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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (Fee Required)
For the Fiscal Year Ended December 31, 1996 Commission File Number 0-13071
INTERPHASE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 75-1549797
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
13800 SENLAC, DALLAS, TEXAS 75234
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (214) 654-5000
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
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Common Stock, no par value
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant on March 17, 1997 was approximately $39,697,762.
As of March 17, 1997, registrant had outstanding 5,492,608 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following documents are incorporated by reference into this
annual report on Form 10-K Report: (1) Portions of the Definitive Proxy
Statement for Annual Meeting of Shareholders to be held on May 14, 1997
(Part III).
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
Interphase Corporation and subsidiaries ("Interphase" or the "Company")
designs, develops, manufactures, markets and supports high-performance
network and mass storage products based on advanced technologies for some of
today's most powerful computer systems. Interphase's network and mass
storage products include high performance network adapters, concentrators and
computer network operating system software drivers. The Company's local area
network ("LAN") products implement high speed networking technologies such as
Fiber Distributed Data Interface ("FDDI"), Asynchronous Transfer Mode
("ATM"), fast ethernet (both 100 VG-AnyLAN and 100 Base T), as well as
ethernet (10Base T) and Token Right technologies that facilitate the high
speed movement of information across computer networks. The Company's wide
area network ("WAN") products serving both the server class and client class
utilize Integrated Services Digital Network ("ISDN") and X.25 technologies.
In addition, the Company announced, in early 1997, its first Digital
Subscriber Loop "(xDSL") product, an Asynchronous DSL ("ADSL") adapter card
with general availability expected in mid 1997. The Company's mass storage
controllers are currently based on Small Computer Systems Interface ("SCSI")
technology and high speed Fibre Channel technology to facilitate the
movement of data to and from mass storage devices. Fibre Channel can also be
used for a high speed interconnect in clustered applications. The Company's
products are designed to not only comply with the appropriate open system
technical standards but also optimize the performance of the customer's
network and mass storage environments.
The Company's LAN adapters and mass storage controllers consist of both
hardware and software. The hardware is essentially printed circuit boards
which plug into the backplane of a computer and incorporate industry standard
bus architectures of the most popular client/server platforms such as PCI,
Sbus, EISA, VME, GIO and PMC, as well as input-output front-ends for many
performance oriented computer systems. The Company's network adapters
support a variety of media including fiber optic cabling and unshielded
twisted pair ("UTP") and shielded twisted pair ("STP") copper wire. The
Company's software consists of drivers for the most popular client/server
operating systems such as Windows NT, Netware, HP-UX, IRIX, O/S2, Solaris,
SunO/S, AIX and certain real-time operating systems. In addition the
software may include diagnostics, station management ("SMT") and in certain
cases off loads the processing of the protocol stack from the server to the
adapter card. The Company's FDDI concentrator products are stand-alone
network devices which serve as a single point of connection for multiport
local area networks as well as perform certain network traffic management
tasks. The mass storage controllers provide a high-speed connection to
computer peripheral devices, such as disk drives, tape drives and printers.
The Company's WAN adapters are complete ISDN packages that allow standalone
desktops and notebooks to connect to Shiva Lan Rover, PPP/ISDN routers, and
FTP software ONnet as well as X.25 remote access products. The Company's
products are used in a wide range of computer applications
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including graphics workstations, high performance work groups, CPU clusters,
medical imaging, telephone switching, on-line transaction processing and
financial services networks.
With respect to the client/server computer market, the majority of the
Company's products have traditionally been installed in the server (or
"host") as opposed to the client (or "desktop") side of the network. This
reflects the Company's historical focus on the development of
high-performance, fully featured products that are targeted for the most
demanding computer networks. Given the recent emergence of more powerful
desktop computing environments and a growth in demand for data intensive
applications, the Company believes that its strengths in certain network and
mass storage technologies will create significantly more opportunities for
desktop installations of its products in future years.
The Company believes that its success in gaining significant market share in
its selected markets is dependent upon not only the development and
manufacturing of high performance, high quality products but also in
establishing and maintaining the appropriate distribution channels. The
Company has original equipment manufacturer ("OEM") agreements with some of
the best known companies in the computer business for its network products
and mass storage controllers. The Company's customers include OEM's of
computer systems and network switches, systems integrators, value added
resellers ("VAR"), distributors and end-users. The Company believes that
it must maintain an ongoing synergistic relationship with its customers and
demonstrate technology leadership coupled with sophisticated manufacturing
and customer support capabilities. The Company's manufacturing and
development activities are certified under the ISO 9001 international quality
standard. This standard, considered the most comprehensive of the ISO 9000
standards, applies to not only manufacturing quality, but design, development
and support quality systems as well. Certain companies in the United States
and Europe now require ISO certification of their key suppliers. The
Company's headquarters and manufacturing facilities are located in Dallas,
Texas.
Effective June 29, 1996, the Company purchased all the issued and outstanding
capital stock of Synaptel S.A. ("Synaptel"), a French societe anonyme from
six Synaptel stockholders. Synaptel designs and distributes a broad line of
remote access and ISDN products, which include both significant software
content and interoperability with a broad range of networking protocols.
Synaptel employs approximately 70 people, primarily in Paris, France. The
Company has no present intention to change the use of the plant, equipment
and other physical property used in its business.
The Company, a Texas corporation, was founded in 1977.
PRODUCT OVERVIEW
The bus structure of a computer system is the pathway over which data flows
among the system's components, such as the central processing units ("CPU"),
disk or tape drives and network adapters. The bus structure of a computer
coordinates the timing and routing of data, as well as defines the
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system architecture for components which interface with each other. The
Company develops and sells products based on high performance bus
architectures such as PCI, Sbus, EISA, VME, GIO and PMC. These bus
architectures were developed by computer system manufacturers and are
considered "open systems" since certain specifications of the architecture
are published. The concept of open systems has gained significant momentum
in recent years and has allowed end-users to configure a computing and
network environment that incorporates desired technology, features,
scalibility and support from a variety of product and service providers.
The CPU of a computer performs basic arithmetic, local memory access and
input/output functions for communication with peripheral equipment as well as
other functions associated with data transfers within a network such as
protocol processing. When commanded by the CPU, a network adapter facilitates
the high-speed communication of data among computer systems over a network as
well as validates data completeness and integrity. Network adapters also
perform varying levels of protocol processing and network management tasks.
A network protocol is the set of rules or conventions used to govern the
exchange of information between networked nodes or LANs. Most computer
applications require immediate access to a greater volume of data than can be
stored in the computer's local memory. This necessitates external data
storage capacity provided by disk or tape drives. A disk controller directs
the data storage and retrieval operations of the disk drive and controls the
flow of data between the CPU and disk drive. The disk controller locates and
formats the data stored on the disk, performs data validity checking, data
error detection and correction and informs the CPU of the status of these
operations and of the controller itself. A tape controller performs the same
functions as a disk controller but interfaces with a tape drive.
Multifunction controllers operate like a disk controller but allow the CPU to
access disk drives and tape drives simultaneously.
Intelligent controllers designed by the Company incorporate proprietary
firmware (i.e., programs developed by the Company and stored in memory on the
product) and software to perform these functions simultaneously and
independently from the CPU, which allows the CPU to perform other operations
at the same time as network communications, data storage or retrieval occurs.
NETWORK PRODUCTS
Revenues derived from networking products represented approximately 84% of
consolidated revenues for the year ended December 31, 1996, 61% and 58% of
consolidated revenues during the years ended October 31, 1995 and 1994,
respectively.
LAN
Over the past several years the Company has developed a diverse line of LAN
products targeted for the VME, Sbus, EISA, PCI, GIO and PMC bus marketplace.
The majority of these products are sold directly to OEMs but a substantial
portion are also sold to VAR's, system integrators, distributors and large
end-users.
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The Company's products included within this broad grouping can be further
divided into board level controller (adapter) products and stand-alone
network devices.
BOARD LEVEL PRODUCTS-
FDDI PRODUCT LINE-
FDDI is a stable, standardized, 100Mbit per second technology. Its
combination of speed and stability make FDDI ideal for reliable
high-performance workgroup connections. FDDI high performance adapters are
often used for movement of large graphical images such as color prepress and
medical imaging applications. These adapters are also used in enterprise
servers for high-demand transaction processing networks in corporate systems.
VME/FDDI 5211 represents a third generation FDDI network adapter from
Interphase. This host based product is capable of supporting varying types
of media (e.g., fiber or copper) and contains an optical bypass control. It
can be used in VME64 systems and is capable of link level or on-board
protocol processing. Its RISC-based architecture can be configured for
either single or dual attachment to an FDDI network and is available in a 9U
or 6U form factor (refers to standard form factors of the printed circuit
board).
SBUS/FDDI 4611 is a high performance FDDI network adapter for SBus systems.
It contains many of the same features as the VMEbus FDDI products such as
support for various media. The Solaris or SunOS software driver included
with this product contains native TCP/IP support and integrated Station
Management (SMT).
EISA/FDDI 4811 is a high performance FDDI network adapter for EISA bus
systems. It provides for full implementation of FDDI Station Management (SMT)
on-board, freeing the host CPU to execute applications and upper level
protocols.
PCI/FDDI 5511 is a high performance FDDI network adapter for PCI based
systems. It provides Single Attach (SAS) connectivity for FDDI workstations
or server connectivity to a concentrator in a workgroup topology. It also
comes with a Dual Attach (DAS) option for direct A-B connectivity to an FDDI
ring or concentrator, or for dual homing between two concentrators. The 5511
provides connections for multimode fiber and TP-PMD compliant Category 5
Unshielded Twisted Pair copper wiring.
PMC/FDDI 4511 provides reliable, high-performance 100 Mbps FDDI connectivity
for PMC-based systems. It supports multimode fiber and copper wiring.
SBUS/FDDI CDDI WA-C30 adapter provides high performance, 100-Mbps
connectivity to FDDI networks for SPARC-based worstations and servers. It
supports single attachment and fault-tolerant, dual attachment connections.
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EISA/FDDI CDDI WA-C32 adapter provides high performance 100 Mbps
connectivity to workgroup servers and workstations.
ETHERNET AND FAST ETHERNET PRODUCT LINE-
VME/ETHERNET 4207 provides a connection to an ethernet network for VMEbus
systems. It is a high performance protocol processor that is capable of data
rate transfers of over 30 Mbytes/second.
VME ETHERNET 4221 adapter is a 10 Base-T product. This adapter is an
intelligent network interface which can provide up to four Ethernet ports
from a single VME or VME64 slot.
SBUS /100VG-ANYLAN 4622 adapter provides Sun SPARC stations and 100%
compatibles with selectable connectivity to networks based either on 10Base-T
or 100VG-AnyLAN technology.
EISA/100 BASE-T 4824 adapter provides either 100 Mbps or 10 Mbps
automatically configured based on the type of network connection.
PMC/100 BASE T 4524 adapter provides 802.3u 100Base-T connectivity for most
PMC-compliant systems. Driver support includes: AIX, Solaris and Window NT.
ATM PRODUCT LINE-
ATM is a scalable network technology capable of providing enhanced quality of
service in managing video, audio and data transmissions compared to other
existing network technologies. The scalable capability of ATM allows the
deployment of products with data transfer rates of 25 Mb, 51 Mb, 100 Mb, 155
Mb and 622 Mb, based upon the same core technology and operating within the
same network. ATM will also provide enhanced network management capabilities
and is expected to be suitable for many desktop and server computing
environments. This developing industry standard is expected to gain wide
acceptance among both network and computer system manufacturers as well as
large cable system operations and telecommunications firms (by whom it was
initially developed and promoted). The ATM adapter market is anticipated to
grow rapidly over the next several years. These adapters can connect
stations over ATM using multimode fiber, single-mode fiber, or Category 5
Unshielded Twisted Pair copper cable.
PCI ATM 5515 adapter provides full duplex ATM connectivity for most
PCI-compliant systems. This adapter supports Windows NT, Novell NetWare and
Apple MacOS environments.
SBUS ATM 4615 adapter provides full duplex ATM connectivity for virtually all
Sun Sbus platforms from 600 MP Servers to the SPARCcenter 2000. This adapter
supports SunOS 4.1.3. and Solaris 2.3 or greater.
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EISA ATM 4815 adapter provides full duplex ATM connectivity for many
EISA-compliant systems from high performance PCs and workstations to powerful
mutiprocessing servers running Windows NT and Novell NetWAre.
VME ATM 5215 adapter provides full duplex ATM connectivity for SGI Onyz and
Challenge systems running the IRIX
GIO ATM 4915 adapter provides full duplex ATM connectivity for virtually all
Silicon Graphics GIO-based platforms. This adapter supports SGI's IRIX
operating system version 5.3.
PMC ATM 4515 adapter provides reliable, high performance ATM connectivity for
PMC-based systems. This adapter supports SONET OC-3 155 Mpbs connectivity.
PCI ATM 6516 adapter is 3U CompactPCI, which provides full-duplex 155 Mbps
ATM connectivity.
PCI ATM 5525 adapter provides full duplex 25 Mbps ATM connectivity for most
PCI-compliant systems.
STAND ALONE NETWORK DEVICES-
M1600 FDDI CONCENTRATOR provides multiport connectivity to an FDDI network.
It supports up to 16 master ports and facilitates high speed FDDI networking
between a variety of computing devices and across different types of FDDI
media including fiber and copper. This device is "hot swappable" meaning
that individual modules may be replaced, removed or added without
interrupting the entire network. Other fault tolerance features include an
external optical bypass control and an optional redundant power supply,
making the M1600 well-suited for demanding FDDI backbone environments.
M800 FDDI CONCENTRATOR contains many of the same high performance features as
the M1600 FDDI Concentrator but is designed for smaller workgroups with large
data transfer requirements. It is available in a table top or rack mountable
design.
M400 FDDI CONCENTRATOR is a compact, fixed port concentrator ideal for small
workgroup cluster. Available in either 4 or 8 port configurations, the M400
provides options for fiber or copper media connectivity and the ability to
select managed or unmanaged operations.
WAN
Upon the acquisition of Synaptel by the Company in June 1996, Interphase now
has a line of WAN products that provide optimal WAN and ISDN connectivity
solutions for servers, remote LANs and PCs in multi-vendor networking
environments. Interphase WAN products are compatible with Novell, Microsoft,
IBM, Sun, Unix, SNA, X.25 Frame Relay and ISDN.
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SERVER CLASS products include fully featured, multi-purpose and
multi-operating systems products for ISDN or X.25 technologies. These
products are used by networking professionals to outfit remote offices or
central offices with ISDN/WAN adapter that can manage multiple ISDN channels
or multiple communication modes.
CLIENT CLASS products are passive ISDN or modem, board level products which
are used in desktop and laptop computers. Typical products are Syncard
Modems, Syncard PCMCIA ISDN, and Syncard ISDN, and are dedicated primarily to
Windows operating systems for desktop and laptop applications.
MASS STORAGE CONTROLLER PRODUCTS
Revenues derived from mass storage controller products represented
approximately 14% of consolidated revenues for the year ended December 31,
1996, 34% and 39% of consolidated revenues during the years ended October 31,
1995 and 1994, respectively.
The Company's mass storage product line includes products that function in
VMEbus, EISA bus, Multibus and PCIbus systems. During 1996 and 1995, the
vast majority of mass storage revenues were derived from SCSI products.
Presently, SCSI is the most popular mass storage technology for both desktop
and server applications since it is "device independent" whereas many
technologies prior to SCSI were not. Device independent refers to the fact
that the controller can access and send data to and from a variety of
peripheral devices (e.g., disk drives, tape drives or printers).
Historically, the primary market for these products has been computer system
OEM's. The Company introduced its first Fibre Channel product in 1996.
Fibre Channel is an emerging high-speed data transfer technology. Fibre
Channel is regarded as a follow-on migration path from SCSI. It is 10 to 250
times faster than existing technologies, including SCSI, capable of
transmitting at rates of one gigabit per second simultaneously in both
directions. This kind of performance is a practical necessity when sizable
files containing x-rays or MRI scans are retrieved from a storage device.
Fibre Channel can also operate over distances up to 10 km. For disaster
recovery purposes it is an ideal technology for backing up mission critical
data to mass storage device at a secure remote location.
SCSI
V/SCSI-2 4220 is designed for VMEbus and VME64 systems. It complies with the
industry standard SCSI-2 interface. It also contains two channels that
support up to 14 SCSI-1 or SCSI-2 devices. It is capable of data rates of up
to 10 MBytes/second in the synchronous mode and 5 MBytes/second in the
asynchronous mode. This product is available in either a 6U or 9U form
factor. Additionally, an optional daughter card is available which allows for
a connection to an Ethernet network. The incorporation of an Ethernet
daughter card with a SCSI adapter in this manner utilizes only one slot in a
computer backplane.
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V/SCSI 4210 is a high performance dual channel SCSI host adapter for VMEbus
applications. It supports up to seven SCSI devices per channel and can be
configured with one or two independent SCSI channels. By utilizing the
BUSpacket Interface it can provide transfer rates of up to 5 MBytes/second in
synchronous mode and up to 1.5 MBytes/second in the asynchronous mode. This
product is available in either a 6U or 9U form factor.
FIBRE CHANNEL
PCI/FIBRE CHANNEL 5526 adapter provides single port connection, powered by
the Hewlett-Packard Tachyon Fibre Channel protocol engine.
PCI/FIBRE CHANNEL 6526 adapter is a 3U CompactPCI adapter which delivers full
100mbps throughput for next generation mass storage applications.
INTERPHASE (I)CHIPTPI is a single chip solution which allows the
Hewlett-Packard Tachyon Fibre Channel controller to be used in conjunction
with the industry standard PCI bus.
NEW PRODUCT DEVELOPMENT
The markets for the Company's products are characterized by rapid
technological development, evolving industry standards, frequent new product
introductions and relatively short product life cycles. The Company's success
is substantially dependent upon its ability to anticipate and react to these
changes, maintain its technological expertise, expand and enhance its product
offerings in existing technologies, and to develop in a timely manner new
products in emerging technologies, such as ATM-based networking, which
achieve market acceptance. The Company believes it must offer products to
the market which not only meet ever-increasing performance and quality
standards, but also provide compatibility and interoperability with products
and architectures offered by various computer and network systems vendors.
The continued utility of the Company's products can be adversely affected by
products or technologies developed by others.
The Company has been engaged in the development of new products and the
refinement of its existing products since its inception. Interphase has been
active in the formulation of industry standards sanctioned by groups such as
the IEEE and ANSI and is a member of the ATM Forum, VME International Trade
Association (VITA), Fibre Channel Association, RAID Advisory Board, PCI Bus
Consortium, Fast Ethernet Alliance, SCSI Committee, the LADDIS Group, ONC/NFS
Consortium, University of New Hampshire FDDI Interoperability Lab, FC-Open
(Fibre Channel) Consortium, and ANTC Consortium for FDDI interoperability
testing.
In 1996, the Company applied the majority of its engineering development
resources to products for the emerging ATM market. This network technology
provides for the integration of voice, video and data transmission in local
area networks and wide area networks, significant
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improvements in network managability, and scalability of speed from 25
megabits per second ("Mbps") to 51, 100, 155 and 622 Mbps.
In addition, the Company has continued its focus on FDDI products, including
PCI, GIO, and Sbus FDDI adapter cards and the M400 low cost four or eight
port FDDI concentrator with copper or fiber connectivity and optional SNMP
management. In 1996, the Company introduced its first Fibre Channel mass
storage controller.
Since the acquisition of Synaptel, engineering development activities have
also been focused on products for the WAN market. These development efforts
include products based upon ISDN, X.25 and xDSL technologies.
MARKETING AND CUSTOMERS
The Company's standard products are sold to OEM's for inclusion in
scientific, industrial, medical, engineering workstations, printing,
mini-supercomputer, graphics and other computer applications. These
purchasers incorporate the Company's products in proprietary systems for
resale to distributors, system integrators and VAR's (which add specially
designed software) prior to resale to end-users. Also, the Company sells
products directly to sophisticated end-users such as large corporations,
universities and scientific research organizations. During 1996 no single
customer accounted for more that 10% of consolidated revenues. During the
year ended October 31, 1995, sales to Pyramid Corporation accounted for
$7,039,000 or 15% of consolidated revenues, and was the only customer
accounting for more than 10% of consolidated revenues. During the year ended
October 31, 1994, two customers accounted for more than 10% of consolidated
revenues, Sequent Computer and Motorola Systems, with revenues of $4,125,000
and $4,082,000, respectively, each of which equaled approximately 10% of
consolidated revenues.
In 1989, Motorola purchased 660,000 shares of common stock of the Company at
a price of $11.00 per share. In addition, Motorola received warrants to
purchase an additional 660,000 shares of common stock at an exercise price of
$15.40 per share. The warrants were not exercised by Motorola and expired in
March 1996. Sales to Motorola approximated 6%, 6% and 10% of the Company's
revenues for the years ended December 31, 1996, October 31, 1995 and 1994,
respectively.
The Company markets its products through its own sales organization and, to a
lesser extent, through a network of independent sales representatives. In
addition to the Company's headquarters in Dallas, Texas, the Company has
sales offices located in or near Santa Clara, California; Boston,
Massachusetts; Portland, Oregon; Phoenix, Arizona; Minneapolis, Minnesota;
Nashua, New Hampshire; Tokyo, Japan; London, England; and Paris, France. The
Company's sales personnel market products directly to key customers as well
as support the sales representative network. In addition, the Company has
entered into distribution agreements with key national and international
distribution partners, including Anixter, Fuji-Xerox, Gates/Arrow and Westcon.
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Interphase emphasizes its extensive product support, training and field support
to its customers. The Company's products are generally sold with a one year
warranty covering components and labor. After the expiration of the warranty
period, support services are generally provided by the Company for a stated flat
fee.
The Company and its customers generally enter into written agreements
specifying, among other items standard in commercial agreements, product
specifications, failure rates, shipping requirements, shipment rescheduling
terms, price/volume schedules and manufacturer warranties. Substantially all of
these agreements do not contain determinable purchase commitments of the
customers, providing instead that actual purchase and shipments of products be
made by specific purchase order. Accordingly, any shipment rates stated in such
contracts are subject to rescheduling and/or cancellation, and therefore are not
indicative of the future purchase orders to be submitted by such customer. In
addition, the actual terms of the contracts tend to be modified in the ordinary
course of business by means of subsequent purchase order terms and by course of
dealing.
The Company does not believe that the level of backlog of orders is either
material or indicative of future results, since its contracts are subject to
revision through subsequent purchase orders and since its customers are
generally permitted to cancel purchase orders, within certain parameters, prior
to shipment without penalty.
The majority of the Company's sales are to OEMs with payment terms typically
being net 30-45 days from date of invoice.
MANUFACTURING AND SUPPLIES
Most manufacturing operations are currently conducted at the Company's
headquarters in Dallas, Texas. In addition, the Company utilizes contract
manufacturing operations for the assembly of certain products, including those
produced in France. The Company's products consist primarily of various
integrated circuits, other electronic components and firmware assembled onto an
internally designed printed circuit board.
The Company uses internally designed, applications specific integrated circuits
("ASIC"), some of which are sole-sourced, on most of its products as well as
standard off-the shelf items presently available from two or more suppliers.
Historically the Company has not experienced any significant problems in
maintaining an adequate supply of these parts sufficient to satisfy customer
demand, and the Company believes that it has good relations with its vendors
The Company generally does not manufacture products to stock in finished goods
inventory, as substantially all of the Company's production is dedicated to
specific customer purchase orders. As a result, the Company does not have any
material requirements to maintain significant inventories or other working
capital items.
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INTELLECTUAL PROPERTY AND PATENTS
While the Company believes that its success is ultimately dependent upon the
innovative skills of its personnel and its ability to anticipate technological
changes, its ability to compete successfully will depend, in part, upon its
ability to protect proprietary technology contained in its products. The
Company does not currently hold any patents relative to its current product
lines. Instead, the Company relies upon a combination of trade secret,
copyright and trademark laws and contractual restrictions to establish and
protect proprietary rights in its products. The development of alternative,
proprietary and other technologies by third parties could adversely affect the
competitiveness of the Company's products. Further, the laws of some countries
do not provide the same degree of protection of the Company's proprietary
information as do the laws of the United States. Finally, the Company's
adherence to industry-wide technical standards and specifications may limit the
Company's opportunities to provide proprietary product features capable of
protection.
The Company is also subject to the risk of litigation alleging infringement of
third party intellectual property rights. Infringement claims could require the
Company to expend significant time and money in litigation, pay damages, develop
non-infringing technology or acquire licenses to the technology which is the
subject of asserted infringement.
The Company has entered into several nonexclusive software licensing agreements
that allow the Company to incorporate software into its product line thereby
increasing its functionality, performance and interoperability.
EMPLOYEES
At December 31, 1996, the Company had 269 full-time employees, of which 81 were
engaged in manufacturing and quality assurance, 91 in research and development,
56 in sales, sales support, service and marketing and 41 in general management
and administration.
The Company's success to date has been significantly dependent on the
contributions of a number of its key technical and management employees. The
Company does not maintain life insurance policies on its key employees and,
except for a few executive officers, does not have employment agreements with
key employees. The loss of the services of one or more of these key employees
could have a material adverse effect on the Company. In addition, the Company
believes that its future success will depend in large part upon its ability to
attract and retain highly skilled and motivated technical, managerial, sales and
marketing personnel. Competition for such personnel is intense.
None of the Company's employees are covered by a collective bargaining agreement
and there have been no work stoppages. Additionally, the Company considers its
relationship with its employees to be good.
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COMPETITION
The computer network industry is intensely competitive and is significantly
affected by product introductions and market activities of industry
participants. The Company expects substantial competition to continue. The
Company's competition includes vendors specifically dedicated to the mass
storage controller and computer network product markets. Traditionally the
Company's major OEM customers have chosen not to manufacture adapters for their
products or do not manufacture sufficient quantities or types of controllers to
meet their needs. Increased competition could result in price reductions,
reduced margins and loss of market share.
Many of the Company's current and potential competitors have significantly
greater financial, technical, marketing and other resources and larger installed
bases than the Company. Several of the Company's competitors have been acquired
by major networking companies. These acquisitions are likely to permit the
Company's competitors to devote significantly greater resources to the
development and marketing of new competitive products and the marketing of
existing competitive products to their larger installed bases. The Company
expects that competition will increase substantially as a result of these and
other industry consolidations and alliances, as well as the emergence of new
competitors. The Company believes that it has been able to compete as a result
of its perceived technological leadership within the Company's market segment
and its reputation for high product performance.
ITEM 2. PROPERTIES.
The Company leases a 96,000 square foot facility located in Farmers Branch,
Texas, a suburb of Dallas. The facility includes approximately $2.8 million in
leasehold improvements that were made by the Company. The lease, inclusive of
renewal options, extends through 2009. In addition the Company leases a
facility in Chaville, France (near Paris) which supports the European markets.
The Company believes that its facilities and equipment are in good operating
condition and are adequate for its operations. The Company owns most of the
equipment used in its operations. Such equipment consists primarily of
engineering equipment, manufacturing and test equipment, and fixtures.
ITEM 3. LEGAL PROCEEDINGS.
On January 22, 1996, the Company filed a lawsuit in the 160th Judicial District
Court of Texas against Rockwell International Corporation and related parties
seeking damages for breach of contract in connection with a proposed acquisition
by the Company of a division of Rockwell. The Company is unable to predict with
any certainty the outcome of this litigation. Other than the foregoing, there
are no other legal proceedings, pending or threatened, against the Company that,
in management's opinion, could have a material effect on the Company's financial
position or operations.
12
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
Not applicable
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
Since January 1984 shares of the Company's common stock have been traded on The
Nasdaq Stock Exchange under the symbol INPH. The following table summarizes its
high and low price for each fiscal quarter during 1996 and 1995 as reported by
Nasdaq.
FISCAL 1996 HIGH LOW
- --------------------------------------------
First Quarter 13 7/8 9 7/8
Second Quarter 20 1/4 13 1/2
Third Quarter 16 1/2 10
Fourth Quarter 16 3/8 10
FISCAL 1995 HIGH LOW
- --------------------------------------------
First Quarter 12 3/4 8 1/2
Second Quarter 12 3/8 8 3/8
Third Quarter 17 3/4 9 3/4
Fourth Quarter 17 1/2 10 1/2
The Company had approximately 900 beneficial owners of its Common Stock, of
which 92 are of record, as of March 15, 1997.
The Company has not paid dividends on its Common Stock since its inception.
The Board of Directors does not anticipate payment of any dividends in the
foreseeable future and intends to continue its present policy of retaining
earnings for reinvestment in the operations of the Company.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Statement of Operations Data: Twelve months Two months
(In Thousands, except per share data) ended Dec. 31, ended Dec. 31, Twelve months months ended Oct. 31,
1996 1995 1995 1994 1993 1992
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 56,752 $ 3,379 $47,368 $40,303 $38,496 $44,258
Gross profit 27,964 1,224 23,547 20,066 18,764 24,142
Research and development 9,902 1,360 7,327 7,862 8,772 9,180
Sales and marketing 10,297 1,173 8,583 7,599 9,087 8,337
General and administrative 4,905 634 4,004 4,146 4,847 4,380
Special charges 11,646 - - 1,148 2,447 -
Operating income (loss) (8,786) (1,943) 3,633 (689) (6,389) 2,245
Other, net (705) 94 589 278 404 592
Income (loss) before income tax (9,491) (1,849) 4,222 (411) (5,985) 2,837
Net income (loss) (10,055) (1,167) 2,759 (280) (4,201) 1,787
Net income (loss) per share (1.99) (0.25) 0.55 (0.06) (0.94) 0.39
Weighted average number of common
and common equivalent shares 5,062 4,663 5,051 4,484 4,472 4,592
-----------------------------------------------------------------------------
December 31, October 31,
Balance Sheet Data: 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------
Working Capital $ 22,836 $24,328 $20,776 $19,053 $21,796
Total Assets 53,924 35,430 31,943 32,339 36,468
Total Liabilities 23,538 5,019 5,094 5,239 5,240
Shareholders' equity 30,386 30,411 26,849 27,100 31,228
</TABLE>
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
CONSOLIDATED STATEMENTS OF OPERATIONS PERCENTAGE OF REVENUES
TWO
YEAR MONTHS
ENDED ENDED
DEC. 31, DEC. 31, YEARS ENDED OCT. 31,
1996 1995 1995 1994
--------------- ----------------
Revenues 100.0% 100.% 100.0% 100.0%
Cost of sales 50.7 63.8 50.3 50.2
--------------- ----------------
Gross profit 49.3 36.2 49.7 49.8
Research and development 17.4 40.2 15.4 19.5
Sales and marketing 18.1 34.7 18.1 18.9
General and administrative 8.6 18.8 8.5 10.3
Provision for strategic realignment - - - 2.8
Acquired in-process R&D 20.5 - - -
--------------- ----------------
Operating income (loss) (15.3) (57.5) 7.7 (1.7)
--------------- ----------------
Interest income 0.7 2.8 1.2 .8
Interest expense (0.9) - - -
Other, net (1.0) - - -
--------------- ----------------
Income (loss) before income taxes (16.5) (54.7) 8.9 (.9)
Provision (benefit) for income taxes 1.0 (20.2) 3.1 (.3)
--------------- ----------------
Net income (loss) (17.5)% (34.5)% 5.8% (.6)%
--------------- ----------------
--------------- ----------------
Effective January 1, 1996, the Company changed its fiscal year end from October
31 to December 31. For comparison purposes, results for the year ended December
31, 1996, are being compared with results for the year ended October 31, 1995.
The Company has not recast the prior year financial information presented herein
to conform to the new fiscal year end, as management believes the October 31,
1995 results are the most comparable to the December 31, 1996 results.
15
<PAGE>
In June 1996, the Company acquired Synaptel S. A. ("Synaptel"), a French
company which designs and distributes a broad line of remote access and ISDN
products, which include both significant software content and
interoperability with a broad range of networking protocol.
RESULTS OF OPERATIONS
REVENUES: Total revenues for the year ended December 31, 1996 were
$56,752,000 as compared to $47,368,000 and $40,303,000 for the years ended
October 31, 1995 and 1994, respectively. This represents a growth in
revenues of 20% from 1995 to 1996. Revenues from Synaptel products were
approximately $7,100,000 since the acquisition in mid-1996. The remaining
improvement in revenues was led by a 17% increase in sales of the Company's
FDDI (Fiber Distributed Data Interface) product line, a 17% increase in
sales of older ethernet products, a 116% increase in sales of ATM products,
and partially offset by a 51% decline in SCSI products. In addition, the
Company had significant first year revenues form its 100 Base T/VGAnyLAN fast
ethernet product line. FDDI revenues approximated 43% of total revenues in
1996 with the remaining 57% as follows: SCSI 13%, ethernet 12%, ATM 8%, 100
Base T/VGLAN 8%, ISDN/ remote access 13% and other of approximately 3%.
Local area networking products in total comprised 71% of total revenues for
1996, mass storage product revenues 14% of total revenue and wide area
networking products 13% of total revenues. North American revenues grew 2%,
Pacific Rim revenues declined 3%, and European revenues increased two fold
compared to 1995, primarily due to the acquisition of Synaptel. The increase
in revenue from 1994 to 1995 was $7,065,000, which represents a growth of
approximately 18%. This growth was due primarily to a 33% increase in
revenue from the Company's FDDI products and a 9 % increase in SCSI products
which was partially offset by a decrease of 17% in sales of older ethernet
products. In 1995 FDDI revenues approximated 45% of total revenues, SCSI
33%, Ethernet 12% and ATM 4%. In 1995 local area networking comprised 61% of
total revenues, with mass storage product revenues accounting for 34%, and
other products accounting for the remaining 5% of total revenues.
COST OF SALES: Cost sales expressed as a percentage of revenues were 51%,
50% and 50% for the years ended December 31, 1996, October 31, 1995 and 1994,
respectively. In 1996, the FDDI products experienced an improved gross
profit over 1995, SCSI and ATM products were unchanged and ethernet products
experienced a slight improvement in gross profit compared to 1995. Typical
of a first year technology, 100 Base T/VGAnyLAN costs of sales were higher
than the costs of the companies more developed products. In 1995, the cost
of sales as a percentage of revenues were unchanged compared to 1994.
RESEARCH AND DEVELOPMENT: The Company's investment in the development of new
products through engineering development, exclusive of acquired in-process
research and development, was $9,902,000, $7,327,000 and $7,862,000 in 1996,
1995, and 1994, respectively. As a percentage of revenue, research and
development expenses were 17%, 15% and 20% for 1996, 1995, and 1994,
respectively. The increase in absolute spending in 1996 is a reflection of
incremental engineering investments in products based upon the new emerging ATM,
fast
16
<PAGE>
ethernet and fibre channel technologies, as well as WAN products following
the acquisition of Synaptel. As a percent of revenue, research and
development expenses are expected to remain essentially flat for 1997, as
compared to 1996.
SALES AND MARKETING: Sales and marketing expenses were $ 10,297,000,
$8,583,000, and $7,599,000 in 1996, 1995, and 1994, respectively. As a
percentage of revenue, sales and marketing expenses were 18%, 18% and 19% for
1996, 1995, and 1994, respectively. The increase in absolute spending from
1994 to 1995 and 1995 to 1996 is primarily related to the increase in
revenues each year, including activity resulting from the acquisition of
Synaptel in 1996.
GENERAL AND ADMINISTRATIVE: General and administrative expenses were
$4,905,000 $4,004,000 and $4,146,000 in 1996, 1995, and 1994, respectively.
As a percentage of revenue, general and administrative expenses were 9%, 9%
and 10% for 1996, 1995 and 1994 respectively. Synaptel accounted for
approximately 79% of the increase in 1996.
SPECIAL CHARGES: In the second quarter of 1996 the Company recorded a
$11,646,000 charge to write off the in-process research and development costs
acquired in connection with the acquisition of Synaptel. Acquired in-process
research and development activities have no alternative future use and have
not achieved technological feasibility; accordingly, the amounts have been
expensed in the accompanying consolidated statements of operations for the
period ended December 31, 1996 In the first quarter of 1994 the Company
recorded a $1,148,000 provision for strategic realignment related to a 15%
reduction in workforce, consolidation of the California engineering
activities to Dallas and the write-off of nonproductive assets. At December
31, 1996 the entire reserve had been utilized for its specified purpose.
INTEREST INCOME: Interest income was $421,000, $586,000 and $309,000 in
1996, 1995 and 1994, respectively. The decrease in the current year is due
to lower amounts of invested cash resulting from the acquisition of certain
product rights from Cisco Systems Inc. and increased investments in accounts
receivable.
PROVISION (BENEFIT) FOR INCOME TAXES: The Company's provision for income
taxes in 1996, 1995, and 1994 is made up of the federal statutory rate of
34%, as well as a provision for state taxes. The write-off of acquired
in-process research and development during 1996 was not tax benefited, which
resulted in a net tax provision.
NET INCOME (LOSS): The net loss for the Company was $10,055,000 in 1996,
compared to net income of $2,759,000 in 1995 and net loss of $280,000 in
1994. The loss in 1996 is attributable to the write off of acquired
in-process research and development of $11,646,000 associated with the
acquisition of Synaptel. The 1995 profit is a result of the 18% growth in
revenues, while maintaining a gross margin of 50% and reducing operating
expenses by 4% from 1994, resulting in a net income as a percentage of
revenues of approximately 6%.
17
<PAGE>
ADOPTION OF ACCOUNTING STANDARDS: In 1996, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 121; "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of",
which establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangibles and goodwill. This adoption resulted
in no adverse impact on the consolidated financial statements of the Company.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". This statement requires companies to either recognize
compensation expense related to employee stock options in the income
statement or disclose the pro-forma effect on earnings of the stock options
in the footnotes to the financial statements. The Company adopted the
footnote disclosure approach of SFAS No. 123 and the Company's pro forma
disclosure can be found in the notes to the consolidated financial statements.
USE OF FORWARD LOOKING STATEMENTS: Certain statements contained in MD&A are
forward-looking statements including statements concerning expected research
and development expenses and the adequacy of the Company's sources of cash to
finance its current and future operations. Factors which could cause actual
results to materially differ from management's expectations include the
following: general economic conditions and growth in the high tech industry;
competitive factors and pricing pressures; changes in product mix; the timely
development and acceptance of new products; inventory risks due to shifts in
market domain; and the risks described from time to time in the Company's SEC
reports.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash, cash equivalents and marketable securities aggregated
$5,850,000, $12,686,000 and $11,534,000 at December 31, 1996, October 31,
1995, and 1994, respectively. The decrease of $6,836,000 in the current year
is primarily due to the acquisition of the Cisco product line and the growth
in accounts receivable and inventories. The increase of $1,152,000 in 1995
was primarily due to the level of profitability in 1995 partially offset by
the growth in accounts receivable and inventories. Expenditures for
equipment and purchased software were nearly the same as depreciation and
amortization expenses in 1996 and 1995. Expenditures for equipment and
purchased software were $2,539,000, $2,728,000 and $1,492,000 in 1996, 1995
and 1994, respectively. At December 31, 1996, the Company had no material
commitments to purchase capital assets. The Company has not paid any
dividends since its inception and does not anticipate paying any dividends in
1997. In connection with the Synaptel acquisition in June 1996, the Company
entered into a two-year $16,000,000 credit facility with a financial
institution, subject to annual renewal provisions. This credit facility
includes an $8,500,000 term loan, a $2,500,000 equipment loan and a
$5,000,000 revolving credit facility. The term loan is due in quarterly
installments beginning in November 1996, and expires in November 2001. The
revolving credit facility expires in April 1998. In 1997, maturities of this
credit facility are approximately $2,431,000. The Company expects that its
cash, cash equivalents, marketable securities and the availability under its
revolving credit facility will be adequate to meet foreseeable needs in 1997.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 14 (a) below.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
DIRECTORS
See information regarding the directors and nominees for director under the
heading "Election of Directors" of the Proxy Statement for the Annual
Meeting of Shareholders to be held in May 1997, which is incorporated herein
by reference.
EXECUTIVE OFFICERS
As of March 1, 1997, the executive officers of the Company, their respective
ages, positions held and tenure as officers are listed below:
EXECUTIVE
OFICERS OF
THE COMPANY
NAME AGE POSITION(S) HELD WITH THE COMPANY SINCE
---- --- --------------------------------- -----
R. Stephen Polley 46 Chairman, Chief Executive Officer, 1993
Chief Operating Officer and President
Robert L. Drury 49 Chief Financial Officer, 1992
Vice President of Finance and Treasurer
Earnest Godsey 49 Vice President of Business Development 1992
John E. Tuder 38 Vice President of Engineering 1995
R. STEPHEN POLLEY joined the Company as President and Chief Operating Officer
and was elected a director by the Board of Directors in November 1993. In
June 1994, Mr. Polley was named Chief Executive Officer of the Company and
appointed Chairman of the Board of Directors. From August 1992 to February
1993, Mr. Polley acted as a consultant in strategic and management matters
and as a director for Computer Automation, Inc. Computer Automation provided
various
19
<PAGE>
products and services for use in facsimile management systems, minicomputers
and microcomputers. From 1987 to April 1992, Mr. Polley served as
President, Chief Executive Officer and a director of Intellicall, Inc., a
diversified supplier of telecommunications products and services including
private pay telephones and microprocessor-based automated operator systems.
ROBERT L. DRURY joined the Company as Vice President of Finance and Chief
Financial Officer in December 1992. In June 1994, Mr. Drury was also named
Treasurer for the Company. From 1988 through 1992, Mr. Drury was Chief
Financial Officer of the Ben Hogan Company, a manufacturer of golf related
products.
ERNEST E. GODSEY joined the Company as Vice President of Business Development in
December 1992. From October 1991 through December 1992, Mr. Godsey was Vice
President of Engineering and Marketing for Mizar, Inc., a supplier of various
products for the microcomputer OEM marketplace. From 1986 through October 1991,
Mr. Godsey was employed by the Company in various marketing capacities, the last
being that of Vice President of Marketing.
JOHN E. TUDER joined the Company as Vice President of Engineering in 1995.
Prior to joining Interphase Mr. Tuder was Director of Product Development for
the Broadband Products Division of DSC Communications Corporation, from 1993
through 1995, and prior to that with Intergraph in Huntsville, Alabama, from
1980 through 1993.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is in the Proxy Statement dated April 10,
1997 for the Annual Meeting of Shareholders to be held on May 14, 1997, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this Item is in the Proxy Statement for the
Annual Meeting of Shareholders to be held on May 14, 1997, which is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is in the Proxy Statement for the
Annual Meeting of Shareholders to be held on May 14, 1997, which is
incorporated herein by reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) (i) and (ii) Financial Statements and Schedules.
Reference is made to the listing on page F-1 of all financial statements and
schedules filed as a part of this report.
(iii) Exhibits.
Reference is made to the Index to Exhibits on page E-1 for a list of all
exhibits filed during the period covered by this report.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed by the Registrant during the quarter
ended December 31, 1996.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
INTERPHASE CORPORATION
Date: March 28, 1997 By: /s/ R. STEPHEN POLLEY
-------------------------------------
R. Stephen Polley
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 28, 1997.
NAME TITLE
---- -----
Chairman of the Board of Directors,
Chief Executive Officer, Chief
Operating Officer and President
/s/ R. STEPHEN POLLEY (Principal executive officer)
- -------------------------------
R. Stephen Polley
Chief Financial Officer,
/s/ ROBERT L. DRURY Vice President of Financial and
- -------------------------------- Treasurer (Principal finance officer)
Robert L. Drury
/s/ GARY W. FIEDLER Director
- --------------------------------
Gary Fiedler
/s/ DALE CRANE Director
- --------------------------------
Dale Crane
/s/ JAMES F. HALPIN Director
- --------------------------------
James F. Halpin
/s/ PAUL N. HUG Director
- --------------------------------
Paul N. Hug
/s/ ROBERT H. LYON Director
- --------------------------------
Robert H. Lyon
/s/ DAVID H. SEGREST Director
- --------------------------------
David H. Segrest
/s/ S. THOMAS THAWLEY Director
- --------------------------------
S. Thomas Thawley
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULES
Report of Independent Public Accountants -
ARTHUR ANDERSEN LLP F-2
Consolidated Balance Sheets - December 31, 1996
and October 31, 1995 F-3
Consolidated Statements of Operations - Periods Ended
December 31, 1996 and 1995, October 31, 1995 and 1994 F-4
Consolidated Statements of Shareholders' Equity - Periods Ended
December 31, 1996 and 1995, October 31, 1995 and 1994 F-5
Consolidated Statements of Cash Flows - Periods Ended F-6 to F-7
December 31, 1996 and 1995, October 31, 1995 and 1994
Notes to Consolidated Financial Statements F-8 to F-18
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder's and Board of Directors of Interphase Corporation:
We have audited the accompanying consolidated balance sheets of Interphase
Corporation (a Texas corporation) and subsidiaries as of December 31, 1996, and
October 31, 1995, and the related consolidated statements of operations,
shareholders' equity, and cash flows for the year ended December 31, 1996, the
two month period ended December 31, 1995 and the years ended October 31, 1995
and 1994. 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 that 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 Interphase Corporation and
subsidiaries as of December 31, 1996, and October 31, 1995, and the results of
their operations and their cash flows for the year ended December 31, 1996, the
two month period ended December 31, 1995 and the years ended October 31, 1995
and 1994, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
February 5, 1997
F-2
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except number of shares)
December 31, October 31,
1996 1995
ASSETS ------------ -----------
- ------
Cash and cash equivalents $ 2,271 $ 3,320
Marketable securities 3,579 9,366
Trade accounts receivable, less allowances
for uncollectible accounts of $503 and
$238 respectively 15,182 7,521
Inventories, net 12,599 7,486
Prepaid expenses and other current assets 1,221 957
Deferred income taxes, net 886 594
--------- --------
Total current assets 35,738 29,244
--------- --------
Machinery and equipment 12,340 10,920
Leasehold improvements 2,863 2,758
Furniture and fixtures 278 351
--------- --------
15,481 14,029
Less-accumulated depreciation and
amortization (10,394) (8,820)
--------- --------
Total property and equipment, net 5,087 5,209
--------- --------
Capitalized software, net 400 524
Deferred income taxes, net 392 301
Acquired developed technology, net 5,819 -
Goodwill, net 3,902 -
Other assets 2,586 152
--------- --------
Total assets $ 53,924 $35,430
--------- --------
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
LIABILITIES
Accounts payable $ 4,279 $ 1,357
Accrued liabilities 3,097 1,836
Accrued compensation 2,962 1,357
Income taxes payable 93 366
Current portion of debt 2,471 -
--------- --------
Total current liabilities 12,902 4,916
Deferred lease obligations 72 103
Other liabilities 1,120 -
Long term debt, net of current portion 9,444 -
--------- --------
Total liabilities 23,538 5,019
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, no par value; 100,000,000
shares authorized; 5,491,658 and 4,661,303
shares outstanding 35,195 24,177
Retained earnings (deficit) (4,959) 6,263
Cumulative foreign currency translation
adjustment 164 -
Unrealized holding period loss (14) (29)
--------- --------
Total shareholders' equity 30,386 30,411
--------- --------
Total liabilities and shareholders'
equity $ 53,924 $ 35,430
--------- --------
--------- --------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-3
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except number of shares)
<TABLE>
Year Two months
ended ended
December 31, December 31, Years ended October 31,
-----------------------------------------------------
1996 1995 1995 1994
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues $ 56,752 $ 3,379 $ 47,368 $40,303
Cost of sales 28,788 2,155 23,821 20,237
-------- ------- -------- -------
Gross profit 27,964 1,224 23,547 20,066
-------- ------- -------- -------
Research and development 9,902 1,360 7,327 7,862
Sales and marketing 10,297 1,173 8,583 7,599
General and administrative 4,905 634 4,004 4,146
Provision for strategic
realignment - - - 1,148
Acquired in-process R&D 11,646 - - -
-------- ------- -------- -------
Total operating expenses 36,750 3,167 19,914 20,755
-------- ------- -------- -------
Operating income (loss) (8,786) (1,943) 3,633 (689)
Interest income 421 94 586 309
Interest expense (535) - - -
Other, net (591) - 3 (31)
-------- ------- -------- -------
Income (loss) before income
taxes (9,491) (1,849) 4,222 (411)
Provision (benefit) for income
taxes 564 (682) 1,463 (131)
-------- ------- -------- -------
Net income (loss) ($10,055) ($1,167) $ 2,759 ($ 280)
-------- ------- -------- -------
-------- ------- -------- -------
Net income (loss) per common and
common equivalent share ($ 1.99) ($0.25) $ 0.55 ($ 0.06)
-------- ------- -------- -------
-------- ------- -------- -------
Weighted average common and common
equivalent shares 5,062 4,663 5,051 4,484
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART
OF THESE CONSOLIDATED FINANCIAL STATEMENTS.
F-4
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Cumulative
Retained Unrealized Foreign
Common Stock Earnings Holding Currency
Shares Amount (Deficit) Period Loss Translation Total
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------
Balance at October 31, 1993 4,477 $23,316 $ 3,784 $ - $ - $ 27,100
-----------------------------------------------------------------
Option exercises, including related tax benefit 36 177 - - - 177
Unrealized holding period loss - - - (148) - (148)
Net loss - - (280) - - (280)
-----------------------------------------------------------------
Balance at October 31, 1994 4,513 23,493 3,504 (148) - 26,849
-----------------------------------------------------------------
Option exercises, including related tax benefit 148 684 - - - 684
Unrealized holding period gain - - - 119 - 119
Net income - - 2,759 - - 2,759
-----------------------------------------------------------------
Balance at October 31, 1995 4,661 24,177 6,263 (29) - 30,411
-----------------------------------------------------------------
-----------------------------------------------------------------
Option exercises, including related tax benefit 6 17 - - - 17
Unrealized holding period gain - - - - - -
Net loss - - (1,167) - - (1,167)
-----------------------------------------------------------------
Balance at December 31, 1995 4,667 24,194 5,096 (29) - 29,261
-----------------------------------------------------------------
-----------------------------------------------------------------
Option exercises, including related tax benefit 230 1,801 - - - 1,801
Common stock issued in Synaptel acquisition 595 9,200 - - - 9,200
Cumulative foreign currency translation - - - - 164 164
Unrealized holding period gain - - - 15 - 15
Net loss - - (10,055) - - (10,055)
-----------------------------------------------------------------
Balance at December 31, 1996 5,492 $35,195 $ (4,959) $ (14) $164 $ 30,386
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.
F-5
<PAGE>
INTERPHASE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
Year ended Two months Year ended
Dec. 31, ended Dec.31, October 31,
---------------------------------------------
1996 1995 1995 1994
-------- ------- ------- -------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(10,055) $(1,167) $ 2,759 $ (280)
-------- ------- ------- -------
Adjustment to reconcile net income (loss) to net cash provided (used) by
operating activities:
Provision for strategic realignment - - - 1,148
Write off of acquired in-process research and development 11,646 - - -
Depreciation and amortization 4,234 525 2,814 3,189
Change in assets and liabilities, net of Synaptel acqusition
Trade accounts receivable (8,584) 3,575 (1,863) 187
Inventories (1,345) (2,173) (909) (195)
Refundable income taxes - - 219 1,630
Prepaid expenses and other current assets (151) 93 (224) 285
Other long term liabilities 1,093 - - -
Accounts payable and accrued liabilities (409) (304) (28) (746)
Accrued compensation (258) 43 (106) (221)
Income taxes payable - (366) 366 -
Deferred income taxes (358) 1 170 (446)
Deferred lease obligations - (4) (27) 24
-------- ------- ------- -------
Net adjustments 5,868 1,390 412 4,855
-------- ------- ------- -------
Net cash provided (used) by operating activities (4,187) 223 3,171 4,575
-------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, equipment, capitalized software and leasehold
improvements (2,539) (511) (2,728) (1,492)
Decrease (increase) in other assets (200) (71) (93) 221
Decrease (increase) in marketable securities 5,788 (1) (1,528) (2,280)
Cash acquired in Synaptel acquisition 11 - - -
Change in unrealized holding period loss on marketable securities 15 - - -
Acquisition of developed technologies (2,500) - - -
-------- ------- ------- -------
Net cash used by investing activities 575 (583) (4,349) (3,551)
-------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations - - - (90)
Payments of debt (1,134) - - -
Proceeds from debt 2,075 - - -
Increase in foreign currency translation adjustment 164 - - -
Increase in common stock from excercise of options 1,801 17 684 177
-------- ------- ------- -------
Net cash provided by financing activities 2,906 17 684 87
-------- ------- ------- -------
Net increase (decrease) in cash and cash equivalents (706) (343) (494) 1,111
Cash and cash equivalents at beginning of year 2,977 3,320 3,814 2,703
-------- ------- ------- -------
Cash and cash equivalents at end of year $ 2,271 $ 2,977 $ 3,320 $ 3,814
-------- ------- ------- -------
-------- ------- ------- -------
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 438 $ - $ - $ 7
Taxes refunded 40 283 244 1,433
Taxes paid 476 - 1,014 27
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-6
<PAGE>
INTERPHASE CORPORATION
SUPPLEMENTAL SCHEDULE OF CASH FLOWS
(in thousands)
Supplemental schedule of noncash investing and financing activities
In June, the Company purchased all of the capital stock of Synaptel.
Fair value of assets acquired $(27,403)
Liabilities assumed 8,414
Acquisition debt 8,000
Common stock issued 9,200
Aquisition costs 1,800
--------
Cash acquired in Synaptel acquisition $ 11
--------
--------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
F-7
<PAGE>
INTERPHASE CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION: The consolidated
financial statements include the financial statements of Interphase
Corporation ("the Company") and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Effective January 1, 1996, the Company changed its fiscal year end from
October 31 to December 31. For comparison purposes, results for the year
ended December 31, 1996, are being compared with results from the year ended
October 31, 1995. The Company has not recast the prior year financial
information presented herein to conform to the new fiscal year ends, as
management does not believe such recasting would be as meaningful for
comparative purposes, as the October 31, 1995, information presented herein.
CASH AND CASH EQUIVALENTS: The Company considers marketable securities with
original maturities of less than three months, as well as interest bearing
money market accounts, to be cash equivalents.
MARKETABLE SECURITIES: As of December 31, 1996 and October 31, 1995, the
fair market value of marketable securities was $3,579,000, and $9,366,000
respectively. In accordance with the requirements of the Statement of
Financial Accounting Standards, ("SFAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," all marketable securities are
classified as "available-for-sale securities" and reported at fair value.
Unrealized gains and losses are excluded from earnings and reported in a
separate component of shareholders' equity, net of related deferred taxes.
The Company's results of operations will continue to include earnings from
such securities as calculated on a yield-to-maturity basis. During 1996 the
Company realized a net loss of $16,000 from the sale of securities. As of
December 31, 1996 and 1995 the Company had recorded a valuation loss of
$14,000 and $29,000 (net of taxes), respectively with respect to certain
available-for-sale securities. During 1995 the Company realized a loss of
$14,000 from the sale of securities.
ALLOWANCE FOR DOUBTFUL ACCOUNTS: As of December 31, 1996, and October 31,
1995 and 1994, the allowance for doubtful accounts was $503,000, $238,000 and
$240,000. The activity in this account was as follows: (in thousands)
Balance at Write-offs Balance
Beginning Charged to Net of Synaptel at End
Year Ended: of Period Expense Recoveries Acquisition of Period
- -------------------------------------------------------------------------------
December 31, 1996 $ 238 $ 50 $ (50) $ 265 $ 503
October 31, 1995 240 - (2) - 238
October 31, 1994 242 2 (4) - 240
INVENTORIES: Inventories are valued at the lower of cost or market and
include material, labor and manufacturing overhead. Cost is determined on a
first-in, first-out basis: (in thousands)
Dec. 31, 1996 Oct. 31, 1995
------------- -------------
Raw Materials $ 6,040 $ 3,878
Work-in-process 5,193 3,401
Finished Goods 1,366 207
------- -------
Total $12,599 $ 7,486
------- -------
------- -------
F-8
<PAGE>
PROPERTY AND EQUIPMENT: Property and equipment are recorded at cost.
Depreciation and amortization are provided over the estimated useful lives of
depreciable assets using primarily the straight-line method. When property and
equipment are sold or otherwise retired, the cost and accumulated depreciation
applicable to such assets are eliminated from the accounts, and any resulting
gain or loss is reflected in current operations. Related depreciation expense
and accumulated depreciation were as follows: (in thousands)
Depreciation Expense Accumulated Depreciation
-------------------- ------------------------
Year ended December 31, 1996 $2,782 $ 10,394
Year ended October 31, 1995 2,414 8,820
Year ended October 31, 1994 2,262 8,918
The depreciable lives of property and equipment are as follows:
Machinery and equipment 3-5 years
Leasehold improvements 3-10 years
Furniture and fixtures 5-7 years
CAPITALIZED SOFTWARE: Capitalized software represents various software
licenses purchased by the Company and utilized in connection with the
Company's network and mass storage products as well as the general operations
of the Company. Capitalized software is amortized over 3-5 years utilizing
the straight-line method. Related amortization expense and accumulated
amortization were as follows: (in thousands)
Amortization Expense Accumulated Amortization
-------------------- ------------------------
Year ended December 31, 1996 $362 $ 2,128
Year ended October 31, 1995 400 1,441
Year ended October 31, 1994 508 1,309
RESEARCH AND DEVELOPMENT SUBSIDY: Included in other assets at December 31,
1996, is a subsidy of $2,009,000 due from the French government related to
the research and development activities of Synaptel.
INTANGIBLES: As a result of the acquisitions of Synaptel S.A. ("Synaptel")
and certain product rights acquired from Cisco Systems, Inc. ("Cisco"), the
Company acquired intangible assets related to developed technologies,
assembled workforce and goodwill. (See Note 2). Developed technology and
assembled workforce are amortized on a straight line basis over a 7 year
period. Goodwill related to the Synaptel acquisition is amortized on a
straight line basis over a 10 year period. Acquired product rights from
Cisco are amortized ratably over the anticipated revenue stream of such
products sold. The December 31, 1996 intangible balances at cost and related
amortization expense were as follows: (in thousands)
Intangibles Amortization Expense
----------- --------------------
Developed technology $ 4,230 $ 250
Assembled workforce 415 50
Goodwill-Synaptel 3,925 23
Acquired Product Rights-Cisco 2,500 767
REVENUE RECOGNITION: Revenue from product sales is recorded only when the
earnings process has been completed, which is generally at the time of
shipment.
CONCENTRATION OF CREDIT RISK: Financial instruments which potentially expose
the Company to concentrations of credit risk, as defined by SFAS No. 105 consist
primarily of trade accounts receivable. The majority of the Company's sales
have been to original equipment manufacturers of computer systems.
F-9
<PAGE>
The Company conducts credit evaluations of its customers' financial
condition and limits the amount of trade credit extended when necessary. The
Company establishes an allowance for doubtful accounts based upon factors
surrounding the credit risk of specific customers, historical trends, and
other information.
RESEARCH AND DEVELOPMENT: Research and development costs are charged to
expense as incurred.
FOREIGN CURRENCY TRANSLATION: Assets and liabilities of certain non-US
subsidiaries are translated at current exchange rates, and related revenues
and expenses are translated at average exchange rates in effect during the
period. Resulting translation adjustments are reflected in the shareholders'
equity.
INCOME TAXES: The Company utilizes the liability method to determine
deferred taxes. Deferred tax assets and liabilities are based on the
estimated future tax effects of differences between the financial statement
and tax bases of assets and liabilities given the provisions of enacted tax
law. The Company's consolidated financial statements include deferred income
taxes arising from the recognition of revenues and expenses in different
periods for income tax and financial reporting purposes.
NET INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE: Net income (loss)
per common and common equivalent share is computed using the weighted average
number of outstanding common and dilutive common equivalent shares
outstanding during the periods presented. The dilutive impact of outstanding
stock options and warrants has been considered under the treasury stock
method. In 1996, the two month period ended December 31, 1995 and 1994, the
impact of outstanding stock options and warrants was anitdilutive and,
therefore, has been excluded from the computations of net loss per share
related to those years. Shares used in the computation of net income (loss)
per common and common equivalent share are summarized below.
Weighted average common and common equivalent shares: (in thousands)
TWO MONTHS
YEAR ENDED ENDED
DEC. 31, DEC. 31, YEAR ENDED OCT. 31,
------------------------------------------------
1996 1996 1995 1994
---------------------- -------------------
Outstanding weighted average
shares outstanding 5,062 4,663 4,561 4,484
Stock options - - 490 -
-----------------------------------------------
Total 5,062 4,663 5,051 4,484
-----------------------------------------------
-----------------------------------------------
RECENTLY ISSUED ACCOUNTING POLICIES: In 1996, the Company adopted SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of", which establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and
goodwill. The adoption of SFAS No. 121 did not have a material effect on the
consolidated financial statements of the Company in 1996.
In 1996, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation". SFAS No. 123 requires companies to either recognize
compensation expense related to employee stock options in the income
statement or disclose the pro-forma effect on earnings of the stock options
in the footnotes to the financial statements. The Company adopted the
footnote disclosure approach of SFAS No. 123 and the Company's pro forma
disclosure can be found in note 5 to the consolidated financial statements.
CERTAIN RECLASSIFICATIONS: Certain prior year's amounts have been reclassified
to conform with the 1996 presentation.
F-10
<PAGE>
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. ACQUISITIONS
SYNAPTEL
Effective June 29, 1996 the Company acquired all the capital stock of
Synaptel, S.A., ("Synaptel"), a French company , for approximately
$19,000,000. The purchase consideration consisted of $8,000,000 in cash,
594,595 shares of the Company's common stock, valued at approximately
$9,200,000 and $1,800,000 of accrued acquisition costs. The Company financed
the cash portion of the consideration through a credit facility with a
financial institution. This acquisition has been accounted for using the
purchase method of accounting from the effective date of the acquisition;
since the acquisition was effective June 29, 1996, operating results for
Synaptel through June 30, 1996, were not significant. The total purchase
consideration in excess of the fair value of the tangible and identified
intangible assets acquired is included in goodwill. Identified intangibles
acquired included approximately $11,600,000 of in-process research and
development, $4,230,000 of developed technology and $415,000 related to
Synaptel's assembled workforce. Acquired in-process research and development
activities have no alternative future use and have not achieved technological
feasibility; accordingly, the amounts have been expensed in the
accompanying consolidated statement of operations for the year ended
December 31, 1996.
In addition to the purchase consideration discussed above, the purchase
agreement included provisions for additional consideration of $3,500,000
cash and 450,000 options to purchase the Company's common stock at an
exercise price of $18.50 per share if Synaptel attains certain revenue and
operating income targets through 1998. The actual cash earn-out and number
of employee stock options may increase or decrease depending upon performance
against targets. The cash payments pursuant to these provisions will be
accounted for as additional purchase consideration when payment is probable.
The compensatory elements, if any, for these stock options will be expensed
over the exercise periods. In 1996, no additional consideration was paid.
The unaudited pro forma financial information is presented for the years
ended December 31, 1996 and October 31, 1995. This unaudited pro forma
financial information gives effect to the purchase of Synaptel as if such
transaction had occurred as of November 1, 1994, and excludes the $11,646,000
write-off of acquired in-process research and development. (in thousands)
Year ended Year ended
December 31, 1996 October 31, 1995
----------------- ----------------
Net sales $ 59,845 $ 58,115
Net income (loss) (1,388) 2,317
Net loss per common and
common equivalent share (0.26) 0.41
Unaudited pro forma financial information for the two month period ended
December 31, 1995 is not available.
The unaudited pro forma financial information does not purport to represent
what the results of operations of the Company would actually have been if the
aforementioned transactions had occurred on November 1, 1994, nor do they
project the results of operations or financial position for any future
periods or at any future date.
F-11
<PAGE>
ACQUIRED PRODUCT RIGHTS
In June 1996, the Company acquired the rights to manufacture, market, and
sell certain FDDI products from Cisco for a purchase price of $2,500,000.
The acquired product rights are included in acquired developed technology in
the accompanying December 31, 1996, consolidated balance sheet.
3. CREDIT FACILITY
Prior to and in conjunction with the Synaptel acquisition discussed in Note
2, the Company entered into a credit facility with BankOne Texas NA. The
credit facility consists of an $8,500,000 acquisition term loan, a $2,500,000
equipment financing facility and a $5,000,000 revolving credit facility.
The facility is a two-year facility with an annual renewal provision, and
bears interest at the bank's base rate (currently 8.5%). The term loan is
payable in equal quarterly installments of $548,000 plus accrued interest
commencing on November 30, 1996 with final payment due November 30, 2001.
The Company has the ability to satisfy the quarterly payments on the term
notes through borrowing under the revolving credit component of the credit
facility. The revolving portion of the loan is due April 30, 1998. The
credit facility is collateralized by marketable securities, assignment of
accounts receivable and equipment. The credit facility includes certain
restrictive financial covenants including, among others, tangible net worth,
total liabilities to tangible net worth, interest coverage, quick ratio, debt
service coverage, and is subject to a borrowing base calculation. At
December 31, 1996, the Company was in compliance with all covenants. At
December 31, 1996, total availability under this credit facility was
$4,567,000.
At December 31, 1996, the Company's outstanding debt consisted of the
following: (in thousands)
Dec. 31, 1996 Interest
-------------------------
Acquisition Term Loan $ 8,075 8.5%
Equipment Financing Loan 2,358 8.5%
Borrowings under revolving credit facility 1,000 8.5%
Other 442
--------
Total 11,875
Less current portion 2,431
--------
Total long term debt $ 9,444
--------
--------
The total debt principal payments are $3,396,000 in 1998, $2,192,000 in 1999,
$2,192,000 in 2000, $1,664,000 in 2001 and zero thereafter.
4. INCOME TAXES
The provision (benefit) for income taxes for each period presented was as
follows: (in thousands)
YEAR ENDED TWO MONTHS
DEC. 31, ENDED DEC. 31, YEAR ENDED OCTOBER 31,
--------------------------- ----------------------
1996 1995 1995 1994
------------------------- --------------------
Current provision (benefit) $ 922 $ (657) $ 1,293 $ 315
Deferred provision (benefit) (358) (25) 170 (446)
------------------------- --------------------
Total $ 564 $ (682) $1,463 $ (131)
------------------------- --------------------
------------------------- --------------------
F-12
<PAGE>
Tax effect of temporary differences that give rise to significant components
of the deferred tax assets as of December 31, 1996, and October 31, 1995, are
presented as follows: (in thousands)
Year ended Year ended
Dec. 31, Oct. 31,
-------- --------
1996 1995
---- ----
Current deferred tax assets:
Assets:
Inventory $294 $146
Accounts receivable 120 120
Bonus accrual 164 22
Vacation accrual 154 146
Other expenses 154 160
---- ----
Total $886 $594
---- ----
---- ----
Noncurrent deferred tax assets (liabilities), net:
Assets:
Depreciation 753 $525
Other 18 36
---- ----
771 561
Liabilities:
Other (379) (260)
---- ----
Total $392 $301
---- ----
---- ----
The Company has not recorded a valuation allowance with respect to the
various deferred tax assets as management believes it is more likely than not
that these assets will be realized. Management periodically reviews the
realization of the Company's deferred tax assets, as appropriate, when
existing conditions change the probability of realization.
The differences between the provision (benefit) for income taxes computed on
income before income taxes at the U.S. federal statutory income tax rate
(34%) and the amount shown in the Consolidated Statements of Operations are
presented below: (in thousands)
<TABLE>
Year ended Two months
Dec. 31, ended Dec. 31, Year ended Oct. 31,
1996 1995 1995 1994
-------------------------------------------------
<S> <C> <C> <C> <C>
Income taxes at statutory rate $(3,227) $ (628) $1,435 $(140)
State income taxes 46 (35) 102 -
Foreign taxes not credited - - - 25
Write off of in-process
research and development
not benefited 3,960 - - -
Other (215) (19) (74) (16)
-------------------------------------------------
Provision (benefit) for income taxes $ 564 $ (682) $1,463 $(131)
-------------------------------------------------
-------------------------------------------------
</TABLE>
F-13
<PAGE>
5. COMMON STOCK
AMENDED AND RESTATED STOCK OPTION PLAN: In fiscal 1995, the Company amended
and restated its Stock Option Plan which, as amended, authorizes the issuance
to employees of up to 1,350,000 share of common stock in incentive stock
options (as defined in section 422 of the Internal Revenue Code of 1986, as
amended) and nonqualified stock options. The exercise price of the incentive
stock options must be at least equal to the fair market value of the
Company's common stock on the date of the grant, while the exercise price of
nonqualified stock options may be less than fair market value on the date of
grant, as determined by the board. Options generally vest ratably over a 5
year period from the date of grant. The term of option grants may be up to
10 years. Grants prior to June 1994 expire after 6 years. Options are
canceled upon the lapse of three months following termination of employment
except in the event of death or disability, as defined.
STOCK OPTION SUB-PLAN: This plan was adopted in 1988 for the benefit of the
Company's employees located in the United Kingdom. This plan authorizes the
issuance of options to purchase common stock of the Company at prices at
least equal to the fair market value of the common stock on the date of the
grant. The options vest after 3 years and expire after 10 years. The options
are canceled upon termination of employment, except in the event of death,
retirement or injury, as defined. The following table summarizes the
transactions under the Stock Option Plan and the Stock Option Sub-Plan: (in
thousands, except option prices)
Number of Range of Weighted Average
Options Option Price Option Price
--------------------------------------------
Balance, October 31, 1993 484 $4.00- 8.94 $4.73
Granted 640 4.25- 7.94 5.66
Exercised (36) 4.00- 5.00 4.56
Canceled (331) 4.00- 8.94 5.72
----------------------------------------
Balance, October 31, 1994 757 4.00- 8.00 5.10
Granted 536 9.57- 16.13 11.35
Exercised (134) 4.00- 7.38 5.02
Canceled (102) 4.00- 11.44 7.25
----------------------------------------
Balance, October 31, 1995 1,057 4.00- 16.13 8.07
Exercised (3) 4.00- 11.44 5.77
----------------------------------------
Balance, December 31, 1995 1,054 4.00- 16.13 8.08
Granted 370 10.00- 16.00 13.91
Exercised (194) 4.00- 11.44 6.08
Canceled (118) 4.00- 12.07 8.36
----------------------------------------
Balance, December 31, 1996 1,112 4.00- 16.13 10.34
----------------------------------------
----------------------------------------
Exercisable at December 31, 1996 270 4.00- 16.13 7.94
----------------------------------------
----------------------------------------
F-14
<PAGE>
DIRECTOR STOCK OPTIONS: In May 1994, the Company formalized its
program ("directors' plan") of granting stock options to its directors.
500,000 common shares were made available for grant under this plan. Future
grants pursuant to the directors' plan will vest within one year and have a
term of 5 years. The exercise prices related to these options were equal to
the market value of the Company's stock on the date of grant. The following
table summarizes the transactions under the Director Stock Option Plan: (in
thousands, except option prices)
Number of Range of Weighted Average
Options Option Price Option Price
--------------------------------------------
Balance, October 31, 1993 21 $ 4.75- 4.75 $4.75
Granted 123 4.38- 6.63 5.75
---------------------------------------
Balance, October 31, 1994 144 4.38- 6.63 5.61
Granted 40 10.25- 16.88 11.91
---------------------------------------
Balance, October 31, 1995 184 4.38- 16.88 6.98
Granted 30 14.88- 14.88 14.88
Exercised (38) 4.75- 10.25 6.20
---------------------------------------
Balance, December 31, 1996 176 4.38- 16.88 8.52
---------------------------------------
---------------------------------------
Exercisable at December 31, 1996 145 4.38- 16.88 7.21
---------------------------------------
---------------------------------------
ACCOUNTING FOR STOCK-BASED COMPENSATION: In 1996, the Company adopted SFAS
No. 123, "Accounting for Stock-Based Compensation". The Company has two
stock option plans, the Amended and Restated Stock Option plan, which also
includes the Sub-plan, and the Directors Plan. The Company accounts for
these plans under APB Opinion No. 25, under which no compensation cost has
been recognized. Had compensation cost for these plans been determined
pursuant to the provisions of SFAS No. 123, the Company's pro forma net
income (loss) for 1996 and 1995 would have been $(10,653,000) and
$2,370,000, respectively, resulting in earnings (loss) per share of $(2.13)
and $0.47, respectively. The fair value of each option grant is estimated on
the date of grant using the Black-Scholes option pricing model with the
following weighted-average assumptions used for options granted in 1996, and
1995: risk-free interest rate of 7%, expected dividend yield of zero,
expected term of 6.4 years, expected volatility of 112.96%.
Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma
compensation cost may not be representative of that to be expected in future
years.
6. ACCRUED LIABILITIES
Accrued liabilities consisted of the following: (in thousands)
December 31, October 31,
1996 1995
------------ -----------
Accrued royalties $ 265 $ 448
Accrued outside commissions 354 171
Accrued property tax 211 390
Accrued acquisition cost 546 -
Accrued other 1,721 827
------- -------
$ 3,097 $ 1,836
------- -------
------- -------
F-15
<PAGE>
7. RELATED PARTY TRANSACTIONS
The Company paid approximately $668,000 for the year ended December 31, 1996,
$67,000 for the two months ended December 31, 1995, $397,000 and $328,000 for
the years ended October 31, 1995 and 1994 respectively, to certain outside
directors of the Company or their firms as remuneration for their professional
services.
8. TRANSACTIONS WITH MOTOROLA, INC.
In 1989, the Company and Motorola, Inc. executed an agreement whereby Motorola
purchased, for cash, 660,000 newly issued shares of the Company's common stock
at a price of $11 per share. In addition, Motorola received warrants to
purchase an additional 660,000 shares of common stock at an exercise price of
$15.40 per share. The warrants were not exercised by Motorola and expired in
March 1996. The Company also granted Motorola registration rights with respect
to all common stock that Motorola owns. Pursuant to the terms of the agreement,
the Company elected a designee of Motorola to its Board of Directors. Shipments
to Motorola comprised the following percentage of the Company's revenues for the
periods indicated:
% OF TOTAL REVENUES
-------------------
Year ended December 31, 1996 6%
Two month period ended December 31, 1995 4%
Year ended October 31, 1995 6%
Year ended October 31, 1994 10%
9. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan for those employees who meet
the plan's length of service requirements. Under the defined contribution plan,
employees may make voluntary contributions to the plan, subject to certain
limitations, and the Company matches employee's contributions up to 3% of the
employees' annual salary. At the Company's option, a discretionary contribution
to the plan can be made. The total expense under this plan for the year ended
December 31, 1996, was $262,000, for the two month transition period ended
December 31, 1995 the expense was $27,000 and for the years ended October 31,
1995 and 1994 were approximately $282,000 and $662,000 respectively. The Company
offers no postretirement or postemployment benefits.
10. OTHER FINANCIAL INFORMATION
MAJOR CUSTOMERS: The Company had no customers in 1996, no customers in the two
month transition period, one customer in 1995 and two customers in 1994
accounting for more than 10% of the Company's consolidated revenues. Net
revenues resulting from these customers were as follows:
($ in thousands)
YEAR TOTAL REVENUES % OF CONSOLIDATED REVENUES
-------------------------------------------------------------
1995 $ 7,039 15%
1994 8,207 20%
F-16
<PAGE>
COMMITMENTS: The Company leases its office, research and development and
manufacturing facility under a noncancelable operating lease. Rent expense
related to the lease is recorded on a straight-line basis and has resulted in
the deferred lease obligation in the accompanying balance sheet. As of
December 31, 1996, operating lease commitments having noncancelable terms of
more than one year are as follows: (in thousands)
YEAR ENDING DECEMBER 31,
- ------------------------
1997 $ 752
1998 735
1999 591
2000 64
2001 64
Thereafter 572
Total rent expense for operating leases was approximately as follows: (in
thousands)
YEAR TOTAL RENT EXPENSE
--------------------------------------
1996 $ 817
Two month transition period 148
1995 702
1994 811
CONTINGENCIES: The Company is involved in various legal actions and claims
arising in the ordinary course of business. Management believes that such
litigation and claims will be resolved without material effect on the Company's
financial position or results of operations.
GEOGRAPHIC INFORMATION: The Company operates principally in the United
States, Europe and the Pacific Rim. A geographic detail of revenue is as
follows: (in thousands)
Transition
Period
REGION 1996 1995 1995 1994
- ------------------------------------------------------------------
North America $ 42,102 $ 2,712 $41,207 $31,929
Europe 12,383 457 3,818 6,341
Pacific Rim 2,267 210 2,343 2,033
European revenues have increased in 1996 due to the acquisition of Synaptel in
June 1996. Synaptel's revenue for the two quarters ended December 31, 1996 was
$7,100,000 and operating income was $1,272,000. The total tangible assets at
December 31, 1996 were $6,230,000.
11. STRATEGIC REALIGNMENT
In January 1994, the Company announced a strategic restructuring and recorded a
related provision of $1,148,000. The respective provision reflected in the
accompanying consolidated statements of operations included expenses associated
with severance benefits, the consolidation of the California Engineering
activities in Dallas, the write-off of nonproductive assets and other expenses
associated with the restructuring. At December 31, 1996 the entire reserve had
been utilized for its specified purpose.
F-17
<PAGE>
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarter Ended
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
--------------------------------------------------
(in thousands, except per share amounts)
1996
- ----
Revenues $11,877 $ 11,318 $16,370 $17,187
Gross profit 6,191 5,588 7,871 8,314
Income before taxes 1,007 (11,526) 192 836
Net income (loss) 644 (11,565) 167 699
Net income (loss) per
common and common
equivalent share $ .13 $ (2.45) $ .03 $ .12
Operating results in the second quarter of 1996 included a $11,646,000 expense
for acquired in process R&D associated with the Synaptel acquisition
Period ended
TRANSITION PERIOD DECEMBER 31, 1995
- ----------------- -----------------
Revenues $ 3,379
Gross profit 1,224
Income (loss) before taxes (1,849)
Net income (loss) (1,167)
Net income (loss) per
common and common
equivalent share $ (.25)
Quarter Ended
JANUARY 31 APRIL 30 JULY 31 OCTOBER 31
---------------------------------------------------
(in thousands, except per share amounts)
1995
- ----
Revenues $11,022 $11,473 $12,356 $12,517
Gross profit 5,420 5,771 6,083 6,273
Income before taxes 948 1,005 1,166 1,103
Net income 606 645 745 763
Net income per
common and common
equivalent share $ .12 $ .13 $ .14 $ .15
F-18
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
- --------
2(a) Stock Purchase Agreement, dated as of June 29, 1996, among
Interphase Corporation, Synaptel and Philippe Oros, Xavier
Sutter, Francois Lecerf, Schroder Ventures French Enterprise
Fund LPI (USA), Schroder ventures French Enterprise Fund UKLP
(UK) and Schroder Ventures Holding Limited (UK). (7)
3(a) Certificate of Incorporation of the registrant. (1)
3(b) Amended and Restated Bylaws of the registrant adopted on
December 5, 1995. (6)
10(b) Registrant's Amended and Restated Stock Option Plan and Amendment
No. 1 and 2 thereto. (9)
10(c) Registrant's Incentive Stock Option Sub-Plan. (3)
10(d) Stock Purchase Warrant issued to Motorola, Inc. (4)
10(e) Lease on Dallas facility. (5)
10(g) Directors Stock Option Plan and Amendment No. 1 thereto. (6)
10(i) Loan Agreement between Interphase Corporation and BankOne Texas,
N.A. (8)
10(j) Purchase Agreement between Interphase Corporation and Cisco Systems
Inc. (9)
23(a) Consent of Independent Public Accountants. (9)
27 Financial Data Schedule. (9)
- ---------------------
(1) Filed as an exhibit to Registration Statement No. 2-86523 on Form S-1
and incorporated herein by reference.
(2) Filed as an exhibit to Report on Form 10-K for the year ended October 31,
1984 and incorporated herein by reference.
(3) Filed as an exhibit to Report on Form 10-K for the year ended October 31,
1988 and incorporated herein by reference.
(4) Filed as an exhibit to Report on Form 10-Q for the quarter ended April 30,
1989 and incorporated herein by reference.
(5) Filed as an exhibit to Report on Form 10-K for the year ended October 31,
1994 and incorporated herein by reference.
(6) Filed as an exhibit to Report on Form 10-K for the year ended October 31,
1995 and incorporated herein by reference.
(7) Filed as an exhibit to Report on Form 8-K on August 6, 1996, and
incorporated herein by reference.
(8) Filed as an exhibit to Report on Form 8-KA on October 4, 1996 and
incorporated herein by reference.
(9) Filed herein.
E-1
<PAGE>
Exhibit 10(b)
INTERPHASE CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
WHEREAS, on August 24, 1984, the Board of Directors (the "Board") of
Interphase Corporation adopted the Interphase Corporation Incentive Stock Option
Plan (the "Plan"); and
WHEREAS, the Board subsequently amended the Plan from time to time to
increase the number of shares of common stock of the Company available under the
Plan from 200,000 shares to 1,350,000 shares and to make certain changes to the
Plan; and
WHEREAS, the Board now desires to amend and restate the Plan, and in
connection therewith, add provisions to the Plan to allow the grant of
non-qualified stock options and to rename the Plan the Interphase
Corporation Amended and Restated Stock Option Plan;
NOW, THEREFORE, in consideration of the foregoing, the Board hereby adopts
the Amended and Restated Stock Option Plan effective November 9, 1994:
1. PURPOSE. The purpose of the Plan is to continue to provide
selected employees with a proprietary interest in the Company through the
granting of either incentive stock options or non-qualified stock options
which will
(a) increase the interest of the selected employees in the
Company's welfare;
(b) furnish an incentive to the selected employees to continue
their services for the Company; and
(c) provide a means through which the Company may attract able
persons to enter its employ.
<PAGE>
2. ADMINISTRATION. The Plan will be administered by the Board.
3. PARTICIPANTS. The Board shall, from time to time, select the
particular employees of the Company and its Subsidiaries to whom options
are to be granted, and who will, upon such grant, become participants in
the Plan.
4. STOCK OWNERSHIP LIMITATIONS. No Incentive Option may be granted
to an employee who owns more than 10% of the voting power of all classes of
stock of the Company or its Parent or Subsidiaries. This limitation will
not apply if the option price is at least 110% of the fair market value of
the stock at the time the Incentive Option is granted and the Incentive
Option is not exercisable more than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The Board may not grant options under
the Plan for more than 1,350,000 shares of Common Stock of the Company, but
this number may be adjusted to reflect, if deemed appropriate by the Board,
any stock dividend, stock split, share combination, recapitalization or the
like, of or by the Company. Shares to be optioned and sold may be made
available from either authorized but unissued Common Stock or Common Stock
held by the Company in its treasury. Shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase
pursuant to an option granted under the Plan may be reoffered under the
Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value
(determined at the time of grant) of the shares of Common Stock which any
employee is
2
<PAGE>
first eligible to purchase in any calendar year by exercise of
Incentive Options granted under this Plan and all incentive stock option
plans (within the meaning of Section 422 of the Internal Revenue Code) of
the Company or its Parent or Subsidiaries shall not exceed $100,000. For
this purpose, the fair market value (determined at the respective date of
grant of each option) of the stock purchasable by exercise of an Incentive
Option (or an installment thereof) shall be counted against the $100,000
annual limitation for an employee only for the calendar year such stock is
first purchasable under the terms of the Incentive Option.
7. ALLOTMENT OF SHARES. The Board shall determine the number of
shares of Common Stock to be offered from time to time by grant of options
to employees of the Company or its Subsidiaries. The grant of an option to
an employee shall not be deemed either to entitle the employee to, or to
disqualify the employee from, participation in any other grant of options
under the Plan.
8. GRANT OF OPTIONS. The Board is authorized to grant Incentive
Options and Nonqualified Options under the Plan. The grant of options
shall be evidenced by stock option agreements containing such terms and
provisions as are approved by the Board, but not inconsistent with the
Plan, including provisions that may be necessary to assure that any option
that is intended to be an Incentive Option will comply with Section 422 of
the Internal Revenue Code. The Company shall execute stock option
agreements upon instructions from the Board. The Plan shall be submitted
to the Company's stockholders for
3
<PAGE>
approval. The Board may grant options under the Plan prior to the time
of stockholder approval, which options will be effective when granted,
but if for any reason the stockholders of the Company do not approve the
Plan prior to one year from the date of adoption of the Plan by the
Board, all options granted under the Plan will be terminated and of no
effect, and no option may be exercised in whole or in part prior to such
stockholder approval.
A stock option agreement may provide that the participant may request
approval from the Board to exercise an option or a portion thereof by
tendering shares of Common Stock at the fair market value per share on the
date of exercise in lieu of cash payment of the exercise price.
9. OPTION PRICE. The option price shall not be less than 100% of
the fair market value per share of the Common Stock on the date the option
is granted.
10. OPTION PERIOD. The Option Period will begin on the date the
option is granted, which will be the date the Board authorizes the option
unless the Board specifies a later date. No option may terminate later
than 10 years from the date the option is granted. The Board may provide
for the exercise of options in installments and upon such terms, conditions
and restrictions as it may determine. The Board may provide for
termination of the option in the case of termination of employment or any
other reason.
11. RIGHTS IN THE EVENT OF DEATH OR DISABILITY. If a participant
dies or becomes disabled [within the meaning of Section 22(e)(3) of the
Internal Revenue
4
<PAGE>
Code] while in the employ of the Company but prior to termination of
his right to exercise an option in accordance with the provisions
of his stock option agreement without having totally exercised the
option, the option may be exercised, to the extent of the shares with
respect to which the option could have been exercised by the participant on
the date of the participant's death or disability, by (i) the participant's
estate or by the person who acquired the right to exercise the option by
bequest or inheritance or by reason of the death of the participant in the
event of the participant's death, or (ii) the participant or his personal
representative in the event of the participant's disability, provided the
option is exercised prior to the date of its expiration or not more than
one year from the date of the participant's death or disability whichever
first occurs.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or, if permitted by the stock
option agreement, by tendering shares of Common Stock at the fair market
value per share at the time of exercise, or on such other terms as are set
forth in the applicable option agreement. No shares may be issued until
full payment of the purchase price therefore has been made, and a
participant will have none of the rights of a stockholder until shares are
issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set
forth in the applicable stock option agreements. In no event may an option
be exercised or shares be issued pursuant to an option if any
5
<PAGE>
requisite action, approval or consent of any governmental authority of any
kind having jurisdiction over the exercise of options shall not have been
taken or secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and
the option price may be adjusted to reflect, as deemed appropriate by the
Board, any stock dividend, stock split, share combination or the like of or
by the Company. In the event of a merger, consolidation, share exchange,
reorganization, liquidation, recapitalization, separation or the like of or
by the Company, the Board may make such arrangements as it deems advisable
with respect to outstanding options granted under the Plan, which
arrangements shall be binding upon each employee that holds an outstanding
option granted under the Plan, including, but not limited to, arrangements
for the substitution of new options for any options then outstanding, the
assumption of any such options, payment for the outstanding options and
adjusting the number of shares covered by each outstanding option and the
option price therefor. Any such arrangement relating to an Incentive
Option shall comply with the requirements of Internal Revenue Code Section
422 and the regulations thereunder. If the Company becomes a party to an
agreement providing for the merger, consolidation or share exchange of or
by the Company and pursuant to that agreement the holders of Common Stock
would receive cash, securities or property from another person or entity
and if the Board does not make arrangements for the substitution of new
options for any options then outstanding, the assumption of such options,
or payment
6
<PAGE>
for such options, the Plan shall terminate and any options outstanding
hereunder shall terminate on the effective date of such transaction;
provided, however, all outstanding options granted under the Plan
shall become immediately exercisable during the five business days
immediately preceding the effective date of such transaction. If the
options will so terminate on the effective date of the transaction, the
Company shall give each Option Holder at least 15 days' notice of such
termination and an opportunity to exercise such options prior to such
termination.
15. NON-ASSIGNABILITY. Options may not be transferred other than by
will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
16. INTERPRETATION. The Board shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of
the Plan as it determines to be advisable for the administration of the
Plan. The Board may rescind and amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the stockholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the Plan, (b) materially increase
the number of securities that may be issued under the Plan, or (c)
materially modify the requirements or eligibility for participation in the
Plan must be approved by the stockholders of the Company.
7
<PAGE>
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any action
of the Board shall be deemed to give any officer or employee any right to
be granted an option to purchase Common Stock of the Company or any other
rights except as may be evidenced by a stock option agreement, or any
amendment thereto, duly authorized by the Board and executed on behalf of
the Company and then only to the extent and on the terms and conditions
expressly set forth therein.
19. TERM. Unless sooner terminated by action of the Board, this Plan
will terminate on November 8, 2004. The Board may not grant options under
the Plan after that date, but options granted before that date will
continue to be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Plan" means this Amended and Restated Stock Option Plan as
amended from time to time.
(b) "Company" means Interphase Corporation, a Texas corporation.
(c) "Board" means the board of directors of the Company or a
committee appointed by the board of directors to administer the Plan
or any portion of the Plan.
(d) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be authorized to
issue (as long as
8
<PAGE>
the common stock varies from that currently authorized, if at all,
only in amount of par value).
(e) "Subsidiary" means any corporation in an unbroken chain of
corporations beginning with the Company if, at the time of the
granting of the option, each of the corporations other than the last
corporation in the unbroken chain owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one of the
other corporations in the chain, and "Subsidiaries" means more than
one of any such corporations.
(f) "Parent" means any corporation in an unbroken chain of
corporations ending with the Company if, at the time of granting of
the option, each of the corporations other than the Company owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
(g) "Option Period" means the period during which an option may
be exercised.
(h) "Incentive Option" means an option granted under the Plan
which meets the requirements of Section 422 of the Internal Revenue
Code.
(i) "Nonqualified Stock Option" means an option granted under
the Plan which is not intended to be an Incentive Option.
9
<PAGE>
AMENDMENT NO. 1
TO THE
INTERPHASE CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
Pursuant to Section 17 of the Interphase Corporation Amended and Restated
Stock Option Plan (the "Plan"), the Plan is hereby amended as follows:
1. Section 9 of the Plan is hereby amended to read in its entirety as
follows:
Section 9. OPTION PRICE. The option price for Incentive Options
shall not be less than 100% of the fair market value per share of the
Common Stock on the date the Incentive Option is granted. The option price
for Nonqualified Options shall be, as determined by the Board, any price
per share of the Common Stock that is greater than par value per share of
the Common Stock.
10
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amendment effective
as of the 22nd day of March, 1995.
INTERPHASE CORPORATION
By /s/ R. STEPHEN POLLEY
-----------------------------
AMENDMENT NO. 2
TO THE
INTERPHASE CORPORATION
AMENDED AND RESTATED STOCK OPTION PLAN
Pursuant to Section 17 of the Interphase Corporation Amended and Restated
Stock Option Plan (the "Plan"), the Plan is hereby amended as follows:
1. Section 5 of the Plan is hereby amended to read in its entirety as
follows:
5. SHARES SUBJECT TO PLAN. The Board may not grant options under
the Plan for more than 2,350,000 shares of Common Stock of the Company, but
this number may be adjusted to reflect, if deemed appropriate by the Board,
any stock dividend, stock split, share combination, recapitalization or the
like, of or by the Company. Shares to be optioned and sold may be made
available from either authorized but unissued Common Stock or Common Stock
held by the Company in its treasury. Shares that by reason of the
expiration of an option or otherwise are no longer subject to purchase
11
<PAGE>
pursuant to an option granted under the Plan may be reoffered under the
Plan.
IN WITNESS WHEREOF, the undersigned has executed this Amendment effective
as of the 25th day of June, 1996.
INTERPHASE CORPORATION
By /s/ R. STEPHEN POLLEY
------------------------------
12
<PAGE>
Exhibit 10 (j)
ASSET PURCHASE AGREEMENT
by and between
Interphase Corporation, a Texas corporation, and
Cisco Systems, Inc., a California corporation,
Dated as of June 3, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
PURCHASE AND SALE OF ASSETS 1
Section 1.1 Description of Assets to be Acquired 1
Section 1.2 Excluded Assets 2
ARTICLE II
ASSUMED LIABILITIES 2
Section 2.1 Assumed Liabilities 2
Section 2.2 Liabilities Not Assumed 3
ARTICLE III
PURCHASE PRICE 3
Section 3.1 Consideration 3
Section 3.2 Payment of Purchase Price 3
Section 3.3 Allocation of Purchase Price 4
ARTICLE IV
REPRESENTAITONS AND WARRANTIES 5
Section 4.1 Representations and Warranties of Seller 5
(a) Organization of Seller 5
(b) Authorization of Seller 5
(c) Governmental Consents 6
(d) Proprietary Rights 6
(e) Contracts and Commitments 6
(f) Title to the Assets 7
(g) Litigation 7
(h) No Conflict or Default 7
(i) Brokers' and Finders' Fees 7
(0) Customers 7
(k) Complete Disclosure 8
(1) Inventory 8
(m) Suppliers 8
(n) Limitation 8
Section 4.2 Representations and Warranties of Purchaser 8
(a) Organization of Purchaser 8
<PAGE>
(b) Authorization of Purchaser 8
(c) Governmental Consents 9
(d) Litigation 9
(e) No Conflict or Default 9
(f) Brokers' and Finders' Fees 9
ARTICLE V
COVENANT'S 10
Section 5.1 Covenants Against Disclosure 10
Section 5.2 Maintenance of Business 10
Section 5.3 Access to Information 10
Section 5.4 Notations 10
Section 5.5 Closing Conditions 11
Section 5.6 Post Closing Transactions 11
Section 5.7 Sales and Transfer Taxes 11
Section 5.8 Tax Returns 11
Section 5.9 Transfer of FDDI Adapter Products Business
Goodwill to Purchaser 11
Section 5.10 Training and Consultation by Seller 12
ARTICLE VI
CLOSING 13
Section 6.1 Time of Closing 13
Section 6.2 Deliveries by Seller 13
Section 6.3 Deliveries by Purchaser 14
Section 6.4 Further Assurances 14
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS 14
Section 7.1 Conditions to Obligations of Purchaser 14
(a) Representations and Warranties 14
(b) Performance of Agreement 15
(c) No Material Adverse Change 15
(d) Absence of Governmental or Other Objection 15
(e) Approval of Documentation 15
Section 7.2 Conditions to Obligations of Seller 15
(a) Representations and Warranties 15
(b) Performance of Agreement 15
(c) Absence of Governmental or Other
(d) Approval of Documentation 16
(e) Purchase Price 16
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS 16
Section 8.1 Notice 16
Section 8.2 Entire Agreement 16
Section 8.3 Binding Effect; Assignment 16
Section 8.4 Expenses of Transaction; Taxes 17
Section 8.5 Waiver; Consent 17
Section 8.6 Counterparts 17
Section 8.7 Severability 17
Section 8.8 Absence of Third Party Beneficiary Rights 17
Section 8.9 Attorneys' Fees 18
Section 8.10 Cooperation and Records Retention 18
Section 8.11 Termination 18
Section 8.12 Mediation 19
SCHEDULES
1.1(a) List of Related Property
1.1(b) List of Inventory
1.1(c) List of Contracts
1.1(d) List of Permits
1.1(e) List of Proprietary Rights
1.1(g) List of Other Assets
1.2 List of Excluded Assets
1.3 FDDI Adapter Products
4.1(f) List of Encumbered Assets
4.1(g) List of Litigation
4.10 List of Customers
<PAGE>
ASSET PURCHASE AGREEMENT
THIS AGREEMENT is dated as of June 3, 1996 by Interphase Corporation, a
Texas corporation ("Purchaser"), and Cisco Systems, Inc., a California
corporation ("Seller").
WHEREAS, Seller is engaged in the business of designing, manufacturing and
selling EISA and Sbus FDDI adapter products (the "Business"); and
WHEREAS, Purchaser desires to acquire from Seller and Seller desires to
transfer to Purchaser, all or substantially all of the properties, assets, and
rights of Seller related to the Business, and to assume certain specified
liabilities of Seller, all upon the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereby agree as follows:
ARTICLE I
PURCHASE AND SALE OF ASSETS
SECTION 1.1 DESCRIPTION OF ASSETS TO BE ACQUIRED. Upon the terms and
subject to the conditions set forth in this Agreement, at the Time of Closing
(as defined in Section 6.1 hereof), Seller agrees to convey, sell, transfer,
assign, and deliver to Purchaser, and Purchaser agrees to purchase from Seller,
all right, title, and interest of Seller at the Time of Closing in and to
certain assets, properties, and rights related to the Business, as follows:
(a) The machinery, equipment computer hardware, peripherals, operating
software, application software, quality assurance equipment and furniture and
fixtures (the "Related Property") listed on Schedule 1.1(a) hereto;
(b) The inventory owned by Seller related to the Business as listed on
Schedule 1.1(b) hereto (whether located on the premises of the facilities owned
by Seller in San Jose, CA, in transit to or from such pren3ises, in other
storage or warehouse facilities, or otherwise) including, without limitation,
finished goods and components, as listed on Schedule 1.1(b) hereto (the
"Inventory");
(c) All claims, rights and obligations (but, with respect to obligations,
only to the extent expressly assumed pursuant to Section 2.1 hereof) under
all agreements, contracts, contract rights, licenses, purchase and sale
orders, quotations, and other executory commitments associated with the
Business (collectively, the "Con-
<PAGE>
tracts"), that are listed on Schedule 1.1(c) hereto including the "Contracts
Requiring Notation or Consents to Assignment" as such phrase is defined in
Section 4.1(e)(C) hereof;
(d) All claims and rights under all franchises, licenses, permits,
consents, authorizations, certificates and approvals (collectively referred to
herein as "Permits") of any federal, state, or local regulatory, administrative,
or other governmental agency or body issued to or held by Seller which are
necessary, related or incidental to the Business, that are listed on Schedule
1.1(d) hereto;
(e) All patent rights, copyright rights, trade secret rights, mask work
rights and other intellectual property and proprietary rights throughout the
world, together with the goodwill associated therewith (collectively, the
"Proprietary Rights"), that are listed on Schedule 1.1(e) hereto;
(f) All goodwill associated with the Business (the "Goodwill");
(g) Such other properties or assets ("Other Assets") that are listed on
Schedule 1.1(g) hereto;
(h) All rights, if any, under express or implied warranties from
suppliers and vendors of Seller which are related to the Business and the
Assets; and
(i) All of Seller's causes of action, judgments, and claims or demands of
whatever kind or description arising out of or relating to the Business and
the Assets other than those arising under this Agreement;
The assets, properties, and rights to be conveyed, sold, transferred,
assigned, and delivered to Purchaser pursuant to this Section 1.1 are sometimes
hereinafter collectively referred to as the "Assets".
SECTION 1.2 EXCLUDED ASSETS. Notwithstanding the provisions of Section 1.1
hereof, the Assets to be transferred to Purchaser pursuant to this Agreement
shall not include assets listed on Schedule 1.2 hereof and any other assets not
specifically identified on the Schedules set forth in Section 1.1 (collectively,
the "Excluded Assets").-
ARTICLE 11
ASSUMED LIABILITIES
SECTION 2.1 ASSUMED LIABILITIES. Subject to Section 2.2 hereof, Purchaser
hereby agrees at the Time of Closing to assume, satisfy or perform when due
those liabilities and obligations of Seller arising after the Time of Closing
under the Contracts
2
<PAGE>
and Permits. The liabilities assumed hereunder by the Purchaser are hereinafter
called the "Assumed Liabilities".
SECTION 2.2 LIABILITIES NOT ASSUMED. Other than the Assumed Liabilities,
Purchaser shall not assume, nor shall Purchaser or any affiliate of Purchaser,
be deemed to have assumed or guaranteed, any other liability or obligation of
any nature of Seller, or claims of such liability or obligation, whether
accrued, matured or unmatured, liquidated or unliquidated, fixed or contingent,
known or unknown arising out of (i) acts or occurrences, or related to any of
the Assets or the Business, prior to the Time of Closing or (ii) any other
liability or obligation of Seller (collectively, the "Unassumed Liabilities").
Seller shall indemnify Purchaser from and against all losses, including
reasonable costs and expenses, incurred by Purchaser directly relating to any
Unassumed Liabilities.
ARTICLE III
PURCHASE PRICE
SECTION 3.1 Consideration. Upon the terms and subject to the conditions
contained in this Agreement, in consideration for the Assets and the other
forms of consideration to be given by Seller and in fall payment therefor,
Purchaser will pay, or cause to be paid, the purchase price set forth in
Section 3.2 hereof to Seller, subject to adjustment in accordance with the
provisions set forth herein, and Purchaser will assume all of the Assumed
Liabilities.
SECTION 3.2 PAYMENT OF PURCHASE PRICE. The consideration ("Purchase
Price") to be paid or payable by Purchaser to Seller for the Business and the
other forms of consideration to be given by Seller shall be:
(a)
(i) At the Time of Closing, Purchaser shall pay to Seller, by cash, check
or wire transfer, the sum of $2,500,000.
(ii) Within ten (10) days after receipt of each delivery of inventory as
set forth on Schedule 1.1(b), Purchaser shall pay to Seller, by cash, check or
wire transfer, the purchase price for any such delivered inventory as set forth
on Schedule 1.1(b) hereto, it being understood that there may be multiple
deliveries of inventory and a payment will be due pursuant to this section after
each delivery.
(b) Additional installment payments shall be made as follows:
At such time as Net Sales (as defined below) of FDDI Adapter Products,
(as defined below) by Purchaser after the Time of Closing exceed $6,000,000,
Purchaser shall make quarterly payments to Seller within 30 days of the end
of each fiscal quarter of Purchaser, in an amount equal to 10% of Net Sales
in excess of such $6,000,000. Beginning on the date cumulative Net Sales of
FDDI Adapter Products by
3
<PAGE>
Purchaser after the Time of Closing exceed $16,000,000, the percentage of Net
Sales payable to Seller pursuant to this Section shall be reduced to 5%.
Beginning on the date cumulative Net Sales of FDDI Adapter Products by
Purchaser after the Time of Closing exceed $26,000,000, the percentage of Net
Sales payable to Seller shall be reduced to 0% and no further payments shall
be due Seller except payments which have accrued prior to net sales exceeding
$26,000,000. For purposes of this Agreement, FDDI Adapter Products shall
mean the products set forth in Schedule 1.3 hereto, and improvements,
modifications and derivative works thereof produced by Purchaser. For
purposes of this Agreement, Net Sales shall mean the gross sales amount
actually received from the sale of FDDI Adapter Products, less commissions,
freight, insurance, duties and any applicable sales, value added or similar
taxes, less any amount for returned goods for which a credit or refund is
given, and not including support and maintenance revenues related to FDDI
Adapter Products and not normally included in the selling price of such FDDI
Adapter Products.
(c) AUDIT AND INSPECTION RIGHTS. Purchaser shall keep accurate books and
records with respect to its sales activities of FDDI Adapter Products. Such
books and records shall be preserved for at least three (3) years after
termination of payment obligations under this Agreement and shall be open to
inspection and audit by a representative of Seller or an independent certified
public accountant retained by Seller (and reasonably acceptable to Purchaser) at
reasonable times during Purchaser's normal business hours, upon reasonable prior
notice and no more than once per year. Such representative or independent
certified public accountant shall be bound to hold all information in confidence
except as necessary to communicate to Seller Purchaser's breach of this
Agreement or misrepresentation or error regarding net sales under this
Agreement. The fees and expenses of such inspection and audit shall be borne by
Seller; however, if an error in Net Sales reporting is discovered in excess of
5% for the 12 month period being audited, then such fees and expenses related to
the audit for such period shall be borne by Purchaser. Seller may not audit the
same period twice, except with reasonable cause. Any sums found to be owing to
either party as a result of such inspection and audit shall be immediately paid
to the other party, including interest at a rate of 8% from the date such sums
should have been paid.
SECTION 3.3 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be
allocated among the Assets as set forth in a statement of allocation of the
Purchase Price (plus Assumed Liabilities), such statement to be prepared by
Purchaser at the Time of Closing, and acceptable to Seller. If Purchaser and
Seller cannot agree on such allocation statement within ten days of the Time
of Closing, the allocation statement shall be determined by a partner of one
of the six largest international accounting firms mutually acceptable to both
parties, and having due regard for the rights and interests of both parties.
The statement of the allocation prepared in accordance with this Section 3.3
shall be binding upon the parties hereto and shall be prepared using the
allocation
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methods and principles required by Section 1060 of the Internal Revenue Code of
1986, as amended (the "Code") and the Treasury Regulations promulgated
thereunder. Neither Purchaser nor Seller shall take any position inconsistent
with such allocation, and any and all filings with and reports made to any
taxing authority will be consistent with that allocation, except in each case to
the extent that Purchaser or Seller reasonably believes, after discussion with
the others, that the foregoing will result in a violation of applicable law.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.1 REPRESENTATIONS AND WARRANTIES OF SELLER. In this Agreement,
any reference to "Seller's knowledge" means Seller's actual knowledge after
reasonable inquiry of the former officer and director level employees of
Crescendo Communications, Inc. who are employed by Seller as of the date hereof.
Seller hereby represents and warrants to Purchaser that as of the date hereof
and as of the Time of Closing (which representations and warranties will
terminate one year from the Time of Closing and therefore any claims by
Purchaser for a breach of such representations and warranties must be brought
prior to the expiration of one year from the Time of Closing):
(a) ORGANIZATION OF SELLER. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the state of California,
and has all requisite power and authority to own and operate the Business in the
places where the Business is now conducted and to directly own, lease, and
operate the Assets. Seller is duly qualified or licensed to do business as a
corporation in each of the jurisdictions in which the nature of the Business or
location of properties related to the Business requires such qualification or
licensing and where the failure to be so qualified would have a material adverse
effect on the Business.
(b) AUTHORIZATION OF SELLER. Seller has fall power and authority to enter
into this Agreement, to perform its obligations hereunder, and to consummate the
transactions contemplated hereby, including, without Stations the execution and
delivery of this Agreement, bills of sale, assignments and assumptions,
novations and other instruments evidencing the conveyance of the Assets or
delivered in accordance with Section 6.2 hereunder (the "Closing Documents").
Seller has taken all necessary and appropriate corporate action, including
obtaining all necessary board and shareholder consents, with respect to the
execution and delivery of this Agreement and the Closing Documents. This
Agreement constitutes the valid and binding obligation of Seller enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium, and other similar laws affecting the rights and remedies of
creditors and subject to the general principles of equity.
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(c) GOVERNMENTAL CONSENTS. No consent, approval, order, or authorization
of, or registration, qualification, designation, declaration, or filing with
any federal, state, local, or provincial governmental authority on the part
of Seller is required in connection with the consummation of the transactions
contemplated hereunder.
(d) PROPRIETARY RIGHTS. To Seller's knowledge, Seller owns, has the right
to use, or has the right to practice under all Proprietary Rights set forth in
Schedule 1.1(e) hereto, as qualified by such Schedule 1.1(e), without any
conflict with or infringement of the rights of others.
(e) CONTRACTS AND COMMITMENTS.
(A) There is set forth on Schedule 1.1(c) a list of all outstanding
contracts, setting forth the parties and the dates, including expiration
dates, thereto which relate to the Business, and which are being purchased by
Purchaser pursuant hereto, and, to which Seller is a party or to which any of
the Assets are subject.
(B) Seller, and to Seller's knowledge, each other party thereto, has
performed all of its obligations under the terms of each Contract and is not
in default thereunder. No event or omission has occurred which but for the
giving of notice or lapse of time or both would constitute a default by any
party thereto under any such Contract, where such default by any party could
have a material adverse effect on the Business or the Assets. Each such
Contract is valid and binding on all parties thereto and in full force and
effect. Seller has received no notice of default, cancellation, or
termination in connection with any such Contract. Seller has not accepted
any material prepayments with respect to any of the Contracts, nor has
Seller entered into any written modifications, waivers, releases or
amendments to any of the Contracts not previously disclosed to Purchaser and
which written modifications, waivers, releases or amendments would have a
material adverse effect on the Business or the Assets.
(C) Schedule 1.1(c) lists all Contracts, under the heading "Contracts
Requiring Notation or Consent to Assignment," that require a notation or
consent to assignment, as the case may be, prior to, the Time of Closing so
that Purchaser shall be made a party in place of Seller or as assignee (the
"Contracts Requiring Novation or Consent to Assignment"). Such list is
complete, accurate and includes every Contract which, if no novation occurs
to make Purchaser a party thereto or if no consent to assignment is obtained,
would have a material adverse effect on Purchaser's ability to operate the
Business in the same manner as the Business was operated by Seller prior to
the Time of Closing.
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(f) TITLE TO THE ASSETS.
(A) Except as set forth on Schedule 4.1(f) attached hereto and except
for Permitted Encumbrances, Seller has good and marketable title to the
Assets free and clear of any pledges, liens, encumbrances, security
interests, equities, charges, and restrictions of any nature whatsoever
(collectively, the "Liens"). The term "Permitted Encumbrances" shall mean
Liens for current taxes not due and payable. Any and all Liens set forth on
Schedule 4.1(f), with the exception of Permitted Encumbrances, shall be
terminated as of the Time of Closing, and Seller shall transfer the Assets to
Purchaser free and clear of all such Liens.
(B) By virtue of the deliveries made at the Time of
Closing, Purchaser will obtain good and marketable title to the Assets,
free and clear of all Liens except for Permitted Encumbrances.
(g) LITIGATION. Except as set forth on Schedule 4.1(g), there is no
claim, litigation, action, suit, or proceeding, administrative or judicial,
pending or, to Seller's knowledge, threatened against or by Seller, nor to
Seller's knowledge is there any reasonable basis for any such claim,
litigation, action, suit, or proceeding against or by SELLER, relating to the
Business, or involving the Assets, or this Agreement or the transactions
contemplated hereunder, at law or in equity, before any federal, state,
local, or foreign court, or regulatory agency, or other governmental
authority, including, without limitation, any unfair labor practice or
grievance proceedings or otherwise, which claim, litigation, action, suit or
proceeding would have a material adverse effect on the Assets.
(h) NO CONFLICT OR DEFAULT. Neither the execution and delivery of this
Agreement nor compliance with the terms and provisions hereof, including
without limitation, the consummation of the transactions contemplated hereby,
win violate any statute, regulation, or ordinance of any governmental
authority, or conflict with or result in the breach of any term, condition,
or provision of Seller's Articles of Incorporation or Bylaws, or, subject to
obtaining the consents described in Section 5.4 below, of any agreement deed,
contract, mortgage, indenture, writ, order, decree, legal obligation, or
instrument to which Seller is a party or by which it or any of the Assets are
or may be bound, or constitute a default (or an event which, with the lapse
of time or the giving of notice, or both, would constitute a default)
thereunder.
(i) BROKERS' AND FINDERS' FEES. Seller is not obligated to pay any
fees or expenses of any broker or finder in connection with the origin,
negotiation, or execution of this Agreement or in connection with any
transactions contemplated hereby.
(j) CUSTOMERS. Schedule 4.16) (which will be provided at the Time of
Closing) attached hereto lists all customers of the Business who purchased
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FDDI Adapter Products from Seller at any time from the beginning of Seller's
1995 fiscal year through the Time of Closing.
(k) COMPLETE DISCLOSURE. No representation or warranty by Seller in
this Agreement, and no exhibit, schedule, statement, certificate, or other
writing furnished to Purchaser pursuant to this Agreement or in connection
with the transactions contemplated hereby, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary to make the statements contained herein and therein in the
context in which they were made not misleading.
(l) INVENTORY To Seller's knowledge, all of the Inventory consists or
will consist of items of a quality usable and saleable in the ordinary and
usual course of the Business.
(m) SUPPLIERS. Seller is not aware of any event or fact which would
reasonably be expected to have a material adverse effect on Seller's
relationship with its suppliers of the Business.
(n) LIMITATION. EXCEPT FOR THE EXPRESS REPRESENTATIONS AND WARRANTIES SET
FORTH IN THIS ARTICLE IV, NO REPRESENTATION OR WARRANTY WHATSOEVER IS MADE BY
SELLER AND SELLER HEREBY DISCLAIMS ANY REPRESENTATIONS OR WARRANTIES IMPLIED AS
TO THE CONDITION, VALUE OR QUALITY OF THE ASSETS AND SPECIFICALLY DISCLAIMS
WITH RESPECT TO THE ASSETS ANY REPRESENTATIONS AND WARRANTIES OF
MERCHANTABILITY, USAGE OR FITNESS FOR ANY PARTICULAR PURPOSE.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER. In this
Agreement, any reference to "Purchaser's knowledge" means Purchaser's actual
knowledge after reasonable inquiry of officers and director-level employees.
Purchaser hereby represents and warrants to Seller that as of the date hereof
and as of the Time of Closing (which representations and warranties will
terminate one year from the Time of Closing and therefore any claims by
Seller for a breach of such representations and warranties must be brought
prior to the expiration of one year from the Time of Closing):
(a) ORGANIZATION OF PURCHASER. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State
of Texas, and has all requisite power and authority to own and operate its
business.
(b) AUTHORIZATION OF PURCHASER. Purchaser has full power and authority
to enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby, including, without
limitation, the execution and delivery of this Agreement. Purchaser has
taken all necessary and
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appropriate corporate action, including obtaining all necessary board
consents, with respect to the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby. This Agreement
constitutes the valid and binding obligation of Purchaser enforceable in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other similar laws affecting the rights and remedies of
creditors and subject to general principles of equity.
(c) GOVERNMENTAL CONSENTS. No consent, approval, order, or
authorization of, or registration, qualification, designation, declaration,
or filing with any federal, state, local or provincial governmental authority
on the part of Purchaser is required in connection with the consummation of
the transactions contemplated hereunder.
(d) LITIGATION. There is no claim litigation, action, suit or
proceeding, administrative or judicial, pending or, to Purchaser's knowledge,
threatened against or by Purchaser, nor to Purchaser's knowledge is there any
reasonable basis for any such claim litigation action, suit or proceeding
against or by Purchaser, relating to this Agreement or the transactions
contemplated hereunder, at law or in equity, before any federal, state, local
or foreign court, or regulatory agency, or other governmental authority,
which could result in the institution of legal proceedings to prohibit or
restrain the consummation or performance of this Agreement or the
transactions contemplated hereby or claim damages as a result of this
Agreement or the transactions contemplated hereby.
(e) NO CONFLICT OR DEFAULT. Neither the execution and delivery of this
Agreement nor compliance with the terms and provisions hereof including,
without limitation, the consummation of the transactions contemplated hereby,
will violate any statute, regulation, or ordinance of any GOVERNMENTAL
authority, or conflict with or result in the breach of any term, condition,
or provision of Purchaser's Articles of Incorporation or Bylaws, or of any
material agreement, deed, contract, mortgage, indenture, writ, order, decree,
legal obligation, or instrument to which Purchaser is a party or by which it
is or may be bound, or constitute a default (or an event which, with the
lapse of time or the giving or notice, or both, would constitute a default)
thereunder.
(f) BROKERS' AND FINDERS' FEES. Purchaser is not obligated to pay any
fees or expenses of any broker or finder in connection with the origin,
negotiation, or execution of this Agreement or in connection with any
transactions contemplated hereby.
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ARTICLE V
COVENANTS
SECTION 5.1 COVENANTS AGAINST DISCLOSURE. Until the Time of Closing,
no party or its affiliates shall disseminate any press release or
announcement or otherwise make any disclosure to third parties, other than on
a need to know basis to its legal and financial representatives who have a
fiduciary obligation to maintain confidentiality of such disclosure,
concerning the transactions contemplated by this Agreement and Purchaser will
not make any disclosures to third parties, excluding the announcement of this
Agreement, that could be reasonably expected to damage the Business or
products of Seller without the prior consent of Seller and Purchaser, except
as, in the reasonable opinion of a party, required by law.
SECTION 5.2 MAINTENANCE OF BUSINESS. Except as otherwise required to
perform its obligations under this Agreement during the period from the date
hereof through the Time of Closing, Seller shall carry on and use its reasonable
efforts to preserve the Business, Goodwill, and relationships with customers,
suppliers, officers, employees, agents, licensees and others with respect to the
Business in substantially the same manner as Seller did prior to the date where
Seller will use its reasonable efforts to keep and maintain the existing
favorable Business relationship with each of its respective customers,
suppliers, officers, employees, licensees and agents with respect to the
Business.
SECTION 5.3 ACCESS TO INFORMATION. Seller shall give Purchaser and its
Representatives (as such term is defined below) full access, during normal
Business hours, to all of the properties, books, contracts, commitments, and
records relating to the Business and the Assets, provided that such access
shall not unreasonably interfere with the normal operations of the Business,
and Seller will furnish to Purchaser and its officers, directors, employees,
agents or representatives (collectively, "Representatives") during such
period all such information concerning the Business or the Assets as
Purchaser may reasonably request; provided, that any furnishing of such
information pursuant hereto or any investigation by Purchaser shall not
affect Purchaser's right to rely on the representations, warranties,
agreements and covenants made by Seller in this Agreement. All requests for
permissions under this Section 5.3 shall be made by Purchaser through an
individual designated for the purpose by Seller.
SECTION 5.4 NOVATIONS. Seller agrees to use reasonable efforts to obtain
contract novations or consents to assignment as necessary, for all Contracts
requiring Novation or Consent to Assignment prior to or as soon as
practicable after the Time of Closing.
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SECTION 5.5 CLOSING CONDITIONS. Both parties agree to use their reasonable
efforts to cause the conditions of closing to be fulfilled.
SECTION 5.6 POST CLOSING -- TRANSACTIONS.
(a) Seller shall retain all collections by it under the Contracts,
novated or otherwise, for all sales made by Seller prior to the Time of
Closing and during the Transition Period.
(b) Subject to any approvals required by Seller's customers, Seller shall
subcontract the rights and obligations of any Contracts not novated to
Purchaser on the same terms and conditions provided in such Contracts.
SECTION 5.7 SALES AND TRANSFER TAXES. Seller agrees to take all
actions reasonably requested by Purchaser to minimize any sales, use and
other transfer taxes and fees incurred in connection with the assignment,
conveyance, transfer and/or delivery of the Assets hereunder, including,
without limitation the transfer via means of electronic transmission of all
assets capable of being so transmitted. Seller further agrees to deliver
all certificates reasonably requested by Purchaser to verify the fact of
such electronic transmissions or other actions.
SECTION 5.8 TAX RETURNS. Seller shall properly file all returns,
statements, reports, forms or other documents (collectively, "Tax Returns")
that Seller is required by any applicable law to file with respect to taxes
arising in or related to periods ending on or prior to the Time of Closing
or related to transactions or events occurring prior to the Time of Closing
and shall pay all such taxes when due. If the closing occurs prior to July
19, 1996, state and local ad valorem taxes for the current tax year shall be
prorated at the Closing effective as of the Closing Time, with Purchaser's
pro rated portion being paid to Seller at the Closing. If the closing
occurs on or after July 1, 1996, state and local ad valorem taxes for the
current tax year shall be prorated at the Closing effective as of the
Closing Time, with Seller's pro rated portion being paid to Purchaser at
the Closing. Purchaser shall be responsible for payment of the current
year ad valorem tax bins. If the Closing shall occur before the tax rate
is fixed for the current tax year, the apportionment of taxes shall be upon
the basis of the tax rate for the preceding year applied to the latest
assessed valuation, but any difference in estimated and actual taxes paid
for the current tax year shall be adjusted between the parties upon receipt
by Seller of written evidence of Purchaser's payment thereof. Any
supplemental property taxes or assessments which arise out of a revaluation
of an Asset which revaluation would not have occurred except for the change
in ownership of the Asset shall be borne by Purchaser.
SECTION 5.9 TRANSFER OF FDDI ADAPTER PRODUCTS BUSINESS GOODWILL TO
PURCHASER. Seller will endeavor to achieve a smooth transition in connection
with the
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transfer to Purchaser of Seller's business related to the FDDI Adapter Products.
Accordingly, Seller agrees to:
(i) for a period of twelve (12) months after the Closing Date, publicize
Purchaser's acquisition of Seller's FDDI Adapter Products business on a Seller
Web page in a place and manner to be determined by Seller in its sole
discretion, (after having previously provided a copy for review to Purchaser)
and, to the extent consistent with Seller's current Web page policy, include a
hot link to Purchaser's Web page in Seller's Web Page;
(ii) provide Purchaser information, current as of the Closing Date,
pertaining to FDDI Adapter Products purchased from Seller during Seller's 1995
and 1996 fiscal years, including (a) customer names, shipping addresses, billing
addresses, model numbers and unit quantity of such FDDI Adapter Products, (b)
unit quantity and revenue sales information for such FDDI Adapter Products,
generated on a fiscal quarter basis, and (c) the summary gross margin for each
such FDDI Adapter Product; and
(iii) provide Purchaser, at or before the Closing, with the FDDI
Documentation (as defined below) and the FDDI Software (as defined below); and
(iv) provide its reasonable assistance, as mutually agreed on a case by
case basis, in introducing Purchaser as a supplier of the FDDI Adapter Products
to key customers.
For purposes of this Agreement, "FDDI Documentation" shall mean (i) the
hardware designs and design information, (ii) software designs and design
information, including source code and a list of software tools, (iii)
manufacturing information, including bills of materials, assembly drawings,
Gerber files for printed circuit boards and manufacturing test software designs,
(iv) product manuals, (v) release notes and (vi) a list of outstanding bugs for
the FDDI Adapter Products; "FDDI Software" shall mean the software and firmware
contained in the FDDI Adapter Products including FDDI Software Upgrades but
excluding The Cisco Technology, "FDDI Software Upgrade" shall mean any upgrade,
enhancement, update, new version of or bug fix for the FDDI Software; and "Cisco
Technology" shall have the meaning set forth on Schedule 1.2 hereof
SECTION 5.10 TRAINING AND CONSULTATION BY SELLER. Seller shall provide
Purchaser with training and technical consultation as set forth below.
(i) TRAINING. Seller shall provide Purchaser two (2) person-days of
on-site technical training to Purchaser's engineering personnel pertaining to
the design and manufacture of the FDDI Adapter Products. Such technical
training will be provided promptly upon request at Purchaser's facilities at
no cost to Purchaser. In
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addition, Seller shall provide, at no cost to Purchaser, one (1) person-day of
training to Purchaser's support personnel pertaining to the support, repair and
maintenance of the FDDI Adapter Products at a time and location to be mutually
agreed.
(ii) TECHNICAL CONSULTATION. Seller shall provide Purchaser, without
charge, forty (40) person-hours of technical consultation comprising telephone,
voicemail, electronic mail and laboratory assistance during normal business
hours. Seller agrees to use commercially reasonable efforts to provide
Purchaser, for a period of ninety (90) days following the end of the Transition
Period and thereafter subject to availability of Seller's resources, additional
technical consultation required by Purchaser at a rate of $200 per hour. For
purposes of this Agreement "Transition Period" means the period from the Time of
Closing through July 28, 1996.
ARTICLE VI
CLOSING
SECTION 6.1 TIME OF CLOSING. The transactions contemplated by this
Agreement shall be completed on the first Business day on which the last of
the conditions contained in Article VII hereof is fulfilled or waived (the
"Time of Closing"), with the expectation that the Closing shall occur on June
10, 1996 at 12:00 P.M., P.D.T., unless otherwise agreed to by Purchaser and
Seller. The Closing shall take place at the offices of Brobeck, Phleger &
Harrison, Two Embarcadero Place, 2200 Geng Road, Palo Alto, CA, or at such
other place or date as may be agreed to by Purchaser and Seller. The
"Closing" shall mean the deliveries to be made by the parties hereto at the
Time of Closing in accordance with this Agreement.
SECTION 6.2 DELIVERIES BY SELLER. At the Closing, Seller shall deliver, or
cause to be delivered, to Purchaser the following:
(a) A good and sufficient Bill of Sale and an Assignment and Assumption
of Liabilities Agreement for the Assets in the form mutually agreed to by
Purchaser and Seller, selling, delivering, transferring, and assigning to
Purchaser title to all of Seller's right, tide, and interest to the Assets,
free and clear of all mortgages, pledges, liens, encumbrances, security
interests, equities, charges, and restrictions of any nature whatsoever
except as otherwise provided herein and except with respect to delivery of
inventory as set forth on Schedule 1.1(b) hereto, which delivery shall be
made in accordance with Schedule 1.1(b).
(b) An affidavit of Seller, substantially in the form mutually agreed to
by Purchaser and Seller, stating, under penalty of perjury, Seller's United
States taxpayer identification number and that Seller is not a foreign person,
pursuant to Section 1445(b)(2) of the Code.
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(c) Good and sufficient assumptions and assignments of the Proprietary
Rights and Contracts, which shall be in form and substance reasonably
satisfactory to Purchaser and shall include the written consents of all
parties necessary in order to transfer all of Seller's rights thereunder to
Purchaser.
(d) An Officers' Certificate executed by an executive officer of Seller
certifying that the conditions specified in subsections (a)-(d) of Section 7.1
have been satisfied.
SECTION 6.3 DELIVERIES BY PURCHASER. At the Closing, Purchaser shall
deliver, or cause to be delivered, to Seller:
(a) The payment of that portion of the Purchase Price set forth in
Section 3.2(a)(i) hereof, together with applicable taxes arising from the
transaction which Purchaser is required to pay pursuant to Section 8.4 hereof;
(b) A good and sufficient Bill of Sale and an Assignment and Assumption
of Liabilities Agreement in the form mutually agreed to by Purchaser and
Seller, covering those liabilities of Seller assumed by Purchaser pursuant to
Section 2.1 hereof;
(c) An Officer's Certificate executed by an executive officer of
Purchaser certifying that the conditions specified in subsections (a) - (c)
of Section 7.2 have been satisfied; and
SECTION 6.4 FURTHER ASSURANCES. At or after the Time of Closing, each
party shall prepare, execute, and deliver, such further instruments of
conveyance, sale, assignment, or transfer, and shall take or cause to be
taken such other or farther action, as any party shall reasonably request of
any other party at any time or from time to time in order to perfect,
confirm, or evidence in Purchaser title to all or any part of the Assets or
to consummate, in any other manner, the terms and provisions of this
Agreement.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS
SECTION 7.1 CONDITIONS TO OBLIGATIONS OF PURCHASER. Each and every
obligation of Purchaser to be performed at the Closing shall be subject to
the satisfaction as of or before the Time of Closing of the following
conditions (unless waived in writing by Purchaser):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
of Seller set forth in Section 4.1 of this Agreement shall have been true and
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correct when made and shall be true and correct at and as of the Time of
Closing as if such representations and warranties were made as of such date
and time.
(b) PERFORMANCE OF AGREEMENT. All covenants, conditions, and other
obligations under this Agreement which are to be performed or complied with
by Seller shall have been fully performed and complied with at or prior to
the Time of Closing, including the delivery of the instruments and documents
in accordance with Section 6.2 hereof.
(c) NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change in the financial condition, Business, Proprietary Rights or
properties of Seller which materially adversely affects the Assets or the
conduct of the Business as currently being conducted.
(d) ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION. There shall be no
pending or threatened lawsuit challenging the transaction by any body or
agency of the federal, state or local government or by any third party, and
the consummation of the transaction shall not have been enjoined by a court
of competent jurisdiction as of the Time of Closing.
(e) APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions and other documents delivered or to be
delivered to Purchaser under this Agreement shall be reasonably satisfactory
to Purchaser and its counsel in all respects.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF SELLER. Each and every
obligation of Seller to be performed at the Time of Closing shall be subject
to the satisfaction as of or before such time of the following conditions
(unless waived in writing by Seller):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Purchaser set forth in Section 4.2 of this Agreement shall have been true and
correct when made and shall be true and correct at and as of the Time of Closing
as ff such representations and warranties were made as of such date and time.
(b) PERFORMANCE OF AGREEMENT. All covenants, conditions, and other
obligations under this Agreement which are to be performed or complied with by
Purchaser shall have been fully performed and complied with at or prior to the
Time of Closing, including the delivery of the instruments and documents in
accordance with Section 6.3 hereof
(c) ABSENCE OF GOVERNMENTAL OR OTHER OBJECTION. There shall be no pending
or threatened lawsuit challenging the transaction by any body or agency of the
federal, state, or local government or by any third party, and the consummation
of
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the transaction shall not have been enjoined by a court of competent
jurisdiction as of the Time of Closing.
(d) APPROVAL OF DOCUMENTATION. The form and substance of all
certificates, instruments, opinions, and other documents delivered or to be
delivered to Seller under this Agreement shall be reasonably satisfactory to
Seller and its counsel in all respects.
(e) PURCHASE PRICE. Purchaser shall have delivered to Seller that portion
of the Purchase Price set forth in Section 3.2(a)(i) hereof.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 8.1 Notice. All notices and other communications required or
permitted under this Agreement shall be delivered to the parties at the address
set forth below their respective signature blocks, or at such other address that
they designate by notice to all other parties in accordance with this Section
8.1. Any party delivering notice to Purchaser shall deliver a copy to Gardere &
Wynne, 3000 Thanksgiving Tower, Dallas, Texas 75201, Attn: David H. Segrest,
Esq., and any party delivering notice to Seller shall deliver a copy to:
Brobeck, Phleger & Harrison LLP, Two Embarcadero Place, 2200 Geng Road, Palo
Alto, CA 94303, Attn: Edward M. Leonard, Esq. All notices and communications
shall be deemed to have been received unless otherwise set forth herein: (i) in
the case of personal delivery, on the date of such delivery; (ii) in the case of
telex or facsimile transmission, on the date on which the sender receives
confirmation by telex or facsimile transmission that such notice was received by
the addressee, provided that a copy of such transmission is additionally sent by
mail as set forth in (iv) below; (iii) in the case of overnight air courier, on
the second Business day following the day sent, with receipt confirmed by the
courier; and (iv) in the case of mailing by first class certified or registered
mail, postage prepaid, return receipt requested, on the fifth business day
following such mailing.
SECTION 8.2 ENTIRE AGREEMENT. This Agreement, the exhibits and schedules
hereto, the documents referred to herein and the documents executed
contemporaneously hereto at the Time of Closing, embody the entire agreement and
understanding of the parties hereto with respect to the subject matter hereof,
and supersede all prior and contemporaneous agreements and understandings, oral
or written, relative to such subject matter.
SECTION 8.3 BINDING EFFECT, ASSIGNMENT. This Agreement and the various
rights and obligations arising hereunder shall inure to the benefit of and be
binding upon Seller, its successors and permitted assigns, and Purchaser and
its successors and permitted assigns. Neither this Agreement nor any of the
rights, interests, or obligations
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hereunder shall be transferred or assigned (by operation of law or otherwise)
by either of the parties hereto without the prior written consent of the
other party, except that (i) either party may assign this Agreement without
the other party's consent to a parent corporation or a wholly-owned
subsidiary of the assigning party, (ii) either party may assign this
Agreement without the other party's consent beginning one year from the Time
of Closing provided the maximum of all payments payable as set forth in
Section 3.2(b) hereof ($1,500,000) have been made prior to any proposed
assignment or (iii) either party may assign this Agreement without the other
party's consent at any time after the expiration of three years from the Time
of Closing.
SECTION 8.4 EXPENSES OF TRANSACTION: TAXES. Except as set forth in
Section 8.12, each party shall bear its own costs and expenses in connection
with this Agreement and the transactions contemplated hereby. Purchaser shall
pay all applicable sales, use, excise, transfer, documentary and any other
similar taxes arising out of the purchase and sale of the Assets.
SECTION 8.5 WAIVER -- CONSENT. This Agreement may not be changed,
amended, terminated, augmented, rescinded, or discharged (other than by
performance), in whole or in part, except by a writing executed by the
parties hereto, and no waiver of any of the provisions or conditions of
this Agreement or any of the rights of a party hereto shall be effective or
binding unless such waiver shall be in writing and signed by the party
claimed to have given or consented thereto. Except to the extent that a
party hereto may have otherwise agreed in writing, no waiver by that party
of any condition of this Agreement or breach by the other party of any of
its obligations or representations hereunder or thereunder shall be deemed
to be a waiver of any other condition or subsequent or prior breach of the
same or any other obligation or representation by the other party, nor
shall any forbearance by the first party to seek a remedy for any
noncompliance or breach by the other party be deemed to be a waiver by the
first party of its rights and remedies with respect to such noncompliance
or breach.
SECTION 8.6 COUNTERPARTS. This Agreement may be executed
simultaneously in multiple counterparts, each of which shall be deemed an
original, but all of which taken together shall constitute one and the same
instrument.
SECTION 8.7 SEVERABILITY. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable
in accordance with its terms.
SECTION 8.8 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions
of this Agreement are intended, nor will be interpreted, to provide or
create any third party beneficiary rights or any other rights of any kind
in any client, customer, affiliate, stockholder, partner or employee of any
party hereto or any other person or entity unless
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specifically provided otherwise herein, and, except as so provided, all
provisions hereof will be personal solely between the parties to this
Agreement.
SECTION 8.9 ATTORNEYS' FEES. In any action or proceeding to enforce rights
under this Agreement, the prevailing party shall be entitled to recover
reasonable costs and attorneys' fees.
SECTION 8.10 COOPERATION AND RECORDS RETENTION. Seller and Purchaser shall
(i) each provide the other with such assistance as may reasonably be requested
by them in connection with the preparation of any Tax Returns, or in connection
with any audit or other examination by any taxing authority or any judicial or
administrative proceedings relating to liability for Taxes, (ii) each retain and
provide the other, with any records or other information which may be relevant
to any such Tax Return, audit or examination, proceeding or determination, and
(iii) each provide the other with any final determination of any such audit or
examination, proceeding or determination that affects any amount required to be
shown on any Tax Return of the other for any period. Without limiting the
generality of the foregoing, Seller and Purchaser shall use reasonable efforts
to retain, until the applicable statute of limitations (including any
extensions) have expired, copies of all Tax Returns, supporting work schedules
and other records or information which may be relevant to such Tax Returns for
all tax periods or portions thereof ending before or including the Time of
Closing and shall not destroy or otherwise dispose of any such records without
first providing the other party with a reasonable opportunity to review and copy
the same. Seller shall keep the original copies of the records at its
facilities in California and elsewhere, if applicable, and, at Purchaser's
expense, shall provide copies of the Records to Purchaser upon Purchaser's
request.
SECTION 8.11 TERMINATION. This Agreement may be terminated and the
transactions herein contemplated may be abandoned at any time, but not later
than the Time of Closing:
(a) By mutual consent of the respective Boards of Directors of Purchaser
and Seller; or
(b) By the Board of Directors of Purchaser (i) if, on or after June 28,
1996, any of the conditions provided for in Section 7.1 of this Agreement shall
not have been met or shall not have been waived in writing by Purchaser prior to
such date or (ii) the Board of Directors of Purchaser determines in the exercise
of its reasonable judgment that the pendency of any lawsuit or the institution
or threat of any governmental or administrative action, investigation or inquiry
which questions the validity or the legality of the transactions contemplated
hereby or which seeks to prevent restrain, change or obtain damages in respect
of such transactions, makes it inadvisable to consummate the transactions
contemplated hereby, notwithstanding that such lawsuit, action, investigation or
inquiry may be deemed to be without merit; or
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(c) By the Board of Directors of Seller if, on or after June 28, 1996,
any of the conditions provided for in Section 7.2 of this Agreement shall not
have been met or shall not have been waived in writing by the Seller prior to
such date.
(d) In the event of termination and abandonment by the Board of Directors
of Purchaser or by the Board of Directors of Seller, or both, pursuant to
Section 8.11 hereof, written notice thereof shall forthwith be given to the
other party and this Agreement shall terminate and the transactions contemplated
hereby shall be abandoned without further action by Purchaser or Seller. If
this Agreement is terminated as provided herein:
(i) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the
party furnishing the same;
(ii) All parties hereto shall bear their own costs associated with
this Agreement and all transactions described herein and the parties hereto
shall have no further obligation or liability to the other parties except
as stated in this Section 8.11.
SECTION 8.12 MEDIATION. Prior to commencing any lawsuit arising from a
party's material breach or termination of this Agreement due to the other
party's material breach, the parties shall submit the dispute to a corporate
officer of each party, having actual authority to act on behalf of and bind such
party under this Agreement, for resolution. If the parties are unable to
resolve the dispute within ten (10) days thereafter, the parties shall then
attempt in good faith to resolve it by mediation in accordance with the rules of
the Judicial Arbitration and Mediation Service ("JAMS"). If mediation is
unsuccessful within a reasonable time after commencement of proceedings, but not
less than thirty (30) days thereafter, the mediator shall so certify and the
parties shall be entitled to seek whatever remedies may be available in law or
equity. Notwithstanding the foregoing, either party may seek equitable or
similar relief from a court in connection with any dispute within the scope of
this Section 8.12 (Mediation).
19.
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IN WNNESS WHEREOF, the parties hereto have caused this Agreement to be executed
as of the day and year first above written.
INTERPHASE CORPORATION
By: \x\ R. Stephen Polley
Name: R. Stephen Polley
Title: Chairman, CEO and President
Address: 13800 Senlac, Dallas TX 75234
CISCO SYSTEMS, INC.
a California corporation
By: \x\ Larry R. Carter
Name: Larry R. Carter
Title: VP & CFO
Address: 170 W. Tasman San Jose, CA 95134
20.
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TECHNOLOGY LICENSE AND GRANT-BACK AGREEMENT
This Technology License and Grant-Back Agreement ("Agreement") is made and
entered into as of June 3, 1996 by and between Cisco Systems, Inc., a California
corporation, having principal offices at 170 West Tasman Drive, San Jose,
California 95134-1706 ("Cisco") and Interphase Corporation, a Texas corporation,
having principal offices at 13800 Senlac, Dallas, Texas 75234-8823
("Interphase").
RECITALS
WHEREAS, Cisco is a supplier of FDDI EISA and Sbus adapter products and
Interphase desires to expand its FDDI EISA and Sbus adapter product offering;
WHEREAS, Interphase requires licenses to certain Cisco technology to
develop, manufacture and sell FDDI EISA and Sbus adapter products and Cisco
desires to grant such rights to Interphase; and
WHEREAS, Cisco and Interphase intend to together support the FDDI EISA and
Sbus adapter products through ongoing product support services and
interoperability testing of new FDDI adapter products.
NOW, THEREFORE, the parties agree as follows:
AGREEMENT
1. DEFINITIONS. For purposes of this Agreement, the following terms
shall have the following meanings:
1.1 "Cisco ASICS" shall mean the Cisco proprietary BIGA and MEGA
ASICS.
1.2 "Cisco Patent" shall mean United States Patent No. 5,280,500
(issued January 18, 1994) (titled "Method and Apparatus for Multilevel
Encoding for a Local Area Network"), the underlying invention, any and all
Letters Patent whether U.S. or foreign that are or may be granted from
improvements of the underlying invention and all reissues, reexaminations,
extensions, continuations, continuations-in-part, divisions, substitutions
and renewals thereof or equivalents thereof
1.3 "Cisco Technology' shall mean the Cisco ASICS, designs of the
Cisco ASICS, software that drives the Cisco ASICs and all patent rights,
copyright
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rights, trade secret rights and all other intellectual property and proprietary
rights throughout the world relating to all of the foregoing.
1.4 "Effective Date" shall mean June 10, 1996.
1.5 "FDDI Adapter Products" shall mean the products set forth in
Attachment A (FDDI Adapter Products) hereto and improvements, modifications and
derivative works thereof produced by Interphase solely for use in Sbus and EISA
applications.
1.6 "FDDI Documentation" shall mean (i) the hardware designs and
design information, (ii) software designs and design information, including
source code and a list of software tools, (iii) manufacturing information,
including bills of materials, assembly drawings, Gerber files for printed
circuit boards and manufacturing test software designs, (iv) product manuals,
(v) release notes and (vi) a list of outstanding bugs for the FDDI Adapter
Products.
1.7 "FDDI Software" shall mean the software and firmware contained
in the FDDI Adapter Products, including FDDI Software Upgrades, but excluding
the Cisco Technology.
1.8 "FDDI Software Upgrade" shall mean any upgrade, enhancement,
update, new version of or bug fix for the FDDI Software.
1.9 "FDDI Technology" shall mean the FDDI Adapter Products
(including the FDDI Software) and the FDDI Documentation, but excluding the
Cisco Technology.
1.10 "Interphase Technology" shall mean all patent rights, copyright
rights, trade secret rights, mask work rights and other intellectual property
and proprietary rights throughout the world in the FDDI Technology, but
excluding the Cisco Technology.
1.11 "Restricted Products" shall mean products which are identical
to, or have substantially the same functionality as, the FDDI Adapter
Products (as such FDDI Adapter Products exist on the Effective Date) intended
for use in host end-station environments including, without limitation,
server and/or client station environments. Restricted Products do not
include products intended for use in non-host end-station environments
including, without limitation, routers, switches and hubs.
1.12 "Transition Period" shall mean the period commencing on the
Effective Date and ending on July 28, 1996.
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2. LICENSE GRANTS.
2.1 LICENSE BY CISCO' Subject to all the terms and conditions of this
Agreement including, without limitation, the restriction on Cisco's design,
manufacture and sale of the Restricted Products set forth in Section 2.1.4
below, Cisco grants to Interphase a non-exclusive, non-transferable (except as
permitted in Section 21 (Assignment)), non-sublicensable, royalty-free,
worldwide license:
(i) under the Cisco Patent to make, have made, use, sell,
offer for sale and import the FDDI Adapter Products;
(ii) under the Cisco Technology (as such Cisco Technology
exists as of the Effective Date) and any improvements, modifications and
derivative works of the Cisco Technology made by or for Interphase to (a)
use, reproduce (except the Cisco ASICS), modify, create and have created
derivative works of the Cisco Technology (in source code and object code
forms), (b) distribute such Cisco Technology and improvements, modifications
and derivative works thereof created by or for Interphase (in object code
only, but excluding the designs of the Cisco ASICS), but only as all of the
foregoing in this Section 2.1(ii)(b) are incorporated in the FDDI Adapter
Products and (c) distribute to customers the software that drives the Cisco
ASICs (in source code and object code) solely for the purposes of customizing
the FDDI Software drivers for use in a customer's environment and providing
maintenance and support of the FDDI Software drivers; and
(iii) sublicense the distribution rights granted in
subparagraph (ii)(b) above to third parties. Interphase may use
sub-distributors, original equipment manufacturers, value-added resellers and
other resellers (collectively, "Resellers"), provided any such Reseller shall
be bound in writing to all the restrictions of this Agreement.
2.1.1 No distribution of the FDDI Adapter Products containing
Cisco Technology or any improvement, modification or derivative work thereof
made by or for Interphase shall be made except pursuant to a written end-user
license agreement that is at least as protective of Cisco and its rights as
the end-user agreement typically used by Interphase in connection with the
distribution of substantially similar products. Further, distribution of the
source code (or any portion thereof) for the software that drives the Cisco
ASICs shall be made pursuant to Interphase's standard source code
distribution policy.
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2.1.2 The license granted above in this Section 2.1 (License
by Cisco) is non-exclusive. Except as otherwise provided herein, (including,
but not limited to, Section 2.1.4 below) Cisco is not limited in any manner
from exploiting the Cisco Patent or the Cisco Technology including, but not
limited to, marketing, distribution or licensing activities by Cisco or its
dealers, distributors, licensees or agents.
2.1.3 Interphase shall have sole responsibility for obtaining
any and all third party rights (including, without limitation, third party
intellectual property rights licensed under the agreements listed in Schedule
I (Excluded Third Party Intellectual Property Rights)) and for the payment of
fees, royalties or other amounts and for all liabilities arising from the
exercise by Interphase of the rights granted under this Section 2.1 (License
by Cisco).
2.1.4 Until the earlier of (a) three (3) years after the
conclusion of the Transition Period or (b) termination of this Agreement by
Cisco pursuant to Section 18.2 (Termination), Cisco shall not design,
manufacture, have manufactured or sell the Restricted Products to any third
party for any purpose other than in connection with support and maintenance
of the FDDI Adapter Products or directly assist or authorize any third party
to do any of the foregoing; provided, however, Cisco shall have the right to
promote, market, sell and distribute the FDDI Adapter Products during the
Transition Period. Interphase acknowledges and agrees that Cisco's
acquisition, while the restrictions under this Section 2.1.4 are in effect,
of more than fifty percent (50%) of the outstanding voting interests or
substantially all of the assets of any entity having operations related to
FDDI adapter products, where such operations do not comprise such entity's
primary business, shall be permitted hereunder; provided, Cisco will use its
reasonable efforts to divest its ownership or control of such FDDI adapter
products operations of the acquired entity within fifteen (15) months of such
acquisition. If the FDDI adapter products operations acquired by Cisco are
not divested within such fifteen (15) month period, then Cisco shall (i)
negotiate in good faith the terms of the sale of such FDDI adapter products
operations to Interphase or (ii) completely terminate or discontinue such
FDDI adapter products operations.
2.2 LiCENSE BY INTERPHASE. Subject to all the terms and conditions of
this Agreement (including, without limitation, Section 2.1.4 above), Interphase
grants to Cisco a non-exclusive, royalty-free, sublicensable worldwide license
under the Interphase Technology (as such Interphase Technology exists as of the
Effective Date) and any improvements, modifications and derivative works of the
Interphase Technology made by or for Cisco to use, reproduce, modify, create
derivative works of, make, have made, distribute, sell, offer for sale and
import the FDDI Technology.
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3. FDDI ADAPTER PRODUCT LABELING. No right or license with respect to any
trademark, service mark, logo, tradename or other designation of Cisco is
granted to Interphase under this Agreement. Until December 31, 1996, Interphase
shall be entitled to resell FDDI Adapter Products purchased from Cisco and its
suppliers bearing original unaltered Cisco notices and labels designating Cisco
as the source of such FDDI Adapter Products; provided, however, Interphase shall
use its diligent efforts during this period to remove all Cisco marks, notices,
labels or other designations of Cisco and to implement the use of labels
including, without limitation, packaging stickers, notices or other means of
designating Interphase as the source of the FDDI Adapter Products. After
December 31) 1996, neither party shall sell any FDDI Adapter Products bearing
the other party's name, marks, notices, labels or any other designations without
the prior written consent of the other party, which consent shall not be
unreasonably withheld, except to the minimum extent necessary to comply with the
requirements of any government contract with the United States or any agency
thereof. Notwithstanding the foregoing, Interphase shall have no obligation
under this Section 3 (FDDI Adapter Product Labeling) to remove Cisco marks or
other designations from the Cisco ASICS.
4. PURCHASE OF CISCO ASICS. Cisco agrees to provide Interphase with a
Letter of Authorization to purchase the Cisco ASICs from Cisco's manufacturer of
the Cisco ASICs only for use with the FDDI Adapter Products. Interphase shall
have sole responsibility for negotiating the terms and conditions of its
purchases of the Cisco ASICs and for all liabilities including, without
limitation, payment arising from such purchases.
5. PURCHASE OF FDDI ADAPTER PRODUCTS BY CISCO. Interphase agrees to sell
to Cisco the FDDI Adapter Products which Cisco may order from Interphase in
connection with Cisco's resale and support of the FDDI Adapter Products during
the Transition Period and Cisco's warranty and support obligations following the
Transition Period. Such sale to Cisco of the FDDI Adapter Products shall be
pursuant to the terms and conditions of purchase of the FDDI Adapter Products
set forth in Attachment B (Terms and Conditions for Cisco's Purchase of the FDDI
Adapter Products) hereto. FDDI Adapter Products shall be manufactured by
Interphase according to the functional, technical and other specifications for
each FDDI Adapter Product set forth in the Cisco Product Catalog as of the
Effective Date or as may be modified from time to time with written notice to
Cisco thirty (30) days prior to implementation of a specification modification.
5.1 FDDI ADAPTER PRODUCT CONTACTS. Ed Nelson from Cisco and Rick
Donihoo from Interphase will be the initial contact persons ("FDDI Adapter
Product Contact") for the FDDI Adapter Products. The FDDI Adapter Product
Contacts will act as liaisons between the parties to exchange information
regarding new and changed FDDI Adapter Products and FDDI Software Upgrades
and shall provide
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the parties from time to time with the names and telephone numbers of
additional specific contact persons when such direct contact is preferable
and appropriate. In the event that either party appoints a new FDDI Adapter
Product Contact, such party will promptly notify the other in writing.
Neither party's FDDI Adapter Product Contact is authorized to amend, alter or
extend this Agreement in any manner or waive any obligation or breach
hereunder.
6. INTERPHASE SUPPORT OBLIGATIONS.
6.1 FDDI ADAPTER PRODUCTS SOLD BY INTERPHASE OR CISCO. Interphase
shall use its commercially best efforts to provide (i) first, second and
third level support to customers, who request support, of the FDDI Adapter
Products in a manner comparable to or better than the support standards
established by Cisco as described in Attachment C (Cisco Support Standards)
hereto and at Interphase's published rates then in effect, and (ii) second
and third level support to Cisco in a manner as described in Attachment D
(Support Terms and Conditions). For three (3) years commencing after the
Transition Period, Interphase shall conduct a customer satisfaction survey on
an annual basis to determine the level of customer satisfaction in connection
with support of the FDDI Adapter Products by Interphase under (i) of this
Section 6.1 (FDDI Adapter Products Sold by Interphase or Cisco) and shall
promptly provide Cisco the complete and accurate results of each such survey.
6.2 FAILURE TO PROVIDE SATISFACTORY SUPPORT. Subject to the cure
provisions of Section 18.2(d) (Termination) below, failure by Interphase to
provide satisfactory customer support for the FDDI Adapter Products or
satisfactory support to Cisco pursuant to Section 6.1 (FDDI Adapter Products
Sold by Interphase or Cisco) shall be deemed a material breach of this
Agreement; provided, however, that prior to Cisco's termination of the
Agreement, Cisco and Interphase shall work together in good faith to develop
a written plan for Interphase to correct such failure and to provide
satisfactory support going forward. In the event of a dispute as to whether
a failure to provide satisfactory support has occurred or failure to agree
upon a plan to correct such a failure, Cisco and Interphase shall resolve the
dispute by mediation pursuant to Section 19 (Mediation) below. If such
mediation is unsuccessful within a reasonable time after commencement of
proceedings, but not less than thirty (30) days thereafter, Cisco may elect
to immediately terminate this Agreement and the parties shall be entitled to
seek whatever remedies may be available in law or equity.
6.2.1 Notwithstanding the provisions of Section 6.2 (Failure
to Provide Satisfactory Support) above and Section 18.2(d) (Termination)
below, if Cisco and Interphase jointly agree on a written plan for Interphase
to correct a failure to provide satisfactory support and to provide
satisfactory support going forward, the material breach shall be considered
cured and Cisco shall not have the right to terminate
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this Agreement on the basis of such material breach so long as Interphase is
diligently performing in accordance with such plan.
6.3 DISCONTINUED FDDI ADAPTER PRODUCTS. Subject to the
obligations set forth in Section 9.2 (Interphase's Obligations) below,
Interphase shall have the right, in its sole discretion, to discontinue any
FDDI Adapter Product; provided, however, that Interphase shall continue to
provide support for any discontinued FDDI Adapter Product for a period of
five (5) years after the date of such discontinuance.
7. SUPPORT OF FDDI ADAPTER PRODUCTS BY CISCO. Interphase acknowledges
and agrees that Cisco shall be entitled to provide support services to customers
of the FDDI Adapter Products (whether sold by or on behalf of Interphase or
Cisco) and FDDI adapters for the PCI interface manufactured and sold by or on
behalf of Interphase. In addition, Cisco may, upon mutual agreement of Cisco
and Interphase, provide support services to customers of other products
manufactured and sold by or on behalf of Interphase. Cisco shall have the right
to market, promote and provide such support services including, without
limitation, services under Cisco's "SMARTnet" program (and related and successor
programs) to customers of the FDDI Adapter Products, FDDI adapters for the PCI
interface and, subject to the mutual agreement of Interphase and Cisco, other
products manufactured and sold by or on behalf of Interphase.
8. INTERPHASE WARRANTY OBLIGATIONS.
8.1 FDDI ADAPTER PRODUCTS SOLD BY CISCO. Following the end of the
Transition Period, Interphase shall (at a customer's request and, except as
otherwise provided below, at no cost to the customer) replace and deliver to
the customer the replacement of any defective FDDI Adapter Product sold by or
on behalf of Cisco before or during the Transition Period, in accordance with
Cisco's standard warranty set forth in Attachment H (Cisco Standard
Warranty). Interphase shall pay all costs of shipping and insurance and
assume the risk of loss during shipping of replacement FDDI Adapter Products,
except such shipping and insurance costs associated with (i) the return to
Interphase of defective FDDI Adapter Products and (ii) delivery to a customer
of replacement FDDI Adapter Products where a shipment of FDDI Adapter
Products returned to Interphase as defective contained a high proportion of
properly functioning FDDI Adapter Products. Cisco shall pay Interphase for
replacement FDDI Adapter Products pursuant to this Section 8.1 (FDDI Adapter
Products Sold by Cisco) at the unit prices set forth in Attachment A (FDDI
Adapter Products) hereto, reasonable shipping and insurance costs of such
replacement FDDI Adapter Products and customs duties, if any, incurred by
Interphase from the return of defective FDDI Adapter Products; unless,
however, under Interphase policy or practice, payment for such FDDI Adapter
Products, shipping and insurance costs and duties are to be made by the
customer.
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Notwithstanding the foregoing, Cisco shall be entitled to provide support
services in accordance with Section 7 (Support of FDDI Adapter Products by
Cisco) above.
8.2 FDDI ADAPTER PRODUCTS SOLD by INTERPHASE. During the
Transition Period and for a period of three (3) years following the end of
the Transition Period, Interphase shall warrant to end-users (including
Cisco) of the FDDI Adapter Products sold by or on behalf of Interphase that,
for a period of not less than ninety (90) days from the date of shipment by
or on behalf of Interphase or Interphase's standard warranty period,
whichever is longer (the "Warranty Period"), the FDDI Adapter Products will
be free from defects in materials, workmanship and will perform in accordance
with the applicable specifications and related documentation.
8.2.1 The terms of such warranty shall be no less favorable
than the terms of Cisco's standard warranty, attached hereto as Attachment H
(Cisco Standard Warranty), for the FDDI Adapter Products manufactured by
Cisco. During the Warranty Period, Interphase shall provide customers with
replacement FDDI Adapter Products in advance of the return of defective FDDI
Adapter Products which are covered by the warranty. During the initial
ninety (90) days of the Warranty Period, Interphase shall use commercially
reasonable efforts to ship replacement FDDI Adapter Products within one (1)
business day of receipt by Interphase of notice from the customer of the
defective FDDI Adapter Product and Interphase shall pay all costs of shipping
and insurance and assume the risk of loss during shipping of the replacement
FDDI Adapter Product covered under the warranty to such customers.
8.2.2 After expiration of the Warranty Period, Interphase
shall continue to provide repair for the FDDI Adapter Products and components
and Interphase shall perform a test analysis on all such FDDI Adapter
Products returned to Interphase for repair. The fee charged to Cisco for the
test analysis, if no trouble found, will be fifty dollars ($50.00) per unit
of such FDDI Adapter Products. If a FDDI Adapter Product tested by
Interphase requires repair, prices and charges to Cisco for repair of such
FDDI Adapter Product and components thereof will be two hundred fifty dollars
($250.00) per FDDI Adapter Product, inclusive of Interphase's test analysis
fee. Such prices and charges shall be effective for a period of two (2)
years following the Effective Date. Thereafter, repair shall be provided by
Interphase to Cisco on commercially reasonable terms and at prices and
charges that are not higher than those provided by Interphase to third
parties. Interphase will warrant repair of the FDDI Adapter Products for a
period of thirty (30) days from the date of repair or Interphase's standard
warranty period for repairs, whichever is longer.
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9. MARKETING OF FDDI ADAPTER PRODUCTS BY INTERPHASE.
9.1 Cisco's OBLIGATIONS. For a period of three (3) years following
the end of the Transition Period, Cisco will use its reasonable efforts to
refer all sales inquiries for the FDDI Adapter Products to Interphase in
accordance with the procedure described in Attachment F (Sales Referral
Procedure) hereto;
9.2 INTERPHASE'S OBLIGATION. Interphase shall:
(i) use its best efforts to successfully market and distribute
the FDDI Adapter Products and, for A period of two (2) years following the
end of the Transition Period, continue to offer for sale the FDDI Adapter
Products under the same model numbers and without change, except for
modifications, enhancements and bug fixes necessary for Interphase to comply
with this subparagraph (i);
(ii) comply with good business practices and all laws and
regulations relevant to this Agreement or the subject matter hereof-,
(iii) offer to sell Cisco the FDDI Adapter Products on
reasonable commercial terms and keep Cisco informed of new FDDI Adapter
Products manufactured and sold by or on behalf of Interphase; and
(iv) use its commercially best efforts to perform any
maintenance and support including, but not limited to, modifications,
enhancements and bug fixes of the FDDI Adapter Products necessary for
Interphase to successfully market and distribute such FDDI Adapter Products.
10. INTEROPERABILITY TESTING BY INTERPHASE. On an ongoing basis, both
parties agree to make a good faith effort to cooperate in interoperability
testing to be conducted by Interphase in accordance with this Section 10
(Interoperability Testing by Interphase). Interphase shall perform
interoperability tests of the FDDI Adapter Products and other Cisco FDDI
router, switch and concentrator products and promptly provide Cisco with the
test results in accordance with the guidelines ("Interoperability Testing
Guidelines") set forth in Attachment G (Interoperability Testing Guidelines).
The general interoperability test guidelines specifying the types of tests
and the form on which to report test results are set forth in the
Interoperability Testing Guidelines. The interoperability test results and
other information contained in the Interoperability Testing Guidelines will
be used to verify interoperability of the FDDI Adapter Products and for no
other purpose. Test results will not be used as benchmarks or to report
product shortcomings or to illustrate competitive advantages or disadvantages
of products from different parties.
9
<PAGE>
10.1 TEST PRODUCTS. Cisco agrees to provide to Interphase, as a
bailee, such Cisco router, switch and concentrator products with FDDI
interfaces, as determined by Cisco in its sole discretion, to perform the
interoperability testing in accordance with the Interoperability Testing
Guidelines. All products including, without limitation, designs and
materials, furnished by Cisco to Interphase under this Section 10.1 (Test
Products) ("Bailed Property") shall: (i) be clearly marked or tagged as
Cisco's property; (ii) be and remain personal property and not become a
fixture to real property; (iii) be subject to inspection by Cisco at any
time; (iv) be used only for interoperability testing among the FDDI Adapter
Products; (v) be kept free of liens and encumbrances; (vi) be kept separate
from other materials, tools, or property of or held by Interphase; (vii) not
be modified in any manner by Interphase; and (viii) shall be stored in a safe
place and environment. In the event Interphase uses the Bailed Property for
any purpose other than to conduct interoperability testing as specified
herein without Cisco's prior written consent, Interphase agrees to purchase
such Bailed Property at Cisco's list price for such Bailed Property.
Cisco shall retain all rights, title and interest in the Bailed
Property, and Interphase agrees to treat and maintain the Bailed Property
with at least the same degree of care as Interphase uses with respect to its
own valuable equipment. Interphase shall bear all risk of loss or damage to
the Bailed Property until it is returned to Cisco. Upon Cisco's request,
Interphase shall promptly return and deliver all Bailed Property to Cisco in
good condition, normal wear and tear excepted, without cost to Cisco
(exclusive of freight costs); Cisco shall determine the manner and procedure
for returning the Bailed Property and shall pay the corresponding freight
costs. Interphase waives any legal or equitable right it may have to
withhold the Bailed Property and Interphase agrees to execute all documents
or instruments evidencing Cisco's ownership of the Bailed Property as Cisco
may from time to time request.
11. OWNERSHIP.
11.1 CISCO. As between the parties, except as expressly and
unambiguously licensed herein, Cisco retains ownership of and shall own all
rights, title and interest (including all proprietary and intellectual
property rights throughout the world) in and to the Cisco Patent, the Cisco
Technology, all copies, improvements, modifications and derivative works (by
whomever produced) thereof.
11.1.1 ASSIGNMENT. Interphase agrees to assign and does
hereby assign to Cisco any and all rights, title and interest Interphase may
acquire in and to improvements, modifications or derivative works of the
Cisco Technology, subject to the restriction on Cisco's design, manufacture
and sale of the Restricted Products set forth in Section 2.1.4 above.
Interphase will execute any and all documents necessary to give effect to and
perfect such assignment. In the event that Cisco is unable for any
10
<PAGE>
reason whatsoever to secure Interphase's signature to any such document,
Interphase hereby irrevocably designates and appoints Cisco and its duly
authorized officers as its attorneys-in-fact with FULL power of substitution to
act for and in behalf of and instead of Interphase to execute and file any such
document and to do all other lawfully permitted acts to further the purposes of
the foregoing with the same legal force and effect as if executed by Interphase.
Interphase shall promptly provide Cisco with a copy of all such improvements,
modifications or derivative works of the Cisco Technology, in source and object
code forms, and all documentation related thereto.
11.2 INTERPHASE. As between the parties, except as expressly and
unambiguously licensed herein, Interphase retains ownership of and shall own all
rights, title and interest (including all proprietary and intellectual property
rights throughout the world) in and to the Interphase Technology, all copies,
improvements, modifications and derivative works (by whomever produced) thereof.
11.2.1 ASSIGNMENT. Cisco agrees to assign and does hereby
assign to Interphase any and all rights, title and interest Cisco may acquire
in and to improvements, modifications or derivative works of the Interphase
Technology. Cisco will execute any and all documents necessary to give effect
to and perfect such assignment. In the event that Interphase is unable for
any reason whatsoever to secure Cisco's signature to any such document, Cisco
hereby irrevocably designates and appoints Interphase and its duly authorized
officers as its attorneys-in-fact with full power of substitution to act for
and in behalf of and instead of Cisco to execute and file any such document
and to do all other lawfully permitted acts to further the purposes of the
foregoing with the same legal force and effect as if executed by Cisco.
Cisco shall promptly provide Interphase with a copy of all such improvements,
modifications or derivative works of the Interphase Technology, in source and
object code forms, and all documentation related thereto.
12. WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED HEREIN, THE CISCO
PATENT, CISCO TECHNOLOGY, AND INTERPHASE TECHNOLOGY ARE LICENSED HEREUNDER
"AS IS" WITHOUT WARRANTY OF ANY KIND. EXCEPT AS EXPRESSLY PROVIDED HEREIN,
NEITHER CISCO NOR INTERPHASE MAKES ANY WARRANTY TO THE OTHER PARTY OR ANY
OTHER PERSON OR ENTITY WITH RESPECT TO ANY OF THE FOREGOING OR ANY LICENSES
OR SERVICES AND EACH PARTY HEREBY DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE. FURTHER, CISCO DOES NOT WARRANT, GUARANTEE
OR MAKE ANY REPRESENTATION REGARDING THE USE, OR THE RESULTS OF THE USE, OF
THE CISCO PATENT, CISCO TECHNOLOGY OR RELATED DOCUMENTATION IN TERMS OF
CORRECTNESS, ACCURACY, RELIABILITY OR OTHERWISE AND INTERPHASE DOES NOT
WARRANT, GUARANTEE OR MAKE ANY REPRESENTATIONS REGARDING THE USE OR THE
11
<PAGE>
RESULTS OF THE USE OF THE INTERPHASE TECHNOLOGY OR RELATED DOCUMENTATION IN
TERMS OF CORRECTNESS, ACCURACY, RELIABILITY OR OTHERWISE.
13. SUFFICIENCY OF ASSETS AND LICENSES. Except as set forth on Schedule I
(Excluded Third Party Intellectual Property Rights) hereto and as provided in
Section 2.1.3 above, to Cisco's knowledge, the assets being sold pursuant to
the Asset Purchase Agreement between Interphase and Cisco dated of even date
herewith and the licenses being granted pursuant to this Agreement are all
the intellectual property assets and rights both owned and required by Cisco
prior to the date hereof to produce, market and distribute the FDDI Adapter
Products. For purposes of this Agreement, any reference to "Cisco's
knowledge" means Cisco's actual knowledge after reasonable inquiry of the
former officer and director level employees of Crescendo Communications, Inc.
who are employed by Cisco as of the date hereof. Notwithstanding anything
contrary in this Agreement, the sole remedy to Interphase for Cisco's breach
of this Section 13 (Sufficiency of Assets and Licenses) shall be the right to
require Cisco to deliver or license any such intellectual property
asset(s)and/or right(s) both owned and required by Cisco prior to the date
hereof to produce, market and distribute the FDDI Adapter Products. The
representation in this Section 13 (Sufficiency of Assets and Licenses) will
terminate one (1) year following the Effective Date and, therefore, any claim
by Interphase for a breach of such representation must be brought prior to
the expiration of such one (1) year period.
14. CONFIDENTIALITY.
14.1 PROPRIETARY INFORMATION. Information of either party (the
"Disclosing Party") including, without limitation, designs, layouts, mask
works, design documentation, code, schematics, inventions, algorithms,
know-how, trade secrets, ideas, improvements, works of authorship, derivative
works, modifications, product development plans, forecasts, strategies,
techniques, processes, software, contracts, customer lists and all other
business, technical and financial information is the confidential property
("Proprietary Information") of the Disclosing Party.
14.2 CONFIDENTIALITY OBLIGATION. Except as expressly allowed
herein, each party (the "Receiving Party") will hold in confidence and not
use or disclose for five (5) years following termination of this Agreement
any Proprietary Information of the Disclosing Party other than as expressly
permitted under the terms of this Agreement and shall similarly bind its
employees, agents, consultants and advisors in writing. The parties further
agree that the terms of this Agreement are confidential and that neither
party may disclose the terms of this Agreement to any third party without the
prior
12
<PAGE>
written consent of the other party, provided that Interphase has the right to
disclose the existence of this Agreement to its customers.
14.3 EXCEPTIONS TO PROPRIETARY INFORMATION. Without granting any
right or license, the Disclosing Party agrees that the obligations set forth
in Section 14.2 (Confidentiality Obligation) above shall not apply to the
extent that Proprietary Information includes information which the Receiving
Party can document:
(i) is or has become readily publicly available without
restriction through no fault of the Receiving Party or its employees or
agents; or
(ii) is received without restriction from a third party
lawfully in possession of such information and lawfully empowered to disclose
such information; or
(iii) was rightfully in the possession of the Receiving Party
without restriction prior to its disclosure by the other party; or
(iv) was independently developed by employees or consultants
of the Receiving Party.
Notwithstanding the foregoing, the Cisco Technology and any and all
improvements, modifications and derivative works of the Cisco Technology
produced by or on behalf of Interphase shall be deemed Proprietary
Information solely of Cisco and exceptions (iii) and (iv) above will not be
applicable to such improvements, modifications and derivative works of the
Cisco Technology. Notwithstanding the foregoing, the Interphase Technology
and any and all improvements, modifications and derivative works of the
Interphase Technology produced by or on behalf of Cisco shall be deemed
Proprietary Information solely of Interphase and exceptions (iii) and (iv)
above will not be applicable to such improvements, modifications and
derivative works of the Interphase Technology.
15. PRESS RELEASES; PUBLICITY. The parties agree to issue a joint press
release relating to matters contained herein, subject to the approval of both
parties, following execution of this Agreement. Each party shall obtain the
other party's prior written consent, which will not be unreasonably withheld,
prior to any disclosure of the existence or substance of the matters
contained herein through press releases or other publicity (including,
without limitation, marketing or promotional materials).
13
<PAGE>
16. INFRINGEMENT.
16.1 INDEMNITY FROM CISCO. Subject to Section 16.1.1 (Exclusions to
Cisco's Indemnity) below, Cisco shall defend, indemnify and hold Interphase
and its officers, directors, employees, agents and wholly-owned subsidiaries
of Interphase harmless from all liability (including reasonable attorneys'
fees and costs) resulting solely from any claim, suit or proceeding relating
to the alleged or actual infringement of the Cisco Technology (as such Cisco
Technology exists as of the Effective Date) or an FDDI Adapter Product
(excluding any and all improvements, modifications and derivative works of
such FDDI Adapter Product produced by or on behalf of Interphase) whose
manufacture, use, sale, offer for sale or importation would infringe a claim
of the Cisco Patent of any U.S. patent issued as of the Effective Date or
U.S. copyright. Cisco's obligation under this Section 16.1 (Indemnity from
Cisco) shall be conditioned upon Cisco being promptly notified of any and all
threats, claims and proceedings related thereto, being given reasonable
assistance IN connection therewith and having sole control over the defense
and all negotiations for a settlement or compromise. Cisco will not be
responsible for any settlement, charges, costs or fees it does not approve in
writing.
16.1.1 EXCLUSIONS TO CISCO'S INDEMNITY. Cisco shall have no liability
or obligation to Interphase under Section 16.1 (Indemnity from Cisco) above
if Interphase is in breach of any material obligation or provision of this
Agreement or if any alleged patent or copyright infringement or claim thereof
is based upon (i) any portion of the Cisco Technology made in accordance with
Interphase's specifications, (ii) modifications or derivative works made by
or on behalf of Interphase to the Cisco Technology, (iii) use of the Cisco
Technology with other products, equipment, or software, if such infringement
would have been avoided by use of the Cisco Technology alone, (iv) use of the
Cisco Technology beyond the scope of the license granted in Section 2.1
(License by Cisco) above or (v) Interphase's continuing allegedly infringing
activity after being notified by Cisco of modifications that would have
avoided the infringement, provided that such modifications were made
available to Interphase; Interphase will indemnify Cisco and its officers,
directors, employees and agents from all damages, settlements, reasonable
attorneys' fees and expenses related to a claim of infringement excluded from
Cisco's indemnity obligation by this sentence. THE RIGHTS GRANTED TO
INTERPHASE UNDER THIS SECTION 16 (INFRINGEMENT) ARE IN LIEU OF ANY WARRANTIES
OF NONINFRINGEMENT, WHICH ARE HEREBY DISCLAIMED, AND SHALL BE INTERPHASE'S
SOLE AND EXCLUSIVE REMEDY FOR ANY ALLEGED INFRINGEMENT BY THE
CISCO TECHNOLOGY OF ANY PATENT, COPYRIGHT OR OTHER PROPRIETARY RIGHT.
14
<PAGE>
16.2 INDEMNITY FROM INTERPHASE. Subject to Section 16.2.1 (Exclusions to
Interphase's Indemnity) below, Interphase shall defend, indemnify and hold
Cisco and its officers, directors, employees, agents and wholly-owned
subsidiaries of Cisco harmless from all liability (including reasonable
attorneys' fees and costs) resulting solely from any claim, suit or
proceeding relating to the alleged or actual infringement of any improvement,
modification or derivative work of the Interphase Technology produced by or
on behalf of Interphase of any U.S. patent issued as of the Effective Date or
U.S. copyright, provided Interphase is promptly notified of any and all
threats, claims and proceedings related thereto, given reasonable assistance
in connection therewith and has sole control over the defense and all
negotiations for a settlement or compromise. Interphase will not be
responsible for any settlement, charges, costs or fees it does not approve in
writing.
16.2.1 EXCLUSIONS TO INTERPHASE'S INDEMNITY. Interphase shall have no
liability or obligation to Cisco under Section 16.2 (Indemnity from
Interphase) above if Cisco is in breach of any material obligation or
provision of this Agreement or if any alleged patent or copyright
infringement or claim thereof is based upon (i) any portion of the Interphase
Technology made in accordance with Cisco's specifications, (ii) modifications
or derivative works made by or on behalf of Cisco to the Interphase
Technology, (iii) use of the Interphase Technology with other products,
equipment, or software, if such infringement would have been avoided by use
of the Interphase Technology alone, (iv) use of the Interphase Technology
beyond the scope of the license granted in Section 2.2 (License by
Interphase) above, or (v) Cisco's continuing allegedly infringing activity
after being notified by Interphase of modifications that would have avoided
the infringement, provided that such modifications were made available to
Cisco; Cisco will indemnify Interphase and its officers, directors, employees
and agents from all damages, settlements, reasonable attorneys' fees and
expenses related to a claim of infringement excluded from Interphase's
indemnity obligation by this sentence. THE RIGHTS GRANTED TO CISCO UNDER
THIS SECTION 16 (INFRINGEMENT) ARE IN LIEU OF ANY WARRANTIES OF
NONINFRINGEMENT, WHICH ARE HEREBY DISCLAIMED, AND SHALL BE CISCO'S SOLE AND
EXCLUSIVE REMEDY FOR ANY ALLEGED INFRINGEMENT BY THE INTERPHASE TECHNOLOGY OF
ANY PATENT, COPYRIGHT OR OTHER PROPRIETARY RIGHT.
17. LIMITATION OF LIABILITY. EXCEPT AS EXPRESSLY PROVIDED BELOW IN THIS
SECTION 17 AND NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE,
NEITHER PARTY WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS
AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR
EQUITABLE THEORY FOR (1) ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES OR LOST DATA,
(11) COST OF PROCUREMENT OF SUBSTITUTE
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GOODS, TECHNOLOGY OR SERVICES (III) ANY MATTER BEYOND A PARTY'S REASONABLE
CONTROL OR (IV) ANY AMOUNTS IN EXCESS OF FIVE HUNDRED THOUSAND DOLLARS
($500,000). THE LIMITATIONS IN THIS SECTION 17 (LIMITATION OF LIABILITY)
SHALL NOT APPLY TO BREACHES OF SECTION 2.1.4 (CISCO LICENSE RESTRICTION) OR
14.2 (CONFIDENTIAL OBLIGATION) OR TO ACTIONS OF INTERPHASE BEYOND THE SCOPE OF
THE LICENSE GRANTED IN SECTION 2.1 (LICENSE BY CISCO) OR ACTIONS BY CISCO
BEYOND THE SCOPE OF THE LICENSE GRANTED IN SECTION 2.2 (LICENSE BY
INTERPHASE).
18. TERM AND TERMINATION.
18.1 Term. This Agreement commences on the Effective Date and shall
remain in effect unless and until terminated as provided herein.
18.2 TERMINATION. Upon the occurrence of any of the following events,
this Agreement may be terminated for cause immediately by written notice:
(a) By Interphase, if Cisco assigns or transfers its rights or obligations
under this Agreement to a direct competitor of Interphase without Interphase's
prior written consent;
(b) By Cisco, if Interphase assigns or transfers its rights or obligations
under this Agreement to a direct competitor of Cisco without Cisco's prior
written consent including, without limitation, any transfer of all or
substantially all of Interphase's stock, assets or business relating to the FDDI
Adapter Products by sale, merger or otherwise;
(c) By a party if the other ceases to do business, or otherwise terminates
its business operations or by Cisco, if there is a change in control of
Interphase which results in ownership by a competitor of Cisco of more than
fifty percent (50%) of Interphase's assets, voting stock or business, unless
such change of control is approved by Cisco in writing;
(d) By a party if the other breaches any material provision of this
Agreement and fails to cure such breach within thirty (30) days (immediately in
the case of a breach of Section 14 (Confidentiality) of written notice
describing the breach; provided, however, that if within such thirty (30) day
period the party in breach has commenced all reasonable activities to cure such
breach (excluding a breach of Section 14 (Confidentiality) or actions of
Interphase beyond the scope of the license granted in Section 2.1 (License by
Cisco) or actions by Cisco beyond the scope of the license granted in Section
2.2 (License by Interphase)) and has continued diligently
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to cure such breach but such breach is not cured at the end of the thirty
(30) day period, the non-breaching party's right of termination shall not
arise until the earlier of the date the breaching party abandons its diligent
efforts to cure or ninety (90) days after notice of the breach was first
given; or
(e) By a party if the other becomes insolvent or seeks protection under
any bankruptcy, receivership, trust deed, creditors arrangement, composition or
comparable proceeding, or if any such proceeding is instituted against the such
party (and not dismissed within ninety (90) days).
18.3 EFFECT OF TERMINATION.
18.3.1 Upon termination of this Agreement by either party pursuant to
Section 18.2 (Termination) above:
(a) All licenses granted by the terminating (nondefaulting) party
hereunder shall immediately terminate, except as necessary to carry out the
other party's warranty and support obligations hereunder; and
(b) All licenses granted to the non-defaulting party hereunder shall
continue without restriction; and
(c) In the event of an uncured default condition by Interphase, Interphase
shall sell to Cisco, upon Cisco's election to purchase, all or any part of
Interphase's inventory of the FDDI Adapter Products under the terms and
conditions set forth in Attachment B (Terms and Conditions of Cisco's Purchase
of FDDI Adapter Products).
(d) Should this Agreement be terminated for any reason, the rights of
end-users to use the Cisco Technology or the Interphase Technology licensed
prior to such termination shall not be affected.
18.3.2 Upon termination of this Agreement, each party shall, within
fifteen (15) days of the effective date of any termination of this Agreement,
return to the other or destroy all full or partial copies, in whatever media,
of all of the other party's Proprietary Information and any and all other
materials in such party's possession which had been furnished to it by the
other party pursuant to this Agreement.
18.4 SURVIVAL. Except as provided in Section 18.3 (Effect of
Termination) above, Sections 2.1 (License by Cisco), 2.2 (License by
Interphase), 3 (FDDI Adapter Product Labeling), 6 (Interphase Support
Obligations), 7 (Support of FDDI Adapter Products by Cisco), 8 (Interphase
Warranty Obligations), 11 (Ownership),
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12 (Warranty Disclaimer), 14 (Confidentiality), 16 (Infringement), 17
(Limitation of Liability), 18.3 (Effect of Termination), 18.4 (Survival),
18.5 (No Liability for Termination), 18.6 (No Effect on End-Users), 20
(Export Controls), 22 (Relationship of the Parties; No Agency), 23
(Injunctive Relief) and 24 (General) will survive termination of this
Agreement. Section 13 (Sufficiency of Assets and Licenses), in any event,
will terminate one (1) year following the Effective Date.
18.5 NO LIABILITY FOR TERMINATION. Each party understands that the
rights of termination hereunder are absolute. Neither party shall incur any
liability whatsoever for any damage, loss or expenses of any kind suffered or
incurred by the other (or for any compensation to the other) arising from or
incident to any termination of this Agreement by such party which complies
with the terms of this Agreement whether or not such party is aware of any
such damage, loss or expenses.
18.6 NO EFFECT ON END-USERS. Upon an end-user acquiring an FDDI Adapter
Product, the end-user shall be entitled to use any firmware or software
contained in that FDDI Adapter Product pursuant to the relevant end-user
documentation and end-user license agreement (if any). The rights of
end-users are independent of this Agreement and will survive any termination
of this Agreement for any reason whatsoever.
19. MEDIATION. Prior to commencing any lawsuit arising from a party's
material breach or termination of this Agreement due to the other party's
material breach, the parties shall submit the dispute to a corporate officer
of each party, having actual authority to act on behalf of and bind such
party under this Agreement, for resolution. If the parties are unable to
resolve the dispute within ten (10) days thereafter, the parties shall then
attempt in good faith to resolve it by mediation in accordance with the rules
of the Judicial Arbitration and Mediation Service ("JAMS"). If mediation is
unsuccessful within a reasonable time after commencement of proceedings, but
not less than thirty (30) days thereafter, the mediator shall so certify and
the parties shall be entitled to seek whatever remedies may be available in
law or equity. Notwithstanding the foregoing, either party may seek equitable
or similar relief from a court in connection with any dispute within the
scope of this Section 19 (Mediation).
20. EXPORT CONTROLS. Each party agrees at its sole cost and expense to
comply with all applicable export control laws, and restrictions and
regulations, as they exist from time to time, including those of the United
States Department of Commerce, and not to export or reexport any material
provided to it under this Agreement, including the FDDI Adapter Products and
any Proprietary Information of the other party, or any of the direct products
of the foregoing, in violation of any such laws or regulations, or to
Afghanistan, the People's Republic of China or any Group Q, S, Y or Z country
(as specified in Supplement No. 1 to Section 770 of the U.S. Export
18
<PAGE>
Administration Regulations, or any successor thereto) or otherwise except in
compliance with and with all licenses and approvals required under applicable
export laws and regulations.
21. ASSIGNMENT. Interphase may not assign or transfer this Agreement or
the rights and obligations hereunder by operation of law, merger, acquisition
or otherwise without the prior written consent of Cisco, which consent will
not be unreasonably withheld except as permitted under Section 18.2(b) above.
Notwithstanding the foregoing, Interphase shall have the right to assign or
transfer this Agreement to a parent corporation or wholly-owned subsidiary of
Interphase.
22. RELATIONSHIP OF THE PARTIES; NO AGENCY. Nothing contained herein
shall be construed as creating any agency, partnership, or other form of
joint enterprise between the parties. The parties' relationship will be that
of independent contractors. Neither party shall have any express or implied
right or authority to assume or create any obligations on behalf of or in the
name of the other party or to bind the other party to any other contract,
agreement or undertaking with any third party.
23. INJUNCTIVE RELIEF. In the event of a breach of this Agreement, the
non-breaching party shall, in addition to all other legal and equitable
remedies, be entitled to seek an injunction against such breach.
24. GENERAL.
24.1 GOVERNING- LAW. Any dispute in the meaning, effect or validity of
this Agreement will be resolved in accordance with the laws of the State of
California and the United States of America without regard to the conflict of
laws provisions thereof The parties hereby submit to the jurisdiction of, and
waive any venue objections against, the United States District Court for the
Northern District of California, San Jose Branch, and the Superior and
Municipal Courts of the State of California, Santa Clara County, in any
litigation arising out of this Agreement. The parties agree that process may
be served in the manner provided herein for giving of notices or otherwise as
allowed by California or federal law.
24.2 ATTORNEYS' FEES. In any action or proceeding to enforce rights under
this Agreement, the prevailing party shall be entitled to recover reasonable
costs and attorneys' fees.
24.3 SEVERABILITY. If any provision of this Agreement is held to be
illegal or unenforceable, that provision will be limited or eliminated to the
minimum extent necessary so that this Agreement will otherwise remain in full
force and effect and enforceable.
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24.4 ENTIRE AGREEMENT: AMENDMENT. This Agreement and all attachments
hereto constitute the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior or contemporaneous
communications, understandings and agreements with respect to the subject
matter hereof, whether oral or written, and can only be modified or amended
by a subsequent writing signed by both parties.
24.5 HEADINGS. All headings used in this Agreement are for convenience
only and shall not be used in interpreting this Agreement.
24.6 NOTICES. All notices required under this Agreement shall be in
writing and shall be deemed to be given when delivered by hand or dispatched
(with reasonable evidence of receipt) by telex, telegraph or other means of
electronic facsimile transmission, or twenty-four (24) hours after being
dispatched by commercial overnight courier service with tracking capabilities
with costs prepaid or five (5) days after deposit in the U.S. mails if mailed
by certified or registered mail, postage pre-paid, return receipt requested,
addressed to the party to whom the notice is intended to be given at the
address specified in the opening paragraph or such other address as either
party may designate by like notice.
24.7 FORCE MAJEURE. Neither party shall be liable hereunder by reason
of any failure or delay in the performance of its obligations hereunder on
account of strikes, shortages, riots, insurrection, fires, flood, storm,
explosions, acts of God, war, governmental action, labor conditions,
earthquakes or any other cause which is beyond the reasonable control of such
party only for the duration of the force majeure event.
24.8 WAIVER. The failure of either party to require performance by the
other party of any provision hereof shall not affect the full right to
require such performance at any time thereafter, nor shall the waiver by
either party of a breach of any provision hereof be taken or held to be a
waiver of the provision itself. A waiver of any portion of this Agreement
must be in writing and signed by both parties.
24.9 ALLOCATION OF RISK. The sections on limitation of liability,
indemnification, warranties and disclaimer of warranties allocate the risks
in the Agreement between the parties. This allocation is an essential
element of the basis of the bargain between the parties.
24.10 CONSTRUCTION OF AGREEMENT. This Agreement has been negotiated by
the respective parties hereto and their attorneys and the language hereof
shall not be construed for or against any party.
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<PAGE>
24.11 COUNTERPARTS. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, by their authorized
representatives, have affixed their signatures as of the date first set forth
above.
CISCO SYSTEMS, INC. INTERPHASE CORPORATION
By: /s/ Larry R. Carter By: R. Stephen Polley
Name: Larry R. Carter Name: R. Stephen Polley
Title: VP and CFO Title: Chairman, CEO and President
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Exhibit 23(a)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Interphase Corporation:
As independent public accountants, we hereby consent to the incorporation of
our reports, included in this Form 10-K into the Company's previously filed
Registration Statement on Forms S-8 No. 33-62136 and No. 33-87546.
ARTHUR ANDERSEN LLP
Dallas, Texas
March 31, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 2,271
<SECURITIES> 3,579
<RECEIVABLES> 15,685
<ALLOWANCES> 503
<INVENTORY> 12,599
<CURRENT-ASSETS> 35,738
<PP&E> 15,481
<DEPRECIATION> 10,394
<TOTAL-ASSETS> 53,924
<CURRENT-LIABILITIES> 12,902
<BONDS> 10,636
0
0
<COMMON> 35,195
<OTHER-SE> (4,809)
<TOTAL-LIABILITY-AND-EQUITY> 53,924
<SALES> 56,752
<TOTAL-REVENUES> 56,752
<CGS> 28,788
<TOTAL-COSTS> 25,104
<OTHER-EXPENSES> 11,646
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 535
<INCOME-PRETAX> (9,491)
<INCOME-TAX> 564
<INCOME-CONTINUING> (10,055)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,055)
<EPS-PRIMARY> 0
<EPS-DILUTED> (1.99)
</TABLE>
