
term of such Award. Any Awards outstanding at the time of termination of the
37
<PAGE> 39
1995 Plan will continue in full force and effect according to the terms and
conditions of the Award and the 1995 Plan.
The 1995 Plan may be amended by the Board of Directors of Penril, provided
that stockholder approval will be necessary as required under the Section 422 of
the Code or Rule 16b-3 of the regulations of the Exchange Act, and provided
further that no amendment may impair any rights of any holder of an Award
previously granted under the 1995 Plan without the holder's consent.
COMPANY BENEFIT PLANS
The Company's 1996 Long-Term Incentive Plan. It is expected that the Board
of Directors of the Company will adopt the Company's 1996 Long-Term Incentive
Plan (the "Company Incentive Plan"), subject to approval by the Company's
stockholders. The Company Incentive Plan will be intended to encourage ownership
of Company Stock by officers and other key employees of the Company, to
encourage their continued employment with the Company and to provide them with
additional incentives to promote the success of the Company.
The Company Incentive Plan will authorize the grant to officers and key
employees of options ("Options") consisting of "incentive stock options," as
that term is defined under the provisions of Section 422 of the Code and
non-qualified stock options. There will be 2,000,000 shares of Company Stock
available for granting Options under the Company Incentive Plan. The
Compensation Committee of the Board of Directors of the Company (the
"Committee") will administer the Company Incentive Plan and will have sole
discretion to determine those employees to whom Options will be granted, the
number of Options granted, the provisions applicable to each Option and the time
periods during which Options may be exercisable; provided, however, that no
employee may receive Options to acquire more than 500,000 shares of Company
Stock during any given year.
The Committee may grant incentive stock options, non-qualified stock
options, or a combination of the two. The exercise price of each incentive stock
option may not be less than the fair market value of the Company Stock at the
date of grant. Under the Company Incentive Plan, fair market value generally
will be the closing price of the Company Stock on Nasdaq on the last business
day prior to the date on which the value is to be determined; provided, however,
with respect to options granted on or before the Distribution Date, fair market
value means the average of the daily closing price of the Company Stock for the
first ten consecutive trading days that Company Stock is traded on Nasdaq other
than on an "as issued" or "when issued" basis, calculated to the nearest cent,
as determined by the Company. Unless the Committee determines otherwise, the
option price per share of any non-qualified stock option will be the fair market
value of the shares of Company Stock on the date the option is granted. The
exercise price of each incentive stock option granted to any stockholder
possessing more than 10% of the combined voting power of all classes of capital
stock of the Company, or, if applicable, a parent or subsidiary of the Company,
on the date of grant must not be less than 110% of the fair market value on that
date, and no such option may be exercisable more than five years after the date
of grant.
Options granted will be exercisable for a term of not more than ten years
from the grant. Unless the Committee determines otherwise, Options may be
exercised as to 30% of the shares subject to an Option at any time after the
first anniversary of the date of grant, as to 60% of the shares subject to an
Option at any time after the second anniversary of the date of grant and as to
all shares subject to an Option at any time after the third anniversary of the
date of grant. In addition, no employee may be granted an incentive stock option
to the extent the aggregate fair market value, as of the date of grant, of the
stock with respect to which incentive stock options are first exercisable by
such employee during any calendar year exceeds $100,000.
Options granted under the Company Incentive Plan will be subject to
adjustment upon a recapitalization, stock split, stock dividend, merger,
reorganization, liquidation, extraordinary dividend or other similar event
affecting the Company Stock. An Option will not be transferable, other than by
will or the laws of descent and distribution or, in certain circumstances,
pursuant to a qualified domestic relations order, and an Option may be
exercised, during the lifetime of the holder of the Option, only by the holder,
or the holder's personal representative in the event of disability.
38
<PAGE> 40
In the case of a "change in control" of the Company, each Option granted
under the Company Incentive Plan will terminate 90 days after the occurrence of
such "change in control" and an option holder will generally have the right,
commencing at least five days prior to the "change in control" and subject to
any other limitation on the exercise of the Option in effect on the date of
exercise, to immediately exercise any options in full to the extent they
previously have not been exercised.
The Company Incentive Plan will terminate ten years after adoption and
Options will not be granted under the Company Incentive Plan after that date
although the terms of any Option may be amended in accordance with the Company
Incentive Plan at any date prior to the end of the term of such Option. Any
Options outstanding at the time of termination of the Company Incentive Plan
will continue in full force and effect according to the terms and conditions of
the Option and the Company Incentive Plan.
The Company Incentive Plan may be amended by the Board of Directors of the
Company, provided that stockholder approval will be necessary as required under
Section 422 of the Code or Rule 16b-3 of the regulations of the Exchange Act,
and provided further that no amendment may impair any rights of any holder of an
Option previously granted under the Company Incentive Plan without the holder's
consent.
The Company's 1996 Non-Employee Directors' Stock Option Plan. It is
expected that the Board of Directors of the Company will adopt the 1996
Non-Employee Directors' Stock Option Plan (the "Directors' Plan").
The Directors' Plan is intended to encourage non-employee directors of the
Company to acquire or increase their ownership of Company Stock on reasonable
terms, and to foster a strong incentive to put forth maximum effort for the
continued success and growth of the Company. The Directors' Plan provides for
the granting of non-qualified stock options to purchase 250,000 shares of
Company Stock to current and future non-employee directors of the Company. As of
the Distribution Date, the non-employee directors eligible to receive stock
options under the Directors' Plan will be Arthur Samberg, Barbara Perrier, John
Howard and Paul Schaller.
Each of the directors identified above as being eligible to receive stock
options under the Directors' Plan will be granted an option on or immediately
prior to the Distribution Date to purchase 25,000 shares of Company Stock. Each
non-employee director who subsequently joins the Board of Directors will be
granted, on the first business day following the first day of his term, an
option to purchase 25,000 shares of Company Stock. On the fifth business day
after the Company's Annual Report on Form 10-K is filed with the Commission for
each fiscal year that the Directors' Plan is in effect, each person who is a
non-employee Director on such date will receive an additional option to purchase
5,000 shares of Company Stock. If the number of shares available for grant under
the Directors' Plan on a scheduled date of grant is insufficient to make all the
grants, then each eligible director will receive an option to purchase a pro
rata number of the available shares.
The option price per share will be the fair market value of the shares of
Company Stock on the date of grant. Under the Directors' Plan, fair market value
is generally the closing price of the Company Stock on Nasdaq on the last
business day prior to the date on which the value is to be determined; provided,
however, that with respect to the initial option grants, fair market value means
the average of the daily closing price of the Company Stock for the first ten
consecutive trading days that Company Stock is traded on Nasdaq other than on an
"as issued" or "when issued" basis calculated to the nearest cent, as determined
by the Company.
The options granted under the Directors' Plan will be exercisable for a
term of ten years from the date of grant, subject to earlier termination, and
may be exercised as follows: (a) any options granted as of the effective date of
the Directors' Plan or as of the first day of a Director's initial term on the
Board of Directors of the Company may be exercised as to 30% of the shares
subject to such option at any time after the first anniversary of the date of
grant, as to 60% of the shares subject to such option at any time after the
second anniversary of the date of grant, and as to all shares subject to such
option at any time after the third anniversary of the date of grant and (b) any
other options may be exercised at any time after the third anniversary of the
date of grant.
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<PAGE> 41
In the event that a director ceases to be a member of the Board of
Directors of the Company (other than by reason of death or disability), an
option may be exercised by the director (to the extent the director was entitled
to do so at the time he ceased to be a member of the Board of Directors of the
Company) at any time within seven months after he ceases to be a member of the
Board of Directors of the Company, but not beyond the term of the option. If the
director dies or becomes disabled while he is a member of the Board of Directors
of the Company or within seven months thereafter, an option may be exercised (to
the extent the director shall have been entitled to exercise the option as of
the date of his death or the termination of his directorship by reason of his
disability) by a legatee of the director under his will, or by him or his
personal representative or distributees, as the case may be, at any time within
12 months after his death or disability, but not beyond the term of the option.
The Directors' Plan will be administered by the Committee.
Options granted under the Directors' Plan will be subject to adjustment
upon a recapitalization, stock split, stock dividend, merger, reorganization,
liquidation, extraordinary dividend or other similar event affecting the Company
Stock. Options will not be transferable other than by will or pursuant to the
laws of descent and distribution or pursuant to a qualified domestic relations
order, and will be exercisable during the lifetime of an option holder only by
such holder or his personal representative in the event of disability.
Upon a "change in control" of the Company (as defined in the Directors'
Plan), each option granted under the Directors' Plan will terminate on the later
of (i) 90 days after the occurrence of the "change in control" and (ii) seven
months following the date of grant of each option, and an option holder will
have the right, commencing at least five days prior to the "change in control"
and subject to any other limitation on the exercise of the option in effect on
the date of exercise, to immediately exercise any options in full, to the extent
they have not previously been exercised.
The Directors' Plan will terminate on the tenth anniversity of the
Distribution Date and options may not be granted under the Directors' Plan after
that date, although the terms of any option may be amended in accordance with
the Directors' Plan at any date prior to the end of the term of that option. Any
options outstanding at the time of termination of the Directors' Plan will
continue in full force and effect according to the terms and conditions of the
option and the Directors' Plan.
The Directors' Plan may be amended by the Board of Directors of the
Company, provided that stockholder approval will be necessary if required under
Rule 16b-3 of the General Rules and Regulations of the Exchange Act, and no
amendment may impair any of the rights of any holder of an option previously
granted under the Directors' Plan without the holder's consent.
The principal terms of the option grants are fixed in the Directors' Plan.
Therefore, the Committee will have no discretion to select which directors
receive options, the number of shares of Company stock included in any grant, or
the exercise price of options.
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<PAGE> 42
SECURITY OWNERSHIP
All of the outstanding Company Stock will be held by Penril until the
Distribution. The following table sets forth the projected beneficial ownership
of the Company Stock immediately following the Distribution by each director and
executive officer of the Company at that time and all directors and executive
officers of the Company at that time as a group, as well as by any person
projected to own beneficially more than 5% of the Company Stock, based upon such
person's reported ownership of Penril Stock in filings made with the Commission
pursuant to Sections 13(d) and 13(g) of the Exchange Act as of September 30,
1996. The information in this table was based in part on information supplied by
the named individuals. Various members of management of the Company have
indicated that they may purchase shares of Company Stock in the open market
after the Distribution Date.
<TABLE>
<CAPTION>
SHARES OF COMPANY STOCK PROJECTED TO BE
BENEFICIALLY OWNED
----------------------------------------
AMOUNT AND
NAME AND ADDRESS NATURE OF BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP(1) OWNERSHIP
- --------------------------------------------------- -------------------- ---------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS:
Ronald A. Howard 925,603 8.1%
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
John Howard --
80 Irving Place
New York, NY 10003
Barbara Perrier --
8975 Guilford Road
Columbia, MD 21046
Arthur Samberg(2) 1,875,000 16.7%
354 Pequot Avenue
Southport, CT 06490
Paul Schaller -- --
6 Applewood Lane
Portola Valley, CA 94028
Richard D. Rose 46,667 --(3)
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
James Clary -- --
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
James P. Gallagher 63,000 --(3)
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
Mark Silverman 32,000 --(3)
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A GROUP (9 2,942,270 25.4%
PERSONS)
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
SHARES OF COMPANY STOCK PROJECTED TO BE
BENEFICIALLY OWNED
----------------------------------------
AMOUNT AND
NAME AND ADDRESS NATURE OF BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER OWNERSHIP(1) OWNERSHIP
- --------------------------------------------------- -------------------- ---------
<S> <C> <C>
FIVE PERCENT SHAREHOLDERS
- ---------------------------------------------------
Henry D. Epstein 823,029 7.4%
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
Pequot Partners Fund, L.P.,(2) 1,875,000 16.7%
Pequot Endowment Fund, L.P. and
Pequot International Fund, Inc.
354 Pequot Avenue
Southport, CT 06490
Cramer Partners, L.P.(4) 1,060,650 9.5%
56 Beaver Street, Suite 701
New York, NY 10004
</TABLE>
- ---------------
(1) Includes, in certain instances, shares held in the name of an executive
officer's or director's spouse or minor children, the reporting of which is
required by applicable rules of the Commission, but as to which shares the
executive officer or director may have disclaimed beneficial ownership.
(2) Includes 18,300 shares of Common Stock to be owned by Dawson-Samberg Capital
Management, Inc., of which Mr. Samberg is President, 306,500 shares of
Common Stock to be owned by Pequot Partners Fund, L.P., a Delaware limited
partnership whose general partner and investment manager is Pequot General
Partners, a Connecticut general partnership ("General Partners"), 306,500
shares of Common Stock to be owned by Pequot Endowment Fund, L.P., a
Delaware limited partnership whose general partner and investment manager is
Pequot Endowment Partners, L.P., a Delaware limited partnership ("Endowment
Partners") and 633,400 shares of Common Stock to be owned by Pequot
International Fund Inc., a British Virgin Islands corporation, whose
investment manager is DS International Partners, L.P., a Delaware limited
partnership ("International Partners"). (Pequot Partners Fund, L.P., Pequot
Endowment Fund, L.P. and Pequot International Fund Inc. are collectively
referred to as the "Funds"). Mr. Samberg is a General Partner and senior
portfolio manager of each of the Funds. General Partners, Endowment Partners
and International Partners (collectively, the "Partners") are to be the
beneficial owners, as such term is used in Rule 13d-3 of the Exchange Act,
of the shares of Common Stock to be owned by the Fund for which they act as
investment manager, respectively. The Partners may be deemed to constitute a
group as such term is used in Section 13(d) (3) of the Exchange Act. Each of
the Partners disclaims beneficial ownership of the Common Stock to be
beneficially owned by the other partners. On September 22, 1995, the Funds
purchased from Penril in a private placement an aggregate of 1,465,000
shares of Penril Stock for an aggregate payment of $7,325,000.
(3) Less than 1%.
(4) James J. Cramer, President of J.J. Cramer & Co. and Karen Cramer, Vice
President of J.J. Cramer & Co. will have shared voting and dispositive power
with respect to the 817,550 shares to be held by the Partnership and shared
dispositive power with respect to the 132,500 shares to be held by GAM.
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<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Company Stock, and 3,000,000 shares of preferred stock, $.01 par value per
share ("Company Preferred Stock"). Immediately after the Distribution, it is
estimated that 11,993,000 shares of Company Stock will be issued and
outstanding.
COMPANY STOCK
The holders of Company Stock are entitled to one vote for each share held
of record on all matters submitted to the vote of stockholders, including the
election of directors. The holders of Company Stock do not have cumulative
voting rights. Subject to any preferential rights held by holders of the Company
Preferred Stock, the holders of Company Stock are entitled to receive ratably
such dividends as may be declared from time to time by the Company's Board of
Directors out of funds legally available therefor. In the event of the
liquidation, dissolution or winding up of the Company, holders of Company Stock
will be entitled to share ratably in all assets remaining after payment of
liabilities and the liquidation preference of outstanding Company Preferred
Stock, if any. Holders of Company Stock do not have preemptive, conversion or
redemption rights. All the issued and outstanding shares of Company Stock are
duly authorized, validly issued, fully paid and nonassessable.
No current public trading market for the Company Stock exists, although the
Company intends to list the Company Stock on Nasdaq. The extent of the market
for the Company Stock and the prices at which the Company Stock may trade cannot
be predicted. Until the Company Stock is distributed and an orderly market
develops, the trading price may be volatile.
After the Distribution, the Company will be an independent, publicly-traded
company, owning, among other things, the Remote Access Business. The number and
identity of stockholders of the Company immediately after the Distribution
cannot currently be determined with certainty because it will be based on the
number and identity of stockholders of Penril on the Distribution Date. However,
based on the number of record stockholders and outstanding shares of Penril
Stock as of the close of business on September 30, 1996 and the distribution
ratio of one share of Company Stock for every one share of Penril Stock, the
Company expects to have approximately 921 holders of record of Company Stock and
approximately 11,993,000 shares of Company Stock issued and outstanding
immediately after the Distribution and no holders of record of Company Preferred
Stock or shares of Company Preferred Stock issued and outstanding immediately
after the Distribution. In addition, as provided for in the Company Incentive
Plan and the Directors' Plan, it is anticipated that the total number of shares
of Company Stock with respect to which options may be granted and restricted
stock may be awarded under the Company Incentive Plan and the Directors' Plan
will not exceed 2,250,000 shares, 250,000 of which would be allocated strictly
to the Directors' Plan, subject to adjustment (together with the exercise price
of options and the purchase price, if any, of restricted stock) to reflect any
change in the Company's outstanding shares of Company Stock by reason of stock
dividends, stock splits, recapitalizations, mergers, consolidations or other
similar events affecting the number or kind of outstanding shares. It is
believed that directors and executive officers of the Company will own, in the
aggregate, less than twenty-six percent (26%) of the outstanding shares of
Company Stock immediately after the Distribution. See "Security Ownership."
The Company Stock distributed to Penril stockholders will be freely
transferable, except for shares received by any persons who may be deemed to be
"affiliates" of the Company under the Securities Act. Persons who may be deemed
to be affiliates of the Company after the Distribution generally include
individuals or entities that control, are controlled by, or are under common
control with the Company and may include certain officers and directors of the
Company as well as principal stockholders of the Company. Persons who are
affiliates of the Company will be permitted to sell their shares of Company
Stock only pursuant to an effective registration statement under the Securities
Act or an exemption from the registration requirements of the Securities Act,
such as the exemption provided by Section 4(1) of the Securities Act or Rule 144
thereunder. The Section 4(1) exemption allows the sale of unregistered shares by
a person who is not an issuer, an underwriter or a dealer. Rule 144 provides
persons who are not issuers with objective
43
<PAGE> 45
standards for selling restricted securities and securities held by affiliates
without registration. The rule requires that (1) current public information be
available concerning the issuer; (2) restricted stock generally be held two
years or more; (3) volume limitations are placed on sales during any three-month
period; and (4) affiliates comply with certain manner of sale restrictions. The
amount of Company Common Stock which could be sold by a person (or persons whose
shares are aggregated) under Rule 144 during a three month period cannot exceed
the greater of (1) one percent of the shares of Company Common Stock outstanding
as shown by the most recent report or statement published by the Company, or (2)
the average weekly trading volume for the shares for a four-week period prior to
the date that notice of the sale is filed with the Commission.
The transfer agent and registrar for the Company Stock is Continental Stock
Transfer & Trust Company.
PREFERRED STOCK
The Board of Directors of the Company, without further approval or action
by the stockholders, is authorized to issue shares of Company Preferred Stock in
one or more series and to fix as to any such series the dividend rate,
redemption prices, preferences on liquidation or dissolution, sinking fund
terms, if any, conversion rights, voting rights and any other preference or
special rights and qualifications. Issuances of Company Preferred Stock may
adversely affect the rights of holders of Company Common Stock. Holders of
Company Preferred Stock might, for example, be entitled to preference in
distributions to be made to stockholders upon the liquidation, dissolution or
winding up of the Company. In addition, holders of Company Preferred Stock might
enjoy voting rights that limit, qualify or adversely affect the voting rights of
holders of Company Stock. Such rights of the holders of one or more series of
Company Preferred Stock might include the right to vote as a class with respect
to the election of directors, major corporate transactions or otherwise, or the
right to vote together with the holders of Company Stock with respect to any
such matter. The holders of Company Preferred Stock might be entitled to cast
multiple votes per share. The issuance of Company Preferred Stock could have the
effect of delaying, deferring, or preventing a change in control of the Company
without further action by the stockholders. The Company has no present plans to
issue any shares of Preferred Stock.
ANTITAKEOVER PROVISIONS OF THE COMPANY CERTIFICATE AND COMPANY BY-LAWS
Penril, as sole stockholder of the Company, has approved a Company
Certificate and Company By-laws. Such Company Certificate and Company By-laws
(i) provide for a Classified Board of Directors of the Company from which
directors may only be removed by Stockholders for cause; (ii) generally provide
that only a majority of the Board of Directors of the Company shall have the
authority to fill vacancies on the Board of Directors; (iii) restrict the right
to amend certain provisions of the Company Certificate and Company By-laws; (iv)
restrict the right of stockholders to call special meetings; (v) establish an
advance notice procedure regarding the nomination of directors by stockholders
and stockholder proposals to be brought before an annual meeting; and (vi)
authorize the Company's Board of Directors to issue Company Preferred Stock
without further stockholder approval. These provisions are designed to encourage
any person who desires to take control of and/or acquire the Company to enter
into negotiations with the Board of Directors of the Company, thereby making
more difficult the acquisition of the Company by means of a tender offer, a
proxy contest or other non-negotiated means. In addition to encouraging any
person intending to attempt a takeover of the Company to negotiate with the
Board of Directors of the Company, these provisions also curtail such person's
use of a dominant equity interest to control any negotiations with the Board of
Directors of the Company. Under such circumstances, the Board of Directors of
the Company may be better able to make and implement reasoned business decisions
and protect the interests of all of the Company's stockholders. A copy of the
Company Certificate and Company By-laws are each filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
Classified Board of Directors. The Company Certificate provides for the
Board of Directors of the Company to be divided into three classes serving
staggered terms so that directors' initial terms will expire at the 1997, 1998
or 1999 annual meeting of stockholders. Starting with the 1997 annual meeting of
the
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Company's stockholders, one class of directors will be elected each year for a
three-year term. See "Management -- Directors and Executive Officers." The
classes will be as nearly equal in number as possible. The classification of
directors makes it more difficult for a significant stockholder to change the
composition of the Board of Directors of the Company in a relatively short
period of time and, accordingly, provides the Board of Directors of the Company
and stockholders time to review any nomination that a significant stockholder
may make and to pursue alternative courses of action which it believes are fair
to all the stockholders of the Company.
Removal of and Filling Vacancies on the Board of Directors of the
Company. The Company Certificate provides that, subject to any rights of the
holders of any class or series of the capital stock of the Company entitled to
vote generally in the election of directors, only a majority vote of the members
of the Board of Directors then in office, although less than a quorum, shall
have the authority to fill any vacancies on the Board of Directors of the
Company, including vacancies created by an increase in the authorized number of
directors. Moreover, because the Company Certificate provides for a classified
board, Delaware law provides that the stockholders may remove a member of the
Board of Directors of the Company only for cause and the Company Certificate
requires the affirmative vote of the holders of at least 80% of the voting power
of all the then-outstanding shares of the voting stock of the Company, voting
together as a single class, to remove a member of the Board of Directors. These
provisions relating to removal and filling of vacancies on the Board of
Directors of the Company preclude stockholders from enlarging the Board of
Directors of the Company or removing incumbent directors and filling vacancies
with their own nominees.
Amendment of the Company Certificate and Company By-laws. The Company
Certificate contains provisions requiring the affirmative vote of the holders of
at least 80% of the voting power of the Company Stock entitled to vote generally
in the election of directors to amend certain provisions of the Company
Certificate and Company By-laws (including certain of the provisions discussed
above). These provisions make it more difficult for stockholders to make changes
in the Company Certificate or Company By-laws, including changes designed to
facilitate the exercise of control over the Company.
Special Meetings. The Company By-laws provide that special meetings of
stockholders can be called only by the Chairman of the Board, the Vice Chairman
of the Board, the President or any Vice President, the Secretary or by the Board
of Directors of the Company. Stockholders are not permitted to call a special
meeting but may, upon a written request by stockholders owning a majority in
amount of the entire capital stock of the Company issued and outstanding and
entitled to vote, require that any of the foregoing call a special meeting of
stockholders. These provisions prohibit a significant stockholder from
authorizing stockholder action without a meeting at which all stockholders would
be entitled to participate.
Nominations of Directors and Stockholder Proposals. The Company By-laws
establish an advance notice procedure with regard to the nomination other than
by, or at the direction of, the Board of Directors of the Company of candidates
for election as directors (the "Nomination Procedure") and with regard to
stockholder proposals to be brought before an annual meeting of stockholders
(the "Business Procedure"). The Nomination Procedure provides that only persons
who are nominated by, or at the direction of, the Board of Directors of the
Company, or by a stockholder of the Company entitled to vote for the election of
directors who has given timely written notice to the Secretary of the Company
prior to the meeting at which directors are to be elected, are eligible for
election as directors of the Company. The Business Procedure provides that to be
properly brought before an annual meeting, business must be specified in the
notice of the annual meeting given by or at the direction of the Board of
Directors of the Company or brought before the meeting by, or at the direction
of, the Board of Directors of the Company or by a stockholder who has given
timely written notice to the Secretary of the Company of such stockholder's
intention to bring such business before such meeting. To be timely, notice for
nominations or stockholder proposals must be received by the Company not less
than 60 days prior to the annual meeting; provided, however, that in the event
that less than 70 days notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by a stockholder, to be
timely, must be received no later than the close of business on the tenth day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. In addition
to the foregoing requirements, the proxy rules under the Exchange Act set
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forth certain requirements, including stockholder eligibility, timing and
attendance requirements, which must be satisfied in order for a stockholder
proposal to be included in the Company's proxy statement and form of proxy.
These requirements under the Exchange Act may differ from those set forth under
the Nomination Procedure or the Business Procedure.
Under the Nomination Procedure, notice to the Company from a stockholder
who proposes to nominate a person at an annual meeting for election as a
director must contain certain information about that person so nominated,
including age, business and residence addresses, principal occupation, the class
and number of shares of Company Stock beneficially owned, and such other
information as would be required to be included in a proxy statement soliciting
proxies for the election of the proposed nominee, and certain information about
the stockholder proposing to nominate that person. Under the Business Procedure,
notice relating to a stockholder proposal must contain certain information about
such proposal and about the stockholder who proposes to bring the proposal
before the meeting, including the class and number of shares of Company Stock
beneficially owned by such stockholder. If the officer of the Company presiding
at the meeting determines that a person was not nominated in accordance with the
Nomination Procedure, or that other business was not brought before the meeting
in accordance with the Business Procedure, such person is not eligible for
election as a director, or such business is not to be conducted as such meeting,
as the case may be.
The purpose of the Nomination Procedure is, by requiring advance notice of
nomination by stockholders, to afford the Board of Directors of the Company a
meaningful opportunity to consider the qualifications of the proposed nominees
and, to the extent deemed necessary or desirable by the Board of Directors of
the Company, to inform stockholders about such qualifications. The purpose of
the Business Procedure is, by requiring advance notice of stockholder proposals,
to provide a more orderly procedure for conducting annual meetings of
stockholders and, to the extent deemed necessary or desirable by the Board of
Directors of the Company, to provide the Board of Directors of the Company with
a meaningful opportunity to inform stockholders, prior to such meetings, of any
proposal to be introduced at such meetings, together with any recommendation as
to the Board of Directors of the Company's position or belief as to action to be
taken with respect to such proposal, so as to enable stockholders better to
determine whether they desire to attend such meeting or grant a proxy to the
Board of Directors of the Company as to the disposition of any such proposal.
Although the Company By-laws do not give the Board of Directors of the Company
any power to approve or disapprove stockholder nominations for the election of
directors or any other proposal submitted by stockholders, the Company By-laws
may have the effect of precluding a nomination for the election of directors or
precluding the conducting of business at a particular stockholder meeting if the
proper procedures are not followed, and may discourage or deter a third party
from conducting a solicitation of proxies to elect its own slate of directors or
otherwise attempting to obtain control of the Company, even if the conduct of
such solicitation or such attempt might be beneficial to the Company and its
stockholders.
Issuance of Company Preferred Stock. The Company Certificate authorizes
the Board of Directors of the Company to issue Company Preferred Stock, without
further stockholder approval, which could have dividend, redemption,
liquidation, conversion, voting or other rights that could adversely affect the
voting power and other rights of holders of Company Stock. The ability of the
Board of Directors of the Company to issue Company Preferred Stock could have
the effect of delaying, deferring, or preventing a change in control of the
Company without further action by the stockholders.
COMPARISON OF RIGHTS OF STOCKHOLDERS
OF THE COMPANY AND PENRIL
Following the Distribution, holders of Penril Stock will become holders of
Company Stock and the rights of such holders will be governed by the Company
Certificate and the Company By-laws. The rights of Company stockholders differ
in certain respects from the rights of Penril stockholders. Certain of the
differences are summarized below. This summary is qualified in its entirety by
reference to the full text of such documents.
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BUSINESS COMBINATIONS
Generally, under the DGCL, the approval by the affirmative vote of the
holders of a majority of the outstanding stock (or, if the certificate of
incorporation provides for more or less than one vote per share, a majority of
the votes of the outstanding stock) of a corporation entitled to vote on the
matter is required for a merger or consolidation or sale, lease or exchange of
all or substantially all of the corporation's assets to be consummated.
The Company Certificate does not contain provisions regarding business
combinations and does not impose requirements in addition to or different from
those imposed by the DGCL.
Penril's Amended and Restated Certificate of Incorporation (the "Penril
Certificate") provides that, subject to certain exceptions, the affirmative vote
of the holders of at least 80% of the voting power of all the then-outstanding
shares of capital stock of Penril entitled to vote generally in the election of
directors is required to approve every "Business Combination" (defined to
include mergers, consolidations, sales of assets of Penril having a fair market
value of $1,000,000 or more, issuances or transfers by Penril of any securities
of Penril having a fair market value of $1,000,000 or more, and certain other
transactions) between Penril and any "Interested Stockholder" (generally defined
to mean any beneficial owner of more than 10% of the voting power of the
outstanding Penril voting stock). Such 80% vote is not required if the Business
Combination is approved by a majority of the Continuing Directors (generally
defined to mean the directors who were members of the Penril Board on December
13, 1983 or a person designated as a Continuing Director by a majority of the
Continuing Directors) or if the Business Combination satisfies certain price and
procedural conditions. With respect to business combinations other than with
Interested Stockholders, the Penril Certificate does not impose requirements in
addition to or different from those imposed by the DGCL.
AMENDMENTS TO CHARTERS
Under the DGCL, unless otherwise provided in the certificate of
incorporation, a proposed amendment to the certificate of incorporation requires
an affirmative vote of a majority of the outstanding stock entitled to vote
thereon. If any such amendment would adversely affect the rights of any holders
of shares of a class or series of stock, the vote of the holders of a majority
of all outstanding shares of the class or series, voting as a class, is also
necessary to authorize such amendment. The Company Certificate provides that no
amendment to the Company Certificate shall amend, alter, change or repeal the
super majority voting provisions relating to the division of the Board of
Directors of the Company into classes; the number and removal of members of the
Board of Directors of the Company; term of office of members of the Board of
Directors of the Company; and the filling of vacancies on the Board of Directors
of the Company unless the amendment, alteration, change or repeal shall have
received the affirmative vote of the holders of at least 80% of the outstanding
shares of capital stock entitled to vote thereon. The Company Certificate
otherwise comports with the DGCL.
The Penril Certificate provides that no amendment to the Penril Certificate
shall amend, alter, change or repeal any of the supermajority voting provisions
relating to business combinations; division into classes, number, removal of
members, term of office and the filling of vacancies on the Penril Board of
Directors; and Stockholder action at Stockholder meetings unless the amendment
effecting such amendment, alteration, change or repeal shall have received the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock entitled to vote thereon. The Penril Certificate otherwise
comports with the DGCL.
AMENDMENTS TO BY-LAWS
Under the DGCL, the power to adopt, alter and repeal the by-laws is vested
in the stockholders, except to the extent that the certificate of incorporation
vest it in the board of directors. The Company By-laws provide that the Company
By-laws, or any one of them, may be supplemented, amended or repealed by the
Board of Directors, or by the vote of a majority in interest of the stockholders
represented and entitled to vote thereon at any meeting at which a quorum is
present; provided, however, that the affirmative vote of the holders of at least
80% of the voting power of the then-outstanding shares of the Company voting
stock, voting together as a single class, is required to amend, alter or repeal
the sections of the Company By-Laws which have the same effect as those
provisions of the Company Certificate governing (i) division of the Company
Board of
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Directors into three classes serving staggered three year terms; (ii) the number
of directors; (iii) term of office of directors; (iv) removal of directors and
(v) the filling of vacancies on the Board of Directors.
The Penril By-laws provide that the Penril By-laws, or any of them, may be
supplemented, amended or repealed by the Penril Board of Directors, or by the
vote of a majority in interest of the stockholders represented and entitled to
vote thereon at any meeting at which a quorum is present; provided, however,
that the affirmative vote of the holders of at least 80% of the voting power of
all the then-outstanding shares of the Penril voting stock, voting together as a
single class, is required to amend, alter or repeal the sections of the Penril
By-laws governing (i) action of stockholders without a meeting; (ii) the number
of directors; (iii) term of office of directors; (iv) quorum and voting of
directors or (v) amendment of the Penril By-laws.
REDEMPTION OF CAPITAL STOCK
Under the DGCL, subject to certain limitations, a corporation's stock may
be made subject to redemption by the corporation at its option, at the option of
the holders of such stock or upon the happening of a specified event. The DGCL
prohibits the purchase or redemption of stock when the capital of a corporation
is or would become impaired; but shares entitled to dividend or liquidation
preference may be purchased or redeemed out of capital if such shares are
retired and capital is reduced in accordance with legal requirements. The
Company Certificate does not contain any provisions relating to the right to
redeem outstanding shares of capital stock. The Penril Certificate grants the
Penril Board of Directors the authority to adopt amendments to the Penril
Certificate to provide for redemption of shares of capital stock of Penril, but
the Penril Certificate does not contain any provisions governing the right to
redeem outstanding shares of capital stock.
STOCKHOLDER ACTION
Under the DGCL, unless otherwise provided in the certificate of
incorporation, any action required or permitted to be taken at a meeting of
stockholders may be taken without a meeting, without prior notice and without a
vote, if a written consent or consents setting forth the action taken is signed
by the holders of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote upon such action were present and voted. The
Company Certificate and the Company By-laws provide that all elections and
questions put to stockholders shall be decided by the vote of a majority in
interest of the stockholders present in person or represented by proxy and
entitled to vote at the meeting, except as otherwise permitted or required by
the DGCL, the Company Certificate or the Company By-Laws. The Penril Certificate
provides that any action required or permitted to be taken by stockholders must
be effected at an annual meeting of stockholders and may not be effected by any
consent in writing by such stockholders.
SPECIAL STOCKHOLDER MEETINGS
The DGCL provides that a special meeting of stockholders may be called by
the board of directors or by such person or persons as may be authorized by the
certificate of incorporation or by the by-laws. The Company By-laws provide that
special meetings may be called by the Chairman of the Board, the Vice Chairman
of the Board, the President, any Vice President or by the Board of Directors and
shall be called by any of the foregoing at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
Company issued and outstanding and entitled to vote. The Penril Certificate and
By-laws provide that meetings of stockholders may be called only by the Penril
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors.
NUMBER AND ELECTION OF DIRECTORS
The DGCL permits the certificate of incorporation or the by-laws of a
corporation to contain provisions governing the number and terms of directors.
However, if the certificate of incorporation contains provisions fixing the
number of directors, such number may not be changed without amending the
certificate of incorporation. The Company Certificate provides that the number
of directors shall be fixed from time to time pursuant to a resolution adopted
by a majority of the entire Board of Directors. The Penril Certificate provides
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that the number of directors shall be fixed from time to time exclusively by the
Penril Board of Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors (whether or not there exist any vacancies
in previously authorized directorships at the time any such resolution is
presented for adoption).
The DGCL permits the certificate of incorporation of a corporation or the
by-laws to provide that directors be divided into one, two or three classes. The
term of office of one class of directors shall expire each year with the terms
of office of no two classes expiring the same year. The Board of Directors
consists of 5 individuals divided into three classes with each director serving
a three year term (after the initial term). The Penril Certificate divides
Penril's Board of Directors into three classes with each director serving a
three year term.
ANTITAKEOVER PROVISIONS
The Company Certificate requires the affirmative vote of the holders of at
least 80% of the votes which all stockholders would be entitled to cast at any
annual election of directors or class of directors to amend or repeal, or to
adopt any provision inconsistent with certain provisions of the Company
Certificate. The provisions of the Company Certificate subject to the 80% vote
requirement include the provisions which divide the Board of Directors into
three classes serving staggered three year terms, establish the term of office
of directors and the standards for removal of directors and the filling of
vacancies on the Board of Directors. The Company Certificate also authorizes the
Board of Directors to issue Company Preferred Stock, without further stockholder
approval, which could have dividend, redemption, liquidation, conversion, voting
or other rights that could adversely affect the voting power or other rights of
holders of Company Stock. In addition, the Company By-laws contain certain
antitakeover provisions which establish an advance notice procedure regarding
the nomination of directors by stockholders and stockholder proposals to be
brought before an annual meeting and provisions which restrict the right of
stockholders to call special meetings.
The Penril Certificate requires the affirmative vote of the holders of at
least 80% of the votes which all stockholders would be entitled to cast at any
annual election of directors or class of directors to amend or repeal, or to
adopt any provision inconsistent with certain provisions of Penril's Certificate
of Incorporation. The provisions of the Penril Certificate subject to the 80%
vote requirement include those provisions which (i) divide the Penril Board of
Directors into three classes serving staggered three year terms and establish
the standards for the number, term of office, removal of directors and the
filling of vacancies on the Penril Board of Directors; (ii) prohibit
stockholders from acting by written consent in lieu of a meeting; (iii) provide
that special meetings of stockholders may be called only by the Penril Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors; and (iv) require an 80% vote to approve "Business
Combinations" with "Interested Directors".
LIABILITY AND INDEMNIFICATION OF
OFFICERS AND DIRECTORS OF THE COMPANY
GENERAL
Officers and directors of the Company will be covered by certain provisions
of the DGCL, the Company Certificate, certain indemnification agreements with
the Company and insurance policies which serve to limit and/or indemnify them
against certain liabilities which they may incur in such capacities. These
various provisions and policies are described below.
ELIMINATION OF LIABILITY IN CERTAIN CIRCUMSTANCES
Under the DGCL, corporations are permitted to limit or eliminate the
personal liability of directors to corporations and their stockholders for
monetary damages for, among other things, breach of directors' fiduciary duty of
care. The duty of care requires that, when acting on behalf of the corporation,
directors must exercise an informed business judgment based on all material
information reasonably available to them. Absent the limitations now authorized
by such legislation, directors are accountable to corporations and their
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stockholders for monetary damages for conduct constituting negligence or gross
negligence in the exercise of their duty of care. Although the statute does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or recision. The Company
Certificate limits the liability of directors to the Company or its stockholders
to the fullest extent permitted by the DGCL. Specifically, no director of the
Company can be held personally liable for monetary damages for breach of such
director's fiduciary duty as a director, except for liability (i) for any breach
of the director's duty of loyalty to the Company or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the DGCL or (iv)
for any transaction from which the director derived an improper personal
benefit.
INDEMNIFICATION AND INSURANCE
Under the DGCL, the Company has the power, under specified circumstances
generally requiring the director or officer to act in good faith and in a manner
he reasonably believes to be in or not opposed to the Company's best interests,
to indemnify its directors and officers in connection with actions, suits or
proceedings brought against them by a third party or in the name of the Company,
by reason of the fact that they were or are such directors or officers, against
expenses, judgments, fines and amounts paid in settlement in connection with any
such action, suit or proceeding.
The Company Certificate provides that the Company shall indemnify the
directors and officers of the Company to the fullest extent permitted by
Delaware law.
Specifically, the Company Certificate provides that the Company shall
indemnify any person who is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company), by reason of the fact that he (i) is or was a
director or officer of the Company, or (ii) is or was a director or officer of
the Company and is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his conduct was unlawful. The termination of
any action, suit or proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the Company
or, with respect to any criminal action or proceeding, had reasonable cause to
believe that his conduct was unlawful.
The Company Certificate provides that the Company shall indemnify any
person who is or was a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor by reason of the fact that he is or
was a director or officer of the Company or is or was a director or officer of
the Company and is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, employee benefit plan or other enterprise against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Company; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Company unless and only to the extent that the Court of Chancery
of the State of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
of the State of Delaware or such other court shall deem proper.
The Company Certificate provides that any indemnification under the
provisions described in the two paragraphs set forth above of a director,
officer, former director or former officer (unless ordered by a court)
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shall be made by the Company only as authorized in the specific case upon a
determination that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standard of conduct set forth in
the above two paragraphs. Such determination shall be made (i) by the Board of
Directors of the Company by a majority vote consisting of directors who were not
parties to such action, suit or proceeding, even though less than a quorum, or
(ii) if there are no such directors or if such directors so direct, by
independent legal counsel in a written opinion or (iii) by the stockholders of
the Company.
The Company Certificate also provides, only as authorized in the sole
discretion of the Company, for indemnification of any employee, agent, former
employee or former agent of the Company who is or was a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding or in connection with the defense or settlement of
such action, suit or proceeding to the same extent as set forth in the first two
paragraphs of this section with respect to officers and directors of the
Company. The authorization of the Company to so indemnify such employees and/or
agents shall be made (i) by a majority vote of the directors who are not parties
to such action, suit or proceeding, even though less than a quorum, or (ii) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion or (iii) by the stockholders.
The Company Certificate provides that to the extent that a director or
officer or employee or agent of the Company has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to above, or in
defense of any claim, issue or matter therein, the Company shall indemnify him
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith, without the necessity of authorization in the
specific case.
The Company Certificate further provides that expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding may be paid by the Company in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Company as authorized in the Company Certificate. Such indemnification and
expenses incurred by other employees and agents may be so paid upon such terms
and conditions, if any, as the Board of Directors of the Company deems
appropriate.
The Company Certificate provides that the indemnification and advancement
of expenses provided by, or granted pursuant to, the Company Certificate is not
deemed exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any by-law, agreement, vote of
stockholders or disinterested directors or pursuant to the direction of any
court of competent jurisdiction or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office. The
indemnification provided in the Company Certificate shall not be deemed to
preclude the indemnification of, and advancement of expenses to, any person who
is not specified in the Company Certificate, but whom the Company has the power
and obligation to indemnify under the provisions of the DGCL or otherwise.
The Company intends to purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Company, or
is or was a director, officer, employee or agent of the Company serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise against any liability asserted against him or incurred by him in any
such capacity, or arising out of his status as such, whether or not the Company
would have the power or the obligation to indemnify him against such liability
under the Company Certificate.
The Company will enter into indemnification agreements with each of the
Company's directors and officers. The indemnification agreements require, among
other things, the Company to indemnify the directors and officers to the fullest
extent permitted by law, and to advance to such directors and officers all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification is not permitted. The indemnification agreements will require
that the Company also indemnify and advance all expenses incurred
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by such directors and officers seeking to enforce their rights under the
indemnification agreements, and cover directors and officers under the Company's
directors' and officers' liability insurance. Although such indemnification
agreements will offer substantially the same scope of coverage afforded by
provisions in the Company Certificate, they provide greater assurance to
directors and officers that indemnification will be available because an
indemnification agreement, as a contract, cannot be modified unilaterally in the
future by the Board of Directors of the Company or by the stockholders to
eliminate the rights provided therein.
CERTAIN TRANSACTIONS
On or prior to the Distribution Date, the Company and Penril will enter
into certain agreements, described below, which will govern their ongoing
relationships. These agreements were structured and negotiated while the Company
was owned by Penril and consequently are not the result of arms-length
negotiations between independent parties. Nonetheless, the Company and Penril
believe that the terms are fair to the parties and contain terms which are
generally comparable to those which would result from arms-length negotiations.
In each case, the terms of these agreements have been reviewed by individuals
who will be included at a senior management level of the Company.
The agreements summarized below are filed as exhibits to the Registration
Statement. The following descriptions do not purport to be complete and are
qualified in their entirety by reference to the agreements as filed.
DISTRIBUTION AGREEMENT
Prior to the Merger, Penril and the Company will enter into a Distribution
Agreement pursuant to which Penril will, among other things, (a) transfer to the
Company as a capital contribution all of Penril's right, title and interest in
the Remote Access Business and all of the other assets of Penril unrelated to
the modem business and (b) agree to make certain change of control payments in
the aggregate amount of $1,262,500 to three Penril officers prior to or at the
Effective Time; and the Company will (a) assume, pay, perform and discharge
substantially all of the liabilities of Penril other than (i) liabilities
relating to the modem business and (ii) the bank debt of Penril (which may not
exceed $4,000,000 at the Effective Time); and (b) indemnify Penril for any and
all liabilities, costs or expenses for the 401(k) Plan. At the time of the
capital contributions, Penril will own all of the Company's outstanding stock.
DEVELOPMENT AND LICENSE AGREEMENT
On June 16, 1996, Penril and Bay entered into a Development and License
Agreement on behalf of the Company whereby Bay licensed to Penril, on behalf of
the Company, certain intellectual property, software and technical know-how
relating to certain 24-port Digital Modem Cards. The agreement contemplates that
Bay will develop a 24-port Digital Modem Card for the Company, train the
Company's personnel in the underlying technology, and provide technical
assistance where necessary to permit the Company to market this digital
technology. Penril will assign all of its rights under this Development and
License Agreement to the Company.
TECHNOLOGY LICENSE AGREEMENT
In connection with the Transfer, Penril and the Company will enter into a
Technology License Agreement whereby Penril will license to the Company certain
intellectual property, software and technical know-how, including those relating
to a patent jointly owned by Penril and the University of Maryland. The
Technology License Agreement will also obligate Penril to use its best efforts
to obtain for the Company all rights obtained by Penril pursuant to cross
licensing agreements involving such jointly owned patent.
52
<PAGE> 54
SUBLEASE AGREEMENT
The Company will conduct most of its operations from its corporate
headquarters located in Gaithersburg, Maryland. The Company will sublease this
facility from Penril (the "Sublease"). Penril leases this property pursuant to a
lease with Real Estate Income Partners III (the "Overlease") dated March 31,
1989 as amended pursuant to a Letter Agreement dated May 14, 1990. The Overlease
provides for the rental of approximately 54,874 square feet of office space at a
current monthly payment for rent and additional charges of approximately
$66,219. The Overlease expires on September 30, 1999; however, Penril has one
option to extend the term of the Overlease for a period of 119 months.
The Sublease will provide for the rental by the Company of the entire
facility at the monthly rental specified in the Overlease. The term of the
Sublease will commence on the date of the Distribution, or upon the Company's
occupancy of the property, whichever is earlier, and will expire on September
30, 1999. The Company will have no right to renew or extend the Sublease. The
Sublease will be subject and subordinate to the terms of the Overlease and to
all amendments, modifications, renewals, extensions and replacements of or to
the Overlease. Pursuant to the Sublease, the Company will covenant and agree
that it will perform and observe all of the provisions contained in the
Overlease to be performed and observed by Penril, and will be bound by all of
the terms, covenants and conditions of the Overlease binding upon Penril, with
the same force and effect as if such terms, covenants and conditions were set
forth in the Sublease.
TRANSITIONAL SERVICES AGREEMENT
The Company and Penril will enter into a Transitional Services Agreement
(the "Services Agreement") which will provide that the Company will provide
Penril with certain services (the "Services") for one year from and after the
Transfer in exchange for which Penril will pay the Company $1,500,000 upon
execution of the Services Agreement (the "Fee"), plus reimbursement for certain
expenses. The Fee is intended to cover the costs incurred by the Company in
providing the Services, including, but not limited to, salary and other
administrative costs and expenses. The Services include, among other things, (i)
assisting in the preparation of federal, state, local and foreign tax returns,
(ii) certain accounting, treasury and other financial services, (iii) assistance
in the preparation for shipping of certain equipment and inventories and (iv)
certain specified administrative, clerical and operational services.
INDEMNIFICATION AGREEMENT
Simultaneous with the consummation of the Distribution, Penril and the
Company will enter into an Indemnification Agreement between Penril and the
Company (the "Indemnification Agreement"). The Indemnification Agreement will
obligate the Company to indemnify and save harmless Penril and its directors,
officers, employees, agents and/or affiliates from any and all costs, expenses,
losses, damages and liabilities incurred or suffered by the indemnitees
resulting from or attributable to (i) the operation of the Company after the
Distribution; (ii) any claim, suit or other type of proceeding based upon or
arising out of or in connection with the operation of Penril prior to the Merger
other than those based upon, arising out of or in connection with (a) the modem
business operated by Penril, (b) the Merger, (c) the Merger Agreement, (d) the
solicitation of proxies relating to the approval of the Merger and other
transactions relating to the Merger, or (e) the tax consequences of the
Distribution, but including any claim, suit, or other type of proceeding based
upon or arising out of or in connection with the sale or transfer prior to the
Merger of all or substantially all of the assets of any subsidiary of Penril,
including EMI or of Technipower; (iii) any claim, suit or other type of
proceeding relating to the termination of employment of certain employees of
Penril and (iv) any claim, suit or other type of proceeding based upon, arising
out of or in connection with any information concerning the Company in this
Prospectus or any information furnished by Penril or the Company concerning the
Company for inclusion in the Proxy Statement/Prospectus.
Penril will indemnify and save harmless the Company and its directors,
officers, employees, agents and/or affiliates from any claims incurred or
suffered by them resulting from or attributable to, among other things, (i) the
operation of Penril from and after the Distribution; (ii) any claim, suit or
other type of proceeding based upon, arising out of or in connection with the
operation of the modem business prior to the Merger; and (iii) any claim, suit
or other type of proceeding relating to the Merger, the Merger Agreement, the
solicitation
53
<PAGE> 55
of proxies relating to approval of the Merger and other transactions relating to
the Merger (other than those claims based upon, arising out of or in connection
with the filing by the Company of the Registration Statement or any information
furnished by Penril or the Company concerning the Company for inclusion in the
Proxy Statement/Prospectus).
LEGAL MATTERS
The validity, authorization and issuance of the shares of Company Stock
offered hereby and the tax consequences of the Distribution will be passed upon
for the Company by Benesch, Friedlander, Coplan & Aronoff P.L.L. of Cleveland,
Ohio.
EXPERTS
The consolidated financial statements of Penril and its subsidiaries as of
July 31, 1996 and, 1995, and for each of the three years in the period ended
July 31, 1996 included in this Prospectus and the Registration Statement have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein and in the Registration Statement and have been so
included in reliance upon the report of such firm given upon their authority as
experts in accounting and auditing.
54
<PAGE> 56
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Penril DataComm Networks, Inc. and Subsidiaries
Audited Financial Statements:
Independent Auditors' Report.................................................. F-2
Consolidated Statements of Operations for each of
the three years in the period ended July 31, 1996........................... F-3
Consolidated Balance Sheets as of July 31, 1996 and 1995...................... F-4
Consolidated Statements of Cash Flows for each of the
three years in the period ended July 31, 1996............................... F-5
Consolidated Statements of Shareholders' Equity for
each of the three years in the period
ended July 31, 1996......................................................... F-6
Notes to Consolidated Financial Statements for
the years ended July 31, 1996, 1995, and 1994............................... F-7-17
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Penril DataComm Networks, Inc.
Gaithersburg, Maryland
We have audited the accompanying consolidated balance sheets of Penril DataComm
Networks, Inc. and subsidiaries as of July 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended July 31, 1996. These financial
statements are the responsibility of Penril's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Penril DataComm Networks, Inc. and
subsidiaries as of July 31, 1996 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended July 31,
1996 in conformity with generally accepted accounting principles.
Deloitte & Touche LLP
Washington, D.C.
September 6, 1996
(September 20, 1996 as to the sixth and ninth paragraphs of Note 7)
F-2
<PAGE> 58
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31.
--------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET REVENUES FROM CONTINUING OPERATIONS...................... $ 39,435 $ 52,611 $ 61,838
COSTS AND EXPENSES
Cost of revenues........................................... 22,409 29,394 30,516
Selling, general and administrative........................ 18,611 18,765 18,815
Product development and engineering........................ 7,389 7,438 8,817
Amortization of cost over net assets acquired.............. 734 834 816
Provision for restructuring costs.......................... 9,718 -- --
Merger related expenses.................................... 500 -- --
-------- -------- --------
59,361 56,431 58,964
OPERATING INCOME (LOSS) FROM CONTINUING OPERATIONS........... (19,926) (3,820) 2,874
OTHER EXPENSE
Interest expense........................................... (698) (1,228) (908)
Other, net................................................. (44) (144) (134)
-------- -------- --------
(742) (1,372) (1,042)
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES...................................................... (20,668) (5,192) 1,832
BENEFIT FOR INCOME TAXES..................................... -- 578 513
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS..................... (20,668) (4,614) 2,345
INCOME (LOSS) FROM DISCONTINUED OPERATIONS,
net of income taxes........................................ 404 (1,661) (828)
LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
net of income taxes........................................ (640) (1,400) --
-------- -------- --------
NET INCOME (LOSS)............................................ $(20,904) $ (7,675) $ 1,517
======== ======== ========
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Continuing operations...................................... $ (2.14) $ (0.61) $ 0.30
Discontinued operations.................................... 0.04 (0.22) (.11)
Loss on disposal of discontinued operations................ (0.07) (0.19) --
-------- -------- --------
$ (2.17) $ (1.02) $ 0.19
======== ======== ========
Shares used in per share calculation......................... 9,650 7,559 7,809
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 59
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Current Assets
Cash and Cash Equivalents................................................ $ 4,237 $ 992
Accounts receivable, less allowance for doubtful accounts of $554 in 1996
and $1,067 in 1995..................................................... 7,044 13,521
Inventories.............................................................. 9,684 11,427
Deferred income taxes.................................................... 1,700 1,700
Net assets of discontinued operations.................................... 7,337 5,145
Other current assets..................................................... 249 778
------- -------
TOTAL CURRENT ASSETS..................................................... 30,251 33,563
------- -------
Property and Equipment, net.............................................. 2,457 2,648
Excess of Cost Over Fair Value of Net Assets Acquired, net............... -- 5,689
Other Assets............................................................. 1,072 2,487
------- -------
TOTAL ASSETS............................................................. $33,780 $44,387
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Short-term borrowings.................................................. $ 4,000 $ 5,095
Current portion of long-term debt...................................... 272 5,164
Accounts payable....................................................... 6,076 8,156
Accrued compensation and commissions................................... 1,347 894
Deferred revenue....................................................... -- 1,244
Other accrued expenses................................................. 1,758 852
------- -------
TOTAL CURRENT LIABILITIES................................................ 13,453 21,405
Long-Term Debt, net of current portion................................... 633 517
Other Noncurrent Liabilities............................................. 1,479 742
------- -------
TOTAL LIABILITIES........................................................ 15,565 22,664
------- -------
Commitments and Contingencies (Note 7)
Stockholders' Equity
Serial preferred stock, $.01 par value; authorized, 100,000 shares;
issued, none........................................................ -- --
Common stock, $.01 par value; authorized, 20,000,000 shares; issued and
outstanding, 10,849,647 shares in 1996 and 7,542,815 shares in
1995................................................................ 109 76
Additional paid-in capital............................................. 39,837 22,384
Retained earnings (deficit)............................................ (21,581) (677)
------- -------
18,365 21,783
Equity adjustment from foreign currency translation...................... (150) (60)
------- -------
TOTAL STOCKHOLDERS' EQUITY............................................... 18,215 21,723
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................... $33,780 $44,387
======= =======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 60
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATIONS
Net Income (Loss) from operations............................ $(20,668) $(4,614) $ 2,345
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Depreciation and amortization............................. 3,452 4,418 3,676
Benefit from deferred income taxes........................ -- (578) (513)
Provision for restructuring costs......................... 9,718 -- --
Other..................................................... (93) 25 234
(Increase) decrease in assets:
Accounts receivable....................................... 6,477 2,508 (1,710)
Inventories............................................... (472) 1,122 (1,820)
Other current assets...................................... 529 (287) (98)
Increase (decrease) in liabilities:
Accounts payable.......................................... (2,080) 1,792 (818)
Other liabilities......................................... (731) (291) 823
-------- ------- -------
Net cash provided by (used in) continuing operating
activities................................................... (3,868) 4,095 2,120
CASH FLOWS FROM DISCONTINUED OPERATIONS
Income (Loss) from discontinued operations................... (236) (3,061) (828)
Non-cash charges and changes in working capital.............. (2,832) 285 469
Provision for loss on disposal of discontinued operations.... 640 1,400 --
-------- ------- -------
Net cash used in discontinued operations....................... (2,428) (1,376) (359)
-------- ------- -------
Net cash provided by (used in) operations...................... (6,296) 2,719 1,761
CASH FLOWS FROM INVESTING ACTIVITIES
Expenditures for purchased technology........................ (800) (1,049) (1,126)
Expenditures for property, equipment and other............... (747) (417) (933)
-------- ------- -------
Net cash used in investing activities.......................... (1,547) (1,466) (2,059)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings under line of credit.......................... (1,095) 1,870 2,740
Borrowings on long-term debt................................. -- -- 1,780
Payments on long-term debt................................... (5,210) (3,300) (4,182)
Issuance of common stock..................................... 17,486 74 320
Dividends paid............................................... -- -- (147)
Other........................................................ (93) 94 36
-------- ------- -------
Net cash provided by (used in) financing activities............ 11,088 (1,262) 547
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR......... 992 1,001 752
-------- ------- -------
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR............... $ 4,237 $ 992 $ 1,001
======== ======= =======
SUPPLEMENTAL INFORMATION
Cash payments for income taxes............................... $ 20 $ 113 $ 59
======== ======= =======
Cash payments for interest................................... $ 783 $ 1,103 $ 795
======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 61
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JULY 31, 1996, 1995 AND 1994
(IN THOUSANDS, EXCEPT SHARES)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
--------------------- PAID-IN UNEARNED EARNINGS CURRENCY
SHARES AMOUNT CAPITAL COMPENSATION (DEFICIT) ADJUSTMENT
--------- ------ ---------- ------------ -------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AUGUST 1, 1993.................. 7,330,736 $ 73 $ 22,271 $ (143) $ 5,628 $ (328)
Net income............................ 1,517
Dividends paid........................ (147)
Issuance of common stock --
Upon exercise of stock options..... 132,700 1 367
Upon exercise of warrants.......... 180,000 2 400
Shares of common stock retired in
connection with the exercise of
options and warrants............... (66,840) (1) (458)
Shares of common stock returned in
conjunction with the valuation of
Datability, Inc.................... (124,388) (1) (828)
Shares of common stock returned in
conjunction with employee stock
award program...................... (9,840) (32) 21
Amortization of unearned income....... 106
Foreign currency translation
adjustment......................... 132
---------- ---- ------- ----- -------- -----
BALANCE JULY 31, 1994................... 7,442,368 $ 74 $ 21,720 $ (16) $ 6,998 $ (196)
Net loss.............................. (7,675)
Issuance of common stock --
Upon exercise of stock options..... 33,067 1 73
Upon exercise of warrants.......... 80,000 1 194
For acquisition of patent rights... 50,000 1 118
Shares of common stock retired in
connection with options, warrants,
and awards......................... (62,620) (1) (194) 16
Deferred tax benefit from exercise of
options............................ -- -- 473
Foreign currency translation
adjustment......................... 136
---------- ---- ------- ----- -------- -----
BALANCE JULY 31, 1995................... 7,542,815 $ 76 $ 22,384 $ -- $ (677) $ (60)
Net loss.............................. (20,904)
Issuance of common stock --
Upon sale in private placements.... 2,607,267 26 14,718
Upon exercise of stock options..... 687,284 7 2,735
Upon exercise of warrants.......... 25,000 -- --
Shares of common stock retired in
connection with options, warrants,
and awards......................... (12,719) -- --
Foreign currency translation
adjustment......................... (90)
---------- ---- ------- ----- -------- -----
BALANCE JULY 31, 1996................... 10,849,647 $109 $ 39,837 $ -- $(21,581) $ (150)
========== ==== ======= ===== ======== =====
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 62
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JULY 31, 1996, 1995 AND 1994
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include
the accounts of Penril and its subsidiaries, all of which are wholly owned. All
significant intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS: Penril considers cash on hand, deposits in
banks, and highly liquid investments with an original maturity of three months
or less as cash and cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying values of cash and cash
equivalents, accounts receivable, and accounts payable approximate fair value
due to the short maturities of such instruments. Long-term debt is carried at
amounts approximating fair values based on current rates offered to Penril for
debt with similar collateral and guarantees, if any, and maturities.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market. The inventories include the cost of material and,
when applicable, labor and manufacturing overhead.
<TABLE>
<CAPTION>
JULY 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Inventories (in thousands):
Raw material............................ $ 5,823 $ 6,381
Work in process......................... 541 452
Finished goods.......................... 3,320 4,594
-------- --------
Total inventories....................... $ 9,684 $ 11,427
======== ========
</TABLE>
PROPERTY, EQUIPMENT AND DEPRECIATION: Additions to property and equipment
are recorded at cost. Penril provides depreciation for financial reporting
purposes using primarily the straight-line method over the estimated useful
lives of the assets which range from 3 to 10 years. Leasehold improvements are
amortized over the term of the related lease or their estimated useful lives,
whichever is shorter (in thousands).
<TABLE>
<CAPTION>
JULY 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Machinery, and equipment................ $ 10,875 $ 9,952
Purchased software and technology....... 5,486 5,486
Leasehold improvements.................. 879 865
-------- --------
Total property and equipment, at cost... 17,240 16,303
Less accumulated depreciation and
amortization.......................... (14,783) (13,655)
-------- --------
Total property and equipment, net....... $ 2,457 $ 2,648
======== ========
</TABLE>
REVENUE RECOGNITION: Revenues are recognized at the time of shipment of
the product or performance of product-related services. Revenues from the
license of product technology is recorded upon delivery of the technology
specification and the fulfillment of other material obligations.
ACCOUNTING ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles (GAAP) requires
management to make estimates and assumptions. These estimates and assumptions
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, as
well as the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
F-7
<PAGE> 63
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS ACQUIRED: During fiscal 1996,
Penril adopted the provisions of Statement of Financial Accounting Standards No.
121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed of", which requires Penril to review long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. As a result of events
occurring in the fourth quarter of fiscal 1996, Penril decided to restructure
and refocus its remaining businesses. Due to these events, Penril determined
that the excess of costs over net assets acquired would not be recoverable, and
a charge of $4,952,000 was taken in the fourth quarter of fiscal 1996 against
the carrying value of this asset. This charge was the remaining balance in the
account "Excess of Costs over Fair Value of Net Assets Acquired" (See Note 2).
Excess of Cost Over Fair Value of Net Assets Acquired (in thousands):
<TABLE>
<CAPTION>
JULY 31,
-----------------
1996 1995
------ ------
<S> <C> <C>
Cost............................................................. $ -- $8,090
Less accumulated amortization.................................... -- 2,401
------ ------
$ -- $5,689
====== ======
</TABLE>
INCOME TAXES: Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible amounts in the future.
A valuation allowance is established to reduce deferred tax assets to the amount
expected to be realized.
EARNINGS PER SHARE: Earnings per share for fiscal 1996 and 1995 are
calculated based on the weighted average shares of common stock outstanding.
Earnings per share for fiscal 1994 year are calculated using the modified
treasury stock method, which limits the assumed purchase of treasury shares to
20% of the outstanding shares of common stock. Any remaining proceeds are
assumed first to retire debt, with any remaining proceeds invested in commercial
paper. The difference between fully diluted and primary earnings per share was
not significant in any year.
SOFTWARE DEVELOPMENT COSTS: Certain acquired software development costs
are being amortized over their estimated economic life, principally five years,
commencing when each product is available for general release. Internal software
development and any other costs of development are expensed as incurred except
those costs applicable to third party contracts.
NEW ACCOUNTING PRONOUNCEMENTS: During fiscal 1996, Statement of Financial
Accounting Standard No. 123 ("SFAS 123"), "Accounting for Stock-Based
Compensation," which establishes a fair value based method for stock-based
compensation plans, was issued. SFAS 123 includes both recognition and
measurement provisions and disclosure requirements for stock-based compensation.
The Company has elected not to adopt the recognition and measurement provisions
of SFAS 123. The effect of adopting this statement in fiscal 1997 is not deemed
to be material.
RECLASSIFICATIONS: Certain reclassifications have been made to prior
period consolidated financial statements to conform to the July 31, 1996
presentation.
2. RESTRUCTURING
In the fourth quarter of fiscal 1996, Penril took actions to strategically
restructure its business to improve Penril's financial performance. The
restructuring included a plan to focus Penril's business operations on the
remote access server and remote connectivity markets ("remote access") and away
from the data transmis-
F-8
<PAGE> 64
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
sion markets. As a result of this plan Penril recorded a charge of $9,718,000 in
the fourth quarter of fiscal 1996. This charge was for the following costs.
a. The excess of costs over the fair value of net assets acquired through
the Datability, Inc. acquisition in fiscal 1993, was related to data
transmission techniques and, due to the restructuring plan, has no net
realizable value. Accordingly the remaining book value of $4,952,000 was written
off.
b. A charge of $2,339,000 was taken for the write-off of inventory and
fixed assets related to the data transmission business.
c. A charge of $1,012,000 was taken for contractual obligations and
settlement costs incurred for leased facilities in Carlstadt, New Jersey, Hong
Kong and Malaysia, which will be vacated under the restructuring plan.
d. A charge of $979,000 was taken for computer software related to the data
transmission business that was capitalized in accordance with FAS86, which has
no realizable value under the restructuring plan.
e. A charge of $436,000 was taken for severance costs associated with
employees terminated in connection with the restructuring plan. No such costs
were paid as of July 31, 1996.
3. DISCONTINUED OPERATIONS
As part of Penril's decision to restructure its business, the Board of
Directors of Penril decided to sell Electro-Metrics, Inc. ("EMI"), a wholly
owned subsidiary which manufactures test equipment and systems for analysis of
electromagnetic interference and communications security including applications
in satellite communications. As a result of this decision, previously reported
financial statements have been restated to reflect EMI as a discontinued
operation.
During fiscal 1995, the Board of Directors of Penril decided to sell
Technipower, a wholly-owned subsidiary manufacturing uninterruptible power
supplies and power regulating equipment. The divestiture of Technipower is
expected to be completed in fiscal 1997 for $4,300,000. The following table sets
forth the selected financial data of both Discontinued Operations (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Revenues................................ $10,469 $ 8,960 $11,995
======= ======= =======
Income (Loss) from operations net of
income taxes.......................... 404 (1,661) (828)
Loss on disposal net of income taxes.... (640) (1,400) --
------- ------- -------
Total loss from discontinued
operations............................ $ (236) $(3,061) $ (828)
======= ======= =======
Depreciation and Amortization........... $ 431 $ 415 $ 472
======= ======= =======
Capital Expenditures.................... $ 275 $ 245 $ 441
======= ======= =======
Identifiable Assets at year end......... $10,210 $ 7,950 $ 8,112
======= ======= =======
</TABLE>
Because Penril expects to retain the tax benefits associated with the
discontinued operations, no income tax benefit has been recorded for any year.
F-9
<PAGE> 65
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net assets of the discontinued operations consist of the following (in
thousands):
<TABLE>
<CAPTION>
JULY 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Current assets.......................... $ 9,135 $ 6,803
Current liabilities..................... (2,229) (1,395)
------- -------
Net current assets...................... 6,906 5,408
Property, plant and equipment, net...... 783 849
Other non-current tangible assets,
net................................... 60 42
Non-current liabilities................. (4) (10)
------- -------
Net tangible assets..................... 7,745 6,289
Intangible assets, net.................. 232 256
------- -------
7,977 6,545
Estimated loss on disposal.............. (640) (1,400)
------- -------
Net Assets of Discontinued Operations... $ 7,337 $ 5,145
======= =======
</TABLE>
4. ACQUISITIONS
On May 6, 1993, Penril acquired all of the outstanding stock of Datability,
Inc. ("Datability"). The acquisition was accounted for by the purchase method,
and accordingly, the results of operations of Datability are included in the
Consolidated Statements of Operations from the date of acquisition. Datability
has been consolidated with Penril's data communications operations located in
Gaithersburg, Maryland.
The acquisition was accomplished through the issuance of 1,050,000 shares
of Penril's common stock ("Common Stock"). The purchase price totaled $4,980,000
including acquisition costs of $386,000. At the acquisition date, the purchase
price exceeded the fair value of net assets acquired by $8,169,000. Under terms
of the agreement, the final purchase price was dependent upon the valuation of
the net assets acquired. During fiscal 1994, a valuation adjustment of $829,000
resulted in 124,388 shares of the Common Stock being returned to Penril thereby
reducing the excess of cost over the fair value of net assets acquired. During
the fourth quarter of fiscal 1996, Penril expensed the remaining portion of
excess of cost over the fair value of net assets acquired.
5. FINANCING
BANK FINANCING: On March 15, 1996 Penril amended the credit agreement with
its principal bank. The new agreement provides for a maximum working capital
facility of $5,500,000 with borrowings based on qualified accounts receivable
and secured by substantially all Penril's assets. Interest accrues at the bank's
prime rate plus 2% with a commitment fee of 3/8% assessed on the unused portion
of the facility. In the event the facility is canceled prior to its expiration,
there is a fee due the bank equal to 3% of the total facility. The agreement
expires March 31, 1997. As of July 31, 1996, Penril had $5,412,000 available of
which Penril had utilized $4,000,000 for working capital loans and $90,000 for a
letter of credit. On June 16, 1996, Penril entered into a Plan and Agreement of
Merger, as amended on August 5, 1996 (the "Merger Agreement") with Bay Networks,
Inc. ("Bay") and a subsidiary of Bay. As part of the Merger Agreement with Bay,
outstanding bank debt up to $4,000,000 remains with Penril after the Transfer.
Average monthly borrowings and weighted average interest rate for the three
years ended July 31, 1996 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Average monthly borrowings under working capital facility
(in thousands)................................................. $4,353 $4,621 $1,475
Weighted average interest rate................................... 10.47% 9.6% 7.2%
</TABLE>
F-10
<PAGE> 66
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of March 7, 1996, Penril had repaid all outstanding term debt with its
principal bank.
SUBORDINATED DEBT: In April 1995, as part of the bank financing
arrangements, Penril was permitted to make principal payments on the
subordinated debt only after the bank term loans had been reduced by $3,000,000.
This reduction was accomplished by December 1995 at which time Penril made a
subordinated debt principal payment of $174,000 as required by the amended
subordinated debt agreement. The remaining outstanding balance of $805,000 was
repaid in May 1996.
LONG-TERM DEBT: Long-term debt at July 31, 1996 and 1995 consisted of (in
thousands):
<TABLE>
<CAPTION>
1996 1995
----- -------
<S> <C> <C>
Term Loans....................................................... $ -- $ 3,848
Subordinated Debt................................................ -- 979
----- -------
-- 4,827
Capital leases and other......................................... 905 854
----- -------
905 5,681
Less current portion............................................. (272) (5,164)
----- -------
Long-term debt................................................... $ 633 $ 517
===== =======
</TABLE>
Future maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
Year Ending July 31,
1997.......................... $272
1998.......................... 261
1999.......................... 190
2000.......................... 146
2001.......................... 36
----
Total......................... $905
====
</TABLE>
6. INCOME TAXES
The following table sets forth the differences between the tax provision
(benefit) from continuing operations calculated at the statutory federal income
tax rate and the actual tax benefit for each year (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JULY 31,
-------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Tax provision at federal statutory rate....................... $(7,027) $(1,724) $ 644
Amortization of nondeductible intangibles..................... 1,931 283 283
State & foreign taxes, net of federal benefit................. (1,137) (218) 236
Utilization of net operating loss carryforward................ -- -- (1,195)
Change in valuation allowance................................. 6,093 1,134 (538)
Other......................................................... 140 (53) 57
------- ------- -------
Income tax benefit............................................ $ -- $ (578) $ (513)
======= ======= =======
</TABLE>
The primary components of temporary differences which give rise to Penril's
net deferred tax asset are shown in the table below. At July 31, 1996 Penril had
consolidated federal net operating loss carryforwards including the EMI and
Technipower subsidiaries of approximately $17,200,000 which expires in 2007
through 2011, and general business and other tax credits of $1,248,000 to reduce
future tax liabilities through 2009.
F-11
<PAGE> 67
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF JULY 31,
-------------------
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets (in thousands):
Reserves and other contingencies............................... $ 1,500 $ 1,462
Depreciation and amortization.................................. 65 34
Restructuring Reserve.......................................... 1,859
Net operating loss............................................. 6,780 2,615
General business and other tax credits......................... 1,248 1,248
Loss on discontinued operations................................ 546 546
Valuation reserve.............................................. (9,837) (3,744)
------- -------
Total deferred tax assets...................................... 2,161 2,161
Deferred tax liabilities:
Amortization of technologies................................. (461) (461)
------- -------
Net deferred tax assets........................................ $ 1,700 $ 1,700
======= =======
</TABLE>
The net deferred tax asset will remain with Penril after the Transfer
referred to below.
7. COMMITMENTS AND CONTINGENCIES
PENDING TRANSACTION
Under the terms of the Merger Agreement, Penril will transfer (the
"Transfer") all of its remote access products business and any other assets
unrelated to its modem business to a newly formed subsidiary, Access Beyond,
Inc. ("Access Beyond") and then distribute all of the shares of Access Beyond
common stock to Penril's stockholders in a spin-off transaction (the
"Spin-off"). Following the Spin-off, the subsidiary of Bay will merge with and
into Penril, whose primary remaining operations will consist of its modem
business, with Penril becoming a wholly owned subsidiary of Bay.
Pursuant to the Spin-off and merger, stockholders of Penril, as of the
appropriate record dates, will receive one share of Access Beyond common stock
for every share of Penril common stock held, plus $10 in Bay common stock. The
dollar value of Bay shares to be paid is fixed according to an exchange value
determined by averaging the closing prices of Bay common stock over a specific
period prior to consummation of the merger with Bay. In addition to the assets
and liabilities related to the modem business, Bay will assume the outstanding
bank debt of Penril up to $4,000,000. All cash of Penril on the date of the
closing of the transactions will be transferred to Access Beyond.
The transactions are subject to regulatory and Penril stockholders'
approval and certain conditions to closing as set forth in the Merger Agreement.
At the time of the consummation of the merger, Penril is responsible for payment
of the investment banking fees of approximately $1,300,000 and for change of
control payments of approximately $1,300,000 due to certain officers of Penril.
LEASED FACILITIES: Penril leases office and manufacturing facilities and
equipment under lease agreements, certain of which are renewable at Penril's
option and/or provide for increases in rent related to increases in the Consumer
Price Index and other factors. Rent expense for the fiscal years 1996, 1995 and
1994 was $1,673,000, $1,941,000 and $1,754,000 respectively. Approximate
aggregate future minimum rentals
F-12
<PAGE> 68
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
applicable to operating leases in effect at July 31, 1996 without consideration
of the effects of the Spin-off and merger transaction are as follows (in
thousands):
<TABLE>
<S> <C>
Year Ending July 31,
1997.......................... $1,720
1998.......................... 1,758
1999.......................... 1,729
2000.......................... 775
2001.......................... 633
Beyond 2001................... 135
------
Total minimum rentals................... $6,750
======
</TABLE>
LEGAL PROCEEDINGS: Penril is a party to several material legal proceedings
as summarized below. With the exception of the proceeding against Rockwell
International Corporation, et. al., and one other legal proceeding incurred in
connection with the modem business, all costs, expenses, liabilities and
obligations of the litigation will be assumed by Access Beyond in connection
with the Spin-off and all recoveries from such litigation will be realized by
Access Beyond; provided, however, that Penril may be deemed to have remained
contingently liable for satisfaction of the obligations.
On June 1, 1993 Penril initiated a lawsuit against Standard Microsystems
Corp. ("SMC"), SMC Massachusetts, Inc., Ashraf M. Dahad and Kwabena Akufo (the
"SMC Defendants") in the Circuit Court of Maryland for Montgomery County for
breach of contract including, among other things, failure to transfer
technology, unfair competition and false representations. Penril sought relief
in an aggregate amount of approximately $50,000,000. The SMC Defendants
subsequently brought a counterclaim alleging fraud and breach of contract and
sought recovery of amounts due under the contract which were alleged to be
approximately $1,650,000 in compensatory damages plus unspecified punitive
damages. In September 1996, Penril and the SMC Defendants agreed to drop the
fraud charges and to settle the contractual dispute. Penril will receive from
SMC, in settlement of litigation, $3,500,000, net of legal payments, in the
first quarter of fiscal 1997.
On December 24, 1994, Penril filed a complaint against Network Systems
Corporation of Minneapolis, Minnesota ("NSC") in the Circuit Court of Maryland
for Montgomery County. The litigation arises out of a contract in which Penril
agreed to develop certain computer hardware and software to NSC's
specifications. Penril alleges breach of contract, fraudulent inducement and
defamation and is seeking specific performance, compensatory damages of
$2,000,000 and punitive damages of $5,000,000. On March 28, 1995, NSC filed an
answer and counterclaim in which NSC alleges negligent misrepresentation, fraud
and breach of contract by Penril. NSC is seeking rescission of the contract,
restitution of monies paid by NSC to Penril, compensatory damages of $5,000,000
and punitive damages in an unspecified amount. As of July 31, 1996, the
litigation was in the discovery stage.
Digital Equipment Corporation ("DEC") has claimed, through a series of
written communications, that Penril has violated DEC patents related to DEC LAT
technology. Penril has taken the position that Datability, prior to its
acquisition by Penril, had a relationship with DEC that involved the development
of LAT for which Datability has not collected. Both DEC and Penril have taken
the position that it is in the best interests of both parties to work toward a
fair resolution. As of July 31, 1996 no formal claims have been filed.
On December 6, 1995, Penril filed a lawsuit against Rockwell International
Corporation and U.S. Robotics Access Corporation seeking declaratory,
injunctive, and money damage relief by reason of an alleged patent infringement
by the defendants. The action was filed in the United States District Court for
the District of Maryland. In September 1996, Penril agreed to settle its lawsuit
with U.S. Robotics.
Penril is involved in other routine litigation.
F-13
<PAGE> 69
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Management believes none of the litigation will have a material adverse
effect on Penril's financial position or results of operations.
8. STOCKHOLDERS' EQUITY
On September 22, 1995, Penril issued an aggregate of 1,465,000 shares of
its unregistered Common Stock to Pequot Partners Fund, L.P., Pequot Endowment
Fund, L.P and Pequot International Fund, Inc. (collectively the "Investors") for
$7,325,000 in a private transaction. As required by the Purchase Agreement
between the Investors and Penril, a shelf registration was filed with the
Securities and Exchange Commission which became effective on February 28, 1996.
The Investors may request one public shelf registration after the three years
until the later of September 22, 1999 or 30 days after Penril files its annual
report on Form 10-K for the fiscal year ended July 31, 1999. If Penril does not
keep the shelf registration effective for the required three years, the
Investors are entitled to require Penril to effect up to two public
registrations during that time. As part of the transaction, Penril has agreed to
increase the Board of Directors of Penril by one and, so long as the Investors
collectively own in the aggregate not less than 10% of the issued and
outstanding Common Stock, the Investors are entitled to fill such vacancy by
designating one person to the Board of Directors. In addition, on October 5,
1995, Penril completed the sale of 50,000 shares of its unregistered common
stock to Cramer Partners, L.P. for $250,000.
In the second half of fiscal 1996, Penril issued 1,092,267 shares of its
unregistered common stock in an unrelated series of private placements which
generated $7,425,000.
SERIAL PREFERRED STOCK: Penril's Serial Preferred Stock may be issued in
one or more series. The shares of any series may be convertible into Common
Stock, may have priority over Common Stock in the payment of dividends and in
the distribution of assets in the event of liquidation or dissolution of Penril,
and may have preferential or other voting rights, all as determined by the Board
of Directors of Penril at the time it approves the series.
EMPLOYEE STOCK OPTIONS AND STOCK AWARDS: On December 13, 1995, Penril
adopted the 1995 Long-Term Stock Option Incentive Plan (the "1995 Plan") to
replace the 1986 Incentive Plan which expires on October 8, 1996. The
stockholders of Penril approved the 1995 Plan at the Annual Meeting held April
10, 1996. Under the 1995 Plan, which will terminate December 13, 2005, key
employees of Penril and its subsidiaries may be granted awards consisting of
non-qualified stock options, incentive stock options, and restricted stock
awards. The option price of shares of Common Stock will not be less than 100%
(110% in the case of incentive stock options granted to optionees holding more
than 10% of the voting stock of Penril at the date of grant) of the fair market
value of shares of Common Stock on the date of grant. No option will be
exercisable more than ten years (five years in the case of incentive stock
options granted to optionees holding more than 10% of the voting stock of Penril
on the date of grant) from the date it is granted. Penril has reserved 1,000,000
shares for issuance under the 1995 Plan. At July 31, 1996, employees had been
granted awards for 70,000 shares.
In the case of a "change in control" of Penril, an option holder will
generally have the right, commencing at least five days prior to the "change in
control" and subject to any other limitation on the exercise of the option in
effect on the date of exercise, to immediately exercise any options in full to
the extent not previously exercised, without regard to any vesting limitations.
On July 2, 1996 Penril's Stock Option/Compensation Committee (the "Committee")
took action which caused all of the outstanding Penril options held by directors
and executive officers of Penril to vest.
The terms of restricted stock awards granted under the 1995 Plan are
determined at the time of the award. Penril will hold the shares of Common Stock
under restricted stock awards until all restrictions lapse and such Common Stock
may not be sold or transferred by the employee until such time. The employee
must
F-14
<PAGE> 70
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
be employed by Penril when the restrictions lapse in order to receive the shares
of Common Stock when the restrictions lapse.
On October 8, 1986, Penril adopted the 1986 Incentive Plan (the "1986
Plan"). Under the 1986 Plan, which will terminate on October 8, 1996, key
employees of Penril and its subsidiaries may be granted awards consisting of
incentive stock options, non-qualified stock options, and restricted stock
awards. The option price of shares of Common Stock subject to options granted
under the 1986 Plan will not be less than 100% (110% in the case of incentive
stock options granted to optionees holding more than ten percent of the voting
stock of Penril at the date of grant) of the fair market value of shares of
Common Stock at the date of grant. No option will be exercisable more than ten
years (five years in the case of incentive stock options granted to optionees
holding more than ten percent of the voting stock of Penril on the date of
grant) from the date it is granted. At July 31, 1996 an aggregate of 964,538
shares of Common Stock were reserved for issuance under the 1986 Plan, of which
employees have been awarded grants for 962,951 shares of Common Stock.
In the case of a "change in control" of Penril, an option holder will
generally have the right, commencing at least five days prior to the "change in
control" and subject to any other limitation on the exercise of the option in
effect on the date of exercise, to immediately exercise any options in full to
the extent not previously exercised, without regard to any vesting limitations.
On July 2, 1996 the Committee took action which caused all of the outstanding
Penril options held by directors and executive officers of Penril to vest.
The terms of restricted stock awards ("Stock Awards") granted under the
1986 Plan are determined at the time of issuance and are evidenced by a written
restricted stock agreement. Any Stock Awards granted are subject to approval by
a majority of all "disinterested directors" as defined in Rule 16b-3 of the
General Rules and Regulations under the Securities Exchange Act of 1934, as
amended.
On October 1, 1992, Penril granted Stock Awards, under the 1986 Plan for an
aggregate of 71,220 shares of Common Stock of Penril to employees of the
Gaithersburg, Maryland facility. The Stock Awards granted vested over two years
and employees had to be employed by Penril when the vested shares of Common
Stock were issued. Of the total shares of Common Stock awarded, 53,020 were
issued. Penril issued 29,560 shares of Common Stock in October, 1993 which
represented 50% of the Stock Awards outstanding on that date and the remaining
23,460 shares of Common Stock on October 1, 1994. Compensation related to the
Stock Award Program was amortized over the vesting period.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS: On December 9, 1987, Penril adopted
the Non-Employee Directors' Stock Option Plan ("Directors Plan"). Under the
Directors Plan an option to purchase 24,000 shares of Common Stock is
automatically granted to each non-employee director of Penril on the first day
of his initial term. In addition, options to purchase shares of Common Stock are
automatically granted to each non-employee director on the fifth business day
after the Annual Report on Form 10-K is filed with the Securities and Exchange
Commission as follows: in each of the first two successive years after the
initial grant an option to purchase 6,000 shares of Common Stock is granted, and
in each of the next five successive years an option to purchase 3,000 shares of
Common Stock is granted. The option price per share of Common Stock of any
option granted under the Directors Plan is the fair market value of a share of
Common Stock on the date the option is granted. No option will be exercisable
more than ten years from the date of grant. An aggregate of 125,333 shares of
Common Stock were reserved for issuance under the Directors Plan at July 31,
1996, of which 92,000 shares of Common Stock have been granted. On July 2, 1996
the Committee took action which caused all of the outstanding Penril options
held by directors and executive officers of Penril to vest.
F-15
<PAGE> 71
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option transactions during the three years ended July
31, 1996 is as follows:
<TABLE>
<CAPTION>
1995 INCENTIVE
1986 INCENTIVE PLAN DIRECTORS' PLAN PLAN
--------------------- -------------------- ------------------
NUMBER AVERAGE NUMBER AVERAGE NUMBER AVERAGE
OF PRICE OF PRICE OF PRICE
SHARES PER SHARE SHARES PER SHARE SHARES PER SHARE
--------- --------- -------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding August 1, 1993............ 1,192,752 $4.15 165,000 $3.35 -- $ --
Granted............................... 81,500 4.76 39,000 4.84 -- --
Exercised............................. (132,700) 2.77 -- -- -- --
Canceled.............................. (104,133) 4.67 -- -- -- --
--------- ----- -------- ----- ------ -----
Outstanding July 31, 1994............. 1,037,419 4.15 204,000 3.64 -- --
Granted............................... 348,000 3.12 18,000 3.25 -- --
Exercised............................. (33,067) 2.23 -- -- -- --
Canceled.............................. (233,617) 4.15 -- -- -- --
--------- ----- -------- ----- ------ -----
Outstanding July 31, 1995............. 1,118,735 3.89 222,000 3.61 -- --
Granted............................... 494,000 7.34 18,000 5.69 70,000 $6.77
Exercised............................. (539,284) 4.02 (148,000) 3.87 -- --
Canceled.............................. (110,500) 4.32 -- -- -- --
--------- ----- -------- ----- ------ -----
Outstanding July 31, 1996............. 962,951 $5.54 92,000 $3.59 70,000 $6.77
========= ===== ======== ===== ====== =====
Exercisable Options at July 31,
1996................................ 602,384 $5.73 92,000 $3.59 60,000 $6.44
</TABLE>
WARRANTS: In March, 1987, Henry D. Epstein joined Penril as President and
Chief Executive Officer and was sold Class A warrants to purchase 400,000 shares
of Common Stock at $2.23 per share and Class B warrants to purchase 80,000
shares of Common Stock at $2.34 per share. Mr. Epstein exercised 220,000 Class A
warrants in January 1993, 80,000 Class A warrants in January 1994 and 100,000
Class A warrants in February 1994. In February 1995, Mr. Epstein exercised all
80,000 Class B warrants. All exercises were accomplished by delivery of shares
of Common Stock previously held.
In October 1992, Penril issued a warrant to purchase 166,000 shares of
Common Stock at $4.50 per share, the fair market value on the date of issuance,
to Coast Federal Savings Bank ("Coast") in settlement of a law suit brought
against Penril. In addition, Penril issued Class E warrants to purchase 25,000
shares of Common Stock at $3.625 per share, the fair market value on the date of
issuance, to Mr. Epstein in consideration for Mr. Epstein, in his capacity as a
stockholder of Penril, assisting Penril in settling the litigation with Coast.
The Coast warrant expired June 7, 1995. In August 1995, Mr. Epstein exercised
all Class E warrants.
CASH DIVIDENDS: Penril declared a cash dividend of $.02 per share of
Common Stock to the holders of record on December 16, 1993 and paid December 30,
1993. There were 7,332,296 shares outstanding on the record date.
9. RETIREMENT AND SAVINGS PLAN
Penril's Retirement and Savings Plan ("401(k) Plan") is a defined
contribution plan including provisions of section 401(k) of the Internal Revenue
Code. Employees of Penril who have completed 90 days of service ("Participants")
are eligible to participate in the 401(k) Plan. The 401(k) Plan permits, but
does not require, Penril to match employee contributions. In addition, Penril
may make discretionary contributions to the 401(k) Plan which will be allocated
to each Participant based on the ratio of such Participant's eligible
compensation to the total of all Participants' eligible compensation. Amounts
contributed by Penril vest as to 30% after 1 year of eligible service, 60% after
2 years of eligible service and 100% after 3 years of eligible service.
Participants may elect to direct the investment of their contributions in
accordance with the provisions
F-16
<PAGE> 72
PENRIL DATACOMM NETWORKS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the 401(k) Plan. Penril made matching contributions of $61,000, $45,000 and
$50,000 during fiscal 1996, 1995 and 1994, respectively. There were no
additional Penril contributions in any year. As part of the Transfer, the 401(k)
Plan will be transferred to Access Beyond and active participation in the 401(k)
Plan will be limited to eligible employees of Access Beyond. Access Beyond
intends to split up the 401(k) Plan so the portion of the plan representing the
benefits of participants not employed by Access Beyond can be terminated. Penril
provides no post-employment or post-retirement benefits.
10. GEOGRAPHIC AREA INFORMATION
Penril's foreign operations consist principally of sales and marketing
activities through subsidiaries located in Hong Kong and the United Kingdom.
Certain information, including the effect of intercompany transactions, relating
to Penril's operations on a geographic basis is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues
U.S. Revenue
Domestic................................................... $ 19,350 $26,190 $35,404
Export:
Europe.................................................. 8,808 9,326 11,665
Pacific Rim............................................. 3,868 6,402 4,959
Central and South America............................... 2,393 3,487 4,574
Other International..................................... 2,235 4,403 4,353
-------- ------- -------
Total Exports........................................... 17,304 23,618 25,551
-------- ------- -------
Total U.S. Revenue........................................... $ 36,654 $49,808 $60,955
Revenue from foreign subsidiaries............................ 7,392 6,839 7,876
Adjustments and eliminations................................. (4,611) (4,036) (6,993)
-------- ------- -------
Total Revenues............................................... $ 39,435 $52,611 $61,838
======== ======= =======
Income (Loss) before taxes
U.S.......................................................... $(20,267) $(5,143) $ 2,457
Foreign...................................................... (531) 688 1,479
Eliminations................................................. 130 (737) (2,104)
-------- ------- -------
Total Income (Loss) from continuing operations before
taxes...................................................... $(20,668) $(5,192) $ 1,832
======== ======= =======
Identifiable Assets
U.S.......................................................... $ 31,325 $40,946 $47,213
Foreign subsidiaries......................................... 2,455 3,441 3,848
-------- ------- -------
Total Identifiable Assets.................................... $ 33,780 $44,387 $51,061
======== ======= =======
</TABLE>
F-17
<PAGE> 73
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth expenses in connection with the issuance of
the Common Stock being registered. All of the amounts shown are estimates,
except the registration fee:
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 8,509
Listing fee............................................................... 47,000
Accounting fees and expenses.............................................. 50,000
Legal fees and expenses................................................... 200,000
Blue Sky fees and expenses................................................ 985
Miscellaneous............................................................. 13,506
--------
Total................................................................... $320,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") permits the
indemnification of the directors and officers of the Company. The By-laws of the
Company do not contain any provisions on indemnification.
The Company's Restated Certificate of Incorporation (the "Company
Certificate") provides for the indemnification of directors and officers and
employees of the Company, and persons who serve or served at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred with respect to any action, suit or proceeding,
if such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The indemnification provisions set forth in the Company
Certificate do not preclude the indemnification of, and advancement of expenses
to, any other person to whom the Company has the power or obligation to
indemnify under the provisions of the DGCL, or otherwise. The right to
indemnification conferred in the Company Certificate is a contract right and
shall include the right to have paid by the Company the expenses incurred in
defending any such proceeding in advance of its final disposition. The Company
maintains insurance, at its expense, to protect itself and any director,
officer, employee or agent of the Company against any such expense, liability or
loss, whether or not the Company would have the power or the obligation to
indemnify such person against such expense, liability or loss under state law or
under the terms of the Company Certificate. Each director of the Company will
enter into an indemnification agreement with the Company (the "Indemnification
Agreements"). The Indemnification Agreements will provide that, subject to
certain exclusions, the Company will indemnify each director against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed action, suit or proceeding to which such director is or is
threatened to be made a party by reason of his position as an officer or
director of the Company or who serves or served at the request of the Company as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, to the extent of the highest and most
advantageous of the indemnification provisions set forth in the Company
Certificate, the Company's By-laws, the DGCL, the laws of the jurisdiction under
which the Company exists, the terms of any liability insurance or any other
benefits available to such director.
II-1
<PAGE> 74
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<S> <C>
2.1 Form of Distribution Agreement to be between Access Beyond, Inc. (the "Company")
and Penril DataComm Networks, Inc. ("Penril")
2.2 Plan and Agreement of Merger dated as of June 16, 1996, as amended August 5, 1996,
among Penril, Bay Networks, Inc. and Beta Acquisition Corp.
3.1 Restated Certificate of Incorporation of the Company.
3.2 By-Laws of the Company.
5. Opinion of Benesch, Friedlander, Coplan & Aronoff P.L.L.
8. Opinion of Benesch, Friedlander, Coplan & Aronoff P.L.L. as to tax matters.
10.1 Form of Technology License Agreement, to be between Penril and the Company.
10.2 Development and License Agreement dated as of June 16, 1996 between Bay Networks,
Inc. and Penril, on behalf of the Company.
10.3 Form of Indemnification Agreement to be between Penril and the Company.
10.4 Form of Sublease Agreement, to be between the Company and Penril.
10.5 Form of the Company's 1996 Long-Term Incentive Plan.
10.6 Form of the Company's 1996 Non-Employee Directors' Stock Option Plan.
10.7 Form of Transitional Services Agreement to be between the Company and Penril.
11. Penril Datacomm Networks, Inc. and Subsidiaries Computation of Per Share Earnings.
21. List of Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
23.2 Consent of Benesch, Friedlander, Coplan & Aronoff P.L.L. (contained in its
Opinions filed as Exhibit 5 and 8 hereto).
*24. Powers of Attorney for the Company.
*99.1 Consent of Director-Elect - Arthur Samberg
*99.2 Consent of Director-Elect - Barbara Perrier
*99.3 Consent of Director-Elect - John Howard
99.4 Consent of Director-Elect - Paul Schaller
</TABLE>
- ---------------
*Filed previously.
(b) Financial Statement Schedule -- None
All schedules specified under Regulation S-X for the Company have been
omitted because they are either not applicable, not required or because
the information required is included in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions or otherwise, the registrants
have been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid
II-2
<PAGE> 75
by a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by the controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE> 76
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF GAITHERSBURG, STATE OF
MARYLAND, ON OCTOBER 7, 1996.
ACCESS BEYOND, INC.
By: /s/ RICHARD D. ROSE
Name: Richard D. Rose
Its: Chief Financial Officer and
Secretary
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ----------------------------------- --------------------------------------- -----------------
<C> <S> <C>
/S/ HENRY D. EPSTEIN Chairman of the Board and President October 7, 1996
- -----------------------------------
Henry D. Epstein
/S/ RONALD A. HOWARD Executive Vice President and Director October 7, 1996
- -----------------------------------
Ronald A. Howard
/S/ MICHAEL H. NEWLIN Director October 7, 1996
- -----------------------------------
Michael H. Newlin
/S/ RICHARD D. ROSE Chief Financial Officer and Secretary October 7, 1996
- -----------------------------------
Richard D. Rose
</TABLE>
II-4
<PAGE> 1
EXHIBIT 2.1
FORM OF
DISTRIBUTION AGREEMENT
----------------------
THIS DISTRIBUTION AGREEMENT ("Agreement") is made and entered into this
_____ day of __________, 1996, by and between PENRIL DATACOMM NETWORKS, INC., a
Delaware corporation ("Penril"), and ACCESS BEYOND, INC., a Delaware corporation
("Access Beyond").
RECITALS
--------
WHEREAS, Penril, Bay Networks, Inc., a Delaware corporation ("Bay") and
Beta Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Bay ("Acquisition Corp.") have entered into an Agreement and Plan of
Reorganization and Merger dated as of June 16, 1996 as amended on August 5,
1996 (the "Merger Agreement") providing for the merger of Acquisition Corp.
with and into Penril (the "Merger");
WHEREAS, Penril desires to transfer to Access Beyond substantially all
of the assets owned or used by Penril and its subsidiaries in the operation of
Penril's business other than its modem business (the "Business") including, but
not limited to, all of the contracts and agreements to which it is a party
relating to the operation of the Business (the "Assigned Assets") in exchange
for the issuance of a sufficient number of shares of common stock $.01 par
value per shares of Access Beyond ("Access Beyond Stock") to effect the
Distribution (as defined below); provided, however, that the Assigned Assets
shall not include those assets listed on EXHIBIT "A" attached hereto, which
assets are owned or used by Penril and its subsidiaries in the operation of its
modem business, and Access Beyond desires to assume all debts, obligations,
contracts or liabilities of Penril and its subsidiaries incurred in connection
with the Business (the "Assumed Liabilities") other than as specifically listed
on EXHIBIT "B" attached hereto;
WHEREAS, immediately prior to the Effective Time (as defined in the
Merger Agreement), Penril's Board of Directors, subject to the approval of
Penril's stockholders, expects to distribute (the "Distribution") to the
holders of common stock, $.01 par value per share of Penril ("Company Stock")
on a one-share-for-one-share basis, all of the issued and outstanding Access
Beyond Stock; and
WHEREAS, the purpose of the Distribution is to make possible the Merger
by divesting Penril of all of its businesses other than the modem business,
which modem business was the only business Bay desired to acquire.
NOW, THEREFORE, in consideration of the above premises and of the
mutual undertakings and covenants set forth in this Agreement, and other good
and valuable consideration, the receipt, adequacy and sufficiency of which are
hereby acknowledged, Penril and Access Beyond, intending to be legally bound,
agree as follows:
1. TRANSFER OF ASSETS. Prior to the Distribution, Penril will transfer
to Access Beyond as of that date all of its and its subsidiaries rights, titles
and interests in and to (i) the Assigned Assets and (ii) the Assumed
Liabilities and those employees of Penril other than those listed on Schedule 1
(the "Transfer"). Prior to the Distribution, Access Beyond will accept such
transfer and assume such liabilities. The Transfer will be effected by means
of a bill of sale, assignment and assumption agreement, substantially in
<PAGE> 2
the form of EXHIBIT "C" attached hereto, which Penril and Access Beyond hereby
agree to sign prior to the Distribution and prior to the Merger.
2. ISSUANCE OF STOCK. In connection with, in consideration of and at
the time of the Transfer, Access Beyond hereby agrees to issue to Penril a
number of shares of Access Beyond Stock such that Penril will own a number of
shares of Access Beyond Stock equal to the number of shares of Company Stock
then outstanding.
3. SETTLEMENT OF RECEIPTS. On a weekly basis, each party shall deliver
to the other any cash received which is properly the property of the other as
well as any mail packages or similar items so received.
4. 401(K) PROFIT SHARING PLAN. As part of the Transfer, Penril will
transfer to Access Beyond and Access Beyond will assume Penril's 401(k) Profit
Sharing Plan, as amended (the "Plan"). Penril and Access Beyond shall at Access
Beyond's sole cost and expense take all action as may be necessary or
appropriate to cause Access Beyond to assume sponsorship of the Plan and to
establish Access Beyond as successor of Penril as to all rights, duties,
liabilities and obligations under or with respect to the Plan. The parties
acknowledge that following the Transfer, active participation in the Plan will
be limited to eligible employees of Access Beyond. The parties acknowledge that
Access Beyond intends to split up the Plan so that the portion of the Plan
representing the benefits of participants not employed by Access Beyond can be
terminated. No provision of this Agreement shall be construed as a limitation
on the right of Access Beyond or Penril to amend the Plan or terminate its
participation therein which either would otherwise have under the terms of the
Plan or otherwise and no provision of this Agreement shall be construed to
create or create a right in any employee or beneficiary of such employee under
the Plan that such employee or beneficiary would not otherwise have under the
terms of the Plan itself. Access Beyond hereby agrees to indemnify and hold
harmless Penril from any liabilities, costs, or expenses for the Plan, from and
after the Transfer.
5. CHANGE IN CONTROL PAYMENTS. Notwithstanding anything to the
contrary contained herein, Penril shall retain, and shall not transfer to
Access Beyond, funds sufficient to pay to Henry D. Epstein, Ronald A. Howard
and Richard D. Rose payments in the amount of $550,000, $562,000 and $150,000
respectively, which payments they are entitled as a result of the change in
control of Penril as result of the Merger. Penril hereby covenants and agrees
to make these payments at or prior to the consummation of the Merger.
6. ACCESS TO INFORMATION. From and after the effective time of the
Transfer, each party shall afford to the other and its authorized accountant,
counsel or other designated representatives reasonable access and duplicating
rights during normal business hours to all books, records, contracts,
instruments, computer data and other information which relates to the assets or
liabilities or business of the other. Information may be required under this
Section 6 for, without limitation, audit, accounting, claims, litigation and tax
purposes as well as for purposes of fulfilling disclosure and reporting
obligations.
Each party shall hold and shall cause its officers, employees, agents,
consultants and advisors to hold in strict confidence, unless compelled to
disclose by judicial or administrative process or, in the opinion of its counsel
by other requirements of law, all non-public information concerning the other
party furnished by such other party or its representatives pursuant to this
Agreement or which have been retained by such party and each party shall not
release or disclose such information to any other person, except its auditors,
attorneys, financial advisor, bankers and other consultants and advisors who
agree to be bound by the provisions of this Section 6. Each party shall be
deemed to have satisfied its obligation to hold confidential the information
concerning or supplied by the other party if it exercises the same care as it
takes to preserve confidential of its own similar confidential information.
2
<PAGE> 3
7. FURTHER ASSURANCES. Each party will, without further consideration,
at any time and from time to time after the date hereof, upon request of the
other party, promptly do, execute, acknowledge, obtain and deliver any and all
instruments as may reasonably be required for the purpose of vesting in Access
Beyond the full right, title and interest of Penril in the Assigned Assets,
enabling Access Beyond to perform its obligations under the Assigned Assets and
Assumed Liabilities and to carry out the intent and purposes of this Agreement.
8. BINDING EFFECT. This Agreement will be binding upon and will inure
to the benefit of Penril and Access Beyond and their respective successors and
permitted assigns.
9. MISCELLANEOUS. Captions and section headings are for convenience
only, are not a part of this Agreement, and may not in any way be used in
construing it. Any failure by any party to comply with any of the obligations
set forth in this Agreement may be waived by the other party, but any such
waiver must be in writing and will not be deemed a waiver of any other
obligation, agreement or condition contained in this Agreement.
10. AMENDMENTS. There are no verbal agreements, representations,
warranties, undertakings or agreements between the parties, and this Agreement
may not be amended or modified in any respect except by a written instrument
signed by the parties to this Agreement.
11. GOVERNING LAW. This Agreement is to be governed by and construed in
accordance with the laws of the State of Delaware without regard to the conflict
of laws principles.
IN WITNESS WHEREOF, the parties have duly executed this Agreement
on the date first above written.
PENRIL DATACOMM NETWORKS, INC.
By:
----------------------------
Its:
----------------------------
ACCESS BEYOND, INC.
By:
-----------------------------
Its:
-----------------------------
3
<PAGE> 1
EXHIBIT 2.2
PLAN AND AGREEMENT OF MERGER
This Plan and Agreement of Merger entered into as of June 16, 1996
by and among Bay Networks, Inc., a Delaware corporation (the "Buyer"),
Beta Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of the Buyer (the "Transitory Subsidiary"), and Penril
DataComm Networks, Inc., a Delaware corporation (the "Company"). The
Buyer, the Transitory Subsidiary and the Company are referred to
collectively in this Agreement as the "Parties".
This Agreement contemplates a merger of the Transitory Subsidiary
into the Company, which merger will qualify as a tax-free
reorganization described in Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended (the "Code"). In such merger, the
stockholders of the Company will receive solely voting capital stock of
the Buyer in exchange for their capital stock of the Company.
The Parties acknowledge that in the event that the transactions
contemplated by this Agreement are not consummated, the Company would
experience a substantial loss and hardship; therefore, to minimize the
potential for such (i) failure to consummate the transactions and (ii)
loss and hardship, the Parties have knowingly agreed not to include in
this Agreement many otherwise normal conditions to closing the
transaction, including but not limited to, a condition that there shall
be no material adverse change prior to the Effective Time (as defined
below) to the Company, its business, financial condition, results of
operations, or prospects, to the Company's industry or to the general
business conditions.
Now, therefore, in consideration of the representations,
warranties and covenants in this Agreement contained, the Parties agree
as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of
this Agreement, the Transitory Subsidiary shall merge with and into the
Company (with such merger referred to in this Agreement as the
"Merger") at the Effective Time (as defined below). From and after the
Effective Time, the separate corporate
<PAGE> 2
existence of the Transitory Subsidiary shall cease and the Company
shall continue as the surviving corporation in the Merger (the
"Surviving Corporation"). The "Effective Time" shall be the time at
which the Company and the Transitory Subsidiary file the certificate of
merger or other appropriate documents prepared and executed in
accordance with the relevant provisions of the Delaware General
Corporation Law (the "Certificate of Merger") with the Secretary of
State of the State of Delaware. The Merger shall have the effects set
forth in Section 259 of the Delaware General Corporation Law.
1.2 The Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") shall take place at a mutually agreed
upon location, commencing at 9:00 a.m. local time on a mutually
agreeable date as soon as practicable after the date on which all of
the conditions to the obligations of the Parties to consummate the
transactions contemplated by this Agreement have been satisfied or
waived (the "Closing Date"), but in no event later than 150 days from
the date hereof.
1.3 Actions at the Closing. At the Closing, (a) the Company shall
deliver to the Buyer and the Transitory Subsidiary the various
certificates, instruments and documents referred to in Section 5.2, (b)
the Buyer and the Transitory Subsidiary shall deliver to the Company
the various certificates, instruments and documents referred to in
Section 5.3, (c) the Company and the Transitory Subsidiary shall file
with the Secretary of State of the State of Delaware the Certificate of
Merger, and (d) the Buyer shall deliver a certificate for the Merger
Shares (as defined below) to a bank, trust company or other entity
reasonably satisfactory to the Company appointed by the Buyer to act as
the exchange agent (the "Exchange Agent") in accordance with Section
1.7.
1.4 Additional Action. The Surviving Corporation may, at any time
after the Effective Time, take any action, including executing and
delivering any document, in the name and on behalf of either the
Company or the Transitory Subsidiary, in order to consummate the
transactions contemplated by this Agreement.
1.5 Conversion of Shares. At the Effective Time, by virtue of the
Merger and without any action on the part of any Party or the holder of
any of the following securities:
(a) Each share of common stock, $0.01 par value per share, of
the Company ("Company Shares") issued and outstanding immediately prior
to the Effective Time (other than Company Shares owned beneficially by
the Buyer or the Transitory Subsidiary,
-2-
<PAGE> 3
Dissenting Shares (as defined below) and Company Shares held in the
Company's treasury) shall be converted into and represent the right to
receive (subject to the provisions of Section 1.9) such number of
shares of common stock, $0.01 par value per share, of the Buyer ("Buyer
Common Stock") as is equal to the Conversion Ratio (as defined below).
The "Conversion Ratio" shall mean the number determined by dividing (i)
$10.00 (ii) by the Buyer Stock Market Price. The "Buyer Stock Market
Price" shall mean the average of the closing prices of the Buyer's
Common Stock on the New York Stock Exchange (the "NYSE") five (5)
consecutive trading days immediately preceding the second business day
immediately preceding to the Closing Date. Stockholders of record of
the Company ("Company Stockholders") shall be entitled to receive
immediately all of the shares of Buyer Common Stock into which their
Company Shares were converted pursuant to this Section 1.5(a) (the
"Merger Shares").
(b) Each Company Share held in the Company's treasury
immediately prior to the Effective Time and each Company Share owned
beneficially by the Buyer or the Transitory Subsidiary shall be
cancelled and retired without payment of any consideration therefor.
(c) Each share of common stock, $0.01 par value per share, of
the Transitory Subsidiary issued and outstanding immediately prior to
the Effective Time shall be converted into and thereafter evidence one
share of common stock, $0.01 par value per share, of the Surviving
Corporation.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a Company Stockholder
who has not voted such Company Shares in favor of the adoption of this
Agreement and the Merger and with respect to which appraisal shall have
been duly demanded and perfected in accordance with Section 262 of the
Delaware General Corporation Law and not effectively withdrawn or
forfeited prior to the Effective Time. Dissenting Shares shall not be
converted into or represent the right to receive Merger Shares, unless
such Company Stockholder shall have forfeited his right to appraisal
under the Delaware General Corporation Law or withdrawn, with the
consent of the Company, his demand for appraisal. If such Company
Stockholder has so forfeited or withdrawn his right to appraisal of
Dissenting Shares, then (i) as of the occurrence of such event, such
holder's Dissenting Shares shall cease to be Dissenting Shares and
shall be converted into and represent the right to receive the Merger
Shares issuable in respect of such Company Shares pursuant to Section
1.5(a), and (ii) promptly following the
-3-
<PAGE> 4
occurrence of such event, the Buyer shall deliver to the Exchange Agent
a certificate representing the Merger Shares to which such holder is
entitled pursuant to Section 1.5(a).
(b) The Company shall give the Buyer (i) prompt notice of any
written demands for appraisal of any Company Shares, withdrawals of
such demands, and any other instruments that relate to such demands
received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal
under the Delaware General Corporation Law. The Company shall not,
except with the prior written consent of the Buyer, make any payment
with respect to any demands for appraisal of Company Shares or offer to
settle or settle any such demands.
1.7 Exchange of Shares
(a) Prior to the Effective Time, the Buyer shall appoint the
Exchange Agent to effect the exchange for the Merger Shares of
certificates that, immediately prior to the Effective Time, represented
Company Shares converted into Merger Shares pursuant to Section 1.5
(including any Company Shares referred to in the last sentence of
Section 1.6(a)) ("Certificates"). On the Closing Date, the Buyer shall
deliver to the Exchange Agent, in trust for the benefit of holders of
Certificates, a stock certificate (issued in the name of the Exchange
Agent or its nominee) representing the Merger Shares, as described in
Section 1.5(a). As soon as practicable after the Effective Time, the
Buyer shall cause the Exchange Agent to send a notice and a transmittal
form to each holder of a Certificate (other than those surrendered and
paid for at the Closing) advising such holder of the effectiveness of
the Merger and the procedure for surrendering to the Exchange Agent
such Certificate in exchange for the Merger Shares issuable pursuant to
Section 1.5(a). Each holder of a Certificate, upon proper surrender
thereof to the Exchange Agent in accordance with the instructions in
such notice, shall be entitled to receive in exchange therefor (subject
to any taxes required to be withheld) the Merger Shares issuable
pursuant to Section 1.5(a). Until properly surrendered, each such
Certificate shall be deemed for all purposes to evidence only the right
to receive the Merger Shares issuable pursuant to Section 1.5(a).
Holders of Certificates shall not be entitled to receive certificates
for the Merger Shares to which they would otherwise be entitled until
such Certificates are properly surrendered.
(b) If any Merger Shares are to be issued in the name of a
person other than the person in whose name the Certificate surrendered
in exchange therefor is registered, it shall be a condition to the
issuance of such Merger Shares that (i) the Certificate so surrendered
shall be transferable, and shall be
-4-
<PAGE> 5
properly assigned, endorsed or accompanied by appropriate stock powers,
(ii) such transfer shall otherwise be proper and (iii) the person
requesting such transfer shall pay to the Exchange Agent any transfer
or other taxes payable by reason of the foregoing or establish to the
satisfaction of the Exchange Agent that such taxes have been paid or
are not required to be paid. Notwithstanding the foregoing, neither the
Exchange Agent nor any Party shall be liable to a holder of Company
Shares for any Merger Shares issuable to such holder pursuant to
Section 1.5(a) that are delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
(c) In the event any Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed, the
Buyer shall issue in exchange for such lost, stolen or destroyed
Certificate the Merger Shares issuable in exchange therefor pursuant to
Section 1.5(a). The Board of Directors of the Buyer may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, stolen or destroyed Certificate to give
the Buyer a bond in such sum as it may reasonably direct as indemnity
against any claim that may be made against the Buyer with respect to
the Certificate alleged to have been lost, stolen or destroyed.
(d) Promptly following the date which is six months after the
Closing Date, the Exchange Agent shall return to the Buyer all Merger
Shares in its possession, and the Exchange Agent's duties shall
terminate. Thereafter, each holder of a Certificate may surrender such
Certificate to the Buyer and, subject to applicable abandoned property,
escheat and similar laws, receive in exchange therefor the Merger
Shares issuable with respect thereto pursuant to Section 1.5(a).
1.8 Dividends. No dividends or other distributions that are
payable to the holders of record of Buyer Common Stock as of a date on
or after the Closing Date shall be paid to former Company Stockholders
entitled by reason of the Merger to receive Merger Shares until such
holders surrender their Certificates in accordance with Section 1.7.
Upon such surrender, the Buyer shall pay or deliver to the persons in
whose name the certificates representing such Merger Shares are issued
any dividends or other distributions that are payable to the holders of
record of Buyer Common Stock as of a date on or after the Closing Date
and which were paid or delivered between the Effective Time and the
time of such surrender; provided that no such person shall be entitled
to receive any interest on such dividends or other distributions.
-5-
<PAGE> 6
1.9 Fractional Shares. No certificates or scrip representing
fractional Merger Shares shall be issued to former Company Stockholders
upon the surrender for exchange of Certificates, and such former
Company Stockholders shall not be entitled to any voting rights, rights
to receive any dividends or distributions or other rights as a
stockholder of the Buyer with respect to any fractional Merger Shares
that would otherwise be issued to such former Company Stockholders. In
lieu of any fractional Merger Shares that would otherwise be issued,
each former Company Stockholder that would have been entitled to
receive a fractional Merger Share shall, upon proper surrender of such
person's Certificates, receive a cash payment equal to the closing
price per share of the Buyer Common Stock on the NYSE, on the business
day immediately preceding the business day prior to the Closing Date,
multiplied by the fraction of a share that such Company Stockholder
would otherwise be entitled to receive. The fractional share interests
of each Company Stockholder will be aggregated, and no Company
Stockholder will receive cash in an amount equal to or greater than the
value of one full share of Buyer Common Stock.
1.10 Options and Rights.
(a) As of the Effective Time, all obligations of the Company
with respect to options to purchase Company Shares issued by the
Company to the employees of the Company listed on Schedule 1.10
pursuant to its stock option plans ("Options"), whether vested or
unvested, shall be assumed by the Buyer.
(b) Immediately after the Effective Time, each Option
outstanding immediately prior to the Effective Time shall be deemed to
constitute an option to acquire, on the same terms and conditions as
were applicable under such Option at the Effective Time, such number of
shares of Buyer Common Stock as is equal to the number of Company
Shares subject to the unexercised portion of such Option multiplied by
the Conversion Ratio (with any fraction resulting from such
multiplication to be rounded up or down to the nearest whole number or,
in the case of .5, to the nearest odd number). The exercise price per
share of each such Option shall be equal to the exercise price of such
Option immediately prior to the Effective Time, divided by the
Conversion Ratio. The term, exercisability, vesting schedule, status as
an "incentive stock option" under Section 422 of the Code, if
applicable, and all of the other terms of the Options shall otherwise
remain unchanged. In addition to the foregoing, the applicable
provisions of each award agreement for Options to be outstanding after
the Effective Time will be equitably adjusted after the Spin-off
Transaction and prior to the Closing by the Company's Board of
Directors to reflect the Spin-off Transaction (as defined herein).
-6-
<PAGE> 7
(c) As soon as practicable after the Effective Time, the
Buyer or the Surviving Corporation shall deliver to the holders of
Options appropriate notices setting forth such holders' rights pursuant
to such Options, as amended by this Section 1.10, and the agreements
evidencing such Options shall continue in effect on the same terms and
conditions (subject to the amendments provided for in this Section 1.10
and such notice).
(d) The Buyer shall take all corporate action necessary to
reserve for issuance a sufficient number of shares of Buyer Common
Stock for delivery upon exercise of the Options. As soon as practicable
after the Effective Time, the Buyer shall file a Registration Statement
on Form S-8 (or any successor form) under the Securities Act of 1933,
as amended (the "Securities Act") with respect to all shares of Buyer
Common Stock subject to such Options that may be registered on a Form
S-8, and shall use its best efforts to maintain the effectiveness of
such Registration Statement for so long as such Options remain
outstanding.
(e) The Company shall obtain, prior to the Closing, the
consent from each holder of an Option to the adjustment or amendment,
as the case may be, of such Option or Right pursuant to this Section
1.10 (unless such consent is not required under the terms of the
applicable agreement, instrument or plan).
1.11 Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be the same as the
Certificate of Incorporation of the Transitory Subsidiary immediately
prior to the Effective Time, except that the name of the corporation
set forth therein shall be changed to the name of the Company.
1.12 By-laws. The By-laws of the Surviving Corporation shall be
the same as the By-laws of the Transitory Subsidiary immediately prior
to the Effective Time, except that the name of the corporation set
forth therein shall be changed to the name of the Company.
1.13 Directors and Officers. The directors of the Transitory
Subsidiary shall become the directors of the Surviving Corporation as
of the Effective Time. The officers of the Company shall remain as
officers of the Surviving Corporation after the Effective Time,
retaining their respective positions, except as specified by the Buyer
pursuant to Section 5.2(g).
1.14 No Further Rights. From and after the Effective Time, no
Company Shares shall be deemed to be outstanding, and holders of
Certificates shall cease to have any rights with respect thereto,
except as provided in this Agreement or by law.
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1.15 Closing of Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and no transfer of
Company Shares shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the Exchange
Agent, they shall be cancelled and exchanged for Merger Shares in
accordance with Section 1.5(a), subject to applicable law in the case
of Dissenting Shares.
1.16 Tax-Free Reorganization. The Parties intend to adopt this
Agreement as a tax-free plan of reorganization and to consummate the
Merger in accordance with the provisions of Section 368(a)(1)(B) of the
Code. The Buyer represents and covenants that:
(a) The Surviving Corporation will pay its dissenting
stockholders the value of their Dissenting Shares out of its own funds.
No funds will be supplied for that purpose, directly or indirectly, by
the Buyer, nor will the Buyer directly or indirectly reimburse the
Surviving Corporation for any payments for Dissenting Shares.
(b) The Buyer presently intends, and at the Effective Time it
will intend, to continue the Company's historic business or use a
significant portion of the Company's historic business assets in a
business.
(c) The Buyer has no plan or intention to liquidate the
Surviving Corporation; to merge the Surviving Corporation into another
corporation; to cause the Surviving Corporation to sell or otherwise
dispose of any of its assets, except for dispositions made in the
ordinary course of the Surviving Corporation's business; or to sell or
otherwise dispose of any of the Company Shares acquired in the Merger,
except for transfers described in Section 368(a)(2)(C) of the Code.
(d) The Buyer has no plan or intention to reacquire any Buyer
Common Stock issued in the Merger.
(e) Neither the Buyer nor the Transitory Subsidiary is an
investment company as defined in Section 368(a)(2)(F)(iii) and (iv)) of
the Code.
(f) The payment of cash in lieu of fractional shares of Buyer
Common Stock is solely for the purpose of avoiding the expense and
inconvenience to the Buyer of issuing fractional shares and shall not
represent separately bargained-for consideration. The total cash
consideration that will be paid in the transaction to the Company
Stockholders instead of issuing fractional shares of Buyer Common Stock
will not exceed one
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<PAGE> 9
percent of the total consideration that will be issued in the Merger to
the Company Stockholders in exchange for their Company Shares. The
fractional share interests of each Company Stockholder will be
aggregated, and no Company Stockholder will receive cash in an amount
equal to or greater than the value of one full share of Buyer Common
Stock.
(g) The Transitory Subsidiary is solely and directly
owned by the Buyer.
(h) Neither the Buyer nor an affiliate of the Buyer has
acquired Company Shares since June 1, 1991. The Buyer and its
affiliates own no Company Shares. During the period from the date of
this Agreement to the Effective Time, other than pursuant to this
Agreement, neither the Buyer nor any affiliate of the Buyer shall
acquire any Company Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the
statements contained in this Article II are true and correct, except as
set forth in the disclosure schedule attached hereto (the "Disclosure
Schedule"). The Disclosure Schedule shall be initialed by the Parties
and shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II, and the disclosures
in any paragraph of the Disclosure Schedule shall qualify only the
corresponding paragraph in this Article II.
2.1 Organization, Qualification and Corporate Power. The Company
is a corporation duly organized, validly existing and in corporate and
tax good standing under the laws of the state of its incorporation. The
Company is duly qualified to conduct business and is in corporate and
tax good standing under the laws of each jurisdiction in which the
nature of the business described on Section 2.1 of the Disclosure
Schedule (the "Modem Business") or the ownership or leasing of its
properties relating to the Modem Business requires such qualification
except where the failure to be so qualified would not have a material
adverse effect on the Company and its Modem Subsidiaries (as defined
below) taken as a whole. The Company has all requisite corporate power
and authority to carry on the Modem Business in which it is engaged and
to own and use the properties owned and used by it in the Modem
Business. The Company has furnished to the Buyer true and complete
copies of its Certificate of Incorporation and By-laws, each as amended
and as in effect on the date hereof. The Company
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<PAGE> 10
is not in violation of any provision of its Certificate of
Incorporation or By-laws.
2.2 Capitalization. The authorized capital stock of the Company
consists of 20,100,000 shares, comprised of 20,000,000 shares of common
stock, $.01 par value per share, of which 10,543,369 shares are issued
and outstanding and no shares are held in the treasury of the Company,
all as of June 6, 1996, and 100,000 shares of preferred stock, $0.01
par value per share, of which no shares are designated or outstanding.
Section 2.2 of the Disclosure Schedule sets forth a complete and
accurate list as of June 6, 1996, of (i) all stockholders of record of
the Company, indicating the number of Company Shares held by each
stockholder, and (ii) all holders of Options, indicating the number of
Company Shares subject to Options held by such holders. All of the
issued and outstanding Company Shares are, and all Company Shares that
may be issued upon exercise of Options in accordance with the terms
thereof will be, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. There are no
outstanding or authorized options, warrants, rights, agreements or
commitments to which the Company is a party or which are binding upon
the Company providing for the issuance, disposition or acquisition of
any of its capital stock, other than as listed in Section 2.2 of the
Disclosure Schedule. There are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the
Company. Except pursuant to this Agreement or the Affiliate Agreement
(as defined herein), there are no agreements, voting trusts, proxies,
or understandings with respect to the voting, or registration under the
Securities Act, of any Company Shares other than as set forth in
Section 2.2 of the Disclosure Schedule. All of the issued and
outstanding Company Shares were issued in compliance with applicable
federal and state securities laws.
2.3 Authorization of Transaction. The Company has all requisite
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery of this
Agreement and, subject to the adoption of this Agreement and the
approval of the Merger by a majority of the votes represented by the
outstanding Company Shares entitled to vote on this Agreement and the
Merger (the "Requisite Stockholder Approval"), the performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated by this Agreement have been duly and validly
authorized by all necessary corporate action on the part of the
Company. This Agreement has been duly and validly executed and
delivered by the Company and constitutes a valid and binding obligation
of the Company, enforceable against the Company in accordance with its
terms.
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<PAGE> 11
2.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities
laws, the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "Hart-Scott-Rodino Act"), the filing of the Certificate of
Merger as required by the Delaware General Corporation Law, and the
filing of requisite forms relating to the transfer of certain
intellectual property rights of the Company (as contemplated by this
Agreement) neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the transactions
contemplated by this Agreement (and, for clauses (b) and (d) of this
Section 2.4, other than Spin-off Transaction), will (a) conflict with
or violate any provision of the charter or By-laws of the Company, (b)
require on the part of the Company or any corporation with respect to
which the Company, directly or indirectly, has the power to vote or
direct the voting of sufficient securities to elect a majority of the
directors (a "Subsidiary") any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"), other than
any filing, permit, authorization, consent or approval which if not
obtained or made would not have a material adverse effect on the
assets, business, financial condition, results of operations or future
prospects of the Company and its Subsidiaries relating to the Modem
Business, taken as a whole, or on the ability of the Parties to
consummate the transactions contemplated by this Agreement, (c), except
as set forth in Section 2.4 to the Disclosure Schedule, conflict with,
result in a breach of, constitute (with or without due notice or lapse
of time or both) a default under, result in the acceleration of, create
in any party the right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security
Interest (as defined below) or other arrangement to which the Company
or any Subsidiary is a party or by which the Company or any Subsidiary
is bound or to which any of their assets is subject, other than any
conflict, breach, default, acceleration, termination, modification or
cancellation which individually or in the aggregate would not have a
material adverse effect on the assets, business, financial condition,
results of operations or future prospects of the Company and its
Subsidiaries, taken as a whole, or on the ability of the Parties to
consummate the transactions contemplated by this Agreement, (d) result
in the imposition of any Security Interest upon any assets of the
Company or any Subsidiary relating to the Modem Business or (e) violate
any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company, any
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<PAGE> 12
Subsidiary or any of their properties or assets relating to the Modem
Business. For purposes of this Agreement, "Security Interest" means any
mortgage, pledge, security interest, encumbrance, charge, or other lien
(whether arising by contract or by operation of law), other than (i)
mechanic's, materialmen's, and similar liens, (ii) liens arising under
worker's compensation, unemployment insurance, social security,
retirement, and similar legislation, and (iii) liens on goods in
transit incurred pursuant to documentary letters of credit, in each
case arising in the ordinary course of business consistent with past
custom and practice (including with respect to frequency and amount)
("Ordinary Course of Business") of the Company and not material to the
Company.
2.5 Subsidiaries. Section 2.5 of the Disclosure Schedule lists
each Subsidiary and each Modem Subsidiary and sets forth for each Modem
Subsidiary (a) its jurisdiction of incorporation, (b) the number of
shares of authorized capital stock of each class of its capital stock,
(c) the number of issued and outstanding shares of each class of its
capital stock, the names of the holders thereof and the number of
shares held by each such holder, (d) the number of shares of its
capital stock held in treasury, and (e) its directors and officers.
Each Modem Subsidiary is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation. Each Modem Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification
except where the failure to be so qualified would not have a material
adverse effect on the Company and the Modem Subsidiaries taken as a
whole. Each Modem Subsidiary has all requisite corporate power and
authority to carry on the Modem Business in which it is engaged and to
own and use the properties owned and used by it in the Modem Business.
The Company has delivered or made available to the Buyer correct and
complete copies of the charter and By-laws of each Modem Subsidiary, as
amended to date. No Modem Subsidiary is in violation of any provision
of its charter or By-laws. All of the issued and outstanding shares of
capital stock of each Modem Subsidiary are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. All
shares of each Modem Subsidiary that are held of record or owned
beneficially by either the Company or any Modem Subsidiary are held or
owned free and clear of any restrictions on transfer (other than
restrictions under the Securities Act and state securities laws or as
set forth in Section 2.5 of the Disclosure Schedule), claims, Security
Interests, options, warrants, rights, contracts, calls, commitments,
equities and demands. There are no outstanding or authorized options,
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<PAGE> 13
warrants, rights, agreements or commitments to which the Company or any
Modem Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any capital
stock of any Modem Subsidiary. There are no outstanding stock
appreciation, phantom stock or similar rights with respect to any Modem
Subsidiary. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting of any capital stock of any
Modem Subsidiary, except as set forth in Section 2.5 of the Disclosure
Schedule. The Company does not control directly or indirectly or have
any direct or indirect equity participation in any corporation,
partnership, trust, or other business association which is not a
Subsidiary.
2.6 Reports and Financial Statements. The Company has previously
furnished or made available to the Buyer complete and accurate copies,
as amended or supplemented, of its (a) Annual Report on Form 10-K for
the fiscal years ended July 31, 1994, and July 31, 1995, as filed with
the Securities and Exchange Commission (the "SEC"), (b) proxy
statements relating to all meetings of its stockholders (whether annual
or special) since July 31, 1994, and (c) all other reports or
registration statements, other than Registration Statements on Form
S-8, filed by the Company with the SEC since July 31, 1994 (such annual
reports, proxy statements, registration statements and other filings,
together with any amendments or supplements thereto, are collectively
referred to in this Agreement as the "Company Reports"). The Company
Reports constitute all of the documents filed or required to be filed
by the Company with the SEC since July 31, 1994, other than any
Registration Statement on Form S-8. As of their respective dates, the
Company Reports filed since July 31, 1994, did not contain any untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
The audited financial statements and unaudited interim financial
statements of the Company included in the Company Reports filed since
July 31, 1994 (together, the "Financial Statements"), (i) comply as to
form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect
thereto, (ii) have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods covered thereby (except as may
be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-Q under the
Exchange Act), (iii) fairly present the consolidated financial
condition, results of operations and cash flows of the Company and the
Subsidiaries as of the respective dates thereof and for the periods
referred to
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therein, and (iv) are consistent with the books and records of the
Company and the Subsidiaries.
2.7 Undisclosed Liabilities. As of the date hereof, none of the
Company and its Subsidiaries has any material liability (whether known
or unknown, whether absolute or contingent, whether liquidated or
unliquidated and whether due or to become due), except for (a)
liabilities shown on the balance sheet included in the Company's most
recent Quarterly Report on Form 10-Q filed with the SEC on March 15,
1996 (the "Most Recent Balance Sheet"), (b) liabilities which have
arisen since January 31, 1996, in the Ordinary Course of Business, (c)
contractual liabilities incurred in the Ordinary Course of Business
which are not required by GAAP to be reflected on a balance sheet and
(d) liabilities disclosed in Section 2.18 of the Disclosure Schedule.
As used in this Section 2.7, "material liability" is deemed to mean a
liability in excess of $100,000.
2.8 Tax Matters.
(a) Each of the Company and the Subsidiaries has filed all
material Tax Returns (as defined below) that it was required to file
(taking into account extensions) and to the knowledge of the Company no
material position is reflected in a Tax Return for which there was not
substantial authority (as defined in Section 6662 of the Code) or
comparable foreign, federal, state or local law. Each of the Company
and the Subsidiaries has paid all Taxes (as defined below) that are
shown to be due on any such Tax Returns. The unpaid Taxes of the
Company and the Subsidiaries for tax periods through the date of the
Most Recent Balance Sheet are appropriately accrued or reserved for on
the Most Recent Balance Sheet. Neither the Company nor any Subsidiary
has any actual or potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group of
corporations or other entities that included the Company or any
Subsidiary during a prior period) other than the Company and the
Subsidiaries. All material Taxes that the Company or any Subsidiary is
or was required by law to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the proper
Governmental Entity. For purposes of this Agreement, "Taxes" means all
taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad
valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll and
franchise taxes imposed by the United States of America or any state,
local or foreign government, or any agency thereof, or other political
subdivision of the United States or any such government, and any
interest, fines, penalties, assessments or additions to tax resulting
from,
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<PAGE> 15
attributable to or incurred in connection with any tax or any contest
or dispute thereof. For purposes of this Agreement, "Tax Returns" means
all reports, returns, declarations, statements or other information
required to be supplied to a taxing authority in connection with Taxes.
(b) The Company has delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports
and statements of deficiencies assessed against or agreed to by any of
the Company or any Subsidiary between January 1, 1989 and the date
hereof. The federal income Tax Returns of the Company have been audited
by the Internal Revenue Service (the "IRS") or are closed by the
applicable statute of limitations for all taxable years through July
31, 1986. As of the date hereof, no federal or state income tax
examination or audit of any Tax Returns of the Company or any
Subsidiary by any Governmental Entity is currently in progress or, to
the knowledge of the Company and the Subsidiaries, threatened or
contemplated. As of the date hereof, neither the Company nor any
Subsidiary has waived any statute of limitations with respect to taxes
or agreed to an extension of time with respect to a tax assessment or
deficiency.
(c) Neither the Company nor any Subsidiary is a "consenting
corporation" within the meaning of Section 341(f) of the Code and none
of the assets of the Company or the Subsidiaries are subject to an
election under Section 341(f) of the Code. Neither the Company nor any
Subsidiary has been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code.
Neither the Company nor any Subsidiary is a party to any Tax allocation
or sharing agreement.
(d) Neither the Company nor any Subsidiary is or has ever
been a member of an "affiliated group" of corporations (within the
meaning of Section 1504 of the Code), other than a group of which only
the Company and the Subsidiaries are members. Neither the Company nor
any Subsidiary has made an election under Treasury Reg. Section
1.1502-20(g). Neither the Company nor any Subsidiary is or has been
required to make a basis reduction pursuant to Treasury Reg. Section
1.1502-20(b) or Treasury Reg. Section 1.337(d)-2T(b).
2.9 Assets. Each of the Company and the Subsidiaries owns or
leases all tangible assets necessary for the conduct of the Modem
Business as presently conducted and as presently proposed by the
Company to be conducted. Each such tangible asset is free from material
defects, has been maintained in accordance with normal industry
practice, is in good operating condition and
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<PAGE> 16
repair (subject to normal wear and tear) and is suitable for the
purposes for which it presently is used. Except as set forth in
Section 2.9 of the Disclosure Schedule, no material asset of the
Company (tangible or intangible) is subject to any Security Interest.
2.10 Owned Real Property. Neither the Company nor any Modem
Subsidiary owns any real property.
2.11 Intellectual Property.
(a) Each of the Company and the Subsidiaries owns, or is
licensed or otherwise possesses legally enforceable rights under all
patents and patent applications listed in Section 2.11 of the
Disclosure Schedule and the right to use all trademarks, trade names,
service marks, copyrights, and any applications for such trademarks,
trade names, service marks and copyrights, schematics, technology,
know-how, computer software programs or applications and tangible or
intangible proprietary information or material listed in Section 2.11
of the Disclosure Schedule that are used to conduct its Modem Business
as currently conducted or as currently planned by the Company to be
conducted (collectively, "Intellectual Property") and, except as
qualified by or disclosed in Section 2.11 of the Disclosure Schedule,
is aware of no intellectual property right of any third party that may
prevent the Company or its Subsidiaries from conducting its Modem
Business as currently conducted or as planned by the Company to be
conducted. Section 2.11 of the Disclosure Schedule lists (i) all
patents and patent applications and all trademarks, registered
copyrights, trade names and service marks which are both owned by and
used in the Modem Business, including the jurisdictions in which each
such Intellectual Property right has been issued or registered or in
which any such application for such issuance or registration has been
filed, (ii) all material written licenses, sublicenses and other
agreements to which the Company or a Subsidiary is a party and pursuant
to which any person is authorized to use any Intellectual Property
rights, and (iii) all material written licenses, sublicenses and other
agreements as to which the Company or a Subsidiary is a party and
pursuant to which the Company or a Subsidiary is authorized to use any
third party patents, trademarks or copyrights, including software,
which are used in the Modem Business or which form a part of any
product or service relating to the Modem Business ("Third Party
Intellectual Property Rights"). Neither the Company nor any Subsidiary
is a party to any oral license, sublicense or agreement which, if
reduced to written form, would be required to be listed in Section 2.11
of the Disclosure Schedule under the terms of this Section 2.11.
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<PAGE> 17
(b) Neither the Company nor any of the Subsidiaries is, nor
will any of them be as a result of the execution and delivery of this
Agreement or the performance of the Company's obligations under this
Agreement, knowingly infringing upon any intellectual property rights
of others or in breach of any license, sublicense or other agreement
relating to the Intellectual Property or Third Party Intellectual
Property Rights, except as qualified by or disclosed in Section 2.11 of
the Disclosure Schedule.
(c) Except as set forth in Section 2.11 of the Disclosure
Schedule, neither the Company nor any of the Subsidiaries has been
named in any suit, action or proceeding which involves a claim of
infringement of any Intellectual Property right of any third party.
Except as qualified by or disclosed in Section 2.11 of the Disclosure
Schedule, the manufacturing, marketing, licensing or sale of the
products or performance of the service offerings of the Company and the
Subsidiaries relating to the Modem Business do not infringe any
Intellectual Property right of any third party; and to the knowledge of
the Company and the Subsidiaries, the Intellectual Property rights of
the Company and the Subsidiaries are not being infringed by activities,
products or services of any third party.
2.12 Inventory. All inventory of the Company and the Subsidiaries
relating to the Modem Business, whether or not reflected on the Most
Recent Balance Sheet, consists of a quality and quantity usable and
saleable in the Ordinary Course of Business, except for obsolete items
and items of below-standard quality, all of which were, as of the date
of the Most Recent Balance Sheet, written-off or written-down to net
realizable value or for which reserves were established and set forth
on the Most Recent Balance Sheet or which became such in the Ordinary
Course of Business after the date of the Most Recent Balance Sheet.
2.13 Real Property Leases. Section 2.13 of the Disclosure Schedule
lists and describes briefly all real property leased or subleased to
the Company or any Subsidiary and lists the term of such lease, any
extension and expansion options, and the rent payable thereunder. The
Company has delivered or made available to the Buyer correct and
complete copies of the leases and subleases (as amended to the date
hereof) listed in Section 2.13 of the Disclosure Schedule.
2.14 Contracts. Section 2.14 of the Disclosure Schedule lists the
following written arrangements (including without limitation written
agreements) to which the Company or any Subsidiary is a party:
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(a) any written arrangement (or group of related written
arrangements) for the lease of personal property from or to third
parties providing for lease payments in excess of $200,000.00 per
annum;
(b) any written arrangement (or group of related written
arrangements) relating to the Modem Business for the purchase or sale
of raw materials, commodities, supplies, products or other personal
property or for the furnishing or receipt of services (i) which calls
for performance over a period of more than one year, (ii) which
involves more than the sum of $200,000.00, to be paid from and after
the date hereof as to any part or item for the Modem Business or (iii)
in which the Company or any Subsidiary has granted manufacturing
rights, "most favored nation" pricing provisions or marketing or
distribution rights relating to any products or territory related to
the Modem Business or has agreed to purchase a minimum quantity of
goods or services or has agreed to purchase goods or services related
to the Modem Business exclusively from a certain party;
(c) any written arrangement establishing a partnership
or joint venture;
(d) any written arrangement (or group of related written
arrangements) under which it has created, incurred, assumed, or
guaranteed (or may create, incur, assume, or guarantee) indebtedness
(including capitalized lease obligations) involving more than
$200,000.00 or under which it has imposed (or may impose) a Security
Interest on any of its assets, tangible or intangible;
(e) any written arrangement concerning noncompetition
relating to the Modem Business;
(f) any written arrangement with any affiliates, as
defined in Rule 12b-2 under the Exchange Act, of the Company
("Affiliates");
(g) any other written arrangement (or group of related
written arrangements) relating to the Modem Business not entered into
in the Ordinary Course of Business; and
(h) any other written arrangement (or group of related
arrangements) involving more than $200,000.00 per annum to be paid from
and after the date hereof, other than contracts, records and documents
not relating to the Modem Business that the Company reasonably and in
good faith determines is of a confidential and competitive nature.
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<PAGE> 19
The Company has delivered or made available to the Buyer a correct and
complete copy of each written arrangement (as amended to the date
hereof) listed in Section 2.14 of the Disclosure Schedule. With respect
to each written arrangement so listed: (i) the written arrangement is
legal, valid, binding and enforceable and in full force and effect as
to the Company, and (ii) neither the Company nor, to the Company's
knowledge, the other parties thereto is in breach or default, and no
event has occurred which with notice or lapse of time would constitute
a breach or default or permit termination, modification, or
acceleration, by the Company or, to the Company's knowledge, by the
other parties thereto, under the written arrangement. Neither the
Company nor any Subsidiary is a party to any oral contract, agreement
or other arrangement which, if reduced to written form, would be
required to be listed in Section 2.14 of the Disclosure Schedule under
the terms of this Section 2.14.
2.15 Accounts Receivable. All accounts receivable of the
Company and the Subsidiaries relating to the Modem Business
reflected on the Most Recent Balance Sheet arose in the Ordinary
Course of Business.
2.16 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company or any Modem
Subsidiary.
2.17 Insurance. Section 2.17 of the Disclosure Schedule lists all
insurance policies of the Company relating to the Modem Business.
Neither the Company nor any Subsidiary has incurred any loss, damage,
expense or liability relating to the Modem Business covered by any such
insurance policy for which it has not properly asserted a claim under
such policy. Each of the Company and the Modem Subsidiaries is covered
by insurance in scope and amount customary and reasonable for the Modem
Business.
2.18 Litigation. Section 2.18 of the Disclosure Schedule
identifies, and contains a brief description of, (a) any unsatisfied
judgement, order, decree, stipulation or injunction and (b) any claim,
complaint, action, suit, proceeding, hearing or investigation of or in
any Governmental Entity or before any arbitrator to which the Company
or any Subsidiary is a party or, to the knowledge of the Company and
the Subsidiaries, is threatened to be made a party.
2.19 Product Warranty. No product manufactured, sold, leased,
licensed or delivered by the Company or any Subsidiary relating to the
Modem Business is subject to any guaranty, warranty, right of return or
other indemnity beyond in any material respect the applicable standard
terms and conditions of
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sale or lease, which are set forth in Section 2.19 of the
Disclosure Schedule.
2.20 Employees. Part I of Section 2.20 of the Disclosure Schedule
contains a list of all employees of the Company and each Subsidiary who
are employed in connection with the Modem Business, along with the
position. The Company has delivered to the Buyer a list setting forth
the annual compensation of each such person. Each employee of the
Company and each Subsidiary listed in Part II of Section 2.20 of the
Disclosure Schedule has entered into an agreement relating to the
confidentiality and/or assignment of inventions with the Company or a
Subsidiary set forth opposite the employee's name, a copy of which has
previously been delivered to the Buyer. Neither the Company nor any
Subsidiary is a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining
disputes within the last two years. The Company and the Subsidiaries
have no knowledge of any organizational effort made or threatened,
either currently or within the past two years, by or on behalf of any
labor union with respect to employees of the Company or any Subsidiary
who are employed in connection with the Modem Business.
2.21 Employee Benefits.
(a) Section 2.21(a) of the Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans (as defined
below). For purposes of this Agreement, "Employee Benefit Plan" means
any "employee pension benefit plan" (as defined in Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement
involving direct or indirect severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation maintained or contributed by the Company,
any Subsidiary or any ERISA Affiliate (as defined below). For purposes
of this Agreement, "ERISA Affiliate" means any entity which is a member
of (i) a controlled group of corporations (as defined in Section 414(b)
of the Code), (ii) a group of trades or businesses under common control
(as defined in Section 414(c) of the Code), or (iii) an affiliated
service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes
the Company or a Subsidiary. Complete and accurate copies of (i) all
Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Benefit Plans, (iii) all related
trust agreements, insurance contracts and summary plan descriptions,
and
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(iv) all annual reports filed on IRS Form 5500, 5500C or 5500R for the
last three plan years for each Employee Benefit Plan, have been
delivered or made available to the Buyer. Each Employee Benefit Plan
has been administered in all material respects in accordance with its
terms and each of the Company, the Subsidiaries and the ERISA
Affiliates has in all material respects met its obligations with
respect to such Employee Benefit Plan and has made all required
contributions thereto. The Company has made no commitments to make any
voluntary contributions to or to voluntarily fund any Employee Benefit
Plans with the exception of 401(k) matching contribution commitments
previously communicated to employees. The Company and all Employee
Benefit Plans are in compliance in all material respects with the
currently applicable provisions of ERISA and the Code and the
regulations thereunder.
(b) There are no investigations by any Governmental Entity,
termination proceedings or other claims (except claims for benefits
payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders), suits
or proceedings against or involving any Employee Benefit Plan or
asserting any rights or claims to benefits under any Employee Benefit
Plan that could give rise to any material liability.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination
letters from the Internal Revenue Service to the effect that such
Employee Benefit Plans are qualified and the plans and the trusts
related thereto are exempt from federal income taxes under Sections
401(a) and 501(a), respectively, of the Code, no such determination
letter has been revoked and, to the knowledge of the Company, such
revocation has not been threatened, and no such Employee Benefit Plan
has been amended since the date of its most recent determination letter
or application therefor in any respect, and, to the knowledge of the
Company, no act or omission has occurred, that would adversely affect
its qualification or materially increase its cost.
(d) Neither the Company, any Subsidiary, nor any ERISA
Affiliate has, during the six years preceding the Effective Time,
maintained an Employee Benefit Plan subject to Section 412 of the Code
or Title IV of ERISA.
(e) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multi-employer plan" (as
defined in Section 4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any
Employee Benefit Plan providing benefits after termination of
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employment to any employee of the Company or any Subsidiary (or to any
beneficiary of any such employee), including but not limited to retiree
health coverage and deferred compensation, but excluding continuation
of health coverage required to be continued under Section 4980B of the
Code or state insurance law.
(g) To the knowledge of the Company, no act or omission has
occurred and no condition exists with respect to any Employee Benefit
Plan maintained by the Company, any Subsidiary or any ERISA Affiliate
that would subject the Company, any Subsidiary or any ERISA Affiliate
to any material fine, penalty, tax or liability of any kind imposed
under ERISA or the Code.
(h) Except as set forth on Section 2.21(h) of the Disclosure
Schedule, no Employee Benefit Plan is funded by, associated with, or
related to a "voluntary employee's beneficiary association" within the
meaning of Section 501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication
distributed generally to employees by its terms prohibits the Company
or, if applicable, the Subsidiary or ERISA Affiliate, from amending or
terminating any such Employee Benefit Plan.
(j) Section 2.21(j) of the Disclosure Schedule discloses
each: (i) agreement with any director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving the Company or any Subsidiary of
the nature of any of the transactions contemplated by this Agreement,
(B) providing any term of employment or compensation guarantee or (C)
providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee; (ii)
agreement, plan or arrangement under which any person may receive
payments from the Company or any Subsidiary that may be subject to the
tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G
of the Code; and (iii) agreement or plan binding the Company or any
Subsidiary, including without limitation any stock option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan,
severance benefit plan, or any Employee Benefit Plan, any of the
benefits of which will be increased, or the vesting of the benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of
which will be calculated on the basis of any of the transactions
contemplated by this Agreement.
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2.22 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied
with all applicable Environmental Laws (as defined below), except for
violations of Environmental Laws that do not, individually or in the
aggregate, have a material adverse effect on the assets, business,
financial condition, or results of operations of the Company and the
Subsidiaries. To the knowledge of the Company and the Subsidiaries,
there are no pending, threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving the Company or any
Subsidiary, except for litigation, notices of violations, formal
administrative proceedings or investigations, inquiries or information
requests that will not, individually or in the aggregate, have a
material adverse effect on the assets, business, financial condition or
results of operations of the Company and the Subsidiaries. For purposes
of this Agreement, "Environmental Law" means any federal, state or
local law, statute, rule or regulation or the common law currently in
existence and relating to the environment or occupational health and
safety, including without limitation any statute, regulation or order
pertaining to (i) treatment, storage, disposal, generation and
transportation of toxic or hazardous substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the
environment of industrial, toxic or hazardous substances, or solid or
hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or
chemicals; (v) the protection of wild life, marine sanctuaries and
wetlands; (vi) underground and other storage tanks or vessels; and
(vii) manufacture, processing, use, distribution, treatment, storage,
disposal, transportation or handling of pollutants, contaminants,
chemicals or toxic or hazardous substances or oil or petroleum products
or solid or hazardous waste. As used in this Section 2.22, the terms
"release" and "environment" shall have the meaning set forth in the
federal Comprehensive Environmental Compensation, Liability and
Response Act of 1980 ("CERCLA").
(b) Except as disclosed in Section 2.22(b) of the Disclosure
Schedule, to the knowledge of the Company and the Subsidiaries, there
have been no releases of any Materials of Environmental Concern (as
defined below) into the environment at any parcel of real property or
any facility formerly or currently owned, operated or controlled by the
Company or a Subsidiary. With respect to any such releases of Materials
of Environmental Concern, the Company or such Subsidiary has given all
required
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<PAGE> 24
notices to Governmental Entities (copies of which have been provided to
the Buyer). Neither the Company nor any Subsidiary has any knowledge of
any releases of Materials of Environmental Concern at any adjacent,
adjoining or contiguous parcels of real property or facilities that
could reasonably be expected to have a material adverse effect on the
real property or facilities owned, operated or controlled by the
Company or a Subsidiary. For purposes of this Agreement, "Materials of
Environmental Concern" means any chemicals, pollutants or contaminants,
hazardous substances (as such term is defined under CERCLA), solid
wastes and hazardous wastes (as such terms are defined under the
federal Resources Conservation and Recovery Act), toxic materials, oil
or petroleum and petroleum products, or any other material subject to
regulation under any Environmental Law.
(c) Set forth in Section 2.22(c) of the Disclosure Schedule
is a list of all formal, written environmental reports, investigations
and audits relating to premises currently or previously owned or
operated by the Company or a Subsidiary (whether conducted by or on
behalf of the Company or a Subsidiary or a third party, and whether
done at the initiative of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which were issued or
conducted during the past five years and which the Company has
possession of. Complete and accurate copies of each such report, or the
results of each such investigation or audit, have been provided to the
Buyer and any reliance by the Buyer on such reports, investigations or
audits is at the Buyer's sole risk.
2.23 Legal Compliance. Each of the Company and the Modem
Subsidiaries, and the conduct and operations of their respective
businesses, are in compliance with each law (including rules and
regulations thereunder) of any federal, state, local or foreign
government, or any Governmental Entity, which (a) affects or relates to
this Agreement or the transactions contemplated by this Agreement or
(b) is applicable to the Company or such Modem Subsidiary or such
business, except for any violation of or default under a law referred
to in clause (b) above which reasonably may be expected not to have a
material adverse effect on the assets, business, financial condition,
results of operations or future prospects of the Company and the Modem
Subsidiaries taken as a whole.
2.24 Permits. Section 2.24 of the Disclosure Schedule sets forth a
list of all permits, licenses, registrations, certificates, orders or
approvals from any Governmental Entity (including without limitation
those issued or required under Environmental Laws and those relating to
the occupancy or use of owned or leased real property) ("Permits")
issued to or held by
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<PAGE> 25
the Company or any Subsidiary relating to the Modem Business. Such
listed Permits are the only Permits that are required for the Company
and the Subsidiaries to conduct the Modem Business as presently
conducted or as proposed by the Company to be conducted, except for
those the absence of which would not have any material adverse effect
on the assets, business, financial condition, results of operations or
future prospects of the Company and the Modem Subsidiaries taken as a
whole. Each such Permit is in full force and effect and, to the best of
the knowledge of the Company or any Subsidiary, no suspension or
cancellation of such Permit is threatened and there is no basis for
believing that such Permit will not be renewable upon expiration. Each
such Permit will continue in full force and effect following the
Closing.
2.25 Certain Business Relationships With Affiliates. Except as set
forth in Section 2.25 of the Disclosure Schedule, no Affiliate of the
Company (a) owns any property or right, tangible or intangible, which
is used in the Modem Business, (b) has any claim or cause of action
against the Company or any Modem Subsidiary other than in the Ordinary
Course of Business, or (c) owes any money to the Company or any Modem
Subsidiary. Section 2.25 of the Disclosure Schedule describes any
transactions or relationships other than in the Ordinary Course of
Business between the Company and any Affiliate thereof which are not
reflected in the statements of operations of the Company included in
the Financial Statements.
2.26 Brokers' Fees. Except for the obligations of the Company to
Broadview Associates, L.L.C. ("Broadview") pursuant to that certain
Letter Agreement dated March 18, 1996, neither the Company nor any
Subsidiary has any liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
2.27 Books and Records. The minute books and other similar records
of the Company and each Modem Subsidiary contain true and complete
records of all actions taken at any meetings of the Company's or such
Subsidiary's stockholders, Board of Directors or any committee thereof
and of all written consents executed in lieu of the holding of any such
meeting. The books and records of the Company and each Modem Subsidiary
accurately reflect in all material respects the assets, liabilities,
business, financial condition and results of operations of the Company
or such Subsidiary and have been maintained in accordance with good
business and bookkeeping practices.
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<PAGE> 26
2.28 Company Action.
(a) The Board of Directors of the Company, at a meeting duly
called and held, has by the requisite vote of the directors (i)
determined that the Merger is fair and in the best interests of the
Company and its stockholders, (ii) adopted this Agreement in accordance
with the provisions of the Delaware General Corporation Law, and (iii)
directed that this Agreement and the Merger be submitted to the Company
Stockholders for their adoption and approval and resolved to recommend
that Company Stockholders vote in favor of the adoption of this
Agreement and the approval of the Merger.
(b) The Company has received the written opinion of
Broadview, dated the date hereof, to the effect that the consideration
to be received by the Company Stockholders in the Merger is fair from a
financial point of view to the Company Stockholders. A copy of such
opinion has been previously furnished to the Buyer.
2.29 Disclosure. No representation or warranty by the Company
contained in this Agreement, and no statement contained in the
Disclosure Schedule or any other document, certificate or other
instrument delivered to or to be delivered by or on behalf of the
Company pursuant to this Agreement, and no other written statement made
by the Company or any of its representatives in connection with this
Agreement, contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order
to make the statements in this Agreement or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE TRANSITORY SUBSIDIARY
The Buyer and the Transitory Subsidiary, jointly and severally,
represent and warrant to the Company as follows:
3.1 Organization. Each of the Buyer and the Transitory Subsidiary
is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation.
3.2 Capitalization. The authorized capital stock of the Buyer
consists of 300,000,000 shares of Buyer Common Stock, of which
188,452,729 shares were issued and outstanding and 21,620 shares were
held in the treasury of the Buyer as of May 31, 1996. All of the issued
and outstanding shares of Buyer Common Stock are
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duly authorized, validly issued, fully paid, nonassessable and free of
all preemptive rights. All of the Merger Shares will be, when issued in
accordance with this Agreement, duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the
Transitory Subsidiary has all requisite power and authority to execute
and deliver this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement by the Buyer and the
Transitory Subsidiary and the performance of this Agreement and the
consummation of the transactions contemplated by this Agreement by the
Buyer and the Transitory Subsidiary have been duly and validly
authorized by all necessary corporate action on the part of the Buyer
and Transitory Subsidiary. This Agreement has been duly and validly
executed and delivered by the Buyer and the Transitory Subsidiary and
constitutes a valid and binding obligation of the Buyer and the
Transitory Subsidiary, enforceable against them in accordance with its
terms.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities
laws, the Exchange Act, the Hart-Scott-Rodino Act and the filing of the
Certificate of Merger as required by the Delaware General Corporation
Law, neither the execution and delivery of this Agreement by the Buyer
or the Transitory Subsidiary, nor the consummation by the Buyer or the
Transitory Subsidiary of the transactions contemplated by this
Agreement, will (a) conflict or violate any provision of the charter or
By-laws of the Buyer or the Transitory Subsidiary, (b) require on the
part of the Buyer or the Transitory Subsidiary any filing with, or
permit, authorization, consent or approval of, any Governmental Entity,
other than any filing, permit, authorization, consent or approval which
if not obtained or made would not have a material adverse effect on the
assets, business, financial condition, results of operations or future
prospects of the Buyer or on the ability of the Parties to consummate
the transactions contemplated by this Agreement, (c) conflict with,
result in breach of, constitute (with or without due notice or lapse of
time or both) a default under, result in the acceleration of, create in
any party any right to accelerate, terminate, modify or cancel, or
require any notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement
or mortgage for borrowed money, instrument of indebtedness, Security
Interest or other arrangement to which the Buyer or Transitory
Subsidiary is a party or by which either is bound or to which any of
their assets are subject, other than any conflict, breach, default,
acceleration, termination, modification or cancellation which
individually or in the aggregate would not have a material adverse
effect on the assets, business, financial
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<PAGE> 28
condition, results of operations or future prospects of the Buyer or on
the ability of the Parties to consummate the transactions contemplated
by this Agreement, or (d) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Buyer or the Transitory
Subsidiary or any of their properties or assets.
3.5 Reports and Financial Statements. The Buyer has previously
furnished to the Company complete and accurate copies, as amended or
supplemented, of its (a) Annual Report on Form 10-K for the fiscal
years ended June 30, 1994, and June 30, 1995, as filed with the SEC,
and (b) all other reports or statements filed by the Buyer under
Section 13 or 14 of the Exchange Act with the SEC since June 30, 1994
(such reports are collectively referred to in this Agreement as the
"Buyer Reports"). The Buyer Reports constitute all of the documents
required to be filed by the Buyer under Section 13 or 14 of the
Exchange Act with the SEC since June 30, 1994. As of their respective
dates, the Buyer Reports did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The audited
financial statements and unaudited interim financial statements of the
Buyer included in the Buyer Reports (i) comply as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, (ii)
have been prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered thereby (except as may be
indicated therein or in the notes thereto, and in the case of quarterly
financial statements, as permitted by Form 10-Q under the Exchange
Act), (iii) fairly present the consolidated financial condition,
results of operations and cash flows of the Buyer as of the respective
dates thereof and for the periods referred to therein, and (iv) are
consistent with the books and records of the Buyer.
3.6 Brokers' Fees. Except for the obligations of the Buyer to
Alex. Brown & Sons, Inc., neither the Buyer nor the Transitory
Subsidiary has any liability or obligation to pay any fees or
commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
3.7 Disclosure. No representation or warranty by the Buyer
contained in this Agreement, and no statement contained in any other
document, certificate or other instrument delivered to or to be
delivered by or on behalf of Buyer pursuant to this Agreement, and no
other written statement made by the Buyer or any of its representatives
in connection with this Agreement, contains or will contain any untrue
statement of a material fact or omits or
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will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements in this Agreement or therein not misleading.
ARTICLE IV
COVENANTS
4.1 Best Efforts. Subject to the Company Board Fiduciary Duties
(as defined below), each of the Parties shall use its best efforts to
take all actions and to do all things necessary, proper or advisable to
consummate the transactions contemplated by this Agreement; provided,
however, that notwithstanding anything in this Agreement to the
contrary, the Buyer shall not be required to sell or dispose of or hold
separately (through a trust or otherwise) any assets or businesses of
the Buyer or its Affiliates.
4.2 Notices and Consents. Each of the Parties shall use its best
efforts to obtain, at its expense, all such waivers, permits, consents,
approvals or other authorizations from third parties and Governmental
Entities, and to effect all such registrations, filings and notices
with or to third parties and Governmental Entities, as may be required
by or with respect to such Party in connection with the transactions
contemplated by this Agreement.
4.3 Spin-off Transaction; Closing Balance Sheet.
(a) Following the execution of this Agreement and prior to
the Closing, the Company shall (i) transfer to one or more third
parties or to one of its Subsidiaries (the "Spin-off Company") (other
than to Penril International, Ltd. and Penril DataComm, Ltd. (such two
Subsidiaries being collectively referred to as the "Modem
Subsidiaries")) any and all assets, whether tangible or intangible, and
liabilities of the Company related to all of its businesses except for
the Modem Business (provided, however, it is acknowledged that the
stock or assets of Electro-Metrics, Inc., Constant Power, Inc. and
Technipower, Inc., may be transferred to the Spin-off Company or, in
the alternative, may be sold, liquidated or otherwise transferred by
the Company prior to the Closing upon terms and conditions consented to
by the Buyer, which consent will not be unreasonably withheld), (ii)
acquire from its Subsidiaries (other than the Modem Subsidiaries) any
and all assets, whether tangible or intangible, and liabilities of such
Subsidiaries related solely to the Modem Business and (iii) distribute
and transfer to its stockholders, in a transaction intended to be a tax
free transaction, all of the capital stock of
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the Spin-off Company, which owns at that time all of the assets of the
Company and its Subsidiaries not related to the Modem Business
(collectively, the "Spin-off Transaction"). The assets and liabilities
that the Company shall transfer to the Spin-off Company in connection
with the Spin-off Transaction are more fully described by the Company
on Schedule 4.3(a). In connection with the Spin-off Transaction, the
Spin-off Company and its subsidiaries shall have the right to employ
all employees of the Company except as set forth on Section 4.3(a) of
the Disclosure Schedule.
(b) The assets and liabilities of the Modem Business after
the Spin-off Transaction are more fully described by the Company on
Schedule 4.3(b).
(c) Five business days prior to the Closing, the Company
shall deliver to the Buyer an unaudited balance sheet of the Company as
at the Closing Date and reflecting the consummation of the Spin-off
Transaction (the "Closing Balance Sheet"). The Closing Balance Sheet
shall be accompanied by a certificate of the chief financial officer of
the Company stating that the Closing Balance Sheet was prepared in
accordance with GAAP (except as noted) and will fairly present the
financial condition of the Company at the Closing Date. The Company
agrees that the Closing Balance Sheet shall reflect that, on the basis
of the book value of the assets and liabilities retained by the Company
on the Closing Date, the Company shall have a tangible net worth of not
less than One Dollar ($1).
4.4 Special Meeting, Prospectus/Proxy Statement and
Registration Statement.
(a) The Buyer and the Company shall jointly prepare, and the
Company shall file with the SEC under the Exchange Act, preliminary
proxy materials for the purpose of soliciting proxies from Company
Stockholders to vote in favor of the adoption of this Agreement
(including without limitation the matters referred to in Article VI)
and the approval of the Merger and the approval of the Spin-off
Transaction at a special meeting of Company Stockholders to be called
and held for such purpose (the "Special Meeting"). Such proxy materials
shall be in the form of a prospectus/proxy statement to be used for the
purpose of offering the Merger Shares to Company Stockholders and
soliciting such proxies from Company Stockholders (such
prospectus/proxy statement, together with any accompanying letter to
stockholders, notice of meeting and form of proxy, shall be referred to
in this Agreement as the "Prospectus/ Proxy Statement"). The Company,
with the assistance of the Buyer, shall promptly respond to any SEC
comments on the Prospectus/Proxy Statement and shall otherwise use its
best efforts to resolve as
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promptly as practicable all SEC comments to the satisfaction of
the SEC.
(b) Promptly following the resolution to the satisfaction of
the SEC of all SEC comments on the Prospectus/ Proxy Statement (or the
expiration of the ten-day period under Rule 14a-6(a) under the Exchange
Act, if no SEC comments are received by such date), the Company shall
distribute the Prospectus/Proxy Statement to its stockholders and,
pursuant thereto, solicit proxies from Company Stockholders to vote in
favor of the adoption of this Agreement and the approval of the Merger
at the Special Meeting and shall hold the Special Meeting in accordance
with the Delaware General Corporation Law.
(c) Promptly following the resolution to the satisfaction of
the SEC of all SEC comments on the Prospectus/ Proxy Statement (or the
expiration of the ten-day period under Rule 14a-6(a) under the Exchange
Act, if no SEC comments are received by such date), the Buyer shall
file with the SEC under the Securities Act a Registration Statement on
Form S-4 (the "Registration Statement"), which shall include the
Prospectus/ Proxy Statement as a part thereof. The Buyer, with the
assistance of the Company, shall promptly respond to any SEC comments
on the Registration Statement and shall otherwise use its best efforts
to cause the Registration Statement to be declared effective as
promptly as practicable. The Buyer shall also take any and all such
actions as may be necessary or as it may deem advisable for the purpose
of complying with all applicable state securities laws in connection
with the offering and issuance of the Merger Shares.
(d) The Company shall comply with all applicable provisions
of and rules under the Exchange Act and all applicable provisions of
the Delaware General Corporation Law in the preparation, filing and
distribution of the Prospectus/Proxy Statement, the solicitation of
proxies thereunder, and the calling and holding of the Special Meeting.
Without limiting the foregoing, the Company shall ensure that the
Prospectus/Proxy Statement does not, as of the date on which it is
distributed to Company Stockholders, and as of the date of the Special
Meeting, contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not
misleading (provided that the Company shall not be responsible for the
accuracy or completeness of any information furnished by the Buyer in
writing for inclusion in the Prospectus/Proxy Statement, as to which
information the Buyer shall ensure that the Prospectus/Proxy Statement
does not, as of the date on which the Prospectus/Proxy Statement is
distributed to Company Stockholders, and as of the date of the Special
Meeting, contain any untrue
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statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances
under which they were made, not misleading).
(e) The Buyer shall comply with all applicable provisions of
and rules under the Securities Act and state securities laws in the
preparation and filing of the Registration Statement and the offering
and issuance of the Merger Shares. Without limiting the foregoing, the
Buyer shall ensure that the Registration Statement does not, as of its
effective date, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (provided that the Buyer
shall not be responsible for the accuracy or completeness of any
information furnished by the Company in writing for inclusion in the
Registration Statement, as to which information the Company shall
ensure that the Registration Statement does not, as of its effective
date, contain any untrue statement of a material fact or omit to state
a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading).
(f) Subject to the Company Board Fiduciary Duties (as defined
below), the Company, acting through its Board of Directors, shall
include in the Prospectus/Proxy Statement the recommendation of its
Board of Directors that the Company Stockholders vote in favor of the
adoption of this Agreement and the approval of the Merger, and shall
otherwise use its best efforts to obtain the Requisite Stockholder
Approval.
4.5 Hart-Scott-Rodino Act. Each of the Parties shall promptly file
any Notification and Report Forms and related material that it may be
required to file with the Federal Trade Commission and the Antitrust
Division of the United States Department of Justice under the
Hart-Scott-Rodino Act, shall use its best efforts to obtain an early
termination of the applicable waiting period, and shall make any
further filings or information submissions pursuant thereto that may be
necessary, proper or advisable.
4.6 Operation of Business. Except as contemplated by this
Agreement or related to the Spin-off Transaction or as set forth in
Section 4.6 of the Disclosure Schedule, during the period from the date
of this Agreement to the Effective Time, the Company shall (and shall
cause each Subsidiary to) conduct its operations in the Ordinary Course
of Business and in compliance with all applicable laws and regulations
and, to the extent consistent therewith, use all reasonable efforts,
solely as to the Modem Business (i) to preserve intact its current
business organization,
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(ii) keep its physical assets in good working condition, (iii) keep
available the services of its current employees listed on Section 4.6
of the Disclosure Schedule, and (iv) preserve its relationships with
customers, suppliers and others having business dealings with it to the
end that its goodwill and ongoing business relating to the Modem
Business shall not be impaired in any material respect. Without
limiting the generality of the foregoing, prior to the Effective Time,
neither the Company nor any Modem Subsidiary shall, without the written
consent of the Buyer (except as contemplated by this Agreement or
related to the Spin-off Transaction or as set forth in Section 4.6 of
the Disclosure Schedule), which consent shall not be unreasonably
withheld:
(a) issue, sell, deliver or agree or commit to issue, sell or
deliver (whether through the issuance or granting of options, warrants,
commitments, subscriptions, rights to purchase or otherwise) or
authorize the issuance, sale or delivery of, or redeem or repurchase,
any stock of any class or any other securities or any rights, warrants
or options to acquire any such stock or other securities (except
pursuant to the conversion or exercise of convertible securities or
Options outstanding on the date hereof), or amend any of the terms of
any such convertible securities or Options (other than in connection
with a sale, liquidation or transfer referred to and in accordance with
clause (e) below);
(b) split, combine or reclassify any shares of its capital
stock; declare, set aside or pay any dividend or other distribution
(whether in cash, stock or property or any combination thereof) in
respect of its capital stock;
(c) create, incur or assume any debt not currently
outstanding that would cause or result in the debt reflected on the
Closing Balance Sheet to exceed $4,000,000; assume, guarantee, endorse
or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person or
entity; or make any loans, advances (other than in the Ordinary Course
of Business) or capital contributions to, or investments in, any other
person or entity in an amount greater than $200,000.00;
(d) enter into, adopt or amend any Employee Benefit Plan or
any employment or severance agreement or arrangement of the type
described in Section 2.22(j) or (except for normal increases in the
Ordinary Course of Business) materially increase in any manner the
compensation or fringe benefits of, or materially modify the employment
terms of, its directors, officers or employees, generally or
individually, or pay any benefit not
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required by the terms in effect on the date hereof of any existing
Employee Benefit Plan;
(e) acquire, sell, lease, encumber or dispose of any assets
or property (including without limitation any shares or other equity
interests in or securities of any Modem Subsidiary), other than
purchases and sales of assets in the Ordinary Course of Business;
provided, however, that the Company may sell, liquidate or otherwise
transfer the stock or assets of Technipower, Inc., Electro-Metrics,
Inc. and Constant Power, Inc. (or any portion thereof) upon terms and
conditions consented to by the Buyer, which consent shall not be
unreasonably withheld;
(f) amend its charter or By-laws;
(g) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a
generally applicable change in GAAP or by the SEC;
(h) discharge or satisfy any Security Interest or pay any
material obligation or liability related to the Modem Business other
than in the Ordinary Course of Business;
(i) mortgage or pledge any of its property or assets relating
to the Modem Business or take any action that subjects any such assets
to any Security Interest;
(j) sell, assign, transfer or license any Intellectual
Property relating to the Modem Business, other than (i) sales of
tangible products through resellers in the Ordinary Course of Business,
(ii) as consented to by the Buyer, which consent shall not be
unreasonably withheld and (iii) pursuant to a license agreement between
the Company and the Spin-off Company, substantially in the form of
Exhibit A hereto;
(k) enter into, amend, terminate, take or omit to take any
action that would constitute a violation of or default under, or waive
any rights under, any material contract or agreement relating to the
Modem Business if such action would have a material adverse effect on
the Modem Business;
(l) make or commit to make any capital expenditure
relating to the Modem Business in excess of $50,000.00 per item;
(m) take any action or fail to take any action permitted by
this Agreement with the knowledge that such action or failure to take
action would result in (i) any of the representations and warranties of
the Company contained in Sections 2.1, 2.2, 2.3, 2.4, 2.5, 2.7, 2.8,
2.10, 2.16 and 2.26 of
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this Agreement becoming untrue or (ii) any of the conditions of
the Merger set forth in Article V not being satisfied; or
(n) agree in writing or otherwise to take any of the
foregoing actions.
4.7 Full Access.
The Company shall (and shall cause each Subsidiary to) permit
representatives of the Buyer to have full access (at all reasonable
times, upon prior notice and in a manner so as not to interfere with
the normal business operations of the Company and the Subsidiaries) to
all premises, properties, financial and accounting records, contracts,
other records and documents, and personnel, of or pertaining to the
Company and each Subsidiary other than contracts, records and documents
not relating to the Modem Business that the Company reasonably and in
good faith determines is of a confidential and competitive nature. The
Buyer shall hold, and shall cause its respective employees and agents
to hold, in confidence all such information in accordance with the
terms of the Confidentiality Agreement dated March 18, 1996 between the
Buyer and the Company.
4.8 Notice of Breaches. The Company shall promptly deliver to the
Buyer written notice of any event or development that would (a) render
any representation or warranty of the Company contained in Sections
2.1, 2.2, 2.3, 2.4, 2.5, 2.7, 2.8, 2.10, 2.16, and 2.26 (including the
Disclosure Schedule) inaccurate or incomplete in any material respect,
or (b) constitute or result in a breach by the Company of, or a failure
by the Company to comply with, any agreement or covenant in this
Agreement applicable to such party. The Buyer or the Transitory
Subsidiary shall promptly deliver to the Company written notice of any
event or development that would (i) render any statement,
representation or warranty of the Buyer or the Transitory Subsidiary in
this Agreement inaccurate or incomplete in any material respect, or
(ii) constitute or result in a breach by the Buyer or the Transitory
Subsidiary of, or a failure by the Buyer or the Transitory Subsidiary
to comply with, any agreement or covenant in this Agreement applicable
to such party. No such disclosure shall be deemed to avoid or cure any
such misrepresentation or breach.
4.9 Exclusivity. The Company shall not, and the Company shall use
its best efforts to cause its Affiliates and each of its officers,
directors, employees, representatives and agents not to, directly or
indirectly, (a) encourage, solicit, initiate, engage or participate in
discussions or negotiations with any person or entity (other than the
Buyer) concerning any merger, consolidation, sale or license of
material assets or property
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relating to the Modem Business, tender offer, recapitalization,
accumulation of Company Shares, proxy solicitation or other business
combination involving the Company, any Modem Subsidiary or any division
of the Company or any Subsidiary, in each case relating to the Modem
Business or (b) provide any non-public information concerning the
business, properties or assets of the Company or any Subsidiary
relating to the Modem Business to any person or entity (other than (i)
to the Buyer, (ii) as contemplated by this Agreement, or (iii) as
required by law or court order). Notwithstanding the foregoing or any
other provision of this Agreement, neither the provisions contained in
this Section 4.9 or elsewhere in this Agreement shall prohibit the
Board of Directors of the Company from (i) furnishing information to or
entering into discussions or negotiations with, any person or entity
that makes an unsolicited bona fide written proposal to acquire the
Company (or the Modem Business) pursuant to a merger, consolidation,
share exchange, purchase of a substantial portion of the assets,
business combination or other similar transaction, if the Board of
Directors of the Company determines in good faith, based as to legal
matters on the advice of counsel, that such action is required for the
Board of Directors to comply with its fiduciary duties to stockholders
imposed by law (the "Company Board Fiduciary Duties") and (ii)
complying with Rule 14c-2 of the Exchange Act with regard to any
Acquisition Proposal, if applicable, "Acquisition Proposal" shall mean
any proposed (A) merger, consolidation or similar transaction involving
the Company, (B) sale, lease or other disposition directly or
indirectly by merger, consolidation, share exchange or otherwise of
assets of the Company or the Subsidiaries representing 30% or more of
the Modem Business or of the consolidated assets of the Company and the
Subsidiaries, (C) issue, sale, or other disposition of (including by
way of merger, consolidation, share exchange or any similar
transaction) securities (or options, rights or warrants to purchase, or
securities convertible into, such securities) representing 30% or more
of the voting power of the Company or (D) transaction in which any
person shall acquire beneficial ownership (as such term is defined in
Rule 13d-3 under the Exchange Act), or the right to acquire beneficial
ownership, or any "group" (as such term is defined under the Exchange
Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership, of 30% or more of the outstanding Company
Common Stock. The exercise of the Company Board Fiduciary Duties,
notwithstanding any other provision of this Agreement, shall not
constitute a breach or violation of any provision of this Agreement.
The Company shall immediately notify the Buyer of, and shall disclose
to the Buyer all details of, any inquiries, discussions or negotiations
of the nature described in this Section 4.9.
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4.10 Agreements from Certain Affiliates of the Company.
Concurrently with or prior to the execution of this Agreement, the
Company shall deliver to the Buyer a list of all persons or entities
who are at such time "affiliates" of the Company as that term is used
in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Company Affiliates"). In order to help ensure that the issuance of
Merger Shares will comply with the Securities Act and that the Merger
will be treated as a tax-free reorganization, the Company shall use all
reasonable efforts to cause each Company Affiliate to execute and
deliver to the Buyer, prior to the distribution of the Prospectus/Proxy
Statement in accordance with Section 4.4(b), a written agreement
substantially in the form attached hereto as Exhibit B (the "Affiliate
Agreement"). If any Company Affiliate fails to execute and deliver an
Affiliate Agreement, the Buyer shall be entitled to place appropriate
legends on the certificates evidencing the Merger Shares to be issued
to such person or entity and any other shares of Buyer Common Stock
issued to such person or entity upon exercise of an Option or Other
Right, and to issue appropriate stock transfer instructions to the
transfer agent for the Buyer Common Stock, to the effect that such
shares may be sold publicly only in compliance with Rule 145 under the
Securities Act.
4.11 Listing of Merger Shares. The Buyer shall list the
Merger Shares on the NYSE.
4.12 Indemnification; Release.
(a) From and after the Effective Time, the Buyer shall
indemnify, defend and hold harmless the officers, directors and
employees of the Company and the Subsidiaries (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties")
against all losses, expenses, claims, damages or liabilities ("Claims")
based on the fact that such person is or was such officer, director or
employee of the Company or the Subsidiaries (including arising out of
the transactions contemplated by this Agreement) to the fullest extent
permitted or required under applicable law; provided, however, that no
Indemnified Party shall be entitled to indemnification pursuant to this
Section 4.12 for Claims based on the fact that such person is or was a
stockholder of the Company. The Buyer agrees that all rights to
indemnification existing in favor of the directors, officers or
employees of the Company as provided in the Company's or the
Subsidiaries' respective Articles or Certificate of Incorporation or
By-Laws or Code of Regulations, as in effect as of the date hereof,
with respect to matters occurring through the Effective Time, shall
survive the Merger and shall continue in full force and effect for a
period of not less than six years from the Effective Time and the Buyer
hereby guaranties unconditionally the
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satisfaction of all such rights to indemnification (and shall pay
expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted
under Delaware law, upon receipt from the Indemnified Party to whom
expenses are advanced of the undertaking to repay such advances
contemplated by Section 145(e) of the Delaware General corporation
Law). Without limiting the foregoing, in the event any Claim is brought
against any Indemnified Party (whether arising before or after the
Effective Time) after the Effective Time (i) the Indemnified Parties
may retain the Company's regularly engaged independent legal counsel or
other independent legal counsel satisfactory to them, provided that
such other counsel shall be reasonably acceptable to the Buyer, (ii)
the Buyer shall pay all reasonable fees and expenses of such counsel
for the Indemnified Parties promptly as statements therefor are
received and (iii) the Buyer shall use its reasonable efforts to assist
in the defense of any such matter, provided that the Buyer shall not be
liable for any settlement of any Claim effected without its written
consent, which consent shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under this Section
4.12, upon learning of any such Claim shall notify the Buyer (although
the failure to so notify the Buyer shall not relieve the Buyer from any
liability which the Buyer may have under this Section 4.12, except to
the extent such failure materially prejudices the Buyer) and shall
deliver to the Buyer the undertaking contemplated by Section 145(e) of
the Delaware General Corporation Law. The Indemnified Parties as a
group may retain no more than one law firm (in addition to local
counsel) to represent them with respect to each such matter unless
there is, under applicable standards of professional conduct (as
determined by counsel to the Indemnified Parties), a conflict on any
significant issue between the positions of any two or more Indemnified
Parties, in which event such additional counsel as may be required may
be retained by the Indemnified Parties and will be paid by the Buyer.
(b) The Buyer hereby remises and releases the directors,
officers and employees of the Company from any and all claims it may
have against them, other than claims based solely on fraud.
(c) The Company hereby remises and releases the directors,
officers and employees of the Buyer from any and all claims it may have
against them, other than claims based solely on fraud.
4.13 Employee Matters.
(a) With respect to benefit plans available to
employees of the Company or the Modem Subsidiaries generally, for
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at least one year from and after the Effective Time, the Buyer shall
cause the Surviving Corporation to either (i) maintain all employee
benefits of the Company or the Modem Subsidiary, as the case may be,
including, without limitation, benefits under employee benefit plans,
policies and arrangements, existing on the Effective Time or (ii)
provide benefits to employees of the Surviving Corporation that are,
taken as a whole, substantially equivalent to or better than the
benefits offered to such persons by the Company or applicable Modem
Subsidiary, as the case may be, immediately prior to the Effective
Time.
(b) The Parties acknowledge and agree that the Surviving
Corporation and the Modem Subsidiaries shall have the benefit of any
confidentiality and/or nondisclosure agreement executed by employees of
the Company or the Modem Subsidiaries. The Parties shall cause any
employee of the Surviving Corporation who was an employee of the
Company immediately prior to the Spin- off to agree to hold in
confidence and to not use contrary to the interests of the Spin-off
Company any confidential information concerning the Spin-off Company
that is in such individual's possession at the Effective Time as a
result of such individual's employment by the Company. The Surviving
Corporation agrees to release any employee of the Spin-off Company who
was an employee of the Surviving Corporation immediately prior to the
Spin-off from any agreement not to compete with the Surviving
Corporation or from any agreement that would prohibit such employee
from being employed by the Spin-off Company.
4.14 Corporate Name. From and after the Closing Date, the Buyer
shall not, and shall cause the Surviving Corporation and all other
Affiliates of the Buyer to not, use the name "Penril" other than in the
Modem Business.
4.15 Non-Interference.
(a) The Company agrees to cause the Spin-off Company to agree
that between the date hereof and the Closing, and for eighteen (18)
months after the Closing, it will not and will cause its Affiliates to
not, induce any person who is, on the date hereof, or who becomes after
the date hereof, an employee, officer or agent of the Buyer or any
Affiliate of the Buyer (i) to terminate such relationship or (ii) to
employ, or assist in employing, directly or indirectly, any such
person.
(b) The Buyer agrees that between the date hereof and the
Closing, with respect to the Company and its respective Affiliates, and
for eighteen (18) months after the Closing with
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respect to the Spin-off Company, the Buyer will not and will cause its
Affiliates to not, induce any person who is, on the date hereof, or who
becomes after the date hereof, an employee, officer or agent of the
Company or the Spin-off Company and their respective Affiliates (i) to
terminate such relationship or (ii) to employ or assist in employing,
directly or indirectly, any such person.
4.16 Vote of Company Shares. The Buyer covenants and agrees to
vote, and to cause its Affiliates to vote, all Company Shares held or
controlled by them in favor of approval of this Agreement and the
Merger, and the transactions contemplated hereby at the Special
Meeting.
4.17 Non-Solicitation. The Buyer hereby covenants and agrees to
request that its direct sales force not solicit any business from any
of the resellers listed on Schedule 4.17 for a period of 18 months
after the Closing, which business relates to the business to be
transferred by the Company to the Spin-off Company in the Spin-off
Transaction
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective
obligations of each Party to consummate the Merger are subject to
the satisfaction of the following conditions:
(a) this Agreement and the Merger shall have received
the Requisite Stockholder Approval;
(b) all applicable waiting periods (and any extensions
thereof) under the Hart-Scott-Rodino Act shall have expired or
otherwise been terminated;
(c) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and remain in effect;
(d) no Party hereto shall be subject to any order or
injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each Party
agrees to use its best efforts to have any such order or injunction
lifted; and
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(e) the Spin-off Transaction shall have been consummated in
accordance with Section 4.3 and with Schedule 4.3(a) and Schedule
4.3(b).
5.2 Conditions to Obligations of the Buyer and the Transitory
Subsidiary. The obligation of each of the Buyer and the Transitory
Subsidiary to consummate the Merger is subject to the satisfaction of
the following additional conditions:
(a) the Company and the Subsidiaries shall have obtained all
of the waivers, permits, consents, approvals or other authorizations,
and effected all of the registrations, filings and notices, referred to
in Section 4.2, except for any which if not obtained or effected would
not have a material adverse effect on the assets, business, financial
condition, results of operations or future prospects of the Company and
the Modem Subsidiaries, taken as a whole, or on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
(b) the representations and warranties of the Company set
forth in Article II shall be true and correct when made on the date
hereof and, solely as to those contained in Sections 2.1, 2.2, 2.3,
2.4, 2.5, 2.7, 2.8, 2.10, 2.16 and 2.26, shall be true and correct in
all material respects as of the Effective Time as if made as of the
Effective Time;
(c) the Company shall have performed or complied with in all
material respects its agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Effective
Time;
(d) There shall have been no material breach of the
representations and warranties of the Company contained in Article II
of which officers of the Company had knowledge prior to the date
hereof;
(e) the Company shall have delivered to the Buyer and the
Transitory Subsidiary a certificate (without qualification as to
knowledge or materiality or otherwise) to the effect that each of the
conditions specified in clauses (a) and (e) of Section 5.1 and clauses
(a) through (d) of this Section 5.2 is satisfied in all respects;
(f) the Buyer shall have received a "cold comfort" letter
dated as of a date not more than two days prior to the date that the
Registration Statement is declared effective and shall have received a
subsequent similar letter dated as of a date not more than two days
prior to the Effective Time, from Deloitte &
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Touche LLP, auditors for the Company, addressed to the Buyer in a
customary form reasonably satisfactory to the Buyer;
(g) the Buyer and the Transitory Subsidiary shall have
received the resignations, effective as of the Effective Time, of each
director and officer of the Company and the Modem Subsidiaries
specified by the Buyer in writing on or prior to the Closing; and
(h) the Company and the Spin-off Company shall have executed
and delivered an indemnification agreement substantially in the form of
Exhibit C.
5.3 Conditions to Obligations of the Company. The obligation of
the Company to consummate the Merger is subject to the satisfaction of
the following additional conditions:
(a) the Buyer and the Transitory Subsidiary shall have
obtained all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and
notices, referred to in Section 4.2, except for any which if not
obtained or effected would not have a material adverse affect on the
assets, business, financial condition, results of operations or future
prospects of the Buyer or on the ability of the Parties to consummate
the transactions contemplated by this Agreement.
(b) the representations and warranties of the Buyer and the
Transitory Subsidiary set forth in Article III and Section 1.16 shall
be true and correct when made on the date hereof and shall be true and
correct in all material respects as of the Effective Time as if made as
of the Effective Time, except for representations and warranties made
as of a specific date, which shall be true and correct as of such date;
(c) each of the Buyer and the Transitory Subsidiary shall
have performed or complied with in all material respects its agreements
and covenants required to be performed or complied with under this
Agreement as of or prior to the Effective Time;
(d) each of the Buyer and the Transitory Subsidiary shall
have delivered to the Company a certificate (without qualification as
to knowledge or materiality or otherwise) to the effect that each of
the conditions specified in clause (c) of Section 5.1 and clauses (a)
through (c) of this Section 5.3 is satisfied in all respects; and
(e) the Merger Shares shall have been authorized for listing
on the NYSE upon official notice of issuance.
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ARTICLE VI
TERMINATION
6.1 Termination of Agreement. The Parties may terminate this
Agreement prior to the Effective Time (whether before or after
Requisite Stockholder Approval) as provided below:
(a) the Parties may terminate this Agreement by mutual
written consent;
(b) the Buyer may terminate this Agreement by giving written
notice to the Company in the event the Company is in breach, and the
Company may terminate this Agreement by giving written notice to the
Buyer and the Transitory Subsidiary in the event the Buyer or the
Transitory Subsidiary is in breach, of any material representation,
warranty or covenant contained in this Agreement, and such breach is
not remedied within 10 days of delivery of written notice thereof;
(c) any Party may terminate this Agreement by giving written
notice to the other Parties at any time after the Company Stockholders
have voted on whether to approve this Agreement and the Merger in the
event this Agreement and the Merger failed to receive the Requisite
Stockholder Approval;
(d) the Buyer may terminate this Agreement by giving written
notice to the Company if the Closing shall not have occurred (i) on or
before the 120th day following the date of this Agreement by reason of
the failure of any condition precedent under Section 5.1 (other than
Sections 5.1(c) and 5.1(e)) or 5.2 hereof or (ii) on or before the
150th day following the date of this Agreement by reason of the failure
of any condition under Sections 5.1(c) and 5.1(e) hereof (in either
case (i) or (ii) above, unless the failure results primarily from a
breach by the Buyer or the Transitory Subsidiary of any representation,
warranty or covenant contained in this Agreement);
(e) the Company may terminate this Agreement by giving
written notice to the Buyer and the Transitory Subsidiary if the
Closing shall not have occurred (i) on or before the 120th day
following the date of this Agreement by reason of the failure of any
condition precedent under Section 5.1 (other than Sections 5.1(c) and
5.1(e)) or 5.3 hereof or (ii) on or before the 150th day following the
date of this Agreement by reason of the failure of any condition under
Sections 5.1(c) and 5.1(e) hereof (in either case (i) or (ii) above,
unless the failure results primarily from a breach by the Company of
any representation, warranty or covenant contained in this Agreement);
or
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(f) any Party may terminate this Agreement if the Board of
Directors of the Company shall have withdrawn or modified in a manner
adverse to the Buyer its approval or recommendation to the Company
Stockholders of this Agreement or the Merger or shall have approved or
recommended to the Company Stockholders that they accept the terms of
any Acquisition Proposal or shall have resolved to take any of the
foregoing actions; provided, however, that reasonable delay required to
comply with the Company Board Fiduciary Duties shall not be deemed to
be a withdrawal or a modification adverse to the Buyer.
6.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 6.1, all obligations of the Parties hereunder shall
terminate without any liability of any Party to any other Party (except
for any liability of any Party for willful breaches of this Agreement
and except as provided in the last sentence of Section 4.7), provided,
however, (i) that if the Merger is not consummated as a result of a
termination of this Agreement pursuant to Sections 6.1(a), 6.1(c),
6.1(d) (but solely as it relates to Sections 5.1(a), 5.2(c) (but solely
as it relates to a Special Breach (as defined below) with respect to
the certain covenants contained in clauses (a), (c) through (j) and (l)
of Section 4.6 (the "Section 4.6 Covenants")), 5.2(d) and 5.2(h)) or
6.1(f), then, without further action or consideration on the part of
any party or person, the license agreement in the form of Exhibit D
hereto shall become effective and (ii) that if the Merger is not
consummated as a result of a termination of this Agreement pursuant to
Section 6.1(d) (but solely as it relates to Sections 5.1(b), 5.1(c) or
5.1(e)), then, without further action on the part of any party or
person, the license agreement in the form of Exhibit D hereto shall
become effective upon the payment by the Buyer within 10 business days
after the giving of notice of termination of this Agreement pursuant to
Section 6.1(d) of Fifty Million Dollars ($50,000,000.00) to the Company
in immediately available funds. Notwithstanding the foregoing, if
within 180 days after the date hereof and prior to termination of this
Agreement pursuant to Section 6.1(d) (but solely as it relates to
Sections 5.2(a) or 5.2(c)), the Company has received, participated in
or encouraged inquiries, discussions or negotiations of the nature
described in Section 4.9 and the Board of Directors of the Company
shall have approved or recommended to the Company Stockholders that
they accept the terms of any Acquisition Proposal or shall have
resolved to take any of the foregoing actions, with a party with whom
they had discussions during such period, then, without further action
or consideration on the part of any party or person, the license
agreement in the form of Exhibit D hereto shall become effective. For
purposes of this Section 6.2, "Special Breach" shall mean (i) any
material breach of clauses (a), (d), (f), (g), (h), (i), (j) and (l) of
the
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Section 4.6 Covenants; (ii) any material breach of clause (c) of the
Section 4.6 Covenants related solely to loans, advances, capital
contributions to, or investments in, any other person or entity and
(iii) any material breach of clause (e) of the Section 4.6 Covenants
related to the Modem Business.
ARTICLE VII
DEFINITIONS
The Section references for the defined terms used in this
Agreement are set forth on Schedule VII to this Agreement.
ARTICLE VIII
MISCELLANEOUS
8.1 Press Releases and Announcements. No Party shall issue any
press release or public disclosure relating to the acquisition of the
Modem Business by the Buyer subject matter of this Agreement without
the prior written approval of the other Parties; provided, however,
that any Party may make any public disclosure it believes in good faith
is required by law or regulation (in which case the disclosing Party
shall advise the other Parties and provide them with a copy of the
proposed disclosure prior to making the disclosure).
8.2 No Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any person other than the Parties and their
respective successors and permitted assigns; provided, however, the
provisions in Article I concerning issuance of the Merger Shares and
the provisions of Section 1.16 are intended for the benefit of the
Company Stockholders; (ii) the provisions of the last sentence of
Section 4.10 are intended for the benefit of the Company Affiliates;
(iii) the provisions of Section 4.12 are intended for the benefit of
the Indemnified Parties and the officers, directors and employees of
the Company and of the Buyer; (iv) the provisions of Section 4.13(a)
are intended for the benefit of the employees of the Company and the
Modem Subsidiaries; (v) the provisions of Section 4.13(b) are intended
for the benefit of the Modem Subsidiaries; and (vi) the provisions of
Sections 4.13(b), 4.14, 4.15 and 4.17 are intended for the benefit of
the Spin-off Company
8.3 Entire Agreement. This Agreement (including the
documents referred to in this Agreement) constitutes the entire
agreement among the Parties and supersedes any prior
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understandings, agreements, or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
8.4 Succession and Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties named in this Agreement
and their respective successors and permitted assigns. No Party may
assign either this Agreement or any of its rights, interests, or
obligations hereunder without the prior written approval of the other
Parties; provided that the Transitory Subsidiary may assign its rights,
interests and obligations hereunder to an Affiliate of the Buyer.
8.5 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument. This
Agreement, once executed, may be delivered to either party through the
use of facsimile transmission. In this regard, any and all signatures
of the parties appearing on any facsimile copies of this Agreement
shall be deemed, unless otherwise proved, the lawful and valid
signature of the executing party.
8.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request,
demand, claim, or other communication hereunder shall be deemed duly
delivered two business days after it is sent by registered or certified
mail, return receipt requested, postage prepaid, or one business day
after it is sent via a reputable nationwide overnight courier service,
in each case to the intended recipient as set forth below:
If to the Company: Copy to:
Penril DataComm Networks, Inc. Benesch, Friedlander, Coplan &
1300 Quince Orchard Boulevard Aronoff, P.L.L.
Gaithersburg, Maryland 20878 2300 BP America Building
Attn.: Chairman 200 Public Square
Telecopier: (301) 921-9149 Cleveland, Ohio 44114-2378
Attn.: Irv Berliner, Esq.
Telecopier: (216) 363-4588
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<PAGE> 47
If to the Buyer: Copy to:
Bay Networks, Inc. Bay Networks, Inc.
4401 Great America Parkway 4401 Great America Parkway
Santa Clara, California 95052 Santa Clara, California 95052
Attn.: President Attn.: Montgomery Kersten, Esq.
Telecopier: (408) 764-1799 Telecopier: (408) 764-1991
If to the Transitory Copy to:
Subsidiary:
Beta Acquisition Corporation Bay Networks, Inc.
c/o Bay Networks, Inc. 4401 Great America Parkway
4401 Great America Parkway Santa Clara, California 95052
Santa Clara, California 95052 Attn.: Montgomery Kersten
Attn.: President Telecopier: (408) 764-1991
Telecopier: (408) 764-1799
Any Party may give any notice, request, demand, claim, or other
communication hereunder using any other means (including personal
delivery, expedited courier, messenger service, telecopy, telex,
ordinary mail, or electronic mail), but no such notice, request,
demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the party for whom it
is intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner in this
Agreement set forth.
8.8 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the law of
conflicts) of the State of Delaware.
8.9 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time;
provided, however, that any amendment effected subsequent to the
Requisite Stockholder Approval shall be subject to the restrictions
contained in the Delaware General Corporation Law. No amendment of any
provision of this Agreement shall be valid unless the same shall be in
writing and signed by all of the Parties. No waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty
or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
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<PAGE> 48
8.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not
affect the validity or enforceability of the remaining terms and
provisions hereof or the validity or enforceability of the offending
term or provision in any other situation or in any other jurisdiction.
If the final judgment of a court of competent jurisdiction declares
that any term or provision hereof is invalid or unenforceable, the
Parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or
area of the term or provision, to delete specific words or phrases, or
to replace any invalid or unenforceable term or provision with a term
or provision that is valid and enforceable and that comes closest to
expressing the intention of the invalid or unenforceable term or
provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
8.11 Expenses. The Buyer and the Company shall each bear its own
costs and expenses (including legal fees and expenses) incurred in
connection with this Agreement and the transactions contemplated by
this Agreement. The fees and expenses of the Company shall be accrued
prior to the Closing Date and reflected on the Closing Balance Sheet.
The fees and expenses of the Transitory Subsidiary shall be borne by
the Buyer.
8.12 Specific Performance. Each of the Parties acknowledges and
agrees that one or more of the other Parties would be damaged
irreparably in the event any of the provisions of this Agreement are
not performed in accordance with their specific terms or otherwise are
breached. Accordingly, each of the Parties agrees that the other
Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any
action instituted in any court of the United States or any state
thereof having jurisdiction over the Parties and the matter (subject to
the provisions of Section 8.13), in addition to any other remedy to
which it may be entitled, at law or in equity.
8.13 Submission to Jurisdiction. Each of the Parties (a) submits to
the jurisdiction of any state or federal court sitting in Delaware in
any action or proceeding arising out of or relating to this Agreement,
(b) agrees that all claims in respect of the action or proceeding may
be heard and determined in any such court, and (c) agrees not to bring
any action or proceeding arising out of or relating to this Agreement
in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so
brought and waives
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<PAGE> 49
any bond, surety or other security that might be required of any other
Party with respect thereto. Any Party may make service on another Party
by sending or delivering a copy of the process to the Party to be
served at the address and in the manner provided for the giving of
notices in Section 8.7. Nothing in this Section 8.13, however, shall
affect the right of any Party to serve legal process in any other
manner permitted by law.
8.14 Construction. The language used in this Agreement shall be
deemed to be the language chosen by the Parties hereto to express their
mutual intent, and no rule of strict construction shall be applied
against any Party. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires
otherwise.
8.15 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated in this
Agreement by reference and made a part hereof.
8.16 Non-Survival of Representations, Warranties and Agreements. No
representations, warranties or agreements in this Agreement shall
survive the Closing, except for those contained in Article I and
Sections 4.10 (the last sentence only), 4.12, 4.13, 4.14, 4.15 and 4.17
and, to the extent relating to such specified provisions, those
contained in this Article VIII.
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<PAGE> 50
IN WITNESS WHEREOF, the Parties hereto have executed this
Agreement as of the date first above written.
THE BUYER:
BAY NETWORKS, INC.
/s/
By:________________________________
Title:_____________________________
THE TRANSITORY SUBSIDIARY:
BETA ACQUISITION CORP.
/s/
By:________________________________
Title:_____________________________
THE COMPANY:
PENRIL DATACOMM NETWORKS, INC.
/s/
By:________________________________
Title:_____________________________
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<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
ACCESS BEYOND, INC.
Access Beyond, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the Corporation is:
Access Beyond, Inc.
The date of filing of its original Certificate of
Incorporation with the Secretary of State was July 23, 1996.
2. This Restated Certificate of Incorporation restates and
integrates and further amends the Certificate of Incorporation of this
Corporation by amending Article SEVENTH of the Certificate of Incorporation
to add a third class of directors.
3. The text of the Certificate of Incorporation as amended or
supplemented heretofore is further amended hereby to read as herein set forth in
full:
FIRST: The name of the Corporation is Access Beyond, Inc.
SECOND: The address of its registered office in the State of
Delaware is No. 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of its registered agent at such address is The Corporation
Trust Company.
THIRD: The nature of the business or purposes to be
conducted or promoted is: To engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of Delaware.
FOURTH:
A. GENERAL AUTHORIZATION. The aggregate number of shares for all
classes of stock which the Corporation is authorized to issue is Thirty-Three
Million (33,000,000) shares (the "Capital Stock"), consisting of:
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<PAGE> 2
1. Thirty Million (30,000,000) shares of common stock,
par value $.01 per share ("Common Stock"); and
2. Three Million (3,000,000) shares of preferred stock,
par value $.01 per share ("Preferred Stock").
B. TERMS OF COMMON STOCK. Except as otherwise provided in this
Certificate of Incorporation, each holder of Common Stock shall be entitled to
one vote for each share of Common Stock held by him on all matters submitted to
stockholders for a vote. Except as otherwise provided by law, the presence, in
person by proxy, of the holders of record of shares of Capital Stock entitling
the holders thereof to cast a majority of the votes entitled to be cast by the
holders of shares of Capital Stock entitled to vote shall constitute a quorum at
all meetings of the stockholders.
C. TERMS OF PREFERRED STOCK.
Shares of Preferred Stock may be issued from time to time in
one or more series, as provided for herein or as provided for by the Board of
Directors as permitted hereby. Each holder of Preferred Stock of any series that
is Voting Stock (as hereinafter defined) shall be entitled to such number of
votes for each share held by him as may be specified in the resolutions
providing for the issuance of such series. All shares of Preferred Stock shall
be of equal rank and shall be identical, except in respect of the terms fixed
herein for the series provided for herein or fixed by the Board of Directors for
series provided for by the Board of Directors as permitted hereby. All shares of
any one series shall be identical in all respects with all the other shares of
such series, except the shares of any one series issued at different times may
differ as to the dates from which dividends thereon may be cumulative.
The Board of Directors is hereby authorized, by resolution or
resolutions, to establish, out of the unissued shares of Preferred Stock not
then allocated to any series of Preferred Stock, additional series of Preferred
Stock. Before any shares of any such additional series are issued, the Board of
Directors shall fix and determine, and is hereby expressly empowered to fix and
determine, by resolution or resolutions, the distinguishing characteristics and
the relative rights, preferences, privileges and immunities of the shares
thereof, so far as not inconsistent with the provisions of this Article FOURTH.
Without limiting the generality of the foregoing, the Board of Directors may fix
and determine:
(a) The designation of and the number of shares of
Preferred Stock which shall constitute such series and the par
value, if any, of such shares; provided, that such number may
be increased (but not above the total number of authorized
shares of Preferred Stock) or decreased (but not below the
number of shares thereof then outstanding) from time to time
by like action of the Board of Directors;
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<PAGE> 3
(b) The rate and time at which, and the terms and
conditions upon which, dividends, if any, on Preferred Stock
of such series shall be paid, the extent of the preference or
relation, if any, of such dividends to the dividends payable
on any other series of Preferred Stock or any other class of
stock of the Corporation and whether such dividends shall be
cumulative or non-cumulative and the dates from which any
cumulative dividends are to accumulate;
(c) The right, if any, of the holders of Preferred
Stock of such series to convert the same into, or exchange the
same for, shares of any other class of stock or any series of
any class of stock of the Corporation and the terms and
conditions of such conversion or exchange;
(d) Whether or not Preferred Stock of such series
shall be subject to redemption, and the redemption price or
prices and the time or times at which, and the terms and
conditions upon which, Preferred Stock of such series may be
redeemed;
(e) The rights, if any, of the holders of Preferred
Stock of such series upon the dissolution, liquidation or
winding-up of the Corporation, whether voluntary or
involuntary;
(f) The terms of the sinking fund or redemption or
purchase account, if any, to be provided for the Preferred
Stock of such series;
(g) The voting powers, if any, of the holders of such
series of Preferred Stock which may, without limiting the
generality of the foregoing, include the right, voting as a
series by itself or together with any other series of the
Preferred Stock as a class, (i) to vote more or less than one
vote per share on any or all matters voted by the
stockholders, and (ii) to elect one or more directors of the
Corporation if there has been a default in the payment of
dividends on any one or more series of the Preferred Stock or
under such other circumstances and upon such other condition
as the Board of Directors may fix;
(h) Whether the shares of such series of Preferred
Stock are to be preferred over shares of Capital Stock of the
Corporation of any other class or series as to dividends, or
upon the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Corporation or otherwise; and
(i) Any other characteristics, preferences,
limitations, rights, privileges, immunities or terms not
inconsistent with the provisions of this Article FOURTH.
D. TERMS RELATING TO ALL CLASSES OF STOCK. The Corporation may issue
shares of its Preferred Stock or Common Stock from time to time for such
consideration (not less than the par value thereof) as may be fixed from time to
time by the Board. Any and all shares so issued, for
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<PAGE> 4
which such consideration has been paid or delivered to the Corporation, shall be
deemed fully paid shares and shall not be liable to any further call or
assessments thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
FIFTH: The name and mailing address of the Incorporator is
as follows:
NAME MAILING ADDRESS
---- ---------------
ACFB Incorporated 2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by the
affirmative vote of a majority of the entire Board of Directors. The directors
shall be divided into three classes, designated as Class I, Class II and Class
III. Each class shall consist, as nearly as possible, of one-third of the total
number of directors, initially, with the directors of Class I elected for a term
of one year, the directors of Class II elected for a term of two years and the
directors of Class III elected for a term of three years. At each succeeding
annual meeting of stockholders following such classification and election,
directors elected to succeed those directors whose terms expire shall be elected
for a three-year term.
Subject to the rights of the holders of any class or series of the
capital stock of the Corporation entitled to vote generally in the election of
directors (hereinafter in this Article SEVENTH and in the first proviso of
Article EIGHTH of this Certificate of Incorporation, such stock is referred to
as the "Voting Stock") then outstanding, newly created directorships resulting
from any increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office, or other cause may be filled only by a
majority vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the annual meeting
of stockholders at which the term of office of the class to which they have been
elected expires. No decrease in the number of authorized directors constituting
the entire Board of Directors shall shorten the term of any incumbent director.
If the number of directors is changed, any increase or decrease shall be
apportioned among the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director of any class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class, but
in no case will a decrease in the number of directors shorten the term of any
incumbent director. A director shall hold office until the annual meeting for
the year in which his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
Subject to the rights of the holders of any class or series of the
Voting Stock then outstanding, any director, or the entire Board of Directors,
may be removed from office at any
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<PAGE> 5
time, but only for cause and only by the affirmative vote of the holders of at
least 80% of the voting power of all of the then-outstanding shares of the
Voting Stock, voting together as a single class (it being understood that, for
all purposes of this Article SEVENTH, and the provisions of the By-Laws of the
Corporation which require the affirmative vote of the holders of at least 80% of
the voting power of all of the then-outstanding shares of the Voting Stock,
voting together as a single class, to alter, amend or repeal any provision of
the By-Laws which is to the same effect as the provisions of this Certificate of
Incorporation enumerated in the first proviso of Article EIGHTH hereof, each
share of the Voting Stock shall have the number of votes granted to it pursuant
to Article FOURTH of this Certificate of Incorporation or any designation of the
rights, powers and preferences of any class or series of Preferred Stock made
pursuant to said Article FOURTH (a "Preferred Stock Designation")).
Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least 80% of the voting power of all of the then-outstanding
shares of the Voting Stock, voting together as a single class, shall be required
to alter, amend or repeal this Article SEVENTH.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation applicable thereto (including the
resolutions of the Board of Directors pursuant to Article FOURTH), and such
Directors so elected shall not be divided into classes pursuant to this Article
SEVENTH unless expressly provided by such terms.
EIGHTH: In furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized:
To make, alter or repeal the bylaws of the Corporation;
provided, however, that notwithstanding any other provisions of the
Certificate of Incorporation or any provision of law which might
otherwise permit a lesser vote or no vote, but in addition to any
affirmative vote of the holders of any particular class or series of
the Voting Stock required by law, this Certificate of Incorporation or
any Preferred Stock Designation, the affirmative vote of the holders of
at least 80% of the voting power of all of the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be
required to alter, amend or repeal (i) any provision of the By-laws
which is to the same effect as Article SEVENTH of this Certificate of
Incorporation, or (ii) this proviso of this Article EIGHTH.
To authorize and cause to be executed mortgages and liens upon
the real property of the Corporation.
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<PAGE> 6
To set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose
and to abolish any such reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors
of the Corporation.
When and as authorized by the stockholders in accordance with
this Certificate of Incorporation and applicable statutes, to sell,
lease or exchange all or substantially all of the property and assets
of the Corporation, including its goodwill and its corporate
franchises, upon such terms and conditions and for such consideration
(which may consist, in whole or in part, of money or property,
including shares of stock in, and/or other securities of, any other
corporation or corporations) as the Corporation's Board of Directors
shall deem appropriate and in the best interests of the Corporation.
NINTH: Meetings of stockholders may be held within or without the State
of Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the Corporation. Elections of directors
need not be by written ballot unless the bylaws of the Corporation shall so
provide.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation. Notwithstanding any
other provisions of this Certificate of Incorporation or the By-laws of the
Corporation (and notwithstanding the fact that a lesser percentage or separate
class vote may be specified or permitted by law, this Certificate of
Incorporation or the By-laws of the Corporation), any proposal to amend or
repeal, or to adopt any provision of this Certificate of Incorporation
inconsistent with, Article SEVENTH or the first proviso of Article EIGHTH, shall
require the affirmative vote of the holders of not less than 80% of the votes
entitled to be cast by the holders of all the then-outstanding shares of voting
stock, voting together as a single class.
ELEVENTH: No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (1) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (2) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (3) under Section 174 of the Delaware General Corporation Law, or (4) for
any transaction from which the director derived an improper personal benefit. If
the Delaware General Corporation Law hereafter is amended to authorize the
further elimination or limitation of the liability of directors, then the
liability of a director of the Corporation, in addition to the limitations on
personal liability provided herein, shall be limited to the fullest extent
permitted by the Delaware General Corporation Law, as so amended from time to
time. Any repeal or modification of this Article shall be prospective only, and
shall not adversely affect any limitation
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<PAGE> 7
on the personal liability of a director of the Corporation existing at the time
of such repeal or modification.
TWELFTH: A. Subject to Section C of this Article TWELFTH, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
(i) is or was a director or officer of the Corporation, or (ii) is or was a
director or officer of the Corporation and is or was serving at the request of
the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, or, with respect to any criminal action or proceeding, had
reasonable cause to believe his conduct was unlawful.
B. Subject to Section C of this Article TWELFTH, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he (i)
is or was a director or officer of the Corporation, or (ii) is or was a director
or officer of the Corporation and is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
C. Any indemnification of a director, officer, former director or
former officer of the Corporation under this Article TWELFTH (unless ordered by
a court) shall be made by the Corporation only as authorized in the specific
case upon a determination that indemnification of said director or officer is
proper in the circumstances because he has met the applicable standard of
conduct set forth in Section A or Section B of this Article TWELFTH, as the case
may be. Such determination shall be made (i) by a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than a
quorum, or (ii) if there are no such
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<PAGE> 8
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described in Section A or
Section B of this Article TWELFTH, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith, without the
necessity of authorization in the specific case.
D. For purposes of any determination under Section C of this Article
TWELFTH, a person shall be deemed to have acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interest of the
Corporation, and, with respect to any criminal action or proceeding, to have had
no reasonable cause to believe his conduct was unlawful, if his action is based
on the records or books of account of the Corporation or another enterprise, or
on information supplied to him by the officers of the Corporation or another
enterprise in the course of their duties, or on the advice of legal counsel for
the Corporation or another enterprise or on information or records given or
reports made to the Corporation or another enterprise by an independent
certified public accountant or by an appraiser or other expert selected with
reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section D of Article TWELFTH shall mean any other
corporation or any partnership, joint venture, trust or other enterprise of
which such person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section D shall not
be deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth in
Sections A or B of this Article TWELFTH as the case may be.
E. Notwithstanding any contrary determination in the specific case
under Section C of this Article TWELFTH, and notwithstanding the absence of any
determination thereunder, any director or officer may apply to any court of
competent jurisdiction in the State of Delaware for indemnification to the
extent otherwise permissible under Sections A and B of this Article TWELFTH. The
basis of such indemnification by a court shall be a determination by such court
that indemnification of the director or officer is proper in the circumstances
because he has met the applicable standards of conduct set forth in Sections A
or B of this Article TWELFTH, as the case may be. Notice of any application for
indemnification pursuant to this Section E of Article TWELFTH shall be given to
the Corporation promptly upon the filing of such application.
F. Expenses incurred in defending or investigating a threatened or
pending action, suit or proceeding may be paid by the Corporation in advance of
the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Corporation as authorized in this Article TWELFTH.
G. Subject to Section I of this Article TWELFTH, the Corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other
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than an action by or in the right of the Corporation) by reason of the fact that
he is or was an employee or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interest of the
Corporation, or, with respect to any criminal action or proceeding, had
reasonable cause to believe his conduct was unlawful.
H. Subject to Section I of this Article TWELFTH, the Corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the fact that he is
or was an employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interest of the Corporation; except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
I. Any indemnification of any employee, agent, former employee or
former agent of the Corporation under this Article TWELFTH (unless ordered by a
court) shall be made by the Corporation only as authorized in the sole
discretion of the Corporation. Such authorization shall be made (i) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that an
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described in Section G or
Section H of this Article TWELFTH, or in defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith, without the
necessity of authorization in the specific case.
J. Expenses incurred in defending or investigating a threatened or
pending action, suit or proceeding may be paid by the Corporation, in its sole
discretion, in advance of the final
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disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of the employee or agent to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article TWELFTH.
K. The indemnification and advancement of expenses provided by this
Article TWELFTH shall not be deemed exclusive of any other rights to which any
person seeking indemnification or advancement of expenses may be entitled under
any Bylaw, agreement, contract, vote of stockholders or disinterested directors
or pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, it being the policy of the
Corporation that indemnification of, and advancement of expenses to, the persons
specified in Sections A and B of this Article TWELFTH shall be made to the
fullest extent permitted by law. The provisions of this Article TWELFTH shall
not be deemed to preclude the indemnification of, and advancement of expenses
to, any person who is not specified in Sections A or B of this Article TWELFTH
but whom the Corporation has the power or obligation to indemnify under the
provisions of the Delaware General Corporation Law, or otherwise. The
indemnification provided by this Article TWELFTH shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
L. The Corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against him and incurred by him
in any such capacity, or arising out of his status as such, whether or not the
Corporation would have the power or the obligation to indemnify him against such
liability under the provisions of this Article TWELFTH.
M. For purposes of this Article TWELFTH, reference to "the Corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee or agent
of such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article TWELFTH with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
THIRTEENTH: Whenever a compromise or arrangement is proposed between
this Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the
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provisions of Section 291 of the Delaware General Corporation Law or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of the Delaware General
Corporation Law, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, said compromise or arrangement and said reorganization shall, if
sanctioned by the court to which the said application has been made, be binding
on all the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of this Corporation, as the case may be, and also on this
Corporation.
4. This Restated Certificate of Incorporation was duly adopted by
unanimous written consent of the stockholders in accordance with the applicable
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, Access Beyond, Inc. has caused this Certificate to
be signed by Henry D. Epstein, its President, this 25th day of September, 1996.
ACCESS BEYOND, INC.
By: /s/ Henry D. Epstein
---------------------------
Name: Henry D. Epstein
Title: President
11
<PAGE> 1
EXHIBIT 3.2
BY-LAWS
OF
ACCESS BEYOND, INC.
ARTICLE I
---------
STOCKHOLDERS
------------
Section 1. PLACE OF STOCKHOLDERS' MEETINGS. All meetings of the
stockholders of the Corporation shall be held at such place or places, within or
outside the State of Delaware, as may be fixed by the Board of Directors from
time to time or as shall be specified in the respective notices thereof.
Section 2. DATE, HOUR AND PURPOSE OF ANNUAL MEETINGS OF STOCKHOLDERS.
Annual meetings of Stockholders, commencing with the year 1996, shall be held on
such day and at such time as the Directors may determine from time to time by
resolution, at which meeting the stockholders shall elect, by a plurality of the
votes cast at such election, a Board of Directors, and transact such other
business as may properly be brought before the meeting in accordance with these
Bylaws. To be properly brought before the annual meeting, business must be
either (i) specified in the notice of annual meeting (or any supplement or
amendment thereto) given by or at the direction of the Board of Directors, (ii)
otherwise brought before the annual meeting by or at the direction of the Board
of Directors, or (iii) otherwise properly brought before the annual meeting by a
stockholder. In addition to any other applicable requirements, for business to
be properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered to or mailed
and received at the principal executive offices of the Corporation not less than
sixty (60) days prior to the meeting; provided, however, that in the event that
less than seventy (70) days notice or prior public disclosure of the date of the
annual meeting is given or made to stockholders, notice by a stockholder, to be
timely, must be received no later than the close of business on the tenth (10th)
day following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made, whichever first occurs. A
stockholder's notice to the Secretary shall set forth (a) as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, and (ii) any material
interest of the stockholder in such business, and (b) as to the stockholder
giving the notice (i) the name and record address of the stockholder and (ii)
the class, series and number of shares of capital stock of the Corporation which
are beneficially owned by the stockholder. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at the annual meeting
except in accordance with the procedures set forth in this Article II,
<PAGE> 2
Section 2. The officer of the Corporation presiding at an annual meeting shall,
if the facts warrant, determine and declare to the annual meeting that business
was not properly brought before the annual meeting in accordance withthe
provisions of this Article II, Section 2, and if such officer should so
determine, such officer shall so declare to the annual meeting and any such
business not properly brought before the annual meeting shall not be transacted.
If for any reason a Board of Directors shall not be elected at the
Annual Meeting of Stockholders, or if it appears that such Annual Meeting is not
held on such date as may be fixed by the Directors in accordance with the
provisions of these By-laws, then in either such event the Directors shall cause
the election to be held as soon thereafter as convenient.
Section 3. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders entitled to vote may be called by the Chairman of the Board, if
any, the Vice Chairman of the Board, if any, the President or any Vice
President, the Secretary or by the Board of Directors, and shall be called by
any of the foregoing at the request in writing of stockholders owning a majority
in amount of the entire capital stock of the Corporation issued and outstanding
and entitled to vote. Such request shall state the purpose or purposes of the
meeting.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise
expressly required or permitted by the laws of Delaware, not less than ten (10)
days nor more than sixty (60) days before the date of every stockholders'
meeting the Secretary shall give to each stockholder of record entitled to vote
at such meeting written notice stating the place, day and hour of the meeting
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called. Such notice, if mailed, shall be deemed to be given when
deposited in the United States mail, with postage thereon prepaid, addressed to
the stockholder at the post office address for notices to such stockholder as it
appears on the records of the Corporation.
An Affidavit of the Secretary or an Assistant Secretary or of a
transfer agent of the Corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
Section 5. QUORUM OF STOCKHOLDERS.
(a) Unless otherwise provided by the laws of Delaware, at any
meeting of the stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of the votes thereat shall
constitute a quorum.
(b) At any meeting of the stockholders at which a quorum shall
be present, a majority of those present in person or by proxy may
adjourn the meeting from time to time without notice other than
announcement at the meeting. In the absence of a quorum, the officer
presiding thereat shall have power to adjourn the meeting from
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time to time until a quorum shall be present. Notice of any adjourned
meeting other than announcement at the meeting shall not be required to
be given, except as provided in paragraph (d) below and except where
expressly required by law.
(c) At any adjourned meeting at which a quorum shall be
present, any business may be transacted which might have been
transacted at the meeting originally called, but only those
stockholders entitled to vote at the meeting as originally noticed
shall be entitled to vote at any adjournment or adjournments thereof,
unless a new record date is fixed by the Board of Directors.
(d) If an adjournment is for more than thirty (30) days, or if
after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the adjourned meeting.
Section 6. CHAIRMAN AND SECRETARY OF MEETING. The Chairman, or in his
absence, the Vice Chairman, or in his absence, the President, or in his absence,
any Vice President, shall preside at meetings of the stockholders. The Secretary
shall act as secretary of the meeting, or in his absence an Assistant Secretary
shall act, or if neither is present, then the presiding officer shall appoint a
person to act as secretary of the meeting.
Section 7. VOTING BY STOCKHOLDERS. Except as may be otherwise provided
by the Certificate of Incorporation or by these By-laws, at every meeting of the
stockholders each stockholder shall be entitled to one vote for each share of
stock standing in his name on the books of the Corporation on the record date
for the meeting. All elections and questions shall be decided by the vote of a
majority in interest of the stockholders present in person or represented by
proxy and entitled to vote at the meeting, except as otherwise permitted or
required by the laws of Delaware, the Certificate of Incorporation or these
By-laws.
Section 8. PROXIES. Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by his attorney-in-fact. Every proxy
shall be in writing, subscribed by the stockholder or his duly authorized
attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged.
Section 9. LIST OF STOCKHOLDERS.
(a) At least ten (10) days before every meeting of
stockholders, the Secretary shall prepare or cause to be prepared a
complete list of the stockholders entitled to vote at the meeting,
arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder.
(b) During ordinary business hours, for a period of at least
ten (10) days prior to the meeting, such list shall be open to
examination by any stockholder for
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any purpose germane to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the
notice of the meeting, or if not so specified, at the place where the
meeting is to be held.
(c) The list shall also be produced and kept at the time and
place of the meeting during the whole time of the meeting, and it may
be inspected by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are
the stockholders entitled to examine the stock ledger, the list
required by this Section or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
ARTICLE II
----------
DIRECTORS
---------
Section 1. POWERS OF DIRECTORS. The property, business and affairs of
the Corporation shall be managed by its Board of Directors, which may exercise
all the powers of the Corporation except such as are by the laws of Delaware or
the Certificate of Incorporation or these By-laws required to be exercised or
done by the stockholders.
Section 2. NOMINATION OF DIRECTORS. Nominations of persons for election
to the Board of Directors at the annual meeting may be made at such meeting by
or at the direction of the Board of Directors, by any committee or persons
appointed by the Board of Directors or by any stockholder of the Corporation
entitled to vote for the election of directors at the meeting who complies with
the notice procedures set forth in this Article III, Section 2. Such nominations
by any stockholder shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than sixty (60) days prior to the meeting; provided
however, that in the event that less than seventy (70) days notice or prior
public disclosure of the date of the meeting is given or made to stockholders,
notice by the stockholder, to be timely, must be received no later than that the
close of business on the tenth (10th) day following the day on which such notice
of the date of the meeting was mailed or such public disclosure was made,
whichever first occurs. Such stockholder's notice to the Secretary shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to the Rules and
Regulations of the Securities and Exchange Commission under Section 14 of the
Securities Exchange Act of 1934, as amended; and (b) as to the stockholder
giving the notice (i) the name and record address
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of the stockholder and (ii) the class and number of shares of capital stock of
the Corporation which are beneficially owned by the stockholder. The Corporation
may require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of such
proposed nominee to serve as a director of the Corporation. No person shall be
eligible for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein. The officer of the Corporation
presiding at an annual meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded. The directors shall
be elected at the annual meeting of the stockholders, except as provided in the
Certificate of Incorporation, and each director elected shall hold office until
his successor is elected and qualified; provided, however, that unless otherwise
restricted by the Certificate of Incorporation or by law, any director or the
entire Board of Directors may be removed, either with or without cause, from the
Board of Directors at any meeting of stockholders by a majority of the stock
represented and entitled to vote thereat.
Section 3. VACANCIES ON BOARD OF DIRECTORS. Any Director may resign his
office at any time by delivering his resignation in writing to the Chairman or
the President or the Secretary. It will take effect at the time specified
therein, or if no time is specified, it will be effective at the time of its
receipt by the Corporation. The acceptance of a resignation shall not be
necessary to make it effective, unless expressly so provided in the resignation.
Section 4. MEETINGS OF THE BOARD OF DIRECTORS.
(a) The Board of Directors may hold their meetings, both
regular and special, either within or outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be held
without notice at such time and place as shall from time to time be
determined by resolution of the Board of Directors.
(c) The first meeting of each newly elected Board of Directors
except the initial Board of Directors shall be held as soon as
practicable after the Annual Meeting of the stockholders for the
election of officers and the transaction of such other business as may
come before it.
(d) Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman or the President or at the
request of Directors constituting one-third of the number of Directors
then in office, but not less than two Directors.
(e) The Secretary shall give notice to each Director of any
meeting of the Board of Directors by mailing the same at least two days
before the meeting or by
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telegraphing or delivering the same not later than the day before the
meeting. Such notice need not include a statement of the business to be
transacted at, or the purpose of, any such meeting. Any and all
business may be transacted at any meeting of the Board of Directors. No
notice of any adjourned meeting need be given. No notice to or waiver
by any Director shall be required with respect to any meeting at which
the Director is present.
Section 5. QUORUM AND ACTION. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business; but if
there shall be less than a quorum at any meeting of the Board, a majority of
those present may adjourn the meeting from time to time. Unless otherwise
provided by the laws of Delaware, the Certificate of Incorporation or these
Bylaws, the act of a majority of the Directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors.
Section 6. PRESIDING OFFICER AND SECRETARY OF MEETING. The Chairman or,
in his absence, a member of the Board of Directors selected by the members
present, shall preside at meetings of the Board. The Secretary shall act as
secretary of the meeting, but in his absence the presiding officers shall
appoint a secretary of the meeting.
Section 7. ACTION BY CONSENT WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the records of the Board or committee.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may appoint from
among its members and from time to time may fill vacancies in an Executive
Committee to serve during the pleasure of the Board. The Executive Committee
shall consist of three members, or such greater number of members as the Board
of Directors may by resolution from time to time fix. One of such members shall
be the Chairman of the Board and another shall be the Vice Chairman of the
Board, who shall be the presiding officer of the Committee. During the intervals
between the meetings of the Board, the Executive Committee shall possess and may
exercise all of the powers of the Board in the management of the business and
affairs of the Corporation conferred by these By-laws or otherwise. The
Committee shall keep a record of all its proceedings and report the same to the
Board. A majority of the members of the Committee shall constitute a quorum. The
act of a majority of the members of the Committee present at any meeting at
which a quorum is present shall be the act of the Committee.
Section 9. OTHER COMMITTEES. The Board of Directors may also appoint
from among its members such other committees of two or more Directors as it may
from time to time deem desirable, and may delegate to such committees such
powers of the Board as it may consider appropriate.
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Section 10. COMPENSATION OF DIRECTORS. Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving in any other capacity and receiving compensation
therefor.
Section 11. MEETINGS BY MEANS OF CONFERENCE TELEPHONE. Unless otherwise
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 11 of Article II shall
constitute presence in person at such meeting.
ARTICLE III
-----------
OFFICERS
--------
Section 1. EXECUTIVE OFFICERS OF THE CORPORATION. The executive
officers of the Corporation shall be chosen by the Board of Directors and shall
be a President, a Secretary and a Treasurer. The Board of Directors also may
appoint a Chairman of the Board, a Vice Chairman of the Board, and one or more
Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any two offices
except those of Chairman of the Board and Vice Chairman of the Board, President
and Vice President, or President and Secretary may be filled by the same person.
None of the officers need be a member of the Board except the Chairman of the
Board and the Vice Chairman of the Board.
Section 2. CHOOSING OF EXECUTIVE OFFICERS. The Board of Directors at
its first meeting after each Annual Meeting of Stockholders shall choose a
President, a Secretary and a Treasurer.
Section 3. ADDITIONAL OFFICERS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
shall be determined from time to time by the Board.
Section 4. SALARIES. The salaries of all officers and agents of the
Corporation specially appointed by the Board shall be fixed by the Board of
Directors.
Section 5. TERM, REMOVAL AND VACANCIES. The officers of the Corporation
shall hold office until their respective successors are chosen and qualify. Any
officer elected or appointed by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the
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Corporation by death, resignation, removal or otherwise shall be filled by the
Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders.
He shall be the Chief Executive Officer of the Company, unless the Board has
designated the President as the Chief Executive Officer. In the absence or
disability of the Chairman of the Board: (a) the Vice Chairman of the Board
shall preside at all meetings of the Board of Directors and of the stockholders,
and (b) the powers and duties of the Chairman of the Board shall be exercised
jointly by the Vice Chairman of the Board and the President until such authority
is altered by action of the Board of Directors. The Chairman of the Board shall
present to the Annual Meeting of Stockholders a report of the business of the
preceding fiscal year.
Section 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if any, shall have such powers and perform such duties as are provided in these
By-laws or as may be delegated to him by the Chairman of the Board, and shall
perform such other duties as may from time to time be assigned to him by the
Board of Directors.
Section 8. PRESIDENT. The President shall have such powers and perform
such duties as are provided in these By-laws or as may be delegated to him by
the Board of Directors or the Chairman of the Board. If there is no Chairman of
the Board, the President shall be the Chief Executive Officer of the Corporation
and shall have all the duties and responsibilities previously enumerated for the
Chairman of the Board. In the absence of the Chairman of the Board and the Vice
Chairman of the Board, the President shall preside at all meetings of the
stockholders.
Section 9. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief
Executive Officer shall have general charge and supervision of the business of
the Company and shall exercise and perform all the duties incident to the office
of the Chief Executive Officer. He shall have direct supervision of the other
officers and shall also exercise and perform such powers and duties as may be
assigned to him by the Board of Directors.
Section 10. POWERS AND DUTIES OF VICE PRESIDENTS. Any Vice President
designated by the Board of Directors shall, in the absence, disability, or
inability to act of the President, perform all duties and exercise all the
powers of the President and shall perform such other duties as the Board may
from time to time prescribe. Each Vice President shall have such other powers
and shall perform such other duties as may be assigned to him by the Board.
Section 11. POWERS AND DUTIES OF TREASURER AND ASSISTANT TREASURERS.
(a) The Treasurer shall have the care and custody of all the
funds and securities of the Corporation except as may be otherwise
ordered by the Board of Directors, and shall cause such funds to be
deposited to the credit of the Corporation
-8-
<PAGE> 9
in such banks or depositories as may be designated by the Board of
Directors, the Chairman, the President or the Treasurer, and shall
cause such securities to be placed in safekeeping in such manner as may
be designated by the Board of Directors, the Chairman, the President or
the Treasurer.
(b) The Treasurer, or an Assistant Treasurer, or such other
person or persons as may be designated for such purpose by the Board of
Directors, the Chairman, the President or the Treasurer, may endorse in
the name and on behalf of the Corporation all instruments for the
payment of money, bills of lading, warehouse receipts, insurance
policies and other commercial documents requiring such endorsement.
(c) The Treasurer, or an Assistant Treasurer, or such other
person or persons as may be designated for such purpose by the Board of
Directors, the Chairman, the President or the Treasurer, may sign all
receipts and vouchers for payments made to the Corporation; he shall
render a statement of the cash account of the Corporation to the Board
of Directors as often as it shall require the same; he shall enter
regularly in books to be kept by him for that purpose full and accurate
accounts of all moneys received and paid by him on account of the
Corporation and of all securities received and delivered by the
Corporation.
(d) Each Assistant Treasurer shall perform such duties as may
from time to time be assigned to him by the Treasurer or by the Board
of Directors. In the event of the absence of the Treasurer or his
incapacity or inability to act, then any Assistant Treasurer may
perform any of the duties and may exercise any of the powers of the
Treasurer.
Section 12. POWERS AND DUTIES OF SECRETARY AND ASSISTANT SECRETARIES.
(a) The Secretary shall attend all meetings of the Board, all
meetings of the stockholders, and shall keep the minutes of all
proceedings of the stockholders and the Board of Directors in proper
books provided for that purpose. The Secretary shall attend to the
giving and serving of all notices of the Corporation in accordance with
the provisions of the By-laws and as required by the laws of Delaware.
The Secretary may, with the President, a Vice President or other
authorized officer, sign all contracts and other documents in the name
of the Corporation. He shall perform such other duties as may be
prescribed in these By-laws or assigned to him and all other acts
incident to the position of Secretary.
(b) Each Assistant Secretary shall perform such duties as may
from time to time be assigned to him by the Secretary or by the Board
of Directors. In the event of the absence of the Secretary or his
incapacity or inability to act, then any Assistant Secretary may
perform any of the duties and may exercise any of the powers of the
Secretary.
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<PAGE> 10
(c) In no case shall the Secretary or any Assistant Secretary,
without the express authorization and direction of the Board of
Directors, have any responsibility for, or any duty or authority with
respect to, the withholding or payment of any federal, state or local
taxes of the Corporation, or the preparation or filing of any tax
return.
ARTICLE IV
----------
CAPITAL STOCK
-------------
Section 1. STOCK CERTIFICATES.
(a) Every holder of stock in the Corporation shall be entitled
to have a certificate signed in the name of the Corporation by the
Chairman or the President or the Vice Chairman or a Vice President, and
by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary, certifying the number of shares owned by him.
(b) If such a certificate is countersigned by a transfer agent
other than the Corporation or its employee, or by a registrar other
than the Corporation or its employee, the signatures of the officers of
the Corporation may be facsimiles and, if permitted by Delaware law,
any other signature on the certificate may be a facsimile.
(c) In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be
such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date
of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved
by the Board of Directors. They shall be numbered and registered in the
order in which they are issued. No certificate shall be issued until
fully paid.
Section 2. RECORD OWNERSHIP. A record of the name and address of the
holder of each certificate, the number of shares represented thereby, and the
date of issue thereof shall be made on the Corporation's books. The Corporation
shall be entitled to treat the holder of record of any share of stock as the
holder in fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
required by the laws of Delaware.
Section 3. TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall be
made on the books of the Corporation only by direction of the person named in
the certificate or his
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<PAGE> 11
attorney, lawfully constituted in writing, and only upon the surrender of the
certificate therefor and a written assignment of the shares evidenced thereby.
Whenever any transfer of stock shall be made for collateral security, and not
absolutely, it shall be so expressed in the entry of the transfer if, when the
certificates are presented to the Corporation for transfer, both the transferor
and transferee request the Corporation to do so.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. Certificates
representing shares of the stock of the Corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time may
authorize.
Section 5. TRANSFER AGENT, REGISTRAR, RULES RESPECTING CERTIFICATES.
The Corporation shall maintain one or more transfer offices or agencies where
stock of the Corporation shall be transferable. The Corporation shall also
maintain one or more registry offices where such stock shall be registered. The
Board of Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
Section 6. FIXING RECORD DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. The Board of Directors may fix in advance a date as the record date for
the purpose of determining the stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, or the
stockholders entitled to receive payment of any dividend or other distribution
or the allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or to express consent to corporate
action in writing without a meeting, or in order to make a determination of the
stockholders for the purpose of any other lawful action. Such record date in any
case shall not be more than sixty (60) days nor less than ten (10) days before
the date of a meeting of the stockholders, nor more than sixty (60) days prior
to any other action requiring such determination of the stockholders. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
ARTICLE V
---------
SECURITIES HELD BY THE CORPORATION
----------------------------------
Section 1. VOTING. Unless the Board of Directors shall otherwise order,
the Chairman, the Vice Chairman, the President, any Vice President or the
Treasurer shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of the stockholders of any corporation in
which the Corporation may hold stock and at such meeting to exercise any or all
rights and powers incident to the ownership of such stock, and to execute on
behalf of the Corporation a proxy or proxies empowering another or others
-11-
<PAGE> 12
to act as aforesaid. The Board of Directors from time to time may confer like
powers upon any other person or persons.
Section 2. GENERAL AUTHORIZATION TO TRANSFER SECURITIES HELD BY THE
CORPORATION.
(a) Any of the following officers, to-wit: the Chairman, the
President, any Vice President, the Treasurer or the Secretary of the
Corporation shall be and are hereby authorized and empowered to
transfer, convert, endorse, sell, assign, set over and deliver any and
all shares of stock, bonds, debentures, notes, subscription warrants,
stock purchase warrants, evidences of indebtedness, or other securities
now or hereafter standing in the name of or owned by the Corporation,
and to make, execute and deliver under the seal of the Corporation any
and all written instruments of assignment and transfer necessary or
proper to effectuate the authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed, pursuant to and in accordance with
the foregoing paragraph (a), a certificate of the Secretary or an
Assistant Secretary of the Corporation in office at the date of such
certificate setting forth the provisions hereof and stating that they
are in full force and effect and setting forth the names of persons who
are then officers of the Corporation, then all persons to whom such
instrument and annexed certificate shall thereafter come shall be
entitled, without further inquiry or investigation and regardless of
the date of such certificate, to assume and to act in reliance upon the
assumption that the shares of stock or other securities named in such
instrument were theretofore duly and properly transferred, endorsed,
sold, assigned, set over and delivered by the Corporation, and that
with respect to such securities the authority of these provisions of
the By-laws and of such officers is still in full force and effect.
ARTICLE VI
----------
DIVIDENDS
---------
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the Corporation may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property, or
in shares of the capital stock, subject to the provisions of the Certificate of
Incorporation.
Section 2. PAYMENT AND RESERVES. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Directors shall think
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<PAGE> 13
conducive to the interest of the Corporation, and the directors may modify or
abolish any such reserves in the manner in which they were created.
Section 3. RECORD DATE. The Board of Directors may, to the extent
provided by law, prescribe a period, in no event in excess of sixty (60) days,
prior to the date for payment of any dividend, as a record date for the
determination of stockholders entitled to receive payment of any such dividend,
and in such case such stockholders and only such stockholders as shall be
stockholders of record on said date so fixed shall be entitled to receive
payment of such dividend, notwithstanding any transfer of any stock on the books
of the Corporation after any such record date fixed as aforesaid.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. SIGNATURES OF OFFICERS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate. The signature of any officer upon any of the foregoing instruments
may be a facsimile whenever authorized by the Board.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 3. SEAL. Upon resolution of the Board of Directors, the
Corporation may elect to have a corporate seal. In such event, the corporate
seal shall have inscribed thereon the name of the Corporation, the year of its
incorporation and the words "Corporate Seal, Delaware". Said seal may be used
for causing it or a facsimile thereof to be impressed or affixed or reproduced
or otherwise.
ARTICLE VIII
------------
NOTICES
-------
Section 1. NOTICES. Whenever written notice is required by law, the
Certificate of Incorporation or these Bylaws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by telegram, telex, facsimile transmission or cable.
Section 2. WAIVERS OF NOTICE. Whenever any notice is required by law,
the Certificate of Incorporation or these Bylaws, to be given to any director,
member of a
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<PAGE> 14
committee or stockholder, a waiver thereof in writing, signed, by the person or
persons entitled to said notice, whether before or after the time stated
therein, or, for a meeting, actual attendance at the meeting in person, or in
the case of the stockholders, by his attorney-in-fact, shall be deemed
equivalent to the giving of such notice to such persons. No notice need be given
to any person with whom communication is made unlawful by any law of the United
States or any rule, regulation, proclamation or executive order issued under any
such law.
ARTICLE IX
----------
AMENDMENT OF BY-LAWS
--------------------
These By-laws, or any of them, may from time to time be supplemented,
amended or repealed by the Board of Directors, or by the vote of a majority in
interest of the stockholders represented and entitled to vote at any meeting at
which a quorum is present, except as otherwise provided in these By-laws or in
the Certificate of Incorporation.
-14-
<PAGE> 1
EXHIBIT 5
October 7, 1996
Board of Directors
Access Beyond, Inc.
1300 Quince Orchard Blvd.
Gaithersburg, Maryland 20878
Gentlemen:
Access Beyond, Inc. (the "Company"), a Delaware corporation and
wholly-owned subsidiary of Penril Datacomm Networks, Inc. ("Penril"), has filed
with the Securities and Exchange Commission under the Securities Act of 1933, as
amended, a Registration Statement on Form S-1 (Registration No. 333-10741) (the
"Registration Statement") relating to the proposed distribution (the
"Distribution") of an aggregate of 11,993,000 shares of the Company's Common
Stock, par value $.01 per share (the "Common Stock") by Penril to holders of
record of Penril's Common Stock, par value $.01 per share, as of the close of
business on the record date to be set by the Board of Directors of Penril.
You have requested our opinion in connection with the Company's filing
of the Registration Statement. In this connection, we have examined and relied
upon originals or copies, certified or otherwise identified to our satisfaction
as being true copies, of all such records of the Company, all such agreements,
certificates of officers of the Company and others, and such other documents,
certificates and corporate or other records as we have deemed necessary as a
basis for the opinions expressed in this letter, including, without limitation,
the Company's Restated Certificate of Incorporation, the Registration Statement,
and the related prospectus which forms a part of the Registration Statement (the
"Prospectus").
In our examination, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals and the conformity to authentic original documents
of all documents submitted to us as certified or photostatic copies.
We have investigated such questions of law for the purpose of rendering
the opinions in this letter as we have deemed necessary. We express no opinion
in this letter concerning any law other than the General Corporation Law of the
State of Delaware and the federal law of the United States of America.
<PAGE> 2
Board of Directors
Access Beyond, Inc.
October 7, 1996
Page 2
On the basis of and in reliance on the foregoing, we are of the opinion
that the Common Stock has been duly authorized and, when issued and delivered to
the stockholders of Penril pursuant to the Distribution, will be duly and
validly issued, fully paid and non-assessable.
We consent to the filing of this letter as an exhibit to the
Registration Statement and to being named in the Prospectus under the heading
"Legal Matters" as counsel for the Company. The opinions in this letter are
rendered only to the Company in connection with the filing of the Registration
Statement. The opinions may not be relied upon by the Company for any other
purpose or relied upon by any other person, firm or entity for any purpose. This
letter may not be paraphrased, quoted or summarized, nor may it be duplicated or
reproduced in part.
Very truly yours,
/s/ BENESCH, FRIEDLANDER,
COPLAN & ARONOFF P.L.L.
----------------------------------------
BENESCH, FRIEDLANDER,
COPLAN & ARONOFF P.L.L.
<PAGE> 1
EXHIBIT 8
October 7, 1996
Board of Directors of Penril DataComm Networks, Inc.
c/o Henry D. Epstein
Chairman of the Board
Penril DataComm Networks, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, MD 20878
Gentlemen:
You have requested our opinion as to whether (i) the proposed distribution
("Spin-off") by Penril DataComm Networks, Inc. ("Penril") to its shareholders of
100% of the outstanding stock of Access Beyond, Inc., a wholly-owned subsidiary
of Penril, will qualify as a tax-free spin-off pursuant to Section 355 of the
Internal Revenue Code of 1986, as amended (the "Code"), and (ii) the merger (the
"Merger") of Beta Acquisition Corp. with and into Penril, pursuant to which the
outstanding shares of common stock of Penril will be converted into the right to
receive common stock of Bay Networks, Inc. will qualify as a reorganization
within the meaning of Section 368(a)(1)(B) of the Code.
In rendering this opinion, we have (with your permission) relied upon and
assumed as correct and complete the factual representations and information
contained in (i) the Management Certificates (attached hereto), (ii) the Plan
and Agreement of Merger entered into as of June 16, 1996, as amended on August
5, 1996, by and among Beta Acquisition Corp., Bay Networks, Inc. and Penril and
schedules thereto and (iii) a certain letter from Bay Networks, Inc. to Penril,
all dated as of June 16, 1996, and all other information, data, documentation
and materials presented to us during the course of our evaluation of the
Spin-off and Merger. We have also assumed that the Spin-off and the Merger
contemplated by such Plan and Agreement of Merger will be consummated as set
forth therein and as described in the preliminary proxy materials of Penril
dated August 8, 1996 and that the factual representations and material described
above will continue to be correct and complete as of the dates of the Spin-off
and the Merger. We have not undertaken to independently verify any of such facts
or information.
<PAGE> 2
Henry D. Epstein
October , 1996
Page 2
Based on the foregoing, in our opinion it is more likely than not that (i)
the Spin-off will qualify as a nontaxable distribution under Section 355 of the
Code and (ii) the Merger will qualify as a reorganization within the meaning of
Section 368(a)(1)(B) of the Code.
This opinion expresses our views only as to the federal income tax laws in
effect on the date hereof, including the Code, applicable treasury regulations,
published rulings, administrative practices of the Internal Revenue Service
("IRS") and published court decisions. No opinion is expressed with respect to
state, local, foreign or other tax laws. Moreover, this opinion does not relate
to or purport to cover any matters other than the ones expressly stated herein.
This opinion represents our legal judgement as to the matters addressed
herein, but is not binding on the IRS (which may not agree with this opinion) or
any court. Accordingly, no assurance can be given that the opinion expressed
herein will not be contested by the IRS. Similarly, no assurance can be given
that the opinion expressed herein, if contested by the IRS, would be sustained
by a court. Furthermore, the authorities upon which we have relied are subject
to change, whether prospectively or retroactively, and any variation or
difference in the information presented to us might affect the conclusions
stated herein. Also, if the tax-free nature of the Merger is invalidated, it
would reduce the likelihood that the Spin-off will qualify as a tax-free
spin-off pursuant to Section 355 of the Code. We assume no obligation to revise
or supplement this opinion should the present federal income tax laws be changed
by any legislation, judicial decisions, or otherwise.
This opinion is rendered only to Penril in connection with Access Beyond,
Inc.'s filing of its Registration Statement on Form S-1 and may not be relied
upon by any other person, firm or entity for any purpose without our express
written consent. We consent to the filing of this letter as an exhibit to the
Registration Statement and to being named in the Prospectus under the heading
"Legal Matters" as counsel for Access Beyond, Inc. Except for the discussion of
"Certain Federal Income Tax Consequences of the Distribution" in the Prospectus
forming a part of the Registration Statement, this letter may not be
paraphrased, quoted or summarized, nor may it be duplicated or reproduced in
part.
Very truly yours,
/s/ Benesch, Friedlander, Coplan & Aronoff P.L.L.
BENESCH, FRIEDLANDER,
COPLAN & ARONOFF P.L.L.
<PAGE> 1
EXHIBIT 10.1
FORM OF
TECHNOLOGY LICENSE AGREEMENT
----------------------------
THIS TECHNOLOGY LICENSE AGREEMENT is made and entered into as of
________________, 1996 by and between PENRIL DATACOMM NETWORKS, INC., a
corporation existing under the laws of Delaware, which has offices at 1300
Quince Orchard Boulevard, Gaithersburg, Maryland 20878 ("Licensor") and ACCESS
BEYOND, INC., a corporation existing under the laws of Delaware, which has
offices at 1300 Quince Orchard Boulevard, Gaithersburg, Maryland 20878
("Licensee").
WHEREAS, Licensor is the owner of a certain patent and related
technology useful in developing digital modem cards;
WHEREAS, Licensor is willing to license such patent and technology to
Licensee for use in a digital modem card, and Licensee desires to obtain from
Licensor a license for commercialization of such digital modem card.
NOW, THEREFORE, in consideration of the premises and mutual promises,
terms and conditions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties do hereby agree as follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following
definitions.
1.1 AFFILIATES. "Affiliates" of a party hereto shall mean (i) companies
the majority of whose voting shares are now or hereafter owned or controlled
directly or indirectly by such party; (ii) companies which now or hereafter own
or control directly or indirectly a majority of the voting shares of such party;
and (iii) companies a majority of whose voting shares are now or hereafter owned
or controlled directly or indirectly by any company mentioned in (i) or (ii) of
this definition. A company shall be considered an "Affiliate" for only so long
as such ownership or control exists. For the purposes of this definition,
partnerships or similar entities where a majority-in-interest of its partners or
owners are a party hereto and/or Affiliates of such party shall also be deemed
to be Affiliates of such party.
1.2 CONFIDENTIAL INFORMATION. "Confidential Information" shall mean
that part of the Technical Information, whether written or oral, which is (i)
not publicly known and (ii) annotated as "confidential" or "proprietary." Any
information which is not annotated as "confidential" or "proprietary" shall be
deemed to be in the public domain. In addition, "Confidential Information" shall
include information disclosed by either party to the other party in accordance
with Section 3.5 (Modifications and/or Improvements of Products) hereof.
1.3 EFFECTIVE DATE. "Effective Date" shall mean the date hereof.
<PAGE> 2
1.4 LICENSED TECHNOLOGY. "Licensed Technology" shall mean the Rights,
Products and Technical Information.
1.5 PRODUCT. "Product" shall mean the digital modem card and any and
all products, software, equipment, components, parts, tools and test equipment
listed in Exhibit B attached hereto.
1.6 RIGHTS. "Rights" shall mean:
(a) the patents and patent applications listed on Exhibit C-1
attached hereto and any and all continuations, divisions, reissues,
extensions and other filings that Licensor may file with the U.S.
Patent and Trademark Office with respect to such patents and patent
applications described in this Section 1.6 above (and corresponding
applications and patents in countries and jurisdictions other than the
United States);
(b) the copyrights listed as Exhibit C-2 attached hereto;
(c) the mask work rights listed on Exhibit C-3 attached
hereto; and
(d) any and all patents, patent applications, copyrights, mask
work rights and other intellectual property rights with respect to any
inventions pertaining to the Licensed Technology, which patents, patent
applications, copyrights, mask work rights and other rights (i) are
granted or to be granted to Licensor (either directly or through its
Affiliates, successors, assigns, agents or employees) (ii) with respect
to which Licensor (either directly or through its Affiliates,
successors, assigns, agents or employees) shall have the right to grant
licenses, sublicenses and rights of the type described in Article 3
below; and PROVIDED, HOWEVER, that with respect to this Section 1.6 if
any patents, copyrights, mask work rights or other intellectual
property rights have been or are in the future issued, granted or
registered to Licensor (either directly or through its Affiliates,
successors, assigns, agents or employees) by or with any government
based on or as embodied in any Product or any part of the Technical
Information, such patents, copyrights, mask work rights and other
rights shall be deemed included in this definition.
(e) to the extent that Licensor enters into cross licensing
agreements with third parties involving the University of Maryland
patent described in Exhibit C-1, the right to utilize any such cross
licensed technology or rights at the same cash royalty rates, if any,
on a per unit basis or on an incremented basis above the rates
otherwise available to Licensor and on the same terms as Licensor,
either as a sublicensee of Licensor or directly. Although Licensee
acknowledges that some cross licensors may be unwilling to grant such
pass-through rights, Licensor agrees to use its best efforts to obtain
for Licensee rights equivalent to those obtained by Licensor for its
own business.
2
<PAGE> 3
1.7 TECHNICAL INFORMATION. "Technical Information" shall mean all trade
secrets, know-how, computer programs (including copyrights in said software),
knowledge, technology, means, methods, processes, practices, formulas,
techniques, procedures, technical assistance, designs, drawings, apparatus,
written and oral rectifications of data, specifications, assembly procedures,
schematics and other valuable information of whatever nature, whether
confidential or not, and whether proprietary or not, which is now in (or,
subject to Section 3.5(b) below, hereafter during the term of this Agreement
comes into) the possession of Licensor and which is relevant to the manufacture,
assembly, sale, distribution, use, installation, servicing or testing of any
Product.
2. THE PROJECT.
2.1 DEVELOPMENT. A third party has undertaken development of the
Product for Licensee. The Licensed Technology is licensed solely for use in
connection with the Product or any other use except as set forth herein.
2.2. REPORTS. Licensee shall keep Licensor informed of the progress of
the Project by sending Licensee at least one progress report per calendar
quarter until the commencement of royalty payments under Section 5.1 below.
2.3 PROJECT MANAGERS. Licensor and Licensee each shall designate a
Project Manager under the Development Plan. Either party may change its Project
Manager upon written notice to the other party. Licensor's and Licensee's
respective Project Managers shall be the principal contacts between Licensor and
Licensee for all purposes of this Agreement.
2.4 COOPERATION AND ACCESS. Licensor agrees to cooperate with Licensee
to the extent necessary for Licensee to practice the Licensed Technology. Such
cooperation shall include, but not be limited to, providing Licensee with all
necessary information and, to the extent required in connection with development
of the Product.
3. GRANT OF RIGHTS AND LICENSES.
Subject to all of the terms and conditions set forth in this Agreement:
3.1 USE OF RIGHTS. Licensor hereby grants to Licensee and its
Affiliates a nonexclusive, worldwide, right and license to practice the Rights
in order to make, use, market, sell and distribute the Products. This right and
license includes, without limitation, the rights: (a) to use and duplicate all
of Licensor's binary software included or to be included in the Products; (b) to
manufacture and/or to cause third parties to manufacture Products; (c) to
maintain the Products; and (d) (i) to practice the methods and processes
involved in the use of the Products; (ii) to make and have made, to use and have
used, and to maintain machines, tools, instrumentalities and materials; and
(iii) to use and have used methods and processes, insofar as such machines,
tools, instrumentalities, materials, methods and processes are involved in or
incidental to the development, manufacture, sale, marketing, distribution,
installation, testing or repair of the Products.
3
<PAGE> 4
3.2 USE OF TECHNICAL INFORMATION. Licensor grants to Licensee and its
Affiliates a nonexclusive, worldwide, right to use the Technical Information in
connection with Licensee's exercise of its rights and licenses granted
hereunder.
3.3 RIGHT TO SUBLICENSE OR ASSIGN. Licensee shall have the right to
sublicense or assign any of the rights or licenses granted hereunder in
connection with the manufacture and wholesale and retail sale solely by Licensee
of the Products.
3.4 SOFTWARE AND COMPUTER PROGRAMS IN RIGHTS, TECHNICAL INFORMATION OR
PRODUCTS.
(a) Licensor and Licensee agree that any and all software and
other computer programs included in the Rights, or the Technical
Information or the Products are being licensed by Licensor to Licensee
in machine readable object code form on a nonexclusive basis as set
forth in Sections 3.1 (Use of Rights) and 3.2 (Use of Technical
Information) above, and are not being sold by Licensor or purchased by
Licensee. Licensor shall retain title to all of such software and
computer programs. Licensee shall have the right to sublicense to third
parties any rights or licenses to use individual copies of such
software in the operation of the Products.
(b) Licensee agrees not to remove any of Licensor's copyright
and proprietary notices which appear on or in any software or computer
programs.
3.5 MODIFICATION AND/OR IMPROVEMENTS OF PRODUCTS.
(a) Licensee shall have the right to modify and improve the
Products and to apply each such modification or improvement to the
Products, without payment to or the consent of the Licensor.
Any such modification or improvement shall be the property of Licensee.
(b) Licensor agrees to provide Licensee with modifications and
enhancements ("Enhancements") to the Licensed Technology on the
following conditions:
(i) (A) Any such Enhancements shall be limited to ITU
approved changes to existing modem/fax related standards or
ITU approved new standards related to modem/fax devices, (B)
Licensor has determined to implement such changes or new
standards and (C) such changes or new standards are supported
by the hardware architecture incorporated in Licensor's modem
products as of the date of this Agreement; and
(ii) Licensee shall have no right to any Enhancement
that is not an ITU standard.
Licensor agrees to keep Licensee informed as to Licensor's intentions
with respect to support for the Enhancements described above. In connection with
any Enhancement which is implemented
4
<PAGE> 5
by Licensor, Licensor shall provide Licensee with updated binary software images
of the modem capability to be used in the Product.
3.6 ACQUISITION TRANSACTION. In the event of the sale of all or
substantially all assets of Licensee, any single transaction or a series of
transactions of more than 50% of the capital stock of Licensee, or any merger,
consolidation or reorganization in which Licensee shall not be the surviving
corporation (an "Acquisition Transaction") Licensee shall be prohibited from
developing, manufacturing, marketing or otherwise using any new modem hardware
design which utilizes Licensors binary modem technology, except that minor
changes which may be required from time to time in Licensee's Products as they
existed at the time of such Acquisition Transaction shall not constitute new
modem hardware designs.
4. OBLIGATIONS OF LICENSOR.
4.1 TRAINING AND TECHNICAL ASSISTANCE. To assist Licensee in exercising
its rights hereunder, Licensor agrees to provide appropriate training and
technical assistance to Licensee, its employees and its permitted sublicensees,
so that Licensee will be able to practice the Patents and use the Licensed
Technology to its full potential. Such training and assistance shall be rendered
by Licensor at no expense to Licensee; PROVIDED, HOWEVER, that Licensor shall
not devote more than 80 man-hours during the term of this Agreement in rendering
such training and technical assistance to Licensee. The parties hereto shall
from time to time determine whether particular training and assistance shall be
rendered at Licensor's facilities or at Licensee's facilities. Travel costs,
lodging and all related expenses incurred by one party in connection with
sending its employees or permitted sublicensees to the other party's location
shall be paid in full by the party sending such individuals.
4.2 INQUIRIES. Licensor shall, at no additional cost to Licensee,
answer all reasonable telephonic and written inquiries from Licensee directly
concerning the manufacture, assembly, installation, testing, use and servicing
of the Products.
4.3 AB COMPATIBLE TECHNOLOGY. Licensor acknowledges and agrees that
during the term of this Agreement and at all times thereafter, it will not, and
will not authorize any third party, to develop, manufacture or market AB
compatible cards.
5. COMPENSATION PAYABLE TO LICENSOR.
5.1 ROYALTIES. Licensee agrees to pay a royalty to Licensor on the
following basis: to the extent that (i) Licensor enters into cross licensing
agreements involving the University of Maryland patent described in Exhibit C-1,
and (ii) the technology covered by such license is integrated into the Product,
a royalty equal to the per modem royalty rate which Licensor pays (if any) as a
result of such cross license for each and every modem per Product that Licensee
or any Affiliate of Licensee or any of their permitted sublicensees or assigns
manufactures, sells, leases, licenses, or otherwise transfers for value.
5
<PAGE> 6
5.2 REPORTS; PAYMENT. Licensee shall deliver to Licensor no later than
forty five (45) days after the end of each calendar quarter during the term of
this Agreement, a written report describing: (i) the number of Products
manufactured, sold, licensed, leased or otherwise transferred in accordance with
Section 5.1 above during such calendar quarter, and (ii) the amount of the
royalty payable to Licensor for such calendar quarter. Each report shall be
accompanied by payment of the amount of royalties payable under Section 5.1 with
respect to such calendar quarter. All payments shall be made in U.S. dollars. No
part of any amount payable to Licensor hereunder may be reduced due to any
counterclaim, set-off, adjustment or other right which Licensee might have
against Licensor, any other party or otherwise. Notwithstanding the foregoing,
if Licensee issues a credit for any returned Product, then no 5.1 sale-based
royalty shall be payable in respect thereof and if a royalty was previously
paid, then Licensee shall be entitled to an equal credit against the next
royalty payment.
5.3 LICENSEE'S BOOKS AND RECORDS. Licensee agrees to make and keep
full and accurate books and records in sufficient detail to enable royalties
payable hereunder to be determined.
5.4 LICENSOR'S RIGHT TO AUDIT. Licensor and its certified public
accountants and other auditors shall have full access during normal business
hours and on reasonable notice to the books and records of Licensee pertaining
to activities under this Agreement and shall have the right to make copies
therefrom. Prompt adjustment shall be made by the proper party to compensate for
any errors or omissions disclosed by such audit. The cost of any such audit
shall be borne by Licensor unless such audit reveals a discrepancy of more than
10% with respect to any calendar quarter in the amount of royalties paid to
Licensor and the amount shown by such audit to be due, in which event the cost
of such audit shall be borne by Licensee.
5.5 AUDIT INFORMATION CONFIDENTIAL. Licensor agrees to hold
confidential all information learned in the course of any examination of
Licensee's books and records hereunder, except when it is necessary for Licensor
to reveal such information in order to enforce its rights under this Agreement
in court, or similar dispute resolution or enforcement proceeding or action, or
except when compelled by law.
6. WARRANTY.
6.1 WARRANTY. Licensor makes no warranty whatsoever with respect to the
Licensed Technology other than that Licensor has the right to enter into this
License Agreement and to issue licenses under the patent set forth in Exhibit
C-1.
6.2 LIMITATION. THE PROVISIONS OF THE FOREGOING WARRANTIES ARE IN LIEU
OF ANY OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL (INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). LICENSOR'S
LIABILITY ARISING OUT OF THIS AGREEMENT, THE LICENSE OF THE LICENSED TECHNOLOGY
OR THE MANUFACTURE, LICENSING, SALE OR SUPPLYING OF THE PRODUCTS OR THEIR USE OR
DISPOSITION, WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT
EXCEED
6
<PAGE> 7
THE AMOUNT OF ROYALTIES PAID. IN NO EVENT SHALL LICENSOR BE LIABLE TO
LICENSEE OR ANY OTHER PERSON OR ENTITY FOR SPECIAL, INCIDENTAL OR CONSEQUENTIAL
DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS, LOSS OF DATA OR LOSS OF
USE DAMAGES) ARISING OUT OF THIS AGREEMENT, THE LICENSE OF THE LICENSED
TECHNOLOGY OR THE MANUFACTURE, LICENSING, SALE OR SUPPLYING OF THE PRODUCTS. THE
FOREGOING WARRANTY EXTENDS TO LICENSEE ONLY AND SHALL NOT BE APPLICABLE TO ANY
OTHER PERSON OR ENTITY INCLUDING, WITHOUT LIMITATION, CUSTOMERS OF LICENSEE.
7. PROPRIETARY RIGHTS.
Licensor is and shall remain the owner of the Licensed Technology.
Without the prior written consent of Licensor, Licensee shall not alter any
copyright, trade secret, patent, proprietary and/or other legal notices
contained on or in any Product or on documentation or other tangible
manifestation of the Licensed Technology.
8. CONFIDENTIAL INFORMATION.
8.1 CONFIDENTIALITY MAINTAINED. Each party agrees that the other party
hereto has a proprietary interest in its Confidential Information. During the
term of this Agreement and for a period of three years thereafter, all
disclosures of Confidential Information to the receiving party, its agents and
employees shall be held in strict confidence by such receiving party; its agents
and employees, and such receiving party shall disclose the Confidential
Information only to those of its agents and employees to whom it is necessary in
order properly to carry out their duties as limited by the terms and conditions
hereof. During the term of this Agreement and for a period of three years
thereafter the receiving party shall not use the Confidential Information except
for the purposes of exercising its rights and carrying out its duties hereunder.
The provisions of this Section 8.1 shall also apply to any consultants or
subcontractors during the term of this Agreement and for three years thereafter
that the receiving party may engage in connection with its obligations under
this Agreement. Before providing Confidential Information to any such consultant
or subcontractor, the receiving party shall obtain a signed undertaking whereby
such consultant or subcontractor agrees to be bound by and comply with terms
substantially equivalent to and to the same effect as this Article 8.
8.2 LIABILITY FOR DISCLOSURE. Notwithstanding anything contained in
this Agreement to the contrary, neither party shall be liable for a disclosure
of the other party's Confidential Information if the information so disclosed:
(a) was in the public domain at the time it was disclosed by
the disclosing party to the receiving party; or
7
<PAGE> 8
(b) was known to or contained in the records of the receiving
party from a source other than the disclosing party at the time of
disclosure by the disclosing party to the receiving party and can be so
demonstrated; or
(c) was independently developed by the receiving party and is
so demonstrated promptly upon receipt of the documentation and
technology by the receiving party; or
(d) becomes known to the receiving party from a source other
than the disclosing party without breach of this Agreement by the
receiving party and can be so demonstrated; or
(e) if in writing, was not identified as Confidential
Information in accordance with Section 1.2 (Definition of Confidential
Information) hereof; or
(f) must be disclosed pursuant to a contract or subcontract
with a governmental agency in order to obtain/retain a procurement
contract; or
(g) was disclosed pursuant to court order or as otherwise
compelled by law.
9. TERMINATION OR EXPIRATION.
9.1 TERMINATION. This Agreement shall continue until terminated by
either party as a result of a breach by the other party of any material
agreement or covenant contained herein which is not cured with thirty (30) days
following written notice thereof. If such termination is by Licensee, then such
termination shall not affect Licensee's rights to continue to use the rights and
licenses granted herein and such continuation shall not adversely affect
Licensee's right to recover damages resulting from such breach. If such
termination is by Licensor, then Licensor's right to recover all royalties
properly due to Licensor shall not be adversely affected thereby.
9.2 SURVIVAL. The obligations of the parties pursuant to Article 8 and
Section 4.3 of this Agreement shall survive any termination or expiration of
this Agreement.
10. MISCELLANEOUS.
10.1 ASSIGNMENTS. This Agreement shall be binding upon, and inure to
the benefit of, Licensor and Licensee and their respective successors and
permitted assigns. Neither party may assign rights or obligations except as
permitted by Section 3.3.
8
<PAGE> 9
10.2 GOVERNING LAW. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to agreements made and to be fully performed therein.
10.3 WAIVER. A waiver of any breach of any provision of this Agreement
shall not be construed as a continuing waiver of other breaches of the same or
other provisions of this Agreement.
10.4 RELATIONSHIP OF THE PARTIES. The parties hereto are independent
contractors. Nothing herein contained shall be deemed to create a joint venture,
agency or partnership relationship between the parties hereto. Neither party
shall have any power to enter into any contracts or commitments in the name of,
or on behalf of, the other party, or to bind the other party in any respect
whatsoever.
10.5 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered two business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
If to the Licensor: Penril Datacomm Networks, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
Attn.: President
Telecopier: ( )
With a copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attn.: Irv Berliner, Esq.
Telecopier: (216) 363-4588
If to the Licensee: Access Beyond, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
Attn.: President
Telecopier: ( )
With a copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attn.: Irv Berliner Esq.
Telecopier: (216) 363-4588
9
<PAGE> 10
Any party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any party may change the address to which notices,
requests, demands, claims and other communications hereunder are to be delivered
by giving the other party notice in the manner set forth in this Agreement.
10.6 ENTIRE UNDERSTANDING. This Agreement embodies the entire
understanding between the parties relating to the subject matter hereof and
there are no prior representations, warranties or agreements between the
parties, whether written or oral, not contained in this Agreement.
10.7 INVALIDITY. If any provision of this Agreement is declared invalid
or unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Agreement shall endure except for the part declared invalid or
unenforceable by order of such court. The parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
10.8 FORCE MAJEURE. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this Agreement
due to any act of God, fire, casualty, flood, war, strike, lock out, failure of
public utilities, injunction or any act, exercise, assertion or requirement of
governmental authority, epidemic, destruction of production facilities,
insurrection, inability to procure materials, labor, equipment, transportation
or energy sufficient to meet manufacturing needs, or any other cause beyond the
reasonable control of the party invoking this provision, and if such party shall
have used its best efforts to avoid such occurrence and minimize its duration
and has given prompt written notice to the other party, then the affected
party's performance shall be excused and the time for performance shall be
extended for the period of delay or inability to perform due to such occurrence.
10.9 AMENDMENTS. Any amendment or modification of any provision of this
Agreement must be in writing, dated and signed by both parties hereto.
10.10 FEES PAYABLE. Licensor and Licensee acknowledge that there are no
broker's commissions, finder's fees or other amounts payable with regard to this
transaction, and Licensor and Licensee agree to indemnify and hold the other
harmless from and against all liabilities, claims, demands, damages or costs of
any kind arising from or connected with any broker's or finder's commission, fee
or other amount claimed to be due any person arising from the indemnitor's
conduct with respect to this Agreement and the transactions contemplated herein.
10.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10
<PAGE> 11
10.12 EXHIBITS. All exhibits referred to in this Agreement are attached
hereto and incorporated herein by this reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
created on the day and year first above written.
PENRIL DATACOMM NETWORKS, INC.,
as Licensor
By_____________________________________________
Name:
Title:
ACCESS BEYOND, INC., as Licensee
By_____________________________________________
Name:
Title:
11
<PAGE> 12
EXHIBITS
A Development Plan
B Products
C-1 Patents and Patent Applications
C-2 Copyrights
C-3 Mask Work Rights
12
<PAGE> 13
EXHIBIT A
---------
Development Plan
The 24 Digital Modem card, defined in Exhibit B, shall be developed by a third
party for Licensee.
13
<PAGE> 14
EXHIBIT B
---------
PRODUCTS
A third party will develop for Licensee a 24 Digital Modem Card
compatible with and capable of operating together within Licensee's AB product
family. Such modem architecture is expected to be compatible with and deliver
the functions and capabilities contained within such third party's Digital Modem
Developer's kit, which is attached herein as part of this Exhibit B.
14
<PAGE> 15
EXHIBIT C-1, C-2, C-3
---------------------
C1: PATENTS AND PATENT APPLICATIONS
Patents include the University of Maryland patent #5,388,124.
C2: COPYRIGHT RIGHTS
None
C3: MASK WORK RIGHTS
None
15
<PAGE> 1
EXHIBIT 10.2
DEVELOPMENT AND LICENSE AGREEMENT
THIS DEVELOPMENT AND LICENSE AGREEMENT is made and entered into as of
June 16, 1996, by and between BAY NETWORKS, INC., a corporation existing under
the laws of Delaware, which has offices at 4401 Great America Parkway, Santa
Clara, California 95052 ("Licensor"), and PENRIL DATACOMM NETWORKS, INC., a
corporation existing under the laws of Delaware, which has offices at 1300
Quince Orchard Boulevard, Gaithersburg, Maryland 20878, on behalf of Access
Beyond, Inc., a company in formation ("Licensee").
WHEREAS, Licensor is engaged, among other things, in designing and
developing digital modem cards;
WHEREAS, Licensor is willing to develop a certain digital modem card
for Licensee and Licensee desires to obtain from Licensor a license for
commercialization of such digital modem card.
NOW, THEREFORE, in consideration of the premises and mutual promises,
terms and conditions hereinafter set forth, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties do hereby agree as follows:
1. DEFINITIONS.
As used herein, the following terms shall have the following
definitions.
1.1 AFFILIATES. "Affiliates" of a party hereto shall mean (i) companies
the majority of whose voting shares are now or hereafter owned or controlled
directly or indirectly by such party; (ii) companies which now or hereafter own
or control directly or indirectly a majority of the voting shares of such party;
and (iii) companies a majority of whose voting shares are now or hereafter owned
or controlled directly or indirectly by any company mentioned in (i) or (ii) of
this definition. A company shall be considered an "Affiliate" for only so long
as such ownership or control exists. For the purposes of this definition,
partnerships or similar entities where a majority-in-interest of its partners or
owners are a party hereto and/or Affiliates of such party shall also be deemed
to be Affiliates of such party.
1.2 CONFIDENTIAL INFORMATION. "Confidential Information" shall mean
that part of the Technical Information, whether written or oral, which is (i)
not publicly known and (ii) annotated as "confidential" or "proprietary." Any
information which is not annotated as "confidential" or "proprietary" shall be
deemed to be in the public domain. In addition, "Confidential Information"
<PAGE> 2
shall include information disclosed by either party to the other party in
accordance with Section 3.5 (Modifications and/or Improvements of Products)
hereof.
1.3 DEVELOPMENT PLAN. "Development Plan" means the Plan and Schedule of
Development attached hereto as EXHIBIT A.
1.4 EFFECTIVE DATE. "Effective Date" shall mean the date of acceptance
of prototypes as defined in EXHIBIT A.
1.5 LICENSED TECHNOLOGY. "Licensed Technology" shall mean the Rights,
Products and Technical Information.
1.6 PRODUCT. "Product" shall mean the digital modem card and any and
all products, software, equipment, components, parts, tools and test equipment
listed in EXHIBIT B attached hereto.
1.7 PROJECT. "Project" shall mean the services, advice and assistance
provided by Licensor to Licensee pursuant to the Development Plan.
1.8 RIGHTS. "Rights" shall mean:
(a) the patents and patent applications listed on EXHIBIT C-1
attached hereto, and any and all continuations, divisions, reissues, extensions
and other filings that Licensor may file with the U.S. Patent and Trademark
Office with respect to such patents and patent applications described in this
Section 1.8 above (and corresponding applications and patents in countries and
jurisdictions other than the United States);
(b) the copyrights listed as EXHIBIT C-2 attached hereto;
(c) the mask work rights listed on EXHIBIT C-3 attached hereto; and
(d) any and all patents, patent applications, copyrights, mask work
rights and other intellectual property rights with respect to any inventions
pertaining to the Licensed Technology, which patents, patent applications,
copyrights, mask work rights and other rights (i) are granted or to be granted
to Licensor (either directly or through its Affiliates, successors, assigns,
agents or employees) (ii) with respect to which Licensor (either directly or
through its Affiliates, successors, assigns, agents or employees) shall have the
right to grant licenses, sublicenses and rights of the type described in Article
3 below; and PROVIDED, HOWEVER, that with respect to this Section 1.8 if any
patents, copyrights, mask work rights or other intellectual property rights have
been or are in the future issued, granted or registered to Licensor (either
directly or through its Affiliates, successors, assigns, agents or employees) by
or with any government based on or as embodied in any Product or any part of the
Technical Information, such patents, copyrights, mask work rights and other
rights shall be deemed included in this definition.
1.9 TECHNICAL INFORMATION. "Technical Information" shall mean all
trade secrets, know-how, computer programs (including copyrights in said
software), knowledge,
<PAGE> 3
technology, means, methods, processes, practices, formulas, techniques,
procedures, technical assistance, designs, drawings, apparatus, written and oral
rectifications of data, specifications, assembly procedures, schematics and
other valuable information of whatever nature, whether confidential or not, and
whether proprietary or not, which is now in (or, subject to Section 3.5(b)
below, hereafter during the term of this Agreement comes into) the possession of
Licensor and which is relevant to the manufacture, assembly, sale, distribution,
use, installation, servicing or testing of any Product.
2. THE PROJECT.
2.1 DEVELOPMENT. Under the terms and conditions hereinafter set forth,
Licensor agrees to undertake the Project. Licensor shall undertake the Project
as a high priority, by which it is understood that Licensor will use reasonable
efforts to cause the Project to be completed as provided in Exhibit A.
2.2. REPORTS. Licensor shall keep Licensee informed of the progress of
the Project by sending Licensee at least one progress report per month in which
are specified accomplishments of the preceding month and plans for the following
month, weekly telephone conference calls and other engineering interactions.
2.3 PROJECT MANAGERS. Licensor and Licensee each shall designate a
Project Manager under the Development Plan. Either party may change its Project
Manager upon written notice to the other party. Licensor's and Licensee's
respective Project Managers shall be the principal contacts between Licensor and
Licensee for all purposes of this Agreement.
2.4 COOPERATION AND ACCESS. Licensee agrees to cooperate with Licensor
to the extent necessary for Licensor to perform services hereunder. Such
cooperation shall include, but not be limited to, providing Licensor with all
necessary information and, to the extent required in connection with performance
of the Project, free and full access to, and use of, Licensee's premises and
equipment during normal business hours. If needed, Licensee shall also provide
Licensor with free and full access during normal business hours to such Licensee
personnel as Licensee's Project Manager shall, from time to time, designate.
2.5. DELIVERABLES. Upon completion of the Project, Licensor shall
deliver five prototypes of the Product to Licensee, all as set forth in more
detail in the Development Plan together with all drawings, plans and other
material necessary to allow Licensee to manufacture Products and to enjoy its
other rights granted hereunder.
3. GRANT OF RIGHTS AND LICENSES.
Subject to all of the terms and conditions set forth in this Agreement:
<PAGE> 4
3.1 USE OF RIGHTS. Licensor hereby grants to Licensee and its
Affiliates a nonexclusive, worldwide, right and license to practice the Rights
in order to make, use, market, sell and distribute the Products. This right and
license includes, without limitation, the rights: (a) to use and duplicate all
of Licensor's binary software included or to be included in the Products; (b) to
manufacture and/or to cause third parties to manufacture Products; (c) to
maintain the Products; and (d)(i) to practice the methods and processes involved
in the use of the Products; (ii) to make and have made, to use and have used,
and to maintain machines, tools, instrumentalities and materials; and (iii) to
use and have used methods and processes, insofar as such machines, tools,
instrumentalities, materials, methods and processes are involved in or
incidental to the development, manufacture, sale, marketing, distribution,
installation, testing or repair of the Products.
3.2 USE OF TECHNICAL INFORMATION. Licensor grants to Licensee and its
Affiliates a nonexclusive, worldwide, right to use the Technical Information in
connection with Licensee's exercise of its rights and licenses granted
hereunder.
3.3 RIGHT TO SUBLICENSE OR ASSIGN. Licensee shall have the right to
sublicense or assign any of the rights or licenses granted hereunder in
connection with the manufacture and wholesale and retail sale solely by Licensee
of the Products.
3.4 SOFTWARE AND COMPUTER PROGRAMS IN RIGHTS, TECHNICAL INFORMATION OR
PRODUCTS.
(a) Licensor and Licensee agree that any and all software and other
computer programs included in the Rights, or the Technical Information or the
Products are being licensed by Licensor to Licensee in machine readable object
code form on a nonexclusive basis as set forth in Sections 3.1 (Use of Rights)
and 3.2 (Use of Technical Information) above, and are not being sold by Licensor
or purchased by Licensee. Licensor shall retain title to all of such software
and computer programs. Licensee shall have the right to sublicense to third
parties any rights or licenses to use individual copies of such software in the
operation of the Products.
(b) Licensee agrees not to remove any of Licensor's copyright and
proprietary notices which appear on or in any software or computer programs.
3.5 MODIFICATIONS AND/OR IMPROVEMENTS OF PRODUCTS.
(a) Licensee shall have the right to modify and improve the Products
and to apply each such modification or improvement to the Products, without
payment to or the consent of the Licensor. Any such modification or improvement
shall be the property of Licensee.
(b) Licensor agrees to provide Licensee with modifications and
enhancements ("Enhancements") to the Licensed Technology on the following
conditions:
(i) (A) Any such Enhancements shall be limited to ITU approved
changes to existing modem/fax related standards or ITU approved new standards
related to modem/fax devices, (B) Licensor has determined to implement such
changes or new standards and (C) such changes or new standards are supported by
the hardware architecture incorporated
<PAGE> 5
in Licensor's modem products as of the date of this Agreement; and
(ii) Licensee shall have no right to any Enhancement that is
not an ITU standard.
Licensor agrees to keep Licensee informed as to Licensor's intentions
with respect to support for the Enhancements described above. In connection with
any Enhancement which is implemented by Licensor, Licensor shall provide
Licensee with updated binary software images of the modem capability to be used
in the Product.
3.6 ACQUISITION TRANSACTION. In the event of the sale of all or
substantially all assets of Licensee, any single transaction or a series of
transactions of more than 50% of the capital stock of Licensee, or any merger,
consolidation or reorganization in which Licensee shall not be the surviving
corporation (an "Acquisition Transaction") Licensee shall be prohibited from
developing, manufacturing, marketing or otherwise using any new modem hardware
design which utilizes Licensors binary modem technology, except that minor
changes which may be required from time to time in Licensee's Products as they
existed at the time of such Acquisition Transaction shall not constitute new
modem hardware designs. The provisions of this Section 3.6 shall not be
effective until after the assignment by Nomad, Inc. to Access Beyond, Inc. of
all rights as Licensee hereunder pursuant to Section 10.1 hereof.
4. OBLIGATIONS OF LICENSOR.
4.1 TRAINING AND TECHNICAL ASSISTANCE. To assist Licensee in exercising
its rights hereunder, Licensor agrees to provide appropriate training and
technical assistance to Licensee, its employees and its permitted sublicensees,
so that Licensee will be able to practice the Patents and use the Licensed
Technology to its full potential. Such training and assistance shall be
rendered by Licensor at no expense to Licensee; PROVIDED, HOWEVER, that
Licensor shall not devote more than 80 man-hours during the term of this
Agreement in rendering such training and technical assistance to Licensee. The
parties hereto shall from time to time determine whether particular training
and assistance shall be rendered at Licensor's facilities or at Licensee's
facilities. Travel costs, lodging and all related expenses incurred by one
party in connection with sending its employees or permitted sublicensees to the
other party's location shall be paid in full by the party sending such
individuals.
4.2 INQUIRIES. Licensor shall, at no additional cost to Licensee,
answer all reasonable telephonic and written inquiries from Licensee directly
concerning the manufacture, assembly, installation, testing, use and servicing
of the Products.
4.3 AB COMPATIBLE TECHNOLOGY. Licensor acknowledges and agrees that
during the term of this Agreement and at all times thereafter, it will not, and
will not authorize any third party, to develop, manufacture or market Licensee's
AB compatible cards.
<PAGE> 6
5. COMPENSATION PAYABLE TO LICENSOR.
5.1 DEVELOPMENT FEE.
On the Effective Date, Licensee shall pay Licensor a Development
Fee of $100,000 (the "Development Fee") in immediately available funds.
5.2 ROYALTIES. In addition to the Development Fee, Licensee agrees to
pay Licensor for the Rights granted with respect to the Licensed Technology and
for the services to be rendered pursuant to Sections 2 and 4, a royalty in the
amount of $5.00 per modem/per Product for each and every digital modem on
Products manufactured and sold, leased, licensed or otherwise transferred for
value by or on behalf of Licensee or any Affiliate of Licensee or any of their
respective permitted sublicensees or assigns.
5.3 REPORTS; PAYMENT. Licensee shall deliver to Licensor no later than
forty five (45) days after the end of each calendar quarter during the term of
this Agreement, a written report describing: (i) the number of Products sold,
licensed, leased or otherwise transferred in accordance with Section 5.2 above
during such calendar quarter, and (ii) the amount of the royalty payable to
Licensor for such calendar quarter. Each report shall be accompanied by payment
of the amount of royalties payable under Section 5.2 with respect to such
calendar quarter. All payments shall be made in U.S. dollars. No part of any
amount payable to Licensor hereunder may be reduced due to any counterclaim,
set-off, adjustment or other right which Licensee might have against Licensor,
any other party or otherwise. Notwithstanding the foregoing, if Licensee issues
a credit for any returned Product, then no 5.2 royalty shall be payable in
respect thereof and if a royalty was previously paid, then Licensee shall be
entitled to an equal credit against the next royalty payment.
5.4 LICENSEE'S BOOKS AND RECORDS. Licensee agrees to make and keep full
and accurate books and records in sufficient detail to enable royalties payable
hereunder to be determined.
5.5 LICENSOR'S RIGHT TO AUDIT. Licensor and its certified public
accountants and other auditors shall have full access during normal business
hours and on reasonable notice to the books and records of Licensee pertaining
to activities under this Agreement and shall have the right to make copies
therefrom. Prompt adjustment shall be made by the proper party to compensate for
any errors or omissions disclosed by such audit. The cost of any such audit
shall be borne by Licensor unless such audit reveals a discrepancy of more than
10% with respect to any calendar quarter in the amount of royalties paid to
Licensor and the amount shown by such audit to be due, in which event the cost
of such audit shall be borne by Licensee.
5.6 AUDIT INFORMATION CONFIDENTIAL. Licensor agrees to hold
confidential all information learned in the course of any examination of
Licensee's books and records hereunder, except when it is necessary for Licensor
to reveal such information in order to enforce its rights under this Agreement
in court, or similar dispute resolution or enforcement proceeding or action,
<PAGE> 7
or except when compelled by law.
6. WARRANTY.
6.1 GENERAL. Licensor warrants solely to Licensee that the Products,
when manufactured by Licensee as directed by Licensor shall perform in
accordance with the specifications set forth in Exhibits A and B and be free
from significant protocol and operational errors, when given normal, proper and
intended usage, for one year from the Effective Date. Licensor does not warrant
that the operation of the Products will be uninterrupted or error-free.
6.2 WARRANTY PROCEDURES. Licensee shall notify Licensor of any Products
which it believes do not conform with the warranty set forth in Section 6.1.
Licensor shall promptly take such action as is appropriate to correct such
nonconformance in accordance with industry standards and customs, including
without limitation, response times based upon the severity of the
nonconformance. Upon correction, Licensor shall promptly provide to Licensee
corrected software or hardware together with appropriate hardware documentation
sufficient to allow Licensee to correctly manufacture future Products.
6.3 LIMITATION. THE PROVISIONS OF THE FOREGOING WARRANTIES ARE IN LIEU
OF ANY OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED, WRITTEN OR ORAL (INCLUDING
ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE). LICENSOR'S
LIABILITY ARISING OUT OF THIS AGREEMENT, THE LICENSE OF THE LICENSED TECHNOLOGY
OR THE MANUFACTURE, LICENSING, SALE OR SUPPLYING OF THE PRODUCTS OR THEIR USE OR
DISPOSITION, WHETHER BASED UPON WARRANTY, CONTRACT, TORT OR OTHERWISE, SHALL NOT
EXCEED THE AMOUNT OF THE DEVELOPMENT FEE PLUS ROYALTIES PAID. IN NO EVENT SHALL
LICENSOR BE LIABLE TO LICENSEE OR ANY OTHER PERSON OR ENTITY FOR SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, BUT NOT LIMITED TO, LOSS OF
PROFITS, LOSS OF DATA OR LOSS OF USE DAMAGES) ARISING OUT OF THIS AGREEMENT, THE
LICENSE OF THE LICENSED TECHNOLOGY OR THE MANUFACTURE, LICENSING, SALE OR
SUPPLYING OF THE PRODUCTS. THE FOREGOING WARRANTY EXTENDS TO LICENSEE ONLY AND
SHALL NOT BE APPLICABLE TO ANY OTHER PERSON OR ENTITY INCLUDING, WITHOUT
LIMITATION, CUSTOMERS OF LICENSEE.
6.4 SERVICE AGREEMENT. Licensor shall continue to be bound by the above
provisions of this Article 6 (subject to the foregoing procedures and
limitations) for successive one-year periods, provided that Licensee pays,
within thirty (30) days of receipt of invoice, a $25,000 annual warranty
extension fee.
<PAGE> 8
7. PROPRIETARY RIGHTS.
Licensor is and shall remain the owner of the Licensed Technology.
Without the prior written consent of Licensor, Licensee shall not alter any
copyright, trade secret, patent, proprietary and/or other legal notices
contained on or in any Product or on documentation or other tangible
manifestation of the Licensed Technology.
8. CONFIDENTIAL INFORMATION.
8.1 CONFIDENTIALITY MAINTAINED. Each party agrees that the other party
hereto has a proprietary interest in its Confidential Information. During the
term of this Agreement and for a period of three years thereafter, all
disclosures of Confidential Information to the receiving party, its agents and
employees shall be held in strict confidence by such receiving party, its agents
and employees, and such receiving party shall disclose the Confidential
Information only to those of its agents and employees to whom it is necessary in
order properly to carry out their duties as limited by the terms and conditions
hereof. During the term of this Agreement and for a period of three years
thereafter the receiving party shall not use the Confidential Information except
for the purposes of exercising its rights and carrying out its duties hereunder.
The provisions of this Section 8.1 shall also apply to any consultants or
subcontractors during the term of this Agreement and for three years thereafter
that the receiving party may engage in connection with its obligations under
this Agreement. Before providing Confidential Information to any such consultant
or subcontractor, the receiving party shall obtain a signed undertaking whereby
such consultant or subcontractor agrees to be bound by and comply with terms
substantially equivalent to and to the same effect as this Article 8.
8.2 LIABILITY FOR DISCLOSURE. Notwithstanding anything contained in
this Agreement to the contrary, neither party shall be liable for a disclosure
of the other party's Confidential Information if the information so disclosed:
(a) was in the public domain at the time it was disclosed by the
disclosing party to the receiving party; or
(b) was known to or contained in the records of the receiving
party from a source other than the disclosing party at the time of disclosure by
the disclosing party to the receiving party and can be so demonstrated; or
(c) was independently developed by the receiving party and is so
demonstrated promptly upon receipt of the documentation and technology by the
receiving party; or
(d) becomes known to the receiving party from a source other than
the disclosing party without breach of this Agreement by the receiving party and
can be so demonstrated; or
(e) if in writing, was not identified as Confidential Information
in accordance
<PAGE> 9
with Section 1.2 (Definition of Confidential Information) hereof; or
(f) must be disclosed pursuant to a contract or subcontract with a
governmental agency in order to obtain/retain a procurement contract; or
(g) was disclosed pursuant to court order or as otherwise compelled
by law.
9. TERMINATION OR EXPIRATION.
9.1 TERMINATION. This Agreement shall continue until terminated by
either party as a result of a breach by the other party of any material
agreement or covenant contained herein which is not cured with thirty (30) days
following written notice thereof. If such termination is by Licensee, then such
termination shall not affect Licensee's rights to continue to use the rights and
licenses granted herein and such continuation shall not adversely affect
Licensee's right to recover damages resulting from such breach. If such
termination is by Licensor, then Licensor's right to recover all royalties
properly due to Licensor shall not be adversely affected thereby.
9.2 SURVIVAL. The obligations of the parties pursuant to Article 8 and
Section 4.3 of this Agreement shall survive any termination or expiration of
this Agreement.
10. MISCELLANEOUS.
10.1 ASSIGNMENTS. This Agreement shall be binding upon, and inure to
the benefit of, Licensor and Licensee and their respective successors and
permitted assigns. Neither party may assign rights or obligations except as
permitted by Section 3.3. Notwithstanding anything to the contrary contained
herein, the parties agree that at such time after the formation of Access
Beyond, Inc. as Licensee determines, all rights and obligations as Licensee
hereunder shall be transferred to Access Beyond, Inc., without any further
action by Licensor.
10.2 GOVERNING LAW. This Agreement shall be governed, interpreted and
construed in accordance with the laws of the Commonwealth of Massachusetts
applicable to agreements made and to be fully performed therein.
10.3 WAIVER. A waiver of any breach of any provision of this Agreement
shall not be construed as a continuing waiver of other breaches of the same or
other provisions of this Agreement.
10.4 RELATIONSHIP OF THE PARTIES. The parties hereto are independent
contractors. Nothing herein contained shall be deemed to create a joint venture,
agency or partnership relationship between the parties hereto. Neither party
shall have any power to enter into any contracts or commitments in the name of,
or on behalf of, the other party, or to bind the other party in any respect
whatsoever.
<PAGE> 10
10.5 NOTICES. All notices, requests, demands, claims and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered two business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
IF TO THE LICENSOR: COPY TO:
Bay Networks, Inc. Bay Networks, Inc.
4401 Great America Parkway 4401 Great America Parkway
Santa Clara, California 95052 Santa Clara, California 95052
Attn.: President Attn.: Montgomery Kersten, Esq.
Telecopier: (408) 764-1799 Telecopier: (408) 764-1991
IF TO THE LICENSEE: COPY TO:
Penril Datacomm Networks, Inc. Benesch, Friedlander, Coplan &
1300 Quince Orchard Boulevard Aronoff, P.L.L.
Gaithersburg, Maryland 20878 2300 BP America Building
Attn.: Chairman 200 Public Square
Telecopier: (301) 921-9149 Cleveland, Ohio 44114-2378
Attn.: Irv Berliner, Esq.
Telecopier: (216) 363-4588
Any party may give any notice, request, demand, claim or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail or electronic mail), but no
such notice, request, demand, claim or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any party may change the address to which notices,
requests, demands, claims and other communications hereunder are to be delivered
by giving the other party notice in the manner set forth in this Agreement.
10.6 ENTIRE UNDERSTANDING. This Agreement embodies the entire
understanding between the parties relating to the subject matter hereof and
there are no prior representations, warranties or agreements between the
parties, whether written or oral, not contained in this Agreement.
10.7 INVALIDITY. If any provision of this Agreement is declared invalid
or unenforceable by a court having competent jurisdiction, it is mutually agreed
that this Agreement shall endure except for the part declared invalid or
unenforceable by order of such court. The parties shall consult and use their
best efforts to agree upon a valid and enforceable provision which shall be a
reasonable substitute for such invalid or unenforceable provision in light of
the intent of this Agreement.
<PAGE> 11
10.8 FORCE MAJEURE. In the event that either party is prevented from
performing, or is unable to perform, any of its obligations under this Agreement
due to any act of God, fire, casualty, flood, war, strike, lock out, failure of
public utilities, injunction or any act, exercise, assertion or requirement of
governmental authority, epidemic, destruction of production facilities,
insurrection, inability to procure materials, labor, equipment, transportation
or energy sufficient to meet manufacturing needs, or any other cause beyond the
reasonable control of the party invoking this provision, and if such party shall
have used its best efforts to avoid such occurrence and minimize its duration
and has given prompt written notice to the other party, then the affected
party's performance shall be excused and the time for performance shall be
extended for the period of delay or inability to perform due to such occurrence.
10.9 AMENDMENTS. Any amendment or modification of any provision of this
Agreement must be in writing, dated and signed by both parties hereto.
10.10 FEES PAYABLE. Licensor and Licensee acknowledge that there are no
broker's commissions, finder's fees or other amounts payable with regard to this
transaction, and Licensor and Licensee agree to indemnify and hold the other
harmless from and against all liabilities, claims, demands, damages or costs of
any kind arising from or connected with any broker's or finder's commission, fee
or other amount claimed to be due any person arising from the indemnitor's
conduct with respect to this Agreement and the transactions contemplated herein.
10.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 12
10.12 EXHIBITS. All exhibits referred to in this Agreement are attached
hereto and incorporated herein by this reference.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
created on the day and year first above written.
BAY NETWORKS, INC., as
Licensor
By /s/
-------------------------------
Name:
Title:
PENRIL DATACOMM NETWORKS, INC., as
Licensee
By /s/
-------------------------------
Name:
Title:
<PAGE> 13
EXHIBITS
- --------
A DEVELOPMENT PLAN
B PRODUCTS
C-1 PATENTS AND PATENT APPLICATIONS
C-2 COPYRIGHTS
C-3 MASK WORK RIGHTS
<PAGE> 14
EXHIBIT A
Development Plan
- --------------------------------
The 24 Digital Modem card, defined in EXHIBIT B, shall be developed by Licensor
as a high priority project progressing at no less speed than the speed with
which Licensor executes its own digital modem development project(s).
Licensor agrees to deliver five (5) hardware prototypes of the 24 Digital Modem
Card to Licensee. To the extent that the hardware for such card is completed
prior to the availability of fully functioning digital modem software, and
assuming that limited function software is available at that time, Licensor
shall deliver such prototypes to Licensee with limited function software at such
earliest time so as to allow Licensee to complete dependent related work within
its own products. From time to time, Licensor shall supply Licensee with updated
software that adds further functionality until the full required functionality
has been achieved.
From delivery by Licensor of the required prototypes to Licensee together with
fully functioning software, Licensee shall have thirty (30) days to accept such
prototypes (the "Acceptance Period"). Any nonconformances discovered by Licensee
during the Acceptance Period shall be reported to Licensor for verification and
appropriate action will be taken promptly, during which time the Acceptance
Period shall be extended.
Mark Silverman is hereby designated the Project Manager for Licensee.
<PAGE> 15
EXHIBIT B
---------
PRODUCTS
- ------------------------------------
Licensor will develop for Licensee a 24 Digital Modem Card compatible with and
capable of operating together within Licensee's AB product family. Such modem
architecture shall be compatible with and deliver the functions and capabilities
contained within Licensor's Digital Modem Developer's kit, which is attached
herein as part of this EXHIBIT B. Licensor shall deliver to Licensee prototype
cards as defined in Exhibit A demonstrating partial and subsequently full
conformance to such functionality when used with Access Beyond, Inc.'s
equipment.
The hardware design of the card will be implemented so as to allow Licensee,
independently from Licensor, to subsequently design and manufacture hardware
variations of the card based on Licensor's initial design that utilize differing
numbers of modems per card. The software utilized on the card will automatically
sense the number of modems available and adjust appropriately, minimizing
support work for Licensor and manufacturing complexity for Licensee.
Licensor has advised Licensee that it believes that 24 digital modems will fit
on one of Licensee's AB cards based on development strategies that Licensor
expects to develop and utilize. If it is subsequently determined, factoring in
the projected cost per modem and/or time to market considerations of the
proposed implementation strategy, that such high density card implementation is
not feasible or is too costly to Licensee then Licensee may alter the
specification and request that Licensor instead implement a 16 digital modem
card in place of the 24 digital modem card.
<PAGE> 16
EXHIBIT C-1, C-2, C-3
---------------------
C1: PATENTS AND PATENT APPLICATIONS
None
C2: COPYRIGHT RIGHTS
None
C3: MASK WORK RIGHTS
None
<PAGE> 1
EXHIBIT 10.3
FORM OF
INDEMNIFICATION AGREEMENT
-------------------------
This Indemnification Agreement ("Agreement") is made and entered into
as of the _____ day of ______________, 1996 between Penril DataComm Networks,
Inc., a Delaware corporation ("Penril"), and Access Beyond, Inc., a Delaware
corporation ("Newsub").
WHEREAS, Penril formed Newsub as a wholly-owned subsidiary and, by
action of its Board of Directors, contributed or will contribute certain assets
(the "Spun-off Assets"), and assigned or will assign certain liabilities (the
"Spun-off Liabilities") to Newsub and Newsub accepted or will accept the
Spun-off Assets and assumed or will assume the Spun-off Liabilities;
WHEREAS, Penril, by action of its Board of Directors, as ratified by
its stockholders, will distribute all of the outstanding capital stock of Newsub
(the "Newsub Stock") to such stockholders in the form of a dividend (the
"Distribution");
WHEREAS, Penril, Bay Networks, Inc., a Delaware corporation ("Buyer"),
and Beta Acquisition Corp., wholly-owned subsidiary of Buyer, have entered into
an Plan and Agreement of Merger dated as of June 16, 1996, and as amended on
August 5, 1996 (the "Merger Agreement"), pursuant to which, following the
Distribution, Penril will become a wholly-owned subsidiary of Buyer and the
stockholders of Penril will receive shares of Buyer stock in exchange for shares
of Penril stock (the "Merger");
WHEREAS, until the Distribution, Penril owns 100% of the issued and
outstanding Newsub Stock;
WHEREAS, as consideration for, and in connection with, Penril making
the aforementioned capital contribution to Newsub, Newsub agrees to indemnify
Penril for claims, costs, damages or liabilities incurred by Penril, and Penril
agrees to indemnify
<PAGE> 2
Newsub for claims, costs, damages or liabilities incurred by
Newsub, on the terms, and subject to the conditions, as set forth below.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto agree as follows:
1. INDEMNIFICATION.
(a) Newsub will indemnify and save harmless Penril and its
directors, officers, employees, agents and/or affiliates (each, a
"Newsub Indemnified Party") from any and all costs, expenses, losses,
damages and liabilities ("Claim(s)") incurred or suffered, directly or
indirectly, (including, without limitation, reasonable legal fees and
expenses) resulting from or attributable to (i) the operation of Newsub
from and after the Distribution; (ii) any claim, suit or other type of
proceeding based upon, arising out of or in connection with the
operation of Penril prior to the Merger other than those based upon,
arising out of or in connection with the Modem Business (as defined in
the Merger Agreement), the Merger, the Merger Agreement, the
solicitation of proxies relating to approval of the Merger and other
transactions related to the Merger, or the tax consequences of the
Distribution, but including, without limitation, any claim, suit or
other type of proceeding based upon, arising out of or in connection
with the sale or transfer prior to the Merger of all or substantially
all of the assets of any of Penril's subsidiaries, including, without
limitation, the sale of the assets of Technipower, Inc. ("Technipower")
pursuant to the Asset Purchase Agreement dated as of July 8, 1996, by
and among Technipower, Penril and Power Designs, Inc. ("PDI") or the
sale of the assets of Constant Power, Inc. ("Constant Power") pursuant
to an Asset Purchase Agreement dated as of July 8, 1996, by and among
Constant Power, Penril and PDI; (iii) any claim, suit or other type of
proceeding relating to the termination of employment of any employees
of Penril other than those set forth on Schedule 2.20 to the Merger
Agreement; and (iv) any claim, suit or other type of proceeding based
upon, arising out of or in connection with any information concerning
Newsub in the Registration Statement (as defined in the Merger
Agreement) that was furnished by Penril and/or Newsub for inclusion in
the Registration Statement or any part thereof. In furtherance thereof,
Newsub acknowledges and agrees that (ii) above includes, but is not
limited to, all suits,
<PAGE> 3
actions or administrative hearings existing on the date hereof to which
Penril is a party (or which have been assigned by Penril to Newsub and
assumed by Newsub) other than those based upon, arising out of or in
connection with the Modem Business (collectively, the "Newsub Existing
Litigation", as listed on Exhibit A hereto). This Agreement will
constitute notice, in accordance with Paragraph 2 hereof, of Newsub's
election to conduct the defense (or to prosecute, as the case may be)
of all claims in connection with the Newsub Existing Litigation.
Other than certain rights retained pursuant to Paragraph 2 hereof
Penril acknowledges and agrees that Newsub will have all rights to, and
title and interest in any such claim, suit or proceeding for which
Newsub is providing indemnification.
(b) Penril will indemnify and save harmless Newsub and its
directors, officers, employees, agents and/or affiliates (each, a
"Penril Indemnified Party" and, together with each Newsub Indemnified
Party, without distinction, an "Indemnified Party") from any and all
Claims incurred or suffered, directly or indirectly, (including,
without limitation, reasonable legal fees and expenses) resulting from
or attributable to (i) the operation of Penril from and after the
Distribution; (ii) any claim, suit or other type of proceeding based
upon, arising out of or in connection with the operation of the Modem
Business prior to the Merger; and (iii) any claim, suit or other type
of proceeding relating to the Merger, the Merger Agreement, the
solicitation of proxies relating to approval of the Merger and the
other transactions related to the Merger other than those based upon,
arising out of or in connection with the Newsub Registration Statement
on Form S-1 filed with the Securities and
<PAGE> 4
Exchange Commission to register the Newsub Stock in connection with the
Distribution or any information concerning Newsub in the Registration
Statement that was furnished by Penril and/or Newsub for inclusion in
the Registration Statement. In furtherance thereof, Penril acknowledges
and agrees that (ii) above includes, but is not limited to, all suits,
actions or administrative hearings existing on the date hereof to which
Penril is a party (none of which have been assigned by Penril to Newsub
or assumed by Newsub) which are based upon, arising out of or in
connection with the Modem Business (collectively, the "Penril Retained
Existing Litigation", as listed on Exhibit B hereto, and, together with
the Newsub Existing Litigation, the "Existing Litigation"). This
Agreement will constitute notice, in accordance with Paragraph 2
hereof, of Penril's election to conduct the defense (or to prosecute,
as the case may be) of all claims in connection with the Penril
Retained Existing Litigation. Other than certain rights retained
pursuant to Paragraph 2 hereof Newsub acknowledges and agrees that
Penril will have all rights to, and title and interest in any such
claim, suit or proceeding for which Penril is providing
indemnification.
2. DEFENSE OF CLAIM.
(a) In the event an Indemnified Party receives notice of any
claim asserted or any action or administrative or other proceeding
commenced in respect of a Claim for which indemnity may be properly
sought under this Agreement against Newsub or Penril, as the case may
be (the "Indemnifying Party"), the Indemnified Party shall give notice
in writing to the Indemnifying Party within thirty (30) days of its
receipt of such notice. Within thirty (30) days after the earlier of
(a) receipt by the Indemnifying Party of such notice from the
Indemnified Party, or (b) receipt of actual notice by the Indemnifying
Party from sources other than the Indemnified Party, the Indemnifying
Party may give the Indemnified Party written notice of its election to
conduct the defense of such claim, action or proceeding at its own
expense. If the Indemnifying Party has given the Indemnified Party such
notice of election to conduct the defense, the Indemnifying Party may
conduct the defense at its expense, but the Indemnified Party shall
nevertheless have the right to participate in the defense, provided
such participation is solely at the expense of the Indemnified Party,
without a right of further reimbursement. If the Indemnifying Party
<PAGE> 5
has not so notified the Indemnified Party in writing within the
time period provided above of its election to conduct the defense of
such Claim, the Indemnified Party may, but need not, conduct, at the
Indemnifying Party's expense, the defense of such claim, action or
proceeding. The Indemnified Party may at any time notify the
Indemnifying Party of its intention to settle, compromise or satisfy
any such claim, action or proceeding (the defense of which the
Indemnifying Party has not previously elected to conduct) and, with
the prior written consent of the Indemnified Party (which consent will
not be unreasonably withheld), may make such settlement, compromise or
satisfaction, at the Indemnifying Party's expense, provided, however,
that the Indemnifying Party may make such settlement, compromise or
satisfaction without the prior written consent of the Indemnified
Party if such settlement, compromise or satisfaction constitutes a
release of the Indemnified Party in respect of such Claim.
(b) Any settlement, compromise or satisfaction, or any final
judgment or decree entered in, any Claim or Existing Litigation
defended in accordance with the provisions of this Paragraph 2 shall be
final and binding on the parties hereto.
(c) The Indemnified Party and the Indemnifying Party shall use
all reasonable efforts to cooperate fully with respect to the defense
of any Claim or Existing Litigation in accordance with the provisions
of this Paragraph 2.
3. NOTICE. All notices and other communications required or permitted
to be given under this Indemnification Agreement shall be dated and in writing
and shall be deemed to have been duly given when (a) personally delivered, (b)
upon delivery of a telephonic facsimile transmission with a confirmed telephonic
transmission answered back, (c) three days after being deposited in the United
States mail, registered or certified, return receipt requested, postage prepaid,
or (d) one day after having been dispatched by a nationally recognized overnight
courier service, addressed to the party or parties to this Agreement to whom it
is directed:
<PAGE> 6
If to Penril:
Penril DataComm Networks, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
Attn: President
Facsimile No.: (301) 948-5761
with a copy to:
--------------------------
--------------------------
--------------------------
Attn:
------------------
Facsimile No.:
---------
and to:
Bay Networks, Inc.
4401 Great America Parkway
Santa Clara, California 95054
Attention: General Counsel
Facsimile No.: (408) 495-1991
If to Newsub:
Access Beyond, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20878
Attn: President
Facsimile No.:
with a copy to:
--------------------------
--------------------------
--------------------------
Attn:
------------------
Facsimile No.:
---------
or to such other address as may be designated by a party hereto by notice
delivered to the other parties.
4. COOPERATION. In connection with any Claim that is the subject of
indemnification, each party shall afford to the Indemnifying Party and its
accountants, counsel and other designated representatives reasonable access
during normal business hours to all records, books, contracts, instruments,
computer data and other information insofar as such access is reasonably
required by the indemnifying party in connection with the defense of any Claim
pursuant to Paragraph 2 hereof. In addition, each party shall use reasonable
efforts to make available to the Indemnifying Party, upon written request, its
officers, directors, employees and agents as witnesses to the extent that any
such person may reasonably be required in connection with the defense or
prosecution of any Claim.
<PAGE> 7
5. WAIVER. The waiver by any party hereto of the breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
preceding or succeeding breach and no failure by any party to exercise any right
or privilege hereunder shall be deemed a waiver of such party's rights or
privileges or shall be deemed a waiver of such party's rights hereunder to
exercise the same at any subsequent time or times.
6. AMENDMENT. This Agreement may be amended, modified or supplemented
only by written instrument executed by the party against whom enforcement is
sought.
7. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Delaware.
8. SEVERABILITY. The invalidity, illegality or unenforceability of one
or more of the provisions of this Agreement in any jurisdiction shall not affect
the validity, legality or enforceability of the remainder of this Agreement in
such jurisdiction or the validity, legality and enforceability of this
Agreement, including any such provision, in any other jurisdiction, it being
intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.
9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
10. SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties hereto, and the Indemnified Parties and each
of their respective successors and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Agreement on the
day and year first above written.
<PAGE> 8
PENRIL DATACOMM NETWORKS, INC.
By:
----------------------------
Its:
----------------------------
NEWSUB:
ACCESS BEYOND, INC.
By:
----------------------------
Its:
----------------------------
<PAGE> 1
EXHIBIT 10.4
FORM OF
SUBLEASE
--------
This Sublease ("Sublease") dated as of the ________ day of
___________________, 1996 by and between PENRIL DATACOMM NETWORKS, INC., a
Delaware corporation ("Sublessor") and ACCESS BEYOND, INC., a Delaware
corporation ("Sublessee").
W I T N E S E T H:
------------------
WHEREAS, pursuant to a certain lease dated March 31, 1989, entered into
between REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP, a Delaware limited
partnership, as landlord ("Landlord"), and Sublessor, then known as Penril
Corp., as tenant, as amended by a certain Letter Agreement dated May 14, 1990,
(as amended, collectively, the "Lease"), a copy of which Lease is attached
hereto as Exhibit "A" and which by reference is made a part hereof, Sublessor
has leased approximately 54,874 square feet of office space in the building
commonly known for address purposes as 1300 Quince Orchard Boulevard,
Gaithersburg, Montgomery County, Maryland (the "Premises") for a one hundred
nineteen (119) month term commencing November 1, 1989 and ending September 30,
1999; and
WHEREAS, subject to the written consent of Landlord, Sublessee desires
to sublease from Sublessor and Sublessor desires to sublease to Sublessee the
entire Premises.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Sublessor devises and subleases to
Sublessee and Sublessee accepts and subleases the Premises from Sublessor, upon
the following terms and conditions:
ARTICLE I
---------
PROVISIONS CONSTITUTING SUBLEASE
--------------------------------
It is the general intent of Sublessor and Sublessee that all
obligations of every kind and nature imposed upon Sublessor under the Lease
shall be and are assumed by Sublessee under this Sublease, save and except as
herein specifically provided to the contrary. This Sublease is subject to all of
the terms and conditions of the Lease. Except as herein specifically provided to
the contrary: (a) Sublessee shall assume and perform timely with reference to
the Premises all of the obligations of Sublessor under the Lease and shall have
the same rights, duties, obligations and benefits thereunder to the same extent
as if Sublessee were the tenant under the Lease; (b) as between Sublessor and
Sublessee, Sublessor shall have all the rights and benefits (but not the
obligations) of Landlord under the Lease; (c) Sublessee covenants and agrees not
to commit or permit to be committed on the Premises any act or omission which
would violate any term or condition of the Lease; (d) in the event of the
termination of Sublessor's interest as tenant under the Lease for any reason,
then this Sublease shall terminate concurrently therewith without any
<PAGE> 2
liability of Sublessor to Sublessee; (e) all of the terms and conditions
contained in the Lease are incorporated herein as terms and conditions of this
Sublease; and (f) Sublessee shall indemnify, defend and save harmless Sublessor
and Landlord from and against any and all claims, actions, demands, damages,
liabilities and expenses, including reasonable attorneys' and other professional
fees, arising from or relating to, wholly or in part, direct or indirectly, any
failure of Sublessee to observe or perform any of the terms, covenants,
obligations and conditions of the Lease and/or this Sublease required to be
observed or performed by Sublessee. In the event that any of the terms of this
Sublease shall conflict with any of the terms of the Lease, the terms of this
Sublease shall control as between Sublessor and Sublessee.
ARTICLE II
----------
TERM
----
The term of this Sublease ("Sublease Term") shall commence on the
earlier of either that date on which Sublessor distributes, in the form of a
dividend to certain of its stockholders, the shares of common stock, $.01 par
value, of Sublessee or that date on which Sublessee shall take occupancy of the
Premises (the "Commencement Date") and shall terminate on September 30, 1999.
Sublessee shall have no right to renew or extend this Sublease.
ARTICLE III
-----------
OCCUPANCY
---------
Sublessor shall give Sublessee possession of the Subleased Premises on
the Commencement Date, and thereafter, as described herein, on an "AS IS" basis,
without any representations or warranties, whether express or implied, of any
kind or nature whatsoever. Sublessee acknowledges that it has inspected to its
full satisfaction the Subleased Premises and is fully satisfied with the
condition thereof.
ARTICLE IV
----------
BASE RENT
---------
Sublessee agrees to pay to Landlord, on behalf of Sublessee and
Sublessor, as base rent for the Subleased Premises during the Sublease Term
monthly rentals equal in amount to the "Basic Monthly Rental" or "Base Rent" as
set forth and defined in Section 3 of the Lease, to the same extent as if
Sublessee were the tenant under the Lease.
All rentals due hereunder shall be paid directly by Sublessee to
Landlord on or before the first day of each month without setoff or deduction,
with the first payment due and payable on or prior to the Commencement Date.
The payment of base rent as provided herein shall be paid to Landlord at
2
<PAGE> 3
the address designated in Section 1 of Article XIV of this Sublease, or at such
other place as may be designated in writing from time to time by Landlord.
ARTICLE V
---------
CREDIT FOR LAST MONTH'S RENT
----------------------------
Sublessor and Sublessee acknowledge and agree that pursuant to the
provisions of Section 6 of the Lease, Sublessor has deposited with Landlord the
sum of Sixty-two Thousand Eight Hundred Thirty and 73/100 Dollars ($62,830.73)
as Basic Monthly Rent for the last month of the Term of the Lease. Sublessor and
Sublessee further acknowledge and agree that it is the intention of the parties
that Sublessee shall be entitled to a credit under this Sublease for such amount
to the same extent as if such deposit in such amount had been made by Sublessee
with Sublessor pursuant to this Sublease. By reason thereof, in the event the
Sublease Term expires or this Sublease is otherwise terminated, such amount
shall be credited toward the payment of the last month's rent due from Sublessee
to Sublessor under the terms of this Sublease. In the event that this Sublease
shall be terminated for any reason other than default or breach by Sublessee,
then, to the extent that the amount of such deposit exceeds the applicable
rental for the last valid month of this Sublease prior to such termination, such
excess shall be credited by Sublessor to Sublessee, and an amount in cash equal
to such excess shall be delivered promptly by Sublessor to Sublessee.
ARTICLE VI
----------
USE AND ENVIRONMENTAL COVENANTS
-------------------------------
1. Sublessee shall use the Premises for general office use, planning,
engineering, design, development and implementation of products and services
(excluding heavy manufacturing), computer operations, software and hardware
development and light assembly and storage reasonably related to such uses, and
for such other lawful purposes as may be incidental thereto, and Sublessee will
not utilize the Premises for any manufacturing purposes or any other purposes
whatsoever. Notwithstanding the above, Sublessee shall not do or permit anything
to be done in or about the Premises which will allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Sublessee
cause, maintain or permit any nuisance in, on or about the Premises. Sublessee
shall not commit or suffer to be committed any waste in or upon the Premises.
Sublessee shall be responsible for obtaining, at Sublessee's sole expense, any
and all necessary permits and approvals required in order for Sublessee to use
and occupy the Premises as set forth herein.
2. Sublessee shall not occupy, use or permit to be used or occupied the
Premises in violation of any applicable law, governmental rule, regulation or
order including, without limiting
3
<PAGE> 4
the generality of the foregoing, all laws, rules, regulations and orders
relating to the health and safety of employees and the pollution of the
atmosphere and surface or ground waters. Sublessee shall not permit any
"Hazardous Material" (as hereinafter defined or as otherwise set forth in
Section 9 of the Lease) of any kind or nature to be disposed of, released,
accumulated, buried or stored in, on or about the Premises. Further, Sublessee
shall take all actions necessary to keep the Premises free from contamination by
or from any such Hazardous Material. As used herein, the term "Hazardous
Material" means any hazardous or toxic substance, material or waste which is or
becomes regulated by any local governmental authority, the State of Maryland or
the United States Government. The term "Hazardous Material" includes also,
without limitation, any material or substance which is (a) designated as a
"hazardous substance" pursuant to Section 311 of the Federal Water Pollution
Control Act (33 U.S.C. section 1317), (b) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Research Conservation and Recovery Act,
42 U.S.C. section 6901 et seq. (42 U.S.C. section 6903) or (c) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. section 9601 et seq. (42
U.S.C. section 9601).
3. If Sublessee shall breach any obligation stated in this Article, or
if the presence of any Hazardous Material on the Premises caused or permitted by
Sublessee results in contamination of the Premises, or if contamination of the
Premises by Hazardous Material otherwise occurs for which Sublessee is legally
liable to Landlord or Sublessor for damage resulting therefrom, then Sublessee
shall indemnify, defend, and hold harmless Landlord and Sublessor from any and
all claims, judgments, damages, penalties, fines, costs, liabilities or losses
(including, without limitation, diminution in value of the Premises, damages for
the loss or restriction on use of rentable or useable space or any amenity of
the Premises, damages arising from any adverse impact on marketing of space, and
amounts paid in settlement of claims, attorneys' fees, consultants' fees and
expert fees) which arise during or after the Sublease Term as a result of such
contamination. This indemnification of Landlord and Sublessor by Sublessee
includes, without limitation, costs and expenses incurred in connection with any
investigation of site conditions or any clean-up, remedial, removal or
restoration work required by any federal, state or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
groundwater on or under the Premises. Without limiting the foregoing, if the
presence of any Hazardous Material, in, on or about the Premises caused or
permitted by Sublessee results in any contamination of the Premises, then
Sublessee promptly shall take all actions at its sole cost and expense as are
necessary to put the Premises in such a condition that the Premises comply with
all applicable governmental standards, regulations, rules or ordinances;
provided that the approval of Landlord and Sublessor for such actions shall
first be obtained.
4. In the event Sublessee shall install any electrical equipment that
overloads the lines in the Premises, Sublessee shall, at its sole expense, make
whatever changes are necessary to comply with the requirements of the insurance
underwriters and governmental authorities having jurisdiction thereof.
4
<PAGE> 5
ARTICLE VII
-----------
COVENANTS OF SUBLESSOR AND SUBLESSEE
------------------------------------
1. So long as Sublessee timely pays the rental due hereunder and
performs and observes all of the covenants and provisions contained herein and
in the Lease required to be performed and observed by Sublessee, Sublessor shall
not interfere with Sublessee's enjoyment and peaceful possession of the Premises
throughout the Sublease Term.
2. Pursuant to Section 5.A. of the Lease, during the Sublease Term,
Sublessee shall be solely responsible for providing and paying for the upkeep of
the Premises and all appliances and fixtures installed therein, and all of the
mechanical, electrical and plumbing systems pertaining thereto, including, but
not limited to, those items set forth in Section 5.A. (i) through (viii)
inclusive of the Lease, to the same extent as if Sublessee were the tenant under
the Lease.
3. Pursuant to Section 5.B. of the Lease, during the Sublease Term,
Sublessee shall be solely responsible for the payment of all items of
"Additional Rent" as defined and provided in Section 5.B. of the Lease,
including, but not limited to, the payment of all "Taxes", "Insurance" and
"Operating Costs" all as defined and provided in Section 5.B. (i) through (iii)
inclusive of the Lease, to the same extent as if Sublessee were the tenant under
the Lease.
4. Pursuant to Section 7.A. of the Lease, during the Sublease Term,
Sublessee shall be solely responsible for carrying and keeping in full force and
effect those insurance policies required to be carried by Sublessor pursuant to
Section 7.A. of the Lease, to the same extent as if Sublessee were the tenant
under the Lease. Sublessee shall not be entitled to self-insure against any
casualties required to be insured against pursuant to Section 7 of the Lease.
During the Sublease Term, such insurance policies shall include Landlord,
Sublessor, and Bay Networks, Inc. as additional insured parties thereunder, as
their interests may appear. Prior to occupying the Premises, Sublessee shall
deliver to Landlord and Sublessor certificates of insurance reasonably
acceptable to Sublessor and Landlord evidencing that the insurance required
under Section 7.A. of the Lease to be secured by Sublessor (and therefore by
Sublessee hereunder) is in full force and effect.
5. Pursuant to Section 10 of the Lease, during the Sublease Term,
Sublessee shall be solely responsible for all maintenance and repair obligations
set forth in Section 10 of the Lease in accordance with and as specified in
Section 5 of the Lease, to the same extent as if Sublessee were the tenant under
the Lease.
6. In addition to the provisions of Section 11 of the Lease governing
the making of any alterations, modifications or improvements to the Premises
("Alterations") by Sublessor, Sublessee shall not undertake any such
alterations, modifications or improvements to the Premises without the prior
written consent of Sublessor, which consent shall not be unreasonably withheld
or delayed.
5
<PAGE> 6
7. Wherever in the Lease Sublessor, as tenant thereunder, is required
to pay to Landlord thereunder, certain pass-through expenses, costs, fees, etc.
in addition to the basic rent provided therein, to the extent that such
pass-through expenses, costs, fees, etc. are not specifically dealt with and
provided for in this Sublease, during the Sublease Term Sublessee agrees, on
demand, to pay promptly when due, all of such pass-through expenses, costs,
fees, etc.
8. Except as otherwise expressly provided in this Sublease, Sublessee
agrees to perform, abide and be bound by all of the terms, covenants,
obligations, provisions, conditions, indemnities and waivers and exemptions
contained in the Lease with respect to the Premises to the same extent as if
Sublessee were the tenant under the Lease, and all terms, covenants,
obligations, provisions, conditions, indemnities, waivers and exemptions
contained and made in the Lease for the benefit of Landlord thereunder, shall be
deemed made by Sublessee hereunder and to inure to the benefit of both Sublessor
and Landlord hereunder and thereunder.
ARTICLE VIII
------------
SUBLESSEE'S INDEMNITIES
-----------------------
1. In addition to any other indemnities of Sublessee set forth
elsewhere in this Sublease, Sublessee shall indemnify, defend and save harmless
Sublessor and Landlord from and against any and all claims, actions, demands,
damages, liabilities and expenses, including reasonable attorneys' and other
professional fees, arising from or related to, wholly or in part, directly or
indirectly, any failure of Sublessee to observe or perform any of the terms,
covenants, obligations and conditions of the Lease and/or this Sublease required
to be observed or performed by Sublessee.
2. Sublessee shall indemnify, defend and hold harmless Landlord and
Sublessor from and against any and all claims of any kind or nature arising from
Sublessee's use and occupancy of the Premises, including, without limitation,
claims arising out of or from damage to persons and property, claims arising out
of or from Sublessee's merchandise and inventory, any damage or injury to
Sublessee's employees, agents or invitees, or any damage or injury to any third
persons arising out of the conduct of such employees, agents, or invitees, and
Sublessee hereby waives all claims against Landlord and Sublessor and their
respective officers, agents, employees, partners, directors and shareholders for
loss of or damage to, goods, wares or merchandise or for injuries to persons in
and about the Premises from any cause whatsoever.
ARTICLE IX
----------
ASSIGNMENT AND SUBLETTING
-------------------------
Sublessee shall not have the right to assign, mortgage, pledge or
encumber its interests in, to and under this Sublease nor to sublet the whole or
any part of the Premises, without first obtaining the written consent of
Sublessor, which consent may be withheld by Sublessor for any reason whatsoever.
6
<PAGE> 7
ARTICLE X
---------
EMINENT DOMAIN
--------------
Should the Premises be taken by condemnation or under any right of
eminent domain, Sublessor shall be entitled to terminate this Sublease effective
as of the date on which Sublessee is forced to relinquish possession of the
Premises or on the date on which the Lease terminates as a result of such
taking, as the case may be. Sublessee shall have no right to claim or receive
any damages or any portion of any award with respect to such condemnation.
ARTICLE XI
----------
QUIET ENJOYMENT
---------------
Sublessor hereby agrees that Sublessee, upon the payment of all rent as
required hereunder and upon the performance of all covenants and terms of this
Sublease, may quietly hold and enjoy the Premises, free from hindrance by
Sublessor, but subject, however, to the Lease and any mortgages, liens,
restrictions, conditions, covenants or other encumbrances now or hereafter
affecting the Premises.
ARTICLE XII
-----------
SUBLESSOR'S REMEDIES UPON DEFAULT
---------------------------------
1. If Sublessee defaults in the performance of any of the covenants,
terms, conditions or provisions of this Sublease and Sublessee fails to cure
such default within ten (10) days after written notice thereof from Sublessor
(or fails to cure such default with due diligence if the default is of such a
nature as to require more than ten (10) days to cure), then Sublessor may, at
its option (but shall not be required to do so), perform the same for the
account of Sublessee and any amounts paid or expenses incurred by Sublessor in
the performance thereof, together with interest computed at the rate of ten
percent (10%) per annum, shall be deemed additional rent and due and payable to
Sublessor on demand. The receipt by Sublessor of any installment of any rentals
hereunder shall not be deemed a waiver of any other rentals or other amounts
then due.
2. If Sublessee defaults in the payment of the rentals reserved
hereunder, or any part thereof, or in making any other payment herein provided,
and any such default shall continue for a period of ten (10) days after the same
is due and payable; or if the Premises or any part thereof shall be abandoned or
if Sublessee shall be dispossessed therefrom by or under any authority other
than Sublessor; or if Sublessee shall file a voluntary petition in bankruptcy or
if Sublessee shall file any petition or institute any proceeding under any
insolvency or bankruptcy law (or any amendment or addition thereto hereafter
made) seeking to effect its reorganization or a composition with its creditors
or if Sublessee shall make a general assignment for the benefit of creditors, or
if (in any proceedings based on the insolvency of Sublessee or relating to
bankruptcy proceedings) a receiver or trustee shall be appointed for Sublessee
or the Premises, or if any
7
<PAGE> 8
proceedings shall be commenced for the reorganization of Sublessee under any
insolvency or bankruptcy law, or if the leasehold estate created hereby shall be
taken on execution or by any process of law, or if Sublessee shall admit in
writing its inability to pay its obligations generally as they become due, then
Sublessor may, at its option, terminate this Sublease without notice, but
Sublessee shall remain liable to Sublessor for the full amount of all rentals or
other amounts due hereunder.
3. If Sublessee defaults in the fulfillment of any of the covenants or
conditions of this Sublease, other than the covenants for the payment of rent
(unless the result of such default is herein otherwise expressly provided for),
Sublessor may, at its option, terminate this Sublease by giving Sublessee thirty
(30) days notice of such termination in writing and thereupon at the expiration
of such thirty (30) days, this Sublease shall expire as fully and completely as
if that day were the date definitely set for the expiration of the Sublease Term
and Sublessee shall then quit and surrender the Premises, but Sublessee shall
remain liable to Sublessor for the full amount of all rentals and other amounts
due hereunder; provided, however, that if Sublessee shall, within the period of
thirty (30) days set forth in such notice, fully cure such default and furnish
Sublessor with proof or evidence satisfactory to Sublessor of such cure, then
and in that event such notice shall thereupon become null and void and this
Sublease shall continue in full force and effect without impairment.
4. After termination of this Sublease, Sublessor or Sublessor's agents
may immediately, or at any time thereafter, reenter the Premises and remove all
persons and property therefrom (by legal proceedings or by force or otherwise)
without being liable to indictment, prosecution or damages therefor. In the
event that Sublessor shall obtain possession of the Premises, Sublessee agrees
to pay to Sublessor, on demand, an amount equal to the expenses incurred by
Sublessor in obtaining possession, including court costs and attorneys' fees,
and such other expenses as Sublessor may reasonably incur in putting the
Premises in good order and condition, and Sublessee shall remain liable to
Sublessor for the full amount of all rentals and other amounts due hereunder.
Such reentry, repossession and removal by Landlord shall not be a waiver,
release or discharge of any obligation or liability of Sublessee hereunder.
5. All of the rights, remedies and benefits reserved by and conferred
upon Sublessor in this Article and at law or in equity are and shall be
cumulative.
ARTICLE XIII
------------
SUBORDINATION AND ATTORNMENT
----------------------------
Sublessor reserves the right, at all times, to subject and subordinate
Sublessee's rights under the Sublease to Landlord's or Sublessor's interest in
the Premises or to any lien now or hereafter placed on such interests in the
Premises. Sublessee shall execute within ten (10) days of request, any
certificate that Landlord, Sublessor or any of their respective successors in
interest or assigns may reasonably request.
8
<PAGE> 9
ARTICLE XIV
-----------
MISCELLANEOUS TERMS AND CONDITIONS
----------------------------------
1. Any notice required or permitted to be given hereunder shall be
deemed sufficient if given by a communication in writing and delivered by hand
or sent by United States mail, postage prepaid and registered, and addressed as
follows:
<TABLE>
<S> <C>
If to Sublessor: Penril DataComm Networks, Inc.
_____________________________________
_____________________________________
Attention: __________________________
(or forwarded to the address to which the last rental check was forwarded)
If to Sublessee: Access Beyond, Inc.
1300 Quince Orchard Boulevard
Gaithersburg, Maryland 20877
Attention: President
If to Landlord: Real Estate Income Partners III,
Limited Partnership
c/o Birtcher Properties
27611 La Paz Road
Laguna Niguel, California 92677
Attention: Carol H. Kutteh
</TABLE>
Any notice give hereunder by mail shall be deemed delivered when
deposited in a United States general or branch post office, with sufficient
postage affixed, and enclosed in a registered mail prepaid wrapper addressed as
hereinbefore provided.
2. The waiving of any of the covenants of this Sublease by either party
shall be limited to the particular instance and shall not be deemed a waiver of
any other breach of such covenant or of any other provision herein contained.
3. The article headings are inserted only for convenience and are in no
way to be construed as part of such article or as a limitation on the scope of
the particular article to which they refer.
4. This Sublease constitutes the entire agreement between Sublessor and
Sublessee with respect to the subject matter hereof and supersedes all prior
agreements and understandings, whether written or oral, between the parties.
5. This Sublease shall be governed by and construed in accordance with
the laws of the State of Maryland.
9
<PAGE> 10
6. This Sublease may be amended, modified or supplemented only by a
written agreement signed by both Sublessor and Sublessee.
7. All terms, covenants and conditions of this Sublease or any
extension, amendment or modification thereto, shall inure to the benefit of and
be binding upon the parties hereto, and the respective successors and permitted
assigns of each.
8. Upon the request of either party, each party will execute,
acknowledge and deliver a short form of memorandum of this Sublease to the
other. Neither party, however, shall record this Sublease or the short form of
memorandum of this Sublease without first obtaining the other party's prior
written consent. In the event of any recordation, the party desiring such
recordation shall pay all costs thereof (including, but not limited to, the
costs of all conveyance and transfer taxes or fees imposed by the State of
Maryland and Montgomery County in connection with such recordation).
IN WITNESS WHEREOF, the parties hereto have caused the Sublease to be
executed as of the day and year first above written.
ATTEST: SUBLESSOR
__________________________________ PENRIL DATACOMM NETWORKS, INC.
__________________________________ By: _________________________________
Its: ________________________________
ATTEST: SUBLESSEE
__________________________________ ACCESS BEYOND, INC.
__________________________________ By: _________________________________
Its: ________________________________
10
<PAGE> 11
STATE OF ______________ )
) SS:
COUNTY OF _____________ )
BEFORE ME, the undersigned, Notary Public in and for the above County
and State, personally appeared the above named PENRIL DATACOMM NETWORKS, INC.,
Sublessor under the foregoing instrument, by _______________________________,
its _________________________, who acknowledged that he did sign the foregoing
instrument on behalf of such corporation and that the same is the free act and
deed of such corporation and his free act and deed as such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal at __________________, ___________________ this _____ day of
__________________, 1996.
________________________________
Notary Public
STATE OF ______________ )
) SS:
COUNTY OF _____________ )
BEFORE ME, the undersigned, Notary Public in and for the above County
and State, personally appeared the above named ACCESS BEYOND, INC., Sublessee
under the foregoing instrument, by ___________________________, its
_________________________, who acknowledged that he did sign the foregoing
instrument on behalf of such corporation and that the same is the free act and
deed of such corporation and his free act and deed as such officer.
IN TESTIMONY WHEREOF, I have hereunto set my hand and affixed my
official seal at __________________, ___________________ this _____ day of
__________________, 1996.
________________________________
Notary Public
11
<PAGE> 12
CONSENT OF LANDLORD
-------------------
REAL ESTATE INCOME PARTNERS III, LIMITED PARTNERSHIP ("Landlord")
hereby consents to the foregoing Sublease of the Premises.
Landlord further agrees that all notices, demands, claims or documents
of any kind which Landlord may be required or may desire to serve upon or
deliver to either Sublessor or Sublessee shall be served or delivered to both
Sublessor and Sublessee at the addresses so designated in Section 1 of Article
XIV of the Sublease, or by depositing copies of same in the United States mail,
postage prepaid and addressed to Sublessor and Sublessee at their respective
designated addresses.
IN WITNESS WHEREOF, this CONSENT OF LANDLORD has been duly executed as
of the day of , 1996.
OWNER
REAL ESTATE INCOME
PARTNERS III, LIMITED
PARTNERSHIP
By:_____________________________
Its:____________________________
12
<PAGE> 1
EXHIBIT 10.5
FORM OF
1996 LONG-TERM INCENTIVE PLAN
OF
ACCESS BEYOND, INC.
1. PURPOSE OF THE PLAN. This 1996 Long-Term Incentive Plan of Access
Beyond, Inc., adopted as of the ___ day of _______________, 1996, is intended to
enable officers and key employees of the Company and its Subsidiaries to acquire
or increase their ownership of common stock of the Company on reasonable terms.
The opportunity so provided is intended to foster in participants an incentive
to put forth maximum effort for the continued success and growth of the Company
and its Subsidiaries, to aid in retaining individuals who put forth such
efforts, and to assist in attracting the best available individuals to the
Company and its Subsidiaries in the future.
2. DEFINITIONS. When used herein, the following terms shall have the
meanings set forth below:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act (as in effect on the date the Plan is adopted by the
Board), whether or not the Company is then subject to such reporting
requirement; provided, that, without limitation, a Change in Control
shall be deemed to have occurred if:
(a) any "person" (as defined in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined
voting power of the Company's then outstanding securities
otherwise than through any transaction or transactions
arranged, or consummated with the prior approval of, the
Board; provided, however, that a Change in Control shall not
be deemed to occur under this clause (a) by reason of the
acquisition of securities by the Company or an employee
benefit plan (or any trust funding such a plan) maintained by
the Company, or solely by reason of the new issuance of
securities directly by the Company;
(b) during any period of two (2) consecutive years
(not including any period prior to the adoption of this Plan)
there shall cease to be a majority of the Board comprised of
Tenured Directors; or
(c) (i) the stockholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) more than eighty percent
(80%) of the combined voting power of the voting securities of
<PAGE> 2
the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) the stockholders
of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
2.3 "CODE" means the Internal Revenue Code of 1986, as in
effect at the time of reference, or any successor revenue code which
may hereafter be adopted in lieu thereof, and reference to any specific
provisions of the Code shall refer to the corresponding provisions of
the Code as it may hereafter be amended or replaced.
2.4 "COMMITTEE" means the Compensation Committee of the Board
or any other committee appointed by the Board which is invested by the
Board with responsibility for the administration of the Plan.
2.5 "COMPANY" means Access Beyond, Inc., a Delaware
corporation.
2.6 "EMPLOYEE STOCKHOLDER" means an Employee who, at the time
an Incentive Stock Option is granted owns, as defined in Section 424 of
the Code, stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of: (a) the Company; or
(b) if applicable, a Subsidiary or a Parent.
2.7 "EMPLOYEES" means officers (including officers who are
members of the Board) and other key employees of the Company or any of
its Subsidiaries.
2.8 "ERISA"means the Employee Retirement Income Security Act
of 1974, as in effect at the time of reference, or any successor law
which may hereafter be adopted in lieu thereof, and any reference to
any specific provisions of ERISA shall refer to the corresponding
provisions of ERISA as it may hereafter be amended or replaced.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of the Exchange Act shall refer to the corresponding
provisions of the Exchange Act as it may hereafter be amended or
replaced.
2.10 "FAIR MARKET VALUE" means, with respect to the Shares,
the closing price of the Shares as reported on the NASDAQ National
Market System, on the last business day prior to the date on which the
value is to be determined, as reported in the Wall Street Journal or
such other source of quotations for, or report of trading of, the
Shares as the Committee may reasonably select from time to time.
Notwithstanding the foregoing, with respect to Options granted on or
before the first date that the Shares are traded on the NASDAQ National
Market System other than on an as issued or when issued basis, Fair
Market Value means the average closing price of the Shares as reported
on the NASDAQ National Market System for the first ten (10) days that
the Shares are traded thereon other than on an as issued or when issued
basis.
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<PAGE> 3
2.11 "INCENTIVE STOCK OPTION" means an Option meeting the
requirements and containing the limitations and restrictions set forth
in Section 422 of the Code.
2.12 "NON-QUALIFIED STOCK OPTION" means an Option other than
an Incentive Stock Option.
2.13 "OPTION" means the right to purchase the number of Shares
specified by the Committee, at a price and for a term fixed by the
Committee, in accordance with the Plan, and subject to such other
limitations and restrictions as the Plan and the Committee may impose.
2.14 "OPTION AGREEMENT" means a written agreement in such form
as may be, from time to time, hereafter approved by the Committee,
which shall be duly executed by the Company and the Employee and which
shall set forth the terms and conditions of an Option under the Plan.
2.15 "PARENT" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the
employer corporation if, at the time of the granting of the Option,
each of the corporations other than the employer corporation owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
2.16 "PLAN" means the 1996 Long-Term Incentive Plan of Access
Beyond, Inc.
2.17 "REGULATION T" means Part 220, chapter II, title 12 of
the Code of Federal Regulations, issued by the Board of Governors of
the Federal Reserve System pursuant to the Exchange Act, as amended
from time to time, or any successor regulation which may hereafter be
adopted in lieu thereof.
2.18 "RULE 16b-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities and Exchange Commission as in effect at
the time of reference, or any successor rules or regulations which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of Rule 16b-3 shall refer to the corresponding provisions of
Rule 16b-3 as it may hereafter be amended or replaced.
2.19 "SHARES" means shares of the Company's $.01 par value
common stock or, if by reason of the adjustment provisions contained
herein, any rights under an Option under the Plan pertain to any other
security, such other security.
2.20 "SUBSIDIARY" or "SUBSIDIARIES" means any corporation or
corporations other than the employer corporation in an unbroken chain
of corporations beginning with the employer corporation if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other corporations
in such chain.
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<PAGE> 4
2.21 "SUCCESSOR" means the legal representative of the estate
of a deceased Employee or the person or persons who shall acquire the
right to exercise or receive an Option by bequest or inheritance or by
reason of the death of the Employee.
2.22 "TENURED DIRECTORS" means individuals who at the
beginning of any period of two (2) consecutive years (not including any
period prior to the adoption of this Plan) and any new director(s)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election
was previously so approved.
2.23 "TERM" means the period during which a particular Option
may be exercised.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
exercise of Options to be granted from time to time under the Plan, an aggregate
of _______________ (_________) Shares, which Shares may be, in whole or in part,
as the Board shall from time to time determine, authorized but unissued Shares,
or issued Shares which shall have been reacquired by the Company. Any Shares
subject to issuance upon exercise of Options but which are not issued because of
a surrender, lapse, expiration, forfeiture or termination of any such Option
prior to issuance of the Shares shall once again be available for issuance in
satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of at least two (2) members of the Board who are neither
employees nor officers of the Company and who are outside directors within the
meaning of Treasury Regulation Section 1.162-27. Subject to the provisions of
the Plan, the Committee shall have full authority, in its discretion, to
determine the Employees to whom Options shall be granted, the number of Shares
to be covered by each of the Options, and the terms of any such Option; to amend
or cancel Options (subject to Section 18 of the Plan), to accelerate the vesting
of Options; to require the cancellation or surrender of any previously granted
Options under this Plan or any other plans of the Company as a condition to the
granting of an Option; to interpret the Plan; to prescribe, amend and rescind
rules and regulations relating to the Plan; and generally to interpret and
determine any and all matters whatsoever relating to the administration of the
Plan and the granting of Options hereunder. The Board may from time to time
appoint members to the Committee in substitution for or in addition to members
previously appointed and may fill vacancies, however caused, in the Committee.
The Committee shall select one of its members as its chairman and shall hold its
meetings at such times and places as it shall deem advisable. A majority of its
members shall constitute a quorum. Any action of the Committee may be taken by a
written instrument signed by all of the members, and any action so taken shall
be fully as effective as if it had been taken by a vote of a majority of the
members at a meeting duly called and held. The Committee shall make such rules
and regulations for the conduct of its business as it shall deem advisable and
shall appoint a Secretary who shall keep minutes of its meetings and records of
all action taken in writing without a meeting. No member of the Committee shall
be liable, in the absence of bad faith, for any act or omission with respect to
his or her service on the Committee.
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<PAGE> 5
5. EMPLOYEES TO WHOM OPTIONS MAY BE GRANTED. Options may be granted in
each calendar year or portion thereof while the Plan is in effect to such of the
Employees as the Committee, in its discretion, shall determine. In determining
the Employees to whom Options shall be granted and the number of Shares to be
issued or subject to purchase or issuance under such Options, the Committee
shall take into account the recommendations of the Company's management as to
the duties of the respective Employees, their present and potential
contributions to the success of the Company and its Subsidiaries, and such other
factors as the Committee shall deem relevant in connection with accomplishing
the purposes of the Plan; provided however, no Employee may receive Options to
acquire more than _____ Shares in any one calendar year. No Option shall be
granted to any member of the Committee so long as his or her membership on the
Committee continues or to any member of the Board who is also an officer or key
employee of the Company or any Subsidiary.
6. TYPES AND BASIC TERMS OF OPTIONS.
6.1 TYPES OF OPTIONS. Options granted under the Plan may be
(i) Incentive Stock Options, (ii) Non-Qualified Stock Options or (iii)
a combination of the foregoing. The Option Agreement shall designate
whether an Option is an Incentive Stock Option or a Non-Qualified Stock
Option and separate Option Agreements shall be issued for each type of
Option when a combination of an Incentive Stock Option and a
Non-Qualified Stock Option are granted on the same date to the same
Employee. Any Option which is designated as a Non-Qualified Stock
Option shall not be treated by the Company or the Employee to whom the
Option is granted as an Incentive Stock Option for federal income tax
purposes.
6.2 OPTION PRICE. The option price per Share of any
Non-Qualified Stock Option granted under the Plan shall be the Fair
Market Value of the Shares covered by the Option on the date the Option
is granted unless the Committee, in its sole discretion, determines to
set the option price at an amount less than or greater than the Fair
Market Value of the Shares on such date. The option price per Share of
any Incentive Stock Option granted under the Plan shall not be less
than the Fair Market Value of the Shares covered by the Option on the
date the Option is granted.
Notwithstanding anything herein to the contrary, the option
price per Share of any Incentive Stock Option granted to an Employee
Stockholder shall not be less than one hundred ten percent (110%) of
the Fair Market Value of the Shares covered by the Option on the date
the Option is granted.
6.3 TERM OF OPTIONS. Options granted hereunder shall be
exercisable for a Term of not more than ten (10) years from the date of
grant thereof, but shall be subject to earlier termination as
hereinafter provided. Each Option Agreement issued hereunder shall
specify the Term of the Option, which shall be determined by the
Committee in accordance with its discretionary authority hereunder.
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<PAGE> 6
Notwithstanding anything herein to the contrary, if an
Incentive Stock Option is granted to an Employee Stockholder, then such
Incentive Stock Option shall not be exercisable more than five (5)
years from the date of grant thereof, but shall be subject to earlier
termination as hereinafter provided.
6.4 VESTING OF OPTIONS. Unless otherwise determined by the
Committee, in its discretion, and set forth in the related Option
Agreement, an Option may be exercised, prior to its expiration or
termination, within the following time limitations:
(a) After one (1) year from the date of grant, it may
be exercised as to not more than thirty percent (30%) of the
Shares originally subject to the Option.
(b) After two (2) years from the date of grant, it
may be exercised as to not more than an aggregate of sixty
percent (60%) of the Shares originally subject to the Option.
(c) After three (3) years from the date of grant, it
may be exercised as to any and all of the Shares subject to
the Option.
7. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS. No Employee
may be granted an Incentive Stock Option hereunder to the extent that the
aggregate fair market value (such fair market value being determined as of the
date of grant of the option in question) of the stock with respect to which
incentive stock options are first exercisable by such Employee during any
calendar year (under all such plans of the Employee's employer corporation, its
Parent, if any, and its Subsidiaries, if any) exceeds One Hundred Thousand
Dollars ($100,000). For purposes of the preceding sentence, options shall be
taken into account in the order in which they were granted. Any Option granted
under the Plan which is intended to be an Incentive Stock Option, but which
exceeds the limitation set forth in this Section 7, shall be a Non-Qualified
Stock Option.
8. DATE OF GRANT. The date of grant of an Option granted hereunder
shall be the date on which the Committee acts in granting the Option.
9. EXERCISE OF RIGHTS UNDER OPTIONS.
9.1 NOTICE OF EXERCISE. An Employee entitled to exercise an
Option shall do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option is
being exercised and any other relevant information the Committee may
require. The notice shall be accompanied by payment in full of the
purchase price of any Shares to be purchased, which payment may be made
in cash or, with the Committee's approval (which in the case of
Incentive Stock Options must be given at the time of grant), in Shares
valued at Fair Market Value at the time of exercise or a combination
thereof. No Shares shall be issued upon exercise of an Option until
full payment has been made therefor. All notices or requests provided
for herein shall be delivered to the Company's Secretary, or such other
person as the Committee may designate.
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<PAGE> 7
9.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole
discretion, may establish procedures whereby an Employee, subject to
the requirements of Rule 16b-3, Regulation T, federal income tax laws,
and other federal, state and local tax and securities laws, can
exercise an Option or a portion thereof without making a direct payment
of the option price to the Company; provided, however, that these
cashless exercise procedures shall not apply to Incentive Stock Options
which are outstanding on the date the Company establishes such
procedures unless the application of such procedures to such Options is
permitted pursuant to the Code and the regulations thereunder without
affecting the Options' qualification under Code Section 422 as
Incentive Stock Options. If the Company so elects to establish a
cashless exercise program, the Company shall determine, in its sole
discretion, and from time to time, such administrative procedures and
policies as it deems appropriate and such procedures and policies shall
be binding on any Employee wishing to utilize the cashless exercise
program.
10. OPTION TERMS AND CONDITIONS. Each Option or each Option Agreement
setting forth an Option shall contain such other terms and conditions not
inconsistent herewith as shall be approved by the Committee.
11. RIGHTS OF OPTION HOLDER. The holder of an Option shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase or
receipt under the Option, except to the extent that one or more certificates for
such Shares shall be issuable to the holder upon the due exercise of the Option
and the payment in full of the purchase price therefor.
12. NONTRANSFERABILITY OF OPTIONS. An Option shall not be transferable
other than: (a) by will or the laws of descent and distribution, and an Option
subject to exercise may be exercised, during the lifetime of the holder of the
Option, only by the holder or in the event of death, the holder's Successor, or
in the event of disability, the holder's personal representative, or (b)
pursuant to a qualified domestic relations order, as defined in the Code or
ERISA or the rules thereunder; provided, however, that an Incentive Stock Option
may not be transferred pursuant to a qualified domestic relations order unless
such transfer is otherwise permitted pursuant to the Code and the regulations
thereunder without affecting the Option's qualification under Code Section 422
as an Incentive Stock Option.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in the outstanding Shares by reason of stock dividends, stock splits,
reclassifications, recapitalizations, mergers, consolidations, combinations, or
exchanges of shares, separations, reorganizations or liquidations, or similar
events, or in the event of extraordinary cash or non-cash dividends being
declared with respect to the Shares, or similar transactions or events, the
number and class of Shares available under the Plan in the aggregate, the number
and class of Shares subject to Options theretofore granted, applicable purchase
prices and all other applicable provisions, shall, subject to the provisions of
the Plan, be equitably adjusted by the Committee (which adjustment may, but need
not, include payment to the holder of an Option, in cash or in shares, in an
amount equal to the difference between the price at which such Option may be
exercised and the then current fair market value of the Shares subject to such
Option as equitably determined by the Committee). The
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<PAGE> 8
foregoing adjustment and the manner of application of the foregoing provisions
shall be determined by the Committee, in its sole discretion. Any such
adjustment may provide for the elimination of any fractional share which might
otherwise become subject to an Option.
14. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan or any Option Agreement, in the case of a Change in Control of the Company,
each Option granted under the Plan shall terminate ninety (90) days after the
occurrence of such Change in Control but, in the event of any such termination,
an Option holder shall have the right, commencing at least five (5) days prior
to such Change in Control and subject to any other limitation on the exercise of
such Option in effect on the date of exercise to immediately exercise any
Options in full, without regard to any vesting limitations, to the extent they
shall not have been theretofore exercised. The foregoing provision shall not
apply to the holder of an Option to the extent that the application of such
provision would cause such Option, when aggregated with all other payments in
the nature of compensation due to the holder of the Option, to be treated as an
"excess parachute payment" within the meaning of Section 28OG of the Code.
15. FORMS OF OPTIONS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or by the stockholders of the Company
shall constitute the granting of any Option. An Option shall be granted
hereunder only by action taken by the Committee in granting an Option. Whenever
the Committee shall designate an Employee for the receipt of an Option, the
Company's Secretary, or such other person as the Committee may designate, shall
forthwith send notice thereof to the Employee, in such form as the Committee
shall approve, stating the number of Shares subject to the Option, its Term, and
the other terms and conditions thereof. The notice shall be accompanied by a
written Option Agreement in such form as may from time to time hereafter be
approved by the Committee, which shall have been duly executed by or on behalf
of the Company. If the surrender of previously issued Options is made a
condition of the grant, the notice shall set forth the pertinent details of such
condition. Execution by the Employee to whom such Option is granted of said
Option Agreement in accordance with the provisions set forth in this Plan shall
be a condition precedent to the exercise or receipt of any Option.
16. TAXES.
16.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have
the right to require a person entitled to receive Shares pursuant to
the exercise of an Option under the Plan to pay the Company the amount
of any taxes which the Company is or will be required to withhold with
respect to such Shares before the certificate for such Shares is
delivered pursuant to the Option. Furthermore, the Company may elect to
deduct such taxes from any other amounts then payable in cash or in
shares or from any other amounts payable any time thereafter to the
Employee. If the Employee disposes of Shares acquired pursuant to an
Incentive Stock Option in any transaction considered to be a
disqualifying disposition under Sections 421 and 422 of the Code, the
Employee shall notify the Company of such transfer and the Company
shall have the right to deduct any taxes required by law to be withheld
from any amounts otherwise payable then or at any time thereafter to
the Employee.
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<PAGE> 9
16.2 EMPLOYEE ELECTION TO WITHHOLD SHARES. Subject to specific
Committee approval (which in the case of Incentive Stock Options must
be given at the time of grant), an Employee may elect to satisfy the
tax liability with respect to the exercise of an Option by having the
Company withhold Shares otherwise issuable upon exercise of the Option;
provided, however, that if an Employee is subject to Section 16(b) of
the Exchange Act at the time the Option is exercised, such election
must satisfy the requirements of Rule 16b-3.
17. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years
from the date hereof, and an Option shall not be granted under the Plan after
that date although the terms of any Options may be amended at any date prior to
the end of its Term in accordance with the Plan. Any Options outstanding at the
time of termination of the Plan shall continue in full force and effect
according to the terms and conditions of the Option and this Plan.
18. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under Section
422 of the Code or Rule 16b-3 would be required. Notwithstanding the
discretionary authority granted to the Committee in Section 4 of the Plan, no
amendment of the Plan or any Option granted under the Plan shall impair any of
the rights of any holder, without the holder's consent, under any Option
theretofore granted under the Plan.
19. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for Shares
pursuant to the grant or exercise of an Option may be postponed by the Company
for such period as may be required for it with reasonable diligence to comply
with any applicable requirements of any federal, state or local law or
regulation or any administrative or quasi administrative requirement applicable
to the sale, issuance, distribution or delivery of such Shares. The Committee
may, in its sole discretion, require an Employee to furnish the Company with
appropriate representations and a written investment letter prior to the
exercise of an Option or the delivery of any Shares pursuant to an Option.
20. FEES AND COSTS. The Company shall pay all original issue taxes on
the exercise of any Option granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
21. EFFECTIVENESS OF THE PLAN. The Plan shall become effective when
approved by the Board. The Plan shall thereafter be submitted to the Company's
stockholders for approval and unless the Plan is approved by the Company's
stockholders at a meeting duly held in accordance with Delaware law within
twelve (12) months after being approved by the Board, the Plan and all Options
made under it shall be void and of no force and effect. In aid of this provision
any Options granted prior to the approval of the Plan by the Company's
stockholders shall be conditioned upon receipt of such approval.
22. OTHER PROVISIONS. As used in the Plan, and in Options and other
documents prepared in implementation of the Plan, references to the masculine
pronoun shall be deemed to refer to the feminine or neuter, and references in
the singular or the plural shall refer to the plural
-9-
<PAGE> 10
or the singular, as the identity of the person or persons or entity or entities
being referred to may require. The captions used in the Plan and in such Options
and other documents prepared in implementation of the Plan are for convenience
only and shall not affect the meaning of any provision hereof or thereof
23. DELAWARE LAW TO GOVERN. This Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
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<PAGE> 1
EXHIBIT 10.6
FORM OF
1996 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN OF
ACCESS BEYOND, INC.
1. PURPOSE OF THE PLAN. This 1996 Non-Employee Directors' Stock Option
Plan of Access Beyond, Inc., adopted as of the _______ day of _______________,
1996, is intended to encourage directors of the Company who are not officers or
key employees of the Company or any of its Subsidiaries to acquire or increase
their ownership of common stock of the Company. The opportunity so provided is
intended to foster in participants an incentive to put forth maximum effort for
the continued success and growth of the Company and its Subsidiaries.
2. DEFINITIONS. When used herein, the following terms shall have the
meanings set forth below:
2.1 "BOARD" means the Board of Directors of the Company.
2.2 "CHANGE IN CONTROL" means a change in control of the
Company of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Exchange Act (as in effect on the date the Plan is adopted by the
Board), whether or not the Company is then subject to such reporting
requirement; provided, that, without limitation, such a Change in
Control shall be deemed to have occurred if:
(a) any "person" (as defined in Sections 13(d) and
14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company
representing twenty-five (25%) or more of the combined voting
power of the Company's then outstanding securities otherwise
than through any transaction or transactions arranged, or
consummated with the prior approval of, the Board; provided,
however, that a Change in Control shall not be deemed to occur
under this clause (a) by reason of the acquisition of
securities by the Company or an employee benefit plan (or any
trust funding such a Plan) maintained by the Company, or
solely by reason of the new issuance of securities directly by
the Company; or
(b) during any period of two (2) consecutive years
(not including any period prior to the adoption of this Plan)
there shall cease to be a majority of the Board comprised of
Tenured Directors; or
(c) (i) the stockholders of the Company approve a
merger or consolidation of the Company with any other
corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting
securities of the surviving entity) at least eighty percent
(80%) of the combined voting power of the voting securities of
the Company or such surviving entity outstanding immediately
after such merger or consolidation, or (ii) the stockholders
of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the
Company of all or substantially all the Company's assets.
<PAGE> 2
2.3 "CODE" means the Internal Revenue Code of 1986, as in
effect at the time of reference, or any successor revenue code which
may hereafter be adopted in lieu thereof, and any reference to any
specific provisions of the Code shall refer to the corresponding
provisions of the Code as it may hereafter be amended or replaced.
2.4 "COMMITTEE" means the Compensation Committee of the Board
or any other committee appointed by the Board which is invested by the
Board with responsibility for the administration of the Plan.
2.5 "COMPANY" means Access Beyond, Inc., a Delaware
corporation.
2.6 "DIRECTORS" means directors who serve on the Board and who
are neither officers nor key employees of the Company or any of its
Subsidiaries.
2.7 "ERISA" means the Employee Retirement Income Security Act
of 1974, as in effect at the time of reference, or any successor law
which may hereafter be adopted in lieu thereof, and any reference to
any specific provisions of ERISA shall refer to the corresponding
provisions of ERISA as it may hereafter be amended or replaced.
2.8 "EXCHANGE ACT" means the Securities Exchange Act of 1934,
as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of the Exchange Act shall refer to the corresponding
provisions of the Exchange Act as it may be amended or replaced.
2.9 "FAIR MARKET VALUE" means with respect to the Shares, the
closing price of the Shares as reported on the NASDAQ National Market
System, on the last business day prior to the date on which the value
is to be determined, as reported in the WALL STREET JOURNAL or such
other source of quotations for, or report of trading of, the Shares as
the Committee may reasonably select from time to time. Notwithstanding
the foregoing, with respect to Options granted on the effective date of
the Plan, Fair Market Value means the average closing price of the
Shares on the NASDAQ National Market System for the ten (10) trading
days immediately following the last business date prior to the
effective date of the Plan.
2.10 "OPTION" means the right to purchase the number of Shares
specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the
Committee imposes.
2.11 "OPTION AGREEMENT" means a written agreement in such form
as may be, from time to time, hereafter approved by the Committee,
which shall be duly executed by the Company and the Director and which
shall set forth the terms and conditions of an Option under the Plan.
2.12 "PLAN" means the 1996 Non-Employee Directors' Stock
Option Plan of Access Beyond, Inc.
2
<PAGE> 3
2.13 "REGULATION T" means Part 220, chapter II, title 12 of
the Code of Federal Regulations, issued by the Board of Governors of
the Federal Reserve System pursuant to the Exchange Act, as amended
from time to time.
2.14 "RULE 16B-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities and Exchange Commission as in effect at
the time of reference, or any successor rules or regulations which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of Rule 16b-3 shall refer to the corresponding provisions of
Rule 16b-3 as it may hereafter be amended or replaced.
2.15 "SHARES" means shares of the Company's $.01 par value
common stock or, if by reason of the adjustment provisions contained
herein, any rights under an Option under the Plan pertain to any other
security, such other security.
2.16 "SUBSIDIARY" or "SUBSIDIARIES" means any corporation or
corporations other than the Company in an unbroken chain of
corporations beginning with the Company if each of the corporations
other than the last corporation in the unbroken chain owns stock
possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
2.17 "SUCCESSOR" means the legal representative of the estate
of a deceased Director or the person or persons who shall acquire the
right to exercise or receive an Option by bequest or inheritance or by
reason of the death of the Director.
2.18 "TENURED DIRECTORS" means individuals who at the
beginning of any period of two (2) consecutive years (not including any
period prior to the adoption of this Plan) constitute the Board and any
new director(s) whose election by the Board or nomination for election
by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved.
2.19 "TERM" means the period during which a particular Option
may be exercised.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
exercise of Options to be granted from time to time under the Plan, an aggregate
of _________ Shares, which Shares may be, in whole or in part, as the Board
shall from time to time determine, authorized but unissued Shares, or issued
Shares which shall have been reacquired by the Company. Any Shares subject to
issuance upon exercise of Options but which are not issued because of a
surrender, lapse, expiration or termination of any such Option prior to issuance
of the Shares shall once again be available for issuance in satisfaction of
Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of at least two (2) members of the Board who are neither
employees nor officers of the Company. Subject to the provisions of the Plan,
the Committee shall have full authority, in its
3
<PAGE> 4
discretion, to interpret the Plan, to prescribe, amend and rescind rules and
regulations relating to the Plan, and generally to interpret and determine any
and all matters whatsoever relating to the administration of the Plan and the
granting of Options hereunder. The Board may, from time to time, appoint members
to the Committee in substitution for or in addition to members previously
appointed and may fill vacancies, however caused, in the Committee. The
Committee shall select one of its members as its chairman and shall hold its
meetings at such times and places as it shall deem advisable. A majority of its
members shall constitute a quorum. Any action of the Committee may be taken by a
written instrument signed by all of the members, and any action so taken shall
be fully as effective as if it had been taken by a vote of a majority of the
members at a meeting duly called and held. The Committee shall make such rules
and regulations for the conduct of its business as it shall deem advisable and
shall appoint a Secretary who shall keep minutes of its meetings and records of
all action taken in writing without a meeting. No member of the Committee shall
be liable, in the absence of bad faith, for any act or omission with respect to
his or her service on the Committee.
5. GRANT OF OPTIONS. Each Director who is a Director on the date the
Plan becomes effective shall be granted an Option on such date to purchase
25,000 Shares without further action by the Board or the Committee. Each
Director who joins the Board after the date the Plan becomes effective shall be
granted an Option on the first day of his initial term on the Board to purchase
25,000 Shares without further action by the Board or the Committee. In addition,
on the fifth business day after the Company's Annual Report on Form 10-K is
filed with the Securities and Exchange Commission for each fiscal year during
which the Plan is in effect, each Director who is a Director on such date shall
be automatically granted an additional Option to purchase 5,000 Shares without
further action by the Board or the Committee. If the number of Shares available
under the Plan on a scheduled grant date is insufficient to make all automatic
grants required to be made pursuant to the Plan on such date, then each eligible
Director shall receive an Option to purchase a pro rata number of the remaining
Shares, if any, under the Plan; provided further, however, that if such
proration results in fractional Shares, then such Option shall be rounded down
to the nearest number of whole Shares.
6. BASIC STOCK OPTION PROVISIONS.
6.1 OPTION PRICE. The option price per share of any Option
granted under the Plan shall be the Fair Market Value of the Shares
covered by the Option on the date the Option is granted.
6.2 TERM OF OPTIONS. Subject to paragraphs (a) and (b) of this
Section 6.2, Options granted hereunder shall be exercisable for a Term
of ten (10) years from the date of grant thereof, but shall be subject
to earlier termination as hereinafter provided.
(a) Except as otherwise provided in the Plan, prior
to its expiration or termination, any Option granted hereunder
on the date the Plan becomes effective or on the first day of
a Director's initial term on the Board (each, an "Initial
Option") may be exercised within the following time
limitations:
4
<PAGE> 5
(i) After one year from the date of grant,
an Initial Option may be exercised as to not more
than thirty percent (30%) of the Shares originally
subject to the Initial Option.
(ii) After two years from the date of grant,
an Initial Option may be exercised as to not more
than sixty percent (60%) of the Shares originally
subject to the Initial Option.
(iii) After three years from the date of the
grant, an Initial Option may be exercised as to any
part or all of the Shares originally subject to the
Initial Option.
(b) Except as otherwise provided in the Plan, prior
to its expiration or termination, any Option granted hereunder
that is not an Initial Option may be exercised at any time
after three years from the date of grant.
6.3 TERMINATION OF DIRECTORSHIP. In the event a Director
ceases to be a member of the Board (other than by reason of death or
disability), then (a) an Option may be exercised by the Director (to
the extent the Director shall have been entitled to do so at the time
he or she ceased to be a member of the Board) at any time within seven
(7) months after he or she ceases to be a member of the Board, but not
beyond the Term of the Option and (b) the portion of the Option that
has not vested as of the date the Director ceases to be a member of the
Board shall automatically terminate.
6.4 DEATH OR DISABILITY OF DIRECTOR. If a Director dies or
becomes disabled while he or she is a member of the Board, or within
seven (7) months after he or she ceases to be a Member of the Board, an
Option may be exercised (to the extent the Director was entitled to do
so at the time of his or her death or disability) by the Director or
the Director's Successor, as the case may be, at any time within one
(1) year after the Director ceases to be a member of the Board on
account of such death or disability, but not beyond the Term of the
Option.
7. EXERCISE OF RIGHTS UNDER AWARDS.
7.1 NOTICE OF EXERCISE. A Director entitled to exercise an
Option may do so by delivery of a written notice to that effect
specifying the number of Shares with respect to which the Option is
being exercised and any other information the Committee may require.
The notice shall be accompanied by payment in full of the purchase
price of any Shares to be purchased, which payment shall be made in
cash or by certificates of Shares held for more than six (6) months,
duly endorsed in blank, equal in value to the purchase price of the
Shares to be purchased based on their Fair Market Value at the time of
exercise or a combination thereof. No Shares shall be issued upon
exercise of an Option until full payment has been made therefor. All
notices or requests provided for herein shall be delivered to the
Company's Chief Financial Officer, or such other person as the
Committee may designate. No fractional Shares shall be issued.
5
<PAGE> 6
7.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole
discretion, may establish procedures whereby a Director, subject to the
requirements of Rule 16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise an
Option or a portion thereof without making a direct payment of the
option price to the Company. If the Company so elects to establish a
cashless exercise program, the Company shall determine, in its sole
discretion, and from time to time, such administrative procedures and
policies as it deems appropriate and such procedures and policies shall
be binding on any Director wishing to utilize the cashless exercise
program.
8. OTHER OPTION TERMS AND CONDITIONS. Each Option or each Option
Agreement evidencing the grant of an Option shall contain such other terms and
conditions not inconsistent herewith as shall be approved by the Committee.
9. RIGHTS OF OPTION HOLDER. The holder of an Option shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase or
receipt under his or her Option, except to the extent that one or more
certificates for such Shares shall be issuable to the holder upon the due
exercise of the Option and the payment in full of the purchase price therefor.
10. NONTRANSFERABILITY OF OPTIONS. An Option shall not be transferable,
other than: (a) by will or the laws of descent and distribution, and an Option
may be exercised, during the lifetime of the holder of the Option, only by the
holder, or in the event of death, the holder's Successor, or in the event of
disability, the holder's personal representative, or (b) pursuant to a qualified
domestic relations order, as defined in the Code or ERISA or the rules
thereunder.
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in the outstanding Shares by reason of stock dividends, stock splits,
reclassifications, recapitalizations, mergers, consolidations, combinations, or
exchanges of shares, separations, reorganizations or liquidations, or similar
events, or in the event of extraordinary cash or non-cash dividends being
declared with respect to the Shares, or similar transactions or events, the
number and class of Shares available under the Plan in the aggregate, the number
and class of Shares subject to Options theretofore granted, applicable purchase
prices and all other applicable provisions, shall, subject to the provisions of
the Plan, be equitably adjusted by the Committee (which adjustment may, but need
not, include payment to the holder of an Option, in cash or in shares, in an
amount equal to the difference between the price at which such Option may be
exercised and the then current fair market value of the Shares subject to such
Option as equitably determined by the Committee). The foregoing adjustment and
the manner of application of the foregoing provisions shall be determined by the
Committee, in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to an
Option.
12. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan or in any Option Agreement, in the case of a Change in Control of the
Company, each Option granted under the Plan shall terminate on the later of (a)
ninety (90) days after the occurrence of such Change in Control and (b) seven
(7) months following the date of grant of an Option, and an Option holder shall
have the right, commencing at least five (5) days prior to such Change in
Control and subject to any other limitation on the exercise of such Option in
effect on the date of exercise, to immediately
6
<PAGE> 7
exercise any Option in full, without regard to any vesting limitations, to the
extent it shall not have been previously exercised.
13. FORMS OF OPTIONS. An Option shall be granted hereunder on the date
or dates specified in the Plan. Whenever the Plan provides for the receipt of an
Option by a Director, the Company's Chief Financial Officer or such other person
as the Committee shall appoint, shall send notice thereof to the Director, in
such form as the Committee shall approve, stating the number of Shares subject
to the Option, its Term, and the other terms and conditions thereof. The notice
shall be accompanied by a written Option Agreement, in such form as may from
time to time hereafter be approved by the Committee, which shall have been duly
executed by or on behalf of the Company. Execution by the Director to whom such
Option is granted of said Option Agreement in accordance with the provisions set
forth in this Plan shall be a condition precedent to the exercise of any Option.
14. TAXES.
14.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have
the right to require a person entitled to receive Shares pursuant to
the exercise of an Option under the Plan to pay the Company the amount
of any taxes which the Company is or will be required to withhold, if
any, with respect to such Shares before the certificate for such Shares
is delivered pursuant to the Option. Furthermore, the Company may elect
to deduct such taxes from any other amounts then payable in cash or in
shares or from any other amounts payable any time thereafter to the
Director.
14.2 DIRECTOR ELECTION TO WITHHOLD SHARES. A Director may
satisfy the withholding tax liability, if any, with respect to the
exercise of an Option, by having the Company withhold Shares otherwise
issuable upon exercise of the Option if such Director makes an election
to do so which satisfies the requirements of Rule 16b-3.
15. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years
from the date the Plan becomes effective, and an Option shall not be granted
under the Plan after that date although the terms of any Option may be amended
at any date prior to the end of its Term in accordance with the Plan. Any Option
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms and conditions of the Option and this Plan.
16. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board. Notwithstanding the discretionary authority granted
to the Committee in Section 4 of the Plan, no amendment of the Plan or any
Option granted under the Plan shall impair any of the rights of any holder,
without the holder's consent, under any Option theretofore granted under the
Plan.
17. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for Shares
pursuant to an Option exercise may be postponed by the Company for such period
as may be required for it with reasonable diligence to comply with any
applicable requirements of any federal, state or local law or regulation or any
administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require a Director
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<PAGE> 8
to furnish the Company with appropriate representations and a written investment
letter prior to the exercise of an Option or the delivery of any Shares pursuant
thereto.
18. FEES AND COSTS. The Company shall pay all original issue taxes on
the exercise of any Option granted under the Plan and all other fees and
expenses necessarily incurred by the Company in connection therewith.
19. EFFECTIVENESS OF THE PLAN. The Plan was approved by the Board and
the Company's sole stockholder, Penril DataComm Networks, Inc., on
_______________, 1996, and shall become effective on _______________, 1996.
20. OTHER PROVISIONS. As used in the Plan, and in Option Agreements and
other documents prepared in implementation of the Plan, references to the
masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in Option Agreements
and other documents prepared in implementation of the Plan are for convenience
only and shall not affect the meaning of any provision hereof or thereof.
21. DELAWARE LAW TO GOVERN. This Plan shall be governed by and
construed in accordance with the laws of the State of Delaware.
8
<PAGE> 1
EXHIBIT 10.7
FORM OF
TRANSITIONAL SERVICES AGREEMENT
-------------------------------
This Transitional Services Agreement (the "Agreement") is entered into
as of _____________, 1996, by and between PENRIL DATACOMM NETWORKS, INC.
("Parent") and ACCESS BEYOND, INC., a Delaware corporation ("A/B").
WHEREAS, Parent owns 100% of the issued and outstanding shares of
common stock of A/B ("A/B Common Stock");
WHEREAS, Parent will distribute to the holders of its common stock
("Parent Stockholders") all of the A/B Common Stock owned by Parent on a pro
rata basis and without consideration being paid by such holders (the
"Distribution");
WHEREAS, after the Distribution, Parent and A/B will be separate
companies with a subsidiary of Bay Networks, Inc. ("Bay") to be merged with and
into Parent ("Merger"); and
WHEREAS, to facilitate Parent's ongoing business, Parent and A/B desire
to enter into this Agreement to set forth the terms upon which A/B will provide
services to Parent for a one-year period following the Distribution.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. SERVICES. The parties agree that A/B will provide to Parent the
following services for a period of one (1) year following the Distribution: (i)
assistance in the preparation of federal, state, local and foreign tax returns
and assistance with respect to federal, state and local compliance for income,
franchise, sales and use taxes, tax planning and audit negotiation and support,
(ii) certain accounting, treasury and other financial services, and (iii)
assistance in the preparation for shipping
<PAGE> 2
of certain equipment and inventories and (iv) the administrative, clerical
and operational services set forth on Exhibit A (the "Services"). The Services
will be provided at such times and with respect to such matters as Parent may
reasonably request from time to time.
2. SERVICES FEE. As compensation for the Services rendered under this
Agreement, Parent will pay to A/B, upon execution of this Agreement, the sum of
$1,500,000 ("Fee"). The Fee is intended to cover the costs incurred by A/B in
providing the Services, including salary and other administrative costs and
expenses (but excluding payments to third parties).
3. REIMBURSEMENT OF EXPENSES. To the extent that A/B pays any expense
allocable to Parent to a third party for reasons of administrative convenience
(a "Reimbursable Expense"), A/B will promptly bill Parent for the amount
thereof, and Parent will reimburse A/B within thirty (30) days of receipt of
such invoice. Notwithstanding the foregoing, A/B will not make any payment in an
amount equal to or greater than Five Thousand Dollars ($5,000), or equal to or
greater than Five Thousand Dollars ($5,000.00) in the aggregate for any single
person or entity, without the prior written approval of Parent.
4. LIABILITY AND INDEMNIFICATION. A/B will be liable in connection
with this agreement to Parent or to any third party in privity with, connected
or affiliated with Parent, only if A/B has engaged in conduct in connection
with providing the Services which constitute willful misconduct. A/B will be
fully protected in any action taken in good faith in accordance with advice of
legal counsel. A/B will be fully protected in acting in accordance with any
written instructions given to it hereunder and reasonably believed by it to
have been executed by Parent.
5. WAIVER. Failure of either party to enforce any provision or
provisions of this Agreement will not in any way be construed as a waiver of any
such provision as to any future violations, nor prevent that party from
enforcing every other provision of this Agreement. The
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<PAGE> 3
rights granted to the parties in this Agreement are cumulative and the waiver
of any single remedy will not constitute a waiver of such party's right to
assert all other legal remedies available to it under the circumstances.
6. COOPERATION. Each party to this Agreement agrees to cooperate with
the other party in good faith to carry out the purpose and intent of this
Agreement. Each party shall afford the other and its counsel, accountants and
agent reasonable access during normal working hours to all books, records,
contracts, instruments, computer data and other information relating to affairs
of the respective businesses before the date hereof ("Information") as is
reasonably requested, provided, however, neither A/B nor Parent shall be
required to divulge Information which it believes will cause it any
competitive disadvantage.
7. SEVERABLE PROVISIONS. The provisions of this Agreement are
severable, and if any one or more provisions are determined to be illegal or
otherwise unenforceable, in whole or in part, the remaining provisions and any
partially enforceable provision will be binding and enforceable to the extent
enforceable in any jurisdiction.
8. ASSIGNMENT. Except in connection with the Merger, neither A/B nor
Parent may assign any of its rights or benefits under this Agreement without
the prior written consent of the other, which consent will not be unreasonably
withheld or delayed. This Agreement is binding on and will inure to the benefit
of the parties and their respective successors and permitted assignees.
9. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the
benefit of the parties hereto and should not be deemed to confer upon third
parties any remedy, claim, liability, reimbursement, claim of action, or other
right in excess of those existing without reference to this Agreement.
3
<PAGE> 4
10. NOTICES. All notices and other communications under this Agreement
must be in writing and will be deemed to have been duly given when (i) delivered
by hand, (ii) upon receipt of a facsimile transmission, (iii) sent by registered
or certified mail, return receipt requested, postage prepaid, or (iv) sent by
Federal Express or other courier for next or second business day delivery,
shipping prepaid, and addressed as follows:
To A/B: ____________________________________
____________________________________
____________________________________
Attention: ________________________
Facsimile No. ______________________
To Parent: ____________________________________
____________________________________
____________________________________
Attention: ________________________
Facsimile No. ______________________
11. ENTIRE AGREEMENT. This Agreement constitutes the entire Agreement
between the parties with respect to the subject matter hereof and supersedes all
previous negotiations, commitments and writings with respect to such subject
matter.
12. AMENDMENTS. This Agreement may not be modified or amended except by
an agreement in writing signed by both parties.
13. CAPTIONS. Captions and section headings are used for the
convenience of reference only and are not part of this Agreement and may not be
used in construing it.
14. ENFORCEABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction will, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof. Any such
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<PAGE> 5
prohibition or unenforceability in any jurisdiction will not invalidate or
render unenforceable such provision or remedies otherwise available to any
party hereto.
15. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
principles of conflicts of laws thereof.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one and the same document.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first written above.
PENRIL DATACOMM NETWORKS, INC.
By: ____________________________________
Its: ____________________________________
ACCESS BEYOND, INC.
By: ____________________________________
Its: ____________________________________
5
<PAGE> 1
EXHIBIT 11
PENRIL DATACOMM NETWORKS, INC AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- ------
<S> <C> <C> <C>
Income (Loss) from Continuing
Operations, as reported $(20,668) $(4,614) $2,345
Imputed Earnings -- -- --
-------- ------- ------
Adjusted Income from Continuing
Operations (20,668) (4,614) 2,345
Loss from Discontinued Operations (236) (3,061) (828)
-------- ------- ------
Adjusted Net income $(20,904) $(7,675) $1,517
======== ======= ======
Shares used in this Computation:
Weighted Average Common Shares 9,650 7,559 7,443
Shares applicable to Common Stock
Equivalents -- -- 366
-------- ------- ------
9,650 7,559 7,809
======== ======= ======
Earnings (Loss) Per Share:
Continuing Operations $ (2.14) $ (0.61) $ 0.30
Discontinued Operations (0.03) (0.41) (0.11)
-------- ------- ------
$ (2.17) $ (1.02) $ 0.19
======== ======= ======
</TABLE>
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF THE COMPANY
-----------------------------------
Penril (Far East), Ltd.
Penril Technologies, Inc.
Penril Electronics, Inc.
Electro-Metrics, Inc.
Technipower, Inc.
Constant Power, Inc.
Datability - N.J., Inc.
Penril Datability (S.E.A.) Sdn.Bhd.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Access Beyond, Inc. on
Form S-1 of our report dated September 6, 1996 (September 20, 1996 as to the
sixth and ninth paragraphs of Note 7) relating to the financial statements of
Penril DataComm Networks, Inc., appearing in the Prospectus, which is part of
this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Washington, DC
October 7, 1996
<PAGE> 1
EXHIBIT 99.4
CONSENT OF DIRECTOR-ELECT
I consent to my being named as a director-elect of Access Beyond, Inc. in
the Registration Statement on Form S-1 of Access Beyond, Inc. dated August 23,
1996 and in all amendments thereto.
/s/ Paul Schaller
Paul Schaller
