<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1995
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------------
MICROCOM, INC.
(Exact name of Registrant as specified in its charter)
------------------------
<TABLE>
<S> <C>
MASSACHUSETTS 04-2710644
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
</TABLE>
500 RIVER RIDGE DRIVE,
NORWOOD, MASSACHUSETTS 02062-5028
(617) 551-1000
(Address and Telephone Number of Registrant's Principal Executive Offices)
------------------------
ROLAND D. PAMPEL
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MICROCOM, INC.
500 River Ridge Drive
Norwood, Massachusetts 02062-5028
(617) 551-1000
(Name, Address and Telephone Number of Agent for Service)
------------------------
<TABLE>
COPIES TO:
<S> <C>
William C. Rogers, Esq. Richard R. Plumridge, Esq.
CHOATE, HALL & STEWART Alexander D. Lynch, Esq.
Exchange Place BROBECK, PHLEGER & HARRISON, LLP
53 State Street 1301 Avenue of the Americas 30th Floor
Boston, Massachusetts 02110 New York, New York 10019
(617) 248-5000 (212) 581-1600
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the only securities being registered on this form are being offered
pursuant to a dividend or interest reinvestment plan, please check the following
box. / /
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
<TABLE>
CALCULATION OF REGISTRATION FEE
================================================================================================
<S> <C> <C> <C> <C>
TITLE OF EACH CLASS OF PROPOSED MAXIMUM PROPOSED MAXIMUM
SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------
Common Stock, par value
$.01 per share........... 3,680,000 shares $9.625 $35,420,000 $12,214
================================================================================================
<FN>
(1) Includes 480,000 shares subject to an over-allotment option granted to the
Underwriters by the Registrant. See "Underwriting."
(2) Estimated solely for the purpose of calculating the registration fee, in
accordance with Rule 457(c), on the basis of the average of the high and low
sales prices of the Common Stock on May 17, 1995 as reported on the Nasdaq
National Market.
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 19, 1995
3,200,000 SHARES
[MICROCOM LOGO]
COMMON STOCK
Of the 3,200,000 shares of common stock, $0.01 par value (the "Common
Stock"), offered hereby, 3,000,000 shares are being offered by Microcom, Inc.
("Microcom" or the "Company") and 200,000 shares are being offered by the
Selling Stockholders. See "Principal and Selling Stockholders." The Company will
not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
The Common Stock is traded on the Nasdaq National Market ("Nasdaq") under
the trading symbol "MNPI." On May 18, 1995, the last reported sales price of the
Common Stock on Nasdaq was $9 5/8 per share. See "Price Range of Common Stock
and Dividend Policy."
FOR A DISCUSSION OF CERTAIN RISKS OF AN INVESTMENT IN THE SHARES OF COMMON
STOCK OFFERED HEREBY, SEE "RISK FACTORS" ON PAGES 6-10.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS* COMPANY+ STOCKHOLDERS
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total++.................... $ $ $ $
</TABLE>
- ---------------
* The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
+ Before deducting expenses of the offering payable by the Company estimated to
be $425,000.
++ The Company has granted to the Underwriters a 30-day option to purchase up to
480,000 additional shares of Common Stock from the Company on the same terms
per share solely to cover over-allotments, if any. If such option is
exercised in full, the total price to public will be $ , the total
underwriting discounts and commissions will be $ and the total proceeds
to Company will be $ . See "Underwriting."
------------------------
The Common Stock is being offered by the Underwriters as set forth under
"Underwriting" herein. It is expected that the delivery of the certificates
therefor will be made at the offices of Dillon, Read & Co. Inc., New York, New
York on or about , 1995 against payment therefor in New York
funds. The Underwriters include:
DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
NEEDHAM & COMPANY, INC.
The date of this Prospectus is , 1995
<PAGE> 3
[MICROCOM]
[INSIDE FRONT COVER
"FOR THE CENTRAL SITE..."]
[Photo: "Central Site Network Manager"
Description: Photo of a person depicting a central site network manager.]
[Photo: "HDMS - High Density Management System"
Description: A Microcom HDMS black box with LEDs on front panel]
[Photo: "expressWATCH"
Description: Screen shot of the expressWATCH LAN Traffic Counts]
[Photo: "LANexpress"
Description: Beige LANexpress server with silver name plate on front panel]
[Caption: Microcom's HDMS and LANexpress (including expressWATCH) offer
management, security and reliability at the central site -- critical
requirements of network and information managers.]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus. Except as otherwise indicated
herein, all information in this Prospectus assumes no exercise of the
Underwriters' over-allotment option.
THE COMPANY
Microcom, Inc. ("Microcom" or the "Company") is a leading provider of
remote network access solutions. The Company's products enable users to access
and communicate with on-line computer networks, such as the Internet, America
Online, CompuServe and Prodigy, and corporate networks from remote locations.
Microcom provides its customers with remote network access management and
security capabilities, and high quality, reliable products that are easy to
install and use.
The Company was founded in 1980 as a developer of data communications
software, high performance modems and related technologies. In the early 1990s,
the Company responded to changes in the data communications industry by
undertaking a series of strategic initiatives and restructurings designed to
reposition the Company to address the needs of the emerging remote network
access markets. These initiatives included the development of products with
remote network access functionality, divestitures of non-core products, a
restructuring of the worldwide sales organization, the hiring of a new Chief
Executive Officer and the acquisition of Integrated Services Digital Network
(ISDN) product technologies. By implementing these initiatives and by leveraging
its technology and expertise, the Company has developed a broad range of remote
network access products for central site network managers and remote users. The
Company believes that its recent results of operations reflect the ongoing
implementation of these initiatives.
Microcom's products serve both central site network managers and individual
remote users. Products designed for the central site include the High Density
Management System (HDMS) -- a dial-up access management system; and LANexpress
- -- remote local area network (LAN) access systems which include expressWATCH, a
comprehensive remote network access management solution. Products designed for
the individual remote user include high performance V.34 (28.8 Kbps) PCMCIA,
desktop and other modems; Carbon Copy remote control/remote PC access software;
LANexpress Remote client software, a remote node and remote control LAN access
product; and ISDN terminal adapters.
The Company's customers include (i) Internet and on-line service network
access providers, such as Sprint Corporation, (ii) "Corporate 2000" companies
such as American Airlines, Inc., Blockbuster Entertainment Corporation, NYNEX
Corporation and State Farm Insurance Company, (iii) large international
corporations, (iv) governmental agencies and universities and (v) individual
remote users seeking to access the Internet, on-line services and corporate
networks. The Company distributes its products through direct sales and multiple
indirect channels, including value added resellers (VARs), distributors and
original equipment manufacturers (OEMs) in the United States and international
markets.
Microcom's strategy is to continue to be a leading provider of remote
network access solutions and to capitalize on the emerging trends in this
market. The key components of the Company's strategy are as follows:
Continue Focus on Remote Network Access Market by developing new
products and enhancements to existing products to meet or exceed the
evolving requirements of both the central site network manager and the
remote user.
Maintain Technology Leadership by investing in research and
development to enhance existing products, develop new products, and
respond to emerging technologies in a cost effective and timely
manner.
3
<PAGE> 5
Leverage Existing Customer Base by aggressively marketing new products
and enhancements to existing customers and utilizing this installed
base as references for new customers, particularly telecommunications
companies.
Develop and Expand Strategic Relationships with telecommunications
companies, equipment providers, OEMs and software vendors to enhance
the Company's product development activities and leverage shared
technologies and joint marketing efforts.
Expand Worldwide Distribution to develop further demand for remote
network access products both domestically and internationally.
MICROCOM, the Microcom logo, MNP and TravelPorte are registered trademarks
of the Company and Advanced Parallel Technology, APT, Carbon Copy, DeskPorte,
DeskPorte FAST, expressWATCH, High Density Management System, HDMS, Intelligent
Network Controller, INC, LANexpress, Microcom Networking Protocol and
TravelPorte FAST are trademarks of the Company. This Prospectus also includes
trade names and trademarks of companies other than Microcom.
The Company's principal executive offices are located at 500 River Ridge
Drive, Norwood, Massachusetts 02062-5028, and its telephone number is (617)
551-1000.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company...................... 3,000,000 shares
Common Stock offered by the Selling Stockholders......... 200,000 shares
Common Stock to be outstanding after the Offering(1)..... 14,107,315 shares
Use of proceeds to the Company........................... For repayment of indebtedness,
working capital and other general
corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol............................ MNPI
</TABLE>
- ---------------
(1) Based on the number of shares outstanding on March 31, 1995. Excludes the
2,101,499 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1995, at a weighted average exercise price of
$4.65 per share.
4
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------------------------------
STATEMENT OF OPERATIONS DATA: 1991 1992 1993 1994 1995(1)
-------- ------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Net sales........................................... $ 55,401 $73,906 $ 69,435 $ 56,464 $93,106
Gross margin........................................ 27,445 41,804 36,303 27,392 41,784
Restructuring and other costs....................... (20,500)(2) -- (4,268)(3) (7,875)(4) --
Income (loss) from operations....................... (33,434) 4,205 (6,902) (10,416) 7,517
Net income (loss)................................... (28,744) 3,431 (10,694) (10,913) 5,761
Net income (loss) per share......................... $(3.16) $.34 $(1.11) $(1.09) $.49
Weighted average number of shares outstanding....... 9,083 10,002 9,644 10,041 11,805
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
SELECTED QUARTERLY DATA (5): 1993 1993 1993 1994 1994 1994 1994 1995
-------- --------- -------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $ 12,056 $12,471 $14,849 $17,088 $21,315 $22,770 $23,134 $25,887
Gross margin................... 5,515 6,326 7,465 8,086 9,588 10,157 10,364 11,675
Restructuring and other
costs........................ 6,500(4) -- -- 1,375 (4) -- -- -- --
Income (loss) from
operations................... (10,186) 79 448 (757 ) 1,457 1,747 2,055 2,258
Net income (loss).............. (10,300) 66 265 (944 ) 1,176 1,385 1,529 1,671
Net income (loss) per share.... $(1.06) $.01 $.03 $(.09 ) $.11 $.12 $.13 $.14
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1995
---------------------------
BALANCE SHEET DATA: ACTUAL AS ADJUSTED (6)
-------- ---------------
<S> <C> <C>
Cash and equivalents.................................................................... $ 863 $15,366
Working capital......................................................................... 17,732 44,450
Total assets............................................................................ 57,788 72,291
Total debt, including capitalized leases................................................ 12,665 450
Total stockholders' equity.............................................................. 35,282 62,000
</TABLE>
- ---------------
(1) For certain pro forma information, see Note 3 of Notes to Consolidated
Financial Statements.
(2) Related to (i) the write-down of intangible assets associated with three
software product lines, (ii) the elimination of certain warehouse and
manufacturing facilities and associated personnel, (iii) the write-off of
certain inventory and (iv) the closing of international sales offices.
(3) Related to (i) the disposition of the Relay software product line, (ii) a
workforce reduction and (iii) the elimination of certain assets and excess
facilities. See Note 2 of Notes to Consolidated Financial Statements.
(4) Related to (i) the disposition of the LANlord product line, (ii) a workforce
reduction, (iii) the direct costs associated with the realizability of
certain assets associated with the implementation of a new sales, marketing
and distribution plan, (iv) the closing of a manufacturing facility, (v)
certain executive severance costs and (vi) the consolidation of certain
shipping locations. See Note 2 of Notes to Consolidated Financial
Statements.
(5) See "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Quarterly Operating Results."
(6) Adjusted to reflect the sale of 3,000,000 shares of Common Stock offered by
the Company hereby assuming a public offering price of $9.625 per share and
after deducting underwriting discounts and commissions and estimated
expenses of the offering payable by the Company, and the application of the
estimated net proceeds as described in "Use of Proceeds." Fiscal 1995 net
income per share would be unaffected had the Company applied the proceeds of
this offering to the payment of debt.
5
<PAGE> 7
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING AN INVESTMENT IN
THE COMMON STOCK.
NEW PRODUCT DEVELOPMENT AND RAPID TECHNOLOGICAL CHANGE
The market for Microcom's products is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. Microcom's future success will depend in part on its
ability to enhance its existing products and to introduce new products on a
timely basis to meet and adapt to changing customer requirements, evolving
industry standards and emerging technologies. There can be no assurance that
Microcom will be successful in developing, manufacturing and marketing new
products or product enhancements that respond to technological changes or
evolving industry standards, that the Company will not experience difficulties
that could delay or prevent the successful development, introduction and
marketing of these products or that its new products will adequately meet the
requirements of the marketplace and achieve market acceptance. If the Company is
unable, for technological or other reasons, to develop new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, the Company's business, results of
operations and financial condition would be materially and adversely affected.
In addition, there can be no assurance that services, products or technologies
developed by others will not render Microcom's products or technologies
uncompetitive or obsolete. The introduction of new or enhanced products also
requires the Company to manage the transition from older products in order to
minimize disruption in customer ordering patterns, avoid excessive levels of
older product inventories and ensure that adequate supplies of new products can
be delivered to meet customer demand. There can be no assurance that the Company
will successfully manage the transition to new products. The failure to manage
any such transition successfully could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Research and Development."
HIGHLY COMPETITIVE ENVIRONMENT
The market for remote network access products is highly competitive. In the
central site remote network access market, the Company competes with remote LAN
access server vendors such as Shiva Corporation, Digital Communications
Associates, Inc., Novell, Inc. and 3Com Corporation and vendors of dial-up
access management systems such as U.S. Robotics Corporation, Primary Access
Corporation (recently acquired by 3Com Corporation) and Motorola, Inc. The
Company also faces increasing competition from operating system (OS) and network
operating system (NOS) vendors such as Microsoft Corporation, Novell, Inc. and
International Business Machines Corporation who are including remote access
capabilities in their products. In the remote site personal computer (PC)
communications software market, the Company competes with a number of providers
of remote control, file transfer and remote LAN access software, including
Symantec Corporation, Stac Electronics, Inc. and Shiva Corporation. The
Company's remote site modems compete with those of U.S. Robotics Corporation,
Hayes Microcomputer Products, Inc. and Practical Peripherals, Inc. Increased
competition could result in price reductions and loss of market share which
would materially and adversely affect Microcom's business, results of operations
and financial condition. The Company believes that its ability to compete
successfully depends on a number of factors, including price, product features,
product quality, performance and reliability, name recognition, international
certification, experienced sales, marketing and service organizations,
development of new products and enhancements, evolving industry standards and
announcements by competitors. Many of Microcom's current and potential
competitors have significantly greater financial, marketing, technical and other
resources than Microcom. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products than the Company. The Company also expects competition to increase as a
result of industry consolidations. In addition, current and potential
competitors have established or may
6
<PAGE> 8
establish cooperative relationships among themselves or with third parties to
address the remote network access needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. There can be no
assurance that Microcom will be able to continue to compete successfully with
existing or new competitors or that competitive pressures faced by the Company
would not materially and adversely affect its business, results of operations or
financial condition. See "Business -- Competition."
SALES TO TELECOMMUNICATIONS CARRIERS; CUSTOMER CONCENTRATION
As part of its sales and marketing strategy, Microcom is seeking to
increase the sales of its central site remote network access products to
telecommunications carriers and affiliated entities. These entities usually have
long purchasing cycles and extensive vendor qualification requirements.
Accordingly, sales efforts to such entities typically require significant
investments of time and resources with no assurance that such efforts will be
successful. Sales by Microcom to Sprint Corporation ("Sprint") accounted for 24%
and 13% of net sales in fiscal 1995 and 1994, respectively. Sprint is not
obligated to make any minimum level of future purchases from the Company or to
provide the Company with binding forecasts of product purchases for any future
period. While the Company expects that Sprint will continue to be a significant
customer, the Company anticipates that net sales to Sprint in fiscal 1996 will
be significantly less than in fiscal 1995. Although the Company has recently
established a relationship with another major telecommunications carrier, there
can be no assurance that the Company will make any significant sales to such
carrier or that sales to it and other telecommunications carriers will offset
any decline in sales to Sprint. The failure to achieve and maintain significant
sales to telecommunications carriers or to offset any decline in sales to Sprint
would have a material adverse effect on the Company's business, results of
operations and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Customers."
FLUCTUATIONS IN QUARTERLY RESULTS
Microcom's quarterly operating results have fluctuated significantly in the
past and may fluctuate significantly in the future. Such fluctuations may result
in volatility in the price of the Company's Common Stock. Quarterly revenues and
operating results may fluctuate as a result of a variety of factors including
the timing of significant orders, the timing of product enhancements and new
product introductions by Microcom and its competitors, the pricing of the
Company's products, changes in product mix, changes in customers' budgets,
competitive conditions, the proportion of international sales to total net
sales, the proportion of sales made pursuant to the Company's various
distribution channels and general economic conditions. The Company has
historically operated with limited backlog because its products are shipped
shortly after orders are received. The Company has often recognized a
substantial portion of its net sales in the last month of the quarter. As a
result, net sales in any quarter are substantially dependent on orders booked
and shipped in the last month of a quarter. A small variation in the timing of
orders is likely to adversely and disproportionately affect the Company's
results of operations as the Company's expense levels are based, in part, on its
expectations as to future net sales and only a small portion of the Company's
expenses vary with its net sales. Moreover, Microcom's net sales may fluctuate
based on the level of inventories of the Company's products maintained by the
Company's resellers in any particular quarter. Accordingly, the Company believes
that period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicative of future performance.
Although the Company's net sales have increased and the Company has been
profitable in recent quarterly periods, there can be no assurance that the
Company's net sales will increase in future quarters or that the Company will
remain profitable on a quarterly basis, if at all. Due to the foregoing factors,
it is possible that in some future quarters the Company's results of operations
will be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would be materially and adversely
affected.
7
<PAGE> 9
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Quarterly Operating Results."
LIMITED HISTORY OF PROFITABLE OPERATIONS
Although the Company's net income in fiscal 1995 was $5,761,000, the
Company incurred net losses of $10,913,000 and $10,694,000 for fiscal 1994 and
1993, respectively, which net losses included restructuring and other costs of
$7,875,000 and $4,268,000 in those years, respectively. At March 31, 1995, the
Company had an accumulated deficit of $21,589,000. There can be no assurance
that the net sales and net income growth Microcom has experienced in recent
quarters can be sustained or that in the future Microcom will be profitable and
not incur additional restructuring charges. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON SUPPLIERS AND SUBCONTRACTORS
The Company is dependent on a small number of subcontractors for the
manufacture and assembly of all of its remote network access products. In the
event that any of these subcontractors were to become unable or unwilling to
manufacture Microcom's products in required volumes, Microcom would have to
identify and qualify additional subcontractors. The identification and
qualification process could be lengthy and no assurances can be given that any
replacement subcontractors will be available to the Company on a timely basis.
The failure to identify and qualify replacement subcontractors on a timely basis
would have a material and adverse effect on the Company's business, results of
operations and financial condition. In addition, certain components used in the
Company's products are only available from a single supplier or a limited number
of suppliers. Components for the Company's products which are only available
from a single supplier include certain semiconductor components used in the
Company's modems sourced from Rockwell International Corporation ("Rockwell")
and the power supply component obtained from TDK for the Company's PCMCIA modem.
It was recently reported that Rockwell would be required to allocate among its
customers, including Microcom, the supply of a certain component incorporated
into V.34 modems. This component is included in the Company's HDMS, LANexpress
and modem products. If Rockwell is unable to supply sufficient quantities of
this component to the Company on a timely basis, it would cause a delay in
Microcom's product shipments and such delay would have a material adverse effect
on the Company's business, results of operations and financial condition. The
Company believes, however, that it will be able to obtain from Rockwell
sufficient quantities of the component to satisfy its anticipated requirements.
The Company generally purchases single or limited source components pursuant to
purchase orders and has no guaranteed supply arrangements with its suppliers.
Further, the availability of many of these components is dependent in part on
the Company's ability to provide its suppliers with accurate forecasts of its
future requirements. A reduction or interruption in supply of these components
could result in delays or reductions in product shipments which would materially
and adversely affect the Company's business, results of operations and financial
condition and could damage customer relationships. The Company may also be
subject to increases in component costs, which could also have a material
adverse effect on the Company's business, results of operations or financial
condition. See "Business -- Manufacturing."
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's success and ability to compete is dependent in part upon its
ability to protect its proprietary technology. The Company relies on a
combination of patent, copyright and trade secret laws and non-disclosure
agreements to protect its proprietary technology. The Company currently holds
fourteen United States patents, three of them involving ISDN technology, and has
five United States patent applications and two foreign patent applications
pending in a number of jurisdictions. There can be no assurance that patents
will be issued with respect to pending or future patent applications or that the
Company's patents will be upheld as valid or will prevent the development of
competitive products. The Company's United States patents expire between 2004
and 2011. The Company has not sought foreign patents for some of its
technologies, including technologies which have
8
<PAGE> 10
been patented in the United States, which may adversely effect the Company's
ability to protect its technologies and products in foreign countries. The
Company generally enters into confidentiality or license agreements with its
employees, distributors, customers and potential customers and limits access to
and distribution of its software, documentation and other proprietary
information. There can be no assurance that the steps taken by the Company to
protect its proprietary rights will be adequate to prevent misappropriation of
its technology or that the Company's competitors will not independently develop
technologies that are substantially equivalent or superior to the Company's
technology. In addition, the laws of some foreign countries do not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. The Company is also subject to the risk of adverse claims and litigation
alleging infringement of the proprietary rights of others. From time to time the
Company has received claims of infringement of other parties' proprietary
rights. In addition, the Company periodically reviews recent patents that have
been issued to third parties. As a result of such reviews, the Company has from
time to time identified and investigated the validity and scope of issued
patents for technologies similar to, or related to, the Company's technologies.
Although the Company believes that it does not infringe the valid patents of
others, there can be no assurance that third parties will not assert
infringement claims in the future with respect to the Company's current or
future products or that any such claims will not require the Company to enter
into license arrangements or result in protracted and costly litigation,
regardless of the merits of such claims. No assurance can be given that any
necessary licenses will be available or that, if available, such licenses can be
obtained on commercially reasonable terms. The failure to obtain such royalty or
licensing agreements on a timely basis would have a material adverse effect upon
the Company's business, results of operations and financial conditions. See
"Business -- Proprietary Rights."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company expects that sales outside North America, which accounted for
approximately 29% of net sales in fiscal 1995, will continue to represent a
significant portion of its total net sales. In addition, the Company uses
subcontractors in China, Malaysia, Singapore and Hong Kong to manufacture a
substantial portion of its products and obtains certain components from foreign
suppliers. Sales to customers outside the United States and reliance on foreign
manufacturers and suppliers involve a number of risks, including unexpected
changes in regulatory requirements and tariffs, difficulties enforcing
agreements and collecting receivables, longer payment cycles, exchange rate
fluctuations, difficulties enforcing intellectual property rights, difficulties
obtaining export licenses, the imposition of withholding or other taxes,
embargoes or exchange controls or the adoption of other restrictions on foreign
trade.
RELIANCE ON REMOTE NETWORK ACCESS MARKET
Microcom currently devotes virtually all of its research and development,
manufacturing, marketing and sales resources to service the remote network
access market. The Company's future financial performance will depend in large
part on continued growth in the remote network access market, which in turn will
depend in part on the growth in the number of organizations utilizing remote
network access products and the number of applications developed for use with
those products. There can be no assurance that this market will continue to grow
or that the Company will be able to respond effectively to the evolving
requirements of this market. If this market fails to grow or grows more slowly
than the Company currently anticipates, the Company's business, results of
operations and financial condition would be materially and adversely affected.
RELIANCE ON INDIRECT DISTRIBUTION CHANNELS
In fiscal 1995, sales through indirect distribution channels accounted for
approximately 66% of the Company's net sales. The Company's agreements with
VARs, distributors and OEMs are typically non-exclusive and in many cases may be
terminated by either party without cause, and many of the Company's VARs,
distributors and OEMs carry competing product lines. Therefore, there can be no
9
<PAGE> 11
assurance that any VAR, distributor or OEM will continue to represent the
Company's products and the loss of important VARs, distributors or OEMs could
adversely affect the Company's business, results of operations and financial
condition. See "Business -- Sales and Marketing."
DEPENDENCE ON PERSONNEL
Microcom believes that its future success will depend in large part upon
its ability to attract and retain highly skilled engineering, managerial, sales,
marketing and product development personnel. Except with respect to the
President and Chief Executive Officer, the Company does not have employment
contracts with its key personnel and does not maintain any key person life
insurance policies. Competition for such personnel is intense, especially in the
areas of engineering and sales and marketing. The loss of key management or
technical personnel could materially and adversely affect the Company's
business, results of operations and financial condition, and there can be no
assurance that Microcom will be able to attract and retain the personnel
required to engineer, manage, market or develop its products and conduct its
operations successfully. See "Business -- Employees" and "Management."
MANAGEMENT OF GROWTH
Microcom has recently experienced rapid growth which has placed, and could
continue to place, a significant strain on the Company's management and
operations. If Microcom's management is unable to manage future growth
effectively, Microcom's business, results of operations and financial condition
could be materially and adversely affected.
POTENTIAL VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and could be,
subject to wide fluctuations in response to, among other things, quarterly
fluctuations in operating results, adverse circumstances affecting the
introduction or market acceptance of new products or enhancements offered by the
Company, announcements of new products or enhancements by competitors, changes
in earnings estimates by analysts, changes in accounting principles, sales of
Common Stock by existing holders, loss of key personnel and market conditions in
the industry, shortages of key components as well as general economic
conditions. In addition, stock prices for many technology companies, including
the Company, have experienced significant volatility for reasons unrelated to
operating results. These fluctuations may adversely affect the market price of
the Company's Common Stock. See "Price Range of Common Stock and Dividend
Policy."
POTENTIAL ADVERSE EFFECTS OF ANTI-TAKEOVER PROVISIONS
The Company's Restated Articles of Organization and By-laws contain
provisions that may make it more difficult for a third party to acquire, or
discourage acquisition bids for, a majority of the outstanding Common Stock of
the Company. These provisions include the classification of the Company's Board
of Directors and super-majority voting requirements to remove directors and to
amend the provisions relating to the classification of the Board of Directors
and the removal of directors. In addition, the Company's Restated Articles of
Organization prohibit a holder of 10% or more of the Common Stock from engaging
in certain transactions with the Company, including a merger or sale of stock or
assets, without the approval of the holders of at least 80% of the Common Stock.
These provisions could delay or make more difficult a merger, tender offer or
proxy contest involving the Company, and may limit or reduce the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock.
10
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered hereby by the Company are estimated to be approximately
$26,718,000 (approximately $31,060,000 if the Underwriters' over-allotment
option is exercised in full), assuming a public offering price of $9.625 per
share and after deducting the underwriting discounts and commissions and the
estimated offering expenses payable by the Company. The Company will not receive
any proceeds from the sale of Common Stock offered hereby by the Selling
Stockholders.
The Company intends to use a portion of such net proceeds to repay all
indebtedness under its revolving credit agreement. The outstanding balance under
such credit agreement was approximately $11,900,000 at May 15, 1995. Any
borrowed amounts which are repaid may be reborrowed by the Company, subject to
compliance with the terms and conditions of the agreement. Such agreement
expires in March 1996 and indebtedness thereunder bears interest at the banks'
prime rate (9% at March 31, 1995) plus 2%. Substantially all indebtedness
incurred since May 15, 1994 under the Company's revolving credit agreement was
used for working capital, except approximately $1,716,000 which was used for an
acquisition of certain ISDN technology in March 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Recent Acquisitions and Dispositions of Product Lines." The Company expects to
use the balance of such net proceeds for general corporate purposes, including
working capital. A portion of the net proceeds may also be used for the
acquisition of businesses, products and technologies that are complementary to
those of the Company. The Company has no commitments or understandings for any
such acquisitions, and no portion of the net proceeds has been allocated for any
specific acquisition. Pending such uses, the net proceeds to the Company of this
offering will be invested in short-term, investment-grade, interest-bearing
securities.
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol MNPI. The following table sets forth for the fiscal periods indicated
the high and low sales prices of the Common Stock, as reported on the Nasdaq
National Market.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1994: HIGH LOW
---- ---
<S> <C> <C>
1st Quarter.............................................................. $5 3/ $3 1/8
2nd Quarter.............................................................. 3 5/ 1 1/2
3rd Quarter.............................................................. 5 5/ 2 1/2
4th Quarter.............................................................. 7 3/ 4 3/4
YEAR ENDED MARCH 31, 1995:
1st Quarter.............................................................. $6 1/ $4 1/2
2nd Quarter.............................................................. 8 1/4 5 7/8
3rd Quarter.............................................................. 12 3/8 6 5/8
4th Quarter.............................................................. 12 5/8 9
YEAR ENDED MARCH 31, 1996:
1st Quarter (through May 18, 1995)....................................... $12 1/8 $9 1/8
</TABLE>
On May 18, 1995, the last reported sales price of the Common Stock on the
Nasdaq National Market was $9 5/8. As of May 15, 1995, there were 418 holders of
record of the Common Stock.
DIVIDENDS
The Company has never paid cash dividends and currently intends to retain
its earnings to finance future growth and therefore does not anticipate paying
any cash dividends for the foreseeable future. In addition, the Company is
prohibited by the terms of its bank revolving credit agreement from declaring or
paying any cash dividends. Any future determination relating to dividend policy
will be made in the discretion of the Board of Directors of the Company and will
depend on a number of factors, including the future earnings, capital
requirements, financial condition and future prospects of the Company and such
other factors as the Board of Directors may deem relevant.
11
<PAGE> 13
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) as of
March 31, 1995, and (ii) as adjusted to give effect to the sale of 3,000,000
shares of Common Stock offered hereby by the Company, assuming a public offering
price of $9.625 per share and after deducting the underwriting discounts and
commissions and the estimated offering expenses payable by the Company and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with the Consolidated Financial Statements and the related notes
and other financial information appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1995
-------------------------
ACTUAL AS ADJUSTED
-------- -----------
<S> <C> <C>
(IN THOUSANDS)
Current portion of capitalized leases and short-term debt............ $ 12,543 $ 328
======= =========
Long-term portion of capitalized leases.............................. 122 122
-------- -----------
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized;
12,088,315 shares issued on an actual basis; and 15,088,315
shares issued on an as adjusted basis(1)....................... 121 151
Capital in excess of par value.................................. 61,223 87,911
Stock loans -- related parties.................................. (1,942) (1,942)
Unrealized loss on marketable securities........................ (33) (33)
Accumulated deficit............................................. (21,589) (21,589)
Treasury stock, 981,000 shares at cost.......................... (2,613) (2,613)
Cumulative translation adjustment............................... 115 115
-------- -----------
Total stockholders' equity................................. 35,282 62,000
-------- -----------
Total capitalization.................................. $ 35,404 $ 62,122
======= =========
</TABLE>
- ---------------
(1) Excludes 2,101,499 shares of Common Stock issuable upon exercise of options
outstanding as of March 31, 1995, at a weighted average exercise price of
$4.65 per share.
12
<PAGE> 14
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended March 31, 1991, 1992, 1993, 1994 and 1995, and selected consolidated
balance sheet data as of March 31, 1991, 1992, 1993, 1994 and 1995 are derived
from the Company's consolidated financial statements, which have been audited by
Arthur Andersen LLP. The consolidated financial statements as of March 31, 1994
and 1995, and for each of the years in the three year period ended March 31,
1995, and the independent auditors' report thereon, are included elsewhere in
this Prospectus. The selected consolidated financial data set forth below should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the Consolidated Financial
Statements, including the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------------------------
1991
---------
STATEMENT OF OPERATIONS DATA: 1992 1993 1994 1995(1)
-------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales..................................................... $ 55,401 $ 73,906 $ 69,435 $ 56,464 $ 93,106
Cost of sales................................................. 27,956 32,102 33,132 29,072 51,322
--------- -------- --------- --------- --------
Gross margin.................................................. 27,445 41,804 36,303 27,392 41,784
--------- -------- --------- --------- --------
Operating expenses:
Research and development.................................. 12,415 12,502 12,483 8,959 10,250
Sales and marketing....................................... 18,361 19,496 20,915 15,608 19,270
General and administrative................................ 9,603 5,601 5,539 5,366 4,747
Restructuring and other costs............................. 20,500(2) -- 4,268(3) 7,875(4) --
--------- -------- --------- --------- --------
Total operating expenses.............................. 60,879 37,599 43,205 37,808 34,267
--------- -------- --------- --------- --------
Income (loss) from operations................................. (33,434) 4,205 (6,902) (10,416) 7,517
Settlement costs.............................................. -- -- (3,200)(5) -- --
Interest income............................................... 352 124 88 42 67
Interest and other expenses, net.............................. (161) (195) (185) (378) (807)
--------- -------- --------- --------- --------
Income (loss) before income taxes............................. (33,243) 4,134 (10,199) (10,752) 6,777
Provision for income taxes.................................... (4,499) 703 495 161 1,016
--------- -------- --------- --------- --------
Net income (loss)............................................. $ (28,744) $ 3,431 $ (10,694) $ (10,913) $ 5,761
======== ======= ======== ======== =======
Net income (loss) per share................................... $(3.16) $.34 $(1.11) $(1.09) $.49
======== ======= ======== ======== =======
Weighted average number of shares outstanding................. 9,083 10,002 9,644 10,041 11,805
======== ======= ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
---------------------------------------------------------------
1991
---------
BALANCE SHEET DATA: 1992 1993 1994 1995
-------- --------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash and equivalents.......................................... $ 6,324 $ 5,609 $ 9,108 $ 5,342 $ 863
Working capital............................................... 25,221 29,221 20,829 13,957 17,732
Total assets.................................................. 52,281 52,957 45,853 38,453 57,788
Total debt, including capitalized leases...................... 1,000 832 1,042 1,303 12,665
Total stockholders' equity.................................... 40,141 46,042 36,520 26,231 35,282
</TABLE>
- ---------------
(1) For certain pro forma information, see Note 3 of Notes to Consolidated
Financial Statements.
(2) Related to (i) the write-down of intangible assets associated with three
software product lines, (ii) the elimination of certain warehouse and
manufacturing facilities and associated personnel, (iii) the write-off of
certain inventory and (iv) the closing of international sales offices.
(3) Related to (i) the disposition of the Relay software product line, (ii) a
workforce reduction and (iii) the elimination of certain assets and excess
facilities. See Note 2 of Notes to Consolidated Financial Statements.
(4) Related to (i) the disposition of the LANlord product line, (ii) a workforce
reduction, (iii) the direct costs associated with the realizability of
certain assets associated with the implementation of a new sales, marketing
and distribution plan, (iv) the closing of a manufacturing facility, (v)
certain executive severance costs and (vi) the consolidation of certain
shipping locations. See Note 2 of Notes to Consolidated Financial
Statements.
(5) Represents amount paid, net of insurance, in connection with the settlement
of securities litigation against the Company and certain of its officers.
13
<PAGE> 15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was founded in 1980 as a developer of data communications
software, high performance modems and related technologies. In the early 1990s,
the Company responded to changes in the data communications industry by
undertaking a series of strategic initiatives and restructurings designed to
reposition the Company to address the needs of the emerging remote network
access market. These initiatives included the development of products with
remote network access functionality, divestitures of non-core products, a
restructuring of the worldwide sales organization, the shifting of product
manufacturing to third parties and the acquisition of ISDN product technologies.
The restructuring and other costs associated with the repositioning totalled
approximately $4,268,000 and $7,875,000 in fiscal 1993 and 1994, respectively.
As a result of these costs and declining net sales, the Company incurred losses
from operations in fiscal 1993 and 1994. However, in fiscal 1994 and 1995, the
Company's net sales increased in each fiscal quarter and the Company's
profitability improved for each of the last four fiscal quarters. Additionally,
operating expenses as a percentage of net sales decreased significantly during
fiscal 1995.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by certain line items in the Company's consolidated
statements of operations:
<TABLE>
<CAPTION>
PERCENTAGE OF NET
SALES
YEAR ENDED MARCH 31,
---------------------
1993 1994 1995
--- --- ---
<S> <C> <C> <C>
Net sales.................................................. 100% 100% 100%
Cost of sales.............................................. 48 51 55
--- --- ---
Gross margin............................................... 52 49 45
--- --- ---
Operating expenses:
Research and development.............................. 18 16 11
Sales and marketing................................... 30 28 21
General and administrative............................ 8 9 5
Restructuring and other costs......................... 6 14 --
--- --- ---
Total operating expenses......................... 62 67 37
--- --- ---
Income (loss) from operations.............................. (10) (18) 8
Settlement costs........................................... (5) -- --
Interest and other expenses, net........................... -- (1) (1)
--- --- ---
Income (loss) before income taxes.......................... (15) (19) 7
Provision for income taxes................................. -- -- 1
--- --- ---
Net income (loss).......................................... (15)% (19)% 6%
==== ==== ====
</TABLE>
FISCAL 1995 COMPARED TO FISCAL 1994
Net Sales. In fiscal 1995, net sales increased by $36,642,000, or 65%,
from fiscal 1994. The increase was primarily attributable to increased sales of
central site remote network access products, particularly HDMS. A significant
portion of HDMS sales were made to Sprint, which accounted for 24% and 13% of
net sales in fiscal 1995 and 1994, respectively. The increase in net sales was
also attributable to increased sales of 28.8 Kbps modems which were not
available until the third quarter of fiscal 1994. The LANexpress product line
also contributed to the increase in net sales. These increases were offset in
part by a decrease in sales of the Company's bridge/router products, with
respect to which the Company discontinued development and marketing efforts in
fiscal 1994, and a decline in Carbon Copy software sales, which resulted from
the success of competitive products. International
14
<PAGE> 16
sales were $26,549,000 in fiscal 1995, representing 29% of net sales, as
compared to $12,358,000 in fiscal 1994, or 22% of net sales. The increase in
fiscal 1995 international sales was primarily due to increased HDMS and modem
sales.
Gross Margin. Gross margin as a percentage of net sales was 45% for fiscal
1995 as compared to 49% for fiscal 1994. The decrease was primarily due to a
decrease in the selling price of the Company's modems due to competitive
pressures and a decrease in higher margin sales of its Carbon Copy software.
Research and Development. Research and development costs in fiscal 1995
were $10,250,000 as compared to $8,959,000 in fiscal 1994. As a percentage of
net sales, research and development expenses decreased to 11% in 1995 from 16%
in the prior fiscal year. Although research and development expenses decreased
as a percentage of net sales, the total dollar amount increased by $1,291,000,
principally as a result of increased consulting and contract professional fees
relating to continued product development.
Sales and Marketing. In fiscal 1995, sales and marketing expenses
increased by $3,662,000, or 23%, over fiscal 1994 due to increased variable
selling expenses resulting from increased net sales. As a percentage of net
sales, sales and marketing expenses decreased to 21% in fiscal 1995 from 28% in
the prior fiscal year as net sales increased at a higher rate than sales and
marketing expenses.
General and Administrative. In fiscal 1995, general and administrative
expenses were $4,747,000 or 5% of net sales, as compared to $5,366,000, or 9% of
net sales, in the prior fiscal year. The decrease in such expenses as a
percentage of net sales was the result of the Company's reduction in general and
administrative personnel together with the increase in net sales for the year.
Interest Income and Expense. Interest income increased in fiscal 1995 by
$25,000 to $67,000 and interest and other expense increased by $429,000 to
$807,000. The increase in interest income was due to interest earned on certain
loans to officers of the Company. The increase in interest and other expense was
primarily a result of interest paid on increased borrowings under the Company's
revolving credit facility.
Income Taxes. The Company's effective tax rate was 15% for fiscal 1995.
The difference between the statutory rate and the effective tax rate reflects
the utilization of a portion of the Company's net operating loss carry forwards.
At March 31, 1995, the Company had available $21,509,000 in net operating loss
carry forwards, which may be used to offset future taxable income, and
$3,959,000 in research and development credit carry forwards, which may be used
to offset future taxes payable. These carry forwards expire through 2009 and are
subject to review and possible adjustment by the Internal Revenue Service.
Net Income (Loss) and Net Income (Loss) Per Share. For the reasons stated
above, net income for fiscal 1995 was $5,761,000 as compared to a net loss of
$10,913,000 for fiscal 1994, and net income per share for fiscal 1995 was $.49
as compared to a net loss per share of $1.09 for fiscal 1994.
FISCAL 1994 COMPARED TO FISCAL 1993
Net Sales. In fiscal 1994, net sales decreased by $12,971,000, or 19%,
from fiscal 1993. The decrease in net sales was a result of the decline in
demand for the Company's modem and bridge/router products in the first and
second quarters of fiscal 1994 combined with reduced software revenues resulting
from the disposition of the Company's Relay and Virex software product lines
during fiscal 1993. The decline in demand for the Company's modems was due to
stiff price competition and growing market perception of modems as commodity
products. International sales were $12,358,000 in fiscal 1994, representing 22%
of net sales, as compared to $14,696,000 in fiscal 1993, or 21% of net sales.
The decrease in fiscal 1994 international sales was primarily due to lower modem
sales in Europe and the disposition of the software product lines in fiscal
1993.
Gross Margin. Gross margin as a percentage of net sales was 49% for fiscal
1994 as compared to 52% for fiscal 1993. The decrease was primarily due to a
decrease in the selling price of the Company's
15
<PAGE> 17
modems and an overall decrease of higher margin software sales as a result of
the software product line dispositions in fiscal 1993.
Research and Development. Research and development costs in fiscal 1994
were $8,959,000 as compared to $12,483,000 in fiscal 1993. As a percentage of
net sales, research and development expenses decreased to 16% in fiscal 1994
from 18% in the prior fiscal year. The decrease resulted from decreased research
and development activity and a corresponding reduction in personnel.
Sales and Marketing. In fiscal 1994, sales and marketing expenses
decreased $5,307,000, or 25%, from fiscal 1993. As a percentage of net sales,
sales and marketing expenses decreased to 28% in fiscal 1994 as compared to 30%
in the prior fiscal year. The decrease was primarily due to the Company's
restructuring of its domestic sales force at the beginning of the second quarter
of fiscal 1994. This restructuring resulted in a reduction of headcount and
related personnel expenses, and a decrease in marketing program spending.
General and Administrative. In fiscal 1994, general and administrative
expenses were $5,366,000, or 10% of net sales, as compared to $5,539,000, or 8%
of net sales, in the prior fiscal year. The increase, as a percentage of net
sales, was the result of a decline in the Company's net sales in fiscal 1994.
Restructuring and Other Costs. During fiscal 1994, the Company incurred
$7,875,000 in restructuring and other costs. Of such amount, $6,500,000 was
incurred in the first quarter of fiscal 1994 and related primarily to (i) a 12%
workforce reduction, mostly in the areas of sales and marketing, and general and
administrative, resulting in a charge of $870,000, (ii) the direct costs
effecting the realizability of certain assets associated with the implementation
of a new sales, marketing and distribution plan in the amount of $3,275,000 and
(iii) the disposition of Company's Client Server Technologies Group, which
developed and marketed the LANlord product line, which resulted in a charge of
$1,850,000. Restructuring and other costs accrued in the first quarter of fiscal
1994 were realized as follows: $3,400,000, $1,900,000 and $1,200,000 in the
second, third and fourth quarters, respectively. The balance of the
restructuring charges, $1,375,000, was incurred in the fourth quarter of fiscal
1994 and related primarily to the closing of the Company's manufacturing
facility in Puerto Rico, certain executive severance costs, and the direct costs
associated with the consolidation of the Company's shipping locations.
Restructuring charges accrued in the fourth quarter of fiscal 1994 were realized
as follows: $448,000, $581,000, $242,000 and $104,000 in the first, second,
third and fourth quarters of fiscal 1995, respectively. During fiscal 1993, the
Company incurred a $4,268,000 restructuring charge, a substantial portion of
which related to the write-off of certain assets and estimated costs in
connection with the disposition of the Company's Relay software product line.
Additionally, the 1993 restructuring charge reflected the costs associated with
the Company's reduction of its worldwide workforce by approximately 15%,
primarily in the areas of research and development and general and
administrative, and the elimination of certain assets and excess facilities.
Interest Income and Expense. Interest income decreased in fiscal 1994 by
$46,000 to $42,000 and interest and other expense increased by $193,000 to
$378,000. The decrease in interest income was due to lower average cash balances
and a decline in prevailing interest rates. The increase in interest and other
expense was primarily a result of foreign exchange hedging costs associated with
the foreign exchange contracts on foreign currency receivables, and the loss
recognized on the sale of certain fixed assets no longer utilized by the
Company.
Income Taxes. The Company did not record a benefit for income taxes in
fiscal 1994 due to the uncertainty in being able to utilize its net operating
loss carry forwards. The Company did record a provision of $161,000 for income
taxes relating to its subsidiary located in Hong Kong.
Net Loss and Net Loss Per Share. For the reasons stated above, net loss
for fiscal 1994 was $10,913,000 as compared to a net loss of $10,694,000 for
fiscal 1993 and net loss per share for fiscal 1994 was $1.09 compared to a net
loss per share of $1.11 for fiscal 1993.
16
<PAGE> 18
RECENT ACQUISITIONS AND DISPOSITIONS OF PRODUCT LINES
On March 31, 1995, the Company acquired certain assets of mbp
Softwareentwicklungsgesellschaft mbH ("mbp") for an aggregate purchase price of
2,350,000 Deutschemarks (approximately $1,716,000). In addition, the Company
will pay mbp royalties for the five year period ending March 31, 2000 based on
the net sales and earnings attributable to the assets purchased from mbp. The
acquisition has been accounted for as a purchase. The assets purchased by the
Company from mbp were utilized in the business of developing, procuring,
marketing, distributing, selling and supporting ISDN products. The Company has
formed a wholly owned subsidiary, Microcom GmbH, and with the acquired assets
will operate the business in Germany.
On January 5, 1995, the Company acquired Extension Technology Corp. ("ETC")
in a merger pursuant to which ETC became a wholly owned subsidiary of the
Company. In connection with the merger, the shareholders of ETC received an
aggregate of 114,980 shares of the Company's Common Stock. The merger has been
accounted for as a purchase with a total purchase price of approximately
$2,104,000. ETC was engaged in product development and market research in the
area of remote connectivity to LANs utilizing ISDN technology.
On December 31, 1993, the Company sold substantially all of the assets
relating to its Client Server Technologies Group which developed, marketed and
distributed the LANlord product. The consideration received consisted of
approximately $1,380,000 in cash and the assumption by the purchaser of certain
liabilities of the Company.
17
<PAGE> 19
QUARTERLY OPERATING RESULTS
The following table sets forth unaudited consolidated statements of
operations data for each of the four quarters in fiscal 1994 and 1995 and the
percentage of the Company's net sales represented by each item for the
respective quarter. The Company believes that the information has been prepared
on the same basis as the audited Consolidated Financial Statements appearing
elsewhere in this Prospectus and includes all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the information for
the quarters presented. The operating results for any quarter are not
necessarily indicative of the results of operations for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------------------------------
JUNE SEPT. DEC. MARCH JUNE SEPT. DEC. MARCH
30, 30, 31, 31, 30, 30, 31, 31,
1993 1993 1993 1994 1994 1994 1994 1995
--------- --------- ------- -------- ------- --------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PERCENTAGE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 12,056 $12,471 $14,849 $17,088 $21,315 $22,770 $23,134 $25,887
Cost of sales.................. 6,541 6,145 7,384 9,002 11,727 12,613 12,770 14,212
--------- --------- ------- -------- ------- --------- ------- --------
Gross margin................... 5,515 6,326 7,465 8,086 9,588 10,157 10,364 11,675
--------- --------- ------- -------- ------- --------- ------- --------
Operating expenses:
Research and development..... 2,256 2,266 2,337 2,082 2,214 2,662 2,725 2,675
Sales and marketing.......... 5,216 2,770 3,468 4,173 4,814 4,557 4,369 5,530
General and administrative... 1,729 1,211 1,312 1,213 1,103 1,191 1,215 1,212
Restructuring and other
costs...................... 6,500 -- -- 1,375 -- -- -- --
--------- --------- ------- -------- ------- --------- ------- --------
Total operating expenses... 15,701 6,247 7,117 8,843 8,131 8,410 8,309 9,417
--------- --------- ------- -------- ------- --------- ------- --------
Income (loss) from
operations................... (10,186 ) 79 348 (757 ) 1,457 1,747 2,055 2,258
Interest income................ 29 6 1 6 60 3 3 1
Interest and other expense,
net.......................... (112 ) (19) (54 ) (93 ) (134) (121) (259 ) (293 )
--------- --------- ------- -------- ------- --------- ------- --------
Income (loss) before income
taxes........................ (10,269 ) 66 295 (844 ) 1,383 1,629 1,799 1,966
Provision for income taxes..... 31 -- 30 100 207 244 270 295
--------- --------- ------- -------- ------- --------- ------- --------
Net income (loss).............. $(10,300 ) $ 66 $ 265 $ (944 ) $ 1,176 $ 1,385 $1,529 $ 1,671
========= ========= ======== ========= ======= ========= ======== =========
Net income (loss) per share.... $(1.06 ) $.01 $.03 $(.09 ) $.11 $.12 $.13 $.14
========= ========= ======== ========= ======= ========= ======== =========
Weighted average number of
shares outstanding........... 9,751 9,826 10,363 10,365 11,166 11,601 11,921 12,327
========= ========= ======== ========= ======= ========= ======== =========
PERCENTAGE OF NET SALES:
Net sales...................... 100 % 100% 100% 100 % 100% 100% 100% 100 %
Cost of sales.................. 54 49 50 53 55 55 55 55
--------- --------- ------- -------- ------- --------- ------- --------
Gross margin................... 46 51 50 47 45 45 45 45
--------- --------- ------- -------- ------- --------- ------- --------
Operating expenses:
Research and development..... 19 18 16 12 10 12 12 10
Sales and marketing.......... 43 22 23 24 23 20 19 21
General and administrative... 14 10 9 7 5 5 5 5
Restructuring and other
costs...................... 54 -- -- 8 -- -- -- --
--------- --------- ------- -------- ------- --------- ------- --------
Total operating expenses... 130 50 48 51 38 37 36 36
--------- --------- ------- -------- ------- --------- ------- --------
Income (loss) from
operations................... (84 ) 1 2 (4 ) 7 8 9 9
Interest and other expense,
net.......................... (1 ) -- -- (1 ) (1) (1) (1 ) (1 )
--------- --------- ------- -------- ------- --------- ------- --------
Income (loss) before income
taxes........................ (85 ) 1 2 (5 ) 6 7 8 8
Provision for income taxes..... -- -- -- 1 1 1 1 1
--------- --------- ------- -------- ------- --------- ------- --------
Net income (loss).............. (85 )% 1% 2% (6 )% 5% 6% 7% 7 %
========= ========= ======== ========= ======= ========= ======== =========
</TABLE>
Net sales increased in each of the last eight quarters, from $12,056,000 in
the first quarter of fiscal 1994, to $25,887,000 in the fourth quarter of fiscal
1995. These increases were primarily attributable to increased sales of central
site remote network access products and, to a lesser extent, increased sales of
high performance modems. Gross margin as a percentage of net sales was
relatively constant except in the second and third quarters of fiscal 1994 when
it increased due to changes in product mix.
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<PAGE> 20
Net income increased in each of the last four quarters. The net loss in the
first quarter of fiscal 1994 was attributable to a $6,500,000 restructuring
charge recorded in that period and also to operating expenses that were
established based on an anticipated level of net sales that was not attained.
The net loss in the fourth quarter of fiscal 1994 was due to a $1,375,000
restructuring charge recorded in that period.
Microcom's quarterly operating results have fluctuated significantly in the
past and may fluctuate significantly in the future. Such fluctuations may result
in volatility in the price of the Company's Common Stock. Quarterly net sales
and operating results may fluctuate as a result of a variety of factors
including the timing of significant orders, the timing of product enhancements
and new product introductions by Microcom and its competitors, the pricing of
the Company's products, changes in product mix, changes in customers' budgets,
competitive conditions, the proportion of international sales to total net
sales, the proportion of sales made pursuant to the Company's various
distribution channels and general economic conditions. The Company has
historically operated with limited backlog because its products are shipped
shortly after orders are received. The Company has often recognized a
substantial portion of its net sales in the last month of the quarter. As a
result, net sales in any quarter are substantially dependent on orders booked
and shipped in the last month of a quarter. A small variation in the timing of
orders is likely to adversely and disproportionately affect the Company's
results of operations as the Company's expense levels are based, in part, on its
expectations as to future net sales and only a small portion of the Company's
expenses vary with its net sales. Moreover, Microcom's net sales may fluctuate
based on the level of inventories of the Company's products maintained by the
Company's resellers in any particular quarter. Accordingly, the Company believes
that period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as indicative of future performance.
Although the Company's net sales have increased and the Company has been
profitable in recent quarterly periods, there can be no assurance that the
Company's net sales will increase in future quarters or that the Company will
remain profitable on a quarterly basis, if at all. Due to the foregoing factors,
it is possible that in some future quarters the Company's results of operations
will be below the expectations of public market analysts and investors. In such
event, the price of the Company's Common Stock would be materially and adversely
affected.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and equivalents decreased by $4,479,000 during fiscal
1995 to $863,000. Net cash used in operating activities was $8,449,000 in fiscal
1995, as compared to $1,848,000 used in operating activities in fiscal 1994. The
decrease in cash was primarily due to the Company's substantial net sales growth
in fiscal 1995 which required an additional investment in inventory and resulted
in a corresponding increase in accounts receivable. Accounts receivable
increased from $13,282,000 at March 31, 1994 to $22,183,000 at March 31, 1995.
Cash flows from investing activities included continued investments in software
development costs of $4,922,000, costs associated with purchases of property and
equipment in the amount of $2,567,000 and the purchase of assets from mbp in the
amount of $1,716,000.
At March 31, 1995, the Company had a bank revolving credit facility which
allowed the Company to borrow up to an amount (the "Maximum Borrowing Amount")
equal to the lesser of (i) $16,000,000 or (ii) an amount based on the Company's
eligible accounts receivable and inventory. The Maximum Borrowing Amount is
reduced by amounts which may be drawn on outstanding letters of credit and
bankers' acceptances and by a percentage of the Company's exposure under foreign
currency exchange contracts. Interest on borrowings is at the banks' prime rate
(9% at March 31, 1995) plus 2%. At March 31, 1995, the Company had letters of
credit of $2,619,000, bankers' acceptances of $195,000 and borrowings under the
credit facility of $12,020,000. The portion of foreign exchange contracts which
reduce the availability of the borrowings under the credit facility at March 31,
1995 was $78,000. The remaining amount available to borrow under the credit
facility at March 31, 1995 was $1,088,000. Under the terms of the credit
facility, which expires in March 1996 and is secured by substantially all of the
Company's assets, the Company is required to comply with certain
19
<PAGE> 21
covenants and is prohibited from paying cash dividends. At March 31, 1995, the
Company was in compliance with all covenants.
Since its inception, the Company has met its liquidity requirements through
cash provided by operations, public and private stock offerings, short-term
borrowings from banks, lease arrangements for facilities and equipment and
dispositions of product lines. The Company believes that the proceeds the
Company receives from this offering, together with its cash and equivalents,
credit facility availability and cash provided by operations, will be adequate
to fund the Company's operations through fiscal 1997.
BACKLOG
The Company's backlog, which consists of customer purchase orders for
products to be shipped within 90 days, was $4,986,000 and $3,844,000 at March
31, 1994 and 1995, respectively. Since customers may cancel or reschedule orders
without significant penalty, the Company does not believe that the backlog is
indicative of future trends in the Company's business.
20
<PAGE> 22
BUSINESS
Microcom is a leading provider of remote network access solutions. The
Company's products enable users to access and communicate with on-line computer
networks, such as the Internet, America Online, CompuServe and Prodigy, and
corporate networks from remote locations. The Company was founded in 1980 as a
developer of data communications software, high performance modems and related
technologies. Beginning in the early 1990s, the Company responded to changes in
the data communications industry by undertaking a series of strategic
initiatives designed to reposition the Company to address the needs of the
remote network access market. By leveraging its technology and expertise, the
Company has developed a broad line of remote network access products.
Microcom's products serve both central site network managers and individual
remote users. Products designed for the central site include the High Density
Management System (HDMS) -- a dial-up access management system; and LANexpress
- -- remote local area network (LAN) access systems which include expressWATCH, a
comprehensive remote network access management solution. Products designed for
the individual remote user include high performance V.34 (28.8 Kbps) PCMCIA,
desktop and other modems; Carbon Copy remote control/remote PC access software;
LANexpress Remote client software, a remote node and remote control LAN access
product; and ISDN terminal adapters.
The Company's customers include (i) Internet and on-line service network
access providers, such as Sprint, (ii) Corporate 2000 companies, such as
American Airlines, Inc., Blockbuster Entertainment Corporation, NYNEX
Corporation and State Farm Insurance Company, (iii) large international
corporations, (iv) governmental agencies and universities and (v) individual
remote users seeking to access the Internet, on-line services and corporate
networks. The Company distributes its products through direct sales and multiple
indirect channels, including VARs, distributors and OEMs in the United States
and international markets.
Microcom is committed to being a leader in the development and
implementation of standards for remote network access products. For example, in
1983 the Company introduced the Microcom Networking Protocol (MNP), a
communications standard incorporated into the majority of modems sold today. The
latest version, MNP 10EC, enhances the operation of modem communications over
the cellular network. Most recently, Microsoft incorporated the Company's
Advanced Parallel Technology (APT) into its Windows 95 operating system enabling
high performance remote network access connections.
INDUSTRY BACKGROUND
Significant changes in computer-based information systems have occurred
over the last decade. Historically, information stored in computer databases
could only be accessed by terminals or PCs emulating terminals directly
connected to a central or host computer. Remote users wishing to access
information over the public switched telephone network used a modem to dial from
their terminal or computer into another modem which was usually connected
directly to the central or host computer.
Beginning in the late 1980s, the following factors changed the nature of,
and increased the demand for, remote network access:
Growth of the Internet and On-line Services. The number of users of the
Internet and on-line services such as America Online, CompuServe and Prodigy has
grown rapidly in recent years. It is estimated that the number of users linked
to the Internet has grown from less than 2 million in 1992 to approximately 30
million today. This growth is due to increased use of electronic mail ("e-mail")
and the proliferation of databases and other information services such as the
World Wide Web.
Development of Distributed, Client/Server Computing. With the development
of LANs, it became possible for information to be stored on a number of
computers which were connected to each other and located within a building or
campus. Simultaneously, the advent of new communications products such as hubs,
bridges and routers, allowed multiple LANs to be integrated into distributed,
enterprise-wide
21
<PAGE> 23
computing networks. To take advantage of these distributed computer networks,
products utilizing client/server architecture, including relational databases,
e-mail and file and printer sharing were introduced to collect, retrieve and
distribute information. Distributed computing and client/server based software
are now being used on a corporate enterprise-wide and departmental basis to run
mission critical processes and to provide the primary means for corporate
communication.
Growth in Mobile, Remote and Home Offices. Corporations, governmental
agencies, universities and other organizations are increasingly looking to
control costs while providing their employees with access to essential
information and resources to perform their jobs efficiently and effectively from
any location. The proliferation of notebooks and home computers is allowing a
newly created remote workforce to work from home or on the road. To remain
productive, these users must be able to access their corporate distributed
networks from remote locations.
Technological Advances. Advances in modem technology (such as the V.34
standard) and switched digital service technology (such as ISDN) are helping to
increase the speed of network communication, which is a key user requirement for
remote network access. In addition, the introduction of sophisticated network
management software technology enables the diagnosis, management and
reconfiguration of the numerous network access points and unattended remote
locations from a central site on a cost-effective basis.
MARKETS
These factors have created an enormous growth in the number of remote users
seeking to connect to the Internet and on-line services through network access
providers and to information on corporate networks. As a result, the need for
hardware and software products to support, expand and enhance remote network
access has created a number of rapidly growing markets.
Network access providers are responsible for linking millions of remote
users to the Internet and on-line services each day and require substantial
amounts of equipment including modems, ISDN interfaces, management software,
routers, switches and access servers. Since many of the access points for these
networks are in unattended locations, reliable equipment that is easily
diagnosed, managed and reconfigured via software from a central site is
essential. In addition, since network access providers charge for their services
based on the duration of the connection, they require systems that permit remote
users with many different brands of modems to establish and maintain connections
with the network.
Enterprise computing networks are large scale, diverse, distributed
computing and client/server networks. To support the extensive remote network
access demands, these corporate networks require multiprotocol, multifunction
access servers and a large number of modems and ISDN interfaces to support
numerous users on diverse hardware and software platforms. Due to the size and
complexity of the enterprise network, management software to diagnose, configure
and troubleshoot the remote access aspects of the network is critical.
Enterprise network managers also require reliability, connectability and ease of
use and installation of all products. Finally, with increased occurrences of
unauthorized computer access and theft of services and information, security has
become a key requirement for developing and operating remote network access
capabilities for the enterprise network.
Departmental computing networks are typically characterized by a limited
number of remote users requiring access to a smaller, less complicated corporate
network. As a result, only 2 to 16 dial-up connection points (ports) and support
for only the most popular networking protocols is typically required. Since
departmental networks generally are managed by a smaller management information
systems staff, remote access equipment for this market must be easy to install
and use. Although access security and network management are important, these
features are generally less extensive than in the enterprise network
environment.
22
<PAGE> 24
In addition to the hardware and software necessary to serve the needs of
central site network managers, remote users need reliable, high performance
communications hardware and easy to use software to access the information
residing on the various types of networks.
THE MICROCOM SOLUTION
In an effort to address the diverse needs of these rapidly growing markets,
the Company has developed and offers a broad range of remote network access
products. The following are the key attributes of the Microcom solution:
Broad Product Range. The Company's broad remote network access product
line serves both central site network managers and remote users in each of the
remote network access markets. HDMS serves on-line network and Internet access
providers and enterprise network managers. LANexpress serves both enterprise and
departmental network managers. Remote users can utilize the Company's modems and
ISDN terminal adapters, LANexpress Remote client software and Carbon Copy
software to access on-line services, the Internet and corporate networks, on
both the enterprise and departmental level.
Remote Access Management. The Company's central site dial access products
provide comprehensive management capabilities in order to control effectively
both operations and costs. The key management capabilities include
configuration, diagnostics, cost management and capacity planning.
Remote Access Security. Microcom pioneered the use of security at the dial
connection level rather than relying solely on the security measures of the host
computer. The Company has developed a wide variety of security mechanisms,
including user authentication, call-back schemes (fixed and roving), encrypted
user information and embedded modem security keys designed to keep potential
"hackers" from completing the dial connection into the network or host computer.
Without the connection in place, potential hackers cannot attempt unauthorized
access to the underlying network or host computer.
Comprehensive Connectivity. Through the use of proprietary firmware, the
Company's central site products are designed to connect to a broad range of
popular modem brands and stay connected regardless of prevailing line
conditions.
High Quality, Reliable Products. The Company's products go through
extensive development and quality assurance testing before shipment to
customers. The Company has quality assurance personnel on-site on a full-time
basis at the manufacturing facilities of the Company's off-shore manufacturers.
This has resulted in the Company's products attaining a reputation with
customers for quality and reliability.
Ease of Installation and Use. The Company's LANexpress, Carbon Copy and
modem products are utilized by departmental network managers and individual
remote users. Since these users typically lack significant technological
resources, products targeted at these customers need to be easy to install and
use. The Company has specifically designed its LANexpress, Carbon Copy and modem
products to be readily installed without technical support. In addition,
LANexpress Remote and Carbon Copy software incorporate user-friendly, graphical
user interfaces.
23
<PAGE> 25
RECENT REPOSITIONING AND STRATEGY
In the early 1990s, the Company responded to changes in the data
communications industry by undertaking a series of strategic initiatives and
restructurings designed to reposition the Company to address the needs of the
emerging remote network access market. First, in response to customers' demands
for certain central site remote network access products and emerging market
trends, the Company redirected its strategic focus to the HDMS products by
increasing research and development expenditures and accelerating introduction
of enhancements to these products. Second, beginning in 1991, the Company
reviewed each of its product lines. This process led to the disposition of
certain non-core products including (i) Virex, a virus detection and correction
program, (ii) Relay, a PC mainframe terminal emulation package, and (iii)
LANlord, a desktop management software package. Third, in July 1993, the Company
restructured its sales force, increased the number of application engineers and
implemented new sales and marketing strategies focused specifically on the sale
of remote network access products to Corporate 2000 customers and large
international corporations. Fourth, the Company appointed Roland Pampel as
President, Chief Executive Officer and a Director of the Company. Finally, the
Company recently completed two acquisitions of ISDN technology to broaden the
Company's remote network access product offerings.
The Company's objective is to continue to be a leading provider of remote
network access solutions. The Company's strategy to achieve this objective is
comprised of the following elements:
Continue Focus on Remote Network Access Market. The Company will continue
to focus on the remote network access market and to develop new products and
enhancements to meet or exceed the evolving requirements of both the central
site network manager and the remote user.
Maintain Technology Leadership. The Company intends to continue to invest
in research and development of products to meet its customers' needs. The
Company believes that the expertise it has developed in creating its existing
products will permit it to enhance these products, develop new products and
respond to emerging technologies in a cost-effective and timely manner.
Leverage Existing Customer Base. The Company believes that many of its
existing customers will continue to purchase remote network access products.
Through its multiple sales channels, the Company intends to aggressively market
new products and enhancements to its existing customers. The Company also
believes that its installed base represents an important source of references
for new customers, particularly telecommunications companies.
Develop and Expand Strategic Relationships. The Company plans to continue
to develop strategic relationships with telecommunications network service
providers, equipment providers, OEMs and software vendors in order to enhance
Microcom's product development activities and leverage shared technologies and
joint marketing efforts.
Expand Worldwide Distribution. The Company plans to continue to develop
demand for its remote network access products both domestically and
internationally. The Company intends to expand its channels of distribution and
strengthen its sales and marketing support for existing VARs and distributors.
24
<PAGE> 26
PRODUCTS
As illustrated below, the Company offers a broad range of remote network
access products for central site network managers and individual remote users.
[Photo: "ISDN Terminal Adapter"]
[Description: Photo of board]
[Photo: "DeskPorte FAST modem"
Description: Photo of modem with LED display on front panel]
[Photo: "TravelCard FAST PCMCIA modem"
Description: Shot of "credit card-sized" modem on top of notebook computer
keyboard.]
HDMS - High Density Management System. This product is a central site
remote access management system for dial-up networks. HDMS provides network
access managers with robust remote access security and management capabilities,
including real-time monitoring and control, alarm threshold processing,
operational statistics, modem control and the ability to reconfigure the system
from a central management location. HDMS is designed to be highly reliable,
operate with a wide range of modems and provide a high rate of connection. The
product is capable of handling modem data rates up to 28.8 thousand bits per
second (Kbps) and throughput rates up to 115.2 Kbps. HDMS includes a chassis for
installing up to 16 dual modem cards (32 modems), an Intelligent Network
Controller (INC) to manage the modems as one integrated unit and an optional T1
interface to bring high speed digital T1 and fractional T1 circuits to the
chassis. The HDMS INC can manage up to 8 chassis containing up to 254 modems.
LANexpress. This product is a fully integrated remote LAN access solution.
LANexpress combines server hardware and software, client software and management
applications software, providing remote users with easy to use, reliable, secure
access, via dial or cellular links, to information residing on enterprise LANs.
The LANexpress server provides the network connection for dial-up access into
Ethernet or token ring networks. The product's multiprotocol networking
capabilities can support virtually all network environments, including IP,
Novell IPX, NetBIOS, Banyan Vines, DECNet and other legacy protocols. Containing
V.34 modems, the LANexpress server supports high performance, sustained transfer
speeds over 100 Kbps simultaneously on 2 to 16 ports. Remote PC users can
connect to the network with LANexpress Remote client software, an easy to use,
graphical user interface. The diverse requirements of remote applications are
addressed by integrating both remote node (best for interactive applications)
and remote control (ideal for data intensive applications) into a single client
software solution.
25
<PAGE> 27
The Company's expressWATCH management software allows comprehensive,
real-time management of the LANexpress system from any PC running Windows on the
network. Network managers with expressWATCH can configure, control and monitor
all components of the system (including the server, server modems and remote
client) using the standard Simple Network Management Protocol (SNMP).
expressWATCH can also be employed at a remote location to manage the system over
a dial-up connection.
Modems. The Company has been developing high speed, error correcting
modems since 1982. In 1983, the Company introduced the Microcom Networking
Protocol (MNP), a communications standard incorporated into the vast majority of
modems sold today. The most recent version, MNP 10EC, optimizes the operation of
modem connections over the cellular network. The Company's latest 28.8 Kbps
modems, such as the DeskPorte FAST and TravelPorte FAST, are based on the
industry standard V.34 technology. These products are available in desktop,
portable, PCMCIA, internal and rackmountable models.
The Company's Advanced Parallel Technology (APT), which is incorporated
into its modems, allows transmission of data through the parallel port of a PC
instead of the serial port, achieving throughput rates of up to 300 Kbps as
compared to up to 115.2 Kbps for other modems using the serial port. The
Company's modem products are designed to meet the needs of remote users of
enterprise and departmental networks by providing sophisticated security
capabilities, advanced features such as remote upgrade capability, and a high
degree of reliability and performance.
Carbon Copy. Carbon Copy is a remote control/remote PC access software
package which enables remote users to communicate with PCs running either
Windows or DOS. Mobile professionals, staff at branch offices and employees
working at home use Carbon Copy to access data and applications located on
remote PCs, bulletin board services or LANs. Carbon Copy enables internal help
desks to support PC users on corporate LANs, and allows technical support groups
and VARs to provide application support and training to external users. Carbon
Copy's features include a terminal emulator, comprehensive file transfer
(including file synchronization and crash recovery capabilities), a software
communications gateway (enabling users to dial in to a common PC and allowing
LAN-based PC users to dial out), NetBIOS and Novell IPX support, and NetWare LAN
support.
ISDN Terminal Adapters. The Company's Solis-L ISDN cards and associated
software provide a Basic Rate Interface (BRI) while the Solis-F ISDN card
provides the same functionality as the Solis-L plus analog dial and fax
connectivity. Both cards use on-board processing to provide higher performance
through embedded protocol support and data compression. In addition to
supporting a range of third party software applications, these cards are sold
with access applications software, allowing users to build systems for LAN to
LAN and remote user to LAN connectivity for Novell networks.
26
<PAGE> 28
CUSTOMERS
The Company markets its products to a broad range of domestic and foreign
organizations and individuals. The target customers for the Company's central
site remote network access products are Internet and on-line service access
providers (including major telecommunications companies), the Corporate 2000,
large international corporations, universities and governmental agencies. The
Company's remote site PC software and modems are sold to both businesses and
individuals. The following selected customers have purchased from the Company or
its resellers at least $50,000 of the Company's products since the beginning of
fiscal 1995. The Company believes that these customers are representative of the
Company's customers generally.
<TABLE>
<S> <C>
HDMS LANEXPRESS
- ---- ----------
Bell-Northern Research Ltd. American Cyanamid Company
NYNEX Corporation Broken Hill Petroleum
Sprint Corporation Cargill Incorporated
Storage Technology Corporation South Africa Power Association
Tele-Communications, Inc. U.S. Air Force Academy
University of Tennessee U.S. Department of Labor
CARBON COPY MODEMS
- ----------- ------
Automatic Data Processing, Inc. American Airlines, Inc.
Eli Lilly and Company BellSouth Corporation
Simplex Time Recorder Co. Blockbuster Entertainment Corporation
United States Golf Association SafeCo Insurance Company
Whitmire Ltd. State Farm Insurance Company
</TABLE>
Sprint accounted for 24% and 13% of the Company's net sales in fiscal 1995
and 1994, respectively. No single customer accounted for more than 10% of the
Company's net sales in fiscal 1993. Sprint is not obligated to make any minimum
level of future purchases from the Company or to provide the Company with
binding forecasts of product purchases for any future period. While the Company
expects that Sprint will continue to be a significant customer, the Company
anticipates that overall net sales to Sprint in fiscal 1996 will be
significantly less than in fiscal 1995. Although the Company has recently
established a relationship with another major telecommunications carrier, there
can be no assurance that the Company will make any significant sales to such
carrier or that sales to it and other telecommunications carriers will offset
any decline in sales to Sprint. The failure to achieve and maintain significant
sales to telecommunications carriers or to offset any decline in sales to Sprint
would have a material adverse effect on the Company's business, results of
operations and financial condition.
The Company's agreements with VARs, distributors and OEMs are typically
non-exclusive and in many cases may be terminated by either party without cause,
and many of the Company's VARs, distributors and OEMs carry competing product
lines. Therefore, there can be no assurance that any VAR, distributor or OEM
will continue to represent the Company's products and the loss of important
VARs, distributors or OEMs could adversely affect the Company's business,
results of operations and financial condition.
CUSTOMER SERVICE AND SUPPORT
The Company is committed to providing strong customer service and support.
The Company's customer service organization assists both resellers and end users
with product configuration, installations and interoperability issues. Service
and support are provided by telephone and remote dial-up access to customer
installations. The Company also provides on-site, faxback and on-line bulletin
board services. The Company provides service and support to its international
end users through its independent distributors.
27
<PAGE> 29
The Company's products have warranties of up to five years. In addition,
the Company provides a variety of fee based services, including extended
warranties, priority exchange of defective products and premium toll-free
support. The Company also offers various training courses for its resellers and
end user customers.
SALES AND MARKETING
The Company sells its products through direct sales and multiple indirect
distribution channels, including VARs, distributors and OEMs. In fiscal 1995,
sales through indirect distribution channels accounted for approximately 66% of
the Company's net sales.
In North America, the Company has relationships with approximately 40 VARs
through which the Company sells its HDMS, LANexpress and modem products. These
VARs concentrate on large sales opportunities, providing integrated solutions to
network access providers, Corporate 2000, universities and governmental
agencies. In addition, the Company sells Carbon Copy, LANexpress and certain of
modem products through a two-tiered distribution channel in which the Company
sells to distributors who in turn sell to resellers such as computer retail
chains, mail order houses and independent VARs. These resellers generally sell
directly to corporate and individual end users.
Outside of North America, the Company's products are sold by independent
distributors whose principal markets are Australia, The Czech Republic, Denmark,
France, Germany, Hong Kong, Israel, Italy, Japan, the Netherlands, Norway, South
Africa, Spain, Sweden and the United Kingdom.
The Company supports its domestic and international VARs and distributors
by providing product training, evaluation products, regular mailings of product,
promotional and technical materials, and reseller and end-user telephone
technical support, and by participating in cooperatively funded marketing
programs including trade shows and seminars. The Company also works closely with
its VARs in selling and servicing major accounts and believes that such
collaboration is necessary for the successful implementation of the Company's
remote network access solutions. The Company promotes corporate and product
awareness and generates sales leads through a variety of means, including
advertisements in major industry trade publications, participation in industry
trade shows, seminars and direct mail.
The Company has sales and support offices in California, Colorado, Georgia,
Illinois, Massachusetts, New Jersey, New York, Texas, Virginia as well as in
Australia, England, France, Germany and Singapore. As of May 1, 1995, the
Company's sales and marketing organization consisted of 73 employees. No single
VAR, distributor or OEM individually accounted for more than 10% of the
Company's net sales in fiscal 1993, 1994 or 1995.
RESEARCH AND DEVELOPMENT
The market for Microcom's products is characterized by rapidly changing
technology, evolving industry standards and frequent introductions of new
products and enhancements. Microcom's future success will depend in part on its
ability to enhance its existing products and to introduce new products and
enhancements on a timely basis to meet and adapt to changing customer
requirements, evolving industry standards and emerging technologies. The Company
is also committed to ongoing support of and participation in industry standards
activities which affect the remote network access market.
The Company emphasizes modular software and hardware design, using core
components of its key technologies across its various product lines. The Company
believes that this not only accelerates time to market, but also provides
greater reliability by using proven designs in multiple product applications. A
variety of design and development processes and tools are employed to ensure
timely product introductions and that potential problems are detected early in
the design and development cycle.
To be competitive in the international marketplace, the Company obtains
country specific certification for its modem and ISDN products. To date, the
Company has successfully certified its
28
<PAGE> 30
products for use in numerous countries, with ongoing programs to obtain
certification in additional countries and to certify new products as they are
introduced. The modular design of the Company's software products facilitates
foreign language translations.
There can be no assurance that Microcom will be successful in developing,
manufacturing and marketing new products or product enhancements that respond to
technological changes or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. If the Company is unable, for technological or other reasons, to
develop new products or enhancements of existing products in a timely manner in
response to changing market conditions or customer requirements, the Company's
business, results of operations and financial condition would be materially and
adversely affected. In addition, there can be no assurance that services,
products or technologies developed by others will not render Microcom's products
or technologies uncompetitive or obsolete. The introduction of new or enhanced
products also requires the Company to manage the transition from older products
in order to minimize disruption in customer ordering patterns, avoid excessive
levels of older product inventories and ensure that adequate supplies of new
products can be delivered to meet customer demand. There can be no assurance
that the Company will successfully manage the transition to new products. The
failure to manage any such transition successfully could have a material adverse
effect on the Company's business, results of operations and financial condition.
COMPETITION
The market for remote network access products is highly competitive. In the
central site remote network access market, the Company competes with remote LAN
access server vendors such as Shiva Corporation, Digital Communications
Associates, Inc., Novell, Inc. and 3Com Corporation and vendors of dial-up
access management systems such as U.S. Robotics Corporation, Primary Access
Corporation (recently acquired by 3Com Corporation) and Motorola, Inc. The
Company also faces increasing competition from OS and NOS vendors such as
Microsoft Corporation, Novell, Inc. and International Business Machines
Corporation who are including remote access capabilities in their products. In
the remote site PC communications software market, the Company competes with a
number of providers of remote control, file transfer and remote LAN access
software, including Symantec Corporation, Stac Electronics, Inc. and Shiva
Corporation. The Company's remote site modems compete with those of U.S.
Robotics Corporation, Hayes Microcomputer Products, Inc. and Practical
Peripherals, Inc. Increased competition could result in price reductions and
loss of market share which would materially and adversely affect Microcom's
business, results of operations and financial condition. The Company believes
that its ability to compete successfully depends on a number of factors,
including price, product features, product quality, performance and reliability,
name recognition, international certification, experienced sales, marketing and
service organizations, development of new products and enhancements, evolving
industry standards, and announcements by competitors. Many of Microcom's current
and potential competitors have significantly greater financial, marketing,
technical and other resources than Microcom. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than the Company. The Company also expects competition to
increase as a result of industry consolidations. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to address the remote
network access needs of the Company's prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. There can be no assurance that
Microcom will be able to continue to compete successfully with existing or new
competitors or that competitive pressures faced by the Company would not
materially and adversely affect its business, results of operations or financial
condition.
29
<PAGE> 31
MANUFACTURING
The Company uses subcontractors to manufacture all of its products. These
manufacturers provide Microcom with fully tested, finished products built to the
Company's specifications. The Company's HDMS, LANexpress and modem products are
manufactured primarily by subcontractors in China, Malaysia, Singapore and Hong
Kong. A subcontractor in Massachusetts produces the Company's software products
and also provides warehousing and distribution services to the Company.
Microcom's internal manufacturing operations consist of materials planning and
procurement, product modifications to meet foreign country requirements, final
assembly, factory testing and quality control. In addition, Microcom quality
assurance personnel are on-site full-time at the manufacturing facilities of the
Company's subcontractors performing various tests and quality assurance
procedures. To date, the Company has not experienced significant manufacturing
defects or customer returns of products. As of March 31, 1995, the Company
employed 30 persons in the areas of manufacturing and quality assurance.
Reliance on foreign manufacturers involves a number of risks, including
unexpected changes in regulatory requirements and tariffs, difficulties
enforcing agreements, exchange rate fluctuations, difficulties enforcing
intellectual property rights, difficulties obtaining export licenses, the
imposition of withholding or other taxes, embargoes or exchange controls or the
adoption of other restrictions on foreign trade.
Certain components used in the Company's products are available from a
single source, and others are available only from limited sources. In certain
circumstances, despite the availability of multiple sources, the Company may
select a single source in order to maintain quality control and develop a
strategic relationship with the supplier. In addition, certain components used
in the Company's products are only available from a single supplier or a limited
number of suppliers. Components for the Company's products which are only
available from a single supplier include certain semiconductor components used
in the Company's modems sourced from Rockwell and the power supply component
obtained from TDK for the Company's PCMCIA modem. It was recently reported that
Rockwell would be required to allocate among its customers, including Microcom,
the supply of a certain component incorporated into V.34 modems. This component
is included in the Company's HDMS, LANexpress and modem products. If Rockwell is
unable to supply sufficient quantities of this component to the Company on a
timely basis, it would cause a delay in Microcom's product shipments and such
delay would have a material adverse effect on the Company's business, results of
operations and financial condition. The Company believes, however, that it will
be able to obtain from Rockwell sufficient quantities of the component to
satisfy its anticipated requirements. The Company generally purchases single or
limited source components pursuant to purchase orders and has no guaranteed
supply arrangements with its suppliers. Further, the availability of many of
these components is dependent in part on the Company's ability to provide its
suppliers with accurate forecasts of its future requirements. A reduction or
interruption in supply of these components could result in delays or reductions
in product shipments which would materially and adversely affect the Company's
business, results of operations and financial condition and could damage
customer relationships. The Company may also be subject to increases in
component costs, which could also have a material adverse effect on the
Company's business, results of operations or financial condition.
PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
ability to protect its proprietary technology. The Company relies on a
combination of patent, copyright and trade secret laws and non-disclosure
agreements to protect its proprietary technology. The Company currently holds
fourteen United States patents, three of them involving ISDN technology, and has
five United States patent applications and two foreign patent applications
pending in a number of jurisdictions. There can be no assurance that patents
will be issued with respect to pending or future patent applications or that the
Company's patents will be upheld as valid or will prevent the development of
competitive products. The Company's United States patents expire between 2004
and 2011. The Company has not sought foreign patents for some of its
technologies, including technologies which have been patented in the United
States, which may adversely effect the Company's ability to protect its
30
<PAGE> 32
technologies and products in foreign countries. The Company generally enters
into confidentiality or license agreements with its employees, distributors,
customers and potential customers and limits access to and distribution of its
software, documentation and other proprietary information. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate to prevent misappropriation of its technology or that the
Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the United States. The Company is
also subject to the risk of adverse claims and litigation alleging infringement
of the proprietary rights of others. From time to time the Company has received
claims of infringement of other parties' proprietary rights. In addition, the
Company periodically reviews recent patents that have been issued to third
parties. As a result of such reviews, the Company has from time to time
identified and investigated the validity and scope of issued patents for
technologies similar to, or related to, the Company's technologies. Although the
Company believes that it does not infringe the valid patents of others, there
can be no assurance that third parties will not assert infringement claims in
the future with respect to the Company's current or future products or that any
such claims will not require the Company to enter into license arrangements or
result in protracted and costly litigation, regardless of the merits of such
claims. No assurance can be given that any necessary licenses will be available
or that, if available, such licenses can be obtained on commercially reasonable
terms. The failure to obtain such royalty or licensing agreements on a timely
basis would have a material adverse effect upon the Company's business, results
of operations and financial conditions.
EMPLOYEES
As of March 31, 1995, the Company employed 309 persons, including 73 in
sales and marketing, 48 in customer service, 108 in research, development and
related engineering activities, 30 in manufacturing and 50 in executive and
administrative activities. None of the Company's employees is represented by a
labor union and the Company has not experienced any work stoppages. Management
believes that the Company's relations with its employees are good. Microcom
believes that its future success will depend in large part upon its ability to
attract and retain highly skilled engineering, managerial, sales, marketing and
product development personnel. Except with respect to the President and Chief
Executive Officer, the Company does not have employment contracts with its key
personnel and does not maintain any key person life insurance policies.
Competition for such personnel is intense, especially in the areas of
engineering and sales and marketing. The loss of key management or technical
personnel could materially and adversely affect the Company's business, results
of operations and financial condition, and there can be no assurance that
Microcom will be successful in attracting and retaining the personnel required
to engineer, manage, market or develop its products and conduct its operations
successfully.
FACILITIES
The Company's executive offices and its principal engineering and marketing
operations are located in a 101,000 square foot leased facility in Norwood,
Massachusetts. The lease for this facility expires in fiscal 2002, subject to
the Company's option to extend the term for up to an additional five years. The
Company also leases sales offices in California, Colorado, Georgia, Illinois,
Massachusetts, New Jersey, New York, Texas, Virginia, as well as Australia,
England, France, Germany and Singapore. The Company believes that these
facilities will be adequate to meet its requirements for the foreseeable future
and that suitable additional or substitute space will be available as needed.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
31
<PAGE> 33
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Roland D. Pampel........................ 60 President, Chief Executive Officer and
Director
Richard A. Barbari...................... 55 Executive Vice President, Marketing and
Latin America and Africa Sales
Lewis A. Bergins........................ 56 Executive Vice President, International
Sales and Corporate Strategy and
Development
Peter J. Minihane....................... 46 Executive Vice President, Chief
Financial Officer and Treasurer
Gregory Pearson......................... 49 Senior Vice President, Technology
Management
William Andrews......................... 40 Vice President, North American Sales
Eugene Y. G. Chang...................... 41 Vice President, ISDN Technology
Jerry L. Falk........................... 46 Vice President, Hardware Development
Mark J. Freitas......................... 38 Vice President, Systems Management and
Customer Support
Joseph P. King, Jr...................... 45 Vice President, Operations
Elizabeth H. Rock....................... 36 Vice President, Corporate Communications
James M. Dow............................ 44 Director (Chairman)
Fred L. Luconi.......................... 53 Director (Vice Chairman)
Donald G. Kennedy....................... 69 Director
John C. Rutherford...................... 45 Director
Michael I. Schneider.................... 58 Director
</TABLE>
Mr. Pampel has served as President, Chief Executive Officer and a Director
since March 1994. He is currently serving as a Class I Director for a term
expiring at the 1995 Annual Meeting of Stockholders. From September 1991 to
February 1994, Mr. Pampel was Chief Executive Officer, President and a Director
of Nicolet Instrument Corporation, a manufacturer of biomedical and analytical
instruments. From July 1989 to August 1991, he was Chief Executive Officer,
President and a Director of Bull HN Information Systems Inc., a computer
manufacturer. Since August 1993, Mr. Pampel has served on the board of directors
of Best Power Technology, Inc., a manufacturer of power technology and backup
recovery products.
Mr. Barbari has served as Executive Vice President, Marketing and Latin
America and Africa Sales since May 1994. From 1992 to April of 1994, Mr. Barbari
was Director of Operations of Nicolet Instrument Corporation, a manufacturer of
biomedical and analytical instruments. From 1989 to 1992, he was Chief Executive
Officer and Chairman of the Board of Ultimap Corporation, a geographic
information systems software company which filed for and emerged from
reorganization proceedings under Chapter 11 of the Bankruptcy Code during this
period.
Mr. Bergins joined the Company in 1982 and has served as Executive Vice
President, International Sales and Corporate Strategy and Development since June
1994.
Mr. Minihane joined the Company in 1985 and has served as Executive Vice
President, Chief Financial Officer and Treasurer since January 1989. He has been
a director since May 1993 of Datawatch Corporation, a software company.
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<PAGE> 34
Mr. Pearson joined the Company in 1986 and has served as Senior Vice
President, Technology Management since April 1990.
Mr. Andrews has served as Vice President, North American Sales of the
Company since February 1992. From January 1987 to January 1992, Mr. Andrews was
employed by Bitstream Inc., a digital type and software company, as Vice
President, Sales and Marketing.
Mr. Chang rejoined the Company in 1995 as Vice President, ISDN Technology.
From November 1990 to January 1995, Mr. Chang was President and a Director of
Extension Technology Corp., which was acquired by the Company in January 1995.
From 1984 to 1990 Mr. Chang was employed by the Company as a product manager for
ISDN products.
Mr. Falk joined the Company in 1984 and has served as Vice President,
Hardware Development since April 1991.
Mr. Freitas joined the Company in 1986 and has served as Vice President,
Systems Management and Customer Support since May 1994.
Mr. King has served as Vice President, Operations since June 1992. From
1986 to June 1992, he was Vice President of Operations and Engineering at Alloy
Computer Products Inc., a computer manufacturer.
Ms. Rock joined the Company in January 1991 and has served as Vice
President, Corporate Communications since June 1994. From August 1988 to June
1990, Ms. Rock was with Microamerica, Inc., a microcomputer distributor, as
Director, Marketing Communications.
Mr. Dow, a founder of the Company, has served as a Director, and until
March 1994 as its President and Chief Executive Officer, since the Company's
organization in October 1980. He was named Chairman of the Board when the
position was created in January 1994. Mr. Dow is currently serving as a Class
III Director for a term expiring at the 1997 Annual Meeting of Stockholders.
Dr. Luconi has served as a Director of the Company since October 1992. He
was named Vice Chairman of the Board when the position was created in January
1994. Dr. Luconi is currently serving as a Class III Director for a term
expiring at the 1997 Annual Meeting of Stockholders. Since January 1992, Dr.
Luconi has been a visiting faculty member at the Sloan School of Management of
the Massachusetts Institute of Technology and a private investor. From January
1988 to March 1991, Dr. Luconi served as President of Index Technology
Corporation (the predecessor of Intersolv Inc.), a developer and manufacturer of
application software.
Mr. Kennedy has served as a Director of the Company since November 1985. He
is currently serving as a Class I Director for a term expiring at the 1995
Annual Meeting of Stockholders. Since March 1985, Mr. Kennedy has been an
independent management consultant and since 1987 he has been a member of the
Board of Arbitrators of the American Arbitration Association.
Mr. Rutherford has served as a Director of the Company since January 1994.
He is currently serving as a Class II Director for a term expiring at the 1996
Annual Meeting of Stockholders. Mr. Rutherford has been a Managing Director and
a principal stockholder of The Parthenon Group, Inc., a management consulting
investment company, since its founding in July 1991. From 1974 to April 1990,
Mr. Rutherford held various executive positions, including that of Director, at
Bain & Company, Inc., a management consulting company.
Dr. Schneider has served as a Director of the Company since January 1986.
He is currently serving as a Class II Director for a term expiring at the 1996
Annual Meeting of Stockholders. He has been employed by Data General Corporation
since 1971 and has served as a Vice President in various management capacities
since January 1979.
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<PAGE> 35
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Common Stock as of May 15, 1995,
except as noted below, and as adjusted to reflect the sale of the Common Stock
in this offering, by: (i) each stockholder who is known by the Company to own
beneficially more than 5% of the Common Stock; (ii) each executive officer of
the Company; (iii) each director of the Company; (iv) all executive officers and
directors of the Company as a group; and (v) the Selling Stockholders:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES TO BE
OWNED PRIOR TO SHARES BENEFICIALLY OWNED
OFFERING(1) TO BE AFTER OFFERING(1)
------------------------- SOLD IN ---------------------
5% STOCKHOLDERS NUMBER PERCENT OFFERING NUMBER PERCENT
------------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
FMR Corp. and Edward C. Johnson 3d......... 1,036,700(2) 9.3% -- 1,036,700 7.3%
82 Devonshire Street
Boston, MA 02109
EXECUTIVE OFFICERS AND DIRECTORS
Roland D. Pampel........................... 335,000(3) 2.9% 15,000 320,000 2.2%
Richard A. Barbari......................... 45,700(4) * 5,000 40,700 *
Lewis A. Bergins........................... 295,882(5) 2.6% 53,000 242,882 1.7%
Peter J. Minihane.......................... 186,500(6) 1.7% 15,000 171,500 1.2%
Gregory Pearson............................ 96,333(7) * -- 96,333 *
William Andrews............................ 79,333(8) * -- 79,333 *
Jerry L. Falk.............................. 70,112(9) * 12,000 58,112 *
Mark J. Freitas............................ 77,556(10) * -- 77,556 *
Joseph P. King, Jr......................... 25,833(11) * -- 25,833 *
Elizabeth H. Rock.......................... 15,615(12) * -- 15,615 *
Eugene Y. G. Chang......................... 16,666(13) * -- 16,666 *
James M. Dow............................... 641,160(14) 5.6% -- 641,160 4.4%
Fred L. Luconi............................. 115,500(15) 1.0% -- 115,500 *
Donald G. Kennedy.......................... 38,000(16) * -- 38,000 *
John C. Rutherford......................... 583,619(17) 5.2% -- 583,619 4.1%
Michael I. Schneider....................... 79,752(18) * -- 79,752 *
All executive officers and directors as a
group (16 persons)....................... 2,702,561(19) 21.7% 100,000 2,602,561 16.9%
OTHER SELLING STOCKHOLDERS
Other Selling Stockholders
(24 persons, each holding less
than 1% of the Common Stock)............. 100,000 * 100,000 -- --
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares of Common Stock.
(2) Consists of shares held by various investment companies (the "Funds") for
which Fidelity Management & Research Company ("Fidelity"), a subsidiary of
FMR Corp., acts as investment adviser. Mr. Johnson is chairman of the board
of FMR Corp. Fidelity exercises voting power regarding such shares under
guidelines established by the respective Funds' boards of directors. Each
of FMR Corp., Fidelity and the respective Funds' board of directors has
dispositive power with respect to such shares. This figure and the related
information is as of April 30, 1995 and is based solely on information
contained in filings made by FMR Corp. with the Securities and Exchange
Commission pursuant to Section 13(d) or 13(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") or in communications by FMR
Corp. to the Company or the Company's representative.
(3) Includes 320,000 shares subject to currently exercisable options.
(4) Includes 5,000 shares subject to currently exercisable options.
(5) Includes 69,115 shares subject to currently exercisable options and 54,882
shares held by Mr. Bergin's wife.
(6) Includes 48,225 shares subject to currently exercisable options. Also
includes 6,000 shares held for the benefit of Mr. Minihane's children, as
to all of which shares Mr. Minihane disclaims beneficial ownership.
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<PAGE> 36
(7) Includes 46,383 shares subject to currently exercisable options.
(8) Consists of shares subject to currently exercisable options.
(9) Includes 54,000 shares subject to currently exercisable options.
(10) Includes 69,015 shares subject to currently exercisable options and 3,546
shares held by Mr. Freitas' wife.
(11) Consists of shares subject to currently exercisable options.
(12) Consists of shares subject to currently exercisable options.
(13) Consists of shares subject to currently exercisable options.
(14) Includes 381,000 shares subject to currently exercisable options. Also
includes 33,666 shares held for the benefit of certain members of Mr. Dow's
family, as to all of which shares Mr. Dow disclaims beneficial ownership.
(15) Includes 16,000 shares subject to currently exercisable options and 21,000
shares as to which Dr. Luconi has shared voting and shared investment power
with his wife. Also includes 2,500 shares held in trust for the benefit of
certain members of Dr. Luconi's family, as to all of which shares Dr.
Luconi disclaims beneficial ownership.
(16) Includes 16,000 shares subject to currently exercisable options.
(17) Consists of 280,000 shares held by Mr. Rutherford, 16,000 shares subject to
currently exercisable options granted to Mr. Rutherford, 152,619 shares
held by The Parthenon Group, Inc. ("Parthenon"), a management consulting
and investment company of which Mr. Rutherford is a managing director and a
principal stockholder, and 135,000 shares subject to currently exercisable
options granted to Parthenon. These figures and the related information is
based solely on information contained in filings made by Mr. Rutherford and
Parthenon with the Securities and Exchange Commission pursuant to Section
13(d) or 13(g) of the Exchange Act or in communications by them to the
Company or the Company's representatives.
(18) Includes 16,000 shares subject to currently exercisable options and 38,500
shares as to which Dr. Schneider has shared voting and investment power
with his wife.
(19) Includes 1,329,185 shares subject to currently exercisable options granted
to such directors and executive officers.
35
<PAGE> 37
UNDERWRITING
The names of the Underwriters of the shares of Common Stock offered hereby
and the aggregate number of shares which each has severally agreed to purchase
from the Company and the Selling Stockholders (subject to the terms and
conditions specified in the Underwriting Agreement) are as follows:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Dillon, Read & Co. Inc...................................
Prudential Securities Incorporated.......................
Needham & Company, Inc...................................
---------
Total............................................... 3,200,000
=========
</TABLE>
The Managing Underwriters are Dillon, Read & Co. Inc., Prudential
Securities Incorporated and Needham & Company, Inc.
If any shares of Common Stock offered hereby are purchased by the
Underwriters, all such shares will be so purchased. The Underwriting Agreement
contains certain provisions whereby if any Underwriter defaults in its
obligation to purchase such shares and if the aggregate obligations of the
Underwriters so defaulting do not exceed 10% of the shares hereby, the remaining
Underwriters, or some of them, must assume such obligations.
The shares of Common Stock offered hereby are being offered severally by
the Underwriters for sale at the price set forth on the cover page hereof, or at
such price less a concession not to exceed $ per share on sales to certain
dealers. The Underwriters may allow, and such dealers may reallow, a concession
not to exceed $ per share on sales to certain dealers. The offering of the
shares of Common Stock is made for delivery when, as, and if accepted by the
Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offer without notice. The Underwriters reserve the right to
reject any order for the purchase of the shares. After the shares are released
for sale to the public, the public offering price, the concession and the
reallowance may be changed by the Managing Underwriters.
The Company has granted to the Underwriters an option to purchase up to an
additional 480,000 shares of Common Stock on the same terms per share. If the
Underwriters exercise this option, each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
proportion of the aggregate shares so purchased as the number of shares to be
purchased by it shown in the above table bears to the total number of shares in
such table. The Underwriters may exercise such option on or before the thirtieth
day from the date of the public offering of the shares offered hereby and only
to cover overallotments made of the shares in connection with this offering.
The Company has agreed that it will not, without the prior written consent
of Dillon, Read & Co. Inc., sell, grant any option to sell, transfer or
otherwise dispose of, directly or indirectly, any shares of the Common Stock, or
any securities convertible into, or exercisable of exchangeable for, Common
Stock or warrants or other rights to purchase Common Stock, prior to the
expiration of 120 days from the date of the consummation of the offering, except
(i) shares of Common Stock issued pursuant to the exercise of outstanding
options and (ii) options granted to its employees, officers and directors under
its existing employee stock option plans so long as none of such options become
exercisable during said 120 day period. The Company's officers and directors and
certain stockholders who will hold in the aggregate 1,193,376 shares of Common
Stock after the offering have agreed that they will not, without the prior
written consent of Dillon, Read & Co. Inc., sell, grant any option to sell,
transfer or otherwise dispose of, directly or indirectly, any shares of Common
Stock, or any securities convertible into, or exercisable or exchangeable for,
Common Stock or warrants or other rights to
36
<PAGE> 38
purchase Common Stock, prior to the expiration of 120 days from the date of the
consummation of this offering.
The Company and the Selling Stockholders have agreed in the Underwriting
Agreement to indemnify the Underwriters against certain civil liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the Underwriters may be required to make in respect thereof.
The Managing Underwriters have informed the Company that the Underwriters
will not confirm sales to discretionary accounts.
In connection with this offering, certain Underwriters and selling group
members or their affiliates may engage in passive market making transactions in
the Common Stock on the Nasdaq National Market in accordance with Rule 10b-6A
under the Exchange Act during the two business day period before the
commencement of sales in this offering. Passive market making consists of, among
other things, displaying bids on the Nasdaq National Market limited by the bid
prices of independent market makers and purchases limited by such prices and
effected in response to order flow. Net purchases by a passive market maker on
each day are limited to a specified percentage of the passive market maker's
average daily trading volume in the Common Stock during a specified prior period
and all possible market making activity must be discontinued when such limit is
reached. Passive market making may stabilize the market price of the Common
Stock at a level above that which might otherwise prevail and, if commenced, may
be discontinued at any time.
Dillon, Read & Co. Inc. has provided financial advisory services to the
Company during the past 12 months for which Dillon, Read & Co. Inc. received
fees in the amount of $100,000 and the reimbursement of certain expenses.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and the Selling Stockholders by Choate, Hall & Stewart (a
partnership including professional corporations), Boston, Massachusetts.
Brobeck, Phleger & Harrison, LLP (a limited liability partnership), New York,
New York is acting as legal counsel for the Underwriters in connection with
certain legal matters relating to the shares of Common Stock offered hereby.
EXPERTS
The consolidated balance sheets as of March 31, 1994 and 1995 and the
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended March 31, 1995 included in this
Prospectus, and the financial statement schedules incorporated herein by
reference, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto and are included
or incorporated by reference herein in reliance of said firm as experts in
giving said reports.
The financial statements of Extension Technology Corp. as of September 30,
1994 and for the year then ended incorporated by reference in this Prospectus
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
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<PAGE> 39
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company with the Commission
pursuant to the informational requirements of the Exchange Act may be inspected
and copied at the public reference facilities maintained by the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the Commission's regional
offices located at Seven World Trade Center, 13th Floor, New York, New York
10048, and at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of such materials also may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Common Stock of the Company is
traded on the Nasdaq National Market. Reports, proxy statements and other
information concerning the Company also may be inspected at the National
Association of Securities Dealers, Inc., 1735 K Street, N.W., Washington, D.C.
20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 under the Securities Act of 1933, as amended (the "Securities Act"), with
respect to the Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules filed therewith. For further information with respect to the Company
and the Common Stock offered hereby, reference is hereby made to such
Registration Statement and to the exhibits and schedules filed therewith.
Statements contained in this Prospectus regarding the contents of any agreement
or other document are not necessarily complete, and in each instance reference
is made to the copy of such agreement or document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference. The Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the principal office of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of all or
any part thereof may be obtained from such office upon payment of the prescribed
fees.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference: (1) the Company's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994; (2) the Company's interim reports on
Form 10-Q for the fiscal quarters ended June 30, 1994, September 30, 1994 and
December 31, 1994; (3) the Company's report on Form 8-K filed with the
Commission on January 20, 1995; and (4) the Company's Registration Statement on
Form 8-A filed on April 28, 1987 registering the Company's Common Stock under
Section 12(g) of the Exchange Act. All documents filed by the Company with the
Commission pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
subsequent to the date hereof and prior to the termination of the offering of
the Common Stock registered hereby shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statements contained in a document incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus. The
Company will provide without charge to each person to whom this Prospectus is
delivered, upon a written request of such person, a copy of any or all of the
foregoing documents incorporated by reference into this Prospectus (other than
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents). Requests for such copies should be directed
to the Chief Financial Officer of the Company, 500 River Ridge Drive, Norwood,
Massachusetts 02062-5028, Telephone: (617) 551-1000.
38
<PAGE> 40
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Microcom, Inc.:
We have audited the accompanying consolidated balance sheets of Microcom,
Inc. (a Massachusetts corporation) and subsidiaries as of March 31, 1994 and
1995, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the three years in the period ended March 31,
1995. 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 Microcom, Inc. and
subsidiaries as of March 31, 1994 and 1995, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 11, 1995
F-2
<PAGE> 42
MICROCOM, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1994 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents (Note 1)........................................ $ 5,342 $ 863
Accounts receivable, less reserves for doubtful accounts of $246
and $250 at March 31, 1994 and 1995, respectively................. 13,282 22,183
Inventories (Notes 1 and 6).......................................... 5,975 16,248
Prepaid expenses and other current assets............................ 1,130 822
-------- --------
Total current assets......................................... 25,729 40,116
Property and equipment, net (Notes 1 and 6)............................ 5,357 5,683
Other assets, net (Notes 1, 6 and 8)................................... 7,367 11,989
-------- --------
$ 38,453 $ 57,788
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases and short-term debt (Notes 9
and 10)........................................................... $ 853 $ 12,543
Accounts payable..................................................... 7,999 6,923
Accrued restructuring costs (Note 2)................................. 1,492 --
Accrued expenses (Note 6)............................................ 1,353 2,428
Income taxes payable (Note 14)....................................... 75 490
-------- --------
Total current liabilities.................................... 11,772 22,384
-------- --------
Long-term portion of capitalized leases (Note 9)....................... 450 122
-------- --------
Commitments and contingencies (Note 5)
Stockholders' equity (Note 11):
Common stock, $.01 par value, authorized -- 30,000 shares, issued --
11,442 and 12,088 shares at March 31, 1994 and 1995,
respectively...................................................... 114 121
Capital in excess of par value....................................... 58,504 61,223
Stock loans -- related parties....................................... (1,612) (1,942)
Unrealized loss on marketable securities............................. (534) (33)
Accumulated deficit.................................................. (27,350) (21,589)
Treasury stock, 981 shares at cost................................... (2,613) (2,613)
Cumulative translation adjustment.................................... (278) 115
-------- --------
Total stockholders' equity................................... 26,231 35,282
-------- --------
$ 38,453 $ 57,788
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 43
MICROCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
Net sales (Notes 1 and 13)................................ $ 69,435 $ 56,464 $93,106
Cost of sales............................................. 33,132 29,072 51,322
-------- -------- -------
Gross margin.............................................. 36,303 27,392 41,784
-------- -------- -------
Operating expenses:
Research and development (Notes 1 and 8)................ 12,483 8,959 10,250
Sales and marketing..................................... 20,915 15,608 19,270
General and administrative.............................. 5,539 5,366 4,747
Restructuring and other costs (Note 2).................. 4,268 7,875 --
-------- -------- -------
Total operating expenses........................ 43,205 37,808 34,267
-------- -------- -------
Income (loss) from operations............................. (6,902) (10,416) 7,517
Settlement costs.......................................... (3,200) -- --
Interest income........................................... 88 42 67
Interest and other expense, net........................... (185) (378) (807)
-------- -------- -------
Income (loss) before income taxes......................... (10,199) (10,752) 6,777
Provision for income taxes (Note 14)...................... 495 161 1,016
-------- -------- -------
Net income (loss)......................................... $(10,694) $(10,913) $ 5,761
======== ======== =======
Net income (loss) per share (Note 1)...................... $(1.11) $(1.09) $.49
======== ======== =======
Weighted average number of shares outstanding............. 9,644 10,041 11,805
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 44
MICROCOM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
Common stock:
Balance, beginning of year............................... $ 104 $ 107 $ 114
Acquisition.............................................. -- -- 1
Exercise of stock options and employee stock purchase
plan.................................................. 3 7 6
-------- -------- --------
Balance, end of year..................................... 107 114 121
-------- -------- --------
Capital in excess of par value:
Balance, beginning of year............................... 54,571 55,903 58,504
Acquisition.............................................. -- -- 1,350
Exercise of stock options and employee stock purchase
plan.................................................. 1,332 2,601 1,369
-------- -------- --------
Balance, end of year..................................... 55,903 58,504 61,223
-------- -------- --------
Stock loans -- related parties:
Balance, beginning of year............................... (116) (116) (1,612)
Stock loans.............................................. -- (1,496) (330)
-------- -------- --------
Balance, end of year..................................... (116) (1,612) (1,942)
-------- -------- --------
Unrealized loss on marketable securities:
Balance, beginning of year............................... -- -- (534)
Adjustment to value of marketable securities............. -- (534) 501
-------- -------- --------
Balance, end of year..................................... -- (534) (33)
-------- -------- --------
Accumulated deficit:
Balance, beginning of year............................... (5,743) (16,437) (27,350)
Net income (loss)........................................ (10,694) (10,913) 5,761
-------- -------- --------
Balance, end of year..................................... (16,437) (27,350) (21,589)
-------- -------- --------
Treasury stock............................................. (2,613) (2,613) (2,613)
-------- -------- --------
Cumulative translation adjustment:
Balance, beginning of year............................... (161) (324) (278)
Net translation adjustment............................... (163) 46 393
-------- -------- --------
Balance, end of year..................................... (324) (278) 115
-------- -------- --------
Total stockholders' equity................................. $ 36,520 $ 26,231 $ 35,282
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 45
MICROCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $(10,694) $(10,913) $ 5,761
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................ 6,908 6,205 6,096
Gain on disposition of product lines................. (282) -- --
Changes in assets and liabilities, net of effects from
sale of product lines and acquisition of businesses:
Accounts receivable, net............................. 1,671 73 (8,496)
Inventories.......................................... 5,256 (315) (9,853)
Prepaid expenses and other current assets............ 595 125 308
Accounts payable and accrued expenses................ 340 1,136 (1,434)
Income taxes payable................................. -- -- 415
Accrued settlement costs............................. 2,400 -- --
Accrued restructuring................................ 233 1,841 (1,246)
-------- -------- -------
Net cash provided by (used in) operating
activities................................... 6,427 (1,848) (8,449)
-------- -------- -------
Cash flows from investing activities:
Proceeds from disposition of product lines................ 3,052 1,000 --
Capitalized software development costs and purchased
technology............................................. (3,776) (3,352) (4,922)
Other assets.............................................. (1,851) 18 379
Acquisition of a business................................. -- -- (1,716)
Purchases of property and equipment....................... (1,315) (1,003) (2,567)
-------- -------- -------
Net cash used in investing activities.................. (3,890) (3,337) (8,826)
-------- -------- -------
Cash flows from financing activities:
Borrowings under the revolving credit line, net........... -- -- 12,020
Exercise of stock options and employee stock purchase
plan................................................... 1,335 1,112 1,434
Payment on capitalized leases............................. (210) (280) (312)
Banker acceptance on inventory purchases.................. -- 541 (346)
-------- -------- -------
Net cash provided by financing activities.............. 1,125 1,373 12,796
-------- -------- -------
Effect of exchange rates on cash............................ (163) 46 --
-------- -------- -------
Net increase (decrease) in cash and equivalents............. 3,499 (3,766) (4,479)
Cash and equivalents at beginning of year................... 5,609 9,108 5,342
-------- -------- -------
Cash and equivalents at end of year......................... $ 9,108 $ 5,342 $ 863
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 46
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Microcom, Inc. (the Company) designs, manufactures, and markets products
for the remote network access markets. The Company's products are utilized
within one industry segment.
The consolidated financial statements reflect the application of certain
accounting policies described here and elsewhere in the notes to the
consolidated financial statements.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All material intercompany
transactions have been eliminated.
Cash and Equivalents
The Company considers all highly liquid investments with remaining
maturities of three months or less at the time of acquisition to be cash
equivalents. Cash and equivalents, which include time deposits and certificates
of deposit, are stated at cost plus accrued interest, which approximates market.
Inventories
Inventories are stated at the lower of cost or market using the first-in,
first-out method.
Property and Equipment
Property and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation and amortization for property and equipment are
computed using the straight-line method over the assets' estimated useful life.
Useful lives used in computing depreciation are as follows: computer
equipment -- 2 to 3 years; machinery and equipment -- 3 to 7 years; furniture
and fixtures -- 8 years. Leasehold improvements are amortized over the shorter
of the lease period or their estimated useful life.
Marketable Securities
Marketable securities are stated at market at the balance sheet date and
are included in other assets. In accordance with Statement of Financial
Accounting Standards (SFAS) 115, "Accounting for Certain Investments in Debt and
Equity Securities," the Company classifies its marketable securities as
available for sale and, therefore, records unrealized gains and losses on
marketable securities as a separate component of stockholders' equity. The cost
basis of the Company's marketable securities at both March 31, 1994 and 1995 was
$1,351,000.
Translation of Foreign Currencies
Assets and liabilities of the Company's foreign operations are translated
in accordance with SFAS 52 "Foreign Currency Translation" into United States
dollars at exchange rates in effect at the balance sheet date. Income and
expense items are translated at average exchange rates prevailing during the
year. Translation adjustments and transaction gains or losses are recognized as
other income or expense in the period incurred. Transaction gains or losses have
been immaterial for all periods presented.
F-7
<PAGE> 47
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Foreign Currency Hedging
The Company hedges certain foreign currency risks by entering into forward
contracts at the beginning of each quarter to hedge foreign currency denominated
sales for that quarter. The gains or losses on foreign currency contracts are
deferred until the contract is settled and then recognized as other income or
expense. The Company had $407,000 and $153,000 in foreign currency contracts at
March 31, 1994 and 1995, respectively. The Company had no material unrealized
gains or losses on these contracts.
Research and Development and Software Development Costs
Research and development costs, other than certain software development
costs, are expensed as incurred. The Company capitalizes certain computer
software development costs incurred after establishing technological feasibility
and before general release of a software product. Capitalized software
development costs are amortized using the straight-line method over the
estimated economic lives of the products, generally 18 months. Amortization
commences on the date of the initial product shipment.
Revenue Recognition and Warranty Costs
Revenue is recognized upon shipment, provided that no significant vendor
and postcontract support obligations remain outstanding and collection of the
resulting receivable is deemed probable. Postcontract customer support bundled
in the sale of initial license fees is deferred and amortized over the
maintenance period. The Company recognizes revenue associated with separately
billed maintenance and customer support ratably over the life of the contract.
These contracts generally have terms of one year or less. Postcontract customer
support revenues represent less than 1% of total revenues for all periods
presented. Estimated warranty costs, which are not material to operations, are
accrued for at time of shipment.
Net Income (Loss) per Share
Net income per share in fiscal 1995 was based on the weighted average
number of shares of common stock and common stock equivalents (stock options)
outstanding during the fiscal year. Net loss per share in fiscal 1993 and 1994
did not consider common stock equivalents, as the effect would have been
antidilutive.
NOTE 2 -- RESTRUCTURING AND OTHER COSTS
During fiscal 1994, the Company incurred $7,875,000 in restructuring and
other costs. Of such amount, $6,500,000 was incurred in the first quarter of the
fiscal year and related primarily to (i) a 12% workforce reduction, mostly in
the areas of sales and marketing, and general and administrative, resulting in a
charge of $870,000, (ii) the direct costs effecting the realizability of certain
assets associated with the implementation of a new sales, marketing and
distribution plan in the amount of $3,275,000 and (iii) the disposition of
Company's Client Server Technologies Group, which developed and marketed the
LANlord product line, in the amount of $1,850,000. Restructuring and other costs
accrued in the first quarter of fiscal 1994 were realized as follows:
$3,400,000, $1,900,000 and $1,200,000 in the second, third and fourth quarters,
respectively. The balance of the restructuring charges, $1,375,000 was incurred
in the fourth quarter of fiscal 1994 and related primarily to the closing of the
Company's manufacturing facility in Puerto Rico, certain executive severance
costs, and the direct costs associated with the consolidation of the Company's
shipping locations. Restructuring charges accrued in the fourth quarter of
fiscal 1994 were realized as follows: $448,000, $581,000, $242,000 and $104,000
in the first, second, third and fourth quarters of fiscal 1995, respectively.
F-8
<PAGE> 48
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1993, the Company incurred a $4,268,000 restructuring charge.
A substantial portion of the charge was for the write-off of certain assets and
estimated costs in connection with the disposition of the Company's Relay
product line. Additionally, the restructuring charge reflects the costs
associated with the Company's reduction of its worldwide workforce by
approximately 15%, primarily in the areas of research and development and
general and administrative, and the elimination of certain assets and excess
facilities.
NOTE 3 -- ACQUISITIONS
On January 5, 1995, the Company acquired Extension Technology Corp. (ETC)
in a merger pursuant to which ETC became a wholly owned subsidiary of the
Company and the shareholders of ETC received an aggregate of 114,980 shares of
the Company's common stock. The purchase price was allocated to the fair value
of the assets acquired, including purchased technology of $2,104,000, which is
being amortized using the straight-line method over its estimated useful life of
seven years. This acquisition was accounted for under the purchase method of
accounting, and accordingly, the results of operations of ETC are included in
the accompanying consolidated financial statements from the date of acquisition.
The following unaudited pro forma condensed consolidated results of operations
for fiscal 1994 and 1995 have been prepared as if the operations of the Company
and ETC had been combined since the beginning of fiscal 1994:
PRO FORMA CONSOLIDATED RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------
1994 1995
-------- -------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.................................................... $56,753 $93,169
Net income (loss)............................................ (12,935) 4,231
Net income (loss) per share.................................. (1.27) .36
</TABLE>
The pro forma combined results do not purport to be indicative of the
results that would actually have been obtained had the acquisition occurred at
the beginning of fiscal 1994.
On March 31, 1995, the Company acquired certain assets of mbp
Softwareentwicklungsgesellschaft mbH (mbp) for an aggregate purchase price of
2,350,000 Deutschemarks (approximately $1,716,000). In addition, the Company
will pay mbp royalties for a five-year period ending March 31, 2000 based on the
net sales and income from operations attributable to the assets purchased from
mbp. The acquisition has been accounted for as a purchase. The cost of the
purchased technology acquired is being amortized using the straight-line method
over its estimated useful life of seven years. Pro forma information for this
acquisition has not been presented because its results of operations prior to
the acquisition date were not material.
NOTE 4 -- DISPOSITIONS
During fiscal 1994, the Company sold certain assets of its Client Server
Technologies Group for cash and a note receivable. In fiscal 1993, the Company
sold certain assets of its Utilities and Relay product lines for cash, future
royalties, marketable securities, and the purchasers' assumption of certain
liabilities of the Company. Pro forma information has not been presented as the
product lines disposed of were not material to the Company's financial position
or results of operations.
F-9
<PAGE> 49
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- LEASES
The Company conducts its operations in leased facilities under operating
leases which expire at various dates through fiscal 2002. In addition, the
Company leases certain equipment under operating and capital leases which expire
at various dates through fiscal 1997. The value of equipment recorded under
capital leases was $1,710,000 at both March 31, 1994 and 1995. Accumulated
amortization was $1,160,000 and $1,433,000 at March 31, 1994 and 1995,
respectively. Aggregate rental expense under operating leases was $2,453,000,
$1,910,000 and $1,760,000 for the years ended March 31, 1993, 1994, and 1995,
respectively.
Future minimum lease payments under capital and operating lease commitments
at March 31, 1995 were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL OPERATING
(IN THOUSANDS)
<S> <C> <C>
1996............................................................. $ 359 $ 1,382
1997............................................................. 122 1,247
1998............................................................. -- 1,140
1999............................................................. -- 1,095
2000............................................................. -- 1,017
Thereafter....................................................... -- 2,020
------- ---------
481 $ 7,901
========
Less interest.................................................... 36
-------
Net present value................................................ $ 445
=====
</TABLE>
F-10
<PAGE> 50
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- CONSOLIDATED BALANCE SHEET DETAILS
Details of selected consolidated balance sheet accounts were as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1994 1995
------- --------
(IN THOUSANDS)
<S> <C> <C>
Inventories:
Raw materials................................................ $ 2,391 $ 4,557
Finished goods............................................... 3,584 11,691
------- --------
5,975 16,248
======= ========
Property and equipment:
Computer equipment........................................... 8,391 9,503
Machinery and equipment...................................... 2,882 2,937
Furniture and fixtures....................................... 1,475 1,458
Leasehold improvements....................................... 1,802 1,830
------- --------
14,550 15,728
Accumulated depreciation and amortization.................... (9,193) (10,045)
------- --------
5,357 5,683
======= ========
Other assets:
Computer software development costs.......................... 8,032 12,954
Cost in excess of value of assets acquired................... 5,551 9,198
Investment in common stock and license agreement............. 667 1,217
Note receivable relating to the Client Server Technologies
disposition............................................... 500 --
Other........................................................ 181 136
------- --------
14,931 23,505
Accumulated amortization..................................... (7,564) (11,516)
------- --------
7,367 11,989
======= ========
Accrued expenses:
Employee compensation and benefits........................... 554 791
Other........................................................ 799 1,637
------- --------
$ 1,353 $ 2,428
======= ========
</TABLE>
F-11
<PAGE> 51
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1993 1994 1995
------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income taxes paid...................................... $ 145 $ 174 $ 101
Interest paid.......................................... 138 125 673
Items not affecting cash:
Common stock issued pursuant to a merger agreement... -- -- 1,351
Reserve for unrealized loss on marketable
securities........................................ -- (534) 501
Stock loans issued................................... -- (1,496) (330)
Client Server Technologies note receivable........... -- 500 --
Investment in common stock........................... 1,351 -- --
Capital leases on equipment purchases................ 420 -- --
</TABLE>
NOTE 8 -- COMPUTER SOFTWARE DEVELOPMENT COSTS
The Company capitalized $3,776,000, $3,352,000, and $4,922,000 of certain
software development costs in fiscal 1993, 1994, and 1995, respectively. The
Company is amortizing the capitalized costs using the straight-line method over
the estimated economic lives of the products or a period generally not exceeding
18 months. In fiscal 1993, 1994, and 1995, the Company recorded amortization
expense of $3,069,000, $2,914,000, and $3,332,000, respectively.
NOTE 9 -- FINANCING ARRANGEMENTS
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1994 1995
----- -----
(IN THOUSANDS)
<S> <C> <C>
Capital leases were as follows:
Capital lease with interest at 10.5%........................... $ 762 $ 450
Less -- current portion........................................ (312) (328)
----- -----
$ 450 $ 122
====== ======
The minimum repayment is as follows:
1996........................................................... $ 328
1997........................................................... 122
-----
$ 450
======
</TABLE>
NOTE 10 -- CREDIT LINE
At March 31, 1995, the Company had a bank revolving credit facility which
allowed the Company to borrow up to an amount (the Maximum Borrowing Amount)
equal to the lesser of (i) $16,000,000 or (ii) an amount based on the Company's
eligible accounts receivable and inventory. The Maximum Borrowing Amount is
reduced by amounts which may be drawn on outstanding letters of credit, bankers'
acceptance outstanding, and by a percentage of the Company's exposure under any
foreign currency exchange contracts. Interest on borrowings was at the banks'
prime rate (9% at March 31, 1995) plus 2%. At March 31, 1995, the Company had
letters of credit of $2,619,000, bankers' acceptance of $195,000, and borrowings
under the line of credit of $12,020,000. The portion of foreign exchange
contracts which reduce the availability of borrowings under the line of credit
at March 31, 1995 was $78,000. The remaining amount available to borrow under
the line of credit at March 31,
F-12
<PAGE> 52
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 was $1,088,000. Under the terms of the line of credit, which expires in
March 1996 and is secured by substantially all of the Company's assets, the
Company is required to maintain certain covenants and is prohibited from paying
dividends. As of March 31, 1995 the Company was in compliance with all
covenants.
NOTE 11 -- STOCKHOLDERS' EQUITY
Stock Option and Stock Purchase Plan
The Company maintains a stock option and stock purchase plan (the Option
Plan) which provides for the grant of incentive stock options, non qualified
stock options and purchase authorizations to key employees, directors and
consultants of the Company and its subsidiaries. At March 31, 1995, there were
4,828,000 shares reserved for issuance under the Option Plan. Substantially all
outstanding options and purchase authorizations are immediately exercisable in
full. Shares of common stock made subject to options and purchase authorizations
vest periodically from the date of grant in accordance with schedules
established by the compensation committee of the Board of Directors. Shares
subject to incentive stock options generally vest over a four-year period. Any
shares with respect to which an option or purchase authorization has been
exercised that are not vested upon the participant's termination of service are
subject to the Company's right of repurchase at the participant's option price
for such shares. At March 31, 1995, 413,394 shares of common stock were
available under the Option Plan for additional grants of options and purchase
authorizations.
A summary of the Option Plan activity for fiscal March 31, 1993, 1994, and
1995 follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS OPTION PRICE
------------- PER SHARE
(IN --------------------
THOUSANDS)
<S> <C> <C> <C> <C>
Outstanding at March 31, 1992................. 1,694 $2.00 -- $14.63
Granted..................................... 1,410 3.00 -- 8.50
Exercised................................... (100) 3.00 -- 12.38
Forfeited................................... (1,227) 3.00 -- 5.25
------------- ----- ------
Outstanding at March 31, 1993................. 1,777 3.00 -- 14.63
Granted..................................... 1,232 1.75 -- 4.88
Exercised................................... (547) 1.75 -- 5.63
Forfeited................................... (629) 2.06 -- 8.63
------------- ----- ------
Outstanding at March 31, 1994................. 1,833 2.00 -- 14.63
Granted..................................... 352 5.00 -- 10.25
Exercised................................... (318) 2.00 -- 5.63
Forfeited................................... (41) 2.88 -- 14.63
------------- ----- ------
Outstanding at March 31, 1995................. 1,826 $2.00 -- $10.25
===============
Options vested at March 31, 1995.............. 971 $2.00 -- $ 7.50
===============
-----
</TABLE>
Non-Employee Director Stock Option Plan
The Company maintains a Non-Employee Director Stock Option Plan (the
Director Plan) which provides for the grant of non-qualified stock options to
non-employee directors of the Company. Under the Director Plan, any person who
served as a non-employee director on March 17, 1995, or who first becomes a
non-employee director after March 17, 1995 is entitled to receive an option to
purchase 16,000 shares of the Company's common stock (collectively the Initial
Options). In addition, each
F-13
<PAGE> 53
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
person serving as a non-employee director on April 15 of each year, commencing
in 1996, is entitled to receive an option to purchase 4,000 shares of common
stock (the Annual Options). The exercise price of all options granted under the
Director Plan is equal to the fair market value of the Company's common stock on
the date of grant. All options are immediately exercisable, but unvested shares
are subject to repurchase by the Company upon the optionee ceasing to be a
director of the Company. The Initial Options vest in three annual installments
of 32%, 33%, 35% each on the first, second and third anniversaries of the date
of grant. The Annual Options vest in full on the first anniversary of the date
of grant. No option granted under the Director Plan may be exercised after the
earlier of: (i) the third anniversary of the date on which an optionee ceases to
be a director, or (ii) the tenth anniversary of the date of grant. There are
100,000 shares of common stock reserved for issuance under the Director Plan. At
March 31, 1995, there were no shares of common stock available for additional
option grants under the Director Plan.
A summary of the Director Plan activity for the year ended March 31, 1994 and
1995 follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
OPTIONS PER SHARE
------------- ---------------------
<S> <C> <C> <C> <C>
(IN
THOUSANDS)
Outstanding at March 31, 1993................ --
Granted.................................... 30 $ 5.75 -- $ 5.75
Exercised.................................. (20) 5.75 -- 5.75
Forfeited.................................. -- -- --
----- ------ ------
Outstanding at March 31, 1994................ 10 5.75 -- 5.75
Granted.................................... 80 11.88 -- 11.88
Exercised.................................. (10) 5.75 -- 5.75
Forfeited.................................. -- -- --
----- ------ ------
Outstanding at March 31, 1995................ 80 $11.88 -- $11.88
===============
</TABLE>
There were no options vested as of March 31, 1995.
Long-Term Performance Plan
The Company maintains a Long-Term Performance Plan (the Performance Plan)
which permits the grant of stock options, stock appreciation rights (SARs),
stock and cash rewards to officers and key employees of the Company. The maximum
number of shares of common stock issuable under the Performance Plan is 300,000.
No participant in the Performance Plan may be granted, in any fiscal year,
options or SARs with respect to more than 100,000 shares. No option or SAR may
be granted under the Performance Plan in which the exercise price is less than
the fair market value of the common stock on the date of grant. Stock options
granted under the Performance Plan may be in the form of incentive stock options
or non-qualified stock options. Incentive stock options may not be exercisable
more than ten years after the date of grant. Shares of common stock subject to
options vest periodically from the date of grant in accordance with schedules
established by the compensation committee of the Board of Directors of the
Company. At March 31, 1995, 111,000 shares of common stock remained available
for additional option grants under the Performance Plan.
F-14
<PAGE> 54
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the Performance Plan activity for the year ended March 31,
1995 follows:
<TABLE>
<CAPTION>
NUMBER OF
OPTIONS OPTION PRICE
------------- PER SHARE
(IN --------------------
THOUSANDS)
<S> <C> <C> <C> <C>
Outstanding at March 31, 1994
Granted..................................... 189 $5.38 -- $10.00
Exercised................................... -- -- --
Forfeited................................... -- -- --
----- ----- ------
Outstanding at March 31, 1995................. 189 $5.38 -- $10.00
===============
</TABLE>
There were no options vested as of March 31, 1995.
Stock Loans to Related Parties
The Company has made loans to certain officers and directors to enable them
to exercise options to purchase common stock of the Company. These loans are
evidenced by promissory notes and accrue interest at the Adjusted Federal Rate
and are due at various dates through 2003.
Employee Stock Purchase Plan
The Company maintains an employee stock purchase plan (the Purchase Plan)
which authorizes the issuance of up to 1,045,000 shares of common stock.
Substantially all the employees of the Company are eligible to participate in
the Purchase Plan. Participants in the Purchase Plan are entitled to purchase
common stock during specified offering periods (typically six months) at a price
equal to the lower of 85% of the market value of the common stock at the
beginning or end of the offering period, through the accumulation of payroll
deductions or a lump-sum payment. Approximately 144,000, 195,000, and 204,000
shares of common stock for a total of $945,000, $747,000, and $894,000, were
purchased during fiscal 1993, 1994 and 1995, respectively, under the Purchase
Plan.
Post Retirement and Post Employment Benefits
The Company has no obligation for post retirement and post employment
benefits.
Employee Benefit Plan
The Company maintains an Employee Deferred Compensation Savings Plan that
covers all employees over 18 years of age who have completed at least two months
of service with the Company. Contributions by the Company are discretionary and
are determined by the Company's Board of Directors. There were no Company
contributions in fiscal 1993, 1994 or 1995.
F-15
<PAGE> 55
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12 -- NET SALES BY GEOGRAPHIC AREA
Net sales by geographic area were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
North America........................................ $54,739 $44,106 $66,557
International:
Europe............................................. 9,096 8,932 18,969
All other.......................................... 5,600 3,426 7,580
------- ------- -------
$69,435 $56,464 $93,106
======= ======= =======
Percent:
North America........................................ 79% 78% 72%
International:
Europe............................................. 13 16 20
All other.......................................... 8 6 8
------- ------- -------
100% 100% 100%
======= ======= =======
</TABLE>
NOTE 13 -- SIGNIFICANT CUSTOMER
In fiscal 1994 and 1995, one customer accounted for 13% and 24%,
respectively, of net sales. No customer accounted for greater than 10% of net
sales in fiscal 1993.
NOTE 14 -- INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------
1993 1994 1995
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................................ -- -- $ 101
State.............................................. $ 20 $ 10 306
International...................................... 150 151 609
------- ------- -------
170 161 1,016
------- ------- -------
Deferred:
Federal............................................ -- -- --
State.............................................. 325 -- --
------- ------- -------
325 -- --
------- ------- -------
$ 495 $ 161 $ 1,016
======= ======= =======
</TABLE>
F-16
<PAGE> 56
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Deferred income taxes result primarily from timing differences in the
recognition of expenses for tax and financial reporting purposes. The sources of
these timing differences are as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------
1994 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net operating loss carry forwards........................ $ 8,863 $ 7,313
Tax credit carry forwards................................ 3,959 3,959
Computer software development costs...................... (127) 68
Puerto Rico adjustment................................... (337) --
Purchased technology..................................... 380 326
Other.................................................... 198 169
Valuation allowance...................................... (12,936) (11,835)
-------- --------
$ -- $ --
======== ========
</TABLE>
A reconciliation of the United States Federal statutory tax rate to the
Company's effective tax rate for fiscal 1995 is as follows:
<TABLE>
<S> <C>
U.S. Federal statutory tax rate.......................... 34.0%
State income taxes, net of Federal benefit............... 3.0
Net operating loss carry forwards........................ (22.0)
-------
Effective tax rate....................................... 15.0%
=================
</TABLE>
At March 31, 1995, the Company had available a $21,509,000 net operating
loss carry forwards, which may be used to offset future taxable income, and
$3,959,000 of research and development credit carry forwards which may be used
to offset future taxes payable. These carry forwards expire through 2009 and are
subject to review and possible adjustment by the Internal Revenue Service.
The Company accounts for income taxes under the liability method in
accordance with SFAS 109 "Accounting for Income Taxes."
The Company has recorded a full valuation allowance against the deferred
tax asset related to its net operating loss and tax credit carry forwards due to
uncertainty relating to the realization of this asset.
F-17
<PAGE> 57
[INSIDE BACK COVER
"FOR THE REMOTE USER..."]
[Photo: "Traveling Professional:
Description: Business person using computer in a location away from the office]
[Photo: "Home or Branch Officer User"
Description: Business person using computer in home office or branch office]
[Photo: "Internet or On-line User"
Description: Person using a computer at home]
[Photo: "LANexpress Remote:
Description: Screen shot of Main Menu of LANexpress Remote client software]
[Photo: "Carbon Copy"
Description: Box shot of Carbon Copy software package]
[Caption: Microcom solutions allow remote users fast, easy and reliable access
to information on the Internet, on-line services, and corporate networks from
any location.]
<PAGE> 58
================================================================================
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF ANY OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 6
Use of Proceeds......................... 11
Price Range of Common Stock and Dividend
Policy................................ 11
Capitalization.......................... 12
Selected Consolidated Financial Data.... 13
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 14
Business................................ 21
Management.............................. 32
Principal and Selling Stockholders...... 34
Underwriting............................ 36
Legal Matters........................... 37
Experts................................. 37
Available Information................... 38
Incorporation of Certain Documents by
Reference............................. 38
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
===============================================================================
================================================================================
[MICROCOM LOGO]
------------------------
3,200,000 SHARES
COMMON STOCK
PROSPECTUS
, 1995
------------------------
DILLON, READ & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
NEEDHAM & COMPANY, INC.
================================================================================
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses to be paid by the Registrant in connection with this
offering are as followings:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 12,214
NASD and Nasdaq filing fees....................................... 21,500
Blue Sky fees and expenses........................................ 10,000
Printing and engraving expenses................................... 110,000
Legal fees and expenses........................................... 125,000
Accounting fees and expenses...................................... 50,000
Transfer Agent and Registrar fees and expenses.................... 5,000
Miscellaneous..................................................... 91,286
---------
Total................................................... $ 425,000
========
</TABLE>
The Registrant will bear all expenses shown above.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article 6 of the Registrant's Restated Articles of Organization provides as
follows:
No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director notwithstanding any provision of law imposing such liability;
provided, however, that this Article shall not eliminate or limit any liability
of a director (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 61 and 62 of the Massachusetts Business Corporation Law, or (iv) with
respect to any transaction from which director derived an improper personal
benefit.
The provisions of this Article shall not eliminate or limit the liability
of a director of this corporation for any act or omission occurring prior to the
date on which this Article became effective. No amendment or repeal of this
Article shall adversely affect the rights and protection afforded to a director
of this corporation under this Article for acts or omissions occurring while
this Article is in effect.
Article VII of the Registrant's By-Laws, as amended, provides as follows:
The corporation shall, to the extent legally permissible, indemnify any
person serving or who has served as a Director or officer of the corporation, or
at its request as a Director, Trustee, Officer, Employee or other Agent of any
organization in which the corporation owns shares or of which it is a creditor,
against all liabilities and expenses, including amounts paid in satisfaction of
judgments, in compromise or settlement or as fines and penalties, and counsel
fees, reasonably incurred by him in connection with the defense or disposition
of any action, suit or other proceeding or investigation (internal or external),
whether civil or criminal, in which he may be involved or with which he may be
threatened, while serving or thereafter, by reason of his being or having been
such a Director, Officer, Trustee, Employee or Agent, except with respect to any
matter as to which he shall have been adjudicated in any proceeding not to have
acted in good faith in the reasonable belief that his action was in the best
interests of the corporation or, to the extent that such matter relates to
service with respect to an employee benefit plan, in the best interest of the
participants or beneficiaries of such employee benefit plan.
II-1
<PAGE> 60
Expenses including counsel fees, reasonably incurred by any such Director,
Officer, Trustee, Employee or Agent in connection with the defense or
disposition of any such action, suit or other proceeding or investigation may be
paid from time to time by the corporation in advance of the final disposition
thereof with respect to such individual upon receipt of an undertaking by such
individual to repay the amounts so paid to the corporation if it is ultimately
determined that indemnification for such expenses is not authorized under this
section.
Any indemnification or advance pursuant to this Article shall be made no
later than forty-five (45) days after receipt of the written request of such
Director, Officer, Trustee, Employee or Agent, unless a determination is made
within said forty-five (45) day period by (i) the Board of Directors by a
majority vote of a quorum consisting of directors who are not parties to such
action, suit, or other proceeding or investigation, or (ii) independent legal
counsel in a written opinion (which counsel shall be appointed if such a quorum
is not obtainable), that such individual has not met the relevant standards for
indemnification set forth in this Article.
The right to indemnification or advances as provided by this Article shall
be enforceable by such Director, Officer, Trustee, Employee or Agent in any
court of competent jurisdiction. The burden of proving that indemnification or
advances are not appropriate shall be on the corporation. Neither the failure of
the corporation (including its Board of Directors or independent legal counsel)
to have made a determination prior to the commencement of such action, suit or
other proceeding or investigation that indemnification or advances are proper in
the circumstances because such individual has bet the applicable standard of
conduct, or an actual determination by the corporation (including its Board of
Directors, or independent legal counsel) that such individual has not met such
applicable standard of conduct, shall be a defense to the action, suit or other
proceeding or investigation or create a presumption that such individual has not
met the applicable standard of conduct. The expenses of such Director, Officer,
Trustee, Employee or Agent incurred in connection with successfully establishing
his right to indemnification or advances, in whole or in part, shall also be
indemnified by the corporation.
The indemnification provided by this Article shall be deemed to be a
contract between each Director, Trustee, Officer, Employee or other Agent of the
corporation and the corporation while such individual serves the corporation,
and shall not be diminished by any subsequent repeal or modification of this
Article.
The right of indemnification hereby provided shall not be exclusive of or
affect any other rights to which any such Director, Officer, Trustee, Employee
or Agent may be entitled. Nothing contained in this Article shall affect any
rights to indemnification to which corporate personnel other than such
Directors, Officers, Trustees, Employees or Agents may be entitled by contract
or otherwise under law. As used in this Article, the terms "Director",
"Officer", "Trustee", "Employee" and "Agent" include their respective heirs,
executors and administrators, and an "interested" Director, Officer, Trustee,
Employee or Agent is one against whom in such capacity the proceedings in
question or other proceedings on the same or similar grounds is then pending.
This Article may be amended only by the affirmative vote of the
stockholders, provided that any reduction in the indemnification provided by
this Article shall be prospective in effect.
Under Section 11(b) of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify the Company, the directors
and officers of the Company and the Selling Stockholders against certain
liabilities, including liabilities under the Securities Act of 1933, as amended
(the "Act"). Reference is made to the form of Underwriting Agreement filed as
Exhibit 1.1 hereto.
II-2
<PAGE> 61
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
PAGE NUMBERING
IN SEQUENTIAL
NUMBERING
EXHIBIT NO. EXHIBIT SYSTEM
- ----------- ------- --------------
<C> <C> <S> <C>
-1.1 -- Form of Underwriting Agreement.
+2.1 -- Merger Agreement and Plan of Reorganization, dated as of
December 21, 1994, by and among the Registrant, Extension
Acquisition Corp. and Extension Technology Corp. (Exhibit to
Report on Form 8-K filed January 20, 1995).
+2.2 -- Asset Purchase Agreement dated as of September 30, 1992 among
the Registrant, Microcom Systems, Inc. and Datawatch
Corporation (Exhibit to Report on Form 10-Q filed for the
quarter ended December 31, 1992).
+2.3 -- Asset Purchase Agreement dated December 22, 1992 among the
Registrant, Microcom Systems, Inc. and VM Systems Group, Inc.
(Exhibit to Report on Form 10-Q filed for the quarter ended
December 31, 1992).
+2.4 -- Asset Purchase Agreement dated as of December 31, 1993 among
the Registrant, Microcom Systems, Inc. and Central Point
Software, Inc. (Exhibit to Report on Form 10-K filed for the
year ended March 31, 1994).
3.1 -- Restated Articles of Organization of the Registrant.
#3.2 -- By-Laws of the Registrant, as amended.
4.1 -- Article 6 of Restated Articles of Organization of the
Registrant.
#4.2 -- Articles III and VIII of By-Laws of the Registrant, as
amended.
5.1 -- Opinion of Choate, Hall & Stewart
++10.1 -- Purchase Agreement dated June 30, 1993 between the Registrant
and Sprint Communications Corporation L.P.
10.2 -- Registration Rights Agreement dated December 20, 1994 between
the Registrant and Extension Technology Corp.
10.3 -- Amendment dated March 30, 1989 to Lease between the
Registrant and First Stone Ridge Limited Partnership.
10.4 -- Second Amendment dated January 31, 1995 to Lease between the
Registrant and First Stone Ridge Nominee Trust I.
10.5 -- Amended and Restated Credit Agreement dated March 22, 1995
among the Registrant, Silicon Valley Bank and BayBank.
10.6 -- Amended and Restated Promissory Note in the principal amount
of $8,000,000 dated March 22, 1995 made by the Registrant to
Silicon Valley Bank.
10.7 -- Promissory Note in the principal amount of $8,000,000 dated
March 22, 1995 made by the Registrant to the order of
BayBank.
10.8 -- Amended and Restated Security Agreement dated March 22, 1995
among the Registrant, Silicon Valley Bank and BayBank.
10.9 -- Guaranty dated March 22, 1995 by Microcom Systems, Inc. in
favor of Silicon Valley Bank and BayBank.
10.10 -- Guarantor Security Agreement dated March 22, 1995 among
Microcom Systems, Inc., Silicon Valley Bank and BayBank.
</TABLE>
II-3
<PAGE> 62
<TABLE>
<CAPTION>
PAGE NUMBERING
IN SEQUENTIAL
NUMBERING
EXHIBIT NO. EXHIBIT SYSTEM
- ----------- ------------------------------------------------------------- --------------
<S> <C> <C> <C>
10.11 -- Collateral Assignment of Patents and Trademarks dated March
22, 1995 among Microcom Systems, Inc., Silicon Valley Bank
and BayBank.
10.12 -- Letter Agreement dated February 15, 1994 among Roland D.
Pampel, James M. Dow as Chairman of the Board of Directors of
the Registrant and Michael I. Schneider as Chairman of the
Compensation Committee of the Board of Directors of the
Registrant.
10.13 -- Letter Agreement dated March 3, 1994 among the Registrant,
James M. Dow and Michael I. Schneider as Chairman of the
Compensation Committee of the Board of Directors of the
Registrant.
10.14 -- Secured Promissory Notes made by certain senior officers and
directors to the order of the Registrant in connection with
stock loans
10.15 -- 1993 Non-Employee Director Stock Option Plan (As Amended and
Restated Effective as of March 17, 1995)
+10.16 -- 1982 Stock Option and Stock Purchase Plan (As Amended and
Restated Effective as of June 8, 1994) (Exhibit to
Registration Statement No. 33-84572 filed on Form S-8 on
September 30, 1994)
+10.17 -- 1987 Employee Stock Purchase Plan (As Amended and Restated
Effective as of April 21, 1993) (Exhibit to Registration
Statement No. 33-63454 filed on Form S-8 on May 28, 1993)
+10.18 -- Long Term Performance Plan of the Registrant (Exhibit to
Registration Statement No. 33-84572 filed on Form S-8 on
September 30, 1994)
*10.19 -- Agreement dated May 13, 1986 between the Registrant and
Rockwell International Corporation.
*10.20 -- Agreement dated January 30, 1987 between the Registrant and
Rockwell International Corporation.
+10.21 -- Lease dated August 11, 1987 between the Registrant and First
Stone Ridge Limited Partnership. (Exhibit to Report on Form
10-K filed for the year ended March 31, 1988.)
+10.22 -- Manufacturing Agreement dated as of December 18, 1987 between
the Registrant and Video Technology Engineering Ltd. (Exhibit
to Report on Form 10-K filed for the year ended March 31,
1988)
+10.23 -- Letter of intent dated as of January 26, 1993 between the
Registrant and Flextronics International (Exhibit to Report
on Form 10-K filed for the year ended March 31, 1994)
#10.24 -- Master Conditional Sale and Security Agreement between the
Registrant and NYNEX Credit Company dated as of September 23,
1988.
#10.25 -- Financing Agreement for Centrex Service between the
Registrant and NYNEX Credit Company dated as of September 23,
1988.
</TABLE>
II-4
<PAGE> 63
<TABLE>
<CAPTION>
PAGE NUMBERING
IN SEQUENTIAL
NUMBERING
EXHIBIT NO. EXHIBIT SYSTEM
- ----------- ------- --------------
<C> <C> <S> <C>
#10.26 -- Agreement dated July 1, 1988 between the Registrant
and Rockwell International Corporation.
+10.27 -- Agreement dated December 12, 1989 between the Registrant and
Rockwell International Corporation (Exhibit to Report on Form
10-K filed for the year ended March 31, 1990).
+10.28 -- Agreement dated December 23, 1991 between the Registrant and
Rockwell International Corporation (Exhibit to Report on Form
10-K filed for the year ended March 31, 1992).
+10.29 -- Agreement dated October 4, 1993 between the Registrant and
Rockwell International Corporation (Exhibit to Report on Form
10-K filed for the year ended March 31, 1994).
+10.30 -- Spectrum-Microcom Global Settlement by and between the
Registrant and Spectrum Information Technologies, Inc. dated
November 16, 1993. (Exhibit to Report on Form 10-Q filed for
the quarter ended December 31, 1993).
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consents of Arthur Andersen LLP.
23.2 -- Consent of Choate, Hall & Stewart (including in Exhibit 5.1).
24.1 -- Power of Attorney (see Page II-4).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
# Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-28399) or an amendment thereto and incorporated
herein by reference.
* Filed as an exhibit to the Registrant's Registration Statement on Form
S-1 (Registration No. 33-13455) or an amendment thereto and incorporated
herein by reference.
+ Filed with the report or registration statement indicated and
incorporated herein by reference.
++ Confidential treatment requested as to certain portions.
- To be filed by amendment.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to provisions described in Item 15 above, or otherwise, the
Registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of the Registration Statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the Registrant
pursuant to Rule 424(b)(1) or (4) under the Securities Act shall be deemed to be
part of this
II-5
<PAGE> 64
Registration Statement as of the time it was declared effective; and (2) that
for the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
The undersigned Registrant hereby undertakes that, for the purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act that is incorporated by reference in the Registration Statement
shall be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts, on the 18th
day of May, 1995.
MICROCOM, INC.
By: /s/ Roland D. Pampel
------------------------------------
Roland D. Pampel
President and Chief Executive
Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Microcom, Inc., hereby
severally constitute and appoint Roland D. Pampel, Peter J. Minihane, William C.
Rogers and Robert V. Jahrling, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement on
Form S-3 filed herewith and any and all pre-effective and post-effective
amendments to said Registration Statement, and generally to do all such things
in our names and on our behalf in our capacities as officers and directors to
enable Microcom, Inc. to comply with the provisions of the Securities Act of
1933, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys or any of them, to said Registration Statement and any and
all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on May 18, 1995 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
<S> <C>
/s/ Roland D. Pampel President, Chief Executive Officer and
- --------------------------------------------- Director
Roland D. Pampel (Principal Executive Officer)
/s/ Peter J. Minihane Executive Vice President, Chief Financial
- --------------------------------------------- Officer and Treasurer (Principal Financial
Peter J. Minihane Officer and Principal Accounting Officer)
/s/ James M. Dow Chairman of the Board
- ---------------------------------------------
James M. Dow
/s/ Donald G. Kennedy Director
- ---------------------------------------------
Donald G. Kennedy
/s/ Fred L. Luconi Director
- ---------------------------------------------
Fred L. Luconi
Director
- ---------------------------------------------
John C. Rutherford
Director
- ---------------------------------------------
Michael I. Schneider
</TABLE>
II-7
<PAGE> 66
ITEM 16. EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page Numbering in Sequential
----------- ------- ----------------------------
Numbering System
----------------
<S> <C> <C>
-1.1 - Form of Underwriting Agreement.
+2.1 - Merger Agreement and Plan of Reorganization, dated
as of December 21, 1994, by and among the
Registrant, Extension Acquisition Corp. and
Extension Technology Corp. (Exhibit to Report on
Form 8-K filed January 20, 1995).
+2.2 - Asset Purchase Agreement dated as of September 30,
1992 among the Registrant, Microcom Systems, Inc.
and Datawatch Corporation. (Exhibit to Report on
Form 10-Q filed for the quarter ended December 31,
1992).
+2.3 - Asset Purchase Agreement dated December 22, 1992
among the Registrant, Microcom Systems, Inc. and VM
Systems Group, Inc. (Exhibit to Report on Form 10-Q
filed for the quarter ended December 31, 1992).
+2.4 - Asset Purchase Agreement dated as of December 31,
1993 among the Registrant, Microcom Systems, Inc.
and Central Point Software, Inc. (Exhibit to Report
on Form 10-K filed for the year ended March 31,
1994).
3.1 - Restated Articles of Organization of the
Registrant.
#3.2 - By-Laws of the Registrant, as amended.
4.1 - Article 6 of Restated Articles of Organization of
the Registrant.
#4.2 - Articles III and VIII of By-Laws of the Registrant,
as amended.
5.1 - Opinion of Choate, Hall & Stewart
++10.1 - Purchase Agreement dated June 30, 1993 between the
Registrant and Sprint Communications Corporation L.P.
10.2 - Registration Rights Agreement dated December 20,
1994 between the Registrant and Extension
Technology Corp.
10.3 - Amendment dated March 30, 1989 to Lease between the
Registrant and First Stone Ridge Limited
Partnership.
</TABLE>
<PAGE> 67
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page Numbering in Sequential
----------- ------- ----------------------------
Numbering System
----------------
<S> <C> <C>
10.4 - Second Amendment dated January 31, 1995 to Lease
between the Registrant and First Stone Ridge
Nominee Trust I.
10.5 - Amended and Restated Credit Agreement dated March
22, 1995 among the Registrant, Silicon Valley Bank
and BayBank.
10.6 - Amended and Restated Promissory Note in the
principal amount of $8,000,000 dated March 22, 1995
made by the Registrant to Silicon Valley Bank.
10.7 - Promissory Note in the principal amount of
$8,000,000 dated March 22, 1995 made by the
Registrant to the order of BayBank.
10.8 - Amended and Restated Security Agreement dated March
22, 1995 among the Registrant, Silicon Valley Bank
and BayBank.
10.9 - Guaranty dated March 22, 1995 by Microcom Systems,
Inc. in favor of Silicon Valley Bank and BayBank.
10.10 - Guarantor Security Agreement dated March 22, 1995
among Microcom Systems, Inc., Silicon Valley Bank
and BayBank.
10.11 - Collateral Assignment of Patents and Trademarks
dated March 22, 1995 among Microcom, Silicon Valley
Bank and BayBank.
10.12 - Letter Agreement dated February 15, 1994 among
Roland D. Pampel, James M. Dow as Chairman of the
Board of Directors of the Registrant and Michael I.
Schneider as Chairman of the Compensation Committee
of the Board of Directors of the Registrant.
10.13 - Letter Agreement dated March 3, 1994 among the
Registrant, James M. Dow and Michael I. Schneider
as Chairman of the Compensation Committee of the
Board of Directors of the Registrant.
10.14 - Secured Promissory Notes made by certain senior
officers and directors to the order of the
Registrant in connection with stock loans
10.15 - 1993 Non-Employee Director Stock Option Plan (As
Amended and Restated Effective as of March 17,
1995)
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page Numbering in Sequential
----------- ------- ----------------------------
Numbering System
----------------
<S> <C> <C>
+10.16 - 1982 Stock Option and Stock Purchase Plan (As
Amended and Restated Effective as of June 8, 1994)
(Exhibit to Registration Statement No. 33-84572
filed on Form S-8 on September 30, 1994)
+10.17 - 1987 Employee Stock Purchase Plan (As Amended and
Restated Effective as of April 21, 1993) (Exhibit
to Registration Statement No. 33-63454 filed on
Form S-8 on May 28, 1993)
+10.18 - Long Term Performance Plan of the Registrant
(Exhibit to Registration Statement No. 33-84572
filed on Form S-8 on September 30, 1994)
*10.19 - Agreement dated May 13, 1986 between the Registrant
and Rockwell International Corporation.
*10.20 - Agreement dated January 30, 1987 between the
Registrant and Rockwell International Corporation.
+10.21 - Lease dated August 11, 1987 between the Registrant
and First Stone Ridge Limited Partnership. (Exhibit to
Report on Form 10-K filed for the year ended March 31,
1988.)
+10.22 - Manufacturing Agreement dated as of December 18,
1987 between the Registrant and Video Technology
Engineering Ltd. (Exhibit to Report on Form 10-K
filed for the year ended March 31, 1988)
+10.23 - Letter of intent dated as of January 26, 1993
between the Registrant and Flextronics International
(Exhibit to Report on Form 10-K filed for the year
ended March 31, 1994)
#10.24 - Master Conditional Sale and Security Agreement
between the Registrant and NYNEX Credit Company dated
as of September 23, 1988.
#10.25 - Financing Agreement for Centrex Service between the
Registrant and NYNEX Credit Company dated as of
September 23, 1988.
#10.26 - Agreement dated July 1, 1988 between the Registrant
and Rockwell International Corporation.
+10.27 - Agreement dated December 12, 1989 between the
Registrant and Rockwell International Corporation
(Exhibit to Report on Form 10-K filed for the year
ended March 31, 1990).
</TABLE>
<PAGE> 69
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page Numbering in Sequential
----------- ------- ----------------------------
Numbering System
----------------
<S> <C> <C>
+10.28 - Agreement dated December 23, 1991 between the
Registrant and Rockwell International Corporation
(Exhibit to Report on Form 10-K filed for the year
ended March 31, 1992).
+10.29 - Agreement dated October 4, 1993 between the
Registrant and Rockwell International Corporation
(Exhibit to Report on Form 10-K filed for the year
ended March 31, 1994).
+10.30 - Spectrum-Microcom Global Settlement by and between
the Registrant and Spectrum Information
Technologies, Inc. dated November 16, 1993.
(Exhibit to Report on Form 10-Q filed for the
quarter ended December 31, 1993).
21.1 - Subsidiaries of the Registrant.
23.1 - Consents of Independent Public Accountants.
23.2 - Consent of Choate, Hall & Stewart (including in
Exhibit 5.1).
24.1 - Power of Attorney (see Page II-4).
27.1 - Financial Data Schedule
</TABLE>
- --------------------------------
# Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-28399) or an amendment
thereto and incorporated herein by reference.
* Filed as an exhibit to the Registrant's Registration Statement
on Form S-1 (Registration No. 33-13455) or an amendment
thereto and incorporated herein by reference.
+ Filed with the report or registration statement indicated and
incorporated herein by reference.
++ Confidential treatment requested as to certain portions.
- To be filed by amendment.
<PAGE> 1
Exhibit 3.1
FORM CD-74-10M-10-79-152328 FEDERAL IDENTIFICATION
NO. 04-2710644
- ---------------- -----------------
Examiner
The Commonwealth of Massachusetts
MICHAEL JOSEPH CONNOLLY
Secretary of State
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
RESTATED ARTICLES OF ORGANIZATION
General Laws, Chapter 156B, Section 74
This certificate must be submitted to the Secretary of the Commonwealth
within sixty days after the date of the vote of stockholders adopting the
restated articles of organization. The fee for filing this certificate is
prescribed by General Laws, Chapter 156, Section 114. Make check payable to the
Commonwealth of Massachusetts.
----------------------
We, Peter J. Minihane, Vice President and William C. Rogers, Clerk of
MICROCOM, INC., located at 500 River Ridge Drive, Norwood, MA 02062-5028, do
hereby certify that the following restatement of the articles of organization of
the corporation was duly adopted at a meeting held on April 24, 1995, by vote of
the Board of Directors.
1. The name by which the corporation shall be known is:
MICROCOM, INC.
2. The purposes for which the corporation is formed are as follows:
To develop, publish, market and otherwise distribute
high quality micro computer software and other related
technology for business and professional use, and other uses
related thereto, and to otherwise carry on any and all business
activities permitted to corporations organized under Chapter
156B, or its successor provisions, whenever the same may be
lawfully done.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper leaving a left hand margin of at least 1 inch for binding. Additions to
more than one article may be continued on a single sheet so long as each article
requiring each such addition is clearly indicated.
<PAGE> 2
3. The total number of shares and the par value, if any, of each class of
stock which the corporation is authorized to issue is as follows:
<TABLE>
<CAPTION>
WITHOUT PAR VALUE WITH PAR VALUE
CLASS OF STOCK NUMBER OF SHARES NUMBER OF SHARES PAR VALUE
Preferred
<S> <C> <C>
Common 30,000,000 $.01
</TABLE>
*4. If more than one class is authorized, a description of each of the
different classes of stock with, if any, the preferences, voting
powers, qualifications, special or relative rights or privileges as to
each class thereof and any series now established:
N/A
*5. The restrictions, if any, imposed by the articles of organization upon
the transfer of shares of stock of any class are as follows:
None
*6. Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution,
or for limiting, defining, or regulating the powers of the corporation,
or of its directors or stockholders, or of any class of stockholders:
See Attachment 6A to 6K
* If there are no such provisions, state "None".
<PAGE> 3
Attachment 6A
The following provisions are hereby established for the conduct and
regulation of the business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining or regulating the powers of the
corporation, or of its directors or stockholders.
(a) Amendment of By-laws. The Board of Directors shall be
authorized by its sole action to amend the by-laws of the corporation unless
otherwise prohibited by law or the by-laws.
(b) Limitation of Liability of Directors. No director of this
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director notwithstanding
any provision of law imposing such liability; provided, however, that this
Article shall not eliminate or limit any liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Sections 61 and 62 of the
Massachusetts Business Corporation Law, or (iv) with respect to any transaction
from which the director derived an improper personal benefit.
The provisions of this Article shall not eliminate or limit the
liability of a director of this corporation for any act or omission occurring
prior to the date on which this Article became effective. No amendment or repeal
of this Article shall adversely affect the rights and protection afforded to a
director of this corporation under this Article for acts or omissions occurring
while this Article is in effect.
(c) Classified Board of Directors. This Article 6(c) is inserted for
the management of the business and for the conduct of the affairs of the
Corporation, and it is expressly provided that it is intended to be in
furtherance, and not in limitation or exclusion, of the powers conferred by the
statutes of The Commonwealth of Massachusetts.
Section 1. Number of Directors. The number of directors of the
Corporation shall not be less than three nor more than thirteen. The exact
number of directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time pursuant to a resolution
adopted by a majority of the entire Board of Directors.
Section 2. Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the authorized number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class III and, if such
<PAGE> 4
Attachment 6B
fraction is two thirds, one of the extra directors shall be a member of Class
III and one of the extra directors shall be a member of Class II, unless
otherwise provided for from time to time pursuant to a resolution adopted by a
majority of the entire Board of Directors.
Section 3. Election of Directors. Elections of directors need not be by
written ballot, except as and to the extent provided in the By-laws of the
Corporation.
Section 4. Terms of Office. Each director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
such director was elected; provided, however, that each initial director in
Class I shall serve for a term ending on the date of the Corporation's 1989
Annual Meeting; each initial director in Class II shall serve for a term ending
on the date of the Corporation's 1990 Annual Meeting; and each initial director
in Class III shall serve for a term ending on the date of the Corporation's 1991
Annual Meeting.
Section 5. Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as director of the class of which he
is a member until the expiration of his current term or his prior death,
retirement, resignation or removal and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of office are to expire at
the earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum.
Section 6. Quorum; Action of Meeting. A majority of the directors at
any time in office shall constitute a quorum for the transaction of business
and, if at any meeting of the Board of Directors there shall be less than such a
quorum, a majority of those present may adjourn the meeting from time to time.
Every act or decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present shall be regarded as the act or
decision of the Board of Directors unless a greater number is required by law,
by the By-laws of the Corporation or by these Articles of Organization.
<PAGE> 5
Attachment 6C
Section 7. Removal. Any director or the entire Board of Directors may
be removed from office, with or without cause, atany time by the affirmative
vote of the holders of at least eighty percent (80%) of the outstanding common
stock of the Corporation entitled to vote generally in the election of
directors.
Section 8. Tenure. Notwithstanding any provisions to the contrary
contained herein, each director shall serve until his successor is elected and
qualified or until such director's death, retirement, resignation or removal.
Section 9. Vacancies. Any vacancies in the Board of Directors occurring
for any reason and any newly created directorships resulting from any increase
in the number of directors may be filled only by the Board of Directors acting
by the affirmative vote of at least a majority of the directors then in office,
although less than a quorum. Each director so chosen shall hold office until the
next election of the class for which such director shall have been chosen and
until his successor shall be elected and qualified or until such director's
earlier death, retirement, resignation or removal.
Section 10. Stockholder Nominations and Introduction of Business, etc.
Advance notice of stockholder nominations for election of directors and other
business to be brought by stockholders before a meeting shall be given in the
manner provided in the By-laws of the Corporation and the appointment of judges
of election shall be made in the manner provided in the By-laws of the
Corporation. The requirements for amending the By-law provisions concerning the
subject matter of this Section 10 shall be as set forth in Section 11 of this
Article 6(c).
Section 11. Amendments to Article. Notwithstanding any other provisions
of law, these Articles of Organization or the Bylaws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding common stock of the Corporation entitled to vote generally in the
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article 6(c); provided that such eighty
percent (80%) vote shall not be required for any amendment, repeal or adoption
previously approved by the Board of Directors and by a majority of the
Disinterested Directors (as defined in Section 5 of Article 6(d)). Such 80% vote
shall be in addition to any separate class vote which may be accorded from time
to time to other classes or series of stock of the Corporation.
<PAGE> 6
Attachment 6D
(d) Fair Price Provisions. The stockholder vote required to
approve Business Combinations (hereinafter defined) shall be as set forth in
this Article.
Section 1. Definition of "Business Combination". The term "Business
Combination" as used in this Article 6 shall mean any of the following:
(a) Any merger or consolidation of the Corporation or any
Subsidiary thereof with (i) any Interested Stockholder or (ii) any
other corporation or other entity (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be,
an Interested Stockholder; or
(b) Any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder of all or a Substantial Part of the
assets of the Corporation or any Subsidiary; or
(c) The issuance, exchange or transfer by the Corporation or
any Subsidiary thereof (in one transaction or a series of transactions)
of any securities of the Corporation or any Subsidiary to any
Interested Stockholder in exchange for cash, securities or other
consideration (or a combination thereof) having an aggregate Fair
Market Value at least equal to a Substantial Part of the assets of the
Corporation; or
(d) The adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder; or
(e) Any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation or any Subsidiary or any other
transaction (whether or not with or into or otherwise involving an
Interested Stockholder) which has the effect, directly or indirectly,
of increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary thereof which is directly or indirectly owned by any
Interested Stockholder; or
(f) Any agreement, contract or other arrangement with an
Interested Stockholder (or in which the Interested Stockholder has an
interest other than proportionately as a stockholder) providing for any
one or more of the actions specified in subsections (a) through (e) of
this Section 1.
<PAGE> 7
Attachment 6E
Section 2. Vote for Certain Transactions. Except where a higher vote
may be required by law or these Articles of Organization, the Corporation may,
by vote of a majority of the outstanding common stock (i) authorize the sale,
lease or exchange of all or substantially all of its property and assets,
including its goodwill, pursuant to Section 75 of Chapter 156B of the
Massachusetts General Laws, as amended from time to time, (ii) approve an
agreement of merger or consolidation pursuant to Section 78 of Chapter 156B of
the Massachusetts General Laws, as so amended, and (iii) authorize the
dissolution of the Corporation pursuant to Section 100 of Chapter 156B of the
Massachusetts General Laws, as so amended.
Section 3. Higher Vote for Business Combinations. In addition to any
affirmative vote required by law, the By-laws of the Corporation or these
Articles of Organization, and except as otherwise expressly provided in Section
4 of this Article 6(d), any Business Combination shall require the affirmative
vote of the holders of at least eighty percent (80%) of the outstanding common
stock of the Corporation entitled to vote generally in the election of
directors. Such affirmative vote shall be required, notwithstanding the fact
that no vote may be required or that a lesser percentage may be specified by law
or in any agreement with any national securities exchange or otherwise.
Section 4. When Higher Vote Is Not Required. The provisions of Section
3 of this Article 6(d) shall not be applicable to any particular Business
Combination, and such Business Combination shall require only the affirmative
vote of the holders of a majority of the outstanding common stock of the
Corporation, if the conditions specified in either of the following subsection
(a) or (b) below are met:
(a) Approval by Board and Disinterested Directors. The
Business Combination shall have been approved by a majority of the
Board and of the Disinterested Directors.
(b) Price and Procedural Requirements. Each of the
following six conditions shall have been met:
(i) The transaction constituting the Business
Combination shall provide that the holders of common stock
receive, in exchange for their stock, per share consideration
(consisting of the cash and the Fair Market Value, as of the
date of the consummation of the Business Combination, of
consideration other than cash) at least equal to the highest of
the following:
A. The highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of common
<PAGE> 8
Attachment 6F
stock in connection with the acquisition by the
Interested Stockholder of shares of common stock which
were acquired (1) within the two-year period
immediately prior to the date of the first public
announcement of the proposed Business Combination (the
"Announcement Date") or (2) in the transaction in
which it became an Interested Stockholder, whichever
is higher.
B. The Fair Market Value per share of common
stock on the Announcement Date or on the date on which
the Interested Stockholder became an Interested
Stockholder (the "Determination Date"), whichever is
higher; and
C. If applicable, the price per share equal to
the Fair Market Value per share of common stock
determined pursuant to Paragraph B immediately
preceding this Paragraph C, multiplied by the ratio of
(1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of common stock in
connection with the acquisition by the Interested
Stockholder of shares of common stock which were
acquired within the two-year period immediately prior
to the Announcement Date to (2) the Fair Market Value
per share of common stock on the first date in such
two-year period on which the Interested Stockholder
beneficially owned any shares of common stock.
All per share prices shall be equitably adjusted to reflect any
intervening stock splits, stock dividends, reverse stock splits,
recapitalizations and similar events.
(ii) The consideration to be received by holders of
the outstanding common stock shall be in cash or in the same
form as was previously paid by or on behalf of the Interested
Stockholder in connection with its direct or indirect
acquisition of beneficial ownership of such stock. If the
Interested Stockholder beneficially owns common stock which was
acquired with varying forms of consideration, the form of
consideration to be received by holders of such stock shall be
either cash or the form used to acquire the largest number of
shares of such stock beneficially owned by it.
(iii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination there shall
<PAGE> 9
Attachment 6G
have been (1) no reduction in the annual rate of dividends paid
on the common stock (except as necessary to reflect any
subdivision or similar event affecting the common stock) except
as approved by a majority of the Disinterested Directors, and
(2) an increase in such annual rate of dividends (as necessary
to prevent any such reduction) in the event of any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding
shares of the common stock, unless the failure so to increase
such annual rate is approved by a majority of the Disinterested
Directors.
(iv) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(v) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Exchange Act and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed by the Interested
Stockholder to all stockholders of the Corporation at least 30
days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required
to be mailed pursuant to such Act or subsequent provisions).
(vi) Such Interested Stockholder shall not have made,
or caused to be made, any material change in the Corporation's
business or equity capital structure without the approval of
the majority of the Disinterested Directors.
(vii) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination, such Interested Stockholder shall not
have acquired, directly or indirectly, any additional shares of
common stock of the Corporation, directly from the Corporation
or otherwise, other than shares acquired in a transaction the
effect of which is not to increase such Interested
Stockholder's percentage beneficial ownership of any voting
securities of the Corporation.
<PAGE> 10
Attachment 6H
Section 5. Certain Definitions. For the purposes of this Article 6:
(a) The term "person" shall mean any individual, firm,
corporation or other entity and shall include any group comprising any
person and any other person with whom such person or any Affiliate or
Associate of such person has anyagreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding, voting or disposing of common stock.
(b) The term "Interested Stockholder" shall mean any person
(other than the Corporation or any Subsidiary and other than any
profit-sharing, employee stock ownership or other employee benefit plan
of the Corporation or any Subsidiary or any trustee of or fiduciary
with respect to any such plan when acting in such capacity) who or
which:
(i) Is at such time the beneficial owner, directly or
indirectly, of more than ten percent (10%) of the then
outstanding common stock of the Corporation; or
(ii) At any time within the two-year period
immediately prior to such time was the beneficial owner,
directly or indirectly, of more than ten percent (10%) of the
outstanding common stock of the Corporation; or
(iii) Is at any time an assignee of, or has otherwise
succeeded to the beneficial ownership of, any shares of common
stock which were at any time within the two-year period
immediately prior to such time beneficially owned by any
Interested Stockholder, if such assignment or succession shall
have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning
of the Securities Act of 1933, as amended from time to time.
(c) A person shall be a "beneficial owner" of any shares
of stock:
(i) Which are beneficially owned, directly or
indirectly, by such person or any of its Affiliates or
Associates;
(ii) Which such person or any of its Affiliates or
Associates has (A) the right to acquire (whether or not such
right is exercisable immediately) pursuant to any agreement,
arrangement or understanding or upon the
<PAGE> 11
Attachment 6I
exercise of conversion rights, exchange rights, warrants or
options or otherwise or (B) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) Which are beneficially owned, directly or indirectly,
by any other person with which such person or any of its
Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of common stock.
(d) For the purposes of determining whether a person is an
Interested Stockholder pursuant to subsection 5(b), the number of
shares of common stock deemed to be outstanding shall include shares
deemed owned by an Interested Stockholder through application of
subsection 5(c) but shall not include any other shares of common stock
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise.
(e) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on July 28, 1988 (the
terms registrant in said Rule 12b- 2 meaning in this case, the
Corporation).
(f) "Beneficially owned" shall have the meaning ascribed to
such term in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act, as in effect on July 28, 1988.
(g) "Subsidiary" means any corporation of which a majority of
any class of equity security is owned, directly or indirectly, by the
Corporation.
(h) "Disinterested Director" with regard to a Business
Combination means any member of the Board of Directors of the
Corporation who is not an Interested Stockholder involved in such
Business Combination.
(i) "Fair Market Value" means: (A) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange Listed Stocks or, if such
stock is not quoted on the Composite Tape, on the New York Stock
Exchange or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Exchange Act on which such stock is listed or, if such stock
<PAGE> 12
Attachment 6J
is not listed on any such exchange, the highest closing sale price or
the highest closing bid quotation, respectively, with respect to a
share of such stock during the 30-day period preceding the date in
question on the National Market System or the National Association of
Securities Dealers, Inc. Automated Quotations System, as the case may
be, or any system then in use or, if no such quotations are available,
the fair market value on the date in question of a share of such stock
as determined by a majority of the Disinterested Directors in good
faith; and (B) in the case of property other than cash or stock, the
fair market value of such property on the date in question as
determined by a majority of the Disinterested Directors in good faith.
(j) In the event of any Business Combinations in which the
Corporation survives, the phrase "consideration other than cash" as
used in subsection 3(b) of this Article 6 shall include the shares of
stock retained by the holders of such shares.
(k) "Substantial Part" of the Corporation shall mean ten
percent (10%) or more of the fair market value of the total assets of
the Corporation on a consolidated basis as of the end of its most
recent fiscal quarter ending immediately prior to the time the
determination is made.
Section 6. Determination by Disinterested Directors. The Disinterested
Directors shall have the power and duty to determine for purposes of this
Article 6, on the basis of information known to them after reasonable inquiry,
all facts necessary to determine compliance with this Article 6, including,
without limitation, (a) whether a person is an Interested Stockholder, (b) the
number of shares of common stock beneficially owned by any person, (c) whether a
person is an Affiliate or Associate of another, (d) whether the requirements of
subsection 4(b) have been met with respect to any Business Combination and (e)
whether the fair market value of the assets which are the subject of any
Business Combination equal or exceed, or whether the consideration to be
received from the issuance or transfer of securities by the Corporation or any
Subsidiary thereof in any Business Combination equals or exceeds, a Substantial
Part of the assets of the Corporation. Any such determination made in good faith
shall be binding and conclusive.
Section 7. No Duty to Approve Business Contributions. Nothing contained
in this Article 6(d) shall be construed to relieve any Interested Stockholder
from any fiduciary obligation imposed upon it by law.
Section 8. Minimum Consideration. Consideration for shares to be paid
to any stockholder pursuant to this Article 6(d) shall be the minimum
consideration payable to such stockholder and
<PAGE> 13
Attachment 6K
shall not limit such stockholder's right under any provision of law or otherwise
to receive greater consideration for any shares of the Corporation.
Section 9. Fiduciary Obligations. The fact that any Business
Combination complies with the provisions of Section 4 of this Article 6(d) shall
not be construed to impose any fiduciary duty, obligation or responsibility on
the Board of Directors, or any member thereof, to approve such Business
Combination or recommend its adoption or approval to the stockholders of the
Corporation, nor shall such compliance limit, prohibit or otherwise restrict in
any manner the Board of Directors or any member thereof with respect to
evaluations of, or actions and responses taken with respect to, such Business
Combination.
Section 10. Amendment to Article. Notwithstanding any other provisions
of law, these Articles of Organization or the Bylaws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holder of at least eighty percent (80%) of the
outstanding common stock of the Corporation entitled to vote generally in the
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article 6(d); provided that such eighty
percent (80%) vote shall not be required for any such amendment, repeal or
adoption previously approved by the Board of Directors and by a majority of the
Disinterested Directors. Such 80% vote shall be in addition to any separate
class vote which may be accorded from time to time to other classes or series of
stock of the Corporation.
<PAGE> 14
*We further certify that the foregoing restated articles of
organization effect no amendments to the articles of organization of the
corporation as heretofore amended, except amendments to the following articles:
(*If there are no such amendments, state "None.")
Briefly describe amendments in space below:
None
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 18th day of May in the year 1995.
/s/ Peter J. Minihane Vice President
- ---------------------------------------
/s/ William C. Rogers Clerk
- ---------------------------------------
<PAGE> 1
Exhibit 4.1
ARTICLE 6 OF THE REGISTRANT'S
RESTATED ARTICLES OF ORGANIZATION
The following provisions are hereby established for the conduct and
regulation of the business and affairs of the corporation, for its voluntary
dissolution, or for limiting, defining or regulating the powers of the
corporation, or of its directors or stockholders.
(a) Amendment of By-laws. The Board of Directors shall be
authorized by its sole action to amend the by-laws of the corporation unless
otherwise prohibited by law or the by-laws.
(b) Limitation of Liability of Directors. No director of this
corporation shall be personally liable to the corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director notwithstanding
any provision of law imposing such liability; provided, however, that this
Article shall not eliminate or limit any liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Sections 61 and 62 of the
Massachusetts Business Corporation Law, or (iv) with respect to any transaction
from which the director derived an improper personal benefit.
The provisions of this Article shall not eliminate or limit the
liability of a director of this corporation for any act or omission occurring
prior to the date on which this Article became effective. No amendment or repeal
of this Article shall adversely affect the rights and protection afforded to a
director of this corporation under this Article for acts or omissions occurring
while this Article is in effect.
(c) Classified Board of Directors. This Article 6(c) is inserted for
the management of the business and for the conduct of the affairs of the
Corporation, and it is expressly provided that it is intended to be in
furtherance, and not in limitation or exclusion, of the powers conferred by the
statutes of The Commonwealth of Massachusetts.
Section 1. Number of Directors. The number of directors of the
Corporation shall not be less than three nor more than thirteen. The exact
number of directors within the minimum and maximum limitations specified in the
preceding sentence shall be fixed from time to time pursuant to a resolution
adopted by a majority of the entire Board of Directors.
Section 2. Classes of Directors. The Board of Directors shall be and is
divided into three classes: Class I, Class II and Class III. No one class shall
have more than one director more than any other class. If a fraction is
contained in the quotient arrived at by dividing the authorized number of
directors by three, then, if such fraction is one-third, the extra director
shall be a member of Class III and, if such
<PAGE> 2
fraction is two thirds, one of the extra directors shall be a member of Class
III and one of the extra directors shall be a member of Class II, unless
otherwise provided for from time to time pursuant to a resolution adopted by a
majority of the entire Board of Directors.
Section 3. Election of Directors. Elections of directors need not be
by written ballot, except as and to the extent provided in the By-laws of the
Corporation.
Section 4. Terms of Office. Each director shall serve for a term ending
on the date of the third annual meeting following the annual meeting at which
such director was elected; provided, however, that each initial director in
Class I shall serve for a term ending on the date of the Corporation's 1989
Annual Meeting; each initial director in Class II shall serve for a term ending
on the date of the Corporation's 1990 Annual Meeting; and each initial director
in Class III shall serve for a term ending on the date of the Corporation's 1991
Annual Meeting.
Section 5. Allocation of Directors Among Classes in the Event of
Increases or Decreases in the Number of Directors. In the event of any increase
or decrease in the authorized number of directors, (i) each director then
serving as such shall nevertheless continue as director of the class of which he
is a member until the expiration of his current term or his prior death,
retirement, resignation or removal and (ii) the newly created or eliminated
directorships resulting from such increase or decrease shall be apportioned by
the Board of Directors among the three classes of directors so as to ensure that
no one class has more than one director more than any other class. To the extent
possible, consistent with the foregoing rule, any newly created directorships
shall be added to those classes whose terms of office are to expire at the
latest dates following such allocation, and any newly eliminated directorships
shall be subtracted from those classes whose terms of office are to expire at
the earliest dates following such allocation, unless otherwise provided for from
time to time by resolution adopted by a majority of the directors then in
office, although less than a quorum.
Section 6. Quorum; Action of Meeting. A majority of the directors at
any time in office shall constitute a quorum for the transaction of business
and, if at any meeting of the Board of Directors there shall be less than such a
quorum, a majority of those present may adjourn the meeting from time to time.
Every act or decision done or made by a majority of the directors present at a
meeting duly held at which a quorum is present shall be regarded as the act or
decision of the Board of Directors unless a greater number is required by law,
by the By-laws of the Corporation or by these Articles of Organization.
-2-
<PAGE> 3
Section 7. Removal. Any director or the entire Board of Directors may
be removed from office, with or without cause, atany time by the affirmative
vote of the holders of at least eighty percent (80%) of the outstanding common
stock of the Corporation entitled to vote generally in the election of
directors.
Section 8. Tenure. Notwithstanding any provisions to the contrary
contained herein, each director shall serve until his successor is elected and
qualified or until such director's death, retirement, resignation or removal.
Section 9. Vacancies. Any vacancies in the Board of Directors occurring
for any reason and any newly created directorships resulting from any increase
in the number of directors may be filled only by the Board of Directors acting
by the affirmative vote of at least a majority of the directors then in office,
although less than a quorum. Each director so chosen shall hold office until the
next election of the class for which such director shall have been chosen and
until his successor shall be elected and qualified or until such director's
earlier death, retirement, resignation or removal.
Section 10. Stockholder Nominations and Introduction of Business, etc.
Advance notice of stockholder nominations for election of directors and other
business to be brought by stockholders before a meeting shall be given in the
manner provided in the By-laws of the Corporation and the appointment of judges
of election shall be made in the manner provided in the By-laws of the
Corporation. The requirements for amending the By-law provisions concerning the
subject matter of this Section 10 shall be as set forth in Section 11 of this
Article 6(c).
Section 11. Amendments to Article. Notwithstanding any other provisions
of law, these Articles of Organization or the By- laws of the Corporation, and
notwithstanding the fact that a lesser percentage may be specified by law, the
affirmative vote of the holders of at least eighty percent (80%) of the
outstanding common stock of the Corporation entitled to vote generally in the
election of directors shall be required to amend or repeal, or to adopt any
provision inconsistent with, this Article 6(c); provided that such eighty
percent (80%) vote shall not be required for any amendment, repeal or adoption
previously approved by the Board of Directors and by a majority of the
Disinterested Directors (as defined in Section 5 of Article 6(d)). Such 80% vote
shall be in addition to any separate class vote which may be accorded from time
to time to other classes or series of stock of the Corporation.
-3-
<PAGE> 4
(d) Fair Price Provisions. The stockholder vote required to
approve Business Combinations (hereinafter defined) shall be as set forth in
this Article.
Section 1. Definition of "Business Combination". The term "Business
Combination" as used in this Article 6 shall mean any of the following:
(a) Any merger or consolidation of the Corporation or any
Subsidiary thereof with (i) any Interested Stockholder or (ii) any
other corporation or other entity (whether or not itself an Interested
Stockholder) which is, or after such merger or consolidation would be,
an Interested Stockholder; or
(b) Any sale, lease, exchange, mortgage, pledge, transfer
or other disposition (in one transaction or a series of transactions)
to or with any Interested Stockholder of all or a Substantial Part of
the assets of the Corporation or any Subsidiary; or
(c) The issuance, exchange or transfer by the Corporation
or any Subsidiary thereof (in one transaction or a series of
transactions) of any securities of the Corporation or any Subsidiary
to any Interested Stockholder in exchange for cash, securities or
other consideration (or a combination thereof) having an aggregate
Fair Market Value at least equal to a Substantial Part of the assets
of the Corporation; or
(d) The adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of an Interested Stockholder; or
(e) Any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation or any Subsidiary or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly, of increasing the proportionate share of the outstanding
shares of any class of equity or convertible securities of the
Corporation or any Subsidiary thereof which is directly or indirectly
owned by any Interested Stockholder; or
(f) Any agreement, contract or other arrangement with an
Interested Stockholder (or in which the Interested Stockholder has an
interest other than proportionately as a stockholder) providing for
any one or more of the actions specified in subsections (a) through
(e) of this Section 1.
-4-
<PAGE> 5
Section 2. Vote for Certain Transactions. Except where a higher vote
may be required by law or these Articles of Organization, the Corporation may,
by vote of a majority of the outstanding common stock (i) authorize the sale,
lease or exchange of all or substantially all of its property and assets,
including its goodwill, pursuant to Section 75 of Chapter 156B of the
Massachusetts General Laws, as amended from time to time, (ii) approve an
agreement of merger or consolidation pursuant to Section 78 of Chapter 156B of
the Massachusetts General Laws, as so amended, and (iii) authorize the
dissolution of the Corporation pursuant to Section 100 of Chapter 156B of the
Massachusetts General Laws, as so amended.
Section 3. Higher Vote for Business Combinations. In addition to any
affirmative vote required by law, the By-laws of the Corporation or these
Articles of Organization, and except as otherwise expressly provided in Section
4 of this Article 6(d), any Business Combination shall require the affirmative
vote of the holders of at least eighty percent (80%) of the outstanding common
stock of the Corporation entitled to vote generally in the election of
directors. Such affirmative vote shall be required, notwithstanding the fact
that no vote may be required or that a lesser percentage may be specified by
law or in any agreement with any national securities exchange or otherwise.
Section 4. When Higher Vote Is Not Required. The provisions of
Section 3 of this Article 6(d) shall not be applicable to any particular
Business Combination, and such Business Combination shall require only the
affirmative vote of the holders of a majority of the outstanding common stock
of the Corporation, if the conditions specified in either of the following
subsection (a) or (b) below are met:
(a) Approval by Board and Disinterested Directors. The
Business Combination shall have been approved by a majority of the
Board and of the Disinterested Directors.
(b) Price and Procedural Requirements. Each of the
following six conditions shall have been met:
(i) The transaction constituting the Business
Combination shall provide that the holders of common stock
receive, in exchange for their stock, per share consideration
(consisting of the cash and the Fair Market Value, as of the
date of the consummation of the Business Combination, of
consideration other than cash) at least equal to the highest
of the following:
A. The highest per share price (including
any brokerage commissions, transfer taxes and
soliciting dealers' fees) paid by or on behalf of the
Interested Stockholder for any share of common
-5-
<PAGE> 6
stock in connection with the acquisition by the
Interested Stockholder of shares of common stock
which were acquired (1) within the two-year period
immediately prior to the date of the first public
announcement of the proposed Business Combination
(the "Announcement Date") or (2) in the transaction
in which it became an Interested Stockholder,
whichever is higher.
B. The Fair Market Value per share of common
stock on the Announcement Date or on the date on
which the Interested Stockholder became an Interested
Stockholder (the "Determination Date"), whichever is
higher; and
C. If applicable, the price per share equal
to the Fair Market Value per share of common stock
determined pursuant to Paragraph B immediately
preceding this Paragraph C, multiplied by the ratio
of (1) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting
dealers' fees) paid by or on behalf of the Interested
Stockholder for any share of common stock in
connection with the acquisition by the Interested
Stockholder of shares of common stock which were
acquired within the two-year period immediately prior
to the Announcement Date to (2) the Fair Market Value
per share of common stock on the first date in such
two-year period on which the Interested Stockholder
beneficially owned any shares of common stock.
All per share prices shall be equitably adjusted to reflect any
intervening stock splits, stock dividends, reverse stock splits,
recapitalizations and similar events.
(ii) The consideration to be received by holders of
the outstanding common stock shall be in cash or in the same
form as was previously paid by or on behalf of the Interested
Stockholder in connection with its direct or indirect
acquisition of beneficial ownership of such stock. If the
Interested Stockholder beneficially owns common stock which
was acquired with varying forms of consideration, the form of
consideration to be received by holders of such stock shall be
either cash or the form used to acquire the largest number of
shares of such stock beneficially owned by it.
(iii) After such Interested Stockholder has become
an Interested Stockholder and prior to the consummation of
such Business Combination there shall
-6-
<PAGE> 7
have been (1) no reduction in the annual rate of dividends
paid on the common stock (except as necessary to reflect any
subdivision or similar event affecting the common stock)
except as approved by a majority of the Disinterested
Directors, and (2) an increase in such annual rate of
dividends (as necessary to prevent any such reduction) in the
event of any reclassification (including any reverse stock
split), recapitalization, reorganization or any similar
transaction which has the effect of reducing the number of
outstanding shares of the common stock, unless the failure so
to increase such annual rate is approved by a majority of the
Disinterested Directors.
(iv) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(v) A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Exchange Act and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed by the Interested
Stockholder to all stockholders of the Corporation at least 30
days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or subsequent
provisions).
(vi) Such Interested Stockholder shall not have
made, or caused to be made, any material change in the
Corporation's business or equity capital structure without the
approval of the majority of the Disinterested Directors.
(vii) After such Interested Stockholder has become
an Interested Stockholder and prior to the consummation of
such Business Combination, such Interested Stockholder shall
not have acquired, directly or indirectly, any additional
shares of common stock of the Corporation, directly from the
Corporation or otherwise, other than shares acquired in a
transaction the effect of which is not to increase such
Interested Stockholder's percentage beneficial ownership of
any voting securities of the Corporation.
-7-
<PAGE> 8
Section 5. Certain Definitions. For the purposes of this Article 6:
(a) The term "person" shall mean any individual, firm,
corporation or other entity and shall include any group comprising any
person and any other person with whom such person or any Affiliate or
Associate of such person has anyagreement, arrangement or
understanding, directly or indirectly, for the purpose of acquiring,
holding, voting or disposing of common stock.
(b) The term "Interested Stockholder" shall mean any
person (other than the Corporation or any Subsidiary and other than
any profit-sharing, employee stock ownership or other employee benefit
plan of the Corporation or any Subsidiary or any trustee of or
fiduciary with respect to any such plan when acting in such capacity)
who or which:
(i) Is at such time the beneficial owner, directly
or indirectly, of more than ten percent (10%) of the then
outstanding common stock of the Corporation; or
(ii) At any time within the two-year period
immediately prior to such time was the beneficial owner,
directly or indirectly, of more than ten percent (10%) of the
outstanding common stock of the Corporation; or
(iii) Is at any time an assignee of, or has
otherwise succeeded to the beneficial ownership of, any shares
of common stock which were at any time within the two-year
period immediately prior to such time beneficially owned by
any Interested Stockholder, if such assignment or succession
shall have occurred in the course of a transaction or series
of transactions not involving a public offering within the
meaning of the Securities Act of 1933, as amended from time to
time.
(c) A person shall be a "beneficial owner" of any shares
of stock:
(i) Which are beneficially owned, directly or
indirectly, by such person or any of its Affiliates or
Associates;
(ii) Which such person or any of its Affiliates or
Associates has (A) the right to acquire (whether or not such
right is exercisable immediately) pursuant to any agreement,
arrangement or understanding or upon the
-8-
<PAGE> 9
exercise of conversion rights, exchange rights, warrants or
options or otherwise or (B) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) Which are beneficially owned, directly or
indirectly, by any other person with which such person or any
of its Affiliates or Associates has any agreement, arrangement
or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of common stock.
(d) For the purposes of determining whether a person is
an Interested Stockholder pursuant to subsection 5(b), the number of
shares of common stock deemed to be outstanding shall include shares
deemed owned by an Interested Stockholder through application of
subsection 5(c) but shall not include any other shares of common stock
which may be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights, exchange
rights, warrants or options or otherwise.
(e) "Affiliate" and "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Exchange Act, as in effect on July 28, 1988 (the
terms registrant in said Rule 12b- 2 meaning in this case, the
Corporation).
(f) "Beneficially owned" shall have the meaning ascribed
to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act, as in effect on July 28, 1988.
(g) "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Corporation.
(h) "Disinterested Director" with regard to a Business
Combination means any member of the Board of Directors of the
Corporation who is not an Interested Stockholder involved in such
Business Combination.
(i) "Fair Market Value" means: (A) in the case of stock,
the highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange Listed Stocks or, if such
stock is not quoted on the Composite Tape, on the New York Stock
Exchange or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Exchange Act on which such stock is listed or, if such stock
-9-
<PAGE> 10
is not listed on any such exchange, the highest closing sale price or
the highest closing bid quotation, respectively, with respect to a
share of such stock during the 30-day period preceding the date in
question on the National Market System or the National Association of
Securities Dealers, Inc. Automated Quotations System, as the case may
be, or any system then in use or, if no such quotations are available,
the fair market value on the date in question of a share of such stock
as determined by a majority of the Disinterested Directors in good
faith; and (B) in the case of property other than cash or stock, the
fair market value of such property on the date in question as
determined by a majority of the Disinterested Directors in good faith.
(j) In the event of any Business Combinations in which
the Corporation survives, the phrase "consideration other than cash"
as used in subsection 3(b) of this Article 6 shall include the shares
of stock retained by the holders of such shares.
(k) "Substantial Part" of the Corporation shall mean ten
percent (10%) or more of the fair market value of the total assets of
the Corporation on a consolidated basis as of the end of its most
recent fiscal quarter ending immediately prior to the time the
determination is made.
Section 6. Determination by Disinterested Directors. The
Disinterested Directors shall have the power and duty to determine for purposes
of this Article 6, on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this Article 6,
including, without limitation, (a) whether a person is an Interested
Stockholder, (b) the number of shares of common stock beneficially owned by any
person, (c) whether a person is an Affiliate or Associate of another, (d)
whether the requirements of subsection 4(b) have been met with respect to any
Business Combination and (e) whether the fair market value of the assets which
are the subject of any Business Combination equal or exceed, or whether the
consideration to be received from the issuance or transfer of securities by the
Corporation or any Subsidiary thereof in any Business Combination equals or
exceeds, a Substantial Part of the assets of the Corporation. Any such
determination made in good faith shall be binding and conclusive.
Section 7. No Duty to Approve Business Contributions. Nothing
contained in this Article 6(d) shall be construed to relieve any Interested
Stockholder from any fiduciary obligation imposed upon it by law.
Section 8. Minimum Consideration. Consideration for shares to be
paid to any stockholder pursuant to this Article 6(d) shall be the minimum
consideration payable to such stockholder and
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<PAGE> 11
shall not limit such stockholder's right under any provision of law or
otherwise to receive greater consideration for any shares of the Corporation.
Section 9. Fiduciary Obligations. The fact that any Business
Combination complies with the provisions of Section 4 of this Article 6(d)
shall not be construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors, or any member thereof, to approve
such Business Combination or recommend its adoption or approval to the
stockholders of the Corporation, nor shall such compliance limit, prohibit or
otherwise restrict in any manner the Board of Directors or any member thereof
with respect to evaluations of, or actions and responses taken with respect to,
such Business Combination.
Section 10. Amendment to Article. Notwithstanding any other
provisions of law, these Articles of Organization or the By- laws of the
Corporation, and notwithstanding the fact that a lesser percentage may be
specified by law, the affirmative vote of the holder of at least eighty percent
(80%) of the outstanding common stock of the Corporation entitled to vote
generally in the election of directors shall be required to amend or repeal, or
to adopt any provision inconsistent with, this Article 6(d); provided that such
eighty percent (80%) vote shall not be required for any such amendment, repeal
or adoption previously approved by the Board of Directors and by a majority of
the Disinterested Directors. Such 80% vote shall be in addition to any
separate class vote which may be accorded from time to time to other classes or
series of stock of the Corporation.
-11-
<PAGE> 1
[CHOATE, HALL & STEWART LETTERHEAD]
May 18, 1995
Microcom, Inc.
500 River Ridge Drive
Norwood, MA 02062-5028
Gentlemen:
This opinion is delivered to you in connection with the registration
statement (the "Registration Statement") on Form S-3 of Microcom, Inc. (the
"Company") to be filed on May 19, 1995 with the Securities and Exchange
Commission by the Company under the Securities Act of 1933, as amended, for
registration under said Act of 3,680,000 shares of the common stock, $.01 par
value (the "Common Stock"), of the Company.
We are familiar with the Restated Articles of Organization of the
Company, the corporate minute book and the by-laws of the Company, as amended,
and the Registration Statement. We have also made such further investigation
as we have deemed necessary for the purposes of this opinion.
Based upon and subject to the foregoing, we are of the opinion that
the shares of Common Stock to be sold by the Company pursuant to the prospectus
contained in the Registration Statement (the "Prospectus") have been validly
authorized for issuance and, when issued against receipt of the purchase price
described in the Prospectus, will be legally issued, fully paid and
nonassessable.
We understand that this opinion is to be used in connection with the
Registration Statement. We consent to the filing of this opinion as an exhibit
to the Registration Statement and the reference to our firm in the Prospectus
under the caption "Legal Matters."
Very truly yours,
CHOATE, HALL & STEWART
<PAGE> 1
EXHIBIT 10.1
CONFIDENTIAL TREATMENT REQUESTED AS TO CERTAIN PORTIONS
AS INDICATED BY "[*CONFIDENTIAL MATERIAL DELETED*]"
AGREEMENT NUMBER: CM10382CMG
PURCHASE AGREEMENT
This Agreement is entered into by and between Sprint Communications
Corporation L.P. (hereinafter "Sprint") with its principal place of
business located at 12490 Sunrise Valley Drive, Reston, Virginia 22096 and
Microcom (hereinafter "Seller") with its principal place of business
located at 500 River Ridge Drive, Norwood, Massachusetts 02062-5028.
WHEREAS, Sprint wishes to be able to purchase various products from Seller,
which Sprint will either use itself or resell to others, and Seller is
wiling to sell such products to Sprint subject to the terms and conditions
of this Agreement.
ARTICLE 1. DEFINITIONS
1.1 "Affiliate" shall mean a company directly or indirectly owned or
controlled by, or owning or controlling, or under common ownership or
control with Sprint.
1.2 "Effective Date" shall mean the later of the dates on which this
Agreement is signed either by Sprint or Seller.
1.3 "Documentation" shall mean, individually and collectively, all
written information, diagrams or flow charts which are necessary for
the use, installation, or operation of the licensed software and/or
hardware. (A complete list of the Documentation is set forth on
Exhibit A). This definition shall include any modification, revision
or new releases of the Documentation made by or on behalf of Seller
or which are made by a third party and are incorporated in the
Documentation by Seller.
1.4 "Product(s)" shall mean each of the products, software, components,
parts, tools and/or test equipment described in Exhibit B which is
attached hereto and incorporated herein, as that Exhibit may be
amended from time to time in writing by the parties.
ARTICLE 2. SCOPE OF AGREEMENT
<PAGE> 2
2.1 This Agreement sets forth the terms and conditions under which Sprint
or an Affiliate may order Products from Seller hereinafter referred
to collectively as Sprint. Sprint may use the Products, themselves,
use the product to provide services to others, or resell, lease,
license or distribute them in any manner to others, subject to the
terms and conditions of this Agreement.
2.2 Sprint and its Affiliates are not required to make any minimum
purchase order during the term of this agreement. Any forecasts
supplied to Seller by Sprint are to be used for planning purposes
only and shall not constitute a commitment on Sprint's part, in any
way, to purchase said quantities.
2.3 Unless otherwise agreed to, in writing, at the time an order is
issued to Seller, the terms and conditions of this agreement shall
govern the transactions resulting from such an order. Except for
quantities of and types of Products ordered, type of services
ordered, price of Product or service and shipping and invoicing
instructions, neither the terms of a purchase order nor any terms
specified by an acknowledgment form used by the Seller shall have any
bearing on the transaction resulting from such purchase order, unless
specifically agreed to in writing by the parties.
ARTICLE 3. PLACEMENT OF ORDERS
3.1 Sprint shall order Products by issuing to Seller signed, numerically
controlled purchase orders. No other means of ordering, whether in
writing or not, shall constitute a commitment to purchase goods and
services from Seller. Sprint shall be relieved of any and all
obligations to Seller for any transactions which are undertaken by
the Seller, if such under taking is not requested through a duly
authorized Sprint purchase order.
3.2 All purchase orders received by Seller for Products shall be deemed
accepted by Seller upon their receipt, if the purchase order is in
compliance with the terms of this Agreement. In the event the
purchase order is not in compliance with the terms of this Agreement,
then the purchase order will not be deemed accepted until Seller
issues a written acceptance. Seller shall notify Sprint within ten
(10) days of receipt s that they have accepted the non-conforming
order.
ARTICLE 4. PRICE AND PAYMENT
4.1 Seller shall charge Sprint for each Product ordered by Sprint in
accordance with the prices set forth in Exhibit C, which is attached
hereto and incorporated herein.
<PAGE> 3
4.2 Seller warrants that the terms, conditions and prices of this
Agreement are favorable as the terms, conditions or prices given to
any third party that purchase equivalent quantities of Products from
Seller.
4.3 The prices charged by Seller under this article are exclusive of any
sales, use, import, excise or other similar or equivalent taxes which
shall be the responsibility of and shall be paid by Sprint.
4.4 Seller shall not increase the prices set forth in Exhibit C, during
the term of this Agreement. In the event that Seller decreases its
list prices for any of the Products listed in Exhibit C after July 1,
1993, the Seller agrees to reduce its price to Sprint on a
proportional basis of original list price to revised list price. This
price reduction will be applicable for any products on back order at
the time of the price decrease. Additionally, any new orders received
by Seller from Sprint after the price decrease will be adjusted for
the new price.
4.5 Sprint shall submit payment for Products shipped against a duly
authorized purchase order within 30 days after receipt of a proper
and correct invoice.
ARTICLE 5. SHIPMENT AND RISK OF LOSS
5.1 With the exception of the HD/4232hs modems, all orders placed by
Sprint shall be shipped within 30 days of Seller's receipt of the
order to the addresses in the purchase order. Sprint's initial order
of 1,050 HD/4232hs modems and cards will ship by July 31, 1993, and
any future orders for HD/4232hs modems shall ship within 45 days of
Seller's receipt of the order. Seller shall use its best efforts to
meet any expedited shipping schedule requested by Sprint.
5.2 Seller shall follow packaging specification defined in NSTA-IA for
packages of 100 lbs. and under, Sprint shall have the right to
request modifications in packaging design, materials and methods if,
in Sprint's reasonable judgment, the Seller's packaging methods are
inadequate or contribute to the damages incurred during shipment.
5.3 Seller shall use the carrier designated by Sprint for all shipments.
Where Sprint does not specify a carrier the Seller may select the
carrier best suited for the shipment from Sprint's Transportation
Routing Guide. (Attached hereto, marked Exhibit D and incorporated
herein).
5.4 Title to the Products and all risks of loss or damage shall pass to
Sprint upon Seller's delivery of the Products to the carrier F.O.B.
at Seller's facility in Norwood, MA. Seller shall bear all risk of
loss if the carrier used by Seller is not the Sprint
<PAGE> 4
designated carrier.
5.5 Shipping charges are to be prepaid and added to the invoice
associated with the shipment unless otherwise called for in Sprint
purchase order.
5.6 In lieu of Sprint rescheduling a delivery date on a pending order,
Seller shall grant Sprint a one time, per order basis, 30-day
extension on payment terms in the event Sprint's plan to install the
ordered Product(s) is delayed.
5.7 Seller agrees that all Products containing the Sprint enhancement
features shall ship from Seller's location per Sprint configuration
[MS710] specification as defined in Exhibit F, which may be modified
as mutually agreed upon.
5.8 In the event that Sprint must deliver Products to a third party
customer or Sprint by a fixed delivery date, or incur liquidated
damages because of late delivery, Sprint shall indicate their
requirement by placing on the purchase order the notice "LIQUIDATED
DAMAGE ORDER." The products covered by such a purchase order shall be
shipped to Sprint within sixty (60) days of Seller's acceptance of
the order or such other lead times the parties shall agree upon. If
the Products are not shipped by such date, Seller shall pay to Sprint
a liquidated damage amount provided that liquidated damages have been
assessed against Sprint by Sprint's customer. This amount shall be
equal to one half of one percent (0.5%) of the net invoice price of
the Products whose delivery is delayed for each calendar day that the
delivery date exceeds the sixty (60) days. However, in no event shall
the total amount exceed twenty percent (20%) of the net invoice price
of the Products. The parties agree that this amount shall be in lieu
of actual damages with respect to timeliness of delivery and does not
constitute a penalty. Purchase orders which have been marked as a
"LIQUIDATED DAMAGE ORDER" may not be cancelled, except as set forth
in Section 16.12. Notwithstanding the foregoing, in the event there
is a recognized industry wide component shortage which affects
Seller's ability to timely deliver Products then this Section shall
not be applicable.
5.9 Seller shall mark the model number of every Product contained in a
shipping carton on the outside of such carton. In addition, Seller
shall place Sprint supplied bar code stickers on all Products and
boxes. Sprint shall make available these labels within (45) days of
the desired ship date.
ARTICLE 6. INSPECTION AND ACCEPTANCE
6.1 All goods or services delivered by Seller hereunder shall be subject
to inspection and testing at a Sprint, Sprint Customer, Seller or
Seller
<PAGE> 5
subcontractor's premise. Sprint shall have forty-five (45)
days from date of delivery at the F.O.B. point to receive and inspect
all Products purchased in accordance with Sprint's incoming
inspection procedures. Products which fail to meet Sprint's
inspection criteria, which will be defined by Sprint, with the
participation of Seller, shall be returned to Seller freight collect.
Seller shall pay for reshipping conforming products to Sprint.
6.2 In the event that the Seller's single lot or aggregate annual
confirmed rejection rate exceed three (3) percent of the Products
shipped to Sprint, Sprint may, at its sole option:
i) Inspect the Products ordered at the Seller's
facility and invoice Seller for reasonable
travel costs of Sprint's inspection team; and/or
ii) Place all pending shipments on hold until Seller has
demonstrated that the cause for rejection has been
satisfactorily addressed and corrected, and if such cause for
rejection is not addressed and corrected within thirty (30)
days, cancel outstanding purchase orders without further
obligation on Sprint's part; and/or
iii) Sprint may take reasonable appropriate action to address and
correct such cause for rejection and invoice Seller for actual
costs of the undertaking should Seller fail to address and
correct such cause for rejection within thirty (30) days of
receipt of notification of the problem from Sprint.
6.3 If after successful completion of the incoming inspection procedures
in paragraph 6.1 Sprint discovers that the Products do not conform to
the specification contained in Exhibit B Sprint will notify the
Seller of such non-conformance in writing. Seller shall then have
thirty (30) days to resolve this non-conformance without introducing
any new nonconformities. In the event resolution of the
nonconformance requires modification of the Rockwell firmware, the
period to resolve the non-conformance shall be Seller's best effort
to meet thirty (30) days. If Seller has not corrected the
non-conformity after the period allowed by this Section 6.3, then
Sprint may revoke acceptance of such Product. In the event of
revocation, Sprint shall return the revoked Products to Seller, at
Seller's expense, and Seller shall refund to Sprint any monies paid
for such returned Products.
6.4 Sprint may at its sole discretion, request a site inspection at
Seller's or Seller's subcontractors facility by providing seven (7)
days notice to Seller of Sprint's intent to conduct such site
inspection.
6.5 The parties agree to meet quarterly at Sprint's
<PAGE> 6
facility, for a quality review of the performance of Products
delivered to Sprint under this Agreement. The time, date and agenda
of such meetings shall be mutually agreed upon; however, it is
anticipated topics will include failure rates of Products, ECN's
compliances and related quality control issues.
6.6 In the event Seller becomes aware of any problem with a Product that
is of a serious performance, safety or regulatory compliance nature,
and in the event that Seller determines it necessary to change the
design or documentation related to such Product, Seller shall provide
prompt notification within five (5) working days or less to the
designated Sprint technical contact and then implement such change in
accordance with the Engineering Change Notice ("ECN") Policy set
forth in Exhibit E, which is attached hereto and incorporated herein.
6.7 Sprint shall notify Seller of problems it discovers in the Products
and of Complaints received by Sprint from customers. (Such problems
and Complaints shall be, individually and collectively, referred to
as "Complaints"). Notice of Complaints shall be provided to Seller in
writing, in accordance with Sprint's practices for communicating such
information and after thorough investigation of the Complaint.
Complaints will include Products furnished by Seller that (i) result
in a fire or safety hazard; or (ii) fail within thirty (30) days of
installation, (iii) require maintenance within a time span that is
less then Seller's MTBF specification as defined in Exhibit H, or
(iv) fail to perform functional specifications as defined in Exhibit
B, (v) Sprint and Seller agree to work jointly on a best efforts
basis to resolve any complaint related to incompatibility to any 3rd
parties equipment. For Complaints which Seller determines present a
fire or safety hazard, Seller shall use its best effort to provide
Sprint with the possible cause and a plan of corrective action in the
form of an ECN, within a reasonable time, given the nature and extent
of the hazard, but in no event more than thirty (30) days after
receipt of the Complaint. For Complaints which Seller determines are
due to major design deficiencies, Seller shall make best efforts to
provide Sprint with the possible cause and a plan of corrective
action in the form of an ECN within a reasonable time given the
nature and extent of the deficiency, but in no event more than thirty
(30) days after receipt of the Complaint.
6.8 Seller shall provide Sprint with a written report on a quarterly
basis, unless otherwise agreed, stating (i) whether any Products
purchased by Sprint under this agreement require an ECN, and (ii) the
status of any Complaint, and (iii) the failure rates for the
Products. In addition, to a quarterly summary of ECN's that affect
form, fit, function of safety of the Products, Seller shall provide
all supporting ECN
<PAGE> 7
information to Sprint. In addition, Seller shall provide Sprint
quarterly with any technical bulletins that it issues, e.g.
Tech-Flash Reports (Sprint shall provide Seller with the names and
addresses of the persons to whom the items listed in this Section are
to be sent.)
6.9 Seller understands that in order for the Products to be connected to
the Sprint public communications network, the Products must pass
Sprint's certifications process. Accordingly, Seller shall provide to
Sprint such number of each Product, as the parties agree upon, at no
charge, along with the applicable cables, documentation and licensed
software, so that Sprint may perform its certification process.
6.10 Seller agrees to provide engineering support services at Sprint
designated site(s) to assist Sprint with Sprint's certification
process and Product implementation on Sprint's network of Seller's
Product(s) including new Products and major Product upgrades. Seller
agrees to provide up to two (2) week of such services at no charge to
Sprint per each certification, Product implementation and/or major
upgrade activity. Additional engineering support will be provided
free of charge as is mutually determined necessary.
6.11 By August 15, 1993, Seller shall make available to Sprint Seller's V.
fast beta modem Product for Sprint certification testing. The beta
product shall include Sprint enhancement features, all HD4232hs
functionality, and CCITT compliant specifications for V.32 bis and
V.42 bis modems as stated per Exhibit B. Seller and Sprint shall
provide best efforts to insure that the subject V. fast Product
passes Sprint's certification process (as defined by Exhibit G) by
September 30, 1993. Should Seller fail to pass the Sprint
Certification Process by September 30, 1993, then Seller shall
provide its HD/4232hs modem Product and V.fast certification testing
shall continue until such time as the V.fast Product is accepted. For
all HD/4232hs modems ordered after September 30, 1993, as a result
Seller's V.fast Product failing to pass the Sprint Certification
Process, Seller shall provide any and all additional hardware,
software, firmware, and services necessary to enact a Product upgrade
to the V.fast Specification upon acceptance of the V.fast Product by
Sprint at no charge to Sprint. Should Seller's V.fast Product fail to
pass Sprint's certification test by October 18, 1993, Sprint shall at
its sole option: (i) cancel this Agreement with no further
obligation, (ii) accept the Seller's interim HD v.32bis product at a
$[*CONFIDENTIAL MATERIAL DELETED*] per port cost (contingent on a
November 30, 1993 Certification acceptance) until such time as V.fast
product is accepted, and extend the certification test period an
additional ninety (90)
<PAGE> 8
days.
6.12 Seller agrees to not ship Product(s) ordered hereunder which have
been changed or modified to the extent that the Product(s) would
require recertification by Sprint to operate on Sprint's PDN, without
prior notice and approval by Sprint.
ARTICLE 7. ORDER CANCELLATION
7.1 Sprint shall have the right to cancel any outstanding purchase order
without cost or obligation provided such cancellation is made at
least ten (10) days prior to the scheduled delivery date. With the
exception that any order cancelled for the HD/4232hs Product shall be
subject to a $[*CONFIDENTIAL MATERIAL DELETED*] per modem
cancellation fee.
ARTICLE 8. WARRANTY
8.1 For a period of two (2) years from the date of delivery, Seller
warrants to Sprint that all goods and services delivered hereunder
will conform in all respects with the terms of this Agreement and
shall conform to the specifications for the Products. (A copy of the
specifications for Products is attached hereto and marked Exhibit B).
Seller warrants to Sprint that the Products are free from defects in
materials, workmanship and design, that they are free from any and
all liens, restrictions, reservations, security interests and/or
encumbrances.
8.2 If such Product is not fee from defects in material or workmanship or
fails to comply with the applicable Product specification during such
warranty period, Seller will repair, replace or modify the Product so
that it does comply with the applicable Product specification. The
warranty service shall be performed at Seller's or Sprint's
facilities as mutually agreed upon. If Seller is unable to repair,
replace or modify the Product, within 15 days upon receipt of the
Product, Sprint may at its option reject the Product. If Sprint
rejects the Product, Seller shall refund to Sprint all monies paid in
connection with that defective Product.
8.3 This warranty shall not apply to any Products which have ben subject
to accident, alteration or abuse.
8.4 All parts repaired or replaced by Seller are warranted to be
substantially free from defects in material and workmanship for the
remainder of the original warranty period or for a period of ninety
(90) days from the date of repair or replacement, whichever period is
longer.
8.5 Seller warrants that the Products, when delivered, will comply with
47 C.F.R. Part 15 Class A Regulations governing Radio Frequency
Devices. If such Product does not comply, Seller will either
<PAGE> 9
repair the Product so that it complies or replace it with one that
complies.
8.6 Seller warrants that the Products, when delivered, will comply with
all applicable U.S. laws and regulations including, but not limited
to 47 C.F.R. Part 68, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Consumer Product Safety
Act of 1972, the Toxic Substance Control Act, the Occupational Health
and Safety Act, and the Radiation Control Act.
8.7 THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
ARTICLE 9. SELLER'S ADDITIONAL OBLIGATIONS
9.1 Seller shall train representatives of Sprint with respect to the
operation, configuration, installation, service maintenance and
support of the Products. Training will take place at Sprint's
facilities at mutually agreeable times. Sprint may have as many
people including Sprint's own trainers as it desires in each session
whereby each training session is expected to last five (5) working
days. Seller shall provide training to Sprint free of charge, on a
quarterly basis as long as Sprint continues to buy at least
[*CONFIDENTIAL MATERIAL DELETED*] modems or upgrades per quarter or
[*CONFIDENTIAL MATERIAL DELETED*] modems during the previous 12-month
period. There shall be no cost to Sprint for the documentation
associated with such training.
9.2 Sprint may copy, modify and use internally the materials provided to
it by Seller during any training session or other documents provided
by Seller, provided that Sprint reproduces any copyright notice or
other proprietary notice contained in the original document in the
copies it makes. Sprint may use these materials to train Sprint
employees and third parties with respect to the Products.
9.3 During the term of this Agreement, Seller shall provide technical
assistance in the form of a help desk, remote diagnostics and network
emergency assistance to Sprint with respect to the use, maintenance
and instillation of the Products. This service shall be available
twenty-four (24) hours per day, every day of the year. Seller shall
respond within one (1) hour to any request for assistance made within
the hours of 7 a.m. to 7 p.m., Seller's facility local time, Monday
through Friday, inclusive. In addition, Seller shall respond within
one (1) hour to any request for emergency support, even if such
request is made outside of such hours. Seller shall maintain a system
that records and tracks each of Sprint's requests for support.
<PAGE> 10
9.4 During the term of this Agreement, Seller shall designate a primary
and secondary salesperson and technical representative to assist
Sprint. The technical representative shall assist Sprint with network
design, configuration, preparation of technical proposals and such
activities as the parties agree upon. The secondary salesperson and
technical representative shall assist Sprint only in the event of the
absence of the primary salesperson or technical representative, or if
there is need for additional support from Seller. There shall be no
charge to Sprint by Vendor for such support. The names, mailing
address, phone number and fax number of the primary and secondary
sales person and technical representative shall be provided to Sprint
within two (2) days of the effective Date.
9.5 During the term of this Agreement and for a period of eight (8) years
thereafter, Sprint may purchase Hardware and Software maintenance
services from Seller. The manner in which the Hardware and Software
maintenance services will be performed shall be mutually negotiated.
9.6 Seller shall provide Sprint with three (3) copies of any diagnostic
software utilized by Seller with respect to the installation and
maintenance services of the Products.
9.7 During the term of this Agreement and for a period of eight (8) years
following the discontinuance of a Product, Seller shall make all
necessary spare parts an Products, or their functional equivalent
available for purchase by Sprint, so that Sprint may meet existing
obligations relative to the Products. Such functional equivalent
Products shall include all Sprint enhancement features. Seller shall
also make available to Sprint such information as is reasonably
required in order to allow functionally equivalent products and spare
parts to perform with Products previously delivered to Sprint.
9.8 In the event Seller intends to either (i) replace a Product with a
functionally equivalent one, including price, or with one of greater
functionality, or (ii) to discontinue a Product, Seller shall provide
Sprint with at least six (6) months prior written notice of such
event. It is understood between the parties that the HD/V.fast
Product will replace the HD4232hs Product when certified by Sprint.
In the event Seller intends to change the form, fit, and function of
a Product, Seller shall first provide Sprint with a sixty (60) day
written notice to which Sprint must respond with a positive
acceptance of the change within a following sixty (60) day period,
before Seller may ship such Product.
9.9 The parties agree to meet once every six (6) months
<PAGE> 11
to discuss Seller's future product plans. The parties may alter the
frequency of such meetings by mutual agreement.
9.10 In the event Seller is requested in writing by Sprint to add a
feature, function or enhancement or in any way modify Product
("Additional Development"), Seller shall within ten (10) days of
receipt of the request provide a written response to Sprint. The
response shall be either a proposal for the Additional Development,
including costs and schedule, or it shall be a refusal to perform the
Additional Development. All Additional Development performed by
Seller solely at Sprint's expense shall be owned by Sprint, including
all intellectual property rights contained in such Additional
Development. In the event of such Additional Development, Sprint and
Seller shall execute all documents as are reasonably required to
ensure that Sprint is the owner of such Additional Development,
including assignment. However, should Sprint require a minor
modification to Seller's Product whereby the minor modifications can
be performed within one (1) forty (40) hour week by one of Seller's
Engineers, then Seller's performance shall be at no charge to Sprint.
9.11 In the event Seller modifies, enhances or changes in any way a
Product, such modification, enhancement, or change will be
incorporated into the Product(s) ordered by Sprint. In addition, such
Product(s) as modified, enhanced or changed by Seller shall work with
all Additional Development previously done by Seller. Sprint
understands that the HD4232/hs Product may require additional
development to be compatible with the enhancements made by Seller and
that there may be a fee associated with such development, mutually
agreed upon by both parties.
9.12 In the event that a problem involving Seller's Product(s) is
encountered, Seller will provide an appropriate level of effort to
solve the problem as classified with the mutual agreement by both
parties, by the problem severity as follows:
i) Severe---The problem is of such a nature that the Product is
unusable. In this case, Seller shall establish a performance
objective to have a maximum turn around time of two (2) days for
the correction of Severe problems.
ii) Moderate---The Product functions but a few users are
experiencing a major loss of productivity or a large number
of users are experiencing a significant loss of productivity.
In this Case, Seller shall establish a performance objective
to have an average turn around time of fifteen (15) business
days for correction of Moderate Errors.
iii) Minimal---The Product functions with minor
<PAGE> 12
impact on the users and little or no loss of productivity. In
this case, Seller shall establish a performance objective to
have an average turn around time of thirty (30) business days
for correction of Minimal Errors.
9.13 The following Escalation Procedures shall be followed whenever a
request for problems classified as severe is referred to Seller.
Within thirty (30) days of Contract execution Seller shall furnish
its points of contact under this Procedure.
i) Sprint will refer all requests for problem resolution to the
designated Seller customer services center.
ii) If Seller is unable to resolve the problems within four (4)
hours of receipt, then Sprint may escalate the problem to
Seller's first level customer service management.
iii) If Seller is unable to resolve the problem within eight (8)
hours of receipt, then Sprint may escalate the problem to
Seller's Director of Customer Service.
iv) If the problem remains unsolved within twelve (12) hours of
receipt, then Sprint may escalate the problem to Seller's Vice
President.
v) If the problem remains unsolved within twenty-four (24) hours of
receipt, then Sprint may escalate the problem to Seller's
President.
9.14 Seller understands that Sprint will require its modem suppliers to
conform to the SNMP Standard for modem management. Seller agrees to
adopt and support the SNMP Standard within six (6) months of the
standard being announced by a mutually agreed upon Standards
committee.
ARTICLE 10. INDEMNIFICATION AND INSURANCE
10.1 Seller agrees to indemnify, hold harmless and defend Sprint, its
customers, officers, employees, affiliated companies, agents and
representatives against any claim, demand, suit, cause of action,
liability, loss or expense (including reasonable attorney's fees)
related to this Agreement including but not limited to:
A. Claim of governmental authorities of any actual or asserted
failure of Seller to comply with any applicable law,
regulation or order.
B. Injury to or death of persons or damage to or loss of property
arising directly from any known defect in the goods or services
purchased hereunder, or out of the acts or omissions to act of
Seller or its subcontractors, suppliers
<PAGE> 13
or agents or any employees thereof, in their
performance under this Agreement. This
indemnification shall be in addition to the
warranty obligations of Seller.
C. Laborers', materialmen's, and/or mechanics liens
arising from the performance of Seller
hereunder.
10.2 Seller shall, at its expense, indemnify, hold
harmless and defend Sprint against any claim, demand,
suit, cause of action, liability, loss or expense
(including reasonable attorney's fees) which is based
upon a claim that the goods or services or any part
hereof purchased hereunder or the use by Sprint
(including resale) thereof constitutes an
infringement of any patent, trademark, or copyright
in the United States, provided that Sprint give
Seller written notice of such a claim. Sprint shall
promptly notify Seller of any claim or action and
shall give Seller the information or assistance it
reasonably requests in defending or settling the
action. Seller shall have control of the legal
defense and shall pay any amount awarded either as
damages or costs in any such action. Seller shall
pay all damages and costs awarded against Sprint or
any amounts in settlement of such claim. In the
event that the purchase or use of the goods or
services covered by this Agreement is enjoined,
Seller shall at its own expense and at the option of
Sprint:
a) Procure for Sprint and its customers the right
to continue using such goods or services; or
b) Replace the infringing items with a non-
infringing equivalent; or
c) Modify the infringing items so they become non-
infringing; or
d) Upon a showing of its inability to do any of the
foregoing, remove such goods or discontinue such
service and refund the full purchase price,
including any transportation and instillation
costs thereof.
10.3 Throughout its performance under this Agreement,
Seller agrees to purchase and maintain policies of
insurance covering its contractual performance
hereunder and general public liability protection,
with Sprint expressly named as an additional insured
under such policies.
10.4 If Seller's work under this Agreement involves
performance by the Seller on the premises of Sprint
or one of its customers, Seller shall take all
necessary precautions to prevent the occurrence of
any injury to person or property during the progress
of such work and shall adhere to any applicable
<PAGE> 14
security procedures of Sprint or its customers as the
case may be. Except to the extent that any such
injury is due solely and directly to Sprint or its
customer's negligence, as the case may be, Seller
shall indemnify Sprint against all losses which may
result form any act or omission of the Seller, its
agents, employees, or subcontractors. Seller agrees
to maintain Worker's Compensation Insurance
sufficient to comply with the particular state's law
in which Seller is currently working. Seller shall
also maintain public liability insurance, including
Contractual Products Liability and Completed
Operations with limits of one million ($1,000,000)
per occurrence. In addition, in the event Seller or
its subcontractors operate an automobile on such
premises, Seller shall maintain Automobile Insurance
with limits of one million ($1,000,000) per
occurrence. Seller shall produce certificates
showing such coverage upon request by Sprint. Seller
agrees to indemnify, hold harmless, and defend Sprint
and its customers from and against all laborers,
materialmen's and/or mechanic's liens arising from
the performance Seller's obligations under this
Agreement shall keep the premises of Sprint and of
its customers free from all such claims, liens and
encumbrances. Seller waives all rights of mechanic's
lien against the property and premises of Sprint and
its customers.
10.5 Neither party shall be liable for special, incidental
or consequential damages, including loss or use of
data, or lost profits, even if it has been advised of
the possibility of such damages.
ARTICLE 11. GOVERNMENT COMPLIANCE
11.1 Seller acknowledges that Sprint may acquire Products
to either provide to the Federal Government or to use
in providing services to the Federal Government. In
the purchase order, ordering such Products, Sprint
will reference the mandatory Federal Acquisition
Regulations (FARS) applicable to such order, and such
FARS are hereby incorporated by reference with the
same force and effect as if set forth herein.
ARTICLE 12. COMPLIANCE WITH LAWS
12.1 Seller warrants that it is and will remain in full
compliance with applicable Federal, state and local
statutes regulations rules, orders and judicial and
administrative law decisions including but not
limited to matters regarding occupational health and
safety, non-segregated facilities, and the
prohibitions of employment discontinuation. Seller
warrants that, if applicable it is in compliance with
the Vietnam Era Veterans Readjustment Assistant Act
of 1974 and the Rehabilitation Act of 1973 and
supporting regulations Seller will indicate by
signing a self-certification form if Seller is a
small business or a socially and economically
<PAGE> 15
disadvantaged/women's business or located in a labor
surplus area as defined by Government regulation and
law. Seller warrants that it is in compliance with
the Anti-Kickback Act of 1986-41USC 51-58, and shall
hold Sprint harmless from any monetary loss Buyer may
suffer resulting from failure of such compliance.
ARTICLE 13. TERM AND TERMINATION
13.1 This agreement will be in effect from the Effective
Date for a period of (2) two years with a (1) one
year renewable option.
13.2 Termination upon Default--Either party may delay
performance under this Agreement or terminate this
Agreement, in whole or in part, in the event of a
default by the other, provided that the non-
defaulting party so advises the defaulting party in
writing of the event of alleged default and the
defaulting party does not remedy the alleged default
within thirty (30) days after written notice thereof.
Default is defined to include:
(a) Either party's insolvency or initiation of
bankruptcy or receivership proceedings by or
against the party;
(b) Either party's material breach of any of the
terms or conditions hereof including the failure
to make any payment when due, if the amount of
the payment due is not in dispute; or
(c) The execution by either party of an assignment
for the benefit of creditors or any other
transfer or assignment of a similar nature.
13.3 Termination regardless of cause or nature shall be
without prejudice to any other rights or remedies of
either party and without liability to the other party
(except as provided in this Agreement) for any loss
or damage occasioned thereby, and each party shall
remain responsible for its obligation existing
immediately prior to termination.
13.4 Survival of Obligations--Termination of this
Agreement for any cause shall not release the party
hereto for any liability which at the time of
termination has already accrued to the other party
hereto or which thereafter may accrue in respect to
any act or omission prior to termination or from any
obligation which is expressly stated herein to
survive termination.
ARTICLE 14. USE OF PRODUCTS
14.1 Sprint may resell, lease, use or otherwise sub-
license the Products directly to customers. Seller
hereby sub-licenses to such customers of Sprint the
right to use any intellectual property, if any,
contained in the Products, while the customers uses
<PAGE> 16
the Products. This article shall survive the
termination of this agreement.
ARTICLE 15. PRIVATE LABELING
15.1 Sprint and its Affiliates shall have the right to
private label products purchased under this
Agreement. In addition, Sprint shall have the right
to private label the standard commercial
documentation provided by Seller and incorporate such
documentation into Sprint's own documentation, using
Sprint's own formats. It is understood by the
parties that Sprint shall be responsible for any
costs or filings associated with transfer approvals.
ARTICLE 16. MISCELLANEOUS
16.1 Publicity-Except as may be required by law or as set
forth elsewhere in this Agreement, neither party
shall, without the other party's prior written
consent, which shall not be unreasonably withheld:
(a) Make any news release, public announcement,
details or confirmation of this Agreement or its
subject matter; or
(b) In any manner advertise or publish the fact that
they have contracted hereunder.
16.2 Confidential Treatment--The contents and substance of
this Agreement shall in no event be disclosed by
either party or their employees to a third parties
except with the prior written consent of the other
party hereto, or as may otherwise be required by law.
16.3 Applicable Law--The validity, construction and
performance of this Agreement shall be governed by
and interpreted in accordance with the laws of the
Commonwealth of Virginia, without giving effect to
the principles of conflict of laws thereof.
16.4 Effects of Headings--Heading to articles and
paragraphs of this Agreement are to facilitate
reference only, do not form a part of this Agreement,
and shall not in any way affect the interpretation
hereof.
16.5 Assignment--This Agreement and all rights and
obligations hereunder, excepting the right to receive
payment, are personal to the parties hereto and may
not be assigned in whole or in part by either party
without the prior written consent of the other;
provided, however, that either party may assign this
Agreement in conjunction with a merger
reorganization, or the sale of all or of
substantially all of its assets to which this
Agreement pertains, or in conjunction with the
creation or acquisition of subsidiary, affiliated or
associated companies. Either party may also assign
this Agreement without prior written consent to any
<PAGE> 17
entity owned or controlled by the respective Parent
Corporations.
16.6 Non-Waiver--The waiver, express or implied, by either
party hereto of any right hereunder or of any failure
to perform or of a breach hereof by the other party
hereto shall not constitute or be deemed a waiver of
any other right hereunder or any other failure to
perform or a breach hereof by the other party hereto,
whether of a similar or dissimilar nature.
16.7 Independent Contractor and Subcontracting--Seller
shall act as an independent contractor and not as an
agent or employee of Sprint, its affiliated
companies, or its customers and shall not subcontract
any portion of any Purchase Order without the prior
written consent of Sprint.
16.8 Entire Agreement--This Agreement, together with any
agreements or other documents to which it may be made
part, and all Schedules, Exhibits and Annexes
attached hereto constitute the entire understanding
between the parties with respect to the subject
matter hereof, and supersedes any prior agreement,
written or oral, including the terms of any
negotiations in connection with or relating to this
Agreement. In the event of an inconsistency between
this Agreement and the attached Schedules, Exhibits
and Annexes the order of precedence between these
documents shall be:
(a) Agreement
(b) Exhibit B - Product Specifications
(c) Exhibit C - Price List
16.9 Modification of Agreement--No addition or
modification of this Agreement shall be effective or
binding on either of the parties hereto unless
reduced to writing and executed by the respective
duly authorized representative of each of the parties
hereto. In the event of any conflict or other
inconsistency between this Agreement and any purchase
order, this Agreement shall govern in all respects.
16.10 Notices--All notices required or permitted to be
given hereunder shall be in writing and shall be
deemed given when delivered by and or sent by
certified mail, postage prepaid, return receipt
requested, or sent by facsimile, transmission
(confirming the same by mail) or sent by Vendor Mail
electronic mail source, registered return receipt
requested, addressed as follows:
If to Sprint Corporation:
Sprint Corporation
12490 Sunrise Valley Drive
Reston, Virginia 22096
<PAGE> 18
Attention: Purchasing/Vendor Contracts
Facsimile: (703) 689-5259
If to Seller:
Microcom
500 River Ridge Drive
Norwood, MA 02062-5028
Attention: John Castro, Vice President,
Program Management
Facsimile: (617) 551-1008
Either party hereto may change its address by a
notice given to the other party hereto in the manner
set forth above.
16.11 Severability--Should any part of this Agreement for
any reason be declared invalid, such decision shall
not affect the validity of any remaining portion,
which shall remain in force and effect as if this
Agreement had been executed with the invalid portion
thereof eliminated, and it is hereby declared the
intention of the parties hereto that they would have
executed the remain portion of this Agreement without
including therein any such part or portion which may,
for any reason, be hereafter declared invalid.
16.12 Force Majeure--Neither party shall be responsible for
any delay (whether material or not) or failure in
performance or other duties hereunder due to any
occurrence commonly known as force majeure,
including, without limitation, acts of God, any
governmental body (de jure or de facto) or public
enemy, riots, embargoes, whether of a similar or
dissimilar nature to the foregoing, beyond either
party's control, which prevent or hinder performance
under this Agreement. In the event of any one or
more of the foregoing occurrences, notice shall be
given by the party unable to perform to the other
party and the party unable to perform shall be
permitted to delay its performance for so long as the
occurrence continues.
16.13 Export--Sprint shall not export the Products unless
it is in compliance with all applicable laws and
regulations of the United States, including the
Department of Commerce, regarding export and has
received the proper export licenses. Seller will
provide such assistance as Sprint reasonable requests
to obtain such export licenses. In addition, each
party will bear any cost it incurs in connection with
obtaining export licenses.
6.14 Survivorship--Articles 8, 10, 11, 12, 13, 14 and
Sections 9.12, 9.13 shall survive the termination or
expiration of this Agreement.
<PAGE> 19
IN WITNESS WHEREOF, the parties have hereunto set their
hands and cause their corporate seal to be affixed hereto.
SPRINT CORPORATION MICROCOM
BY: BY:
Michael F. Grantman Peter J. Minihane
Purchasing Manager Exec VP/CFO/Treas
6-30-93 6-30-93
Date Date
<PAGE> 20
EXHIBIT A
DOCUMENTATION
Initial Documentation to be
Provided to be Provided by
Seller
Quantity Documents*** Required
- -User's Manual 25 each
- -Hardware Trouble-shooting Guide 25 each
- -Product Specifications 25 each
Training Documents for Products
Shall be as requested by Sprint. Seller will be required to
provide same quantities for any document upgrades, at no
additional cost.
***Manuals to be provided on electronic Media in Microsoft Word
for Windows.
<PAGE> 21
EXHIBIT B
LIST OF PRODUCTS
AND PRODUCT SPECIFICATIONS
I. PRODUCT LIST
Products Description
HD/4232hs Dual V.32 modem
V.32
V.22bis
V.22
Bell 212A
Bell 103
Supports Network Management
CCITT V.42, MNP 2-4
CCITT V.42bis, MNP 5
MNP 10
PCS
INC Plus Management card for chassis
HD Plus Chassis 16 slot modem chassis
HD Adapter Cards
Secondary Controller Additional management card required
at cascaded sites
Power Supply Additional power supply to be used
as a spare part
HDMS relay Software to be installed on a PC
allowing modem management system
capability
Daisy Chain Cable Cable needed to connect one Chassis
to another
HD V.fast (Future Product) Dual V.fast (28.8Kbps)
Downloadable Firmware (Flash EPROM)
V.32bis
V.32
V.22bis
V.22
V.23
V.21
Bell 212A
CCITT V.42, MNP 2-4
CCITT V.42bis, MNP 5
MNP 10
PCS (Enhanced)
Support Network Management
<PAGE> 22
PRODUCT SPECIFICATIONS
II. SPRINT ENHANCEMENT SPECIFICATIONS REQUIREMENTS
1. Standard Conditions
Because of Telenet Processor (TP) constraints, the two EIA lines
available to signal the network from the modem are DCD and RI.
Currently when both signals are low, the network and modem are in
a quiescent state. An incoming call is signaled by asserting RI
coincidentally with the ring cycle. DCD is asserted after call
establishment. After indicating an incoming call, RI is not
required for the rest of the call session.
2. Sprintnet Special Requirements
Three states must be indicated by RI. These are as follows:
(1) Enable EIA flow control
(2) Stop data (flow control ON)
(3) Start data (flow control OFF)
Since DCD must remain active (ON) at all times to indicate a
valid session, RI is the only line available to the TP to
signal all of these conditions. Fortunately, conditions (2)
and (3) are not valid until condition (1) has been
indicated.
3. Modem to TP Signaling
1. The modem signal an incoming call through RI, which
pulses coincidentally with the ring cycle.
2. Call connection is signaled by asserting DCD.
3. At call setup, EIA flow control is considered disabled.
4. A change to condition (1) will be indicated on the RI
line by two 250ms (+/-2ms) ON pulses separated by 250ms
(+/-2ms) OFF. These pulses must be delivered to the TP
between 400ms and 3 seconds after DCD.
5. At this time, condition (3) (start data) is in effect.
6. Subsequently, condition (2) is in effect if RI is ON,
and condition (3) is in effect if RI is OFF.
7. The modem remains in EIA flow control state for the
balance of the call.
4. TP to Modem Signaling
1. In the idle state, the TP has not accepted a call set-
up signal from the modem.
2. During idle state (DTR OFF), the TP can signal a busy
condition by asserting the BUSY lead. In this state,
the modem is OFF HOOK.
3. Upon call acceptance, DTR is asserted by TP.
4. Upon being informed by the modem through RI pulses that
hardware flow control is in effect, the TP uses BUSY to
stop data flow.
5. The TP signals flow control through use of the BUSY
lead.
<PAGE> 23
6. The TP signals call disconnect by dropping the DTR
lead.
The states defined by the signals from the TP are summarized
in Table 1-1.
Table 1-1
MODEM/TP STATES
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
STATES 1 2 3 4 5 6 7
DCD 0 0 0 1 1 1 1
RI 0 0 P1 P2 1 0 0
DTR 0 0 1 1 1 1 1
BUSY 1 0 0 0 0 1 0
</TABLE>
where: P1 pulses follow the ring cycle
P2 is two 250ms ON pulses separated by 250 ms OFF
State description:
1 Busy (off hook)
2 Idle
3 Incoming Call Indication
4 Transition: EIA Flow Control in Effect
5 Data Flow Control OFF (Modem Control)
6 Data Flow Control OFF (TP Control)
7 Data Flow Control ON
5. Flow Control
Flow Control, which is required by V.42 operation, is to be
accomplished with ASCII characters (XON/XOFF) or DTE
interface hardware leads. Configuration options must be
available to chose between the two modes.
In addition, two methods of hardware flow control are to be
supported:
A. Method 1
When interface signal EIA RI (pin 22), when asserted high,
signals the DTE that the modem cannot accept more data.
Interface signal EIA BUSY (pin 25), when asserted high,
signals the modem that the DTE cannot accept more data.
These pins perform their normal functions before a call is
up.
*B. Method 2
Interface signal EIA RTS (pin 4), when asserted low, signals
the Modem that DTE cannot accept more data.
*This option is only available if Sprint special flow
central is not enabled.
Interface signal EIA CTS (pin 5), when assessed low, signals
the modem that the DTE cannot accept more data.
<PAGE> 24
6. Hunt/Confirm Character Processing
V.42 Calls (HD 4232hs)
In answer mode, the modem must assert interface signal
CD (Carrier Detect) at least 250 milliseconds for the
HD4232hs modem prior to passing on the first character
received. The modem must also delay the second
character received such that there is a 100 millisecond
gap between these characters.
V.42 Calls (V.fast hardware)
In answer mode, the modem must assert interface signal
CD (Carrier Detect) at least 500 milliseconds for the
V.fast modem prior to passing on the first character
received. The modem must also delay the second
character received such that there is a 100 millisecond
gap between these characters.
Non V.42 Calls
In addition to the requirements for v.42 calls, the
modem must, upon receiving the first (hunt) character,
abort the v.42 link negotiation.
II. SELLER'S PRODUCT SPECIFICATIONS
Section 1. Availability
Seller warrants all products in this annex are currently
available.
Section 2. HD4232hs Asynchronous Dial Modems
2.1 Overview
The 4232 Series is a family of multifunction modems manufactured
by Microcom. The card version is a dual modem. Up to 16 modem
cards (32 modems) fit in the chassis. The HD/4232hs has full
range V.32 support with V.42 and V.42bis compliance. The modems
feature MNP Class 10. The modem supports full and half duplex,
synchronous and asynchronous, operations in dialing or answering
mode, and can adjust to various speeds from the calling modem.
The Product also supports Hayes Smartmodem 2400 command set. The
Plus Chassis and INC Card described in Sections 3 & 4 will be
employed with the HD/4232hs.
2.2 The HD/4232hs product meets the following specifications:
- - Data Compression: MNP Class 5,V.42bis
- - Error Correction: MNP Classes 1-4, 10. V.42
compliant. Trellis Coded
Modulation with Echo Cancellation.
- - Modulation Techniques: Bell 103 (FSK). Bell 212A (DPSK).
CCITT V.22/V.22bis.
(QAM). CCITT V.32 (QAM)
- - Flow Control: XON/XOFF, RTS/CTS, HP ENQ/ACK
XON/XOFF Passthrough.
Bidirectional hard/software flow
<PAGE> 25
control.
- - Diagnostics: Analog loopback, Analog loopback
with Self Test, Remote Digital
Loopback, Remote Digital Loopback
with Self Test, Local Digital
Loopback, Automatic Self Test V.54
Loop Back Test by Circuit, Responds
to Remote Digital Loopback, Allows
the Use of Register S18 to
terminate a test.
- - Transmit Level: Programmable transmit level from 0
to -12 dBm via Telco supplied
resistor
- - Receive Level: -9 tp -43 dBm.
- - Line Requirements Voice grade, 2 wire, loop start
- - Environment Line Voltage Tolerance: 60 Hz +/-
Specifications: HZ. Line Current Operation: 1.82
Amps. Rated Line Current: 5.0
Amps Max. Circuit Breaker
Capacity: 15 Amps Max.
- - Power 117 volts/60 Hz, Convection cooled,
cards _______
- - Registration: FCC Part 68 registered for direct
connection to telephone system. UL
approved; DOC certified; CSA
approved. FCC Class A approved.
Approved for use in USA, Canada and
Puerto Rico.
- - Dimensions: HD/4232hs: 10.5 x 14.5 x 1"
- - Operating Environment: 0-40 Degrees Celsius.
0-95% relative humidity
- - The modem supports Transmit Level (-9.0 dBm)
various line conditions Loop Current (20ma)
including: Loop Polarity (Tip Neg)
Signaling (DTMF)
Number Digits (7)
Off Hook to Dial Tone (900ms)
Digital to Ring Back (4 s)
Dial Tones (350-450 Hz)
Dial Tone Level (-13 dNm)
Ring Back Tones (440-480 Hz)
Ring Frequency (22 Hz)
Ring Voltage (70 VAC rms)
Ring On (2 s)
Ring Off (4 s)
Section 3. HD Plus Modem Chassis
3.1 The HD Plus meets the following specification:
<PAGE> 26
- - Capacity: 16 slots to hold dual modem cards.
Three slots; two (2) slots to hold
the INC controller card, and one
(1) slot for expansion for future
use. The modem slot will accept 2-
wire modems. Requires R345
compatible cables. DB9 parts to
support daisy-chaining (up to 8
chassis).
- - Power: 117 Volts/60Hz, Convection cooled
cards provide front panel access.
Cable independent with power-on
insertion/removal capability. 13.5
Watts per chassis max. Option:
Both 100 and 240 volt transformers
are available.
- - Environmental Line Voltage tolerance: 60Hz+/-
Specifications: Hz. Line Current Operation: 1.82
Amps. Related Line Current: 5.0
Amps Max. Circuit Breaker
Capacity: 15 Amps Max.
- - Dimensions: 20 D X 19.0W X 12.2H inches. 51
lbs. empty, 86.2 lbs. full.
- - Connectors: Single Phase AC (cable supplied).
Telco: individual RJ45 or RJ11C
supplied. DTE: 32EIA RS-232c
(V.24/28) compatible female DB-25
connectors. Chassis expansion:
Two standard female DB-9 connectors
for chassis daisy chain to 7
additional chassis (8 chassis
total). Option: All necessary
cables available.
- - Serviceability: Non-disruptive on-line replacement
of modem cards and intelligent
controller
- - Registration: FCC Part 68 registered for direct
connection to telephone system. UL
approved. DOC certified; CSA
approved. FCC Class A approved.
Approved for use in USA, Canada,
and Puerto Rico.
3.2 HD Plus Features
- - Nylon slot guides
- - Removable front-loading transformers
- - Dual redundant INC power
- - Busy empty slot
<PAGE> 27
- - Hot insertion/removal
- - Removable backplane slot adapters
- - Controller expansion slot
- - Form C Dry Contact Relay
- - Individual RJ-45/11 telco interface
- - 2 wire support
Section 4. INC Plus Controller Card
4.1 Overview
Each chassis will be equipped with an INC Plus Controller Card.
The INC provides real-time monitoring of RS-232 signals, alarms,
statistics, diagnostics, modem set-up and remote standalone
configuration capabilities. The INC also provides dial access
security with event logging, port grouping, clocked and
operations.
4.2 INC Plus Capabilities
- - The INC stores statistics on modem call history and
performance and reports on the current status of network
modems in real-time or snapshot form.
- - Full even logs display data on each modem, user, or INC
event.
- - A continuous problem diagnostics report tracks the success
and failure of each call.
- - Subsequent reports detect line quality problems, the number
of call failures, and reasons for call failures.
- - Modem Configuration - For each of the modems in the
management domain of a single controller, the Controller
holds both the local and remote modem configuration. This
file allows a new/replacement modem to be inserted into a
chassis, and automatically reloaded.
- - HDMS is capable of seven methods of dial access security:
Passthrough Security allows set up of unique identifies and
passwords for each user.
Fixed Callback allows storage of phone numbers of the caller's
modem in the database, requiring the user to wait for a callback
to the location.
Variable Callback allows the caller to enter the telephone number
of his current location and resulting in a callback to that
location.
Password Connection Security (PCS) sends a transparent password
through MNP. If the password of the remote modem does not match
that of the HD modem, the modems will not connect.
<PAGE> 28
Clocked Modem Availability allows the operator to shut down the
network up to one year in advance.
Group Authorizations prevents users from accessing sensitive
application by routing them to valid destinations.
Event Lot provides an audit of each system, modem, user and
operator event.
Group - The HDMS provides multiple host access at the central
site by enabling up to eight separate hosts to be connected to
one chassis or systems. Each host group continues to be
protected with passthrough and callback security features to
ensure accountability.
Protected configuration automatically resets the modems to a
stored configuration at the end of each call.
SECTION 5.
MICROCOM HDMS/RELAY
HDMS/Relay is a data management application designed to collect
HDMS data and alarms and to back up system configurations. This
application works in conjunction with the current HDMS plus
Intelligent Network Controller tm (INCtm). While the INC can
monitor one HDMS site, HDMS/Relay can monitor up to 80 remote
HDMS sites located in one city or around the world.
HDMS/Relay runs on a standard DOS-based 2/386 IBM PC or
compatible and provides alarm monitoring of 80 remote HDMS sites.
Should a problem occur at any of the remote sites, the operator
is notified immediately of the problem. It also allows the
operator to connect to any of the sites to examine the problem or
perform any controller function as if he or she were local in the
HDMS. HDMS/Relay also automatically collects remote report and
event data, storing it on the hard drive of the PC. Data can be
stored indefinitely or can be backed up to other devices for
storage, protection, or manipulation. The data can even be
converted to a format readable by most major database packages so
that it can be presented in report, bill or table formats.
HDMS/Relay also backs up remote HDMS configuration of data to
facilitate recovery in the event of a catastrophe. Security,
user, modem and INC configurations of each site can be stored by
HDMS/Relay and restored to remote HDMS sites if necessary.
HDMS/Relay can also provide this type of backup and data storage
in single site systems.
HDMS
Responding to the challenges presented by expanding networks,
Microcom developed and introduced the High Density Modem Systemtm
(HDMS) in 1986. Designed to look after the dial up network in
much the same way staff members might 24 hours a day, 7 days a
week, the HDMS monitors the network for problems and when
identified, alerts the proper personnel and takes corrective
action.
<PAGE> 29
MAIN FEATURES OF HDMS/RELAY
- - Single or multi-site HDMS support.
- - Supports up to 80 remote HDMS sites.
- - Backs up security databases, modem and INC configurations of
each site.
- - Stores site report and event data on the hard drive.
- - Can off-load data to other drives for storage, security and
transport to database engines.
- - Can format the data file delimiters and file extensions
conforming to most popular database engines for easy import
and manipulation.
- - Stores data in standard ASCII 132 column fixed length field
format.
- - Provides automatic warning when PC disk space runs low and
when alarms sound in any remote HSMS site.
- - Allows access to any remote HDMS INC as if operator was local.
- - Includes complete RELAY Gold c functionality.
- - Can accept data from remote sites while operator is working on
system or is communicating to a site.
- - Full color tiling with extensive help and ease of use
features.
- - Automatic purge of aged data.
- - INC Version 4.1 or higher.
- - RELAY Gold Version 4.0.
- - 2/386 IBM PC or compatible with 640K RAM 3.5 or 5.23 inch
drives and a minimum of 20 megabytes hard disk space. Active
COM 1 and 2 required for multi-site, Active Com 1 for single
site, supports monochrome and color monitors (EGA, CGA, VGA).
- - For multi-site operation at least 1 and preferably 2 modems
from the Microcom QX/4232 family (not required for single
site).
- - A standard null modem cable for each remote HDMS system (one
cable included with HDMS/Relay; additional cables available
from Microcom).
- - A dedicated QX or HD/4232 family modem for each remote HDMS
site.
- - Printer (optional).
<PAGE> 30
EXHIBIT C
CONFIDENTIAL TREATMENT REQUESTED
AS TO CERTAIN PORTIONS DELETED
[*CMD*] = [*CONFIDENTIAL MATERIAL DELETED*]
Product Sprint Price List Price
HD/4232hs modem $[*CMD*] $1,999.00
HD/V. Fast modem $[*CMD*] TBD
UPGRADE HD/4232 to HD/V.Fast $[*CMD*] TBD
modem
INC Card $[*CMD*] $1,999.00
HD16 Card Chassis $[*CMD*] $1,799.00
HD Adapter Cards $[*CMD*] $250.00
Power Supply $[*CMD*] $500.00
HSMS Relay $[*CMD*] $1,999.00
Daisy Chain Cable $[*CMD*] $25.00
Secondary Controller Card $[*CMD*] $250.00
Extended 1 year warranty (Modems) $[*CMD*] TBD
Modem Repair Service $[*CMD*] TBD
INC Repair Service $[*CMD*] TBD
Secondary Controller Repair $[*CMD*] TBD
Service
***All modems in this Exhibit contain 2 ports per card. Above
modem pricing includes bus adapter cards and the HD/Relay
Software. HD Chassis includes a single power supply. Modem
repair service will not exceed the above pricing.
***Seller agrees to upgrade all HD/V.fast products purchased by
Sprint with the proprietary V.Fast to standard CCITT V.fast
within 60 days after the Standard has been announced. This
upgrade will be at no additional cost to Sprint.
***Seller agrees to provide Sprint an additional $[*CONFIDENTIAL
MATERIAL DELETED*]/modem price reduction should Sprint purchase
more that [*CONFIDENTIAL MATERIAL DELETED*] modems under this
Agreement. Additionally, Seller agrees to provide Sprint a
$[*CONFIDENTIAL MATERIAL DELETED*] credit on the initial
[*CONFIDENTIAL MATERIAL DELETED*] purchased. This credit may be
applied to future modem purchases.
EXHIBIT E
ECN POLICY
All ECN's will be placed, based on the severity of the change,
into one of five (5) classes as follows:
(i) Class 1. The ECN generated change is incorporated
<PAGE> 31
into all existing Product, including Products in the field. This
change must be made when the ECN is received on the manufacturing
floor on the cut-in date assigned and shipments will be stopped
until the ECN is implemented. ECNs that are safety related will
be implemented by Seller on any affected Products sold to Sprint
at no additional charge, provided Sprint makes the affected
Product available for repair by Seller. In such instances,
Seller shall pay all shipment charges, if any, resulting from a
mutually agreed method of Product repair. Furthermore, if the
Product must be shipped back to Seller in order to implement the
ECN, Seller shall provide and install for Sprint at no cost a
loaner Product until the original Product is returned and
operational.
(ii) Class 2. This change indicates rework is required
in-house from the origin of the Product. This change shall begin
on the cut-in date assigned.
(iii) Class 3. These changes are to be incorporated in
all new production starts and in new purchase orders. Changes
will be incorporated into new builds as of the cut-in date
assigned.
(iv) Class 4. These changes indicates one of the
following (a) a document change only to the records of a Product,
or (b) the initial release of some phase of a new Product design.
(v) Class 5. Indicates a software change.
<PAGE> 32
EXHIBIT F
SPRINT CONFIGURATION READY SPECIFICATION
SPRINT-MS #710
FIRMWARE REVISION 1.4.8/18
Sprint Hardware Flow Control, Quick Connect, Auto-Reliable with
Hunt Characters @ and [cr], 100ms delay after Hunt Character, the
following factory defaults: AT%H1, AT-K2, AT%C1, AT&D2, and PIN
25 be biased high by JP 8 and JP 11 set to position 1 + 2.
To enable the Sprint Special, Set Internal Switches 2 and 5 down,
then issue At-I0, AT&F to both modem A & B followed by a button
reset. (To verify that the Sprint special is set, the banner
will now read 1.4.8/18).
Manuals are not to ship with Product.
<PAGE> 33
EXHIBIT G
SPRINTNET CERTIFICATION PROCESS
All equipment purchased by Sprint for attachment to the Sprintnet
Public Data Network (PDN) must pass the Sprintnet Certification
Process. The intent is twofold:
- to ensure that the equipment performs to the
specifications published by the manufacturer and to the special
need of the PDN and,
- to predict the reliability of the equipment when it is
subjected to long term use in the network.
To accomplish these ends, equipment submitted to the Sprintnet
Certification Process is subjected to the following Steps:
1. The equipment is connected to a test bed in the CPE Product
Engineering Lab that simulates the PDN. CPE engineers perform a
series of test cases designed to verify compliance of the modem
with the manufacturer's specification and PDN special
requirements. If it passes those tests, it proceeds to a live
controlled "beta" test in the PDN.
2. In the controlled beta test, up to 10 production samples of
the equipment are required to operate in a manner that
demonstrated error-free reliable performance in the PDN for its
intended uses. The beta test period is at the discretion of
Sprint, but does not exceed (30) thirty days of error-free
performance.
3. Following successful beta testing, the equipment is
submitted to the Quality Assurance (QA) department of ADN
Manufacturing with an Incoming Inspection Procedure (II). The
IIP is written by CPE Product Engineering and consists of a
subset of the tests performed in the CPE Product Engineering Lab.
When QA exercised and approves the procedure, the equipment is
ready for application to the Change Control Board (CCB).
4. The CCB is the mechanism Sprint uses to verify that all of
the steps of the acceptance process have been performed
satisfactorily. An Engineering Order is produced by CPE Product
Engineering and submitted to the CCB for approval.
If all of the above steps have been performed successfully, the
equipment is approved and the certification process is complete.
The following approval groups must verify Product performance
before a Product is successfully certified: CPE Product
Engineering, SDS Engineering and SDS operations.
<PAGE> 34
EXHIBIT H
HS/4232HS MTBF
Method 1, parts count based on MIL-HDBK-217
Unit burn-in for 24 hours @ 50C
Unit operating temperature @ 40C
Calculated MTFB hours 33,025.
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT made and entered into as of this
20th day of December, 1994, by and between MICROCOM, INC., a Massachusetts
corporation (the "Company"), and EXTENSION TECHNOLOGY CORP., a Delaware
corporation ("ETC").
WHEREAS, concurrently with the execution of this Agreement,
the Company, ETC and Extension Acquisition Corp., a Delaware corporation
("Acquisition Corp.") have consummated the merger and plan of reorganization
set forth in that certain Agreement and Plan of Reorganization dated December
21, 1994 (the "Merger Agreement") among the Company, ETC and Acquisition Corp.
WHEREAS, concurrently with the execution of this Agreement,
the Company has issued and delivered 115,000 shares (the "Shares") of its
Common Stock, $.01 par value (the "Common Stock") to the Exchange Agent (as
defined in the Merger Agreement) for the benefit of the Holders (as hereinafter
defined) in accordance with the terms of the Merger Agreement;
WHEREAS, the Common Shares have been issued without
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and applicable state securities laws, and the Company and ETC desire to
provide hereunder for compliance therewith and for the possible registration of
the Common Shares; and
WHEREAS, immediately upon execution of this Agreement, ETC
will assign all of its rights hereunder to the Holders (as hereinafter
defined).
NOW, THEREFORE, the parties hereto agree as follows:
1. Certain Other Definitions. As used in this Agreement
the following terms have the following respective meanings:
"Commission" means the Securities and Exchange Commission or
another Federal agency from time to time administering the Securities
Act.
"Holders" or "Holder" means the stockholders of ETC listed on
Exhibit A hereto who have received Registrable Shares from the
Exchange Agent in accordance with the terms of the Merger Agreement
and their registered assigns.
"Minimum Registrable Securities" shall mean at least 35,000 of
the Common Shares, subject to the proviso set forth in paragraph 2 of
Section 2.2.
<PAGE> 2
"Opinion of Counsel" means an opinion of counsel reasonably
acceptable to the Company experienced in Securities Act matters chosen
by a Holder, which counsel may be counsel to such Holder.
"Person" means any unincorporated organization, association,
corporation, individual, sole proprietorship, partnership, joint
venture, trust institution, entity, party or government (including any
instrumentality, division, agency, body or department thereof).
"Piggy-Back Shares" has the meaning set forth in Section 2.2.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration
or ordering of the effectiveness of such registration statement.
"Registrable Securities" means Common Shares which previously
have not been registered for sale or sold to the public.
"Securities Act" means the Securities Act of 1933, as amended,
or any successor Federal statute, and the rules and regulations of the
Commission promulgated thereunder, all as the same shall be in effect
from time to time.
2. Registration Under Securities Act, etc.
2.1 Required Registration. If at any time during the
twelve-month period beginning August 1, 1995 (the "One-Time Demand
Registration Period"), the Holders of at least the Minimum Registrable
Securities so elect, the Holders of Registrable Securities shall have the right
to request the Company to use its best efforts to effect the registration on
Form S-3 of the applicable Registrable Securities (but in no event less than
the Minimum Registrable Shares); provided, however, the Company shall not be
required to use such best efforts (i) on more than one (1) occasion for all
Registrable Securities pursuant to this Section 2.1 or (ii) if the Company
shall so request, for a period not to exceed ninety (90) days immediately
following the date a public offering of the Common Stock (pursuant to an
effective registration statement under the Securities Act) is commenced;
provided, further, if in the opinion of an independent investment banking firm
such registration would, if not deferred, materially and adversely affect a
proposed business or financial transaction of substantial importance to the
Company's financial condition (a "Substantial Business Transaction"), the
Company may defer such registration for a single period (specified in such
notice) of not more than ninety (90) days. In the event that such
2
<PAGE> 3
registration is so deferred due to a registration of the Common Stock or due to
a Substantial Business Transaction, the One Time Demand Registration Period
shall not be extended. Such request by Holders of at least the Minimum
Registrable Shares shall be in writing, shall specify the number of Registrable
Shares to be registered and the jurisdictions in which such registration is
desired and shall specify whether such Holders wish to immediately dispose of
the Registrable Shares or wish to have the Company effect a "shelf"
registration; provided, however, that the Company shall not be required to
register the Registrable Shares in more than ten states pursuant to such
registration or qualification (the "Demand Registration Jurisdictions"). In no
event shall Holders be entitled to request a registration of less than the
Minimum Registrable Securities.
Upon such request, the Company shall promptly (a) take such
steps as are necessary or appropriate to prepare for a registration of
Registrable Securities and (b) give written notice to all other Holders of
Registrable Securities of a proposed registration by the Company under the
Securities Act and under the securities or blue sky laws of the requested
jurisdictions (subject to the limitations contained hereinabove), and permit
such other Holders to include Registrable Securities in such registration and
shall, as expeditiously as possible, in good faith, use its best efforts to
effect any such registration of the aggregate number of Registrable Securities
designated in such request and the Registrable Securities included in such
registration pursuant to clause (b) above, all to the extent requisite to
permit the disposition (in accordance with the intended methods thereof set
forth in the request) by the prospective sellers of Registrable Securities to
be registered, with notification to or approval of any governmental authority
under any Federal or state law or any listing with any securities exchange,
which may be required to permit the sale or disposition of any Registrable
Securities which the Holders propose to make, and the Company will, to the
extent that Registrable Shares remain unsold, keep effective and current such
registration for a period from the date of effectiveness of such registration
through the last day of the One-Time Demand Registration Period.
The one-time registration requested pursuant to this Section
2.1 shall not count as the one-time registration pursuant to this Section 2.1
until such registration statement shall have become effective; provided,
however, that if the registration statement fails to become effective solely on
account of Holders' actions or inactions, then the registration shall count as
the one-time registration pursuant to this Section 2.1. If a registration
statement shall become effective pursuant to a request under this Section 2.1
and less than all Registrable Securities included in such registration have
been sold, such registration shall nonetheless count as the one-time
registration pursuant to this Section 2.1 unless the failure to sell all such
3
<PAGE> 4
Registrable Securities occurred principally as the result of the Company's
actions or inactions.
Each Holder of Registrable Securities also agrees by
acquisition of such Registrable Securities that upon receipt of any notice from
that Company that: (i) the Company has received an opinion of counsel that the
making of offers and sales pursuant to the registration would require the
Company to make additional disclosure by amending or supplementing a prospectus
included in the registration statement for the registration (other than
information with respect to the Holders of Registrable Securities, the plan of
distribution thereof or the sale thereof) and (ii) the Board of Directors of
the Company has determined that making such disclosure would not be in the best
interest of the Company's shareholders, the Company shall have the right to
suspend sales under the registration. Upon receipt of any such notice, each
Holder of Registrable Securities will forthwith discontinue such Holder's
disposition of such Registrable Securities pursuant to the registration until
the Company shall have provided notice that such Holder may resume such
disposition (each such period of discontinuation of disposition, a "Black-Out
Period"); provided that (i) there shall be no more than two such Black-Out
Periods during the One-Time Demand Registration Period; (ii) no individual
Black-Out Period shall be longer than 45 days; and (iii) no Black-Out Period
shall be effective at any time when the Company is publicly selling shares of
the Common Stock of the Company. The One-Time Demand Registration Period shall
be extended by the length of each Black-Out Period occurring hereunder.
2.2 Incidental Registration. If the Company or any
security holder of the Company other than a Holder proposes to register any
securities of the Company under the Securities Act on any registration form
(otherwise than for the registration of securities to be offered and sold by
the Company pursuant to (a) an employee benefit plan, (b) a dividend or
interest reinvestment plan, (c) other similar plans or (d) reclassifications of
securities, mergers, consolidations and acquisitions of assets) permitting a
secondary offering or distribution during the twenty-four month period
beginning on the date of this Agreement (the "Piggy-Back Period"), not less
than sixty (60) days prior to each such registration the Company shall give to
each Holder written notice (the "Original Notice") of such proposal which shall
describe in detail the proposed registration and distribution (including those
jurisdictions where registration under the securities or blue sky laws is
intended (the "Applicable Jurisdictions")) and, upon the written request of
any Holder furnished within twenty (20) days after the date of the Original
Notice, proceed to include in such registration such Registrable Securities
("Piggy-Back Shares") as have been requested by such Holder to be included in
such registration. In the event that the Company receives requests to register
more
4
<PAGE> 5
than 80,000 Piggy-Back Shares in a registration occurring prior to the one-time
demand registration pursuant to Section 2.1, the Company shall promptly
telecopy a written notice to Posternak, Blankstein & Lund, counsel to ETC, and
the Holders of all remaining Registrable Shares shall be entitled, upon written
request furnished within thirty (30) days after the date of the Original Notice
to include in such registration such additional Registrable Securities as have
been requested by such Holder to be included in such registration. The Company
will in each instance use its best efforts to cause all such Piggy-Back Shares
to be registered under the Securities Act under the securities or blue sky laws
of the Applicable Jurisdictions, all to the extent necessary to permit the sale
by a prospective seller of the securities so registered.
If the managing underwriter, who shall be selected by the
Person who initiated such registration, advises the Company in writing that, in
its opinion, the inclusion of the Piggy-Back Shares with the securities being
registered by the Company and other prospective sellers would materially
adversely affect the distribution of all such securities, then the Company
(unless such registration was proposed by the Company, in which case the
provisions of this paragraph shall be applied to all prospective sellers other
than the Company, and the Company shall have priority in including in such
registration the shares of Common Stock it proposes to sell) and each
prospective seller may sell that proportion of the Registrable Securities to be
sold in the proposed distribution which the number of shares of Registrable
Securities proposed to be sold by such prospective seller bears to the
aggregate number of shares of Common Stock and Registrable Securities proposed
to be sold by all prospective sellers (including the Company, except as
provided above) which in the opinion of such underwriter can be sold; provided,
that if the effect of such reduction in the number of Registrable Securities to
be sold in any registration occurring prior to the one-time demand registration
pursuant to Section 2.1 is to cause to remain unregistered less than 35,000
Registrable Securities (the "Remaining Registrable Securities"), then the
definition of Minimum Registrable Securities shall be amended to mean all (but
not less than all) Remaining Registrable Securities.
Each Holder agrees to (a) the selection by the Company or such
other security holder who proposed to register securities of the Company under
the Securities Act of the underwriter to manage such registration and (b)
execute an underwriting agreement with such underwriter that is in customary
form.
Nothing in this Section 2.2 shall be deemed to require the
Company to proceed with any registration of its securities after giving the
notice as provided herein.
5
<PAGE> 6
2.3 Registration Procedures. Whenever the Company is
required by the provisions of Section 2.1 or 2.2 to use its best efforts to
effect the registration of any of its securities under the Securities Act, the
Company will, as expeditiously as is possible:
(a) prepare and file with the Commission a
registration statement with respect to such securities and prepare and file
with the Commission such amendments and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective and the prospectus current and to
comply with the provisions of the Securities Act with respect to the sale of
all securities covered by such registration statement whenever the seller of
such securities shall desire to sell the same, but in no event longer than the
One-Time Demand Registration Period; provided, however, the Company shall not
have any obligation to file any amendment or supplement at its own expense;
(b) furnish to each seller such numbers of
copies of preliminary prospectuses and prospectuses and each supplement or
amendment thereto and such other documents as each seller may reasonably
request in order to facilitate the sale or other disposition of the securities
owned by such seller in conformity with (i) the requirements of the Securities
Act and (ii) the seller's proposed method of distribution;
(c) register or qualify the securities covered by
such registration statement under the securities or "blue sky" laws of the
Demand Registration Jurisdictions or the Applicable Jurisdictions, as the case
may be, and do such other reasonable acts and things as may be required of it
to enable each seller to consummate the sale or other disposition in such
jurisdictions of the securities owned by such seller; provided, however, that
the Company shall not be required to (i) qualify as a foreign corporation or
consent to a general and unlimited service of process in any such jurisdiction,
or (ii) qualify as a dealer in securities;
(d) furnish, at the request of any seller on the
date such securities are delivered to the underwriters for sale pursuant to
such registration or, if such securities are not being sold through
underwriters, on the date the registration statement with respect to such
securities becomes effective, (A) an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to
the underwriters, if any, and to the seller making such request, covering such
legal matters with respect to the registration in respect of which such opinion
is being given as the seller of such securities may reasonably request and are
customarily included in such opinions and (B) letters, dated, respectively,
6
<PAGE> 7
(1) the effective date of the registration statement and (2) the date such
securities are delivered to the underwriters, if any, for sale pursuant to such
registration, from a firm of independent certified public accountants of
recognized national standing selected by the Company, addressed to the
underwriters, if any, and to the sellers making such request, covering such
financial, statistical and accounting matters with respect to the registration
in respect of which such letters are being given as the seller of such
securities may reasonably request and are customarily included in such letters;
(e) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and make available to
its security holders as soon as reasonably practicable, but not later than
sixteen (16) months after the effective date of the registration statement, an
earnings statement covering a period of at least twelve (12) months beginning
after the effective date of the registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(f) enter into and perform an underwriting
agreement with the managing underwriter, if any, selected as provided in
Section 2.1 or 2.2, containing customary (i) terms of offer and sale of the
securities, payment provisions, underwriting discounts and commissions, and
(ii) representations, warranties, covenants, indemnities, terms and conditions;
(g) notify each seller at any time when a
prospectus relating to the registration is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made; except in the case of a noticed Black-Out Period, at the
request of any such seller promptly prepare and furnish to such seller a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made; and
(h) keep each seller advised in writing as to the
initiation and progress of any registration under Section 2.1
7
<PAGE> 8
2.4 Holdback Agreements. If any registration pursuant
to Section 2.1 or 2.2 shall be in connection with an underwritten public
offering, each Holder of Registrable Securities agrees by acquisition of such
Registrable Securities, if so required by the managing underwriter, not to
effect any public sale or distribution of Registrable Securities (other than as
part of such underwritten public offering) within seven (7) days prior to the
effective date of such registration statement or ninety (90) days after the
effective date of such registration statement.
2.5 Allocation of Expenses. If the Company is required
by the provisions of Section 2.1 or 2.2 to use its best efforts to effect the
registration or qualification under the Securities Act or any state securities
or "blue sky" laws of any Registrable Securities, the Company shall pay all
expenses in connection therewith, including, without limitation, (a) all
expenses incident to filing with the National Association of Securities Dealers,
Inc. or any exchange on which the Company's Common Stock is then listed, (b)
registration fees, (c) printing expenses, (d) fees and expenses of the Company's
accountants and lawyers, (e) expenses of any special audits incident to or
required by any such registration or qualification, (f) reasonable fees and
expenses (not to exceed $7,000) of one independent counsel for the Holders, (g)
premiums for insurance in such amount, if any, deemed appropriate by the
managing underwriter and (h) expenses of complying with the securities or "blue
sky" laws of any Demand Jurisdiction or Applicable Jurisdiction in connection
with such registration or qualification; provided, however, the
Company shall not be liable for (1) any discounts or commissions to any
underwriter or sales agent attributable to Registrable Securities being sold;
(2) any transfer taxes incurred in respect of Registrable Securities being sold;
(3) except for 2.5 (f) above, the legal fees of any holder of Registrable
Securities being sold; (4) the amounts described in Section 2.5(e) above
applicable to Registrable Securities being registered if the registration is
being made at the request of a Holder; or (5) the costs or expenses relating to
any amendment or supplement as may be required by Section 2.3(a) above.
2.6 Indemnification. In connection with any
registration or qualification of securities under Section 2.1 or 2.2, the
Company agrees to indemnify the Holder and each underwriter involved in such
registration or qualification, including each Person, if any, who controls such
Holder or underwriter within the meaning of Section 15 of the Securities Act,
against all losses, claims, damages, liabilities and expenses (including
reasonable costs of investigation) caused by any untrue, or alleged untrue,
statement of a material fact contained in any registration statement,
preliminary prospectus, prospectus or notification or offering circular (as
amended or supplemented if the Company shall have furnished any amendments
8
<PAGE> 9
or supplements thereto) or caused by any omission, or alleged omission, to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses are caused by any untrue statement or alleged
untrue statement or omission or alleged omission based upon information
furnished in writing to the Company by any such Holder or underwriter expressly
for use therein. The Company and each officer, director and controlling Person
of the Company, shall be indemnified by any Holder for all such losses, claims,
damages, liabilities and expenses (including the costs of reasonable
investigation) caused by any such untrue, or alleged untrue, statement or any
such omission, or alleged omission, based upon information furnished in writing
to the Company by any such Holder expressly for use in any such registration
statement, preliminary prospectus, prospectus or notification or offering
circular.
Promptly upon receipt by a party indemnified under this Section
2.6 of notice of the commencement of any action against such indemnified party
in respect of which indemnity or reimbursement may be sought against any
indemnifying party under this Section 2.6, such indemnified party shall notify
the indemnifying party in writing of the commencement of such action, but the
failure to so notify the indemnifying party shall not relieve it of any
liability which it may have to any indemnified party under this Section 2.6
unless such failure shall materially adversely affect the defense of such
action. In case notice of commencement of any such action shall be given to the
indemnifying party as above provided, the indemnifying party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and satisfactory to such indemnified
party. The indemnified party shall have the right to employ separate counsel in
any such action and participate in the defense thereof, but the fees and
expenses of such counsel (other than reasonable costs of investigation) shall be
paid by the indemnified party unless (i) the indemnifying party agrees to pay
the same, (ii) the indemnifying party fails to assume the defense of such action
with counsel reasonably satisfactory to the indemnified party or (iii) the named
parties to any such Action (including any impleaded parties) have been advised
by such counsel that representation of such indemnified party and the
indemnifying party by the same counsel would be inappropriate under applicable
standards of professional conduct (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of such
indemnified party). No indemnifying party shall be liable for any settlement
entered into without its consent.
9
<PAGE> 10
If the indemnification provided for in this Section 2.6 is
unavailable or insufficient to hold harmless an indemnified party in respect of
any losses, claims, damages, liabilities, expenses or actions in respect thereof
referred to herein, then each indemnifying party shall in lieu of indemnifying
such indemnified party contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages, liabilities,
expenses or actions in such proportion as is appropriate to reflect the relative
fault of the Company, on the one hand, and the sellers of Registrable
Securities, on the other, in connection with the statements or omissions which
resulted in such losses, claims, damages, liabilities, expenses or actions as
well as any other relevant equitable considerations, including the failure to
give the notice required hereunder. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or omission or alleged omission of a material fact relates to
information supplied by the Company, on the one hand, or the sellers of
Registrable Securities, on the other hand, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company and all holders of Registrable Securities
agree that it would not be just and equitable if contribution pursuant to this
Section 2.6 were determined by pro rata allocation (even if all of the sellers
of Registrable Securities were treated as one entity for such purpose) or by any
other method of allocation which did not take account of the equitable
considerations referred to above. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages, liabilities or actions in
respect thereof referred to above shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
contribution provisions of this Section 2.6, in no event shall the amount
contributed by any seller of Registrable Securities exceed the aggregate gross
offering proceeds received by such seller from the sale of such Registrable
Securities to which such contribution claim relates. No Person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who is not
guilty of such fraudulent misrepresentation.
Each Holder of Registrable Securities by acceptance thereof,
agrees to the indemnification and contribution provisions of this Section 2.6.
2.7 Supplying Information. The Company and the Holder
shall cooperate with each other in supplying such information as may be
necessary for any of such parties to complete and file any information reporting
forms presently or hereafter required by the Commission or any commissioner or
other authority
10
<PAGE> 11
administering the blue sky or securities laws of any jurisdiction where
Registrable Securities are proposed to be sold pursuant to Section 2.1 or 2.2.
2.8 Alternative Purchase by the Company.
Notwithstanding anything to the contrary contained above, the Company shall have
the right, in lieu of filing a registration statement to register Registrable
Securities under Section 2.1 (provided that the Holders desire to dispose of
their Registrable Securities in the registration rather than effect a shelf
registration) or 2.2, to instead purchase the Registrable Securities owned by
the parties requesting registration, on the following basis:
(i) If the Company wishes to exercise this right, it shall
so advise the parties requesting registration within 10 days after the
request date;
(ii) The purchase price for the Registrable Securities
shall be the average of the last reported sales price of Common Stock
on the National Association of Securities Dealers, Inc. Automated
Quotation System - National Market for each of the fifteen consecutive
trading days ending with the last trading day prior to the date of a
request to effect a registration under Section 2.1 or 2.2; and
(iii) The closing of such sale and purchase shall take place
at the principal office of the Company on the fifth (5th) business day
after the purchase price is determined as provided in clause (ii)
above.
3. Form S-3 and Rule 144. The Company shall take such
actions as may be reasonably required to maintain its status as a company
permitted to file a registration statement on Form S-3 on behalf of the Holders.
The Company shall take such action as any Holder may reasonably request, all to
the extent required from time to time to enable such Holder to sell shares of
Registrable Securities without registration under the Securities Act within the
limitation of the exemptions provided by (a) Rule 144 under the Securities Act,
as such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the Commission. Upon the request of any Holder,
the Company will deliver to such Holder a written statement as to whether it has
complied with such requirements.
4. Amendments and Waivers. This Agreement may be amended, and
the Company may take any action herein prohibited or omit to perform any act
herein required to be performed by it, only if the Company shall have obtained
the written consent of the holders of a majority in interest of the Registrable
11
<PAGE> 12
Securities then outstanding to such amendment, action or omission to act.
5. Nominees for Beneficial Owners. In the event that
any Registrable Securities are held by a nominee for the beneficial owner
thereof, the beneficial owner thereof may, at its election, be treated as the
Holder of such Registrable Securities for purposes of any request or other
action by any Holder or Holders of Registrable Securities pursuant to this
Agreement or any determination of any number or percentage of shares of
Registrable Securities held by any Holder or Holders of Registrable Securities
contemplated by this Agreement. If the beneficial owner of any Registrable
Securities elects to be treated as the Holder for such purposes, the Company may
require assurances reasonably satisfactory to it of such owner's beneficial
ownership of such Registrable Securities.
6. Notices. Notices and other communications under this
Agreement shall be in writing and shall be sent by registered mail, postage
prepaid, addressed
(a) if to any Holder, at the address shown on the stock or
transfer books of the Company unless such Holder has advised the
Company in writing of a different address as to which notices shall be
sent under this Agreement, with a copy to Donald H. Siegel, P.C.,
Posternak, Blankstein & Lund, 100 Charles River Place, Boston,
Massachusetts 02114, and
(b) if to the Company, at 500 River Ridge Drive, Norwood,
Massachusetts 02062 to the attention of Chief Financial Officer or to
such other address as the Company shall have furnished to each Holder.
Any such notices of change in address of any Holder or the Company shall be
given in accordance with this Section 6.
7. Termination. This Agreement shall terminate at such
time as the Holders of Registrable Shares are furnished with an opinion of
counsel (from counsel reasonably acceptable to such holders) that all
Registrable Securities may be transferred without registration under the
Securities Act and all legends on Registrable Shares may be removed.
12
<PAGE> 13
8. Miscellaneous.
(a) Binding Effect. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not, and,
in particular, shall inure to the benefit of and be enforceable by any Holder or
Holders of Registrable Securities.
(b) Entire Agreement. This Agreement embodies the
entire agreement and understanding between the Company and the other parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to the subject matter hereof.
(c) Governing Law. This Agreement and all
questions relating to its validity, interpretation, performance and enforcement
shall be construed in accordance with the law of The Commonwealth of
Massachusetts.
(d) Headings. The headings in this Agreement are
for purposes of reference only and shall not limit or otherwise affect the
meaning hereof.
(e) Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be an original but all of
which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be executed and delivered by their respective officers thereunto duly authorized
as of the date first above written.
MICROCOM, INC.
By:________________________________
Name: Peter J. Minihane
Title: Executive Vice President
EXTENSION TECHNOLOGY CORP.
By:________________________________
Name:
Title: President
13
<PAGE> 1
AMENDMENT OF LEASE
THIS AGREEMENT, made as of the 30th day of March, 1989, by and
between FIRST STONE RIDGE LIMITED PARTNERSHIP, a Massachusetts limited
partnership (hereinafter referred to as "Landlord") and MICROCOM, INC., a
Massachusetts corporation (hereinafter referred to as "Tenant")
WITNESSETH THAT:
WHEREAS, Landlord has leased to Tenant certain premises known
as 500 River Ridge Drive, Norwood, Massachusetts, as more particularly
described and set forth in a lease dated August 11, 1987 (hereinafter referred
to as the "Lease"); and
WHEREAS, pursuant to an instrument of even date herewith,
Tenant has assigned to Landlord all of Tenant's right, title and interest in
and to certain leases between Tenant and James W. Colnon, Trustee of MCD Realty
Trust (hereinafter referred to as the "Colnon Leases"); and
WHEREAS, in connection with such assignment, the parties wish
to modify the rental provisions of the Lease;
NOW, THEREFORE, in consideration of the foregoing premises and
for other good and valuable consideration, the receipt and adequacy of which
are hereby acknowledged, the parties agree as follows:
1. Effective October 1, 1988, and continuing through the
remainder of the initial term of the Lease, so long as Landlord does not use or
occupy any portion of the premises demised under the Colnon Leases, each
installment of monthly rent otherwise due pursuant to Article 4 of the Lease
shall be increased by the sum of (a) $4,957.00 plus (b) the amount (which shall
be amortized in equal monthly installments over the remainder of the initial
term of the Lease) of any payment (other than fixed rent) which Landlord is
required to make as assignee of the Colnon Leases plus (c) the amount by which
any payments made by Landlord under the Colnon Leases exceeds $122,000.00
(which shall be amortized in equal monthly installments over the remainder of
the initial term of the lease).
2. In the event that Landlord receives any rent
abatement or refund under the Colnon Leases or derives any income (including
the assumption of its obligations by a third party) from any assignment,
subletting or other arrangement with respect thereto, the amount of such
abatement, refund or income (amortized in equal monthly installments over the
remainder of the initial term of the Lease) shall be credited to Tenant. Any
such assignment, subletting or other arrangement shall be made pursuant to
generally prevailing fair market terms and conditions.
<PAGE> 2
3. Except as herein modified, the Lease is hereby
ratified and confirmed. Unless the context requires otherwise, all terms used
herein shall be defined in accordance with the applicable provisions of the
Lease.
WITNESS the execution hereof as of the day and year first
above written.
FIRST STONE RIDGE LIMITED PARTNERSHIP
By McNeil & Associates, Inc.
(its sole general partner)
By
---------------------------------
Its President
---------------------------------
title (duly-authorized)
MICROCOM, INC.
By
---------------------------------
Its Executive Vice President
---------------------------------
title (duly-authorized)
-2-
<PAGE> 1
SECOND AMENDMENT TO LEASE
This Agreement made as of the 31st day of January, 1995 by and between
Paul E. Tryder, Trustee of First Stone Ridge Nominee Trust I under a
Declaration of Trust dated October 21, 1987 and registered in the Norfolk
Registry District of Land Court as Document No. 535016, as amended (hereinafter
the "Landlord")
and
MICROCOM, Inc. (hereinafter the "Tenant")
WHEREAS, on August 11, 1987, First Stone Ridge Limited Partnership
entered into a lease (the "Lease") with the Tenant; and,
WHEREAS, on March 30, 1989, First Stone Ridge Limited Partnership and
the Tenant amended the Lease by executing an Amendment of Lease; and,
WHEREAS, the Landlord has succeeded to the interest of First Stone
Ridge Limited Partnership under the Lease; and,
WHEREAS, the Landlord and Tenant desire to further amend the Lease,
NOW, THEREFORE, in consideration of the mutual covenants herein and in
the Lease contained, the Landlord and Tenant hereby agree to the following
changes in the Lease;
1) Article 3. Term
The parties agree that, according to the Lease, the ten year
term ends on 12:00 P.M. on September 30, 1998. The Landlord and Tenant agree
that the term shall hereby be extended so as to end at 12:00 P.M. on March 31,
2002.
2) Article 4. Rent
The Landlord and Tenant agree that, effective January 1, 1995,
the annual rent for the remainder of the term shall be One Million Ten Thousand
($1,010,000.00) Dollars.
3) Capitalized terms not otherwise defined herein shall have the
meaning for such terms ascribed in the Lease.
4) In all other respects, the terms and provisions of the Lease
are hereby ratified and confirmed and remain in full force and effect.
<PAGE> 2
IN WITNESS WHEREOF, the Landlord and Tenant have executed this Second
Amendment to Lease as an instrument under seal the day and year first above
written.
LANDLORD:
--------------------------------------
Paul E. Tryder, Trustee of First Stone
Ridge Nominee Trust I
TENANT: MICROCOM, INC.
By
------------------------------------
<PAGE> 1
AMENDED AND RESTATED
CREDIT AGREEMENT
Dated as of March 22, 1995
among
MICROCOM, INC., as Borrower,
SILICON VALLEY BANK, as Lender,
BAYBANK, as Lender,
and
SILICON VALLEY BANK, as Agent
______________________________
Line of Credit Commitment
Up To $16,000,000
________________________________
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1 Line of Credit Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Line of Credit Commitment . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Line of Credit Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Requests For Line of Credit Loans . . . . . . . . . . . . . . . . . . . . 2
1.6 Limitations on Extensions of Credit . . . . . . . . . . . . . . . . . . . 3
1.7 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Maturity Date of Line of Credit Loans and Other
Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.9 Termination of Commitment . . . . . . . . . . . . . . . . . . . . . . . . 4
1.10 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.11 Banker's Acceptances . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.12 Foreign Exchange Contracts . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2 Interest Rates; Payments and Optional Prepayments . . . . . . . . . . . . 9
2.1 Interest Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.2 Manner and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 Payments Due on Saturdays, Sundays and Holidays . . . . . . . . . . . . . 11
2.4 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
2.5 Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 3 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.1 Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.2 Guaranty and Security Interests . . . . . . . . . . . . . . . . . . . . . 13
Section 4 Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.1 This Agreement, the Notes and the Security Instruments . . . . . . . . . . 13
4.2 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.3 Correctness of Representations . . . . . . . . . . . . . . . . . . . . . . 14
4.4 Opinion of Counsel for the Borrower . . . . . . . . . . . . . . . . . . . 14
4.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.6 Filing of Financing Statements, etc . . . . . . . . . . . . . . . . . . . 14
4.7 Supporting Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.8 Commitment Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.9 Compliance and Borrowing Base Certificates . . . . . . . . . . . . . . . . 15
4.10 Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . 16
5.1 Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.2 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.3 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.5 Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.6 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
<PAGE> 3
-ii-
<TABLE>
<S> <C>
5.7 No Material Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.8 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.9 Compliance with Other Instruments; Compliance with Law . . . . . . . . . . 17
5.10 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.11 Investment Borrower Status; Limits on Ability to
Incur Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.12 Title to Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.13 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.14 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.16 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.17 Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 6 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.1 Maintenance of Existence . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.2 Taxes and Other Liens . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.3 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.4 Financial Statements, Etc . . . . . . . . . . . . . . . . . . . . . . . . 21
6.5 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 23
6.7 ERISA Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.8 Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
6.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.11 Depository Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.13 Transfer of Intellectual Property . . . . . . . . . . . . . . . . . . . . 25
Section 7 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.1 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.2 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . 26
7.3 Consolidation, Merger or Acquisition . . . . . . . . . . . . . . . . . . . 26
7.4 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.5 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.6 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.7 Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.8 Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.9 Sale and Leaseback . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.10 Additional Stock Issuance by Subsidiaries . . . . . . . . . . . . . . . . 30
7.11 Quick Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.12 Minimum Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.13 Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
7.14 Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 8 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
8.2 Remedies Upon an Event of Default . . . . . . . . . . . . . . . . . . . . 33
Section 9 The Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
<PAGE> 4
-iii-
<TABLE>
<S> <C>
9.1 Appointment of Agent; Powers and Immunities . . . . . . . . . . . . . . . 34
9.2 Actions By Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
9.3 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.4 Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
9.5 Non-Reliance on Agent and Other Lenders . . . . . . . . . . . . . . . . . 37
9.6 Resignation or Removal of Agent . . . . . . . . . . . . . . . . . . . . . 37
Section 10 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
10.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.1 Accounting Terms and Definitions . . . . . . . . . . . . . . . . . . . . 50
11.2 Amendments, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.3 Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
11.4 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.5 Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
11.6 Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 51
11.7 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
11.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.9 GOVERNING LAW; AGREEMENT UNDER SEAL . . . . . . . . . . . . . . . . . . . 53
11.10 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
11.11 VENUE, CONSENT TO SERVICE OF PROCESS . . . . . . . . . . . . . . . . . . . 53
11.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.13 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Exhibits
A-1 Amended and Restated Promissory Note (SVB)
A-2 Promissory Note (BayBank)
B Amended and Restated Security Agreement
C Compliance Certificate
D Borrowing Base Certificate
E Borrowing Certificate
F Guaranty (Microcom Systems, Inc.)
G Guarantor Security Agreement (Microcom Systems, Inc.)
H Guarantor Collateral Assignment of Patents and Trademarks
(Microcom Systems, Inc.)
Schedules
A Disclosure Schedule
</TABLE>
<PAGE> 5
AMENDED AND RESTATED
CREDIT AGREEMENT
[Amending and Restating
Credit Agreement dated as of May 1, 1994,
as Amended by Letter Amendments thereto
dated as of September 28, 1994, November 2, 1994
and December 16, 1994]
This AMENDED AND RESTATED CREDIT AGREEMENT (the "Agreement"), dated as
of March 22, 1995, is entered into by and among MICROCOM, INC., a Massachusetts
corporation with its principal place of business at 500 River Ridge Drive,
Norwood, Massachusetts 02062 (the "Borrower"), SILICON VALLEY BANK, a
California-chartered bank, with its principal place of business at 3000
Lakeside Drive, P.O. Box 3762, Santa Clara, California 95054 and a loan
production office located at Wellesley Office Park, 45 William Street,
Wellesley, Massachusetts 02181 doing business under the name Silicon Valley
East (together with its successors, "SVB"), BAYBANK, a Massachusetts-chartered
bank, with its principal place of business at 7 New England Executive Park,
Burlington, MA 01803 (together with its successors, "BayBank") and SILICON
VALLEY BANK as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent"). This Agreement amends and restates
in its entirety the Credit Agreement dated as of May 1, 1994 between the
Borrower and SVB, as amended by Letter Amendments thereto dated as of September
28, 1994, November 2, 1994 and December 16, 1994 (the "1994 Credit Agreement").
Section 1 Line of Credit Loans.
1.1 Amount. Upon the terms and subject to the conditions
set forth below, each of the Lenders severally agrees to make loans (each a
"Line of Credit Loan" and, collectively, the "Line of Credit Loans") to the
Borrower under this Section 1.1 from time to time to and including March 22,
1996 (the "Commitment Expiration Date"), unless the Total Line of Credit
Commitment is earlier terminated pursuant to Sections 1.9 or 1.10, in an
aggregate principal amount not to exceed at any one time outstanding their
respective Line of Credit Commitments, as set forth in Section 1.2, and subject
to the limitations set forth in Sections 1.6. Within the limit of the Total
Line of Credit Commitment and the limitation stated in Section 1.6, the
Borrower may borrow, repay and reborrow at any time or from time to time until
the Commitment Expiration Date or the termination of the Line of Credit
Commitment, whichever occurs earlier.
1.2 Line of Credit Commitment. The Total Line of Credit
Commitment shall be, in the aggregate, $16,000,000; each
<PAGE> 6
of the Lenders shall have a respective Line of Credit Commitment of $8,000,000.
1.3 Existing Indebtedness. The Line of Credit Loans and
other Extensions of Credit made by the Lenders under this Agreement shall be
deemed to include any and all Extensions of Credit for which the Borrower is
indebted to SVB as of the date hereof under or with respect to the 1994 Credit
Agreement. Interest on these Line of Credit Loans, to the extent that they
represent direct dollar borrowings, shall be calculated from this date forward
as if made hereunder on the date hereof.
1.4 Line of Credit Notes. The Line of Credit Loans made
by each Lender shall be evidenced (i) in the case of SVB, by an amended and
restated promissory note payable to the order of SVB with interest in
accordance with the terms of the Amended and Restated Promissory Note of the
Borrower to be issued in substantially the form of attached Exhibit A-1, dated
the date hereof and (ii) in the case of BayBank, by a promissory note payable
to the order of BayBank with interest in accordance with the terms of the
Promissory Note of the Borrower to be issued in substantially the form of
attached Exhibit A-2, dated the date hereof. The Amended and Restated
Promissory Note and the Promissory Note are collectively referred to herein as
the "Notes".
1.5 Requests For Line of Credit Loans. (a) Whenever the
Borrower desires to obtain a Line of Credit Loan, it shall notify the Agent by
telex, telecopy or telephone call received no later than 1:00 p.m. (Boston
time) one Banking Day before the day on which the requested Line of Credit Loan
is to be made. Such notice shall specify the effective date and the amount of
such Loan. Each such notice (a "Notice of Borrowing") shall be irrevocable and
shall be immediately followed by a written Borrowing Certificate by the
Borrower in substantially the form of attached Exhibit E; provided, however,
that if the action requested in such written confirmation differs in any
material respect from the action taken by the Agent for the account of the
Lenders, the records of the Agent concerning the instructions received from the
Borrower shall control absent manifest error. Not later than 11:00 a.m.
(Boston time) on the date specified for the making of each such Line of Credit
Loan, each Lender shall make available to the Agent, at the Agent's principal
office, an amount equal to such Lender's respective Commitment Percentage
multiplied by the amount of the Line of Credit Loan requested as set forth
above. Subject to the terms and conditions of this Agreement, the amount so
received by the Agent shall be made available to the Borrower by crediting the
same, in immediately available funds, to the Borrower's regular deposit account
with the Agent.
(b) The minimum amount that the Borrower may request
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to borrow in its first Notice of Borrowing submitted to the Agent pursuant to
this Agreement (including any refinancing of outstanding balances under the
1994 Credit Agreement) shall be $250,000; thereafter, the Notices of Borrowing
may request only amounts that are integral multiples of $50,000.
1.6 Limitations on Extensions of Credit.
The Borrower shall not permit or request the Lenders (or the Agent
acting on their behalf) to make any Line of Credit Loan, issue any Letter of
Credit, create any Banker's Acceptance or enter into any Foreign Exchange
Contract (each as defined herein and each such action an "Extension of Credit")
that would cause the sum of
(a) the aggregate unpaid principal amount of all Line of
Credit Loans under this Agreement, plus
(b) the aggregate of (i) all amounts available to be drawn
under any Letters of Credit issued for the account of the Borrower as provided
in Section 1.10 below and (ii) all unreimbursed drawings under such Letters of
Credit, plus
(c) the aggregate amount of all outstanding Banker's
Acceptances created for the account of the Borrower as provided in Section 1.11
below, plus
(d) the sum of (i) the excess, if any, of (x) 100% of the
aggregate amount (in U.S. Dollars) that is required to be settled under all
Foreign Exchange Contracts as provided by Section 1.12 during the two Banking
Days immediately following such date of determination over (y) the cash
balances of the Borrower's deposit accounts with the Agent at the opening of
business on such date, plus (ii) 20% of the aggregate amount (in U.S. Dollars)
that is required to be settled under all Foreign Exchange Contracts more than
two (2) Banking Days from such date of determination (the "FX Contract
Exposure"),
to exceed at any time an amount equal to the lesser of (x) the Total Line of
Credit Commitment then in effect and (y) the Borrowing Base as defined in
Section 1.7.
If the sum of the Extensions of Credit shall at any time exceed the
lesser of the Total Line of Credit Commitment or the Borrowing Base, the
Borrower shall, on the next Banking Day, prepay or repay (together with accrued
interest thereon) such principal amount of the Line of Credit Loans, any
unreimbursed drawings under such Letters of Credit or any unreimbursed
obligations in respect of Banker's Acceptances or FX Contract Exposure such
that, giving effect to such prepayment or repayment, the sum of the Extensions
of Credit shall not exceed the lesser of (x) the Total Line of Credit
Commitment and (y) the
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Borrowing Base.
1.7 Borrowing Base. (a) "Borrowing Base" shall mean the
sum of (i) 80% of all Eligible Domestic Accounts Receivable, (ii) 80% of all
Insured Eligible International Accounts Receivable, (iii) 50% of all uninsured
Eligible International Accounts Receivable which are not Insured, provided,
however, in no event may such sum exceed 10% of the Total Borrowing Base and
(iv) the Applicable Inventory Amount.
(b) The term "Insured" when used with respect to an Eligible
International Account Receivable shall mean that the obligations of the account
debtor under such account are supported either (i) by a transferable commercial
letter of credit or standby letter of credit issued for the account of the
account debtor and for the benefit of the Borrower by a bank or other financial
institution approved by the Agent in writing (and not subsequently
disapproved), that (A) is payable in the United States, (B) provides for the
full payment to the Borrower or its transferee of such account receivable,
either (x) upon shipment of goods or the provision of services and upon
presentation of documentation that such goods have been shipped or that such
services have been provided, or (y) upon default in payment of such account
receivable in accordance with its terms or (ii) by insurance covering such
obligations with terms that have been approved by the Agent in writing and
underwritten by an insurer that has been approved by the Agent in writing (and
not subsequently disapproved); provided, that the Agent and the Lenders hereby
confirm that insurance which has been approved by SVB under the 1994 Credit
Agreement and is now in place is currently acceptable to the Agent and the
Lenders; and provided further that the Agent and the Lenders agree to review
and consider with reasonable promptness insurance and insurers hereafter
proposed by the Borrower.
1.8 Maturity Date of Line of Credit Loans and Other
Extensions of Credit. All Line of Credit Loans shall mature and the total
unpaid principal amount thereunder shall be due and payable on March 22, 1996
(the "Maturity Date"), at which time all Extensions of Credit under this
Section 1, together with all accrued interest and other obligations owed to the
Lenders, shall also be immediately due and payable.
1.9 Termination of Commitment. The Borrower, upon (a) at
least two (2) Banking Days' prior written notice to the Agent and (b) the
repayment in full of the outstanding principal balance of the Line of Credit
Loans and all other Extensions of Credit (and accrued interest thereon) and the
payment in full of any expenses or other fees owed by the Borrower to the Agent
or the Lenders under or pursuant to this Agreement, may terminate permanently
the Total Line of Credit Commitment.
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1.10 Letters of Credit. (a) Subject to the limitations
stated in Section 1.6 and the requirements set forth below, the Borrower may
use the Line of Credit Commitment for Letters of Credit to be issued by SVB
(the "Issuing Bank") for the account of the Borrower, provided that (i) the
Borrower executes and delivers a letter of credit application and reimbursement
agreement in the Issuing Bank's standard form and complies with any conditions
to the issuance of such Letter of Credit (including the payment of any
applicable fees) set forth therein; (ii) the Issuing Bank approves the form of
such Letter of Credit and the purpose of its issuance; (iii) such Letter of
Credit bears an expiration date not later than 45 days prior to the Commitment
Expiration Date; and (iv) the conditions set forth in Sections 4.2 and 4.3
below have been satisfied as of the date of the issuance of such Letter of
Credit.
(b) The Issuing Bank shall not be obligated or permitted
under this Section 1.10 to issue any Standby Letter of Credit for the account
of the Borrower to the extent that the sum of (i) the amount that would be
available to be drawn under the proposed Standby Letter of Credit plus (ii) the
sum of all amounts available to be drawn under outstanding Standby Letters of
Credit plus (iii) all unreimbursed drawings under such outstanding Standby
Letters of Credit shall exceed $4,000,000.
(c) The Borrower's obligations under this Section 1.10 shall
be absolute and unconditional under any and all circumstances and irrespective
of the occurrence of any Default or Event of Default or any condition precedent
whatsoever or any setoff, counterclaim or defense to payment which the Borrower
may have or have had against the Issuing Bank, the Agent, any Lender or any
beneficiary of a Letter of Credit. The Borrower further agrees that the
Issuing Bank, the Agent and the Lenders shall not be responsible for, and the
Borrower's reimbursement obligations shall not be affected by, among other
things, the validity or genuineness of documents or of any endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, fraudulent or forged, or any dispute between or among the
Borrower, the beneficiary of any Letter of Credit or any financing institution
or other party to which any Letter of Credit may be transferred or any claims
or defenses whatsoever of the Borrower, against the beneficiary of any Letter
of Credit or any such transferee. The Issuing Bank, the Agent and the Lenders
shall not be liable for any error, omission, interruption or delay in
transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit. The Borrower agrees that
any action taken or omitted by the Issuing Bank, the Agent or any Lender under
or in connection with each Letter of Credit and the related drafts and
documents, if done in good faith and without willful misconduct or gross
negligence on the part of the Agent or the Lenders, shall be binding upon the
Borrower and shall not result in any liability
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<PAGE> 10
on the part of the Issuing Bank, the Agent or any Lender to the Borrower;
provided, however, in no event shall the Agent or the Lenders be liable for any
consequential damages.
(d) To the extent not inconsistent with Section 1.10(c), the
Issuing Bank and the Agent shall be entitled to rely, and shall be fully
protected in relying upon, any Letter of Credit, draft, writing, resolution,
notice, consent, certificate, affidavit, letter, cablegram, telegram, telecopy,
telex or teletype message, statement, order or other document believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel, independent
accountants and other experts selected by the Issuing Bank and the Agent.
(e) If any draft shall be presented or other demand for
payment shall be made under any Letter of Credit, the Issuing Bank shall notify
the Borrower of the date and amount of the draft presented or demand for
payment and of the date and time when it expects to pay such draft or honor
such demand for payment. On the date that such draft is paid or other payment
is made by the Issuing Bank, the Issuing Bank shall promptly notify the Lenders
of the amount of any unpaid reimbursement obligation. All such unpaid
reimbursement obligations with respect to Letters of Credit shall be deemed to
be Line of Credit Loans and subject to the limitations and requirements stated
in Sections 1.2 and 1.6.
(f) Effective immediately upon the issuance of each Letter of
Credit for the account of the Borrower and without further action on the part
of the Issuing Bank, the Issuing Bank shall be deemed to have granted to each
Lender, and each Lender shall be deemed to have irrevocably purchased and
received from such Issuing Bank without recourse or warranty, an undivided
interest and participation in such Letter of Credit to the extent of each
Lender's Commitment Percentage. Each Lender agrees that it shall be absolutely
liable, to the extent of its Commitment Percentage thereof, to reimburse the
Issuing Bank on demand for the amount of each draft paid by the Issuing Bank
under each Letter of Credit to the extent that such amount is not reimbursed by
the Borrower.
(g) The Borrower shall pay the Issuing Bank, for the benefit
of each of the Lenders based upon their respective Commitment Percentages, a
fee with respect to each Standby Letter of Credit issued equal to 1.5% per
annum of the amount that is available to be drawn under such Standby Letter of
Credit. The Borrower shall also pay the Issuing Bank a fronting fee, which the
Issuing Bank shall retain for its own account, equal to 0.10% of the amount
that is available to be drawn under such Standby Letter of Credit. Each of the
aforementioned fees shall be payable upon the issuance of the requested Letter
of Credit.
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(h) The Borrower shall pay the Issuing Bank, for the benefit
of the Lenders as their interests shall appear, a fee with respect to each
Trade Letter of Credit issued in an amount to be agreed upon by the Borrower
and the Issuing Bank at the time of issuance.
(i) The Issuing Bank shall be entitled to administer each
Letter of Credit in the ordinary course of business and in accordance with its
usual practices, modified from time to time as it deems appropriate under the
circumstances, and shall be entitled to use its discretion in taking or
refraining from taking any action in connection herewith as if it were the sole
party involved. Any action taken or omitted to be taken by the Issuing Bank
under or in connection with any Letter of Credit, if taken or omitted in the
absence of gross negligence or wilful misconduct, shall not create for the
Issuing Bank any resulting liability to any other Lender.
1.11 Banker's Acceptances. (a) Subject to the
limitations stated in Section 1.6 and the requirements set forth below, the
Borrower may use the available Line of Credit Commitment by requesting that SVB
(the "Accepting Bank") accept the Borrower's time drafts (payable up to 60 days
after sight), and discount such drafts at the interest rate then applicable
pursuant to Section 2.1(a). As a condition to the creation and discount of any
such Banker's Acceptance by the Accepting Bank (i) the Borrower shall execute
and deliver an acceptance credit agreement satisfactory in form and substance
to the Accepting Bank (an "Acceptance Agreement"), and shall comply with any
conditions to the creation of such acceptance (including the payment of any
acceptance commission and the satisfaction of any additional collateral
requirements) set forth therein; (ii) such Banker's Acceptance must be an
Eligible Acceptance; (iii) the maturity date of such Banker's Acceptance shall
not be later than the Commitment Expiration Date unless all Lenders otherwise
agree in writing; and (iv) the conditions set forth in Sections 4.2 and 4.3
below shall have been satisfied as of the date of the creation of such Banker's
Acceptance.
(b) Effective immediately upon the issuance of each such
Banker's Acceptance for the account of the Borrower and without further action
on the part of the Accepting Bank, the Accepting Bank shall be deemed to have
granted each Lender, and each Lender shall be deemed to have irrevocably
purchased and received from such Accepting Bank without recourse or warranty,
an undivided interest and participation in such Banker's Acceptance to the
extent of each Lender's Commitment Percentage. Each Lender agrees that it
shall be absolutely liable, to the extent of its Commitment Percentage thereof,
to reimburse the Accepting Bank on demand for the amount of each draft paid by
the Accepting Bank in connection with such Banker's Acceptance to the extent
that such amount is not paid by the Borrower.
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1.12 Foreign Exchange Contracts. (a) Subject to the
limitations stated in Section 1.6 and the requirements set forth below, the
Borrower may use the available Line of Credit Commitment by entering into
foreign currency exchange contracts ("Foreign Exchange Contracts" or "FX
Contracts") with SVB (the "FX Bank") pursuant to which the FX Bank shall sell
to or purchase from the Borrower foreign currency on a spot or future basis,
provided that the Bank shall not be obligated to enter into any FX Contract if,
giving effect thereto, (i) the amount of U.S. Dollars required to be paid by
the parties under all outstanding FX Contracts would exceed $2,000,000, or (ii)
the amount of U.S. Dollars required to be paid by the parties under all
outstanding FX Contracts during any period of two consecutive Banking Days
would exceed $750,000. It shall be a condition of the obligation of the
FX Bank to enter into any FX Contract that the conditions set forth in Sections
4.2 and 4.3 below be satisfied as of the date that such FX Contract is proposed
to be entered into.
(b) At the time that any FX Contract is entered into the Borrower
shall execute and deliver the FX Bank's standard form of confirmation letter in
connection with such FX Contract, and pay all fees and charges assessed by the
FX Bank in connection therewith as determined by the FX Bank in accordance with
its customary practices; provided, however, that the Borrower has requested,
and the FX Bank has agreed, that the FX Bank may (but shall not be required to)
enter into FX Contracts on the Borrower's behalf in reliance on the telephone
request of an individual who has been identified by the Borrower from time to
time as an authorized officer of the Borrower. The Borrower shall pay the
FX Bank in immediately available funds the full settlement amount payable to the
FX Bank under any FX Contract on the specified settlement date (or on a
settlement date within a specified settlement period, if applicable). All past
due amounts under any FX Contract shall be payable on demand and accrue
interest at a rate per annum equal to the higher of (i) the rate per annum
applicable to past-due amounts in respect of the Line of Credit Loans, or (ii)
the rate which the FX Bank would be required to pay to cover its position with
respect to the currency in question. In addition, the Borrower agrees to pay,
on demand, all standard fees and charges of the FX Bank in connection with any
FX Contract. All FX Contracts must provide for settlement prior to ninety (90)
days after the Commitment Expiration Date. The Borrower may direct the
FX Bank, by written notice, to terminate any outstanding FX Contract with a
settlement date occurring, or settlement period beginning, more than three (3)
Banking Days prior to the date such notice is received by the FX Bank.
Further, the FX Bank may, to avoid material deterioration of its financial
position, terminate any or all outstanding FX Contracts at any time if an Event
of Default has occurred and is continuing at such time. The Borrower agrees to
reimburse the FX Bank for any and all losses,
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<PAGE> 13
costs and expenses suffered or incurred by the FX Bank in connection with any
such termination (whether by the FX Bank or at the request of the Borrower).
Without limiting the foregoing, any of the other terms of this Agreement or any
FX Contract, the Borrower agrees to indemnify the FX Bank and hold it harmless
from and against any and all claims, debts, liabilities, demands, obligations,
actions, costs and expenses (including, without limitation, reasonable
attorneys' fees of counsel of the FX Bank's choice), of every nature and
description, which it may sustain or incur based upon, arising out of, or in
any way relating to any of the FX Contracts or any transactions relating
thereto or contemplated thereby, other than any claims, debts, liabilities,
demands, obligations, actions, costs or expenses that the FX Bank is
adjudicated to have caused through its gross negligence or wilful misconduct.
(c) Effective immediately upon the issuance of each such FX
Contract for the account of the Borrower and without further action on the part
of the FX Bank, the FX Bank shall be deemed to have granted each Lender, and
each Lender shall be deemed to have irrevocably purchased and received from
such FX Bank without recourse or warranty, an undivided interest and
participation in such FX Contract to the extent of each Lender's Commitment
Percentage. Any fee charged by the FX Bank in connection with the FX Contract
shall be shared with the other Lenders based upon their respective Commitment
Percentages.
Section 2 Interest Rates; Payments and Optional Prepayments.
2.1 Interest Rates.
(a) The Borrower agrees to pay interest on both the
Receivables Component and the Inventory Component (as those terms are defined
below) of the unpaid principal amount of the Line of Credit Loans for each day
from and including the date each such Line of Credit Loan was made to but
excluding the date the principal on such Line of Credit Loan is due (whether at
maturity, by acceleration or otherwise) at a fluctuating interest rate per
annum equal to the Prime Rate plus the Applicable Margin (as specified below),
which interest rate shall change when the Prime Rate shall change. In the case
of the Receivables Component, the Applicable Margin shall be the Receivables
Margin (as defined below). In the case of the Inventory Component, the
Applicable Margin shall be the Inventory Margin (as defined below). Such
interest shall be payable monthly in arrears on the last day of each month
commencing with the first such date hereafter and when the aggregate unpaid
principal amount of the Line of Credit Loans is due (whether at maturity, by
acceleration or otherwise). As used herein:
(i) "Receivables Component" shall mean, with respect to
the aggregate unpaid principal amount of the Line of Credit
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Loans, the lesser of (A) such aggregate unpaid principal amount and (B)
the sum of (x) 80% of all Eligible Domestic Accounts Receivable, (y)
80% of all Insured Eligible International Accounts Receivable and (z)
50% of all uninsured Eligible International Accounts Receivable, each
of which shall be determined using the most recently submitted
Borrowing Base Certificate;
(ii) "Inventory Component" shall mean, with respect to the
aggregate unpaid principal amount of the Line of Credit Loans, the
amount (if any) by which such aggregate unpaid principal amount
exceeds the Receivables Component thereof;
(iii) "Receivables Margin" shall mean a fluctuating rate per
annum equal to two percent (2%) minus the product of 0.25% and the
number of Rate Reduction Events that have occurred; provided, however,
that in no event shall the Receivables Margin be less than zero
percent; and
(iv) "Inventory Margin" shall mean a rate per annum equal to
two and one-quarter percent (2.25%).
(v) "Rate Reduction Event" means an event that occurs when
the following conditions occur:
(A) Commencing with the fiscal quarter ending June
30, 1995, no Event of Default has occurred during such fiscal
quarter (including, without limitation, as a result of any
failure to comply with the provisions of Section 7.11 through
7.14) and no Event of Default which may have occurred during
any prior fiscal period commencing with the fiscal quarter
ending June 30, 1995 is continuing and has not been cured or
waived by Agent and the Lenders.
(B) The Borrower shall have furnished to the Agent
and each of the Lenders a Compliance Certificate and
accompanying financial statements pursuant to Section 6.4
demonstrating satisfaction of the conditions referred to in
clause (A) above. Once a Rate Reduction Event occurs, the
applicable rate of interest reduced as a result thereof shall
remain in effect, subject to the provisions of Section 2.1(b)
below.
(b) Any overdue principal of any such Line of Credit Loan
and, to the extent permitted by law, overdue interest thereon, shall, at the
Agent's option, bear interest (after as well as before judgment), payable on
demand, for each day from and including the date payment was due to but
excluding the date of actual payment, at a fluctuating rate per annum four (4)
percentage points above the rates of interest then applicable
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<PAGE> 15
under Section 2.1(a) immediately prior to the occurrence of the delinquency.
2.2 Manner and Place of Payment. (a) All payments of principal
of and interest in respect of Line of Credit Loans and other Extensions of
Credit shall be made not later than 2:00 p.m. (Boston Time) on the date when due
and shall be made in immediately available funds at the Office of the Agent or
by the Borrower's check drawn on the depositary account(s) maintained by the
Borrower with the Agent payable to the Agent or its order for the benefit of the
Lenders as their interests may appear.
(b) All payments shall be made without set-off, counterclaim,
withholding or reduction of any kind whatsoever. Borrower will regularly deposit
substantially all funds received from its business activities in accounts
maintained by the Borrower at the Office of the Agent. Borrower hereby requests
and authorizes the Agent to debit any of Borrower's accounts with the Agent,
including, without limitation, Account Number 0700147970 maintained with the
Agent, for payments of interest and principal due on the Line of Credit Loans
and any other Extensions of Credit or other obligations owing by the Borrower to
the Agent or the Lenders. The Agent will notify the Borrower of all debits which
the Agent makes against the Borrower's accounts. Any such debits against the
Borrower's accounts in no way shall be deemed a set-off.
(c) Each of the Lenders and the Agent hereby agrees that if it
should receive any amount (whether by voluntary payment, by realization upon
security, by the exercise of the right of set-off or banker's lien, by
counterclaim or cross action, by the enforcement of any right under this
Agreement or otherwise) in respect of principal of, or interest on, the Line of
Credit Loans, Extensions of Credit or any fees which are to be shared between
the Lenders, which, as compared to the amounts theretofore received by the other
Lender with respect to such principal, interest or fees, is in excess of the
recipient Lender's Commitment Percentage of such principal, interest or fees,
such recipient Lender shall share such excess, less the costs and expenses
(including, reasonable attorneys' fees and disbursements) incurred by such
Lender in connection with such realization, exercise, claim or action, with the
other Lender in proportion to their respective Commitment Percentages, and such
sharing shall be deemed a purchase (without recourse) by such sharing party of
participation interests in the amounts owed to the recipients of such shared
payments to the extent of such shared payments; provided, however, that if all
or any portion of such excess amount is thereafter recovered from such Lender,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
2.3 Payments Due on Saturdays, Sundays and Holidays.
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Whenever any payment to be made hereunder or under the Notes shall be due on a
day which is not a Banking Day, such payment may be made on the next succeeding
Banking Day, and such extension of time shall be included in computing any
interest or fees due.
2.4 Optional Prepayments. The Borrower shall have the right to
prepay the Line of Credit Loans in whole or in part, without premium or penalty,
at any time and from time to time, provided that, at the time of the prepayment
in full of all Extensions of Credit, the Borrower shall pay all interest accrued
on the amount prepaid. Principal amounts repaid or prepaid under the Line of
Credit Notes or under the Line of Credit Commitment may be reborrowed by the
Borrower subject to the terms hereof; provided, however, that any funds repaid
or prepaid on or after the earlier to occur of (a) the Commitment Expiration
Date or (b) the termination of the Line of Credit Commitment pursuant to Section
1.9 hereof, may not be reborrowed or readvanced thereafter. All prepayments
shall be applied to each of the Notes on a pro rata basis based upon their
respective initial face amounts.
2.5 Capital Requirements. If either of the Lenders shall
determine that the adoption or implementation of any applicable law, rule,
regulation or treaty regarding capital adequacy, or any change therein, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by the such Lender (or its applicable
lending office) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on capital of the Lender or any Person controlling the Lender (a "Parent") as a
consequence of its obligations hereunder to a level below that which the Lender
(or its Parent) could have achieved but for such adoption, change or compliance
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by the Lender to be material, then from time to time, within
fifteen (15) days after demand by the Lender the Borrower shall pay to the
Lender such additional amount or amounts as will compensate the Lender for such
reduction. A statement of the Lender claiming compensation under this Section
and setting forth the additional amount or amounts to be paid to it hereunder
shall be conclusive absent manifest error; provided that the determination
thereof is made on a reasonable basis.
Section 3 Security.
3.1 Security Interests. Payment and performance of all
of the Borrower's present or future obligations to the
Agent
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and the Lenders, the Issuing Bank, the Accepting Bank and the FX Bank under this
Agreement, the Notes and the other Loan Documents (the "Secured Obligations")
shall be secured under the terms of that certain Amended and Restated Security
Agreement of even date herewith a copy of which is attached as Exhibit B hereto
(as amended, modified, supplemented or restated, the "Security Agreement"), by
which Borrower has granted and agreed to grant the Agent, for the benefit of the
Lenders, the Issuing Bank, the Accepting Bank and the FX Bank, security
interests in, and liens on, all right, title and interest of the Borrower in and
to certain assets of the Borrower to secure the Secured Obligations.
3.2 Guaranty and Security Interests. Payment and performance of
all the Secured Obligations shall be further secured by that certain guaranty of
even date herewith (as amended, modified, supplemented or restated, the
"Guaranty") issued by Microcom Systems, Inc., a Delaware corporation
("Guarantor"), a copy of which is attached hereto as Exhibit F. Payment and
performance of Guarantor's obligations under or with respect to the Guaranty
shall be secured under the terms of (i) that certain security agreement of even
date herewith executed by Guarantor in favor of the Agent for the benefit of the
Lenders (as amended, modified, supplemented or restated, the "Guarantor Security
Agreement"), a copy of which is attached hereto as Exhibit G, and (ii) that
certain collateral assignment of patents and trademarks of even date herewith
executed by Guarantor in favor of the Agent for the benefit of the Lenders (as
amended, modified, supplemented or restated, the "Guarantor Collateral
Assignment of Patents and Trademarks"), a copy of which is attached hereto as
Exhibit H.
Section 4 Conditions Precedent.
Notwithstanding that this Agreement shall become effective as of the
date hereof, the Lenders shall not be obligated to make any Extension of Credit
hereunder until the following conditions have been satisfied:
4.1 This Agreement, the Notes and the Security Instruments.
This Agreement, each Extension of Credit hereunder, the Notes, the Security
Instruments and all transactions contemplated by this Agreement shall have been
duly authorized by the Borrower. The Borrower shall have duly executed and
delivered to the Agent and the Lenders this Agreement, the Notes, the Security
Instruments and any other documentation that the Agent may reasonably require
hereunder, all to be in form and substance satisfactory to the Agent and its
counsel.
4.2 No Default. On the date hereof and on the date of the
making of each Extension of Credit, no Default or Event of Default shall have
occurred and be continuing.
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4.3 Correctness of Representations. On the date hereof and on
the date of each Extension of Credit, all representations and warranties made by
the Borrower in Section 5 below or otherwise in writing in connection herewith
shall be true and correct with the same effect as though such representations
and warranties had been made on and as of today's date, except that
representations and warranties expressly limited to a certain date shall be true
and correct as of that date.
4.4 Opinion of Counsel for the Borrower. On the date hereof,
the Lenders shall have received the favorable opinion of Choate, Hall & Stewart,
counsel for the Borrower, in form and substance satisfactory to the Agent and
its counsel.
4.5 Governmental Approvals. On the date hereof and on the date
of each Extension of Credit, all necessary approvals, licenses, permissions,
registrations or validations of any Governmental Authority required for the
execution, delivery, performance or carrying out of the provisions of this
Agreement, the Notes and the Security Instruments, or for the validity or
enforceability of the obligations incurred thereunder (other than the filing of
financing statements as required under Section 4.6 below), shall have been
obtained and shall be in full force and effect and copies thereof certified by a
duly authorized officer of the Borrower to such effect shall have been delivered
to the Agent.
4.6 Filing of Financing Statements, etc. On or before the
Lenders make any Extensions of Credit, financing statements and other
appropriate documentation relating to the security interests and rights granted
pursuant to the Security Instruments, executed and delivered by the Borrower to
the Agent for the benefit of the Lenders, shall have been duly recorded or filed
in such manner and in such places as is required by law (including, pursuant to
the UCC) to establish, preserve, protect, and perfect such security interests
and rights; and all taxes, fees and other charges in connection with the
execution and delivery of this Agreement, the Security Agreement and such
financing statements and the filing of such financing statements and other
appropriate documentation shall have been duly paid.
4.7 Supporting Documents. On or before the date hereof,
there shall have been delivered to the Agent the following supporting documents:
(a) legal existence and corporate good standing certificates
with respect to the Borrower dated as of a recent date issued by the appropriate
Secretary of State or other official;
(b) certificates dated as of a recent date with
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respect to the due qualification of the Borrower to do business in each
jurisdiction where the failure to be so qualified would have a Material Adverse
Effect, issued by the Secretary of State of each such jurisdiction;
(c) copies of the corporate charters of the Borrower,
certified by the appropriate Secretaries of State or other officials, as in
effect on the date hereof;
(d) a certificate of the Clerk or Assistant Clerk of the
Borrower certifying as to (i) the By-Laws of the Borrower as in effect on the
date hereof; (ii) the incumbency and signatures of the officers of the Borrower
who have executed any documents in connection with the transactions contemplated
by this Agreement; and (iii) the resolutions of the Board of Directors and, to
the extent required by law, the shareholders, of the Borrower authorizing the
execution, delivery and performance of this Agreement and the making of the
Extensions of Credit hereunder, and the execution and delivery of the Notes; and
(e) all other information and documents which the Agent or its
counsel may request in connection with the transactions contemplated by this
Agreement.
4.8 Commitment Fee. The Borrower (a) shall have paid SVB a
non-refundable Commitment Fee in the amount of $20,000 and SVB's expenses
(including reasonable attorneys' fees) in connection herewith and (b) shall have
paid BayBank a non-refundable Commitment Fee in the amount of $30,000 in
connection herewith.
4.9 Compliance and Borrowing Base Certificates. The Borrower
shall have furnished to the Agent a Compliance Certificate in the form of
attached Exhibit C appropriately completed and signed by the chief financial
officer or the president of the Borrower, and to the extent that there are
Extensions of Credit outstanding or that the Borrower is requesting an Extension
of Credit on the date hereof, a Borrowing Base Certificate in the form of
Exhibit D hereto appropriately completed and signed by the chief financial
officer or president of the Borrower, both of which certificates shall reflect
compliance by the Borrower with the requirements of this Agreement.
4.10 Legal Matters. All documents and legal matters
incident to the transactions contemplated by this Agreement shall be
satisfactory to Sullivan & Worcester, special counsel for the Agent and the
Lenders.
Each borrowing hereunder shall constitute a representation and warranty
by the Borrower to the Lenders that all of the conditions specified in this
Section 4 have been complied with as
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of the time of any such Extension of Credit.
Section 5 Representations and Warranties.
In order to induce the Lenders to enter into this Agreement and to make
the contemplated Extensions of Credit, the Borrower hereby represents and
warrants as follows (except to the extent qualified by supplemental disclosure
set forth on Schedule A hereto) and the following representations and warranties
as so qualified shall survive the execution and delivery of this Agreement and
the Line of Credit Loans:
5.1 Corporate Status. The Borrower and each of its Subsidiaries
(if any) is a duly organized and validly existing corporation in good standing
under the laws of the jurisdiction of its incorporation and is duly qualified or
licensed as a foreign corporation in good standing in each jurisdiction in which
the failure to do so would have a Material Adverse Effect.
5.2 No Violation. Neither the execution, delivery or
performance of this Agreement or any other Loan Document, nor consummation of
the contemplated transactions will contravene any law, statute, rule or
regulation to which the Borrower or any of its Subsidiaries is subject or any
judgment, decree, franchise, order or permit applicable to the Borrower or any
of its Subsidiaries, or will conflict or be inconsistent with or will result in
any breach of, or constitute a default under, or result in or require the
creation or imposition of any Lien (other than the lien created by the Security
Instruments) upon any of the property or assets of the Borrower or any of its
Subsidiaries pursuant to, any Contractual Obligation of the Borrower or any of
its Subsidiaries, or violate any provision of the corporate charter or by-laws
of the Borrower or any of its Subsidiaries.
5.3 Corporate Power and Authority. The execution, delivery and
performance of this Agreement and the other Loan Documents are within the
corporate powers of the Borrower and have been duly authorized by all necessary
corporate action.
5.4 Enforceability. This Agreement and each other Loan Document
constitutes a valid and binding obligation of the Borrower enforceable against
the Borrower in accordance with its terms, except as be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and subject to general principles of
equity, whether applied in a court of equity or at law.
5.5 Governmental Approvals. No order, permission,
consent, approval, license, authorization, registration or validation of, or
filing with, or exemption by, any Governmental Authority is required to
authorize, or is required in connection
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with, the execution, delivery and performance of this Agreement or any other
Loan Document by the Borrower, or the taking of any action contemplated hereby
or thereby, except for the filing of financing statements or related documents
in the appropriate UCC filing offices listed on the Perfection Certificate (as
defined in the Security Agreement).
5.6 Financial Statements. (a) The Borrower has furnished the
Agent with complete and correct copies of the audited consolidated balance sheet
of the Borrower and its Subsidiaries as of the Financial Statements Date, and
the related audited consolidated statements of income and of cash flows for the
fiscal year of the Borrower and its Subsidiaries ended on such date, examined by
the Accountants. Such financial statements (including the related schedules and
notes) fairly present the consolidated financial condition of the Borrower and
its Subsidiaries as of the Financial Statements Date, and the consolidated
results of their operations and their consolidated cash flows for the fiscal
year then ended.
(b) Neither the Borrower nor any of its Subsidiaries has any
material liabilities, contingent or otherwise, including liabilities for taxes
or any unusual forward or long-term commitments or any Guarantee, which are not
disclosed by or included in the above-referenced financial statements or the
accompanying notes and there are no unrealized or anticipated losses from any
unfavorable commitments of the Borrower or any of its Subsidiaries which may
have a Material Adverse Effect.
(c) All the above-referenced financial statements (including
the related schedules and notes) have been prepared in accordance with GAAP
applied consistently throughout the periods involved (except as approved by the
Accountants and disclosed therein and, in the case of interim financial
statements, subject to normal year-end adjustments and the absence of footnotes
and schedules).
5.7 No Material Change. Since the Financial Statements
Date there has been no development or event, nor to the best knowledge of the
Borrower, any prospective development or event, which has had or could have a
Material Adverse Effect.
5.8 Litigation. There are no actions, suits or proceedings
pending or threatened against or affecting the Borrower or any of its
Subsidiaries before any Governmental Authority, which in any one case or in the
aggregate, if determined adversely to the interests of the Borrower or any
Subsidiary thereof, would have a Material Adverse Effect.
5.9 Compliance with Other Instruments; Compliance with Law.
Neither the Borrower nor any Subsidiary thereof is in default under (a) any
Contractual Obligation, where such default
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could have a Material Adverse Effect, or (b) the terms of any Contractual
Obligation relating to any Indebtedness of the Borrower or such Subsidiary.
Neither the Borrower nor any Subsidiary thereof is in default and or in
violation of any applicable statute, rule, writ, injunction, decree, order or
regulation of any Governmental Authority having jurisdiction over the Borrower
or any Subsidiary thereof which default or violation could have a Material
Adverse Effect.
5.10 Subsidiaries. The Borrower has no Subsidiaries except
as set forth on attached Schedule A.
5.11 Investment Borrower Status; Limits on Ability to Incur
Indebtedness. Neither the Borrower nor any of its Subsidiaries is an "investment
company" or a company "controlled by" an investment company within the meaning
of the Investment Company Act of 1940, as amended. The Borrower is not subject
to regulation under any Federal or State statute or regulation which limits its
ability to incur Indebtedness.
5.12 Title to Property. The Borrower and each of its
Subsidiaries has good and marketable title to all of its properties and assets,
including the properties and assets reflected in the consolidated balance sheet
of the Borrower and its Subsidiaries as of the Financial Statements Date, except
such as have been disposed of since that date in the ordinary course of
business, and none of such properties or assets is subject to (a) any Lien
except for Permitted Liens, or (b) any defect in title or other claim other than
defects and claims that, in the aggregate, would have no Material Adverse
Effect. The Borrower and each of its Subsidiaries enjoys peaceful and
undisturbed possession under all leases necessary in any material respect for
the operation of its properties and assets, none of which contains any unusual
or burdensome provisions which might materially affect or impair such properties
or assets. All such leases are valid and subsisting and are in full force and
effect.
5.13 ERISA. The Borrower and each member of the Controlled
Group have fulfilled their obligations under the minimum funding standards of
ERISA and the Code with respect to each Plan and are in compliance in all
material respects with the presently applicable provisions of ERISA and the
Code, and have not incurred any liability to the PBGC or a Plan under Title IV
of ERISA (other than to make contributions or premium payments in the ordinary
course).
5.14 Taxes. All tax returns of the Borrower and its
Subsidiaries required to be filed have been timely filed, all taxes, fees and
other governmental charges (other than those being contested in good faith by
appropriate proceedings diligently conducted and with respect to which adequate
reserves have been established and, in the case of ad valorem taxes or
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betterment assessments, no proceedings to foreclose any lien with respect
thereto have been commenced and, in all other cases, no notice of lien has been
filed or other action taken to perfect or enforce such lien) shown thereon which
are payable have been paid. The charges and reserves on the books of the
Borrower and its Subsidiaries for all income and other taxes are adequate, and
the Borrower knows of no additional assessment or any basis therefor. The
Federal income tax returns of the Borrower and its Subsidiaries have not been
audited within the last three years, all prior audits have been closed, and
there are no unpaid assessments, penalties or other charges arising from such
prior audits.
5.15 Environmental Matters. (a) The Borrower and each of
its Subsidiaries have obtained all Governmental Approvals that are required for
the operation of its business under any Environmental Law, except where the
failure to so obtain a Governmental Approval would not have a Material Adverse
Effect.
(b) The Borrower and each of its Subsidiaries are in compliance
with all terms and conditions of all required Governmental Approvals and are
also in compliance with all terms and conditions of all applicable Environmental
Laws, noncompliance with which would have a Material Adverse Effect.
(c) There is no civil, criminal or administrative action, suit,
demand, claim, hearing, notice of violation, investigation, proceeding, notice
or demand letter pending or, to the best knowledge of the Borrower threatened
against the Borrower or any Subsidiary thereof relating in any way to the
Environmental Laws, and there is no Lien of any private entity or Governmental
Authority against any property of the Borrower or any Subsidiary thereof
relating in any way to the Environmental Laws.
(d) There has been no claim, complaint, notice, or request for
information received by the Borrower with respect to any site listed on the
National Priority List promulgated pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act ("CERCLA"), 42 USC Section 9601 et
seq., or any state list of sites requiring investigation or cleanup with respect
to contamination by Hazardous Substances.
(e) To the best of the Borrower's knowledge, there has been no
release or threat of release of any Hazardous Substance at any Borrower Property
which would likely result in liability being imposed upon the Borrower or any
Subsidiary thereof, which liability would have a Material Adverse Effect.
5.16 Intellectual Property. Schedule A lists all of the
copyrights, patents, trademarks and similar rights ("Intellectual Property")
owned by the Borrower and its Subsidiaries as
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of the date hereof, together with information, where applicable, as to
registration number, filing date and record owner. Except as set forth in
Schedule A, the Borrower or a Subsidiary thereof is the absolute owner of all
right, title and interest in the Intellectual Property, free and clear of all
Liens in favor of other Persons with full right to pledge, sell, assign,
transfer and grant a security interest therein. The Borrower and each of its
Subsidiaries owns or possesses such Intellectual Property and similar rights
necessary for the conduct of its business as now conducted, without any known
conflict with the rights of others which would have a Material Adverse Effect.
5.17 Borrowing Base. Giving effect to any Extensions of Credit
to be made (or deemed made pursuant to Section 1.3) as of the date hereof under
this Agreement, the aggregate amount of all Extensions of Credit under this
Agreement does not exceed either the Line of Credit Commitment or the Borrowing
Base on the date hereof or any other limitation imposed by this Agreement.
Section 6 Affirmative Covenants.
The Borrower covenants and agrees that for so long as this Agreement is
in effect and until the Notes, together with all interest thereon and all other
Obligations of the Borrower to the Lenders are paid or satisfied in full:
6.1 Maintenance of Existence. The Borrower will, and will cause
each of its Subsidiaries to, maintain its existence and comply with all
applicable statutes, rules and regulations and to remain duly qualified as a
foreign corporation, licensed and in good standing in each jurisdiction where
such qualification or licensing is required by the nature of its business, the
character and location of its property, business, or the ownership or leasing of
its property, except where such noncompliance or failure to so qualify would not
have a Material Adverse Effect, and the Borrower will, and will cause each of
its Subsidiaries to, maintain its properties in good operating condition, and
continue to conduct its business as presently conducted.
6.2 Taxes and Other Liens. The Borrower will, and will cause
each of its Subsidiaries to, pay when due all taxes, assessments, governmental
charges or levies, or claims for labor, supplies, rent and other obligations
made against it which, if unpaid, might become a Lien against the Borrower or
such Subsidiary or on its property, except liabilities being contested in good
faith and by proper proceedings, as to which adequate reserves are maintained on
the books of the Borrower or its Subsidiaries, in accordance with GAAP.
6.3 Insurance. The Borrower will, and will cause each of
its Subsidiaries to, maintain insurance with financially sound
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and reputable insurance companies in such amounts and against such risks as is
usually carried by owners of similar businesses and properties in the same
general areas in which the Borrower and its Subsidiaries operate, provided that
in any event the Borrower and its Subsidiaries shall maintain or cause to be
maintained (a) insurance against casualty, loss or damage covering all property
and improvements of the Borrower and its Subsidiaries in amounts and in respect
of perils usually carried by owners of similar businesses and properties in the
same general areas in which Borrower and its Subsidiaries operate; (b)
comprehensive general liability insurance against claims for bodily injury,
death or property damage; and (c) workers' compensation insurance to the extent
required by applicable law. In the case of policies referenced in clauses (a)
and (b) above, all such insurance shall (i) name the Borrower and the Lenders as
loss payees and additional insureds as their interests may appear; (ii) provide
that no termination, cancellation or material reduction in the amount or
material modification to the extent of coverage shall be effective until at
least 30 days after receipt by the Agent of notice thereof; and (iii) be
reasonably satisfactory in all other respects to the Agent and each of the
Lenders.
6.4 Financial Statements, Etc. The Borrower will furnish
to the Agent and each of the Lenders:
(a) within twenty-five (25) days after the end of each calendar
month (including the last month of the fiscal year), the unaudited consolidated
balance sheet and income statement of the Borrower and its Subsidiaries as at
the end of, and for, such month (provided, however, that in the case of
financial statements for the last month of any fiscal quarter, such financial
statements shall include an income statement for such fiscal quarter),
accompanied by a certificate of the chief financial officer of the Borrower to
the effect that such financial statements fairly present the consolidated
financial condition of the Borrower and its Subsidiaries as of the end of such
month, and the consolidated results of their operations for such month, in each
case in accordance with GAAP (except for the absence of footnotes) consistently
applied (subject to normal year-end audit adjustments);
(b) within one hundred (100) days after the last day of each
fiscal year of the Borrower, the audited consolidated balance sheet and income
statement and statement of cash flows of the Borrower and its Subsidiaries as at
and for the fiscal year then ended, certified by the Accountants (the substance
of such report to be satisfactory to the Lenders), together with a certificate
of the chief financial officer of the Borrower to the effect that such financial
statements fairly present the consolidated financial condition of the Borrower
and its Subsidiaries as of the end of such fiscal year, and the
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consolidated results of their operations for such fiscal year, in each case in
accordance with GAAP. The Borrower shall indicate on said financial statements
all guarantees or unusual forward or long-term commitments made by the Borrower
or any Subsidiary thereof;
(c) at the time of the delivery of the financial statements for
each fiscal quarter end and yearly financial statements required by Sections
6.4(a) and 6.4(b), a Compliance Certificate signed by the chief financial
officer or the president of the Borrower in the form attached to this Agreement
as Exhibit C, appropriately completed;
(d) within twenty-five (25) days after the end of each fiscal
month of the Borrower, (i) a list of the accounts receivable aging for the
Borrower as of the end of such month in such form as the Agent may prescribe,
all in reasonable detail and certified by the chief financial officer or the
president of the Borrower; (ii) a listing of all inventory of the Borrower,
expressly identifying finished goods inventory located in Massachusetts, all in
reasonable detail and certified by the chief financial officer or the president
of the Borrower; and (iii) a Borrowing Base Certificate signed by the chief
financial officer or the president of the Borrower in the form attached to this
Agreement as Exhibit D appropriately completed, subject to usual and customary
year-end audit adjustments;
(e) promptly upon the mailing thereof to the shareholders of
the Borrower generally, copies of all financial statements, reports, proxy
statements and other materials;
(f) promptly upon request by any Lender, copies of any
management letter provided by the Accountants, provided that the Borrower shall
promptly advise the Agent in the event the Borrower receives any such letter;
(g) promptly upon the filing thereof by the Borrower with the
SEC (and in any event within ten (10) days of such filing), copies of any
registration statements and reports on Forms 10-K, 10-Q and 8-K (or their
equivalents if such forms no longer exist);
(h) promptly upon becoming aware of any litigation or other
proceeding against the Borrower or any Subsidiary thereof that may have a
Material Adverse Effect, notice thereof; and
(i) upon receipt by the Borrower, promptly (but not less than
often than monthly) all sell-through reports provided by the Borrower's
distributors (including, without limitation, Ingram, Merisel and Tech Data)
together with such internally generated inventory management reports as may be
required by the Agent from time to time; and
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(j) within thirty (30) days prior to the beginning of each
fiscal year of the Borrower (but in the case of the 1996 fiscal year, on or
before March 27, 1995), a copy of the consolidated operating budget, including,
without limitation, pro forma profit-and-loss statements, balance sheets and
cash-flow statements for such immediately ensuing fiscal year on at least a
quarterly basis and a statement of the assumptions on which such budget was
prepared and, with reasonable promptness following their production, any
amendments or supplements to or restatements of the foregoing; and
(k) promptly following the request of any Lender, such further
information concerning the business, affairs and financial condition or
operations of the Borrower and its Subsidiaries as such Lender may reasonably
request.
6.5 Notice of Default. As soon as practicable, and in any
event, within three (3) Banking Days of becoming aware of the existence of any
condition or event which constitutes a Default, the Borrower will provide the
Agent and each Lender with written notice specifying the nature and period of
existence thereof and what action the Borrower is taking or proposes to take
with respect thereto.
6.6 Environmental Matters.
(a) The Borrower and each of its Subsidiaries shall comply with
all terms and conditions of all applicable Governmental Approvals and all
applicable Environmental Laws, except where failure to comply would not have a
Material Adverse Effect.
(b) The Borrower shall promptly notify the Agent should the
Borrower become aware of:
(i) any spill, release, or threat of release of any Hazardous
Substance at or from any Borrower Property or by any Person for whose
conduct the Borrower or any Subsidiary thereof is responsible, to the
extent the Borrower is required by Environmental Laws to report such to
any Governmental Authority;
(ii) any action or notice with respect to a civil, criminal or
administrative action, suit, demand, claim, hearing, notice of
violation, investigation, proceeding, notice or demand letter pending
or threatened against the Borrower or any Subsidiary thereof relating
in any way to the Environmental Laws, or any Lien of any Governmental
Authority or any other Person against any Borrower Property relating in
any way to the Environmental Laws;
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(iii) any claim made or threatened by any Person against the
Borrower or any Subsidiary thereof or any property of the Borrower or
any Subsidiary thereof relating to damage, contribution, cost recovery
compensation, loss or injury resulting from any Hazardous Substance
pertaining to such property or the business or operations of the
Borrower or such Subsidiary; and
(iv) any occurrence or condition on any real property adjoining
or in the vicinity of any Borrower Property known to the officers or
supervisory personnel of the Borrower or any Subsidiary thereof or
other employees having responsibility for the compliance by the
Borrower or any Subsidiary thereof with Environmental Laws, without any
independent investigation, which does cause, or could cause, such
Borrower Property, or any part thereof, to contain Hazardous Substances
in violation of any Environmental Laws, or which does cause, or could
cause, such Borrower Property to be subject to any restrictions on the
ownership, occupancy, transferability or use thereof by the Borrower or
any Subsidiary thereof.
(c) The Borrower will, and will cause each of its Subsidiaries
to, at its own cost and expense, and within such period as may be required by
applicable law or regulation, initiate all remedial actions and thereafter
diligently prosecute such action as shall be required by law for the cleanup of
such Borrower Property, including all removal, containment and remedial actions
in accordance with all applicable Environmental Laws and shall further pay or
cause to be paid, at no expense to the Agent or the Lenders, all cleanup,
administrative, and enforcement costs of applicable Government Authorities which
may be asserted against such Borrower Property.
6.7 ERISA Information. If and when the Borrower or any member
of the Controlled Group (a) gives or is required to give notice to the PBGC of
any "reportable event" (as defined in Section 4043 of ERISA) with respect to any
Plan which might constitute grounds for a termination of such Plan under Title
IV of ERISA, or knows that the plan administrator of any Plan has given or is
required to give notice of any such reportable event, (b) receives notice of
complete or partial withdrawal liability under Title IV of ERISA or (c) receives
notice from the PBGC under Title IV of ERISA of an intent to terminate or
appoint a trustee to administer the Plan, the Borrower shall in each such
instance promptly furnish to the Agent a copy of any such notice.
6.8 Inspection. The Borrower agrees that it shall be an
express condition to the continued effectiveness of the Lenders' respective Line
of Credit Commitments that the Agent and
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each Lender shall have received at the Borrower's expense the results of a
receivables and inventory audit conducted by a field examiner or auditor of one
of the Lenders with respect to the Borrower with results satisfactory to the
Agent on or before July 31, 1995 and semi-annually thereafter; provided,
however, as long as no Event of Default has occurred the aggregate costs of such
audits shall not exceed $5,000 in any fiscal year.
6.9 Use of Proceeds. The Borrower shall use the proceeds of the
borrowings under the Line of Credit Notes for the working capital purposes of
the Borrower. Without limiting the foregoing, no part of such proceeds will be
used for the purpose of purchasing or carrying any "margin security" as such
term is defined in Regulation U of the Board of Governors of the Federal Reserve
System.
6.10 Further Assurances. The Borrower will, and will cause each
of its Subsidiaries to, execute and deliver to the Agent any writings and do all
things necessary, effectual or reasonably requested by the Agent to carry into
effect the provisions and intent of this Agreement or any other Loan Document.
6.11 Depository Accounts. The Borrower shall maintain an
operating deposit account at the offices of the Agent.
6.12 Subsidiaries. The Borrower shall immediately notify
the Agent of the organization of any foreign or domestic Subsidiaries of the
Borrower.
6.13 Transfer of Intellectual Property. With respect to any
registered Intellectual Property held by the Borrower or by Extension
Technology, Inc., a wholly-owned subsidiary of the Borrower, as disclosed
pursuant to Section 5.16 on Schedule A hereto, the Borrower agrees that it shall
cause such Intellectual Property to be transferred to the Guarantor within 90
days of the date hereof, and shall cause the Guarantor to enter into any
amendment to the Guarantor's Collateral Assignment of Patents and Trademarks or
any other documentation reasonably required in order to establish and perfect
the security interest therein of the Agent for the benefit of the Lenders.
Section 7 Negative Covenants.
The Borrower covenants and agrees that for so long as this Agreement is
in effect and until the Notes, together with all interest thereon and all other
Obligations of the Borrower to the Agent or the Lenders are paid or satisfied in
full, without the prior written consent of the Lenders:
7.1 ERISA. The Borrower will not permit any pension plan
maintained by the Borrower or by any member of a "Controlled
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Group" (ERISA Section 210(c) or ERISA Section 210(d)) of which the Borrower is a
member to: (a) engage in any "prohibited transaction" (ERISA Section 2003(c));
(b) fail to report to the Agent a "reportable event" (ERISA Section 4043) within
30 days after its occurrence or as to any reportable event as to which the
30-day notice period requirement of Section 4043(b) of Title IV of ERISA has
been waived by the PBGC, within 30 days of such time as the Borrower is
requested to notify the PBGC of such reportable event; (c) incur any
"accumulated funding deficiency" (ERISA Section 302); (d) terminate its
existence at any time in a manner which could result in the imposition of a Lien
on the property of the Borrower or any Subsidiary thereof; or (e) fail to report
to the Agent any "complete withdrawal" or "partial withdrawal" by the Borrower
or an affiliate from a "multiemployer plan" (ERISA Section Section 4203, 4205,
and 4001, respectively). The quoted terms are defined in the respective sections
of ERISA cited above.
7.2 Transactions with Affiliates. The Borrower will not, and
will not permit any of its Subsidiaries to, directly or indirectly, pay any
funds to or for the account of, make any Investment in, lease, sell, transfer or
otherwise dispose of any assets, tangible or intangible, or engage in any
transaction in connection with any joint enterprise or other joint arrangement
with, any Affiliate of the Borrower, unless such transaction is otherwise
permitted under this Agreement, is in the ordinary course of the Borrower's or
such Subsidiary's business, and is upon fair and reasonable terms no less
favorable to the Borrower or such Subsidiary as those that could be obtained in
a comparable arm's length transaction with a Person not an Affiliate.
7.3 Consolidation, Merger or Acquisition. The Borrower will
not, and will not permit any of its Subsidiaries to, merge or consolidate with
or into any other Person, or make any acquisition of the business of any other
Person unless it obtains the prior written consent of the Lenders; provided that
any Subsidiary may merge into Borrower or any wholly-owned Subsidiary of the
Borrower.
7.4 Disposition of Assets. The Borrower will not, and will not
permit any of its Subsidiaries to, convey, sell, lease, transfer or otherwise
dispose of any of its property, business or assets (including, without
limitation, accounts receivable and leasehold assets), whether now owned or
hereafter acquired, except:
(a) obsolete or worn out property disposed of in the ordinary
course of business;
(b) the sale or other disposition of any property in the
ordinary course of business, provided that the aggregate book value of
all assets (other than inventory) so sold or
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disposed of in any period of twelve consecutive months shall not
exceed 5% of the consolidated total assets of the Borrower and its
Subsidiaries as at the beginning of such twelve month period; and
(c) the sale of inventory in the ordinary course of business.
7.5 Indebtedness. The Borrower will not, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist any
Indebtedness, except:
(a) Obligations to the Lenders, the Agent, the Issuing Bank,
the Accepting Bank and the FX Bank hereunder;
(b) existing Indebtedness, including Subordinated Debt, if
any, listed on Schedule A hereto;
(c) Purchase Money Indebtedness, provided that, giving effect
to the incurrence of such Purchase Money Indebtedness and to the receipt and
application of the proceeds thereof, no Default or Event of Default shall have
occurred and be continuing;
(d) Subordinated Debt incurred by the Borrower after the date
hereof; provided that, giving effect to the incurrence of such
Subordinated Debt and to the receipt and application of the proceeds
thereof, no Default or Event of Default shall have occurred and be
continuing; and
(e) additional operating and capitalized leases.
7.6 Liens. The Borrower will not, and will not permit
any of its Subsidiaries to, create, incur, assume or suffer to exist any Lien
on any of its properties or assets, except the following (collectively,
"Permitted Liens"):
(a) Liens for taxes not delinquent or being contested in good
faith and by proper proceedings;
(b) carriers', warehousemen's, mechanics', materialmen's or
similar liens imposed by law incurred in the ordinary course of
business in respect of obligations not overdue, or being contested in
good faith and by proper proceedings;
(c) pledges or deposits in connection with workers'
compensation, unemployment insurance and other types of social
security legislation;
(d) security deposits made to secure the performance of
leases, licenses and statutory obligations incurred in
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the ordinary course of business;
(e) Liens in favor of the Lenders, the Agent, the Issuing
Bank, the Accepting Bank and the FX Bank in order to secure
obligations of the Borrower hereunder;
(f) existing Liens, if any, listed on Schedule A hereto;
provided that no such Lien is spread to cover any additional property
after the date hereof, and that the amount of the Indebtedness secured
thereby is not increased;
(g) a judgment of judgments for the payment of money not
exceeding $50,000 in the aggregate, rendered against the Borrower and
unsatisfied or unstayed for a period not in excess of thirty (30)
days; and
(h) Purchase Money Security Interests.
7.7 Restricted Payments. The Borrower will not, and will
not permit any of its Subsidiaries to, declare or make any Restricted Payment.
Notwithstanding the foregoing,
(a) Subsidiaries of the Borrower shall be permitted
(i) to pay dividends or make other distributions with
respect to shares of their capital stock to the extent that
these payments or other distributions are made to, and
received by, the Borrower as the owner of such shares and
further provided that no Event of Default has occurred and is
continuing and that it is not reasonably foreseeable that the
dividend or other distribution will result in an Event of
Default;
(ii) to make payments on account of the purchase,
redemption, retirement or acquisition of shares of the capital
stock of a Subsidiary or options, warrants, convertible
securities or other rights to acquire shares of the capital
stock of a Subsidiary to the extent that such payments are
made to, and received by, the Borrower on account of shares,
options, warrants, convertible securities or other rights that
are being purchased, redeemed, retired or acquired from the
Borrower; and further provided that no Event of Default shall
have occurred and be continuing and that it shall not be
reasonably foreseeable that such payment will result in an
Event of Default.
(b) The Borrower shall be permitted to make payments to
repurchase from employees and consultants of the Borrower options
issued pursuant to the Borrower's Stock Option and Stock Purchase Plan
or Long Term Performance Plan or stock issued by the Borrower upon the
exercise of such options,
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but only to the extent that
(i) no Event of Default has occurred and is
continuing or would occur as a result of such payment;
(ii) each such repurchase is made at a price not
exceeding the original price paid by the employee or
consultant for the options or shares; and
(iii) the Borrower first gives notice in writing to
the Agent of (x) any payment made at any time when the
aggregate of all such payments to employees and consultants in
that fiscal year exceeds $10,000 and (y) any payment that will
reasonably foreseeably cause the aggregate of all such
payments to employees and consultants in that fiscal year to
exceed $10,000.
7.8 Investments. The Borrower will not, and will not
permit any of its Subsidiaries to, make, maintain or acquire any Investment in
any Person other than:
(a) marketable obligations issued or guaranteed by the United
States of America having a maturity of one year or less from the date
of purchase;
(b) certificates of deposit, eurodollar time deposits,
commercial paper or any other obligations of the Lenders or of any
other bank or trust company organized or licensed to conduct a banking
business under the laws of the United States or any State thereof and
which has capital surplus and undivided profits of not less than
$100,000,000;
(c) (i) depository accounts at the Agent or the Lenders; and
(ii) depository accounts maintained with the Lenders or any other bank
or trust company meeting the requirements stated in Section 7.8(b)
above;
(d) stock or obligations issued to the Borrower or any
Subsidiary thereof in settlement of claims against others by reason of
an event of bankruptcy or a composition or the readjustment of debt or
a reorganization of any debtor of the Borrower or such Subsidiary;
(e) commercial paper with maturities of not more than 90 days
having the highest rating then given by Moody's Investors Services,
Inc. or Standard & Poor's Corporation;
(f) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in subparagraph
7.8(a) above entered into with the Lenders or any of the banks
referred to in subparagraph 7.7(b) above;
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(g) loans or advances not exceeding $450,000 in aggregate
principal amount at any one time outstanding to officers and employees
of the Borrower; and
(h) existing investments by the Borrower in its Subsidiaries.
7.9 Sale and Leaseback. Neither the Borrower nor any of
its Subsidiaries shall enter into any arrangement, directly or indirectly,
whereby it shall sell or transfer any property owned by it in order to lease
such property or lease other property that the Borrower or any such Subsidiary
intends to use for substantially the same purpose as the property being sold or
transferred; provided, however, that the Borrower and its Subsidiaries shall be
free to enter into such transactions to the extent that the aggregate amount
thereof outstanding does not exceed $800,000.
7.10 Additional Stock Issuance by Subsidiaries. The
Borrower shall not permit any of its Subsidiaries to issue any additional
shares of their capital stock or other equity securities, any options therefor
or any securities convertible thereto other than to the Borrower.
7.11 Quick Ratio. The Borrower will not permit the Quick
Ratio at the end of the fiscal quarter ending March 31, 1995 to be less than
0.9 to 1.
7.12 Minimum Profitability. The Borrower will not permit
Net Income for the fiscal quarter ending March 31, 1995 to be less than
$500,000.
7.13 Leverage. The Borrower will not permit the ratio of
Total Senior Liabilities to Tangible Net Worth at the end of the fiscal quarter
ending March 31, 1995 to exceed 1.0 to 1.
7.14 Tangible Net Worth. The Borrower will not permit its
Tangible Net Worth at the end of the fiscal quarter ending March 31, 1995 to be
less than $22,000,000.
7.15 Revision of Financial Covenants. On or before
March 27, 1995, the Borrower shall furnish to the Agent a budget and plan for
its fiscal year ending March 31, 1996 (the "1996 Fiscal Year"), which budget
and plan shall include pro forma profit-and-loss statements, balance sheets and
cash-flow statements for the 1996 Fiscal Year on at least a quarterly basis.
Following its receipt and review of such information, the Agent shall notify
the Borrower of the revised terms for the Borrower's covenants stated in
Sections 7.11, 7.12, 7.13 and 7.14 hereof as determined by the Lenders in their
sole discretion based in part upon the 1996 Fiscal Year financial information;
provided, however, as long as (a) the budget and plan for the
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1996 Fiscal Year forecasts results of operations and a financial position for
the Borrower that are equivalent to or more favorable than those experienced
during the fiscal year ending March 31, 1995; (b) the assumptions upon which
such budget forecast is based are considered reasonable by the Lenders; (c) no
Event of Default has occurred and is continuing; (d) no event has occurred or
is reasonably anticipated to occur which would have a Material Adverse Effect,
then in such circumstances the Revised Financial Covenants shall not require
testing on a more frequent basis than set forth herein. Unless an amendment to
this Agreement setting forth such revised terms shall have been executed and
delivered by the parties to this Agreement on or before April 13, 1995, then,
effective April 14, 1995, the Lenders' Line of Credit Commitments shall
terminate, the Borrower shall have no right to further Extensions of Credit
from either Lender and all Obligations of the Borrower shall become due and
payable on a demand basis by the Lenders.
Section 8 Events of Default.
8.1 Events of Default. The occurrence of any of the
following events shall be an "Event of Default" hereunder:
(a) The Borrower (i) shall default in the due and punctual
payment of principal or interest on either or both of the Notes, or
(ii) shall default in the payment of any other amount due under any
Loan Document and such default shall continue for five (5) days after
demand for such payment is made; or
(b) Any representation, warranty or statement made herein or
any other Loan Document, or in any certificate or statement furnished
pursuant to or in connection herewith or therewith, shall prove to be
incorrect, misleading or incomplete in any material respect on the
date as of which made or deemed made; or
(c) The Borrower shall default in the performance or
observance of any term, covenant or agreement on its part to be
performed or observed pursuant to Sections 7.9 through 7.14; or
(d) The Borrower shall default in the performance or
observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any of the provisions of this
Agreement or any other Loan Document (other than those referred to in
paragraphs 8.1(a) through 8.1(c) above) and such default shall
continue unremedied for a period of twenty (20) days after the
occurrence of such default; or
(e) Any obligation of the Borrower or any Subsidiary thereof
in respect of any Indebtedness (other than the Note)
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or any Guarantee shall be declared to be or shall become due and
payable prior to the stated maturity thereof, or such Indebtedness or
Guarantee shall not be paid as and when the same becomes due and
payable, or there shall occur and be continuing any default under any
instrument, agreement or evidence of indebtedness relating to any such
Indebtedness the effect of which is to permit the holder or holders of
such instrument, agreement or evidence of indebtedness, or a trustee,
agent or other representative on behalf of such holder or holders, to
cause such Indebtedness to become due prior to its stated maturity; or
(f) The Borrower or a Subsidiary thereof shall (i) apply for
or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) make a general assignment for
the benefit of its creditors, (iii) commence a voluntary case under
the Bankruptcy Code, (iv) file a petition seeking to take advantage of
any other law relating to bankruptcy, insolvency, reorganization,
winding-up, or composition or readjustment of debts, (v) fail to
controvert in a timely and appropriate manner, or acquiesce in writing
to, any petition filed against it in an involuntary case under the
Bankruptcy Code, or (vi) take any corporate action for the purpose of
effecting any of the foregoing; or
(g) A proceeding or case shall be commenced, without the
application or consent of the Borrower or any Subsidiary thereof in
any court of competent jurisdiction, seeking (i) its liquidation,
reorganization, dissolution or winding-up, or the composition or
readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like of the Borrower or such
Subsidiary or of all or any substantial part of its assets, or (iii)
similar relief in respect of the Borrower or such Subsidiary under any
law relating to bankruptcy, insolvency, reorganization, winding-up, or
composition or adjustment of debts, and such proceeding or case shall
continue undismissed, or an order, judgment or decree approving or
ordering any of the foregoing shall be entered and continue unstayed
and in effect, for a period of 60 days; or an order for relief against
the Borrower or such Subsidiary shall be entered in an involuntary
case under the Bankruptcy Code; or
(h) A final judgment or judgments for the payment of money in
excess of $50,000 (net of insurance proceeds) in the aggregate shall
be rendered against the Borrower or any Subsidiary thereof and any
such judgment or judgments shall not have been vacated, discharged,
stayed or bonded pending appeal within thirty (30) days from the entry
thereof; or
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(i) The Borrower or any member of the Controlled Group shall
fail to pay when due an amount or amounts aggregating in excess of
$100,000 which it is obligated to pay to the PBGC or to a Plan under
Title IV of ERISA; or a notice of intent to terminate a Plan or Plans
having aggregate Unfunded Liabilities in excess of $100,000 shall be
filed under Title IV of ERISA by the Borrower or any member of the
Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of
ERISA to terminate or to cause a trustee to be appointed to administer
any such Plan or Plans or a proceeding shall be instituted by a
fiduciary of any such Plan or Plans against the Borrower or any member
of the Controlled Group to enforce Sections 515 or 4219(c)(5) of
ERISA; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any such Plan or Plans
must be terminated; or there shall occur a complete or partial
withdrawal form, or a default, within the meaning of Section
4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans
which could cause the Borrower or one or more members of the
Controlled Group to incur a current payment obligation in excess of
$100,000; or
(j) The Borrower or any Subsidiary thereof shall default in
the performance or observance of any material term, covenant or
agreement on its part to be performed or observed pursuant to any of
the provisions of any agreement with the Lenders or any instrument
delivered in favor of the Lenders (other than, in either case, a Loan
Document), and such default shall continue unremedied beyond the grace
period (in any) provided for therein; or
(k) Any Security Instrument shall cease for any reason to be
in full force and effect or shall cease to be effective to grant a
perfected security interest in the collateral described in such
Security Instrument with the priority stated to be granted thereby; or
(l) Borrower shall make any payment on account of its
Subordinated Debt, except to the extent such payment is expressly
permitted hereby or under any subordination agreement entered into
with the Agent and the Lenders.
8.2 Remedies Upon an Event of Default. If any Event of
Default shall have occurred and be continuing, the Agent upon direction of all
the Lenders may (a) declare the Total Line of Credit Commitment terminated
(whereupon the Total Line of Credit Commitment shall be terminated) and/or (b)
declare the principal amount then outstanding of, and the accrued interest on,
the Line of Credit Loans and commitment fees and all other amounts payable
hereunder and under the Notes to be forthwith due and payable,
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whereupon such amounts shall be and become immediately due and payable, without
notice (including, without limitation, notice of intent to accelerate),
presentment, demand, protest or other formalities of any kind, all of which are
hereby expressly waived by the Borrower; provided that in the case of the
occurrence of an Event of Default with respect to the Borrower referred to in
clauses 8.1(f) and 8.1(g) of Section 8.1, the Total Line of Credit Commitment
shall be automatically terminated and the principal amount then outstanding of
and the accrued interest on the Line of Credit Loans and commitment fees and
all other amounts payable hereunder and under the Notes shall be and become
automatically and immediately due and payable, without notice (including,
without limitation, notice of intent to accelerate), presentment, demand,
protest or other formalities of any kind, all of which are hereby expressly
waived by the Borrower.
Section 9 The Agent
9.1 Appointment of Agent; Powers and Immunities.
(a) Each Lender hereby irrevocably appoints and authorizes
SVB to serve as the Agent hereunder and to act as its agent hereunder and under
the other Loan Documents and to execute the Loan Documents (other than this
Agreement) and all other instruments relating thereto. Each Lender irrevocably
authorizes the Agent to take such action on behalf of each of the Lenders and
to exercise all such powers as are expressly delegated to the Agent hereunder
and in the other Loan Documents and all related documents, together with such
other powers as are reasonably incidental thereto. The Agent shall not have
any duties or responsibilities or any fiduciary relationship with any Lender
except those expressly set forth in this Agreement.
(b) In the event that BayBank's Commitment Percentage shall
become greater than 50% solely in connection with a request by the Borrower to
increase the Total Line of Credit Commitment, SVB shall in such circumstances
and upon reasonable notice from BayBank submit its resignation as Agent and
each Lender shall irrevocably appoint BayBank to serve as the Agent hereunder
upon the terms set forth in Section 9.1(a) and BayBank agrees in such
circumstances to accept appointment as a successor Agent upon the terms set
forth in Section 9.6. Each Lender agrees to co-operate in implementing the
intent and purposes of the foregoing sentence. Upon becoming successor Agent,
BayBank shall be the Issuing Bank, Accepting Bank and FX Bank for all Letters
of Credit, Acceptance Agreements and FX Contracts thereafter issued or entered
into. The Borrower expressly agrees to the foregoing.
(c) Neither the Agent nor any of its directors, officers,
employees or agents shall be responsible for any action taken or omitted to be
taken by it or them hereunder or in connection herewith, except for its or
their own gross negligence
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or wilful misconduct. Without limiting the generality of the foregoing,
neither the Agent nor any of its Affiliates shall be responsible to the Lenders
for or have any duty to ascertain, inquire into or verify: (i) any recitals,
statements, representations or warranties made by the Borrower or any of its
Subsidiaries or any other Person whether contained herein or otherwise; (ii)
the value, validity, effectiveness, genuineness, enforceability or sufficiency
of this Agreement, the other Loan Documents or any other document referred to
or provided for herein or therein; (iii) any failure by the Borrower or any of
its Subsidiaries or any other Person to perform its obligations under any of
the Loan Documents; (iv) the satisfaction of any conditions specified in
Section 4 hereof; (v) the existence, value, collectibility or adequacy of the
Collateral or any part thereof or the validity, effectiveness, perfection or
relative priority of the liens and security interests of the Lenders therein;
or (vi) the filing, recording, refiling, continuing or re-recording of any
financing statement or other document or instrument evidencing or relating to
the security interests or liens of the Lenders in the Collateral.
(d) The Agent may employ agents, attorneys and other experts,
shall not be responsible to any Lender for the negligence or misconduct of any
such agents, attorneys or experts selected by it with reasonable care and shall
not be liable to any Lender for any action taken, omitted to be taken or
suffered in good faith by it in accordance with the advice of such agents,
attorneys and other experts. SVB in its separate capacity as a Lender shall
have the same rights and powers under the Loan Documents as the other Lender
and may exercise or refrain from exercising the same as though it were not the
Agent, and SVB and its Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrower as if it were not
the Agent.
9.2 Actions By Agent. (a) The Agent shall be fully
justified in failing or refusing to take any action under this Agreement as it
reasonably deems appropriate unless it shall first have received such advice or
concurrence of the Lenders and shall be indemnified to its reasonable
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action.
The Agent shall in all cases be fully protected in acting, or in refraining
from acting, under this Agreement or any of the Loan Documents in accordance
with a request of the Lenders, and such request and any action taken or failure
to act pursuant thereto shall be binding upon the Lenders and all future
holders of the Notes.
(b) Whether or not an Event of Default shall have occurred,
the Agent may from time to time exercise such rights of the Agent and the
Lenders under the Loan Documents as it
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determines may be necessary or desirable to protect the Collateral and the
interests of the Agent and the Lenders therein and under the Loan Documents.
In addition, the Agent may, without the consent of the Lenders, release
Collateral valued by the Agent, in its sole discretion, of not more than
$250,000 in the aggregate.
(c) The Agent shall not incur any liability by acting in
reliance on any notice, consent, certificate, statement or other writing (which
may be a bank wire, telex, facsimile or similar writing) believed by it to be
genuine or to be signed by the proper party or parties.
9.3 Indemnification. Without limiting the obligations of the
Borrower hereunder or under any other Loan Document, the Lenders agree to
indemnify the Agent, ratably in accordance with their respective Commitment
Percentages, for any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever which may at any time be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any other Loan Document or any documents contemplated by or
referred to herein or therein or the transactions contemplated hereby or
thereby or the enforcement of any of the terms hereof or thereof or of any such
other documents; provided, however, that no Lender shall be liable for any of
the foregoing to the extent they result from the gross negligence or willful
misconduct of the Agent.
9.4 Reimbursement. Without limiting the provisions of
Section 9.3, the Lenders and the Agent hereby agree that the Agent shall not be
obliged to make available to any Person any sum which the Agent is expecting to
receive for the account of that Person until the Agent has determined that it
has received that sum. The Agent may, however, disburse funds prior to
determining that the sums which the Agent expects to receive have been finally
and unconditionally paid to the Agent, if the Agent wishes to do so. If and to
the extent that the Agent does disburse funds and it later becomes apparent
that the Agent did not then receive a payment in an amount equal to the sum
paid out, then any Person to whom the Agent made the funds available shall, on
demand from the Agent, refund to the Agent the sum paid to that Person. If the
Agent in good faith reasonably concludes that the distribution of any amount
received by it in such capacity hereunder or under the Loan Documents might
involve it in liability, it may refrain from making distribution until its
right to make distribution shall have been adjudicated by a court of competent
jurisdiction. If a court of competent jurisdiction shall adjudge that any
amount received and distributed by the Agent is to be repaid, each Person to
whom any such distribution shall have been made shall either repay to the Agent
its proportionate share of the amount so adjudged to be repaid or
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shall pay over the same in such manner and to such Persons as shall be
determined by such court.
9.5 Non-Reliance on Agent and Other Lenders. Each Lender
represents that it has, independently and without reliance on the Agent or any
other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of the financial condition and affairs of
the Borrower and decision to enter into this Agreement and the other Loan
Documents and agrees that it will, independently and without reliance upon the
Agent or any other Lender, and based on such documents and information as it
shall deem appropriate at the time, continue to make its own appraisals and
decisions in taking or not taking action under this Agreement or any other Loan
Document. The Agent shall not be required to keep informed as to the
performance or observance by the Borrower of this Agreement, the other Loan
Documents or any other document referred to or provided for herein or therein
or by any other Person of any other agreement or to make inquiry of, or to
inspect the properties or books of, any Person. Except for notices, reports
and other documents and information expressly required to be furnished to the
Lenders by the Agent hereunder, the Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning any person which may come into the possession of the Agent or any of
its affiliates. Each Lender shall have access to all documents relating to the
Agent's performance of its duties hereunder at such Lender's request. Unless
any Lender shall promptly object to any action taken by the Agent hereunder
(other than actions to which the provisions of Section 11.6(b) are applicable
and other than actions which constitute gross negligence or willful misconduct
by the Agent), such Lender shall conclusively be presumed to have approved the
same.
9.6 Resignation or Removal of Agent. The Agent may resign at
any time by giving 30 days prior written notice thereof to the Lenders and the
Borrower. Upon any such resignation, the Lenders shall have the right to
appoint a successor Agent which shall be reasonably acceptable to the Borrower
and shall be a Lender or another financial institution having a combined
capital and surplus in excess of $100,000,000. If no successor Agent shall
have been so appointed by the Lenders and shall have accepted such appointment
within 30 days after the retiring Agent's giving of notice of resignation, then
the retiring Agent may, on behalf of the Lenders, appoint a successor Agent
which shall be reasonably acceptable to the Borrower and shall be a financial
institution having a combined capital and surplus in excess of $100,000,000.
Upon the acceptance of any appointment as Agent hereunder by a successor Agent,
such successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and the retiring
Agent shall be discharged from its duties and
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obligations hereunder. After any retiring Agent's resignation, the provisions of
this Agreement shall continue in effect for its benefit in respect of any
actions taken or omitted to be taken by it while it was acting as Agent.
Section 10 Definitions.
10.1 Certain Definitions.
"Acceptance Agreement" shall have the meaning set forth in Section
1.11(a).
"Accepting Bank" shall have the meaning specified in Section 1.11(a).
"Accountants" means Arthur Andersen & Co. or another accounting firm of
national reputation or other certified public accountants selected by the
Borrower and approved by the Agent.
"Affiliate" means, with respect to any specified Person (the "Specified
Person"), any Person directly or indirectly controlling, controlled by or under
direct or indirect common control with, the Specified Person and, without
limiting the generality of the foregoing, includes (i) any director or officer
of the Specified Person or any Affiliate of the Specified Person, (ii) any such
director's or officer's parent, spouse, child or child's spouse (a "relative"),
(iii) any group acting in concert, of one or more such directors, officers,
relatives or any combination thereof (a "group"), (iv) any Person controlled by
any such director, officer, relative or group in which any such director,
officer, relative or group beneficially owns or holds 5% or more of any class of
voting securities or a 5% or greater equity or profits interest and (v) any
Person or group which beneficially owns or holds 5% or more of any class of
voting securities or a 5% or greater equity or profits interest in the Specified
Person. For the purposes of this definition, the term "control" when used with
respect to any Specified Person means the possession, directly or indirectly, of
the power to direct or cause the direction of the management or policies of such
Specified Person, whether through the ownership of voting securities, by
contract or otherwise.
"Agent" shall have the meaning specified in the Preamble and Section 9
hereof.
"Agreement" shall mean this Amended and Restated Credit Agreement.
"Applicable Inventory Amount" shall mean an amount of Eligible
Inventory equal to the lesser of (i) 20% of Eligible Inventory and (ii) the
Inventory Dollar Cap.
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"Applicable Margin" shall have the meaning set forth in Section 2.1(a)
"Banking Day" shall mean any day, excluding Saturday and Sunday and
excluding any other day which in The Commonwealth of Massachusetts or the State
of California is a legal holiday or a day on which banking institutions are
authorized by law to close.
"BayBank" shall have the meaning specified in the Preamble hereto.
"Borrower" shall have the meaning specified in the Preamble hereto.
"Borrowing Base" shall have the meaning specified in Section 1.7.
"Borrowing Base Certificate" shall mean the certificate attached hereto
as Exhibit D.
"Borrower Property" means any real property owned, occupied, or
operated by the Borrower or any of its Subsidiaries.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Collateral" shall have the meaning given that term in the Security
Agreement.
"Commitment Expiration Date" shall have the meaning specified in
Section 1.1.
"Commitment Percentage" shall mean, with respect to any Lender, that
Lender's Line of Credit Commitment expressed as a percentage of the total Line
of Credit Commitments of all Lenders.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Controlled Group" means all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with the Borrower, are treated as a single
employer under Section 414 of the Code.
"1994 Credit Agreement" shall have the meaning specified in the
Preamble hereto.
"Current Liabilities" means, at any time, all liabilities of
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the Borrower and its Subsidiaries at such time, on a consolidated basis, that
would be classified as current liabilities in accordance with GAAP, including,
without limitation, all Indebtedness of the Borrower and its Subsidiaries
payable on demand or maturing within one year of such time, or renewable at the
option of the Borrower or such Subsidiary for a period of not more than one year
from such time, and all serial maturity and periodic or installment payments on
any Indebtedness, to the extent such payments are required to be made within one
year from such time.
"Default" means any condition or event that constitutes an Event of
Default or that with the giving of notice or lapse of time or both would, unless
cured or waived, become an Event of Default.
"Eligible Acceptance" means an acceptance (i) against the liability for
which the Lenders are not required to maintain reserves under Regulation D of
the Board of Governors of the Federal Reserve System in effect from time to
time, or under any other law or regulation, and (ii) which is eligible for
discount by Federal Reserve Banks.
"Eligible Domestic Accounts Receivable" means an account receivable
owing to the Borrower which met the following specifications at the time it came
into existence and continues to meet the same until it is collected in full:
(a) The original stated maturity of the account is not more
than 90 days after the invoice date thereof, and the account
(regardless of its stated maturity date) does not remain unpaid more
than 90 days after such invoice date.
(b) The account arose from the performance of services or an
outright sale of goods by Borrower, such goods have been shipped to the
account debtor, and Borrower has possession of, or has delivered to
Agent, shipping and delivery receipts evidencing such shipment.
(c) The account is owned solely by the Borrower, and is not
subject to any assignment, claim, lien, or security interest, other
than a security interest in favor of the Agent for the benefit of the
Lenders.
(d) The account is not subject to set-off, credit, allowance or
adjustment by the account debtor, except discount allowed for prompt
payment; the account is not one as to which the account debtor disputes
liability or makes any claim with respect thereto or as to which the
Agent believes, in its sole discretion, that there may be a basis for
dispute (but only to the extent of the amount subject to such dispute
or claim), or which involves an account debtor
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subject to any insolvency proceeding, or becomes insolvent, or goes out
of business.
(e) The account arose in the ordinary course of Borrower's
business and did not arise from the performance of services or a sale
of goods to a supplier or employee of the Borrower.
(f) No notice of bankruptcy or insolvency of the account debtor
has been received by or is known to the Borrower.
(g) The Borrower has pledged any instrument or chattel paper
evidencing the account to the Agent pursuant to the provisions of the
Security Agreement.
(h) The aggregate receivables of the account debtor that have
remained unpaid for a period of more than ninety (90) days from the
invoice date shall not exceed (1) 50% at any time during the period
extending from the date hereof to and including June 30, 1995, (2) 45%
at any time during the period extending from July 1, 1995 to and
including September 30, 1995, (3) 40% at any time during the period
extending October 1, 1995 to and including November 30, 1995 and (4)
30% at any time on December 1, 1995 or thereafter.
(i) The aggregate accounts receivable from the account debtor
(including its Subsidiaries and Affiliates) do not exceed 25% of the
total Eligible Domestic Accounts Receivable of the Borrower; that
portion of the account over the 25% level will be disqualified;
provided, however, that, notwithstanding the foregoing but solely in
the case of Sprint and all its Affiliates, the maximum aggregate
percentage shall be 40% instead of 25%.
(j) The account does not relate to goods placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or
other terms by reason of which the payment by the account debtor may be
conditional.
(k) The account debtor is not an Affiliate, officer, employee
or agent of the Borrower.
(l) The account debtor is not a Governmental Authority.
(m) The Borrower does not owe any amounts to the account debtor
for goods sold, services rendered or otherwise; to the extent that any
amounts are so owed, the accounts of such account debtor in an amount
equal to the amounts owed by the Borrower to the account debtor shall
be disqualified.
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(n) The Agent has not notified the Borrower that the Agent has
determined that an account or account debtor is unsatisfactory for
credit reasons (which determination shall not be made unreasonably).
(o) The account debtor is a person or entity located in the
United States and the account arose out of services rendered or goods
delivered in the United States.
"Eligible International Account Receivable" means an account receivable
owing to the Borrower which met the requirements set forth in clauses (a)
through (n) for Eligible Domestic Accounts Receivable and continues to meet the
same until it is collected in full, but either the account debtor is a Person
located outside the United States or the account arose out of services rendered
or goods delivered outside the United States, provided, however, an account
receivable shall not be eligible hereunder if the account debtor is located in a
country which is excluded from the Borrower's credit insurance. As of the date
hereof, such countries are as follows:
Arab Emirates
Ecuador
Iceland
Iran
Ireland
Kuwait
Phillipines
Saudi Arabia
Slovak Republic
Ukraine
"Eligible Inventory" shall mean at the time of determination the dollar
cost determined in accordance with GAAP of the aggregate of all inventory which
meets the following specifications at the time of such determination:
(a) such inventory is owned solely by the Borrower and is not
subject to any assignment, claim, lien or security interest, other than
a security interest in favor of the Agent or the Lenders pursuant to
the Security Agreement;
(b) if such inventory is represented or covered by a document,
the Borrower is the owner of the document and such document is not
subject to any assignment, claim, lien or security interest, other than
a security interest in favor of the Agent or the Lenders pursuant to
the Security
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Agreement; and
(c) such inventory is not obsolete, unusable, defective or
unmerchantable finished goods and is in good working order;
(d) such inventory is located in The Commonwealth of
Massachusetts and is in the possession of the Borrower;
(e) such inventory is a finished good which has not been
manufactured or processed for the use of the Borrower which (i) in each
case in accordance with GAAP is properly classified as inventory and
(ii) is not packaging supplied, promotional literature, used or surplus
goods, or goods held on consignment. Property shall immediately lose
the status of Eligible Inventory if and when it is sold or otherwise
disposed of in the ordinary course of business; and
(f) such inventory is subject to a perfected first priority
security interest in favor of the Agent for the benefit of the lenders
pursuant to the Security Agreement.
"Environmental Laws" means all federal, state, local and foreign laws,
and all regulations, notices or demand letters issued, promulgated or entered
thereunder, relating to pollution or protection of the environment and to
occupational health and safety, including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or Hazardous Substances into the environment
(including, without limitation, ambient air, surface water, ground water, land
surface or subsurface strata) or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, chemicals or Hazardous Substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statutes.
"Event of Default" has the meaning set forth in Section 8.1.
"Extension of Credit" shall have the meaning set forth in Section 1.6.
"Financial Statements Date" means March 31, 1995.
"Foreign Exchange Contract" shall have the meaning set forth in
Section 1.12.
"FX Bank" shall have the meaning specified in Section 1.12(a).
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"FX Contract" shall have the meaning set forth in Section 1.12(a).
"FX Contract Exposure" shall have the meaning set forth in Section 1.6.
"GAAP" means accounting principles generally accepted in the United
States applied on a consistent basis.
"Governmental Approvals" shall mean any authorization, consent, order,
approval, license, lease, ruling, permit, tariff, rate, certification,
validation, exemption, filing or registration by or with, or notice to, any
Governmental Authority.
"Governmental Authority" shall mean any federal, state, municipal or
other governmental department, commission, board, bureau, agency, court,
tribunal or other instrumentality, domestic or foreign, and any arbitrator.
"Guarantee" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Indebtedness
or other obligation of any other Person and, without limiting the generality of
the foregoing, any obligation, direct or indirect, contingent or otherwise of
such Person (a) to purchase or pay (or advance or supply funds for the purchase
or payment of) such Indebtedness or other obligation (whether arising by virtue
of partnership arrangements, by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (b) entered into for the purpose of
assuring in any other manner the obligee of such Indebtedness or other
obligation of the payment thereof or to protect such obligee against loss in
respect thereof (in whole or in part); provided that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances" shall mean all hazardous and toxic substances,
wastes or materials, hydrocarbons (including naturally occurring or man-made
petroleum and hydrocarbons), flammable explosives, urea formaldehyde insulation,
radioactive materials, biological substances, PCBs, pesticides, herbicides and
any other kind and/or type of pollutants, or contaminates and/or any other
similar substances or materials which, because of toxic, flammable, explosive,
corrosive, reactive, radioactive or other properties that may be hazardous to
human health or the environment, are included under or regulated by any
Environmental Laws.
"Indebtedness" of any Person at any date shall mean, (a) all
indebtedness of such Person for borrowed money or for the
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deferred purchase price of property or services (excluding current trade
liabilities incurred in the ordinary course of business and payable in
accordance with customary practices, but including any class of capital stock of
such Person with fixed payment obligations or with redemption at the option of
the holder), or which is evidenced by a note, bond, debenture or similar
instrument, (b) all obligations of such Person under leases that should be
treated as capitalized leases in accordance with GAAP, (c) all obligations of
such Person in respect of acceptances issued or created for the account of such
Person, and all reimbursement obligations (contingent or otherwise) of such
Person in respect of any letters of credit issued for the account of such
Person, and (d) all liabilities secured by any Lien on any property owned by
such Person even though such Person has not assumed or otherwise become liable
for the payment thereof.
"Insured" shall have the meaning specified in Section 1.7.
"Intellectual Property" shall have the meaning specified in
Section 5.16.
"Inventory Component" shall have the meaning specified in Section 2.1.
"Inventory Dollar Cap" shall mean (i) during the period extending from
the date hereof through and including June 30, 1995, an amount equal to
$2,000,000; (ii) during the period extending from July 1, 1995 through and
including September 29, 1995, an amount equal to $1,500,000; (iii) during the
period extending from September 30, 1995 through and including November 30,
1995, an amount equal to $500,000; and (iv) from and after December 1, 1995,
zero dollars.
"Inventory Margin" shall have the meaning specified in Section 2.1.
"Investments" means, with respect to any Person (the "Investor"), (a)
any investment by the Investor in any other Person, whether by means of share
purchase, capital contribution, purchase or other acquisition of a partnership
or joint venture interest, loan, time deposit, demand deposit or otherwise and
(b) any Guarantee by the Borrower of any Indebtedness or other obligation of any
other Person.
"Issuing Bank" shall have the meaning specified in Section 1.10(a).
"Lenders" means SVB, BayBank and each other Person that may after the
date hereof become a party to this Agreement as a "Lender" hereunder.
"Letter of Credit" means any commercial letter of credit or
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standby letter of credit issued by the Issuing Bank for the account of the
Borrower as provided in this Agreement.
"Lien" means any security interest, mortgage, pledge, hypothecation,
assignment, deposit arrangement or security arrangement of any kind,
encumbrance, lien (statutory or other), preference or priority of any kind or
nature whatsoever (including, without limitation, any conditional sale or other
title retention agreement, any lease that should be capitalized in accordance
with GAAP, and the filing of a financing statement under the Uniform Commercial
Code or comparable law of any jurisdiction), together with any renewal or
extension thereof.
"Line of Credit Commitment" shall have the meaning specified in
Section 1.2.
"Line of Credit Loans" shall have the meaning specified in Section 1.1.
"Loan Documents" means, collectively, this Agreement, the Notes, any
Letters of Credit, any Banker's Acceptances, any FX Contracts, the Financing
Statements, the Security Instruments, and all other agreements and instruments
that are from time to time executed in connection with the foregoing, as each of
such agreements and instruments may be amended, modified or supplemented from
time to time.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or prospects
of the Borrower, or of the Borrower and its Subsidiaries taken as a whole, (b)
the ability of the Borrower to perform its obligations under this Agreement, the
Notes or any of the other Loan Documents, (c) the validity or enforceability of
this Agreement, the Notes or any of the other Loan Documents, or the rights or
remedies of the Agent or the Lenders hereunder or thereunder, or (d) the right
of the Agent or the Lenders to enforce the payment of accounts against account
debtors in any particular State.
"Maturity Date" shall have the meaning specified in Section 1.8.
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which the Borrower or any
member of the Controlled Group is then making or accruing an obligation to make
contributions or has within the preceding five plan years made contributions,
including for these purposes any Person which ceased to be a member of the
Controlled Group during such five year period.
"Net Income" or "Net Loss" for any period in respect of which the
amount thereof shall be determined, shall mean the
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aggregate of the consolidated net income (or net loss) after taxes for such
period (taken as a cumulative whole) of the Borrower and its Subsidiaries,
determined in accordance with GAAP.
"Notes" shall have the meaning set forth in Section 1.4.
"Notice of Borrowing" shall have the meaning specified in Section 1.5.
"Obligations" shall have the meaning given the term "Secured
Obligations" in the Security Agreement.
"Office of the Agent" shall initially mean the banking office of the
Agent located at 3000 Lakeside Drive, P.O. Box 3762, Santa Clara, California
95054, or such other location of which the Agent shall notify the Borrower.
"Parent" shall have the meaning specified in Section 2.5.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permitted Liens" shall have the meaning set forth in Section 7.6.
"Person" shall mean and include any individual, firm, corporation,
trust or other unincorporated organization or association or other enterprise or
any government or political subdivision, agency, department or instrumentality
thereof.
"Plan" means any employee pension benefit plan which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Code and is either (a) maintained by the Borrower or any member of the
Controlled Group for employees of the Borrower or any member of the Controlled
Group or (b) maintained pursuant to a collective bargaining agreement or any
other arrangement under which more than one employer makes contributions and to
which the Borrower or any member of the Controlled Group is then making or
accruing an obligation to make contributions or has within the preceding five
plan years made contributions.
"Prime Rate" shall mean the per annum rate of interest from time to
time announced and made effective by the Agent as its Prime Rate (which rate may
or may not be the lowest rate available from the Agent at any given time).
"Purchase Money Indebtedness" shall mean Indebtedness incurred to
finance the acquisition of assets or the cost of improvements on real property
or leaseholds, in each case in an amount not in excess of the lesser of (a) the
purchase price or
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acquisition cost of said assets or the cost of said improvements and (b) the
fair market value of said assets or said improvements on the date of acquisition
of said assets or contract for said improvements.
"Purchase Money Security Interest" shall mean (a) a security interest
securing Purchase Money Indebtedness, which security interest applies solely to
the particular assets acquired with the Purchase Money Indebtedness that said
Purchase Money Security Interest secures, and (b) the renewal, extension and
refunding of such Purchase Money Indebtedness in an amount not exceeding the
amount thereof remaining unpaid immediately prior to such renewal, extension or
refunding.
"Quick Ratio" means, at any time, all cash and accounts receivable,
less reserves for doubtful accounts, of the Borrower and its Subsidiaries at
such time, on a consolidated basis, determined in accordance with GAAP, divided
by the aggregate of all Current Liabilities at such time.
"Receivables Component" shall have the meaning specified in Section
2.1.
"Receivables Margin" shall have the meaning specified in Section 2.1.
"Restricted Payment" means, with respect to the Borrower or any
Subsidiary thereof, (a) any dividend or other distribution on any shares of
capital stock of the Borrower or such Subsidiary (except dividends payable
solely in shares of such capital stock or rights to acquire such capital stock)
or (b) any payment or other distribution on account of the purchase, redemption,
retirement or acquisition of (i) any shares of the capital stock of the Borrower
or a Subsidiary thereof or (ii) any option, warrant, convertible security or
other right to acquire shares of the capital stock of the Borrower or a
Subsidiary thereof.
"SEC" means the Securities and Exchange Commission.
"Secured Obligations" shall have the meaning specified in Section 3.1.
"Security Agreement" shall have the meaning set forth in Section 3.1.
"Security Instruments" means, collectively, the Security Agreement,
together with any Copyright Mortgage, Patent and Trademark Assignment or other
instrument or agreement that purports to secure the Obligations of the Borrower
to the Agent or the Lenders.
"Standby Letter of Credit" means a letter of credit,
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commonly known as a "standby" or "guaranty" letter of credit, issued to pay the
beneficiary in the event of the account party's failure to perform an
obligation.
"Subordinated Debt" means Indebtedness of the Borrower that is
subordinated to the Indebtedness of the Borrower owing to the Lenders either (a)
pursuant to a subordination agreement in form and substance satisfactory to the
Agent between the Lenders and the holder(s) of such Indebtedness, or (b)
pursuant to the terms thereof, where the Agent has confirmed in writing that
such terms are satisfactory to it.
"Subsidiary" means, with respect to any Person, any corporation or
other entity of which securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors or other Persons
performing similar functions are at the time directly or indirectly owned by
such Person.
"SVB" shall have the meaning specified in the Preamble hereto.
"Tangible Net Worth" means, at any time, the consolidated stockholders'
equity of the Borrower and its Subsidiaries at such time determined in
accordance with GAAP, less all assets that are reflected on the consolidated
balance sheet of the Borrower and its Subsidiaries at such time that would be
treated as intangibles under GAAP (including, but not limited, to goodwill,
capitalized software and excess purchase costs), plus all then outstanding
Subordinated Debt.
"Total Line of Credit Commitment" shall have the meaning specified in
Section 1.2.
"Total Senior Liabilities" means, at any time, the consolidated
liabilities of the Borrower and its Subsidiaries at such time, determined in
accordance with GAAP, less all then outstanding Subordinated Debt.
"Trade Letter of Credit" means a letter of credit, commonly known as a
"trade" or "commercial" letter of credit, payable upon the presentation of a
draft and specified documents and issued to facilitate payment for the purchase
of goods.
"UCC" shall have the meaning given such term in the Security Agreement.
"Unfunded Liabilities" means, with respect to any Plan, at any time,
the amount (if any) by which (a) the present value of all benefits under such
Plan exceeds (b) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for such
Plan, but only to the extent that such excess represents a potential liability
of
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the Borrower or any member of the Controlled Group to the PBGC or such Plan
under Title IV of ERISA.
Section 11 Miscellaneous.
11.1 Accounting Terms and Definitions. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
determinations with respect to accounting matters hereunder shall be made, and
all financial statements and certificates and reports as to financial matters
required to be delivered hereunder shall be prepared, in accordance with GAAP;
provided that if any change in GAAP in itself materially affects the calculation
of any financial covenant in this Agreement, the Borrower may by notice to the
Agent, or the Agent may by notice to the Borrower, require that such covenant
thereafter be calculated in accordance with GAAP as in effect, and applied by
the Borrower, immediately before such change in GAAP occurs. If such notice is
given, the compliance certificates delivered pursuant to Section 6.4(c) after
such change occurs shall be accompanied by reconciliations of the difference
between the calculation set forth therein and a calculation made in accordance
with GAAP as in effect from time to time after such change occurs. To enable the
ready determination of compliance with the covenants set forth in this
Agreement, the Borrower will not change the date on which its fiscal year or any
of its fiscal quarters end without the prior consent of the Agent.
11.2 Amendments, Etc. (a) No amendment or waiver of any
provision of this Agreement or the Note, nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Lenders and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(b) In consideration of any waiver of any compliance with the
express terms hereof, the Borrower shall pay to the Agent for the account of the
Lenders a waiver fee as determined by the Lenders at such time.
11.3 Notices, Etc. All notices and other communications
provided for hereunder shall be in writing and shall be delivered by hand, by a
nationally recognized commercial overnight delivery service, by first class mail
or by telecopy, delivered, addressed or transmitted, if to the Borrower, at its
address at 500 River Ridge Drive, Norwood, Massachusetts 02062, Attention:
James T. Fennessy, Director--Treasury Operations, Telecopy No. (617) 551-1006;
if to the Agent, at its address at Wellesley Office Park, 45 William Street,
Wellesley, Massachusetts 02181, Attention: James C. Maynard, Assistant Vice
President, Telecopy No. (617) 431-9906; if to SVB, to the address given for the
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Agent; if to BayBank, at its address at 7 New England Executive Park,
Burlington, MA 01803, Attention: Stephen C. Buzzell, Assistant Vice President,
Telecopy No. (617) 564-4127; or, as to each party to this Agreement, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall be deemed effective,
(a) in the case of hand deliveries, when delivered; (b) in the case of an
overnight delivery service, on the next Banking Day after being placed in the
possession of such delivery service, with delivery charges prepaid; (c) in the
case of mail, three days after deposit in the postal system, first class postage
prepaid; and (d) in the case of telecopy notices, when electronic indication of
receipt is received; except that notices to the Agent pursuant to the provisions
of Section 6.5 shall not be effective until received by the Agent.
11.4 No Waiver; Remedies. No failure on the part of the
Agent or the Lenders to exercise, and no delay in exercising, any right
hereunder or under the Notes shall operate as a waiver thereof; nor shall any
single or partial exercise of any right hereunder or under the Notes preclude
any other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
11.5 Right of Set-off. (a) Upon the occurrence and during
the continuance of any Event of Default, the Agent and each of the Lenders is
hereby authorized at any time and from time to time, to the fullest extent
permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Agent or any of the Lenders to or for
the credit or the account of the Borrower against any and all of the
obligations of the Borrower now or hereafter existing under this Agreement and
the Notes, irrespective of whether or not the Agent or such Lender shall have
made any demand hereunder and although such obligations may be contingent or
unmatured.
(b) The Agent and each Lender agrees promptly to notify the
Borrower after any such set-off and application, provided that the failure to
give such notice shall not affect the validity of such set-off and application.
The rights of the Agent and the Lenders under this Section 11.5 are in addition
to other rights and remedies (including, without limitation, other rights of
set-off) which the Agent and the Lenders may have.
11.6 Expenses; Indemnification. (a) The Borrower shall pay
on demand (i) the reasonable fees and disbursements of counsel to the Agent in
connection with the preparation of this Agreement and the preparation or review
of each agreement, opinion, certificate and other document referred to in or
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delivered pursuant hereto; (ii) all out-of-pocket costs and expenses of the
Agent in connection with the administration of this Agreement and the other Loan
Documents, and any waiver or amendment of any provision hereof or thereof,
including without limitation, the reasonable fees and disbursements of counsel
for the Agent, and of any field examiner or auditor retained by the Agent as
contemplated in Section 6.8; and (iii) if any Event of Default occurs, all costs
and expenses incurred by the Agent and each Lender, including the reasonable
fees and disbursements of counsel to the Agent and each Lender, and of any
appraisers, environmental engineers or consultants, or investment banking firms
retained by the Agent in connection with such Event of Default or collection,
bankruptcy, insolvency and other enforcement proceedings related thereto. The
Borrower agrees to pay, indemnify and hold the Agent and each Lender harmless
from, any and all recording and filing fees, and any and all liabilities with
respect to, or resulting from any delay in paying, stamp, excise or other taxes,
if any, which may be payable or determined to be payable in connection with the
execution and delivery of or the consummation or administration of any of the
transactions contemplated by, or any amendment, supplement or modification of,
or any waiver or consent under or in respect of, this Agreement or the other
Loan Documents, or any documents delivered pursuant hereto or thereto.
(b) The Borrower agrees to indemnify the Agent and each Lender
and its officers and directors and hold the Agent and each Lender and its
officers and directors harmless from and against any and all liabilities,
losses, damages, costs and expenses of any kind (including, without limitation,
the reasonable fees and disbursements of counsel for the Agent and each Lender
in connection with any investigative, administrative or judicial proceeding
initiated by a third party, whether or not the Agent or a Lender shall be
designated a party thereto) which may be incurred by the Agent or a Lender,
relating to or arising out of this Agreement or any other Loan Document, or the
existence of any Hazardous Substance on, in, or under any Borrower Property, or
any violation of any applicable Environmental Laws for which the Borrower or any
Subsidiary thereof has any liability or which occurs upon any Borrower Property,
or the imposition of any Lien under any Environmental Laws, provided that the
Agent and the Lenders shall not have the right to be indemnified hereunder for
their own gross negligence or willful misconduct as determined by a court of
competent jurisdiction.
(c) The agreements in this Section 11.6 shall survive the
repayment of the Note, and all other amounts payable under this Agreement and
the other Loan Documents.
11.7 Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower, each
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<PAGE> 57
of the Lenders and the Agent (provided, however, that in no event shall this
Agreement become effective until signed by an officer of SVB in California) and
thereafter shall be binding upon and inure to the benefit of the Borrower, the
Lenders and the Agent and their respective successors and assigns, except that
the Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Agent and the Lenders.
The Lenders may assign to any financial institution all or any part of, or any
interest (undivided or divided) in, their respective rights and benefits under
this Agreement or the Notes, and to the extent of that assignment such assignee
shall have the same rights and benefits against the Borrower hereunder as it
would have had if such assignee were the Lenders making the Line of Credit Loans
hereunder.
11.8 Severability. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
11.9 GOVERNING LAW; AGREEMENT UNDER SEAL. THIS AGREEMENT SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS AND SHALL, UPON ACCEPTANCE BY THE BORROWER, CONSTITUTE AN
AGREEMENT UNDER SEAL AMONG THE PARTIES.
11.10 WAIVER OF JURY TRIAL. THE LENDERS AND THE BORROWER AGREE
THAT NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL
IN ANY LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION BASED UPON, OR
ARISING OUT OF, THIS AGREEMENT, ANY RELATED INSTRUMENTS, ANY COLLATERAL OR THE
DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM, OR (B) SEEK TO
CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT
BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE BEEN FULLY
DISCUSSED BY THE LENDERS AND THE BORROWER, AND THESE PROVISIONS SHALL BE SUBJECT
TO NO EXCEPTIONS. NEITHER THE LENDERS NOR THE BORROWER HAS AGREED WITH OR
REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
11.11 VENUE, CONSENT TO SERVICE OF PROCESS. THE BORROWER
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OR THE STATE OF
CALIFORNIA IN ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES
OUT OF OR BY REASON OF THIS AGREEMENT, THE NOTE, ANY OTHER LOAN DOCUMENT, OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IRREVOCABLY AGREES TO BE BOUND BY
ANY FINAL JUDGMENT
-53-
<PAGE> 58
RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN WHICH IT
SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER HEREINAFTER PROVIDED, SUBJECT
TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL AND TO THE EXTENT THAT IT MAY
LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE
OR OTHERWISE, IN SUCH ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT IT IS NOT
PERSONALLY SUBJECT TO THE JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS
EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS
IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN ANY SUCH ACTION, SUIT
OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF
MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL PROCEDURE, SECTION
415.40 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR RULE 4 OF THE FEDERAL RULES
OF CIVIL PROCEDURE.
11.12 Headings. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
11.13 Counterparts. This Agreement may be signed in one or more
counterparts each of which shall constitute an original and all of which taken
together shall constitute one and the same instrument.
-54-
<PAGE> 59
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first above written.
MICROCOM, INC., as Borrower
By:_____________________________
Name:
Title:
SILICON VALLEY EAST,
a Division of Silicon Valley Bank,
as a Lender and the Agent
By:_____________________________
Name:
Title:
SILICON VALLEY BANK,
as a Lender and the Agent
By:____________________________
Name:
Title:
(Signed at Santa Clara, California)
BAYBANK, as a Lender
By:____________________________
Name:
Title:
-55-
<PAGE> 60
SCHEDULE A
Disclosures
Section 5.10
Subsidiaries of Microcom, Inc.:
Microcom (UK) Limited
Microcom Foreign Sales Corp.
MNP Sales BV
MNP Hong Kong Limited
Microcom Systems, Inc.
MNP France S.A.R.L.
Microcom Ireland Limited
Section 5.16
See attached list of Intellectual Property ("Schedule A").
Section 7.5
Existing Indebtedness (other than amounts owed to SVB):
None.
Section 7.6(f)
Existing Liens (other than Liens in favor of SVB):
None.
Section 7.8
Investments:
Microcom, Inc., continues to hold 533,619 shares of Datawatch, Inc.
<PAGE> 61
SCHEDULE A
With permission of the Agent, Lender is listing only its domestic
patents, trademarks and copyrights. Recordation of transfer of any
intellectual property of Extension Technology Corp. to Microcom Systems, Inc.
has not yet been completed.
1. Patents and Patent Applications:
a. Patents owned by Microcom Systems, Inc.:
i. Patent No. 5,179,555 issued January 12, 1993 for
"High Speed Data Compression and Transmission for
Wide Area Network Connection in LAN/Bridging
Applications." Inventors: Videlock, Freitas and
Gailinas.
ii. Patent No. 5,241,565 issued August 31, 1993 for
"Method and Apparatus for Effecting Efficient
Transmission of Data (Dynamic Transmit Level)."
Inventors: Kloc and Carey.
iii Patent No. 5,136,580 issued August 4, 1992 for "Local
Area Network Source Address Learning/Destination
Filtering Apparatus." Inventors: Videlock, Gocht,
Freitas and Freitas.
iv. Patent No. 5,134,611 issued July 28, 1992 for
"Analog/Digital Data Device and Method."
Inventors: Steinka, Videlock and Chang.
v. Patent No. 4,680,781 issued July 14, 1987 for "Data
Telecommunications Systems and Method for Universal
Link." Inventors: Amundson and Melhorn.
vi. Patent No. 4,748,638 issued May 31, 1988 for "Data
Telecommunications System and Method for Transmitting
Compressed Data." Inventors: Friedman and Melhorn.
vii. Patent No. 4,691,314 issued September 1, 1987 for
"Method and Apparatus for Transmitting Data in
Adjustable-Sized Packages." Inventors: Bergins,
Amundson and Falk.
viii. Patent No. 4,680,773 issued July 14, 1987 for "Data
Telecommuni-System and Method Utilizing a Multi-Mode
Modem." Inventor: Amundson.
ix. Patent No. 5,027,376 issued June 25, 1991 for "Data
Telecommunications System and Method for Transmitting
Compressed Data." Inventors: Friedman and Melhorn.
<PAGE> 62
x. Patent No. 5,191,583 issued March 2, 1993 for "Method
and Apparatus for Effecting Efficient Transmission of
Data." Inventors: Pearson, Melhorn, Onorato
and Richards.
xi. Patent No. 5,251,213 issued October 5, 1993 for
"Multiport Source Routing for 4 Mbps or 16 Mbps
Token Ring Bridges." Inventors: Videlock,
Gocht, Gloria and Wainer.
b. Patent Applications owned by Microcom Systems, Inc.:
i. Serial No. 07/678,755 filed April 1, 1991 for "Method
and Apparatus for Effecting Transmission of Data."
Inventors: Pearson, Melhorn, Onorato and Richards.
ii. Serial No. 08/392,298 filed February 22, 1995 for
"Improved Transmission of Data Over a Radio Frequency
Channel." Inventors: Bergins, Onorato, Falk, Carey,
Kloc and Greene.
iii. Serial No. 08/300,490 filed September 2, 1994 for
"High Performance Communications Interference."
Inventors: Bailey, Copley and Freitas.
c. Patents owned by Extension Technology Corp:
i. Patent No. 5,280,481 issued January 18, 1984 for
"Local Area Network Transmission Emulator." Inventors:
Baker, Chang and Richardson.
ii. Patent No. 5,321,694 issued June 14, 1994 for "Method
and Apparatus for Reducing the Transmission for
Repetitive Broadcast Datagrams over Communication
Links." Inventors: Baker, Chang and Richardson.
iii. Patent No. 5,323,388 issued June 21, 1994 for "Local
Area Network Transmission Emulator." Inventors:
Baker, Chang and Richardson.
d. Patent Applications owned by Extension Technology Corp.
i. Serial No. 08/254,995 filed June 7, 1994 as
continuation of U.S. Pat. No. 5,321,694.
ii. Serial No. 08/253,753 filed June 3, 1994 as
continuation of U.S. Pat. No. 5,323,288.
<PAGE> 63
2. Trademarks
a. Federal Trademark Registrations owned by Microcom Systems, Inc.:
i. Reg. No. 1,641,106 issued April 16, 1991 for mark
MICROCOM.
ii. Reg. No. 1,646,677 issued June 4, 1991 for mark
MICROCOM and Design.
iii. Reg. No. 1,472,075 issued January 12, 1988 for mark
MNP.
iv. Reg. No. 1,867,542 issued December 13, 1994 for mark
TRAVELPORTE.
b. State Trademark Registrations:
i. With permission of Agent, no state trademark
registrations need be listed.
c. Federal Trademark Applications for Registration owned by Microcom
Systems, Inc.:
i. App. No. 74/464,054 filed November 29, 1993 for mark
LANEXPRESS.
ii. App. No. 74/463,935 filed November 29, 1993 for mark
EXPRESSWATCH.
iii. App. No. 74/479,163 filed January 13, 1994 for mark
TRAVELCARD.
iv. Filed December 30, 1994 for mark APT. No serial
number yet assigned to this application.
v. Filed December 30, 1994 for mark ADVANCED PARALLEL
TECHNOLOGY. No serial number yet assigned to this
application.
d. Federal Trademark Applications owned by Extension Technology Corp.
i. Serial No. 74/417,805 filed October 1, 1991 for mark
LD-LAN.
ii. Serial No. 74/285,117 filed June 15, 1992 for mark
LD-LAN.
<PAGE> 64
e. Common Law Trademarks:
ACE
Adverse Channel Enhancements
Adaptive Packet Assembly
Aggressive Adaptive Packet Assembly
Automatic Redial Action
AX
AX/2400
AX/2400c
AX/2424c
AX 9624c
AX/Chassis
AXI/Chassis
C96
Carbon Copy
Carbon Copy Autopilot
Carbon Copy LAN
Carbon Copy Plus
CDL
Cellular Data Link
Data Journal
Data Phase Optimization
Delta Redundant Link Protocol
DeskPorte
Deskporte FAST
DeskPorte FAST ES 28.8
Dynamic Transmit Level Adjustment
Dynamic Speed Shifts
Elastic Bandwidth
Enhanced Data Compression
Enhanced Universal LinkNegotiation
HD
HD/2400c
HD/3296eh
HD4232hs
HD/9624c
HD/Chassis
HD/FAST
HD/V.32c
HDMS
HDMS Controller
<PAGE> 65
HDMS Plus
HDMS/Relay
High Density Modem System
Host Single Pack
INC
Intelligent Network Controller
ISDN MLB
M96
Microcom Bridge/Router
Microcom LAN Bridge
Microcom Management System
Microcom Networking Protocol
Microcom Software Bridge
Microcom Turbo Mode
MicroPorte
MicroPorte 542
MicroPorte 1042
MicroPorte 1022bis
MicroPorte 4232bis
MBR
MBR/6000
MBR/6003
MBR/6500
MBR/6503
MLB
MLB/5500
MLB/6000
MLB/6500
MMS
MNP Data Compression
MNP Extended Services
MNP Cellular Systems
modemWATCH
MSB
Negotiated Speed Upshift
Password Connection Security
PCS
Protocol Modem
Quick Mouse
QX
QX/V.32c
<PAGE> 66
QX/2400t
QX/24LTc
QX/3296c
QX/3296eh
QX/4232bis
QX/4232bis+
QX/Chassis
Remote Access
Robust Auto Reliable
Statistical Duplexing
Suspend/Resume
Universal Link Negotiation
WANmiser
3. Copyrights
a. Registered Copyrights in name of Microcom Systems, Inc.:
i. Reg. No. TX 2-480-770 (incorrectly identified in assignment
recordation from Microcom, Inc. as. No. TX 2-160-280) for
"Carbon Copy Plus: System Software for the Microcom error
correcting modem." Registered February 21, 1989. Assignment
from Microcom, Inc. to Microcom Systems, Inc. recorded
September 19, 1989.
b. Applications for Copyright Registration in the name of Microcom
Systems, Inc.
i. None
c. Common Law Copyrights:
i. Microcom Systems, Inc., Microcom, Inc. and Extension
Technology Corp. possess many common law copyrights in their
respective creations of, inter alia software, firmware, design
specifications product design and documentation for its
products. With the permission of the Agent, Lender is not
herein providing a complete listing of such common law
copyrights.
<PAGE> 67
4. Patent Licenses
i. Guarantor has licensed its MNP(R)5 technology and the patents
associated therewith to hundreds of licensees for a one-time,
paid-up license fee of approximately $5,000. With
the permission of the Agent, Guarantor need not list those
licenses herein.
ii. Microcom Systems, Inc. and Microcom, Inc. have entered into a
number of cross-license agreements with third- parties in
settlement of litigation. All of these cross-license
agreements involved payment of one-time license fees with no
obligation by the third parties to pay Microcom ongoing
royalties. With the permission of the Agent, Microcom
Systems, Inc. need not list those licenses herein.
iii. Guarantor has licensed its MNP(R)10 technology and the patents
associated therewith for either a fixed fee or for on-going
royalty payments to the following entities:
<TABLE>
<CAPTION>
Company Type Date
------- ---- ----
<S> <C> <C>
Angia Communications royalty July 30, 1992
AT&T Microelctronics royalty October 29, 1992
AT&T Paradyne royalty June 2, 1993
Banksia Tech (Australia) royalty
Compaq Computer fixed October 18, 1991
CompuSpec (N. Zealand) royalty September 14, 1992
Dr. Neuhaus (Germany) royalty October 26, 1992
E-Tech Research royalty October 15, 1992
General Data Comm fixed June 30, 1992
GVC (Taiwan) royalty February 1, 1995
Halcyon Communications (Aus) royalty December 9, 1992
Intel royalty May, 1994
Mercury Technologies (Canada) royalty June 14, 1993
Multi-Tech Systems fixed June 30, 1992
NetComm Pty. Ltd (Australia) fixed October 10, 1991
OKI Electric Industry Co. royalty February 22, 1993
PCSI royalty January 21, 1994
Phylon Communications royalty June 4, 1993
Pial (France) royalty August 22, 1992
Primary Access royalty July 20, 1993
Racal-Datacom royalty August 26, 1992
Rockwell royalty June 26, 1992
Semafor (Norway) fixed January 10, 1992
Sun Electronics fixed June 22, 1992
Telebit fixed October 4, 1991
</TABLE>
<PAGE> 68
<TABLE>
<S> <C> <C>
US Robotics royalty July 1994
Western Datacom royalty July 5, 1994
</TABLE>
5. Trademark Licenses:
Guarantor has never licensed any of its trademarks to any third parties
for a license fee or royalty payment. It has, however, granted
licenses to use of itsr trademarks within the context of licenses to
the Microcom technology.
<PAGE> 1
AMENDED AND RESTATED PROMISSORY NOTE
$8,000,000.00 Burlington, Massachusetts
March 22, 1995 (Originally
dated May 29, 1991, as
previously amended and
restated as of May 29, 1991,
August 20, 1993, July 5, 1994,
November 2, 1994 and
December 16, 1994)
FOR VALUE RECEIVED, the undersigned, MICROCOM, INC., a Massachusetts corporation
(the " Borrower"), promises to pay to SILICON VALLEY BANK (the "Bank") at the
office of the Bank located at 3000 Lakeside Drive, Santa Clara, California
95054, or to its order, the lesser of Eight Million Dollars ($8,000,000.00) or
the outstanding principal amount hereunder, on March 22, 1996 (the "Maturity
Date"), together with interest on the principal amount hereof from time to time
outstanding at a fluctuating rate per annum equal to the Prime Rate (as defined
below) plus the Applicable Margin (as defined in the Credit Agreement referred
to below) until the Maturity Date, payable monthly in arrears on the first day
of each calendar month occurring after the date hereof and on the Maturity Date.
The Borrower promises to pay on demand interest at a per annum rate of interest
equal to the Prime Rate plus the Applicable Margin plus 4% on any overdue
principal (and to the extent permitted by law, overdue interest). The "Prime
Rate" is the per annum rate of interest from time to time announced and made
effective by the Agent (as defined in the Credit Agreement) as its Prime Rate
(which rate may or may not be the lowest rate available from the Agent at any
given time).
Computations of interest shall be made by the Bank on the basis of a
year of 360 days for the actual number of days occurring in the period for which
such interest is payable.
This promissory note amends and restates the terms and conditions of
the obligations of the Borrower under the promissory note originally dated May
29, 1991 as previously amended as of May 29, 1991, August 20, 1993, July 5,
1994, November 2, 1994 and December 16, 1994 (the "Original Note") by the
Borrower to the Bank. This promissory note is one of the Notes referred to in
the amended and restated credit agreement dated as of March 22, 1995 (together
with all related exhibits and schedules, as the same may be amended, modified or
supplemented from time to time, the "Credit Agreement") among the Borrower, the
Lenders named therein (including the Bank), and the Bank in its capacity as
agent (together with its successors in such capacity, the "Agent") and is
subject to optional and mandatory prepayment as provided therein, and is
entitled to the benefits thereof and of the other Loan Documents referred to
therein. The Credit Agreement provides for the acceleration of the maturity of
this Note in certain events. IN ADDITION, IN
<PAGE> 2
-2-
CERTAIN CIRCUMSTANCES AS SPECIFIED IN SECTION 7.15 OF THE CREDIT AGREEMENT, THIS
PROMISSORY NOTE SHALL BE PAYABLE ON A DEMAND BASIS.
This note is secured by an Amended and Restated Security Agreement of
even date herewith executed by the Borrower in favor of the Agent for the
benefit of the Bank and the other Lenders (as the same may be amended, modified
or supplemented from time to time, the "Security Agreement"). Payment of
principal and interest on this Note is unconditionally guaranteed pursuant to
the Guaranty of even date herewith by Microcom Systems, Inc., a Delaware
corporation, in favor of the Agent for the benefit of the Banks.
The Bank shall keep a record of the amount and the date of the making
of each advance pursuant to the Credit Agreement and each payment of principal
with respect thereto by maintaining a computerized record of such information
and printouts of such computerized record, which computerized record, and the
printouts thereof, shall constitute prima facie evidence of the accuracy of the
information so endorsed.
The undersigned agrees to pay all reasonable costs and expenses of the
Bank (including, without limitation, the reasonable fees and expenses of
attorneys) in connection with the enforcement of this note and the other Loan
Documents and the preservation of their respective rights hereunder and
thereunder.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every endorser or guarantor of this note regardless of the time,
order or place of signing waives presentment, demand, protest and notices of
every kind and assents to any one or more extensions or postponements of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral for this note, and to the additions or releases of any
other parties or persons primarily or secondarily liable.
THIS NOTE HAS BEEN DELIVERED TO THE BANK AND ACCEPTED BY THE BANK IN
THE STATE OF CALIFORNIA.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER
HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE
<PAGE> 3
- 3 -
OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS
OR THE STATE OF CALIFORNIA IN ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST
IT WHICH ARISES OUT OF OR BY REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED
IN THE CREDIT AGREEMENT), OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ADDITION
TO ANY OTHER COURT IN WHICH SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT,
IRREVOCABLY AGREES TO BE BOUND BY ANY FINAL JUDGMENT RENDERED BY ANY SUCH COURT
IN ANY SUCH ACTION, SUIT OR PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED WITH
PROCESS IN THE MANNER HEREINAFTER PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION
OF ALL RIGHTS OF APPEAL AND TO THE EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND
AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH
ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND AGREES THAT
PROCESS MAY BE SERVED UPON IT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN THE
MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF
THE MASSACHUSETTS RULES OF CIVIL PROCEDURE, SECTION 415.40 OF THE CALIFORNIA
CODE OF CIVIL PROCEDURE OR RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW
(EXCEPTING LAW REGARDING CHOICE OF LAW) OF THE COMMONWEALTH OF MASSACHUSETTS AND
THIS NOTE SHALL BE DEEMED TO BE UNDER SEAL.
Attest: MICROCOM, INC.
By: ____________________________
Name: Name:
Title: Title:
[Seal]
Accepted and Agreed
as of March 22, 1995:
SILICON VALLEY BANK
By: _______________________________________
Name: James C. Maynard
Title: Assistant Vice President
<PAGE> 1
PROMISSORY NOTE
$8,000,000.00 Burlington, Massachusetts
March 22, 1995
FOR VALUE RECEIVED, the undersigned, MICROCOM, INC., a Massachusetts
corporation (the " Borrower"), promises to pay to BAYBANK (the "Bank") at the
office of the Bank located at 7 New England Executive Park, Burlington, MA
01803, or to its order, the lesser of Eight Million Dollars ($8,000,000.00) or
the outstanding principal amount hereunder, on March 22, 1996 (the "Maturity
Date"), together with interest on the principal amount hereof from time to time
outstanding at a fluctuating rate per annum equal to the Prime Rate (as defined
below) plus the Applicable Margin (as defined in the Credit Agreement referred
to below) until the Maturity Date, payable monthly in arrears on the first day
of each calendar month occurring after the date hereof and on the Maturity Date.
The Borrower promises to pay on demand interest at a per annum rate of interest
equal to the Prime Rate plus the Applicable Margin plus 4% on any overdue
principal (and to the extent permitted by law, overdue interest). The "Prime
Rate" is the per annum rate of interest from time to time announced and made
effective by the Agent (as defined in the Credit Agreement) as its Prime Rate
(which rate may or may not be the lowest rate available from the Agent at any
given time).
Computations of interest shall be made by the Bank on the basis of a
year of 360 days for the actual number of days occurring in the period for which
such interest is payable.
This promissory note is one of the Notes referred to in the amended and
restated credit agreement dated as of March 22, 1994 (together with all related
exhibits and schedules, as the same may be amended, modified or supplemented
from time to time, the "Credit Agreement") among the Borrower, the Lenders named
therein (including the Bank) and Silicon Valley Bank, as agent (together with
its successors in such capacity, the "Agent"), and is subject to optional and
mandatory prepayment as provided therein, and is entitled to the benefits
thereof and of the other Loan Documents referred to therein. The Credit
Agreement provides for the acceleration of the maturity of this Note in certain
events. IN ADDITION, IN CERTAIN CIRCUMSTANCES AS SPECIFIED IN SECTION 7.15 OF
THE CREDIT AGREEMENT, THIS PROMISSORY NOTE SHALL BE PAYABLE ON A DEMAND BASIS.
This note is secured by an Amended and Restated Security Agreement of
even date herewith executed by the Borrower in favor of the Agent for the
benefit of the Bank and the other Lenders (as it may be amended, modified or
supplemented from time to time, the "Security Agreement"). Payment of
principal and interest on this Note is unconditionally guaranteed pursuant to
<PAGE> 2
- 2 -
the Guaranty of even date herewith by Microcom Systems, Inc., a Delaware
corporation, in favor of the Agent for the benefit of the lenders.
The Bank shall keep a record of the amount and the date of the making
of each advance pursuant to the Credit Agreement and each payment of principal
with respect thereto by maintaining a computerized record of such information
and printouts of such computerized record, which computerized record, and the
printouts thereof, shall constitute prima facie evidence of the
accuracy of the information so endorsed.
The undersigned agrees to pay all reasonable costs and expenses of the
Bank (including, without limitation, the reasonable fees and expenses of
attorneys) in connection with the enforcement of this note and the other Loan
Documents and the preservation of their respective rights hereunder and
thereunder.
No delay or omission on the part of the Bank in exercising any right
hereunder shall operate as a waiver of such right or of any other right of the
Bank, nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
Borrower and every endorser or guarantor of this note regardless of the time,
order or place of signing waives presentment, demand, protest and notices of
every kind and assents to any one or more extensions or postponements of the
time of payment or any other indulgences, to any substitutions, exchanges or
releases of collateral for this note, and to the additions or releases of any
other parties or persons primarily or secondarily liable.
THE BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER
HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT), OR
THE TRANSACTIONS CONTEMPLATED HEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS NOTE, THE BORROWER ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OR THE STATE OF CALIFORNIA IN
ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS NOTE, ANY LOAN DOCUMENT (AS DEFINED IN THE COMMITMENT LETTER), OR
THE TRANSACTIONS CONTEMPLATED HEREBY, IN ADDITION TO ANY OTHER COURT IN WHICH
SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT, IRREVOCABLY AGREES TO BE BOUND
BY ANY FINAL JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR
PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER
HEREINAFTER PROVIDED, SUBJECT TO EXERCISE AND EXHAUSTION OF ALL RIGHTS OF APPEAL
AND TO THE EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND AGREES NOT TO ASSERT,
BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH ACTION, SUIT OR
<PAGE> 3
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PROCEEDING ANY CLAIMS THAT IT IS NOT PERSONALLY SUBJECT TO THE JURISDICTION OF
SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM ATTACHMENT OR EXECUTION,
THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT
THE VENUE THEREOF IS IMPROPER, AND AGREES THAT PROCESS MAY BE SERVED UPON IT IN
ANY SUCH ACTION, SUIT OR PROCEEDING IN THE MANNER PROVIDED BY CHAPTER 223A OF
THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF THE MASSACHUSETTS RULES OF CIVIL
PROCEDURE, SECTION 415.40 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE OR RULE 4 OF
THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW
(EXCEPTING LAW REGARDING CHOICE OF LAW) OF THE COMMONWEALTH OF MASSACHUSETTS AND
THIS NOTE SHALL BE DEEMED TO BE UNDER SEAL.
Attest: MICROCOM, INC.
____________________________ By: ____________________________
Name: Name:
Title: Title:
[Seal]
<PAGE> 1
AMENDED AND RESTATED
SECURITY AGREEMENT
This AMENDED AND RESTATED SECURITY AGREEMENT dated as of March
22, 1995 (the "Agreement") among MICROCOM, INC., a Massachusetts corporation
(the "Company"), SILICON VALLEY BANK, as agent for the benefit of Silicon Valley
Bank and BayBank (together with its successors in such capacity, the "Agent"),
SILICON VALLEY BANK, as lender ("SVB"), and BAYBANK, as lender ("BayBank"),
W I T N E S S E T H:
WHEREAS, the Company and SVB entered into to a commitment
letter dated as of May 29, 1991, as amended by letter amendments dated as of May
29, 1992, September 30, 1992, June 14, 1993 and August 20, 1993 (as amended, the
"Commitment Letter"), providing for extensions of credit to be made by
SVB to the Company;
WHEREAS, in order to induce SVB to enter into the Commitment
Letter, the Company entered into a security agreement dated as of August 20,
1993 (as heretofore amended, the "1993 Security Agreement"), by which it
granted SVB a continuing security interest in and to certain collateral to
secure its obligations to SVB, including, without limitation, the Company's
obligations under a promissory note issued by the Company to SVB pursuant to the
Commitment Letter (as heretofore amended, supplemented, extended and restated,
the "Original SVB Note");
WHEREAS, the Company and SVB entered into a credit agreement
dated as of May 1, 1994 that amended and restated the Commitment Letter in its
entirety (as amended by letter amendments dated as of September 28, 1994,
November 2, 1994 and December 16, 1994, the "1994 Credit Agreement");
WHEREAS, the obligations of the Company to SVB under the 1994
Credit Agreement and the Original SVB Note continue to be secured by certain
collateral pursuant to the 1993 Security Agreement;
WHEREAS, SVB and BayBank (each a "Lender" and, together, the
"Lenders") have entered into an amended and restated credit agreement with the
Company, dated as of the date hereof (the "Credit Agreement"), which appoints
SVB to serve as Agent (as defined therein) on behalf of the Lenders in
connection with obligations that the Company has incurred, or is expected to
incur, in favor of the Lenders; and
WHEREAS, the Lenders and the Company desire that the
obligations of the Company to the Lenders under the Credit Agreement be secured
by all the Company's assets and property for the ratable benefit of the Lenders;
<PAGE> 2
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NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are
acknowledged, the parties hereto agree that the 1993 Security Agreement shall be
amended and restated in its entirety to provide as follows:
SECTION 1. Definitions
Except for terms defined in this Agreement, including the preamble
hereto, the terms used herein shall have the respective meanings provided for in
the Credit Agreement:
"Accounts" means all "accounts" (as defined in the UCC)
now owned or hereafter acquired by the Company and shall also mean and
include all accounts receivable, contract rights, book debts, notes,
drafts and other obligations or indebtedness owing to the Company
arising from the sale, lease or exchange of goods or other property
and/or the performance of services by it (including any obligation
which might be characterized as an account, contract right or general
intangible under the UCC) and all the Company's rights in, to and under
all purchase orders for goods, services or other property, and all the
Company's rights to any goods, services or other property represented
by any of the foregoing (including returned or repossessed goods and
unpaid sellers' rights of rescission, replevin, reclamation and rights
to stoppage in transit) and all monies due to or to become due to the
Company under all contracts for the sale, lease or exchange of goods or
other property and/or the performance of services by it (whether or not
yet earned by performance on the part of the Company), in each case
whether now in existence or hereafter arising or acquired, including
the right to receive the proceeds of said purchase orders and contracts
and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
"Collateral" has the meaning set forth in Section 3.
"Documents" means all "documents" (as defined in the
UCC) or other receipts covering, evidencing or representing goods, now
owned or hereafter acquired, by the Company.
"Equipment" means all "equipment" (as defined in the
UCC) now owned or hereafter acquired by the Company, including, without
limitation, all motor vehicles, trucks and trailers.
"General Intangibles" means all "general intangibles"
(as defined in the UCC) now owned or hereafter acquired by the Company,
including, without limitation, all (a) obligations or indebtedness
owing to the Company (other than Accounts) from whatever source
arising, (b) patent licenses, patents, trademark licenses, trademarks,
rights in intellectual property, goodwill, trade names, service marks,
trade secrets, copyrights, permits and licenses, (c) inventions,
processes, production methods, proprietary information, know-how and
trade secrets used or useful in the business of the Company, (d)
licenses or user or other agreements granted to the Company with
respect to any of the items described in clause (b) or (c) above, (e)
information, customer lists, identification of suppliers, data, plans,
blueprints, specifications, designs, drawings, recorded knowledge,
surveys, engineering reports, test reports, manuals, materials
standards, catalogs, computer and automatic machinery software and
programs and the like pertaining to the business of the Company, (f)
field repair data, sales data, and other information relating to sales
or service of products now or hereafter manufactured, (g) accounting
information and all media in or on which any of the information,
knowledge, data or records may be recorded or stored and all computer
programs used for the compilation or printout thereof, (h) causes of
action, claims and warranties now or hereafter
<PAGE> 3
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owned or acquired by the Company in respect of any of the items listed
above and (i) all tax refunds to which the Company is entitled.
"Instruments" means all "instruments", "chattel paper" or
"letters of credit" (each as defined in the UCC) evidencing,
representing, arising from or existing in respect of, relating to,
securing or otherwise supporting the payment of, any of the Accounts,
including promissory notes, drafts, bills of exchange and trade
acceptances, now owned or hereafter acquired by the Company.
"Inventory" means all "inventory" (as defined in the UCC), now
owned or hereafter acquired by the Company, wherever located, and shall
also mean and include, without limitation, all raw materials and other
materials and supplies, work-in-process and finished goods and any
products made or processed therefrom and all substances, if any,
commingled therewith or added thereto.
"Perfection Certificate" means a certificate substantially in
the form of Exhibit A hereto, completed with the schedules and
attachments contemplated thereby to the satisfaction of the Agent, and
duly executed by the chief financial officer of the Company.
"Permitted Financing Statements" means any financing statements
naming the Company as Debtor filed solely pursuant to Section 9-408 of
the UCC.
"Permitted Liens" means the Liens on the Collateral permitted
to be created, assumed or to exist pursuant to paragraphs of Section
7.6 of the Credit Agreement.
"Proceeds" means all proceeds of, and all other
profits, rentals or receipts, in whatever form, arising from the
collection, sale, lease, exchange, assignment, licensing or other
disposition of, or realization upon, Collateral, including, without
limitation, all claims of the Company against third parties for loss
of, damage to or destruction of, or for proceeds payable under, or
unearned premiums with respect to, policies of insurance in respect of,
any Collateral, any condemnation or requisition payments with respect
to any Collateral, and any proceeds of any of the foregoing, in each
case whether now existing or hereafter arising.
"Secured Obligations" means all obligations, whether
now existing or hereafter arising, of the Company to the Agent or any
Lender under or in connection with the transactions contemplated by the
Credit Agreement, whether such obligations are joint or several, direct
or indirect, absolute or contingent, due or to become due, matured or
unmatured, liquidated or unliquidated, arising by contract, operation
of law or otherwise, including, without limitation, (a) all obligations
to pay principal of and interest (including, without limitation, any
interest which accrues after the commencement of any case, proceeding
or other action relating to the bankruptcy, insolvency or
reorganization of the Company) with respect to any advance to the
Company under the Credit Agreement or the Notes; (b) all obligations
with respect to other amounts (including, without limitation, any fees
or expenses) payable by the Company under the Credit Agreement, the
Notes or any other Loan Document; (c) all obligations with respect to
amounts payable by the Company in connection with any Letter of Credit,
Banker's Acceptance or FX Contract issued, accepted or entered into for
the account of the Company, including without limitation any drawings
or payments thereunder or obligations incurred in connection therewith,
including all obligations with respect to reimbursement and fees; and
(d) any renewals, refinancings or extensions of any of the foregoing.
<PAGE> 4
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"Security Interests" means the security interests granted
pursuant to Section 3, as well as all other security interests created
or assigned as additional security for the Secured Obligations pursuant
to the provisions of this Agreement.
"UCC" means the Uniform Commercial Code in effect on the date
hereof in Massachusetts; provided that if, by reason of law, the
perfection or effect of perfection or non-perfection of the Security
Interests in any Collateral is governed by the Uniform Commercial Code
in effect in a jurisdiction other than Massachusetts, "UCC" means the
Uniform Commercial Code in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or effect
of perfection or non-perfection.
SECTION 2. Representations and Warranties
The Company represents and warrants as follows:
(a) The Company has good title to all of the Collateral, free and clear
of any Liens other than Permitted Liens and the Security Interests. The Company
has not purchased any Accounts or Chattel Paper except as part of transactions
in which the Company acquired substantially all of the business out of which
such Accounts and Chattel Paper arose.
(b) Neither the Company nor its predecessors has performed any acts
which might prevent the Agent or the Lenders from enforcing any of the terms of
this Agreement or which would limit the Agent or the Lenders in any such
enforcement. Other than the Permitted Financing Statements and financing
statements or other similar or equivalent documents or instruments with respect
to the Security Interests, no financing statement, mortgage, security agreement
or similar or equivalent document or instrument covering all or any part of the
Collateral is on file or of record in any jurisdiction in which such filing or
recording would be effective to perfect a Lien on such Collateral. No Collateral
is in the possession of any Person (other than the Company) asserting any claim
thereto or security interest therein, except that the Agent or its designee may
have possession of Collateral as contemplated hereby.
(c) Prior to the first borrowing under the Credit Agreement, the
Company shall deliver the Perfection Certificate to the Agent. The information
set forth therein shall be correct and complete. The Agent may, at the expense
of the Company, obtain file search reports from the Uniform Commercial Code
filing office for each jurisdiction set forth in paragraph 2 to the
Perfection Certificate or other evidence satisfactory to the Agent confirming
the filing information set forth in such Schedule.
(d) When UCC financing statements in appropriate form have been filed
in the offices specified in the Perfection Certificate to the extent that
security interests in the relevant Collateral may be perfected by such filings
pursuant to the UCC, the Security Interests shall constitute valid and perfected
security interests in the Collateral (except Inventory in transit), in each case
prior to all other Liens and rights of others therein, subject only to Permitted
Liens.
(e) Except for the filings referred to in paragraph (d) above, no
authorization, approval or other action by, and no notice of filing with, any
Governmental Authority that has not been received, taken or made is required (i)
for the grant by the Company of the Security Interests or for the execution,
delivery or performance of this Agreement by the Company, (ii) for the
perfection and maintenance of the Security Interests as first priority security
interests and liens, or (iii) for the exercise by the Agent or the Lenders of
the rights or the remedies in respect of the Collateral pursuant to this
Agreement.
<PAGE> 5
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(f) The Inventory and Equipment are insured in accordance with the
requirements of this Security Agreement and the Credit Agreement.
SECTION 3. The Security Interests
(a) In order to secure the full and punctual payment of the Secured
Obligations in accordance with their respective terms, the Company hereby
hypothecates, assigns, pledges and grants to the Agent for the ratable benefit
of the Lenders continuing security interests in, and liens on, all right, title
and interest of the Company in, to and under the following property, whether now
owned or existing or hereafter acquired or arising and regardless of where
located (all such property being collectively referred to as the
"Collateral"):
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) All moneys and property of any kind of the Company in the
possession or under the control of the Agent or the Lenders;
(viii) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and
supplier price lists, sales literature, computer programs, printouts
and other computer materials and records) of the Company pertaining to
any of the Collateral; and
(ix) All Proceeds of, attachments or accessions to, or substitutions
for all or any of the Collateral described in Clauses (i) through (ix)
hereof.
(b) The Security Interests are granted as security only and shall not
subject the Agent or the Lenders to, or transfer or in any way affect or modify,
any obligation or liability of the Company with respect to any of the Collateral
or any related transaction.
SECTION 4. Further Assurances; Covenants
The Company covenants as follows:
(a) The Company will not change (i) the locations of its principal
place of business or its chief executive office, (ii) its federal tax
identification number, (iii) the locations where it keeps or holds any
Collateral or related records from the applicable locations described in the
Perfection Certificate, or (iv) its name, identity or corporate structure in any
manner, without giving the Agent and the Lenders 30 days' prior written notice
thereof. In the event of any such change, the Company shall, at its cost and
expense, cooperate with the Agent and the Lenders and cause to be filed or
recorded additional financing statements, amendments or supplements to existing
financing statements, continuation state-
<PAGE> 6
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ments or other documents required to be recorded or filed in order to perfect
and protect the Security Interests. The Company shall not, in any event, make
any such change if such change would cause the Security Interests in any
Collateral to lapse or cease to be perfected.
(b) The Company will, from time to time, at its expense, execute,
deliver, file and record any statement, assignment, instrument, document,
agreement or other paper and take any other action (including, without
limitation, any filings of financing or continuation statements under the UCC)
that the Agent or the Lenders may from time to time reasonably determine to be
necessary or desirable in order to create, preserve, upgrade in rank (to the
extent required hereby), perfect, confirm or validate the Security Interests or
to enable the Agent or the Lenders to (i) obtain the full benefits of this
Agreement, or (ii) to exercise and enforce any of their rights, powers and
remedies hereunder with respect to any of the Collateral. At the Agent's
request, the Company will use reasonable efforts to obtain the consent of any
Person that is necessary or desirable to effect the pledge hereunder of any
right, title, claims and benefits now owned or hereafter acquired by the Company
in, to or under any General Intangible. To the extent permitted by law, the
Company hereby authorizes the Agent to execute and file financing statements or
continuation statements without the Company's signature appearing thereon. The
Company agrees that a carbon, photographic or other reproduction of this
Agreement or of a financing statement is sufficient as a financing statement.
The Company shall pay the costs of, or incidental to, any recording or filing of
any financing or continuation statements concerning the Collateral.
(c) If any warehouseman, bailee or any of the Company's agents or
processors possesses or controls any Collateral, the Company shall, upon the
request of the Agent, notify such warehouseman, bailee, agent or processor of
the Security Interests created hereby and to hold all such Collateral for the
Agent's account subject to the Agent's instructions.
(d) The Company shall keep complete and accurate books and records
relating to the Collateral, and stamp or otherwise mark them in such manner as
the Agent may reasonably request in order to reflect the Security Interests.
(e) The Company will promptly deliver and pledge each Instrument to the
Agent, appropriately endorsed to the Agent without recourse, provided that so
long as no Event of Default shall have occurred and be continuing it, the
Company may retain for collection in the ordinary course any Instruments it
receives in the ordinary course of business and the Agent shall, promptly upon
request of the Company, make appropriate arrangements for making any other
Instrument pledged by the Company available to it for purposes of presentation,
collection or renewal (any such arrangement to be effected, to the extent deemed
appropriate by the Agent, against trust receipt or like document).
(f) The Company shall use its best efforts to cause to be collected
from its account debtors, as and when due, any and all amounts owing under or on
account of each Account (including, without limitation, Accounts which are
delinquent, such Accounts to be collected in accordance with lawful collection
procedures and the Company's standard procedures) and apply forthwith upon
receipt all such amounts so collected to the outstanding balance of such
Account, except that, unless an Event of Default has occurred and is continuing
and the Agent is exercising its rights hereunder to collect Accounts, the
Company may allow in the ordinary course of business as adjustments to amounts
owing under its Accounts (i) an extension or renewal of the time of payment, or
settlement for less than the total unpaid balance, which the Company finds
appropriate in accordance with prudent business judgment and (ii) a refund or
credit due as a result of returned or damaged merchandise, all in accordance
with the Company's ordinary course of business consistent with its historical
collection
<PAGE> 7
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practices. The costs and expenses (including, without limitation, attorney's
fees) of collection, whether incurred by the Company or the Agent, shall be
borne by the Company.
(g) Upon the occurrence and during the continuance of any Event of
Default, upon the request of the Agent, the Company will promptly notify (and
the Company hereby authorizes the Agent so to notify) each account debtor in
respect of any Account or Instrument that such Collateral has been assigned to
the Agent, and that any payments due or to become due in respect of such
Collateral are to be made directly to the Agent or any designee of the Agent.
Following such request of the Agent, the Company shall hold all proceeds from
collection of Accounts as trustee for the Agent (without commingling the same
with other funds of the Company) and shall turn the same over to the Agent
immediately upon receipt in the form received (duly endorsed by the Company to
the Agent, if required). The Agent shall apply the proceeds of such collections
it receives to the Secured Obligations in accordance with Section 8 of
this Agreement. The application of the proceeds of such collections shall be
conditional upon the final payment in cash of the items so collected. If any
item is not so paid or the Agent is required for any reason to return any
payment made, the Agent may reverse any credit given in respect of such item.
(h) Without the prior written consent of the Agent, the Company will
not (a) sell, lease, exchange, assign or otherwise dispose of, or grant any
option with respect to, any Collateral other than Inventory and obsolete or
worn-out property and equipment and, in the case of any such permitted sale or
exchange, the Security Interests created hereby in such item (but not in any
Proceeds arising from such sale or exchange) shall cease immediately without any
further action on the part of the Agent; or (b) create, incur or suffer to exist
any Lien with respect to any Collateral, except for Permitted Liens and the
Security Interests.
(i) The Company will maintain, with financially sound and reputable
companies, insurance policies (i) insuring all Inventory and Equipment against
loss by fire, explosion, theft and other casualties reasonably satisfactory to
the Agent and (ii) insuring the Company and the Agent against liability for
personal injury and property damage relating to Inventory and Equipment, such
policies to be in such form and amounts and having such coverage as is
reasonably satisfactory to the Agent, with losses payable to the Agent as sole
loss payee. All such insurance shall (A) provide that no termination,
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the Agent of
written notice thereof, (B) in the case of the policies referenced in clause
(ii) above, name the Agent as additional insured and (C) be otherwise reasonably
satisfactory to the Agent.
(j) The Company will keep each item of Equipment in good order and
repair and will not use the same in violation of law or any policy of insurance
thereon.
(k) The Company will, promptly upon request, provide to the Agent all
information and evidence it may reasonably request concerning the Collateral
(including without limitation, the names, addresses, face value, and date of
invoices for each debtor obligated on each Account) to enable the Agent to
enforce the provisions of this Agreement.
<PAGE> 8
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SECTION 5. General Authority
The Company hereby irrevocably appoints the Agent its true and lawful
attorney, with full power of substitution, in the name of the Company, the
Agent, or otherwise, for the sole use and benefit of the Agent, but at the
Company's expense, to the extent permitted by law to exercise, at any time and
from time to time while an Event of Default has occurred and is continuing, all
or any of the following powers with respect to all or any of the Collateral:
(a) to endorse the Company's name on any checks,
notes, acceptances, money orders, drafts, filings or other
forms of payment or security that may come into the Agent's
possession,
(b) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due thereon
or by virtue thereof,
(c) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(d) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds or avails thereof, as fully and
effectively as if the Agent were the absolute owner, and
(e) to extend the time of payment thereof and to make
any allowance and other adjustments with reference thereto;
provided that the Agent shall give the Company not less than ten days'
prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market. The Company agrees that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC.
SECTION 6. Remedies upon Event of Default
(a) If any Event of Default has occurred and is continuing, the Agent
may exercise all rights of a secured party under the UCC (whether or not in
effect in the jurisdiction where such rights are exercised) and, in addition,
the Agent may, without being required to give any notice, except as herein
provided or as may be required by law, sell any and all of the Collateral at
public or private sale, for cash, upon credit or for future delivery, and at
such prices as the Agent may deem satisfactory. The Agent may be the purchaser
of any or all of the Collateral so sold at any public sale (or, if the
Collateral is of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price quotations, at any
private sale) and thereafter hold the same, absolutely, free from any right or
claim of whatsoever kind. The Company will execute and deliver such documents
and take such other action as the Agent deems necessary or advisable in order
that any such sale may be made in compliance with law. Upon any such sale the
Agent shall have the right to deliver, assign and transfer to the purchaser the
Collateral so sold. Each purchaser at any such sale shall hold the Collateral so
sold to it absolutely, free from any claim or right of whatsoever kind,
including any equity or right of redemption of the Company. The Company, to the
extent permitted by law, hereby specifically waives all rights of redemption,
stay or appraisal which it has or may have under any law now existing or
hereafter adopted. The notice (if any) of such sale required by Section
5 shall (i) in case of a public sale, state the time and place fixed for
such sale, and (ii) in the case of a private sale,
<PAGE> 9
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state the day after which such sale may be consummated. Any such public sale
shall be held at such time(s) within ordinary business hours and at such places
as the Agent may fix in the notice of such sale. At any such sale the Collateral
may be sold in one lot as an entirety or in separate parcels, as the Agent may
determine. The Agent shall not be obligated to make any such sale pursuant to
any such notice. The Agent may, without notice or publication, adjourn any
public or private sale or cause the same to be adjourned from time to time by
announcement at the time and place fixed for the sale, and such sale may be made
at any time or place to which the same may be so adjourned. In case of any sale
of all or any part of the Collateral on credit or for future delivery, the
Collateral so sold may be retained by the Agent until the selling price is paid
by the purchaser thereof, but the Agent shall not incur any liability in case of
the failure of such purchaser to take up and pay for the Collateral so sold and,
in case of any such failure, such Collateral may again be sold upon like notice.
The Agent, instead of exercising the power of sale herein conferred upon it, may
proceed by a suit or suits at law or in equity to foreclose the Security
Interests and sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(b) For the purpose of enforcing its rights and remedies under this
Agreement, the Agent may (i) require the Company to, and the Company agrees that
it will, at its expense and upon the request of the Agent, forthwith assemble
all or any part of the Collateral as directed by the Agent and make it available
at a place designated by the Agent which is, in its opinion, reasonably
convenient to the Agent, whether at the premises of the Company or otherwise,
(ii) to the extent permitted by law, enter, with or without process of law and
without breach of the peace, any premise where any of the Collateral may be
located, and without charge or liability to it seize and remove such Collateral
from such premises, (iii) have access to and use the Company's books and records
relating to the Collateral and (iv) prior to the disposition of the Collateral,
store or transfer it without charge in or by means of any storage or
transportation facility owned or leased by the Company, process, repair or
recondition it or otherwise prepare it for disposition in any manner and to the
extent the Agent deems appropriate to preserve and enhance its value and, in
connection with such preparation and disposition, use, as a licensee (or if no
decline in the value of the Collateral would result, otherwise) without charge
any trademark, trade name, copyright, patent or technical process used by the
Company.
SECTION 7. Limitation on Duty of Agent in Respect of Collateral.
Beyond the safe custody thereof in accordance with law, the Agent shall
have no duty as to any Collateral in the possession or control of the Agent or
any agent or bailee, or any income thereon, or as to the preservation of rights
against prior parties or any other rights pertaining thereto. The Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equivalent to that which it accords its own property of like
nature, and shall not be liable or responsible for any loss or damage to any of
the Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Agent in good faith and in the absence of gross
negligence.
SECTION 8. Application of Proceeds
Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be applied by the Agent in the following order of priorities:
first, to payment of the expenses of such sale or other
realization, including reasonable compensation to the Agent and its
agents and counsel in connection therewith, and all
<PAGE> 10
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expenses, liabilities and advances incurred or made by the Agent in
connection therewith, and any other unreimbursed expenses for which the
Agent is to be reimbursed pursuant to the Credit Agreement or otherwise
and unpaid fees owing to the Agent under the Credit Agreement or
otherwise;
second, to the ratable payment to the Lenders of accrued but
unpaid interest on the Secured Obligations;
third, to the ratable payment to the Lenders of unpaid
principal of the Secured Obligations;
fourth, to the ratable payment to the Lenders of all other
Secured Obligations, until all Secured Obligations shall have been paid
in full; and
finally, to payment to the Company or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
The Agent may make distributions hereunder in cash or in kind or in any
combination thereof.
SECTION 9. Expenses
In the event that the Company fails to comply with the provisions of
the Credit Agreement or this Agreement, such that the value of any Collateral or
the validity, perfection, rank or value of any Security Interest is thereby
diminished or potentially diminished or put at risk, the Agent may effect such
compliance on behalf of the Company, and the Company shall reimburse the Agent
for the costs thereof within two Business Days of demand therefor. All insurance
expenses and all reasonable expenses of protecting, storing, warehousing,
appraising, insuring, handling, maintaining, and shipping the Collateral, any
and all excise, property, sales, and use taxes imposed by any state, federal, or
local authority on any of the Collateral, or in respect of the sale or other
disposition thereof, shall be borne by the Company; and if the Company fails to
promptly pay any portion thereof when due, the Agent may, at its option, but
shall not be required to, pay the same and charge the Company's account
therefor, and the Company agrees to reimburse the Agent therefor on demand. All
sums so paid or incurred by the Agent for any of the foregoing and any and all
other sums for which the Company may become liable hereunder and all reasonable
costs and expenses (including attorneys' fees, legal expenses and court costs)
reasonably incurred by the Agent in enforcing or protecting the Security
Interests or any of their rights or remedies under this Agreement, shall,
together with interest thereon until paid at the rate applicable to advances
made under the Credit Agreement, be additional Secured Obligations hereunder.
SECTION 10. Termination of Security Interests
Upon the indefeasible payment in full of all Secured Obligations and
the termination of the Line of Credit Commitments, the Security Interests shall
terminate and all rights to the Collateral shall revert to the Company, and this
Security Agreement shall terminate and no longer be of any force and effect.
SECTION 11. Notices
All notices, approvals, requests, demands and other communications
hereunder shall be given in accordance with the Credit Agreement.
<PAGE> 11
- 11 -
SECTION 12. Waivers, Non-Exclusive Remedies
No failure on the part of the Agent or the Lenders to exercise, and no
delay in exercising and no course of dealing with respect to, any right under
the Credit Agreement or this Agreement shall operate as a waiver thereof; nor
shall any single or partial exercise by the Agent of any right under the Credit
Agreement or this Agreement preclude any other or further exercise thereof or
the exercise of any other right. The rights in this Agreement and the Credit
Agreement are cumulative and are not exclusive of any other remedies provided
by law.
SECTION 13. Successors and Assigns
This Agreement is for the benefit of the Agent, the Lenders and their
respective successors and assigns, and in the event of an assignment of all or
any of the Secured Obligations, the rights hereunder, to the extent applicable
to the indebtedness so assigned, may be transferred with such indebtedness.
This Agreement shall be binding on the Company and its successors and assigns.
SECTION 14. Changes in Writing
Neither this Agreement nor any provision hereof may be changed,
waived, discharged or terminated orally, but only in writing signed by the
Company and the Agent.
SECTION 15. MASSACHUSETTS LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, EXCEPT AS OTHERWISE REQUIRED BY
MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY
THE LAWS OF ANY JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS ARE
GOVERNED BY THE LAWS OF SUCH JURISDICTION.
SECTION 16. Severability
If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction
and shall be liberally construed in favor of the Agent and the Lenders in order
to carry out the intentions of the parties hereto as nearly as may be possible;
and (b) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
SECTION 17. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall constitute an original, but all of which taken together shall
constitute but one and the same instrument, and any of the parties hereto may
execute this Agreement by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
<PAGE> 12
- 12 -
MICROCOM, INC.
By:_____________________________
Name:
Title:
SILICON VALLEY BANK, as Agent
By:_____________________________
Name:
Title:
SILICON VALLEY BANK, as Lender
By:_____________________________
Name:
Title:
BAYBANK, as Lender
By:_____________________________
Name:
Title:
<PAGE> 13
- 13 -
EXHIBIT A
PERFECTION CERTIFICATE
OF
MICROCOM, INC.
The undersigned, the chief financial officer of Microcom, Inc., a
Massachusetts corporation (the "Company"), hereby certifies to Silicon Valley
Bank (the "Bank") as Agent in connection with the Amended and Restated Security
Agreement dated as of March 22, 1995 among the Company and the Bank and BayBank
(the terms defined therein being used herein as therein defined) as follows:
18. Names. (a) The exact corporate name of the Company as it appears
in its certificate of incorporation is as follows:
Microcom, Inc.
(b) Set forth below is each other corporate name the Company
has had since its organization, together with the date of the relevant change:
No other corporate name since date of incorporation
(c) Set forth below is a description of each change by the
Company of its identity or corporate structure in any way within the past five
years:
HJC Software, Inc., a wholly-owned subsidiary of Microcom, Inc. was
merged with and into Microcom, Inc. on April 5, 1991. Relay Communications,
Inc., a wholly-owned subsidiary of Microcom, Inc., was merged with and into
Microcom, Inc. on May 15, 1989. Meridian Technology, Inc., a wholly-owned
subsidiary of Microcom, Inc., was merged with and into Microcom, Inc. on May
15, 1989.
(d) The following is a list of all other names (including
trade names or similar appellations) used by the Company or any of its
divisions or other business units at any time during the past five years:
MNP Sales Co. (trade name used in certain states in the U.S.)
HJC Software, Inc. former subsidiary)
Relay Communications, Inc. (former subsidiary)
Meridian Technology, Inc. (former subsidiary)
(e) The Federal tax identification number of the Company is as
follows:
04-2710644
<PAGE> 14
- 14 -
19. Current Locations. (a) The chief executive office of the Company
is located at the following address:
500 River Ridge Drive, Norwood, MA 02062-5028
(b) The following are all the locations where the Company
maintains any books or records relating to any Accounts:
<TABLE>
<CAPTION>
Mailing
Name Address City State
- ---- ------- ---- -----
<S> <C> <C> <C>
Microcom, Inc. 500 River Ridge Drive Norwood MA
</TABLE>
(c) The following are all the locations where significant
amounts of Equipment and Inventory of the Company are located:
<TABLE>
<CAPTION>
Mailing
Name Address City State
- ---- ------- ---- -----
<S> <C> <C> <C>
Vtech Communications Ltd. Sam Tuen Management Zone
Hou Jie District, Dongvan Guangdong China
Microcom, Inc. 500 River Ridge Drive Norwood MA
MNP Hong Kong 57 Ting Kok Rd., N.T., Hong Kong
H&M Metals Columbia Drive Amherst NH
Omni Resources Group 50 Howe Avenue Millbury MA
Flextronics SON BHD, Lot PLO #37
Dirizak, Jalan Kawasan
Perindustrian Senai, J.B. Malaysia
Road Air Transport Borchwert 22
4074 R Groosendaal The Netherlands
</TABLE>
(d) The following are all the places of business of the
Company not identified above; in no case are books and records of the Company
concerning its Accounts maintained at such locations and the aggregate value of
any Inventory or Equipment at such places of business does not exceed $20,000
per location.
Mailing
<PAGE> 15
- 15 -
<TABLE>
<CAPTION>
Name Address City State
---- ------- ---- -----
<S> <C> <C> <C>
</TABLE>
See Attachment A hereto showing other places of business of Microcom, Inc.
20. Prior Locations. Set forth below is the information required by
subparagraphs (a) and (b) of paragraph 2 with respect to each other location or
place of business maintained by the Company at any time during the past five
years:
1400 Providence Highway
Norwood, MA 02062-5078
21. Unusual Transactions. All Accounts have been originated by the
Company and all Equipment has been acquired by the Company in the ordinary
course of its business.
22. File Search Reports. Attached hereto as Schedule A is a true
copy of a file search report from the Uniform Commercial Code filing officer in
each jurisdiction specified by the Bank and under such names as the Bank has
identified. Attached hereto as Schedule B is a true copy of each financing
statement or other filing identified in such file search reports. To the best
knowledge of the Company, no other financing statements have been filed listing
the Company as a debtor and no such filings are pending except in favor of the
Bank.
23. Filings. A duly signed financing statement on Form UCC-1 in
substantially the form of Schedule C hereto has been delivered to the Bank for
filing in the Uniform Commercial Code filing office in each jurisdiction
requested by the Bank.
24. Filing Fees. The Company agrees to pay all filing fees and taxes
payable in connection with the filings described in paragraph 6 above, together
with the costs of all UCC search reports.
IN WITNESS WHEREOF, I have hereunto set my hand this __ day of
___________, 199_.
___________________________
Name:______________________
Title:_____________________
<PAGE> 1
GUARANTY
This GUARANTY dated as of March 22, 1995 made by MICROCOM
SYSTEMS, INC., a Delaware corporation (the "Guarantor"), in favor of SILICON
VALLEY BANK, as agent for Silicon Valley Bank and BayBank (with its successors
in such capacity, the "Agent"), SILICON VALLEY BANK, as lender ("SVB") and
BAYBANK, as lender ("BayBank") (SVB and BayBank being herein referred to,
collectively, as the "Lenders"),
W I T N E S S E T H:
WHEREAS, pursuant to that certain Amended and Restated Credit
Agreement dated as of March 22, 1995 by and among Microcom, Inc., a Delaware
corporation (the "Borrower"), the Agent and the Lenders (as the same may be
amended, modified, supplemented, extended or restated from time to time, the
"Credit Agreement"), the Lenders have agreed, subject to the terms and
conditions thereof, to make Line of Credit Loans to the Borrower and to issue
Letters of Credit, accept Banker's Acceptances and enter into Foreign Exchange
Contracts for the account of the Borrower; and
WHEREAS, it is a condition precedent to the obligations of the
Lenders to make Line of Credit Loans, issue Letters of Credit, accept Banker's
Acceptances or enter into Foreign Exchange Contracts for the account of the
Borrower pursuant to the Credit Agreement that, among other things, the
Guarantor shall have executed and delivered a guaranty of the obligations of the
Borrower under the Credit Agreement, including, without limitation, the
Borrower's obligations under the Notes issued pursuant to the Credit Agreement;
NOW, THEREFORE, in consideration of the premises and to induce
the Agent and the Lenders to enter into the Credit Agreement and the
transactions contemplated thereby, the Guarantor hereby agrees with the Agent
and the Lenders as follows:
1. Defined Terms. All capitalized terms used in this
Agreement (including the Preamble hereto) and not otherwise defined herein shall
have the meanings prescribed therefor in the Credit Agreement. In addition, the
following terms shall have the meanings set forth below:
"Material Adverse Effect" means a material adverse effect on
(a) the business, operations, property, condition (financial or
otherwise) or prospects of the Guarantor, or of the Guarantor and any
Subsidiaries of the Guarantor taken as a whole, (b) the ability of the
Guarantor to perform its obligations under this Guaranty, or (c) the
validity or enforceability of this Guaranty, or the rights of the Agent
or the Lenders hereunder.
"Obligations" shall mean all obligations of the Borrower to the
Agent or the Lenders, whether such obligations are now existing or
hereafter incurred or created, joint or several, direct or indirect,
absolute or contingent, due or to become due, matured or unmatured,
liquidated or unliquidated, arising by contract, operation of law or
otherwise, including, without limitation, (a) all obligations to pay
principal of and interest (including, without limitation, any interest
which accrues after the commencement of any case, proceeding or
<PAGE> 2
-2-
other action relating to the bankruptcy, insolvency or reorganization
of the Borrower) with respect to any advance to the Borrower under the
Credit Agreement or the Notes; (b) all obligations with respect to
other amounts (including, without limitation, any fees or expenses)
payable by the Borrower under the Credit Agreement, the Notes or any
other Loan Document; (c) all obligations with respect to amounts
payable by the Borrower in connection with any Letter of Credit,
Banker's Acceptance or Foreign Exchange Contract issued, accepted or
entered into for the account of the Borrower or any drawings or
payments thereunder or obligations incurred in connection therewith,
including without limitation, all obligations with respect to
reimbursement and fees; and (d) any renewals, refinancings or
extensions of any of the foregoing.
2. Guaranty. The Guarantor hereby unconditionally and
irrevocably guarantees to the Agent for the benefit of the Agent and the Lenders
the prompt and complete payment and performance by the Borrower when due
(whether at stated maturity, by acceleration or otherwise) of the Obligations.
The Guarantor further agrees to pay any and all expenses (including, without
limitation, all fees and disbursements of counsel to the Agent or the Lenders)
which may be paid or incurred by the Agent or the Lenders in enforcing, or
obtaining advice of counsel in respect of, any of their rights under this
Guaranty. This Guaranty shall remain in full force and effect until the
Obligations are paid in full and the Line of Credit Commitments under the Credit
Agreement are terminated, notwithstanding that from time to time prior thereto
the Borrower may be free from any Obligations.
3. Right of Setoff. Regardless of the adequacy of any
collateral or other means of obtaining repayment of the Obligations, any
deposits (general or special, time or demand, provisional or final, including,
but not limited to indebtedness evidenced by a certificate of deposit, whether
matured or unmatured) and any other indebtedness at any time held or owing by
the Agent or the Lenders to the Guarantor may, at any time and from time to time
after the occurrence of an Event of Default, without notice to the Guarantor or
compliance with any other condition precedent now or hereafter imposed by
statute, rule of law, or otherwise (all of which are hereby expressly waived to
the extent permitted by law) be set off, appropriated, and applied by the Agent
or the Lenders, as the case may be, against any and all obligations of the
Guarantor to the Agent or the Lenders (irrespective of whether such obligations
may be contingent or unmatured at such time) in such manner as the Agent and the
Lenders in their sole discretion may determine, and the Guarantor hereby grants
the Agent and the Lenders continuing security interests in such deposits and
indebtedness for the payment and performance of such obligations.
4. Subrogation and Contribution. The Guarantor irrevocably and
unconditionally waives any and all rights to which it may be entitled, by
operation of law or otherwise, (a) to be subrogated, with respect to any payment
made by the Guarantor hereunder, to the rights of the Agent or the Lenders
against the Borrower, or otherwise to be reimbursed, indemnified or exonerated
by the Borrower in respect thereof or (b) to receive any payment, in the nature
of contribution or for any other reason, from any other guarantor of the
Obligations with respect to any payment made by the Guarantor hereunder.
5. Effect of Bankruptcy Stay. If acceleration of the time for
payment or performance of any of the Obligations is stayed upon the insolvency,
bankruptcy or reorganization of the Borrower or any other Person or otherwise,
all such amounts otherwise subject to acceleration shall nonetheless be payable
in full by the Guarantor under this Guaranty forthwith upon demand.
6. Receipt of Loan Documents, Etc. The Guarantor confirms,
represents and warrants to the Agent and the Lenders that (i) it has received
true and complete copies of the Credit Agreement, the Notes and the other Loan
Documents from the Borrower, has read the
<PAGE> 3
-3-
contents thereof and reviewed the same with legal counsel of its choice; (ii) no
representations or agreements of any kind have been made to or with the
Guarantor which would limit or qualify in any way the terms of this Guaranty;
(iii) the Agent and the Lenders have made no representation to the Guarantor as
to the creditworthiness of the Borrower; and (iv) the Guarantor has established
adequate means of obtaining from the Borrower on a continuing basis information
regarding the Borrower's financial condition. The Guarantor agrees to keep
adequately informed by such means of any facts, events, or circumstances which
might in any way affect the Guarantor's risks under this Guaranty and the
Guarantor further agrees that the Agent and the Lenders shall have no obligation
to disclose to the Guarantor any information or documents acquired by them in
the course of their relationship with the Borrower.
7. Amendments, etc. with respect to the Obligations. The
obligations of the Guarantor under this Guaranty shall remain in full force and
effect without regard to, and shall not be released, altered, exhausted,
discharged or in any way affected by any circumstance or condition (whether or
not the Borrower shall have any knowledge or notice thereof), including without
limitation (i) any amendment or modification of or supplement to the Credit
Agreement, the Notes, or any other Loan Document, or any obligation, duty or
agreement of the Borrower or any other Person thereunder or in respect thereof,
(ii) any assignment or transfer in whole or in part of any of the Obligations,
(iii) any furnishing or acceptance of any direct or indirect security or
guaranty, or any release of or non-perfection or invalidity of any direct or
indirect security or guaranty, for any of the Obligations, (iv) any waiver,
consent, extension, renewal, indulgence, settlement, compromise or other action
or inaction under or in respect of the Credit Agreement, the Notes, or any other
Loan Document, or any exercise or nonexercise of any right, remedy, power or
privilege under or in respect of any such instrument (whether by operation of
law or otherwise), (v) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or similar proceeding with respect to the
Borrower or any other Person or any of their respective properties or creditors
or any resulting release or discharge of any Obligations, (vi) the voluntary or
involuntary sale or other disposition of all or substantially all the assets of
the Borrower or any other Person, (vii) the voluntary or involuntary
liquidation, dissolution or termination of the Borrower or any other Person,
(viii) any invalidity or unenforceability, in whole or in part, of any term
hereof or of the Credit Agreement, the Notes, or any other Loan Document, or any
obligation, duty or agreement of the Borrower or any other Person thereunder or
in respect thereof, or any provision of any applicable law or regulation
purporting to prohibit the payment or performance by the Borrower or any other
Person of any Obligations, (ix) any failure on the part of the Borrower or any
other Person for any reason to perform or comply with any term of the Credit
Agreement, the Notes, or any other Loan Document or any other agreement, or (x)
any other act, omission or occurrence whatsoever, whether similar or dissimilar
to the foregoing. The Guarantor authorizes the Borrower, each other guarantor in
respect of Obligations and the Agent and the Lenders at any time in their
discretion, as the case may be, to alter any of the terms of Obligations.
8. Guarantor as Principal. If for any reason the Borrower or
any other Person is under no legal obligation to discharge any Obligations, or
if any other moneys included in Obligations have become unrecoverable from the
Borrower or any other Person by operation of law or for any other reason,
including, without limitation, the invalidity or irregularity in whole or in
part of any Obligation or of the Credit Agreement, the Notes, or any other Loan
Document, the legal disability of the Borrower or any other obligor in respect
of Obligations, any discharge of or limitation on the liability of the Borrower
or any other person or any limitation on the method or terms of payment under
any Obligation, or of the Credit Agreement, the Notes, or any other Loan
Document, which may now or hereafter be caused or imposed in any manner
whatsoever (whether consensual or arising by operation of law or otherwise),
this Guaranty shall nevertheless remain in full force and effect and shall be
binding upon the Guarantor to the same extent as if the Guarantor at all times
had been the principal obligor on all Obligations.
<PAGE> 4
-4-
9. Waiver of Demand, Notice, Etc. The Guarantor hereby waives,
to the extent not prohibited by applicable law, (i) all presentments, demands
for performance, notice of nonperformance, protests, notices of protests and
notices of dishonor in connection with the Obligations or the Credit Agreement,
the Notes, or any other Loan Document, including but not limited to notice of
additional indebtedness constituting Obligations or the existence, creation or
incurring of any new or additional indebtedness or obligation or of any action
or non-action on the part of the Borrower, the Agent or the Lenders, any
endorser or creditor of the Borrower or any other Person; (ii) any notice of any
indulgence, extensions or renewals granted to any obligor with respect to
Obligations; (iii) any requirement of diligence or promptness in the enforcement
of rights under the Credit Agreement, the Notes, or any other Loan Document, or
any other agreement or instrument directly or indirectly relating thereto or to
the Obligations; (iv) any enforcement of any present or future agreement or
instrument relating directly or indirectly thereto or to the Obligations; (v)
notice of any of the matters referred to in Paragraph 8 above, (vi) any defense
of any kind which the Guarantor may now have with respect to his liability under
this Guaranty; (vii) any right to require the Agent or the Lenders, as a
condition of enforcement of this Guaranty, to proceed against the Borrower or
any other Person or to proceed against or exhaust any security held by the Agent
or the Lenders at any time or to pursue any other right or remedy in the Agent's
or the Lenders' power before proceeding against the Guarantor; (viii) any
defense that may arise by reason of the incapacity, lack of authority, death or
disability of any other Person or Persons or the failure of the Agent or the
Lenders to file or enforce a claim against the estate (in administration,
bankruptcy, or any other proceeding) of any other Person or Persons; (ix) any
defense based upon an election of remedies by the Agent or the Lenders; (x) any
defense arising by reason of any "one action" or "anti-deficiency" law or any
other law which may prevent the Agent or the Lenders from bringing any action,
including a claim for deficiency, against the Guarantor, before or after the
Agent's or the Lenders' commencement of completion of any foreclosure action,
either judicially or by exercise of a power of sale; (xi) any defense based upon
any lack of diligence by the Agent or the Lenders in the collection of any
Obligation; (xii) any duty on the part of the Agent or the Lenders to disclose
to the Guarantor any facts the Agent or the Lenders may now or hereafter know
about the Borrower or any other obligor in respect of Obligations; (a) any
defense arising because of an election made by the Agent or the Lenders under
Section 1111(b)(2) of the Federal Bankruptcy Code; (xiii) any defense based on
any borrowing or grant of a security interest under Section 364 of the Federal
Bankruptcy Code; and (xiv) any defense based upon or arising out of any defense
which the Borrower or any other Person may have to the payment or performance of
Obligations (including but not limited to failure of consideration, breach of
warranty, fraud, payment, accord and satisfaction, strict foreclosure, statute
of frauds, bankruptcy, infancy, statute of limitations, lender liability and
usury). Guarantor acknowledges and agrees that each of the waivers set forth
herein on the part of the Guarantor is made with Guarantor's full knowledge of
the significance and consequences thereof and that under the circumstances the
waivers are reasonable. If any such waiver is determined to be contrary to any
applicable law or public policy, such waiver shall be effective only to the
extent permitted by such law or public policy.
10. Reinstatement. This Guaranty shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or any
part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by the Agent or the Lenders upon the insolvency,
bankruptcy, dissolution, liquidation or reorganization of the Borrower or upon
or as a result of the appointment of a receiver, intervenor or conservator of,
or trustee or similar officer for, the Borrower or any substantial part of its
property, or otherwise, all as though such payments had not been made.
11. Payments. The Guarantor hereby agrees that the Obligations
will be paid to the Agent for the benefit of the Agent and the Lenders without
set-off or counterclaim in U.S. Dollars at the office of the Agent located at
3000 Lakeside Drive, P.O. Box 3762, Santa Clara, California 95054, or to such
other location as the Agent shall notify the Guarantor.
<PAGE> 5
-5-
12. Representations and Warranties. The Guarantor represents
and warrants for itself and its Subsidiaries (if any) that:
(a) Corporate Existence. The Guarantor and each of its
Subsidiaries is a corporation duly incorporated and validly existing
under the laws of the jurisdiction of its incorporation, and is duly
licensed or qualified as a foreign corporation in all states wherein
the nature of its property owned or business transacted by it makes
such licensing or qualification necessary, except where the failure to
be licensed or to so qualify could not have a Material Adverse Effect.
(b) No Violation. The execution, delivery and performance of
this Guaranty will not contravene any provision of law, statute, rule
or regulation to which the Guarantor or any of its Subsidiaries is
subject or any judgment, decree, franchise, order or permit applicable
to the Guarantor or any of its Subsidiaries, or will conflict or will
be inconsistent with or will result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a default under,
or result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of the Guarantor
or any of its Subsidiaries pursuant to the terms of any Contractual
Obligation of the Guarantor or any of its Subsidiaries, or violate any
provision of the corporate charter or by-laws of the Guarantor or any
of its Subsidiaries.
(c) Corporate Authority and Power. The execution, delivery
and performance of this Guaranty is within the corporate powers of the
Guarantor and has been duly authorized by all necessary corporate
action.
(d) Enforceability. This Guaranty constitutes a valid and
binding obligation of the Guarantor enforceable against the Guarantor
in accordance with its terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally
and except as enforceability may be subject to general principles of
equity, whether such principles are applied in a court of equity or at
law.
(e) Governmental Approvals. No order, permission, consent,
approval, license, authorization, registration or validation of, or
filing with, or exemption by, any Governmental Authority is required to
authorize, or is required in connection with, the execution, delivery
and performance of this Guaranty, or the taking of any action
contemplated hereby or thereby.
(f) Litigation. There are no actions, suits or proceedings
pending or threatened against or affecting the Guarantor or any of its
Subsidiaries before any Governmental Authority, which in any one case
or in the aggregate, if determined adversely to the interests of the
Guarantor or any Subsidiary thereof, would have a Material Adverse
Effect.
(g) Compliance with Other Instruments; Compliance with Law.
Neither the Guarantor nor any Subsidiary thereof is in default under
any Contractual Obligation, where such default could have a Material
Adverse Effect, or under the terms of any agreements relating to any
Indebtedness of the Guarantor or such Subsidiary.
(h) No Violation. Neither the Guarantor nor any Subsidiary
thereof is in default with respect to any applicable statute, rule,
writ, injunction, decree, order or regulation of any Governmental
Authority having jurisdiction over the Guarantor or any Subsidiary
thereof which could have a Material Adverse Effect.
<PAGE> 6
-6-
(i) Subsidiaries. The Guarantor has no Subsidiaries.
(j) Investment Company Status; Limits on Ability to Incur
Indebtedness. Neither the Guarantor nor any of its Subsidiaries is an
"investment company" or a company "controlled by" an investment company
within the meaning of the Investment Company Act of 1940, as amended.
The Guarantor is not subject to regulation under any Federal or State
statute or regulation which limits its ability to incur Indebtedness.
(k) Title to Property. The Guarantor and each of its
Subsidiaries has good and marketable title to all of its properties and
assets, in each case including the properties and assets reflected in
the consolidated balance sheet of the Guarantor and its Subsidiaries as
of the Financial Statements Date, except properties and assets disposed
of since that date in the ordinary course of business, and none of such
properties or assets is subject to (i) any Lien except for Permitted
Liens, or (ii) a defect in title or other claim other than defects and
claims that, in the aggregate, would have no Material Adverse Effect.
The Guarantor and each of its Subsidiaries enjoys peaceful and
undisturbed possession under all leases necessary in any material
respect for the operation of its properties and assets, none of which
contains any unusual or burdensome provisions which might materially
affect or impair such properties or assets. All such leases are valid
and subsisting and are in full force and effect.
(l) Taxes. All tax returns of the Guarantor and its
Subsidiaries required to be filed have been timely filed, all taxes,
fees and other governmental charges (other than those being contested
in good faith by appropriate proceedings diligently conducted and with
respect to which adequate reserves have been established and, in the
case of ad valorem taxes or betterment assessments, no proceedings to
foreclose any lien with respect thereto have been commenced and, in all
other cases, no notice of lien has been filed or other action taken to
perfect or enforce such lien) shown thereon which are payable have been
paid. The charges and reserves on the books of the Guarantor and its
Subsidiaries in respect of all income and other taxes are adequate, and
the Guarantor knows of no additional assessment or any basis therefor.
The Federal income tax returns of the Guarantor and its Subsidiaries
have not been audited within the last three years, all prior audits
have been closed, and there are no unpaid assessments, penalties or
other charges arising from such prior audits.
13. Subordination of Claims against Borrower. Without limiting the
provisions of Paragraph 4 hereof, the Guarantor hereby irrevocably agrees that
any and all claims which the Guarantor may now or hereafter have against the
Borrower or any other guarantor of the Obligations, including, without
limitation, the benefit of any setoff or counterclaim or proof against dividend,
composition or payment by the Borrower or such other guarantor, shall be subject
and subordinate to the prior payment in full of all of the Obligations to the
Agent or the Lenders. After the occurrence of a Default, the Guarantor shall not
claim from the Borrower or such other guarantor, or with respect to any of their
respective properties, any sums which may be owing to the Guarantor, or have the
benefit of any setoff or counterclaim or proof against dividend, composition or
payment by the Borrower or such other guarantor, until all Guaranteed
Obligations shall have been paid in full. Should any payment or distribution or
security or the benefit of proceeds thereof be received by the Guarantor upon or
with respect to amounts due to it from the Borrower or any other guarantor of
the Obligations after a Default has occurred and prior to the payment in full of
all Obligations, the Guarantor will forthwith deliver the same to the Agent or
the Lenders in precisely the form received (except for endorsement or assignment
where necessary), for application in or towards repayment of the Obligations
and, until so delivered, the same shall be held in trust as property of the
Agent and the Lenders. In the event of the failure of the Guarantor to make any
such endorsement or assignment, the Agent and the Lenders are hereby irrevocably
<PAGE> 7
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authorized to make the same on behalf of the Guarantor.
14. Severability. Any provision of this Guaranty which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15. Paragraph Headings. The paragraph headings used in this Guaranty
are for convenience of reference only and are not to affect the construction
hereof or be taken into consideration in the interpretation hereof.
16. No Waiver; Cumulative Remedies. The Agent and the Lenders shall not
by any act (except by a written instrument pursuant to Paragraph 17 hereof),
delay, indulgence, omission or otherwise, be deemed to have waived any right or
remedy hereunder or to have acquiesced in any Default or Event of Default or in
any breach of any of the terms and conditions hereof. No failure to exercise,
nor any delay in exercising, on the part of the Agent or the Lenders, any right,
power or privilege hereunder shall operate as a waiver thereof. No single or
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise thereof or the exercise of any other right, power or
privilege. A waiver by the Agent or the Lenders of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy which
the Agent or the Lenders would otherwise have on any future occasion. The rights
and remedies herein provided are cumulative, may be exercised singly or
concurrently and are not exclusive of any rights or remedies provided by law.
17. Waivers and Amendments; Successors and Assigns. None of the terms
or provisions of this Guaranty may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Guarantor and the Agent
and the Lenders, provided that any provision of this Guaranty may be waived by
the Agent and the Lenders in a letter or agreement executed by the Agent and the
Lenders or by telecopy from the Agent and the Lenders. This Guaranty shall be
binding upon the successors and assigns of the Guarantor and shall inure to the
benefit of the Agent, the Lenders and their respective successors and assigns.
18. WAIVER OF JURY TRIAL; CONSENT TO JURISDICTION; GOVERNING LAW. THE
GUARANTOR HEREBY EXPRESSLY WAIVES ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO A
JURY TRIAL IN ANY SUIT, ACTION OR PROCEEDING WHICH ARISES OUT OF OR BY REASON OF
THIS GUARANTY, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT) OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
BY ITS EXECUTION AND DELIVERY OF THIS GUARANTY, THE GUARANTOR ACCEPTS
FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY,
THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS OR THE STATE OF CALIFORNIA IN
ANY ACTION, SUIT OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR BY
REASON OF THIS GUARANTY, ANY LOAN DOCUMENT (AS DEFINED IN THE CREDIT AGREEMENT),
OR THE TRANSACTIONS CONTEMPLATED HEREBY, IN ADDITION TO ANY OTHER COURT IN WHICH
SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT, IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED BY ANY SUCH COURT IN ANY SUCH ACTION, SUIT OR
PROCEEDING IN WHICH IT SHALL HAVE BEEN SERVED WITH PROCESS IN THE MANNER
HEREINAFTER PROVIDED, AND TO THE EXTENT THAT IT MAY LAWFULLY DO SO, WAIVES AND
AGREES NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, IN SUCH
ACTION, SUIT OR PROCEEDING ANY CLAIMS THAT IT IS NOT PERSONALLY SUBJECT TO THE
JURISDICTION OF SUCH COURT, THAT ITS PROPERTY IS EXEMPT OR IMMUNE FROM
<PAGE> 8
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ATTACHMENT OR EXECUTION, THAT THE ACTION, SUIT OR PROCEEDING IS BROUGHT IN AN
INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS IMPROPER, AND AGREES THAT
PROCESS MAY BE SERVED UPON IT IN ANY SUCH ACTION, SUIT OR PROCEEDING IN THE
MANNER PROVIDED BY CHAPTER 223A OF THE GENERAL LAWS OF MASSACHUSETTS, RULE 4 OF
THE MASSACHUSETTS RULES OF CIVIL PROCEDURE OR RULE 4 OF THE FEDERAL RULES OF
CIVIL PROCEDURE.
THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS (EXCEPTING LAWS REGARDING CHOICE OF LAW) OF THE COMMONWEALTH OF
MASSACHUSETTS.
19. Notices. All notices under this Guaranty shall be in writing, and
shall be delivered by hand, by a nationally recognized commercial overnight
delivery service, by first class mail or by telecopy, delivered, addressed or
transmitted, if to the Agent or the Lenders, at their respective addresses or
telecopy numbers set out in the Credit Agreement, and if to the Guarantor, at
its address or telecopy number set out below its signature in this Guaranty.
Such notices shall be effective (a) in the case of hand deliveries, when
received, (b) in the case of an overnight delivery service, on the next Business
Day after being placed in the possession of such delivery service, with delivery
charges prepaid, (c) in the case of mail, three days after deposit in the postal
system, first class postage prepaid and (d) in the case of telecopy notices,
when electronic indication of receipt is received. The Borrower, the Guarantor,
the Agent and the Lenders may each change addresses and telecopy numbers by
written notice to the others.
IN WITNESS WHEREOF, the undersigned has caused this Guaranty to be duly
executed and delivered as of the date first above written.
MICROCOM SYSTEMS, INC.
By
---------------------------------
Name:
Title:
Address for Notices:
-------------------------------------
-------------------------------------
-------------------------------------
Telecopy No.:
---------------------
<PAGE> 1
GUARANTOR SECURITY AGREEMENT
This GUARANTOR SECURITY AGREEMENT (the "Agreement")
dated as of March 22, 1995 by and among MICROCOM SYSTEMS, INC., a Delaware
corporation ("Guarantor"), SILICON VALLEY BANK, as agent for the benefit
of Silicon Valley Bank and BayBank (together with its successors in this
capacity, the "Agent"), SILICON VALLEY BANK, as lender ("SVB"),
and BAYBANK, as lender ("BayBank") (SVB and BayBank being referred to,
collectively, as the "Lenders"),
W I T N E S S E T H:
WHEREAS, Microcom, the Agent and the Lenders are parties to
that certain Amended and Restated Credit Agreement dated as of March 22, 1995
(as the same may be amended, amended and restated, modified or supplemented from
time to time, the "Credit Agreement"), providing, subject to the terms
and conditions thereof, for extensions of credit to be made by the Lenders to
Microcom;
WHEREAS, in order to induce the Lenders to enter into the
Credit Agreement with Microcom, Guarantor is issuing that certain Guaranty dated
as of March 22, 1995 (the "Guaranty") by which it guarantees the prompt
and complete payment and performance of all obligations of Microcom to the Agent
and the Lenders under the Credit Agreement, the Notes, the Security Agreement
and all the other Loan Documents (collectively, the "Guaranteed
Obligations"); and
WHEREAS, it is the intention of the parties hereto that the
Guarantor should secure its prompt and complete payment and performance of its
obligations under the Guaranty (collectively, the "Secured Obligations",
as further defined below) by granting the Agent, for the benefit of the Agent
and the Lenders, a security interest in and lien on all Guarantor's right, title
and interest in and to all property and assets of Guarantor;
NOW, THEREFORE, in consideration of the premises and for other
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Definitions
Except for terms defined in this Agreement, including the preamble
hereto, the terms used herein shall have the respective meanings provided for in
the Credit Agreement:
"Accounts" means all "accounts" (as defined in the UCC)
now owned or hereafter acquired by Guarantor and shall also mean and
include all accounts receivable, contract rights, book debts, notes,
drafts and other obligations or indebtedness owing to Guarantor arising
from the sale, lease or exchange of goods or other property and/or the
performance of services by it (including any obligation which might be
characterized as an account, contract right or general intangible under
the UCC) and all Guarantor's rights in, to and under all purchase
orders for goods, services or other property, and all Guarantor's
rights to any goods, services or other property represented by any of
the foregoing (including returned or repossessed goods and
<PAGE> 2
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unpaid sellers' rights of rescission, replevin, reclamation and rights
to stoppage in transit) and all monies due to or to become due to
Guarantor under all contracts for the sale, lease or exchange of goods
or other property and/or the performance of services by it (whether or
not yet earned by performance on the part of Guarantor), in each case
whether now in existence or hereafter arising or acquired, including
the right to receive the proceeds of said purchase orders and contracts
and all collateral security and guarantees of any kind given by any
Person with respect to any of the foregoing.
"Collateral" has the meaning set forth in Section 3.
"Documents" means all "documents" (as defined in the
UCC) or other receipts covering, evidencing or representing goods, now
owned or hereafter acquired, by Guarantor.
"Equipment" means all "equipment" (as defined in the
UCC) now owned or hereafter acquired by Guarantor, including, without
limitation, all motor vehicles, trucks and trailers.
"General Intangibles" means all "general intangibles"
(as defined in the UCC) now owned or hereafter acquired by Guarantor,
including, without limitation, all (a) obligations or indebtedness
owing to Guarantor (other than Accounts) from whatever source arising,
(b) patent licenses, patents, trademark licenses, trademarks, rights in
intellectual property, goodwill, trade names, service marks, trade
secrets, copyrights, permits and licenses, (c) inventions, processes,
production methods, proprietary information, know-how and trade secrets
used or useful in the business of Guarantor, (d) licenses or user or
other agreements granted to Guarantor with respect to any of the items
described in clause (b) or (c) above, (e) information, customer lists,
identification of suppliers, data, plans, blueprints, specifications,
designs, drawings, recorded knowledge, surveys, engineering reports,
test reports, manuals, materials standards, catalogs, computer and
automatic machinery software and programs and the like pertaining to
the business of Guarantor, (f) field repair data, sales data, and other
information relating to sales or service of products now or hereafter
manufactured, (g) accounting information and all media in or on which
any of the information, knowledge, data or records may be recorded or
stored and all computer programs used for the compilation or printout
thereof, (h) causes of action, claims and warranties now or hereafter
owned or acquired by Guarantor in respect of any of the items listed
above and (i) all tax refunds to which Guarantor is entitled.
"Instruments" means all "instruments", "chattel paper"
or "letters of credit" (each as defined in the UCC) evidencing,
representing, arising from or existing in respect of, relating to,
securing or otherwise supporting the payment of, any of the Accounts,
including promissory notes, drafts, bills of exchange and trade
acceptances, now owned or hereafter acquired by Guarantor.
"Inventory" means all "inventory" (as defined in the
UCC), now owned or hereafter acquired by Guarantor, wherever located,
and shall also mean and include, without limitation, all raw materials
and other materials and supplies, work-in-process and finished goods
and any products made or processed therefrom and all substances, if
any, commingled therewith or added thereto.
"Perfection Certificate" means a certificate
substantially in the form of Exhibit A hereto, completed with the
schedules and attachments contemplated thereby to the satisfaction of
the Agent, and duly executed by the chief financial officer of
Guarantor.
<PAGE> 3
- 3 -
"Permitted Financing Statements" means any financing
statements naming Guarantor as Debtor filed solely pursuant to Section
9-408 of the UCC.
"Permitted Liens" means the Liens on the Collateral of
the sort that would be permitted to be created, assumed or to exist
pursuant to paragraphs of Section 7.6 of the Credit Agreement if
Guarantor were the Borrower thereunder.
"Proceeds" means all proceeds of, and all other
profits, rentals or receipts, in whatever form, arising from the
collection, sale, lease, exchange, assignment, licensing or other
disposition of, or realization upon, Collateral, including, without
limitation, all claims of Guarantor against third parties for loss of,
damage to or destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance in respect of, any
Collateral, any condemnation or requisition payments with respect to
any Collateral, and any proceeds of any of the foregoing, in each case
whether now existing or hereafter arising.
"Secured Obligations" means all obligations, whether
now existing or hereafter arising, of Guarantor with respect to the
Guaranteed Obligations, whether such obligations are now existing or
hereafter incurred or created, joint or several, direct or indirect,
absolute or contingent, due or to become due, matured or unmatured,
liquidated or unliquidated, arising by contract, operation of law or
otherwise, including, without limitation, (a) all obligations to pay
principal of and interest (including, without limitation, any interest
which accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of
Microcom) with respect to any advance to Microcom under the Credit
Agreement or the Notes; (b) all obligations with respect to other
amounts (including, without limitation, any fees or expenses) payable
by Microcom under the Credit Agreement, the Notes or any other Loan
Document; (c) all obligations with respect to amounts payable by
Microcom in connection with any Letter of Credit, Banker's Acceptance
or FX Contract issued, accepted or entered into for the account of the
Microcom, including without limitation any drawings or payments
thereunder or obligations incurred in connection therewith, including
all obligations with respect to reimbursement and fees; and (d) any
renewals, refinancings or extensions of any of the foregoing.
"Security Interests" means the security interests
granted pursuant to Section 3, as well as all other security
interests created or assigned as additional security for the Secured
Obligations pursuant to the provisions of this Agreement.
"UCC" means the Uniform Commercial Code in effect on
the date hereof in Massachusetts; provided that if, by reason of law,
the perfection or effect of perfection or non-perfection of the
Security Interests in any Collateral is governed by the Uniform
Commercial Code in effect in a jurisdiction other than Massachusetts,
"UCC" means the Uniform Commercial Code in effect in such other
jurisdiction for purposes of the provisions hereof relating to such
perfection or effect of perfection or non-perfection.
SECTION 2. Representations and Warranties
Guarantor represents and warrants as follows:
(a) Guarantor has good title to all of the Collateral, free and clear
of any Liens other than Permitted Liens and the Security Interests. Guarantor
has taken all actions necessary under the UCC
<PAGE> 4
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to perfect its interest in any Accounts or Chattel Paper that it has purchased
or in which it otherwise has an interest, as against Guarantor's assignors and
their respective creditors and transferees.
(b) Neither Guarantor nor its predecessors has performed any acts which
might prevent the Agent or the Lenders from enforcing any of the terms of this
Agreement or which would limit the Agent or the Lenders in any such enforcement.
Other than the Permitted Financing Statements and financing statements or other
similar or equivalent documents or instruments with respect to the Security
Interests, no financing statement, mortgage, security agreement or similar or
equivalent document or instrument covering all or any part of the Collateral is
on file or of record in any jurisdiction in which such filing or recording would
be effective to perfect a Lien on such Collateral. No Collateral is in the
possession of any Person (other than Guarantor) asserting any claim thereto or
security interest therein, except that the Agent or its designee may have
possession of Collateral as contemplated hereby.
(c) Prior to the first borrowing under the Credit Agreement, Guarantor
shall deliver the Perfection Certificate to the Agent. The information set forth
therein shall be correct and complete. The Agent may, at the expense of
Guarantor, obtain file search reports from the Uniform Commercial Code filing
office for each jurisdiction set forth in paragraph 2 to the Perfection
Certificate or other evidence satisfactory to the Agent confirming the filing
information set forth in such Schedule.
(d) When UCC financing statements in appropriate form have been filed
in the offices specified in the Perfection Certificate to the extent that
security interests in the relevant Collateral may be perfected by such filings
pursuant to the UCC, the Security Interests shall constitute valid and perfected
security interests in the Collateral (except Inventory in transit), in each case
prior to all other Liens and rights of others therein, subject only to Permitted
Liens.
(e) Except for the filings referred to in paragraph (d) above, no
authorization, approval or other action by, and no notice of filing with, any
Governmental Authority that has not been received, taken or made is required (i)
for the grant by Guarantor of the Security Interests or for the execution,
delivery or performance of this Agreement by Guarantor, (ii) for the perfection
and maintenance of the Security Interests as first priority security interests
and liens, or (iii) for the exercise by the Agent or the Lenders of the rights
or the remedies in respect of the Collateral pursuant to this Agreement.
(f) The Inventory and Equipment are insured in accordance with the
requirements of this Security Agreement and the Credit Agreement.
SECTION 3. The Security Interests
(a) In order to secure the full and punctual payment of the Secured
Obligations in accordance with their respective terms, Guarantor hereby
hypothecates, assigns, pledges and grants to the Agent for the benefit of Agent
and the Lenders continuing security interests in, and liens on, all right, title
and interest of Guarantor in, to and under the following property, whether now
owned or existing or hereafter acquired or arising and regardless of where
located (all such property being collectively referred to as the
"Collateral"):
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
<PAGE> 5
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(iv) Documents;
(v) Instruments;
(vi) Equipment;
(vii) All moneys and property of any kind of Guarantor in the
possession or under the control of the Agent or the Lenders;
(viii) All books and records (including customer lists, marketing
information, credit files, price lists, operating records, vendor and
supplier price lists, sales literature, computer programs, printouts
and other computer materials and records) of Guarantor pertaining to
any of the Collateral; and
(ix) All Proceeds of, attachments or accessions to, or substitutions
for all or any of the Collateral described in Clauses (i) through (ix)
hereof.
(b) The Security Interests are granted as security only and shall not
subject the Agent or the Lenders to, or transfer or in any way affect or modify,
any obligation or liability of Guarantor with respect to any of the Collateral
or any related transaction.
SECTION 4. Further Assurances; Covenants
Guarantor covenants as follows:
(a) Guarantor will not change (i) the locations of its principal place
of business or its chief executive office, (ii) its federal tax identification
number, (iii) the locations where it keeps or holds any Collateral or related
records from the applicable locations described in the Perfection Certificate,
or (iv) its name, identity or corporate structure in any manner, without giving
the Agent and the Lenders 30 days' prior written notice thereof. In the event of
any such change, Guarantor shall, at its cost and expense, cooperate with the
Agent and the Lenders and cause to be filed or recorded additional financing
statements, amendments or supplements to existing financing statements,
continuation statements or other documents required to be recorded or filed in
order to perfect and protect the Security Interests. Guarantor shall not, in any
event, make any such change if such change would cause the Security Interests in
any Collateral to lapse or cease to be perfected.
(b) Guarantor will, from time to time, at its expense, execute,
deliver, file and record any statement, assignment, instrument, document,
agreement or other paper and take any other action (including, without
limitation, any filings of financing or continuation statements under the UCC)
that the Agent or the Lenders may from time to time reasonably determine to be
necessary or desirable in order to create, preserve, upgrade in rank (to the
extent required hereby), perfect, confirm or validate the Security Interests or
to enable the Agent or the Lenders to (i) obtain the full benefits of this
Agreement, or (ii) to exercise and enforce any of their rights, powers and
remedies hereunder with respect to any of the Collateral. At the Agent's
request, Guarantor will use reasonable efforts to obtain the consent of any
Person that is necessary or desirable to effect the pledge hereunder of any
right, title, claims and benefits now owned or hereafter acquired by Guarantor
in, to or under any General Intangible. To the extent permitted by law,
Guarantor hereby authorizes the Agent to execute and file financing statements
or continuation statements without Guarantor's signature appearing thereon.
Guarantor agrees that a carbon, photographic or other reproduction of this
Agreement or of a financing
<PAGE> 6
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statement is sufficient as a financing statement. Guarantor shall pay the costs
of, or incidental to, any recording or filing of any financing or continuation
statements concerning the Collateral.
(c) If any warehouseman, bailee or any of Guarantor's agents or
processors possesses or controls any Collateral, Guarantor shall, upon the
request of the Agent, notify such warehouseman, bailee, agent or processor of
the Security Interests created hereby and to hold all such Collateral for the
Agent's account subject to the Agent's instructions.
(d) Guarantor shall keep complete and accurate books and records
relating to the Collateral, and stamp or otherwise mark them in such manner as
the Agent may reasonably request in order to reflect the Security Interests.
(e) Guarantor will promptly deliver and pledge each Instrument to the
Agent, appropriately endorsed to the Agent without recourse, provided that so
long as no Event of Default shall have occurred and be continuing it, Guarantor
may retain for collection in the ordinary course any Instruments it receives in
the ordinary course of business and the Agent shall, promptly upon request of
Guarantor, make appropriate arrangements for making any other Instrument pledged
by Guarantor available to it for purposes of presentation, collection or renewal
(any such arrangement to be effected, to the extent deemed appropriate by the
Agent, against trust receipt or like document).
(f) Guarantor shall use its best efforts to cause to be collected from
its account debtors, as and when due, any and all amounts owing under or on
account of each Account (including, without limitation, Accounts which are
delinquent, such Accounts to be collected in accordance with lawful collection
procedures and Guarantor's standard procedures) and apply forthwith upon receipt
all such amounts so collected to the outstanding balance of such Account, except
that, unless an Event of Default has occurred and is continuing and the Agent is
exercising its rights hereunder to collect Accounts, Guarantor may allow in the
ordinary course of business as adjustments to amounts owing under its Accounts
(i) an extension or renewal of the time of payment, or settlement for less than
the total unpaid balance, which Guarantor finds appropriate in accordance with
prudent business judgment and (ii) a refund or credit due as a result of
returned or damaged merchandise, all in accordance with Guarantor's ordinary
course of business consistent with its historical collection practices. The
costs and expenses (including, without limitation, attorney's fees) of
collection, whether incurred by Guarantor or the Agent, shall be borne by
Guarantor.
(g) Upon the occurrence and during the continuance of any Event of
Default, upon the request of the Agent, Guarantor will promptly notify (and
Guarantor hereby authorizes the Agent so to notify) each account debtor in
respect of any Account or Instrument that such Collateral has been assigned to
the Agent, and that any payments due or to become due in respect of such
Collateral are to be made directly to the Agent or any designee of the Agent.
Following such request of the Agent, Guarantor shall hold all proceeds from
collection of Accounts as trustee for the Agent (without commingling the same
with other funds of Guarantor) and shall turn the same over to the Agent
immediately upon receipt in the form received (duly endorsed by Guarantor to the
Agent, if required). The Agent shall apply the proceeds of such collections it
receives to the Secured Obligations in accordance with Section 8 of this
Agreement. The application of the proceeds of such collections shall be
conditional upon the final payment in cash of the items so collected. If any
item is not so paid or the Agent is required for any reason to return any
payment made, the Agent may reverse any credit given in respect of such item.
(h) Without the prior written consent of the Agent, Guarantor will not
(a) sell, lease, exchange, assign or otherwise dispose of, or grant any option
with respect to, any Collateral other than Inventory
<PAGE> 7
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and obsolete or worn-out property and equipment and, in the case of any such
permitted sale or exchange, the Security Interests created hereby in such item
(but not in any Proceeds arising from such sale or exchange) shall cease
immediately without any further action on the part of the Agent; or (b) create,
incur or suffer to exist any Lien with respect to any Collateral, except for
Permitted Liens and the Security Interests.
(i) Guarantor will maintain, with financially sound and reputable
companies, insurance policies (i) insuring all Inventory and Equipment against
loss by fire, explosion, theft and other casualties reasonably satisfactory to
the Agent and (ii) insuring Guarantor and the Agent against liability for
personal injury and property damage relating to Inventory and Equipment, such
policies to be in such form and amounts and having such coverage as is
reasonably satisfactory to the Agent, with losses payable to the Agent as sole
loss payee. All such insurance shall (A) provide that no termination,
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the Agent of
written notice thereof, (B) in the case of the policies referenced in clause
(ii) above, name the Agent as additional insured and (C) be otherwise reasonably
satisfactory to the Agent.
(j) Guarantor will keep each item of Equipment in good order and repair
and will not use the same in violation of law or any policy of insurance
thereon.
(k) Guarantor will, promptly upon request, provide to the Agent all
information and evidence it may reasonably request concerning the Collateral
(including without limitation, the names, addresses, face value, and date of
invoices for each debtor obligated on each Account) to enable the Agent to
enforce the provisions of this Agreement.
SECTION 5. General Authority
Guarantor hereby irrevocably appoints the Agent its true and lawful
attorney, with full power of substitution, in the name of Guarantor, the Agent,
or otherwise, for the sole use and benefit of the Agent, but at Guarantor's
expense, to the extent permitted by law to exercise, at any time and from time
to time while an Event of Default has occurred and is continuing, all or any of
the following powers with respect to all or any of the Collateral:
(a) to endorse Guarantor's name on any checks, notes,
acceptances, money orders, drafts, filings or other forms of
payment or security that may come into the Agent's possession,
(b) to demand, sue for, collect, receive and give
acquittance for any and all monies due or to become due thereon
or by virtue thereof,
(c) to settle, compromise, compound, prosecute or
defend any action or proceeding with respect thereto,
(d) to sell, transfer, assign or otherwise deal in or
with the same or the proceeds or avails thereof, as fully and
effectively as if the Agent were the absolute owner, and
(e) to extend the time of payment thereof and to make
any allowance and other adjustments with reference thereto;
<PAGE> 8
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provided that the Agent shall give Guarantor not less than ten
days' prior written notice of the time and place of any sale or other intended
disposition of any of the Collateral, except any Collateral which is perishable
or threatens to decline speedily in value or is of a type customarily sold on a
recognized market. Guarantor agrees that such notice constitutes "reasonable
notification" within the meaning of Section 9-504(3) of the UCC.
SECTION 6. Remedies upon Event of Default
(a) If any Event of Default has occurred and is continuing, the Agent
may exercise all rights of a secured party under the UCC (whether or not in
effect in the jurisdiction where such rights are exercised) and, in addition,
the Agent may, without being required to give any notice, except as herein
provided or as may be required by law, sell any and all of the Collateral at
public or private sale, for cash, upon credit or for future delivery, and at
such prices as the Agent may deem satisfactory. The Agent may be the purchaser
of any or all of the Collateral so sold at any public sale (or, if the
Collateral is of a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price quotations, at any
private sale) and thereafter hold the same, absolutely, free from any right or
claim of whatsoever kind. Guarantor will execute and deliver such documents and
take such other action as the Agent deems necessary or advisable in order that
any such sale may be made in compliance with law. Upon any such sale the Agent
shall have the right to deliver, assign and transfer to the purchaser the
Collateral so sold. Each purchaser at any such sale shall hold the Collateral so
sold to it absolutely, free from any claim or right of whatsoever kind,
including any equity or right of redemption of Guarantor. Guarantor, to the
extent permitted by law, hereby specifically waives all rights of redemption,
stay or appraisal which it has or may have under any law now existing or
hereafter adopted. The notice (if any) of such sale required by Section
5 shall (i) in case of a public sale, state the time and place fixed for
such sale, and (ii) in the case of a private sale, state the day after which
such sale may be consummated. Any such public sale shall be held at such time(s)
within ordinary business hours and at such places as the Agent may fix in the
notice of such sale. At any such sale the Collateral may be sold in one lot as
an entirety or in separate parcels, as the Agent may determine. The Agent shall
not be obligated to make any such sale pursuant to any such notice. The Agent
may, without notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the time and place
fixed for the sale, and such sale may be made at any time or place to which the
same may be so adjourned. In case of any sale of all or any part of the
Collateral on credit or for future delivery, the Collateral so sold may be
retained by the Agent until the selling price is paid by the purchaser thereof,
but the Agent shall not incur any liability in case of the failure of such
purchaser to take up and pay for the Collateral so sold and, in case of any such
failure, such Collateral may again be sold upon like notice. The Agent, instead
of exercising the power of sale herein conferred upon it, may proceed by a suit
or suits at law or in equity to foreclose the Security Interests and sell the
Collateral, or any portion thereof, under a judgment or decree of a court or
courts of competent jurisdiction.
(b) For the purpose of enforcing its rights and remedies under this
Agreement, the Agent may (i) require Guarantor to, and Guarantor agrees that it
will, at its expense and upon the request of the Agent, forthwith assemble all
or any part of the Collateral as directed by the Agent and make it available at
a place designated by the Agent which is, in its opinion, reasonably convenient
to the Agent, whether at the premises of Guarantor or otherwise, (ii) to the
extent permitted by law, enter, with or without process of law and without
breach of the peace, any premise where any of the Collateral may be located, and
without charge or liability to it seize and remove such Collateral from such
premises, (iii) have access to and use Guarantor's books and records relating to
the Collateral and (iv) prior to the disposition of the Collateral, store or
transfer it without charge in or by means of any storage or transportation
facility owned or leased by Guarantor, process, repair or recondition it or
otherwise
<PAGE> 9
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prepare it for disposition in any manner and to the extent the Agent deems
appropriate to preserve and enhance its value and, in connection with such
preparation and disposition, use, as a licensee (or if no decline in the value
of the Collateral would result, otherwise) without charge any trademark, trade
name, copyright, patent or technical process used by Guarantor.
SECTION 7. Limitation on Duty of Agent in Respect of Collateral.
Beyond the safe custody thereof in accordance with law, the Agent shall
have no duty as to any Collateral in the possession or control of the Agent or
any agent or bailee, or any income thereon, or as to the preservation of rights
against prior parties or any other rights pertaining thereto. The Agent shall be
deemed to have exercised reasonable care in the custody and preservation of the
Collateral in its possession if the Collateral is accorded treatment
substantially equivalent to that which it accords its own property of like
nature, and shall not be liable or responsible for any loss or damage to any of
the Collateral, or for any diminution in the value thereof, by reason of the act
or omission of any warehouseman, carrier, forwarding agency, consignee or other
agent or bailee selected by the Agent in good faith and in the absence of gross
negligence.
SECTION 8. Application of Proceeds
Upon the occurrence and during the continuance of an Event of Default,
the proceeds of any sale of, or other realization upon, all or any part of the
Collateral shall be applied by the Agent in the following order of priorities:
first, to payment of the expenses of such sale or other
realization, including reasonable compensation to the Agent and its
agents and counsel in connection therewith, and all expenses,
liabilities and advances incurred or made by the Agent in connection
therewith, and any other unreimbursed expenses for which the Agent is
to be reimbursed pursuant to the Credit Agreement or otherwise and
unpaid fees owing to the Agent under the Credit Agreement or otherwise;
second, to the ratable payment to the Lenders of accrued but
unpaid interest on the Secured Obligations;
third, to the ratable payment to the Lenders of unpaid
principal of the Secured Obligations;
fourth, to the ratable payment to the Lenders of all
other Secured Obligations, until all Secured Obligations shall have
been paid in full; and
finally, to payment to Guarantor or its successors or
assigns, or as a court of competent jurisdiction may direct, of any
surplus then remaining from such proceeds.
The Agent may make distributions hereunder in cash or in kind or in any
combination thereof.
SECTION 9. Expenses
In the event that Guarantor fails to comply with the provisions of the
Credit Agreement or this Agreement, such that the value of any Collateral or the
validity, perfection, rank or value of any Security Interest is thereby
diminished or potentially diminished or put at risk, the Agent may effect such
compliance on behalf of Guarantor, and Guarantor shall reimburse the Agent for
the costs thereof
<PAGE> 10
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within two Business Days of demand therefor. All insurance expenses and all
reasonable expenses of protecting, storing, warehousing, appraising, insuring,
handling, maintaining, and shipping the Collateral, any and all excise,
property, sales, and use taxes imposed by any state, federal, or local authority
on any of the Collateral, or in respect of the sale or other disposition
thereof, shall be borne by Guarantor; and if Guarantor fails to promptly pay any
portion thereof when due, the Agent may, at its option, but shall not be
required to, pay the same and charge Guarantor's account therefor, and Guarantor
agrees to reimburse the Agent therefor on demand. All sums so paid or incurred
by the Agent for any of the foregoing and any and all other sums for which
Guarantor may become liable hereunder and all reasonable costs and expenses
(including attorneys' fees, legal expenses and court costs) reasonably incurred
by the Agent in enforcing or protecting the Security Interests or any of their
rights or remedies under this Agreement, shall, together with interest thereon
until paid at the rate applicable to advances made under the Credit Agreement,
be additional Secured Obligations hereunder.
SECTION 10. Termination of Security Interests
Upon the indefeasible payment in full of all Secured Obligations and
the termination of the Line of Credit Commitments, the Security Interests shall
terminate and all rights to the Collateral shall revert to Guarantor, and this
Security Agreement shall terminate and no longer be of any force and effect.
SECTION 11. Notices
All notices, approvals, requests, demands and other communications
hereunder shall be given in accordance with the Credit Agreement.
SECTION 12. Waivers, Non-Exclusive Remedies
No failure on the part of the Agent or the Lenders to exercise, and no
delay in exercising and no course of dealing with respect to, any right under
the Credit Agreement or this Agreement shall operate as a waiver thereof; nor
shall any single or partial exercise by the Agent of any right under the Credit
Agreement or this Agreement preclude any other or further exercise thereof or
the exercise of any other right. The rights in this Agreement and the Credit
Agreement are cumulative and are not exclusive of any other remedies provided by
law.
SECTION 13. Successors and Assigns
This Agreement is for the benefit of the Agent, the Lenders and their
respective successors and assigns, and in the event of an assignment of all or
any of the Secured Obligations, the rights hereunder, to the extent applicable
to the indebtedness so assigned, may be transferred with such indebtedness. This
Agreement shall be binding on Guarantor and its successors and assigns.
SECTION 14. Changes in Writing
Neither this Agreement nor any provision hereof may be changed, waived,
discharged or terminated orally, but only in writing signed by Guarantor and the
Agent.
SECTION 15. MASSACHUSETTS LAW
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, EXCEPT AS OTHERWISE REQUIRED BY
<PAGE> 11
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MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY
THE LAWS OF ANY JURISDICTION OTHER THAN THE COMMONWEALTH OF MASSACHUSETTS ARE
GOVERNED BY THE LAWS OF SUCH JURISDICTION.
SECTION 16. Severability
If any provision hereof is invalid and unenforceable in any
jurisdiction, then, to the fullest extent permitted by law, (a) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of the Agent and the Lenders in order to
carry out the intentions of the parties hereto as nearly as may be possible; and
(b) the invalidity or unenforceability of any provision hereof in any
jurisdiction shall not affect the validity or enforceability of such provision
in any other jurisdiction.
SECTION 17. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall constitute an original, but all of which taken together shall
constitute but one and the same instrument, and any of the parties hereto may
execute this Agreement by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized officers as of the
day and year first above written.
MICROCOM SYSTEMS, INC.
By:
--------------------------------
Name:
Title:
SILICON VALLEY BANK, as the Agent and a Lender
By:
--------------------------------
Name:
Title:
BAYBANK, as a Lender
By:
--------------------------------
Name:
Title:
<PAGE> 12
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SCHEDULE C
EXHIBIT A TO FINANCING STATEMENT
DEBTOR:
Microcom Systems, Inc.
500 River Ridge Drive
Norwood, Massachusetts 02062-5028
SECURED PARTY:
Silicon Valley Bank, as Agent for the Lenders
3000 Lakeside Drive
Santa Clara, California 95054
LENDERS
Silicon Valley Bank, as Lender
3000 Lakeside Drive
Santa Clara, California 95054
BayBank, as Lender
7 New England Executive Park
Burlington, Massachusetts 01803
PART I: This financing statement (the capitalized terms used
herein having the meaning set forth in Part II hereto) covers all of the
following property of the Debtor, whether now owned or existing or hereafter
acquired or arising, and regardless of where located:
1. Accounts;
2. Inventory;
3. General Intangibles;
4. Documents;
5. Instruments;
6. Equipment;
7. All monies and property of any kind of the Debtor in the
possession or under the control of the Secured Party;
8. All books and records (including, without limitation, customer
lists, marketing information, credit files, price lists,
operating records, vendor and supplier price lists, sales
literature, computer programs, printouts and other computer
materials and records) of the Debtor pertaining to any of the
Collateral; and
<PAGE> 13
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9. All Proceeds of, attachments or accessions to, or substitutions
for all or any of the Collateral described in Clauses 1 through
9 hereof.
PART II: The following terms, as used herein, shall have the
following meanings:
"Accounts" means all "accounts" (as defined in the UCC)
now owned or hereafter acquired by the Debtor and shall also mean and
include all accounts receivable, contract rights, book debts, notes,
drafts and other obligations or indebtedness owing to the Debtor
arising from the sale, lease or exchange of goods or other property
and/or the performance of services by it (including, any such
obligation which might be characterized as an account, contract right
or general intangible under the UCC) and all the Debtor's rights in, to
and under all purchase orders for goods, services or other property,
and all the Debtor's rights to any goods, services or other property
represented by any of the foregoing (including returned or repossessed
goods and unpaid sellers' rights of rescission, replevin, reclamation
and rights to stoppage in transit) and all monies due to or to become
due to the Debtor under all contracts for the sale, lease or exchange
of goods or other property and/or the performance of services by it
(whether or not yet earned by performance on the part of the Debtor),
in each case whether now in existence or hereafter arising or acquired
including, the right to receive the proceeds of said purchase orders
and contracts and all collateral security and guarantees of any kind
given by any Person with respect to any of the foregoing.
"Collateral" means the property described in Clauses 1
through 9 of Part I of this Exhibit A to financing statement.
"Documents" means all "documents" (as defined in the
UCC) or other receipts covering, evidencing or representing goods, now
owned or hereafter acquired, by the Debtor.
"Equipment" means all "equipment" (as defined in the
UCC) now owned or hereafter acquired by the Debtor, including, without
limitation, all motor vehicles, trucks and trailers.
"General Intangibles" means all "general intangibles"
(as defined in the UCC) now owned or hereafter acquired by the Debtor,
including, without limitation, all (a) obligations or indebtedness
owing to the Debtor (other than Accounts) from whatever source arising,
(b) patent licenses, patents, trademark licenses, trademarks, rights in
intellectual property, goodwill, trade names, service marks, trade
secrets, copyrights, permits and licenses, (c) inventions, processes,
production methods, proprietary information, know-how and trade secrets
used or useful in the business of the Debtor, (d) licenses or user or
other agreements granted to the Debtor with respect to any of the items
described in clause (b) or (c) above, (e) information, customer lists,
identification of suppliers, data, plans, blueprints, specifications,
designs, drawings, recorded knowledge, surveys, engineering reports,
test reports, manuals, materials standards, catalogs, computer and
automatic machinery software and programs and the like pertaining to
the business of the Debtor, (f) field repair data, sales data, and
other information relating to sales or service of products now or
hereafter manufactured, (g) accounting information and all media in or
on which any of the information, knowledge, data or records may be
recorded or stored and all computer programs used for the compilation
or printout thereof, (h) causes of action, claims and warranties now or
hereafter owned or acquired by the Debtor in respect of any of the
items listed above, and (i) all tax refunds to which the Debtor is
entitled.
<PAGE> 14
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"Instruments" means all "instruments", "chattel paper"
or "letters of credit" (each as defined in the UCC) evidencing,
representing, arising from or existing in respect of, relating to,
securing or otherwise supporting the payment of, any of the Accounts,
including (but not limited to) promissory notes, drafts, bills of
exchange and trade acceptances, now owned or hereafter acquired by the
Debtor.
"Inventory" means all "inventory" (as defined in the
UCC), now owned or hereafter acquired by the Debtor, wherever located,
and shall also mean and include, without limitation, all raw materials
and other materials and supplies, work-in-process and finished goods
and any products made or processed therefrom and all substances, if
any, commingled therewith or added thereto.
"Proceeds" means all proceeds of, and all other
profits, rentals or receipts, in whatever form, arising from the
collection, sale, lease, exchange, assignment, licensing or other
disposition of, or realization upon, Collateral, including, without
limitation, all claims of the Debtor against third parties for loss of,
damage to or destruction of, or for proceeds payable under, or unearned
premiums with respect to, policies of insurance in respect of, any
Collateral, and any condemnation or requisition payments with respect
to any Collateral, in each case whether now existing or hereafter
arising.
"UCC" means the Uniform Commercial Code as in effect on
the date hereof in The Commonwealth of Massachusetts.
------------------
<PAGE> 15
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[The following should be typed on the face of the UCC-1:
All tangible and intangible personal property of Debtor, whether now
owned or hereafter acquired, or in which Debtor may now or hereafter
have an interest, including without limitation, all accounts,
inventory, general intangibles, contract rights, documents,
instruments, chattel paper, equipment, goods, and all proceeds of all
of the foregoing, as more specifically described in Exhibit A attached
hereto and made a part hereof.]
<PAGE> 1
COLLATERAL ASSIGNMENT OF PATENTS AND TRADEMARKS
This COLLATERAL ASSIGNMENT OF PATENTS AND TRADEMARKS (the
"Agreement"), dated as of March 22, 1995, by and among MICROCOM SYSTEMS, INC., a
Delaware corporation ("Guarantor"), and SILICON VALLEY BANK, as agent for the
benefit of Silicon Valley Bank and BayBank (together with its successors in this
capacity, the "Agent"), SILICON VALLEY BANK, as lender ("SVB"), and BAYBANK, as
lender ("BayBank") (SVB and BayBank being referred to, collectively, as the
"Lenders"),
W I T N E S S E T H:
WHEREAS, Microcom, the Agent and the Lenders are parties to
that certain Amended and Restated Credit Agreement dated as of March 22, 1995
(as the same may be amended, amended and restated, modified or supplemented from
time to time, the "Credit Agreement"), providing, subject to the terms and
conditions thereof, for extensions of credit to be made by the Lenders to
Microcom;
WHEREAS, in order to induce the Lenders to enter into the
Credit Agreement, Guarantor is issuing that certain Guaranty dated as of March
22, 1995 (the "Guaranty") by which it guarantees the prompt and complete payment
and performance of all obligations of Microcom to the Agent and the Lenders
under the Credit Agreement, the Notes, the Security Agreement and all the other
Loan Documents (collectively, the "Guaranteed Obligations"; and
WHEREAS, it is the intention of the parties hereto that the
Guarantor should secure its prompt and complete payment and performance of its
obligations under the Guaranty (collectively, the "Secured Obligations") by
granting the Agent, for the ratable benefit of the Lenders, a security interest
in and lien on all Guarantor's right, title and interest in and to all property
and assets of Guarantor, including, without limitation, certain patents and
trademarks;
NOW, THEREFORE, in consideration of the premises and for other
valuable consideration, the receipt, sufficiency and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms used in this Agreement
(including the preamble hereto) and not otherwise defined herein shall have the
meanings prescribed therefor in the Credit Agreement. The following additional
terms, as used herein, shall have the following respective meanings:
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), or
preference, priority or other security
<PAGE> 2
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agreement of any kind or nature whatsoever (including without
limitation, any exclusive license, shop right or covenant by Guarantor
not to sue third Persons).
"Patent and Trademark Office" means the United States Patent
and Trademark Office.
"Patent License" means all agreements, whether written
or oral, providing for the grant by Guarantor of any right to
manufacture, use or sell any invention covered by a Patent, including,
without limitation, any thereof referred to in Schedule I
hereto.
"Patents" means all U.S. patents and patent applications
(including each patent and patent application described on Schedule I
hereto), including without limitation, the inventions and improvements
described therein, together with the reissues, divisions,
continuations, renewals, extensions, and continuations in part thereof.
"Secured Obligations" means all obligations, whether now
existing or hereafter arising, of Guarantor with respect to the
Guaranteed Obligations, whether such obligations are now existing or
hereafter incurred or created, joint or several, direct or indirect,
absolute or contingent, due or to become due, matured or unmatured,
liquidated or unliquidated, arising by contract, operation of law or
otherwise, including, without limitation, (a) all obligations to pay
principal of and interest (including, without limitation, any interest
which accrues after the commencement of any case, proceeding or other
action relating to the bankruptcy, insolvency or reorganization of
Microcom) with respect to any advance to Microcom under the Credit
Agreement or the Notes; (b) all obligations with respect to other
amounts (including, without limitation, any fees or expenses) payable
by Microcom under the Credit Agreement, the Notes or any other Loan
Document; (c) all obligations with respect to amounts payable by
Microcom in connection with any Letter of Credit, Banker's Acceptance
or FX Contract issued, accepted or entered into for the account of the
Microcom, including without limitation any drawings or payments
thereunder or obligations incurred in connection therewith, including
all obligations with respect to reimbursement and fees; and (d) any
renewals, refinancings or extensions of any of the foregoing.
"Trademark License" means any agreement, whether written or
oral, providing for the grant by the Guarantor of any right to use any
Trademark, including, without limitation, the agreements described in
Schedule I hereto.
"Trademarks" means all of the following: all trademarks, trade
names, corporate names, company names, business names, fictitious
business names, trade styles, service marks, logos, other source or
business identifiers, prints and labels on which any of the foregoing
have appeared or appear, designs and general intangibles of like
nature, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in
connection therewith, including, without limitation, registrations,
recordings and applications in the Patent and Trademark Office or in
any similar office or agency of the United States, any State thereof,
including, without limitation, those described in Schedule I hereto,
and all reissues, extensions or renewals thereof.
2. Collateral Assignment; Security Interest. As collateral security for
the prompt and complete payment and performance of all the Secured Obligations,
together with any and all expenses which may be incurred by the Agent or the
Lenders in collecting any or all of such Secured Obligations or enforcing any
rights, obligations or liabilities under this Agreement,
<PAGE> 3
- 3 -
Guarantor hereby assigns, grants and conveys to the Agent for the ratable
benefit of the Lenders a security interest in and lien on all of Guarantor's
right, title and interest in, to and under the following, whether now existing
or hereafter created and whether now owed or hereafter acquired (collectively,
the "Collateral"):
(a) all Patents;
(b) all Patent Licenses;
(c) all proceeds of each Patent and Patent License, including
without limitation, all income, royalties, damages and payments now or
hereafter due and/or payable with respect to any Patent or Patent
License, including damages and payments for past or future
infringements thereof, the right to sue for past, present and future
infringements thereof, and all rights corresponding thereto throughout
the world (the property specified in clauses (a) through (c) being
referred to, collectively, as the "Patent Collateral");
(d) all Trademarks;
(e) all Trademark Licenses;
(f) all of the goodwill of the business of Guarantor connected
with the use of, and symbolized by, each Trademark and Trademark
licensed;
(g) all proceeds of each Trademark and Trademark License,
including, without limitation, any claim by Guarantor against third
parties for past, present or future infringement or dilution of any
Trademark, including, without limitation, the Trademarks referred to in
Schedule I hereto, and any Trademark licensed under any Trademark
License, or for injury to the goodwill associated with any Trademark or
any Trademark licensed under any Trademark License (the property
specified in clauses (d) through (g) being referred to, collectively,
as the "Trademark Collateral");
(h) to the extent assignable pursuant to their terms (with any
required consent), all licenses or user or other agreements granted to
Guarantor with respect to any of the Patent Collateral, Trademark
Collateral or Trade Secrets (collectively, the "Licensed Rights");
(i) inventions, processes, production methods, proprietary
information, know-how and trade secrets used or useful in the business
of Guarantor (" Trade Secrets");
(j) information, customer lists, identification of suppliers,
data, plans, blueprints, specifications, designs, drawings, recorded
knowledge, surveys, engineering reports, test reports, manuals,
materials standards, catalogs, computer and automatic machinery
software and programs and the like pertaining to the business of
Guarantor;
(k) field repair data, sales data, and other information
relating to sales or service of products now or hereafter manufactured;
(l) accounting information and all media in which or on which
any of the information or knowledge or data or records may be recorded
or stored and all computer programs used for the compilation or
printout of such information, knowledge, records or data;
<PAGE> 4
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(m) causes of action, claims and warranties now or hereafter
owned or acquired by Guarantor in respect of any of the items listed
above; and
(n) all proceeds of any of the Collateral described in clauses
(a) through (n).
3. Representations and Warranties. As an inducement to the Agent and
the Lenders to enter into this Agreement and the other Loan Documents, Guarantor
makes the following representations and warranties:
(a) Schedule I sets forth a complete and correct list of all
Patents, Patent Licenses, Trademarks and Trademark Licenses in which Guarantor
has any right, title or interest.
(b) Except as may be disclosed in Schedule I, Guarantor is the
sole beneficial owner of the Patents and the registered Trademarks, and is duly
licensed to use the Licensed Rights, and no Lien exists or will exist upon any
Collateral at any time except for the security interest in favor of the Agent
for the benefit of the Lenders provided for herein, which security interest
constitutes a first-priority perfected security interest in all of the
Collateral.
(c) Except pursuant to Patent Licenses and Trademark Licenses
entered into by Guarantor in the ordinary course of business, which are listed
in Schedule I hereto, Guarantor owns and possesses the right to use, and
has done nothing to expressly authorize or enable any other Person to use, the
Patents and Trademarks listed on Schedule I, and all registrations
listed on Schedule I are valid and in full force and effect.
(d) Except as otherwise disclosed in Schedule A to the Credit
Agreement, (i) to the best of Guarantor's knowledge, there is no violation by
others of any right of Guarantor with respect to any Patent or Trademark listed
on Schedule I hereto, (ii) to the best of Guarantor's knowledge, Guarantor is
not infringing in any respect upon any Patent or Trademark of any other Person,
and (iii) no proceedings have been instituted or are pending against Guarantor,
or to Guarantor's knowledge, threatened, alleging any such violation.
4. Defense of Collateral, Etc. Guarantor agrees that it will at its
expense forever warrant and, at the Agent's request, defend the Collateral from
any and all claims and demands of any other Person; provided, however, nothing
herein shall prevent the Board of Directors of Guarantor in the exercise of its
reasonable business judgment from determining that it is in the best interest of
Guarantor to abandon any item of Collateral or to refrain from defending any
item of Collateral against such claims or demands (the foregoing prerogative of
the Board of Directors of Guarantor being sometimes referred to herein as the
"Business Judgment Exception"). Guarantor hereby agrees to pay, indemnify, and
hold the Agent and the Lenders harmless from and against any and all other
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses of disbursements or any kind or nature whatsoever with respect
to the Collateral, including, without limitation, claims of patent or trademark
infringement, provided that Guarantor shall have no obligation hereunder with
respect to such indemnification arising from the Agent's or either Lender's
gross negligence or willful misconduct.
5. Continued Use of Patents and Trademarks, Etc. (a) During the term of
this Agreement, Guarantor shall employ consistent standards of quality in its
manufacture of products sold or services provided under the Trademarks (and
shall do any and all acts required by the Agent to ensure Guarantor's compliance
with such standards), and shall employ the appropriate notice of any such
registered Trademarks in connection with its use of such Trademarks. Guarantor
hereby
<PAGE> 5
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grants to the Agent and the Lenders and their employees and agents the right to
visit Guarantor's plants and facilities which manufacture, inspect or store
products sold under any of the Trademarks, and to inspect the products and
quality control records relating thereto at reasonable times and at reasonable
intervals during regular business hours.
(b) Subject to the Business Judgment Exception, Guarantor
agrees to use its best ability to maintain the grant of the Patents and the
registration of the Trademarks listed on Schedule I hereto in full force
and effect by taking any action which it believes necessary, through attorneys
of its choice, all at its expense. In the event that any Patent or Trademark is
infringed by a third party, so as to have a Material Adverse Effect, or if such
infringement gives rise to litigation or to the filing of a claim with the
Patent and Trademark Office, Guarantor shall promptly notify the Agent and the
Lenders and shall take such actions as may be reasonably required to terminate
such infringement. Any damages recovered from the infringing party shall be
deemed to be part of the Collateral.
6. No Assignments, Etc. Guarantor shall not, except as otherwise
permitted by the Credit Agreement, (a) grant, create, suffer to be created or
permit to exist any Lien upon the Collateral in favor of any other Person, or
(b) assign this Agreement or any rights in the Collateral or the material
protected thereby without, in either case, the prior written approval of the
Agent and the Lenders and such attempted Lien or assignment shall be void ab
initio.
7. Continuing Liability. Guarantor hereby expressly agrees
that, anything herein to the contrary notwithstanding, it shall remain liable
under each license, interest and obligation assigned to the Agent for the
benefit of the Lenders hereunder to observe and perform all the conditions and
obligations to be observed and performed by Guarantor thereunder, all in
accordance with and pursuant to the terms and provisions thereof. The Agent and
the Lenders shall not have any obligation or liability under any such license,
interest or obligation by reason of or arising out of this Agreement or the
assignment thereof to the Agent or the receipt by the Agent or the Lenders of
any payment relating to any such license, interest or obligation pursuant
hereto, nor shall the Agent or the Lenders be required or obligated in any
manner to perform or fulfill any of the obligations of Guarantor thereunder or
pursuant thereto, or to make any payment, or to make any inquiry as to the
nature or the sufficiency of any payment received by it or the sufficiency of
any performance by any party under any such license, interest or obligation, or
to present or file any claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.
8. New Patents and Trademarks. If, before the Secured Obligations shall
have been satisfied in full and the Line of Credit Commitments terminated,
Guarantor shall (a) obtain rights to any new patentable inventions, or become
entitled to the benefit of any patent application or patent for any reissue,
division, continuation, renewal, extension, or continuation-in-part of any
Patent listed on Schedule I or any improvement on any such Patent, or (b) obtain
rights to any new Trademarks, Guarantor shall give to the Agent and the Lenders
prompt notice thereof in writing hereof, and shall execute and deliver, and file
with the Patent and Trademark Office, a modification of this Agreement amending
Schedule I hereto to include such new Patent or Trademark thereon.
Notwithstanding the foregoing, Guarantor hereby irrevocably appoints the Agent
its true and lawful attorney (such appointment being coupled with an interest),
with full power of substitution, to execute an amendment of this Agreement on
behalf of Guarantor amending Schedule I hereto to include such new Patent or
Trademark.
<PAGE> 6
- 6 -
9. Guarantor's Retention of Rights. Unless and until an Event of
Default under the Credit Agreement shall occur and be continuing, but subject to
the terms and conditions of this Agreement, Guarantor shall retain its right,
title and interest, whether legal or equitable, respecting the Collateral and
shall have the right to use the Collateral in the ordinary course of its
business. Guarantor agrees not to sell, assign or license its interest in the
Collateral outside the normal course of business without the prior written
consent of the Agent and the Lenders.
10. Remedies. (a) If an Event of Default under the Credit Agreement has
occurred and is continuing the Agent shall, if so directed by the Lenders,
exercise, in addition to all other rights and remedies granted to it in this
Agreement and any other Loan Document, all rights and remedies of a secured
party under the Uniform Commercial Code. Without limiting the generality of the
foregoing, Guarantor expressly agrees that in any such event the Agent, without
demand of performance or other demand, advertisement or notice of any kind
(except to such extent as notice may be required by applicable law with respect
to the time or place of any public or private sale) to or upon Guarantor or any
other Person (all and each of which demands, advertisements and/or notices are
hereby expressly waived), may forthwith collect, receive, appropriate and
realize upon the Collateral, or any part thereof, and/or may forthwith sell,
lease, license, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker's board or at any of the Agent's offices or elsewhere at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Agent and any Lenders shall have the right
upon any such public sale or sales, and, to the extent permitted by law, upon
any such private sale or sales, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption in Guarantor,
which right or equity is hereby expressly waived and released. To the extent
permitted by applicable law, Guarantor waives all claims, damages and demands
against the Agent or the Lenders arising out of the repossession, retention or
sale of the Collateral.
(b) Without limiting the generality of the foregoing, if any Event of
Default has occurred and is continuing,
(i) the Agent may license, or sublicense, whether general,
special or otherwise, and whether on an exclusive or non-exclusive
basis, any Patents or Trademarks (together with attendant goodwill)
included in the Collateral throughout the world for such term or terms,
on such conditions and in such manner as the Agent shall in its sole
discretion determine, the proceeds of such license or sublicense to be
applied to the payment of the Secured Obligation;
(ii) the Agent may (without assuming any obligations or
liability thereunder), at any time and from time to time, enforce (and
shall have the exclusive right to enforce) against any licensee or
sublicensee all rights and remedies of Guarantor in, to and under any
Trademark Licenses or Patent Licenses and take or refrain from taking
any action under any thereof, and Guarantor hereby releases the Agent
and the Lenders from, and agrees to hold the Agent and the Lenders free
and harmless from and against, any claims arising out of any lawful
action so taken or omitted to be taken with respect thereto other than
any claims arising by reason of its own gross negligence or wilful
misconduct; and
(iii) upon request by the Agent, Guarantor will execute and
deliver to the Agent a power of attorney, in form and substance
satisfactory to the Agent, for the implementation of any lease,
assignment, license, sublicense, a grant of option, sale or other
disposition of
<PAGE> 7
- 7 -
a Trademark or a Patent. In the event of any disposition pursuant to
this Section, Guarantor shall supply its know-how and expertise
relating to the manufacture and sale of the products bearing, or
services sold utilizing, Trademarks, and its customer lists and other
records relating to such Trademarks and to the distribution of said
products and sale of such services, to the Agent.
11. Grant of License to Use Intangibles. For the purpose of enabling
the Agent to exercise rights and remedies under Section 10 hereof at such time
as the Agent, without regard to this Section 11, shall be lawfully entitled to
exercise such rights and remedies and for no other purpose, Guarantor hereby
grants to the Agent an irrevocable, non-exclusive license (exercisable without
payment of royalty or other compensation to Guarantor) to use, assign, license
or sublicense any of the Collateral, whether now owned or hereafter acquired by
Guarantor, and wherever the same may be located, including in such license
reasonable access to all media in which any of the licensed items may be
recorded or stored and to all computer programs used for the compilation or
printout thereof.
12. Power of Attorney. Guarantor hereby irrevocably appoints the Agent
its true and lawful attorney (such appointment coupled with an interest), with
full power of substitution, in the name of Guarantor, the Agent, or otherwise,
for the sole use and benefit of the Agent, but at Guarantor's expense, to
exercise (to the extent permitted by law), at any time and from time to time
while an Event of Default has occurred and is continuing, all or any of the
following powers with respect to all or any of the Collateral:
(a) to demand, sue for, collect, receive and give acquittance
for any and all monies due or to become due thereon or by virtue
thereof;
(b) to settle, compromise, compound, prosecute or defend any
action or proceeding with respect thereto;
(c) to sell, transfer, assign or otherwise deal in or with the
same or the proceeds or avails thereof, as fully and effectually as if
the Agent were the absolute owner thereof; and
(d) to extend the time of payment of any or all thereof and to
make any allowance and other adjustments with reference thereto.
13. Notices. All notices under this Agreement shall be in writing,
and shall be given and shall be effective in accordance with the Credit
Agreement.
14. Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall not invalidate the
remaining provisions hereof, and any such prohibition or enforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
15. No Waiver; Cumulative Remedies. The Agent and the Lenders
shall not, by any act, delay, omission or otherwise be deemed to have waived any
of its rights or remedies hereunder, and no waiver shall be valid unless in
writing, signed by the Agent and the Lenders, and then only to the extent
therein set forth. A waiver by the Agent and the Lenders of any right or remedy
hereunder on any one occasion shall not be construed as a bar to any right or
remedy which the Agent or the Lenders would otherwise have had on any other
occasion. No failure to exercise nor any delay in exercising on the part of the
Agent or the Lenders any right, power or privilege
<PAGE> 8
- 8 -
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or privilege hereunder preclude any other or
further exercise thereof or the exercise of any other right, power or privilege.
The rights and remedies hereunder provided are cumulative and may be exercised
singly or concurrently, and are not exclusive of any rights and remedies
provided by law.
16. Waivers; Amendments. None of the terms and provisions of this
Agreement may be waived, altered, modified or amended except by an instrument in
writing executed by the parties hereto.
17. Limitation by Law. All rights, remedies and powers provided
herein may be exercised only to the extent that the exercise thereof does not
violate any applicable provision of law, and all the provisions hereof are
intended to be subject to all applicable mandatory provisions of law which may
be controlling and to be limited to the extent necessary so that they will not
render this Agreement invalid, unenforceable in whole or in part or not entitled
to be recorded, registered, or filed under the provisions of any applicable law.
18. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and shall inure to the
benefit of the Agent and the Lenders and their respective successors and
assigns, and nothing herein or in the Credit Agreement or any other Loan
Document is intended or shall be construed to give any other Person any right,
remedy or claim under, to or in respect of this Agreement, the Credit Agreement
or any other Loan Document.
19. Termination and Reassignment. The Agent and the Lenders
agree that upon the payment in full and satisfaction of all the Secured
Obligations following the termination of the Line of Credit Commitments, the
security interests created by this Agreement shall be released, and the Agent
and the Lenders will execute all such documents as may be reasonably requested
by Guarantor to release such security interests (without representation or
warranty).
20. APPLICABLE LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND BE
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS (EXCEPTING LAWS REGARDING
CHOICE OF LAW) OF THE COMMONWEALTH OF MASSACHUSETTS AND THE UNITED STATES OF
AMERICA.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
set forth above.
MICROCOM SYSTEMS, INC.
By:__________________________
Name:
Title:
<PAGE> 9
- 9 -
SILICON VALLEY EAST
a Division of Silicon Valley
Bank, as the Agent and a Lender
By:___________________________
Name:
Title:
SILICON VALLEY BANK, as the Agent
and a Lender
By:___________________________
Name:
Title:
Executed in Santa Clara, CA
BAYBANK, as a Lender
By:___________________________
Name:
Title:
<PAGE> 10
Schedule I
Patents
- -------
Patent Applications
- -------------------
Patent Licenses
- ---------------
<PAGE> 11
Trademarks
- ----------
Name of Inventor/
U.S. Patent No. Date Title of Invention
- --------------- ---- ------------------
Trademark Applications
- ----------------------
Application No. Filing Date
- --------------- -----------
Trademark Licenses
- ------------------
Registration No. Mark Date
- ---------------- ---- ----
<PAGE> 1
February 15, 1994
Mr. Roland Pampel
33 Chequamegon Bay
Madison, Wisconsin 53719
Dear Roland:
On behalf of the Board of Directors of Microcom, Inc. ("Microcom") and
its Compensation Committee, it is our pleasure to offer you the position of
President, Chief Executive Officer of Microcom and a seat on Microcom's Board
of Directors, pursuant to the following terms and conditions:
- Base salary $225,000 per annum, subject to normal yearly
review for increases by the Compensation Committee.
- Stock option to purchase 250,000 shares of Microcom Common
Stock under the Company's Incentive Stock Option Plan. Option
price will be at fair market value as determined by the
Compensation Committee. Stock will vest at 25% per year over
four years. The option will have a 10-year exercise period.
- Incentive bonus in fiscal 1995 of $50,000 and an option to
purchase at fair market value 15,000 shares of Microcom Common
Stock. The bonus is based on the Company's operating budget
for fiscal 1995 as approved by the board of directors and will
operate in a linear fashion such that at reaching the minimum
threshold of 70% of operating income set out in the budget,
70% of the money will be payable and 70% of the stock option
will vest. If the Company does not meet 100% of its budgeted
operating income, then (a) the difference between the amount
of money payable and $50,000 shall not be paid or carried
over, and (b) the difference between the percentage of shares
vested and 100% will remain unvested until the end of the
10-year option period and vesting will not be subject to
acceleration on change of control.
- In the event of involuntary termination of your employment by
the Board other than "for cause" (as defined below) you shall
receive
<PAGE> 2
Mr. Roland Pampel
February 15, 1994
Page 2
severance compensation of one year of salary continuance at
the annual base compensation rate in effect at the time of
termination.
- Full relocation and temporary living assistance to include
househunting trips, trips home, rental of an apartment for up
to six months for your personal use, household contents moving
and storage, and "home equity plan", if needed.
- Participation in such Microcom executive officer and employee
benefit programs as shall be in effect from time to time,
subject to the terms and conditions of such programs.
To clarify several points, we want to be clear that your duties as
President and Chief Executive Officer shall be those customarily assigned to
those offices plus such other duties as the Board may, from time to time,
designate after discussion with you. In addition, those duties will require
your entire work time, attention and energies to Microcom and your commitment
not to render substantial services in self-employment to any individual or
entity other than Microcom without Board approval. We are, however, aware of
your involvement as an outside director on two other boards. You have
indicated to us that it is your intention to phase out of your position as a
director with the Madison, Wisconsin, company within one year. While the Board
routinely monitors the outside activities of its executive officers to avoid
inferred or actual conflicts of interest or diminution of time which should be
spent on the Company's affairs, we will be open to discussing your serving on
other boards, after we have worked together on Microcom and can determine what
those time commitments may entail.
For purposes of whether the one year salary continuance has been
triggered on involuntary dismissal, we define "for cause" as dishonesty, theft,
fraud, conviction of any crime, unethical business behavior or willfully
engaging in misconduct which is injurious to Microcom.
The terms of incentive bonuses in subsequent fiscal years will be
discussed with you and set by the Compensation Committee at the beginning of
each fiscal year, which is consistent with existing Board policy.
We are very pleased that you have agreed to join us in this leadership
role. The Board of Directors looks forward to a long and successful working
relationship with you.
<PAGE> 3
Mr. Roland Pampel
February 15, 1994
Page 3
If this letter accurately sets forth the terms of the offer that we
have negotiated with you, would you kindly indicate your acceptance in the
space provided and send one signed copy back to James M. Dow at Microcom.
Welcome aboard!
Sincerely,
__________________________
Chairman of the Board
of Directors
__________________________
Chairman of the
Compensation Committee
I accept the position of President and Chief Executive Officer of Microcom
effective March 2, 1994, in accordance with the terms hereof this _____ day of
February, 1994.
_________________________
Roland Pampel
<PAGE> 1
March 3, 1994
Mr. James M. Dow
46 Dudley Street
Brookline, MA 02146
Re: SEPARATION AGREEMENT
Dear Jim:
Based on our discussions and our mutual understanding that you desire
to resign from your position as President and Chief Executive Officer of
Microcom, Inc. (the "Company"), I would like to offer you the following
severance package in connection with your resignation. Let me say at the
outset that your 13 years of service to the Company as both Founder and
President have been greatly appreciated, and the Company will miss you greatly.
Below I have outlined the terms and conditions of the Separation Agreement (the
"Agreement") that we have discussed.
SALARY AND BENEFIT CONTINUATION
As we agreed, your resignation from the Company will be deemed
effective March 3, 1994 (the "Separation Date"). The Company will pay to you
all accrued salary and accrued but unused vacation pay through the Separation
Date and in accordance with standard Company separation procedures.
From the Separation Date and through March 2, 1995 (the "Continuation
Period"), you have agreed to remain available to the Company as a consultant so
that it may take advantage of the expertise you have accumulated during the
course of your employment in the Company's general business affairs. You have
also agreed to remain on indefinitely as Chairman of the Board of Directors
following the Separation Date in accordance with the Company's by-laws,
Articles of Organization and applicable laws. The Company will pay you a
salary continuation of $200,000, on a bi-monthly basis and subject to
applicable federal, state and local withholding, throughout the Continuation
Period.
Following the Separation Date, you will be entitled to continue
participation in the group health and dental plans offered by the Company to
its employees pursuant to the
<PAGE> 2
James M. Dow
March 3, 1994
Page 2
Consolidated Omnibus Reconciliation Act of 1985 ("COBRA") and to convert your
other group benefits to individual policies where a conversion option is
available under standard Company separation procedures. Further information
regarding COBRA continuation, conversion of benefits, and the impact of your
resignation on your 401(k) entitlement will be provided to you at the time of
your separation pursuant to standard Company procedures. The Company, however,
agrees to pay your premium contributions under COBRA, as well as under all
other group insurance policies which are convertible, during the Continuation
Period if you elect to continue and so convert your benefits. Please
understand, however, that by law, you are only entitled to 18 months of
continuation coverage following your separation from the Company under COBRA
and the Company's premium contributions for the time period set forth above are
to be included in this 18-month period and are not in addition thereto. At the
end of the Continuation Period, you may continue COBRA for the remainder of the
18-month period required by law at your own expense, and you may also continue
at your own expense any other insurance coverages which you have decided to
convert to individual policies. At the end of the Continuation period you also
will be eligible for all non-employee benefits available to Company directors
so long as you remain a director.
EARLY TERMINATION OF PAYMENT AND BENEFITS
If during the Continuation Period you secure alternative employment
(with the exception of consulting services, services as a non-employee member
of a Board of Directors, services performed by you as an independent contractor
on behalf of any entity or person, or unpaid services as chairman or Chief
Executive Officer of a company founded by you, so long as such services are
permissible under the Non-Compete Agreement described below), you must notify
the General Counsel of the Company in writing, and the payments and benefits
outlined above shall immediately cease (other than insurance conversion rights
and remaining COBRA benefits available to you pursuant to applicable law and at
your own expense). However, the remainder of this Agreement "and the Employee
Patent and Confidential Information Agreement," which is attached hereto as
Exhibit A, shall remain in full force and effect thereafter.
You further agree that, in the event you breach any of your
obligations under this Agreement or the Employee Patent and Confidential
Information Agreement, the Company shall have the right to suspend or terminate
all of its obligations hereunder, including, without limitation, its payment
and other obligations
<PAGE> 3
James M. Dow
March 3, 1994
Page 3
set forth herein (other than insurance conversion rights or remaining COBRA
benefits available to you pursuant to applicable law and at your own expense).
However, such suspension or termination shall not relieve you of your
obligations hereunder or under the Employee Patent and Confidential Information
Agreement.
STOCK OPTIONS
As you know, you have certain options issued pursuant to the Company's
Stock Option Plan (the "Plan"). You have requested that so long as you remain
a director of the Company, the mandatory exercise provisions of your existing
stock option agreement not be triggered. Subject to review by the Company's
professional advisers, it is our intention that these options will continue to
vest and the mandatory exercise provisions not be triggered so long as you
remain a member of the Board of Directors. However, should you elect to
exercise any vested options after you leave the Board of Directors, you must do
so within 15 days after said date. According to the terms of the Plan, all
vested unexercised options will terminate at the end of the 15-day period.
Attached hereto as Exhibit B is a summary of the Company's records which
reflect the stock options that you currently hold.
COMPANY PROPERTY
No later than the date on which this Agreement is executed by you, we
ask that you return all Company property in your possession or under your
control, including Company credit cards, keys and files (except for the Company
Avis card, Company telephone credit card and key to the building which shall be
retained by you during the Continuation Period, but only for use on Company
business). In further consideration of the execution of this Agreement, the
Company will transfer to you, upon the effective date, ownership and/or license
rights of the desk top PC, Gateway 2000, Model P5-60, serial number 1867617,
including attachments and all properly-licensed software loaded on such
computer as of the Separation Date.
NON-COMPETITION
Attached as Exhibit C hereto is a Non-Competition Agreement which
shall be deemed part of this Agreement, and your execution of the same shall
constitute further consideration for the benefits and salary continuation
provided to you above.
<PAGE> 4
James M. Dow
March 3, 1994
Page 4
RELEASES
In further consideration of the promises contained herein, you will be
expected to sign a release of all claims against the Company which may have
existed through the date of execution of the Agreement. The Company also will
provide you with a release of all claims which it may have against you and
which may have existed through the date of execution of this Agreement. The
actual Release of Claim forms are attached hereto as Exhibit D.
Notwithstanding the execution of the above releases, in no event shall
the waiver contained therein affect your rights to indemnification as an
officer and director of the Company under the Company's by-laws, Articles of
Organization and/or as a matter of law and the terms and provisions thereof
shall be applied without regard to the existence of such waiver. Nor shall the
waiver be deemed to affect rights or claims you may have in the future or
arising from your continued participation in the Company's affairs after the
Separation Date as Chairman of the Company's Board of Directors. It is
expressly understood and agreed that your rights to indemnification as an
officer or director of the Company through the Separation Date survive the
execution of this Agreement, but remain subject to all existing terms and
conditions related to such indemnification rights.
OTHER REPRESENTATIONS
This Agreement represents a complete understanding between the parties
and supersedes any and all other agreements and understandings, whether oral,
written, express or implied, except for the Employee Patent and Confidential
Information Agreement entered into by you and the Company, which remains in
full force and effect. This Agreement may not be modified, altered, changed or
waived in whole or in part, except upon written consent of the parties hereto.
The parties further recognize that this Agreement is designed to
resolve all issues outstanding between them and to provide for an amicable
resignation by you from your employment with the Company. Accordingly, the
parties agree and acknowledge that the terms and conditions contained in this
Agreement do not constitute an admission of any sort on the part of either
party and that this Agreement may not be used as evidence in any kind except
one in which either party alleges a breach of the terms of the same, or one in
which a party elects to use the Agreement as a defense to any claim. In
furtherance of this spirit of cooperation, the parties agree that they will
reflect favorably
<PAGE> 5
James M. Dow
March 3, 1994
Page 5
upon their association with one another and will keep the terms of this
Agreement confidential.
EFFECTIVE DATE
Please sign this Separation Agreement, the attached Release of Claims,
as well as the attached Non-Competition Agreement (which collectively, along
with all other exhibits attached hereto, represent the entire "Agreement" as
referred to in this letter) if the terms and conditions of this arrangement are
acceptable to you. Please be advised, however, that you have every right to
consult with counsel prior to signing this Agreement, and we encourage you to
do so. You are entitled to a 21-day period in which to consider this
Agreement. This Agreement shall be revocable by you for seven days following
execution of the same. Only on the eighth day following execution of the
Agreement shall it become effective.
In closing, on behalf of Microcom, I would like to thank you for your
dedicated commitment and service over the years. We wish you the best of luck
in both your personal and professional endeavors. We will miss you.
Sincerely,
Michael Schneider
Chairman, Compensation
Committee of the Board
of Directors of Microcom, Inc.
MICROCOM, INC.
_____________________ By:______________________
James M. Dow
<PAGE> 6
Exhibit A - Employee Patent and Confidential Information Agreement
<PAGE> 7
EXHIBIT B - VESTED STOCK OPTIONS
<TABLE>
<CAPTION>
Grant Option Total Vesting No. of
Date Price Shares Schedule Shares
---- ----- ------ -------- ------
<S> <C> <C> <C> <C>
26-Jul-90 5.25 37,208 26-Jul-91 9,302
26-Jul-92 9,302
26-Jul-93 9,302
26-Jul-94 9,302
26-Jul-90 5.25 42,792 26-Jul-91 10,698
26-Jul-92 10,698
26-Jul-93 10,698
26-Jul-94 10,698
26-Jul-90 5.25 9,088 26-Jul-91 2,272
26-Jul-92 2,272
26-Jul-93 2,272
26-Jul-94 2,272
26-Jul-90 5.25 110,912 26-Jul-91 27,728
26-Jul-92 27,728
26-Jul-93 27,728
26-Jul-94 27,728
5-May-93 3.38 50,000 5-May-94 12,500
5-May-95 12,500
5-May-96 12,500
5-May-97 12,500
15-Apr-93 3.38 25,000 31-Mar-94 25,000
3.00 13,480 Fully Vested 13,480
3.00 58,000 Fully Vested 58,000
3.00 18,520 Fully Vested 18,520
------- -------
Total 365,000 365,000
======= =======
</TABLE>
<PAGE> 8
Exhibit C - Non-Competition Agreement
(a) Commencing upon the Separation Date, and continuing
for a period ending three (3) years thereafter, Dow agrees that he shall not
(except in his capacity as a director or consultant of the Company), directly
or indirectly, whether on his own account or as a shareholder (other than as a
shareholder of the Company, or as a less than five percent (5%) shareholder of
a publicly-held company), partner, joint venturer, employee, consultant,
advisor and/or other agent or representative, of any person, firm, association,
corporation, or other entity, throughout the United States and the world:
(1) Enter into or engage in the business of
designing, developing, marketing, manufacturing, distributing or selling modems
or LANaccess products for network systems, (which for purposes of this
Agreement shall comprise the current product lines of the Company), product
lines of the Company under development, product lines of the Company for which
written plans exist, or products that may rely substantially on the Company's
then current technology to complete. The President of the Company may, in his
sole discretion, allow certain exceptions to these proscriptions.
(2) Solicit customers or business patronage which
results in competition with the Company or any of its affiliates in the
business of designing, developing, marketing, manufacturing, distributing or
selling modems and/or LANaccess products for network systems (which for
purposes of this Agreement shall comprise the current product lines of the
Company), product lines of the Company under development, product lines of the
Company for which written plans exist, or products that may rely substantially
on the Company's then current technology to complete. The President of the
Company may, in his sole discretion, allow certain exceptions to these
proscriptions.
(3) Promote or assist, financially or otherwise,
any person, firm, association, corporation, or other entity engaged in the
business of designing, developing, marketing, manufacturing, distributing or
selling modems and/or LANaccess products for network systems (which for
purposes of this Agreement shall comprise the current product lines of the
Company), product lines of the Company under development, products lines of the
Company for which written plans exist, or products that may rely substantially
on the Company's then current technology to complete. The President of the
Company may, in his sole discretion, allow certain exceptions to these
proscriptions.
(4) Solicit, or cause to be solicited, any
employee or employees of the Company for employment by any other person, firm,
association, corporation or other entity, whether or not in competition with
the Company.
<PAGE> 9
(b) Without limitation, the parties agree and intend that
the covenants contained herein shall be deemed to be a series of separate
covenants and agreements, one for each and every county of each state and
political subdivision of the United States and other nation to which this
Non-Competition Agreement is applicable. If, in any judicial proceeding, a
court shall refuse to enforce in such action all of the separate covenants
deemed included herein, then at the option of the Company, wholly unenforceable
covenants shall be deemed eliminated from the provisions hereof for the purpose
of such proceeding to the extent necessary to permit the remaining separate
covenants to be enforced in such a proceeding.
(c) The parties agree that due to the unique nature of
the services and capabilities of Dow, there may be no adequate remedy at law
for any breach of his obligations hereunder, that any such breach may allow him
and/or third parties to unfairly compete with the Company resulting in
irreparable harm to the Company, and therefore, that upon any such breach or
any threat thereof, the Company shall be entitled to the immediate remedy of a
temporary restraining order, preliminary injunction, or such other form of
injunctive or equitable relief, in addition to whatever remedies it might have
at law. Furthermore, Dow agrees to indemnify the Company from and against and
shall reimburse the Company for and in respect of any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, remedies and
penalties, including attorneys' fees, that the Company shall incur or suffer
and which arise from or are attributable to Dow's breach of or failure to
perform or comply with any representations, warranties, agreements or covenants
contained in this Non-Competition Agreement.
(d) Dow represents and warrants to the Company that the
covenants hereunder are reasonably necessary for the protection of the
Company's interests and are not unduly restrictive upon Dow.
(e) The provisions of this Non-Competition 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 Dow
and the Company's Chief Executive Officer. No waiver of any of the provisions
of this Non-Competition Agreement shall be effective or binding unless such
waiver shall be in writing and signed by the party claimed to have given the
waiver or consent thereto.
<PAGE> 10
Exhibit D
RELEASE OF CLAIMS
As part of the Letter Agreement, dated March 3, 1994, James M. Dow, on
behalf of himself, his heirs, agents, representatives, assigns, executors and
administrators, hereby releases and forever discharges Microcom, Inc. and its
current and former predecessors, successors, parent corporations, divisions,
subsidiaries, affiliates, assigns, officers, directors, partners, shareholders,
trustees, employees, representatives and agents, and any other person or entity
acting on behalf of any or all of them, from any and all causes of action,
claims for damages, suits, debts, demands, accounts, covenants, contracts,
agreements, attorneys' fees, back pay, sums of money and claims of every name
and nature, known or unknown, arising or which may have existed from the
beginning of the world to this date, including but not limited to any and all
claims arising under Title VII of the Civil Rights of 1964, the Age
Discrimination in Employment Act of 1967, the Older Worker Benefits Protection
Act, M.G.L. c. 151B, the Civil Rights Act of 1991, the Employee Retirement
Income Security Act of 1974, as well as all matters relating to Dow's
employment with Microcom, Inc. and/or the separation from the same.
MICROCOM, INC.
_______________________ By:______________________
/s/ James M. Dow /s/ Peter J. Minihane
Date: March 10, 1994 Date: March 10, 1994
<PAGE> 11
RELEASE OF CLAIMS
As part of the Letter Agreement, dated March 3, 1994, Microcom, Inc.
and its current and former predecessors, successors, parent corporations,
divisions, subsidiaries, affiliates, assigns, officers, directors, partners,
shareholders, trustees, employees, representatives and agents, and any other
person or entity acting on behalf of any or all of them, hereby release and
forever discharge James M. Dow, his heirs, agents, representatives, assigns,
executors and administrators from any and all causes of action, claims for
damages, suits, debts, demands, accounts, covenants, contracts, agreements,
attorneys' fees, back pay, sums of money and claims of every name and nature,
known or unknown, arising or which may have existed from the beginning of the
world to this date, including but not limited to any and all matters related to
Dow's employment with Microcom, Inc. and/or the separation from the same.
MICROCOM, INC.
________________________ By:__________________________
/s/ James M. Dow /s/ Peter J. Minihane
Date: March 10, 1994 Date: March 10, 1994
<PAGE> 1
SECURED PROMISSORY NOTE
$215,000
Boston, Massachusetts
June 7, 1994
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Two Hundred Fifteen Thousand
Dollars ($215,000) on June 7, 2003, with interest, compounded annually, on the
unpaid principal amount hereof at the rate per annum of six and ninety-two
one-hundredths percent (6.92%),payable in annual installments of interest in
the amount of $19,735 each on the anniversary date of this Secured Promissory
Note (the "Note") commencing on June 7, 1995 and ending on June 7, 2003.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 40,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original
principal amount hereof multiplied by a fraction, the numerator of which shall
be the number of the Shares so sold and the denominator of which shall be the
total number of the Shares. This Note shall be secured in part by a pledge of
Shares as set forth in the paragraph marked "Pledge of Shares" at the end of
this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder
and, at the option of the holder, the entire amount of principal and interest
shall be accelerated and immediately due and payable. The undersigned agrees
to pay upon default the costs of collection, including reasonable attorneys'
fees.
Upon default, the holder hereof shall have full recourse against the
undersigned for up to $64,500 of unpaid amounts due hereunder, and with respect
to all remaining amounts of unpaid principal and interest due hereunder, the
holder hereof shall have recourse only to the holder's rights and remedies
under the Pledge of Shares; provided, that once $64,500 of principal due
hereunder has been repaid by the undersigned, the holder hereof shall have
recourse only to the holder's rights and remedies under the Pledge Agreement
with respect to all remaining amounts of unpaid principal and interest due
hereunder.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
undersigned and every endorser or guarantor of this Note regardless of the
time, order or place of signing waives presentment, demand, protest and notices
of every kind and assent to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral and to the addition or release of any party or person primarily and
secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder,
expressly referring hereto and setting forth the provisions so excluded,
modified or amended.
<PAGE> 2
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
----------------------------------
Richard A. Barbari
PLEDGE OF SHARES
The undersigned (the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note.
Upon the occurrence of a default under this Note, the Company shall be entitled
to all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
--------------------------------
Richard A. Barbari
2
<PAGE> 3
SECURED PROMISSORY NOTE
$88,000
Boston, Massachusetts
November 30, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Eighty-eight Thousand Dollars
($88,000) on November 30, 2002, with interest, compounded annually, on the
unpaid principal amount hereof at the rate per annum of four and ninety-two
one-hundredths percent (4.92%),payable in annual installments of interest in
the amount of $5,287 each on the anniversary date of this Secured Promissory
Note (the "Note") commencing on November 30, 1994 and ending on November 30,
2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 20,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original
principal amount hereof multiplied by a fraction, the numerator of which shall
be the number of the Shares so sold and the denominator of which shall be the
total number of the Shares. This Note shall be secured in part by a pledge of
Shares as set forth in the paragraph marked "Pledge of Shares" at the end of
this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder
and, at the option of the holder, the entire amount of principal and interest
shall be accelerated and immediately due and payable. The undersigned agrees
to pay upon default the costs of collection, including reasonable attorneys'
fees.
Upon default, the holder hereof shall have full recourse against the
undersigned for up to $25,500 of unpaid amounts due hereunder, and with respect
to all remaining amounts of unpaid principal and interest due hereunder, the
holder hereof shall have recourse only to the holder's rights and remedies
under the Pledge of Shares; provided, that once $25,500 of principal due
hereunder has been repaid by the undersigned, the holder hereof shall have
recourse only to the holder's rights and remedies under the Pledge Agreement
with respect to all remaining amounts of unpaid principal and interest due
hereunder.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
undersigned and every endorser or guarantor of this Note regardless of the
time, order or place of signing waives presentment, demand, protest and notices
of every kind and assent to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral and to the addition or release of any party or person primarily and
secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder,
expressly referring hereto and setting forth the provisions so excluded,
modified or amended.
3
<PAGE> 4
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
---------------------------------
Lewis A. Bergins
PLEDGE OF SHARES
The undersigned (the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note.
Upon the occurrence of a default under this Note, the Company shall be entitled
to all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
--------------------------------
Lewis A. Bergins
4
<PAGE> 5
SECURED PROMISSORY NOTE
$34,250
Boston, Massachusetts
November 17, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Thirty-four Thousand Two Hundred
Fifty Dollars ($34,250) on November 17, 2002, with interest, compounded
annually, on the unpaid principal amount hereof at the rate per annum of four
and ninety-two one-hundredths percent (4.92%),payable in annual installments of
interest in the amount of $2,058 each on the anniversary date of this Secured
Promissory Note ( the "Note") commencing on November 17, 1994 and ending on
November 17, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 10,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original
principal amount hereof multiplied by a fraction, the numerator of which shall
be the number of the Shares so sold and the denominator of which shall be the
total number of the Shares. This Note shall be secured in part by a pledge of
Shares as set forth in the paragraph marked "Pledge of Shares" at the end of
this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder
and, at the option of the holder, the entire amount of principal and interest
shall be accelerated and immediately due and payable. The undersigned agrees
to pay upon default the costs of collection, including reasonable attorneys'
fees.
Upon default, the holder hereof shall have full recourse against the
undersigned for up to $10,125 of unpaid amounts due hereunder, and with respect
to all remaining amounts of unpaid principal and interest due hereunder, the
holder hereof shall have recourse only to the holder's rights and remedies
under the Pledge of Shares; provided, that once $10,125 of principal due
hereunder has been repaid by the undersigned, the holder hereof shall have
recourse only to the holder's rights and remedies under the Pledge Agreement
with respect to all remaining amounts of unpaid principal and interest due
hereunder.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
undersigned and every endorser or guarantor of this Note regardless of the
time, order or place of signing waives presentment, demand, protest and notices
of every kind and assent to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral and to the addition or release of any party or person primarily and
secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder,
expressly referring hereto and setting forth the provisions so excluded,
modified or amended.
5
<PAGE> 6
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
--------------------------------
Lewis A. Bergins
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note.
Upon the occurrence of a default under this Note, the Company shall be entitled
to all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
----------------------------------
Lewis A. Bergins
6
<PAGE> 7
SECURED PROMISSORY NOTE
$606,370
Boston, Massachusetts
November 12, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Six Hundred Six Thousand Three
Hundred Seventy Dollars ($606,370) on November 12, 2002, with interest,
compounded annually, on the unpaid principal amount hereof at the rate per
annum of four and ninety-two one-hundredths percent (4.92%),payable in annual
installments of interest in the amount of $36,431 each on the anniversary date
of this Secured Promissory Note ( the "Note") commencing on November 12, 1994
and ending on November 12, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 141,885 shares (the "Shares") of Common Stock, par value
$.01, of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original
principal amount hereof multiplied by a fraction, the numerator of which shall
be the number of the Shares so sold and the denominator of which shall be the
total number of the Shares. This Note shall be secured in part by a pledge of
Shares as set forth in the paragraph marked "Pledge of Shares" at the end of
this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder
and, at the option of the holder, the entire amount of principal and interest
shall be accelerated and immediately due and payable. The undersigned agrees
to pay upon default the costs of collection, including reasonable attorneys'
fees.
Upon default, the holder hereof shall have full recourse against the
undersigned for up to $301,317 of unpaid amounts due hereunder, and with
respect to all remaining amounts of unpaid principal and interest due
hereunder, the holder hereof shall have recourse only to the holder's rights
and remedies under the Pledge of Shares; provided, that once $301,317 of
principal due hereunder has been repaid by the undersigned, the holder hereof
shall have recourse only to the holder's rights and remedies under the Pledge
Agreement with respect to all remaining amounts of unpaid principal and
interest due hereunder.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
undersigned and every endorser or guarantor of this Note regardless of the
time, order or place of signing waives presentment, demand, protest and notices
of every kind and assent to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral and to the addition or release of any party or person primarily and
secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder,
expressly referring hereto and setting forth the provisions so excluded,
modified or amended.
7
<PAGE> 8
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
---------------------------------
Lewis A. Bergins
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note.
Upon the occurrence of a default under this Note, the Company shall be entitled
to all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
------------------------------------
Lewis A. Bergins
8
<PAGE> 9
SECURED PROMISSORY NOTE
$34,250
Boston, Massachusetts
November 17, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Thirty-four Thousand Two Hundred
Fifty Dollars ($34,250) on November 17, 2002, with interest, compounded
annually, on the unpaid principal amount hereof at the rate per annum of four
and ninety-two one-hundredths percent (4.92%),payable in annual installments of
interest in the amount of $2,058 each on the anniversary date of this Secured
Promissory Note ( the "Note") commencing on November 17, 1994 and ending on
November 17, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 10,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original
principal amount hereof multiplied by a fraction, the numerator of which shall
be the number of the Shares so sold and the denominator of which shall be the
total number of the Shares. This Note shall be secured in part by a pledge of
Shares as set forth in the paragraph marked "Pledge of Shares" at the end of
this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder
and, at the option of the holder, the entire amount of principal and interest
shall be accelerated and immediately due and payable. The undersigned agrees
to pay upon default the costs of collection, including reasonable attorneys'
fees.
Upon default, the holder hereof shall have full recourse against the
undersigned for up to $10,125 of unpaid amounts due hereunder, and with respect
to all remaining amounts of unpaid principal and interest due hereunder, the
holder hereof shall have recourse only to the holder's rights and remedies
under the Pledge of Shares; provided, that once $10,125 of principal due
hereunder has been repaid by the undersigned, the holder hereof shall have
recourse only to the holder's rights and remedies under the Pledge Agreement
with respect to all remaining amounts of unpaid principal and interest due
hereunder.
No delay or omission on the part of the holder in exercising any right
hereunder shall operate as a waiver of such right or of any other right of such
holder nor shall any delay, omission or waiver on any one occasion be deemed a
bar to or waiver of the same or any other right on any future occasion. The
undersigned and every endorser or guarantor of this Note regardless of the
time, order or place of signing waives presentment, demand, protest and notices
of every kind and assent to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release of
collateral and to the addition or release of any party or person primarily and
secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or
amended except by a written instrument duly executed on behalf of the holder,
expressly referring hereto and setting forth the provisions so excluded,
modified or amended.
9
<PAGE> 10
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
--------------------------------
Donald G. Kennedy
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note.
Upon the occurrence of a default under this Note, the Company shall be entitled
to all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
---------------------------------
Donald G. Kennedy
10
<PAGE> 11
SECURED PROMISSORY NOTE
$52,500
Boston, Massachusetts
January 21, 1994
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Fifty-two Thousand Five Hundred
Dollars ($52,500) on January 21, 2003, with interest, compounded annually, on
the unpaid principal amount hereof at the rate per annum of five and thirty-two
one-hundredths percent (5.32%),payable in annual installments of interest in the
amount of $3,467 each on the anniversary date of this Secured Promissory Note (
the "Note") commencing on January 21, 1995 and ending on January 21, 2003.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 10,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $15,750 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $15,750 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
11
<PAGE> 12
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
------------------------
Donald G. Kennedy
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
------------------------
Donald G. Kennedy
12
<PAGE> 13
SECURED PROMISSORY NOTE
$168,750
Boston, Massachusetts
October 15, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of One Hundred Sixty-eight Thousand
Seven Hundred Fifty Dollars ($168,750) on October 15, 2002, with interest,
compounded annually, on the unpaid principal amount hereof at the rate per annum
of five percent (5.00%),payable in annual installments of interest in the amount
of $10,337 each on the anniversary date of this Secured Promissory Note ( the
"Note") commencing on October 15, 1994 and ending on October 15, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 70,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $45,375 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $45,375 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
13
<PAGE> 14
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
------------------------
Fred L. Luconi
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
------------------------
Fred L. Luconi
14
<PAGE> 15
SECURED PROMISSORY NOTE
$405,000
Boston, Massachusetts
November 12, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Four Hundred Five Thousand Dollars
($405,000) on November 12, 2002, with interest, compounded annually, on the
unpaid principal amount hereof at the rate per annum of four and ninety-two
one-hundredths percent (4.92%),payable in annual installments of interest in the
amount of $24,333 each on the anniversary date of this Secured Promissory Note (
the "Note") commencing on November 12, 1994 and ending on November 12, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 132,775 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $119,498 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $119,498 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
15
<PAGE> 16
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
------------------------
Peter J. Minihane
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
------------------------
Peter J. Minihane
16
<PAGE> 17
SECURED PROMISSORY NOTE
$73,125
Boston, Massachusetts
March 4, 1994
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Seventy-three Thousand One Hundred
Twenty-five Dollars ($73,125) on March 4, 2003, with interest, compounded
annually, on the unpaid principal amount hereof at the rate per annum of five
and thirty-six one-hundredths percent (5.36%),payable in annual installments of
interest in the amount of $4,874 each on the anniversary date of this Secured
Promissory Note ( the "Note") commencing on March 4, 1995 and ending on March 4,
2003.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 15,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $21,938 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $21,938 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
17
<PAGE> 18
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
------------------------
Roland D. Pampel
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
------------------------
Roland D. Pampel
18
<PAGE> 19
SECURED PROMISSORY NOTE
$4,250
Boston, Massachusetts
November 30, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Four Thousand Two Hundred Fifty
Dollars ($4,250) on November 30, 2002, with interest, compounded annually, on
the unpaid principal amount hereof at the rate per annum of four and ninety-two
one-hundredths percent (4.92%),payable in annual installments of interest in the
amount of $255 each on the anniversary date of this Secured Promissory Note (
the "Note") commencing on November 30, 1994 and ending on November 30, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 1,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $1,275 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $1,275 of principal due hereunder has been
repaid by the undersigned, the holder hereof shall have recourse only to the
holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
19
<PAGE> 20
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
------------------------
Gregory Pearson
PLEDGE OF SHARES
The undersigned (the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
------------------------
Gregory Pearson
20
<PAGE> 21
SECURED PROMISSORY NOTE
$115,750
Boston, Massachusetts
November 12, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of One Hundred Fifteen Thousand Seven
Hundred Fifty Dollars ($115,750) on November 12, 2002, with interest, compounded
annually, on the unpaid principal amount hereof at the rate per annum of four
and ninety-two one-hundredths percent (4.92%),payable in annual installments of
interest in the amount of $6,954 each on the anniversary date of this Secured
Promissory Note ( the "Note") commencing on November 12, 1994 and ending on
November 12, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 38,950 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $34,155 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $34,155 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
21
<PAGE> 22
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
---------------------
Gregory Pearson
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
---------------------
Gregory Pearson
22
<PAGE> 23
SECURED PROMISSORY NOTE
$57,750
Boston, Massachusetts
April 21, 1994
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Fifty-seven Thousand Seven Hundred
Fifty Dollars ($57,750) on April 21, 2003, with interest, compounded annually,
on the unpaid principal amount hereof at the rate per annum of five and
eighty-eight one-hundredths percent (5.88%),payable in annual installments of
interest in the amount of $4,314 each on the anniversary date of this Secured
Promissory Note ( the "Note") commencing on April 21, 1995 and ending on April
21, 2003.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 10,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $17,250 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $17,250 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
23
<PAGE> 24
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
---------------------
John C. Rutherford
PLEDGE OF SHARES
The undersigned (the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
---------------------
John C. Rutherford
24
<PAGE> 25
SECURED PROMISSORY NOTE
$34,250
Boston, Massachusetts
November 17, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Thirty-four Thousand Two Hundred
Fifty Dollars ($34,250) on November 17, 2002, with interest, compounded
annually, on the unpaid principal amount hereof at the rate per annum of four
and ninety-two one-hundredths percent (4.92%),payable in annual installments of
interest in the amount of $2,058 each on the anniversary date of this Secured
Promissory Note ( the "Note") commencing on November 17, 1994 and ending on
November 17, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 10,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $10,125 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $10,125 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
25
<PAGE> 26
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
---------------------
Michael I. Schneider
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
---------------------
Michael I. Schneider
26
<PAGE> 27
SECURED PROMISSORY NOTE
$53,000
Boston, Massachusetts
December 28, 1993
FOR VALUE RECEIVED, the undersigned promises to pay Microcom, Inc. (the
"Company"), or order, the principal amount of Fifty-three Thousand Dollars
($53,000) on December 28, 2002, with interest, compounded annually, on the
unpaid principal amount hereof at the rate per annum of five and seven
one-hundredths percent (5.07%),payable in annual installments of interest in the
amount of $3,302 each on the anniversary date of this Secured Promissory Note (
the "Note") commencing on December 28, 1994 and ending on December 28, 2002.
This Note evidences the obligation of the undersigned to the Company for the
purchase price of 10,000 shares (the "Shares") of Common Stock, par value $.01,
of the Company acquired by the undersigned.
This Note may be prepaid in whole or in part at any time and from time to time
without premium or penalty, and shall be prepaid in whole or in part, as
applicable, before or from the proceeds of the sale (in accordance with the
provisions of the Articles of Incorporation, as amended, of the Company) of all
or any portion of the Shares by the undersigned in an amount equal to the
accrued, unpaid interest together with an amount equal to the original principal
amount hereof multiplied by a fraction, the numerator of which shall be the
number of the Shares so sold and the denominator of which shall be the total
number of the Shares. This Note shall be secured in part by a pledge of Shares
as set forth in the paragraph marked "Pledge of Shares" at the end of this Note.
In the event the undersigned fails to pay the outstanding principal of or
interest on this Note within thirty (30) days after the date such principal or
interest on this Note is due, the undersigned shall be in default hereunder and,
at the option of the holder, the entire amount of principal and interest shall
be accelerated and immediately due and payable. The undersigned agrees to pay
upon default the costs of collection, including reasonable attorneys' fees.
Upon default, the holder hereof shall have full recourse against the undersigned
for up to $15,750 of unpaid amounts due hereunder, and with respect to all
remaining amounts of unpaid principal and interest due hereunder, the holder
hereof shall have recourse only to the holder's rights and remedies under the
Pledge of Shares; provided, that once $15,750 of principal due hereunder has
been repaid by the undersigned, the holder hereof shall have recourse only to
the holder's rights and remedies under the Pledge Agreement with respect to all
remaining amounts of unpaid principal and interest due hereunder.
No delay or omission on the part of the holder in exercising any right hereunder
shall operate as a waiver of such right or of any other right of such holder nor
shall any delay, omission or waiver on any one occasion be deemed a bar to or
waiver of the same or any other right on any future occasion. The undersigned
and every endorser or guarantor of this Note regardless of the time, order or
place of signing waives presentment, demand, protest and notices of every kind
and assent to any extension or postponement of the time of payment or any other
indulgence, to any substitution, exchange or release of collateral and to the
addition or release of any party or person primarily and secondarily liable.
None of the terms or provisions of the Note may be excluded, modified or amended
except by a written instrument duly executed on behalf of the holder, expressly
referring hereto and setting forth the provisions so excluded, modified or
amended.
27
<PAGE> 28
All rights and obligations hereunder shall be governed by the laws of the
Commonwealth of Massachusetts and this Note shall be deemed to be under seal.
---------------------
Michael I. Schneider
PLEDGE OF SHARES
The undersigned ( the "Pledgor") agrees that it is a condition to the Company's
acceptance of this Note as payment for the Shares that the Pledgor grant to the
Company the security interest in the Shares granted hereby. The Pledgor hereby
deposits with and pledges to the Company the Shares, the certificates
representing which shall be held by the Company until such time as the Note is
paid in full (or until such time as the Note is paid in part, in which case
certificates representing Shares equal in value to the portion of the Note so
paid shall be released from this Pledge) and the Pledgor hereby grants to the
Company a security interest in and of the Shares, as security for the due and
punctual payment and performance of the obligations set forth in this Note. Upon
the occurrence of a default under this Note, the Company shall be entitled to
all of the rights of a secured party under the Uniform Commercial Code with
respect to the Shares.
---------------------
Michael I. Schneider
28
<PAGE> 1
EXHIBIT 10.15
MICROCOM, INC.
1993 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(As Amended and Restated Effective March 17, 1995)
______________
Section 1. Purpose of Plan
The purpose of this Microcom, Inc. 1993 Non-Employee
Director Stock Option Plan ("Plan") is to enable Microcom, Inc.
(the "Company") to attract and retain non-employee directors and
further align their interests with those of the shareholders by
providing for or increasing their equity interests in the
Company.
Section 2. Administration
This Plan shall be administered by the Board of Directors of
the Company (the "Board") or by the Compensation Committee
appointed by the Board (the "Committee"). In the event the Board
refrains from delegating administration of this Plan to the
Committee, the Board shall have all power and authority to
administer this Plan. In such event, the word "Committee"
wherever used herein shall be deemed to mean the Board. The
Committee shall, subject to the provisions of the Plan, have the
power to construe this Plan, to determine all questions
hereunder, and to adopt and amend such rules and regulations for
the administration of this Plan as it may deem desirable.
Section 3. Persons Eligible Under Plan
Each member of the Board who is not an employee of the
Company or any of its subsidiaries (a "Non-Employee Director")
shall be eligible for the grant of Options (as hereinafter
defined) under this Plan.
Section 4. Available Shares
The total number of shares of Common Stock, par value $.01
per share, of the Company ("Common Shares"), for which options
may be granted under this Plan shall not exceed 100,000 shares,
subject to adjustment as provided in Section 6 hereof. Shares
subject to this Plan are authorized but unissued Common Shares or
Common Shares that were once issued and subsequently reacquired
by the Company. If any Options (as hereinafter defined) granted
under this Plan are surrendered before exercise or lapse without
exercise, in whole or in part, the Common Shares reserved
therefor shall continue to be available under this Plan.
Section 5. Options
<PAGE> 2
(a) Initial Grants. Each person who is a Non-Employee
Director shall, on March 17, 1995 without further action by the
Board or the Committee, automatically be granted an option
("Option") to purchase 16,000 Common Shares, subject to
adjustment as provided in Section 6 hereof. In addition, each
person who first becomes a Non-Employee Director after March 17,
1995 shall, on the date such person becomes a Non-Employee
Director, without further action by the Board or Committee,
automatically be granted an Option to purchase 16,000 Common
Shares, subject to adjustment as provided in Section 6 hereof.
(b) Annual Grants. On April 15, 1996 and on April 15 of
each succeeding year during the term of this Plan, or, if
April 15 shall not be a business day, the business day
immediately preceding such date, each person who is a Non-
Employee Director shall without further action by the Board or
Committee automatically be granted an Option to purchase 4,000
Common Shares, subject to adjustment as provided in Section 6
hereof.
(c) Insufficient Shares. Notwithstanding the foregoing,
if, on any date upon which Options are to be granted under
Section 5(a) or (b) hereof, the number of Common Shares
remaining available for issuance under this Plan is insufficient
for the grant of Options to purchase the total number of Common
Shares specified in such section, then each Non-Employee Director
entitled to receive an Option on such date shall be granted an
Option to purchase a proportionate amount of the available number
of Common Shares (rounded down to the greatest number of whole
shares). Except for the specific Options referred to in Section
5(a) and (b) above, no other Options shall be granted under
this Plan.
(d) Option Price and Terms. Each Option shall be evidenced
by a written option agreement that shall contain the following
terms and provisions:
(i) The exercise price per Common Share shall be equal to
the Fair Market Value (as hereinafter defined) of one Common
Share on the date of grant of such Option. If, at the time
an Option is granted the Company's Common Shares are
publicly traded, "Fair Market Value" shall be determined as
of the last business day for which the prices or quotes
discussed in this sentence are available prior to the date
such Option is granted and shall mean (i) the average (on
that date) of the high and low prices of the Common Shares
on the principal national securities exchange on which the
Common Shares are traded, if the Common Shares are then
traded on a national securities exchange; or (ii) the last
reported sale price (on that date) of the Common Shares on
<PAGE> 3
-2-
the Nasdaq National Market System, if the Common Shares are
not then traded on a national securities exchange; or (iii)
the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for
over-the-counter securities, if the Common Shares are not
then reported on the Nasdaq National Market System or on a
national securities exchange. If, at the time an Option is
granted under the Plan, the Company's Common Shares are not
publicly traded, "Fair Market Value" shall be the fair
market value on the date the Option is granted as determined
by the Committee in good faith.
(ii) Payment of the exercise price of the Option shall
be made in full in cash or by check concurrently with the
exercise of the Option.
(iii) The Option shall be nontransferable by the
optionee other than by will or the laws of descent and
distribution, and shall be exercisable during the optionee's
life time only by the optionee or the optionee's guardian or
legal representative.
(iv) Options granted pursuant to this Section 5 shall
be immediately exercisable and shall expire upon the first
to occur of the following:
(A) the third anniversary of the date upon which
the optionee shall cease to be Non-Employee Director,
or
(B) the tenth anniversary of the date of grant.
(v) Shares issued upon exercise of an Option granted
hereunder which are unvested shall be subject to repurchase
by the Company, at the Company's election, at a price equal
to the exercise price of the Option if the optionee either
(A) ceases to be a Non-Employee Director for any reason
whatsoever other than death or permanent disability or (B)
proposes to sell or otherwise transfer such shares. Shares
shall vest and become free of the Company's repurchase right
in accordance with the following:
<PAGE> 4
-3-
(a) shares issued upon exercise of an Option granted
pursuant to Section 5(a) shall vest in three annual
installments of 32%, 33% and 35% on the first, second and
third anniversaries, respectively, of the date of grant;
(b) shares issued upon exercise of an Option granted
pursuant to Section 5(b) shall vest in full on the
first anniversary of the date of grant; and
(c) shares issued upon exercise of any Option granted
under the Plan to an optionee who ceases to be a Non-
Employee Director due to death of permanent disability shall
be fully vested upon such cessation of service.
Within 30 days of the date of notice from the Company of
exercise of its repurchase rights, the shares to be
repurchased shall be transferred by the optionee to the
Company against payment by the Company of the purchase price
specified above. If the Company shall fail to exercise its
repurchase rights within 120 days of the date the optionee
ceases to serve as a Non-Employee Director, the repurchase
rights with respect to the shares imposed by this Section
5(v) shall terminate and the optionee may thereafter
transfer the shares, subject, however, to such other
restrictions on transfer as may then exist thereon. If an
optionee fails to comply with any of the provisions of this
Section 5(v), the Company, at its option, and in addition to
its other remedies, may suspend the rights of the optionee
to vote or receive dividends on the shares or may refuse to
register on its books any transfer of the shares or
otherwise recognize any transfer or change in the ownership
of the shares or in the right to vote thereon, until the
provisions of this Section are complied with to the
satisfaction of the Company.
(vi) Such other terms and conditions, not inconsistent
with the terms of this Plan, as the Committee shall include
in the written option agreement.
Section 6. Adjustments
(a) Stock Dividends, Recapitalization, Etc. If the
outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into a
different number or kind of securities of the Company, or if
cash, property or securities are distributed in respect of such
outstanding securities, in either case as a result of a
<PAGE> 5
-4-
reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular
cash dividend) or other distribution, stock split, reverse stock
split or the like, then, unless the terms of such transaction
shall provide otherwise, the Committee shall make appropriate and
proportionate adjustments in (i) the number and type of shares or
other securities or cash or other property that may be acquired
pursuant to Options theretofore granted under this Plan, and
(ii) the maximum number and type of shares or other securities
that may be issued pursuant to Options thereafter granted under
this Plan.
(b) Merger, Sale of Assets, Etc. If the Company is merged
into or consolidated with another corporation under circumstances
where the Company is not the surviving corporation or if the
Company is liquidated or sells or otherwise disposes of all or
substantially all of its assets while unexercised Options remain
outstanding under the Plan, as of the date thirty (30) days prior
to such transaction (i) all outstanding Options shall become
fully vested and exercisable in full, and (ii) any Options which
remain unexercised as of the day prior to the effective date of
the transaction shall be cancelled as of such day and shall not
thereafter be exercisable by anyone; provided that the
accelerated exercisability of Options shall be contingent on
completion of the transaction and shall be null and void if the
transaction is not consummated; and provided, further, that
accelerated exercisability pursuant to this provision shall not
extend the expiration date for any Option determined pursuant to
Section 5.
Section 7. Amendment and Termination of Plan
The Board may amend or terminate this Plan at any time and
in any manner, subject to the following:
(a) no such amendment or termination shall deprive the
recipient of any Option theretofore granted under this Plan,
without the consent of such recipient, of any of his or her
rights thereunder or with respect thereto; and
(b) Section 5 hereof shall not be amended more than once
every six months other than to comport with changes in the
Internal Revenue Code, the Employee Retirement Income Security
Act of 1974, or the rules thereunder.
Section 8. Effective Date and Duration of Plan
<PAGE> 6
-5-
This Plan shall become effective and shall be deemed to have
been adopted on April 21, 1993, subject to approval by the
stockholders of the Company within 12 months after such date.
This Plan shall terminate and no Options shall be granted
hereunder after April 15, 2003.
<PAGE> 1
Exhibit 21.1
MICROCOM, INC. SUBSIDIARIES
Name of Subsidiary Jurisdiction of Incorporation
------------------ -----------------------------
Microcom (UK) Limited England
Microcom Caribe, Inc. Delaware, USA
Connectivity, Ltd. U.S. Virgin Islands
MNP Sales B.V. Netherlands
MNP Hong Kong Limited Hong Kong
Microcom Systems, Inc. Delaware, USA
MNP France E.U.R.L. France
Extension Technology Corp. Delaware, USA
Microcom GmbH Germany
Each subsidiary listed above is a wholly-owned subsidiary of Microcom, Inc.
except for MNP Hong Kong which is a wholly-owned subsidiary of MNP Sales B.V.,
which in turn is a wholly-owned subsidiary of Microcom, Inc.
<PAGE> 1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of
our report dated April 11, 1995 and to all references to our Firm included in
this Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 19,1995
<PAGE> 2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this Registration Statement of our report on the financial
statements of Extension Technology Corporation dated December 19, 1994 included
in Microcom, Inc.'s Form 8-K and to all references to our Firm included in this
Registration Statement.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
May 19, 1995
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 863
<SECURITIES> 0
<RECEIVABLES> 22,183
<ALLOWANCES> 250
<INVENTORY> 16,248
<CURRENT-ASSETS> 40,116
<PP&E> 5,683
<DEPRECIATION> 2,037
<TOTAL-ASSETS> 57,788
<CURRENT-LIABILITIES> 22,384
<BONDS> 0
<COMMON> 121
0
0
<OTHER-SE> 35,161
<TOTAL-LIABILITY-AND-EQUITY> 57,788
<SALES> 93,106
<TOTAL-REVENUES> 93,106
<CGS> 51,322
<TOTAL-COSTS> 51,322
<OTHER-EXPENSES> 34,267
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 807
<INCOME-PRETAX> 6,777
<INCOME-TAX> 1,016
<INCOME-CONTINUING> 5,761
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