<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the quarterly period ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from to
-------- --------
Commission File No. 0-14805
MICROCOM, INC.
(Exact name of registrant as specified in its charter)
------------------------------------------
MASSACHUSETTS 04-2710644
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
500 RIVER RIDGE DRIVE 02062-5028
NORWOOD, MASSACHUSETTS (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (617) 551-1000
------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01
------------------------------------------
Indicate by check / / whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X no .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of December 31, 1995,
15,431,763.
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<PAGE> 2
MICROCOM, INC.
<TABLE>
TABLE OF CONTENTS
<S> <C>
PART I. FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS ...................................... 3
CONSOLIDATED STATEMENTS OF OPERATIONS ............................ 4
CONSOLIDATED STATEMENTS OF CASH FLOWS ............................ 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ....................... 6
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS ................................... 7
PART II. OTHER INFORMATION
EXHIBITS AND REPORTS ON FORM 8-K ................................. 9
SIGNATURES ....................................................... 10
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
<TABLE>
MICROCOM, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
(In thousands)
DECEMBER 31, 1995 MARCH 31, 1995
----------------- --------------
ASSETS
<S> <C> <C>
Current assets:
Cash and equivalents ............................................ $ 37,825 $ 863
Accounts receivable, less reserves of $327 and $250 at
December 31, 1995 and March 31, 1995, respectively ............. 37,566 22,183
Inventories ..................................................... 23,373 16,248
Prepaid expenses and other current assets ....................... 1,424 822
-------- -------
Total current assets ........................................... 100,188 40,116
Property and equipment, net ...................................... 6,983 5,683
Other assets, net ................................................ 11,639 11,989
-------- -------
$118,810 $57,788
======== =======
Liabilities AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of capitalized leases and short-term debt ....... $ 611 $12,543
Accounts payable ................................................ 14,995 6,923
Accrued expenses ................................................ 3,127 2,918
-------- -------
Total current liabilities ...................................... 18,733 22,384
-------- -------
Long-term portion of capitalized leases .......................... 2,526 122
-------- -------
Stockholders' equity:
Common stock, $.01 par value, authorized - 30,000 shares,
issued - 16,413 shares at December 31, 1995, and 12,088 shares
at March 31, 1995 .............................................. 164 121
Capital in excess of par value .................................. 115,049 61,190
Stock loans - related parties ................................... (2,237) (1,942)
Accumulated deficit ............................................. (12,927) (21,589)
Treasury stock, at cost, 981 shares ............................. (2,613) (2,613)
Cumulative translation adjustment ............................... 115 115
-------- -------
Total stockholders' equity ..................................... 97,551 35,282
-------- -------
$118,810 $57,788
======== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
3
<PAGE> 4
<TABLE>
MICROCOM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
(In thousands, except per share amounts)
Three Months Ended Nine Months Ended
------------------ -----------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales .................................................. $39,977 $23,134 $101,341 $67,219
Cost of sales .............................................. 23,821 12,770 58,274 37,110
------- ------- -------- -------
Gross margin ............................................... 16,156 10,364 43,067 30,109
------- ------- -------- -------
Operating expenses:
Research and development .................................. 4,316 2,725 11,218 7,601
Sales and marketing ....................................... 6,175 4,369 17,411 13,740
General and administrative ................................ 1,750 1,215 4,084 3,509
------- ------- -------- -------
Total operating expenses ................................. 12,241 8,309 32,713 24,850
------- ------- -------- -------
Income from operations ..................................... 3,915 2,055 10,354 5,259
Interest income ............................................ 339 3 878 66
Interest and other expenses, net ............................ (185) (259) (1,042) (514)
------- ------- -------- -------
Income before income taxes ................................. 4,069 1,799 10,190 4,811
Provision for income taxes ................................. 610 270 1,528 721
------- ------- -------- -------
Net income ................................................. $ 3,459 $ 1,529 $ 8,662 $ 4,090
======= ======= ======== =======
Net income per share ....................................... $ .21 $ .13 $ .57 $ .34
======= ======= ======== =======
Weighted average number of shares outstanding .............. 16,715 11,921 15,196 12,002
======= ======= ======== =======
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE> 5
<TABLE>
MICROCOM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
(In thousands)
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income. .......................................................... $ 8,662 $ 4,090
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization ....................................... 5,485 4,451
Changes in assets and liabilities:
Accounts receivable, net ........................................... (15,383) (3,827)
Inventories ........................................................ (7,125) (13,276)
Prepaid expenses and other current assets .......................... (602) 299
Accounts payable and accrued expenses .............................. 8,281 (630)
Accrued restructuring costs ........................................ - (1,070)
--------- ---------
Net cash used in operating activities ............................ (682) (9,963)
--------- ---------
Cash flows used in investing activities:
Capitalized software development costs and purchased technology ...... (4,408) (3,230)
Purchase of property and equipment ................................... (3,077) (2,053)
Other assets ......................................................... (117) 380
--------- ---------
Net cash used in investing activities ........................... (7,602) (4,903)
--------- ---------
Cash flows from financing activities:
Proceeds from public offering, net ................................... 50,418 -
(Payments) borrowings under revolving credit line, net ............... (12,020) 9,920
Banker acceptance on inventory purchases ............................. (195) (541)
Borrowings (payments) on capitalized leases .......................... 2,687 (230)
Repayment of stock loans ............................................. 461 -
Exercise of stock options and employee stock purchase plan ........... 3,895 1,107
--------- ---------
Net cash provided by financing activities ....................... 45,246 10,256
--------- ---------
Net increase (decrease) in cash and equivalents ....................... 36,962 (4,610)
Cash and equivalents at beginning of period ........................... 863 5,342
--------- ---------
Cash and equivalents at end of period ................................. $ 37,825 $ 732
========= =========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
5
<PAGE> 6
MICROCOM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands)
Note 1. BASIS FOR PRESENTATION
The consolidated balance sheet as of December 31, 1995, and the related
consolidated statements of operations and cash flows for the three and nine
months ended December 31, 1995, and 1994, are unaudited. In the opinion of
management, all adjustments necessary for the fair presentation of such
financial statements have been included, such adjustments consisted only of
normal recurring items. Interim results are not necessarily indicative of
results for a full year.
The financial statements are presented as permitted by Form 10-Q and do not
contain certain information included in the Company's annual consolidated
financial statements.
<TABLE>
Note 2. INVENTORIES
<CAPTION>
DECEMBER 31, 1995 MARCH 31, 1995
----------------- --------------
<S> <C> <C>
Raw materials ............... $ 3,482 $ 4,557
Finished goods .............. 19,891 11,691
-------- --------
$ 23,373 $ 16,248
======== ========
</TABLE>
<TABLE>
Note 3. PROPERTY AND EQUIPMENT
<CAPTION>
Depreciable Life
DECEMBER 31, 1995 MARCH 31, 1995 in Years
----------------- -------------- ----------------
<S> <C> <C> <C>
Computer equipment and software .............. $ 9,890 $ 9,503 2-7
Manufacturing equipment ...................... 3,062 2,937 3-7
Furniture and fixtures ....................... 1,629 1,458 8
Leasehold improvements ....................... 2,295 1,830 Life of Lease
------- --------
16,876 15,728
Accumulated depreciation and amortization .... (9,893) (10,045)
------- --------
$ 6,983 $ 5,683
======= ========
</TABLE>
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Net Sales - Net sales for the three and nine month periods ended
December 31, 1995, were $39,977,000 and $101,341,000, respectively, a 73% and
51% increase from the same periods in fiscal 1995. These increases were
primarily attributable to increased sales of remote site V.34 modem products
and central site remote network access products, particularly the High Density
Management Systems (HDMS). International sales for the three and nine month
periods ended December 31, 1995, were $24,162,000 and $47,563,000,
respectively, as compared to $7,235,000 and $18,188,000 for the same periods
last year. International sales for the three and nine month periods ended
December 31, 1995, were 60% and 47%, respectively, of net sales as compared to
31% and 27% for the same periods last year. The increases in international
sales were primarily due to increased sales of remote site V.34 modem products.
For the three and nine month periods ended December 31, 1995, sales to a
Japanese distributor accounted for 28% and 18% of net sales, respectively.
Gross Margin - Gross margins for the three and nine month periods ended
December 31, 1995, were 40% and 42%, respectively, of net sales, as compared to
45% for each of the same periods last year. The decreases were primarily due
to unit sales of lower margin products increasing at a higher rate than the
growth of other higher margin products. In the future, the Company expects
continued pressure on gross margins as a result of higher unit sales of lower
margin products.
Research and Development - During the three and nine month periods ended
December 31, 1995, research and development costs increased $1,591,000 and
$3,617,000, respectively, or 58% and 48% from the same periods last year.
These increases reflect the Company's continued investment in new and existing
technologies. The increases were principally due to the hiring of additional
engineering personnel and increased consulting and contract fees. Research and
development costs were 11% of net sales for each of the three and nine months
ended December 31, 1995, as compared to 12% and 11%, respectively, in the
previous fiscal year.
Sales and Marketing - In the three and nine month periods ended
December 31, 1995, sales and marketing expenses increased $1,806,000 and
$3,671,000, respectively, or 41% and 27% from the same periods last year. The
increases were directly related to the expansion of the Company's international
distribution channels, coupled with additional marketing programs, primarily
advertising, and variable selling expenses from increased net sales.
General and Administrative - During the three and nine month periods ended
December 31, 1995, general and administrative expenses increased $535,000 and
$575,000, respectively, or 44% and 16% from the same periods last year. The
increases were primarily due to increased personnel and operational costs.
Interest Income - In the three and nine month periods ended December 31, 1995
interest income increased by $336,000 and $812,000, respectively. These
increases were primarily due to the investment of the proceeds from the
Company's public offering of common stock completed on June 28, 1995.
Interest and Other Expenses - During the three and nine month periods ended
December 31, 1995, interest and other expenses decreased by $74,000 and
increased by $528,000, respectively. The increase during the nine month period
ended December 31, 1995 was primarily due to the utilization of the Company's
line of credit during the first three months of the year. There were no
borrowings under the Company's line of credit at December 31, 1995.
Income Taxes - The Company's effective tax rate was 15% for both periods
reported. 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.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
(CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
On June 28, 1995, the Company completed a public offering of 3,480,000 shares
of common stock at $15.625 per share. The proceeds to the Company after
deducting underwriting commissions and other expenses of the offering were
$50,418,000. Approximately $12,000,000 of the offering proceeds were used to
repay indebtedness under the Company's credit facility.
As of December 31, 1995, the Company had $37,825,000 in cash and equivalents.
On December 13, 1995, the Company amended its bank revolving credit facility,
increasing the borrowing amount to $25,000,000 from $16,000,000. The terms of
the facility allow the Company to borrow up to an amount (the "Maximum
Borrowing Amount") equal to the lesser of (i) $25,000,000 or (ii) an amount
based on the Company's eligible accounts receivable. 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. At December 31, 1995, the Company was contingently liable
with respect to $9,030,000 in outstanding letters of credit and its bank credit
availability was approximately $15,989,000. Under the terms of the credit
facility, which expires in November 1996, the Company is required to comply
with certain covenants. At December 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, product line dispositions, public and private
stock offerings, lease arrangements for facilities and equipment and short-term
borrowings from banks. Management believes that its cash and equivalents, line
of credit availability, and cash provided by operations will be adequate to
meet the Company's liquidity requirements for the immediate future.
FOREIGN CURRENCY HEDGING
To date, all of the Company's transactions (including customer sales and
purchases from vendors) have been denominated in U.S. dollars, except for an
immaterial amount of customer sales denominated in U.K. pounds sterling. The
Company has hedged the currency risk associated with these foreign sales by
entering into forward contracts. The gains or losses on such contracts are
deferred until the contracts are settled and are then recognized as other
income or expense.
8
<PAGE> 9
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
Exhibit 10.1 - Fourth Amendment to Credit Agreement dated as
of December 13, 1995 between Silicon Valley
Bank, BayBank, N.A. and the Company.
Exhibit 10.2 - Amended promissory note dated as of
December 13,1995 between Silicon Valley Bank
and the Company
Exhibit 10.3 - Amended promissory note dated as of
December 13,1995 between Baybank, N.A. and
the Company
Exhibit 11.0 - Calculation of net income per share
Exhibit 27.0 - Financial Data Schedule
(b) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed by the Company during the
period covered by this report.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
DATE: February 14, 1996 BY: /s/ Roland D. Pampel
-------------------------- ----------------------------------------------------------
Roland D. Pampel, President,
Chief Executive Officer and Director
DATE: February 14, 1996 BY: /s/ Peter J. Minihane
-------------------------- ----------------------------------------------------------
Peter J. Minihane, Executive Vice President of Operations,
Chief Financial Officer and Treasurer
</TABLE>
10
<PAGE> 11
EXHIBIT 10.1
LOAN DOCUMENT MODIFICATION AGREEMENT
(No. 4; dated as of December 13, 1995)
LOAN DOCUMENT MODIFICATION AGREEMENT dated as of December 13, 1995 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 as a Lender (in such capacity, "SVB"),
BAYBANK, N.A. as a Lender (in such capacity, "BAYBANK") and Silicon Valley Bank
as agent for SVB and BayBank (in such capacity, the "AGENT").
1. Reference to Existing Loan Documents.
------------------------------------
Reference is hereby made to that Credit Agreement dated March 22, 1995
among the Borrower, the Agent and the Lenders as previously amended as of
April 28, 1995, June 21, 1995 and September 14, 1995 (with the attached
schedules and exhibits, the "CREDIT AGREEMENT") and the Loan Documents referred
to therein, including without limitation those certain Notes of the Borrower
dated March 22, 1995, each in the principal amount of $8,000,000 (the "Notes"),
and the Security Instruments referred to therein. Unless otherwise defined
herein, capitalized terms used in this Agreement shall have the same respective
meanings as set forth in the Credit Agreement.
2. Effective Date.
--------------
This Agreement shall become effective as of December 13, 1995 (the
"EFFECTIVE DATE"), provided that the Agent shall have received the following on
or before December 20, 1995 and provided further, however, in no event shall
this Agreement become effective until signed by an officer of the SVB in
California:
a. two copies of this Agreement, duly executed by the Borrower;
b. an amended and restated promissory note in the principal
amount of $12,500,000 payable to the order of SVB in the form enclosed herewith
(the "AMENDED SVB NOTE"), duly executed by the Borrower;
c. an amended and restated promissory note in the principal
amount of $12,500,000 payable to the order of BayBank in the form enclosed
herewith (the "AMENDED BAYBANK NOTE" and together with the Amended SVB Note
the "AMENDED NOTES"), duly executed by the Borrower;
d. evidence of the approval by your Board of Directors of this
Agreement and the Amended Notes; and
e. evidence of the approval of the attached consent by the
Board of Directors of Microcom Systems, Inc.
By the signature of its authorized officer below, the Borrower is
hereby representing that, except as modified in SCHEDULE A attached hereto,
the representations of the Borrower set forth in the Loan Documents (including
those contained in the Credit Agreement, as amended by this Agreement) are true
and correct as of the Effective Date as if made on and as of such date. The
Borrower agrees to pay a nonrefundable facility fee in connection herewith in
the aggregate amount of $44,000. In order to effectuate the foregoing, the
Borrower confirms its authorization as to the debiting of its account with the
each Lender in the amount of $22,000 in order to pay each Lender's portion of
the facility fee for the period up to and including the extended Expiry Date.
Finally, the Borrower (and Microcom Systems, Inc., signing as a guarantor
below) agrees that, as of the Effective Date, it has no defenses against its
obligations to pay any amounts and perform the obligations under the Credit
Agreement and the other Loan Documents.
3. Description of Change in Terms.
------------------------------
As of the Effective Date, the Credit Agreement is modified in the
following respects:
11
<PAGE> 12
a. Section 1.1 is hereby amending by deleting the date
"March 22, 1996" appearing in the fifth line thereof and substituting in place
thereof the date "November 5, 1996."
b. Section 1.2 is hereby restated in its entirety as follows:
"1.2 LINE OF CREDIT COMMITMENT. The Total Line of Credit
Commitment shall be, in the aggregate, $25,000,000; each of
the Lenders shall have a respective Line of Credit
Commitment of $12,500,000."
c. Section 1.6 is hereby amended by inserting after the words
"Borrowing Base" in the third line of the last paragraph appearing on page
three of the Credit Agreement the following:
"as such Borrowing Base is calculated at the end of any
fiscal quarter (or, in the event that the Borrower incurs
a Net Loss in any fiscal quarter, then as calculated at the
end of any fiscal month)"
d. Section 1.7 is hereby amended by: (a) inserting the word
"and" immediately before clause (iii); deleting the percentage "10%" appearing
in the sixth line thereof and substituting in place thereof the percentage
"25%"; and (c) deleting clause (iv).
e. Section 1.8 is hereby amended by deleting the date
"March 22, 1996" appearing in the fourth line thereof and substituting the date
"November 5, 1996."
f. Section 2.1 (a) is hereby deleted in its entirety and there
is hereby substituted in place thereof the following:
"The Borrower agrees to pay interest on 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, which interest rate
shall change when the Prime Rate shall change such interest
shall be payable monthly in arrears on the fifth 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)."
g. Section 3 is hereby deleted in its entirety and there is
hereby substituted in place thereof the following
"Section 3 Guaranty
-------------------
Payment and performance of all of the Borrower's present or
future obligations to the Agent and the Lenders, the
Issuing Bank, the Accepting Bank and the FX Bank under the
Agreement, the Notes and the other Loan Documents the
"SECURED OBLIGATIONS" shall be 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 (the
"GUARANTOR"), a copy of which is attached hereto as
EXHIBIT F."
h. Section 6.4 is hereby amended by deleting the words "one
hundred (100) days" appearing in the first line thereof and substituting the
words "ninety (90) days."
i. Section 6.8 is hereby restated in its entirety as follows:
"6.8 INSPECTION. The Borrower will, upon the request of
the Agent, permit a representative of the Agent (including
any field examiner or auditor retained by the Agent) to
inspect and make copies of the Borrower's books and records
and to conduct a receivables audit, at the expense of the
Borrower, provided, however, as long as no Events of
Default has occurred is continuing only one such audit
shall be conducted in a fiscal year with the aggregate cost
not to exceed $2,500 in any fiscal year."
j. Sections 7.11 through 7.14 of the Credit Agreement are
amended in their entirety to read as follows:
12
<PAGE> 13
7.11 QUICK RATIO. The Borrowers will not permit the
Quick Ratio at the end of any fiscal quarter, commencing
with the quarter ending December 31, 1995, to be less
than 2.0 to 1.
7.12 MINIMUM PROFITABILITY. The Borrower will not
permit Net Income at the end of any fiscal quarter,
commencing with the fiscal quarter ending
December 31, 1995, to be less than $1.00.
7.13 LEVERAGE. The Borrower will not permit the ratio
of Total Senior Liabilities to Tangible Net Worth at
the end of any fiscal quarter, commencing with the
fiscal quarter ending December 31, 1995, to exceed 0.5
to 1.
7.14 TANGIBLE NET WORTH. The Borrower will not permit
Tangible Net Worth at the end of any fiscal quarter,
commencing with the fiscal quarter ending
December 31, 1995, to be less than the sum of (a)
$80,000,000; and (b) fifty percent (50%) of cumulative
Net Income for the period taken as a single period)
from January 1, 1996 to the end of the fiscal period in
question, with no offset for Net Losses.
k. Section 7.15 of the Credit Agreement is hereby deleted in
its entirety.
l. Section 10 is hereby amended by deleting the following
definitions: "Applicable Inventory Amount," "Applicable Margin," "Eligible
Inventory," "Inventory Component," "Inventory Dollar Cap, " Inventory Margin,"
"Security Agreement," Security" and "Security Instruments."
m. The definition of "Eligible Domestic Accounts Receivable"
under Section 10 is hereby amended by restating in its entirety the proviso at
the end of subparagraph (i) as follows:
"PROVIDED, HOWEVER, that, notwithstanding the foregoing but
solely in the case of Sprint and all its Affiliates and
such other account debtors approved in writing from time to
time by all the Lenders in their sole discretion, the
maximum aggregate percentage shall be 40% instead of 25%.
n. The Compliance and Borrowing Base Certificates attached to
the Credit Agreement as EXHIBIT C and EXHIBIT D respectively are hereby
restated in their entirety in the form of EXHIBIT C and EXHIBIT D here for
respectively.
o. The Credit Agreement and the other Loan Documents are hereby
amended wherever necessary or appropriate to reflect the foregoing changes.
4. The Agent and the Lenders agree with the Borrower that from and
after the Effective Date the following Security Instruments shall be of no
further force and effect: (a) the Security Agreement of the Borrower (b) the
Collateral Assignment of Patents and Trademarks of the Guarantor; (c) the
Assignment for Security (Patents) of the Guarantor; and (d) Assignment for
Security (Trademarks). The Agent agrees to executed and caused to be filed
with the appropriate filing authorities the UCC financing statement and other
appropriate documentation to confirm termination of the security interests
granted by the foregoing documents.
5. Continuing Validity.
-------------------
Upon the effectiveness hereof, each reference in each Loan Document to
"the Credit Agreement", "thereunder", "thereof", "therein", or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement, as amended hereby. Except as specifically set forth above,
the Credit Agreement shall remain in full force and effect and is hereby
ratified and confirmed. Except as set forth in Section 4 above, Each of the
other Loan Documents is in full force and effect and is hereby ratified and
confirmed. The amendments set forth above (i) do not constitute a waiver or
modification of any term, condition or covenant of the Credit Agreement or any
other Loan Document, other than as expressly set forth herein, and (ii) shall
not prejudice any rights which the Bank may now or hereafter have under or in
connection with the Credit Agreement, as modified hereby, or the other Loan
Documents and shall not obligate the Bank to assent to any further
modifications.
6. Miscellaneous.
-------------
13
<PAGE> 14
a. This Agreement may be signed in one or more counterparts
each of which taken together shall constitute one and the same document.
b. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS.
c. THE BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE COMMONWEALTH OF MASSACHUSETTS IN
ANY ACTION, SUIT, OR PROCEEDING OF ANY KIND AGAINST IT WHICH ARISES OUT OF OR
BY REASON OF THIS LOAN MODIFICATION AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR
ANY REASON SVB CANNOT AVAIL ITSELF OF THE COURTS OF THE COMMONWEALTH OF
MASSACHUSETTS, THEN VENUE SHALL LIE IN SANTA CLARA COUNTY, CALIFORNIA.
d. The Borrower agrees to promptly pay on demand all costs and
expenses of the Agent and the Lenders in connection with the preparation,
reproduction, execution and delivery of this letter amendment and the other
instruments and documents to be delivered hereunder, including the reasonable
fees and out-of-pocket expenses of Sullivan & Worcester, special counsel for
the Agent and the Lenders with respect thereto.
14
<PAGE> 15
IN WITNESS WHEREOF, the Agent, the Lenders and the Borrower have caused
this Agreement to be signed under seal by their respective duly authorized
officers as of the date set forth above.
SILICON VALLEY EAST, a Division
of Silicon Valley Bank, as a Lender
and the Agent
By:
------------------------------
Name: James C. Maynard
Title: Vice President
SILICON VALLEY BANK, as a Lender
and the Agent
By:
------------------------------
Name:
Title:
(signed in Santa Clara, CA)
BAYBANK, as a Lender
By:
------------------------------
Name:
Title:
MICROCOM, INC.
By:
------------------------------
Name:
Title:
15
<PAGE> 16
Schedule A
----------
Qualifications and Supplements to Disclosure
--------------------------------------------
[If none, state "None"]
16
<PAGE> 17
CONSENT
The undersigned, as Guarantor under the guaranty dated as of
March 22, 1995 (the "GUARANTY") in favor of Silicon Valley Bank as agent for
Silicon Valley Bank and BayBank, as Lenders, hereby consents to the foregoing
Loan Document Modification Agreement (No.8, dated December 13, 1995) and hereby
confirms and agrees that the Guaranty is, and shall continue to be, in full
force and effect and is hereby ratified and confirmed in all respects, except
that, upon the Effective date of said Loan Document Modification Agreement,
each occurrence in the Guaranty and in each other Loan Document (as defined in
the Amended and Restated Credit Agreement dated as of March 22, 1995) to which
the undersigned is a party, including , without limitation, any security
agreement or collateral assignment, of "the Credit Agreement," "thereunder,"
"thereof," "therein," or words of like import referring to the Amended and
Restated Credit Agreement, shall mean and be a reference to the Amended and
Restated Credit Agreement, as amended hereby.
MICROCOM SYSTEMS, INC.
By:
---------------------------------
Name:
Title:
Date: December 13, 1995
17
<PAGE> 1
EXHIBIT 10.2
AMENDED AND RESTATED PROMISSORY NOTE
$12,500,000.00 Norwood, Massachusetts
December 13, 1995
(Originally dated March 22, 1995)
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 3003 Tasman Drive, Santa Clara, CA
95054 or to its order, the lesser of Twelve Million Five Hundred Thousand
Dollars ($12,500,000.00) or the outstanding principal amount hereunder, on
November 5, 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) until the Maturity Date, payable
monthly in arrears on the fifth 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 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 Bank 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 dated March 22, 1995
(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, as previously amended as of April 28, 1995, June 21, 1995,
September 14, 1995 and December 13, 1995, (together with all related schedules,
as the same may be amended, modified or supplemented from time to time, the
"CREDIT AGREEMENT") by and among the Borrower, the Lenders named therein
(including the Bank), and the Bank in its capacity as agent for the Lenders
(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.
Payment of principal and interest on this Note is unconditionally
guaranteed pursuant to the Guaranty dated as of March 22, 1995 by Microcom
Systems, Inc., a Delaware corporation, in favor of the Agent for the benefit of
the Lenders.
Each reference in each Loan Document (as defined in the Credit
Agreement) to "the Note", "thereof", "therein", "thereunder", or words of like
import referring to the Original Note, shall mean and be a reference to the
Original Note, as amended and restated hereby.
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
Agent and 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.
18
<PAGE> 2
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 SHALL BE DEEMED 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 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 OR RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW OF
THE COMMONWEALTH OF MASSACHUSETTS AND THIS NOTE SHALL BE DEEMED TO BE UNDER
SEAL.
MICROCOM, INC.
By:
----------------------------
Name:
Title:
19
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED PROMISSORY NOTE
$12,500,000.00 Norwood, Massachusetts
December 13, 1995
(Originally dated March 22, 1995)
For value received, the undersigned, MICROCOM, INC. a Massachusetts
corporation (the "BORROWER"), promises to pay to BayBank, N.A. (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 Twelve Million Five Hundred Thousand
Dollars ($12,500,000.00) or the outstanding principal amount hereunder, on
November 5, 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) until the Maturity Date, payable
monthly in arrears on the fifth 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 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 Bank 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 dated March 22, 1995
(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, as previously amended as of April 28, 1995, June 21, 1995,
September 14, 1995 and December 13, 1995, (together with all related schedules,
as the same may be amended, modified or supplemented from time to time, the
"CREDIT AGREEMENT") by and among the Borrower, the Lenders named therein
(including the Bank), and Silicon Valley Bank in its capacity as agent for the
Lenders (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.
Payment of principal and interest on this Note is unconditionally
guaranteed pursuant to the Guaranty dated as of March 22, 1995 by Microcom
Systems, Inc., a Delaware corporation, in favor of the Agent for the benefit of
the Lenders.
Each reference in each Loan Document (as defined in the Credit
Agreement) to "the Note", "thereof", "therein", "thereunder", or words of like
import referring to the Original Note, shall mean and be a reference to the
Original Note, as amended and restated hereby.
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
Agent and 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.
20
<PAGE> 2
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 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 OR RULE 4 OF THE FEDERAL RULES OF CIVIL PROCEDURE.
ALL RIGHTS AND OBLIGATIONS HEREUNDER SHALL BE GOVERNED BY THE LAW OF
THE COMMONWEALTH OF MASSACHUSETTS AND THIS NOTE SHALL BE DEEMED TO BE UNDER
SEAL.
MICROCOM, INC.
By:
------------------------------------
Name:
Title:
21
<PAGE> 1
<TABLE>
EXHIBIT 11.0
MICROCOM, INC.
CALCULATION OF NET INCOME PER SHARE
FOR THE THREE AND NINE MONTH PERIODS ENDED DECEMBER 31, 1995 AND 1994
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
------------------- -------------------
(In thousands, except per share amounts) 1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income ..................................................... $ 3,459 $ 1,529 $ 8,662 $ 4,090
======= ======= ======= =======
Reconciliation of average number of shares outstanding to
amount used in net income per share computation:
Weighted average number of shares outstanding ................ 15,339 10,792 14,054 10,697
Assumed exercise of stock options ............................ 1,376 1,129 1,142 1,305
------- ------- ------- -------
Weighted average number of shares outstanding,
as adjusted ................................................. 16,715 11,921 15,196 12,002
------- ------- ------- -------
Net income per share ........................................... $ .21 $ .13 $ .57 $ .34
======= ======= ======= =======
</TABLE>
22
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 14,308
<SECURITIES> 23,517
<RECEIVABLES> 37,566
<ALLOWANCES> 327
<INVENTORY> 23,373
<CURRENT-ASSETS> 100,188
<PP&E> 16,876
<DEPRECIATION> 9,893
<TOTAL-ASSETS> 118,810
<CURRENT-LIABILITIES> 18,733
<BONDS> 0
<COMMON> 164
0
0
<OTHER-SE> 97,387
<TOTAL-LIABILITY-AND-EQUITY> 118,810
<SALES> 101,341
<TOTAL-REVENUES> 101,341
<CGS> 58,274
<TOTAL-COSTS> 58,274
<OTHER-EXPENSES> 32,713
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 164
<INCOME-PRETAX> 10,190
<INCOME-TAX> 1,528
<INCOME-CONTINUING> 8,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,662
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
</TABLE>
