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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________________ TO __________________
Commission File Number: 000-26485
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PARADYNE NETWORKS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 75-2658219
------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8545 126TH AVENUE NORTH, LARGO, FLORIDA 33773
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(Address, including zip code, of principal
executive offices, including zip code)
(727) 530-2000
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(Registrant's telephone number, including area code)
None
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ].
The number of shares outstanding of the Registrant's Common Stock as
of April 30, 2000 was 31,566,398.
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PARADYNE NETWORKS, INC.
FOR THE PERIOD ENDED MARCH 31, 2000
INDEX
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets at March 31,2000 and
December 31, 1999 1
Condensed Consolidated Statements of Income for the
Three Months Ended March 31, 2000 and March 31, 1999 2
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended March 31, 2000 and March 31, 1999 3
Notes to Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6
ITEM 3. Quantitative and Qualitative Disclosures about Market
Risk 9
PART II OTHER INFORMATION
ITEM 2. Changes in Securities 9
ITEM 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARADYNE NETWORKS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
UNAUDITED
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 63,732 $ 62,885
Accounts receivable less allowance for doubtful accounts of $3,894 and $4,022
at March 31, 2000 and December 31, 1999, respectively 44,599 29,548
Income Tax Receivables 6,696 2,010
Inventories (Note 2) 17,674 13,252
Prepaid expenses & other current assets 3,368 3,201
--------- ---------
Total current assets 136,069 110,896
Property, Plant & Equipment, less accumulated depreciation of $16,982 and
$15,502 at March 31, 2000 and December 31, 1999, respectively 18,185 17,297
Other Assets 2,340 2,292
--------- ---------
Total assets $ 156,594 $ 130,485
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 24,223 $ 8,367
Current Portion of Debt 414 434
Payroll & benefit related liabilities 5,781 7,887
Other current liabilities 10,009 7,857
--------- ---------
Total current liabilities 40,427 24,545
Long term Debt 649 256
--------- ---------
Total Liabilities 41,076 24,801
Stockholders' Equity:
Preferred Stock, par value $.001; 5,000,000 shares authorized, none issued
or outstanding
Common Stock, par value $.001; 60,000,000 shares authorized, 31,342,702 and
30,835,511 shares issued and outstanding as of March 31, 2000 and
December 31, 1999, respectively 31 31
Additional paid-in capital 100,262 93,487
Retained earnings 16,983 14,528
Other equity adjustments (1,758) (2,362)
--------- ---------
Total Stockholders' Equity 115,518 105,684
--------- ---------
Total Liabilities and Stockholders' Equity $ 156,594 $ 130,485
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
1
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PARADYNE NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Revenues:
Sales $ 62,952 $ 50,969
Services 1,279 475
Royalties 250 2,618
-------- --------
Total Revenues 64,481 54,062
Total cost of sales 37,368 29,966
-------- --------
Gross Margin 27,113 24,096
Operating expenses:
Research and development 9,531 8,768
Selling, general & administrative 15,238 13,863
Amortization of deferred stock compensation 76 --
-------- --------
Total operating expenses 24,845 22,631
-------- --------
Operating Income 2,268 1,465
Other (income) expenses:
Interest, net (837) 434
Other, net (453) (2,852)
-------- --------
Income before provision for income tax 3,558 3,883
Provision for income tax 1,103 1,515
-------- --------
Net Income $ 2,455 $ 2,368
======== ========
Weighted average number of common shares outstanding
Basic 31,270 25,893
Diluted 32,907 27,227
Earnings per common share
Basic 0.08 0.09
Diluted 0.07 0.09
Consolidated Statements of Comprehensive Income
Net Income 2,455 2,368
Translation Adjustments 3 64
Comprehensive Income 2,458 2,432
</TABLE>
See accompanying Notes to Consolidated Financial Statements
2
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PARADYNE NETWORKS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- -------
<S> <C> <C>
Cash flows from operating activities:
Net Income $ 2,455 $ 2,368
Adjustments to reconcile net income to cash provided by
operating activities: -- --
Increase (decrease) in allowance for bad debts (128) 398
Depreciation and amortization (includes deferred stock compensation
of $76 and $0, respectively) 1,805 1,448
(Increase) decrease in:
Receivables (13,773) (2,144)
Inventories (4,422) (2,551)
Prepaid expenses and other current assets (369) 802
Increase (decrease) in: -- --
Accounts Payable 15,856 4,546
Payroll and benefit related liabilities (2,106) (1,459)
Other current liabilities 2,164 987
-------- -------
Net cash provided by (used in) operating activities 1,482 4,395
-------- -------
Cash flows used in investing activities:
Capital expenditures (2,475) (944)
-------- -------
Net cash used in investing activities (2,475) (944)
-------- -------
Cash flows provided by (used in ) financing activities:
Net proceeds from stock transactions 1,465 2,371
Repayment of bank line of credit -- (5,642)
Borrowings under other debt obligations 506 168
Repayments under other debt obligations (134) (134)
-------- -------
Net cash provided by (used in) financing activities 1,837 (3,237)
-------- -------
Effect of foreign exchange rate changes on cash 3 64
-------- -------
Net Increase in cash and cash equivalents 847 278
Cash and cash equivalents at beginning of period 62,885 2,356
-------- -------
Cash and cash equivalents at end of period $ 63,732 $ 2,634
======== =======
Supplemental disclosure of cash flow information:
Non-cash transactions
Stock issued for Notes $ (463) $ 939
======== =======
Recoverable taxes related to stock option exercises $ 5,836 $ --
======== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements
3
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PARADYNE NETWORKS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS AND BASIS OF PRESENTATION:
Paradyne Networks, Inc. (the "Company") designs, manufactures, and
markets data communications and networking products for network service
providers and business customers. The Company's products enable business
customers to efficiently access wide area network services and allow network
service providers to provide customers with high-speed services for data, voice,
video and multimedia applications.
The accompanying unaudited consolidated financial statements include
the results of the Company and its wholly-owned subsidiaries: Paradyne
Corporation; Paradyne Canada Ltd.; Paradyne International Ltd.; Paradyne
Worldwide Corp. (formerly Paradyne Far East Corporation); Ark Electronic
Products Inc.; Paradyne GmbH; Paradyne Finance Corporation; and Paradyne
International Sales Ltd. Intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited consolidated financial statements of the
Company have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not contain all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. However, in the opinion of
management, such statements reflect all adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of interim period
results. These financial statements should be read in conjunction with the
December 31, 1999 audited financial statements and notes thereto included in the
Company's Annual Report on Form 10-K as filed with the Securities and Exchange
Commission on March 27, 2000.
The results of operations for the interim periods are not necessarily
indicative of results to be expected for the entire year or for other future
interim periods.
2. INVENTORY:
Inventories at March 31, 2000 and December 31, 1999 are summarized as
follows (in thousands):
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
Raw Materials $14,919 $10,603
WIP 1,464 1,198
FG 1,291 1,451
------- -------
$17,674 $13,252
======= =======
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3. EARNINGS PER SHARE:
The following table summarizes (in thousands, except per share data)
the weighted average shares outstanding for basic and diluted earnings per share
for the periods presented.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
----------------------
2000 1999
-------- -------
<S> <C> <C>
NET INCOME $ 2,455 $ 2,368
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 31,270 25,893
Dilutive effect of stock options 1,637 1,334
-------- -------
Diluted 32,907 27,227
-------- -------
EARNINGS PER COMMON SHARE:
Basic $ 0.08 $ 0.09
Dilutive effect of stock options $ (0.01) $ --
-------- -------
Diluted $ 0.07 $ 0.09
-------- -------
</TABLE>
4. SUBSEQUENT EVENTS:
On April 14, 2000, Paradyne Networks, Inc. acquired substantially all
of the assets of Control Resources Corporation (CRC) of Fair Lawn, N.J., a
wholly owned subsidiary of P-Com, Inc. CRC is a developer and manufacturer of
broadband network access and service level management systems. Under the terms
of the agreement, Paradyne paid $3.1 million in cash and issued a note for $4.7
million, payable in cash or common stock. The seller may also be due other
contingent consideration.
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ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and other sections of this Form 10-Q may
contain forward-looking statements that involve risks and uncertainties. All
statements regarding future events, our future financial performance and
operating results, our business strategy and our financing plans are
forward-looking statements. In many cases, you can identify forward-looking
statements by terminology, such as "may," "will," "should," "expects,"
"intends," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential," or "continue," or the negative of such terms and other comparable
terminology. These statements are only predictions. Known and unknown risks,
uncertainties and other factors could cause our actual results to differ
materially from those projected in the forward-looking statements.
OVERVIEW
We are a leading developer, manufacturer and distributor of broadband
and narrowband network access products for network service providers ("NSPs")
and business customers. We offer solutions that enable business class, service
level managed, high-speed connectivity over the existing telephone network
infrastructure and provide for cost-effective access speeds of up to 45 MBPS. We
market and sell our products worldwide to NSPs and business customers through a
multi-tier distribution system that includes direct sales, strategic partner
sales, NSP sales and traditional distributor or value added reseller ("VAR")
sales. We estimate that direct and indirect sales to, and services performed for
Lucent accounted for approximately 25% of our total revenues for the first three
months of 2000 versus 30% for the first three months of 1999. Sales to Rhythms,
an NSP, accounted for approximately 19% of our total revenue during the first
three months of 2000 versus 24% for the same period in 1999. Sales to Connect
South Communications, Inc., also an NSP and a new customer for 2000, accounted
for approximately 11% of our total revenue during the first three months of
2000. A loss or a significant reduction or delay in sales to any of our major
customers could materially and adversely affect our business, financial
condition and results of operation.
We generally recognize revenue from equipment sales upon shipment.
Estimated sales returns based on historical experience by product are recorded
at the time the product revenue is recognized. Charges for warranty work are
included in cost of equipment sales. Revenue from services, which consists
mainly of repair of out-of-warranty products, is recognized when the services
are performed and all substantial contractual obligations have been satisfied.
License and royalty revenues are recognized when we have completed delivery of
technical specifications and performed substantially all required services under
the related agreement.
The information contained in this Form 10-Q is not a complete
description of our business or the risks associated with an investment in us.
Readers are referred to documents filed by Paradyne with the Securities and
Exchange Commission, specifically the most recent filings, which identify
important risk factors that could cause actual results to differ from those
contained in the forward-looking statements, including: rapid technological
change could render our products obsolete; we are substantially dependent on
network service providers, who may reduce or discontinue their purchase of
products or services at any time; our dependence on only a few major customers
for a substantial portion of our revenues exposes us to financial risks; we
compete in highly competitive markets and competition could harm our ability to
sell products and services; if we are unable to attract and retain key personnel
and a skilled workforce, we may not be able to sustain or grow our business; our
dependence on development relationships could threaten our ability to sell
products;
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our reliance on international sales may make us susceptible to global economic
factors, foreign tax law issues and currency fluctuations; we rely heavily on
distributors and resellers; we depend on sole and single source suppliers which
exposes us to potential supply interruption.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUES. Total revenues increased $10.4 million, or 19.3%, to $64.5 million for
the three months ended March 31, 2000 from $54.1 million for the same period in
1999. The increase was primarily due to an increase in the volume of sales of
our broadband access products. As a percentage of total revenues, equipment
sales were 97.6% of total revenues for the three months ended March 31, 2000
compared to 94.3% for the three months ended March 31, 1999. This percentage
increase is mostly due to the absence of royalty income in the first quarter of
2000 versus the first quarter of 1999. The first three months of 1999 included a
one-time royalty fee from Globespan related to termination of an existing
agreement and a one-time license fee from a third party for intellectual
property relating to narrowband technology.
GROSS MARGIN. Gross margin increased $3.0 million or 12.5% to $27.1 million for
the three months ended March 31, 2000 from $24.1 million for the three months
ended March 31, 1999. Most of the increase results from increased sales of our
broadband access products. Gross margin as a percentage of total revenues
decreased to 42.0% in 2000 from 44.6% in 1999 primarily as a result of $2.6
million in one-time royalty and license fees that occurred in 1999 but were not
repeated in 2000.
RESEARCH AND DEVELOPMENT EXPENSES. Research and development expenses increased
$0.8 million, or 8.7%, to $9.5 million for the three months ended March 31, 2000
from $8.7 million in 1999. This increase resulted primarily from costs
associated with the increase in research and development personnel. As a
percentage of total revenues, research and development expense decreased to
14.8% for the three months ended March 31,2000 from 16.2% in the same period of
1999. This decrease is primarily attributable to the 19.3% increase in revenue
during the period.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES. SG&A expenses increased
$1.4 million, or 10.0%, to $15.2 million for the three months ended March 31,
2000 from $13.9 million for the three months ended March 31, 1999. The increase
is primarily attributable to a $2.0 million increase in advertising related
expenses, offset in part by a $.3 million decrease in professional fees and a
$.3 million decrease in consignment to customers. SG&A expense as a percentage
of revenue declined from 25.6% for the three months ended March 31, 1999 to
23.6% for the three months ended March 31, 2000. This decrease is primarily
attributable to the 19.3% increase in revenue during the period. In an effort to
increase sales of products to our major customers we expect to increase our
investment in marketing and promotion expenses in the second quarter.
AMORTIZATION OF DEFERRED STOCK COMPENSATION. The $.1 million amortization of
deferred stock compensation is related to the previous granting of stock options
to key employees at prices deemed to be below fair market value for financial
reporting purposes.
INTEREST AND OTHER (INCOME) EXPENSE, NET. Interest and other (income) expense,
net, decreased by $1.1 million to $1.3 million of income for the three months
ended March 31, 2000, from $2.4 million of income for the same period in 1999.
Interest and other (income) expense, net, is related to interest on notes
payable and borrowings under lines of credit, interest on short term
investments, foreign exchange gains and losses, and technology sales. This
decrease in income was primarily attributable to a reduction in the amount of
income received from the sale of patents in 2000, offset by an increase in
interest income resulting from the investment of proceeds from the initial
public offering (IPO) and a decrease in interest expense due to the retirement
of debt using IPO proceeds.
PROVISION (BENEFIT) FOR INCOME TAXES. Provision (benefit) for income taxes
decreased by $.4 million to $1.1 million for the three months ended March 31,
2000, from $1.5 million for the same period in 1999. The effective tax rate used
during the first quarter of 1999 was 39%. The rate was reduced to 31% during
1999, primarily as a result of two events. First, the Company had a secondary
offering during the third quarter of 1999 that reduced Texas Pacific Group's
ownership below 50%, allowing the Company to take advantage of a tax credit for
increased research spending. Second, legislation was passed during the fourth
quarter of 1999 that extended that
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same tax credit from June of 1999 through June 2004. For the year 2000, the
Company has kept the effective tax rate at 31%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations for the three months ended March 31,
2000 totaled $1.5 million. Net income totaled $4.1 million after adjusting for
non-cash impacting items such as depreciation, amortization and allowance for
bad debts. Also contributing to cash provided from operations were increases in
accounts payable totaling $15.9 million and other current liabilities totaling
$2.2 million as a result of the timing of material receipts from vendors and
increased advertising related expenses. Decreases to cash from operating
activities partially offsetting the above contributions included increases in
accounts receivable totaling $13.8 million and inventories totaling $4.4
million. Additionally, payroll related liabilities decreased $2.2 million. The
increase in receivable is attributable to a 5% increase in sales in the first
quarter 2000 over the fourth quarter 1999 as well as timing of the sales during
the first quarter. Inventories increased in anticipation of heavy customer
demand early in the second quarter. Payroll related liabilities decreased as a
result of paying annual management incentive compensation.
Net cash used in investing activities for the three months ended March
31, 2000 totaled $2.5 million and reflects capital expenditures made in support
of operations. We anticipate that capital requirements for the remainder of the
year will be in the $2.0 million to $3.0 million per quarter range.
Net cash provided by financing activities totaled $1.8 million and
resulted primarily from the exercise of stock options during the quarter.
We had $63.7 million of cash and cash equivalents at March 31, 2000
representing an increase of $0.8 million from $62.9 million at December 31,1999.
Working capital increased $9.2 million from $86.4 million at December 31, 1999
to $95.6 million at March 31, 2000.
Effective January 1, 2000, we extended our revolving line of credit
facility with Bank of America until January 31, 2001, voluntarily reduced the
facility to $30.0 million and reduced the unused line fee to 0.25% per annum.
There were no borrowings under this facility during the first quarter of 2000.
In connection with our efforts to obtain major new accounts we are
often required to make commitments to purchase inventory prior to having
approved purchase orders with customers due to the long lead times required for
certain parts. These commitments can impact cash flow until the purchase order
is approved, orders shipped, and cash collected. We cannot assure that we will
be successful in obtaining sufficient purchase orders, shipments and collections
in all cases which could result in an increase in inventory levels and
negatively impact cash flow in a particular quarter or quarters.
We believe that our cash and cash equivalents, together with cash flows
from operations and borrowings under the Bank of America line of credit
facility, will be sufficient to meet our working capital needs for at least the
next 18 months.
YEAR 2000 ISSUES
In 1996 we identified the Year 2000 problem as a potential risk to our
operations. As a result, we developed a comprehensive multi-year plan to make
our internal computer software and hardware systems Year 2000 compliant. Our
Year 2000 compliance plan was comprised of 3 phases: an assessment phase; an
implementation phase; and a testing phase. This plan, initiated in the first
quarter of fiscal 1997, has been completed by us and, to date, we have incurred
expenses related to Year 2000 readiness of approximately $3.7 million.
We were successful in transitioning our computer systems and equipment
to the Year 2000. Although we believe that we have implemented a comprehensive
plan for addressing the Year 2000 problem, we cannot be certain that these Year
2000 compliance efforts will be completely successful for the remainder of the
year 2000 and beyond. Nonetheless, we have not experienced, and we do not
anticipate, any significant problems related to the transition to the Year 2000.
Furthermore, we do not anticipate any significant expenditure in the future
related to Year 2000 compliance.
INFLATION
Because of the relatively low levels of inflation experienced in 1999
and 2000 to date, inflation did not have a significant effect on our results in
such periods.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not engage in investing in or trading market risk sensitive
instruments. We also do not purchase, for investing, hedging, or for purposes
"other than trading", instruments that are likely to expose us to market risk,
whether interest rate, foreign currency exchange, commodity price or equity
price risk, except as noted in the following paragraph. We have not entered into
any forward or futures contracts, purchased any options or entered into any
interest rate swaps. Additionally, we do not currently engage in foreign
currency hedging transactions to manage exposure for transactions denominated in
currencies other than U.S. dollars
If we were to borrow from our revolving line of credit facility with
Bank of America, we would be exposed to changes in interest rates. We are also
exposed to changes in interest rates from investments in some held-to-maturity
securities. Under our current policies, we do not use interest rate derivative
instruments to manage exposure to interest rate changes. Additionally, we do not
currently engage in foreign currency hedging transactions to manage exposure for
transactions denominated in currencies other than U.S. dollars.
PART II- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(d) USE OF PROCEEDS
Our Registration Statement on Form S-1 (Registration No.
333-76385) was declared effective on July 15, 1999 and the Company's
initial public offering commenced on July 16, 1999. We received net
proceeds of approximately $62,240,000 after deducting estimated
underwriting discounts, commissions, and offering expenses. As of March
31, 2000, we had used approximately $17,000,000 of the net proceeds to
repay all the outstanding indebtedness from our $30,000,000 revolving
line of credit facility with Bank of America and to pay for certain
capital expenditures. Subsequent thereto, we used approximately $3.1
million (along with the issuance of a note for $4.7 million) to
purchase substantially all of the assets of Control Resources
Corporation. We intend to use the remainder of the net proceeds for
general corporate purposes, including working capital and additional
capital expenditures. We are currently assessing the specific uses and
allocations for these remaining funds.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
ITEM DESCRIPTION
---- -----------
2.1(1) Asset Purchase Agreement dated as of April 5, 2000 among,
the Company, Paradyne Corporation, P-Com, Inc., and Control
Resources Corporation
10.1 Key Employee Agreement between Paradyne and Sean E.
Belanger dated April 30, 2000
10.2 Promissory Note dated April 14, 2000 between Paradyne
Corporation and Control Resources Corporation
27.1 Financial Data Schedule
(1) Filed as an exhibit to the Company's Current Form 8-K dated May 1,
2000 and incorporated herein by reference.
(b) REPORTS ON FORM 8-K
We filed a Current Report on Form 8-K dated May 1, 2000 pursuant to
Item 2 (Acquisition and Disposition of Assets), announcing that on April 14,
2000, we had completed the purchase of substantially all of the assets of
Control Resources Corporation, a Delaware corporation and a wholly-owned
subsidiary of P-Com, Inc.
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SIGNATURES
Pursuant to the requirements 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.
Paradyne Networks, Inc.
Date: May 15, 2000 /s/ Andrew S. May
---------------------------
ANDREW S. MAY
Chief Executive
Officer, and Director
/s/ Patrick M. Murphy
---------------------------
Patrick M. Murphy
Senior Vice President,
Chief Financial Officer,
And Treasurer (Principal
Financial and Accounting
Officer)
10
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Exhibit 10.5
SEAN E. BELANGER
OUTLINE OF EMPLOYMENT RELATIONSHIP
PARADYNE CORPORATION
1. Position and Responsibilities:
a. Position - President and Chief Operating Officer of Paradyne
Networks Inc.
b. Responsibilities - Paradyne Corporate Marketing, Worldwide
Sales, R&D and Product Management report directly to position.
c. There will likely be situations where Paradyne will acquire
companies and certain departments may not report into the
Pres/COO of Paradyne during transition periods.
2. Compensation:
a. Base Annual Salary: $225,000
b. Annual Incentive Compensation: $125,000
3. Equity:
a. Grant of 750,000 nonqualified options with:
(i) Normal four year vesting
(iii) Option price is closing price on the day prior to the
grant.
b. Grant of 100,000 nonqualified options with:
(i) 60% vesting on the first anniversary and 5% each three
months thereafter (iii) Option price is closing price on the
day prior to the grant.
Change of Control Provision:
During the four year period covered by the grants above, Sean will have
a Constructive Termination Clause: If there is a change of control
(defined the same as current change of control) and Sean is not offered
the same position at the new company then Sean's options will have 100%
acceleration. If Sean is offered the same position at the new company
(President and/or Chief Operating Officer) with the same
responsibilities (Sales, Marketing and R&D) then Sean's options will
not accelerate.
4. Termination:
- By Company
a. With cause - Sean receives salary through date of
termination and is not entitled to any bonus not yet
paid and no further vesting beyond the termination
date.
b. Without cause - If Sean is terminated before 10/15/00
then Sean will receive 6 months of salary and his
options will vest through 4/15/01. If he is
terminated after 10/15/00 then Sean will receive 6
months of salary and 6 months vesting.
- By Executive
c. With cause - same as termination by company without
cause
d. Without cause - same as termination by company with
cause
5. Noncompete Provisions: For six months after the termination of Sean, he
will not directly or indirectly:
1. engage in, or be employed by, or in any way advise or act for,
or have any financial interest in any business which is a
material competitor of the company which produces, markets
and/or sell products or services that were offered for or
planned to be offered for sale, license, or lease by the
company while Executive was employed by the company, provided
however that the ownership of 1% of the outstanding securities
of any corporation, even though such corporation may be a
material competitor of the company as specified above, shall
not be deemed as constituting a financial interest in such
competitor, or
2. recruit, solicit, or induce or attempt to induce any employee
or employees of the company to terminate their employment
with, or otherwise cease their relationship with, the Company;
or
3. divert or take away, or attempt to divert or to take away, the
business or patronage for any of the clients, customers or
accounts, or prospective clients, customers or accounts, of
the Company which were contacted, solicited or served by
Executive while employed by the Company
Paradyne Corporation
- ------------------------- ------------------------------
Andy May, President & CEO Sean E. Belanger
Date: April ___, 2000 Date: April ___, 2000
<PAGE> 1
Exhibit 10.2
PROMISSORY NOTE
$4,667,573 April 14, 2000
Paradyne Corporation ("Paradyne"), FOR VALUE RECEIVED, hereby promises
to pay to the order of Control Resources Corporation, a Delaware corporation
("CRC"), on September 15, 2000 (or sooner, as herein provided) at the offices of
P-COM, Inc., 3175 S. Winchester Blvd., Campbell, CA 95008 or at such location as
the holder hereof may hereafter designate in writing, the principal sum of
US$4,667,573, as such amount may be adjusted as provided for in Section 1 below
(the "Principal Sum"). The Principal Sum from time to time outstanding shall
bear interest payable at a rate equal to the Prime Rate of US commercial banks
as published in the Wall Street Journal (Eastern edition) from time to time (or
if more than one such rate is published, the average of such rates).
Paradyne has on the date hereof purchased certain of the assets of CRC
pursuant to the terms and conditions of the Asset Purchase Agreement, dated
April 5, 2000 by and between Paradyne, Paradyne Networks, Inc., P-COM, Inc. and
CRC (the "Purchase Agreement"). Capitalized words and phrases used and not
otherwise defined in this Note have the meanings provided in the Purchase
Agreement. Paradyne hereby covenants and agrees with CRC as follows:
1. The Principal Sum shall be increased or decreased, as the case may
be, as provided for in the Purchase Agreement.
2. Paradyne may prepay, in whole or in part, the Principal Sum in cash
by wire transfer of immediately available funds to CRC's account in an amount
equal to the full
<PAGE> 2
amount due, without penalty or premium, at any time prior to September 15, 2000
on the condition that together with any such prepayment Paradyne shall pay all
accrued but unpaid interest on the amount being prepaid.
3. On September 15, 2000 Paradyne may pay the Principal Sum and any
interest payable thereon by (a) the issuance to CRC of registered shares of
common stock of Paradyne Networks, Inc. with the number of such shares based on
the average closing price of Paradyne Networks, Inc.'s common stock on the 7
business days immediately preceding the day such shares of common stock of
Paradyne Networks, Inc. are delivered to CRC, and (b) delivery of a good check
to CRC for the difference between the total value of such shares and the full
amount due under this Note.
4. If any payments of principal or interest hereunder become due and
payable on a Saturday, Sunday or public holiday under the laws of the State of
Delaware, the due date of such payment shall be extended to the next succeeding
full business day and, in the case of principal, interest thereon shall be
payable at the applicable rate during such extension.
5. This Promissory Note may not be changed or discharged orally, but
only by an agreement in writing and signed by the party against whom enforcement
of any waiver, change, modification or discharge is sought.
6. Presentment or demand for payment, notice of dishonor, protest and
notice of protest are hereby waived.
7. This Promissory Note shall be governed by, and construed in
accordance with, the laws of the State of Delaware without reference to choice
of law doctrine.
- 2 -
<PAGE> 3
IN WITNESS WHEREOF, this Promissory Note is executed and delivered on
the date first above written.
PARADYNE CORPORATION
By: /s/ James L. Slattery
-----------------------------
James L. Slattery
Senior Vice President
- 3 -
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