<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to _______________
Commission File Number 0-50464
NETRIX CORPORATION
------------------
(Exact name of registrant as specified in charter)
Delaware 54-1345159
---------------------- ----------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
13595 Dulles Technology Drive, Herndon, Virginia 22071
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(703) 742-6000
--------------
(Registrant's telephone number, including area code)
Indicate by check number 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
------ ------
At October 31, 1996 there were 9,497,282 shares of the registrant's
Common Stock, $.05 par value per share, outstanding.
<PAGE>
NETRIX CORPORATION
------------------
FORM 10-Q
---------
SEPTEMBER 30, 1996
------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I -- FINANCIAL INFORMATION
ITEM 1 -- FINANCIAL STATEMENTS
Condensed Consolidated Statements of Operations for the nine
months and three months ended September 30, 1996 and
September 30, 1995 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II -- OTHER INFORMATION
ITEM 1 -- LEGAL PROCEEDINGS 13
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURE 14
</TABLE>
2
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
NETRIX CORPORATION
------------------
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
----------------------- ------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Product......................................... $23,966 $31,259 $ 7,604 $ 8,189
Service......................................... 8,283 7,598 2,910 2,697
------- ------- -------- -------
Total revenues............................ 32,249 38,857 10,514 10,886
Cost of revenues:
Product......................................... 10,644 12,916 3,751 3,659
Service......................................... 5,245 5,406 1,789 1,956
------- ------- -------- -------
Total cost of revenues.................... 15,889 18,322 5,540 5,615
------- ------- -------- -------
Gross profit....................... 16,360 20,535 4,974 5,271
Operating expenses:
Sales and marketing............................. 8,763 10,825 2,719 3,518
Research and development........................ 8,294 8,132 2,706 2,735
General and administrative..................... 3,165 3,666 1,005 1,159
Restructuring reserve .......................... 900 -- -- --
------- ------- -------- -------
Loss from operations................. (4,762) (2,088) (1,456) (2,141)
Interest income, net................................. 350 551 87 207
Foreign exchange gain (loss)........................ (56) 133 (10) (55)
------- ------- -------- -------
Loss before income taxes............. (4,468) (1,404) (1,379) (1,989)
Provision for income taxes........................... 69 72 33 18
------- -------- -------- -------
Net loss............................................. $(4,537) $(1,476) $(1,412) $(2,007)
======= ======= ======== =======
Loss per share....................................... $ (0.48) $ (0.16) $ (0.15) $ (0.21)
======= ======= ======== =======
Weighted average number of shares outstanding........ 9,458 9,357 9,491 9,411
======= ======= ======== =======
</TABLE>
See notes to unaudited condensed consolidated financial statements.
3
<PAGE>
NETRIX CORPORATION
------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------ ------------
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents..................................... $ 1,254 $ 4,370
Short-term investments........................................ 7,257 7,357
Accounts receivable, net of allowance for doubtful
accounts of $1,468 at September 30, 1996 and
$1,530 at December 31, 1995................................. 10,297 11,052
Inventories, net.............................................. 8,492 9,016
Other current assets.......................................... 865 962
---------- ----------
Total current assets........................... 28,165 32,757
Property and equipment, net of accumulated
depreciation of $14,806 at September 30, 1996
and $12,131 at December 31, 1995............................ 5,781 7,130
Goodwill, net.......................................................... 1,511 1,816
Deposits and other assets.............................................. 251 282
---------- ----------
$ 35,708 $ 41,985
========== ==========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
4
<PAGE>
NETRIX CORPORATION
------------------
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(In thousands, except share amounts)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
---------------- ------------
(Unaudited)
<S> <C> <C>
Current liabilities:
Line of credit................................................ $ 754 $ 750
Accrued liabilities........................................... 4,510 4,712
Accounts payable.............................................. 3,276 4,944
Current portion of long-term debt............................. 241 241
------- --------
Total current liabilities...................... 8,781 10,647
Long-term debt, net of current portion................................. 300 320
Deferred rent, net of current portion.................................. 438 622
---------- ----------
9,519 11,589
--------- --------
Stockholders' equity:
Preferred stock, $0.05 par value; 1,000,000 shares
authorized; none issued and outstanding.................. -- --
Common stock, $0.05 par value; 15,000,000
shares authorized; 9,493,448 and 9,435,268
shares issued and outstanding at September 30,
1996 and December 31, 1995, respectively................ 475 472
Additional paid-in capital.................................... 55,510 55,105
Unrealized holding gain (loss)................................ (10) 42
Cumulative translation adjustment............................. (38) (11)
Accumulated deficit........................................... (29,748) (25,212)
---------- ----------
Total stockholders' equity.................................... 26,189 30,396
---------- ----------
$ 35,708 $ 41,985
========= =========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
5
<PAGE>
NETRIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------------------------
1996 1995
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.......................................................... $ (4,537) $ (1,476)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization................................. 2,979 2,650
Non-cash compensation expense................................. 129 --
Decrease in deferred rent..................................... (161) (140)
Changes in assets and liabilities -
Accounts receivable...................................... 756 4,498
Inventories.............................................. 20 (550)
Other current assets..................................... 97 293
Deposits and other assets................................ 31 216
Accounts payable......................................... (1,668) (1,202)
Accrued liabilities...................................... (226) (1,086)
---------- ----------
Net cash (used in) provided by operating activities...... (2,580) 3,203
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of short-term investments........................... (5,330) (14,363)
Sales of short-term investments............................... 5,378 12,319
Purchases of property and equipment........................... (822) (1,642)
Cash acquired from IDS acquisition............................ -- 35
---------- ----------
Net cash provided by (used in) investing activities...... (774) (3,651)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options....................... 205 200
Proceeds from employee stock purchase plan.................... 75 137
Proceeds from line of credit.................................. 4 480
Repayments of long-term debt.................................. (20) --
Payments under capital lease obligations...................... -- (25)
---------- ----------
Net cash provided by financing activities................. 264 792
---------- ----------
Effect of foreign currency exchange rate changes on cash and
cash equivalents.................................................. (26) (9)
---------- ----------
Net (decrease) increase in cash and cash equivalents................... (3,116) 335
Cash and cash equivalents, beginning of period......................... 4,370 6,000
---------- ----------
Cash and cash equivalents, end of period............................... $ 1,254 $ 6,335
========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... 108 37
Cash paid during the period for income taxes.................. -- --
Capitalization of inventories into manufacturing and
test equipment........................................... 504 223
</TABLE>
See notes to unaudited condensed financial statements.
6
<PAGE>
NETRIX CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
1. Basis of Presentation:
Netrix Corporation (the "Company") was formed in 1985 to develop,
manufacture, market and support a family of high performance, integrated network
switching and network management products for use in enterprise-wide
communications networks. During 1989, the Company formed a wholly-owned
subsidiary, Netrix International Corporation (a Delaware corporation). On
January 1, 1995, the Company's wholly-owned subsidiary, Netrix Telcom Systems
Corporation, was merged with and into the Company. Also on January 1, 1995, the
Company acquired the equipment, inventory, and contract rights of InterData
Systems GmbH ("IDS"), relating to its corporate network business. All
significant intercompany transactions have been eliminated.
The unaudited condensed financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission and include, in the opinion of
management, all adjustments, consisting of normal, recurring adjustments,
necessary for a fair presentation of interim period results. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. The Company believes, however,
that its disclosures are adequate to make the information presented not
misleading. The results for such interim periods are not necessarily indicative
of results to be expected for the full year.
Certain reclassifications have been made to the prior year financial
statements to conform with current year presentation.
2. Acquisitions:
------------
IDS
On January 1, 1995, the Company acquired the equipment, inventory, and
contract rights of IDS, relating to its corporate network business. Prior to
this acquisition, IDS was a distributor of the Company and provided sales and
service of the Company's products in Germany. The purchase price for the assets
acquired in this transaction was $545,000. All of the assets acquired were
transferred to Netrix GmbH, a wholly-owned subsidiary of the Company, which was
established coincidentally with the acquisition of the assets of IDS.
3. Cash Equivalents:
-----------------
Cash equivalents are primarily bank deposits, commercial paper, and US
government agency securities, with original maturities of three months or less.
These investments are carried at cost, which approximates market value.
4. Short-Term Investments:
-----------------------
Short-term investments consist primarily of commercial paper with
maturities of more than three months and less than twelve months and longer-term
investments which are primarily US government obligations with maturities
between twelve and eighteen months. Longer-term investments are bought and held
principally for the purpose of selling them in the near term. Short-term
investments are reported at fair value.
7
<PAGE>
Under SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," debt securities that are classified as available-for-sale
are reported at fair value, with unrealized gains and losses reported as a
separate component of stockholders' equity. At September 30, 1996 and December
31, 1995, the unrealized holding gain/loss on short-term investments was a loss
of approximately $10,000 and gain of approximately $42,000, respectively, and is
reported as a separate component of stockholders' equity.
5. Inventories:
-----------
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1996 December 31, 1995
------------------ -----------------
<S> <C> <C>
Raw materials........................................ $ 390 $ 335
Work in process...................................... 1,207 798
Finished goods....................................... 6,895 7,883
---------- ---------
Total inventories.................................... $ 8,492 $ 9,016
========== =========
</TABLE>
6. Debt:
Line of Credit
In January 1996, the Company renegotiated its existing line
of credit agreement with a lending institution to provide for a $2.0 million
line of credit for working capital at an interest rate per annum equal to the
lender's prime rate plus 3/4% (9.0% at September 30, 1996), which includes
covenants that require the Company to maintain certain levels of liquidity and
tangible net worth. The working capital line of credit matures with unpaid
principal amounts due and payable on January 3, 1997. At September 30, 1996 and
December 31, 1995, the Company had approximately $754,000 and $750,000,
respectively, outstanding under the working capital line of credit.
Long-term Debt
The Company utilized approximately $561,000 of available draws
under an equipment line of credit with a lending institution, which was capped
at this amount in January 1996 and began to amortize as a term loan over a
28-month period in accordance with the credit agreement. The term loan is
payable in monthly installments of approximately $20,000 from September 3, 1996
through January 3, 1999. The equipment note payable bears interest at a rate per
annum equal to the lender's prime rate plus 3/4% (9.0% at September 30, 1996)
and is secured by certain machinery and equipment. At September 30, 1996 and
December 31, 1995, the Company had approximately $541,000 and $561,000,
respectively, outstanding under the equipment note payable.
8
<PAGE>
7. Product Revenues:
The Company's product revenues for the nine months and three
months ended September 30, 1996 and 1995 were generated in the following
geographic regions:
<TABLE>
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
------------------ --------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
Domestic....................... $ 8,642 $17,207 $ 2,765 $ 4,431
Europe......................... 7,262 7,394 1,524 2,364
Pacific Rim and other.......... 8,062 6,658 3,315 1,394
--------- --------- --------- ---------
Total.......................... $23,966 $31,259 $ 7,604 $8,189
======= ======= ======== ======
</TABLE>
All of the Company's products are manufactured and shipped out
of its facilities in Herndon, Virginia and Charlotte, North Carolina. Sales are
primarily denominated in U.S. dollars.
8. Restructuring Charge:
In March 1996, the Company recorded a restructuring charge of $900,000
before income taxes. The charge includes anticipated costs associated with the
consolidation and relocation of facilities and the reduction of personnel levels
as part of management's restructuring plan for the Company. Of this amount,
approximately $487,000 remained unused at September 30, 1996.
9. Foreign Exchange Gain (Loss):
Generally, assets and liabilities denominated in foreign currencies are
translated into U.S. dollars at current exchange rates. Operating results are
translated into U.S. dollars using the average rates of exchange prevailing
during the period. Gains or losses resulting from translation of assets and
liabilities are included in the cumulative translation adjustment account in
stockholders' equity, except for the translation effect of intercompany balances
that are anticipated to be settled in the foreseeable future. Included in
foreign exchange income for the nine and three months ended September 30, 1996,
is approximately $56,000 and $10,000 in translation losses, respectively, and
for the nine and three months ended September 30, 1995, is approximately
$133,000 in translation gains, and $55,000 in translation losses, respectively.
10. Loss Per Share:
Loss per share amounts have been computed using the weighted average
number of common shares and common equivalent shares having a dilutive effect
during the periods. The Company had a loss per share for the nine months and
three months ended September 30, 1996, of $0.48 and $0.15, respectively,
compared to a loss per share of $0.16 and $0.21, respectively, for the nine and
three months ended September 30, 1995.
9
<PAGE>
NETRIX CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
- ---------------------
Background. The results for the nine and three months ended September
30, 1996, reflect a decrease in revenues over the comparable periods in 1995.
The decline is primarily a result of decreased domestic and European sales
offset by an increase in revenue from its Pacific Rim markets.
In March 1996, the Company implemented a restructuring plan, reducing
its workforce by approximately 15% and consolidating its manufacturing
facilities from Herndon, Virginia, and Longmont, Colorado, to one location in
Charlotte, North Carolina.
In January 1995, the Company acquired the equipment, inventory, and
contract rights of IDS, relating to its corporate network business. Prior to
this acquisition, IDS was a distributor of the Company and provided sales and
service of the Company's products in Germany. The purchase price for the assets
acquired in this transaction was $545,000. See Notes 1 and 2 to the Unaudited
Condensed Consolidated Financial Statements for further discussion. The reported
results include the operations of IDS since the acquisition date of January 1,
1995.
Revenues. Total revenues decreased by $6.6 million or 17.0%, in the
nine months ended September 30, 1996 compared to the nine months ended September
30, 1995. Total revenues also decreased $0.4 million, or 3.4%, in the third
quarter of 1996 compared to the third quarter of 1995. The decrease in revenues
was due to decreased product sales offset in part by increased service revenue.
Product revenues decreased $7.3 million, or 23.3% for the first nine months of
1996 compared to 1995. Product revenue to domestic customers decreased by 49.8%,
sales to Europe remained flat, while sales to the Pacific Rim increased by 21.1%
during this time period. Although revenue by territory can vary from quarter to
quarter, the decline in domestic product revenue is partially due to the
transition of the more established products to new products the company released
for shipment in Q3 1996, combined with the decrease in the domestic sales force,
resulting from the restructuring in March 1996. Service revenues increased by
approximately $0.7 million, or 9.0%, for the nine months ended September 30,
1996 compared to nine months ended September 30, 1995. For the third quarter of
1996, there was an increase in service revenue of 7.9% from third quarter of
1995. The increase in service revenue is reflective of additions to the
installed base during 1995 and early 1996.
Gross Profit. Gross profit decreased by $4.2 million, or 20.3%, for the
first nine months of 1996 compared to the first nine months of 1995, and
decreased as a percentage of total revenues from 52.8% to 50.7%. For the third
quarter of 1996 compared to the third quarter of 1995, gross profit decreased
$0.3 million or 5.6%, and decreased as a percent of total revenues from 48.4% to
47.3%. Product gross margin decreased from 58.7% in the first nine months of
1995 to 55.6% in the first nine months of 1996. This decrease primarily resulted
from a high volume of sales of the Company's lower margin products to
distributors with higher discounts. As the product mix and channel mix change
from quarter to quarter, product gross margins can vary within a wide range. Due
to this mix, margins earned in the nine months ended September 30, 1996 are not
necessarily indicative of margins that will be earned in the future. The gross
margin for service revenue increased from 28.8% in the first nine months of 1995
to 36.7% in the first nine months of 1996. The higher gross margin is a result
of increased service revenues as discussed above and lower service costs mainly
in the areas of compensation and warranty expenses.
Sales and Marketing. Sales and marketing expenses decreased by $2.1
million or 19.0% from the first nine months of 1995 to the first nine months of
1996. For the third quarter of 1996 as compared to the third quarter of 1995,
the decrease was $0.8 million, or 22.7%. The decrease in expenses was
principally due to a decrease in personnel and travel costs, and marketing
programs which include trade shows and public relations.
10
<PAGE>
Research and Development. Research and development expenses increased
by $0.2 million or 2.0% from the first nine months of 1995 to the comparable
period of 1996. Third quarter expenses did not change significantly from 1996 to
1995. The increase was due principally to increased expenses related to
equipment parts and outside services. Currently, all of the Company's research
and development costs are charged to operations as incurred.
General and Administrative. General and administrative expenses
decreased by $0.5 million or 13.6%, from the first nine months of 1995 as
compared to the same period in 1996. For the third quarter of 1996 compared to
the third quarter of 1995 there was a decrease of $0.2 million, or 13.3%. The
decrease in these expenses was due principally to a reduction in personnel
costs, outside services expenses which include consulting costs, and legal and
accounting fees.
Restructuring Charge. In March 1996, the Company recorded a
restructuring charge of $900,000 before income taxes. The charge includes
anticipated costs associated with the consolidation and relocation of facilities
and the reduction of personnel levels as part of management's restructuring plan
for the Company. Of this amount, approximately $497,000 remained unused at
September 30, 1996. Approximately $265,000 of this reserve relates to future
lease obligations.
Interest and Other Income, Net. The Company generated net interest and
other income of approximately $350,000 and $87,000, respectively, in the nine
and three months ended September 30, 1996, compared to approximately $551,000
and $207,000, respectively, in the same periods in 1995. The decrease in net
interest income is due primarily to lower investment levels maintained in
short-term investments, combined with increased interest expense on the
Company's borrowings under an equipment line of credit.
Foreign Exchange Gain. Included in foreign exchange income for the nine
and three months ended September 30, 1996, is approximately $56,000 and $10,000
in translation losses, respectively, and for the nine and three months ended
September 30, 1995, is approximately $133,000 in translation gains and $55,000
in translation losses, respectively.
Net Loss. For the first nine months of 1996, the Company generated a
net loss of approximately $4.5 million compared to net loss of $1.5 million in
the comparable period of 1995. The net loss for the third quarter of 1996 was
approximately $1.4 million compared to net loss of $2.0 million in the third
quarter of 1995. The decline in earnings for the year to date and the increase
in earnings in the third quarter were due to the factors discussed above.
Liquidity and Capital Resources
- -------------------------------
At September 30, 1996, the Company had approximately $1.3 million of
cash and cash equivalents on hand, short-term investments of $7.3 million, and
net working capital of $19.4 million, a decrease of $3.1 million, $0.1 million,
and $2.7 million, respectively, for the nine month period.
For the nine months ended September 30, 1996, the Company used
approximately $2.6 million in cash from operating activities. The cash used in
operating activities was primarily due to the negative cash flow from operating
results and a reduction in accounts payable during the nine months. For the same
period in 1995, the cash provided by operating activities totaled $3.2 million
and was attributable mainly to accounts receivable collections during the
period.
For the nine months ended September 30,1996, the Company used
approximately $0.8 million in investing activities. This was the result of
purchases of capital expenditures during the period of $0.8 million. For the
period, purchases and sales of short-term investments generally offset each
other with $5.3 million in purchases and $5.4 million in sales. For the same
period in 1995, the Company used approximately $3.7 million in investing
activities, which consisted primarily of net purchases of short-
11
<PAGE>
term investments totaling $2.0 million and capital expenditures of $1.6 million.
Capital expenditures in both periods were financed with cash on hand and funds
generated from operations, and were primarily for additional research and
development and test equipment required to support the expanded product base at
the Company.
Cash provided by financing activities in the first nine months of 1996
was approximately $0.3 million and consisted primarily of proceeds from the
employee stock option and employee stock purchase plans. For the same period in
1995, cash provided by financing activities of approximately $0.8 million
consisted primarily of proceeds from the equipment line of credit of $0.5
million. In January 1996, the Company renegotiated its existing line of credit
with a lending institution to provide working capital. The agreement provides
for a $2.0 million line of credit for working capital and includes covenants
that require the Company to maintain certain levels of liquidity and tangible
net worth. In addition, the Company utilized approximately $561,000 of available
draws under an equipment line of credit with the same lending institution. This
amount is payable in monthly installments of approximately $20,000 from
September 3, 1996 through January 3, 1999. The working line of credit matures
with unpaid principal amounts due and payable on January 3, 1997. Both
instruments bear interest at a rate per annum equal to the lender's prime rate
plus 3/4% (9.0% at September 30, 1996). At September 30, 1996 and December 31,
1995, the Company had approximately $754,000 and $750,000, respectively,
outstanding under the working capital line of credit, and approximately $541,000
and $561,000, respectively outstanding under the equipment line of credit.
The Company believes that existing cash resources, together with
internally generated funds, will be sufficient to meet its cash requirements
through fiscal 1996.
12
<PAGE>
PART II -- OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Items 1 through 5 are not applicable.
Item 6. Exhibits and Reports of Form 8-K
--------------------------------
(a) Exhibits
Exhibit No. Description
----------- -----------
11 Computation of Earnings Per Share.
99 Agreement on Change in Control
(b) Reports on Form 8-K
No report on Form 8-K was filed by the Registrant during the quarter
ended September 30, 1996.
13
<PAGE>
SIGNATURE:
---------
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
NETRIX CORPORATION
Date: November 11, 1996 By:
--------------------- --------------------------------
Robert W. Carroll
Vice President, Finance
(Principal Financial Officer)
14
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page
- --------- ----------- ----
11 Computation of Earnings Per Share 16
99 Change in Control Agreement 17
15
<PAGE>
<TABLE>
Netrix Corporation Exhibit 11
EPS Calculation
<CAPTION>
Nine Months Ended Three Months Ended
---------------------------- ----------------------------
9/30/96 9/30/95 9/30/96 9/30/95
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Earnings per share and common stock
equivalents - Primary:
Net loss (4,537,000) (1,476,000) (1,412,000) (2,007,000)
Weighted average common stock outstanding 9,457,884 9,357,028 9,491,112 9,410,551
Weighted average common stock equivalents: - - - -
Other stock options - - - -
------------ ----------- ----------- ------------
Total weighted average common stock and
common stock equivalents 9,457,884 9,357,028 9,491,112 9,410,551
Earnings per share (0.48) (0.16) (0.15) (0.21)
============ =========== =========== ============
Earnings per share and common stock
equivalents - Fully Diluted:
Net loss (4,537,000) (1,476,000) (1,412,000) (2,007,000)
Weighted average common stock outstanding 9,457,884 9,357,028 9,491,112 9,410,551
Weighted average common stock equivalents: - - - -
Other stock options - - - -
----------- ---------- ----------- -----------
Total weighted average common stock and
common stock equivalents 9,457,884 9,357,028 9,491,112 9,410,551
Earnings per share (0.48) (0.16) (0.15) (0.21)
=========== ========== =========== ============
</TABLE>
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,254
<SECURITIES> 7,257
<RECEIVABLES> 10,297
<ALLOWANCES> 1,468
<INVENTORY> 8,492
<CURRENT-ASSETS> 28,165
<PP&E> 5,781
<DEPRECIATION> 14,806
<TOTAL-ASSETS> 35,708
<CURRENT-LIABILITIES> 8,781
<BONDS> 0
0
0
<COMMON> 475
<OTHER-SE> 25,714
<TOTAL-LIABILITY-AND-EQUITY> 35,708
<SALES> 23,966
<TOTAL-REVENUES> 32,249
<CGS> 10,644
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<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 108
<INCOME-PRETAX> (4,468)
<INCOME-TAX> 69
<INCOME-CONTINUING> 0
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<NET-INCOME> (4,537)
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</TABLE>
<PAGE>
Exhibit 99
NETRIX CORPORATION
13595 DULLES TECHNOLOGY DRIVE
HERNDON, VIRGINIA 22071
August 1, 1996
Dear :
Netrix Corporation (the "Company") and its Board of Directors considers it
essential to the best interests of its stockholders and employees to foster the
continuous employment of key management personnel. In order to induce you to
remain in its employ, the Company agrees that you shall receive the severance
benefits set forth in this letter agreement (the "Agreement") in the event your
employment with the Company is terminated under the circumstances described
below subsequent to a "Change in Control" of the Company (as defined in Section
2).
1. Term of the Agreement.
(a) The term of this Agreement (the "Term") shall commence on August 1,
1996 and shall continue in effect through December 31, 1999 unless
extended as hereinafter provided. The Term shall be automatically
extended for additional one-year periods thereafter, unless at least
six months prior to the beginning of any calendar year, the Board of
Directors of the Company (the "Board") shall have taken affirmative
action so that the Term will not be further extended; provided that, if
a Change in Control of the Company (as defined in Section 2) shall have
occurred during the original or extended term of this Agreement, this
Agreement shall continue in effect for a period of not less than 12
months beyond the month in which such Change in Control occurred.
2. Change in Control.
(a) No benefits shall be payable under Section 4 of this Agreement
unless there has been a Change in Control of the Company from and after
the date of this Agreement and prior to expiration of the Term.
(b) For purposes of this Agreement, a "Change in Control of the
Company" shall occur or be deemed to have occurred only if
(i) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, or any corporation owned directly or indirectly
by the stockholders of the Company in substantially the same
proportion as their ownership of stock of the Company) is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of
the Company representing 50% or more of the combined voting
power of the Company's then outstanding securities;
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(ii) during any period of two consecutive years ending during
the Term (not including any period prior to the Term), the
following individuals (the "Disinterested Directors") shall
cease for any reason to constitute a majority of the Board:
(a) individuals who at the beginning of such period
constituted the Board, and
(b) any new director (other than a director
designated by a person who has entered into an
agreement with the Company to effect any transaction
described in clause (i), (iii) or (iv) of this
Section 2(b)) whose election by the Board or
nomination for election by the Company's stockholders
was approved by a vote of at least two-thirds of the
directors then still in office who were either
directors at the beginning of the period or whose
election or whose nomination for election was
previously so approved;
(iii) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than
(A) a merger or consolidation which would result in
the voting securities of the Company outstanding
immediately prior thereto continuing to represent
(either by remaining outstanding or by being
converted into voting securities of the surviving
entity) more than 50% of the combined voting power of
the voting securities of the Company or such
surviving entity outstanding immediately after such
merger or consolidation or
(B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar
transaction) in which no "person" (as hereinabove
defined) acquires more than 50% of the combined
voting power of the Company's then outstanding
securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all
of the Company's assets which, in either case, has not
previously been approved by a majority of Disinterested
Directors.
3. Employment Status; Termination Following Change in Control.
(a) This Agreement does not prevent you from terminating your
employment at any time. This Agreement does not constitute a contract
of employment or impose on the Company any obligation to retain you as
an employee. If your employment is terminated for any reason and
subsequently a Change in Control shall have occurred, you shall not be
entitled to any benefits hereunder. Any termination by the Company or
by you following a Change in Control of the Company during the Term
shall be communicated by written notice of termination ("Notice of
Termination") to the other party hereto in accordance with Section 6.
The "Date of Termination" shall mean the effective date of such
termination as specified in the Notice of Termination.
(b) Notwithstanding anything to the contrary herein, you shall be
entitled to the benefits provided in Section 4 only if any of the
events constituting a Change in Control of the Company shall have
occurred during the Term and your employment with the Company is
terminated within 12 months after such a Change in Control of the
Company and such termination is not (A) because of your death, (B) by
the Company for Disability (as defined in Section 3(b)(i)) or Cause (as
defined in Section 3(b)(ii)), or (C) by you without Good Reason (as
defined in Section 3(b)(iii)).
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<PAGE>
(i) Disability. "Disability" shall mean if, as a result of
incapacity due to physical or mental illness, you shall have
been absent from the full-time performance of your duties with
the Company for six (6) consecutive months and, within thirty
(30) days after written notice of termination is given to you,
you shall not have returned to the full-time performance of
your duties. Notwithstanding any other provision of this
Agreement, you shall not be considered a terminated employee
within the meaning of the Company's long term disability plan
and your rights thereunder shall not be affected by this
Agreement.
(ii) Cause. Termination by the Company of your employment for
"Cause" shall mean termination upon (A) your willful and
continued failure to substantially perform your duties with
the Company (other than any such failure resulting from your
incapacity due to physical or mental illness or any such
actual or anticipated failure after the issuance of a Notice
of Termination by you for Good Reason as defined in Section
3(b)(iii)), after a written demand for substantial performance
is delivered to you by the Company, which demand specifically
identifies the manner in which the Company believes that you
have not substantially performed your duties, or (B)(x) you
shall have been guilty of any act or acts of dishonesty
constituting a felony, or (y) you shall have violated any
provision of any confidentiality, nondisclosure, assignment of
invention, non-competition or similar agreement entered into
by you in connection with your employment by the Company. For
purposes of this subsection, no act or failure to act on your
part shall be deemed "willful" unless done or omitted to be
done by you not in good faith and without reasonable belief
that your action or omission was in the best interest of the
Company.
(iii) Good Reason. You may terminate your employment upon 15
days prior written notice to the Company for any reason and
with or without cause, but you shall be entitled to the
benefits provided in Section 4(a) only if you do so for Good
Reason. For purposes of this Agreement, "Good Reason" shall
mean, without your consent, the occurrence after a Change in
Control of the Company of any of the following circumstances
unless such circumstances are fully corrected prior to the
Date of Termination (as defined in Section 3(a)) specified in
the Notice of Termination (as defined in Section 3(a)) given
in respect thereof:
(A) any reduction in your annual compensation
(including salary and bonuses and commissions based
on agreed upon targets then in effect) as in effect
on the date hereof or as the same may be increased
during the Term; or
(B) any requirement by the Company or of any person
in control of the Company that the location at which
you perform your principal duties for the Company be
outside a radius of 50 miles from the location at
which you performed such duties immediately prior to
a Change in Control of the Company;
4. Compensation Upon Termination.
(a) If (1) any of the events constituting a Change in Control of the
Company shall have occurred during the Term and (2) your employment
with the Company is terminated within 12 months after such Change in
Control of the Company, you shall be entitled to the benefits set forth
in this Section 4(a):
(i) During any period that you fail to perform your full-time
duties with the Company as a result of incapacity due to
physical or mental illness, you shall continue to receive base
salary and all other earned or accrued compensation at the
rate in effect at the
19
<PAGE>
commencement of any such period (offset by all compensation
payable to you under the Company's disability plan or program
or other similar plan during such period) until your
employment is terminated pursuant to Section 3(b)(i) hereof.
Thereafter, or in the event your employment is terminated by
reason of death, your benefits shall be determined under the
Company's long-term disability, retirement, insurance and
other compensation programs then in effect in accordance with
the terms of such programs.
(ii) If your employment shall be terminated by the Company for
Cause or by you other than for Good Reason, the Company shall
pay you your full base salary and all other earned or accrued
compensation through the Date of Termination at the rate in
effect at the time the Notice of Termination is given, plus
all other amounts to which you are entitled under any
compensation plan of the Company at the time such payments are
due, and the Company shall have no further obligations to you
under this Agreement.
(iii) If your employment by the Company should be terminated
by the Company other than for Cause or Disability or if you
should terminate your employment for Good Reason, then you
shall be entitled to the benefits below:
(A) the Company shall pay you your full base salary
and all other earned or accrued compensation through
the Date of Termination at the rate in effect at the
time the Notice of Termination is given, plus all
other amounts to which you are entitled under any
compensation plan of the Company at the time such
payments are due and, in lieu of further salary
payments for periods subsequent to the Date of
Termination, the Company will pay you a lump sum cash
payment as severance pay (the "Severance Payment") in
an amount equal to your total cash compensation
(including salary, bonus and commissions) for the 12
month period immediately prior to the Date of
Termination.
(B) The payments provided for in subsection (A) above
shall be made not later than the tenth day following
the Date of Termination; provided, however, that, if
the amounts of such payments cannot be finally
determined on or before such day, the Company shall
pay to you on such day an estimate, as determined in
good faith by the Company, of the minimum amount of
such payments and shall pay the remainder of such
payments (together with interest at the rate provided
in Section 1274(b)(2)(B) of the Internal Revenue Code
of 1986, as amended (the "Code")) as soon as the
amount thereof can be determined but in no event
later than the thirtieth day after the Date of
Termination. In the event that the amount of the
estimated payments exceeds the amount subsequently
determined to have been due, such excess shall
constitute a loan by the Company to you, payable on
the fifth day after demand by the Company (together
with interest at the rate provided in Section
1274(b)(2)(B) of the Code).
(C) For a 12-month period after the Date of
Termination, the Company shall arrange to provide you
with life, disability, accident and health insurance
benefits substantially similar to those which you
received immediately prior to the Date of Termination
and at the same cost to you (if any) as in effect
immediately prior to the Date of Termination.
Notwithstanding the foregoing, the Company shall not
provide any benefit otherwise receivable by you
pursuant to this Section 4(a)(iii)(C) if an
equivalent benefit is actually received by you from
another employer during the 12-month period after the
Date of Termination and any such benefit actually
received by you shall be reported to the Company.
20
<PAGE>
(D) You shall not be required to mitigate the amount
of any payment provided for in this Section 4(a) by
seeking other employment or otherwise, nor, except as
provided in the second sentence of Section
4(a)(iii)(C) hereof, shall the amount of any
payment or benefit provided for in this Section 4(a)
be reduced by any compensation earned by you as a
result of employment by another employer, by
retirement benefits or by offset against any amount
claimed to be owed by you to the Company or
otherwise.
(iv) The Severance Payment under this Section 4(a) shall be
made without regard to whether the deductibility of such
payments (or any other "parachute payments," as that term is
defined in Section 280G of the Code, to or for your benefit)
would be limited or precluded by Section 280G and without
regard to whether such payments (or any other "parachute
payments" as so defined) would subject you to the federal
excise tax levied on certain "excess parachute payments" under
Section 4999 of the Code; provided that if the total of all
"parachute payments" to or for your benefit, after reduction
for all federal taxes (including the tax described in
Section 4999 of the Code, if applicable) with respect to such
payments (the "Total After-Tax Payments"), would be increased
by the limitation or elimination of any payment under this
Section 4(a) or the limitation or elimination of any other
"parachute payments", amounts payable under this Section 4(a)
or the amounts of any other "parachute payments" shall be
reduced to the extent, and only to the extent, necessary to
maximize the Total After-Tax Payments. The determination as to
whether and to what extent payments under this Section 4 or
the amounts of any other "parachute payments" are required to
be reduced in accordance with the preceding sentence shall be
made at the Company's expense by Arthur Andersen & Co. or by
such other certified public accounting firm as the Board may
designate prior to a Change in Control of the Company. In the
event of any underpayment or overpayment under this Section
4(a) or any underpayment or overpayment of any other
"parachute payment" as determined by Arthur Andersen & Co.(or
such other firm as may have been designated in accordance with
the preceding sentence), the amount of such underpayment or
overpayment shall forthwith be paid to you or refunded to the
Company, as the case may be, with interest at the applicable
federal rate provided for in Section 7872(f)(2) of the Code.
(b) If any of the events constituting a change of control of the
Company shall have occurred during the Term
(i) the options granted to you on September 7, 1995 and
evidenced by the Non-statutory Stock Option Agreement, dated
as of September 7, 1995, shall fully vest and
(ii) 50% of the unvested portion of the options granted to you
on March 20, 1996 and evidenced by the Incentive Stock Option
Agreement, dated as of March 20, 1996, shall fully vest.
5. Non-Compete.
(a) For a period of one year after the termination of your employment
with the Company, you will not directly or indirectly:
(i) as an individual proprietor, partner, stockholder,
officer, employee, director, joint venturer, investor, lender,
or in any other capacity whatsoever (other than as the holder
of not more than one percent (1%) of the total outstanding
stock of a publicly held company), engage in the business of
developing, producing, marketing or selling products of the
kind or type developed or being developed, produced, marketed
or sold
21
<PAGE>
by the Company while you are employed by the Company for any
enterprise listed on Exhibit A hereto; or
(ii) recruit, solicit or induce, or attempt to induce, any
employee or employees of the Company to terminate their
employment with, or otherwise cease their relationship with,
the Company; or
(iii) solicit, divert or take away, or attempt to divert or to
take away, the business or patronage of any of the clients,
customers or accounts, or prospective clients, customers or
accounts, of the Company which were contacted, solicited or
served by you while employed by the Company.
(b) If any restriction set forth in this Section 5 is found by any
court of competent jurisdiction to be unenforceable because it extends
for too long a period of time or over too great a range of activities
or in too broad a geographic area, it shall be interpreted to extend
only over the maximum period of time, range of activities or geographic
area as to which it may be enforceable.
(c) The restrictions contained in this Section 5 are necessary for the
protection of the business and goodwill of the Company and are
considered by you to be reasonable for such purpose. You agree that any
breach of this Section 5 will cause the Company substantial and
irrevocable damage and therefore, in the event of any such breach, in
addition to such other remedies which may be available, the Company
shall have the right to seek specific performance and injunctive
relief.
6. Successors; Binding Agreement.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Company expressly to
assume and agree to perform this Agreement to the same extent that the
Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain an assumption of this Agreement
prior to the effectiveness of any succession shall be a breach of this
Agreement and shall entitle you to compensation from the Company in the
same amount and on the same terms as you would be entitled hereunder if
you had terminated your employment for Good Reason immediately after a
Change in Control of the Company, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination As used in
this Agreement, "Company" shall mean the Company as defined above and
any successor to its business or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should
die while any amount would still be payable to you hereunder if you had
continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there is no such designee, to
your estate.
7. Notice. For the purposes of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
duly given when delivered or when mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed to the
President of the Company and to you at the respective address shown above or
below or to such other address as either the Company or you may have furnished
to the other in writing in accordance herewith, except that notice of change of
address shall be effective only upon receipt.
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<PAGE>
8. Miscellaneous.
(a) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and
effect.
(b) The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the Commonwealth of
Virginia.
(c) No waiver by you at any time of any breach of, or compliance with,
any provision of this Agreement to be performed by the Company shall be
deemed a waiver of that or any other provision at any subsequent time.
(d) This Agreement may be executed in several counterparts, each of
which shall be deemed to be an original but all of which together will
constitute one and the same instrument.
(e) Any payments provided for hereunder shall be paid net of any
applicable withholding required under federal, state or local law.
(f) This Agreement sets forth the entire agreement of the parties
hereto in respect of the subject matter contained herein and supersedes
all prior agreements, promises, covenants, arrangements,
communications, representations or warranties, whether oral or written,
by any officer, employee or representative of any party hereto; and any
prior agreement of the parties hereto in respect of the subject matter
contained herein is hereby terminated and canceled.
If this letter sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this letter, which will then
constitute our agreement on this subject.
Sincerely,
NETRIX CORPORATION
By:______________________________
Charles W. Stein
President
Agreed to as of the 1st day of August, 1996
______________________________
(Signature of Employee)
______________________________
(print name)
Address:______________________
______________________________
23
<PAGE>
EXHIBIT A
ACT Networks Inc.
Network Equipment Technology
Ascom Timplex
Newbridge Networks Corp.
Ascend Communications
U.S. Robotics
24
<PAGE>
The following list of Netrix Corporation officers have signed the above
agreement:
Charles W. Stein
Lynn C. Chapman
J. Gerard Cregan
G. Brent Wilson
John K. Mullaney
Robert W. Carroll
George R. Kushin
25
