<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): February 7, 1998
----------------
CABLETRON SYSTEMS, INC
-----------------------------------------------------
(Exact name of Registrant as Specified in Charter)
DELAWARE 0-10228 04-2797263
- ----------------------------------- ---------------- -------------------
(State or Other Jurisdiction (Commission File (I.R.S. Employer
of Incorporation) Number) Identification No.)
35 Industrial Way, Rochester, NH 03867
--------------------------------------- ---------
(Address of Principal Executive Offices) (Zip Code)
(603) 332-9400
---------------------------------------------------
(Registrant's telephone number including area code)
================================================================================
<PAGE>
The undersigned Registrant hereby amends Item 7 of its Current Report on
Form 8-K for an event occurring on February 7, 1998 and filed on February 9,
1998, as follows:
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
-------------------------------------------------------------------
FINANCIAL STATEMENTS OF BUSINESS ACQUIRED
(A) Audited Financial Statements of Business Acquired for the Fiscal Year
---------------------------------------------------------------------
Ended June 28, 1997.
-------------------
1. Report of Independent Accountants
2. Audited Statement of Revenue and Direct Expenses for Fiscal Year
ended June 28, 1997
3. Audited Statement of Assets Sold as of June 28, 1997
(B) Unaudited Financial Statements of Business Acquired for the Three
-----------------------------------------------------------------
Months Ended September 27, 1997.
-------------------------------
1. Unaudited Statement of Revenue and Direct Expenses for the Three
Months ended September 27, 1997
2. Unaudited Statement of Assets Sold as of September 27, 1997
(C) Notes to Financial Statements of Business Acquired
--------------------------------------------------
PRO FORMA FINANCIAL INFORMATION
(D) Unaudited Pro Forma Financial Statements of the Registrant
----------------------------------------------------------
1. Unaudited Pro Forma Combined Statement of Income for the Fiscal
Year ended February 28, 1997.
2. Unaudited Pro Forma Combined Statement of Income for the Nine
Months ended November 30, 1997.
3. Unaudited Pro Forma Combined Balance Sheet at November 30, 1997.
<PAGE>
EXHIBITS
Exhibit No. Title
- ----------- -----
2.1 Asset Purchase Agreement dated as of November 24, 1997 (the "Asset
Purchase Agreement"), by and among the Registrant, Ctron and
Digital, including a list briefly identifying the contents of the
exhibits and disclosure schedules to the Asset Purchase Agreement.
(Incorporated by reference from Exhibit 2.1 to the Registrant's
Form 10-Q, for the quarterly period ended November 30, 1997, filed
on January 14, 1998.)*
2.2 First Amendment to Asset Purchase Agreement dated as of February 7,
1998 (the "APA Amendment") by and among the Registrant, Ctron and
Digital. The exhibits and disclosure schedules to the APA Amendment
are not included with the APA Amendment. A list briefly identifying
the contents of such omitted exhibits and disclosure schedules is
included herein. The Registrant agrees to furnish supplementally to
the Commission, upon request, a copy of such exhibits and
disclosure schedules.
10.1 Reseller and Services Agreement dated as of November 24, 1997, as
amended, by and between the Registrant and Digital (the "Reseller
Agreement"), including a list briefly identifying the contents of
the exhibits and disclosure schedules to the Reseller Agreement.
(Incorporated by reference from Exhibit 10.1 to the Registrant's
Form 10-Q, for the quarterly period ended November 30, 1997, filed
on January 14, 1998.)*
10.2 Amendment No. One to Reseller Agreement dated as of February 7,
1998 (the "Reseller Amendment"). The exhibits and disclosure
schedules to the Reseller Amendment are not included with the
Reseller Amendment. A list briefly identifying the contents of such
omitted exhibits and disclosure schedules is included herein. The
Registrant agrees to furnish supplementally to the Commission, upon
request, a copy of such exhibits and disclosure schedules.*
* Confidential Treatment has been requested as to certain portions of this
agreement. The term "Confidential Treatment" and the mark (*) is used
throughout the agreement in order to indicate that material has been omitted
and separately filed with the Securities and Exchange Commission.
<PAGE>
23 Consent of Coopers & Lybrand L.L.P.
99 Press Release of the Registrant dated February 9, 1998.
(Previously filed)
<PAGE>
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 hereunto duly authorized.
CABLETRON SYSTEMS, INC.
Date: March 4, 1998 By: /s/ David J. Kirkpatrick
----------------------------------------
Senior Vice President and
Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Number Description Page
- -------------- ----------- ----
7(A)(1) Report of Independent Accountants
7(A)(2) Audited Statement of Revenue and Direct Expenses for the
Fiscal Year ended June 28, 1997
7(A)(3) Audited Statement of Assets Sold as of June 28, 1997
7(B)(1) Unaudited Statement of Revenue and Direct Expenses for
the Three Months Ended September 27, 1997
7(B)(2) Unaudited Statement of Assets Sold as of September 27,
1997
7(C) Notes to Financial Statements of Business Acquired
7(D)(1) Unaudited Pro Forma Combined Statement of Income for
the Fiscal Year ended February 28, 1997
7(D)(2) Unaudited Pro Forma Combined Statement of Income for
the Nine Months ended November 30, 1997
7(D)(3) Unaudited Pro Forma Combined Balance Sheet at November 30, 1997
2.1 Asset Purchase Agreement dated as of November 24, 1997
(the "Asset Purchase Agreement"), by and among the
Registrant, Ctron, and Digital, including a list briefly
identifying the contents of the exhibits and disclosure
schedules to the Asset Purchase Agreement. (Incorporated
by reference from Exhibit 2.1 to the Registrant's Form 10-
Q, for the quarterly period ended November 30, 1997, filed
on January 14, 1998.)*
2.2 First Amendment to Asset Purchase Agreement dated as of
February 7, 1998 (the "APA Amendment") by and among
the Registrant, Ctron and Digital. The exhibits and
disclosure schedules to the APA Amendment are not
included with the APA Amendment. A list briefly
identifying the contents of such omitted exhibits and
disclosure schedules is included herein. The Registrant
agrees to furnish supplementally to the Commission, upon
request, a copy of such exhibits and disclosure schedules.
<PAGE>
Exhibit Number Description Page
- -------------- ----------- ----
10.1 Reseller and Services Agreement dated as of November 24,
1997, as amended, by and between the Registrant and
Digital (the "Reseller Agreement"), including a list briefly
identifying the contents of the exhibits and disclosure
schedules to the Reseller Agreement. (Incorporated by
reference from Exhibit 10.1 to the Registrant's Form 10-Q,
for the quarterly period ended November 30, 1997, filed on
January 14, 1998.)*
10.2 Amendment No. One to Reseller Agreement dated as of
February 7, 1998 (the "Reseller Amendment"). The
exhibits and disclosure schedules to the Reseller
Amendment are not included with the Reseller Amendment.
A list briefly identifying the contents of such omitted
exhibits and disclosure schedules is included herein. The
Registrant agrees to furnish supplementally to the
Commission, upon request, a copy of such exhibits and
disclosure schedules.*
23 Consent of Coopers & Lybrand L.L.P.
99 Press Release of the Registrant dated February 9, 1998.
(Previously filed)
* Confidential Treatment has been requested as to certain portions of this
agreement. The term "Confidential Treatment" and the mark (*) is used
throughout the agreement in order to indicate that material has been
omitted and separately filed with the Securities and Exchange Commission.
<PAGE>
EXHIBIT 7(A)(1)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Directors of
Digital Equipment Corporation:
We have audited the accompanying statement of assets sold, of the Network
Products Business of Digital Equipment Corporation (the "Business") as of June
28, 1997, and the related statement of revenue and direct operating expenses,
for the fiscal year ended June 28, 1997. The statement of assets sold and
statement of revenue and direct operating expenses are the responsibility of
Digital Equipment Corporation's management. Our responsibility is to express an
opinion on these statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets sold and statement of revenue
and direct operating expenses are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the statement of assets sold and the
statement of revenue and direct operating expenses. We believe that our audit
provides a reasonable basis for our opinion.
The accompanying statements were prepared to present the assets sold to
Cabletron Systems, Inc. of the Business and the revenue and direct operating
expenses of the Business pursuant to the acquisition agreement described in Note
1, and are not intended to be a complete presentation of the Business' financial
position or results of operations.
In our opinion, the statements referred to above present fairly, in all material
respects, the assets sold of the Business as of June 28, 1997, and its revenue
and direct operating expenses for the year then ended, pursuant to the
acquisition agreement described in Note 1, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
February 19, 1998
Boston, Massachusetts
<PAGE>
EXHIBIT 7(A)(2)
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
STATEMENT OF REVENUE AND
DIRECT OPERATING EXPENSES
(in thousands)
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED
JUNE 28,
1997
----------
<S> <C>
Revenue:
External $ 187,993
Affiliates 293,778
----------
Total revenue 481,771
Direct operating expenses:
Cost of external revenues 131,132
Cost of affiliates revenues 180,154
Research and engineering 83,770
Selling, general and administrative 124,361
----------
Total direct operating expenses 519,417
----------
Excess revenue over direct operating
expenses/(excess direct operating
expenses over revenue) $ (37,646)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
EXHIBIT 7(A)(3)
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
STATEMENT OF ASSETS SOLD
(in thousands)
<TABLE>
<CAPTION>
JUNE 28,
1997
----------
<S> <C>
ASSETS
Inventory $ 62,499
Net property, plant and equipment 25,637
Prepaid license 6,250
Other investment 5,000
----------
Total assets sold $ 99,386
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
EXHIBIT 7(B)(1)
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
STATEMENT OF REVENUE AND
DIRECT OPERATING EXPENSES
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
SEPTEMBER 27,
1997
-------------
<S> <C>
Revenue:
External $ 44,844
Affiliates 82,134
-------------
Total revenue 126,978
Direct operating expenses:
Cost of external revenues 26,525
Cost of affiliates revenues 43,203
Research and engineering 19,370
Selling, general and administrative 28,827
-------------
Total direct operating expenses 117,925
-------------
Excess revenue over direct operating
expenses/(excess direct operating
expenses over revenue) $ 9,053
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
EXHIBIT 7(B)(2)
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
STATEMENT OF ASSETS SOLD
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
SEPTEMBER 27,
1997
-------------
<S> <C>
ASSETS
Inventory $58,086
Net property, plant and equipment 25,216
Prepaid license 5,000
Other investment 5,000
-------------
Total assets sold $93,302
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
EXHIBIT 7(C)
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
1. BACKGROUND:
----------
Pursuant to an Asset Purchase Agreement (the "Agreement") between Digital
Equipment Corporation ("Digital") and Cabletron Systems, Inc. ("Cabletron"),
dated November 24, 1997 and amended February 7, 1998, Digital sold to Cabletron
certain assets consisting principally of Property, plant and Equipment and
inventory of the Network Products Business of Digital (the "Business"). Digital
and Cabletron are also entering into certain related service and supply
agreements.
The Network Products Business is involved in the design, production and
marketing of computer networking products.
2. BASIS OF PRESENTATION:
---------------------
The statement of assets sold and the statement of revenue and direct operating
expenses (the "Statements") are derived from the historical books and records of
Digital and present assets sold and revenue and direct operating expenses of the
Business. With the exception of Plant, property and certain equipment as
specified in the Agreement, the assets and the revenue and direct operating
expenses in the Statements represent the assets and the revenues and direct
operating expenses of the Business sold pursuant to the Agreement. Certain
direct operating expenses presented in these statements have been allocated
based on management's estimates of the cost of services provided to the Business
by Digital. Such expenses include manufacturing costs such as distribution and
logistics and corporate overhead. Management believes that these allocations
are based on assumptions that are reasonable under the circumstances. The
Business is not a separate taxable entity for federal, state or local income tax
purposes. The Business' operations are included in the consolidated Digital tax
returns. No income tax provision/(benefit) has been allocated. As a result of
the foregoing, the Statements presented may not be indicative of the results of
operations that would have been achieved had the Business been operated as a
nonaffiliated entity.
The Statements of the Business as of September 27, 1997 and for the three months
then ended are unaudited. All adjustments (consisting only of normal recurring
adjustments) have been made which, in the opinion of management, are necessary
for a fair presentation. Results of operations
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
for the three months ended September 27, 1997 are not necessarily indicative of
the results that may be expected for any future period.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
------------------------------------------
The following policies were followed in the Statements presented:
USE OF ESTIMATES
The preparation of the Statements requires management to make estimates and
judgments that affect the reported assets sold of the Business and its revenues
and direct operating expense related disclosures. Such estimates include
inventory reserves and allowance for sales returns. Actual results could differ
from those estimates.
FISCAL YEAR
The fiscal year of Digital is the fifty-two/fifty-three week period ending
the Saturday nearest the last day of June. The fiscal year ended June 28, 1997
included 52 weeks.
TRANSLATION OF FOREIGN CURRENCIES
For non-U.S. operations, the U.S. dollar is the functional currency.
Monetary assets and liabilities of foreign subsidiaries are translated into U.S.
dollars at current exchange rates. Nonmonetary assets and liabilities such as
inventories and property, plant and equipment are translated at historical
rates. Income and expense items are translated at average exchange rates
prevailing during the year, except that inventories and depreciation charged to
operations are translated at historical rates.
REVENUE RECOGNITION
Revenue from external sales is recognized at the time the product is
shipped. Provisions for product sales returns and allowances are recorded in
the same period as the related revenue.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
Revenue from affiliates is recognized at the point of transfer to affiliates at
a transfer price negotiated by the business units of Digital.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market. Inventories are routinely subject to changes in value, resulting from
rapid technological change, intense price competition and changes in customer
demand patterns. While Digital has provided for estimated declines in market
value of inventories, no estimate can be made of the rate of amounts of loss
that are reasonably possible under various competitive conditions.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997 JUNE 28, 1997
------------------ -------------
<S> <C> <C>
Raw materials $ 4,645 $ 5,422
Finished goods 53,441 57,077
------- -------
Total inventories $58,086 $62,499
======= =======
</TABLE>
RESEARCH AND ENGINEERING COSTS
Research and engineering costs are charged to expense when incurred.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, subject to review for
impairment for significant assets whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
<TABLE>
<CAPTION>
SEPTEMBER 27, 1997 JUNE 28, 1997
------------------ -------------
<S> <C> <C>
Land $ 1,783 $ 1,783
Buildings 17,423 17,365
Machinery and equipment 53,836 53,126
------- -------
Total property, plant and equipment 73,042 72,274
Less accumulated depreciation 47,826 46,637
------- -------
Net property, plant and equipment $25,216 $25,637
======= =======
</TABLE>
Depreciation expense was approximately $1,500,000 and $5,950,000 for the
three months ended September 27, 1997 and the year ended June 28, 1997,
respectively.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
Depreciation expense is computed principally on the following bases:
CLASSIFICATION DEPRECIATION LIVES AND METHODS
-------------- ------------------------------
Buildings 33 years (straight-line)
Leasehold improvements Life of assets or term of lease whichever
is shorter (straight-line)
Machinery and equipment 2 to 10 years (principally accelerated
methods)
When assets are retired, or otherwise disposed of, the assets and related
accumulated depreciation are removed from the accounts. Resulting gains and
losses are included in income.
4. POSTRETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS:
------------------------------------------------
PENSION PLANS
The Business participates in Digital's defined benefit and defined
contribution pension plans (the "Retirement Plan") covering substantially all
employees. Those Digital Employees who accept employment with Cabletron will
terminate from Digital and will maintain their vested rights in the Retirement
Plan, with liability remaining with Digital. The benefits are based on years of
service and compensation during the employee's career. Pension cost is based on
estimated benefit payment formulas. It is Digital's policy to make tax-
deductible contributions to the plans in accordance with local laws. The
projected benefit obligation was determined using discount rates of 7.75% for
both the three months ended September 27, 1997 and the year ended June 28, 1997.
For the U.S. pension plan, there was no contribution in the fiscal year. The
assets of the plans include corporate equity and debt securities, government
securities and the real estate.
The statement of revenue and direct operating expenses includes allocated
costs as fringe benefits based upon an average cost per employee for the
Retirement Plan of approximately $701,000 and $2,757,000 for the three months
ended September 27, 1997 and the year ended June 28, 1997, respectively. These
costs are reported as cost of sales for direct labor and selling, general
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
and administrative for indirect labor. The measurement dates for all plans were
within 90 days of year-end.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Business participates in Digital's defined benefit postretirement plans
that provide medical and dental benefits for U.S. retirees and their eligible
dependents. Substantially all of Digital's U.S. employees may become eligible
for postretirement benefits if they reach retirement age while working for
Digital. During the second quarter of fiscal 1997, Digital amended its U.S.
postretirement medical plan to provide full retiree medical benefits only to
employees working ten years after age 45. As a result of the amendment, Digital
recognized a one-time curtailment gain. The majority of Digital's non-U.S.
subsidiaries do not offer postretirement benefits other than pensions to
retirees.
Digital's postretirement benefit plans other than pensions are funded as
costs are incurred. The postretirement benefit obligation was determined using
discount rates of 7.75% for both the three months ended September 27, 1997 and
the year ending June 28, 1997.
The statement of revenue and direct operating expenses includes allocated
costs/(credits) of fringe benefits (based upon an average cost/(credit) per
employee) for the postretirement benefits of approximately $(417,000) and
$(3,208,000) the three months ended September 27, 1997 and the year ended June
28, 1997, respectively.
5. INTEREST EXPENSE:
----------------
There was no direct interest expense incurred by the Business. However, the
interest expense reflected in the statement of revenue and direct operating
expenses is an allocation of Digital's worldwide interest expense based upon the
ratio of the Business' assets sold to total Digital assets as of September 27,
1997 and June 28, 1997. Management believes that this method provides a
reasonable basis for allocation within the Business' historical statement of
revenue and direct operating expenses.
Continued
<PAGE>
NETWORK PRODUCTS BUSINESS OF
DIGITAL EQUIPMENT CORPORATION
NOTES TO FINANCIAL STATEMENTS
(tables in thousands)
Information as of September 27, 1997 and for the three
months then ended, is unaudited
6. DEPENDENCE ON CONTRACT ASSEMBLY MANUFACTURER:
--------------------------------------------
The Business currently relies on a single contract manufacturer to assemble
certain products including switches. Although a number of contract
manufacturers exist, the interruption or termination of the Business' current
manufacturing relationship could have a short-term adverse effect on its
operations. Under the Agreement, all of Digital's rights associated with this
contract manufacturer are assigned to Cabletron.
7. SUBSEQUENT EVENTS:
-----------------
In December 1997, the Business sold its other investment to a third party for
$5,000,000. The agreement was amended to include in the assets sold to
Cabletron, the proceeds from the sale of the investment.
Digital is also selling to Cabletron a certain building with a net book value of
$8,845,000 as of December 27, 1997. The building was occupied under an
operating lease at June 28, 1997 and was purchased by Digital in November 1997.
<PAGE>
EXHIBIT 7(D)(1)
UNAUDITED PRO FORMA COMBINED STATEMENT
OF INCOME FOR THE YEAR ENDED
FEBRUARY 28, 1997
(in thousands)
<TABLE>
<CAPTION>
2/28/97 12/29/96 PRO FORMA PRO FORMA
CABLETRON DIGITAL NPB ADJUSTMENTS COMBINED/h/
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net Sales $ 1,406,552 598,034 2,004,586
Cost of Sales 575,107 344,577 919,684
Gross Profit 831,445 253,457 0 1,084,902
Research and development 161,674 84,305 245,979
Selling, general and administrative 286,469 139,485 396 /b/ 429,992
2,594 /c/
360 /e/
688 /d/
Non recurring items 63,024 63,024
Total operating expense 511,167 223,790 4,038 738,995
Operating income 320,278 29,667 (4,038) 345,907
Interest income 19,422 (5,810)/a/ 13,612
Income before income taxes 339,700 29,667 (9,848) 359,519
Income taxes 117,575 (3,863)/g/ 125,349
11,637 /f/
Net income 222,125 29,667 (17,622) 234,170
Earnings per share 1.43 1.51
Shares outstanding 155,207 155,207
</TABLE>
/a/ Reduction of interest income due to cash portion of the purchase price
of $129,107 from available cash at Cabletron's historical investment
rate of return of 4.5%.
/b/ Amortization related to goodwill.
/c/ Amortization related to existing patents and technologies.
/d/ Amortization related to assembled workforce.
/e/ Depreciation on building acquired.
/f/ Tax effect of DNPG operating income at Cabletron's marginal tax rate of
39.225%.
/g/ Tax effect of (a), (b), (c), (d), and (e) at Cabletron's marginal tax rate
of 39.225%.
/h/ Not included in the Pro Forma Combined Statements of Income are non-
recurring expenses of $380,370 (pre-tax) as disclosed in the Pro Forma
Balance Sheet as these are unusual and relate directly to the acquisition.
NOTE: The above Statement of Income combines Cabletron's fiscal year ended
February 28, 1997 and Digital NPB's twelve months ended December 29, 1996.
<PAGE>
EXHIBIT 7(D)(2) UNAUDITED PRO FORMA COMBINED STATEMENT OF
INCOME FOR THE NINE MONTHS
ENDED NOVEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
11/30/97 9/27/97 PRO FORMA PRO FORMA
CABLETRON DIGITAL NPB ADJUSTMENTS COMBINED/h/
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net sales $1,065,808 393,717 1,459,525
Cost of sales 476,847 230,489 707,336
Gross profit 588,961 163,228 0 752,189
Research & development 134,583 60,666 195,249
Selling, general & administrative 261,848 89,958 297 /b/ 354,835
270 /e/
1,946 /c/
516 /d/
Total operating expense 396,431 150,624 3,029 550,084
Operating income 192,530 12,604 (3,029) 202,105
Interest income 14,269 (4,357)/a/ 9,912
Income before income taxes 206,799 12,604 (7,386) 212,017
Income Taxes 70,490 (2,897)/g/ 72,537
4,944 /f/
Net Income 136,309 12,604 (9,433) 139,480
Earnings per share 0.87 0.89
Shares outstanding 157,527 157,527
</TABLE>
/a/ Reduction of interest income due to cash portion of the purchase price of
$129,107 from available cash at Cabletron's historical investment rate of
return of 4.5%.
/b/ Amortization related to goodwill.
/c/ Amortization related to existing patents and technologies.
/d/ Amortization related to assembled workforce.
/e/ Depreciation on building acquired.
/f/ Tax effect of DNPG operating income at Cabletron's marginal tax rate of
39.225%
/g/ Tax effect of (a), (b), (c), (d) and (e) at Cabletron's marginal tax rate
of 39.225%
/h/ Not included in the Pro Forma Combined Statements of Income are non-
recurring expenses of $380,370 (pre-tax) as disclosed in the Pro Forma
Balance Sheet as these are unusual and relate directly to the acquisition.
NOTE: The above Statement of Income Combines Cabletron's nine months ended
November 30, 1997 and Digital NPB's nine months ended September 27, 1997.
<PAGE>
EXHIBIT 7(D)(3)
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AT NOVEMBER 30, 1997
(in thousands)
<TABLE>
<CAPTION>
11/30/97 9/27/97 PRO FORMA PRO FORMA
CABLETRON DIGITAL NPB ADJUSTMENTS COMBINED
--------- ------------ ------------ ---------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents 208,926 (129,107)/a/ 77,819
Short-term investments 214,680 214,680
Accounts Receivable 298,672 298,672
Inventories 280,021 58,086 (18,102)/e/ 298,005
(22,000)/L/
Deferred income taxes 57,691 149,200 /o/ 206,891
Prepaid exp. & other assets 37,521 10,000 (5,000)/j/ 37,521
(5,000)/c/
Total current assets 1,095,511 68,086 (30,009) 1,133,588
Long-term investments 148,554 148,554
Property, plant & equipment 212,023 25,216 10,800 /i/ 248,039
Other long-term assets 3,166 /b/ 29,416
20,750 /g/
5,500 /h/
Long term deferred income taxes 30,756 30,756
Total assets 1,486,844 93,302 10,207 1,590,353
============================================= =========
Liabilities & stockholders' equity
Accounts payable 69,003 69,003
Accrued expenses 169,332 7,000 /n/ 214,702
5,000 /m/
33,370 /k/
Other short term liabilities 165,633 /d/ 165,633
Income taxes payable 5,282 5,282
Total current liabilities 243,617 0 211,003 454,620
Long-term liabilities 123,676 /d/ 123,676
Deferred income taxes 4,577 4,577
Total liabilities 248,194 0 334,679 582,873
Total stockholders' equity 1,238,650 (325,000)/f/ 1,007,480
149,200 /o/
(33,370)/k/
(22,000)/L/
Total liabilities & stockholders' equity 1,486,844 0 103,509 1,590,353
============================================= =========
</TABLE>
/a/ Purchase price of $430,107. Cash payments were made in the amount of
$129,107 (including acquisition costs of $500.) The remainder of the price
consisted of product credits of $289,309, net of $11,691 net present value
discount.
/b/ Record goodwill $3,166
/c/ Adjust for assets received in cash, $5,000
/d/ Record short term product credits ($165,633 net of $2,867 net present value
discount) and long term product credits ($123,676 net of $8,824 net present
value discount)
/e/ Write down of Digital NPB inventory due to product overlap as a result of
the combined product line and adjustment of reserves to conform to
Cabletron's policies.
/f/ In-process research and devlopment costs of $325,000 were written off in
connection with the acquisition. The charge to operations for such acquired
technology in process is excluded from the unaudited Pro Forma Combined
Statements of Income as it is non-recurring and unusual and relates
directly to the acquisition.
/g/ Record fair value of existing patents and technologies acquired.
/h/ Record fair value of assembled work force acquired.
/i/ Record fair value of building acquired.
/j/ Write off of software licenses
/k/ To record effect of acquisition related expenses including:
Personnel related 14,200
Information systems 7,000
Marketing related 5,000
Professional fees 3,150
Manufacturing related 2,000
Facilities & relocation 1,300
Misc. taxes 720
--------
33,370
The charges to operations for the above expenses are excluded from the
unaudited Pro Forma Combined Statements of Income as these are non-
recurring and unusual and relate directly to the acquisition.
/L/ Adjustment of Cabletron's inventory rendered obsolete and excess due to
product overlap. The charge to operations for such inventory is excluded
from the unaudited Pro Forma Combined Statements of Income as it is non-
recurring and unusual and relates directly to the acquisition.
/m/ Record liability associated with cancellation of vendor commitments as a
result of a change in production plans.
/n/ Severance & Relocation
/o/ Tax effect of expenses (f),(k), & (L) at Cabletron's marginal tax rate of
39.225%.
<PAGE>
EXHIBIT 2.2
-----------
FIRST AMENDMENT TO ASSET PURCHASE AGREEMENT
First Amendment to Asset Purchase Agreement (the "Amendment"), dated as of
February 7, 1998 by and among Cabletron Systems, Inc., a Delaware corporation
and Ctron Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of Cabletron Systems, Inc., and Digital Equipment Corporation, a
Massachusetts corporation.
Whereas, pursuant to an Asset Purchase Agreement between Seller and the
Buyer dated as of November 24, 1997, as amended (the "Purchase Agreement") the
Seller agreed to sell and the Buyer agreed to purchase the Acquired Assets
relating to Seller's Network Products Business;
Whereas, on the date hereof, the parties are conducting the Closing of the
transactions contemplated by the Purchase Agreement with respect to the business
of the NPB in the United States, including the hiring by Buyer of the NPB
employees and the assignment of the Acquired Assets located in the United
States, including the inventory and any distributor or other reseller contracts
of the NPB worldwide, but excluding the hiring by Buyer of the NPB Employees and
the assignment of the Acquired Assets (other than the inventory) located outside
the United States;
Whereas, in connection with the Closing, on the date hereof the parties are
entering into certain other agreements, including a certain Transitional
Services Agreement and a certain International Operating Agreement, and a
certain Contract Supply and Manufacturing Agreement, each by and among the
parties to the Purchase Agreement; and
Whereas, the parties desire to make certain amendments to the Purchase
Agreement and set out certain other agreements related to the Closing.
Now, Therefore, in consideration of the premises and of the mutual
agreements, provisions, covenants and conditions contained in this Agreement,
Seller and the Buyer hereby agree as follows:
SECTION 1. Definitions. Capitalized terms used herein and not otherwise
-----------
defined in this Agreement shall have the meanings assigned such terms in the
Purchase Agreement.
SECTION 2. Closing. Except as expressly set forth herein, the Closing of
-------
the transactions contemplated by the Purchase Agreement has occurred on the date
hereof in accordance with the terms of the Purchase Agreement. The transactions
consummated at the Closing include, without limitation, (i) in the United
States, (a) the hiring by Buyer of the Hired Employees whose principal work
location is the United States, and (b) the assignment of the Acquired Assets
located in the United States, and (ii) throughout the world, (a) the assignment
of all Acquired Assets that constitute inventory, and (b) the assignment of any
<PAGE>
Contracts with any distributor or other reseller of the NPB, but specifically
excluding the hiring by Buyer of the NPB Employees whose principal work location
is outside of the United States and the assignment of the Acquired Assets (other
than inventory) located outside the United States. Notwithstanding anything to
the contrary in the Purchase Agreement, the Closing shall be deemed to have
occurred at 11:59 p.m. on the Closing Date.
SECTION 3. Consideration.
-------------
(a) This Amendment hereby terminates and renders null and void a letter
agreement dated December 8, 1997 among Buyer and Seller which amended the
Purchase Agreement.
(b) The Purchase Agreement is hereby amended as follows:
(i) Section 2.5(a) is amended in its entirety to read as follows:
Cash. $132,725,000.00 in cash (subject to adjustment pursuant to Section
----
2.6). Notwithstanding the preceding sentence, at the Closing Buyer will pay
$127,832,452.70 by wire transfer to the Seller in accordance with written
instructions of the Seller given to the Buyer at least two business days
prior to the Closing which amount represents payment in full of the cash
portion of the Purchase Price minus adjustments for monies owed between the
Parties. These adjustments are set forth in detail in Schedule 3.
(ii) Section 2.5(b) is hereby deleted.
(iii) The first paragraph of Section 2.5(C)(ii) is amended in its
entirety to read as follows:
Second Year Product Credits. Subject to adjustment pursuant to Section
2.6, $132,500,000 in Second Year Product Credits.
(iv) Section 2.1(d) is amended in its entirety to read as follows:
(d) the securities of Ipsilon Networks, Inc. owned by the Seller (or the
$4,999,999.80 cash value of such securities);
(v) Section 2.6(a)(ii) is amended to add the following new subsection:
(a)(ii) Solely for purposes of this Section 2.6(a)(ii), the Asset Value
shall be deemed not to include up to $1.5 million in Stage 1 Assets.
SECTION 4. Financial Statements. Section 5.27 of the Purchase Agreement is
--------------------
amended in its entirety to read as follows:
-2-
<PAGE>
Form 8-K Financial Statements. Seller agrees to engage its outside
-----------------------------
accountants to assist, at the Buyer's expense, in the preparation and audit
of the financial statements required by Buyer for its 8-K as set forth in
Schedule 1 (the "Financial Statements"). Seller agrees to deliver such
Financial Statements by February 23, 1998. For each day beyond February
23, 1998 that Seller is late in delivering such Financial Statements,
Seller agrees to pay Buyer $25,000. For each day prior to February 20,
1998 that Seller is early in delivering such Financial Statements, Buyer
agrees to pay Seller $25,000. Seller agrees to make reasonably available
the Seller financial staff that prepared the Financial Statements during
the days immediately following delivery of the financial statements for the
purposes of conducting diligence and making any necessary amendments. The
Financial Statements shall be prepared in accordance with United States
Generally Accepted Accounting Principles. In addition, Seller agrees to
use all reasonable efforts to assist Buyer in obtaining such comfort
letters, consents and other similar items from Seller's outside accountants
required by Buyer in a timely fashion in connection with its use of the
Financial Statements, both in connection with the 8-K and future filings
with the Securities Exchange Commission which contain or incorporate by
reference the Financial Statements, including a Registration Statement on
Form S-4 which Buyer anticipates filing in connection with its acquisition
of Yago Systems, Inc.
SECTION 5. Transfer Taxes. Schedule 2 sets forth the amounts of the
--------------
various Transfer Taxes to be paid in connection with the Closing. In the event
that Transfer Taxes are required to be paid by either party subsequent to the
Closing, the party not making such payment agrees to reimburse or otherwise pay
in cash the party making the payment for one-half of such Transfer Taxes. This
provision is intended to supplement, and not replace, any provisions in the
Purchase Agreement concerning Transfer Taxes.
SECTION 6. Amended Schedules. The following Exhibits and Schedules to the
-----------------
Purchase Agreement are amended as set forth in the Exhibits and Schedules
attached hereto: Exhibit A, Schedule 1.2, Schedule 1.3, Schedule 1.6, Schedule
2.1(a), Schedule 2.1(h), Schedule 2.1(x) and Disclosure Schedule (S)(S)3.4,
3.15(a) and 3.16(a).
Patents in Dispute
------------------
The Parties are in dispute as to whether Patent Number PD25665 (Buffer
Management Scheme With Packet Based Flow Control Algorithm) should be
assigned to Buyer or retained by Seller pursuant to the Asset Purchase
Agreement. The Parties agree to further investigate the source and use of
this patent in order to resolve this issue by mutual agreement following
the Closing.
SECTION 7. Closings in Foreign Countries. The parties agree to continue
-----------------------------
to use all reasonable efforts to consummate the closing of the transactions
contemplated by the Purchase Agreement in countries other than the United
States. Where reasonably practicable (including economic effect), the parties
will agree to close the transactions in any particular country at the end of
Seller's fiscal month or fiscal week. In the event that despite the use of all
reasonable efforts by both parties to resolve a Local Transfer Impediment, the
closing of the transactions contemplated by the Purchase Agreement in any
particular country has not occurred within
-3-
<PAGE>
nine months following the effective date of this Agreement, Buyer and Seller
will cooperate to develop a mutually agreeable solution that finally resolves
the transactions contemplated by the Purchase Agreement with respect to such
country within twelve months following the effective date of this Agreement,
provided that the dates set forth in this provision shall not be applicable to
- --------
any country where the transaction continues to be under review by any agency,
court, panel, council, governmental entity or similar body or where the parties
have not exhausted the reasonable steps available to them to resolve a Local
Transfer Impediment.
SECTION 8. Assignments. As of the Closing, Seller has been unable to
-----------
obtain consent to assign certain Contracts or Assigned Licenses that are
necessary to the manufacture of certain NPB Products. Seller agrees that,
subject to compliance with all of the applicable terms of the Contract or
Assigned License and the Contract Supply and Manufacturing Agreement (or any
replacement agreement) including the payment provisions, Seller shall continue
to employ its rights under such Contracts or Licenses, including the Super Lat
license under the Meridian Agreement, to manufacture products or components, as
applicable, and to sell such products or components to Buyer. This provision
shall terminate (i) with respect to any particular Contract or Assigned License
that has terminated (unless terminated by Seller prior to its termination in the
ordinary course), or (ii) with respect to all of the applicable Contracts and
Assigned Licenses, upon termination of the Contract Supply and Manufacturing
Agreement, provided that in the event of any termination of the Contract Supply
and Manufacturing Agreement the parties shall use reasonable good faith efforts
to enter into a corporate agreement addressing such Contracts and Assigned
Licenses. This provision is not intended to supersede any provision of the
Purchase Agreement.
Meridian LAT License. Seller is entitled to certain net LAT Base
--------------------
License and royalty fees pursuant to a LAT Cross Licensing/Technology
Exchange/Marketing/ Service Agreement between Digital Equipment Corporation
and Meridian Technology Corporation executed November 16, 1992 and amended
March 1, 1994 (the "Meridian Agreement"). Seller agrees to pay to Buyer
all net LAT Base License and royalty fees actually received by it from
Meridian under the Meridian Agreement within 30 days of receipt by Seller
and Buyer agrees to assume all obligations of Seller under such Agreement
related to the license pursuant to which such fees are paid.
SECTION 9. Certificates. Section 6.1(f) of the Purchase Agreement is
------------
amended in its entirety to read as follows:
Certificates. The Seller shall have delivered to the Buyer a certificate
------------
signed by an authorized officer to the effect that each of the conditions
specified above in (S) 6.1(a), (b) and (d) are satisfied in all respects;
SECTION 10. Counterparts. This Amendment may be executed in any number of
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same document.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the day and year first above written.
CABLETRON SYSTEMS, INC.
By: /s/ David J. Kirkpatrick
-----------------------------------
Name: David J. Kirkpatrick
-------------------------------
Title: Senior Vice President and
Chief Financial Officer
-------------------------------
CTRON ACQUISITION, INC.
By: /s/ David J. Kirkpatrick
------------------------------------
Name: David J. Kirkpatrick
-------------------------------
Title: Treasurer
-------------------------------------
DIGITAL EQUIPMENT CORPORATION
By: /s/ Chris Sullivan
---------------------------------------
Name: Chris Sullivan
----------------------------------
Title: Vice President, Finance
-------------------------------
-5-
<PAGE>
CABLETRON SYSTEMS, INC.
SCHEDULES AND EXHIBITS
INDEX
Schedule 1 -- Financial Statements to be Delivered
Schedule 2 -- Transfer Taxes
Schedule 3 -- Purchase Price Allocation
Exhibit A -- Statement of Assets
Schedule 1.2 -- Assigned Licenses
Schedule 1.3 -- Assigned Patents
Schedule 1.6 -- Retained Patents
Schedule 1.2(a) -- Encumbrances on Acquired Assets
Schedule 2.1(h) -- Contracts
Schedule 2.1(x) -- International Assets
Disclosure Schedule to Asset Purchase Agreement
Section 3.4
Section 3.15(a)
Section 3.16(b)
-6-
<PAGE>
EXHIBIT 10.2
------------
AMENDMENT NUMBER ONE TO RESELLER AND SERVICES AGREEMENT
BETWEEN CABLETRON SYSTEMS, INC.
AND DIGITAL EQUIPMENT CORPORATION
This Agreement, dated February 7, 1998, constitutes Amendment number one
(1) to the Reseller and Services Agreement by and between Cabletron Systems,
Inc. ("Seller") and Digital Equipment Corporation ("Digital") dated November 24,
1997 ("Reseller Agreement"). Capitalized terms not otherwise defined herein
shall have the respective meanings ascribed to them in the Reseller Agreement.
WHEREAS, Seller and Digital desire to amend certain provisions of the
Reseller Agreement,
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Seller and Digital hereby agree as
follows:
The Reseller Agreement is hereby amended by either substituting the following
sections and appendices for the corresponding sections and appendices contained
in the Reseller Agreement or, in cases where a particular section set forth
below is not currently contained in the Reseller Agreement (as indicated by the
words "(Insert as new section)" immediately preceding the new section), by
inserting such section into the appropriate place in the Reseller Agreement. To
the extent that the insertion of a new section would alter the section numbering
of the Reseller Agreement, the Reseller Agreement should be renumbered
accordingly. For the purposes of this Amendment, however, preexisting sections
will be numbered as they were in the Reseller Agreement prior to this Amendment.
1.40 "PRODUCT INFORMATION" shall mean descriptions, documentation, technical
tips, Software support tools, publications, technical newsletters, training
materials and all other information in any media which Digital may
reasonably require in order to sell, support and maintain the Products
and/or deliver Services to Customers.
4.4 The price of Spare Parts used for the provision of Contract Services of NPB
Products shall be [ * ] from the pricing set forth in Sections 4.1 and 4.2.
Unless otherwise agreed between the parties, no MDF or incentive programs
shall apply to such purchases. The price for repair services for NPB
Product Spare Parts
* Confidential Treatment has been requested as to certain portions of this
agreement. The term "Confidential Treatment and the mark (*) is used
throughout this agreement in order to indicate that material has been omitted
and separately filed with the Securities and Exchange Commission.
<PAGE>
provided in connection with Digital's provision of Contract Services for NPB
Products shall be [ * ].
4.7 Seller's prices, when sold and/or shipped to Digital, shall include all
charges such as packaging, packing, customs duties imposed before passage
of title, and all taxes except sales, use and other such taxes imposed
upon the sale or transfer of Product for which Digital is solely
responsible under applicable law and for which Digital is properly in
voiced by Seller. If Product or Spare Parts are supplied without normal
packaging or packing, Seller will pass on to Digital its resultant cost
savings in connection therewith.
6.1 Prior to delivery, Seller shall insure that all Products conform in all
material respects to the guidelines set forth on Schedules 6.1 and 6.1.1
as applicable.
6.2 Digital may perform source inspection and quality assurance reviews in
accordance with the Quality Assurance Guidelines contained in Schedules
6.1 and 6.1.1 as applicable, but this shall in no way relieve Seller of
its obligation to materially conform to the guidelines set forth in
Schedules 6.1 and 6.1.1 respectively, nor does said right of inspection
waive (i) any of Seller's obligations hereunder; (ii) the rights of
Digital to inspect the Products upon delivery; or (iii) the specific
Product Warranty provisions. Seller shall assist Digital, at Digital's
request, in performing such inspection and reviews.
6.3 Seller shall have fourteen (14) days from the date of notification by
Digital of a deviation from the Quality Assurance Guidelines or, for
Seller Products, the quality guidelines established by the parties
pursuant to the Service Implementation Plan described in Section 8.2.3, to
cure such deviation. In the event such a deviation is not cured within
fourteen (14) days, Digital, at its option, may:
6.3.2 immediately terminate Seller's right to continue to use the Digital
Marks on any Digital-Branded Products.
* Confidential Treatment
-2-
<PAGE>
7.4 Seller shall pay Digital [ * ]. The foregoing takes into account the fact
that Digital will provide as part of the Warranty Services (i) call
handling, (ii) pur chasing, stocking and storage of Spare Parts and
replacement whole units, and (iii) logistics and revision management, and
will not be providing repair services.
8.2.3 Digital shall not commence its obligations under Sections 8.2.1 and 8.2.2
until ninety (90) days following the Closing Date. During such ninety (90)
day period, Seller and Digital shall enter into a mutually agreeable
service implementation plan (the "Service Implementation Plan") which
provides sufficient additional details beyond the contractual provisions
necessary to ensure a quality service delivery and an efficient working
relationship between Seller and Digital for the servicing of Seller
Products. Such Service Implementation Plan shall include, but not be
limited to, sufficient detail on: (i) quality; (ii) Product Information
and documentation in any medium and from any Seller source, system, or
database; and (iii) branding. The agreement by the parties with respect to
such plan shall be subject to the Escalation Process contained in Schedule
3.1 of the Reseller Agreement, and the scheduling of the agreement process
shall be given sufficient priority to ensure its successful completion.
8.8 Seller acknowledges that Digital's worldwide implementation of the
Services contemplated by this Agreement will likely be accomplished in a
phased approach. Seller also acknowledges that Digital's ability and
commitment to perform such Services is greatly dependent on Seller's
delivery to Digital of all necessary training, tools, diagnostics,
information and support ("Readiness Requirements") in a timely and
efficient manner. As such, Seller will work with Digital to establish a
Service Readiness Plan, (the "Plan"). The Plan shall be incorporated by
reference into this Agreement, and shall establish detailed operational
instructions concerning how to invoke the service relationship created by
this Agreement. The parties
* Confidential Treatment
-3-
<PAGE>
agree to assign the necessary resources to begin the development of the
Plan immediately upon execution of this Agreement. Specifics to be
included in the Plan shall be: (i) Seller's deliverables respecting
Digital's implementation of Warranty Services and Contract Services; (ii)
logistics planning and disposition requirements; (iii) training and
information/documentation deliverables for all NPB Products, Digital-
Branded Products and Seller Products; (iv) Digital staffing and training
requirements to satisfy mutually acceptable certification levels; (v)
field deployment (persons/equipment); (vi) communications and
infrastructure requirements; (vii) problem tracking and reporting
requirements; (viii) sales forecasting details (types/frequency) by
region/territory; and (ix) service quality metrics. Readiness
Requirements for New Products shall be added to the Plan by amendment.
8.13 Seller will package Spare Parts consistent in all material respects with
MCS' current packaging requirements, a copy of which is attached hereto
as Schedule 6.1.
8.15 Seller's exclusive remedies for Digital's failure to perform Services in
accordance with the applicable descriptions of such Services agreed to by
the parties are i) to request that Digital perform conforming Services;
or ii) to receive a refund of the amount(s) paid to Digital for such
Services. Digital shall not be liable for any costs or other expenses
incurred by Seller in connection with such failure.
9.1.1. Digital may terminate this license with respect to an individual Digital-
Branded Product if Seller neglects or fails to perform or observe any of
the obligations set forth on Schedule 9.1.1 with respect to such
individual Digital-Branded Product if Digital determines, in its sole
discretion, that such neglect or failure causes a material adverse effect
on Digital's trademark rights, and such condition is not remedied within
thirty (30) days after written notice of such neglect or failure; or if
Seller enters bankruptcy proceedings, becomes insolvent, makes an
assignment for the benefit of its creditors, discontinues its business or
is placed in receivership. Notwithstanding the foregoing, if Seller is
using reasonable and prompt efforts to cure such neglect or failure,
Digital shall not exercise its right of termination hereunder until the
earlier of (i) ten (10) days after the end such thirty (30) day cure
period, and (ii) Seller ceases using reasonable efforts to cure such
neglect or failure, as determined in Digital's sole discretion.
-4-
<PAGE>
9.3 Seller shall submit all uses of the Digital Marks and the Digital Brand
to Digital for its prior approval, which shall not be unreasonably
withheld. Digital shall use reasonable efforts to grant or deny such
approval promptly. As of the Closing Date, the Digital contact person for
such approval shall be Jean Bouchenoire. All current uses of the Digital
Marks and the Digital Brand on NPB Products and NPB Product packaging
shall be deemed to have been approved. Digital's approval of any standard
layouts and designs shall be limited to ensuring that such layouts and
designs comply with the standards set forth in Schedule 9.1.1, as the
same may be amended from time to time. After a layout or design has been
approved. Seller may use the approved layouts or designs and
substantially identical layouts and designs upon products, packaging and
marketing collateral without further approval of Digital, except in the
event that the standards set forth on Schedule 9.1.1 have been modified
by Digital, in which case all such layouts and designs must be
resubmitted to Digital for reapproval. The parties shall meet once per
year for Digital to review all uses of the Digital Marks, the Seller
Trade name, and the Digital Brand and confirm that such uses are in
accordance with this Agreement.
9.6 After the Closing Date, the Seller Products listed on Schedule 9.6 shall
be sold under the Digital Marks in accordance with the Product Road Map.
Before the First Revenue Ship of such Products under the Digital Marks,
Seller must have met all of Digital's requirements with respect to the
items listed in Section 8.8 to ensure that Digital is prepared to be the
exclusive provider of Warranty Services and the Strategic Network
Services Partner for Contract Services for all such Products. Digital
shall use reasonable efforts to expedite the approval of the branding of
all such Seller Products with the Digital Marks, it being understood that
the average time required is expected to be no less than eight (8) weeks
but in no event shall exceed twelve (12) weeks after the Closing Date.
9.9 Seller shall be entitled to refer to an organization within Seller that
predominantly sells Digital-Branded Products as the "DIGITAL Network
Products Group, a Cabletron Systems, Inc. Company" (the "Seller Trade
name").
9.9.2 Seller may not use the word mark "DIGITAL" other than i) as part of
the Seller Trade name, ii) in all capital letters, and (iii) as set forth
in this Agreement.
-5-
<PAGE>
9.9.4 The Seller Trade name and the Relationship Logo may only be used to
identify the group or division within Seller which is manufacturing,
selling, marketing, and servicing Digital-Branded Products and doing
business under the Seller Trade name and the Relationship Logo. They may
not be used for product branding.
9.9.7 The example set forth on Schedule 9.9.5 illustrates permitted uses of
Seller Trade name and Relationship Logo, subject to Digital's approval
with respect to color, size and appearance of the Digital Brand.
9.10 Seller shall abide by the Digital Trademark License and Quality
Requirements terms set forth on Schedule 9.1.1.
11.2 Seller hereby grants to Digital and its Authorized Warranty Service
Providers a royalty-free, non-exclusive, worldwide license to reproduce
and distribute, in whole or in part, (i) all Product Information
excluding documentation and training materials which the Seller markets
for profit; and (ii) any other service-related materials or documentation
provided by Seller to Digital or Digital Partners hereunder.
12.1 Digital owns all right, title and interest, including all Intellectual
Property Rights in all materials (including diagnostic software, hardware
and software tools and associated documentation) developed by Digital for
its own use or the use of its Authorized Warranty Service Providers in
the performance of Services.
12.2 Seller hereby grants to Digital and its Digital Partners a non-exclusive,
worldwide license, until the expiration of the last Digital Services
Agreement, to duplicate, use, and distribute, directly and indirectly,
all Software, including revisions and updates. All Software, including
revisions and updates, shall be available for duplication and
distribution internally by Digital, and to Customers and/or third parties
via down-loading from Seller's on-line database(s). Digital will pay
Seller a royalty on any Software that is duplicated and distributed by
Digital, at rates to be negotiated by the parties. Royalty payments shall
be reduced by the amount of any tax required to be withheld against
Seller income from royalties by a government or governmental agency;
provided that the parties shall cooperate in good faith to reduce such
-------- ----
withholding to the extent legally possible. Where reduced or nil rates of
withholding tax apply under the provisions of double
-6-
<PAGE>
taxation treaties, Seller shall provide Digital with the authorizations
necessary to apply for such rates, and Digital shall make such filings as
may be necessary to claim the benefit of the reduced or nil rate. Digital
shall provide Seller any certification of the amounts withheld and copies
of any certificates furnished by a withholding jurisdiction. In the event
that Digital makes any payment without deduction of withholding tax,
Seller shall indemnify Digital against any subsequent liability arising
from the failure to make such a deduction. Prior to First Revenue Ship of
a Software Product or revision or upgrade thereto, Seller will provide
Digital with a distribution master for such Product, revision or upgrade.
12.2.1 Notwithstanding the foregoing, Digital may issue no charge Purchase
Orders for all Software that is provided by Seller generally to Customers
at no cost. Such Software shall be provided to Digital in such quantities
as requested by Digital, on a royalty-free basis. Seller may, at Seller's
option, provide Digital with an electronic master copy to make copies for
Digital's internal use.
12.3 Seller hereby grants to Digital and its Authorized Warranty Service
Providers a royalty free, non-exclusive, worldwide license, until the
expiration of the last Digital Services Agreement, to use and distribute,
and to provide Customers, both directly and indirectly, electronic access
to all data and information contained in Seller's Product Information
database (excluding company confidential information and documents and
training materials which Seller markets for profit) for the purpose of
providing support to Customers.
13.3 Seller shall make available for use by Digital and Digital's Authorized
Warranty Service Providers service tools (including diagnostic software
and hardware, hardware tools and associated documentation) to assist
Digital and Digital's Authorized Warranty Service Providers in performing
Services hereunder. The types, quantities and deployment of such service
tools will be mutually determined by the parties. The proprietary service
tools shall remain the exclusive property of Seller, and shall be
returned to Seller upon expiration or termination of this Agreement.
21.1 The manufacturer of a Digital-Branded Product shall bear all costs
associated with the one year manufacturer's warranty. The manufacturer of
a
-7-
<PAGE>
Seller Product shall bear all costs associated with the standard
manufacturer's warranty for such Seller Product.
21.3 Seller warrants that all Digital-Branded Products sold by Seller to
Digital under the terms of this Agreement will be free from defects in
workmanship and materials under normal use and service for (i) one year
for hardware and Software and (ii) ninety (90) days for floppy discs and
magnetic media. All Warranty claims for Digital-Branded Products must
comply with the terms of the Warranty set forth on Schedule 8.10. The
manufacturer of a Digital-Branded Product, whether Digital or Seller, as
the case may be, shall be responsible for all Digital-Branded Product
repairs during the warranty period. Seller shall be responsible for all
Seller Product repairs during the applicable standard manufacturer's
warranty period.
21.4 Seller warrants that (i) Software contained in Digital-Branded Products
provided hereunder will perform in substantial conformance to the program
specifications therefor during its one-year warranty period; (ii)
Software contained in Seller Products provided hereunder will perform in
substantial conformance to the program specifications therefor during its
applicable standard manufacturer's warranty period; (iii) that all
defects in Software, whether contained in Digital-Branded or Seller
Products, identified during the applicable warranty period will be
corrected; (iv) that all Software is Year 2000 Compliant; and (v) that
the magnetic media containing Software will not fail during the first
ninety (90) days.
21.5 The Warranty for Digital-Branded Products shall be as set forth on the
Warranty Schedule attached hereto, Schedule 8.10. The parties shall
mutually agree on all additions to, deletions from or changes to the
Schedule. Prior to shipment of any Digital-Branded Products, Seller shall
incorporate the Warranty set forth on Schedule 8.10 into its Digital-
Branded Products literature, documentation and corresponding Warranty
registration cards or forms.
21.7.1 In the event that Seller evaluates and determines that there is NPF in
greater than ten percent (10%) of the Products or parts returned in a six
(6) month period, Seller reserves the right to charge Digital for each
returned unit determined to be NPF thereafter, the lesser of (i) $150 or
(ii) twenty-five percent (25%) of the purchase price.
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<PAGE>
21.7.2 [Section renumbered as 21.7.1]
(Insert as new section)
21.8 [Text of former 21.7.1]
(Insert as new section)
21.11 Digital's exclusive remedies for breach of any warranties set forth in
this Section 21 are (at Seller's option) (i) repair or replacement of the
applicable Product or a refund of the purchase price; or (ii) the
provision of conforming services. Seller shall not be liable for any
costs or other expenses incurred by Digital in connection with such
breach.
22.1.1 [ * ]
* Confidential Treatment
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<PAGE>
Except as amended hereby, the Reseller Agreement remains in full force and
effect.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives.
DIGITAL EQUIPMENT CORPORATION SELLER
/s/ Chris Sullivan /s/ David J. Kirkpatrick
- -------------------------------- --------------------------------------
Authorized Signature Authorized Signature
David J. Kirkpatrick
Chris Sullivan Senior Vice President and
Vice President, Finance Chief Financial Officer
- -------------------------------- --------------------------------------
Name and Title Name and Title
February 7, 1998 February 7, 1998
- -------------------------------- --------------------------------------
Date Date
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<PAGE>
CABLETRON SYSTEMS, INC.
SCHEDULES AND EXHIBITS
INDEX
Schedule 3.1 -- Appendix 1 - Product Road Map
Schedule 6.1.1 -- Quality Assurance Guidelines for Software
Schedule 9.1.1 -- Trademark License and Quality Requirements
Appendix 1 -- The Digital Brand
Appendix 2 -- DEC Formative Marks
Appendix 3 -- Digital Logo Reproduction Requirements
Appendix 5 -- Digital Brand Usage Requirements
Appendix 6 -- Usage Criteria for DEC Formative Marks
Appendix 7 -- Relationship Logo Usage Requirements
Schedule 9.6 -- Seller Products to be Digital-Branded
Schedule 9.8 -- Standards for Use of the Digital Marks
Schedule 9.9.5 -- Sample Business Card
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<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Cabletron Systems, Inc. ("Cabletron") on Forms S-8 (File No. 33-
31572 as filed on October 13, 1989, 33-42490 as filed on August 29, 1991, 33-
50454 as filed on August 4, 1992, 33-96058 as filed on August 18, 1995, 333-
09029 as filed on July 26, 1996, 333-09403 as filed on August 1, 1996 and as
amended November 11, 1996, 333-17557 as filed on December 12, 1996 and 333-21391
as filed on February 7, 1997) of our report, which includes an explanatory
paragraph, dated February 19, 1998, on our audit of the Statement of Assets Sold
and Statement of Revenue and Direct Operating Expenses (the "Statements") of the
Network Products Business of Digital Equipment Corporation (the "Business"),
which report is included in the current report on Form 8-K/A. The explanatory
paragraph states that the Statements were prepared to present the assets sold by
the Business to Cabletron and the revenue and direct operating expenses of the
Business and are not intended to be a complete presentation of the Business'
financial position or results of operations.
COOPERS & LYBRAND L.L.P.
Boston, Massachusetts
March 3, 1998
