<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 21, 1999.
REGISTRATION NO. 333-62231
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 2
TO
REGISTRATION STATEMENT
ON
FORM S-1
UNDER
THE SECURITIES ACT OF 1933
------------------------
NETSILICON, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
MASSACHUSETTS 3674 04-2826579
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NO.) IDENTIFICATION NO.)
</TABLE>
411 WAVERLEY OAKS ROAD,
SUITE 227
WALTHAM, MA 02454
(781) 647-1234
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CORNELIUS PETERSON VIII
PRESIDENT AND CHIEF EXECUTIVE OFFICER
NETSILICON, INC.
411 WAVERLEY OAKS ROAD, SUITE 227
WALTHAM, MA 02454
(781) 647-1234
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
W. RAYMOND FELTON, ESQ. N. JEFFREY KLAUDER, ESQ.
GREENBAUM, ROWE, SMITH, RAVIN, DAVIS & HIMMEL LLP MORGAN, LEWIS & BOCKIUS LLP
P.O. BOX 5600 1701 MARKET STREET
WOODBRIDGE, NEW JERSEY 07095 PHILADELPHIA, PENNSYLVANIA 19103-6993
(732) 549-5600 (215) 963-5694
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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, 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, 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(d)
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [x]
------------------------
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.
________________________________________________________________________________
<PAGE>
<PAGE>
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING OFFERS TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED APRIL 21, 1999
3,000,000 SHARES
[LOGO]
COMMON STOCK
This is an initial public offering of common stock of NETsilicon, Inc. We
are offering 2,300,000 shares and Osicom Technologies, Inc., the sole
stockholder of NETsilicon, is selling 700,000 shares. We will not receive any
proceeds from the sale of shares by Osicom. Following the completion of this
offering, Osicom will own 75.6% (72.0% if the Underwriters' over-allotment
option is exercised in full) of the outstanding common stock of NETsilicon.
There is currently no public market for the shares. NETsilicon expects that
the price to the public in the offering will be between $10.00 and $12.00 per
share. The market price of the shares after the offering may be higher or lower
than the offering price.
The common stock will be listed on the Nasdaq National Market under the
symbol 'NSIL.'
INVESTING IN THE COMMON STOCK INVOLVES CERTAIN RISKS. SEE 'RISK FACTORS'
BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
PER SHARE TOTAL
----------- -----------
<S> <C> <C>
Price to Public....................................... $ $
Underwriting Discount.................................
Proceeds to NETsilicon................................
Proceeds to Osicom....................................
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Osicom has granted an over-allotment option to the Underwriters. Under this
option, the Underwriters may elect to purchase a maximum of 450,000 additional
shares from Osicom within 30 days following the date of this Prospectus to cover
over-allotments. Tucker Anthony Cleary Gull expects to deliver the shares of
common stock to purchasers on , 1999.
Tucker Anthony Cleary Gull FAC/Equities
The date of this Prospectus is , 1999
<PAGE>
<PAGE>
[GRAPHIC]
Graphic titled NET+ Technology Architecture setting forth both the hardware
and software components of the NET+ solution. The upper half of the graphic
shows a building block starting at the base with RTOS (pSOS+ or VxWorks) and
NET+ Drivers. Building upward NET+ Protocols are added first, then NET+
Services, followed by NET+ Industry Applications. The final addition at the top
of the block is Customer Developed Applications Programs. The lower half of the
graphic shows the hardware connections of Ethernet LAN, PHY-Physical Interface
to the NET+ARM chip and the connection of the NET+ARM chip to NET+PCI, RAM, ROM
and Custom Hardware. NETsilicon, Inc.'s logo is located in the lower right hand
corner of the graphic.
<PAGE>
<PAGE>
[GRAPHIC]
Graphic titled Bringing Internet Connectivity to a New World of Products.
The graphic depicts devices, processes or activities for which embedded
networking has an application. The text at the center of the graphic is as
follows:
"NET+ Solutions. NETsilicon's NET+'TM' family of embedded networking
solutions, when coupled with PHY and memory, contains all the hardware and
networking software necessary to add Ethernet or Internet connectivity to
virtually any electronic product design.
The NET+ solution is designed to enable manufacturers to reduce the
cost and improve the time to market of their end products that incorporate
embedded networking capability."
Above the text are white boxes with the following markets in which the
Company has achieved NET+ Design Win: Internet and Communication Devices,
Imaging, Industrial Automation and Process Control, Building Controls and
Security, SOHO, Utility Monitoring, Telephony and Test and Laboratory. Each box
details various possible applications in each of these markets. Below the text
are gray boxes with the following future target markets for NETsilicon products:
Distribution and Inventory, Travel and Transportation, Medical and
Retail/POS/Data Collection. These boxes likewise detail the possible
applications in each of these areas. A depiction of the NETsilicon chip is at
the center bottom below the text.
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Forward-Looking Statements................................................................................ 3
Summary................................................................................................... 4
Risk Factors.............................................................................................. 7
The Company............................................................................................... 17
Use of Proceeds........................................................................................... 18
Dividend Policy........................................................................................... 18
Capitalization............................................................................................ 19
Dilution.................................................................................................. 20
Selected Financial Data................................................................................... 21
Management's Discussion and Analysis of Financial Condition and Results of Operations..................... 22
Business.................................................................................................. 31
Management................................................................................................ 43
Principal and Selling Stockholders........................................................................ 51
Certain Relationships and Related Party Transactions...................................................... 52
Description of Capital Stock.............................................................................. 54
Shares Eligible for Future Sale........................................................................... 55
Underwriting.............................................................................................. 57
Legal Matters............................................................................................. 58
Experts................................................................................................... 58
Available Information..................................................................................... 58
Index to Financial Statements............................................................................. F-1
</TABLE>
------------------------------------
'NET+ARM'TM' is a trademark of ARM Limited and is licensed to the Company.
All other product names referred to herein are the property of their respective
owners.
Information contained on NETsilicon's website, www.netsilicon.com, does not
constitute a part of this Prospectus.
Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' over-allotment option, (ii) assumes an initial
offering price of $11.00 per share, and (iii) assumes a 100,000-for-one stock
split of the Company's Common Stock which will occur prior to the closing of
this offering. Unless the context otherwise requires, NETsilicon, Inc. is
referred to herein as the 'Company.'
FORWARD-LOOKING STATEMENTS
Some of the information in this Prospectus contains forward-looking
statements within the meaning of the federal securities laws. These statements
include, among others, the following: use of proceeds, projected capital
expenditures, liquidity and business strategy. These statements may be found
under 'Prospectus Summary,' 'Risk Factors,' 'Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources' and 'Business.' Forward-looking statements typically are
identified by use of terms such as 'may,' 'will,' 'expect,' 'anticipate,'
'estimate' and similar words, although some forward-looking statements are
expressed differently. You should be aware that the Company's actual results
could differ materially from those contained in the forward-looking statements
due to a number of factors, including unanticipated difficulties in product
development, supply constraints, adverse industry trends, insufficient capital
resources and adverse economic conditions. You should also consider carefully
the statements under 'Risk Factors' and other sections of this prospectus, which
address additional factors that could cause the Company's actual results to
differ from those set forth in the forward-looking statements.
3
<PAGE>
<PAGE>
SUMMARY
This summary highlights information contained in other parts of this
prospectus. It is not complete and may not contain all of the information that
you should consider before investing in the shares. You should read the entire
prospectus carefully.
THE COMPANY
NETsilicon, Inc. develops and markets embedded networking solutions. The
Company's products are incorporated into the design of embedded systems to
provide the ability to communicate over standards-based local area networks,
wide area networks and the Internet, enabling the development of completely new
embedded systems applications. The Company believes that it provides the first
standards-based embedded networking system to offer a single chip solution that,
in conjunction with the physical interface and memory, encompasses all of the
required hardware and software necessary to network-enable virtually any
electronic device. The Company's products are contained in a broad array of
imaging products, including printers, scanners, fax machines, copiers and
multi-function peripherals manufactured by 20 OEMs, or original equipment
manufacturers, including Minolta Corporation, NEC Corporation, Sharp Corporation
and Xerox Corporation. The Company's products are also in various stages of
being incorporated by 43 OEMs into the design of products in other markets, such
as industrial automation equipment, communication devices, data acquisition and
test equipment, Internet devices and utility monitoring equipment.
Over the past decade, manufacturers have increasingly incorporated embedded
systems into a wide variety of products to provide enhanced features and
functionality. Products that incorporate embedded systems include automobiles,
vending machines, children's toys, and medical devices. While increasingly
powerful, these embedded systems have traditionally been unable to communicate
with other devices. OEMs are now seeking ways to enable the networking and
communication of embedded systems to further enhance their products, extend
their capabilities and develop innovative applications. The Company believes
that the embedded networking systems industry is similar to the personal
computer industry, in which the initial major technological advances increased
the power of individual systems, but the subsequent networking of these systems
provided tremendous benefits and enabled entirely new applications, such as
workgroup collaboration.
The Company's solution is designed to enable OEMs to reduce the cost and
improve the time to market of their end products that incorporate embedded
networking capability. The Company provides OEMs with an embedded networking
solution comprised of its NET+ software and application specific hardware in the
form of integrated circuits or network interface cards. The Company also
provides software development licenses and application engineering services to
OEMs to enable them to design products incorporating NET+ technology. The
Company believes its solution is comprehensive, standards-based, scalable and
extensible, and provides compelling value to OEMs relative to the cost and
effort of developing in-house expertise in the area of embedded networking
technology.
Key elements of the Company's strategy include (i) expanding its existing
OEM customer relationships in the imaging industry; (ii) identifying and
penetrating other OEM markets; (iii) developing market-specific versions of its
products to reinforce its position in the other markets it has entered and (iv)
influencing industry standards for network connectivity in those other markets.
4
<PAGE>
<PAGE>
From its inception in 1984, the Company has developed and marketed products
enabling the connection of electronic devices to networks. The Company began
development activities related to its NET+ technology in 1996 and introduced its
initial NET+ product, NET+ARM, in January 1998. To date, the Company believes
its products have been well received by OEMs, as evidenced by (i) the increase
in the Company's net sales to $13.4 million for the fiscal year ended January
31, 1999 from $7.9 million in the prior fiscal year; (ii) the indicationof 20
OEMs in the imaging market and 43 OEMs in other markets that they intend to
design NETsilicon products into their products; and (iii) the Company's product
backlog at March 31, 1999 of $8.7 million relative to its backlog of $2.6
million at March 31, 1998.
The Company was incorporated in Massachusetts in 1984. Its executive office
is located at 411 Waverley Oaks Road, Suite 227, Waltham, Massachusetts 02454
and its telephone number is (781) 647-1234.
THE OFFERING
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<S> <C>
Common Stock offered by the Company............ 2,300,000 Shares
Common Stock offered by Osicom................. 700,000 Shares
Common Stock to be outstanding after the
Offering..................................... 12,300,000 Shares
Use of Proceeds................................ To repay indebtedness due to Osicom, to repay a portion of its
outstanding indebtedness to Coast Business Credit, to fund
product development and marketing, capital expenditures and
working capital, and for general corporate purposes.
Proposed Nasdaq National Market Symbol......... 'NSIL'
</TABLE>
5
<PAGE>
<PAGE>
SUMMARY FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................................... $ 7,445 $ 7,920 $13,373
Operating loss from continuing operations................................... (942) (1,228) (1,581)
Loss from continuing operations before income tax benefit................... (1,078) (1,346) (2,132)
Net loss from continuing operations......................................... (109) (853) (2,132)
Net loss from continuing operations per share(1):
Basic..................................................................... $ (0.02) $ (0.09) $ (0.21)
Diluted................................................................... $ -- $ -- $ --
Weighted average number of shares outstanding(1):
Basic..................................................................... 7,158 10,000 10,000
Diluted................................................................... -- -- --
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................... $2,471 $2,703 $ 890 $1,856 $2,185 $3,199 $ 3,030 $4,959
Operating income (loss) from continuing
operations............................ (172) (7) (818) (231) (280) 168 (1,520 ) 52
Income (loss) from continuing operations
before income taxes................... (192) (41) (864) (249) (340) 91 (1,718 ) (165)
Net income (loss) from continuing
operations............................ $ (80) $ 68 $ (833) $ (8) $ (340) $ 91 $(1,718 ) $ (165)
OPERATING DATA:
New design wins per period(2):
Imaging market.......................... 1 4 5 5 9 8 8 9
Other markets........................... 0 0 0 0 11 11 12 14
-------- -------- -------- -------- -------- -------- -------- --------
Total................................. 1 4 5 5 20 19 20 23
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Shipping customers during the period(3):
Imaging market.......................... 7 7 7 7 11 14 16 17
Other markets........................... 0 0 0 0 0 0 2 3
-------- -------- -------- -------- -------- -------- -------- --------
Total................................. 7 7 7 7 11 14 18 20
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31, 1999
----------------------------
ACTUAL AS
------------ ADJUSTED(4)
------------
(Unaudited)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.......................................................... $ 583 $ 16,484
Working capital (deficit).......................................................... (3,471) 19,288
Total assets....................................................................... 11,648 26,331
Due to Osicom(5)................................................................... 5,885 --
Short-term debt.................................................................... 3,191 1,000
Stockholders' equity (deficit)..................................................... (1,836) 20,923
</TABLE>
- ---------------------------
(1) See Notes to the Company's Financial Statements for the years ended
January 31, 1997, 1998 and 1999 regarding computations of net income (loss)
per share.
(2) Represents new design wins during the period indicated. A 'design win' is
the selection by an OEM to design its products incorporating the Company's
products.
(3) Represents the number of customers to which product was shipped during the
period indicated.
(4) The 'As Adjusted' balances reflect the sale by the Company of 2,300,000
shares of Common Stock and the receipt of approximately $22.8 million in
estimated net proceeds from this offering and the application thereof as
set forth in Use of Proceeds. See 'Use of Proceeds' and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
(5) Reflects advances from Osicom to the Company as of January 31, 1999. As of
March 31, 1999, such balance was $5.8 million. The Company anticipates
repayment of all outstanding amounts due to Osicom from the proceeds of the
offering and by a setoff against a $1.9 million receivable due from Osicom.
See Note F to the Notes to the Financial Statements.
6
<PAGE>
<PAGE>
RISK FACTORS
You should carefully consider the following factors and other information
in this prospectus before deciding to invest in the shares.
HISTORY OF LOSSES AND ACCUMULATED DEFICIT
The Company incurred net losses for the fiscal years ended January 31,
1997, 1998 and 1999. At January 31, 1999, the Company had an accumulated deficit
of $4.4 million. The Company continues to invest significant financial resources
in product development, marketing and sales, and a failure of such expenditures
to result in significant increases in revenue could have a material adverse
effect on the Company's business, operating results and financial condition. Due
to the limited history and undetermined market acceptance of the Company's new
products, the rapidly evolving nature of the Company's business and markets,
potential changes in product standards that significantly influence many of the
markets for the Company's products, the high level of competition in the
industries in which the Company operates and the other factors described
elsewhere in 'Risk Factors,' there can be no assurance that the Company's
investment in these areas will result in increases in revenue or that any
revenue growth that is achieved can be sustained. Any revenue growth that the
Company has achieved or may achieve may not be indicative of future operating
results. In addition, the Company's history of losses, coupled with the factors
described under ' -- Potential Fluctuations in Operating Results,' make future
operating results difficult to predict. The Company and its prospects must be
considered in light of the risks, costs and difficulties frequently encountered
by emerging companies. As a result, there can be no assurance that the Company
will be profitable in any future period. Future operating results will depend on
many factors, including the growth of the markets for the Company's products,
the acceptance of the Company's products, the level of competition, the ability
of the Company to develop and market new products and general economic
conditions. In view of the uncertainties identified herein, the Company believes
that period-to-period comparisons of financial results are not necessarily
meaningful and should not be relied upon as an indication of future performance.
See the Company's Financial Statements and the Notes thereto and 'Management's
Discussion and Analysis of Financial Condition and Results of Operations.'
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's net sales and operating results have in the past and may in
the future fluctuate substantially from quarter to quarter and from year to
year. This may result from any one or a combination of factors such as the
cancellation or postponement of orders, the timing and amount of significant
orders from the Company's largest customers, the Company's success in
developing, introducing and shipping product enhancements and new products, the
product mix sold by the Company, new product introductions by competitors,
pricing actions by the Company or its competitors, the timing of delivery and
availability of components from suppliers, changes in material costs and general
economic conditions. Public market analysts may make quarterly financial
projections for the Company based upon the Company's historical operating
results and other factors; failure to meet such targets may adversely affect the
market price of the Common Stock of the Company. See 'Management's Discussion
and Analysis of Financial Condition and Results of Operations.'
The Company's backlog at the beginning of each quarter typically is not
sufficient to achieve expected sales for the quarter. To achieve its sales
objectives, the Company is dependent upon obtaining orders during each quarter
for shipment that quarter. Furthermore, the Company's agreements with its
customers typically provide that they may change delivery schedules and non-
imaging customers can cancel orders, within specified time frames, typically 30
days or more prior to the scheduled shipment date pursuant to the Company's
policies, without significant penalty. The Company's customers have in the past
built, and may in the future build, significant inventory in order to facilitate
more rapid deployment of anticipated major products or for other reasons.
7
<PAGE>
<PAGE>
Decisions by such customers to reduce their inventory levels have led and could
lead to reductions in purchases from the Company. These reductions, in turn,
have caused and could cause fluctuations in the Company's operating results,
which could have a material adverse effect on the Company's business, operating
results, cash flows and financial condition in periods in which the inventory is
reduced. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and 'Business -- Backlog.'
Delays or lost sales have been and could be caused by other factors beyond
the Company's control, including late deliveries by vendors of components,
changes in implementation priorities or slower than anticipated growth in the
market for embedded networking solutions. In the three months ended October 31,
1998, the Company experienced delays in the delivery of its product from Atmel
Corporation. Such delays affected the Company's ability to fill its orders to
customers, negatively impacting the Company's third quarter financial results.
Operating results in the past have also been adversely affected by delays in
receipt of significant purchase orders from customers. In addition, the Company
has in the past experienced delays as a result of the need to modify its
products to comply with unique customer specifications. In general, the timing
and magnitude of the Company's revenues are highly dependent upon its
achievement of design wins, the timing and success of its OEMs' development
cycles, and its OEMs' product sales. Any of these factors could have a material
adverse effect on the Company's business, operating results, cash flows and
financial condition.
DEPENDENCE ON OEM CUSTOMERS
The Company's financial performance and future growth is dependent upon its
ability to sell its products to OEMs in various markets. Sales of its products
will depend upon the purchasing decisions of OEMs, which may be based upon
numerous factors, many of which are beyond the Company's control, including
OEMs' decisions to increase inventory supply at the commencement of their
product sales cycles and deplete such inventories prior to additional purchases,
and cancellation or rescheduling delivery of the Company's products in
accordance with the Company's policies for such actions. Furthermore, the
Company's revenues are dependent upon the ultimate success of the end-user
products of the Company's OEM customers. There can be no assurance that the
Company will successfully market its products to OEMs. Even if the Company is
successful in its efforts and achieves a design win from an OEM, there can be no
assurance that the Company will ever achieve revenue from the sale of products
as a result of such design win. Furthermore, even if the Company does achieve
revenues from such sales there can be no assurance that such revenues will be
sustainable. Any decline in the financial condition of the Company's OEM
customers or any failure by the Company's OEM customers to successfully sell
their products to end users may have a material adverse effect on the Company's
business, operating results, cash flows and financial condition.
'Business -- Products and Services' and 'Business -- OEM Product Cycle.'
Substantially all of the Company's OEM customers in the imaging market are
headquartered in Japan. The current economic conditions existing in many Asian
countries, including Japan, are uncertain and may have a significant effect on
the business operations of such OEM customers. Consequently, the Company's
dependence on its OEM customers in the imaging market in Japan
and the uncertain factors affecting Japan's economic condition could have a
material adverse effect on the Company's business, operating results, cash flows
and financial condition.
DEPENDENCE ON IMAGING MARKET
The imaging market has historically accounted for substantially all of the
Company's revenues. In the fiscal year ended January 31, 1999, 96.4% of the
Company's revenues were generated from customers in the imaging market. The
Company's success has been and continues to be dependent on the continued growth
and success of the imaging market. Any decline in sales to the imaging market
would have a material adverse effect on the Company's business, operating
results, cash flows and financial condition.
8
<PAGE>
<PAGE>
The imaging market is characterized by declining prices of existing
products. Therefore, continual improvements in manufacturing efficiencies and
the introduction of new products and enhancements to existing products are
required for the Company to maintain its gross margins. In response to customer
demands or competitive pressures, or to pursue new product or market
opportunities, the Company may take certain pricing or marketing actions, such
as price reductions or volume discounts. These actions could have a material
adverse effect on the Company's business, operating results, cash flows and
financial condition. See 'Business -- Manufacturing.'
RISKS ASSOCIATED WITH ENTERING OTHER MARKETS
A substantial portion of the Company's recent development efforts have been
directed toward the development of new products for use in other markets in
which embedded networking products have not historically been sold, such as the
industrial automation equipment, data acquisition and test equipment, internet
devices and security equipment markets. The market for embedded networking
products in these targeted markets is new and rapidly evolving. Each product to
be used in these industries must be designed to industry-specific requirements.
The Company has limited experience in designing its products to meet the
requirements of OEMs in these industries. Moreover, the Company's products and
services have, to date, achieved limited acceptance in these industries. The
Company's future success will depend, to a significant degree, upon broad
acceptance of the Company's products and services within the targeted
industries. Furthermore, the Company's success will also depend on the ability
of the OEMs in these industries to successfully develop and market networked
devices to end users. There can be no assurance that (i) the markets targeted by
the Company for its products and services will develop; (ii) OEMs within each
market targeted by the Company will choose the Company's products and services
to meet their needs; (iii) the Company will successfully develop products to
meet the industry-specific requirements of OEMs in its targeted markets; or
(iv) OEMs in its targeted markets will gain market acceptance for their devices
which incorporate the Company's products. The failure of any of these events to
occur would have a material adverse effect on the Company's business, operating
results, cash flows and financial condition.
COMPETITION
The markets for the products and services of the Company are intensely
competitive, highly fragmented and characterized by rapidly changing technology,
evolving industry standards, price competition and frequent new product
introductions. A number of companies offer products that compete with one or
more elements of the Company's solution. The Company's current and prospective
competitors include Echelon Corporation, Integrated Systems, Inc., Motorola
Inc., Samsung Electronics Co., Ltd. and Wind River Systems, Inc. The Company has
experienced and expects to continue to experience increased competition from
current and potential competitors, many of whom have substantially greater
financial, technical, sales, marketing and other resources, as well as greater
name recognition and larger customer bases than the Company. In particular,
established companies in the application-specific integrated circuit ('ASIC') or
networking industries may seek to expand their product offerings by designing
and selling products using competitive technology that could render the
Company's products obsolete or have a material adverse effect on the Company's
sales. The markets in which the Company competes currently are subject to
intense competition and the Company expects additional price and product
competition as other established and emerging companies enter these markets and
new products and technologies are introduced. Increased competition may result
in further price reductions, reduced gross margins and loss of market share, any
of which could have a material adverse effect on the Company's business,
operating results, cash flows and financial condition. The Company believes that
the competitive factors affecting the market for the Company's products include
product performance, price and quality; product functionality and features; the
availability of products for existing and future platforms; the ease of
integration with other hardware and software components of the customer's
products; and the quality of support services, product documentation and
training. The relative importance of each of these factors depends upon the
specific customer involved. There can be no assurance that the Company will be
able to compete successfully against
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current and future competitors, or that competitive factors faced by the Company
will not have a material adverse effect on the Company's business, operating
results, cash flows and financial condition. See 'Business -- Competition.'
RAPID TECHNOLOGICAL CHANGE AND DEPENDENCE ON LAN, WAN AND INTERNET TECHNOLOGIES
The networking industry is characterized by rapidly changing technologies,
evolving industry standards, frequent new product introductions, short product
life cycles and rapidly changing customer requirements. The introduction of
products embodying new technologies and the emergence of new industry standards
can render existing products obsolete and unmarketable. The Company's future
success will depend on its ability to enhance its existing products, to
introduce new products to meet changing customer requirements and emerging
technologies, and to demonstrate the performance advantages and
cost-effectiveness of its products over competing products. Any failure of the
Company to modify its products to support new local area network ('LAN'), wide
area network ('WAN') and Internet technologies, or alternative technologies, or
any failure to achieve widespread customer acceptance of such modified products
could have a material adverse effect on the Company's business, operating
results, cash flows and financial condition. The Company has in the past and may
in the future experience delays in developing and marketing product enhancements
or new products that respond to technological change, evolving industry
standards and changing customer requirements. There can be no assurance that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of these products or product
enhancements, or that its new products and product enhancements will adequately
meet the requirements of the marketplace and achieve any significant degree of
market acceptance. Failure of the Company, for technological or other reasons,
to develop and introduce new products and product enhancements in a timely and
cost-effective manner would have a material adverse effect on the Company's
business, operating results, cash flows and financial condition. In addition,
the future introductions or even announcements of products by the Company or one
of its competitors embodying new technologies or changes in industry standards
or customer requirements could render the Company's then-existing products
obsolete or unmarketable. There can be no assurance that the introduction or
announcement of new product offerings by the Company or one or more of its
competitors will not cause customers to defer the purchase of existing Company
products. Such deferment of purchases could have a material adverse effect on
the Company's business, operating results, cash flows and financial condition.
See 'Business -- Industry Background.'
DEPENDENCE ON CONTRACT MANUFACTURERS AND LIMITED SOURCE SUPPLIERS
The Company relies upon independent contractors to manufacture its
components, subassemblies, systems and products. The Company also relies upon
limited-source suppliers for a number of components used in the Company's
products, including custom ASICs, certain key microprocessors and other
components. There can be no assurance that these independent contractors and
suppliers will be able to meet the Company's future requirements for
manufactured products, components and subassemblies in a timely fashion.
Recently, the Company experienced delays in the receipt of product from Atmel
Corporation which adversely affected the Company's operating results in the
three months ended October 31, 1998. The Company generally purchases
limited-source components pursuant to purchase orders and has no guaranteed
supply arrangements with these suppliers. In addition, the availability of many
of these components to the Company is dependent in part on the Company's ability
to provide its suppliers with accurate forecasts of its future requirements.
Atmel is currently the Company's sole source supplier for its silicon chip.
While the Company is in the process of qualifying other suppliers, any
qualification and pre-production periods could be lengthy and may cause delays
in providing products to customers in the event that the sole source supplier of
the chips fails to meet the Company's requirements. Any extended interruption in
the supply of any of the key components currently obtained from limited sources
would disrupt the Company's operations and have a material adverse effect on its
business, operating results, cash flows and financial condition. See
'Business -- Manufacturing.'
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CONTROL BY OSICOM
After the completion of the offering, Osicom will beneficially own
approximately 75.6% of the Company's outstanding Common Stock. As a result,
Osicom will have the voting power to elect the Board of Directors and approve
other matters presented for consideration by the stockholders. The interests of
Osicom may differ from the interests of the other stockholders of the Company.
Currently, two of the members of the Company's Board of Directors are also
directors of Osicom. See 'Management,' 'Principal and Selling Stockholders,'
'Certain Relationships and Related Party Transactions' and 'Shares Eligible for
Future Sale.'
BENEFITS OF OFFERING TO OSICOM
The offering will provide significant benefits to Osicom, which is
currently the sole stockholder of the Company, including (i) receipt of
approximately $7.2 million from the sale of its shares in the offering; (ii) the
creation of a public market for the Company's Common Stock; and (iii) the
repayment of the Company's indebtedness to Osicom of approximately $3.9 million
representing the outstanding balance as of March 31, 1999 of $5.8 million offset
by a $1.9 million receivable due from Osicom to the Company. In September 1996,
Osicom acquired the Company by purchasing all of the Common Stock for $5.0
million. As a result of this offering, Osicom will generally have greater
liquidity with respect to its investment in the Company's Common Stock. In
addition, upon consummation of the offering, Osicom may be relieved of its
obligation as guarantor of the Company's line of credit. Osicom will
beneficially own 9,300,000 shares of the Company's Common Stock after the
completion of this offering. Based upon the initial public offering price of
$11.00 per share, such shares owned by Osicom will have an aggregate market
value of approximately $102 million. See 'Use of Proceeds,' 'Principal and
Selling Stockholders' and 'Certain Relationships and Related Party
Transactions.'
CONTRACTUAL RELATIONSHIPS WITH OSICOM
The Company is a party to agreements with Osicom, including (i) a five year
supply agreement pursuant to which Osicom purchases products, including the
NET+ARM ASIC, at variable prices, structured to maintain the Company's gross
margin, established on the effective date of the agreement and Osicom provides
manufacturing services to the Company at prices to be agreed upon; (ii) a
sublease pursuant to which Osicom subleases office space at the Company's
facility in Waltham, Massachusetts; and (iii) an intercompany agreement between
the Company and Osicom dated May 1, 1998, as amended (the 'Intercompany
Agreement') pursuant to which the Company transferred its stand-alone print
server product business and associated assets (the 'Commercial Line') to Osicom,
and Osicom has the right to manufacture and sell stand-alone product services to
distributors. The Intercompany Agreement also states that the Company will
provide certain manufacturing and engineering services to Osicom in connection
with such business. The Company anticipates that, in accordance with the
Intercompany Agreement, on approximately May 1, 1999, Osicom will assume
responsibility for all such manufacturing. Additionally, the Intercompany
Agreement provides that the Company will share certain intellectual property
rights with Osicom. Osicom's rights in such intellectual property are limited to
use in certain products manufactured by Osicom related to the Commercial Line
and cannot be transferred, resold, licensed or assigned by Osicom. After the
completion of this offering, Osicom will beneficially own 75.6% of the Company's
outstanding Common Stock. In addition, two of the members of the Osicom Board of
Directors also serve as directors of the Company. There can be no assurance that
the price, terms and conditions of any of these agreements are as favorable to
the Company as could have been obtained from unaffiliated third parties. In the
future, the Company may enter into additional agreements with Osicom or
subsidiaries of Osicom. There can be no assurance that such agreements will be
on terms at least as favorable as if they had been negotiated with unrelated
third parties. See 'Certain Relationships and Related Party Transactions.'
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SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
Common Stock by the Company, or the availability of Common Stock for future
sales, will have on the market price of Common Stock prevailing from time to
time. Sales of a substantial number of shares of Common Stock in the public
market could adversely affect the market price for the Company's Common Stock
and reported earnings per share.
Subject to applicable federal and securities laws and the restrictions set
forth below, after completion of the offering, Osicom may sell any and all of
the shares of Common Stock beneficially owned by it or distribute any or all
such shares of Common Stock to its stockholders. Sales or distribution by Osicom
of substantial amounts of Common Stock in the public market or to its
stockholders, or the perception that such sales or distribution could occur,
could adversely affect the prevailing market prices for the Common Stock. Osicom
has advised the Company that its current intent is to continue to hold all of
the Common Stock beneficially owned by it following the offering. However,
Osicom is not subject to any obligation to retain its controlling interest in
the Company, except that Osicom has agreed not to sell or otherwise dispose of
any shares of Common Stock for a period of 365 days after the date of this
Prospectus without the prior written consent of Tucker Anthony Cleary Gull. See
'Underwriting.' As a result, there can be no assurance concerning the period of
time during which Osicom will maintain its beneficial ownership of Common Stock
owned by it following the offering. Moreover, there can be no assurance that, in
any transfer by Osicom of a controlling interest in the Company, any holders of
Common Stock will be able to participate in such transaction or will realize any
premium with respect to their shares of Common Stock.
Certain restrictions on shares of Common Stock are applicable to (i) any
shares of Common Stock purchased in this offering by affiliates of the Company,
which may generally only be sold in compliance with the limitations of Rule 144
under the Act, except for the holding period requirements thereunder, and (ii)
9,300,000 shares of Common Stock beneficially owned by Osicom which will be
subject to lock-up agreements prohibiting the sale or other disposition of such
shares until 365 days after the date of this Prospectus without the prior
written consent of Tucker Anthony Cleary Gull. See 'Shares Eligible For Future
Sale.'
It is anticipated that, on or about 180 days after the completion of this
offering, a Form S-8 registration statement covering the Common Stock that may
be issued pursuant to the exercise of options granted by the Company will be
filed and become effective, and that shares of Common Stock that are so acquired
or offered thereafter pursuant to the Form S-8 registration statement generally
may be resold in the public market without restriction or limitation. See
'Management -- Stock Option Plan' and 'Management -- Director Stock Option
Plan,' 'Shares Eligible For Future Sale' and 'Underwriting.'
RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY
Complex products such as those offered by the Company may contain
undetected or unresolved defects when first introduced or as new versions are
released. The occurrence of material errors in the future could, and the
inability to correct such errors would, result in the loss of market share, the
delay or loss of market acceptance of the Company's products, material warranty
expense, diversion of engineering and other resources from the Company's product
development efforts, the loss of credibility with the Company's customers or
product recall. The use of the Company's products for applications in devices
that interact directly with the general public, where the failure of the
embedded system could cause property damage or personal injury, could expose the
Company to significant product liability claims. Although the Company has not
experienced any product liability or economic loss claims to date, the sale and
support of the Company's products may entail the risk of such claims. Any of
such occurrences could have a material adverse effect upon the Company's
business, operating results, cash flows and financial condition. See
'Business -- Products and Services.'
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RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
In the fiscal year ended January 31, 1999 international sales constituted
approximately 50.0% of the Company's net sales, and approximately 18.5% of its
domestic sales were to customers headquartered in Asia. The Company believes
that its future growth is dependent in part upon its ability to increase sales
in international markets. In addition, an integral part of the Company's
business strategy is to form strategic alliances for the manufacture and
distribution of its products with third parties, including foreign corporations.
Several countries in Asia have recently experienced currency devaluation and
reduced access to credit. There can be no assurance that the effect of this
economic condition on the Company's strategic partners and significant customers
or the exposure to variations in the respective value of the currency of all of
the Company's international partners or customers with that of the U.S. dollar,
will not have a material adverse effect on the Company's business, operating
results, cash flows and financial condition. The sale of the Company's products
internationally may be regulated by foreign governmental agencies. The Company
does not know the impact of such regulation, if any, on the Company, and there
can be no assurance that foreign regulation will not have a material adverse
effect on the Company's ability to sell its products in such countries.
The Company intends to expand its presence in Europe to address new
markets. New issues are arising in Europe resulting from the formation of a
European Economic and Monetary Union ('EMU'). One change resulting from this
union requires EMU member states to irrevocably fix their respective currencies
to a new currency, the euro, as of January 1, 1999, at which date the euro
became a functional legal currency of these countries. During the next three
years, business in the EMU member states will be conducted in both the existing
national currency such as the French franc or the Deutsche mark, and the euro.
As a result, companies operating or conducting business in EMU member states
will need to ensure that their financial and other software systems are capable
of processing transactions and properly handling these currencies, including the
euro. The Company currently conducts all of its business operations in United
States dollars. The Company is assessing the impact that the conversion to the
euro will have on its internal systems, the sale of its products, and the
European and global economies. If necessary, the Company will take appropriate
corrective actions based on the results of such assessment.
The Company's products are subject to restrictions on export to foreign
countries. These restrictions require the Company to obtain a validated export
license prior to the sale of its products to purchasers in such countries,
thereby making many of the Company's sales to purchasers in foreign countries
subject to the approval of the U.S. Department of Commerce. There can be no
assurance that the U.S. Department of Commerce will not mandate more
restrictions in the future towards the Company's products or, due to the
political or diplomatic climate or for human rights reasons, impose additional
restrictions on exports to one or more countries where the Company desires to
sell its products. Such a change could adversely affect the Company's ability to
sell its products in such countries, which, in turn, could have a material
adverse effect on the Company's business, operating results, cash flows and
financial condition. In addition, international sales are subject to inherent
risks, including changes in regulatory requirements, tariffs and other barriers,
fluctuating exchange rates associated with international sales by selling its
products in United States currency. There can be no assurance that any of these
factors will not have a material adverse effect on the Company's future
international sales and, consequently, on the Company's business, operating
results, cash flows and financial condition. See 'Management's Discussion and
Analysis of Financial Conditions and Results of Operations.'
DEPENDENCE ON PROPRIETARY RIGHTS AND TECHNOLOGY
The Company's ability to compete is dependent in part on its proprietary
rights and technology. The Company has no patents and relies primarily on a
combination of copyright, trademark laws, trade secrets, confidentiality
procedures and contract provisions to protect its proprietary rights. The
Company generally enters into confidentiality agreements with its employees, and
sometimes with its customers and potential customers and limits access to the
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distribution of its software, hardware designs, documentation and other
proprietary information. In addition, pursuant to the Intercompany Agreement
with Osicom, the Company granted Osicom co-ownership rights to certain of its
existing intellectual property in connection with the Company's transfer of its
Commercial Line to Osicom. Osicom's rights to such intellectual property are
limited to use in products manufactured by Osicom related to the Commercial
Line. There can be no assurance that the steps taken by the Company in this
regard will be adequate to prevent the misappropriation of its technology. While
the Company has filed one patent application and plans to file various
additional applications, such applications may be denied. Any patents, once
issued, may be circumvented by competitors of the Company. Furthermore, there
can be no assurance that others will not develop technologies that are superior
to the Company's. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights as fully as do the laws of the United States. There
can be no assurance that the Company's means of protecting its proprietary
rights in the United States or abroad will be adequate or that competing
companies will not independently develop similar technology. Failure of the
Company to adequately protect its proprietary rights could have a material
adverse effect on the Company's business, operating results, cash flows and
financial condition.
POTENTIAL INFRINGEMENT OF THE INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES
In the future, third parties may assert that the Company's products
infringe their proprietary rights. Should litigation with respect to any such
claims commence, such litigation could be extremely expensive and time consuming
and could materially and adversely affect the Company's results of operations
regardless of the outcome of the litigation. There can be no assurance that the
Company will defend, or will be able to defend successfully against third party
infringement claims. See 'Business -- Intellectual Property, Trademarks and
Proprietary Rights.'
DEPENDENCE ON KEY PERSONNEL
The Company's business and prospects depend to a significant degree upon
the continuing contributions of its key personnel. The Company does not have
employment contracts with any of its key personnel, with the exception of its
Vice President, Worldwide Industrial Automation, Embedded New Markets and does
not maintain any key man life insurance policies. The loss of key management or
technical personnel could have a material adverse effect on the Company's
business, operating results, cash flows and financial condition. The Company
believes that its prospects depend in large part upon its ability to attract and
retain highly-skilled engineering, managerial, sales, marketing and
administrative personnel. Competition for such personnel is intense, and there
can be no assurance that the Company will be successful in attracting and
retaining such personnel. Failure to attract and retain key personnel could have
a material adverse effect on the Company's business, operating results, cash
flows and financial condition. See 'Business -- Employees' and 'Management.'
REGULATORY COMPLIANCE AND EVOLVING INDUSTRY STANDARDS
The market for the Company's products is subject to a significant number of
communications regulations and industry standards, some of which are evolving as
new technologies are deployed. In the United States, the Company's products must
comply with various regulations defined by the Federal Communications Commission
and standards established by Underwriters' Laboratories. Some of the Company's
products may not comply with current industry standards, and this noncompliance
must be addressed in the design of those products. Standards for networking are
still evolving. As the standards evolve, the Company may be required to modify
its products or develop and support new versions of its products. The failure of
the Company's products to comply or delays in compliance, with the various
existing and evolving industry standards could delay introduction of the
Company's products, which could have a material adverse effect on the Company's
business, operating results, cash flows and financial condition.
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MANAGEMENT OF GROWTH
The Company has limited internal infrastructure and any significant growth
would place a substantial strain on the Company's financial and management
personnel and information systems and controls. Such growth would require the
Company to implement new and enhance existing financial and management
information systems and controls and add and train personnel to operate such
systems effectively. The Company's intention to continue to pursue its growth
strategy through efforts to increase sales of existing products and new products
can be expected to place even greater pressure on the Company's existing
personnel and compound the need for increased personnel, expanded information
systems, and additional financial and administrative control procedures. There
can be no assurance that the Company will be able to successfully manage
expanding operations.
YEAR 2000 COMPLIANCE
Many currently installed computer systems, software products and other
control devices are coded to accept only two digit entries in the date code
fields, and will need to accept four digit entries to distinguish dates after
December 31, 1999 from prior dates. As a result, many companies' computer
systems, software products and control devices may need to be upgraded or
replaced in order to comply with such 'Year 2000' requirements. The Company
relies on its systems, applications and control devices in operating and
monitoring all major aspects of its business. The Company believes its products
are Year 2000 compliant. With respect to its own systems, the Company relies on
the representations of its primary software vendors that their products are
Year 2000 compliant. Based in part on these representations, the Company
believes its other systems, software and devices are also Year 2000 compliant.
Any noncompliance of the Company's systems, software and devices could severely
disrupt the Company's operations and have a material adverse affect on its
business, financial condition, cash flows and results of operations.
The Company also relies, directly and indirectly, on external systems of
its customers, suppliers, creditors, financial organizations, utilities
providers and governmental entities, both domestic and international. None of
these systems are under the control of the Company. Consequently, the Company
could be affected through disruptions in the operations of the enterprises with
which the Company interacts. Furthermore, the purchasing frequency and volume of
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to make their current systems Year 2000
compliant. Certain of the Company's customers have requested information from
the Company concerning its exposure to Year 2000 problems, the steps it has
taken to resolve any Year 2000 problems and what level of management attention
is being focused on the issue. Similarly, the Company intends to send inquiries
to certain of its suppliers requesting substantially the same information from
them. The Company has received representations from certain of its suppliers,
including some of its sole source suppliers, as to the Year 2000 compliance of
their systems and products. The Company has not assessed the Year 2000
compliance of its customers. If the Company's customers encounter Year 2000
problems that prevent their products from functioning properly, these customers
may be forced to devote significant resources to fixing these problems and may
reduce or suspend the manufacture of new products to be networked during such
time. As a result, the Company's sales of its NET+ product family to these
customers could be materially and adversely affected. In addition, if the
Company's suppliers, particularly its sole-source suppliers, are unable to
manufacture or deliver supplies to the Company as a result of Year 2000
problems, the Company's ability to manufacture and sell its products would be
materially and adversely affected. The Company does not currently have in place
any contingency plans for its operations if Year 2000 issues are not resolved in
time or go undetected. The incomplete or untimely resolution of any of these
issues could have a material adverse effect on the Company's business, financial
condition, cash flows and results of operations.
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IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price will be substantially higher than the
book value per share of the currently outstanding Common Stock. Purchasers of
the Common Stock offered hereby will suffer immediate and substantial dilution
of $9.34 per share in the net tangible book value of the Common Stock from the
initial public offering price (at an assumed initial public offering price of
$11.00 per share). Moreover, the Company may at any time in the future sell
additional securities or rights to purchase such securities, grant additional
warrants, stock options or other forms of equity-based incentive compensation to
the Company's management or employees to attract and retain such personnel or in
connection with the obtaining of financing, such as debt or leasing arrangements
accompanied by warrants to purchase equity securities of the Company. Any of
these actions, including the exercise of stock options currently outstanding by
officers, directors and employees of the Company, would have a dilutive effect
upon the holders of the Common Stock. See 'Dilution' and
'Management -- Executive Compensation.'
BROAD DISCRETION IN APPLICATION OF PROCEEDS
The Company intends to use the net proceeds from this offering to reduce
the outstanding principal balance under its line of credit and certain other
indebtedness, including approximately $3.9 million of indebtedness to Osicom
which is $5.8 million offset by a $1.9 million receivable due from Osicom to the
Company, and approximately $3.0 million of the approximately $4.0 million
outstanding balance under the Company's line of credit and for product
development and marketing, capital expenditures, working capital and general
corporate purposes. In addition, a portion of the net proceeds may be used to
make acquisitions. The Company has not specifically allocated approximately
$15.9 million of the net proceeds for any particular uses. Accordingly, the
specific uses for a substantial portion of the net proceeds will be at the
complete discretion of the Board of Directors of the Company and may be
allocated from time to time based upon a variety of circumstances. There can be
no assurance that the Company will deploy such funds in a manner that will
enhance the financial condition of the Company.
ACQUISITION RISKS
Acquisitions present numerous risks, including inaccurate assessment of the
benefits to be provided by an acquired business, the assumption of unexpected
liabilities, significant transaction costs and expenses, costs and expenses
involved in the integration of the operations and services of an acquired
business, diversion of management's attention from other business concerns and
potential loss of key employees of the acquired business. The realization of any
of these risks could have a material adverse effect on the Company's business,
financial condition, cash flows and results of operations. See 'Use of
Proceeds.'
NO PRIOR TRADING MARKET FOR THE COMMON STOCK; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock of the Company. The initial public offering price will be determined by
negotiations among the Company, the Selling Stockholder and the Underwriters and
may not be indicative of the price that will prevail on the open market. See
'Underwriting' for a discussion of the factors to be considered in determining
the initial public offering price. There can be no assurance that an active
public market will develop or be sustained after this offering or that the
market price of the Common Stock will not decline below the initial public
offering price. Future announcements concerning the Company or its competitors,
quarterly or annual variations in operating results, announcement of
technological innovations, the introduction of new products or changes in
product pricing policies by the Company or its competitors, proprietary rights
or product liability litigation, changes in earnings estimates by analysts, or
general market conditions in the networking systems industry could cause the
market price of the Common Stock to experience significant price and volume
fluctuations that have particularly affected the market prices for the
securities of technology companies. In the past, following periods of volatility
in the market price of a particular company's securities, securities class
action litigation has often been brought against such company. There can
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be no assurance that such litigation will not occur in the future with respect
to the Company. Such litigation could result in substantial costs and a
diversion of management's attention and resources, which could have a material
adverse effect upon the Company's business, financial condition, cash flows and
results of operations.
ANTI-TAKEOVER PROVISIONS
Shares of preferred stock may be issued by the Company in the future
without stockholder approval and upon such terms as the Board of Directors may
determine. The rights of the holders of the Common Stock will be subject to, and
may be adversely affected by, the rights of the holders of any preferred stock
that may be issued in the future. The issuance of preferred stock, while
providing flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire, or of discouraging a third party from acquiring, a
majority of the outstanding stock of the Company and potentially prevent the
payment of a premium to stockholders in an acquisition transaction. There are no
shares of preferred stock outstanding and the Company has no present plans to
issue any shares of preferred stock. See 'Description of Capital Stock.'
NO DIVIDENDS
To date, the Company has not paid any cash dividends on its Common Stock,
and does not expect to declare or pay any cash or other dividends in the
foreseeable future. In addition, the Company's credit agreement contains a
financial covenant that prohibits the payment of cash dividends. See 'Dividend
Policy.'
THE COMPANY
The Company commenced its operations in 1984 as Digital Products, Inc. and
has been operated by its current management throughout its history. From its
inception, the Company has developed and marketed embedded networking systems
enabling the connection of electronic devices to networks. In 1994, the Company
introduced the Digital Products Option ('DPO') Interface Specification and
Network Interface Card ('NIC'), two network connectivity products used by
printer controller designers and OEMs of imaging devices. DPO was designed using
the same networking technology found in the Company's previous products.
In 1996, the Company began developing an embedded networking system
designed to network-enable a broad array of electronic devices in a variety of
product markets. In September 1996, the Company was acquired by Osicom, a
Nasdaq-listed designer and manufacturer of carrier, enterprise and customer
premise networking equipment. The Company has been a wholly-owned subsidiary of
Osicom since the acquisition. Supported by Osicom's funding of working capital,
the Company completed the development of its NET+ family of products, and began
shipping that family of products in March 1998.
Effective as of May 1, 1998, pursuant to the Intercompany Agreement, the
Company transferred its Commercial Line to Osicom. Therefore, with respect to
the Company, the Commercial Line is treated as a discontinued operation.
However, the Company continues to provide significant manufacturing and
engineering services to Osicom for the Commercial Line for which Osicom pays the
Company on a cost basis. The Company anticipates that on approximately May 1,
1999, Osicom will assume manufacturing responsibility for the Commercial Line
products which it currently sells and that Osicom will assume responsibility for
engineering support of the Commercial Line on July 1, 1999. See 'Certain
Relationships and Related Party Transactions.' All references herein to the
'Company' refer to NETsilicon, Inc. and do not include the business and assets
of the Commercial Line unless the context otherwise requires.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,300,000 shares of
Common Stock offered hereby are estimated to be approximately $22.8 million at
an assumed initial offering price of $11.00 per share, after deducting the
underwriting discount and estimated offering expenses. See 'Underwriting.' The
Company will not receive any of the proceeds from the sale of shares being
offered by Osicom.
The Company expects to repay a portion of its indebtedness to Osicom and
one of Osicom's subsidiaries in the approximate amount of $3.9 million. This
indebtedness bears interest at the prime rate plus three percent per annum
(11.5% per annum at January 31, 1999) and is payable upon demand by Osicom. The
proceeds of the Company's borrowings from Osicom were used primarily for
research and development. In addition, the Company intends to use a portion of
the net proceeds from this offering to repay approximately $3.0 million of the
amounts due to Coast Business Credit under its line of credit. As of March 31,
1999, the Company had $4.0 million outstanding under its line of credit. The
$5.0 million line of credit, which was incurred to finance working capital
borrowings by the Company, bears interest at the lender's prime rate plus 2.5%
per annum, not to be less than 8.0% per annum. The Company intends to maintain a
balance of $1.0 million under its line of credit in order to meet the minimum
balance requirements and avoid additional fees under the terms of its agreement
with Coast Business Credit. The Company's line of credit expires February 1,
2001. The remainder of the net proceeds will be used for product development and
marketing, capital expenditures, working capital, and general corporate
purposes. The Company may also use a portion of the net proceeds from this
offering to expand its business through acquisitions. The Company may from time
to time explore prospective acquisition opportunities; however, the Company does
not currently have any acquisition commitments. Other than the repayment of
outstanding indebtedness, the Company has not made any determination regarding
the amounts or timing of the use of any proceeds from this offering. See 'Risk
Factors -- Broad Discretion in Application of Proceeds; Acquisition Risks.' The
amounts and the timing of any such use may vary significantly depending upon a
number of factors, including the Company's revenue growth, asset growth, cash
flows and acquisition activities. Pending such uses, the net proceeds of this
offering will be invested in short-term, investment-grade, interest-bearing
securities. The Company currently anticipates that the net proceeds to be
received by the Company from this offering, together with amounts available
under its existing line of credit, cash generated from operations and existing
cash balances will be sufficient to satisfy its operating cash needs for at
least 12 months following the consummation of this offering. See 'Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.'
DIVIDEND POLICY
To date, the Company has not paid or declared any cash dividends on its
Common Stock. The Company currently intends to retain future earnings for use in
its business and, therefore, does not anticipate paying or declaring any cash or
other dividends in the foreseeable future. The payment of future dividends, if
any, will depend among other things, on the Company's results of operations,
cash flows and financial condition and on such other factors as the Company's
Board of Directors may, in its discretion, consider relevant. In addition, the
Company's credit agreement with Coast Business Credit contains a financial
covenant that prohibits the payment of any dividends without their consent.
18
<PAGE>
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
January 31, 1999, (i) on an actual basis, and (ii) as adjusted to reflect the
sale of 2,300,000 shares of Common Stock offered by the Company hereby and the
application of approximately $22.8 million in estimated net proceeds therefrom.
This table should be read in conjunction with the Financial Statements of the
Company and the Notes thereto and other financial information included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1999
-------------------------
ACTUAL AS ADJUSTED(1)
------- --------------
(Dollars in thousands,
except per share data)
<S> <C> <C>
Short-term debt................................................................... $ 3,192 $ 1,000
------- --------------
------- --------------
Due to Osicom(2).................................................................. $ 5,885 $ --
Stockholders' equity (deficit):
Common Stock, par value $0.01 per share; 35,000,000 shares authorized and
10,000,000 shares issued and outstanding actual; 12,300,000 issued and
outstanding as adjusted...................................................... 100 123
Preferred Stock, par value $0.01 per share; 5,000,000 shares authorized and no
shares issued actual and as adjusted......................................... -- --
Additional paid-in capital...................................................... 2,463 25,199
Accumulated deficit............................................................. (4,399) (4,399)
------- --------------
Total stockholders' equity (deficit)......................................... (1,836) 20,923
------- --------------
Total capitalization....................................................... $ 4,049 $ 20,923
------- --------------
------- --------------
</TABLE>
- ---------------------------
(1) Adjusted to give effect to the sale by the Company of 2,300,000 shares of
Common Stock and the application of approximately $22.8 million in net
proceeds from this offering, after deducting the underwriting discount with
respect to such shares and estimated offering expenses.
(2) Reflects advances from Osicom to the Company as of January 31, 1999. As of
March 31, 1999 such balance was $5.8 million. The Company anticipates
repayment of all outstanding amounts due to Osicom from the proceeds of
this offering and by a set-off against a $1.9 million receivable due from
Osicom. See Note F to the Notes to the Financial Statements.
19
<PAGE>
<PAGE>
DILUTION
The net tangible book value of the Company as of January 31, 1999, was a
deficit of $2.8 million, or $0.28 per share of Common Stock. Net tangible book
value per share of Common Stock represents the amount of the Company's tangible
assets less its total liabilities, divided by the total number of shares of
Common Stock outstanding. Assuming the sale by the Company of 2,300,000 shares
of Common Stock offered hereby and application of the estimated net proceeds
therefrom, the pro forma adjusted net tangible book value of the Company as of
January 31, 1999 would have been approximately $20.5 million, or $1.66 per
share. This represents an immediate increase in such net tangible book value of
$1.94 per share to existing stockholders and an immediate dilution of $9.34 per
share to new investors. The following table illustrates this per share dilution
in net tangible book value:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................................................... $11.00
Net tangible book value per share as of January 31, 1999................................ $(0.28)
Increase per share attributable to new investors(1)..................................... 1.94
------
Pro forma net tangible book value per share as of January 31, 1999............................... 1.66
------
Dilution per share to new investors................................................................ $ 9.34
------
------
</TABLE>
- ---------------------------
(1) Reflects the sale by the Company of 2,300,000 shares of Common Stock and
the receipt of approximately $22.8 million in net proceeds from this
offering, after deducting the underwriting discount and estimated offering
expenses.
------------------------
The following table summarizes, on an adjusted basis as of January 31,
1999, the difference between the total number of shares of Common Stock
purchased from the Company, the total consideration paid to the Company and the
average price per share paid by existing stockholders and by new investors (at
an assumed initial public offering price of $11.00 per share and without giving
effect to the underwriting discount and estimated offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------------- ----------------------------- PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
--------------- ---------- ---------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Osicom.............................. 10,000,000 (1) 81.3% $ 5,000,000 (2) 16.5% $ 0.50
New investors....................... 2,300,000 18.7% $25,300,000 83.5% 11.00
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
Total.......................... 12,300,000 100.0% $30,300,000 100.0%
---------- ---------- ----------- ----------
---------- ---------- ----------- ----------
</TABLE>
- ---------------------------
(1) Sales by Osicom in this offering will reduce the number of shares held by
it to 9,300,000 shares or 75.6% (8,850,000 shares or approximately 72.0% if
the Underwriters' over-allotment option is exercised in full) of the total
shares of Common Stock outstanding after this offering and will increase
the number of shares held by new investors to 3,000,000 shares or 24.4%
(3,450,000 shares or approximately 28.0% if the Underwriters'
over-allotment option is exercised in full) of the total shares of Common
Stock outstanding after this offering. See 'Principal and Selling
Stockholders.'
(2) Represents gross consideration paid by Osicom to the former stockholders of
the Company in connection with the acquisition of the Company in September
1996.
20
<PAGE>
<PAGE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below should be read in conjunction
with 'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Financial Statements of the Company and the Notes thereto
included elsewhere in this Prospectus. The statement of operations data for the
fiscal years ended January 31, 1997, 1998 and 1999 and balance sheet data as of
January 31, 1997, 1998 and 1999 have been derived from the financial statements
of the Company which have been audited by BDO Seidman, LLP, independent
accountants. The statement of operations and balance sheet data for the fiscal
year ended January 31, 1996 have been derived from the audited financial
statements of the Company. The statement of operations data for the fiscal year
ended January 31, 1995 and the balance sheet data as of January 31, 1995 have
been derived from the Company's unaudited financial statements which, in the
opinion of management, include all significant, normal and recurring adjustments
necessary for a fair presentation of the financial position and results of
operations for such unaudited period.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................................ $ 5,363 $ 4,598 $ 7,445 $ 7,920 $13,373
Cost of sales.................................................... 3,029 2,662 4,294 4,060 7,271
----------- ------- ------- ------- -------
Gross profit..................................................... 2,334 1,936 3,151 3,860 6,102
----------- ------- ------- ------- -------
Operating expenses:
Selling and marketing.......................................... 1,498 914 1,563 1,810 3,336
Engineering, research and development.......................... 635 1,698 1,028 1,483 2,153
General and administrative..................................... 409 2,294 1,502 1,795 2,194
----------- ------- ------- ------- -------
Total operating expenses......................................... 2,542 4,906 4,093 5,088 7,683
----------- ------- ------- ------- -------
Operating loss from continuing operations........................ (208) (2,970) (942) (1,228) (1,581)
Interest expense................................................. (66) (99) (136) (118) (551)
----------- ------- ------- ------- -------
Loss from continuing operations before income taxes.............. (274) (3,069) (1,078) (1,346) (2,132)
Provision for income tax benefit................................. 446 643 969 493 --
----------- ------- ------- ------- -------
Net income (loss) from continuing operations..................... $ 172 $(2,426) $ (109) $ (853) $(2,132)
----------- ------- ------- ------- -------
----------- ------- ------- ------- -------
Net income (loss) from continuing operations per share:
Basic.......................................................... $ 0.02 $ (0.34) $ (0.02) $ (0.09) $ (0.21)
Diluted........................................................ $ 0.02 $ -- $ -- $ -- $ --
Supplemental net income (loss) per share(1)...................... $ 0.02 $ (0.31) $ (0.01) $ (0.08) $ (0.20)
Weighted average number of shares outstanding:
Basic.......................................................... 7,161 7,176 7,158 10,000 10,000
Diluted........................................................ 10,000 -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
-----------------------------------------------------
1995 1996 1997 1998 1999
----------- ------- ------ ------ -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ -- $ 19 $ 394 $ 185 $ 583
Working capital (deficit)...................................... (852) (1,261) (241) (787) (3,471)
Total assets................................................... 7,318 7,033 7,615 7,933 11,648
Due to Osicom(2)............................................... 0 0 948 1,812 5,885
Total debt (including short-term debt)......................... 6,190 2,863 3,338 3,005 3,191
Stockholders' equity (deficit)................................. 1,076 (458) 763 586 (1,836)
</TABLE>
- ---------------------------
(1) Supplemental net income (loss) per share is based upon the weighted number
of shares of Common Stock used in the calculation of net income (loss) per
share increased by the sale of 670,000 shares, the proceeds of which would
be necessary to reduce borrowings by $6.9 million.
(2) Reflects advances from Osicom to the Company as of January 31, 1999. As of
March 31, 1999, such balance was $5.8 million. The Company anticipates
repayment of all outstanding amounts due to Osicom from the proceeds of the
offering and by a setoff against a $1.9 million receivable due from Osicom.
See Note F to the Notes to the Financial Statements.
21
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements and
other financial information included in this prospectus.
OVERVIEW
The Company develops and markets embedded networking solutions. The
Company's products are incorporated into the design of embedded systems to
provide the ability to communicate over standards-based LANs, WANs and the
Internet, enabling the development of completely new embedded systems
applications. The Company believes that it provides the first standards-based
embedded networking system to offer a single-chip solution that, in conjunction
with the physical interface and memory, encompasses all of the required hardware
and software necessary to network-enable virtually any electronic device. The
Company's technology is designed to have broad applicability and therefore may
add network functionality to many electronic devices. The Company's products are
currently contained in a broad array of imaging products, including printers,
scanners, fax machines, copiers and multi-function peripherals manufactured by
20 OEMs such as Minolta Corporation, NEC Corporation, Sharp Corporation and
Xerox Corporation. The Company's products are also in various stages of being
incorporated by 43 OEMs into the design of products in other markets, such as
industrial automation equipment, communication devices, data acquisition and
test equipment, Internet devices and utility monitoring equipment.
From its inception in 1984, the Company has developed and marketed embedded
networking systems enabling the connection of electronic devices to networks. In
1994, the Company introduced the DPO Interface Specification and Network
Interface Card, two network connectivity products used by printer controller
designers and OEMs of imaging devices. In 1996, the Company began developing an
embedded networking system designed to network-enable a broad array of
electronic devices in a variety of product markets.
In September 1996, Osicom acquired all of the Company's outstanding capital
stock from its stockholders for $5.0 million. The Company has been a
wholly-owned subsidiary of Osicom since the acquisition. Supported by Osicom's
funding of working capital, the Company completed the development of its NET+
family of products, and began shipping that family of products in March 1998.
Effective as of May 1, 1998, the Company transferred its Commercial Line to
Osicom. Therefore, the Company treats the Commercial Line as a discontinued
operation, and Osicom now manufactures, sells and supports the stand-alone print
server and other products. However, the Company continues to provide significant
manufacturing and engineering services to Osicom for the Commercial Line for
which Osicom pays the Company on a cost basis. The Company anticipates that on
approximately May 1, 1999, Osicom will assume responsibility for all
manufacturing of the Commercial Line products which it currently sells and that
on approximately July 1, 1999 Osicom will assume responsibility for providing
engineering support for the Commercial Line. See 'Certain Relationships and
Related Party Transactions.' The financial data discussed below do not include
the operations of the Commercial Line.
The Company generates revenues from the sales of embedded networking
products, software development tools and application engineering services. The
Company's embedded networking products are sold to OEMs which incorporate them
into electronic devices that are sold to end users. The Company generally
recognizes product and software license revenue upon shipment to its OEM
customers. Revenue from service obligations is deferred and recognized over the
lives of the contracts. The Company accrues warranty costs, sales returns, and
other allowances at the time of shipment. In general, the timing and magnitude
of the Company's revenues are dependent upon
22
<PAGE>
<PAGE>
its achievement of design wins, the timing and success of its OEMs' development
cycles and its OEMs' product sales.
In the fiscal year ended January 31, 1999, international sales constituted
approximately 50.0% of the Company's net sales, and approximately 18.5% of its
domestic sales were to customers headquartered in Asia. Approximately 96.4% of
the Company's net sales in the fiscal year ended January 31, 1999 were made to
OEM customers in the imaging market, many of which are headquartered in Japan.
RESULTS OF OPERATIONS
The following table sets forth, for the fiscal years ended January 31,
1997, 1998 and 1999, information derived from the Company's Statement of
Operations expressed as a percentage of net sales.
<TABLE>
<CAPTION>
AS A PERCENTAGE OF NET SALES
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Net sales................................................................... 100.0% 100.0% 100.0%
Cost of sales............................................................... 57.7 51.3 54.4
----- ----- -----
Gross profit................................................................ 42.3 48.7 45.6
----- ----- -----
Operating expenses:
Selling and marketing..................................................... 21.0 22.9 24.9
Engineering, research and development..................................... 13.8 18.7 16.1
General and administrative................................................ 20.2 22.6 16.4
----- ----- -----
Total operating expenses.................................................... 55.0 64.2 57.4
----- ----- -----
Operating loss from continuing operations................................... (12.7) (15.5) (11.8)
Interest expense............................................................ (1.8) (1.5) (4.1)
----- ----- -----
Loss from continuing operations before income taxes......................... (14.5) (17.0) (15.9)
Provision for income taxes.................................................. 13.0 6.2 --
----- ----- -----
Net loss from continuing operations......................................... (1.5)% (10.8)% (15.9)%
----- ----- -----
----- ----- -----
</TABLE>
FISCAL YEAR ENDED JANUARY 31, 1999 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1998
Net sales. Net sales increased to $13.4 million in the fiscal year ended
January 31, 1999 from $7.9 million in the fiscal year ended January 31, 1998,
representing an increase of 69.6%. The increase in net sales was due primarily
to an increase in OEM customers to which the Company shipped product from seven
in fiscal year 1998 to 20 in fiscal year 1999. Net sales included maintenance
and service revenue of $424,000, or 3.2% of net sales in the fiscal year ended
January 31, 1999 compared to $606,000 or 7.6% of net sales in the fiscal year
ended January 31, 1998. Backlog for the Company's products and services was
approximately $7.8 million and $1.9 million at January 31, 1999 and 1998,
respectively, all of which was scheduled to be shipped within 12 months.
Cost of sales; gross profit. Cost of sales consists principally of the cost
of raw material components and subcontract labor assembly from outside
manufacturers and suppliers. Gross profit increased to $6.1 million, or 45.6% of
net sales, in the fiscal year ended January 31, 1999 from $3.9 million, or 48.7%
of net sales, in the fiscal year ended January 31, 1998, representing an
increase of 56.4%. The gross margin percentage decrease in the fiscal year ended
January 31, 1999, was due primarily to costs of $224,000 resulting from the late
delivery of the NET+ARM chip as well as slower than anticipated general raw
material cost reductions of $38,000 due to cash constraints. In addition,
average sales prices decreased $153,000 for the fiscal year ended January 31,
1999 from the fiscal year ended January 31, 1998.
23
<PAGE>
<PAGE>
Selling and marketing expenses. Selling and marketing expenses consist
mainly of employee-related expenses, commissions to sales representatives, trade
shows and travel expenses. Selling and marketing expenses increased to $3.3
million, or 24.9% of net sales, in the fiscal year ended January 31, 1999 from
$1.8 million, or 22.9% of net sales, in the fiscal year ended January 31, 1998,
representing an increase of 83.3%. This increase was the result of (i)
additional sales commissions of $681,000 due to the increased net sales volume,
(ii) increased marketing efforts, including the addition of two senior marketing
employees at a cost of $687,000, associated with the introduction and brand
identification efforts related to the NET+ family of products subsequent to its
introduction in January 1998, and (iii) and costs of $88,000 associated with
expanded efforts to increase the Company's OEM customer base.
Engineering, research and development expenses. Engineering, research and
development expenses consist primarily of salaries and the related costs of
employees engaged in research, design and development activities, net of
capitalized software costs. Engineering, research and development expenses
increased to $2.2 million, or 16.1% of net sales, in the fiscal year ended
January 31, 1999 from $1.5 million, or 18.7% of net sales, in the fiscal year
ended January 31, 1998, representing an increase of 46.7%. This increase was due
to the increased expenditures associated with the development of the Company's
NET+ family of products. Software development costs of $724,000 and $556,000 in
the fiscal years ended January 31, 1999 and 1998, respectively, were capitalized
and are being amortized over the products' useful lives estimated at three
years. Amortization expenses related to capitalized software development costs
for the fiscal years ended January 31, 1999 and 1998 were $227,300, and $277,300
respectively.
General and administrative expenses. General and administrative expenses
consist mainly of salaries, employee-related expenses, legal expenses, audit
fees and reserves for accounts receivable allowances. General and administrative
expenses increased to $2.2 million, or 16.4% of net sales, in the fiscal year
ended January 31, 1999 from $1.8 million, or 22.6% of net sales, in the fiscal
year ended January 31, 1998, representing an increase of 22.2%. The increase in
these expenses resulted primarily from an increase of approximately $300,000 in
the accounts receivable valuation reserve to reflect the higher level of gross
receivables in the fiscal year ended January 31, 1999, as well as from an
expansion of the Company's infrastructure at a cost of $100,000 to facilitate
anticipated growth.
Interest expense. Interest expense is the result of the Company's
borrowings against its line of credit with its lender, Coast Business Credit and
the interest charged by its parent, Osicom, for borrowings made by the Company
from Osicom. Interest expense increased to $551,000, or 4.1% of net sales, in
the fiscal year ended January 31, 1999, from $118,000, or 1.5% of net sales, in
the fiscal year ended January 31, 1998, representing an increase of 363.9%.
During the fiscal year ended January 31, 1999, approximately $353,000 was
attributable to interest charges on advances to the Company from Osicom. During
the fiscal year ended January 31, 1998, Osicom did not charge any interest on
advances to the Company. The interest rate on the Company's debt with Osicom is
the prime rate plus three percent per year.
Provision for income taxes. There was no net provision for income taxes for
the fiscal years ended January 31, 1999 and 1998 because the tax provision
attributable to discontinued operations offset the tax benefits attributable to
continuing operations. At January 31, 1999, the Company had federal net
operating losses of approximately $3.8 million, and research and development
credits of $210,200 which expire at various dates through 2014 and which may be
available to reduce future taxable income. The extent to which net operating
loss carryforwards may be utilized in a single taxable year may be reduced in
the event there has been any 'ownership change' of a taxpayer. The acquisition
of the Company by Osicom in September 1996 resulted in such an ownership change.
Further ownership changes in the future may reduce the extent to which any net
operating losses and credits may be utilized.
24
<PAGE>
<PAGE>
FISCAL YEAR ENDED JANUARY 31, 1998 COMPARED TO FISCAL YEAR ENDED JANUARY 31,
1997
Net sales. Net sales increased to $7.9 million in the fiscal year ended
January 31, 1998 from $7.4 million in the fiscal year ended January 31, 1997,
representing an increase of 6.8%. This increase in net sales resulted from an
increase in the number of OEM customers from five to seven and moderately
increased volume in units sold, representing $760,000 of net sales. These
factors were offset in part by declining sales prices, representing a decrease
in net sales of $260,000. Backlog for the Company's products and services was
approximately $1.9 million and $1.8 million at the fiscal years ended January
31, 1998 and 1997, respectively, all of which was scheduled to be shipped within
12 months.
Cost of sales; gross profit. Gross profit increased to $3.9 million, or
48.7% of net sales, in the fiscal year ended January 31, 1998, from $3.2
million, or 42.3% of net sales, in the fiscal year ended January 31, 1997,
representing an increase of 21.9%. The gross margin increase reflected primarily
reductions in the costs of raw materials.
Selling and marketing expenses. Selling and marketing expenses increased to
$1.8 million, or 22.9% of net sales, in the fiscal year ended January 31, 1998,
from $1.6 million, or 21.0% of net sales, for the fiscal year ended January 31,
1997, representing an increase of 12.5%. This increase resulted from expanded
efforts to increase the Company's OEM customer base.
Engineering, research and development expenses. Engineering, research and
development expenses increased to $1.5 million, or 18.7% of net sales, in the
fiscal year ended January 31, 1998 from $1.0 million, or 13.8% of net sales, for
the fiscal year ended January 31, 1997, representing an increase of 50%. The
increase in these expenses resulted from the cash constraints of the Company
during the fiscal year ended January 31, 1997 and the increased expenditures
associated with the development of the Company's NET+ family of products in the
fiscal year ended January 31, 1998. Software development costs of $556,000 and
$369,500 in the fiscal years ended January 31, 1998 and 1997, respectively were
capitalized and are being amortized over the products' useful lives.
Amortization expenses related to capitalized software development costs for the
fiscal years ended January 31, 1998 and 1997 were $277,300 and $321,900,
respectively.
General and administrative expenses. General and administrative expenses
increased to $1.8 million, or 22.6% of net sales, in the fiscal year ended
January 31, 1998 from $1.5 million, or 20.2% of net sales, in the fiscal year
ended January 31, 1997, representing an increase of 20.0%. The increase in these
expenses resulted primarily from an expansion of the Company's infrastructure to
facilitate growth.
Interest expense. Interest expense decreased to $118,000, or 1.5% of net
sales, in the fiscal year ended January 31, 1998 from $136,000, or 1.8% of net
sales, in the fiscal year ended January 31, 1997, representing a decrease of
12.5%. This decrease was the result of the reduced interest rate on the
Company's new line of credit obtained in October 1996 (2.5% over the bank's
prime rate as compared with 4% over the prior lender's prime rate) partially
offset by increased borrowings.
Provision for income taxes. There was no net provision for income taxes for
the fiscal years ended January 31, 1998 and 1997. Instead, the tax provision
attributable to discontinued operations created the tax benefit attributable to
continuing operations. At January 31, 1998 the Company had federal net operating
losses of approximately $1.5 million and research and development credits of
approximately $210,000 which expire at various dates through 2014 and which may
be available to reduce future taxable income. The extent to which net operating
loss carryforwards may be utilized in a single taxable year may be reduced in
the event there has been an 'ownership change' of a taxpayer. The acquisition of
the Company by Osicom in September 1996 resulted in such an ownership change.
Further ownership changes in the future may reduce the extent to which any net
operating losses and credits may be utilized.
25
<PAGE>
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations
data in dollar amounts and as a percentage of net sales for the three month
period indicated. This information has been presented on the same basis as the
audited Financial Statements appearing elsewhere in this Prospectus and, in the
opinion of management, includes all adjustments, consisting only of normal
recurring adjustments, that the Company considers necessary to present fairly
the unaudited quarterly results. This information should be read in conjunction
with the Company's audited Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus. The operating results for any quarter are not
necessarily indicative of results for any future period. See 'Risk
Factors -- Potential Fluctuations in Operating Results.'
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
(Unaudited, in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................... $2,471 $2,703 $ 890 $1,856 $2,185 $3,199 $ 3,030 $4,959
Cost of sales....................... 1,369 1,376 441 875 1,037 1,497 2,117 2,619
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit........................ 1,102 1,327 449 981 1,148 1,702 913 2,340
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses:
Selling and marketing........... 425 478 401 505 628 627 1,008 1,074
Engineering, research &
development................... 398 402 424 259 448 502 669 533
General and administrative...... 451 454 442 448 352 405 756 681
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses............ 1,274 1,334 1,267 1,212 1,428 1,534 2,433 2,288
-------- -------- -------- -------- -------- -------- -------- --------
Operating income (loss) from
continuing operations............. (172) (7) (818) (231) (280) 168 (1,520 ) 52
Interest expense.................... (20) (34) (46) (18) (60) (77) (198 ) (217)
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes.... (192) (41) (864) (249) (340) 91 (1,718 ) (165)
Provision for income tax benefit.... 112 109 31 241 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) from continuing
operations........................ $ (80) $ 68 $ (833) $ (8) $ (340) $ 91 $(1,718 ) $ (165)
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
As a Percentage of Net Sales:
Net sales........................... 100% 100% 100% 100% 100% 100% 100% 100%
Cost of sales....................... 55 51 50 47 47 47 70 53
--- --- --- --- --- --- --- ---
Gross profit........................ 45 49 50 53 53 53 30 47
--- --- --- --- --- --- --- ---
Operating expenses:
Selling and marketing........... 18 18 44 27 29 19 33 22
Engineering, research &
development................... 16 15 48 14 20 16 22 10
General and administrative...... 18 17 50 24 16 13 25 14
--- --- --- --- --- --- --- ---
Total operating expenses............ 52 50 142 65 65 48 80 46
--- --- --- --- --- --- --- ---
Operating income (loss) from
continuing operations............. (7) (1) (92) (12) (12) 5 (50) 1
Interest expense.................... (1) (1) (5) (1) (3) (2) (7) (4)
--- --- --- --- --- --- --- ---
Income (loss) from continuing
operations before income taxes.... (8) (2) (97) (13) (15) 3 (57) (3)
Provision for income tax benefit.... 5 4 3 13 0 0 0 0
--- --- --- --- --- --- --- ---
Net income (loss) from
continuing operations......... (3)% 2% (94)% 0% (15)% 3% (57)% (3)%
--- --- --- --- --- --- --- ---
--- --- --- --- --- --- --- ---
</TABLE>
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Fluctuations in the Company's operating results have occurred in the past
and are likely to occur in the future due to a variety of factors, any of which
may have a material adverse effect on the Company's operating results. The
Company believes that period-to-period comparisons are not necessarily
meaningful and should not be relied upon as indicative of future operating
results. The Company's operating results in a future quarter or quarters are
likely to fall below the expectations of public market analysts or investors. In
such an event, the price of the Company's Common Stock will be materially
adversely affected. See 'Selected Financial Data,' the Financial Statements of
the Company and the Notes thereto and 'Risk Factors -- Potential Fluctuations in
Operating Results' appearing elsewhere in this prospectus.
The Company's quarterly revenues for the three months ended October 31,
1998 and January 31, 1999 were significantly impacted by delays in the delivery
of its products from Atmel Corporation. Such delays affected the Company's
ability to fill its orders to customers in the three months ended October 31,
1998, reducing its quarterly revenues to below its expectations. Many such
orders were filled during the three months ended January 31, 1999, generating
unusually high revenues for this period. Investors should not expect revenues
during the three months ending April 30, 1999, or any future quarter, to exceed
its unusually high level in the quarter three months January 31, 1999.
During the three months ended October 31, 1998, management completed an
evaluation of its reserves, royalties, purchased software and other assets.
Following such review, the Company recorded non-recurring charges of
approximately $253,000 to cost of sales and $355,000 to operating expenses to
reflect adjustments to such accounts. In addition, during the three months ended
January 31, 1999, the Company made an adjustment to the valuation of its
inventory, which was reflected as a write-down of assets of $272,000 to cost of
sales. The Company believes these accounts are properly reflected as of its
January 31, 1999 financial statements.
LIQUIDITY AND CAPITAL RESOURCES
Prior to this offering the Company financed its operations primarily
through advances from Osicom and borrowings under its short term bank line of
credit. The Company believes its cash from operations and the proceeds of this
offering will be sufficient to meet its projected working capital needs for at
least twelve months following the consummation of this offering. However, there
can be no assurance that the Company's working capital requirements will not
exceed the Company's ability to generate sufficient cash to support its
requirements. The Company cannot give any assurances that sufficient capital
will be available when needed on terms acceptable to the Company, if at all.
The Company had an operating cash flow deficit of $1.9 million during the
fiscal year ended January 31, 1999, as compared to operating cash flow of
$45,300 for the fiscal year ended January 31, 1998. This increase in the net
operating cash flow outlays reflects the significant growth in accounts
receivable (to $4.2 million at January 31, 1999 from $3.6 million at January 31,
1998) and inventory (to $3.8 million at January 31, 1999 from $2.6 million at
January 31, 1998) caused by the growth in demand for the Company's OEM products.
While the Company anticipates positive cash flows from its operating activities
during its next fiscal year, there can be no assurance that positive cash flows
from operations will be achieved.
In order to support the Company's anticipated growth, the Company expects
that its sales and marketing expenses, engineering, research and development
expenses and general and administrative expenses each will increase in fiscal
year 2000 and thereafter compared to the amounts of such expenses in fiscal year
1999. There can be no assurance that the Company's available cash and cash flow
from operations will be sufficient to fund such additional expenses.
Investing activities during the fiscal year ended January 31, 1999
consisted of property and equipment of $328,100 and expenditures for capitalized
software development costs of $723,600.
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During the fiscal year ended January 31, 1998, the Company's investing
activities included $604,800 for purchases of property and equipment and
$556,000 in expenditures for capitalized software development.
Financing activities of the Company during the fiscal year ended January
31, 1999 provided net cash inflows of $3.2 million as compared with $891,000
during the fiscal year ended January 31, 1998. Financing activities during the
fiscal year ended January 31, 1999 consisted of net proceeds from loans by
Osicom of $3.0 million and net proceeds from short-term debt of $186,500, net of
long-term debt repayments of $17,900. During the fiscal year ended January 31,
1998 the Company's financing activities included net proceeds from loans by
Osicom of $854,400 and net proceeds from short-term debt of $36,300 net of
long-term debt repayments of $254,700.
From time to time the Company has received loans, including payment of
expenses on behalf of the Company, from Osicom which are subordinate to bank
debt. As of March 31, 1999, the balance due Osicom was approximately $5.8
million. As of January 31, 1998, Osicom began accruing interest on the
outstanding balance at the prime rate plus three percent per year. The Company
intends to repay the loan to Osicom in full from the proceeds of this offering
and has no plans to have further loans from Osicom subsequent to this offering.
The Company has a credit facility of $5.0 million, of which $1.8 million
was unused at January 31, 1999, provided by Coast Business Credit, a division of
Southern Pacific Bank, an asset based lender, collateralized by accounts
receivable, inventory and equipment and a guarantee by Osicom. The loan bears
interest at 2.5% over the bank's prime rate, but not less than 8.0%, and expires
February 1, 2001.
The Company's standard payment terms are net 30 days. Historically, the
Company has experienced a significant amount of its revenue shipments in the
last month of the quarter and the last month of the fiscal year. This can
artificially raise the days sales outstanding calculation for the fiscal years
ended January 31, 1998 and 1997.
YEAR 2000 COMPLIANCE
The Year 2000 issue refers generally to the problems that some software may
have in determining the correct century for the year. For example, software with
date-sensitive functions that is not Year 2000 compliant may not be able to
distinguish whether '00' means 1900 or 2000, which may result in failures or the
creation of erroneous results.
The Company is taking steps to address potential Year 2000 problems,
including (i) identifying the computer systems and products affected; (ii)
contacting vendors and suppliers; (iii) determining the Year 2000 compliance
status of each of its systems and products; and (iv) implementing any necessary
changes. Although the Company does not currently expect that the impact of the
Year 2000 issue will be material to its systems or products, it could discover
(or fail to discover) Year 2000 issues in the course of its evaluation process
that would have a materially adverse effect on the Company's business, results
of operations or financial condition if not properly addressed.
The Company's products are not date-dependent and the Company believes that
they are Year 2000 compliant. The Company has tested software obtained from
third parties that is incorporated into its products, and is seeking assurances
from its vendors that their licensed software is Year 2000 compliant.
Furthermore, the Company intends to send inquiries to certain of its suppliers
requesting information concerning exposure to Year 2000 problems. The Company
expects to complete this process by September 1999. The Company has received
representations from certain of its suppliers, including some of its sole source
suppliers, as to the Year 2000 compliance of their systems and products. Despite
testing by the Company and by its current and potential customers, and
assurances from the vendors of the software and hardware incorporated into its
products, the Company's products may contain undetected errors or defects
associated with Year 2000 date
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functions. Known or unknown errors or defects in such products could severely
disrupt the Company's operations and have a material adverse effect on its
business, financial condition, cash flows and results of operations.
The Company's internal systems include both information technology ('IT')
and non-IT systems. The Company has completed an assessment of its material
internal IT and non-IT systems, including software and hardware technology. To
the extent the Company cannot test the technology, it is seeking assurances from
such vendors that their systems are Year 2000 compliant. The Company is not
aware of any material operational issues or costs associated with preparing its
internal IT and non-IT systems for the Year 2000; however, it may experience
material unanticipated problems and costs caused by undetected errors or defects
in the technology used in its internal IT and non-IT systems. The Company
intends to complete the remediation of any non-Year 2000 compliant technology by
September 1999.
The Company does not have any information concerning the Year 2000
compliance of its customers. The Company's current and potential customers may
incur significant expense to achieve Year 2000 compliance. If such customers are
not Year 2000 compliant, they may incur material costs to remedy problems or
face litigation costs. As a result, such customers and potential customers could
reduce or eliminate plans that they have to purchase the Company's products or
services. Such events could have a material adverse effect on the Company's
business, financial condition, cash flows and results of operations.
The Company has funded its efforts to address the Year 2000 issue from
available cash and has not separately accounted for these costs in its financial
statements. These costs have not been material as of the date of this
Prospectus. The Company expects to incur additional costs associated with Year
2000 compliance. Subject to the foregoing uncertainties, the Company does not
expect those costs to be in excess of $100,000.
Because the Company does not believe the risks of Year 2000 compliance are
material, the Company does not plan to develop a contingency plan to address
situations that may result if it is unable to achieve Year 2000 compliance for
its critical operations. However, the Company is subject to external forces that
may affect industry and commerce generally, such as utility or transportation
company Year 2000 compliance failures and related service interruptions.
EFFECTS OF INFLATION AND CURRENCY EXCHANGE RATES
The Company believes that the relatively moderate rate of inflation in the
United States over the past few years has not had a significant impact on the
Company's sales or operating results or on the prices of raw materials. There
can be no assurance, however, that inflation will not have a material adverse
effect on the Company's operating results in the future.
Substantially all of the Company's sales are currently denominated in U.S.
dollars and to date its business has not been significantly affected by currency
fluctuations. However, the Company conducts business in several different
countries and thus fluctuations in currency exchange rates could cause the
Company's products to become relatively more expensive in particular countries,
leading to a reduction in sales in that country. In addition, inflation in such
countries could increase the Company's expenses. In the future, the Company may
engage in foreign currency denominated sales or pay material amounts of expenses
in foreign currencies and, in such event, may experience gains and losses due to
currency fluctuations. The Company's operating results could be adversely
affected by such fluctuations.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board ('FASB') has issued several
pronouncements effective for fiscal years beginning after December 15, 1997,
including Statement of Financial Accounting Standards ('SFAS') No. 129
'Disclosure of Information about Capital Structure',
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SFAS No. 130 'Reporting Comprehensive Income', SFAS No. 131 'Disclosure about
Segments of an Enterprise and Related Information', and SFAS No. 132 'Employers'
Disclosures about Pensions and other Postretirement Benefits.' In addition, the
Accounting Standards Executive Committee issued Statement of Position No. 97-2
'Software Revenue Recognition' that supercedes Statement of Position No. 91-1
'Software Revenue Recognition' effective for transactions entered into fiscal
years beginning after December 15, 1997. The adoption of these standards has had
no material effects, if any, on Company's financial position or results of
operations.
In June 1998, the FASB issued Statement No. 133, Accounting for Derivative
Instruments and Hedging Activities ('SFAS No. 133') SFAS No. 133 provides a
comprehensive and consistent standard for the recognition and measurement of
derivatives and hedging activities and requires all derivatives to be recorded
on the balance sheet at fair value. SFAS No. 133 is effective for years
beginning after June 15, 1999. Adoption of SFAS No. 133 is not expected to have
a material impact on the Company's results of operations, financial position or
cash flows.
During 1998, Statement of Position ('SOP') No. 98-9 was issued. The
provisions of SOP No. 98-9 amend certain provisions of SOP No. 98-4 and SOP No.
97-2.
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BUSINESS
OVERVIEW
The Company develops and markets embedded networking solutions. The
Company's products are incorporated into the design of embedded systems to
provide the ability to communicate over standards-based LANs, WANs and the
Internet, enabling the development of completely new embedded systems
applications. The Company believes that it provides the first standards-based
embedded networking system to offer a single chip solution that, in conjunction
with the physical interface and memory, encompasses all of the required hardware
and software necessary to network-enable virtually any electronic device. The
Company's products are contained in a broad array of imaging products, including
printers, scanners, fax machines, copiers and multi-function peripherals
manufactured by 20 OEMs, including Minolta Corporation, NEC Corporation, Sharp
Corporation and Xerox Corporation. The Company's products are also in various
stages of being incorporated by 43 OEMs into the design of products in other
markets, such as industrial automation equipment, communication devices, data
acquisition and test equipment, Internet devices and utility monitoring
equipment.
INDUSTRY BACKGROUND
Virtually any electronic device that does not require a person's constant
presence could be a candidate for network connectivity. Connection to a network
affords the operators of these devices the convenience of controlling or
monitoring them from where the operators are rather than from where the devices
are. Device networking can be as simple as a home security company receiving a
message that a door in a subscriber's house is open, or as complex as the
control of a multi-step chemical process through a refinery. Other examples of
existing device networks include ATM machines and heating, ventilation and air
conditioning systems. Despite the many benefits of networking, and the vast
number of devices that are potential candidates to be networked, few such
devices are currently connected to a network.
The connection of PCs in business environments across LANs, WANs, and, more
recently, in home and mobile environments across the Internet, marked the first
extensive networking of devices. As network connectivity for PCs became more
prevalent, so too did the networking of the imaging devices that printed out,
scanned in, faxed and copied the documents created by those PCs. The primary
motivating factor in the demand for networking of imaging devices was cost. A
single networked printer could serve an entire office whereas, in the absence of
networking, the same office would have required a printer for every work
station. Network connectivity for imaging devices was facilitated by the
convergence on common transmission protocols for computer networks. Imaging
device networking solutions, like those manufactured and sold by the Company,
incorporated those common transmission protocols.
In markets other than imaging, network connectivity has generally been
based upon the unique or 'proprietary' communication protocols of manufacturers
of devices to be networked. Creating and upgrading proprietary networks
generally has been costly and time consuming for these OEMs. In addition, this
OEM-specific approach generally has been restrictive for end users. End users
have been unable to gain the benefits of new, add-on products and software
developed by third-party vendors based on networking industry standards,
resulting in out-dated and sub-optimal systems requiring costly upgrades.
With the recent convergence on common networking protocols, such as TCP/IP
and Ethernet, OEMs have increasingly attempted to develop standards-based
networking solutions for incorporation into their products. These solutions are
designed to integrate multiple hardware and software sub-systems commercially
available from numerous and distinct third-party vendors. A multi-source
solution requires the engineering and integration of components including a CPU
chip, an Ethernet chip, a direct memory access ('DMA') controller, a memory
controller, a Web server, a Hypertext Transfer Protocol ('HTTP') server, a
real-time operating system ('RTOS') and
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software drivers, all of which must be compatible in order for the
entire networking solution to function optimally. Thus, while multi-sourced
networking solutions are in some ways superior to proprietary solutions, OEMs
and users of multi-sourced solutions must hire dedicated network engineering
teams, endure lengthy development and integration cycles and incur substantial
technology enhancement and maintenance costs.
As an alternative to a multi-sourced solution, OEMs have designed
standards-based solutions in which the device or devices to be networked are
connected to an off-the-shelf, microprocessor-based board. Such solutions are
very expensive, physically large and impractical for a wide variety of users.
The Company believes that historically there have not been cost-effective
and practical alternatives when OEMs and endusers have sought remote management
and control of devices. As a result, most non-imaging devices have not been
connected to networks. In situations in which OEMs have achieved network
connectivity in their devices, they have sacrificed time, effort and expense to
create proprietary solutions, board-based solutions or solutions assembled from
numerous and distinct vendors. As a result, end users have purchased systems
which were either not cost effective or contained generally rudimentary levels
of network connectivity that could not be easily upgraded.
THE NETSILICON SOLUTION
The Company develops and markets embedded networking solutions based on its
15 years of experience in providing networking connectivity for a wide array of
electronic devices. The Company's solutions are designed to enable OEMs to
reduce cost and improve the time to market of their end products that
incorporate embedded networking capability. The Company delivers an embedded
networking system comprised of its NET+ software and application specific
hardware in the form of integrated circuits or network interface cards. The
Company also provides software development licenses and application engineering
services to OEMs to enable them to design products incorporating NET+
technology. The Company believes that it offers a superior networking solution
to OEMs because its products are:
Standards-Based. The Company's products are based on existing LAN, WAN
and Internet networking standards. This makes it possible for electronic
devices to communicate with other standards-based equipment, thus enabling
the free exchange of information, distributed processing and remote
maintenance. Furthermore, this makes it possible for third-party software
developers to readily design new products or enhancements for use in NET+
equipped devices. The Company believes that end-user demand will be higher
for NET+ equipped, standards-based products than for comparable products
containing solutions based on non-standard transmission protocols.
Comprehensive. The Company offers a comprehensive solution that
consolidates the software and hardware necessary to network enable
electronic devices. In addition, the Company offers OEMs a package of
development tools and application engineering services to further
facilitate a shorter time-to-market for their network-ready devices. OEMs
that adopt the Company's NET+ technology do not need to develop in-house
networking expertise in order to offer advanced connectivity in their
products. This enables them to focus their engineering resources on
developing other aspects of their products. Furthermore, OEMs incorporating
NET+ solutions into their products do not need to acquire networking
hardware or software from multiple third-party vendors and perform the
associated highly complex and lengthy integration and maintenance.
Scalable and Extensible. The NET+ technology is based on a design
platform that allows software extensibility across a wide range of hardware
platforms and performance levels. Scalability is achieved through a design
which enables pin-compatible chips from 5 MIPS (million instructions per
second) to 120 MIPS performance levels to be used in the same OEM device
without redesigning the hardware or reprogramming the software.
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Proven. Since its inception, the Company has designed, marketed and
sold products enabling the connection of electronic devices to networks.
The Company's technology embodies refinements and enhancements developed by
the Company during its years of service to OEMs. The Company shipped more
than 80,000 units in fiscal year 1999 in a range of applications including
network printers, copiers and modems.
BUSINESS STRATEGY
Key elements of the Company's strategy include the following:
Expand Existing Customer Relationships in the Imaging Industry. Twenty
OEMs in the imaging industry have adopted the Company's device networking
solutions over the past four years. OEMs are currently commercially
shipping 34 imaging products incorporating the NET+ technology. In
addition, OEMs are in various stages of designing 23 other products which
will incorporate the NET+ solution. The Company believes that it has
demonstrated, and plans to continually strengthen, its high level of
performance and reliability to these imaging customers. The Company seeks
to capitalize on its existing relationships to design its solution into its
customers' other products that will require embedded networking capability.
Identify and Penetrate Other Markets. The overall addressable market
for embedded networking systems is comprised of electronic devices in a
variety of markets, each of which has its own combination of OEMs and
end-users. The Company targets those markets where, in its estimation, the
demand for embedded networking has developed or will develop rapidly. See
' -- Sales and Marketing.' For example, the Company has identified the
industrial automation market as one in which OEMs have demonstrated early
demand for the Company's solution. As of January 31, 1999, the Company had
achieved seven design wins in this market. The Company's ability to target
multiple other markets results from the basic design of the Company's
products, specifically their suitability for incorporation into a very wide
variety of electronic devices with minimal additional research or product
development expenses required by the Company. The Company evaluates each
new market opportunity based upon four criteria (i) significant potential
sales of the Company's products within three to five years; (ii) absence of
widely accepted network connectivity architecture; (iii) compatibility with
the Company's sales and marketing channels; and (iv) ease of adaptability
to the Company's existing technology.
Develop Market-Specific Products and Features. Expanding on its
strategy to penetrate new markets, the Company intends to bolster its
competitive position within those markets by developing value-added
versions and features of the NET+ solution, specifically tailored to each
markets' unique requirements. The Company believes that this approach to
product development will increase the attractiveness of the NET+ solution
over the more generic, less function-rich solutions of existing
competitors, and increase the necessary investment of new competitors
seeking to enter that market.
Influence Industry Standards in Other Markets. The Company believes
that each market it targets is likely to have one or more OEMs that will be
early adopters of device networking technology. Because the Company
anticipates that these OEMs will have significant influence in determining
the network connectivity standards within that market, the Company seeks to
establish relationships with these OEMs. The Company plans to develop its
products in conjunction with these early adopters, and thereby position the
Company's products as the leading embedded networking technology in each
market it enters. For example, in June 1998 the Company joined with key
industrial automation OEMs Automation Research Corp., Jetter GmbH, Object
Automation, Inc., Parker-Hannifin Corporation, Performance Software, Inc.
and Richard Hirschmann GmbH & Co. to create the Industrial Automation Open
Networking Alliance ('Alliance'). The Alliance is designed to promote a
standards-based approach to networking for industrial automation and focus
on overcoming obstacles to its rapid adoption. The Alliance now has 23
members and the Company believes by taking a leading role in the growth
of the Alliance, it will establish its reputation in the industry of
industrial automation.
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PRODUCTS AND SERVICES
The Company's technology solution is comprised of products and application
engineering services. The Company's products comprise NET+ value added software
integrated with a hardware ASIC containing a core microprocessor. The Company's
products are sold as complete systems and include both the hardware and a
license to use the full array of NET+ software. The Company's NET+ software
provides all of the functionality needed to implement LAN, WAN and Internet
connectivity. The software includes:
NET+Drivers and RTOS. NET+Drivers and RTOS components are the basic
pieces that operate the hardware and software. The RTOS is based on one of
two popular third-party commercial offerings: pSOS+ from Integrated
Systems, Inc. ('ISI') and VxWorks from Wind River. NETsilicon's drivers are
fully integrated and supported by the RTOS and tools.
NET+Protocols. NET+Protocols contain the open standard communications
protocols such as TCP and UDP.
NET+Services. NET+Services add the necessary networking service
modules of an HTTP Web Server (NET+Web), Email (NET+Mail), Data Transfer
through FTP (NET+Data), Installation with DHCP and Bootp (NET+Install), and
Management with SNMP (NET+Management) and are all based on industry
standards.
NET+APIs. NET+APIs provide the needed access to the RTOS and
NET+Services for OEM applications software engineers without having to
attain networking engineering knowledge.
The Company also offers software to enable connection and communication
with embedded controllers over a variety of interface specifications, including
DPO, PSIO, and PCI. The DPO Interface Specification is an open-architecture
specification designed by the Company and licensed to controller designers and
imaging device OEMs. The DPO interface can function with networks comprised of
multiple protocols and operating systems, including Novell NetWare, AppleTalk,
UNIX, TCP/IP and Windows NT. In addition, the DPO interface meets the networking
functionality standard established by Hewlett-Packard Company, enabling OEM
products to be competitive with those of Hewlett-Packard Company. PSIO is an
interface specification that the Company licenses from Peerless Systems Corp. so
that the Company's products can interface with controllers provided by Peerless.
See ' -- Intellectual Property, Trademarks and Proprietary Rights.' The Company
also offers a PCI interface specification to simplify and reduce the cost of
operating in PCI bus applications.
These components allow customers to develop prototypes on a network,
transfer data and configure their devices in a matter of days, versus the six
months generally required with alternative approaches and all without any
sacrifice in system performance or memory requirements.
The Company offers its NET+ software integrated with ASICs containing
embedded microprocessors from either ARM or Motorola. These ASICs are then
incorporated directly onto the embedded controller or integrated into a network
interface card ('NIC'). Other required components of the solution include memory
modules and physical interfaces, which are either shared with the controller or
located on the NIC. Though the majority of the Company's sales today are in the
form of network interface cards, OEMs are increasingly integrating the Company's
stand alone chips into their controllers and such sales will represent an
increasing percentage of future sales. Currently, a majority of the Company's
NICs include the NET+ARM chip. Sales of the Company's earlier products, which
did not include the NET+ARM chip, represented 96.4% of the Company's net sales
in the fiscal year ended January 31, 1999 and are expected to represent a
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material though declining percentage of net sales in the future. The Company
is unable to quantify the anticipated percentage decline.
NET+ARM, the Company's most frequently sold chip, operates at a speed of 12
million instructions per second ('MIPS'). Because of the extensibility of the
NET+ software, the Company has announced an expanded product offering that will
operate at 5, 15 and 40 MIPS. The Company believes that the price at which
NET+ARM is available to OEM customers represents a significant cost savings
relative to the cost of currently available components necessary to achieve
functionality equivalent to that of NET+ARM. Though the Company plans to offer
products containing embedded processors other than ARM and Motorola, it has no
such commitments as of the date of this prospectus.
NET+ARM's processing speed is enhanced by NET+DMA, an interface between the
Ethernet MAC and the main memory bank. A patent application has been filed and
is currently pending for NET+DMA. The Company plans to file additional patent
applications for certain aspects of its networking technology.
A key component of the Company's strategy is to leverage its proven NET+ARM
products by adding application-specific software that is focused on the unique
needs of vertical industry markets. The Company's first customized
vertical-market application of NET+ARM is an embedded networking solution
designed for use by manufacturers of imaging devices, such as printers, copiers,
faxes, scanners and multifunction peripherals. Known as NET+ARM NCC, this
product utilizes the same core technology found in NET+ARM and adds
NET+Applications software developed by the Company specifically for use in
imaging devices. NET+ARM NCC offers full networking operating system support,
full print server applications and management capabilities, enabling devices to
report status messages, such as 'toner low' or 'paper jam' to network
administrators via email across a LAN, WAN or the Internet. Like NET+ARM, it is
available for installation directly on the controller board, thereby eliminating
the need for a separate NIC. The Company developed NET+ARM NCC in coordination
with imaging technology leaders including Adobe Systems, Inc., Peerless Systems
Corp. and Imaging Technologies Corp. The Company is currently developing
NET+Applications for the industrial automation market.
SOFTWARE DEVELOPMENT TOOLS
NET+ARM is sold to OEMs with a set of integrated NET+Utilities and tools
for hardware and software development, many of which, the Company believes, are
unique to the Company. These include the Company's NET+Web, a Hypertext Markup
Language ('HTML')-to-C compiler which OEM customers can use to automate the
generation of HTML Web pages.
The Company also provides to customers target development boards with
schematics and computer aided design ('CAD') electronic format files which
assist OEM hardware and software application developers in the debugging process
of their product-specific applications being ported to and developed on NET+ARM.
Developers also receive an embedded In-Circuit Emulator ('ICE') debugging tool
to enable testing and evaluation of hardware and their software after it has
been ported to NET+ARM. Cross-compilers, linkers and symbolic debuggers, if
desired, must be obtained by the OEM directly from the RTOS vendor. Full
documentation provided to OEMs includes a guide to 'getting started,' hardware
and software reference manuals, development board jumpers and a components
guide.
The development tools also include additional cost options such as the ARM
tools and ISI's pRISM+'TM' or Wind River's Tornado open, graphical development
environments. ISI's pRISM+'TM' and Wind River's Tornado support embedded
developers with tools that span the complete development process, from
conception to development and through life cycle support. See ' -- Intellectual
Property, Trademarks and Proprietary Rights.'
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APPLICATION ENGINEERING SERVICES
The Company believes its OEM customers place significant emphasis on high
quality support. Therefore, design support is provided for the first six months
of the OEM's design cycle. Additionally, full technical support for all
hardware, software and embedded products is provided for the first 12 months
after product shipment. Support and training services provided by the Company to
imaging OEM customers include:
Project Management. The Company provides its OEM customers assistance
in (i) interface specifications analysis; (ii) lead time planning; (iii)
delivery scheduling; and (iv) product cycle planning.
Consulting. The Company's field application engineering staff provides
development process consulting services that range from answering questions
to assisting in problem solving and performing design reviews of customer
products.
Product Integration Support. The Company provides its OEM customers
product testing and support during the OEM's process of integrating the
Company's technology into its products.
On-going Technical Support. Post-integration support typically
includes beta test period support and assistance to the OEM's support
specialists.
Training. The Company provides 'hands-on' training in which OEMs are
taught to install the Company's products (both hardware and software), set
up and configure all network operating systems and protocols, and
understand Ethernet and Token Ring topology. OEM staff are also trained to
provide 'help desk' support, configure the product and diagnose end-user
problems over the phone. OEM managers are trained for 'second level'
support, in which a senior staff member is trained to solve more complex
problems and back up help desk staff. OEM field engineers are trained to
solve problems by taking traces and studying network environments,
protocols and stacks.
Joint Marketing Assistance. The Company makes joint sales calls with
its customers, provides collateral, participates in the organization of
press releases and tours, and creates Web links to customer product pages.
Product Updates. Updates on all releases of NET+ software are
available to OEMs initially under warranty and thereafter on an optional
service and maintenance contract basis.
The Company receives revenue from the foregoing services although it
believes that such revenues are immaterial to its overall financial results of
operations.
PRODUCT DEVELOPMENT
The Company's success depends upon its ability to enhance its solution and
develop and introduce new products to meet changing customer needs on a timely
basis. The Company focuses its software development efforts on addressing
industry needs, developing industry-specific applications and integrating
additional operating systems and protocols into its solution. The Company
focuses its hardware development efforts on improving the performance of its
exclusive products, simplifying the integration process for its products and
introducing new products with a variety of speeds, capabilities and price
points.
The Company has made and expects to continue to make substantial
investments in product development. For the fiscal years ended January 31, 1997,
1998 and 1999, the Company's engineering, research and development expenses were
approximately $1.0 million, $1.5 million, and $2.2 million, respectively or
13.8%, 18.7% and 16.1% of net sales, respectively. As of January 31,
1999, the Company had 29 full-time employees who have substantial embedded
networking and software driver development experience engaged in research and
development activities.
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<PAGE>
SALES AND MARKETING
The Company markets and sells its products to OEMs through a combination of
(i) its direct sales and marketing staff; (ii) strategic partner relationships
and alliances; (iii) manufacturers representatives; and (iv) authorized
developers.
Direct Sales and Marketing
As of January 31, 1999, the Company employed a total of 26 employees in its
direct sales and marketing efforts. The Company manages most of its sales
efforts from its headquarters in Waltham, Massachusetts and a sales office in
Germany. The Company's direct sales staff solicits prospective customers in
North America, provides technical advice and support with respect to the
Company's products, and works closely with the Company's partners,
representatives and developers worldwide to secure new customer design wins and
provide support during their development of new products. The direct sales and
marketing staff participates in select industry trade shows and conferences to
promote the Company's products and to generate new business leads.
The Company has an extensive set of marketing programs designed to build
NETsilicon and NET+ awareness and generate new sales leads. The Company's
primary marketing activities include advertising, direct mail, customer
communications, trade show participation, and press, media and industry analyst
relations.
Partnership Relationships and Alliances
The Company augments its direct sales efforts through various strategic
marketing alliances. These include, in the imaging market, alliances with the
makers of printer controllers, and in other markets, alliances with vendors and
suppliers to the Company, such as ARM, Atmel Corporation, Integrated Systems,
Inc. and Wind River Systems, Inc. The Company's strategy for making sales to
imaging OEMs is to have its interface specification incorporated into the
controllers which those OEMs purchase from controller designers, because every
imaging device which utilizes a controller incorporating the Company's DPO
interface specification will use the Company's networking connectivity solution.
The printer controller designers which have incorporated the Company's DPO
interface specification include Adobe Systems, Inc., Advanced HiTech Corp.,
Destiny Technology Corp., Imaging Technologies Corp. and Xionics Document
Technologies, Inc. The Company may also license the interface specification of
other vendors in order to target imaging OEMs who do not utilize the controllers
of the firms with which the Company has allied itself. For instance, the Company
has licensed the PSIO interface specification of Peerless Systems Corp. in order
to make sales to OEMs who deploy Peerless' controller.
In June 1998, the Company co-founded the Industrial Automation Open
Networking Alliance with key industrial automation OEMs Automation Research
Corp., Jetter GmbH, Object Automation, Inc., Parker-Hannifin Corporation,
Performance Software, Inc. and Richard Hirschmann GmbH & Co. to create the
Industrial Automation Open Networking Alliance. This Alliance is designed to
promote a standards-based approach to networking for industrial automation that
is embodied in the Company's technology. The Alliance has grown to more than 20
members, including GE Fanuc, Sun Microsystems, Inc., and Siemens AG.
The Company and its printer controller partners actively engage in joint
marketing efforts, presenting their individual products as a fully compatible,
comprehensive imaging and networking solution to imaging OEMs.
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Manufacturers Representatives
Manufacturers representatives act as local sales agents for the Company and
work on a commission basis. There are seven manufacturers representatives in the
United States, three in Europe and Israel, and one in Japan. The Company's
direct sales staff supports and works closely with these representatives, who
have extensive relationships with the current and potential customers in their
territories.
Authorized Developers
The Company also markets and sells its products in coordination with
independent product development consulting firms. These firms have hardware and
software engineering staffs ranging from five to 100 engineers. They consult
with large OEMs, recommending new products for development and offering their
expertise to OEMs during the design cycle of those products. Where network
connectivity is contemplated for such products, the Company provides incentives
to these developers to recommend the Company's solution by paying the developers
a commission on the Company's sales to OEMs which result from these
recommendations. As of January 31, 1999, the Company had approved ten consulting
firms as 'authorized developers' of its products, all of which had already
achieved at least one design win.
OEM PRODUCT CYCLE
The Company's products are sold to OEMs, which incorporate them into
devices that are sold to end users. The timing and magnitude of the Company's
revenues are highly dependent upon its achievement of design wins, the timing
and success of its OEMs' development cycles, and its OEMs' product sales.
The Company initially targets OEMs that are developing electronic devices
in which they seek to incorporate embedded networking capability. OEMs typically
select core components such as the Company's products early in the device design
process. When the Company's products are selected to be incorporated by an OEM,
the Company achieves what is known as a 'design win.' At such time, the OEM
typically purchases development tools and application engineering services from
the Company to facilitate the integration of its product into the design. The
revenue the Company receives from these purchases is an immaterial portion of
the Company's total revenue. Once the Company's product is designed in, the OEM
typically cannot substitute an alternative to the Company's product without
incurring significant cost or development time. Therefore, the Company is
generally the sole supplier of embedded networking technology throughout the
life cycle of a particular OEM product design. The Company has received only one
design win that did not result in the shipment of a final product to a customer.
However, even if the Company is successful in its efforts and achieves a design
win from an OEM, there can be no assurance that the Company will ever achieve
revenue from the sale of products as a result of such design win. Furthermore,
even if the Company does achieve revenues from such sales there can be no
assurance that such revenues will be sustainable.
The length of the product development process can vary greatly among the
Company's OEMs, ranging from six to more than 24 months, with no certainty that
any given design will result in a commercial product. When the OEM's product
development cycle nears successful completion, OEMs typically begin purchasing
the Company's products to supply their initial manufacturing efforts. Only upon
the commencement of product shipment does the Company achieve significant
revenues. OEMs then typically purchase quantities of the Company's products
periodically to match their ongoing manufacturing needs, based on their
forecasted demand. Sales of the Company's products are therefore dependent upon
the sales of the OEMs' products into which they are designed.
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<PAGE>
The following is a summary of the Company's design win and shipping customer
activity over the prior eight quarters:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------
APR. 30, JULY 31, OCT. 31, JAN. 31, APR. 30, JULY 31, OCT. 31, JAN. 31,
1997 1997 1997 1998 1998 1998 1998 1999
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
New design wins per period(1):
Imaging market............................ 1 4 5 5 9 8 8 9
Other markets............................. 0 0 0 0 11 11 12 14
-- -- -- -- --- --- --- ---
Total.................................. 1 4 5 5 20 19 20 23
-- -- -- -- --- --- --- ---
-- -- -- -- --- --- --- ---
Shipping customers during the period(2):
Imaging market............................ 7 7 7 7 11 14 16 17
Other markets............................. 0 0 0 0 0 0 2 3
-- -- -- -- --- --- --- ---
Total.................................. 7 7 7 7 11 14 18 20
-- -- -- -- --- --- --- ---
-- -- -- -- --- --- --- ---
</TABLE>
- ---------------------------
(1) Represents new design wins during the period indicated. A 'design win' is
the selection by an OEM to design its products incorporating the Company's
products.
(2) Represents the number of customers to which product was shipped during the
period indicated.
IMAGING CUSTOMERS
The Company sells its products for incorporation into OEM devices.
Representative customers from the Company's twenty imaging OEMs who incorporated
the Company's solution into their products include:
<TABLE>
<S> <C>
DIMATECH Corporation NEC Corporation
Fuji Xerox Co. Ltd. New Generation Computing, Inc.
Kyocera Communications Sharp Electronics Corporation
Minolta Corporation Xerox Corporation
</TABLE>
The Company's twenty imaging OEM customers have designed its solution into
57 imaging products currently available for sale or in development. All of the
Company's net sales for the fiscal year ended January 31, 1998 and 96.4% of net
sales for the fiscal year ended January 31, 1999 were derived from the imaging
device market. Konica Business Systems, Kyocera Communications and Minolta
Corporation, each represented greater than 10% of the Company's net sales for
the fiscal year ended January 31, 1999.
MANUFACTURING
The Company engages Atmel Corporation to manufacture the NET+ARM chip.
Shipments of the chip are first delivered to the Company, where its staff
performs quality assurance testing. The Company purchases tested, packaged chips
from Atmel. The Company does not have a written agreement with Atmel regarding
production, relying instead upon standard purchase orders. The Company is in the
process of qualifying a second source for the NET+ARM chips. Additionally, the
Company obtains price quotes from possible second sources for chips in order to
ensure that the Company is receiving competitive price terms from its current
manufacturer.
The Company contracts with domestic qualified assemblers and with Uni
Precision Industrial, Ltd. ('Uni'), a Hong Kong-based subsidiary of Osicom, to
assemble printed circuit boards. The Company performs some final assembly of
printed circuit boards and, for quality assurance purposes, randomly tests
boards assembled by third parties. The Company believes that the terms
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of its arrangement with Uni are at least as favorable as those it
could receive from an unrelated third party providing the same services and are
more favorable than it receives from its domestic assemblers. The Company has no
obligation to utilize the services of Uni, and plans to continue doing so
provided that the Company receives price-competitive terms from that vendor. See
'Certain Relationships and Related Party Transactions.'
The Company has 26 full-time employees in Waltham, Massachusetts performing
manufacturing-related activities, including purchasing, final assembly, testing,
quality assurance, packaging and shipping. The Company currently performs
manufacturing services for Osicom pursuant to an intercompany agreement although
such agreement is expected to expire on May 1, 1999. See 'Certain Relationships
and Related Party Transactions.'
PRODUCT BACKLOG
The Company's business is characterized by short-term shipment schedules.
Orders constituting the Company's current backlog are subject to changes in
delivery schedules or to cancellation at the option of the purchaser in
accordance with the Company's policies without significant penalty. The backlog
at a particular time can be affected by a number of factors, including the
implementation priorities of its OEM customers. Accordingly, although useful for
scheduling production, backlog as of any particular time may not be a reliable
measure of sales for any future period. See 'Management's Discussion and
Analysis of Financial Condition and Results of Operations.'
As of March 31, 1999, the Company's backlog was approximately $8.7 million,
as compared to $2.6 million as of March 31, 1998. The Company includes all firm
purchase orders scheduled for delivery within the subsequent 12 months in its
backlog. The Company anticipates that all of its backlog will be shipped to
customers within the next 12 months.
COMPETITION
The Company's principal competition comes from products developed in-house
by current and prospective OEM customers, as well as hardware-only and
software-only products of other vendors combined by OEMs and other third-parties
into single, multi-sourced networking solutions. Echelon Corporation, a supplier
of a proprietary networking solution, also offers a product which combines both
hardware and software. The Company believes it is the only supplier of embedded
networking products to offer a single-vendor, standards-based solution which
consolidates on one chip all necessary networking hardware and software
subsystems. The Company believes that the competitive factors affecting the
market for the Company's products include product performance, price and
quality; product functionality and features; the availability of products for
existing and future platforms; the ease of integration of the products with
other hardware and software components of the customer's products; and the
quality of support services, product documentation and training.
The products of certain hardware-only and software-only vendors are
currently combined by some OEMs and other third-parties into multi-sourced
network solutions, and they therefore represent competition to the Company. It
is possible that one or more hardware-only vendors could choose to acquire or
develop a networking software capability and thus offer a comprehensive solution
similar to the Company's. Conversely, one or more software-only vendors could
choose to acquire or develop networking hardware capability. The Company
believes that the impetus to offer a comprehensive embedded networking solution
may allow the Company to establish product alliances with large hardware-only
vendors, making the Company's products the networking solution the designed in
networking solution for these vendors' microprocessors. This would allow the
Company to leverage the extensive sales and marketing reach of these large
hardware-only vendors and thus turn this potential competitive threat to the
Company's advantage. The key hardware-only vendors are Axis Communications,
Emulex Corporation, Motorola
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Corporation, Hitachi, Ltd., HBM-UK, Intel Corporation and Samsung Electronics
Co., Ltd. Key software-only vendors are Integrated Systems, Inc., and Wind River
Systems, Inc.
INTELLECTUAL PROPERTY, TRADEMARKS AND PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyright, distribution
software license agreements, trademark and trade secret law, employee and
third-party nondisclosure agreements, and other methods to safeguard its
proprietary rights and technology. The Company generally enters into
confidentiality agreements with its employees, and sometimes with its customers
and potential customers and limits access to the distribution of its software,
hardware designs, documentation and other proprietary information. The Company
has one patent application pending with the United States Patent and Trademark
Office and plans to file various additional applications. It may be possible,
however, that any patents, once issued, may be circumvented by competitors of
the Company. Despite these precautions, it may be possible for unauthorized
third parties to copy certain portions of the Company's products or obtain and
use information the Company regards as proprietary. While the Company's
competitive position may be affected by its ability to protect its proprietary
information, the Company believes that trademark and copyright protections are
not material to the Company's success.
Pursuant to an intercompany agreement with Osicom, the Company granted
Osicom co-ownership rights to certain of its existing intellectual property in
connection with the Company's transfer of the Commercial Line to Osicom.
Osicom's rights in such intellectual property are limited to use in certain
products manufactured by Osicom related to the Commercial Line, and cannot be
transferred, resold, licensed or assigned by Osicom.
The Company also relies on certain software that it licenses from third
parties, including software that is integrated with internally developed
software and used in the Company's products to perform key functions. The
Company's material software license agreements are with Integrated Systems,
Inc., which terminates only if the Company defaults under the agreement; with
Novell, Inc., which is renewable annually at the option of both parties; and
with Peerless Systems Corporation, which expires in 2004 subject to year-to-year
renewals thereafter at the option of both parties. These third-party software
licenses may not continue to be available to the Company on commercially
reasonable terms, and the related software may not continue to be appropriately
supported, maintained or enhanced by the licensors. The loss of licenses to use,
or the inability of licensors to support, maintain, and enhance any of such
software could result in increased costs, delays or reductions in product
shipments until equivalent software is developed or licensed, if at all, and
integrated.
The Company licenses the right to use the NET+ARM trademark from ARM
Limited pursuant to a royalty-free agreement expiring in 2008.
FACILITIES
The Company leases approximately 36,000 square feet of office space in
Waltham, Massachusetts, for its corporate headquarters. Activities at its
Waltham headquarters include administration, sales, product development,
assembly, test and support. The Company's lease provides for base rent of
$34,175 per month and the lease expires on September 30, 2001. The Company
subleases 6,000 square feet of this office space to Osicom. The Company believes
that its current facilities are adequate to meet its needs for the foreseeable
future. See 'Certain Relationships and Related Party Transactions.'
EMPLOYEES
As of January 31, 1999, the Company had approximately 92 full-time
employees, of which 54 were engaged in product development,
manufacturing-related duties and customer support, 26 in sales and marketing,
and 12 in finance, administration, human resources, and internal systems
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<PAGE>
support. The Company believes its future success will depend, in part, on its
continued ability to attract and retain highly qualified personnel in a
competitive market for experienced and talented software engineers, chip
designers and sales and marketing personnel. None of the Company's employees are
represented by a labor union or subject to a collective bargaining agreement.
The Company believes that its relations with employees are good.
LEGAL PROCEEDINGS
There are currently no claims or actions pending against the Company.
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MANAGEMENT
The following table sets forth information with respect to each person who
serves as an executive officer or director or who has been nominated to serve as
a director of the Company and their ages as of January 31, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- ----------------------------------------------------------
<S> <C> <C>
Renn Zaphiropoulos....................... 72 Chairman of the Board of Directors(1)(2)(3)
Cornelius 'Pete' Peterson VIII........... 62 Chief Executive Officer, President, Director
John K. Brennan.......................... 45 Vice President, Manufacturing
Michael Evensen.......................... 34 Vice President, Worldwide Industrial Automation, Embedded
New Markets
William E. Peisel........................ 55 Vice President, Engineering Chief Technical Officer
Cornelius 'Neil' Peterson IX............. 38 Vice President, Imaging and Embedded Markets, EMEA
Michael E. Romanies...................... 36 Vice President, Marketing and Embedded Markets North
America
Daniel J. Sullivan....................... 42 Vice President, Finance, Chief Financial Officer
Leonard N. Hecht......................... 62 Director(1)(2)
Bruce B. Roesner......................... 51 Director(3)
C. Forbes Dewey, Jr...................... 64 Director Nominee(4)
</TABLE>
- ---------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of the Executive Committee
(4) Will become a director upon completion of the offering.
The Company's By-Laws provide that the Board of Directors will consist of
at least six directors, at least one-half of which will not be affiliated with
the Company or Osicom. The Board plans to identify and appoint a sixth director
shortly after completion of this offering. Additionally, the By-Laws require
that all members of the Board of Directors be present at any meeting at which
proposed transactions with Osicom are discussed or acted upon in order for a
quorum to exist. Each director will hold office until the next annual meeting of
the stockholders of the Company or until his successor is elected and qualified.
The Board elects the officers of the Company, who serve at the Board's
discretion.
EXECUTIVE OFFICERS AND DIRECTORS
Renn Zaphiropoulos has been Chairman and a director of the Company since
August 1998. He is an Adjunct Professor of Business Administration at Southern
Utah University and is a frequent lecturer at the graduate school level on a
variety of management subjects. Mr. Zaphiropoulos is a pioneer in the
development of the electrostatic writing techniques for the production of hard
copy. In 1969 he co-founded Versatec, a leading manufacturer of electrostatic
plotters, which was merged into Xerox Corporation in December 1975. Mr.
Zaphiropoulos became a director of Osicom in March 1998. Mr. Zaphiropoulos also
serves as a director of Optical Coating Laboratories, Inc., and as a director
and consultant to a number of private, development stage, high-tech firms. He
holds a B.S. in Engineering Physics and M.S. in Physics, both from Lehigh
University, a Doctor of Science from Rose Hurlman Institute of Technology and a
Doctor of Humanities from Southern University.
Cornelius 'Pete' Peterson VIII has served as President and a director of
the Company since founding the Company in 1984. Prior to founding NETsilicon,
Mr. Peterson founded Distribution Management Systems, Inc., a supplier of
distribution systems for Fortune 100 companies, which was sold in 1981 to
Cullinet Corporation. Mr. Peterson was also a founder of Softech, a leading
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supplier of computer language and software development and services. Mr.
Peterson holds B.S. and M.S. degrees from the Massachusetts Institute of
Technology. Mr. Peterson is the father of Neil Peterson, Vice President, Sales
and Marketing, of the Company.
John K. Brennan joined the Company in 1996 as Vice President,
Manufacturing. From January 1996 to July 1996, Mr. Brennan served as a Vice
President of Manufacturing for Leaf Systems, Inc., a manufacturer of high-end
digital cameras. From 1995 to 1996, Mr. Brennan served as director of materials
for MA-Com, Inc., a division of Amp, Inc. From 1993 to 1995, Mr. Brennan served
as director of materials of Leaf Systems, Inc. From 1986 to 1993, Mr. Brennan
served as Manufacturing Operations Manager for Whistler Corporation, a consumer
electronics manufacturer in the automotive industry. He holds a B.S. in Business
Administration from Merrimack College and an M.B.A. from Boston University.
Michael Evensen has been Vice President, Worldwide Industrial Automation,
Embedded New Markets of the Company since October 1998. From September 1997 to
September 1998, Mr. Evensen was Director of Business Development at Richard
Hirschmann Electronics UK Ltd., where he was responsible for Hirschmann's entry
into the industrial automation market. From July 1995 to September 1998, Mr.
Evensen served as director of Anite Systems Ltd. From March 1991 to July 1995,
Mr. Evensen served as OEM Business Manager for Cray Communications, Ltd. in
Europe, the United States and Asia. Prior to Cray Communications, Mr. Evensen
was a Sales Engineer for Dataco De Rex, Inc., where he was responsible for
European sales. Mr. Evensen holds a B.S. in Electronic Engineering from
Copenhagen University.
William E. Peisel joined the Company in 1987, becoming Vice President,
Engineering in 1989 and Chief Technical Officer in 1995. From 1985 to 1987, Mr.
Peisel served as Vice President, Engineering for EnMass Computer Corporation, a
manufacturer of fault tolerant transaction processing computers. From 1983 to
1985, Mr. Peisel served as Director of Engineering for Computer Design and
Application, and from 1981 to 1983, Director of Engineering for Honeywell
Information Systems. He holds a B.S.E.E. from Pratt Institute and an M.S.E.E.
from Northeastern University.
Cornelius 'Neil' Peterson IX joined the Company in 1986 and has served as
Vice President, Imaging and Embedded Markets, EMEA (Europe, Middle East,
Africa), since 1993. From 1986 to 1993, Mr. Peterson served as Regional Manager
and Vice President of Commercial Sales. Mr. Peterson has over 14 years of sales
and management experience handling major accounts in the OEM, systems
integrator, reseller, distributor, and direct sales channels. From 1984 to 1986,
Mr. Peterson served in the Major Account Sales Division for Unisys Corporation
(formerly Burroughs). He holds a B.S. Degree from Roger Williams University.
Mr. Peterson is the son of Pete Peterson, President of the Company.
Michael E. Romanies has been Vice President, Marketing and Embedded
Markets, North America since September 1998. Mr. Romanies was Vice President of
Marketing and an officer of Number Nine Visual Technologies from October 1996 to
August 1998. From November 1995 through September 1996, Mr. Romaines served as
President of World Color New Media, a subsidiary of World Color Press, and from
January 1988 to November 1995, he served in various executive and management
positions, most recently as Vice President and General Manager of Reed
Technology Information Services, a division of Reed Elsevier Plc Group. He holds
a B.S.E.E., with a minor in Physics, from Wilkes University and is an MBA
candidate.
Daniel J. Sullivan has been Vice President, Finance, and Chief Financial
Officer since August 1998. Mr. Sullivan was Vice President, Finance and
Operations at ITK International (formerly Telebit) from 1996 to August 1998.
From 1995 to 1996, Mr. Sullivan served as corporate controller and from 1989 to
1995 as operations controller, of ITK. From 1985 to 1989, Mr. Sullivan served as
Corporate Manufacturing Financial Planning Manager at Apollo Computers. He holds
a B.S. in biology from Merrimack College and an M.B.A. from New Hampshire
College.
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Leonard N. Hecht has been a director of the Company since August 1998.
Since January 1994, he has been President of Chrysalis Capital Group, an
investment banking company specializing in mergers, acquisitions and financing
which he founded. From 1987 to 1993, Mr. Hecht was Managing Director of the
Investment Banking Group and head of the Technology Assessment Group of Houlihan
Lokey Howard & Zukin, a financial advisory firm. From 1984 to 1987, Mr. Hecht
was Vice Chairman of the Board and Chief Executive Officer of Quantech
Electronics Corp., a diversified publicly-held electronics company. Prior to
joining Quantech, Mr. Hecht was a founding principal of Xerox Development
Corporation, a wholly-owned subsidiary of the Xerox Corporation. Xerox
Development Corporation was active in strategic planning, mergers and
acquisitions, divestitures, licensing, joint ventures and venture investing for
the Xerox Corporation. Mr. Hecht has been a director of Osicom since 1996 and is
a director of DCC Compact Classics.
Bruce B. Roesner, Ph.D. has been a director of the Company since August
1998. He is Chief Technical Officer and Chairman of SCS Corporation, a maker of
programmable, radio frequency identification systems. Dr. Roesner co-founded SCS
in 1992 and served as its President and Chief Executive Officer until May 1995.
Prior to SCS, he was founder of Instant Circuit Holdings, Inc., vice president
of Array Devices, Inc. (a division of Solitron Corporation), an executive of
Applied Micro Circuits Corporation, and a manager of advanced integrated circuit
technologies for Burroughs Corporation (now Unisys Corporation). Prior to
Burroughs, Dr. Roesner was a senior member of the technical staff at Hughes
Aircraft Corporation. Dr. Roesner received his M.S. and Ph.D. degrees in
electrical engineering from Purdue University. He holds more than 20 patents in
the field of integrated circuits.
C. Forbes Dewey, Jr., Ph.D. will become a director of the Company upon
completion of the offering. He has been a Professor of Mechanical Engineering at
the Massachusetts Institute of Technology, Cambridge since 1976. Dr. Dewey's
research and teaching duties have centered around fluid mechanics, biomedical
engineering, information systems and instrumentation. He founded the
Massachusetts Computer Corporation in 1981 which was a predecessor of Concurrent
Computer Corporation. He has held various academic appointments, including
Associate in Pathology at Harvard Medical School from 1980 to 1995. He is a
frequent lecturer, has published over 130 articles and holds a number of
patents. Since 1960, he has been a consultant to numerous academic and
industrial organizations. Dr. Dewey holds a B.E. from Yale University, an M.S.
from Stanford University and a Ph.D. from the California Institute of
Technology.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee
The Board of Directors of the Company has appointed an Executive Committee,
which currently consists of Renn Zaphiropoulos and Bruce Roesner. The Executive
Committee's duties include reviewing all financial budgets, performance targets
and business plans and objectives.
Audit Committee
The Board of Directors of the Company has appointed an Audit Committee,
which currently consists of Leonard Hecht and Renn Zaphiropoulos. The Audit
Committee's duties include engaging and discharging the Company's independent
accountants; reviewing and approving the engagement of the independent
accountants for audit and non-audit services requested; reviewing with the
independent accountants the scope and timing of the audit and non-audit
services; reviewing the completed audit with the independent accountants
regarding their report, the conduct of the audit, accounting adjustments,
recommendations for improving internal accounting and auditing procedures with
the Company's financial staff; and initiating and supervising any special
investigations it deems necessary.
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Compensation Committee
The Board of Directors of the Company has also appointed a Compensation
Committee which currently consists of Renn Zaphiropoulos and Leonard Hecht. The
Compensation Committee's duties include reviewing and making recommendations to
the Board of Directors regarding compensation and benefit plan matters,
including executive officer compensation, director compensation, employee stock
option grants, 401(k) plan matters, employee stock purchase plan matters and
other defined benefit plan matters.
Compensation of Directors
The Company compensates each director who is not an employee of the Company
$1,000 for each meeting of the Board or a committee attended in person or by
telephone. The Chairman of the Board is compensated $1,500 for each meeting of
the Board he attends in person and the Chairman of each committee is compensated
$1,500 for each committee meeting attended in person. The Company reimburses the
out-of-pocket expenses incurred by directors for attendance at Board or
committee meetings.
Pursuant to the Company's Director Stock Option Plan, the Company will
grant options to purchase 25,000 shares of Common Stock per year to each
independent director, and options to purchase 40,000 shares of Common Stock per
year to the Chairman of the Board, initially upon completion of the offering and
thereafter annually immediately following the annual meeting of the Company's
stockholders. The initial grant will have an exercise price equal to the offer
price set forth on the cover page of this Prospectus, and future grants will be
at an exercise price equal to the market price per share on the date of such
grant.
EXECUTIVE COMPENSATION
The following table summarizes all compensation awarded to, earned by, or
paid to (i) all individuals who served or functioned as the Company's executive
officers during the fiscal years 1999 and 1998; and (ii) the Company's four most
highly compensated executive officers who were serving at the end of fiscal
years 1999 and 1998 whose annual salaries and bonuses exceeded $100,000 (all of
the foregoing individuals are hereinafter referred to collectively as the 'Named
Executive Officers'), for services rendered in all capacities to the Company and
its subsidiaries for the Company's fiscal years 1999 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
FISCAL SALARY BONUS(1)
NAME AND PRINCIPAL POSITION YEAR ($) ($)
- ------------------------------------------------------------------------------------- ---- -------- --------
<S> <C> <C> <C>
Cornelius 'Pete' Peterson, .......................................................... 1999 $150,000 $ --
Chief Executive Officer, President 1998 152,629
William E. Peisel, .................................................................. 1999 150,600 12,425
Executive Vice President, Chief Technical Officer 1998 135,789 --
John K. Brennan, .................................................................... 1999 113,523 --
Vice President, Manufacturing 1998 101,264 10,000
Cornelius 'Neil' Peterson, .......................................................... 1999 136,295 88,023
Vice President, Sales & Marketing 1998 79,667 69,995
</TABLE>
- ---------------------------
(1) Bonus represents commissions paid on the basis of sales achieved during the
fiscal year.
STOCK OPTION PLAN
The Company has established an incentive and non-qualified stock option
plan (the 'Stock Option Plan') to become effective upon the closing of the
offering. The Stock Option Plan is to
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<PAGE>
be administered by the Compensation Committee (the 'Committee') of the Board of
Directors. Deferences herein to the 'Board' mean the Board of Directors or the
Committee, as the case may be. A total of 4,500,000 shares of Common Stock is
reserved for issuance under the Stock Option Plan. It is anticipated that the
Company will grant options to purchase 2,953,368 shares under the Stock Option
Plan on or about the date of the commencement of this offering.
The purpose of the Stock Option Plan is to advance the Company's interests
by enhancing its ability to attract and retain key employees and consultants.
All grants will be made at the discretion of the Board to such individuals and
in such amounts as the Board deems advantageous for compensation and incentive
purposes. The Company's employees are all eligible for the grant of options.
The Stock Option Plan will provide for the grant of both incentive stock
options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the 'Code') and non-qualified options subject to the rules contained in
Section 83 of the Code. No options may be granted under the Stock Option Plan
more than ten years after the closing date of the offering. All options under
the Stock Option Plan will be non-transferable except upon death. The exercise
price of a stock option granted under the Stock Option Plan may not be less than
100% (110% in the case of incentive stock options granted to owners of more than
10% of the total combined voting power of all classes of stock of the Company
and its subsidiaries) of the fair market value of the underlying stock at the
time of grant.
The term of each option will be set by the Board but cannot exceed ten
years from grant (five years from grant, in the case of an incentive stock
option granted to someone owning more than 10% of the total combined voting
power of all classes of stock of the Company and its subsidiaries). Each option
will become exercisable in four installments: on each of the first, second,
third and fourth anniversaries of the date of grant as to 25% of the shares
covered by the option. The Board has the authority to grant options with shorter
or longer vesting schedules, including options that vest immediately as well as
placing other restrictions on vesting. The exercise price of an option may be
paid either in cash, certified check, bank draft or money order or, if the Board
so permits, by delivery of previously owned Common Stock or a promissory note or
a combination of the foregoing.
If a participant's employment with the Company terminates by reason of
death, each option held by the participant immediately prior to death will be
exercisable, to the extent it was then exercisable, for 12 months after death or
until the end of the option period if earlier. The options which were not
exercisable at the time of death will immediately terminate upon death. If a
participant's employment terminates for any other reason all of the
participant's options that are not then exercisable will immediately terminate.
The participant's options that were then exercisable will continue to be
exercisable for three months, unless the participant is discharged for cause, as
determined in the Board's sole discretion. In such a case, all previously vested
options shall be forfeited immediately.
In the Board's sole discretion, options granted under the Stock Option Plan
will also terminate in the event of certain mergers, consolidations or sales of
assets or public or private Common Stock offerings of the Company. However, in
such instances, the Stock Option Plan also provides that at least 30 days in
advance of such an event all outstanding vested and non-vested options shall
become exercisable for a limited period of time. Options not exercised during
that time period shall be forfeited.
The Board retains the right to amend the Stock Option Plan or any
outstanding option. An amendment adversely affecting the rights of an employee
under a previously granted option requires the employee's consent, and certain
Stock Option Plan amendments, including any increase in the number of shares
available under the Stock Option Plan, a change in the group of eligible
employees, a reduction in the minimum option price for incentive stock options,
an
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extension of the term of the Stock Option Plan, or amendments affecting the
status of already granted incentive stock options, require stockholder approval.
The number of shares reserved for issuance under the Stock Option Plan, as
well as the number of shares subject to outstanding options, option price, and
other option provisions, including where relevant the kind of shares subject to
options, is subject to adjustment in the event of a stock dividend, stock split
or similar capital change or to take into consideration material changes in
accounting practice or principles or certain corporate transactions. The Board
may, at any time, discontinue granting options under the Stock Option Plan.
DIRECTOR STOCK OPTION PLAN
The Company has established a stock option plan for the members of its
Board of Directors (the 'Director Stock Option Plan') to become effective upon
the closing of the offering. The purpose of the Director Stock Option Plan is to
attract and retain the best available personnel for service as independent
directors of the Company. All grants under the Director Stock Option Plan are
automatic and nondiscretionary. A total of 400,000 shares of Common Stock is
reserved for issuance under the Director Stock Option Plan, none of which
options are outstanding as of the date of this Prospectus.
The Director Stock Option Plan will provide for the grant of non-qualified
options subject to the rules contained in Section 83 of the Code. No options may
be granted under the Director Stock Option Plan more than ten years after the
closing date of the offering. All options under the Director Stock Option Plan
will be non-transferable except upon death. The exercise price of a stock option
granted under the Director Stock Option Plan may not be less than 100% of the
fair market value of the underlying stock at the time of grant.
The term of each option will be ten years from grant. Each option will
become exercisable in two installments: six months following the date of grant
as to 50%, and twelve months following the date of grant as to the remaining
50%. The exercise price of an option may be paid either in cash, certified
check, bank draft or money order or, if the Board so permits, by delivery of
previously owned Common Stock or a promissory note or a combination of the
foregoing.
If a director's status as a member of the Board of Directors terminates by
reason of death, each option held by the director immediately prior to death
will be exercisable, to the extent it was then exercisable, for the remaining
term of the option. The options which were not exercisable at the time of death
will immediately terminate upon death. If a director's status as a member of the
Board of Directors terminates for any other reason, all of the director's
options that are not then exercisable will immediately terminate. The director's
options that were then exercisable will continue to be exercisable for the
remaining term of the option.
In the Board's sole discretion, options granted under the Director Stock
Option Plan will also terminate in the event of certain mergers, consolidations
or sales of assets or public or private Common Stock offerings of the Company.
However, in such instances, the Director Stock Option Plan also provides that at
least 30 days in advance of such an event all outstanding vested options shall
become exercisable for a limited period of time. Options not exercised during
that time period shall be forfeited.
The Board retains the right to amend the Director Stock Option Plan or any
outstanding option. An amendment adversely affecting the rights of a director
under a previously granted option requires the director's consent, and certain
Director Stock Option Plan amendments, including any increase in the number of
shares available under the Director Stock Option Plan, and an extension of the
term of the Director Stock Option Plan, require stockholder approval.
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<PAGE>
The number of shares reserved for issuance under the Director Stock Option
Plan, as well as the number of shares subject to outstanding options, option
price, and other option provisions, including where relevant the kind of shares
subject to options, is subject to adjustment in the event of a stock dividend,
stock split or similar capital change or to take into consideration material
changes in accounting practice or principles or certain corporate transactions.
The Board may, at any time, discontinue granting options under the Director
Stock Option Plan.
OSICOM STOCK OPTIONS
Osicom has historically granted options under stock option plans to
executive officers and employees of the Company. No further options will be
granted to executive officers or employees under the Osicom stock option plans.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Michael Evensen on
October 1, 1998. The agreement provides for a base salary subject to annual
review by the Compensation Committee. Currently, the base salary of Mr. Evensen
is $125,000 per annum. In addition to the base salary, Mr. Evensen is entitled
to receive up to $125,000 per annum in additional compensation as commissions
upon the attainment of business and performance goals and targets which are
mutually agreed upon each year by the Company and Mr. Evensen.
Mr. Evensen receives additional employment benefits in the form of
reimbursed business expenses, travel expenses, health, medical, dental, life and
disability benefits, and other benefits provided by the Company to all
employees. Mr. Evensen is also entitled to three weeks paid vacation for each
year of full employment, exclusive of legal holidays.
The employment agreement provides that upon the completion of this
offering, Mr. Evensen will receive options to purchase 40,000 shares of Common
Stock of the Company, of which 50% will vest at the end of his first year of
employment and the remaining 50% will vest at the end of his second year of
employment. Mr. Evensen's stock options shall be exercisable at the initial
public offering price. Mr. Evensen is eligible to participate in any additional
option programs instituted for senior employees of the Company. The Company is
negotiating with Mr. Evensen to revise this provision.
Mr. Evensen may be terminated by the Company at any time without cause,
upon six months notice. If the Company were to terminate Mr. Evensen's
employment for cause, the Company would have no further obligation to Mr.
Evensen except to pay all accrued and unpaid base salary and vacation pay to the
date of termination. Mr. Evensen may voluntarily terminate his employment at any
time upon three months notice to the Company.
Mr. Evensen has agreed not to compete with the Company's present or
contemplated business, to solicit or encourage any other person to terminate a
relationship with the Company, or enter into any agreement which conflicts with
his duties to the Company. Mr. Evensen is also subject to a Company Confidential
Information and Invention Assignment Agreement, which survives the termination
of the employment agreement for any reason. The agreement is governed by the
laws of Germany.
The Company has agreed with Cornelius Peterson VIII, its President and
Chief Executive Officer, that in the event that the Company is sold to, or
merges with, a company unaffiliated with the Company or Osicom, all of his stock
options being granted at the closing of this offering will vest immediately,
regardless of whether any performance or time criteria otherwise applicable to
vesting have been satisfied. The Company also agreed that if Mr. Peterson's
employment is terminated or not renewed without cause, or if he is disabled or
dies, his options will remain in full force and effect and any performance-based
criteria will be deemed satisfied notwithstanding the Company's actual financial
results.
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<PAGE>
The Company has no other employment agreements with any of its employees.
LONG-TERM INCENTIVE PLANS
The Company has no long-term incentive plans other than the Stock Option
Plan and the Director Stock Option Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee are Leonard Hecht and Renn
Zaphiropoulos. There are currently no compensation committee interlocks with
other entities or insider participation on the Compensation Committee.
50
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of the date of this Prospectus and as adjusted
to reflect the sale of the shares offered thereby by (i) each person known to
own beneficially 5.0% or more of the outstanding shares of Common Stock; (ii)
each director of the Company; (iii) each executive officer; and (iv) all
executive officers and directors as a group. None of the executive officers or
directors own or have the right to acquire within 60 days of the date of this
Prospectus any shares of Common Stock of the Company. Except for the agreement
described under Certain Relationships and Related Party Transactions, the
stockholders have sole voting and investment power as to shares shown. Each
stockholder listed below other than Osicom has an address c/o the Company, 411
Waverley Oaks Road, Suite 227, Waltham, Massachusetts 02454, and the shares
listed for each shareholder other than Osicom represent shares which such
individual has the right to acquire within 60 days of the date of this
Prospectus pursuant to stock options to be granted on or about the date of the
commencement of this offering.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING NUMBER AFTER THE OFFERING
------------------------ OF SHARES -----------------------
NUMBER BEING NUMBER
NAME OF BENEFICIAL HOLDER OF SHARES PERCENTAGE OFFERED OF SHARES PERCENTAGE
- ------------------------------------------------ ---------- ---------- ------------ --------- ----------
<S> <C> <C> <C> <C> <C>
Osicom Technologies, Inc........................ 10,000,000 100.0% 700,000 9,300,000 75.6%
2800 28th Street
Suite 100
Santa Monica, CA 90405
Renn Zaphiropoulos.............................. 0 * 0 0 *
Cornelius 'Pete' Peterson VIII.................. 113,342 1.1% 0 113,342 *
John K. Brennan................................. 17,811 * 0 17,811 *
Michael Evensen................................. 17,811 * 0 17,811 *
William E. Peisel............................... 40,479 * 0 40,479 *
Cornelius 'Neil' Peterson IX.................... 32,383 * 0 32,383 *
Michael E. Romanies............................. 17,811 * 0 17,811 *
Daniel J. Sullivan.............................. 32,383 * 0 32,383 *
Leonard N. Hecht................................ 0 * 0 0 *
Bruce B. Roesner................................ 0 * 0 0 *
All officers and directors as a group (10
persons)...................................... 272,020 2.6% 0 272,020 2.2%
</TABLE>
- ------------
* less than 1%.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company entered into four agreements with Osicom, which govern the
business relationship between the Company and Osicom.
The Company entered into a supply agreement, effective May 1, 1998 (the
'Supply Agreement') with Osicom pursuant to which the Company sells to Osicom
several products, including the NET+ARM ASIC for variable prices. Prices are
structured to maintain the Company's gross margin on the products established on
May 1, 1998, and are subject to change consistent with any changes in the
Company's costs for such products. The Supply Agreement also provides that
Osicom manufactures products for the Company at Osicom's best price, as
determined by agreement between Osicom and the Company from time to time. The
Supply Agreement has a term of five years and does not obligate Osicom to
purchase any products from the Company or the Company to utilize Osicom for
manufacturing.
The Company and Osicom entered into a sublease agreement dated as of August
1, 1998, for the sublease by the Company to Osicom of approximately 6,000 square
feet of space at the Company's offices in Waltham, Massachusetts (the
'Sublease'). The Sublease provides for the payment by Osicom to the Company of
rent in the amount of $88,000 per year, payable each October 1, January 1,
April 1 and July 1.
The Company and Osicom entered into the Intercompany Agreement on May 1,
1998, which provides for the terms and conditions of the transfer by the Company
to Osicom of the right to manufacture and sell certain products relating to the
Commercial Line. The Intercompany Agreement provides that Osicom shall have the
right to manufacture and sell the Company's stand alone print servers to
distributors who will then market such products directly to the consumer. The
Intercompany Agreement provides that the Company assign certain accounts
receivables accruing after July 31, 1998, computer software and furniture,
fixtures, equipment and trademarks to Osicom. The Company also sold at cost its
remaining inventory of stand-alone print servers to Osicom. The Intercompany
Agreement also requires the Company to provide certain manufacturing and
engineering support to Osicom, for which Osicom shall pay a charge equal to the
direct cost of such support plus 10% overhead of such support to the Company.
The Intercompany Agreement provides that certain software licenses are to be
transferred by the Company to Osicom and that Osicom shall assume license
payments under such licenses. It also requires Osicom to assign all its rights
in the trademark NET+ARM to the Company. The Intercompany Agreement further
requires Osicom to use its best efforts to obtain a consent in writing from ARM
Limited to the assignment of the rights to NET+ARM. Pursuant to the Intercompany
Agreement, the Company granted Osicom co-ownership rights to certain of its
existing intellectual property in connection with the Company's transfer of the
Commercial Line to Osicom. Osicom's rights in such intellectual property are
limited to use in certain products manufactured by Osicom related to the
Commercial Line, and cannot be transferred, resold, licensed or assigned by
Osicom. Pursuant to the Intercompany Agreement, Osicom will assume
responsibility for manufacturing the Commercial Line on approximately May 1,
1999 and the Company expects Osicom to assume responsibility for providing
engineering support to the Commercial Line on approximately July 1, 1999.
In the ordinary course of business, a wholly owned subsidiary of Osicom,
Uni Precision Industrial, Ltd. manufactures and assembles products for the
Company on a competitive bid basis.
From time to time the Company has received non-interest bearing advances
from Osicom. As of January 31, 1998, Osicom began accruing interest on the
outstanding balance at the prime rate plus three percent per annum. As of
January 31, 1999, the balance of such advances was $5.9 million, which is the
highest amount borrowed by the Company from Osicom.
Osicom has agreed to grant to the Board of Directors of the Company a proxy
authorizing and directing the Board to vote all of Osicom's shares of the Common
Stock in excess of 49% of the
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outstanding Common Stock in the same proportion as the Company's stockholders
other than Osicom vote their shares on any matters properly presented to the
stockholders for consideration.
The Company's Amended and Restated By-laws requires that at least one-half
of the members of the Board of Directors of the Company shall not be affiliates
of the Company or of Osicom. Additionally, the by-laws require that any meeting
at which proposed transactions with Osicom are discussed or acted upon, a quorum
consists of all members of the Board of Directors.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 35,000,000 shares
of Common Stock, par value $0.01 per share, and 5,000,000 shares of preferred
stock, par value $0.01 per share. As of the date of this Prospectus, there were
10,000,000 shares of Common Stock and no shares of preferred stock issued and
outstanding.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters to be voted on by the stockholders and do not have
cumulative voting rights. The election of directors is determined by a plurality
of the votes cast. The Company's Restated Articles of Organization (the
'Articles') require the approval of the holders of a majority of the Common
Stock. Except as otherwise required by law and as may be required by the terms
of the preferred stock, all other matters are determined by a majority of the
votes cast. The holders of Common Stock are entitled to receive dividends when,
as and if declared by the Company's Board of Directors out of funds legally
available for the payment thereof, subject to any preferential dividend rights
of outstanding preferred stock. Upon the liquidation, dissolution or winding up
of the Company, holders of Common Stock are entitled to receive ratably the net
assets of the Company available for distribution after preferred distributions,
if any, to the holders of preferred stock. The shares of Common Stock that will
be outstanding upon the consummation of the offering will be, when issued and
paid for, fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock are subject to, and may be adversely affected by, the
rights of the holders of shares of any series of preferred stock which the
Company may designate and issue in the future. See 'Risk
Factors -- Anti-Takeover Provisions' and ' -- Preferred Stock.'
Holders of Common Stock do not have any preemptive or subscription rights,
nor any redemption or conversion rights.
PREFERRED STOCK
The Company has authorized 5,000,000 shares of preferred stock which the
Company's Board has discretion to issue in such series and with such preferences
and rights as it may designate without the approval of the holders of Common
Stock. Such preferences and rights may be superior to those of the holders of
Common Stock. For example, the holders of preferred stock may be given a
preference in payment upon liquidation of the Company or for the payment or
accumulation of dividends before any distributions are made to the holders of
Common Stock. As of the date of this Prospectus, no preferred stock has been
designated or issued by the Company, and the Company has no plans, agreements or
understandings for the issuance of preferred stock. For a description of the
possible anti-takeover effects of the preferred stock, see 'Risk Factors --
Anti-Takeover Provisions' and ' -- Certain Anti-Takeover Provisions.'
LIMITATION ON LIABILITY
The Articles of Organization of the Company limit or eliminate the
liability of the Company's directors or officers to the Company or its
stockholders for monetary damages to the fullest extent permitted by the
Massachusetts General Corporation Law, as amended (the 'MGCL'). The MGCL
provides that a director of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for a breach of fiduciary duty
as a director, except for liability (i) for any breach of such person's duty of
loyalty; (ii) for acts or omissions not in good faith or involving intentional
misconduct or a knowing violation of law; (iii) for the payment of unlawful
dividends and certain other actions prohibited by Massachusetts corporate law;
and (iv) for any transaction resulting in receipt by such person of an improper
personal benefit.
54
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<PAGE>
The Company has directors' and officers' liability insurance to provide its
directors and officers with insurance coverage for losses arising from claims
based on breaches of duty, negligence, error and other wrongful acts. See
'Business -- Legal Proceedings' for a discussion of pending litigation.
CERTAIN ANTI-TAKEOVER PROVISIONS
The ability of the Company's Board to establish the rights of, and to
issue, substantial amounts of preferred stock without the need for stockholder
approval, upon such terms and conditions, and having such rights, privileges and
preferences as the Company's Board may determine in the exercise of its business
judgment, may, among other things, be used to create voting impediments with
respect to changes in control of the Company or to dilute the stock ownership of
holders of Common Stock seeking to obtain control of the Company. The rights of
the holders of Common Stock will be subject to, and may be adversely affected
by, any preferred stock that may be issued in the future. The issuance of
preferred stock, while providing desirable flexibility in connection with
possible acquisitions, financings and other corporate transactions, may have the
effect of discouraging, delaying or preventing a change in control of the
Company. The Company has no present plans to issue any shares of preferred
stock. See 'Risk Factors -- Anti-Takeover Provisions,' 'Common Stock' and
' -- Preferred Stock.'
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the offering, there has been no public market for the securities
of the Company. Upon completion of the offering, the Company will have
outstanding 12,300,000 shares of Common Stock (assuming no exercise of the
Underwriters' over-allotment option or options outstanding under the Company's
stock option plans). Of these shares, the 3,000,000 shares sold in the offering
will be freely tradable without restriction or further registration under the
Securities Act of 1933, as amended (the 'Securities Act'), unless they are
purchased by 'affiliates' of the Company as that term is defined in Rule 144
under the Securities Act (which sales would be subject to certain limitations
and restrictions described below). The remaining 9,300,000 shares, which are
held by Osicom, are 'restricted shares' under Rule 144 (the 'Restricted
Shares'). Restricted Shares may be sold in the public market only if registered
under the Securities Act or if they qualify for an exemption from registration
under Rule 144, Rule 144(k) or Rule 701 promulgated under the Securities Act.
Osicom has agreed for a period of 365 days after the date of this Prospectus and
each director, executive officer and employee of the Company has agreed for a
period of 180 days after the date of this Prospectus without the prior written
consent of Tucker Anthony Cleary Gull, not to offer, pledge, sell, offer to
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of, directly or indirectly any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
shares of Common Stock. As a result of the contractual restrictions described
herein and the provisions of Rule 144, Rule 144(k) and Rule 701, the Restricted
Shares will be available for sale in the public market as follows: (i) no shares
will be available for immediate sale on the date of this Prospectus, and (ii)
9,300,000 shares will become eligible for sale 365 days after the date of this
Prospectus (assuming no release from the lock-up agreement) upon expiration of
lock-up agreements. Tucker Anthony Cleary Gull in its sole discretion and
without notice may earlier release for sale in the public market all or any
portion of the shares subject to the lock-up agreement.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned shares for at least one year (including the holding
period of any prior owner except an affiliate) is
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entitled to sell in 'brokers' transactions' or to market makers, within any
three-month period a number of shares that does not exceed the greater of: (i)
one percent of the number of shares of Common Stock then outstanding (123,000
shares immediately after the Offering) or (ii) the average weekly trading volume
in the Common Stock during the four calendar weeks preceding the required filing
of a Form 144 with respect to such sale. Sales under Rule 144 are subject to the
availability of current public information about the Company. Under Rule 144(k),
a person who is not deemed to have been an affiliate of the Company at any time
during the 90 days preceding a sale, and who has beneficially owned the shares
proposed to be sold for at least two years, is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice filing provisions of Rule 144. Unless otherwise restricted,
'144(k) shares' may therefore be sold immediately upon the completion of the
offering. Under Rule 701 under the Securities Act, persons who purchase shares
upon exercise of options granted prior to the offering are entitled to sell such
shares 90 days after the offering in reliance on Rule 144, without having to
comply with the holding period requirements of Rule 144 and, in the case of
non-affiliates, without having to comply with the volume limitation or notice
filing provisions of Rule 144.
After the completion of this offering, but not prior to 180 days after the
completion of this offering, the Company intends to file a Registration
Statement on Form S-8 under the Securities Act to register the 4,500,000 shares
of Common Stock reserved for issuance under the Stock Option Plan. After the
date of such filing, if not otherwise subject to a lock-up agreement, shares
purchased pursuant to such plans and options generally would be available for
resale in the public market.
LOCK-UP AGREEMENTS
Osicom has agreed with the Underwriters that it will not sell or otherwise
dispose of any shares of Common Stock until 365 days from the date of the
Prospectus without the prior written consent of Tucker Anthony Cleary Gull.
Furthermore, the Company has agreed not to file a registration statement on
Form S-8 covering any shares of Common Stock prior to 180 days after the
completion of this offering. Therefore, no employee of the Company will be able
to sell or otherwise dispose of any shares of Common Stock issued pursuant to
the Stock Option Plan prior to 180 days from the date of this Prospectus.
Currently, no employee beneficially owns any shares of the Company's Common
Stock other than through options granted under the Stock Option Plan.
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UNDERWRITING
The Underwriters named below, for which Tucker Anthony Cleary Gull and
FAC/Equities, a division of First Albany Corporation, are acting as the
representatives (the 'Representatives'), have severally agreed, subject to the
terms and conditions of the Underwriting Ageement, to purchase from the Company
and Osicom the number of shares of Common Stock set forth opposite their
respective names below.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- ------------------------------------------------------------------------------------------ -----------------
<S> <C>
Tucker Anthony Cleary Gull................................................................
First Albany Corporation..................................................................
-----------------
Total................................................................................ 3,000,000
-----------------
-----------------
</TABLE>
The Underwriting Agreement provides that the Underwriters are obligated to
purchase all of the shares of Common Stock offered hereby (other than those
shares covered by the over-allotment option described below), if any are
purchased.
The Company and Osicom have been advised that the Underwriters propose to
offer the Common Stock to the public at the offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession not in excess of $ per share and that the Underwriters and such
dealers may reallow a discount of not in excess of $ per share to other
dealers. The offering price and the concession and discount to dealers may be
changed by the Representatives after the offering.
In the Underwriting Agreement, Osicom has granted the Underwriters an
option, expiring at the close of business on the 30th day subsequent to the date
of this Prospectus, to purchase up to an aggregate of 450,000 additional shares
of Common Stock at the offering price, less the underwriting discount set forth
on the cover page of this Prospectus. The Underwriters may exercise such option
solely to cover over-allotments, if any, in the sale of the shares. To the
extent the Underwriters exercise such option, the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage of the option shares as the number of shares to be purchased by it
showing in the table above bears to 3,000,000, and Osicom will be obligated,
pursuant to the option, to sell such shares to the Underwriters, for which
Osicom will receive all of the proceeds.
The Company and Osicom have agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act or to
contribute to payments that the Underwriters may be required to make with
respect thereof.
The Company and Osicom have agreed that they will not, directly or
indirectly, offer, sell or otherwise dispose of any shares of Common Stock,
other than the shares offered pursuant to this Prospectus or, with regard to the
Company, pursuant to its existing stock option plans, for a period of 365 days
from the date of this Prospectus without the prior written consent of Tucker
Anthony Cleary Gull.
In connection with the offering, the Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Stock. Such
transactions may include stabilization transactions effected in accordance with
Regulation M, pursuant to which such persons may bid for or purchase Common
Stock for the purpose of stabilizing its market price. The Underwriters also may
create a short position for the account of the Underwriters by selling more
Common Stock in connection with the offering, than it is committed to purchase
from the Company and Osicom, and in such case may purchase Common Stock in the
open market following completion of the offering to cover all or a portion of
such short position. The Underwriters may also cover all or a
57
<PAGE>
<PAGE>
portion of such short position, up to 450,000 shares of Common Stock, by
exercising the Underwriters' over-allotment option referred to above. The
Underwriters and selling group members may engage in passive market making
transactions in the Common Stock on the Nasdaq Stock Market in accordance with
Rule 103 of Regulation M. Any of the transactions described in this paragraph
may result in the maintenance of the price of the Common Stock at a level above
that which might otherwise prevail in the open market. None of the transactions
described in this paragraph is required, and, if it is undertaken, it may be
discontinued at any time.
The Underwriters have informed the Company that they do not intend to
confirm sales to any accounts over which they exercise discretionary authority.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP,
Woodbridge, New Jersey. Certain legal matters in connection with this offering
are being passed upon for the Underwriters by Morgan, Lewis & Bockius LLP,
Philadelphia, Pennsylvania.
EXPERTS
The financial statements of the Company as of January 31, 1999 and 1998 and
for each of the three years in the period ended January 31, 1999 included in
this Prospectus have been audited by BDO Seidman, LLP, independent certified
public accountants, and have been so included in reliance on its reports, given
upon its authority as an expert in accounting and auditing.
AVAILABLE INFORMATION
This Prospectus, which constitutes a part of a Registration Statement on
Form S-1 (including all amendments thereto, the 'Registration Statement') filed
by the Company with the SEC under the Act, omits certain of the information set
forth in the Registration Statement. Reference is hereby made to the
Registration Statement and to the exhibits thereto for further information with
respect to the Company and the securities offered hereby. Copies of the
Registration Statement and the exhibits thereto are on file at the offices of
the SEC and may be obtained upon payment of the prescribed fee or may be
examined without charge at the public reference facilities of the SEC described
below.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified by
reference to the copy of the applicable document filed with the SEC.
The Company is subject to certain of the informational reporting
requirements of the Securities Exchange Act of 1934, as amended and, in
accordance therewith, files reports and other information with the SEC. Such
reports and other information can be inspected and copied at the public
reference facility maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549-1004 and at the regional offices of the SEC located at
Seven World Trade Center, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of such materials may also be
obtained in person from the Public Reference Section of the SEC at its principal
office located at 450 Fifth Street, N.W., Washington, D.C. 20549-1004 at
prescribed rates. Additionally, such material may be obtained at the web site
the SEC maintains at http://www.sec.gov which contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the SEC.
58
<PAGE>
<PAGE>
NETSILICON, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants......................................................... F-2
Balance Sheets as of January 31, 1999 and 1998............................................................. F-3
Statements of Operations for the Years Ended January 31, 1999, 1998 and 1997............................... F-4
Statements of Stockholder's Equity (Deficit) for the Years Ended January 31, 1999, 1998 and 1997........... F-5
Statements of Cash Flows for the Years Ended January 31, 1999, 1998 and 1997............................... F-6
Notes to Financial Statements.............................................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
'Upon completion of the stock split as described in Note I(ii) to the
accompanying financial statements, which is to take place upon the effectiveness
of this Registration Statement, BDO Seidman, LLP will be in a position to render
the following opinion.'
The Board of Directors of
NETsilicon, Inc.
We have audited the accompanying balance sheets of NETsilicon, Inc. (the
'Company') as of January 31, 1999 and 1998 and the related statements of
operations, stockholder's equity (deficit) and cash flows for each of the three
years in the period ended January 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with 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 our audits provide a reasonable basis for our opinion.
In our opinion the financial statements referred to above present fairly,
in all material respects, the financial position of NETsilicon, Inc. as of
January 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended January 31, 1999 in conformity
with generally accepted accounting principles.
/S/ BDO SEIDMAN
.....................................
BDO SEIDMAN, LLP
Boston, Massachusetts
February 26, 1999, except for notes
I (ii) and (iii) which are
as of , 1999
F-2
<PAGE>
<PAGE>
NETSILICON, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------
1999 1998
----------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................................................ $ 582,600 $ 185,100
Accounts receivable, net (Notes D and S)........................................ 4,204,500 3,595,300
Due from affiliate (Note F)..................................................... 1,218,300 --
Inventory, net (Notes B, D and S)............................................... 3,769,300 2,607,400
Prepaid expenses and other current assets....................................... 238,600 172,600
----------- ----------
Total current assets....................................................... 10,013,300 6,560,400
----------- ----------
Property and equipment, net (Notes C, D and E)....................................... 685,200 773,900
----------- ----------
Other assets:
Capitalized software, net (Note B).............................................. 470,400 221,400
Capitalized software of discontinued operations, net (Note A)................... -- 330,100
Other assets.................................................................... 479,500 47,600
----------- ----------
Total other assets......................................................... 949,900 599,100
----------- ----------
Total assets......................................................................... $11,648,400 $7,933,400
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Short-term debt (Note D)........................................................ $ 3,191,500 $2,987,100
Current maturities of long term debt (Note E)................................... -- 17,900
Accounts payable................................................................ 2,789,800 1,777,300
Due to affiliates (Note F)...................................................... 6,423,100 2,171,000
Other current liabilities....................................................... 1,080,100 394,000
----------- ----------
Total current liabilities.................................................. 13,484,500 7,347,300
----------- ----------
Commitments and contingencies (Note G)
Stockholder's equity (deficit) (Notes I, J and K):
Preferred stock, $0.01 par value; 5,000,000 authorized; none issued............. -- --
Common stock, $0.01 par value; 35,000,000 authorized;
10,000,000 shares issued and outstanding...................................... 100,000 100,000
Additional paid-in capital...................................................... 2,463,000 2,463,000
Accumulated deficit............................................................. (4,399,100) (1,976,900)
----------- ----------
Total stockholder's equity (deficit)....................................... (1,836,100) 586,100
----------- ----------
Total liabilities and stockholder's equity (deficit)................................. $11,648,400 $7,933,400
----------- ----------
----------- ----------
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
<PAGE>
NETSILICON, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales............................................................ $13,373,000 $ 7,920,300 $ 7,444,500
Cost of sales (Note F)............................................... 7,270,400 4,060,200 4,293,600
----------- ----------- -----------
Gross profit.................................................... 6,102,600 3,860,100 3,150,900
----------- ----------- -----------
Operating expenses:
Selling and marketing........................................... 3,336,400 1,809,600 1,562,700
Engineering, research and development........................... 2,152,500 1,482,600 1,027,700
General and administrative...................................... 2,194,400 1,795,400 1,502,300
----------- ----------- -----------
Total operating expenses................................... 7,683,300 5,087,600 4,092,700
----------- ----------- -----------
Operating loss from continuing operations............................ (1,580,700) (1,227,500) (941,800)
Interest expense................................................ (551,700) (118,500) (136,200)
----------- ----------- -----------
Loss from continuing operations before income tax benefit............ (2,132,400) (1,346,000) (1,078,000)
Income tax benefit (Note L)..................................... -- 493,000 968,600
----------- ----------- -----------
Loss from continuing operations...................................... (2,132,400) (853,000) (109,400)
Income (loss) from discontinued operations net of income tax of $0,
$493,000 and $968,600 in 1999, 1998 and 1997, respectively (Notes A
and L)............................................................. (289,800) 676,600 1,329,500
----------- ----------- -----------
Net income (loss).................................................... $(2,422,200) $ (176,400) $ 1,220,100
----------- ----------- -----------
----------- ----------- -----------
Net income (loss) per share (Notes K and M)
Basic:
Weighted average common shares outstanding................. 10,000,000 10,000,000 7,158,300
Net income (loss) per common share:
From continuing operations............................ $(0.21) $(0.09) $(0.02)
From discontinued operations.......................... (0.03) 0.07 0.19
Net income (loss) per common share.................... $(0.24) $(0.02) $0.17
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
<PAGE>
NETSILICON, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK PREFERRED STOCK ADDITIONAL STOCKHOLDER'S
---------------------- -------------------- PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
---------- -------- -------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1996.......... 7,197,300 $ 72,000 141,700 $ 14,200 $2,476,800 $(3,020,600) $ (457,600)
Stock option exercises............... 32,800 300 -- -- (300) -- --
Cashless exercise of options and
warrants (Note J).................. 900,300 9,000 -- -- (9,000) -- --
Preferred stock conversion........... 1,869,600 18,700 (141,700) (14,200) (4,500) -- --
Net income........................... -- -- -- -- -- 1,220,100 1,220,100
---------- -------- -------- -------- ---------- ----------- -------------
Balance at January 31, 1997.......... 10,000,000 100,000 -- -- 2,463,000 (1,800,500) 762,500
Net loss............................. -- -- -- -- -- (176,400) (176,400)
---------- -------- -------- -------- ---------- ----------- -------------
Balance at January 31, 1998.......... 10,000,000 100,000 -- -- 2,463,000 (1,976,900) 586,100
Net loss............................. -- -- -- -- -- (2,422,200) (2,422,200)
---------- -------- -------- -------- ---------- ----------- -------------
Balance at January 31, 1999.......... 10,000,000 $100,000 -- $ -- $2,463,000 $(4,399,100) $ (1,836,100)
---------- -------- -------- -------- ---------- ----------- -------------
---------- -------- -------- -------- ---------- ----------- -------------
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
<PAGE>
NETSILICON, INC.
STATEMENTS OF CASH FLOWS
(NOTE O)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................... $(2,422,200) $ (176,400) $ 1,220,100
Adjustments to reconcile net income (loss) to net cash provided
by (used in) operating activities
Depreciation and amortization.............................. 644,100 580,500 674,200
Intangible assets valuation allowance...................... -- 237,900 --
Changes in current assets and liabilities:
Increase in accounts receivable............................ (609,200) (169,300) (1,037,100)
(Increase) decrease in inventories......................... (1,161,900) 55,400 560,300
(Increase) decrease in other current assets................ (66,000) (87,000) 105,600
Increase (decrease) in accounts payable.................... 1,012,500 (168,000) (1,562,600)
Increase (decrease) in other current liabilities........... 686,100 (227,800) (497,900)
----------- ----------- -----------
Net cash provided by (used in) operating activities... (1,916,600) 45,300 (537,400)
----------- ----------- -----------
Cash flows used in investing activities:
Purchases of property and equipment............................. (328,100) (604,800) (138,600)
Software development costs (Note B)............................. (723,600) (556,000) (369,500)
Capitalized software transferred to Osicom (Note A)............. 577,400 -- --
Other assets.................................................... (431,900) 16,100 (2,700)
----------- ----------- -----------
Net cash used in investing activities................. (906,200) (1,144,700) (510,800)
----------- ----------- -----------
Cash flows provided by financing activities:
Proceeds from affiliates advances............................... 3,033,800 854,400 947,500
Proceeds from issuance of short-term debt, net (Note D)......... 204,400 291,000 917,000
Repayments of long-term debt (Note E)........................... (17,900) (254,700) (441,900)
----------- ----------- -----------
Net cash provided by financing activities............. 3,220,300 890,700 1,422,600
----------- ----------- -----------
Increase (decrease) in cash.......................................... 397,500 (208,700) 374,400
Cash -- beginning of year............................................ 185,100 393,800 19,400
----------- ----------- -----------
Cash -- end of year.................................................. $ 582,600 $ 185,100 $ 393,800
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS
NETsilicon, Inc. (the 'Company') develops and markets embedded networking
solutions. The Company's products are incorporated into the design of embedded
systems to provide the ability to communicate over standards-based Local Area
Networks ('LANs'), Wide Area Networks ('WANs') and the Internet, enabling the
development of completely new embedded systems applications. The Company
believes that it provides the first standards-based embedded networking system
to offer a single chip solution that, in conjunction with the physical interface
and memory, encompasses all of the required hardware and software necessary to
network-enable virtually any electronic device. The Company's products are
contained in a broad array of imaging products, including printers, scanners,
fax machines, copiers and multi-function peripherals manufactured by 20 original
equipment manufacturers ('OEMs').
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates that affect
the reported amounts of assets, liabilities, revenues and expenses. Actual
results could differ from these estimates.
The accompanying financial statements are the responsibility of the
management of the Company.
A. THE COMPANY AND BASIS OF PRESENTATION
The Company, incorporated in Massachusetts on April 17, 1984 under the name
of Digital Products, Inc. is a wholly-owned subsidiary of Osicom Technologies,
Inc. ('Osicom') and operates as a product line unit. In September 1996, Osicom
acquired the Company through a merger with a newly-formed corporation for Osicom
common stock in a transaction accounted for as a pooling of interests. The
accompanying financial statements represent only the assets, liabilities,
operations and financial position of the Company.
The Company was comprised of two product lines: OEM and Commercial. The
Company developed both board and system level products to satisfy the specific
design needs of OEM's and the full system (hardware and software) solutions for
end-user customers. The end-user customers were reached through value-added
resellers and distributors; this sales activity is referred to as 'commercial
sales.' The Company has decided to focus its resources on the future development
of its NET+ family of products within the OEM line.
As a result, in May 1998, the Company sold its Commercial Line to Osicom,
which consisted principally of specific sales employees and capitalized software
related to Commercial products. Based on this transaction, the Company has
accounted for the Commercial Line as a discontinued operation. Capitalized
software related to the Commercial Line of business has been separately stated
on the balance sheets presented. The Company did not experience a gain or loss
on disposal as Osicom purchased the capitalized software and other miscellaneous
assets at their book value as of the date of purchase. Due to the similar nature
of the raw materials utilized in the manufacturing of products within each
business line, Osicom also has been granted the option to purchase existing
Company inventory at cost for a period of nine months. Sales, cost of sales,
selling, marketing, engineering, general and administrative, research and
development expenses included in discontinued operations within the Company's
historical Statements of Operations represent only those transactions specific
to the Commercial Line. See Note Q.
General and administrative expenses include an amount that management
considers to be a reasonable allocation of general corporate expenses.
Management and administrative salaries are allocated based upon estimated time
devoted to Company's operations; all other allocations of general corporate
expenses, including public company costs, were based upon specific
identification of the relationship of Company's operations to the total
operations of Osicom. Management
F-7
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
believes that such allocated general expenses are representative of the expenses
the Company will incur as a separate public company. Included in selling and
marketing and general and administrative expenses are $80,000, $202,900, and
$50,000 of allocated corporate overhead expenses for the years, ended January
31, 1999, 1998 and 1997, respectively.
B. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates -- The financial statements are prepared in conformity
with generally accepted accounting principles which require management to make
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses, the disclosure of contingent assets and liabilities and the values of
purchased assets and assumed liabilities in acquisitions. Actual results could
differ from these estimates.
Accounts and Notes Receivable -- In the normal course of business, the
Company extends unsecured credit to its customers related to the sales of
various products. Typically credit terms require payment within thirty days from
the date of shipment. The Company evaluates and monitors the creditworthiness of
each customer on a case-by-case basis.
Allowance for Doubtful Accounts -- The Company provides an allowance for
doubtful accounts based on its continuing evaluation of its customers' credit
risk. The Company generally does not require collateral from its customers.
Inventory -- Inventory, comprised of raw materials, work in process,
finished goods and spare parts, is stated at the lower of cost (first-in,
first-out method) or market.
Inventories at January 31, 1999 and 1998 consist of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Raw material..................................................................... $1,603,400 $1,350,400
Work in process.................................................................. 2,150,100 1,273,400
Finished goods................................................................... 140,400 175,600
---------- ----------
3,893,900 2,799,400
Less: Valuation reserve.......................................................... 124,600 192,000
---------- ----------
$3,769,300 $2,607,400
---------- ----------
---------- ----------
</TABLE>
Fair Value of Financial Instruments -- The fair value of financial
instruments is determined by reference to various market data and other
valuation techniques as appropriate. Except for financial instruments issued in
conjunction with related party transactions management believes that there are
no material differences between the recorded book values of its financial
instruments and their estimated fair value. It is not practicable to estimate
the fair value of related party notes payable or notes receivable of the Company
due to their related party nature.
Property and Equipment -- Property and equipment are recorded at historical
cost. Depreciation and amortization are provided over the estimated useful lives
of the individual assets or the terms of the leases if shorter using accelerated
and straight-line methods. Useful lives for property and equipment range from
three to seven years. Depreciation of leasehold improvements is computed using
the straight-line method over five years.
Capitalized leases are initially recorded at the present value of the
minimum payments at the inception of the contracts, with an equivalent liability
categorized as appropriate under current or
F-8
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
non-current liabilities. Such assets are depreciated on the same basis as
described above. Interest expense, which represents the difference between the
minimum payments and the present value of the minimum payments at the inception
of the lease, is allocated to accounting periods using a constant rate of
interest over the lease.
Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are not
sufficient to recover its carrying amount. The Company measures impairment loss
by comparing the fair market value, calculated as the present value of expected
future cash flows, to its net book value. Impairment losses, if any, are
recorded currently.
Software Development -- Software development costs where technological
feasibility has not been established are expensed in the period in which they
occurred, otherwise, development costs that will become an integral part of the
Company's products are deferred in accordance with Statement of Financial
Accounting Standards Nos. 2 and 86. The deferred costs are amortized using the
straight-line method over the remaining estimated 3 year economic life of the
product or the ratio that current revenues for the product bear to the total of
current and anticipated future revenues for that product. Amortization expense
for the fiscal years ended January 31, 1999, 1998 and 1997 was $227,300,
$277,300, and $321,900. Accumulated amortization was $206,200 and $132,200 as of
January 31, 1999 and 1998, respectively.
The recoverability of capitalized software costs are reviewed on an ongoing
basis primarily based upon projections of discounted future operating cash flows
from each software product line. The excess amount, if any, of the remaining net
book value over the calculated amount is fully reserved. During the quarter
ended July 31, 1997, the Company recorded a reduction to the net book value of
its capitalized software development costs of $237,900 to reflect the decline in
the net realizable value of these assets as the result of changing market
conditions.
Revenue Recognition -- The Company generally recognizes product revenue
upon shipment to its OEM customers. Revenue from service obligations is deferred
and recognized over the lives of the contracts. The Company accrues for warranty
costs, sales returns, and other allowances at the time of shipment.
Income Taxes -- Income taxes are accounted for in accordance with Statement
of Financial Accounting Standards No. 109 'Accounting for Income Taxes.' The
statement employs an asset and liability approach for financial accounting and
reporting of deferred income taxes generally allowing for recognition of
deferred tax assets in the current period for future benefit of net operating
loss and research credit carryforwards as well as items for which expenses have
been recognized for financial statement purposes but will be deductible in
future periods. A valuation allowance is recognized, if on the weight of
available evidence it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
Advertising -- The Company expenses advertising expenditures as incurred.
Advertising expenses of the Company consist of allowances given to customers as
well as direct expenditures by the Company.
Income and Loss Per Common Share -- In 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ('SFAS') No.
128, 'Earnings Per Share' effective for financial statements issued for period
ending after December 15, 1997, including interim periods. SFAS 128 requires
dual presentation of basic and diluted earnings per share ('EPS') on the face of
the income statement. It also requires a reconciliation of the numerator
F-9
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
and denominator of the basic EPS computation to the numerator and denominator of
the diluted EPS computation. (See Note M). This statement also requires
restatement of all prior-period EPS data presented. The adoption had no effect
on the calculation of EPS. Basic income and loss per common share is computed by
dividing net income or loss available to common shareholders by the weighted
average number of common shares outstanding during each period presented.
Diluted EPS is based on the weighted average number of common shares outstanding
as well as dilutive potential common shares, which in the Company's case consist
of convertible securities outstanding, warrants to acquire common stock and
shares issuable under stock benefit plans. Potential common shares are not
included in the diluted loss per share computation for all periods presented as
they would be anti-dilutive.
Stock-Based Compensation -- The Company has adopted SFAS No. 123,
'Stock-Based Compensation' as of February 1, 1996. SFAS No. 123 also encourages,
but does not require companies to record compensation cost for stock-based
employee compensation. The Company has chosen to continue to account for
stock-based compensation utilizing the intrinsic value method prescribed in
Accounting Principles Board Opinion No. 25, 'Accounting for Stock Issued to
Employees.' Accordingly, compensation cost for stock options issued to employees
is measured as the excess, if any, of the fair market price of the Company's
stock at the date of grant over the amount an employee must pay to acquire the
stock. (See Note K).
Capital Structure -- SFAS No. 129, 'Disclosure of Information about Capital
Structure' is effective for financial statement issued for periods ending after
December 15, 1997. The new standard reinstates various securities disclosure
requirements previously in effect under Accounting Principles Board Opinion No.
15, which has been superseded by SFAS No. 128. The adoption of SFAS No. 129 had
no effect on the Company's financial position or results of operations.
Comprehensive Income -- SFAS No. 130, 'Reporting Comprehensive Income' is
effective for financial statements with fiscal years beginning after December
15, 1997. Earlier application is permitted. SFAS No. 130 establishes standards
for reporting and display of comprehensive income and its components in a full
set of general purpose financial statements. The adoption of SFAS No. 130 had no
material effect on the Company's financial position or results of operations.
Segment Reporting -- SFAS No. 131, 'Disclosure about Segments of an
Enterprise and Related Information' is effective for financial statements with
fiscal years beginning after December 15, 1997. The new standard requires that
public business enterprises report certain information about operating segments
in complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their products
and services, the geographic areas in which they operate and their major
customers. The adoption of SFAS No. 131 did not have a material effect on its
results of operations.
Pensions and Postretirement Benefits -- SFAS No. 132, 'Employers'
Disclosures about Pensions and Other Postretirement Benefits' is effective for
financial statements with fiscal years beginning after December 15, 1997;
earlier application is permitted. The new standard revises employers'
disclosures about pension and other postretirement benefit plans but does not
change the measurement or recognition of those plans. SFAS No. 132 standardizes
the disclosure requirements for pensions and other postretirement benefits to
the extent practicable, requires additional information on changes in the
benefit obligations and fair values of plan assets that will facilitate
financial analysis, and eliminates certain disclosures previously required when
no longer useful. The adoption of SFAS No. 132 did not have an effect on its
financial position or results of operations.
F-10
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Derivative Instruments -- In June 1998, the FASB issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities ('SFAS 133'). SFAS
133 provides a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities and requires all derivatives
to be recorded on the balance sheet at fair value. SFAS 133 is effective for
years beginning after June 15, 1999. Adoption of SFAS 133 is not expected to
have a material impact on the Company's results of operations, financial
position or cash flows.
Software Revenue Recognition -- The Accounting Standards Executive
Committee issued Statement of Position ('SOP') No. 97-2 'Software Revenue
Recognition' which superceded Statement of Position No. 91-1 'Software Revenue
Recognition' effective for transactions entered into in fiscal years beginning
after December 15, 1997. During 1998, SOP No. 98-9 was issued. The provisions of
SOP No. 98-9 amend certain provisions of SOP No. 98-4 and SOP 97-2. The adoption
of these standards had no material effect on the Company's financial position or
results of operations.
C. PROPERTY AND EQUIPMENT
Property and equipment of the Company consisted of the following components
as of January 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
Manufacturing, engineering and plant equipment and software..................... $ 3,240,700 $2,931,800
Office furniture and fixtures................................................... 313,800 313,800
Leasehold and building improvements............................................. 158,100 138,900
----------- ----------
Total property and equipment............................................... 3,712,600 3,384,500
Less: Accumulated depreciation.................................................. (3,027,400) (2,610,600)
----------- ----------
Net book value............................................................. $ 685,200 $ 773,900
----------- ----------
----------- ----------
</TABLE>
Depreciation expense was $416,800, $303,200 and $352,300 for the fiscal
years ended January 31, 1999, 1998 and 1997, respectively.
D. SHORT TERM DEBT
Short term debt at January 31, 1999 and 1998 consisted of the following:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Floating interest rate loan (2.5% over lender's prime rate) secured by all the
tangible assets of the Company; weighted average interest rate for the years
ended January 31, 1999 and 1998 was 10.5% and 11.8%, respectively.............. $3,191,500 $2,987,100
---------- ----------
---------- ----------
</TABLE>
On October 11, 1996, the Company obtained a $3,000,000 line of credit from
Coast Business Credit which was increased to $5,000,000 subsequent to January
31, 1998. The line of credit is collateralized by substantially all the assets
of the Company and a guarantee by Osicom. Advances are limited to 80% of
eligible receivables and 30% of eligible inventory. The loan bears interest at
2.5% over the bank's prime rate but not less than 8%. The proceeds of this loan
were used to repay the line of credit outstanding at the acquisition of the
Company by Osicom under which the interest rate was 4% over the lender's prime
rate. The highest amount and average amounts outstanding were $3,478,000 and
$2,614,900 during the year ended January 31, 1999, respectively. The highest and
average amounts outstanding were $2,987,100 and $2,298,000 during the year ended
January 31, 1998, respectively.
F-11
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company is in compliance with its loan covenants at January 31, 1999.
E. LONG TERM DEBT
The Company had various notes payable to certain of its former shareholders
which were due December 1997 with interest only payable monthly. The holder of
the note payable due to a former shareholder and present officer of the Company
received 46,023 shares of Osicom's common stock in satisfaction of principal and
accrued interest of $369,100 during October 1997 and January 1998.
The Company was obligated under capital leases that expired on October 1,
1998. At January 31, 1998, the net book value of equipment under capital leases
was $18,900. Remaining principal due was $17,900.
F. DUE FROM/TO AFFILIATES
Due from affiliates at January 31, 1999 represents a receivable from an
Osicom subsidiary. Charges to this subsidiary for manufactured goods and other
expenses for the year ended January 31, 1999 were approximately $1,410,500.
Due to affiliates at January 31, 1999 and 1998 consist of:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Due to Osicom.................................................................... $5,884,800 $1,812,200
Due to Uni....................................................................... 538,300 358,800
---------- ----------
$6,423,100 $2,171,000
---------- ----------
---------- ----------
</TABLE>
From time to time the Company has received non-interest bearing advances,
including payments of expenses on behalf of the Company, from Osicom which are
subordinate to bank debt. As of January 31, 1998, Osicom began accruing interest
on the outstanding balance at prime plus 3.0% per year.
In the ordinary course of business a wholly-owned subsidiary of Osicom, Uni
Precision Industrial, Ltd. ('Uni'), manufactured and assembled products for the
Company on a competitive bid basis. During the years ended January 31, 1999 and
1998 purchases from Uni were $1,557,200 and $775,600 of which $538,300 and
$358,800 were unpaid at January 31, 1999 and 1998.
G. LEASES AND OTHER COMMITMENTS
(i) Leases
Rental expense under operating leases was $460,500, $330,800 and $291,600
for the years ended January 31, 1999, 1998 and 1997, respectively. The table
below sets forth minimum payments under operating leases with remaining terms in
excess of one year, at January 31, 1999:
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
2000........................................................................................... $ 410,100
2001........................................................................................... 410,100
2002........................................................................................... 273,400
----------
$1,093,600
----------
----------
</TABLE>
F-12
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(ii) Employment Contract
The company has an employment contract with its Vice President, Worldwide
Industrial Automation, EMEA New Markets European sales with an indefinite term.
Either party can terminate the agreement with six month notice. The contract
provides for base compensation of $125,000 per year plus commissions up to
$125,000 per year.
H. LITIGATION
The Company is not aware of any claims or actions pending against it.
I. STOCKHOLDERS' EQUITY
(i) The Company amended its Certificate of Incorporation in August 1998 to
authorize the issuance of the following shares:
35,000,000 shares of Common Stock ($0.01 par value)
5,000,000 shares of Preferred Stock ($0.01 par value)
The Company's Board of Directors has discretion to issue preferred stock in
such series and with such preferences as it may designate without the approval
of the holders of common shares. As of January 31, 1999 no such designations
have been made.
(ii) Concurrent with the offering, the Company affected a 100,000-for-one
stock split resulting in 10,000,000 shares being issued and outstanding
post-split.
All shareholder's equity accounts have been retroactively restated to
reflect these changes.
(iii) On the effective date of the offering, the Company will grant options
to officers, employees and directors for the purchase of approximately 2,950,000
shares. The exercise price will be the same as the offering price to the public.
J. OTHER CAPITAL STOCK TRANSACTIONS AND BUSINESS ACQUISITIONS
Options and Warrants -- During September 1996, options and warrants to
acquire 505,700 Class A common shares at prices ranging from $0.10 to $0.75 were
exercised in 'cashless' transactions. In satisfaction of the $346,700 liability
representing the difference between the agreed upon value of the Company's
common stock in connection with the acquisition by Osicom of $1.27 and the
exercise price due upon exercise, the Company issued 299,200 shares of Class A
common stock to the holders.
K. STOCK OPTION PLANS AND STOCK AWARD PLAN
The Company adopted two stock option plans in August 1998: The 1998
Incentive and Non-Qualified Stock Option Plan and the 1998 Director Option Plan.
The purpose of these plans is to attract, retain, motivate and reward officers,
directors, employees and consultants of the Company to maximize their
contribution towards the Company's success. All options will be granted at
prices not less than fair value at the date of grant and will have terms varying
up to 10 years.
Additionally, the employees of the Company hold options granted under
Osicom's stock option plans. All stock options are granted at not less than the
fair market value on the date of grant. Under the plans, options generally vest
over a two-year period from the date of grant.
F-13
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the activity in the Osicom stock option
plans as it relates to the employees of the Company:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- ----------------
<S> <C> <C>
Shares under option at January 31, 1996............................... -- --
Granted............................................................. 98,054 $30.48
Exercised........................................................... -- --
Canceled............................................................ -- --
----------------
Shares under option at January 31, 1997............................... 98,054 30.48
Granted............................................................. 41,407 28.76
Exercised........................................................... 5,812 31.88
Canceled............................................................ 4,191 24.72
----------------
Shares under option at January 31, 1998............................... 129,458 30.06
Granted............................................................. 187,737 11.63
Exercised........................................................... 5,091 31.88
Canceled............................................................ 39,272 33.96
----------------
Shares under option at January 31, 1999............................... 272,832 16.78
----------------
----------------
</TABLE>
Additional information about outstanding options to purchase Osicom common
stock held by employees of the Company at January 31, 1999 is as follows:
<TABLE>
<CAPTION>
OUTSTANDING
----------------------------------------- EXERCISABLE
WEIGHTED AVERAGE --------------------------
EXERCISE PRICE ------------------------------ WEIGHTED AVERAGE
PER SHARE SHARES LIFE (YEARS) EXERCISE PRICE SHARES EXERCISE PRICE
- --------------------------------------- ------- ------------ -------------- ------ ----------------
<S> <C> <C> <C> <C> <C>
$4.78 to $9.39......................... 118,045 9.7 $ 6.82 -- --
$10.88 to $19.31....................... 64,374 7.2 15.53 13,728 $15.94
$20.81 to $32.25....................... 85,413 3.5 29.83 70,277 30.69
$45.00................................. 5,000 9.5 45.00 -- --
------- ------
$4.78 to $45.00........................ 272,832 7.2 16.78 84,005 28.28
------- ------
------- ------
</TABLE>
All stock options issued to employees have an exercise price not less than
the fair market value of the Osicom's Common Stock on the date of grant, and in
accordance with the accounting for such options utilizing the intrinsic value
method there is no related compensation expense recorded in the Company's
financial statements. Had compensation cost for stock-based compensation been
determined based on the fair value at the grant dates in accordance with the
method delineated in SFAS No. 123, the Company's income (loss) and per share
amounts for the years ended January 31, 1999, 1998 and 1997, would have been
revised to the pro forma amounts presented below:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss):
As reported................................................... $(2,422,200) $ (176,400) $ 1,220,100
Pro forma..................................................... $(2,702,200) $ (528,300) $ 627,900
Basic income (loss) per share:
As reported................................................... $ (0.24) $ (0.02) $ 0.17
Pro forma..................................................... $ (0.27) $ (0.05) $ 0.09
</TABLE>
F-14
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of option grants is estimated on the date of grant utilizing
the Black-Scholes option-pricing model with the following weighted average
assumptions for grants during the years ended January 31, 1999: expected life of
option 3 years, expected volatility of 45%, risk free interest rate of 5.28% and
a 0% dividend yield. The fair value, at date of grant, using these assumptions
was $1.23 to $9.52 per option and the weighted average was $3.11. The
assumptions for the year ended January 31, 1998 were: expected life of option 3
years, expected volatility of 45%, risk free interest rate of 5.35% and a 0%
dividend yield. The fair value, at date of grant, using these assumptions was
$2.04 to $11.44 and the weighted average was $5.27. The assumptions for the year
ended fiscal January 31, 1997 were: expected life of option of 3 years, expected
volatility of 45%, risk free interest rate of 6.25% and a 0% dividend yield. The
fair value, at date of grant, using these assumptions was $7.67 to $11.74 per
option and the weighted average was $11.23.
L. INCOME TAXES
The Company's provision for taxes on income consists of for the fiscal
years ended January 31:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income taxes:
Current............................................................ $ -- $ -- $ --
Deferred........................................................... -- -- --
--------- --------- ---------
Total......................................................... -- -- --
Allocation of tax expense to discontinued operations............... -- 493,000 968,600
--------- --------- ---------
Income tax benefit................................................. $ -- $ 493,000 $ 968,600
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's operations generate permanent and temporary differences for
depreciation, amortization, and valuation allowances. The Company has recorded a
100% valuation allowance against its deferred tax assets, including net
operating loss and research credit carryforwards, in accordance with the
provisions of Statement of Financial Accounting Standards No. 109. Such
allowance is recognized if, based on the weight of available evidence, it is
more likely than not that some portion or all of the deferred tax assets will
not be realized.
Deferred income taxes reflect the impact of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred tax assets and
liabilities are comprised of the following at January 31:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Deferred tax assets:
Valuation allowances........................................................... $ 178,900 $ 88,200
Research and development credits............................................... 210,200 210,000
Tax loss carryforward.......................................................... 1,582,200 656,900
Other.......................................................................... 39,800 34,400
----------- ---------
Gross deferred tax assets................................................... 2,011,100 989,500
Less: valuation allowance...................................................... (1,812,800) (757,300)
----------- ---------
Deferred tax asset.......................................................... 198,300 232,200
----------- ---------
Deferred tax liabilities:
Software development costs..................................................... (198,300) (232,200)
----------- ---------
Deferred tax liabilities.................................................... (198,300) (232,200)
----------- ---------
Net deferred tax asset (liability).......................................... $ -- $ --
----------- ---------
----------- ---------
</TABLE>
F-15
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
At January 31, 1999, the Company has federal net operating losses ('NOL')
of approximately $3,753,700 and research and development credits of $210,200
which may be available to reduce future taxable income; these carryforwards
expire at various dates through 2014. The Internal Revenue Code of 1986, as
amended ('Code'), reduces the extent to which NOLs and tax credit carryforwards
may be utilized in a single taxable year in the event there has been an
'ownership change' of a company as defined by applicable Code provisions. The
acquisition of the Company by Osicom in September 1996 resulted in such an
ownership change. $558,900 of the Company's NOL's expiring in years ending
January 31, 2008 through 2010 are subject to annual limitation of approximately
$290,000. Further ownership changes, as defined by the Code, may reduce the
extent to which any net operating losses and credits may be utilized. These
carryforwards expire as follows:
<TABLE>
<CAPTION>
NOL CREDITS
---------- --------
<S> <C> <C>
2008............................................................................... $ 170,100 $ 54,800
2009............................................................................... 400 102,300
2010............................................................................... 389,800 53,100
2013............................................................................... 998,100 --
2014............................................................................... 2,195,300 --
---------- --------
$3,753,700 $210,200
---------- --------
---------- --------
</TABLE>
The reconciliation between income tax expense and a theoretical United
States tax computed by applying a rate of 35% for the fiscal years ended
January 31, 1999, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Loss before income taxes from continuing operations............. $(2,132,400) $(1,346,000) $(1,078,000)
----------- ----------- -----------
----------- ----------- -----------
Theoretical tax expense (benefit) at 35%........................ $ (746,300) $ (471,100) $ (377,300)
Impact of non-qualified stock options........................... (24,300) (60,000) --
Impact of state taxes and other................................. (284,900) (83,600) (164,300)
Change in valuation allowance................................... 1,055,500 121,700 (427,000)
----------- ----------- -----------
Tax benefit..................................................... $ -- $ (493,000) $ (968,600)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
M. EARNINGS PER SHARE CALCULATION
The following data show the amounts used in computing basic earnings per
share.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)............................................... $(2,422,200) $ (176,400) $ 1,220,100
Less: preferred dividends....................................... -- -- --
----------- ----------- -----------
Net loss available to common shareholders used in basic EPS..... $(2,422,200) $ (176,400) $ 1,220,100
----------- ----------- -----------
----------- ----------- -----------
Average number of common shares used in basic EPS............... 10,000,000 10,000,000 7,158,300
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Company had a net loss for the fiscal years ending January 31, 1999 and
1998. Accordingly, the effect of dilutive securities including warrants to
acquire common stock and stock options, vested and nonvested, are not included
in the calculation of EPS because their effect would be antidilutive. The
following data shows the effect on income and the weighted average number of
shares of dilutive potential common stock.
F-16
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1999 1998 1997
---------------- --------------- ----------
<S> <C> <C> <C>
Net income (loss) available to common shareholders used in basic
EPS........................................................... $(2,422,200) $ (176,400) $1,220,100
Adjustments..................................................... -- -- --
----------- ---------- ----------
Net income (loss) available to common shareholders after assumed
conversions of dilutive securities............................ $(2,422,200) $ (176,400) $1,220,100
----------- ---------- ----------
Average number of common shares used in basic EPS............... 10,000,000 10,000,000 7,158,300
Effect of dilutive securities:
Convertible preferred stock................................ -- -- 1,149,100
Warrants................................................... -- -- 517,600
Stock benefit plans........................................ -- -- 48,100
----------- ---------- ----------
Average number of common shares and dilutive potential common
stock used in diluted EPS..................................... 10,000,000 10,000,000 8,873,100
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The shares issuable upon exercise of options and warrants represents the
quarterly average of the shares issuable at exercise net of the shares assumed
to have been purchased, at the average market price for the period, with the
assumed exercise proceeds. Accordingly, options with exercise prices in excess
of the average market price for the period are excluded because their effect
would be antidilutive. The average market price for the periods presented has
been assumed to be equal to the offering price of the shares to be issued in
connection with the Company's planned initial public offering. All options
outstanding during the periods presented are exercisable at prices equal to or
greater than this price and are therefore excluded from diluted income per share
as they would be antidilutive.
Income (loss) per share for the fiscal years ended January 31, 1997 has
been restated to give effect to the application of SFAS 128 which was adopted by
the Company for periods ending after December 15, 1997. There was no effect of
the restatement on income (loss) per share for the year ended January 31, 1997.
N. OTHER RELATED PARTY TRANSACTIONS
Summarized below are all material related party transactions entered into
by the Company and its subsidiaries during the periods presented not otherwise
disclosed in these notes.
The Company had outstanding indebtedness to former shareholders and a
current officer of the Company as more fully described in Note E. During the
fiscal years ended January 31, 1998 and 1997 the interest expense incurred on
these notes was $27,100 and $22,300, respectively.
O. SUPPLEMENTAL CASH FLOW DISCLOSURES
The stock issued by Osicom in satisfaction of a note payable including
accrued interest to a current officer and former shareholder of the Company
neither provided nor used cash. Accordingly, the values assigned to such stock
have been excluded from the statements of cash flows.
Interest paid for the fiscal year ended January 31, 1999 was approximately
$262,800. Interest expense paid approximated the related expenses for the fiscal
years ended January 31, 1998, and 1997.
No income taxes were paid for the years ended January 31, 1999, 1998 and
1997.
F-17
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
P. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. As regards the former, the Company places its temporary
cash investments with high credit financial institutions and limits, by policy,
the amount of credit exposure to any one institution. No accounts at a single
bank accounted for more than 10% of current assets.
Substantially all of the Company's OEM customers in the imaging market are
headquartered in Japan. The current economic conditions existing in many Asian
countries, including Japan, are uncertain and may have a significant effect on
the business operations of such OEM customers. Consequently, the Company's
dependence on its OEM customers in the imaging market in Japan and the uncertain
factors affecting Japan's economic condition could have a material adverse
effect on the Company's business, operating results, cash flows and financial
condition.
Although the Company is directly affected by the economic well being of its
significant customers listed in the following tables, management does not
believe that significant credit risk exists at January 31, 1999. The Company
performs ongoing credit evaluations of its customers' financial condition and
does not require collateral.
The following data shows the customers accounting for more than 10% of net
receivables at fiscal years ended January 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Konica................................................................................. 19.7% -- %
Dimatech............................................................................... 18.5 2.0
Ricoh Electronics...................................................................... 13.7 --
Ingram Micro........................................................................... -- 26.6
Tech Data Corporation.................................................................. -- 17.0
Kyocera Communications Systems Co., Ltd. .............................................. 4.0 18.4
</TABLE>
The following data shows that sales to major customers during fiscal years
ended January 31, 1999, 1998, and 1997 as a percentage of net sales:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Minolta Corporation....................................................... 11.6% 7.1% -- %
Xerox Corporation......................................................... 7.9 33.7 21.0
Kyocera Communications Systems Co., Ltd................................... 11.6 8.7 6.7
Konica Business Systems................................................... 11.4 8.8 --
NEC....................................................................... 3.5 10.8 0.4
Digital Equipment, Inc.................................................... -- 5.3 33.3
Paradyne Corporation...................................................... -- 2.3 10.4
</TABLE>
Q. DISCONTINUED OPERATION
Effective May 1, 1998 the Company sold its Commercial product line to
Osicom as described in Note A. The agreement provides for the terms and
conditions of the transfer by the Company to Osicom of the right to manufacture
and sell Commercial products. The agreement provides that Osicom shall have the
right to manufacture and sell the Company's stand alone print servers to
distributors who will then market such products directly to the consumer. The
Company has assigned accounts receivables accruing after July 31, 1998, computer
software and furniture, fixtures, equipment, software licenses and trademarks to
Osicom. Any future licensing fees will be
F-18
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
paid by Osicom. Osicom has the option to acquire inventory of stand alone print
servers at the Company's cost during the period of the agreement. The agreement
requires the Company to provide certain engineering support to Osicom, for which
Osicom shall pay 100% of the actual cost of such support to the Company. It also
requires Osicom to assign all its rights in the trademark NET+ARM'TM' to the
Company and requires Osicom to use its best efforts to obtain a consent in
writing from ARM, Limited to the assignment of the rights to NET+ARM'TM'. The
agreement is for one year unless earlier terminated by mutual agreement. Lastly,
Osicom has agreed to cause certain intellectual property previously owned by
Osicom to be co-owned by the Company and Osicom.
The Company entered into a supply agreement with Osicom pursuant to which
the Company sells to Osicom several products, including the NET+ARM'TM' chips
for fixed prices. The prices are subject to change consistent with any changes
in the Company's costs for such products. The agreement also provides that
Osicom manufacturers products for the Company at Osicom's best price, as
determined by mutual agreement. The agreement has a term of five years and does
not obligate Osicom to purchase any products from the Company or the Company to
utilize Osicom for manufacturing.
The Company and Osicom entered into a one year sublease agreement for
approximately 6,000 square feet of office space at the Company's facilities for
an annual rental of $88,000 per year payable quarterly. The sublease may be
extended for one year terms for the term of the Company's facility lease.
R. SEGMENT INFORMATION
Information for the fiscal years ended January 31, 1999, 1998 and 1997 in
the table below is presented on the same basis utilized by the Company to manage
its business. Export sales and certain income and expense items are reported in
the geographic area where the final sale to customers is made, rather than where
the transaction originates.
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
Net sales:
United States.................................................. $ 6,683,800 $5,653,500 $ 7,444,500
Asia........................................................... 5,355,800 1,150,700 --
Europe......................................................... 960,500 1,089,500 --
Other.......................................................... 372,900 26,600 --
----------- ---------- -----------
Total net sales............................................. $13,373,000 $7,920,300 $ 7,444,500
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
There were no long-lived assets at any foreign locations during the years
presented.
F-19
<PAGE>
<PAGE>
NETSILICON, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
S. VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<S> <C>
Changes in the inventory valuation reserve were as follows:
Balance at January 31, 1996..................................................................... $ 297,000
Additions charged to costs and expenses....................................................... 156,000
Amounts used during year...................................................................... (62,000)
---------
Balance at January 31, 1997..................................................................... 391,000
Additions charged to costs and expenses....................................................... 146,000
Amounts used during year...................................................................... (345,000)
---------
Balance at January 31, 1998..................................................................... 192,000
Additions charged to costs and expenses....................................................... 131,800
Amounts used during year...................................................................... (199,200)
---------
Balance at January 31, 1999..................................................................... $ 124,600
---------
---------
Changes in the accounts receivable valuation reserve were as follows:
Balance at January 31, 1996..................................................................... $ 416,500
Additions charged to costs and expenses....................................................... --
Amounts used during year...................................................................... (136,500)
---------
Balance at January 31, 1997..................................................................... 280,000
Additions charged to costs and expenses....................................................... 22,600
Amounts used during year...................................................................... (285,500)
---------
Balance at January 31, 1998..................................................................... 17,100
Additions charged to costs and expenses....................................................... 312,000
Amounts used during year...................................................................... (29,100)
---------
Balance at January 31, 1999..................................................................... $ 300,000
---------
---------
</TABLE>
Note: See Managements' Discussion and Analysis of Financial Condition and
Results of Operations.
F-20
<PAGE>
<PAGE>
[GRAPHIC]
Graphic titled The NET+ Comprehensive Solution. The graphic depicts a three
dimensional, four color box divided into quarters. Each quarter is connected to
the adjacent quarter by an arrow. The four quarters of the box are labeled as
follows (clockwise from lower left): "Complete NET+ Development Tools and
Support", "Complete NET+ Hardware", "Complete NET+ Software", "Fully Integrated
by NETsilicon". Below the box is a listing of the following NET+ product
categories: NET+ Drivers, NET+ Protocols, NET+ Services, NET+ Industry
Applications, NET+ APIs, NET+ DMA. NETsilicon, Inc.'s logo is located in the
lower right hand corner of the graphic.
<PAGE>
<PAGE>
- --------------------------------------------------------------------------------
[Logo]
- --------------------------------------------------------------------------------
You should rely only on the information provided in this prospectus. We
have authorized no one to provide you with different information. We are not
making an offer of these securities in any state where the offer is not
permitted. You should not assume that the information in this prospectus is
accurate as of any date other than the date on the front of this prospectus.
Dealer Prospectus Delivery Obligation: Until , 1999 (25 days
after the commencement of the offering), all dealers that effect transactions in
these securities, whether or not participating in this offering, may be required
to deliver a prospectus. This is in addition to the dealers' obligation to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses (other than underwriting discounts and commissions)
payable in connection with this offering of the shares of Common Stock offered
hereby are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
<S> <C>
Securities and Exchange Commission registration fee.................................... $ 13,427.40
NASD filing fee........................................................................ 4,985.00
Nasdaq filing fee...................................................................... 48,000.00
Printing and engraving expenses........................................................ 300,000.00
Legal fees and expenses................................................................ 200,000.00
Accounting fees and expenses........................................................... 100,000.00
Blue Sky fees and expenses (including legal fees)...................................... 15,000.00
Transfer agent and registrar fees and expenses......................................... 25,000.00
Miscellaneous.......................................................................... 293,587.60
-------------
Total............................................................................. $1,000,000.00
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Registrant's Articles of Organization permit indemnification to the
fullest extent permitted by Massachusetts law. The Registrant's By-laws require
the Registrant to indemnify any person who was or is an authorized
representative of the Registrant, and who was or is a party or is threatened to
be made a party to any corporate proceeding, by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by such person in connection with such third party
proceeding if such person acted in good faith and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of the
Registrant and, with respect to any criminal third party proceeding (including
any action or investigation which could or does lead to a criminal third party
proceeding) had no reasonable cause to believe such conduct was unlawful. The
Registrant shall also indemnify any person who was or is an authorized
representative of the Registrant and who was or is a party or is threatened to
be made a party to any corporate proceeding by reason of the fact that such
person was or is an authorized representative of the Registrant, against
expenses actually and reasonably incurred by such person in connection with the
defense or settlement of such corporate action if such person acted in good
faith and in a manner reasonably believed to be in, or not opposed to, the best
interests of the Registrant, 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 Registrant unless and only to the extent that the
Massachusetts Court of Chancery or the court in which such corporate proceeding
was pending shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such authorized
representative is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper. Such
indemnification is mandatory under the Registrant's By-laws as to expenses
actually and reasonably incurred to the extent that an authorized representative
of the Registrant has been successful on the merits or otherwise in defense of
any third party or corporate proceeding or in defense of any claim, issue or
matter therein.
The determination of whether an individual is entitled to indemnification
may be made by a majority of disinterested directors, independent legal counsel
in a written legal opinion or the stockholders. Massachusetts law also permits
indemnification in connection with a proceeding brought by or in the right of
the Registrant to procure a judgment in its favor. Insofar as indemnification
for liabilities arising under the Act may be permitted to directors, officers or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
II-1
<PAGE>
<PAGE>
that Act and is therefore unenforceable. The Registrant expects to obtain a
directors and officers liability insurance policy prior to the effective date of
this Registration Statement.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Registrant against certain liabilities, including liabilities
under the Act. Reference is made to Section 8 of the form of Underwriting
Agreement which will be filed by amendment as Exhibit 1.1 hereto.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- -------------------------------------------------------------------------------------------- --------
<C> <S> <C>
**1.1 -- Form of Underwriting Agreement...........................................................
*3.1 -- Restated Articles of Organization of the Company.........................................
3.3 -- Amended and Restated By-laws of the Company..............................................
4. -- Specimen of stock certificate for shares of common stock.................................
5.1 -- Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP.............................
*10.1 -- NETsilicon, Inc. Amended and Restated 1998 Incentive and Nonqualified Stock Option
Plan.....................................................................................
*10.2 -- NETsilicon, Inc. 1998 Director Stock Option Plan.........................................
*10.3 -- Supply Agreement between Osicom Technologies, Inc. and the Company dated as of May 1,
1998.....................................................................................
*10.4 -- Intercompany Agreement between Osicom Technologies, Inc. and the Company dated as of May
1, 1998..................................................................................
*10.5 -- Agreement of Sublease between Osicom Technologies, Inc. and the Company dated as of
August 1, 1998...........................................................................
*10.6 -- Loan and Security Agreement between the Company and Coast Business Credit dated October
11, 1996, as amended.....................................................................
*10.7 -- Amendment No. 2 to the Loan and Security Agreement between the Company and Coast Business
Credit dated October 28, 1998............................................................
*10.8 -- Employment Agreement between the Company and Michael Evensen dated October 1, 1998.......
*10.9 -- Amendment No. 1 to NETsilicon, Inc. 1998 Director Stock Option Plan......................
10.10 -- Trademark License Agreement between ARM Limited and Osicom Technologies Inc. dated July
14, 1998.................................................................................
10.11 -- Software License Agreement between Integrated Systems, Inc. and Osicom Technologies Inc.
dated November 14, 1997, as amended......................................................
10.12 -- License Agreement between Peerless Systems Corporation and Osicom Technologies
Incorporated, DPI Print Server Division for Peerless Standard Input/Output (PSIO) dated
August 10, 1998..........................................................................
10.13 -- Novell Embedded Systems Technology Master Agreement between Novell, Inc. and Digital
Products, Inc., dated December 1, 1995, as amended.......................................
*10.14 -- Letter Agreement Amendment to Intercompany Agreement between Osicom Technologies, Inc.
and the Company..........................................................................
10.15 -- Letter Agreement between the Company and Cornelius Peterson VIII.........................
10.16 -- Voting Agreement between the Company and Osicom..........................................
23.1 -- Consent of BDO Seidman, LLP..............................................................
*23.3 -- Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP (to be included in Exhibit
5.1).....................................................................................
*24.1 -- Power of Attorney (included on signature page)...........................................
27.1 -- Financial Data Schedule..................................................................
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
II-2
<PAGE>
<PAGE>
(b) Financial statement schedules
All schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are either included in the
financial statements or are not required under the related instructions or are
inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any Prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of Prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in 'Calculation of
Registration Fee' table in the effective registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; and
(iv) To reflect the results of this offering.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to provisions described in Item 14 above, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the 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 by a director, officer or controlling person of the registrant 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 registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes (1) to provide to the
Underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser; (2) that for purposes
of determining any liability under the Act, the information omitted from the
form of Prospectus filed as part of a registration statement in reliance upon
Rule 430A and contained in the form of Prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be
part of this registration statement as of the time it was declared effective;
and (3) that for the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed to
be a new registration statement relating to the securities offered therein,
II-3
<PAGE>
<PAGE>
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supplement the Prospectus,
after the expiration of the subscription period, to set forth the results of the
subscription offer, the transactions by the Underwriters during the subscription
period, the amount of unsubscribed securities to be purchased by the
Underwriters, and the terms of any subsequent reoffering thereof. If any public
offering by the Underwriters is to be made on terms differing from those set
forth on the cover page of the Prospectus, a post-effective amendment will be
filed to set forth the terms of such offering.
II-4
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
duly caused this Amendment No. 2 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in Waltham,
Massachusetts on April 20, 1999.
NETSILICON, INC.
By: /S/ CORNELIUS PETERSON
...................................
CORNELIUS PETERSON VIII
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 2 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE(S) DATE
- ------------------------------------------ -------------------------------------------------- ---------------
<C> <S> <C>
/S/ CORNELIUS PETERSON President and Chief Executive Officer April 20, 1999
......................................... and Director
CORNELIUS PETERSON VIII
/S/ RENN ZAPHIROPOULOS Chairman of the Board April 20, 1999
.........................................
RENN ZAPHIROPOULOS
/S/ DANIEL J. SULLIVAN Vice President -- Finance, Chief April 20, 1999
......................................... Financial Officer
DANIEL J. SULLIVAN
/S/ LEONARD HECHT Director April 20, 1999
.........................................
LEONARD HECHT
* Director April 20, 1999
.........................................
BRUCE B. ROESNER
/S/ CORNELIUS PETERSON
*By: ....................................
CORNELIUS PETERSON VIII
ATTORNEY-IN-FACT
</TABLE>
II-5
<PAGE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------- -------------------------------------------------------------------------------------------- --------
<C> <S> <C>
**1.1 -- Form of Underwriting Agreement...........................................................
*3.1 -- Restated Articles of Organization of the Company.........................................
3.3 -- Amended and Restated By-laws of the Company..............................................
4 -- Specimen of stock certificate for shares of common stock.................................
5.1 -- Opinion of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP.............................
*10.1 -- NETsilicon, Inc. Amended and Restated 1998 Incentive and Nonqualified Stock Option
Plan......................................................................................
*10.2 -- NETsilicon, Inc. 1998 Director Stock Option Plan.........................................
*10.3 -- Supply Agreement between Osicom Technologies, Inc. and the Company dated as of May 1,
1998......................................................................................
*10.4 -- Intercompany Agreement between Osicom Technologies, Inc. and the Company dated as of May
1, 1998...................................................................................
*10.5 -- Agreement of Sublease between Osicom Technologies, Inc. and the Company dated as of
August 1, 1998............................................................................
*10.6 -- Loan and Security Agreement between the Company and Coast Business Credit dated October
11, 1996, as amended......................................................................
*10.7 -- Amendment No. 2 to the Loan and Security Agreement between the Company and Coast Business
Credit dated October 28, 1998.............................................................
*10.8 -- Employment Agreement between the Company and Michael Evensen dated October 1, 1998.......
*10.9 -- Amendment No. 1 to NETsilicon, Inc. 1998 Director Stock Option Plan......................
10.10 -- Trademark License Agreement between ARM Limited and Osicom Technologies Inc. dated July
14, 1998..................................................................................
10.11 -- Software License Agreement between Integrated Systems, Inc. and Osicom Technologies Inc.
dated November 14, 1997, as amended.......................................................
10.12 -- License Agreement between Peerless Systems Corporation and Osicom Technologies
Incorporated, DPI Print Server Division for Peerless Standard Input/Output (PSIO) dated
August 10, 1998...........................................................................
10.13 -- Novell Embedded Systems Technology Master Agreement between Novell, Inc. and Digital
Products, Inc., dated December 1, 1995, as amended........................................
*10.14 -- Letter Agreement Amendment to Intercompany Agreement between Osicom Technologies, Inc.
and the Company...........................................................................
10.15 -- Letter Agreement between the Company and Cornelius Peterson VIII.........................
10.16 -- Voting Agreement between the Company and Osicom..........................................
23.1 -- Consent of BDO Seidman, LLP..............................................................
*23.3 -- Consent of Greenbaum, Rowe, Smith, Ravin, Davis & Himmel LLP (to be included in Exhibit
5.1)......................................................................................
*24.1 -- Power of Attorney (included on signature page)...........................................
27.1 -- Financial Data Schedule..................................................................
</TABLE>
- ------------
* Previously filed.
** To be filed by amendment.
<PAGE>
<PAGE>
AMENDED AND RESTATED BY-LAWS
of
NETsilicon, Inc.
ARTICLE I
Stockholders
1. Annual Meeting. The annual meeting of stockholders shall be held on
the second Wednesday in April in each year after 1984 (or if that is a legal
holiday in the place where the meeting is to be held, on the next succeeding
full business day) at the principal office of the corporation in Massachusetts
at 9:00 a.m. unless a different hour or place within the United States is fixed
by the Board of Directors or the President. The purposes for which the annual
meeting is to be held, in addition to those prescribed by law, by the Articles
of Organization or by these By-Laws, may be specified by the Board of Directors
or the President. If no annual meeting has been held on the date fixed above, a
special meeting in lieu thereof may be held or there may be action by written
consent of the stockholders on matters to be voted on at the annual meeting, and
such special meeting or written consent shall have for the purposes of these
By-Laws or otherwise all the force and effect of an annual meeting.
2. Special Meetings. Special meetings of stockholders may be called by
the Chairman of the Board, the President or by two-thirds of the Board of
Directors. Special meetings shall be called by the Clerk, or in case of the
death, absence, incapacity or refusal of the Clerk, by any other officer, upon
written application of one or more stockholders who held at least one-tenth part
in interest of the capital stock entitled to vote at such meeting. The call for
the meeting may be oral or written and shall state the place, date, hour and
purposes of the meeting.
3. Notice of Meetings. A written notice of the place, date and hour of
all meetings of stockholders stating the purposes of the meeting shall be given
by the Clerk or an Assistant Clerk (or other person authorized by these By-Laws
or by law) at least seven days before the meeting to each stockholder entitled
to vote thereat and to each stockholder who, under the Articles of Organization
or under these By-Laws, is entitled to such notice, by leaving such notice with
him or at his residence or usual place of business, or by mailing it, postage
prepaid, and addressed to such stockholder at his address as it appears in the
records of the corporation. A written waiver of notice, executed before or after
a meeting by such stockholder or his attorney hereunto authorized and filed with
the records of the meeting, shall be deemed equivalent to notice of the meeting.
<PAGE>
<PAGE>
4. Quorum. The holders of a one-third in interest of all stock issued,
outstanding and entitled to vote at a meeting shall constitute a quorum, but, if
a quorum is not present, a lesser number may adjourn the meeting from time to
time, and the meeting may be held as adjourned without further notice.
5. Voting and Proxies. Stockholders shall have one vote for each share
of stock entitled to vote owned by them of record according to the books of the
corporation and a proportionate vote for a fractional share, unless otherwise
provided by law or by the Articles of Organization. Stockholders may vote either
in person or by written proxy dated not more than six months before the meeting
named therein. Proxies shall be filed with the Clerk of the meeting, or of any
adjournment thereof, before being voted except as otherwise limited therein,
proxies shall entitle the persons authorized thereby to vote at any adjournment
of such meeting but shall not be valid after final adjournment of such meeting.
A proxy with respect to stock held in the name of two or more persons shall be
valid if executed by one of them unless at or prior to exercise of the proxy the
corporation receives a specific written notice to the contrary from any one of
them. A proxy purporting to be executed by or on behalf of a stockholder shall
be deemed valid unless challenged at or prior to its exercise, and the burden of
proving invalidity shall rest on the challenger.
6. Action at Meeting. When a quorum is present, any matter before the
meeting shall be decided by vote of the holders of a majority of the shares of
stock voting on such matter, except where a larger vote is required by law, by
the Articles of Organization or by these By-Laws. Any election by stockholders
shall be determined by a plurality of the votes case, except where a larger vote
is required by law, by the Articles of Organization or by these By-Laws. No
ballot shall be required for any election unless requested by a stockholder
entitled to vote in the election. The corporation shall not directly or
indirectly vote any share of its own stock.
7. Action without Meeting. Any action to be taken at any annual or
special meeting of stockholders may be taken without a meeting if all
stockholders entitled to vote on the matter consent to the action in writing and
the written consents are filed with the records of the meetings of stockholders.
Such consents shall be treated for all purposes as a vote at a meeting.
ARTICLE II
Directors
1. Powers. The business of the corporation shall be managed by a
Board of Directors who may exercise all the powers of the corporation except
as otherwise provided by law, by the Articles of
-2-
<PAGE>
<PAGE>
Organization or by these By-Laws. In the event of a vacancy in the Board of
Directors, the remaining Directors, except as otherwise provided by law, may
exercise the powers of the full Board until the vacancy is filled.
2. Election and Qualification. The stockholders at each annual meeting
shall fix the number of Directors (which shall be not less than six) and elect
the number of Directors so fixed. No Director need be a stockholder. At least
one-half of the members of the Board of Directors shall not be affiliates of
the Corporation or of Osicom Technologies, Inc. ("Osicom") and are referred
to in these By-Laws as the "Non-Affiliated Directors."
3. Nomination of Director by Stockholder. A stockholder may nominate
any person for election as a director only by giving written notice to the Clerk
of the Corporation at its principal office by certified mail, return receipt
requested, of such stockholder's intent no later than sixty (60) days prior to
the scheduled date of an annual meeting of stockholders. Such notice must
include the identity of the person to be nominated, a description of all
agreements, arrangements, or understandings between the nominating stockholder
and the person to be nominated pursuant to which the nomination is to be made or
the nominee is to be elected, and such other information regarding the nominee
as would be required to be included in a proxy statement filed pursuant to the
then current proxy rules of the Securities and Exchange Commission. The Board of
Directors may disqualify any nominee who fails to provide the Corporation with
complete and accurate information as required herein.
4. Vacancies; Reduction of Board. Any vacancy in the Board of
Directors, however occurring, including a vacancy resulting from the enlargement
of the Board of Directors, may be filled by the stockholders or by the Board of
Directors. In lieu of filling any such vacancy the stockholders or the Board of
Directors may reduce the number of Directors, but not to a number less than
three or less than the number of stockholders, if less than three.
5. Enlargement of the Board. The Board of Directors may be enlarged by
the stockholders at any meeting or by vote of a majority of the Directors then
in office.
6. Tenure. Except as otherwise provided by law, by the Articles of
Organization or by these By-Laws, Directors shall hold office until the next
annual meeting of stockholders and until their successors are chosen and
qualified. Any Director may resign by delivering his written resignation to the
corporation,at its principal office or to the President, Clerk or Secretary.
Such resignation shall be effective upon receipt unless it is specified to be
effective at some other time or upon the happening of some other event.
7. Removal. A Director may be removed from office (a) with or without
cause by vote of the holders of a majority of the shares
-3-
<PAGE>
<PAGE>
of stock entitled to vote in the election of Directors, or (b) for cause by vote
of a majority of the Directors then in office. A Director may be removed for
cause only after reasonable notice and opportunity to be heard before the body
proposing to remove him.
8. Meetings. Regular meetings of the Board of Directors may be held
without notice at such time, date and place as the Board of Directors may from
time to time determine. A regular meeting of the Board of Directors may be held
without notice at the same place as the annual meeting of stockholders, or the
special meeting held in lieu thereof, following such meetings of stockholders.
Special meetings of the Board of Directors may be called, orally or in
writing, by the President, Treasurer or two or more Directors, designating the
time, date and place thereof.
9. Notice of Meetings. Notice of the time, date and place of all
special meetings of the Board of Directors shall be given to each Director by
the Secretary, or if there be no Secretary, by the Clerk or Assistant Clerk, or
in case of the death, absence, incapacity or refusal of such persons, by the
officer or one of the Directors calling the meeting. Notice shall be given to
each Director in person or by telephone, or by telegram sent to his business or
home address at least twenty-four hours in advance of the meeting, or by written
notice mailed to his business or home address no later than the fourth day prior
to the meeting. Notice need not be given to any Director if a written waiver of
notice, executed by him before or after the meeting, is filed with the records
of the meeting, or to any Director who attends the meeting without protesting
prior thereto or at its commencement the lack of notice to him. A notice or
waiver of notice of a meeting of the Board of Directors need not specify the
purposes of the meeting.
10. Quorum. At any meeting of the Board of Directors, a majority of the
Directors then in office shall constitute a quorum. Less than a quorum may
adjourn any meeting from time to time and the meeting may be held as adjourned
without further notice. Nothwithstanding the foregoing, in the event that
the Board of Directors is considering and acting upon any proposed
transactions with Osicom, a quorum of the Board of Directors shall consist
of all members of the Board of Directors.
11. Telephonic Attendance at Meetings. Any or all directors may
participate in a meeting of the Board of Directors or a Committee of the Board
by means of which all persons participating in the meeting are able to hear each
other.
12. Action at Meeting. At any meeting of the Board of Directors at
which a quorum is present, a majority of the Directors present may take any
action on behalf of the Board of Directors, unless a large number is required by
law, by the Articles of Organization of by these By-Laws.
13. Action by Consent. Any action to be taken at any meeting of the
Board of Directors may be taken without a meeting if all the
-4-
<PAGE>
<PAGE>
Directors consent to the action in writing and the written consents are filed
with the records of the meetings of the Board of Directors. Such consents shall
be treated for all purposes as a vote at a meeting of the Board of Directors.
14. Committees. The Board of Directors, by vote of a majority of the
Directors then in office, may elect from its number an Executive Committee or
other committees and may delegate thereto some or all of its powers except those
which by law, by the Articles of Organization, or by these By-Laws may not be
delegated. Except as the Board of Directors may otherwise determine, any such
committee may make rules for the conduct of its business, but unless otherwise
provided by the Board of Directors or in such rules, its business shall be
conducted so far as possible in the same manner as is provided by these By-Laws
for the Board of Directors. All members of such committees shall hold such
offices at the pleasure of the Board of Directors. The Board of Directors may
abolish any such committee at any time. Any committee to which the Board of
Directors delegates any of its powers or duties shall keep records of its
meetings and shall report its action to the Board of Directors. The Board of
Directors shall have power to rescind any action of any committee, but no such
rescission shall have retroactive effect.
15. Audit Committee. In addition to such committees of the Board of
Directors as may be appointed from time to time by the Board pursuant to Section
14 above, an audit committee shall be formed. Such committee shall consist of
two directors. The responsibilities of such committee shall include meeting with
the financial officers of the Corporation, and making recommendations to the
Board of Directors concerning the independent public accountants to be retained
by the Corporation, and the quality and depth of staffing of the accounting and
financial departments of the Corporation.
16. Executive Committee. In connection with the committees of the Board
of Directors as may be appointed from time to time by the Board pursuant to
Section 14 above, an executive committee shall be formed. Such committee shall
consist of two directors. The responsibilities of such committee shall include
review of all financial budgets, performance targets and business plan and
objectives.
ARTICLE III
Officers
1. Enumeration. The officers of the corporation shall consist of a
President, a Treasurer, a Clerk and such other officers, including one or more
Vice Presidents, Assistant
-5-
<PAGE>
<PAGE>
Treasurers, Assistant Clerks or a Secretary, as the Board of Directors may
determine.
2. Election. The President, Treasurer and Clerk shall be elected
annually by the Board of Directors at their first meeting following the annual
meeting of stockholders. Other officers may be chosen by the Board of Directors
at such meeting or at any other meeting.
3. Qualification. No officer need be a stockholder Director. Any two or
more offices may be held by any person. The Clerk shall be a resident of
Massachusetts unless the Corporation has a resident agent appointed for the
purpose of service of process. Any officer may be required by the Board of
Directors to give bond for the faithful performance of his duties in such amount
and with such sureties as the Board of Directors may determine.
4. Tenure. Except as otherwise provided by law, by the Articles of
Organization or by these By-Laws, the President, Treasurer and Clerk shall hold
office until the first meeting of the Board of Directors following the next
annual meeting of stockholders and until their respective successors are chosen
and qualified; and all other officers shall hold office until the first meeting
of the Board of Directors following the next annual meeting of stockholders and
until their successors are chosen and qualified, or for such shorter term as the
Board of Directors may fix at the time such officers are chosen. Any officer may
resign by delivering his written resignation to the corporation at its principal
office or to the President, Clerk or Secretary, and such resignation shall be
effective upon receipt unless it is specified to be effective at some other time
or upon the happening of some other event.
5. Removal. The Board of Directors may remove any officer with or
without cause by a vote of a majority of the entire number of Directors then in
office; provided, that an officer may be removed for cause only after reasonable
notice and opportunity to be heard by the Board of Directors.
6. Vacancies. Any vacancy in any office may be filled for the unexpired
portion of the term by the Board of Directors.
7. President and Vice Presidents. The President shall be the chief
executive officer of the corporation and shall, subject to the direction of the
Board of Directors, have general supervision and control of its business. Unless
otherwise provided by the Board of Directors he shall preside, when present, at
all meetings of stockholders and of the Board of Directors.
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<PAGE>
Any Vice President shall have such powers and shall perform such duties
as the Board of Directors may from time to time designate.
8. Treasurer and Assistant Treasurers. The Treasurer shall, subject to
the direction of the Board of Directors, have general charge of the financial
affairs of the corporation and shall cause to be kept accurate books of account.
He shall have custody of all funds; securities and valuable documents of the
corporation, except as the Board of Directors may otherwise provide.
Any Assistant Treasurer shall have such powers and perform such duties
as the Board of Directors may from time to time designate.
9. Clerk and Assistant Clerks. The Clerk shall keep a record of the
meetings of stockholders. In case a Secretary is not elected or is absent, the
Clerk or an Assistant Clerk shall keep a record of the meetings of the Board of
Directors. In the absence of the Clerk from any meeting of stockholders, an
Assistant Clerk if one is elected, otherwise a Temporary Clerk designated by the
person presiding at the meeting, shall perform the duties of the Clerk.
10. Secretary. The Secretary, if one is elected, shall keep a record of
the meetings of the Board of Directors. In the absence of the Secretary, the
Clerk and any Assistant Clerk, a Temporary Secretary shall be designated by the
person presiding at such meeting to perform the duties of the Secretary.
11. Other Powers and Duties. Subject to these By-Laws, each officer of
the corporation shall have in addition to the duties and powers specifically set
forth in these By-Laws, such duties and powers as are customarily incident to
his office, and such duties and powers as may be designated from time to time by
the Board of Directors.
ARTICLE IV
Capital Stock
1. Certificates of Stock. Each stockholder shall be entitled to a
certificate of the capital stock of the corporation in such form as may from
time to time be prescribed by the Board of Directors. Such certificate shall be
signed by the President or a Vice President and by the Treasurer or an Assistant
Treasurer. Such signatures may be facsimile if the certificate is signed by a
transfer agent, or by a registrar, other than a Director, officer or employee of
the corporation. In case any officer who has signed or whose facsimile signature
has been placed on such certificate shall have ceased to be such officer before
such certificate is
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<PAGE>
issued, it may be issued by the corporation with the same effect as if he were
such officer at the time of its issue. Every certificate for shares of stock
which are subject to any restriction on transfer and every certificate issued
when the corporation is authorized to issue more than one class or series of
stock shall contain such legend with respect thereto as is required by law.
2. Transfers. Subject to any restrictions on transfer, shares of stock
may be transferred on the books of the corporation by the surrender to the
corporation or its transfer agent of the certificate therefor properly endorsed
or accompanied by a written assignment and power of attorney properly executed,
with transfer stamps (if necessary) affixed, and with such proof of the
authenticity of signature as the corporation or its transfer agent may
reasonably require.
3. Record Holders. Except as may be otherwise required by law, by the
Articles of Organization or by these By-Laws, the corporation shall be entitled
to treat the record holder of stock as shown on its books as the owner of such
stock for all purposes, including the payment of dividends and the right to vote
with respect thereto, regardless of any transfer, pledge or other disposition of
such stock, until the shares have been transferred on the books of the
corporation in accordance with the requirements of these By-Laws.
It shall be the duty of each stockholder to notify the corporation of
his post office address.
4. Record Date. The Board of Directors may fix in advance a time of not
more than sixty days preceding the date of any meeting of stockholders, or the
date for the payment of any dividend or the making of any distribution to
stockholders, or the last day on which the consent or dissent of stockholders
may be effectively expressed for any purpose, as the record date for determining
the stockholders having the right to notice of and to vote at such meeting, and
any adjournment thereof, or the right to receive such dividend or distribution
or the right to give such consent or dissent. In such case only stockholders of
record on such record date shall have such right, notwithstanding any transfer
of stock on the books of the corporation after the record date. Without fixing
such record date the Board of Directors may for any of such purposes close the
transfer books for all or any part of such period.
If no record date is fixed and the transfer books are not closed, (a)
the record date for determining stockholders having the right to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, and (b) the record date for
determining
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<PAGE>
stockholders for any other purpose shall be at the close of business on the day
on which the Board of Directors acts with respect thereto.
5. Replacement of Certificates. In case of the alleged loss,
destruction or mutilation of a certificate of stock, a duplicate certificate may
be issued in place thereof, upon such terms as the Board of Directors may
prescribe.
6. Issuance of Capital Stock. The Board of Directors shall have the
authority to issue or reserve for issue from time to time the whole or any part
of the capital stock of the corporation which may be authorized from time to
time; to such persons or organizations, for such consideration, whether cash,
property, services or expenses, and on such terms as the Board of Directors may
determine, including without limitation the granting of options, warrants, or
conversion or other rights to subscribe to said capital stock.
ARTICLE V
Miscellaneous Provisions
1. Fiscal Year. Except as otherwise determined by the
Board of Directors, the fiscal year of the corporation shall be the
twelve months ending on January 31.
2. Seal. The Board of Directors shall have power to adopt
and alter the seal of the corporation.
3. Execution of Instruments. All deeds, leases, transfers, contracts,
bonds, notes and other obligations to be entered into by the corporation in the
ordinary course of its business without Director action, may be executed on
behalf of the corporation by the President or the Treasurer.
4. Voting of Securities. Unless otherwise provided by the Board of
Directors, the President or Treasurer may waive notice of and act on behalf of
this corporation, or appoint another person or persons to act as proxy or
attorney in fact for this corporation with or without discretionary power and/or
power of substitution, at any meeting of stockholders or shareholders of any
other corporation or organization, any of whose securities are held by this
corporation.
5. Resident Agent. The Board of Directors may appoint a resident agent
upon whom legal process may be served in any action or proceeding against the
corporation. Said resident agent shall be either an individual who is a resident
of and has a business address in Massachusetts, a corporation organized under
the laws of Massachusetts, or a corporation organized under the laws of any
other state of the United States which has qualified to do business in, and has
an office in, Massachusetts
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<PAGE>
6. Corporate Records. The original, or attested copies, of the Articles
of Organization, By-Laws and records of all meetings of the incorporators and
stockholders, and the stock and transfer records, which shall contain the names
of all stockholders and the record address and the amount of stock held by each,
shall be kept in Massachusetts at the principal office of the corporation, or at
an office of its transfer agent, Clerk or resident agent, and shall be open at
all reasonable times to the inspection of any stockholder for any proper
purpose, but not to secure a list of stockholders for the purpose of selling
said list or copies thereof or of using the same for a purpose other than in the
interest of the applicant, as a stockholder, relative to the affairs of the
corporation.
7. Articles of Organization. All references in these ByLaws to the
Articles of Organization shall be deemed to refer to the Articles of
Organization of the corporation, as amended and in effect from time to time.
8. Amendments. The power to make, amend or repeal By-Laws shall be in
the stockholders, provided, however, that the Directors may make, amend or
repeal the By-laws (other than this Section 8) in whole or in part, except with
respect to any provisions thereof which by law, the Articles of Organization or
these By-Laws requires action by the stockholders. Not later than the time of
giving notice of the meeting of stockholders next following the making, amending
or repealing by the Directors of any By-Law, notice thereof stating the
substance of such change shall be given to all stockholders entitled to vote on
amending the By-Laws. Any amendment or repeal of these By-laws by the Directors
and any By-Law adopted by the Directors may be amended or repealed by the
stockholders.
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<PAGE>
NETsilicon, Inc.
INCORPORATED UNDER THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS
COMMON STOCK
CUSIP 64115X 10 5
COMMON STOCK
THIS IS TO CERTIFY THAT
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01, OF
NETsilicon, Inc. transferable on the books of the Corporation by the holder
hereof, in person or by duly authorized attorney, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are subject to the laws of The Commonwealth of Massachusetts and to the
Restated Articles of Organization and By-Laws of the Corporation, as now or
hereafter amended. This certificate is not valid unless countersigned by the
Transfer Agent and registered by the Registrar. WITNESS the facsimile seal of
the Corporation and the facsimile signatures of its duly authorized officers.
Dated:
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
(NEW YORK, N.Y.)
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PRESIDENT, CHIEF EXECUTIVE OFFICER
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<PAGE>
NETsilicon, Inc.
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF STOCK. THE
CORPORATION WILL FURNISH TO THE HOLDER UPON REQUEST AND WITHOUT CHARGE THE
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING, OPTIONAL OR OTHER SPECIAL
RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -
TEN ENT -
JT TEN -
as tenants in common
as tenants by the entireties
as joint tenants with right of
survivorship and not as tenants
in common
<TABLE>
<S> <C> <C>
UNIF GIFT MIN ACT-D Custodian
(Cust)
(Minor)
under Uniform Gifts to Minors
Act
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
<TABLE>
<S> <C>
For value received, hereby sell,
assign and transfer unto
</TABLE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably
constitute and appoint
Attorney to transfer the said stock on the books of the within-named Corporation
with full power of substitution in the premises.
Dated,
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the Certificate, in every particular, without
alteration or enlargement, or any change whatever.
Signature(s) Guaranteed:
<PAGE>
<PAGE>
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as ............................. 'TM'
The copyright symbol shall be expressed as.............................. 'c'
<PAGE>
<PAGE>
EXHIBIT 5.1
Woodbridge
April 20, 1999
NETsilicon, Inc.
411 Waverly Oaks Road
Suite 227
Waltham, MA 02154
Re: NETsilicon, Inc.
Ladies and Gentlemen:
We have acted as counsel to NETsilicon, Inc., a Massachusetts
corporation (the "Company"), in connection with its filing of that certain
Registration Statement on Form S-1, as amended (Registration No.333-62231) with
respect to an aggregate of 3,000,000 shares (the "Offering Shares") of
common stock, $.01 par value of the Company (the "Common Stock") to be issued
and sold by the Company and Osicom Technologies, Inc. (the "Selling
Stockholder") to a group of underwriters (the "Underwriters") represented by
Tucker Anthony Cleary Gull, of which 2,300,000 shares of the Common Stock are
being issued and sold by the Company and 700,000 shares of the Common Stock
are being issued and sold by the Selling Stockholder. In addition, the
Underwriters have been granted options by the Selling Stockholder to purchase
up to an additional 450,000 shares of the Common Stock (the "Over-Allotment
Shares"), for the purpose of covering over-allotments in connection with the
sale of the Offering Shares. The Offering Shares and the Over-Allotment Shares
are hereinafter collectively referred to as the "Shares".
As counsel to the Company, we have examined the Articles of
Organization and By-Laws, as amended to date, and other corporate records of the
Company and have made such other investigations as we have deemed necessary in
connection with the opinion hereinafter set forth. We have relied, to the extent
we deem such reliance proper, upon certain factual representations
<PAGE>
<PAGE>
NETsilicon, Inc.
April 20, 1999
Page 2
of officers and directors of the Company given in certificates, in answer to our
written inquiries and otherwise, and, although we have not independently
verified all the facts contained therein, nothing has come to our attention that
would cause us to believe that any of the statements contained therein are
untrue or misleading.
In making the aforesaid examinations, we have assumed the genuineness
of all signatures and the conformity to original documents of all copies
furnished to us.
Based solely upon and subject to the foregoing, we are of the opinion
that the Shares have been duly and validly authorized and, when issued and paid
for, will be duly and validly issued, fully paid, and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
aforesaid Registration Statement, as amended and to the reference to our firm
under the caption "Legal Matters" in the Prospectus constituting a part of said
Registration Statement, as amended.
Very truly yours,
GREENBAUM, ROWE, SMITH, RAVIN,
DAVIS & HIMMEL LLP
<PAGE>
<PAGE>
TRADEMARK LICENSE AGREEMENT
---------------------------
This Trademark License Agreement (hereinafter "this Agreement") is made
between ARM Limited, whose principal place of business is located at 90 Fulbourn
Road, Cherry Hinton, UK CB1 4JN (hereinafter "Licensor"), and Osicom
Technologies Inc. whose principal place of business is located at 411 Waverley
Oaks Road, Suite 227 Waltham, MA 02154-9409 (hereinafter "Licensee")
(hereinafter collectively "the Parties").
WHEREAS, Licensor is the owner of all right, title and interest in and
to the trademark ARM, including, but not limited to a registration in the U.S.
Patent and Trademark Office under number 1,987,934, issued July 23, 1996 for
computer hardware, namely integrated circuits and printed circuit boards
containing electrical components and sockets; computer programs for use in the
development of computer programs and user manuals for use therewith sold as a
unit, and computer programs for use in the development of integrated circuits
and user manuals for use therewith all sold as a unit, including all goodwill
pertaining thereto;
WHEREAS Licensee has adopted and is using NET and NET+ as a component
term in trademarks for hardware and software for connecting peripherals to
networks, and
WHEREAS Licensee has filed applications to register NET+ARM in the
United States under serial number 75/374969 on October 17, 1997; in Canada under
serial no 866,078 on January 14, 1998; in the European Union under serial no.
703249 on December 15, 1997; and in Japan under serial no. 1869031.1997 on
December 17, 1997, hereafter collectively referred to as THE APPLICATIONS
WHEREAS Licensee is willing to assign THE APPLICATIONS and related
goodwill appurtenant thereto subject to a world wide exclusive license to use
the mark covered by THE APPLICATIONS,
WHEREAS, Licensee wishes to use the ARM trademark solely as a part of a
composite mark NET+ ARM (hereafter the MARK) solely for the purpose of promoting
Licensee's embedded solution of ARM-based hardware and networking software
(hereinafter the "Product"); and
WHEREAS, Licensor wishes to grant Licensee a license to use the Mark
solely to promote the Product, subject to the provisions of this Agreement;
NOW THEREFORE, for good and valuable consideration, including the mutual
covenants contained herein, the receipt and sufficiency of which are hereby
acknowledged, the Parties agree as follows:
1 ASSIGNMENT
1.1 For good and valuable consideration, the receipt of which is hereby
acknowledged, Licensee without representations or warranties with respect to THE
APPLICATIONS or the title thereto, does hereby assign, transfer, and set over
unto the said Licensor all of its rights, title and interest in and to THE
APPLICATIONS and the registrations therefor, together with the goodwill of the
business symbolized by said marks and the registrations therefor, including all
rights to sue
<PAGE>
<PAGE>
and recover for past infringement of said marks covered by THE APPLICATIONS and
the registrations therefor.
1.2 Licensee agrees to execute such other documents as may be
reasonablely required by Licensor to effect a recordable transfer of THE
APPLICATIONS to The Licensor.
1.3 Licensor agrees to allow Licensee to complete prosecution of THE
APPLICATIONS solely on behalf of Licensor and to maintain any registrations
issuing thereon in Licensor's name, so long as Licensee is licensed hereunder.
1.4 Licensee agrees, at its sole expense, to complete prosecution of THE
APPLICATIONS solely on behalf of Licensor and to maintain any registrations
issuing thereon in Licensor's name, so long as Licensee is licensed hereunder.
2 LICENSE GRANT
2.1 Licensor hereby grants Licensee a limited, exclusive,
nontransferable, royalty free, worldwide license to use the MARK solely to
promote Licensee's Product, subject to the terms and conditions of this
Agreement. Licensee hereby accepts such grant subject to the terms and
conditions of this Agreement.
2.2 Licensor hereby grants to Licensee an exclusive non-transferable
royalty free license to use the subject matter of THE APPLICATIONS subject to
the terms and conditions of this Agreement. Licensee hereby accepts such grant
subject to the terms and conditions of this Agreement.
2.3 Licensor agrees not to itself use or to grant any other party,
during the term of this license and unless terminated for cause for 3 years
thereafter, a license to use the MARK. Licensor agrees not to itself use or
grant any other party during the term of the license a license to use "NET*ARM,"
"NET/ARM," "NETARM," "NET ARM," "NET'N ARM," or "NET_ARM" where _ indicates a
single character or a single number or a combination of single character and
single number. Licensor will act in good faith when licensing others to protect
Licensee's interest in the subject matter of this agreement.
2.4 Licensor agrees to take reasonable steps, when requested by
Licensee, to preclude others from using trademarks which are confusingly similar
to the Mark, and to allow Licensee at its own expense to assist in enforcing
reasonable claims against infringers.
3 OWNERSHIP OF THE MARK
3.1 Licensee acknowledges Licensor's ownership of all rights in the Mark
and the validity of all registrations therefor. Licensee expressly disclaims any
ownership in and to the Mark. Except as expressly permitted herein, Licensee
shall not adopt, use, or attempt to register any trademark which is confusingly
similar to any ARM trademark, including but not limited to any trademark which
includes "ARM", "THUMB", or "7TDMI". Licensee will assist Licensor, at
Licensee's sole expense, if necessary, in establishing and maintaining
Licensor's rights in and title to the Mark, including assisting Licensor upon
request in effecting any required approvals of this Agreement, in registering
and entering Licensee as a registered user of the Mark or in recording or
registering a license of the Mark with appropriate government authorities, but
only to the extent that such
<PAGE>
<PAGE>
assistance or expense relates solely to the Mark. Nothing in this Agreement
shall obligate Licensee to incur expense in connection with the ARM trademark
except to the extent it forms part of the mark. Licensee agrees to take no
action contrary to Licensor's ownership of and rights in the Mark both during
the term of this Agreement and thereafter so long as Licensor owns the Mark or
has an interest therein. Licensee's use of the Mark shall inure solely to
Licensor's benefit. Upon reasonable requests, Licensee shall furnish Licensor
with a report and specimens, including labels and advertising, showing evidence
of its use of the Mark.
3.2 No right, title or interest in the Mark or registrations or
applications for the Mark is transferred to Licensee by this Agreement, but only
the license to use the Mark under the conditions of this Agreement, and Licensor
reserves the right to use and to license others to use the Mark.
4 QUALITY CONTROL
4.1 Licensee agrees to maintain such reasonable quality standards for
the Product as prescribed by or acceptable to Licensor. Licensor may take all
reasonable precautions acting in good faith to insure that the quality of the
Product to which the Mark is applied is maintained, including inspecting the
quality of the Product. Licensee shall provide one free copy of each version of
the Product to Licensor. In the event that the Product does not meet Licensor's
standards, Licensor shall have the right to rescind its approval of Licensee's
use of the Mark and to terminate this Agreement pursuant to Section 6 below.
4.2 Licensee shall include Licensor in its schedule of press release
recipients.
5 FORM OF USE
5.1 Licensee agrees to use and display the Mark only in connection with
the advertising promotion and sale of Product and only in the form and manner as
are or shall be reasonably prescribed or approved by Licensor from time to time,
including the use of appropriate legends and markings. Such appropriate legends
and markings may include a trademark notice in the following form:
"NET+ IS A TRADEMARK OF OSICOM TECHNOLOGIES INC." "ARM IS A
REGISTERED TRADEMARK OF ARM LIMITED." "NET+ARM IS A REGISTERED
TRADEMARK OF ARM LIMITED."
5.2 Licensee agrees that the license grant in Section 2 shall entitle
Licensee to use the Mark only to promote the Product using "NET+ARM". No
additional use of a logo, cover design, layout, or any other feature, shall be
confusingly similar to the Mark. Except as expressly set forth in this
Agreement, Licensee agrees not to use any other trademark, service mark, word,
symbol, letter, or design in combination with the Mark.
5.3 All other uses of the ARM trademark shall be solely to refer to
Licensor's products or services and shall include the trademark symbol "(R)"
with the first and most prominent use of such trademark, and also include a
trademark notice in the following form:
"ARM IS A REGISTERED TRADEMARK OF ARM LIMITED."
<PAGE>
<PAGE>
5.4 Licensee may at all times use a house mark such as OSICOM on all
promotion, advertising and packaging, in addition to NET+ARM in connection with
the promotion, marketing, and sale of the PRODUCT. Licensor shall have no rights
to OSICOM or to "NET+" and all use thereof enures to the benefit of Licensee.
6 TERM
6.1 Unless terminated earlier pursuant to Section 7, the license granted
in Section 2 shall expire on May 20th, 2008 (the "Expiration Date"). Licensor
may, at its discretion, extend the term of this Agreement beyond the Expiration
Date by providing written notice informing Licensee that such an extension has
been granted. Pursuant to such notice of an extension, the license granted in
Section 2 shall continue until the earlier of the extended expiration date set
forth in the written notice of extension or until sixty (60) days after Licensor
provides written notice to Licensee that the license is terminated; such
termination shall be in Licensor's sole discretion.
7 TERMINATION
7.1 Either Party may terminate this Agreement immediately for breach by
the other Party of any of the provisions hereof, provided the termination is
made by written notice specifying an effective date not less than sixty (60)
days after delivery of the notice, on which termination shall become effective
unless prior thereto the specified breach is cured in Licensor's reasonable
opinion.
8 EFFECT OF TERMINATION
8.1 Upon expiration or termination of this Agreement for any reason,
Licensee shall immediately discontinue all use of the Mark and any term
confusingly similar thereto, except Licensee may fill all existing orders and
may exhaust all inventory on hand at the time of notification beyond the date of
termination, provided however, any use of the Mark after receiving the written
notice of termination shall comply with the standards set under paragraph 3
hereof. The parties rights and obligations under Sections 3, 6, 7, 8, 9,10, 11,
12, 13, 14, 15, 16, 17, 18 and 19 shall survive termination and expiration of
this Agreement.
8.2 Promptly upon termination of this Agreement or the licenses granted
hereunder Licensor shall expressly abandon THE APPLICATIONS and any
registrations issuing thereon.
9 RELATIONSHIP OF THE PARTIES
9.1 This Agreement does not constitute and shall not be construed as
constituting an agency, partnership or joint venture relationship between
Licensor and Licensee; Licensee shall not have any right to obligate or bind
Licensor in any manner whatsoever, and nothing herein contained shall give or is
intended to give any rights of any kind to any third persons.
10 ASSIGNMENT/TRANSFER
10.1 Without Licensor's prior specific written consent Licensee shall
not assign, transfer, mortgage, sublicense, or otherwise part with any of its
rights or obligations under this Agreement.
11 NOTICE OF INFRINGEMENT
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<PAGE>
11.1 In the event that any infringement or conflicting use of the Mark,
or unfair competition involving the Mark, shall come to Licensee's attention,
Licensee agrees promptly to inform Licensor thereof. It shall be within
Licensor's reasonable discretion to instigate litigation against any such
infringer.
12 NOTICE
12.1 All notices, requests, consents and other communications hereunder
shall be in writing and shall be mailed by First Class mail, postage prepaid or
delivered by messenger to the Parties at the addresses given above, and such
notices shall be deemed to be effective upon the date mailed to the correct
address with correct postage.
13 LIMITATION OF LIABILITY
13.1 LICENSOR SHALL NOT BE LIABLE FOR ANY DAMAGES, INCLUDING BUT NOT
LIMITED TO DIRECT, INDIRECT, INCIDENTAL, SPECIAL, COVER, RELIANCE, OR
CONSEQUENTIAL DAMAGES ARISING PROM ANY CLAIMS, ACTIONS, LIABILITIES, COSTS OR
ANY OTHER LOSSES RESULTING FROM LICENSEE'S USE OF THE MARK OR LICENSEE'S
PUBLICATION, DISTRIBUTION, OR ANY OTHER USE OF THE PRODUCT.
14 ALLOCATION OF RISK
14.1 There is no license fee for the rights granted to Licensee herein.
The provisions of this Agreement allocate the risks between Licensor and
Licensee. The license rights granted to Licensee herein at no charge reflects
this allocation of risk and the limitation of liability specified herein.
15 INDEMNIFICATION
15.1 Licensee will defend, indemnify and hold Licensor harmless against
any claims, actions, damages, liabilities and any other costs arising out of
Licensee's publication, distribution and/or use of the Product and/or use of the
Mark licensed to Licensee herein, except to the extent a third party asserts
claims of superior rights to the Mark for the PRODUCTS.
16 GOVERNING LAW/JURISDICTION
16.1 This Agreement, and all matters arising out of or relating to this
Agreement, shall be governed by the laws of the State of California, and shall
be deemed to be executed in Los Gatos, California. Any legal action or
proceeding relating to this Agreement shall be instituted in a state or federal
court in Santa Clara County, California. ARM and Customer agree to submit to the
jurisdiction of, and agree that venue is proper in, these courts in any such
legal action or proceeding.
17 EXECUTION IN COUNTERPARTS
17.1 This Agreement may be executed in counterparts, each of which shall
constitute a duplicate original.
18 AUTHORITY TO EXECUTE AGREEMENT
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<PAGE>
18.1 The undersigned represent that they have authority to execute this
Agreement on behalf of the respective Parties and to carry out all obligations
imposed hereunder. The undersigned have read, understand, and agree to the terms
of this Agreement and have had the opportunity to consult with counsel regarding
this Agreement.
19 ENTIRE AGREEMENT
19.1 This Agreement constitutes the sole and only agreement of the
Parties with respect to the subject matter hereof, contains all of the covenants
and agreements between the parties with respect thereto, and supersedes any
previous communications, representations, or agreements, verbal or written,
related to the subject matter of this Agreement. This Agreement shall only be
amended by a writing signed by the Party to be charged or its successor(s) in
interest. In the event any paragraph or provision of this Agreement is held to
be void or unenforceable by a court of competent jurisdiction, the remaining
provisions of this Agreement shall nevertheless be binding upon the Parties with
the same force and effect as though the void and unenforceable parts had been
severed or deleted.
20 EFFECTIVE DATE
20.1 The effective date of this Agreement shall be the later execution
date set forth below.
<TABLE>
<CAPTION>
ARM LIMITED OSICOM TECHNOLOGIES INC.
<S> <C>
By:__________________________________ By:__________________________________
Name:________________________________ Name:________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
</TABLE>
<PAGE>
<PAGE>
SOFTWARE LICENSE AGREEMENT
(Production Binaries)
THIS AGREEMENT is made between Integrated Systems, Inc. (hereinafter "ISI"),
whose principal office is at 201 Moffett Park Drive, Sunnyvale, California,
U.S.A. , and OSICOM (hereinafter "LICENSEE") whose principal office is at 411
Waverly Oaks Road, Waltham, MA 02154.
1. DEFINITION OF TERMS
In this Agreement, "LICENSED SOFTWARE" shall mean all or any portion of the
computer program(s) indicated in Exhibit A, and all or any portion of the
documentation ("DOCUMENTATION") provided with and relating to LICENSED SOFTWARE.
2. GRANT OF LICENSE
2.1. ISI, at the request of LICENSEE, hereby grants to LICENSEE a
non-transferable, and nonexclusive license to copy, use and distribute
LICENSED SOFTWARE pursuant to the terms hereunder.
2.2. LICENSEE may make binary object code copies of LICENSED SOFTWARE only
from the master copy provided by ISI, provided that LICENSEE retains in
each such copy any copyright or other intellectual property rights
legends contained in the master copy of LICENSED SOFTWARE as delivered
to LICENSEE by ISI.
2.3. LICENSEE may use and incorporate copies of LICENSED SOFTWARE in its
products with substantially added value in hardware and/or software
("FINISHED PRODUCTS"), and sublicense and transfer, LICENSED SOFTWARE in
embedded form as, and only as, part of such FINISHED PRODUCTS to its
customers ("CUSTOMERS"), provided that:
(a) LICENSED SOFTWARE shall be bundled with other LICENSEE software
and configured solely to operate in and as part of such FINISHED
PRODUCTS;
(b) measured in number of machine (CPU) instructions, LICENSED
SOFTWARE shall not exceed fifty (50) percent of the combined,
functional software delivered with each FINISHED PRODUCT;
(c) LICENSEE shall not list or quote LICENSED SOFTWARE as a
separately priced item of option;
(d) CUSTOMERS' rights to LICENSED SOFTWARE shall be limited solely to
use on and as part of FINISHED PRODUCTS as described in Exhibit A
and any additional amendments to Exhibit A. The number of copies
of LICENSED SOFTWARE shall not exceed the number as granted in
Exhibit A and any additional amendments to Exhibit A. CUSTOMERS
shall have no right to copy LICENSED SOFTWARE, or
<PAGE>
<PAGE>
use, resell, transfer, or sublicense LICENSED SOFTWARE without
FINISHED PRODUCTS to any other party.
2.4. Except as provided above, all other means of sale, lease, license,
sublicense or transfer of LICENSED SOFTWARE by LICENSEE to other parties
is expressly prohibited.
2.5. LICENSEE shall not disassemble or otherwise "reverse engineer" LICENSED
SOFTWARE, nor shall LICENSEE grant to its CUSTOMERS the right to
disassemble or otherwise "reverse engineer" LICENSED SOFTWARE.
2.6, LICENSEE may not copy DOCUMENTATION or transfer DOCUMENTATION to
CUSTOMERS or other parties without prior written consent or ISI.
3. ORDERING AND PAYMENT PROCEDURES
3.1. This is a master software license agreement. LICENSEE shall order
LICENSED SOFTWARE by issuing Purchase Orders to ISI, referencing the
License Number shown on page one of this Agreement. Purchase Orders
subsequent to the first one shall also be accompanied by an executed
amendment to Exhibit A of this Agreement.
3.2. ISI reserves the right to accept subsequent purchase orders that comply
with then current ISI prices, terms and conditions.
3.3. Payment terms are Net Thirty (30) days from the date of invoice, subject
to LICENSEE maintaining credit arrangements satisfactory to ISI.
3.4. LICENSEE agrees to report usage of software copies to ISI upon request.
Such requests will not be more frequent than quarterly.
4. INDEMNIFICATION
4.1. ISI hereby represents and warrants that it owns the copyright and/or
other rights in and to all versions of LICENSED SOFTWARE and
DOCUMENTATION.
4.2. ISI will defend any action brought against LICENSEE based on a claim
that LICENSED SOFTWARE used within the scope of this license infringes
any copyright, trade secret or patent. ISI will pay any award against
LICENSEE, and any costs and attorneys' fees incurred by LICENSEE
resulting from any such claim, provided that LICENSEE has notified ISI
promptly in writing of such claim, and has permitted ISI to direct and
control the investigation, defense, and settlement of any such claim.
LICENSEE hereby agrees that ISI shall have no liability if such alleged
infringement arises from (a) the use of other than the current,
unaltered version of LICENSED SOFTWARE, and/or the combination of
LICENSED SOFTWARE with other programs or data, if such infringement
would have been avoided by the exclusive use of LICENSED SOFTWARE.
2
<PAGE>
<PAGE>
5. WARRANTY
5.1. ISI MAKES NO OTHER WARRANTY OF ANY KIND, EITHER EXPRESSED OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL ISI HAVE ANY
LIABILITY FOR ANY LOSSES OR DAMAGES, WHETHER INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL, ARISING FROM THE USE OF, OR INABILITY TO USE
OR TO ACHIEVE ANY PARTICULAR RESULTS FROM USE OF LICENSED SOFTWARE.
6. TERMINATION
6.1. If LICENSEE or ISI fails to fulfill any material obligations under this
Agreement, either may, at its election and in addition to other remedies
it may have, terminate all rights granted herein by not less than thirty
(30) days' written notice to the other specifying any such breach,
unless within the period of such notice all breaches specified therein
shall have been rectified.
6.2. Upon termination of this Agreement, LICENSEE shall cease all use,
sublicense and transfer of LICENSED SOFTWARE, and shall return promptly
all copies of LICENSED SOFTWARE in its possession to ISI. LICENSEE may
retain one copy of LICENSED SOFTWARE for continued support of LICENSEE
CUSTOMERS, provided that LICENSEE is current with all payments due ti
ISI.
6.3. Termination of this Agreement shall not affect any prior and existing
sublicenses granted by LICENSEE to CUSTOMERS, or terminate LICENSEE's
obligations under Section 7.1 here below.
7. MISCELLANEOUS
7.1. LICENSEE shall hold any information it receives from ISI relating to
LICENSED SOFTWARE and this Agreement in strict confidence. LICENSEE
shall not make any disclosure of such information or methods utilized
therein to anyone other than its employees or authorized contractors to
whom such disclosure is necessary for the purpose set forth in this
Agreement. LICENSEE shall notify each person to whom such disclosure is
made that such information may only be used for the purposes set forth
herein, and must be protected in the same manner as LICENSEE'S own
valuable, proprietary software. The foregoing shall not apply to any
information which is or comes into the public domain, or is obtained or
developed independently and without violation of this Agreement.
7.2. In the event LICENSEE becomes aware of any party whose use of LICENSED
SOFTWARE in connection with any of LICENSEE'S FINISHED PRODUCTS is in
violation of the provisions of this Agreement, LICENSEE shall report
such activities promptly to ISI, and assist ISI in any actions as may be
required to stop such violations.
3
<PAGE>
<PAGE>
7.3. ISI's liability to LICENSEE under this Agreement shall be limited to the
amount actually paid by LICENSEE to ISI pursuant to this Agreement. The
existence of more than one claim or suit will not enlarge or extend this
limit.
7.4. LICENSEE agrees not to export or re-export LICENSED SOFTWARE in
violation of U.S. Commerce Department Export Administration regulations
or other applicable regulations.
7.5. This Agreement shall be construed and enforced according to the laws of
the State of California.
7.6. If any part, term, or provision of this Agreement shall be held illegal,
unenforceable, or in conflict with any law of a federal, state or local
government having jurisdiction over this Agreement, the validity of the
remaining portions or provisions shall not be affected hereby.
7.7. Neither this Agreement nor any rights granted herewithin shall be
assignable or otherwise transferable by LICENSEE without prior written
consent of ISI, which consent shall not be unreasonably withheld, except
LICENSEE, with notice to ISI, may assign its rights and delegate its
duties under this Agreement, or assign this Agreement to the surviving
Entity in a merger or consolidation, or to a purchaser of substantially
all the assets of the business to which this Agreement relates.
7.8. ISI reserves the right to use accredited auditing representatives
acceptable to LICENSEE to make examinations and audits, by prior
arrangement and during normal business hours, and not more frequently
than semi-annually, of all LICENSEE's records and accounts which may
contain information bearing upon LICENSEE's exercise of its rights and
the performance of its obligations hereof. Any information so revealed
to ISI shall be kept in confidence and used solely for the purposes of
verifying LICENSEE's compliance with this Agreement.
7.9. The SOFTWARE and its documentation are provided with Restricted Rights.
If this product is acquired under the terms of a: DOD contract: Use,
duplication, or disclosure by the Government is subject to restrictions
as set forth in subparagraph (c)(1)(ii) of 252.227-7013. Civilian agency
contract: Use, reproduction, or disclosure is subject to 52.227-19(a)
through (d). Unpublished rights reserved under the copyright laws of the
United States.
7.10. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof, and may not be modified except by
written amendments or agreements signed on behalf of LICENSEE and ISI by
their respective authorized representatives.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representatives on the respective
dates entered below.
<TABLE>
<S> <C>
For LICENSEE: For Integrated Systems, Inc.:
Sign________________________________ Sign_______________________________
Name________________________________ Name_______________________________
</TABLE>
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Title_______________________________ Title______________________________
Date________________________________ Date_______________________________
</TABLE>
5
<PAGE>
<PAGE>
SOFTWARE LICENSE AGREEMENT
(Production Binaries)
EXHIBIT A
---------
LICENSEE: Osicom Technologies, Inc. License Number: 9703-1
----------------------------------- ------------------
LICENSE SOFTWARE and the number of copies thereof for which the rights to use
are granted under this Agreement shall be as follows:
<TABLE>
<CAPTION>
ISI Products Processor Number of Copies
------------ --------- ----------------
<S> <C> <C>
pSOS+ (KS-tgt-B#) _________ _______________
pSOS+m (KS-tgt-B#) _________ _______________
pROBEE (KS-tgt-B#) _________ _______________
pNA+ (NS-tgt-B#) _________ _______________
pHILE+ (FS-tgt-B#) _________ _______________
pRPC+ (NR-tgt-B#) _________ _______________
pXII+ (XW-tgt-B#) _________ _______________
pREPC+ (LC-tgt-B#) _________ _______________
SNMP (SM-tgt-B#) _________ _______________
pSOS (PK-tgt-B#) _________ _______________
pROBE (PR-tgt-B#) _________ _______________
pHILE (PF-tgt-B#) _________ _______________
pVERIFY (PV-tgt-B#) _________ _______________
pRISM (PI-tgt-B#) _________ _______________
Esp (ESP-tgt-B#) _________ _______________
</TABLE>
The right to use the above-stated number of copies in LICENSEE's FINISHED
PRODUCTS is restricted to use with Osicom's NET+ARM family of products. It is
intended that Osicom's customers will develop additional code that operates in
conjunction with Osicom's software and utilizes licensed software. The Osicom
customers will then be able to distribute the results to their customers without
any further licensing requirements with
ISI.
____________________________________________
<TABLE>
<S> <C>
For LICENSEE: For Integrated Systems, Inc.:
Sign_________________________________ Sign_______________________________
Name_________________________________ Name_______________________________
Title________________________________ Title______________________________
Date_________________________________ Date_______________________________
</TABLE>
LICENSEE INFORMATION:
Technical Contact: Robb Swanson Telephone: (617) 647-1234
----------------------------- ------------------
Address: 411 Waverly Oaks, Waltham, MA 02154
---------------------------------------------------------------------
6
<PAGE>
<PAGE>
AMENDMENT TO PRODUCTION LICENSE
PRODUCTION LICENSE FEE SCHEDULE
<TABLE>
<S> <C>
Per Copy Production Price Buy Down for pSOS+ and pNA+
One Time Fee $100,000
Discount Schedule Price per Unit for pSOS+ and pNA+
20,000 - 2,000,000 Units $.50/unit
2,000,000+ Units $.40/unit
</TABLE>
Notes:
All information in this Amendment is confidential between ISI and Osicom/DPI
1. Pricing per unit applies to pSOS+ and pNA+ for Net+ARM processors.
2. Production buy Down Fee must be ordered with pRISM+ Development licenses.
$25,000 invoiced at receipt of order. Remaining $75,000 will be invoiced
as follows:
$25,000 End of January, 1998
$25,000 End of April, 1998
$25,000 End of July, 1998
Non-payment of any Buy Down Fee will cancel negotiated unit price. Standard Unit
price, as indicated in current ISI price list, will prevail for any production
licenses purchased after non-payment.
3. Minimum purchase quantity is 20,000 units.
4. Production units must be purchased prior to initial product shipment
(includes "Alpha" and "Beta" shipments).
5. Osicom/DPI will report Net+ARM shipments that deploy pSOS+ and pNA+
after fiscal quarter end, i.e.: Feb. 1; April 1, July 1 and Oct 1.
6. Per Copy Pricing is cumulative.
7. Under no circumstances will Osicom/DPI ship copies of pSOS+ or its
components prior to generating a purchase order for them.
8. A signed "Software License Agreement for Production Binaries",
"Amendment to Software License Agreement", and "Exhibit A" will
accompany initial purchase order for production binaries, a signed
"Exhibit A" will accompany ensuing purchase orders.
7
<PAGE>
<PAGE>
SUPPLEMENTAL LICENSE AGREEMENT
(SOURCE CODE)
THIS AGREEMENT is made between Integrated Systems, Inc., (hereinafter "ISI"),
whose principal office is at 201 Moffett Park Drive, Sunnyvale, California,
94089 U.S.A., and Osicom/DPI (hereinafter "LICENSEE") whose principal office is
at 411 Waverly Oaks Road, Waltham, MA 02154.
In consideration of the mutual promises, considerations and covenants contained
herein, LICENSEE and ISI hereto agree as follows:
9. MAIN AGREEMENT
1.1. This agreement is supplemental to, and modifies as of the
effective date hereof, a software license agreement
(hereinafter "Main Agreement"), license number 9703-1, dated 14
November 1997, between the parties hereto and relating to the
computer programs(s) (hereinafter 'LICENSED SOFTWARE") known
as:
pNA+ TCP/IP Source Code
for ARM processors
2. DEFINITION OF TERMS
2.1. Terms in this agreement which are in capital letters, with the
exception of names of parties and paragraph headings shall have the
meanings specified in the Main Agreement.
2.2. "SOURCE CODE" shall, for the purposes of this Agreement, mean all or a
portion of the source code, that is the programming language
formulation and embedded program commentaries, for LICENSED SOFTWARE,
including any documentation relating to LICENSED SOFTWARE and/or SOURCE
CODE bearing any confidentiality marks or legends.
3. GRANT OF LICENSE
3.1. ISI, at the request of LICENSEE, hereby grants to LICENSEE a personal,
non-transferable, and nonexclusive license to use SOURCE CODE pursuant
to the terms hereunder.
3.2. LICENSEE may make no more than one copy of SOURCE CODE for backup purposes
only.
3.3. LICENSEE may not remove any copyright or other intellectual property,
marks or legends contained in the copy of the SOURCE CODE delivered to
LICENSEE by ISI. LICENSEE shall replicate in and on all copies of
SOURCE CODE, whether modified, extended or abstracted, any copyright or
other intellectual property rights marks or legends which are contained
in or appear on the original copy of SOURCE CODE delivered to LICENSEE
by ISI.
8
<PAGE>
<PAGE>
3.4. LICENSEE shall at all times keep all its copies of SOURCE CODE at
LICENSEE'S Corporate site location specifically designated hereunder:
411 Waverly Oaks Road, Waltham, MA 02154
Any use or storage of copies of SOURCE CODE at any other location is
expressly prohibited, unless prior written permission has been granted
by ISI. LICENSEE hereby assures ISI that it shall, to the best of its
ability and by whatever reasonable means necessary, prevent removal of
SOURCE CODE from the above location.
3.5. LICENSEE may use SOURCE CODE for internal reference, maintenance and
support purposes only. LICENSEE shall not modify SOURCE CODE without
prior written consent of ISI, which consent shall not be unreasonably
withheld.
3.6. LICENSEE agrees that it shall not sell, license, sub-license, lease,
transfer or otherwise make available SOURCE CODE to any other party,
whether or not SOURCE CODE has been modified, extended or abstracted,
in any form or on any medium, printed, magnetic, photographic or
otherwise.
3.7. LICENSEE agrees that any object, that is directly machine executable,
code derived or produced from SOURCE CODE (hereinafter "Derivative
Works"), whether or not SOURCE CODE has been modified, extended or
abstracted, shall be construed as the same as LICENSED SOFTWARE, which
use by LICENSEE shall be governed by and subject to the terms and
conditions set forth in the Main Agreement.
4. PAYMENT AND DELIVERY
4.1. For rights granted under this Agreement, LICENSEE shall pay ISI a
license fee pursuant to a Purchase Order acceptable to ISI.
4.2. Within a reasonable time after execution of this Agreement and receipt
of a Purchase Order acceptable to ISI, ISI shall deliver to LICENSEE
one complete copy of SOURCE CODE on the storage medium specified to the
Purchase Order.
5. WARRANTY
5.1. ISI warrants only that the media on which SOURCE CODE is delivered
shall be free from defects in material or workmanship under normal use
and service for a period of thirty (30) days from the date of delivery.
If defect(s) in the media is discovered and reported by LICENSEE to ISI
within the thirty days after delivery, ISI shall, at no cost to
LICENSEE, deliver to LICENSEE a new copy of SOURCE CODE.
5.2. In no event shall ISI have any liability for any losses or damages,
whether direct, indirect, special or consequential, arising from the
use of, or the inability to use or to achieve any particular results
from use of SOURCE CODE.
5.3. ISI will defend any action brought against LICENSEE based on a claim
that SOURCE CODE used within the scope of this license infringes any
copyright, patent, or trademark. ISI will pay any award against
LICENSEE and any costs and attorneys' fees incurred by LICENSEE
resulting from any such claim, provided that LICENSEE has notified ISI
promptly in writing of such claim, and has
9
<PAGE>
<PAGE>
permitted ISI to direct and control the investigation, defense, and
settlement of any such claim. LICENSEE hereby agrees that ISI shall
have no liability if such alleged infringement arises from (a) the use
of other than the current, unaltered version of SOURCE CODE, and/or (b)
the combination of SOURCE CODE with other programs or data. If such
infringement would have been avoided by the exclusive use of SOURCE
CODE.
6. MAINTENANCE
6.1. ISI may, from time to time, make modifications, improvements or
extensions to SOURCE CODE. ISI agrees to notify LICENSEE of any such
relevant modifications, improvements or extensions, and LICENSEE may
request and obtain a copy of the new SOURCE CODE in the form of
hardcopy listing or on the medium specified in Paragraph 4.2 hereof by
maintaining current a Source Code Maintenance Agreement.
7. CONFIDENTIALITY
7.1. LICENSEE agrees that it shall hold SOURCE CODE in strict confidence for
ISI, and shall not make any disclosure of SOURCE CODE, including
methods or concepts utilized therein, to anyone other than employees of
LICENSEE to whom such disclosure is necessary to the use for which
rights are granted herein. LICENSEE shall appropriately notify each
employee to whom such disclosure is made that such disclosure shall be
kept in confidence by him/her. Notwithstanding the foregoing, such
confidentiality obligations shall not apply to any specific information
contained in SOURCE CODE which is or subsequently comes into the public
domain.
8. TERMINATION
8.1. If LICENSEE fails to fulfill one or more of its obligations under this
Agreement, ISI may, at its election and in addition to other remedies
it may have, at any time terminate all rights granted by it to LICENSEE
herein by not less than thirty (30) days written notice to LICENSEE
specifying any such breach, un less within the period of such notice
all breaches specified therein shall have been rectified.
8.2. Upon termination, LICENSEE shall deliver to ISI within thirty (30) days
all full or partial copies of SOURCE CODE in its possession or under
its control.
8.3. The obligations of LICENSEE and its employees to maintain
confidentiality of SOURCE CODE under Paragraph 7 hereof shall survive
and continue after termination of rights under this Agreement.
8.4. Termination of this Agreement shall not affect any rights granted by
ISI to LICENSEE under the Main Agreement, including any rights with
respect to Derivative Works, insofar as Derivative Works are construed
as equivalent to LICENSED SOFTWARE under the Main Agreement.
9. MISCELLANEOUS
9.1. Neither this Agreement nor any rights granted herein shall be
assignable or otherwise transferable by LICENSEE without prior written
consent of ISI.
10
<PAGE>
<PAGE>
9.2. ISI's total liability to LICENSEE under any provision of this
Agreement, exclusive of Paragraph 5.3 hereof, shall be limited to the
amount actually paid by LICENSEE to ISI pursuant to this Agreement. The
existence of more than one claim or suit will not enlarge or extend
this limit. LICENSEE hereby releases ISI from all obligations,
liability, claim, or demand in excess of this limit.
9.3. This Agreement shall be construed and enforced according to the laws of
the State of California. If LICENSEE is located outside the United
States of America, the parties hereto agree that any dispute arising in
connection with this Agreement will be settled by the ICC Court of
Arbitration.
9.4. If any part, term, or provision of this Agreement shall be held
illegal, unenforceable, or in conflict with any law of a federal, state
or local government having jurisdiction over this agreement, the
validity of the remaining portions or provisions shall not be affected
thereby.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed
in duplicate originals by its duly authorized representatives, effective as of
the last date entered below.
FOR INTEGRATED SYSTEMS, INC.
By:____________________________
Name:__________________________
Title:_________________________
Date:__________________________
FOR LICENSEE,
By:____________________________
Name:__________________________
Title:_________________________
Date:__________________________
11
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
LICENSE AGREEMENT BETWEEN
PEERLESS SYSTEMS CORPORATION
AND
OSICOM TECHNOLOGIES INCORPORATED, DPI
PRINT SERVER DIVISION
FOR
PEERLESS STANDARD INPUT/OUTPUT (PSIO)
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
Recital
This PEERLESS Standard Input / Output (hereinafter referred to as "PSIO")
License Agreement (hereinafter referred to as the "the Agreement" is entered
into as of August 10, 1998 by and between Peerless Systems Corporation
(hereinafter referred to as "PEERLESS") and Osicom Technologies Incorporated,
DPI Print Server Division (hereinafter referred to as "DPI").
The terms and conditions of this Agreement and those contained in the Exhibits
(which are attached to this Agreement and incorporated herein by reference)
executed by PEERLESS and DPI shall constitute the license agreement PSIO.
This Agreement and the applicable Exhibits constitute the exclusive statement of
the Agreement between PEERLESS and DPI concerning the subject hereof. Unless
otherwise provided herein, a reference to this Agreement shall be deemed to
include a reference to the Exhibits for all purposes hereof. All other prior
agreements, arrangements or understandings, oral or written, (except for
Confidentially Agreement entered into between the parties which remain in full
force and effect) are merged into and are superseded by the terms of this
Agreement.
THE TERMS AND CONDITIONS ON THE FOLLOWING PAGES ARE PART OF THIS
AGREEMENT. BOTH PARTIES HERETO ACKNOWLEDGE THAT THEY HAVE READ THIS
AGREEMENT, UNDERSTAND IT, AND AGREE TO BE BOUND BY THE TERMS AND
CONDITIONS CONTAINED HEREIN.
A G R E E M E N T
1. DEFINITIONS
1.1 CONFIDENTIAL INFORMATION. "Confidential Information" means any (i) written
material that PEERLESS or DPI labels, stamps or otherwise designates as
confidential, (ii) oral communication that either party designates as
confidential at the time that it is made and for which the disclosing party
provides written notice to the receiving party within thirty (30) days
thereafter stating that such information is confidential, (iii) any information
that the receiving party should reasonably understand to be confidential, (iv)
the terms of this Agreement, and (v) copies of any of the foregoing.
Notwithstanding anything to the contrary contained in this Agreement,
"Confidential Information" shall not include information that the receiving
party can document was (i) in the public domain at the time of disclosure, or
which enters the public domain other than as a result of the fault or negligence
of the receiving party, (ii) already known to the receiving party at the time of
first disclosure hereunder without obligation of confidentiality, (iii)
rightfully obtained by the receiving party from a third party without
obligations of confidentiality, or (iv) lawfully developed by the receiving
party independently and without direct or indirect reference to or use of any
Confidential Information disclosed to it hereunder.
- ------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 2 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
1.2 LICENSE. "License" means the rights granted to DPI pursuant to Sections 2
hereof.
1.3 DPI FACILITY. "DPI Facility" means the facility set forth in an Addendum to
this Agreement which is deemed to be the authorized DPI Facility as of the date
thereof.
1.4 LICENSED PRODUCTS. "Licensed Product" means any of the computer programs
identified in Exhibit A or identified in a supplemental Exhibit should DPI
license additional Licensed Product(s) subsequent to the execution of this
Agreement.
1.5 OEM PRODUCT. "OEM Product" means the end product produced by DPI, or
licensed by DPI, for or to a Third Party.
1.6 PEERLESS MATERIAL. "PEERLESS Material" means any Machine Executable Copies,
any material provided by PEERLESS to DPI, and any part or copy of any of the
foregoing in any form or media.
2. LICENSE. DPI's rights in and to the PSIO shall be set forth in Exhibit B.
3. DELIVERABLES. PEERLESS shall transmit to the DPI Facility address indicated
in Exhibit A those items set forth in Exhibit A.
4. PAYMENT.
4.1 GENERALLY. DPI shall pay PEERLESS in accordance with the rates, terms and
conditions set forth in Exhibit B (Payment Terms). DPI shall hold in confidence
and not disclose such rates, terms and conditions.
4.2 LATE PAYMENT. Without limiting any of PEERLESS' other rights or remedies
hereunder or at law or in equity, if DPI shall at any time fail to pay when due
any amount owing hereunder (a "Payment Default"), PEERLESS shall be entitled to
cease performing any and all of its obligations hereunder until such time as DPI
cures such Payment Default by paying such past due.
5. TERM AND TERMINATION.
5.1 GENERALLY. The term of the License shall commence upon the date hereof and
shall continue for 6 (six) years thereafter. This Agreement shall automatically
be renewed every 1 year thereafter unless one party notifies the other party in
writing of its intent to terminate this agreement at least three (3) months
prior to the scheduled expiration of this Agreement. Notwithstanding the
foregoing, this Agreement may be terminated prior to the scheduled expiration
date under the provisions of Section 10 (Default). Nothing contained herein
shall be deemed to extend the term of any warranty provided hereunder.
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 3 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
5.2 DUTIES UPON TERMINATION. Upon termination or expiration of the term of the
License ("Termination"'), all of DPI's rights under the License shall terminate
immediately. Within thirty (30) business days after Termination, DPI shall,
except to the extent provided in Section 5.3, (i) return to PEERLESS or destroy
all PEERLESS Material in the possession of DPI other than Machine Executable
Copies previously shipped to DPI's customers in accordance with Section 2.2 for
which DPI has or shall timely pay all amounts due hereunder, and (ii) provide to
PEERLESS a statement executed by an officer of DPI certifying that DPI has
complied in all respects with the provisions of clause (i) of this sentence.
5.3 RIGHTS AFTER TERMINATION. After Termination, DPI may retain and distribute
copies of the PSIO incorporated in or packaged for use with or on Authorized DPI
devices already manufactured and in DPI's finished goods inventory as of
Termination, but only if (i) DPI timely performs its obligations under Section
5.2, and (ii) within thirty (30) business days after Termination, DPI pays in
advance the applicable Per-Unit License Fee for each such Machine Executable
Copy at the then current rate in effect hereunder.
6. INDEMNIFICATION. Subject to DPI's fulfillment of its obligations under this
Section 6, PEERLESS shall indemnify DPI and hold it harmless from any
liabilities to any third parties, arising out of, and any costs and expenses of
defending or settling, any claim that any Current Release, Update Release or any
part thereof infringes any copyright, patent or trade secret enforceable under
the laws of the United States, Canada, Australia, Japan, or the European
Economic Community. DPI shall notify PEERLESS in writing of any such claim
promptly after DPI first learns thereof, shall tender sole control of the
defense and settlement of such claim to PEERLESS, and shall provide PEERLESS
with such reasonable assistance and cooperation as PEERLESS may reasonably
request from time to time in connection with such defense. In the event of any
such claim, PEERLESS may replace allegedly infringing PEERLESS Material with
non-infringing software or other material of equivalent functionality, and DPI
shall thereupon cease all use or distribution of such PEERLESS Material. None of
PEERLESS' obligations under this Section 6 shall apply in connection with any
claim of infringement if DPI has modified any PEERLESS Material or combined any
such material with or into any other programs, data, device, component or
applications or breached this Agreement and such infringement would not have
occurred without such modification, combination or breach.
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 4 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
7. WARRANTIES. The PSIO is provided to DPI on a AS-IS basis and PEERLESS does
not make any warranty or representation of any kind and EXCEPT AS SPECIFICALLY
PROVIDED IN SECTION 7, (i) PEERLESS DISCLAIMS ALL EXPRESS OR IMPLIED WARRANTIES,
INCLUDING THE IMPLIED WARRANTIES OF MERCHANTABILITY. TITLE AND FITNESS FOR A
PARTICULAR PURPOSE AND AGAINST INFRINGEMENT, AND (ii) WITHOUT LIMITING THE
FOREGOING, PEERLESS DOES NOT WARRANT THAT ANY OF THE SOFTWARE THAT IT PROVIDES
WILL BE ERROR FREE OR OPERATE WITHOUT INTERRUPTION. PEERLESS DOES NOT MAKE, AND
HEREBY EXPRESSLY DISCLAIMS, ANY REPRESENTATION OR WARRANTY TO ANY END USER OR
OTHER THIRD PARTY. DPI SHALL NOT HAVE THE RIGHT TO MAKE OR PASS ON, AND SHALL
TAKE ALL MEASURES NECESSARY TO INSURE THAT NEITHER IT NOR ANY OF ITS AGENTS OR
EMPLOYEES ATTEMPT TO MAKE OR PASS ON ANY SUCH REPRESENTATION OR WARRANTY ON
BEHALF OF PEERLESS.
8. PROPRIETARY RIGHTS AND CONFIDENTIALITY.
8.1 OWNERSHIP. As among PEERLESS and DPI, PEERLESS shall, except to the extent
of DPI's rights granted by PEERLESS under the License, own all title and
proprietary rights, including without limitation copy-rights, patents and trade
secret rights, in any PEERLESS Materials and any part or copy thereof in any
form or media.
8.2 PROPRIETARY RIGHTS NOTICES. DPI agrees to reproduce and affix to all copies
of any PEERLESS Materials such proprietary and copyright notices as PEERLESS
shall specify from time to time in writing. Unless otherwise specified by
PEERLESS, the following notice shall be affixed by DPI to any media
incorporating (including EPROM's, ROMs, etc.) of any PEERLESS Material:
COPYRIGHT PEERLESS SYSTEMS CORPORATION
DPI shall not remove or obscure any PEERLESS copyright, trademark or
confidentiality notices or marks.
8.3 DPI'S OBLIGATIONS TO OBSERVE CONFIDENTIALITY. Notwithstanding any other
provision hereof, DPI shall (i) observe complete confidentiality with regard to
the Confidential Information and shall protect it using at least the same degree
of care it uses to protect its own proprietary and confidential information and
materials of like importance, but in no event less care than a reasonably
prudent business person would take in a like or similar situation; (ii) not
disclose or permit any third person or entity access to the Confidential
Information without Peerless's prior written permission (except that such
disclosure or access shall be permitted solely to employees of DPI to the extent
required to allow DPI to utilize the Confidential Information as permitted
hereunder); and (iii) ensure that DPI's employees who receive access to any
Confidential Information are advised of the confidential
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 5 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
and proprietary nature thereof and of their obligation to maintain its secrecy.
8.4 SURVIVAL. DPI's obligations and PEERLESS' rights under this Section 8 shall
survive any expiration or termination of the License or of this Agreement for
any reason whatsoever (including without limitation DPI's material breach
hereof).
9. DEFAULT.
9.1 Defined. For purposes hereof, a default by DPI (Default) shall be deemed to
occur upon the occurrence of any of the following events: (a) DPI's failure to
pay any amounts due hereunder within ten (10) days following written notice from
PEERLESS that such amounts are due or overdue; (b) DPI's breach of any of its
obligations under Section 8; or (c) breach of any other of DPI's obligations
hereunder, which breach continues uncured for a period of thirty (30) days after
receipt of written notice thereof from PEERLESS.
9.2 REMEDIES. Upon any Default, PEERLESS shall have the right, without limiting
any of its other rights or remedies hereunder or at law or in equity, to declare
by written notice to DPI that all unpaid amounts owing hereunder immediately due
and payable, to recover the same, to terminate the term of the License pursuant
to Section 5.1, and to suspend performance of any of its obligations hereunder.
10. LIMITATIONS OF LIABILITY AND EXCLUSION OF DAMAGES. IN NO EVENT SHALL
PEERLESS BE LIABLE FOR ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR EXEMPLARY
DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR LOSS OF USE, LOST PROFITS OR
LOSS OF DATA OR INFORMATION OF ANY KIND, ARISING OUT OF OR IN CONNECTION WITH
THIS AGREEMENT, WHETHER OR NOT PEERLESS HAS BEEN ADVISED OF THE POSSIBILITY OF
SUCH LOSS OR DAMAGE. IN NO EVENT SHALL PEERLESS' LIABILITY TO DPI ARISING OUT OF
OR IN CONNECTION WITH THIS AGREEMENT, WHETHER IN CONTRACT, TORT OR OTHERWISE,
EXCEED THE AMOUNTS ACTUALLY PAID BY DPI TO PEERLESS DURING THE ONE (1) YEAR
PERIOD IMMEDIATELY PRECEDING THE TIME THAT THE CAUSE OF ACTION GIVING RISE TO
SUCH LIABILITY FIRST OCCURS, NO ACTION, REGARDLESS OF FORM, ARISING OUT OF THE
TRANSACTIONS UNDER THIS AGREEMENT MAY BE BROUGHT BY EITHER PARTY HERETO MORE
THAN ONE (1) YEAR AFTER THE CAUSE OF ACTION HAS OCCURRED, EXCEPT THAT AN ACTION
FOR NONPAYMENT, REACH OF THE PROVISIONS OF SECTION 9 HEREOF OR MISAPPROPRIATION
OR INFRINGEMENT OF ANY PEERLESS' PROPRIETARY RIGHTS MAY BE BROUGHT AT ANY TIME
WITHIN ANY APPLICABLE STATUTE OF LIMITATIONS.
11. ASSIGNMENT. Except to the extent expressly permitted pursuant to DPI, DPI
may not assign this Agreement or any rights herein, including without limitation
rights or duties of performance, without PEERLESS' prior written consent, which
consent shall not be unreasonable
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 6 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
withheld. Such prohibition on assignment shall also apply to any merger of DPI
with or into another entity, or any transaction(s) pursuant to which any entity
or person (including any of their respective subsidiaries and affiliates) first
acquires after the date of this Agreement, directly or indirectly, an aggregate
amount of fifty percent (50%) or more voting control or fifty percent (50%) or
more of the equity securities ("Control") of DPI (or of any entity directly or
indirectly having Control of DPI) or by contract or otherwise obtains the right
to appoint at least fifty percent (50%) of the Board of Directors of DPI (or any
entity directly or indirectly having Control of DPI), except that PEERLESS may
not withhold its consent to an assignment arising from any transaction(s)
described in this sentence unless (i) the assignee or entity acquiring Control
of DPI is a competitor of PEERLESS or (ii) PEERLESS determines that the
assignment or change of Control might jeopardize PEERLESS' ability to protect
its proprietary rights in the Licensed Products. For purposes of this Section l
l, the term "affiliates" shall be defined as provided in the Securities Act of
1933 and the rules and regulations promulgated thereunder.
12. EQUITABLE RELIEF. Because of the unique and proprietary nature of the
PEERLESS Material, it is understood and agreed that PEERLESS' remedies at law
for a breach by DPI of its obligations under Section 8 will be inadequate and
that PEERLESS shall, in the event of any such breach, be entitled to equitable
relief (including without limitation injunctive relief and specific performance)
without a requirement to post a bond, in addition to all other remedies provided
under this Agreement or available to PEERLESS at law or otherwise.
13. MISCELLANEOUS.
13.1 NOTICES. All notices or other communications required hereunder shall be in
writing and delivered personally or sent by certified mail, return receipt
requested, by facsimile machine, or by a reputable courier service to the
parties at the addresses set forth in Exhibit A, or at such other addresses as
shall be designated in writing from time to time by either party to the other in
accordance with this Section 13.1.
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 7 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
All notices to DPI shall be sent to:
----------------------------------
----------------------------------
----------------------------------
Attn:______________________________
All notices to PEERLESS shall be sent to:
<TABLE>
<S> <C>
Peerless Systems Corporation Tel: (310)536-0058
2381 Rosecrans Ave. FAX: (310)536-0908
El Segundo CA 90245
Attn: Director, Business Development FAX: (310)297-3275
</TABLE>
Such notice shall be effective on the third business day following deposit
thereof in the mail or with any courier, provided that it shall be effective on
the next business day following any such deposit for next-day delivery, and
shall be effective upon receipt if delivered personally or via facsimile.
13.2 AGREEMENT. This Agreement constitute the entire understanding and agreement
between PEERLESS and DPI with respect to the transactions contemplated herein
and supersede any and all prior or contemporaneous oral or written
communications with respect to the subject matter hereof (other than any
contemporaneous maintenance agreement executed by the parties), all of which are
merged herein. There being no expectations to the contrary between the parties
hereto, no usage of trade or other regular practice or method of dealing between
the parties hereto shall be used to modify, interpret, supplement or alter in
any manner any express terms of this Agreement. This Agreement shall not be
modified, amended or in any way altered except by an instrument in writing
signed by authorized representatives of both PEERLESS and DPI. Except as
specifically provided herein, no remedy available to either part hereunder or
relating hereto shall be exclusive of any other remedy, and each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute or
otherwise. No waiver of any provision of this Agreement or any rights or
obligations of either party hereunder shall be effective, except pursuant to a
written instrument signed by the party or parties waiving compliance, and any
such waiver shall be effective only in the specific instance and for the
specific purpose stated in such writing.
13.3 FORCE MAJEURE. Neither party shall be responsible for delays or failures in
performance
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 8 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
hereunder (other than failure to pay amounts due or to comply with the
provisions of Section 8) to the extent that such party was hindered in its
performance by any act of God, civil commotion, labor dispute, or any other
occurrence beyond its reasonable control.
13.4 LAW AND FORUM. This Agreement shall be construed and enforced in accordance
with the laws of the United States of America and the State of California
applicable to the subject matter herein and to contracts wholly executed and
wholly to be performed therein. Any action or proceeding brought by DPI or
PEERLESS against the other arising out of or related to this Agreement shall
have as the court of competent jurisdiction the Federal District Court or
California state court located in the County of Los Angeles, State of
California, and DPI hereby submits to the in personam jurisdiction of such
courts for purposes of any such action or proceeding.
13.5 NO JOINT VENTURE. Nothing contained herein shall be deemed to create a
joint venture or partnership or agency relationship between PEERLESS and DPI.
Neither party shall have the right or authority to, and each party shall not,
assume or create any obligation or responsibility, express or implied, on behalf
of or in the name of the other party or bind the other party in any manner.
Nothing set forth herein shall be deemed to confer upon any person or entity
other than the parties hereto a right of action either under this Agreement or
in any manner whatsoever.
13.6 SEVERABILITY. If any provision hereof is found invalid or unenforceable
pursuant to judicial decree or decision, the remainder of this Agreement shall
remain valid and enforceable according to its terms. WITHOUT LIMITING THE
FOREGOING, IT IS EXPRESSLY UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION
OF THIS AGREEMENT WHICH PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF
WARRANTIES, INDEMNIFICATION OF A PARTY OR EXCLUSION OF DAMAGES OR OTHER REMEDIES
IS INTENDED BY THE PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER
PROVISION AND TO BE ENFORCED AS SUCH. FURTHER, IT IS EXPRESSLY UNDERSTOOD AND
AGREED THAT IF ANY REMEDY HEREUNDER IS DETERMINED TO HAVE FAILED OF ITS
ESSENTIAL PURPOSE, ALL LIMITATIONS OF LIABILITY AND EXCLUSIONS OF DAMAGES OR
OTHER REMEDIES SET FORTH HEREIN SHALL REMAIN IN EFFECT.
13.7 SECTION REFERENCES. Any reference herein to a Section shall constitute a
reference to all sub-sections thereof.
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 9 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
13.8 ATTORNEYS' FEES. The prevailing party in any action or proceeding between
PEERLESS and DPI arising out of or related to this Agreement shall be entitled
to recover from the other party all of its costs and expenses as determined in a
court proceeding including, without limitation, its reasonable attorneys' fees
incurred in connection with such action, including any appeal of such action.
13.9 EXPORTS. DPI shall comply with any and all United States export
regulations, rules or orders now in effect or that may be promulgated from time
to time that govern or relate to any export of any PEERLESS MATERIAL, including
without limitation any PEERLESS MATERIAL. DPI shall comply with any and all
United States export regulations, rules or orders now in effect or that may be
promulgated from time to time that govern or relate to any export of any
PEERLESS MATERIAL. DPI shall comply with the U.S. Foreign Corrupt Practices Act
and all applicable export laws, restrictions and regulations of the U.S.
Department of Commerce, the U.S. Department of Treasury and any other U.S. or
non-U.S. agency or authority. DPI shall not export or re-export or allow the
export or re-export of any product, technology or information it obtains or
learns pursuant to this Agreement in violation of such law, restriction or
regulation, including, without limitation, export or re-export to any country
subject to U.S. trade embargoes, or any part on the U.S. Export Administration
Table of Denial Orders or the U.S. Department of Treasury List of Specially
Designated Nationals or to any prohibited destination in any of the County
Groups specified in the then current Supplement Number 1 to part 740 of the
Commerce Control List specified in the then current Supplement Number 1 to part
738 of the U.S. Export Administration Regulations or any successor supplement or
regulations. DPI shall obtain and bear all expenses relating to any necessary
licenses and/or exemptions with respect to the export or re-export any PEERLESS
MATERIAL to anv location in compliance with all applicable laws and regulations.
If DPI is involved in a transaction that gives DPI reason to suspect that any
product, technology or information it obtains or learns pursuant to this
Agreement will be exported, re-exported or diverted in violation of any such
laws, restrictions or regulations (including, without limitation, knowledge of
suspect end users, abnormal transaction circumstances, or any other Bureau of
Export Administration "red flag" indicators), then DPI will take appropriate
steps to terminate such transaction, notify the correct U.S. agency and give
notice to PEERLESS.
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 10 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the
date first above written:
EXECUTED:
<TABLE>
<S> <C>
OSICOM TECHNOLOGIES INC., DPI PRINT
PEERLESS SYSTEM CORPORATION SERVER DIVISION.
By: By:
- ---------------------------------- ---------------------------------------
(Authorized Signature) (Authorized Signature)
Name: Hosni Printer Name: _________________________________
Title: Vice President of Finance and CFO Title: __________________________________
Date: August ____, 1998 Date: August _____, 1998
</TABLE>
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 11 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
DPI PSIO License Agreement CONFIDENTIAL
- -------------------------------------------------------------------------------
EXHIBIT A - LICENSE DESCRIPTION
Licensed Product:
Peerless Shared Memory Interface and Application Program Interface
(software product referred to as PSIO).
License Grant:
DPI shall have the right to use the Licensed Product for the sole
purpose of developing and marketing network interface card options for
computer printers.
Deliverables:
Solely at PEERLESS' option, PEERLESS shall provide DPI with the most
current versions of the following documents and utilities:
"Peerless Standard I/O Interface Design Specification"
"Peerless Page Internal Interfaces"
Training:
PEERLESS shall, upon DPI's written request, make available one (1 ) day
of training for and not more than five (5) DPI's employee at PEERLESS
El Segundo CA facility in the use of the Licensed Product DPI shall
bear the expense of all costs associated with such training, including
but not limited to, meals, room and board, and travel expenses for DPI
employees to attend such classes. DPI shall pay for any training, in
addition to that indicated above, at PEERLESS' then current rates for
such training.
Telephone Support:
PEERLESS shall provide not more than forty hours (40) telephone support
to DPI. DPI shall provide PEERLESS the name of the DPI employee that
shall be the sole and exclusive employee that may contact PEERLESS with
questions regarding the Licensed Product.
///End
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 12 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
EXHIBIT B - PAYMENT TERMS
l. DPI shall, on the date hereof, pay the "Source License Fee"
specified below for the product licensed hereunder as specified herein.
The Source License Fee is non-refundable.
2. For each shipment or other distribution of the Licensed Product (in
whatever form or media) by or on behalf of DPI. DPI shall pay the
applicable Per Option Card Royalty for any Licensed Product.
3. DPI may credit against future royalties owing under this Agreement
any such royalties actually paid in connection with the Licensed
Product shipped or distributed if the LICENSEE Product is returned to
DPI and DPI pays a full refund therefor.
4. Payment of any invoices submitted by PERLESS shall be due within
thirty (30) days after the date of such invoice. It is agreed that
recurring license fees due and payable to PEERLESS by DPI shall not
require an invoice from PEERLESS, but shall be paid by DPI within (30)
thirty days following the end of each calendar quarter in which they
are earned.
5. Payment Structure:
5.1 Non-Recurring License Fee - Twenty five thousand dollars
($25,000).
5.2 Recurring License Fee
5.2. l When PSIO is incorporated in a NIC which is
(a) not a physical part of the controller, or (b) is
part of a controller, via a DPI proprietary ASIC,
which is identified as an option to the OEM product.
The PSIO royalty shall be incorporated in the per
unit manufacturing cost of the NIC. The PSIO royalty
shall be calculated as 5% (five percent) of the
Suggested Retail Price (SRP) of the NIC except that
the per unit royalty, payable to Peerless, at no time
shall be less then U.S. $8.00 (eight dollars) not
more than U.S. $10.00 (ten dollars).
5.2.2 When PSIO is incorporated in the controller via
a DPI proprietar ASIC and such controller is the
standard controller for the OEM product. The PSIO
royalty shall be incorporated in the per unit
manufacturing cost of the ASIC and shall be U.S.
$5.00 (five dollars).
<TABLE>
<CAPTION>
Projects
Shipping In Dev Total
<S> <C> <C> <C>
Motorola DPO 9 4 13
</TABLE>
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 13 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Other 5 1 6
NETARM DPO 9 11 20
PSIO 7 3 10
PCI 3 1 4
Other 3 3
Total 33 23 56
</TABLE>
<TABLE>
<CAPTION>
CUSTOMER CONTROLLER VENDORS USED SHIPPING DEVELOPMENT
<S> <C> <C> <C>
1 Brother Own Discontinued Other
2 Elysys ITEC/PCPI Y DPO
3 Espon Peerless Y PSIO
4 FujiXerox Adobe Y DPO
5 Genicom/DEC Peerless and Own Y Y Other
6 Konica Own Y Y PCI/DPO
7 Kyocera Own Y Y Own/DPO
8 MEI/Panosonic IBM Japan Y PCI/DPO
9 Minolta Adobe, Destiny, Peerless, Zeno,
IBM Japan, Own Y Y DPO/PSIO
10 Mita AHT, Destiny Y Y DPO
11 NEC HDE, ITEC/PCPI, Adobe Y Y DPO
12 NewGen ITEC/PCPI Y DPO
13 Paradyne Own Y Other
14 Pitney Bowes AHT Y DPO
15 QMS Xionics, Own Y DPO
16 Ricoh Peerless, Xionics, HDE, Own Y Y PSIO/DPO
17 Savin AHT Y DPO
18 Sharp Xionics, Own Y Y DPO
19 Tally Own Y Y PSIO
20 TEC Peerless, IBM Japan, Own Y PSIO/DPO
21 Toshiba IBM Japan, Own Y DPO
22 Xerox Xionics, Own Y DPO/Othe
</TABLE>
<TABLE>
<CAPTION>
Motorola DPO
Shipping
<S> <C> <C> <C>
1 Xerox 4512 Ethernet
1 Xerox P12 Ethernet
1 FX PG 12 Ethernet
1 NEC 1260 Ethernet
1 Sharp 9680 Ethernet
</TABLE>
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 14 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1 Sharp 8200 Colo Ethernet
1 Sharp Swan Ethernet
1 Sharp Cougar Ethernet
1 Mita Ethernet
In Dev
1 Minolta All Produc TR (used in 4 Printers)
1 Toshiba TR
1 Sharp Cougar TR
1 QMS TR
Motorola Other
Shipping
1 Konica 201 Ethernet
1 Konica Mita Ethernet
1 Konica Kodak Ethemet
1 Paradyne Net100 Ethemet
1 Genicom Net100E Ethemet
Motorola Other
In Dev
1 Minolta PSIO-All TR
NetArm DPO
Shipping
1 Minolta 401X Ether
1 Minolta 401w Ether
1 Minolta 3001W Ether
1 NEC 870 Ether
1 NEC Cronus Ether
1 NewGen Ether
1 AHT Pitney Bo Ether
1 AHT Savin Ether
1 Elysys Ether
<CAPTION>
In Dev
<S> <C> <C> <C>
1 Minolta 402W Ether
1 Minolta DL Ether
1 NEC Cro Lite ETher
1 NEC Commanc Ether
1 Sharp Cougar ETher
1 Sharp Panther Ether
1 QMS Neptune Ether
</TABLE>
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 15 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
1 Mita Phantom Ether
1 Toshiba ETher
1 Destiny Ref-Em Ether
1 AHT Mita Ether
NetARm PSIO
Shipping
1 Minolta 402 Ether
1 Minolta 411 Ether
1 Minolta Peacock Ether
1 Epson Malibu ETher
1 Epson Ontario ETher
1 Ricoh NM4/5 ETher
1 Tally LP Ether
In Dev
1 TEC laser Ether
1 Tally Laser Ether
1 Ricoh NM6 Ether
NETARM PCI
Shipping
1 MEI Ether
1 Konica 301 Ether
1 Konica 301 Mita Ether
In Dev
1 Konica KN-401 Ether
</TABLE>
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 16 of 17 Initials: Peerless ___; DPI ___
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NETARM Other
Shipping
In Dev
<S> <C> <C> <C>
1 Kyocera 3000E Ethernet
1 Ricoh Stinger Ethernet
1 Genicom Gordian EthemeVNCC
</TABLE>
- -------------------------------------------------------------------------------
Draft #1 (August 5, 1998) Page 17 of 17 Initials: Peerless ___; DPI ___
Page 17 of
<PAGE>
<PAGE>
CONFIDENTIAL - EXECUTION ORIGINAL
- --------------------------------------------------------------------------------
NOVELL, INC.
COMPOSITE SIGNATURE AGREEMENT
<TABLE>
<CAPTION>
Name and Address of Customer:
<S> <C>
Digital Products, Inc. telephone: 617-647-1234
411 Waverly Oaks Road facsimile: 617-647-4474
Waltham, MA 02154
Novell Branch Office:
122 East 1700 South telephone: 801-429-7000
Provo, Utah 84606 facsimile:801-453-1267
</TABLE>
This Composite Signature Agreement is entered into by and between
Novell Inc. ("Novell") and Digital Products, Inc. ("Developer"), and shall
commence on the date accepted and executed by Novell ("Effective Date").
This Composite Signature Agreement, when signed by Novell and
Developer, shall have the same effect as each of the below identified documents
would have if signed by Developer.
<TABLE>
<CAPTION>
Initials Title of Document
<S> <C>
__________ Special Addendum (digi.4-0)
__________ Novell Embedded Systems Technology (NEST) Master Agreement (NESTMSTR.103)
__________ NEST SDK Technology Provider Supplement (PROVIDER.101)
__________ NEST SDK Developer Product Distribution License Exhibit (SDKOEM.100)
</TABLE>
Each of the identified documents is incorporated by reference. In the
event of a conflict or ambiguity between documents, the specific shall control
the general; the relative order of specificity of the documents is as follows:
(1) Special Addenda, (2) Standard Addenda, and (3) the Standard Agreement.
DEVELOPER ACKNOWLEDGES THAT DEVELOPER HAS READ EACH OF THE DOCUMENTS
DESIGNATED BY THE INITIALS OF DEVELOPER'S AUTHORIZED REPRESENTATIVE, UNDERSTANDS
THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS:
This Agreement, together with all referenced documents, is the
exclusive statement of the entire agreement between Novell and Developer and
supersedes all prior oral and written representations or agreements between the
parties as to the subject matter of the Agreement.
Accepted by:
<TABLE>
<CAPTION>
Novell, Inc. Digital Products, Inc.
<S> <C>
By: By:
- -------------------------------------------------------------------------------
Title: Title:
- -------------------------------------------------------------------------------
Date: Date:
- -------------------------------------------------------------------------------
<PAGE>
<PAGE>
SPECIAL ADDENDUM
Novell and Developer acknowledge and agree that the following terms and
conditions amend and supplement the Agreement between the parties and by this
reference, this Special Addendum is incorporated into and made a part of the
Agreement.
1. Add the following definitions to Section 2 of the Supplement:
"Added-Value Requirement" means the specific services or activities
which Developer is required to provide Licensed Customers in order to be
eligible for a percentage of the Customer Royalty. More specifically,
Added-Value Requirement means Developer shall:
provide Licensed Customers all engineering support and training
for Tools at a level satisfactory to the Licensed Customer and
equal to or superior to that would typically be provided by
Novell to Novell's licensees of the Tools;
provide consulting and/or development services, that could not be
ordinarily provided by Novell, to Licensed Customers to assist
them in the development of Customer Products;
In conjunction with its distribution of the Tools and/or
Developer Toolkit to Licensed Customer, license for distribution
Qualifying Developer Products to Licensed Customer."
"Customer Royalty" shall mean the per copy royalties owed to Novell from
a Licensed Customer during a specific term of the Distributor Exhibit
executed between Novell and the Licensed Customer.
2. Renewal. Notwithstanding Paragraph 14.1 of the Novell Embedded System
Technology Master Agreement, any automatic renewal to the Agreement
shall be on a 90 day basis, with the 90 day Agreement subject to
termination at any time by either party upon thirty (30) days' prior
written notice.
3. Assignment. Notwithstanding Paragraphs 14.4.1 and 18.6 of the Novell
Embedded System Technology Master Agreement, Novell may not unreasonably
withhold its consent to a complete assignment and delegation by
Developer to a successor in interest of all or substantially all of the
assets or business of Developer.
4. Operating System Companies. The parties acknowledge and agree that
Developer is a company that designs or develops computer operating
systems and that Developer's distribution of Tools is not in and of
itself a violation of Section 9.6 of the NEST SDK Technology Provider
Supplement.
5. Support. Notwithstanding Paragraph 8 of the NEST SDK Technology Provider
Supplement, Novell shall use commercially reasonable efforts to assist
Developer in its implementation of any or all Novell bug fixes provided
under the Agreement to the Tools, at no cost to developer.
<PAGE>
<PAGE>
6. Attachment: Form Addendum. The Form Addendum attached to the NEST SDK
Technology Provider Supplement is hereby replaced with the Form Addendum
attached as Exhibit A to this Amendment.
7. Royalties to Developer. Add the following "Royalties" subsection to
Section 4 Consideration of the NEST SDK Technology Provider Supplement:
In consideration for Developer meeting the Added-Value
Requirement, Developer shall be entitled to 30% of the Customer
Royalties received during the initial three year term.
Notwithstanding the foregoing, if at any time Novell reasonably
deems that Developer ceases to meet the Added-Value Requirement,
and developer fails to cure such Added Value Requirement
deficiency within Deficiency Notice Period or such deficiency
recurs within 6 months of cure, Novell shall have no obligation
to pay Developer, and Developer shall not be entitled to, any
further percentage of Customer Royalties. "Deficiency Notice
Period" shall mean thirty (30) days from receipt of written
notice; however, where the deficiency by its nature is subject to
cure but more than 30 days are required due to the nature of the
deficiency, "Deficiency Notice Period" shall mean a reasonable
time from receipt of notice to which the parties mutually agree
in writing.
8. Fees and Royalties. Developer shall collect applicable Customer
Royalties from Licensed Customers on Novell's behalf subject to the
terms of this Section 8:
a. Reporting and Payment. Within thirty (30) days from the end of
each calendar quarter, for each Licensed Customer Developer
agrees to provide Novell with: 1) a written statement, certified
by an authorized representative of Developer, setting forth the
Customer Royalties due for that quarter, the Customer Royalties
collected by Developer, and the amounts to which Developer is
entitled under Section 7 above; 2) payment of the Customer
Royalties so collected, less any amounts to which Developer is
entitled pursuant to Section 7 above. During the term of the
Agreement, Developer shall provide Novell with such written
statement whether or not any Customer Royalty has accrued during
the reporting period. A final written statement by Developer
shall be rendered and payment made to Novell within thirty (30)
days after the termination or expiration of the Agreement.
b. Customer Royalty not paid to Novell by Developer when due will
accrue interest on an annual basis from the date due until paid
of two percentage points (2%) over the prime interest rate of the
Chase Manhattan Bank of New York on any outstanding balance or
the maximum legal rate allowed by law, whichever is less.
c. Audit. Developer shall maintain complete and accurate accounting
records, in accordance with generally accepted accounting
practices, to support and document royalty amounts due under this
Special Addendum and shall retain such records for three (3)
years after payment is made. Developer shall, upon written
request of Novell, provide audit access to such records to
Novell. If Developer so decides, a
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<PAGE>
mutually acceptable independent accounting firm may conduct the
audit at Developer's expense. Such access shall be granted only
during normal business hours and no more frequently than once in
each calendar year. All information received during the audit
shall be held in confidence by the parties.
d. Within thirty (30) days' written notice from Novell, Developer
shall cease collecting applicable Customer Royalties, and Novell
shall commence collection of such Customer Royalties itself.
e. If Novell terminates the Contract Documents without cause, as
provided in Section 14.7 of the Agreement, Developer shall be
entitled to 75% of the Customer Royalties collected by Novell
that come due during the term of the NEST SDK Technology Provider
Supplement in which Novell so terminates the Contract Documents.
Novell shall administer Customer Royalty funds and make
appropriate disbursements to Developer on a semi-annual basis.
SIGNATURES.
-----------
</TABLE>
<TABLE>
<CAPTION>
NOVELL, INC. DIGITAL PRODUCTS, INC.
<S> <C>
Signature:___________________________ Signature:___________________________
Name:________________________________ Name:________________________________
Title:_______________________________ Title:_______________________________
Date:________________________________ Date:________________________________
</TABLE>
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<PAGE>
EXHIBIT A
---------
ATTACHMENT: FORM ADDENDUM
SPECIAL ADDENDUM FOR TECHNOLOGY PROVIDER CUSTOMERS
Developer and Novell agree that the following terms and conditions amend and
supplement the NEST SDK 1.x Supplement ("the Supplement") and the NEST SDK
Developer Product Distribution License:
1. The following definitions shall be added to Section 2 of the Supplement:
"Technology Provider means a third-party entity which Novell has
licensed to distribute and sell the Tools under the terms and
conditions of a certain NEST SDK Technology Provider Agreement
entered into by Novell and the third-party."
2. Section 8 of the Supplement shall be replaced with the following:
"Consideration Developer agrees to pay the Technology Provider
upon execution of this Supplement a non-refundable license fee,
to be negotiated between Developer and Technology Provider, for
the Tools. Maintenance Modifications and Enhancements to the
Tools may require additional license fees.
3. If Developer enters a NEST SDK Developer Product Distribution License
Exhibit(s) with Novell, Developer shall pay the royalties required by
the Exhibit(s) to the Technology Provider. The Technology Provider will
retain those portions of such royalty payments to which its is entitled
under its agreements with Novell, and shall send the portions to which
Novell is entitled to Novell. Developer shall cease making payments to
the Technology Provider and instead pay the royalties required by the
Exhibit(s) directly to Novell upon thirty (30) days' written notice from
Novell.
<TABLE>
<CAPTION>
SIGNATURES.
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<S> <C>
NOVELL, INC. DEVELOPER:_________________________
Signature:_____________________________ Signature:_________________________
Name:__________________________________ Name:______________________________
Title:_________________________________ Title:_____________________________
Date:__________________________________ Date:______________________________
</TABLE>
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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NOVELL, INC.
Novell Embedded Systems Technology Master Agreement
- -------------------------------------------------------------------------------
This Novell Embedded Systems Technology Master Agreement (the "Agreement") is
entered into by NOVELL, INC., a Delaware corporation with offices at 122 East
1700 South, Provo, UT 84606 ("Novell"), and Digital Products Inc., a corporation
with offices at 411 Waverly Oaks Rd., Waltham, MA 02154 ("Developer").
1 Purpose. The purpose of the Novell Embedded Systems Technology
(NEST) Program is to proliferate products compatible with the
NetWare system. Under the NEST Program, Novell, Inc. ("Novell")
will make certain documentation and tools ("Tools") available to
Developer to develop products compatible and interoperable with
NetWare systems. Novell is willing to license the Tools according
to the terms and conditions of this Agreement and supplements
("Supplements") to this Agreement. This Agreement contains
general terms and conditions applicable to each Supplement. Each
Supplement shall be deemed to incorporate by reference this
Agreement unless the Supplement explicitly states otherwise.
Nothing in this Agreement or any Supplement shall be construed to
require Novell to issue, or Developer to accept, any Supplement.
2 Definitions.
2.1 Contract Documents shall mean this Agreement and/or Supplements,
including without limitation Exhibits to such Supplements.
2.2 Derivative Work means a work which is based upon one or more
preexisting works, such as a revision, modification, translation,
abridgement, condensation, expansion, collection, compilation or
any other form in which such preexisting works may be recast,
transformed or adapted, and which, if prepared without the
authorization by the owner of the preexisting works, would
constitute copyright infringement under U.S. copyright laws.
2.3 Developer Products means the products which Developer is
authorized to develop using the Tools. Each product shall be
identified in a Supplement by product name (which may be in the
form of a code name provided Developer provides Novell notice of
the actual release name prior to release), and description. A
Developer Product shall not contain the functionality of a
network operating system, but shall instead provide
interoperability with and access to Novell
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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network operating system services. The only Novell code licensed
hereunder contained within a Developer Product shall be the Tools
and/or Derivative Works thereof in binary form only.
2.4 Enhancements means changes, additions or new releases, other than
Maintenance Modifications, to the Tools that improve functions,
add new functions, or improve performance by changes to system
design.
2.5 Maintenance Modifications means any modification or revision to
the Tools (other than an Enhancement) that corrects an error or
provides other incidental corrections.
2.6 Qualifying Developer Products means a Developer Product that
meets Novell's then current certification and testing policies
set forth in the programs and agreements of Novell Labs which are
independent of this Agreement and require the payment of program
fees in addition to any fees or other consideration provided by
Developer hereunder.
2.7 Tools means the documentation and/or programs provided by Novell
more fully set forth in a Supplement. Tools in program form are
referred to as "Program Tools". Tools in documentation form are
referred to as "Documentation Tools". Program Tools may include
source code or binary code.
2.8 Support Calls means telephone assistance provided by Novell
technical support personnel to Developer regarding questions and
clarifications on the use of Documentation Tools and Program
Tools.
2.9 Yes Logo means the Novell approved Yes Logo licensed to Developer
under the separate Novell Labs Agreement upon meeting the
requirements set forth in the Certification Testing section of
the Agreement and the Novell Labs Agreement and any applicable
Exhibits to the Novell Labs Agreement. Usage of the Yes Logo is
subject to the terms of the Novell Labs Agreement and this
Agreement.
3 Licenses.
3.1 Development License. Subject to the terms and conditions of this
Agreement, Novell hereby grants, and Developer hereby accepts,
the following world-wide, non- transferable license to use,
modify, merge, and to create derivative works from the
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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Tools solely to create Developer Products. THE LICENSE GRANTS FOR
CERTAIN TOOLS MAY BE NARROWER IN SCOPE; ANY SUCH RESTRICTIONS
SHALL BE SET FORTH IN THE RELEVANT SUPPLEMENT.
3.2 Distribution License. Distribution license terms are set forth in
Supplements or a Distribution License Exhibit to a Supplement.
3.3 Copies.
3.3.1 Development Copies. Developer may make up to four copies
of the Tools for internal. The copies may be used solely
in support of the development being performed with the
original copy of Tools provided hereunder.
3.3.2 Beta Copies. Developer may make and distribute up to 25
copies of its Developer Products for evaluation or Beta
testing purposes.
3.4 Third Party Contractor. In the event Developer employs a third
party contractor ("Contractor") to develop Developer Products,
Developer agrees to provide Novell with the identity of any
proposed Contractor at least 15 business days prior to
Developer's providing any Novell Confidential Information to
Contractor for Novell's written approval of the Contractor.
After approval has been granted by Novell for a Contractor,
Developer must provide Novell with written confirmation that
Contractor has executed an agreement with Developer containing
the terms and conditions set forth below:
3.4.1 Subject to the terms and conditions of this Agreement set
forth below and Novell's prior approval, Developer may
grant to Contractor a sublicense to the Tools solely for
the purposes specified in this Section 3. Tools shall
continue to be subject to the terms and conditions of this
Agreement and Supplements. Contractor is not authorized
by Novell to make any additional copies of Tools over and
above the number which
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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Developer is permitted to make pursuant to
Paragraph 3.3.1.
3.4.2 Contractor's license to the Tools may only be granted as
part of a binary code sublicense of Developer's
proprietary software to Contractor.
3.4.3 Developer shall provide Novell with the name of its
Contractor, address, contact person and the physical
location of each copy of the Tools and any Derivative
Works thereof.
3.4.4 Contractor shall be subject to confidentiality provisions
at least as stringent as those specified in the Agreement
with respect to the Tools.
3.4.5 Novell shall not be liable to Contractor and Developer
agrees to indemnify Novell from and against any claim by
Contractor arising out of Developer's agreement with
Contractor regarding the Tools.
3.5 Ownership. Developer acknowledges that the licenses contained in
the Agreement confer no rights of ownership in the Tools and
acknowledges Novell's representation that the Tools are
proprietary to Novell. Novell is not transferring to Developer
title or ownership of all or any portion of the Tools or
Derivative Works of the Tools. Except as expressly provided, this
Agreement does not grant and will not be interpreted as granting
any right, license, title, ownership or interest in or under any
Novell patent, copyright, trademark or trade secret, whether by
implication, estoppel or otherwise. Novell will continue to own
all right, title, and interest to all patents, copyrights, trade
secrets, and other proprietary rights in and to the Tools.
Developer will not take any action which would compromise
Novell's rights to the Tools.
4 Inventions & Patents. In the event that any Tools incorporate technology
in which Novell seeks or holds patent or invention protection or any
other similar form of legal protection, Novell grants to Developer a
non-exclusive, non-transferable license to practice the patent or
invention solely for use with the Qualifying Developer Products and only
to the extent necessary to exercise the license
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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granted under copyright in the Tools.
5 Labeling. Developer shall not remove any copyright notices, patent
notices or proprietary legends contained within the Tools and shall
include the copyright and proprietary notices identified below on the
label of each diskette, tape, or other distribution medium (except upon
read only memory devices, in which case the manual accompanying a
Qualifying Developer Product shall contain the notice) containing in
whole or in part Tools:
'c' Copyright 19xx, Novell, Inc., All Rights Reserved.
"xx" should be replaced with the necessary digits to identify the
last date of publication contained in the copyright notice of the
Qualifying Deve
loper Product.
Novell may require Developer to include additional notices, such as
patent pending or registration notices, upon written notice to
Developer. Developer may include an additional copyright notice
reflecting the copyright ownership of its portion of Developer Products.
6 Confidentiality. Developer agrees to hold Tools, and the terms and
conditions of this Agreement in confidence for Novell. Developer further
agrees that it shall not make any disclosure of any part of such Tools
(including methods or concepts utilized therein) to anyone, except in
accordance with the Agreement. Developer's obligation of confidence
shall not extend to any information which (i) is already known to
Developer prior to execution of this Agreement and Supplements unless
such information resulted from efforts to reverse engineer a Novell
product, (ii) becomes a publicly known without fault of the Developer,
or (iii) is independently developed by Developer without reverse
engineering any Novell product and without access to any Novell
confidential information. The foregoing notwithstanding, Developer may,
without breaching the Agreement, disclose the terms and conditions of
the Agreement, and the Tools pursuant to a written court order, provided
Developer gives Novell reasonable notice and opportunity to obtain
protective orders or the like.
7 Limitations and Residual Rights. De veloper agrees that it will not use
the Tools except as authorized in the Agreement. Developer further
warrants and represents that the products which it identifies in
Supplements to the Agreement comply with the requirements of the
Agreement. Developer hereby agrees that any work created in breach of
the restrictions of the Agreement be deemed to be the sole and exclusive
property of Novell. No title to or ownership of the Tools or any of its
parts is transferred to Developer. Title to all applicable rights and
patents,
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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copyrights and trade secrets in the Tools not granted by this
Agreement are retained by Novell.
8 Support & Compatibility. Developer agrees to comply with the following
provisions governing compatibility and interoperability of Qualifying
Developer Products with the corresponding versions of Novell products.
8.1 Developer Products Documentation. Developer agrees to include a
conspicuous statement in the end user documentation for
Qualifying Developer Products identifying Developer or those who
market products on Developer's behalf as the sole support contact
for Qualifying Developer Products. Developer agrees to
incorporate a description identifying the versions of the Novell
products that are compatible with the Qualifying Developer
Products by product name, version number and release level in
Qualifying Developer Product information or documentation. Upon
request, Developer agrees to provide Novell with evidence of
compliance with this Section 9.1.
8.2 Quality Control. In the event that Novell determines that
Developer is no longer meeting accepted levels of quality, Novell
agrees to so advise Developer and to provide Developer with
reasonable guidance and a commercially reasonable time of no less
than ninety (90) days to meet the above-referenced standards.
8.3 End User Support. Developer shall be solely responsible for all
end user support of the Qualifying Developer Products.
9 Consideration.
9.1 Fees. Developer shall pay to Novell the non-refundable license
fees ("License Fees") set forth in the applicable Supplements.
All fees shall be paid to Novell on or before shipment of the
Tools unless Developer has established credit with Novell.
9.2 Form of Payments. All payments required under the Agreement
shall be in U.S. dollars, and shall be exclusive of any federal,
state, municipal or other government taxes, duties, excises or
tariffs now or hereinafter imposed on the production storage,
sale, transportation, import or export, or use of the Tools. Any
taxes, duties, excises, tariffs, fees, or levies imposed on the
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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fees paid hereunder or against the Agreement except for taxes or
fees based on Novell's net income, shall be the responsibility
of Developer, and if paid or incurred by Novell, may be offset,
at Novell's option, against any payments due to Developer, or
shall otherwise be promptly reimbursed to Novell by Developer
upon receipt of an invoice from Novell.
10 Developer Products Review. Upon written request, Developer agrees to
demonstrate the Developer Products to Novell at Developer's facilities.
Developer shall have materially breached the Agreement, if Novell finds
upon monitoring compliance under this Section, that any Developer
Product exceeds the scope of the Agreement.
11 Disclaimer of Warranty. Novell licenses the Tools to Developer on a "AS
IS" basis. Novell MAKES NO WARRANTIES, EITHER EXPRESS OR IMPLIED,
REGARDING THE TOOLS, THE MERCHANTABILITY OR FITNESS OF THE TOOLS FOR ANY
PARTICULAR PURPOSE. Without limiting the foregoing, in no event shall
Novell be liable for incidental or consequential damages resulting from
the use of the Tools, or the sale or distribution of Developer Products,
whether under theory of warranty, tort, or products liability except
for indemnification for infringement as and to the extent provided in
Section 15.
12 Indemnification by Developer. Developer will indemnify, defend and hold
Novell harmless from any and all damages, liabilities, costs and
expenses incurred by Novell as a result of any claims, judgments or
adjudications against Novell by any third party resulting from
Developer's breach of this Agreement or from Developer's distribution of
any part of the Tools in combination with programs not supplied by
Novell if such claims, judgments, or adjudication would not have arisen
but for Developer's combination. If Novell receives notice of a claim
based upon Developer's breach or Developer's combination of the Tools
with programs not supplied by Novell, Novell will promptly notify
Developer in writing of the claim and will permit Developer to have the
sole control of the defense of any claim or action and all negotiations
for its settlement and compromise, provided Developer can provide
adequate assurances to Novell that Developer will diligently pursue
resolution of the claim.
13 Indemnification by Novell. Novell shall defend any and all claims made
against Developer based on a claim that the Tools infringe, allegedly or
in fact, any U.S. copyright or U.S. patent of any third party, if Novell
is notified
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NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
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promptly in writing and is given reasonable information,
assistance and the sole authority to defend or settle such claims at
Novell's expense. Novell agrees to pay all damages and costs finally
awarded against Developer.
In the event that any of the Tools is held to infringe and use of such
enjoined or the case is settled, as referred to above, Novell shall have
the option, at its expenses, to procure for Developer the right to
continue using the Tools to replace or modify such so that they become
non-infringing materials which have the same or additional
functionality, or to pay or refund to Developer the consideration paid
for use of them upon return of the Tools. In no event shall Novell's
aggregate liability to Developer for any damages under this provision
exceed the greater of the aggregate amount that Licensee has paid to
Novell under this Agreement or $100,000.
Novell will have no liability under any provisions of this Section if
any in fringement claim is based upon the use of the Tools in connection
or in combination with equipment, devices, or software not supplied by
Novell or used in a manner for which the Tools were not designed if such
infringement would not have arisen except for such connection or
combination or based upon an earlier version of the Tools, provided the
later version avoids the claim of infringement.
THE ABOVE STATES NOVELL'S ENTIRE LIABILITY WITH RESPECT TO INFRINGEMENT
OF PATENTS, COPYRIGHTS, TRADE MARKS, OR ANY OTHER FORM OF INTELLECTUAL
PROPERTY BY ANY PRODUCTS OR TECHNOLOGY SUPPLIED BY NOVELL.
14 Term & Termination.
14.1 Effective Date; Term. The effective date of this Agreement shall
be the date of Novell's execution hereof. The term of this
Agreement shall be for a period of two (2) years and shall
automatically renew for periods of one year unless terminated by
either party subject to the terms in this Section. The foregoing
shall not affect Novell's right to terminate the Agreement sooner
for cause as provided in this Section.
14.2 Stated Term of Supplements. Each Supplement, unless otherwise
specifically stated in the Supplement, shall be deemed to have a
term of two (2) years from the date the Supplement is executed
by the parties. Unless otherwise specifically stated in the
Supplement, after the initial two (2) year term, the Supplement
shall automatically renew for
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additional one (1) year periods unless either party provides the
other with written notice one hundred eighty (180) days or more
before the end of any term.
14.3 Novell may terminate the Contract Documents upon material breach
of the Contract Documents or any event of default by Developer.
Any breach of the Contract Documents which by its nature is
subject to cure and continues after thirty (30) days written
notice from Novell, Novell may terminate the Contract Documents
by giving written notice to Developer.
14.4 Developer shall automatically be in default if Developer:
14.4.1 is dissolved, is involved in a reorganization, or attempts
to assign this Agreement or any of its rights under this
Agreement; or,
14.4.2 is not paying its debts as the debts become due, becomes
insolvent, files or has filed against it a petition under
any Bankruptcy Law, proposes any dissolution, liquidation,
composition, financial reorganization or recapitalization
with creditors, makes an assignment or trust mortgage for
the benefit of creditors, or if a receiver trustee,
custodian or similar agent is appointed or takes
possession of any property or business.
14.5 Upon written notice by Novell after any termination of the
Contract Documents, Deve loper shall cease use of the Tools and
promptly return to Novell all existing copies of the Tools and
all Confidential Information received by De veloper from Novell
under the Contract Documents.
14.6 Upon termination of the Contract Documents, end- users of the
Qualifying Developer Products properly in possession of such and
not in violation of applicable copyright laws, may continue to
use such Qualifying Developer Products in accor dance with
applicable copyright laws. Upon termi nation of the Contract
Documents all rights asso ciated with the Tools, and rights to
develop and distribute Qualifying Developer
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Products shall immediately cease.
14.7 Either party may terminate the Contract Documents at any time
without cause by giving 180 calendar days' prior written notice
to the other party.
14.8 The rights of Novell under this Section are in addition to any
other rights and remedies provided by law.
15 Limitation of Liability. THE REMEDIES SET FORTH HEREIN ARE EXCLUSIVE OF
ALL OTHER REMEDIES THAT MAY BE AVAILABLE AT LAW OR IN EQUITY.
NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT, NEITHER
PARTY SHALL BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL,
OR CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) SUSTAINED OR INCURRED
IN CONNECTION WITH THIS AGREEMENT AND THE PRODUCTS THAT ARE SUBJECT TO
THIS AGREEMENT REGARDLESS OF THE FORM OF ACTION AND WHETHER OR NOT SUCH
DAMAGES ARE FORESEEABLE. NOVELL'S LIABILITY FOR DIRECT DAMAGES TO
DEVELOPER FOR ANY CAUSE WHATSOEVER, EXCEPT AS OTHERWISE STATED IN THIS
SECTION, AND REGARDLESS OF THE FORM OF ACTION, SHALL NOT EXCEED THE SUM
OF $100,000. THIS LIMITATION DOES NOT APPLY TO DIRECT DAMAGES OR TO
CLAIMS BY EITHER PARTY FOR PERSONAL INJURY OR DAMAGE TO REAL PROPERTY OR
TANGIBLE PERSONAL PROPERTY CAUSED BY NEGLIGENCE.
16 Remedy for Breach. Developer acknowledges that monetary damages may not
be a sufficient remedy for unauthorized partial or full disclosure of
Confidential Information or other breaches under this Agreement and that
Novell will be entitled, in addition to monetary damages and without
waiving any other rights or remedies, to injunctive or equitable relief
as may be determined proper by a court of competent jurisdiction.
17 No Offer for Sale. Absent a signature of an authorized representative of
Novell, the Contract Documents are not an offer to license any materials
to Developer either under the terms and conditions of the Contract
Documents or under any terms and conditions.
18 General Provisions.
18.1 Force Majeure. If either party shall be prevented from
performing any portion of this Agreement by causes beyond its
control, including labor disputes, civil commotion, ware,
governmental regulations or controls,
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casualty, inability to obtain materials or services, or acts of
God, such defaulting party shall be excused from performance for
the period of the delay and for a reasonable time thereafter.
18.2 Jurisdiction & Venue. This Agreement shall in all respects be
governed by and construed in accordance with the laws of the
State of Utah, excluding those laws governing conflicts of law.
In addition, the parties agree that any action relating to, or
arising under this Agreement shall be instituted and prosecuted
exclusively in the courts of competent jurisdiction of the State
of Utah.
18.3 Survival of Terms. The provisions of this Agreement which by
their nature extend beyond termination of this Agreement will
survive and remain in effect until all obligations are satisfied,
including without limitation Section 6 of this Agreement.
18.4 Waiver. No waiver of any right or remedy on one occasion by
either party shall be deemed a waiver of such right or remedy on
any other occasion.
18.5 Superior Agreement. This Agreement, Supplements and Exhibits
referenced herein, sets forth the entire agreement and
understanding between the parties as to the subject matter and
merges all prior discussions. Neither of the parties shall be
bound by any conditions, definitions, warranties, understandings
or representations with respect to the subject matter other than
as expressly provided under this Agreement. This Agreement may
not be modified by usage of trade, course of dealing or other
similar principles. This Agreement is subject to amendment or
modification only by a writing duly signed by authorized
representatives of both parties.
18.6 Assignment. This Agreement is not assignable by Developer, in
whole or in part, without Novell's prior written consent.
Notwithstanding, Novell shall not unreasonably withhold consent
to an assignment to a parent, subsidiary or affiliate. Any
attempted assignment without Novell's written consent shall be
null and void.
18.7 Notice. Unless otherwise agreed to by the parties, all notices
required under this Agreement shall be deemed effective when
received and made in writing by either (i) registered mail, (ii)
certified mail, return receipt requested,
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or (iii) overnight mail, addressed and sent to the address
above indicated and to the attention of the party executing this
Agreement or that person's successor.
18.8 Singular, Plural and Gender. When used in this Agreement the
singular includes the plural, the plural includes the singular
and gender related pronouns include the feminine, masculine and
neuter.
18.9 Severability. If any provision of this Agreement is held invalid,
illegal, or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way
be affected or impaired thereby, and shall be interpreted, to the
extent possible, to achieve the purposes as originally expressed
with the invalid, illegal or unenforceable provision.
18.10 Independent Contractors. Developer acknowledges that both
parties to this Agreement are independent contractors and that
Developer will not represent itself as an agent or legal
representative of Novell.
18.11 Compliance with Laws. Developer agrees to comply, at Developer's
own expense, with all statutes, regulations, rules, ordinances,
and orders of any governmental body, department or agency which
apply to or result from Developer's obligations under this
Agreement. Developer agrees not to export Qualifying Developer
Products directly or indirectly, separately or as part of a
system, without first obtaining proper authority to do so from
the appropriate governmental agencies or entities, as may be
required by law.
18.12 Headings. The headings provided in this Agreement are for
convenience only and shall not be used in interpretation or
construction.
18.13 Compliance with Laws. Regardless of any disclosure made by
Developer to Novell of an ultimate destination of the Tools or
Qualifying Developer Products, Developer will not export or
transfer, whether directly or indirectly, the Tools or Qualifying
Developer Products, or any portion thereof, or any system
containing such Tools or Qualifying Developer Products or portion
thereof, to anyone outside the United States without first
complying strictly and fully with all export controls that may be
imposed on the Tools or Qualifying Developer
-12-
<PAGE>
<PAGE>
NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
- -------------------------------------------------------------------------------
Products by the United States Government or any country or
organization of nations within whose jurisdiction Developer
operates or does business. In particular, Developer assures
Novell that, absent any required prior authorization from the
Office of Export Licensing, U.S. Department of Commerce, 14th and
Constitution Avenue, Washington DC 20230, Developer will not
export or reexport (as defined in Section 779 of the Export
Administration Regulations, as amended ("Regulations")) the
Tools or Qualifying Developer Products or any technical data or
other confidential information, or direct product of any of the
foregoing to Haiti, Iran, Iraq, Syria, the People's Republic of
China, Yugoslavia, or to any country in Country Groups Q, S, W,
Y, or Z as defined in the supplement No. 1 to Section 770 of the
Regulations, or such other countries as come under restriction by
action of the United States Government, or to nationals from or
residing in the foregoing countries, without first obtaining
permission from the appropriate United States Government
authorities. The countries subject to restriction by action of
the United States Government are subject to change, and it is
Developer's responsibility to comply with the United States
Government requirements as they may be amended from time to time.
18.14 Cumulative Remedies. The remedies under this Agreement will be
cumulative and not alternative and the election of one remedy for
breach will not preclude pursuit of other remedies.
18.15 Attorneys' Fees. If any dispute arises between the parties with
respect to the matters covered by this Agreement which leads to a
proceeding to resolve the dispute, the prevailing party in the
proceeding will be entitled to receive its reasonable attorneys'
fees, expert witness fees, and out-of-pocket costs incurred in
connection with the proceeding, in addition to any other relief
it may be awarded.
18.16 Publicity. This Agreement is confidential and Developer will not
issue press releases or engage in other types of publicity of any
nature dealing with commercial and legal details of this
Agreement or its subject matter without Novell's prior written
approval, which will not be unreasonable withheld.
-13-
<PAGE>
<PAGE>
NOVELL CONFIDENTIAL - EXECUTION ORIGINAL
- -------------------------------------------------------------------------------
19 Signatures.
NOVELL, INC.
Signature:_____________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
DEVELOPER:_____________________________
Signature:_____________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
-14-
<PAGE>
<PAGE>
NOVELL, INC.
NEST SDK Developer Product Distribution License Exhibit
- -------------------------------------------------------------------------------
This NEST SDK Developer Product Distribution License Exhibit (the "Exhibit") to
the NEST SDK 1.x Supplement (the "Supplement") and the Novell Embedded Systems
Technology Master Agreement (the "Agreement") is entered into by Novell and
Developer. This Exhibit is effective as of November 6, 1995 ("Distribution
License Effective Date").
1 INTRODUCTION. The purpose of this Exhibit is to allow Developer, subject
to the restrictions contained in this Exhibit and the Agreement, to
sublicense, duplicate, and distribute Qualifying Developer Products
developed under the Agreement between Novell and Developer. All terms
and conditions of the Agreement are incorporated herein by reference and
shall have full force and effect between the parties in the
interpretation of this Exhibit.
2 DEFINITIONS. Capitalized terms in this Exhibit have the meanings stated
below or defined in the Agreement.
2.1 "Software" means binary code and Program Tools or binary code
produced from Program Tools that are linked or included in
Developer Product pursuant to the Supplement and is subject to
all terms and conditions of that Supplement.
2.2 "Sublicense" means an executed agreement or shrink-wrap agreement
or electronic license that an end user consents to by performing
a physical act (e.g., pushing a button on a keyboard) before
utilizing the Qualifying Developer Product which at minimum
provides the following or equivalent protection to Novell:
2.2.1 restricts the number of copies of the Software to one
operating copy per Qualifying Developer Product;
2.2.2 permits only those number of copies of the Software as
are essential to back up or archival use of the Software;
2.2.3 states that no title to the intellectual property
contained in the Software is transferred to the
sublicensee and it is retained by Novell;
2.2.4 represents that the human readable code of the Software
(source code) is not sublicensed to the sublicensee;
2.2.5 restricts sublicensees from de-compiling and reverse
assembling the software to discover the source code; and
2.2.6 prohibits time-sharing, lease, rental, distribution,
transfer, sublicense, and unauthorized use of the
software, without prior written consent.
3 LICENSES AND RESTRICTIONS.
3.1 Distribution License. Subject to the terms and conditions of this
Exhibit and the Agreement, Novell grants to Developer, and
Developer accepts, a non-exclusive, non-transferable, world-wide
license to reproduce and distribute (directly or indirectly) the
Qualifying Developer Products, being the Developer Products
identified below that are found to meet the Qualifying Developer
Product
<PAGE>
<PAGE>
requirements, but only under a Sublicense between Developer and
its end users or, in the case of distribution through Developer's
OEM customer, Developer must obtain binding contractual
assurances that Developer's OEM customers will only distribute
the Qualifying Developer Products under a Sublicense between
Developer's OEM customer and its end users.
Developer Product Title:________________________________
NEST Components Licensed:_______________________________
Developer Product Title:________________________________
NEST Components Licensed:_______________________________
Developer Product Title:________________________________
NEST Components Licensed:_______________________________
Product names identified in this Section are solely to assist
Novell in program administration, but not for trademark licensing
purposes. Novell reserves the right to take action in the event
any Developer Product name violates Novell rights.
4 CONSIDERATION. In exchange for the rights granted by Novell to Developer
under this Exhibit, Developer agrees to pay Novell a per copy royalty
per the number of copies of the Qualifying Developer Products it
transfers, sells, sublicenses or authorizes for use. A non-refundable
royalty payment ("Non-refundable Royalty Payment") is set forth in the
Royalty Schedule section below. Notwithstanding the foregoing, Developer
will report all such royalties due to Novell on a monthly basis using
calendar quarters.
4.1 Monthly Royalty. In addition, Developer shall pay to Novell a
royalty based upon the number of copies of each Qualifying
Developer Product transferred, sold or licensed by Developer.
Royalties shall accrue upon transfer, sale or license of
Qualifying Developer Products by Developer and shall be paid to
Novell no later than forty-five (45) days after the end of each
month.
4.2 Minimum Royalty. Developer shall pay to Novell a guaranteed
annual minimum royalty of 30 Thousand Dollars for the Qualifying
Developer Product that includes the NEST Client Requester and/or
NetWare IPX/SPX Modules. In addition, should Qualifying Developer
Products also include the Nprinter modules, Developer shall pay
to Novell a guaranteed annual minimum royalty of 60 Thousand
Dollars.
4.3 Audit. Developer shall maintain complete and accurate accounting
records, in accordance with generally accepted accounting
practices, to support and document royalty amounts due under this
Exhibit and shall retain such records for three (3) years after
payment is made. Developer shall, upon written request of Novell,
provide audit access to such records to Novell. If Developer so
decides, a mutually
-2-
<PAGE>
<PAGE>
acceptable independent accounting firm may conduct the audit at
Developer's expense. Such access shall be granted only during
normal business hours and no more frequently than once in each
calendar year. All information received during the audit shall be
held in confidence by the parties.
4.4 Royalty Schedule
<TABLE>
<CAPTION>
Item Base Price Discount Schedule
Units Percentage
<S> <C> <C> <C>
IPX / SPX $2.00 5,000 100%
NEST Requester $4.00 10,000 90%
PServer / NPrinter $6.00 25000 85%
50000 80%
100000 70%
250000 60%
500000 55%
1000000 45%
5000000 35%
10000000 25%
</TABLE>
5 DEVELOPER'S DUTIES.
5.1 Qualifying Developer Products. Qualifying Developer Products may
only be sublicensed and distributed according to the terms and
conditions of this Exhibit.
5.2 Operating System Companies. Notwithstanding any other
provision(s) of this Agreement, Developer agrees that it may not
authorize the distribution of all or any portion of the
Qualifying Developer Products through companies that design,
develop, or market computer operating systems without the prior
written consent of an authorized Novell representative.
5.3 Protection. Developer agrees to take all reasonable steps to
protect the Program Tools and related Documentation Tools from
unauthorized copying or use. The source code of the Program Tools
provided in binary form represents and embodies trade secrets of
Novell which are not licensed to Developer. Developer agrees not
to reverse assemble or reverse compile this binary code to
discovery the source code.
5.4 Documentation. Developer agrees to include a conspicuous
statement in its
-3-
<PAGE>
<PAGE>
documentation identifying Developer as the primary support
contact for the Qualifying Developer Products distributed by
Developer. Upon request, Developer agrees to provide Novell with
three copies of its then current documentation.
5.5 End-user support. Developer agrees to provide all technical
support for all aspects of the Qualifying Developer Product.
5.6 Yes Logo. Developer agrees to prominently display the Yes Logo on
Qualifying Developer Product, and all marketing materials,
product packaging, and advertising material related to Qualifying
Developer Product; to emphasize the Yes Logo in at least one
Qualifying Developer Product advertisement, Qualifying Developer
Product line advertisement, or corporate positioning
advertisement in an appropriate national publication; and provide
appropriate product and program descriptions in all materials
bearing the Yes Logo.
6 TERM AND TERMINATION.
6.1 Term. The term of this Exhibit shall be one year from the
Distribution License Effective Date of and shall automatically
renew for successive one year periods unless either party
provides thirty (30) days or more prior written notice of its
intent to terminate this Exhibit.
6.2 Termination for Convenience. Either party may terminate this
Exhibit and the licenses granted by Novell under the Licenses and
Restrictions Section of this Exhibit at any time without cause by
giving 180 calendar days' prior written notice to the other
party. In the case that Novell exercises it right to terminate
for convenience, Developer may distribute Qualifying Developer
Product then in inventory for which Developer has already paid
royalties.
7 SIGNATURES.
<TABLE>
<S> <C>
Novell, Inc. [Developer] DIGITAL PRODUCTS INC.
Signature:_________________________ Signature:____________________________
Name:______________________________ Name:_________________________________
Title:_____________________________ Title:________________________________
Date:______________________________ Date:_________________________________
</TABLE>
-4-
<PAGE>
<PAGE>
Company Confidential Execution Original: November 16, 1995
- -------------------------------------------------------------------------------
ADDENDUM TO:
NEST SDK Developer Product Distribution License Exhibit
This ADDENDUM amends and supplements the NEST SDK Developer Product Distribution
License Exhibit dated November ___, 1995 ("AGREEMENT") between Novell, Inc., a
Delaware corporation having a principal place of business at 1555 North
Technology Way, Orem, Utah 84057 ("NOVELL") and Digital Products, Inc., a
Massachusetts corporation haying a principal place of business at 411 Waverly
Oaks Rd., Waltham, MA 02154 ("Developer").
1. AGREEMENT. The AGREEMENT shall remain in full force and effect, except
that it shall be modified as set forth in this ADDENDUM. Any
capitalized terms which are not defined in this ADDENDUM shall have the
meaning set forth in the AGREEMENT. Should a conflict arise between
this ADDENDUM and the AGREEMENT, the provisions of this ADDENDUM shall
control.
2. MODIFICATIONS. The parties hereby agree that the AGREEMENT shall be and
hereby is modified as follows:
a. The opening paragraph of the Exhibit shall be modified as
follows:
"This NEST SDK Developer Product Distribution License
Exhibit (the "Exhibit") to the NEST SDK 1.x
Supplement (the "Supplement")..."
shall read
"This NEST SDK Developer Product Distribution
License Exhibit (the "Exhibit") to the NEST SDK
Technology Provider Supplement (the
"Supplement")..."
b. Section 3.1 of the shall be modified as follows:
"Developer Product Title:__________________________
NEST Components Licensed:_________________________"
shall read
"Developer Product Title: NETPrint, JETXPrint
NEST Components Licensed: NEST Requester___________"
- -------------------------------------------------------------------------------
NEST Agreements Addendum
DPI_DIST.ADD Novell, Inc.
<PAGE>
<PAGE>
Company Confidential Execution Original: November 16, 1995
- -------------------------------------------------------------------------------
3. CONTINUANCE OF AGREEMENT. Except as expressly amended and supplemented
by this ADDENDUM, all the terms and conditions of the AGREEMENT shall
remain in full force and effect. This ADDENDUM together with the
AGREEMENT, set forth the entire agreement and understanding between the
parties pertaining to the subject matter and merge all prior
discussions between them. Neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations
with respect to the subject matter other than as expressly provided in
this ADDENDUM and the AGREEMENT.
<TABLE>
<S> <C>
NOVELL, INC. COMPANY
Signature:_____________________________ Signature:________________________
Name:__________________________________ Name:_____________________________
Title:_________________________________ Title:____________________________
Date:__________________________________ Date:_____________________________
</TABLE>
- -------------------------------------------------------------------------------
NEST Agreements Addendum
DPI_DIST.ADD Novell, Inc.
-2-
<PAGE>
<PAGE>
Company Confidential Execution Original: November 16, 1995
- -------------------------------------------------------------------------------
EXHIBIT Z
Operating System Companies
<TABLE>
<S> <C>
IBM Digital Equipment Corp.
Apple Computer Adobe Systems
NEC Technologies Brother
Olivetti Kyocera
Texas Instruments Casio
Genicom Wang
Unisys Silicon Graphics
Compaq Computer Ricoh
Gateway 2000 Epson
Panasonic Seiko
Sun and SunPics Xerox
AT&T Hewlett-Packard
Citizen Pentax
Nortel (Northern Telecom) Konica
Siemens Mitsubishi
Toshiba Matsushita
Canon Olympus
Bull Oki
Tandem
</TABLE>
- -------------------------------------------------------------------------------
NEST Agreements Addendum
DPI_DIST.ADD Novell, Inc.
-3-
<PAGE>
<PAGE>
Amendment No. I
The Novell Embedded Systems Technology (NEST) Master Agreement, NEST SDK
Technology Provider, Supplement, NEST SDK Developer Product Distribution License
Exhibit and Special Addendum, each effective 1 December 1995, as amended by
Addendum to NEST SDK Developer Product Distribution License Exhibit, effective
15 April 1996, and Letter, dated 6 December 1996, (collectively, the
"Agreement") by and between Novell, Inc. ("Novell") and Digital Products Inc.
("Developer") is hereby further amended as set forth below. This Amendment No. I
is effective when executed by an authorized Novell signatory ("Effective Date").
WHEREAS, Developer has been acquired by and merged into Osicom Corporation;
WHEREAS, the parties wish to change the discount achievement under the
Agreement; and
NOW THEREFORE, IT IS AGREED:
1. With the execution of this Amendment by each of the parties, all
reference to Digital Products Inc. in the Agreement executed prior
hereto by and between Novell and Developer are hereby changed to Osicom
Corporation (DPI Print Server Division).
2. Notwithstanding anything in the Agreement to the contrary, the Royalty
Schedule specified in Paragraph 4.4 of the NEST SDK Developer Product
Distribution License Exhibit is hereby changed as follows.
i. On or before 1 May 1998 and each year during the remaining
term of the Agreement, Developer shall complete and submit to
Novell a copy of the NEST Unit Forecast Chart (NEST UFC)
attached hereto as Attachment A which is incorporated into and
made a part of the Agreement by this reference. Such yearly
NEST UFC resets at the beginning of the year the number of
units distributed to zero.
(a). The parties agree Developer shall pay a per unit
royalty of $2.40 for each Qualifying Developer
Product it distributes during the period 1 July 1997
through 30 April 1998.
ii. Based upon the estimated number of units to be shipped as
indicated on the NEST UFC, Developer shall submit its royalty
payment to Novell at the applicable discount determined by the
Royalty Schedule in Paragraph 4.4.
(a). During the term of the Agreement, in the event
Developer exceeds an established discount level by
distributing in excess of the required number of
units, Novell grants Developer the right to apply the
new discount to subsequent units distributed. Such
new discount shall not be retroactively applied to
units distributed prior to exceeding the established
discount level.
<PAGE>
<PAGE>
iii. Novell shall monitor the number of units shipped by Developer
and if after two quarters Developer's actual number of units
shipped do not equal the estimated number of units submitted
on the NEST UFC, Developer shall adjust its royalty payment to
Novell using the applicable discount.
iv. Novell and Developer shall make a final adjustment at the end
of April based upon Developer's actual number of units shipped
and the royalty payment made to Novell.
(1) If Developer has under paid Novell,
Developer agrees to submit payment to Novell
in accordance with the terms of the
Agreement; or
(2) If Developer has over paid Novell, Novell
shall credit Developer's account and such
credit shall be applied to subsequent units
shipped by Developer in the immediately
forthcoming year.
3. Term. This Amendment shall be coterminous with the Agreement.
4. Signature. This Amendment may be signed in counterparts.
EXCEPT AS SPECIFICALLY PROVIDED FOR IN THIS AMENDMENT NO. I, THE TERMS
AND CONDITIONS OF THE AGREEMENT SHALL REMAIN IN FULL FORCE AND EFFECT.
<TABLE>
<S> <C>
NOVELL, INC. OSICOM CORPORATION
(DPI PRINT SERVER DIVISION)
Signature:__________________________ Signature:________________________
Authorized Signature Authorized Signature
Name:_______________________________ Name:_____________________________
Print or Type Print or Type
Title:______________________________ Title:____________________________
Date:_______________________________ Date:_____________________________
</TABLE>
<PAGE>
<PAGE>
ATTACHMENT A
NEST Unit Forecast Chart
<TABLE>
<CAPTION>
<S> <C> <C>
Year Quarter Forecast Total Units
Date:________________ Quarter 1
Quarter 2
Quarter 3
Quarter 4
Totals
Next year
renewal
date:_________________
</TABLE>
This chart to be sent facsimile to the attention of Accounts Payable,
Mr. Jerry Xia, at 408-577-5553.
<PAGE>
<PAGE>
Quarterly Unit Forecasts
Novell Royalty Units
Calendar Year 1998
<TABLE>
<S> <C> <C> <C>
Year 1998 Quarter Forecast Total Units
Date 4/30/98 Quarter 1 14,200
Quarter 2 17,000
Quarter 3 18,500
Quarter 4 26,000
---------
Totals 75,700
</TABLE>
Next Year Renewal Date 4/30/99
<PAGE>
<PAGE>
Confidential - Execution Original
- -------------------------------------------------------------------------------
NOVELL, INC.
NEST SDK Technology Provider Supplement
- -------------------------------------------------------------------------------
1 Purpose. This Supplement is issued under the Novell Embedded Systems
Technology Master Agreement ("Agreement"). Under this Supplement
Novell authorizes Developer to create Qualifying Developer Products and
to distribute the Tools to Developer's customers that enter into the
appropriate agreements with Novell. The Tools in this Supplement are
intellectual property of Novell, and/or its licensors, and their
distribution will be tightly controlled.
2 Definitions. Capitalized terms in this Supplement have the same
meanings stated below or defined in the Agreement:
2.1 Customer means a party that desire to license the Tools
through Developer from Novell.
2.2 Customer Agreements means the agreements that Customer must
sign before Developer can provide Tools to Customer. The
Customer Agreements include the Novell Embedded Systems
Technology Master License Agreement and the NEST SDK
v1.xSupplement. Related agreements include the NEST Developer
Product Distribution Exhibit (the "Distribution Exhibit").
Customer is not required to execute the Distribution Exhibit
before receipt of the Tools, but Customer must enter into a
Distribution Exhibit with Novell before Customer will be
authorized to distribute or sell any Customer Products
developed from the Tools.
2.3 Customer Product means the Qualifying Developer Products
defined in the Customer Agreements.
2.4 Developer Toolkit means a development kit of the Developer
that in addition to containing Developer source code, binary
code, and documentation, also includes the Tools or Derivative
Works, in source and/or binary form. Developer Toolkits may
only be provided to Licensed Customers.
2.5 Licensed Customer means a Customer that has entered into the
Customer Agreements with Novell and has purchased the Tools
from Developer.
2.6 License Fee Addendum means a form addendum to Customer
Agreement, attached to this Supplement, which Developer may
provide to Customer in
<PAGE>
<PAGE>
Confidential - Execution Original
- -------------------------------------------------------------------------------
order to enable Developer to receive payment for Tools it
provides to Licensed Customer. The License Fee Addendum also
provides Developer with the means to negotiate its own fee for
Tools it provides to Licensed Customers.
2.7 Technology Provider means a Developer that is licensed to sell
and distribute the Tools in accordance with the terms of this
Supplement.
2.8 Toolkit Source means source code of the Tools and source code
of derivative works thereof contained in the Developer
Toolkit.
2.9 Tools. The Tools provided under this Supplement are the
Novell Embedded Systems Technology SDK 1.x, which currently
consists of the following:
2.9.1 Source Code and Documentation:
- -Link Support Layer (LSL)
- -NetWare IPX/SPX
- -Multiple Link Interface Driver (MLID)
- -Configuration Tool
- -Hardware Specific Module (HSM)
- -Client API
- -NEST Client Requester
- -Pserver
- -Service Advertising Protocol (SAP)
- -Nprinter
<TABLE>
<CAPTION>
- -Client Authentication Code:
<S> <C> <C>
386funcs.c atbmd5.c atbpub.c
bsafe.c bsafehan.c bsfcont
x.c
bsf_rc2c.c debug.c diffhelm.c
digest.c hwdfuncs.c mac.c
makesecr.c makkey.c m d c . c
myclib.c output.c public.c
ran.c rsa1.c rsa2c.c
secret.c suite.c tdata.c
</TABLE>
2.9.2 Documentation Only:
- -Portable Operating System Extension
(POSE)
2.9.3 Binary Code and Documentation:
- -Certification and Test Tools
Novell may change the files that comprise the NEST SDK 1.x from time to time at
its own option without the need to make formal changes to this section.
3 Consideration. Developer agrees to pay Novell upon execution of this
Supplement a non-refundable license fee of $175,000 for five (5) sets
of Tools for internal use or distribution to Licensed Customers.
Additional sets of the Tools may be purchase at the discounted
non-refundable license fee of $35,000 per set of Tools.
4 Program Tools License Restriction. With respect to Novell's Client
Authentication Source Code, Developer's license is limited to compile
and link Novell's Client Authentication Source Code in an unmodified
form in Developer Products. Novell's Client Authentication Code is
more specifically identified in Section 2.9.1 of this
-2-
<PAGE>
<PAGE>
Confidential - Execution Original
- -------------------------------------------------------------------------------
Supplement. Subject to a Distribution License Exhibit, Developer may be
licensed only to ship code in binary form which is compiled from
Novell's Client Authentication Source Code without modification.
5 Distribution License.
5.1 Developer Product Distribution. No distribution rights for
Developer Products are granted under this Supplement.
Developer Product distribution license terms, including but
not limited to royalties, shall be set forth in a Distribution
License Exhibit which may be entered into by Novell and
Developer.
5.2 Tools Distribution. Novell grants Developer a non-exclusive,
non-transferable license to distribute the Tools, unopened and
undamaged as supplied to Developer by Novell, and/or Developer
Toolkits to Licensed Customers. Developer may not distribute
the Tools or Developer Toolkits to Customers that have not
entered into a Customer Agreement with Novell. Developer
acknowledges that Novell reserves the right to enter into
Customer Agreements with certain Customers at Novell's sole
discretion. Novell also reserves the right to reject modified
Customer Agreements submitted by Customers to Novell for
execution.
6 Developer Products.
Developer Product Title:
----------------
Description:
----------------------------
- ----------------------------------------
Developer Product Title:
----------------
Description:
----------------------------
- ----------------------------------------
7 Developer Toolkits.
Developer Toolkit
Title:
-----------------------------------
Description:
-----------------------------
- -----------------------------------------
Developer Toolkit
Title:
-----------------------------------
Description:
-----------------------------
- -----------------------------------------
8 Developer Support and Training. During the first year of the Term of
this Supplement, Novell agrees to provide to Developer telephone
support for up to eight incidents. One incident shall mean a single
support call or multiple support calls required to resolve a single
Support or Maintenance Modification issue. When the eight incidents
are used or beginning in the second year of the term of this
Supplement, whichever comes first, Developer shall pay a separate fee
for maintenance and support at Novell's
-3-
<PAGE>
<PAGE>
Confidential - Execution Original
- -------------------------------------------------------------------------------
then current pricing, terms and conditions.
In addition, Novell will provide a two day training course to no more
than two Developer engineers at a Novell facility. Such training will
include instruction on materials provided in the Tools which is
provided to Developer in accordance with this Supplement. All training
will be scheduled by Novell. Novell reserves the right to group
Developer's engineers with other developers' engineers in its training
courses. Training will be offered at least once per calendar quarter.
Each party shall bear its own costs and expenses with respect to
training.
9 Developer Requirements and Duties.
9.1 Developer shall audit and police its Licensed Customers, upon
Novell's reasonable request, to protect Novell's intellectual
property rights and to assist Novell in ensuring timely
and documented royalty payments from Licensed Customers.
9.2 Developer shall provide engineering support and training on
the use of the Tools to its Licensed Customers.
9.3 Developer shall employ one CNE who is qualified in the
relevant field of its Licensed Customer's specialization (eg.
PBX, Printing Services, Automation Control).
9.4 Developer must have two engineers attend Novell training on
the use of the Tools.
9.5 Bundling. Developer agrees not to distribute Developer
Toolkits separately from the Tools, unopened and undamaged as
supplied to Developer by Novell.
9.6 Operating System Companies. Notwithstanding any other
provision(s) of this Supplement, Developer agrees that it may
not distribute Developer Toolkits or the Tools through
companies that design or develop computer operating systems
without the prior written consent of an authorized Novell
representative.
9.7 Protection. Developer agrees to take all reasonable steps to
protect the Tools and related Documentation Tools from
unauthorized copying or use. The Toolkit Source and the source
code of the Tools provided in binary form represents and
embodies trade secrets of Novell which are not licensed to
Developer. Developer shall not reverse engineer, decompile, or
disassemble the Tools. If the Tools are used within a country
of
-4-
<PAGE>
<PAGE>
Confidential - Execution Original
- -------------------------------------------------------------------------------
the European Community, nothing in this Agreement shall be
construed as restricting any rights available under the EC
Council Directive 14 May 1991 on the legal protection of
computer programs.
9.8 Documentation. Developer agrees to include a conspicuous
statement in its documentation identifying Developer as the
primary support contact for the Tools and Developer Toolkit
distributed by Developer. Upon request, Developer agrees to
provide Novell with three copies of its then current
documentation.
10 Licensed Customer Requirements. Licenses between Developer and Licensed
Customer shall:
10.1 assure that Licensed Customer will not distribute Toolkit
Source or source code to derivative works of Toolkit Source.
10.2 assure that no title to the Toolkit Source or Derivative Works
thereof is transferred to the Licensed Customer. Title and
full ownership rights to the Toolkit Source and its derivative
works will remain Novell's exclusive property, and the
Licensed Customer will not acquire any rights, including but
not limited to any rights in the trademark, trade names,
patents or trade secrets of the Toolkit Source or its
derivative works thereof.
10.3 assure that Licensed Customer distributes object code copies
of the Developer Toolkit derivative works solely in con-
junction with the Qualifying Developer Product under the terms
of the Customer Agreement.
10.4 include an attachment clearly identifying the components of
the Developer Toolkit that are Tools or Toolkit Source, which
includes the following statement:
"THE MATERIALS IDENTIFIED IN THE ATTACHMENT ARE THE INTEL-
LECTUAL PROPERTY OF NOVELL, INC. AND/OR ITS LICENSORS. WHILE
NOVELL HAS AUTHORIZED DEVELOPER TO PROVIDE THOSE MATERIALS
TO CUSTOMER, THEY ARE LICENSED TO CUSTOMER DIRECTLY BY NOVELL
UNDER PRIOR AGREEMENTS, INCLUDING RESTRICTIONS ON CERTAIN
FILES."
-5-
<PAGE>
<PAGE>
Confidential - Execution Original
- -------------------------------------------------------------------------------
11 Signatures.
NOVELL, INC.
Signature:_____________________________
Name:________________________________
Title:_________________________________
Date:_________________________________
DEVELOPER:____________________________
Signature:_____________________________
Name:________________________________
Title:_________________________________
Date:_________________________________
-6-
<PAGE>
<PAGE>
Confidential - Execution Original
- -------------------------------------------------------------------------------
ATTACHMENT: FORM ADDENDUM
SPECIAL ADDENDUM FOR TECHNOLOGY PROVIDER CUSTOMERS
Developer and Novell agree that the following terms and conditions amend and
supplement the NEST SDK 1.x Supplement ("the Supplement"):
1 The following definitions shall be added to Section 2 of the
Supplement:
"Technology Provider means a third-party entity, namely
Digital Products Inc. , which Novell has licensed to
distribute and sell the Tools under the terms and conditions
of a certain NEST SDK Technology Provider Supplement entered
into by Novell and the third-party."
2 Section 8 of the Supplement shall be replaced with the following:
"Consideration Developer agrees to pay the Technology Provider
upon execution of this Supplement a non-refundable license
fee, to be negotiated between Developer and Technology
Provider, for the Tools. Maintenance Modifications and
Enhancements to the Tools may require additional license fees.
SIGNATURES.
NOVELL, INC.
Signature:_____________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
Developer: DIGITAL PRODUCTS
_____________________________
Signature:_____________________________
Name:__________________________________
Title:_________________________________
Date:__________________________________
-7-
<PAGE>
<PAGE>
CONFIDENTIAL - EXECUTION ORIGINAL
- -------------------------------------------------------------------------------
NOVELL, INC.
COMPOSITE SIGNATURE AGREEMENT
<TABLE>
Name and Address of Customer:
<S> <C>
Digital Products, Inc. telephone: 617-647-1234
411 Waverly Oaks Road facsimile: 617-647-4474
Waltham, MA 02154
Novell Branch Office:
122 East 1700 South telephone: 801-429-7000
Provo, Utah 84606 facsimile:801-453-1267
</TABLE>
This Composite Signature Agreement is entered into by and between
Novell Inc. ("Novell") and Digital Products, Inc. ("Developer"), and shall
commence on the date accepted and executed by Novell ("Effective Date").
This Composite Signature Agreement, when signed by Novell and
Developer, shall have the same effect as each of the below identified documents
would have if signed by Developer.
<TABLE>
<CAPTION>
Initials Title of Document
<S> <C>
__________ Special Addendum (DPI_DIST.ADD)
__________ NEST SDR Developer Product Distribution License Exhibit (SDKOEM..100)
</TABLE>
Each of the identified documents is incorporated by reference. In the
event of a conflict or ambiguity between documents, the specific shall control
the general; the relative order of specificity of the documents is as follows:
(1) Special Addenda, (2) Standard Addenda, and (3) the Standard Agreement.
DEVELOPER ACKNOWLEDGES THAT DEVELOPER HAS READ EACH OF THE DOCUMENTS
DESIGNATED BY THE INITIALS OF DEVELOPER'S AUTHORIZED REPRESENTATIVE, UNDERSTANDS
THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS:
This Agreement, together with all referenced documents, is the
exclusive statement of the entire agreement between Novell and Developer and
supersedes all prior oral and written representations or agreements between the
parties as to the subject matter of the Agreement.
Accepted by:
<TABLE>
<S> <C>
Novell, Inc. Digital Products, Inc.
By:_______________________________ By:_________________________________
Title:____________________________ Title:______________________________
Date:_____________________________ Date:_______________________________
</TABLE>
<PAGE>
<PAGE>
COMPANY CONFIDENTIAL EXECUTION ORIGINAL: DECEMBER 12, 1995
- -------------------------------------------------------------------------------
ADDENDUM TO:
NEST SDK Developer Product Distribution License Exhibit
This ADDENDUM amends and supplements the NEST SDK Developer Product Distribution
License Exhibit dated December 28 , 1995 ("AGREEMENT") between Novell, Inc., a
Delaware corporation having a principal place of business at 1555 North
Technology Way, Orem, Utah 84057 ("NOVELL") and Digital Products, Inc., a
Massachusetts corporation having a principal place of business at 411 Waverly
Oaks Rd., Waltham, MA 02154 ("Developer").
1. AGREEMENT. The AGREEMENT shall remain in full force and effect, except
that it shall be modified as set forth in this ADDENDUM. Any
capitalized terms which are not defined in this ADDENDUM shall have the
meaning set forth in the AGREEMENT. Should a conflict arise between
this ADDENDUM and the AGREEMENT, the provisions of this ADDENDUM shall
control.
2. MODIFICATIONS. The parties hereby agree that the AGREEMENT shall be and
hereby is modified as follows:
a. The preamble to the Exhibit is hereby modified as follows:
"This NEST SDK Developer Product Distribution License
Exhibit (the "Exhibit") to the NEST SDK 1.x
Supplement (the "Supplement")..."
Is replaced with
"This NEST SDK Developer Product Distribution License
Exhibit (the "Exhibit") to the NEST SDK Technology
Provider Supplement (the "Supplement")..."
b. Section 3.1 of the Exhibit is hereby modified as follows:
"Developer Product Title:__________________________
NEST Components Licensed:_________________________"
Is replaced with
"Developer Product Title: NetPrint product family
NEST Components Licensed: NEST Requester
Developer Product Title: JetPrint boards
NEST Components Licensed: NEST Requester"
- -------------------------------------------------------------------------------
NEST Agreements Addendum
DPI_DIST.AD3 Novell, Inc.
<PAGE>
<PAGE>
COMPANY CONFIDENTIAL EXECUTION ORIGINAL: DECEMBER 12, 1995
- -------------------------------------------------------------------------------
c. The following Section 4.5 is hereby be added to the
Consideration section of the Exhibit:
"NTLP and NetWare Transport Fees. In consideration
for Developer actively participating as a Technology
Provider, and developing and distributing Qualifying
Developer Products in accordance with the conditions
of the NEST SDK Technology Provider Supplement and
this Exhibit, Novell waives the following fees owed
to Novell by Developer:
-A total of $75,000, comprised of the
$25,000 annual royalty payments due to
Novell by Developer for each of the
anniversary dates January 2, 1993, January
2, 1994 and January 2, 1995 of the NetWare
Transport Software License Agreement
executed by Novell and Developer on January
2, 1992.
-The annual fee of $15,000 for the period
October 13, 1994 to October 12, 1995 due to
Novell by Developer under the NetWare
Technology Licensing Program Supplement,
NetWare v.3.1x and 4.0 - Service Requester
agreement.
In addition, Developer may continue until December
31, 1995 to distribute products (IPX Products)
containing IPX/SPX, developed pursuant to the NetWare
Transport Software License Agreement, in accordance
with the terms of the NetWare Transport Software
License Agreement (NTSLA IPX/SPX), without incurring
additional royalties. Developer may purchase a
license to distribute the IPX Product according to
the terms of the NetWare Transport Software License
Agreement during the period of January 1, 1996 to
December 31, 1996 by paying Novell a pre-paid,
non-refundable license fee for the NTSLA IPX/SPX
components of the IPX Products of $25,000 for the
initial 50,000 units of IPX Product and a per copy
royalty of $1.20 for each unit in excess of the
initial 50,000 units.
d. The following Section 4.6 is hereby be added to the
Consideration section of the Exhibit:
In accordance with the royalty schedule in Section 4.4, within
thirty (30) days from the execution of this Exhibit Developer
shall pay Novell a per copy royalty per the number of copies
of the Qualifying Developer Products it has transferred, sold,
sublicensed or authorized for use prior to the execution of
this Exhibit.
- -------------------------------------------------------------------------------
NEST Agreements Addendum
DPI_DIST.AD3 -2- Novell, Inc.
<PAGE>
<PAGE>
e. Section 6.1 of the Exhibit is hereby replaced with the following:
"Term. The term of this Exhibit shall be two years from the
Distribution License Effective date and shall automatically
renew for successive one year periods unless either party
provides thirty (30) days or more prior written notice of its
intent to terminate this Exhibit."
3. CONTINUANCE OF AGREEMENT. Except as expressly amended and supplemented
by this ADDENDUM, all the terms and conditions of the AGREEMENT shall
remain in full force and effect. This ADDENDUM together with the
AGREEMENT, set forth the entire agreement and understanding between the
parties pertaining to the subject matter and merge all prior
discussions between them. Neither of the parties shall be bound by any
conditions, definitions, warranties, understandings or representations
with respect to the subject matter other than as expressly provided in
this ADDENDUM and the AGREEMENT.
<TABLE>
<CAPTION>
NOVELL, INC. COMPANY
<S> <C>
Signature:________________________ Signature:_____________________________
Name:_____________________________ Name:__________________________________
Title:____________________________ Title:_________________________________
Date:_____________________________ Date:__________________________________
</TABLE>
- -------------------------------------------------------------------------------
NEST Agreements Addendum
DPI_DIST.AD3 -3- Novell, Inc.
<PAGE>
<PAGE>
NOVELL, INC.
NEST SDK Developer Product Distribution License Exhibit
- -------------------------------------------------------------------------------
This NEST SDK Developer Product Distribution License Exhibit (the "Exhibit") to
the NEST SDK 1.x Supplement (the "Supplement") and the Novell Embedded Systems
Technology Master Agreement (the "Agreement") is entered into by Novell and
Developer. This Exhibit is effective as of ____________________, 199__
("Distribution License Effective Date").
1 INTRODUCTION. The purpose of this Exhibit is to allow Developer,
subject to the restrictions contained in this Exhibit and the
Agreement, to sublicense, duplicate, and distribute Qualifying
Developer Products developed under the Agreement between Novell and
Developer. All terms and conditions of the Agreement are incorporated
herein by reference and shall have full force and effect between the
parties in the interpretation of this Exhibit.
2 DEFINITIONS. Capitalized terms in this Exhibit have the meanings stated
below or defined in the Agreement.
2.1 "Software" means binary code and Program Tools or binary code
produced from Program Tools that are linked or included in
Developer Product pursuant to the Supplement and is subject to
all terms and conditions of that Supplement.
2.2 "Sublicense" means an executed agreement or shrink-wrap
agreement or electronic license that an end user consents to
by performing a physical act (e.g., pushing a button on a
keyboard) before utilizing the Qualifying Developer Product
which at minimum provides the following or equivalent
protection to Novell:
2.2.1 restricts the number of copies of the Software to one
operating copy per Qualifying Developer Product;
2.2.2 permits only those number of copies of the Software
as are essential to back up or archival use of the
Software;
2.2.3 states that no title to the intellectual property
contained in the Software is transferred to the
sublicensee and it is retained by Novell;
2.2.4 represents that the human readable code of the
Software (source code) is not sublicensed to the
sublicensee;
2.2.5 restricts sublicensees from de-compiling and reverse
assembling the software to discover the source code;
and
2.2.6 prohibits time-sharing, lease, rental, distribution,
transfer, sublicense, and unauthorized use of the
software, without prior written consent.
3 LICENSES AND RESTRICTIONS.
3.1 Distribution License. Subject to the terms and conditions of
this Exhibit and the Agreement, Novell grants to Developer,
and Developer accepts, a non-exclusive, non-transferable,
world-wide license to reproduce and distribute (directly or
indirectly) the Qualifying Developer Products, being the
Developer Products identified below that are found to meet the
Qualifying Developer Product
<PAGE>
<PAGE>
requirements, but only under a Sublicense between Developer
and its end users or, in the case of distribution through
Developer's OEM customer, Developer must obtain binding
contractual assurances that Developer's OEM customers will
only distribute the Qualifying Developer Products under a
Sublicense between Developers OEM customer and its end users.
Developer Product Title:________________________________
NEST Components Licensed:_______________________________
Developer Product Title:________________________________
NEST Components Licensed:_______________________________
Developer Product Title:________________________________
NEST Components Licensed:_______________________________
Product names identified in this Section are solely to assist
Novell in program administration, but not for trademark
licensing purposes. Novell reserves the right to take action
in the event any Developer Product name violates Novell
rights.
4 CONSIDERATION. In exchange for the rights granted by Novell to
Developer under this Exhibit, Developer agrees to pay Novell a per copy
royalty per the number of copies of the Qualifying Developer Products
it transfers, sells, sublicenses or authorizes for use. A
non-refundable royalty payment ("Non-refundable Royalty Payment") is
set forth in the Royalty Schedule section below. Notwithstanding the
foregoing, Developer will report all such royalties due to Novell on a
monthly basis using calendar quarters.
4.1 Monthly Royalty. In addition, Developer shall pay to Novell a
royalty based upon the number of copies of each Qualifying
Developer Product transferred, sold or licensed by Developer.
Royalties shall accrue upon transfer, sale or license of
Qualifying Developer Products by Developer and shall be paid
to Novell no later than forty-five (45) days after the end of
each month.
4.2 Minimum Royalty. Developer shall pay to Novell a guaranteed
annual minimum royalty of 30 Thousand Dollars for the
Qualifying Developer Product that includes the NEST Client
Requester and/or NetWare IPX/SPX Modules. In addition, should
Qualifying Developer Products also include the NPrinter
modules, Developer shall pay to Novell a guaranteed annual
minimum royalty of 60 Thousand Dollars.
4.3 Audit. Developer shall maintain complete and accurate
accounting records, in accordance with generally accepted
accounting practices, to support and document royalty amounts
due under this Exhibit and shall retain such records for three
(3) years after payment is made. Developer shall, upon written
request of Novell, provide audit access to such records to
Novell. If Developer so decides, a mutually acceptable
independent accounting firm may conduct the audit at
Developer's
-2-
<PAGE>
<PAGE>
expense. Such access shall be granted only during normal
business hours and no more frequently than once in each
calendar year. All information received during the audit shall
be held in confidence by the parties.
4.4 Royalty Schedule
<TABLE>
<CAPTION>
Item Base Price Discount Schedule
Units Percentage
<S> <C> <C> <C>
IPX / SPX $2.00 5,000 100%
NEST Requester $4.00 10,000 90%
PServer/NPrinter $6.00 25,000 85%
50,000 80%
100,000 70%
250,000 60%
500,000 55%
1,000,000 45%
5,000,000 35%
10,000,000 25%
</TABLE>
5 DEVELOPER'S DUTIES.
5.1 Qualifying Developer Products. Qualifying Developer Products
may only be sublicensed and distributed according to the terms
and conditions of this Exhibit.
5.2 Operating System Companies. Notwithstanding any other
provision(s) of this Agreement, Developer agrees that it may
not authorize the distribution of all or any portion of the
Qualifying Developer Products through companies that design,
develop, or market computer operating systems without the
prior written consent of an authorized Novell representative.
5.3 Protection. Developer agrees to take all reasonable steps to
protect the Program Tools and related Documentation Tools from
unauthorized copying or use. The source code of the Program
Tools provided in binary form represents and embodies trade
secrets of Novell which are not licensed to Developer.
Developer agrees not to reverse assemble or reverse compile
this binary code to discover the source code.
5.4 Documentation. Developer agrees to include a conspicuous
statement in its documentation identifying Developer as the
primary support contact for the
-3-
<PAGE>
<PAGE>
Qualifying Developer Products distributed by Developer. Upon
request, Developer agrees to provide Novell with three copies
of its then current documentation.
5.5 End-user support. Developer agrees to provide all technical
support for all aspects of the Qualifying Developer Product.
5.6 Yes Logo. Developer agrees to prominently display the Yes Logo
on Qualifying Developer Product, and all marketing materials,
product packaging, and advertising material related to
Qualifying Developer Product; to emphasize the Yes Logo in at
least one Qualifying Developer Product advertisement,
Qualifying Developer Product line advertisement, or corporate
positioning advertisement in an appropriate national
publication; and provide appropriate product and program
descriptions in all materials bearing the Yes Logo.
6 TERM AND TERMINATION.
6.1 Term. The term of this Exhibit shall be one year from the
Distribution License Effective Date of and shall automatically
renew for successive one year periods unless either party
provides thirty (30) days or more prior written notice of its
intent to terminate this Exhibit.
6.2 Termination for Convenience. Either party may terminate this
Exhibit and the licenses granted by Novell under the Licenses
and Restrictions Section of this Exhibit at any time without
cause by giving 180 calendar days' prior written notice to the
other party. In the case that Novell exercises it right to
terminate for convenience, Developer may distribute Qualifying
Developer Product then in inventory for which Developer has
already paid royalties.
7 SIGNATURES.
<TABLE>
<CAPTION>
NOVELL, INC. (DEVELOPER)________________________
<S> <C>
Signature:__________________________ Signature:_________________________
Name:_______________________________ Name:______________________________
Title:______________________________ Title:_____________________________
Date:_______________________________ Date:______________________________
</TABLE>
-4-
<PAGE>
<PAGE>
OSICOM TECHNOLOGIES, INC.
2800 28TH Street
Suite 100
Santa Monica, California 90405
March 10, 1999
Mr. Cornelius Peterson VIII
President and CEO
NETsilicon, Inc.
411 Waverly Oaks Road
Suite 227
Waltham, MA 02154
Dear Pete:
This letter confirms our agreement relating to the stock options (the
"Options") being granted to you on or about the date of this letter by
NETsilicon, Inc. ("NSI") in connection with the initial public offering of NSI.
Notwithstanding anything to the contrary in the stock option agreement(s), the
following shall apply to those options:
1. In the event that NSI is sold to or merges with a company
unaffiliated with Osicom or NSI, all of the Options will vest
immediately, regardless of whether any performance or time
criteria otherwise applicable to vesting has been satisfied.
2. In the event that your employment is terminated without cause
or not continued without cause, or in the event of your
permanent disability or death, the Options will not be
terminated as a result of such an event but shall remain in
full force and effect and vest in accordance with their terms,
except that any performance-based criteria will be deemed to
have been satisfied notwithstanding the actual financial
results of NSI.
3. Except as amended by this letter, the Options remain in full
force and effect according to their terms.
Very truly yours,
NETsilicon, Inc. OSICOM TECHNOLOGIES, INC.
BY: /s/ Renn Zaphiropoulos BY: /s/ Par Chadha
---------------------------- -----------------------------------
Renn Zaphiropoulos, Chairman Par Chadha, Chief Executive Officer
BY: /s/ Leonard Hecht
----------------------------
Leonard Hecht, Director
<PAGE>
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT is made this 20th day of April, 1999 by and
between Osicom Technologies, Inc., a New Jersey corporation ("Osicom") and
NETsilicon, Inc., a Massachusetts corporation ("NETsilicon").
WHEREAS, as of the date hereof, Osicom is the sole shareholder of
NETsilicon; and
WHEREAS, NETsilicon has filed a registration statement with the
Securities and Exchange Commission on Form S-1 for an initial public offering of
its common stock (the "Offering"); and
WHEREAS, upon completion of the Offering, Osicom will own approximately
76% of the common stock of NETsilicon; and
WHEREAS, Osicom has agreed to grant a proxy to the Board of Directors
of NETsilicon to vote certain of its common shares.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuation consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
For each shareholders' meeting held by NETsilicon, Osicom shall grant a
proxy for that number of shares equal to the difference between the number of
shares owned by Osicom and that number of shares which equals forty-nine percent
(49%) of the outstanding shares of NETsilicon common stock entitled to vote at
such meeting, to the Board of Directors of NETsilicon, which proxy shall
authorize and direct such Board of Directors to vote all such shares on all
matters properly presented for consideration at such meeting in the same
proportion as the shares voted by all shareholders other than Osicom.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date set forth above.
OSICOM TECHNOLOGIES, INC.
BY: /s/ Par Chadha
-----------------------------------
Par Chadha, Chief Executive Officer
NETSILICON, INC.
BY: /s/ Cornelius Peterson
------------------------------------
Cornelius Peterson,
Chief Executive Officer
<PAGE>
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
NETsilicon, Inc.
Waltham, Massachusetts
We hereby consent to the inclusion in the Prospectus constituting a part of
this Registration Statement on Form S-1 of our report dated February 26, 1999
(except for note I (ii) and (iii) as to which the date is ) on the
financial statements of NETsilicon, Inc. (the 'Company'), as of January 31, 1999
and 1998, and for each of the three years in the period then ended. We also
consent to the references to us under the headings 'Selected Financial Data' and
'Experts' in the Prospectus which are part of such Registration Statement.
BDO SEIDMAN, LLP
Boston, Massachusetts
April 20, 1999
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1999
<PERIOD-END> JAN-31-1999
<CASH> 582,600
<SECURITIES> 0
<RECEIVABLES> 4,204,500
<ALLOWANCES> 300,000
<INVENTORY> 3,769,300
<CURRENT-ASSETS> 10,013,300
<PP&E> 685,200
<DEPRECIATION> 3,027,400
<TOTAL-ASSETS> 11,648,400
<CURRENT-LIABILITIES> 13,484,500
<BONDS> 0
<COMMON> 100,000
0
0
<OTHER-SE> (1,936,100)
<TOTAL-LIABILITY-AND-EQUITY> 11,648,400
<SALES> 13,373,000
<TOTAL-REVENUES> 13,373,000
<CGS> 7,270,400
<TOTAL-COSTS> 14,953,700
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 551,700
<INCOME-PRETAX> (2,132,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,132,400)
<DISCONTINUED> (289,800)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,422,200)
<EPS-PRIMARY> (.24)
<EPS-DILUTED> 0
<PAGE>
