SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended May 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-10228
CABLETRON SYSTEMS, INC.
-----------------------
(Exact name of registrant as specified in its charter)
Delaware 04-2797263
------------------------------ ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
35 Industrial Way, Rochester, New Hampshire 03867
(Address of principal executive offices and Zip Code)
Registrant's telephone number, including area code: (603) 332-9400
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES - X NO -
As of June 30, 1999, there were 174,121,216 shares of the Registrant's common
stock outstanding.
This document contains 18 pages
Exhibit index on page 34
<PAGE>
INDEX
CABLETRON SYSTEMS, INC.
Page
----
Facing Page 1
Index 2
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - May 31, 1999 (unaudited) and
February 28, 1999 3
Consolidated Statements of Operations - Three months ended
May 31, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows - Three months ended
May 31, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements -
May 31, 1999 (unaudited) 6 - 8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9 - 14
PART II. OTHER INFORMATION
Item 5. Other 15
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
CABLETRON SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(unaudited)
May 31, 1999 February 28, 1999
------------ -----------------
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents .......................... $ 129,392 $ 159,422
Short-term investments ............................. 97,885 113,932
Accounts receivable, net ........................... 220,605 216,793
Inventories ........................................ 216,657 229,512
Deferred income taxes .............................. 53,492 60,252
Prepaid expenses and other assets .................. 59,090 60,510
---------- ----------
Total current assets .......................... 777,121 840,421
---------- ----------
Long-term investments ................................... 237,635 202,984
Long-term deferred income taxes ......................... 158,375 135,197
Property, plant and equipment, net ...................... 172,052 188,479
Intangible assets ....................................... 188,547 199,419
---------- ----------
Total assets ................................. $1,533,730 $1,566,500
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable ................................... $ 120,377 $ 121,580
Current portion of long-term obligation ............ 96,866 129,747
Accrued expenses ................................... 225,670 218,149
---------- ----------
Total current liabilities ..................... 442,913 469,476
Long-term deferred income taxes ......................... 12,199 7,191
---------- ----------
Total liabilities ....................................... 455,112 476,667
---------- ----------
Stockholders' equity:
Preferred stock, $1.00 par value. Authorized
2,000 shares; none issued ........................ --- ---
Common stock $0.01 par value. Authorized
240,000 shares; issued and outstanding 173,649
and 172,184, respectively ........................ 1,736 1,722
Additional paid-in capital ......................... 562,775 551,232
Retained earnings .................................. 513,962 536,487
---------- ----------
1,078,473 1,089,441
Accumulated other comprehensive income.............. 145 392
---------- ----------
Total stockholders' equity ................... 1,078,618 1,089,833
---------- ----------
Total liabilities and stockholders' equity ... $1,533,730 $1,566,500
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended
May 31,
1999 1998
---- ----
<S> <C> <C>
Net sales .................................... $ 349,533 $ 365,747
Cost of sales ................................ 212,615 216,112
--------- ---------
Gross profit ............................ 136,918 149,635
--------- ---------
Operating expenses:
Research and development ................ 50,797 54,209
Selling, general and administrative ..... 102,362 106,786
Special charges ......................... 23,736 150,000
--------- ---------
Total operating expenses ............ 176,895 310,995
--------- ---------
Loss from operations ................ (39,977) (161,360)
Interest income .............................. 4,068 3,839
--------- ---------
Loss before income tax benefit....... (35,909) (157,521)
Income tax benefit ........................... 13,384 2,952
--------- ---------
Net loss ..................................... ($ 22,525) ($154,569)
========= =========
Net loss per share:
Basic ................................... ($ 0.13) ($ 0.95)
========= =========
Diluted ................................. ($ 0.13) ($ 0.95)
========= =========
Weighted average number of shares outstanding:
Basic ................................... 173,090 163,394
========= =========
Diluted ................................. 173,090 163,394
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
CABLETRON SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
(unaudited)
Three Months Ended
May 31,
1999 1998
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss ......................................................... ($ 22,525) ($154,569)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ................................ 28,855 23,246
Provision for losses on accounts receivable .................. (1,407) 987
Deferred taxes ............................................... 2,056 8,117
Loss on disposal of property ................................. 64 399
Asset impairment ............................................. 6,000 ---
Purchased research and development from acquisition .......... --- 150,000
Other ........................................................ 603 ---
Changes in assets and liabilities:
Accounts receivable ....................................... (6,450) (9,898)
Inventories ............................................... 12,237 28,095
Prepaid expenses and other assets ......................... (1,590) 1,041
Accounts payable and accrued expenses ..................... (34,063) (60,642)
Income taxes payable ...................................... (81) (3,152)
--------- ---------
Net cash used in operating activities ......................... (16,301) (16,376)
--------- ---------
Cash flows from investing activities:
Capital expenditures ............................................. (9,448) (13,618)
Cash received in business acquisition ............................ --- 317
Purchase of available-for-sale securities ........................ (20,076) (24,528)
Purchase of held-to-maturity securities .......................... (128,465) (12,282)
Maturities of marketable securities .............................. 138,888 44,982
--------- ---------
Net cash used in investing activities ......................... (19,101) (5,129)
--------- ---------
Cash flows from financing activity:
Proceeds from stock option exercise .............................. 2,381 972
Common stock issued to employee stock
purchase plan .................................................. 3,418 ---
--------- ---------
Net cash provided by financing activity ....................... 5,799 972
--------- ---------
Effect of exchange rate changes on cash ............................. (427) 63
--------- ---------
Net decrease in cash and cash equivalents ........................... (30,030) (20,470)
Cash and cash equivalents, beginning of period ...................... 159,422 207,078
--------- ---------
Cash and cash equivalents, end of period ............................ $ 129,392 $ 186,608
========= =========
Cash paid during the period for:
Income taxes ..................................................... $ 2,452 $ 2,131
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
1. Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and Article 2 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments consisting of normal
recurring accruals necessary for a fair presentation of the results of
operations for the interim periods presented have been reflected herein. The
results of operations for the interim periods are not necessarily indicative of
the results to be expected for the entire year. The accompanying financial
statements should be read in conjunction with the consolidated financial
statements and footnotes thereto included in the Company's Annual Report on Form
10-K for the year ended February 28, 1999.
2. New Accounting Standards
In December 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-9, "Modification of Software Revenue Recognition"
which requires recognition of revenue using specific methods and amends SOP 98-4
(Deferral of the Effective Date of a Provision of SOP 97-2) and amends certain
paragraphs of SOP 97-2. The Company adopted SOP 98-9 for its year ending
February 28, 2000, beginning on March 1, 1999. The adoption of SOP 98-9 did not
have a material impact on the Company's results of operations for the quarter
ended May 31, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) which requires companies to record derivative instruments
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. SFAS 133 will be effective for the Company's first quarter
of fiscal year ending February 28, 2002. Management is currently evaluating the
potential effects of this pronouncement on its consolidated financial
statements. At this time, management does not expect the impact to be
significant.
3. Inventories
Inventories consist of:
(in thousands)
May 31, February 28,
1999 1999
-------- ------------
Raw materials $ 63,303 $ 64,603
Work in process 11,925 16,033
Finished goods 141,429 148,876
-------- --------
Total inventories $216,657 $229,512
======== ========
4. Business Combination
On March 17, 1998, Cabletron acquired Yago Systems, Inc. ("Yago"), a privately
held manufacturer of wire speed routing and layer-4 switching products and
solutions. Under the terms of the merger agreement, Cabletron issued 6.0 million
shares of Cabletron common stock to the shareholders of Yago in exchange for all
of the outstanding shares of Yago, not then owned by Cabletron. Prior to the
closing of the acquisition, Cabletron held approximately twenty-five percent of
Yago's capital stock, calculated on a fully diluted basis. Cabletron also
agreed, pursuant to the terms of the merger agreement, to issue up to 5.5
million shares of Cabletron common stock to the former shareholders of Yago in
the event the shares originally issued in the transaction do not attain a market
value of $35 per share eighteen months after the closing of the transaction.
<PAGE>
Cabletron recorded the cost of the acquisition at approximately $165.7 million,
including direct costs of $2.6 million. This acquisition has been accounted for
under the purchase method of accounting. The cost represents 11.5 million shares
at $14.1875 per share, in addition to direct acquisition costs. Based on an
independent appraisal, $150.0 million of the purchase price was allocated to
in-process research and development. Accordingly, Cabletron recorded special
charges of $150.0 million for this in-process research and development, at the
date of acquisition. The excess of cost over net assets acquired was allocated
to goodwill and other intangible assets. A total of $16.3 million was allocated
to goodwill and other intangible assets and is being amortized on a
straight-line basis over a period of 5 - 10 years. Cabletron's consolidated
results of operations include the operating results of Yago from the acquisition
date.
5. EPS Reconciliation
The basic and diluted loss per common share computations for the Company's
reported net loss, at May 31, 1999 and 1998, used the same numerators and
denominators as the dilutive securities outstanding were not included in the
calculations of diluted loss per share because the effects were anti-dilutive.
For May 31, 1999 and 1998, stock options to purchase shares of common stock
totaling 3.7 million and 0.5 million, respectively, were outstanding but were
not included in the calculation of diluted earnings per share since the effect
was anti-dilutive. In addition, the effect of the 5.5 million shares that may be
issued related to the acquisition of Yago, as of the end of the quarters ended
May 31, 1999 and 1998, was not included since the effect was anti-dilutive.
6. Comprehensive Income (Loss)
The Company's total comprehensive income (loss) was as follows:
(in thousands)
Period ended
May 31, 1999 May 31, 1998
------------ ------------
Net loss ($22,525) ($154,569)
Other comprehensive income:
Unrealized gain/(loss) on
available-for-sale securities (241) ---
Foreign currency translation
adjustment (6) 1,348
--------- ----------
Total comprehensive income (loss) ($22,772) ($153,221)
========= ==========
7. Restructuring Charges
On March 23, 1999, the Company announced a global restructuring initiative and
recorded special charges of $23.7 million in the quarter ended May 31, 1999.
Approximately $6.0 million of these charges relate to asset impairments, $11.6
million relates to employee termination and severance costs, and $6.1 million to
exit costs. These charges were recognized to reflect the planned closure of a
manufacturing facility in Ohio, the planned closure or divestiture of
approximately 40 sales offices worldwide, the planned net reduction of
approximately 1,000 individuals of the Company's global workforce, principally
of manufacturing, distribution and targeted headcounts impacting most functions
within the Company, the planned consolidation and outsourcing of certain
manufacturing operations and the write-off of certain assets that would not be
required subsequent to the restructuring. These actions are expected to be
completed prior to February 28, 2000. As of May 31, 1999, approximately 65
employees were terminated and approximately $0.4 million was paid in accordance
with the Company's severance plan. No other payments or charges were recorded
during the quarter ended May 31, 1999. $6.0 million of the charges is reflected
as a credit to property, plant and equipment, at May 31, 1999.
<PAGE>
8. Segment and Geographical Information
The Company provides a broad product line and services for the computer
networking industry. Substantially all revenues result from the sales of
hardware and software products and professional services (training,
installation, maintenance, etc.). The Company's reportable segments are based on
geographic area. All intercompany revenues and expenses are eliminated in
computing revenues and operating income. Operating income excludes interest
income, interest expense, taxes and special charges. Long-lived assets consist
primarily of the net book value of property, plant and equipment and long-term
investments and the long-term investments were attributable to the United
States. The Other segment includes Canada and Latin America.
All revenue amounts are based on product shipment destination and asset balances
are based on location. The United States operating income amount for the quarter
ended May 31, 1999 excludes the $23.7 million charge related to the
restructuring initiative announced during the quarter. The United States
operating income in the quarter ended May 31, 1998 excludes the $150.0 million
of special charges related to the Yago acquisition that was completed during the
quarter ended May 31, 1998.
<TABLE>
<CAPTION>
(in thousands)
Quarter ended May 31,
1999 1998
---- ----
<S> <C> <C>
Sales to unaffiliated customers (trade):
United States $ 240,033 $ 196,745
Europe 78,612 120,863
Pac Rim 23,852 35,150
Other 7,036 12,989
---------- ----------
Total trade sales $ 349,533 $ 365,747
---------- ----------
Operating income (loss):
United States $ 923 $ (28,470)
Europe (12,615) 16,529
Pac Rim (3,010) 1,906
Other (1,539) (1,325)
----------- -----------
Total operating income (loss) $ (16,241) $ (11,360)
----------- -----------
Assets:
United States $ 994,069 $ 957,376
Europe 462,015 584,558
Pac Rim 50,321 63,010
Other 27,325 48,694
---------- ----------
Total assets $1,533,730 $1,653,638
---------- ----------
Long-lived assets:
United States $ 383,992 $ 335,740
Europe 17,152 20,914
Pac Rim 5,511 6,711
Other 3,032 2,700
---------- ----------
Total long-lived assets $ 409,687 $ 366,065
---------- ----------
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Cabletron Systems' worldwide net sales in the first quarter of fiscal 2000 (the
three month period ended May 31, 1999) were $349.5 million, a decrease of 4.4%
from net sales of $365.7 million for the first quarter of fiscal 1999. Net sales
within the United States (domestic) increased $43.3 million or 22.0% from $196.7
million or 53.8% of total net sales in the quarter ended May 31, 1998 to $240.0
million or 68.7% of total net sales for the quarter ended May 31, 1999. Domestic
net sales increased due to a higher volume of sales of switched media products
more than offsetting the decreases in sales of shared media products. Worldwide
sales of switched products increased approximately $27.2 million, or 14%, to
$224.7 million in the first quarter of fiscal 2000 compared to $197.5 million in
the first quarter of fiscal 1999. The increase in sales of switched products was
largely due to the SmartSwitch Router products, technology acquired in the Yago
acquisition, being sold during the entire first quarter of fiscal 2000. These
products were introduced during the first quarter of fiscal 1999 and were sold
only during a part of the first quarter of fiscal 1999. This increase was offset
by a $28.5 million decrease in sales of shared media products to $26.4 million
in the first quarter of fiscal 2000 compared to $54.9 million in the same
quarter of fiscal 1999, a decline of approximately 52%. The Company expects
sales of its shared media products to continue to decrease this fiscal year as
customers continue to migrate from shared media products to the newer switched
technology products. Sales of software, professional services and other
decreased $14.9 million to $98.4 million in the first quarter of fiscal 2000 as
compared to $113.3 million in the same quarter of fiscal 1999. An increase in
training and professional services revenues was more than offset by decreased
sales of DNI cards and other miscellaneous products.
International sales were $109.5 million or 31.3% of net sales in the first
quarter of fiscal 2000 as compared to $169.0 million or 46.2% of net sales for
the same period in fiscal 1999, a decrease of $59.5 million or 35%. The decrease
in international sales was largely a result of lower than expected sales to
resellers and distributors in Europe and the Pac Rim region. Sales to Europe
decreased 35.0% and sales to the Pac Rim region decreased 32.1%. An additional
factor contributing to the decline in international sales was lower purchases by
Compaq for its international locations in the quarter.
Gross profit as a percentage of net sales in the first quarter of fiscal 2000
decreased to 39.2% from 40.9% for the first quarter of fiscal 1999. The decrease
was primarily due to a $15.2 million inventory write-off related to the
discontinuations of several product lines. The decrease in the gross profit
margin was partially offset by an increase of domestic sales, at higher margins
than were achieved in the comparable period of the preceding year.
Research and development expenses in the first quarter of fiscal 2000 decreased
6.3% to $50.8 million from $54.2 million in the first quarter of fiscal 1999.
The decrease in research and development spending reflected the savings achieved
through the consolidation of staff from various R&D departments. Research and
development spending as a percentage of net sales decreased to 14.5% from 14.8%.
Selling, general and administrative ("SG&A") expenses in the first quarter of
fiscal 2000 decreased 4.1% to $102.4 million from $106.8 million in the first
quarter of fiscal 1999. This slight decrease was a result of limited reductions
in many expense categories, as the Company's initiatives to organize the Company
along functional lines are implemented.
Special charges of $23.7 million were recorded in the first quarter of fiscal
2000, that related to the restructuring initiative that was undertaken during
the quarter. These charges were recognized to reflect the planned closure of a
manufacturing facility in Ohio, the planned closure or divestiture of
approximately 40 sales offices worldwide, the planned net reduction of
approximately 1,000 individuals of the Company's global workforce, principally
of manufacturing, distribution and targeted headcounts impacting most functions
within the Company, the planned consolidation and outsourcing of certain
manufacturing operations and the write-off of certain assets that would not be
required subsequent to the restructuring. This initiative is intended to reduce
the expense structure of the Company; lower cost of goods sold; increase cash
reserves; provide higher return on assets and revenue per employee; enable
aggressive asset reduction and consolidation initiatives and increase net
income. These actions are expected to be completed prior to February 28, 2000.
There is no assurance that the Company will acheive the intended benefits of the
restructuring initiative. The benefits are subject to numerous risks that could
impair the Company's ability to realize the expected benefits as soon as
expected or ever. These risks include the possibility that the Company may
encounter delays in consolidating certain facilities and in implementing planned
workforce reductions; there may be additional unforeseen costs associated with
relocations and employee severance and the need to maintain certain essential
but underutilized facilities. These initiatives will require the dedication of
management and other resources, which may result in a temporary disruption of
the Company's businesss activities. Any such disruption could have a material
adverse effect on the Company's results of operations. During the first quarter
of fiscal 1999, the Company recorded a special charge of $150.0 million for
in-process research and development, in connection with the acquisition of Yago.
Net interest income in the first quarter of fiscal 2000 increased $0.3 million
to $4.1 million, as compared to $3.8 million in the same quarter of fiscal 1999.
The increase reflects higher cash and investment balances during the first
quarter of fiscal 2000.
<PAGE>
Loss before income taxes for the first quarter of fiscal 2000 included a $23.7
million special charge related to the restructuring initiative compared to a
$150.0 million special charge related to the acquisition of Yago during the
first quarter of fiscal 1999. Excluding the impact of the special charges, loss
before income taxes increased from $7.5 million, in the first quarter of fiscal
1999, to $12.2 million, in the first quarter of fiscal 2000. The additional loss
was largely due to lower sales being partially offset by slightly lower
expenses.
Excluding the effects of special charges, the Company's effective tax rate was
34.1% for the quarter ended May 31, 1999 compared to 39.3% for the quarter ended
May 31, 1998. The Company did not record any tax benefit associated with the
$150.0 million of special charges, recorded in the quarter ended May 31, 1998,
as these charges related to non-deductible in-process research and development.
Liquidity and Capital Resources
Cash, cash equivalents, short and long-term investments decreased to $464.9
million at May 31, 1999 from $476.3 million at February 28, 1999. Net cash used
in operating activities was $16.3 million in the quarter, compared to net cash
used by operating activities of $16.4 million in the quarter ended May 31, 1998.
The change in net cash used by operating activities at May 31, 1999 was
primarily due to the timing of payments of vendor invoices. In the Company's
acquisition of the networking division (DNPG) of Digital Equipment Corporation,
the Company granted Digital $302.5 million (which was subsequently adjusted to
$288.4 million) of product credits to be used by Digital to purchase products
from the Company. In April 1998, Compaq Computer Corporation acquired Digital
and Compaq assumed these product credits. When Digital, or its successor Compaq,
uses product credits, the Company recognizes revenue but no cash is exchanged;
rather the outstanding product credits are reduced. This has the effect of
reducing the Company's cash provided by operating activities. The Company
anticipates that the remaining product credits will be used up by the end of
September 1999 and as a result the Company's ability to generate cash from
operating activities should improve at that time.
Net accounts receivable increased slightly, by $3.8 million, to $220.6 million
at May 31, 1999 from $216.8 million at February 28, 1999. Average day sales
outstanding were 57 days at both May 31, 1999 and February 28, 1999. The Company
has continued to sell its products to resellers and distributors, and is in the
process of formalizing agreements with certain resellers and distributors that
may have contractually stipulated payment terms. These terms may have longer
payment terms than currently in effect and thus have the effect of increasing
the Company's days sales outstanding. In addition, when Digital/Compaq uses
product credits to purchase products, the Company deems the payment to have been
made instantaneously. This has the effect of reducing the Company's days sales
outstanding. When the product credits are used up, this will increase the net
accounts receivable with Compaq and put upward pressure on the Company's days
sales outstanding.
Worldwide inventories at May 31, 1999 were $216.7 million, or 92 days of sales,
compared to $229.5 million, or 107 days of sales at the end of the prior fiscal
year. Inventory turnover was 4.0 turns at May 31, 1999, compared to 3.4 turns at
February 28, 1999. Inventories decreased and inventory turnover increased as a
result of the Company's reduced scope of product lines and continued
improvements in inventory controls.
Capital expenditures for the first three months of fiscal 1999 were $3.4 million
compared to $13.6 million for the same period of the preceding year. More
limited expenditures were required, in fiscal 2000, as the Company was able to
more fully utilize assets through consolidating its facilities. Capital
expenditures were principally related to purchases of computer and computer
related equipment and leasehold improvements.
Current liabilities at May 31, 1999 were $442.9 million compared to $469.5
million at the end of the prior fiscal year. This decrease was mainly due to
Compaq's use of its product credits. The remaining product credits legally
expire on February 7, 2000, but the Company anticipates that they will be used
up by September 1999. As of May 31, 1999, $96.9 million of product credits
remained compared to $129.7 million of product credits at February 28, 1999.
In the opinion of management, internally generated funds from operations and
existing cash, cash equivalents and short-term investments will prove adequate
to support the Company's working capital and capital expenditure requirements
for the next twelve months.
<PAGE>
Yago Systems, Inc.
In connection with the acquisition of YAGO, the Company allocated $150.0 million
of the purchase price to in-process research and development projects. This
allocation represents the estimated fair value based on risk-adjusted cash flows
related to the incomplete products. At the date of acquisition, the development
of these projects had not yet reached technological feasibility and the research
and development ("R&D") in progress had no alternative future uses. Accordingly,
these costs were expensed as of the acquisition date.
The Company used independent third-party appraisers to assess and allocate
values to the in-process research and development. The value assigned to these
assets were determined by identifying significant research projects for which
technological feasibility had not been established, including development,
engineering and testing activities associated with the introduction of YAGO's
next-generation switching router family of products and technologies.
At the time of its acquisition, YAGO was a development stage company that had
spent approximately $5.6 million on research and development focused on the
development of advanced gigabit switching technology. In fact, all of Yago's
efforts since the company's inception had been directed towards the introduction
of an advanced gigabit layer-2, layer-3, and layer-4 switching and router
product family. YAGO had no developed products or technology and had not
generated any revenues as of its acquisition date. At the time, YAGO was testing
the technology related to the MSR8000, its first product to be released, and was
developing its MSR16000/8600 family of products. These two primary development
efforts were made up of six significant research and development components,
which were ongoing at the acquisition date. These component efforts included
continued MSR8000 development and testing, research and development of the
MSR2000 (a desktop version of the MSR8000), development of the MSR8600,
development of Wide Area Network interfaces for its switching products, routing
software research and development, and device management software research and
development.
At the time of YAGO's acquisition, the Company believed that the MSR product
family of switching routers would set a new standard for performance and
functionality by delivering wire-speed layer-2, layer-3 and layer-4
functionality. Designed for the enterprise and ISP backbone markets, upon
completion of their development, the MSR products were intended to offer large
table capacity, a multi-gigabit non-blocking backplane, low latency and seamless
calling. YAGO also intended to develop its MSR products to be interoperable with
other standard-based routers and switches. As of the acquisition date,
management expected the development of the MSR product family would be the only
mechanism to fuel YAGO's revenue growth and profitability in the future. Despite
the incomplete state of YAGO's technology, the Company felt that the projected
size and growth of the market for the MSR product, YAGO's demonstrated promise
in the development of the MSR product family and the consideration paid by
Cabletron's competitors to acquire companies comparable to YAGO all warranted
the consideration paid by Cabletron for YAGO.
The nature of the efforts to develop the acquired in-process technology into
commercially viable products principally related to the completion of all
planning, designing, prototyping, high-volume verification, and testing
activities that were necessary to establish that the proposed technologies met
their design specifications including functional, technical, and economic
performance requirements. Anticipated completion dates for the projects in
progress were expected to occur over the two years following the acquisition and
the Company expected to begin generating the economic benefits from the
technologies in the second half of 1998. Funding for such projects was expected
to be obtained from internally generated sources. Expenditures to complete the
MSR technology were expected to total approximately $10.0 million over such two
year period.
To date, YAGO's results have not differed significantly from the forecast
assumptions. YAGO released a fully featured MSR8000 in July 1998. The Company's
R&D expenditures since the YAGO acquisition have not differed materially from
expectations. The Company continues to work toward the completion of the
projects underway at YAGO at the time of the acquisition. Most of the projects
are on schedule (within 2 to 3 months of planned releases). The risks associated
with these efforts are still considered significant and no assurance can be made
that YAGO's upcoming products will meet market expectations.
<PAGE>
The value assigned to purchased in-process technology was determined by
estimating the costs to develop the purchased in-process technology into
commercially viable products, estimating the resulting net cash flows from the
projects and discounting the net cash flows to their present value. The revenue
projection used to value the in-process research and development was based on
estimates of relevant market sizes and growth factors, expected trends in
technology and the nature and expected timing of new product introductions by
the Company and its competitors.
In the model used to value in-process research and development in the YAGO
acquisition, as of March 17, 1998, total revenues attributable to YAGO were
projected to exceed $900 million in 2002, assuming the successful completion and
market acceptance of the major R&D efforts. As of the valuation date, YAGO had
no existing products and accordingly all revenue growth in the first several
years were related to the in-process technologies. The estimated revenues for
the in-process were projected to peak in 2003 and then decline as other new
products and technologies were projected to enter the market.
Cost of sales was estimated based on YAGO's internally generated projections and
discussions with management regarding anticipated gross margin improvements. Due
to the market opportunities in the Gigabit Ethernet arena and YAGO's unique
product architecture substantial gross margins were expected through 2000.
Thereafter, gross margins were expected to gradually decline as competition
increased. Cost of sales was projected to average approximately 47.5 percent
through 2003. SG&A expenses (including depreciation), was projected to remain
constant as a percentage of sales at approximately 23 percent. R&D expenditures
were projected to decrease as a percentage of sales as the in-process projects
were completed. R&D expenditures were expected to peak in 1998 at 7.1 percent of
sales, decline, and then level out at 5.0 percent of sales in 2000 and
thereafter.
The rates utilized to discount the net cash flows to their present value were
based on venture capital rates of return. Due to the nature of the forecast and
the risks associated with the projected growth, profitability and developmental
projects, discount rates of 45.0 to 50.0 percent were used for the business
enterprise and for the in-process R&D. The Company believes these rates were
appropriate because they were commensurate with YAGO's stage of development; the
uncertainties in the economic estimates described above; the inherent
uncertainty surrounding the successful development of the purchased in-process
technology; the useful life of such technology; the profitability levels of such
technology; and, the uncertainty of technological advances that are unknown at
this time.
<PAGE>
The forecasts used by the Company in valuing in-process research and development
were based upon assumptions the Company believes to be reasonable but which are
inherently uncertain and unpredictable. No assurance can be given that the
underlying assumptions used to estimate expected project sales, development
costs or profitability, or the events associated with such projects, will
transpire as estimated. The Company's assumptions may be incomplete or
inaccurate, and unanticipated events and circumstances are likely to occur.
For these reasons, actual results may vary from the projected results.
Management expects to continue their support of these efforts and believes the
Company has a reasonable chance of successfully completing the R&D programs.
However, there is risk associated with the completion of the projects and there
is no assurance that any will meet with either technological or commercial
success. The Company believes as it did at the time of the YAGO acquisition,
that if YAGO does not successfully complete its outstanding in-process research
and development efforts, Cabletron's future operating results would be
materially adversely impacted and the value of the in-process research and
development might never be realized.
Other acquisitions
The Company has previously disclosed its methodology used in determining the
value of in-process research and development acquired in certain of its
acquisitions. The Company used numerous assumptions in valuing the acquired
technologies. Where significant, the Company intends to periodically provide
updates to these assumptions.
To date, DNPG's results have not differed significantly from the forecast
assumptions. The Company continues to work toward the completion of the projects
acquired from the DNPG. Most of the projects are on schedule. The Company has
completed some software and hardware enhancements to the former DNPG line of
switches, but is still working on the major tasks related to the Gigaswitch
ATM/FDDI products. The first version of the software for the platform of the
Gigaswitch Ethernet was released in August 1998. The VNswitch is still under
development and the initial version is expected to be released sometime in the
next quarter. In the Hub family of products the Company is expected to release a
major upgrade to the MS900 within several months. The Company has released an
upgrade to the DSR functionality, but significant efforts are still underway.
The risks associated with these efforts are still considered high and no
assurance can be made that DNPG's upcoming products will meet market
expectations.
Year 2000
The Year 2000 problem generally results from the use in computer hardware and
software of two digits rather than four digits to define the applicable year.
Absent corrective measures, a computer program that has date-sensitive software
may recognize the date using "00" as 1900 instead of 2000, which may create
processing ambiguities that can cause errors and system failures. As is true for
most companies, the Year 2000 problem creates a risk for the Company. If
Cabletron's products, internal systems or the systems of its suppliers do not
correctly recognize date information when the year changes to 2000, there could
be an adverse impact on the Company's operations.
The Company initiated a Year 2000 project (the Project) to analyze the impact of
the Year 2000 date change on the Company's family of networking products and its
mission-critical business processes. "Mission-critical" business processes are
those functions whose loss would cause an immediate stoppage of or significant
impairment to the Company's operations. Implementation of the Project is
supervised by a dedicated Year 2000 Project Management Office, which reports its
progress to an Executive Steering Committee. Each operating division of the
Company is applying procedures specific to it that are part of the overall
Project. Cabletron also has engaged outside consultants and external resources
to help formulate and evaluate the Project.
The Company is actively implementing the Project, which will be modified as
events warrant. The Project uses a five phase approach to address and evaluate
Year 2000 issues: 1) conducting an inventory of Year 2000 items; 2) assigning
priorities to identified items and assessing the effects of Year 2000 problems
on the mission-critical functions of the Company; 3) remediation of systems,
software and embedded systems not Year 2000 ready; 4) testing mission-critical
systems; and 5) designing and implementing contingency plans.
The Project realizes that outside suppliers that provide mission-critical
services and supplies ("Key Suppliers") have the potential to adversely affect
the Company's business. Cabletron does not have control of these Key Suppliers.
However, the Project includes an ongoing process of identifying and contacting
Key Suppliers whose services and products may have a substantial effect on the
Company's mission-critical business processes. Cabletron will make reasonable
attempts to coordinate with these Key Suppliers to obtain assurances that they
will be Year 2000 ready before January 1, 2000.
The Project has identified four areas of exposure within the Company with
respect to the Year 2000: the internal information technology systems used to
run the Company's business; production, manufacturing, design and engineering
equipment and facilities; the Company's Key Suppliers; and Cabletron Products.
Internal Information Systems
The Company has completed the inventory and assessment phases of its internal
information technology, including its main financial, manufacturing and order
processing systems. Cabletron expects to complete remediation and testing of
these systems by the end of October 1999, and does not currently expect any
significant issues to be identified during the completion of these phases.
However, the failure of any internal system to achieve Year 2000 readiness could
disrupt the Company's ability to conduct its business or record transactions,
which could adversely affect results of operations or financial condition.
Equipment and Facilities
The Company has largely completed the inventory and assessment phases of its
mission-critical equipment, including manufacturing, designing and engineering
equipment. Cabletron expects to complete the remediation and testing phases by
the end of September 1999. Failure of equipment caused by a Year 2000 problem
could result in disruptions in the Company's manufacturing, design, production
and shipping capabilities and could adversely affect the Company's results of
operations and financial condition.
The Company is also assessing the Year 2000 readiness of the facilities it
occupies, with priority being placed on the facilities it owns and the leased
property that house large numbers of Cabletron employees. The Company expects to
complete its remediation efforts by September 1999. These facilities are
critical to operations and any delays in achieving Year 2000 readiness with
respect to these facilities could adversely affect the Company's results of
operations or financial condition.
Key Suppliers
The Project has assessed it mission critical suppliers and sent surveys to all
Key Suppliers. The evaluation process includes compliance inquiries and reviews
that will continue throughout 1999. Where issues are identified with a
particular Key Supplier, contingency plans will be developed. Even where
assurances are received from third parties there remains a risk that failure of
systems and products of other companies on which Cabletron relies could have a
material adverse effect on the Company. Further, if these Key Suppliers fail
adequately to address the Year 2000 issue for the products they provide to
Cabletron, critical materials, products and services may not be delivered in a
timely manner, which could adversely affect the Company's results of operations
or financial condition.
Cabletron Products
The Company has conducted extensive work regarding the status of its current,
developing and installed base of products. The Company has published a list of
its major products indicating their status of Year 2000 compliance. This list is
available on the Company's World Wide Web page
(http://www.cabletron.com/year-2000) and is updated periodically. The Company
believes that substantially all of its current hardware products are Year 2000
compliant. The Company believes that its older hardware products that are not
Year 2000 compliant will continue to perform all essential and material
functions after the year 2000 but may, in limited circumstances, incorrectly
report the date of events (i.e., events on the network that are reported to a
network management software package) after the year 2000. The Company believes
that its current versions of Spectrum (Version 5.0), its network management
platform, is Year 2000 compliant. Older versions of Spectrum are not Year 2000
compliant. The Company is offering upgrades for some, but not all, of the
non-compliant products (both hardware and software) previously sold by the
Company. For those non-compliant products with no upgrade available, the Company
is offering customers the opportunity to purchase equipment offering equivalent
functionality. Given that most non-compliant products previously sold will
continue to perform their standard functions, the Company expects that many
customers will decide not to replace those products. Despite the Company's
efforts to date to identify the Year 2000 compliance of its current and
installed base of products and the effects of any non-compliance, the Company
cannot be sure that it has identified all areas of non-compliance or that any
solutions it implements to address the non-compliance will prove satisfactory.
Further, since all customer situations cannot be anticipated, particularly those
involving third party products, the Company may experience an increase in
warranty and other claims as a result of the Year 2000 transition. For these
reasons, the impact of customer claims could have a material adverse impact on
the Company's results of operations or financial condition.
As used in this section, "Year 2000 compliant" means, with respect to
information technology, that the information technology, where applicable,
accurately processes date/time data (including, but not limited to, calculating,
comparing, and sequencing) from, into, and between the twentieth and
twenty-first centuries, and the years 1999 and 2000 and leap year calculations,
to the extent that other information technology, used in combination with the
information technology being acquired, properly exchanges date/time data with
it.
Costs
Based on the work performed to date, the Company has not incurred material
costs. The Company presently estimates it will incur between $15 and $18 million
of costs, of which approximately 85% will be for capital expenditures, in
connection with its Year 2000 efforts. This estimate is based on information
gathered to date, and may be materially revised. If implementation of
replacement systems is delayed, or if significant new non-compliance issues are
identified, the Company's results of operations or financial condition could be
materially adversely affected. Expectations about future Year 2000-related costs
are subject to various uncertainties that could cause the actual results to
differ materially from the Company's expectations, including the success of the
company in identifying systems and programs that are not Year 2000 ready, the
nature and amount of programming required to upgrade or replace each of the
affected programs, the availability, rate and magnitude of related labor and
consulting costs and the success of the Company's business partners, vendors and
clients in addressing the Year 2000 issue.
Contingency Plans
Contingency plans are being developed in mission-critical areas, to ensure that
any potential material business interruptions caused by the Year 2000 issue are
mitigated. Preliminary contingency plans will be updated as the Project
continues to refine and assess risk.
The foregoing statements are based upon management's best estimates at the
present time which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third party
modification plans and other factors. The Company has taken and will continue to
take corrective action to mitigate any significant Year 2000 problems. There can
be no guarantee that the Company will not experience significant business
disruptions or loss of business due to the Year 2000 issue. Specific factors may
later become known which could result in a material adverse impact on the
Company's results of operations or financial condition.
New Accounting Pronouncements
In December 1998, the AICPA Accounting Standards Executive Committee issued
Statement of Position (SOP) 98-9, "Modification of Software Revenue Recognition"
which requires recognition of revenue using specific methods and amends SOP 98-4
(Deferral of the Effective Date of a Provision of SOP 97-2) and amends certain
paragraphs of SOP 97-2. The Company adopted SOP 98-9 for its year ending
February 28, 2000, beginning on March 1, 1999. The adoption of SOP 98-9 did not
have a material impact on the Company's results of operations for the quarter
ended May 31, 1999.
In June 1998, the Financial Accounting Standards Board (FASB) issued Financial
Accounting Standard No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) which requires companies to record derivative instruments
on the balance sheet as assets or liabilities, measured at fair value. Gains or
losses resulting from changes in the values of those derivatives would be
accounted for depending on the use of the derivative and whether it qualifies
for hedge accounting. SFAS 133 will be effective for the Company's first quarter
of fiscal year ending February 28, 2002. Management is currently evaluating the
potential effects of this pronouncement on its consolidated financial
statements. At this time, management does not expect the impact to be
significant.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company continues to be exposed to changes in interest rates and foreign
currency exchange rates which may adversely affect its results of operations and
financial position. Refer to the Company's Form 10-K for the year ended February
28, 1999 for additional information regarding quantitative and qualitative
disclosures about market risk.
<PAGE>
PART II. OTHER INFORMATION
Item 5. Other
The Company previously announced plans to outsource its worldwide manufacturing
to Celestica, Inc.. The Company has not changed its plans to outsource
substantially all of its manufacturing; however, its approach has been modified.
The Company is proceeding with a strategic relationship with Celestica, but the
Company and Celestica have decided to begin with a smaller, simpler relationship
than had originally been envisioned. The specific impact of these changes in the
Company's strategy are: (i) the Company's Rochester, New Hampshire manufacturing
operation will continue to be owned and operated by the Company; (ii) As
originally planned, the Company's Ohio manufacturing operation will be closed
and the manufacturing previously performed in Ohio will be phased out and
transferred to the Company's Rochester, New Hampshire and Ireland manufacturing
facilities; and (iii) the Company's Ireland manufacturing operation will
continue to be owned and operated by the Company and Celestica will not play any
role in the operation of the Ireland operations. Finally, the Company is
currently considering the option of engaging another first-tier manufacturer to
assume a substantial piece of its manufacturing in order to optimize
competitiveness among manufacturers and eliminate a single point of failure.
Item 6. Exhibits and Reports on Form 8-K.
[a] There were no reports on Form 8-K filed during the quarter ended May 31,
1999.
[b] Exhibit 10.19 Employment agreement for Piyush Patel.
Exhibit 10.20 Employment agreement for Romulus Pereira.
<PAGE>
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.
CABLETRON SYSTEMS, INC.
-----------------------
(Registrant)
July 15, 1999 /s/ Piyush Patel
- ------------- ------------
Date Piyush Patel
Chairman, President, and
Chief Executive Officer
July 15, 1999 /s/ David J. Kirkpatrick
- ------------- --------------------
Date David J. Kirkpatrick
Corporate Executive Vice President of
Finance and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit Page
No. Exhibit No.
11.1 Included in notes to consolidated financial statements ---
10.19 Employment Agreement with Piyush Patel 19
10.20 Employment Agreement with Romulus Pereira 26
<PAGE>
EXHIBIT 10.19
CABLETRON SYSTEMS, INC.
Employment Agreement
AGREEMENT dated as of February 23, 1998 by and between Cabletron Systems, Inc.
("Parent"), a Delaware corporation with an address at 35 Industrial Way,
Rochester, New Hampshire 03867 and Piyush Patel, an individual residing at 864
Beaver Court, Fremont, California 94539 (the "Employee").
WHEREAS, Parent, together with its subsidiaries and affiliates (collectively and
singularly as the context requires, the "Company"), is engaged in the business
of developing, manufacturing, and selling products for use in computers and
computer networks;
WHEREAS, Parent and Yago Systems, Inc., a Delaware corporation ("Yago"), have
entered into an agreement (the "Merger Agreement") pursuant to which inter alia,
a wholly owned subsidiary of Parent will merge with and into Yago; and
WHEREAS, Employee is, as of the date hereof, an employee of Yago, and Employee
and the Parent desire to set forth the terms under which Employee shall be
employed by the Company from and after the Effective Time (as defined in the
Merger Agreement).
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree as follows:
1. Employment. Subject to the terms and conditions set forth in this Agreement,
the Company hereby offers and Employee hereby accepts employment, effective as
of the Effective Time. If, prior to the Effective Time, the Merger Agreement
shall be terminated, this Agreement shall automatically terminate and be without
further force and effect.
2. Term. Subject to earlier termination as hereafter provided, Employee's
employment hereunder shall commence at the Effective Time and continue for a
period of eighteen (18) months. Forty-five (45) days prior to the expiration of
the initial term of this Agreement or any extension thereof, Employee shall
provide written notice to the Company of Employee's desire to extend the term of
this Agreement for an additional one (1) year period, whereafter the Company
shall have fifteen (15) days to either terminate this Agreement in accordance
with the terms hereof or agree to extend this Agreement by delivering written
notice to the Employee; provided, however, any failure by the Company to respond
within the period set forth above shall result in the automatic extension of
this Agreement for such additional one (1) year period. The "term" of this
Agreement means the initial term and any extension thereof. Any continuation of
Employee's employment with the Company after the term of this Agreement shall be
at will; provided, however, that Employee's obligations under Sections 5 and 6
shall survive any termination or expiration or this Agreement and shall continue
to bind Employee for the duration of Employee's employment with the Company.
3. Capacity and Performance.
3.1. Offices. During the term hereof, Employee shall hold such positions and
shall perform such duties and responsibilities on behalf of the Company as may
be designated from time to time by the Board of Directors of Parent (the
"Board"), the President of Parent (the "President"), or by their designees
(collectively, the "Management").
3.2. Performance. During the term hereof, Employee shall be employed by the
Company on a full-time basis and shall perform and discharge faithfully,
diligently and to the best of his ability such other duties and responsibilities
on behalf of the Company as may be designated from time to time by the Board.
During the term hereof, the Employee shall devote Employee's full business time
and best efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company and to the discharge of
Employee's duties and responsibilities hereunder. Employee shall not engage in
any other activities directly related to the business of the Company and
determined by the Company to be detrimental to the best interests of the Company
without the prior written consent of the Company. Nothing in this Agreement will
prevent Employee from accepting speaking or presentation engagements in exchange
for honoraria or from serving on boards of charitable organizations, or from
owning no more than one percent (1%) of the outstanding equity securities of a
corporation whose stock is listed on a national stock exchange.
4. Compensation and Benefits. As compensation for all services performed by
Employee under and during the term hereof and subject to performance of
Employee's duties and of the obligations of Employee to the Company, pursuant to
this Agreement, including without limitation, Sections 5 and 6 of this
Agreement, or otherwise:
4.1. Base Salary. During the term hereof, the Company shall pay Employee a base
salary at the rate of $200,000 per annum, payable in accordance with the payroll
practices of the Company for its employees and subject to increase from time to
time by the Management, in its sole discretion (the "Base Salary").
4.2. Benefits. During the term hereof and subject to any contribution therefor
generally required of employees of the Company, Employee shall be entitled to
participate in any and all employee benefit plans from time to time in effect
for employees of the Company generally. Such participation shall be subject to
(i) the terms of the applicable plan documents, (ii) generally applicable
Company policies, and (iii) the discretion of Management or any administrative
or other committee provided for in or contemplated by such plan. The Company may
alter, modify, add to or delete its employee benefit plans at any time as it, in
its sole judgment, determines to be appropriate, without recourse by Employee.
4.3. Vacations. During the term hereof, Employee shall be entitled to vacation
in accordance with the Parent's vacation policy as in effect from time to time.
Such vacation to be taken at such times and intervals as shall be determined by
Employee, subject to the reasonable business needs of the Company. Employee
shall be entitled to cash compensation for vacation time not taken during the
term hereof to the extent approved by the Board or its Management in writing.
For purposes of calculating the vacation for which Employee is eligible pursuant
to Parent's vacation policy only, Employee's employment with Yago shall be
deemed to be employment by the Company. In addition, up to two weeks of vacation
accrued but not taken while an employee of Yago will be assumed by the Company.
4.4. Tax Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
4.5. Business Expenses. The Company shall pay or reimburse Employee for all
reasonable, customary and necessary business expenses incurred or paid by
Employee in the performance of Employee's duties and responsibilities hereunder,
subject to any expense policy set by the Management and other restrictions on
such expenses set by the Board and to such reasonable substantiation and
documentation as may be specified by the Company from time to time.
5. Intellectual Property.
5.1. Assignment of Inventions. Subject to the provisions of this Section 5,
Employee hereby assigns and agrees to assign to the Company, all rights, titles
and interests in and to any inventions, formulae, data, programs, techniques,
processes, ideas, algorithms, discoveries, designs, developments and
improvements that Employee may make, reduce to practice, conceive, invent,
discover, design or otherwise acquire, whether alone or with others, (i) during
Employee's employment by Company, relating to the business, products, research
or development (to the extent known by Employee) of the Company or (ii) required
to be assigned to Yago under any agreement between Yago and Employee
(collectively, "Inventions"). This Agreement does not apply to an Invention
which qualifies fully as a nonassignable Invention under the provisions of
Section 2870 of the California Labor Code as follows: "THIS IS TO NOTIFY you in
accordance with Section 2872 of the California Labor Code that the foregoing
Agreement between you and the Company does not require you to assign or offer to
assign to the Company any invention that you developed entirely on your own time
without using the Company's equipment, supplies, facilities or trade secret
information except for those inventions that either: (1) relate at the time of
conception or reduction to practice of the invention to the Company's business,
or actual or demonstrably anticipated research or development of the Company; or
(2) result from any work performed by you for the Company. To the extent a
provision in the foregoing Agreement purports to require you to assign an
invention otherwise excluded from the preceding paragraph, the provision is
against the public policy of this state and is unenforceable. This limited
exclusion does not apply to any patent or invention covered by a contract
between the Company and the United States or any of its agencies requiring full
title to such patent or invention to be in the United States."
Employee agrees that Inventions relating to the business, products, research or
development (to the extent known by Employee) of the Company conceived or made
by me while an employee of the Company belong to and are to be assigned to the
Company, regardless of whether such Invention is reduced to practice during my
employment or after termination thereof, and Employee agrees to disclose
promptly in writing to the Company all such Inventions.
5.2. Confidential Information. Employee shall regard and preserve as
confidential all Confidential Information. For the purposes hereof,
"Confidential Information" shall mean any and all information of the Company
that is not generally known by others with whom it competes or does business, or
with whom it plans to compete or to do business. Subject to the foregoing
limitation as to generally known information, Confidential Information includes,
without limitation, information relating to (i) the development, research,
testing, marketing and financial activities of the Company; (ii) any and all
versions of the Company's proprietary computer software, hardware, firmware and
documentation; (iii) other proprietary software, hardware, firmware,
documentation and information created, developed, produced or distributed by the
Company (including, without limiting the generality of the foregoing, any such
software, hardware, firmware, documentation and information created, developed,
produced, distributed or made known by the Company to Employee during the period
of or arising out of Employee's service to the Company); (iv) the manner in
which the Company operates, (v) the costs, sources of supply, financial
performance and strategic plans of the Company, (vi) the identity and special
needs of the customers or suppliers of the Company, (vii) confidential,
proprietary or trade secret information submitted by the Company's suppliers,
employees, consultants to or co-venturers with the Company for study, evaluation
or use; (viii) the people and organizations with whom the Company has business
relationships and the nature of those relationships; and (ix) the identities of
employees of the Company.
Confidential Information shall not include any information that: (i) was or
becomes generally known in the trade or business of the Company through no act
of Employee or its employees, agents, or independent contractors; or (ii) has
come into the possession of Employee from a third party who is under no
obligation to maintain the confidentiality of such information.
Employee shall not, without written authority from the Company to do so, use for
Employee's own benefit or purposes, or the benefit or purpose of any person or
entity other than the Company, nor disclose to others, either during Employee's
employment with the Company or at any time thereafter, except as required in the
course of employment with the Company, any Confidential Information.
5.3. Works of Authorship. Employee agrees that any original works of authorship
including, without limitation, all documents, blueprints, drawings, mask works
and computer programs (including, without limitation, all software, firmware,
object code, source code, documentation, specifications, revisions, supplements,
modules, and upgrades) conceived, created, performed, or produced during the
term of Employee's employment with the Company and all foreign and domestic,
registered and unregistered, copyrights and mask work rights and applications
for registrations therefor related to any such work of authorship, in each case,
whether or not made during regular working hours, relating to the actual or (to
the extent known to Employee) planned business, products, research or
development of Company (collectively "Works of Authorship") shall be the
exclusive property of the Company, as the case may be. To the extent that
Employee has or obtains any right, title or interest in or to any Works of
Authorship during the term of his employment, Employee hereby assigns and agrees
to assign to the Company, as the case may be, all of such right, title and
interest therein and thereto.
5.4. Disclosure. Employee shall promptly and fully disclose any and all
Inventions and Works of Authorship to Employee's supervisor or such other person
as the Company may designate for such purpose.
5.5. Further Assistance. Employee shall, during Employee's employment with the
Company and at any time thereafter, upon the request of and at the expense of
the Company, but at no additional compensation to Employee (except for time and
direct expense if Employee is not employed at the Company at that time) do all
acts and things, including, but not limited to, making and executing documents,
applications and instruments and giving information and testimony, in each case,
deemed by the Company form time to time, in its sole discretion, to be necessary
or appropriate (i) to vest, secure, defend, protect or evidence the right, title
and interest of the Company in and to any and all Inventions, Works of
Authorship and Confidential Information; and (ii) to obtain for the Company in
relation to all such letters patent, design registrations, copyrights,
registrations and/or mask work registrations, in the United States and any
foreign countries, and/or any reissues, renewals and/or extensions thereof.
5.6. Previous Obligations. Employee represents and warrants to the Company that
Employee's assignment of Inventions or Works of Authorship will not be in
violation of the provisions of any agreement between Employee and any previous
employer (other than Yago), nor does Employee claim any existing title in any
previous unpatented Inventions, developments, improvements or Work of Authorship
within the scope of this Agreement (or that would have been within the scope of
this Agreement had it been in effect during the term of Employee's employment by
Yago).
5.7. Return of Documents. All media on which any Inventions, Works of
Authorship, or Confidential Information may be recorded or located, including,
without limitation, documents, samples, models, blueprints, photocopies,
photographs, drawings, descriptions, reproductions, cards, tapes, discs and
other storage facilities (collectively "Documentation") made by Employee or that
come into Employee's possession by reason of Employee's employment with the
Company are the property of the Company, as the case may be, and shall be
returned to the Company by Employee upon termination of employment. Employee
will not deliver, reproduce, or in any way allow any Documentation to be
delivered or used by any third party without the written direction or consent of
a duly authorized representative of the Company.
6. Covenant Not to Compete.
6.1. Non-Compete. Employee covenants and agrees that for so long as he shall be
employed by the Company, and for a period of eighteen (18) months after such
termination of employment pursuant to this Agreement or otherwise (the
"Non-Competition Period"), the Employee shall not, directly or indirectly, as
principal, partner, agent, servant, employee, stockholder, or otherwise anywhere
in the world, engage or attempt to engage in any business activity involving the
design, manufacture, distribution or sale to LAN and/or WAN markets of gigabit
ethernet switching and/or routing products (the "Competing Business"); provided,
however, nothing in this Section 6.1 shall prevent Employee from accepting
employment during the Noncompetition Period with a company involved in a
Competing Business so long as Employee shall not directly or indirectly consult,
assist or otherwise work in the division of such other company involving the
Competing Business; provided, further, the Employee shall not under any
circumstance accept employment during the Noncompetition Period with Cisco, Inc.
3Com, Inc. and Bay Networks, Inc. The foregoing shall not prohibit Employee or
his spouse or children and from owning beneficially any publicly traded
security, so long as the beneficial ownership by them, when combined with the
beneficial ownership of such publicly traded security of any group (as the term
is used in Section 13(D) of the Securities Exchange Act of 1934) of which any of
them is a member constitutes (x) less than Five Percent (5%) of the class of
such publicly traded security or (y) less than Five Percent (5%) of the voting
power of all outstanding securities of the issuer of such security.
6.2. Non-Solicitation. Employee agrees that for as long as he or she is employed
by the Company and through the Non-Competition Period, Employee will not
solicit, recruit, or induce any other person to solicit or recruit, any employee
of the Company (including any person who was an employee of Yago) within the
sixty (60) day period immediately preceding the date hereof or was an employee
during the period of Employee's employment hereunder for one year following the
end of such employee's employment with Yago or the Company, as the case may be,
or otherwise induce any employee to leave the employment of the Company to
become an employee of or otherwise be associated with a business with which
Employee is associated.
Employee further agrees that during the Non-Competition Period, Employee will
not, in competition with the Company, solicit business from any customer of the
Company made known to Employee during his employment with the Company.
6.3. Reasonableness of Restrictions. Employee recognizes that the consideration
to be paid and all other obligations of the Company to be performed pursuant to
this Agreement are intended, in significant part, to secure Employee's agreement
to the conditions of this Section 6, and Employee recognizes that the foregoing
territorial and time limitations are reasonable and properly required for the
adequate protection of the business of the Company and any Company Affiliates
and that in the event that any such territorial or time limitation is deemed to
be unreasonable by any California tribunal having jurisdiction, Employee agrees
to submit to the reduction of either said territorial or time limitation to such
an area or period as shall be deemed reasonable by such tribunal.
7. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, Employee's employment hereunder shall terminate
prior to the expiration of the term under the following circumstances:
7.1. Retirement or Death. In the event of Employee's retirement or death during
the term hereof, Employee's employment hereunder shall immediately and
automatically terminate. During the term hereof, Employee may elect to retire
after the age of sixty-five with the prior written consent of the Board and, in
that event, shall be paid any earned and unpaid Base Salary that is earned but
unpaid prorated through the date of Employee's retirement. In the event of
Employee's death during the term hereof, the Company shall pay to Employee's
designated beneficiary or, if no beneficiary has been designated by Employee, to
his estate, any earned and unpaid Base Salary, and accrued but unused vacation
time that is earned but unpaid, pro-rated through the date of Employee's death.
7.2. Disability.
7.2.1. The Company may terminate Employee's employment hereunder, upon notice to
Employee, in the event that Employee becomes disabled during Employee's
employment hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is unable to perform
substantially all of Employee's duties and responsibilities hereunder for either
(a) sixty (60) consecutive calendar days or (b) an aggregate of one hundred
twenty (120) days during any period of three hundred and sixty-five (365)
consecutive calendar days.
7.2.2. The Board may designate another employee to act in Employee's place
during any period of Employee's disability. Notwithstanding any such
designation, Employee shall continue to receive the Base Salary in accordance
with Section 4.1 and benefits in accordance with Section 4.2, to the extent
permitted by the then-current terms of the applicable benefit plans, until
Employee becomes eligible for disability income benefits under the Company's
disability income plan or until the termination of Employee's employment,
whichever shall first occur. Upon termination of the Employee's employment under
this Section the Company shall also pay to Employee any accrued, but unused
vacation.
7.2.3. While receiving disability income payments under the Company's disability
income plan, Employee shall not be entitled to receive any Base Salary under
Section 4.1, but shall continue to participate in Company benefit plans in
accordance with Section 4.2 and the terms of such plans, until the termination
of Employee's employment.
7.2.4. If any question shall arise as to whether during any period Employee is
disabled through any illness, injury, accident or condition of either a physical
or psychological nature so as to be unable to perform substantially all of
Employee's duties and responsibilities hereunder, Employee may, and at the
request of the Company shall, submit to a medical examination by a physician
selected by the Company, to whom Employee or Employee's duly appointed guardian,
if any, has no reasonable objection, to determine whether Employee is so
disabled and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and Employee shall fail to
submit to such medical examination, the Company's determination of the issue
shall be binding on Employee.
7.3. By the Company for Cause. The Company may terminate Employee's employment
hereunder for Cause at any time upon notice to Employee setting forth in
reasonable detail the nature of such Cause. The following, as determined by the
Board in its reasonable judgment, shall constitute Cause for termination:
7.3.1. Material breach of this Employment Agreement after Employee has received
written notice of such breach and has not cured such breach within 30 days of
receipt of such notice;
7.3.2. Dishonest or fraudulent conduct, a deliberate attempt to do an injury to
Cabletron, or conduct that materially discredits Cabletron or is materially
detrimental to the reputation of Cabletron, including conviction of a felony; or
7.3.3. Employee's incurable material breach of any element of the Cabletron's
Confidential Information, Non-Compete and Invention Assignment Agreement,
including without limitation, employee's theft or other misappropriation of the
Company's proprietary information.
Upon termination of Employee's employment hereunder for Cause, the Company shall
have no further obligation or liability to Employee, other than for Base Salary
earned and unpaid at the date of termination as well as accrued but unused
vacation.
7.4. By the Company Other than for Cause. The Company may terminate Employee's
employment hereunder other than for Cause at any time upon notice to Employee.
In the event of such termination, and provided that no comparable or better
benefits are payable to Employee under a separate severance agreement or an
executive severance plan as a result of such termination, then until the
conclusion of a period equal to the remainder of the then-current term of this
Agreement (the "Severance Period"), the Company shall (a) continue to pay
Employee the Base Salary at the rate in effect on the date of termination and
(b) subject to any employee contribution applicable to Employee on the date of
termination, shall continue to contribute to the cost of Employee's
participation in the Company's group medical and dental insurance plans,
provided that Employee is entitled to continue such participation under
applicable law and plan terms, provided that if any salary and benefits are paid
under this sentence, Employee shall not be entitled to any salary and benefits
under any other severance agreement or executive severance plan. In addition,
upon any termination of Employee pursuant to this Section 7.4, all shares of
Common Stock and stock options of the Company owned or granted to Employee, as
the case may be, shall vest immediately and any repurchase rights with respect
thereto shall lapse. Further, if Employee is terminated pursuant to this Section
7.4 under any circumstance, including but not limited to, as part of a general
layoff by the Company, the provisions of Section 6.1 shall have no force and
effect.
7.5. By Employee for Good Reason. Employee may terminate Employee's employment
hereunder for Good Reason, upon notice to the Company setting forth in
reasonable detail the nature of such Good Reason. The following shall constitute
Good Reason for termination by Employee:
7.5.1. Material diminution in the nature or scope of Employee's
responsibilities, duties or authority; provided, however, the Company's failure
to continue Employee's appointment or election as a director or officer of
Parent or any of the subsidiaries or affiliates of Parent and any diminution of
the business of the Company, including without limitation the sale or transfer
of any or all of the assets of the Company, shall not constitute "Good Reason";
or
7.5.2. Material failure of the Company to provide Employee the Base Salary and
benefits in accordance with the terms of Section 4 hereof, which failure is not
cured within thirty (30) days written notice thereof by Employee to the Company.
7.5.3. Termination of Employee's employment as a result of Employee's refusal to
consent the relocation of Employee's principal place of employment to more than
60 miles from Sunnyvale, California.
In the event of termination in accordance with this Section 7.5, and provided
that no comparable or better benefits are payable to Employee under a separate
severance agreement or an executive severance plan as a result of such
termination, then until the end of the Severance Period, the Company shall (a)
continue to pay Employee the Base Salary at the rate in effect on the date of
termination and (b) subject to any employee contribution applicable to Employee
on the date of termination, shall continue to contribute to the cost of
Employee's participation in the Company's group medical and dental insurance
plans, provided that Employee is entitled to continue such participation under
applicable state and federal law and plan terms, provided that Employee is
entitled to continue such participation under applicable law and plan terms,
provided that if any salary and benefits are paid under this sentence, Employee
shall not be entitled to any salary and benefits under any other severance
agreement or executive severance plan. In addition, upon any termination of
Employee pursuant to this Section 7.5, all shares of Common Stock and stock
options of the Company owned or granted to Employee, as the case may be, shall
vest immediately and any repurchase rights with respect thereto shall lapse.
7.6. By Employee Other than for Good Reason. Employee may terminate Employee's
employment hereunder at any time upon thirty (30) days' notice to the Company,
unless such termination would violate any obligation of Employee to the Company
under a separate severance agreement. In the event of termination of Employee
pursuant to this Section 7.6, Management may elect to waive the period of
notice, or any portion thereof, and, if Management so elects, the Company will
pay Employee his Base Salary for the notice period, plus any accrued, but unused
vacation. If Employee shall voluntarily terminate Employee's employment
hereunder, the Company shall have no further obligation or liability to
Employee, other than for Base Salary earned and unpaid at the date of
termination, accrued but unused vacation and as specifically set forth in
Section 8.1 hereof.
7.7. Post-Agreement Employment. In the event Employee remains in the employ of
the Company or any of the Company Affiliates following termination of this
Agreement, by the expiration of the term or otherwise, then such employment
shall be at will.
8. Effect of Termination. The provisions of this Section 8 shall apply to
termination due to the expiration of the term, pursuant to Section 7 or
otherwise.
8.1. Payment by the Company of any Base Salary, accrued, but unused vacation and
contributions to the cost of Employee's continued participation in the Company's
group health and dental plans that may be due Employee in each case under the
applicable termination provision of Section 7 shall constitute the entire
obligation of the Company to Employee. Acceptance by Employee of performance by
the Company shall constitute full settlement of any claim under this Agreement
that Employee might otherwise assert against the Company, the Company Affiliates
or any of their shareholders, directors, officers, employees or agents on
account of such termination. Employee shall promptly give the Company notice of
all facts necessary for the Company to determine the amount and duration of its
obligations in connection with any termination pursuant to Section 7.4 or 7.5
hereof.
8.2. Except for medical and dental insurance coverage continued pursuant to
Section 7.4 or Section 7.5 hereof, benefits shall terminate pursuant to the
terms of the applicable benefit plans based on the date of termination of
Employee's employment without regard to any continuation of Base Salary or other
payment to Employee following such date of termination.
8.3. Provisions of this Agreement shall survive any termination if so provided
herein or if necessary or desirable fully to accomplish the purposes of such
provision, including without limitation the obligations of Employee under
Sections 6 hereof. The obligation of the Company to make payments to or on
behalf of Employee under Section 7.4, 7.5 or 7.6 hereof is expressly conditioned
upon Employee's continued full performance of obligations under Sections 5 and 6
hereof. Employee recognizes that, except as expressly provided in Section 7.4 or
7.5, no compensation is earned after termination of employment.
9. Conflicting Agreements. Employee hereby represents and warrants that the
execution of this Agreement and the performance of Employee's obligations
hereunder will not breach or be in conflict with any other agreement to which
Employee is a party or is bound and that Employee is not now subject to any
covenants against competition or similar covenants that would affect the
performance of Employee's obligations hereunder. Employee will not disclose to
or use on behalf of the Company or any Company Affiliate any proprietary
information of a third party without such party's consent.
10. Arbitration. Any dispute or claim arising out of or in connection with this
Agreement will be finally settled by binding arbitration in San Jose, California
in accordance with the rules of the American Arbitration Association by one
arbitrator appointed in accordance with said rules. The arbitrator shall apply
California law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing: (i) the parties may apply to any court
of competent jurisdiction for preliminary or interim equitable relief, including
injunctive relief, or to compel arbitration in accordance with this paragraph
and (ii) Company may terminate Employee as set forth in Article 7, in each case
without breach of this arbitration provision. Employee agrees that a remedy at
law for any breach of the provisions of Sections 5 or 6 hereof may be inadequate
and that Company or any Company Affiliate shall be entitled to injunctive
relief, in addition to any other remedy it might have in the event of breach or
threatened breach of the provisions of Sections 5 or 6 of this Agreement.
11. Assignment. Neither the Company nor Employee may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
Employee in the event that the Company shall hereafter affect a reorganization,
consolidate with, or merge into, any other Person or transfer all or
substantially all of its properties or assets to any other Person and such
Person assumes the obligations of the Company hereunder. This Agreement shall
inure to the benefit of and be binding upon the Company and Employee, their
respective successors, executors, administrators, heirs and permitted assigns.
12. Severability. If any term or provision of this Agreement shall become or be
declared illegal, invalid or unenforceable, such term or provision shall be
divisible from this Agreement and shall be deemed to be deleted from this
Agreement, provided that if such deletion substantially affects or alters the
commercial basis of this Agreement the parties shall negotiate in good faith to
amend and modify the terms and provisions of this Agreement to give effect to
the original intent of the parties.
13. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require
the performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
14. Notices. Any and all notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered in person or deposited in the United States mail, postage prepaid,
registered or certified, and addressed to Employee at Employee's last known
address on the books of the Company or, in the case of Parent, at its principal
place of business, attention of President, or to such other address as either
party may specify by notice to the other.
15. Prior Agreement with Yago. As of the Effective Time, this Agreement
supersedes any employment agreement, salary continuation agreement, commitment,
understanding or arrangements, express, implied, oral, or written between Yago
and Employee or any group of employees of Yago, generally (including Employee),
except for the Amended Founder Stock Purchase Agreement (as defined in the
Merger Agreement) and except that any agreement between Yago and Employee, to
the extent that such agreement relates to confidentiality or non-disclosure or
assignment of proprietary rights, noncompetition or nonsolicitation relating to
Yago's business, shall remain in full force and effect and inure to the benefit
of the Company, and shall be in addition to, and not in limitation of, the
rights of the Company hereunder. The Company shall have no obligations with
respect to any prior agreements which may have been executed between Employee
and Yago other than the Amended Founder Stock Purchase Agreement.
16. Miscellaneous. This Agreement constitutes the entire agreement between the
parties and supersedes all prior communications, agreements and understandings,
written or oral, with respect to the terms and conditions of Employee's
employment. This Agreement may be amended or modified only by a written
instrument signed by Employee and by a expressly authorized representative of
the Company. The headings and captions in this Agreement are for convenience
only and in no way define or describe the scope or content of any provision of
this Agreement. This Agreement may be executed in two or more counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument. This is a California contract and shall be construed and
enforced under and be governed in all respects by the laws of the State of
California, without regard to the conflict of laws principles thereof.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by the Employee, as of
the date first above written.
CABLETRON SYSTEMS, INC. EMPLOYEE:
By: David J. Kirkpatrick Piyush Patel
Senior Vice President and
Chief Financial Officer
<PAGE>
Exhibit 10.20
CABLETRON SYSTEMS, INC.
Employment Agreement
AGREEMENT dated as of February 23, 1998 by and between Cabletron Systems, Inc.
("Parent"), a Delaware corporation with an address at 35 Industrial Way,
Rochester, New Hampshire 03867 and Romulus Pereira, an individual residing at
1077 Castleton Way, Sunnyvale, California 94087 (the "Employee").
WHEREAS, Parent, together with its subsidiaries and affiliates (collectively and
singularly as the context requires, the "Company"), is engaged in the business
of developing, manufacturing, and selling products for use in computers and
computer networks;
WHEREAS, Parent and Yago Systems, Inc., a Delaware corporation ("Yago"), have
entered into an agreement (the "Merger Agreement") pursuant to which inter alia,
a wholly owned subsidiary of Parent will merge with and into Yago; and
WHEREAS, Employee is, as of the date hereof, an employee of Yago, and Employee
and the Parent desire to set forth the terms under which Employee shall be
employed by the Company from and after the Effective Time (as defined in the
Merger Agreement).
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises, terms, provisions and conditions set forth in this Agreement, the
parties hereby agree as follows:
1. Employment. Subject to the terms and conditions set forth in this Agreement,
the Company hereby offers and Employee hereby accepts employment, effective as
of the Effective Time. If, prior to the Effective Time, the Merger Agreement
shall be terminated, this Agreement shall automatically terminate and be without
further force and effect.
2. Term. Subject to earlier termination as hereafter provided, Employee's
employment hereunder shall commence at the Effective Time and continue for a
period of eighteen (18) months. Forty-five (45) days prior to the expiration of
the initial term of this Agreement or any extension thereof, Employee shall
provide written notice to the Company of Employee's desire to extend the term of
this Agreement for an additional one (1) year period, whereafter the Company
shall have fifteen (15) days to either terminate this Agreement in accordance
with the terms hereof or agree to extend this Agreement by delivering written
notice to the Employee; provided, however, any failure by the Company to respond
within the period set forth above shall result in the automatic extension of
this Agreement for such additional one (1) year period. The "term" of this
Agreement means the initial term and any extension thereof. Any continuation of
Employee's employment with the Company after the term of this Agreement shall be
at will; provided, however, that Employee's obligations under Sections 5 and 6
shall survive any termination or expiration or this Agreement and shall continue
to bind Employee for the duration of Employee's employment with the Company.
3. Capacity and Performance.
3.1. Offices. During the term hereof, Employee shall hold such positions and
shall perform such duties and responsibilities on behalf of the Company as may
be designated from time to time by the Board of Directors of Parent (the
"Board"), the President of Parent (the "President"), or by their designees
(collectively, the "Management").
3.2. Performance. During the term hereof, Employee shall be employed by the
Company on a full-time basis and shall perform and discharge faithfully,
diligently and to the best of his ability such other duties and responsibilities
on behalf of the Company as may be designated from time to time by the Board.
During the term hereof, the Employee shall devote Employee's full business time
and best efforts, business judgment, skill and knowledge exclusively to the
advancement of the business and interests of the Company and to the discharge of
Employee's duties and responsibilities hereunder. Employee shall not engage in
any other activities directly related to the business of the Company and
determined by the Company to be detrimental to the best interests of the Company
without the prior written consent of the Company. Nothing in this Agreement will
prevent Employee from accepting speaking or presentation engagements in exchange
for honoraria or from serving on boards of charitable organizations, or from
owning no more than one percent (1%) of the outstanding equity securities of a
corporation whose stock is listed on a national stock exchange.
4. Compensation and Benefits. As compensation for all services performed by
Employee under and during the term hereof and subject to performance of
Employee's duties and of the obligations of Employee to the Company, pursuant to
this Agreement, including without limitation, Sections 5 and 6 of this
Agreement, or otherwise:
4.1. Base Salary. During the term hereof, the Company shall pay Employee a base
salary at the rate of $185,000 per annum, payable in accordance with the payroll
practices of the Company for its employees and subject to increase from time to
time by the Management, in its sole discretion (the "Base Salary").
4.2. Benefits. During the term hereof and subject to any contribution therefor
generally required of employees of the Company, Employee shall be entitled to
participate in any and all employee benefit plans from time to time in effect
for employees of the Company generally. Such participation shall be subject to
(i) the terms of the applicable plan documents, (ii) generally applicable
Company policies, and (iii) the discretion of Management or any administrative
or other committee provided for in or contemplated by such plan. The Company may
alter, modify, add to or delete its employee benefit plans at any time as it, in
its sole judgment, determines to be appropriate, without recourse by Employee.
4.3. Vacations. During the term hereof, Employee shall be entitled to vacation
in accordance with the Parent's vacation policy as in effect from time to time.
Such vacation to be taken at such times and intervals as shall be determined by
Employee, subject to the reasonable business needs of the Company. Employee
shall be entitled to cash compensation for vacation time not taken during the
term hereof to the extent approved by the Board or its Management in writing.
For purposes of calculating the vacation for which Employee is eligible pursuant
to Parent's vacation policy only, Employee's employment with Yago shall be
deemed to be employment by the Company. In addition, up to two weeks of vacation
accrued but not taken while an employee of Yago will be assumed by the Company.
4.4. Tax Withholding. All payments made by the Company under this Agreement
shall be reduced by any tax or other amounts required to be withheld by the
Company under applicable law.
4.5. Business Expenses. The Company shall pay or reimburse Employee for all
reasonable, customary and necessary business expenses incurred or paid by
Employee in the performance of Employee's duties and responsibilities hereunder,
subject to any expense policy set by the Management and other restrictions on
such expenses set by the Board and to such reasonable substantiation and
documentation as may be specified by the Company from time to time.
5. Intellectual Property.
5.1. Assignment of Inventions. Subject to the provisions of this Section 5,
Employee hereby assigns and agrees to assign to the Company, all rights, titles
and interests in and to any inventions, formulae, data, programs, techniques,
processes, ideas, algorithms, discoveries, designs, developments and
improvements that Employee may make, reduce to practice, conceive, invent,
discover, design or otherwise acquire, whether alone or with others, (i) during
Employee's employment by Company, relating to the business, products, research
or development (to the extent known by Employee) of the Company or (ii) required
to be assigned to Yago under any agreement between Yago and Employee
(collectively, "Inventions"). This Agreement does not apply to an Invention
which qualifies fully as a nonassignable Invention under the provisions of
Section 2870 of the California Labor Code as follows: "THIS IS TO NOTIFY you in
accordance with Section 2872 of the California Labor Code that the foregoing
Agreement between you and the Company does not require you to assign or offer to
assign to the Company any invention that you developed entirely on your own time
without using the Company's equipment, supplies, facilities or trade secret
information except for those inventions that either: (1) relate at the time of
conception or reduction to practice of the invention to the Company's business,
or actual or demonstrably anticipated research or development of the Company; or
(2) result from any work performed by you for the Company. To the extent a
provision in the foregoing Agreement purports to require you to assign an
invention otherwise excluded from the preceding paragraph, the provision is
against the public policy of this state and is unenforceable. This limited
exclusion does not apply to any patent or invention covered by a contract
between the Company and the United States or any of its agencies requiring full
title to such patent or invention to be in the United States."
Employee agrees that Inventions relating to the business, products, research or
development (to the extent known by Employee) of the Company conceived or made
by me while an employee of the Company belong to and are to be assigned to the
Company, regardless of whether such Invention is reduced to practice during my
employment or after termination thereof, and Employee agrees to disclose
promptly in writing to the Company all such Inventions.
5.2. Confidential Information. Employee shall regard and preserve as
confidential all Confidential Information. For the purposes hereof,
"Confidential Information" shall mean any and all information of the Company
that is not generally known by others with whom it competes or does business, or
with whom it plans to compete or to do business. Subject to the foregoing
limitation as to generally known information, Confidential Information includes,
without limitation, information relating to (i) the development, research,
testing, marketing and financial activities of the Company; (ii) any and all
versions of the Company's proprietary computer software, hardware, firmware and
documentation; (iii) other proprietary software, hardware, firmware,
documentation and information created, developed, produced or distributed by the
Company (including, without limiting the generality of the foregoing, any such
software, hardware, firmware, documentation and information created, developed,
produced, distributed or made known by the Company to Employee during the period
of or arising out of Employee's service to the Company); (iv) the manner in
which the Company operates, (v) the costs, sources of supply, financial
performance and strategic plans of the Company, (vi) the identity and special
needs of the customers or suppliers of the Company, (vii) confidential,
proprietary or trade secret information submitted by the Company's suppliers,
employees, consultants to or co-venturers with the Company for study, evaluation
or use; (viii) the people and organizations with whom the Company has business
relationships and the nature of those relationships; and (ix) the identities of
employees of the Company.
Confidential Information shall not include any information that: (i) was or
becomes generally known in the trade or business of the Company through no act
of Employee or its employees, agents, or independent contractors; or (ii) has
come into the possession of Employee from a third party who is under no
obligation to maintain the confidentiality of such information.
Employee shall not, without written authority from the Company to do so, use for
Employee's own benefit or purposes, or the benefit or purpose of any person or
entity other than the Company, nor disclose to others, either during Employee's
employment with the Company or at any time thereafter, except as required in the
course of employment with the Company, any Confidential Information.
5.3. Works of Authorship. Employee agrees that any original works of authorship
including, without limitation, all documents, blueprints, drawings, mask works
and computer programs (including, without limitation, all software, firmware,
object code, source code, documentation, specifications, revisions, supplements,
modules, and upgrades) conceived, created, performed, or produced during the
term of Employee's employment with the Company and all foreign and domestic,
registered and unregistered, copyrights and mask work rights and applications
for registrations therefor related to any such work of authorship, in each case,
whether or not made during regular working hours, relating to the actual or (to
the extent known to Employee) planned business, products, research or
development of Company (collectively "Works of Authorship") shall be the
exclusive property of the Company, as the case may be. To the extent that
Employee has or obtains any right, title or interest in or to any Works of
Authorship during the term of his employment, Employee hereby assigns and agrees
to assign to the Company, as the case may be, all of such right, title and
interest therein and thereto.
5.4. Disclosure. Employee shall promptly and fully disclose any and all
Inventions and Works of Authorship to Employee's supervisor or such other person
as the Company may designate for such purpose.
5.5. Further Assistance. Employee shall, during Employee's employment with the
Company and at any time thereafter, upon the request of and at the expense of
the Company, but at no additional compensation to Employee (except for time and
direct expense if Employee is not employed at the Company at that time) do all
acts and things, including, but not limited to, making and executing documents,
applications and instruments and giving information and testimony, in each case,
deemed by the Company form time to time, in its sole discretion, to be necessary
or appropriate (i) to vest, secure, defend, protect or evidence the right, title
and interest of the Company in and to any and all Inventions, Works of
Authorship and Confidential Information; and (ii) to obtain for the Company in
relation to all such letters patent, design registrations, copyrights,
registrations and/or mask work registrations, in the United States and any
foreign countries, and/or any reissues, renewals and/or extensions thereof.
5.6. Previous Obligations. Employee represents and warrants to the Company that
Employee's assignment of Inventions or Works of Authorship will not be in
violation of the provisions of any agreement between Employee and any previous
employer (other than Yago), nor does Employee claim any existing title in any
previous unpatented Inventions, developments, improvements or Work of Authorship
within the scope of this Agreement (or that would have been within the scope of
this Agreement had it been in effect during the term of Employee's employment by
Yago).
5.7. Return of Documents. All media on which any Inventions, Works of
Authorship, or Confidential Information may be recorded or located, including,
without limitation, documents, samples, models, blueprints, photocopies,
photographs, drawings, descriptions, reproductions, cards, tapes, discs and
other storage facilities (collectively "Documentation") made by Employee or that
come into Employee's possession by reason of Employee's employment with the
Company are the property of the Company, as the case may be, and shall be
returned to the Company by Employee upon termination of employment. Employee
will not deliver, reproduce, or in any way allow any Documentation to be
delivered or used by any third party without the written direction or consent of
a duly authorized representative of the Company.
6. Covenant Not To Compete.
6.1. Non-Compete. Employee covenants and agrees that for so long as he shall be
employed by the Company, and for a period of eighteen (18) months after such
termination of employment pursuant to this Agreement or otherwise (the
"Non-Competition Period"), the Employee shall not, directly or indirectly, as
principal, partner, agent, servant, employee, stockholder, or otherwise anywhere
in the world, engage or attempt to engage in any business activity involving the
design, manufacture, distribution or sale to LAN and/or WAN markets of gigabit
ethernet switching and/or routing products (the "Competing Business"); provided,
however, nothing in this Section 6.1 shall prevent Employee from accepting
employment during the Noncompetition Period with a company involved in a
Competing Business so long as Employee shall not directly or indirectly consult,
assist or otherwise work in the division of such other company involving the
Competing Business; provided, further, the Employee shall not under any
circumstance accept employment during the Noncompetition Period with Cisco, Inc.
3Com, Inc. and Bay Networks, Inc. The foregoing shall not prohibit Employee or
his spouse or children and from owning beneficially any publicly traded
security, so long as the beneficial ownership by them, when combined with the
beneficial ownership of such publicly traded security of any group (as the term
is used in Section 13(D) of the Securities Exchange Act of 1934) of which any of
them is a member constitutes (x) less than Five Percent (5%) of the class of
such publicly traded security or (y) less than Five Percent (5%) of the voting
power of all outstanding securities of the issuer of such security.
6.2. Non-Solicitation. Employee agrees that for as long as he or she is employed
by the Company and through the Non-Competition Period, Employee will not
solicit, recruit, or induce any other person to solicit or recruit, any employee
of the Company (including any person who was an employee of Yago) within the
sixty (60) day period immediately preceding the date hereof or was an employee
during the period of Employee's employment hereunder for one year following the
end of such employee's employment with Yago or the Company, as the case may be,
or otherwise induce any employee to leave the employment of the Company to
become an employee of or otherwise be associated with a business with which
Employee is associated.
Employee further agrees that during the Non-Competition Period, Employee will
not, in competition with the Company, solicit business from any customer of the
Company made known to Employee during his employment with the Company.
6.3. Reasonableness of Restrictions. Employee recognizes that the consideration
to be paid and all other obligations of the Company to be performed pursuant to
this Agreement are intended, in significant part, to secure Employee's agreement
to the conditions of this Section 6, and Employee recognizes that the foregoing
territorial and time limitations are reasonable and properly required for the
adequate protection of the business of the Company and any Company Affiliates
and that in the event that any such territorial or time limitation is deemed to
be unreasonable by any California tribunal having jurisdiction, Employee agrees
to submit to the reduction of either said territorial or time limitation to such
an area or period as shall be deemed reasonable by such tribunal.
7. Termination of Employment and Severance Benefits. Notwithstanding the
provisions of Section 2 hereof, Employee's employment hereunder shall terminate
prior to the expiration of the term under the following circumstances:
7.1. Retirement or Death. In the event of Employee's retirement or death during
the term hereof, Employee's employment hereunder shall immediately and
automatically terminate. During the term hereof, Employee may elect to retire
after the age of sixty-five with the prior written consent of the Board and, in
that event, shall be paid any earned and unpaid Base Salary that is earned but
unpaid prorated through the date of Employee's retirement. In the event of
Employee's death during the term hereof, the Company shall pay to Employee's
designated beneficiary or, if no beneficiary has been designated by Employee, to
his estate, any earned and unpaid Base Salary, and accrued but unused vacation
time that is earned but unpaid, pro-rated through the date of Employee's death.
7.2. Disability.
7.2.1. The Company may terminate Employee's employment hereunder, upon notice to
Employee, in the event that Employee becomes disabled during Employee's
employment hereunder through any illness, injury, accident or condition of
either a physical or psychological nature and, as a result, is unable to perform
substantially all of Employee's duties and responsibilities hereunder for either
(a) sixty (60) consecutive calendar days or (b) an aggregate of one hundred
twenty (120) days during any period of three hundred and sixty-five (365)
consecutive calendar days.
7.2.2. The Board may designate another employee to act in Employee's place
during any period of Employee's disability. Notwithstanding any such
designation, Employee shall continue to receive the Base Salary in accordance
with Section 4.1 and benefits in accordance with Section 4.2, to the extent
permitted by the then-current terms of the applicable benefit plans, until
Employee becomes eligible for disability income benefits under the Company's
disability income plan or until the termination of Employee's employment,
whichever shall first occur. Upon termination of the Employee's employment under
this Section the Company shall also pay to Employee any accrued, but unused
vacation.
7.2.3. While receiving disability income payments under the Company's disability
income plan, Employee shall not be entitled to receive any Base Salary under
Section 4.1, but shall continue to participate in Company benefit plans in
accordance with Section 4.2 and the terms of such plans, until the termination
of Employee's employment.
7.2.4. If any question shall arise as to whether during any period Employee is
disabled through any illness, injury, accident or condition of either a physical
or psychological nature so as to be unable to perform substantially all of
Employee's duties and responsibilities hereunder, Employee may, and at the
request of the Company shall, submit to a medical examination by a physician
selected by the Company, to whom Employee or Employee's duly appointed guardian,
if any, has no reasonable objection, to determine whether Employee is so
disabled and such determination shall for the purposes of this Agreement be
conclusive of the issue. If such question shall arise and Employee shall fail to
submit to such medical examination, the Company's determination of the issue
shall be binding on Employee.
7.3. By the Company for Cause. The Company may terminate Employee's employment
hereunder for Cause at any time upon notice to Employee setting forth in
reasonable detail the nature of such Cause. The following, as determined by the
Board in its reasonable judgment, shall constitute Cause for termination:
7.3.1. Material breach of this Employment Agreement after Employee has received
written notice of such breach and has not cured such breach within 30 days of
receipt of such notice;
7.3.2. Dishonest or fraudulent conduct, a deliberate attempt to do an injury to
Cabletron, or conduct that materially discredits Cabletron or is materially
detrimental to the reputation of Cabletron, including conviction of a felony; or
7.3.3. Employee's incurable material breach of any element of the Cabletron's
Confidential Information, Non-Compete and Invention Assignment Agreement,
including without limitation, employee's theft or other misappropriation of the
Company's proprietary information.
Upon termination of Employee's employment hereunder for Cause, the Company shall
have no further obligation or liability to Employee, other than for Base Salary
earned and unpaid at the date of termination as well as accrued but unused
vacation.
7.4. By the Company Other than for Cause. The Company may terminate Employee's
employment hereunder other than for Cause at any time upon notice to Employee.
In the event of such termination, and provided that no comparable or better
benefits are payable to Employee under a separate severance agreement or an
executive severance plan as a result of such termination, then until the
conclusion of a period equal to the remainder of the then-current term of this
Agreement (the "Severance Period"), the Company shall (a) continue to pay
Employee the Base Salary at the rate in effect on the date of termination and
(b) subject to any employee contribution applicable to Employee on the date of
termination, shall continue to contribute to the cost of Employee's
participation in the Company's group medical and dental insurance plans,
provided that Employee is entitled to continue such participation under
applicable law and plan terms, provided that if any salary and benefits are paid
under this sentence, Employee shall not be entitled to any salary and benefits
under any other severance agreement or executive severance plan. In addition,
upon any termination of Employee pursuant to this Section 7.4, all shares of
Common Stock and stock options of the Company owned or granted to Employee, as
the case may be, shall vest immediately and any repurchase rights with respect
thereto shall lapse. Further, if Employee is terminated pursuant to this Section
7.4 under any circumstance, including but not limited to, as part of a general
layoff by the Company, the provisions of Section 6.1 shall have no force and
effect.
7.5. By Employee for Good Reason. Employee may terminate Employee's employment
hereunder for Good Reason, upon notice to the Company setting forth in
reasonable detail the nature of such Good Reason. The following shall constitute
Good Reason for termination by Employee:
7.5.1. Material diminution in the nature or scope of Employee's
responsibilities, duties or authority; provided, however, the Company's failure
to continue Employee's appointment or election as a director or officer of
Parent or any of the subsidiaries or affiliates of Parent and any diminution of
the business of the Company, including without limitation the sale or transfer
of any or all of the assets of the Company, shall not constitute "Good Reason";
or
7.5.2. Material failure of the Company to provide Employee the Base Salary and
benefits in accordance with the terms of Section 4 hereof, which failure is not
cured within thirty (30) days written notice thereof by Employee to the Company.
7.5.3. Termination of Employee's employment as a result of Employee's refusal to
consent the relocation of Employee's principal place of employment to more than
60 miles from Sunnyvale, California.
In the event of termination in accordance with this Section 7.5, and provided
that no comparable or better benefits are payable to Employee under a separate
severance agreement or an executive severance plan as a result of such
termination, then until the end of the Severance Period, the Company shall (a)
continue to pay Employee the Base Salary at the rate in effect on the date of
termination and (b) subject to any employee contribution applicable to Employee
on the date of termination, shall continue to contribute to the cost of
Employee's participation in the Company's group medical and dental insurance
plans, provided that Employee is entitled to continue such participation under
applicable state and federal law and plan terms, provided that Employee is
entitled to continue such participation under applicable law and plan terms,
provided that if any salary and benefits are paid under this sentence, Employee
shall not be entitled to any salary and benefits under any other severance
agreement or executive severance plan. In addition, upon any termination of
Employee pursuant to this Section 7.5, all shares of Common Stock and stock
options of the Company owned or granted to Employee, as the case may be, shall
vest immediately and any repurchase rights with respect thereto shall lapse.
7.6. By Employee Other than for Good Reason. Employee may terminate Employee's
employment hereunder at any time upon thirty (30) days' notice to the Company,
unless such termination would violate any obligation of Employee to the Company
under a separate severance agreement. In the event of termination of Employee
pursuant to this Section 7.6, Management may elect to waive the period of
notice, or any portion thereof, and, if Management so elects, the Company will
pay Employee his Base Salary for the notice period, plus any accrued, but unused
vacation. If Employee shall voluntarily terminate Employee's employment
hereunder, the Company shall have no further obligation or liability to
Employee, other than for Base Salary earned and unpaid at the date of
termination, accrued but unused vacation and as specifically set forth in
Section 8.1 hereof.
7.7. Post-Agreement Employment. In the event Employee remains in the employ of
the Company or any of the Company Affiliates following termination of this
Agreement, by the expiration of the term or otherwise, then such employment
shall be at will.
8. Effect of Termination. The provisions of this Section 8 shall apply to
termination due to the expiration of the term, pursuant to Section 7 or
otherwise.
8.1. Payment by the Company of any Base Salary, accrued, but unused vacation and
contributions to the cost of Employee's continued participation in the Company's
group health and dental plans that may be due Employee in each case under the
applicable termination provision of Section 7 shall constitute the entire
obligation of the Company to Employee. Acceptance by Employee of performance by
the Company shall constitute full settlement of any claim under this Agreement
that Employee might otherwise assert against the Company, the Company Affiliates
or any of their shareholders, directors, officers, employees or agents on
account of such termination. Employee shall promptly give the Company notice of
all facts necessary for the Company to determine the amount and duration of its
obligations in connection with any termination pursuant to Section 7.4 or 7.5
hereof.
8.2. Except for medical and dental insurance coverage continued pursuant to
Section 7.4 or Section 7.5 hereof, benefits shall terminate pursuant to the
terms of the applicable benefit plans based on the date of termination of
Employee's employment without regard to any continuation of Base Salary or other
payment to Employee following such date of termination.
8.3. Provisions of this Agreement shall survive any termination if so provided
herein or if necessary or desirable fully to accomplish the purposes of such
provision, including without limitation the obligations of Employee under
Sections 6 hereof. The obligation of the Company to make payments to or on
behalf of Employee under Section 7.4, 7.5 or 7.6 hereof is expressly conditioned
upon Employee's continued full performance of obligations under Sections 5 and 6
hereof. Employee recognizes that, except as expressly provided in Section 7.4 or
7.5, no compensation is earned after termination of employment.
9. Conflicting Agreements. Employee hereby represents and warrants that the
execution of this Agreement and the performance of Employee's obligations
hereunder will not breach or be in conflict with any other agreement to which
Employee is a party or is bound and that Employee is not now subject to any
covenants against competition or similar covenants that would affect the
performance of Employee's obligations hereunder. Employee will not disclose to
or use on behalf of the Company or any Company Affiliate any proprietary
information of a third party without such party's consent.
10. Arbitration. Any dispute or claim arising out of or in connection with this
Agreement will be finally settled by binding arbitration in San Jose, California
in accordance with the rules of the American Arbitration Association by one
arbitrator appointed in accordance with said rules. The arbitrator shall apply
California law, without reference to rules of conflicts of law or rules of
statutory arbitration, to the resolution of any dispute. Judgment on the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof. Notwithstanding the foregoing: (i) the parties may apply to any court
of competent jurisdiction for preliminary or interim equitable relief, including
injunctive relief, or to compel arbitration in accordance with this paragraph
and (ii) Company may terminate Employee as set forth in Article 7, in each case
without breach of this arbitration provision. Employee agrees that a remedy at
law for any breach of the provisions of Sections 5 or 6 hereof may be inadequate
and that Company or any Company Affiliate shall be entitled to injunctive
relief, in addition to any other remedy it might have in the event of breach or
threatened breach of the provisions of Sections 5 or 6 of this Agreement.
11. Assignment. Neither the Company nor Employee may make any assignment of this
Agreement or any interest herein, by operation of law or otherwise, without the
prior written consent of the other; provided, however, that the Company may
assign its rights and obligations under this Agreement without the consent of
Employee in the event that the Company shall hereafter affect a reorganization,
consolidate with, or merge into, any other Person or transfer all or
substantially all of its properties or assets to any other Person and such
Person assumes the obligations of the Company hereunder. This Agreement shall
inure to the benefit of and be binding upon the Company and Employee, their
respective successors, executors, administrators, heirs and permitted assigns.
12. Severability. If any term or provision of this Agreement shall become or be
declared illegal, invalid or unenforceable, such term or provision shall be
divisible from this Agreement and shall be deemed to be deleted from this
Agreement, provided that if such deletion substantially affects or alters the
commercial basis of this Agreement the parties shall negotiate in good faith to
amend and modify the terms and provisions of this Agreement to give effect to
the original intent of the parties.
13. Waiver. No waiver of any provision hereof shall be effective unless made in
writing and signed by the waiving party. The failure of either party to require
the performance of any term or obligation of this Agreement, or the waiver by
either party of any breach of this Agreement, shall not prevent any subsequent
enforcement of such term or obligation or be deemed a waiver of any subsequent
breach.
14. Notices. Any and all notices, requests, demands and other communications
provided for by this Agreement shall be in writing and shall be effective when
delivered in person or deposited in the United States mail, postage prepaid,
registered or certified, and addressed to Employee at Employee's last known
address on the books of the Company or, in the case of Parent, at its principal
place of business, attention of President, or to such other address as either
party may specify by notice to the other.
15. Prior Agreement with Yago. As of the Effective Time, this Agreement
supersedes any employment agreement, salary continuation agreement, commitment,
understanding or arrangements, express, implied, oral, or written between Yago
and Employee or any group of employees of Yago, generally (including Employee),
except for the Amended Founder Stock Purchase Agreement (as defined in the
Merger Agreement) and except that any agreement between Yago and Employee, to
the extent that such agreement relates to confidentiality or non-disclosure or
assignment of proprietary rights, noncompetition or nonsolicitation relating to
Yago's business, shall remain in full force and effect and inure to the benefit
of the Company, and shall be in addition to, and not in limitation of, the
rights of the Company hereunder. The Company shall have no obligations with
respect to any prior agreements which may have been executed between Employee
and Yago other than the Amended Founder Stock Purchase Agreement.
16. Miscellaneous. This Agreement constitutes the entire agreement between the
parties and supersedes all prior communications, agreements and understandings,
written or oral, with respect to the terms and conditions of Employee's
employment. This Agreement may be amended or modified only by a written
instrument signed by Employee and by a expressly authorized representative of
the Company. The headings and captions in this Agreement are for convenience
only and in no way define or describe the scope or content of any provision of
this Agreement. This Agreement may be executed in two or more counterparts, each
of which shall be an original and all of which together shall constitute one and
the same instrument. This is a California contract and shall be construed and
enforced under and be governed in all respects by the laws of the State of
California, without regard to the conflict of laws principles thereof.
IN WITNESS WHEREOF, this Agreement has been executed as a sealed instrument by
the Company, by its duly authorized representative, and by the Employee, as of
the date first above written.
CABLETRON SYSTEMS, INC. EMPLOYEE:
By: David J. Kirkpatrick Romulus Pereira
Senior Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet, consolidated statement of operations and the
consolidated statement of cash flows included in the Company's Form 10-Q for the
period ending May 31, 1999, and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000846909
<NAME> CABLETRON SYSTEMS, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> MAY-31-1999
<EXCHANGE-RATE> 1.00
<CASH> 129,392
<SECURITIES> 97,885
<RECEIVABLES> 242,361
<ALLOWANCES> 21,756
<INVENTORY> 216,657
<CURRENT-ASSETS> 777,121
<PP&E> 281,826
<DEPRECIATION> 109,774
<TOTAL-ASSETS> 1,533,730
<CURRENT-LIABILITIES> 442,913
<BONDS> 0
0
0
<COMMON> 1,736
<OTHER-SE> 1,076,882
<TOTAL-LIABILITY-AND-EQUITY> 1,078,618
<SALES> 349,533
<TOTAL-REVENUES> 349,533
<CGS> 212,615
<TOTAL-COSTS> 212,615
<OTHER-EXPENSES> 176,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,068)
<INCOME-PRETAX> (35,909)
<INCOME-TAX> (13,384)
<INCOME-CONTINUING> (22,525)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (22,525)
<EPS-BASIC> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>