<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 14, 1999
REGISTRATION NO. 333-81109
================================================================================
SECURITIES AND EXCHANGE COMMISSION
================================================================================
WASHINGTON, D.C. 20549
____________________
AMENDMENT NO. 2
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
NETRIX CORPORATION
(Name of Small Business Issuer in its Charter)
DELAWARE 54-1345159
State or other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
____________________
13595 DULLES TECHNOLOGY DRIVE
HERNDON, VIRGINIA 22071
(703) 742-6000
(Address and Telephone Number of Principal Executive Offices)
____________________
LYNN C. CHAPMAN
PRESIDENT
13595 DULLES TECHNOLOGY DRIVE
HERNDON, VIRGINIA 22071
(703) 742-6000
(Name, Address and Telephone Number of Agent for Service)
____________________
WITH A COPY TO:
JAY R. SCHIFFERLI, ESQ.
KELLEY DRYE & WARREN LLP
TWO STAMFORD PLAZA
281 TRESSER BOULEVARD
STAMFORD, CONNECTICUT 06901
(203) 324-1400
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective. If the
only securities being registered on this Form are being offered pursuant to
dividend or interest reinvestment plans, please check the following box.
|_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. |X|
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of
the earlier effective registration statement for the same offering. |_|
______________
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. |_| ___________
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration
statement for the same offering. |_| ___________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
The information in this prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER 14, 1999
PRELIMINARY PROSPECTUS
NETRIX CORPORATION
This prospectus relates to 1,470,660 shares of common stock of
Netrix Corporation that may be offered for sale by the security holders
identified on page 7 of this prospectus under the caption "Selling Security
Holders." We will not receive any proceeds from the sale of the common
stock by the securityholders.
Netrix Corporation's common stock is currently traded on the
Nasdaq National Market under the trading symbol "NTRX." On September 9,
1999, the last sale price of the common stock on that market was $3-5/16
per share.
------------
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS" BEGINNING ON PAGE 2.
------------
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved these securities or
determined if this prospectus is truthful and complete. Any representation
to the contrary is a criminal offense.
------------
THE DATE OF THIS PROSPECTUS IS SEPTEMBER __, 1999.
<PAGE>
YOU SHOULD RELY ONLY UPON THE INFORMATION IN THIS PROSPECTUS. WE HAVE
NOT, AND THE SELLING SECURITY HOLDERS HAVE NOT, AUTHORIZED ANY OTHER PERSON TO
PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU WITH DIFFERENT OR
INCONSISTENT INFORMATION, YOU SHOULD NOT RELY ON IT. WE ARE NOT, AND THE SELLING
SECURITY HOLDERS ARE NOT, MAKING AN OFFER TO SELL THESE SECURITIES IN ANY
JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD ASSUME THAT
THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE AS OF THE DATE ON THE
FRONT COVER OF THIS PROSPECTUS ONLY. OUR BUSINESS, FINANCIAL CONDITION, RESULTS
OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT DATE.
NETRIX CORPORATION
Netrix Corporation is a worldwide provider of voice and data networking
products. Our products are designed to deliver multi-service networks for the
transport of voice and data that enable our customers to provide a wide variety
of voice and data services. We combine patented, switched, compressed voice
technology and advanced networking capabilities to provide networking solutions
that improve network performance and deliver an array of tarrifable network
services.
Netrix was incorporated in Virginia in October 1985, and reincorporated
in Delaware in March 1987. Our principal executive offices are located at 13595
Dulles Technology Drive, Herndon, Virginia 20717, and our telephone number is
(703) 742-6000.
RISK FACTORS
This offering involves a high degree of risk. Before investing in these
securities, you should consider carefully the following risk factors, in
addition to the other information contained in this prospectus. Our business and
results of operations could be seriously harmed by any of the following risks.
The trading price of our common stock could decline due to any of these risks,
and you could lose part or all of your investment.
WE INCURRED NET LOSSES IN EACH OF THE LAST TWO YEARS AND WE CANNOT BE
CERTAIN THAT WE WILL GENERATE SUFFICIENT REVENUES TO AGAIN BECOME PROFITABLE.
For the years ended December 31, 1998 and 1997, respectively, we
incurred net losses of approximately $6.3 million and $8.6 million. Through June
1999, we have incurred additional losses of approximately $3.8. If we cannot
return to sustained profitability we will be forced to sell all or part of our
business, liquidate or seek to reorganize. We will continue to incur significant
sales and marketing, product development and general and administrative expenses
and, as a result, we will need to generate higher revenues to achieve and
sustain profitability on an annual basis. We expect to increase our revenues
through our new line of network exchange products; however, to date, sales of
network exchange products have not been sufficient to replace the decline in our
mature product sales. Although revenues from network exchange products have
grown in recent quarters, we cannot be certain that we will continue to achieve
revenue growth or realize sufficient revenues to achieve profitability.
WE MAY REQUIRE ADDITIONAL CAPITAL TO FULLY IMPLEMENT OUR PLAN TO RETURN
TO PROFITABILITY, AND WE CANNOT BE CERTAIN THAT THE NECESSARY FUNDS WILL BE
AVAILABLE.
Our ability to return to profitability is largely dependent upon our
ability to introduce new products and technologies and expand our sales efforts
2
<PAGE>
in new geographic and product markets. These activities require substantial
capital, and if we do not have access to sufficient funds, either from our own
operations or through third party financing, our ability to make these necessary
expenditures will be limited. As described in the preceding paragraph, there can
be no assurance that we will be able to obtain these necessary funds from our
own operations. If we are required to seek third party financing, we cannot
assure you that we will be able to obtain financing on terms favorable to us, or
at all. If we obtain additional funds by selling any of our equity securities,
the percentage ownership of our stockholders will be reduced, stockholders may
experience additional dilution, or the equity securities we issue may have
rights, preferences or privileges senior to the common stock. If adequate funds
are not available to us or available to us on satisfactory terms, we may be
required to limit our product development activities or other operations, or
otherwise modify our business strategy. These actions, if taken, could increase
the difficulties we face in returning to sustained profitability.
WE RELY TO A LARGE EXTENT ON INDEPENDENT DISTRIBUTION CHANNELS AND THE
LOSS OF A SIGNIFICANT NUMBER OF DISTRIBUTORS COULD ADVERSELY EFFECT US.
We rely on reseller channels, including distributors and systems
integrators, for a significant portion of our revenues. In particular, in
foreign markets we often have one distributor designated for an entire country,
and that distributor provides local support and service for our products. The
loss of one or more significant resellers could adversely affect our business
both in terms of:
o lost revenues;
o lost market presence; and
o the difficulties we would encounter in servicing customers
introduced to us by our resellers if we do not have other
resellers in that geographic area.
WE ARE EXPOSED TO POTENTIAL DELAYS IN PRODUCT SHIPMENTS BECAUSE WE
CONTRACT OUT OUR PRODUCT MANUFACTURING AND SOME COMPONENTS FOR OUR PRODUCTS ARE
AVAILABLE TO US ONLY FROM A SINGLE SUPPLIER OR A LIMITED NUMBER OF SUPPLIERS.
It is not economically feasible for us to develop our own product
manufacturing capacity in the foreseeable future. We rely on others to
manufacture our products and product components and this dependence exposes us
to potential interruptions or delays in product delivery. An interruption could
have a short term effect on our revenues and a longer term effect on our ability
to market our products. Currently, we rely on a single contract manufacturer to
assemble and test most of our products. Also, some of the components we use in
our products are available from only one source or a limited number of
suppliers. Although we have been able to obtain our products and these
components to date, our inability to develop alternative sources if and as
required in the future, or to obtain sufficient sole source or limited source
components as required, could result in delays or reductions in product
shipments.
WE RELY ON A LIMITED NUMBER OF KEY EMPLOYEES, THE LOSS OF ANY OF WHOM
COULD ADVERSELY IMPACT OUR DEVELOPMENT.
Our success depends to a significant degree upon the continued
contributions of our management, marketing, engineering and technical personnel,
many of whom would be difficult to replace. In addition, as we continue to
develop the network exchange product line and other new products, we will need
to attract and retain additional qualified personnel. There is intense
competition for qualified personnel in our industry, and there can be no
assurance that we will be able to attract and retain the qualified personnel
necessary for the development of our business. Loss of the services of any of
our key employees would be detrimental to our development. We do not have
employment contracts with our key employees and we do not have "key man" life
insurance on any of our officers or directors.
3
<PAGE>
OUR INTELLECTUAL PROPERTY RIGHTS ARE AN IMPORTANT PROTECTION FOR OUR
PRODUCTS, AND WE COULD BE ADVERSELY AFFECTED IF OUR RIGHTS ARE CHALLENGED OR
CIRCUMVENTED BY COMPETITORS.
Our ability to compete successfully within our industry is dependent in
part upon the patents and nondisclosure agreements that we have obtained, upon
technical measures that we take to protect confidential information and upon
trade secret, copyright and trademark laws that we rely on to establish and
protect our proprietary rights. If any of our proprietary rights are challenged
or circumvented by competitors or other companies are able to market
functionally similar products, systems or processes without infringing our
proprietary rights.
BECAUSE A PORTION OF OUR REVENUES ARE DERIVED FROM SALES TO THE UNITED
STATES GOVERNMENT, WE COULD BE ADVERSELY AFFECTED BY GOVERNMENTAL RESTRAINTS OR
POLICY CHANGES.
A portion of our revenues results from sales to the United States
government, primarily through systems integrators. The revenues generated by
this government business, which is spread across numerous agencies and
departments, could be adversely affected by governmental budgetary or fiscal
restraints or changes in governmental policy.
OUR CERTIFICATE OF INCORPORATION AND BY-LAWS CONTAIN PROVISIONS THAT
COULD DELAY OR PREVENT A CHANGE IN CONTROL.
Provisions of our certificate of incorporation and by-laws may have the
effect of discouraging, delaying or preventing a take-over attempt that could be
in the best interests of our stockholders. These include provisions that:
o separate our board of directors into three classes;
o limit the ability of our stockholders to call special
stockholder meetings;
o require advance notice of nominations for directors and
stockholder proposals to be considered at stockholder meetings;
and
o require a vote greater than two-thirds to remove directors from
office or amend many of the provisions of our certificate of
incorporation and by-laws.
Our board of directors also has the right, without further action of
the stockholders, to issue and fix the terms of preferred stock, which could
have rights senior to the common stock. We are also subject to the "business
combination" provisions of the Delaware General Corporate Law, which imposes
procedures impeding business combinations with "interested stockholders" that
are not approved of by our board of directors.
4
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934. As required by the Securities Exchange Act, we file
reports, proxy statements and other information with the SEC. The reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the SEC at Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549 and at regional offices of the SEC at
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661 and at Seven
World Trade Center, 13th Floor, New York, New York 10048. In addition, we are
required to file electronic versions of these documents through the SEC's
Electronic Data Gathering, Analysis and Retrieval System (EDGAR). The SEC
maintains a World Wide Web site at http://www.sec.gov that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the SEC. Copies of these materials may also be
obtained at prescribed rates from the Public Reference Section of the SEC, 450
Fifth Street, N.W., Judiciary Plaza, Room 1024, Washington, D.C. 20549. The
common stock is quoted on the Nasdaq National Market. Information regarding the
trading of our common stock on the Nasdaq National Market can be obtained from
the Nasdaq National Market, 9801 Washingtonian Boulevard, Gaithersburg, Maryland
20878 ((202) 496-2500).
We have filed with the SEC a registration statement on Form S-3 under
the Securities Act of 1933 with respect to the securities being offered by this
prospectus. As permitted by the rules and regulations of the SEC, this
prospectus does not contain all the information set forth in the registration
statement. For further information with respect to us and the offer and sale of
the securities, reference is made to the registration statement. Statements
contained in this prospectus concerning the provisions of documents filed with
the registration statement as exhibits are necessarily summaries of those
documents, and each of these statement is qualified by reference to the copy of
the applicable document filed with the SEC. The registration statement may be
inspected without charge at the public reference facilities of the SEC at the
addresses contained in the preceding paragraph and copies of all or any part of
the registration statement may be obtained from the SEC at prescribed rates.
Pursuant to the rules of the SEC, we are able to "incorporate by
reference" into this document the information that we have on file with the SEC.
This means that we may disclose important information to you by referring you to
other documents. The information incorporated by reference is considered to be
part of this prospectus. In addition, any later information we file with the SEC
and incorporated by reference will update and supersede the information referred
to or contained in this prospectus. We incorporate by reference the documents
listed below and any future filings we make with the SEC under section 13a,
13(c), 14 or 15(d) of the Exchange Act until this offering has been completed:
o Our Annual Report on Form 10-K for the year ending December 31,
1998; and
o Our Quarterly Reports on Form 10-Q for the quarters ending
March 31, 1999 and June 30, 1999.
5
<PAGE>
SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
Some of the information set forth in this prospectus includes "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. In addition, from time to time, we may publish
"forward-looking statements" within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act or make oral statements that constitute
forward-looking statements. These forward-looking statements may relate to
matters such as anticipated financial performance, future revenues or earnings,
business prospectus, projected ventures, new products, anticipated market
performance and similar matters. The words "budgeted," "anticipate," "project,"
"estimate," "expect," "may," "believe," "potential" and similar statements are
intended to be among the statements that are forward looking statements. Because
these statements reflect the reality of risk and uncertainty that is inherent in
our business, actual results may differ materially from those expressed or
implied by the forward-looking statements. You are cautioned not to place undue
reliance on these forward looking statements, which are made as of the date of
this prospectus.
The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, we caution you that a variety of factors could cause our actual
results to differ materially from the anticipated results or other expectations
expressed in our forward-looking statements. These risks and uncertainties, many
of which are beyond our control, include, but are not limited to those set forth
under the caption "Risk Factors" on page 4 and in our filings with the SEC.
We undertake no obligation to release publicly any revisions to the
forward looking statements to reflect events or circumstances after the date of
this prospectus or to reflect unanticipated events or developments.
RECENT ANNOUNCEMENT OF MERGER WITH OPENROUTE NETWORKS, INC.
On August 26, 1999, we entered into a letter of intent to merge with
OpenROUTE Networks, Inc. OpenROUTE is a public company whose shares are listed
on the Nasdaq National Market under the symbol "OPEN." Under the terms of the
proposed merger, we will be the surviving company, and we will issue shares of
our common stock in exchange for the shares of outstanding OpenROUTE stock.
Also, we will increase our board of directors to nine persons. Of the nine
directors, we will designate five directors, and four will be designated by
OpenROUTE. In its last report filed with the Securities and Exchange Commission,
OpenROUTE reported that it had 15,489,356 shares of common stock outstanding. We
have not yet entered into a binding merger agreement with OpenROUTE.
We expect to complete the merger by year-end, although there will be a
number of conditions to completing the merger. Among the conditions will be:
o approval by our board of directors and the board of directors
of OpenROUTE;
o approval of the issuance of our common stock by a majority vote
of our stockholders;
o approval of the merger by a two-thirds vote of OpenROUTE's
stockholders; and
o passage of all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act.
We expect the merger agreement will also include representations, warranties and
covenants by each party that are customary for this type of transaction.
6
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling security holders. If the warrants are exercised, we will receive up to
$208,000, reflecting the total exercise price.
SELLING SECURITY HOLDERS
This prospectus relates to the resale of 1,470,660 shares of common
stock. This common stock is issuable upon the conversion of preferred stock or
the exercise of warrants we have recently issued. The terms of the issuances are
described in this section below under the caption "Sale of the preferred stock
and warrants." The following table sets forth, to our knowledge:
o the number of shares of common stock beneficially owned by each
selling security holder;
o the number of shares of common stock to be offered and sold by
the selling security holder; and
o the number of shares of common stock and percentage of
outstanding shares of common stock to be beneficially owned by
the selling security holder after the offer and sale
contemplated by this prospectus, assuming that all the shares
offered by the selling security holder are in fact sold.
Unless otherwise indicated, to our knowledge, each person has sole
investment and voting power, if applicable (or shares these powers with his or
her spouse), with respect to the securities set forth in the following table.
As of September 1, 1999 we had 11,562,906 shares of common stock issued
and outstanding.
<TABLE>
<CAPTION>
Beneficial Ownership
After the Offering (1)
--------------------------------
Number of Shares Number of
Beneficially Owned Shares to Number of
NAME AND ADDRESS Prior to the Offering be Sold Shares Percentage
---------------- --------------------- ------- ------ ----------
<S> <C> <C> <C> <C>
Charles Ziegler 45,455 45,455 --- ---
c/o LIT
220 Bush, Suite 580
San Francisco, CA 94104
Donald Abramson 67,275 67,275 --- ---
220 Bush Street, #545
San Francisco, CA 94104
Downco Holdings, Ltd. 72,725 72,725 --- ---
c/o Robert Goodman
1013 Cove Road
Mamaroneck, NY 10543
Paul Johnson 18,185 18,185 --- ---
1112 Park Avenue
New York, NY 10128
</TABLE>
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<TABLE>
<CAPTION>
Beneficial Ownership
After the Offering (1)
--------------------------------
Number of Shares Number of
Beneficially Owned Shares to Number of
NAME AND ADDRESS Prior to the Offering be Sold Shares Percentage
---------------- --------------------- ------- ------ ----------
<S> <C> <C> <C> <C>
Clifford T. Dirkes 36,365 36,365 --- ---
707 Golfview Road
Morrestown, NJ 08057
SoundShore Opportunity Holding Fund Ltd. 36,365 36,365 --- ---
c/o AIG
1281 East Main Street
Stamford, CT 06902
SoundShore Holdings Ltd. 90,910 90,910 --- ---
c/o AIG
1281 East Main Street
Stamford, CT 06902
Triton Capital Investments 90,910 90,910 --- ----
One Sansome, 39th Floor
San Francisco, CA 94104
Hull Overseas, Ltd. 90,910 90,910 --- ---
152 West 57th Street
New York, NY 10019
Richard A. Levy and Susan C. Levy, 109,095 109,095 --- ---
JTWROS
1258 Linder Avenue
Highland Park, IL 60035
St. Claire International, Ltd. 36,365 36,365 --- ---
c/o Hedge Funds Services (BVI) Ltd.
Box 23
Ellen L. Shelton Building
Road Town, Tortola
British Virgin Islands
Special Situations Fund III, L.P. 1,454,200(2) 109,090 1,294,200 11.0
153 East 53rd Street, 51st Floor
New York, NY 10022
Special Situations Cayman Fund, L.P. 1,454,200(2) 36,365 1,294,200 11.0
153 East 53rd Street, 51st Floor
New York, NY 10022
Special Situations Technology Fund, L.P. 1,454,200(2) 14,545 1,294,200 11.0
153 East 53rd Street, 51st Floor
New York, NY 10022
</TABLE>
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<TABLE>
<CAPTION>
Beneficial Ownership
After the Offering (1)
--------------------------------
Number of Shares Number of
Beneficially Owned Shares to Number of
NAME AND ADDRESS Prior to the Offering be Sold Shares Percentage
---------------- --------------------- ------- ------ ----------
<S> <C> <C> <C> <C>
RKB Capital, L.P. 363,365 363,365 --- ---
130 West Lake Street
Wayzata, MN 55391
Omicron Partners L.P. 109,095 109,095 --- ---
153 East 53rd Street, 48th Floor
New York, NY 10022
Abernathy Group 363,340 363,640 --- ---
20 Exchange Place, 38th Floor
New York, NY 10005
Renwick Securities, Inc. 57,000 57,000 --- ---
50 East 42nd Street, Suite 1306
New York, NY 10017
Coast Business Credit 50,000 50,000 --- ---
a division of Southern Pacific Bank
1212 Wilshire Boulevard, Suite 1400
Los Angeles, California 90025
- ----------------------
* Less than 1 percent
</TABLE>
(1) Beneficial ownership is determined in accordance with the rules and
regulations of the SEC and generally includes consideration of voting
or investment power with respect to the securities at issue.
Information with respect to beneficial ownership is based upon
information as of September 1, 1999, and assumes that there is
outstanding an aggregate of 11,562,906 shares of common stock, not
including treasury shares. Except as otherwise indicated in the
footnotes below, and subject to community property laws where
applicable, we believe, based upon information furnished by selling
security holders, that the persons named in this table have sole voting
and investment power with respect to all shares of common stock shown
as beneficially owned by them.
(2) Based on a Schedule 13G dated February 12, 1999. Special Situation Fund
III, L.P., Special Situations Cayman Fund, L.P. and Special Situations
Technology Funds, L.P. are affiliated. Includes a total of 1,294,200
shares of common stock and 160,000 shares of common stock issuable upon
conversion of the preferred stock.
SALE OF THE PREFERRED STOCK AND WARRANTS
During the period ended June 30, 1999, we raised funds through a
private offering of 298,187 shares of our Series A 8% convertible preferred
stock. We did not use an underwriter in the offering, although we did compensate
the persons who introduced us to investors, as described below. We sold the
preferred stock at $13.75 per share, which represented five times the price of
our common stock at the time we committed to undertake the offering. Each share
of preferred stock is convertible into shares of our common stock at a
conversion price of $2.75 per share, which represents five shares of common
9
<PAGE>
stock for every share of preferred stock. The conversion price of the preferred
stock will be proportionally adjusted if we undertake a stock split, stock
consolidation or stock dividend with respect to our common stock. This
registration statement provides for the resale of the common stock. Most of this
common stock is subject to limitations on transfer until May 2000. The resale
limitations will be lifted prior to May 2000 as follows:
o if the average closing bid price for our stock price is at least
$3.43 for 10 consecutive trading days, 25% of the common stock
may be sold;
o if the average closing bid price for our stock price is at least
$4.29 for 10 consecutive trading days, an additional 25% of the
common stock may be sold;
o if the average closing bid price for our stock price is at least
$5.36 for 10 consecutive trading days, an additional 25% of the
common stock may be sold; and
o if the average closing bid price for our stock price is at least
$6.71 for 10 consecutive trading days, all remaining shares will
may be sold.
As of the date of this prospectus, our stock price has been above $3.42
for 10 consecutive trading days, so a portion of the shares have been released
form this transfer restriction.
Each share of preferred stock has a liquidation preference equal to its
purchase price, plus accrued and unpaid dividends. Dividends are cumulative from
May 14, 1999, and are payable semi-annually, in arrears, on April 30 and October
31 of each year, commencing October 31, 1999. Dividends are payable in cash or
shares of common stock, at the our election. The preferred stock is redeemable
at our option at any time after the closing bid price for our common stock on
the NASDAQ Stock Market has equaled or exceeded $6.00 for 10 consecutive trading
days. The redemption price is $17.50 per share plus accrued but unpaid dividends
to the date of repurchase.
We sold the preferred stock directly to the investors. Among the
investors was Special Situations Fund III, L.P., our largest stockholder, and
Special Situations Cayman Fund, L.P. and Special Situations Technology Fund,
L.P., each of whom is affiliated with Special Situations Fund III, L.P. Other
than through their position as a significant stockholder of Netrix, we have no
relationship with Special Situations Fund III, L.P. and its affiliates, and we
have no material relationship with any other purchaser of the preferred stock.
In connection with the private placement, we received net proceeds of
approximately $4.0 million. We are using these proceeds to fund operations,
severance and other restructuring activities, and marketing and sales
initiatives.
In connection with the offering of the preferred stock, we paid
compensation to Renwick Securities, Inc., who introduced investors to us. The
compensation was $88,000 in cash and warrants to purchase 32,000 shares of
common stock at $2.75 per share, subject to customary anti-dilution protections.
Renwick Corporate Finance, which is wholly owned by Renwick Securities,
Inc., provides consulting services to us. In March 1999 we paid to Renwick an
initial retainer of $10,000 in cash and warrants to purchase 25,000 shares of
common stock at varying exercise prices of $3, $5 and $7 per share. We pay a
monthly retainer to Renwick of $12,500 in cash together with warrants to
purchase 3,333 shares of common stock at $3.75 per share. For consulting
services related to the financing represented by the private placement, we
issued to Renwick warrants to purchase 25,000 shares of common stock at varying
exercise prices of $3, $5 and $7 per share.
10
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In April 1999, in connection with obtaining an amendment and waiver of
the minimum tangible net worth covenant contained in our credit agreement, we
issued to Coast Business Credit, a division of Southern Pacific Bank, warrants
to acquire 50,000 shares of common stock. The warrants are exercisable at $2.00
per share, and are exercisable until June 2004. Other than in its capacity as
our primary lender, we have no relationship with Coast Business Credit.
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 29,000,000 shares of common
stock, $.05 par value per share, of which 11,562,906 shares are outstanding,
fully paid and non-assessable prior to this offering, and 1,000,000 shares of
preferred stock, par value $.05 per share, none of which are outstanding prior
to this offering. An additional 4,825,000 shares of common stock are reserved
under our stock option plans, and there are currently 3,068,149 options
outstanding. In addition, since December 31, 1998, we have issued warrants to
acquire an aggregate of 349,498 shares of common stock.
PREFERRED STOCK
Our board of directors is authorized, without further action by the
stockholders, to issue one million shares of preferred stock in one or more
series and to fix the rights, preferences, privileges and restrictions of the
preferred stock they issue, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices and
liquidation preferences and the number of shares constituting and the
designation of any series. A majority of the common stock covered by this
prospectus is issuable by us upon conversion of our Series A 8% convertible
preferred stock. We issued this stock in May 1999, and its terms are described
above under the caption "Sale of the preferred stock and warrants" in the
section of this prospectus titled "Selling Stockholders."
The rights and terms relating to any new series of preferred stock
could adversely affect the voting power or other rights of the holders of common
stock. Also, we issue preferred stock as a method of discouraging, delaying or
preventing a change in control of Netrix.
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record in the election of directors and with respect to all other
matters to be voted on by stockholders. Holders of shares of common stock do not
have cumulative voting rights. Therefore, the holders of more than 50 percent of
the shares voting for the election of directors can elect all of the directors.
The holders of common stock are entitled to receive dividends when, as and if
declared by the Board of Directors out of legally available funds. In the event
of liquidation, dissolution or winding up of Netrix, the holders of common stock
are entitled to share ratably in all assets remaining available for distribution
after payment of liabilities and after provision has been made for each class of
stock, if any, having preference over the common stock. Our common stock does
not provide to the holders any conversion, preemptive or other subscription
rights, and there are no redemption provisions applicable to the common stock.
The rights of the holders of common stock are subject to any rights that may be
fixed for holders of preferred stock, when and if any preferred stock is issued.
All of the shares of common stock currently outstanding are duly authorized,
validly issued, fully paid and non-assessable.
11
<PAGE>
WARRANTS
There are currently outstanding approximately 349,498 warrants to
purchase common stock. Each warrant entitles the registered holder to purchase
one share of our common stock, $.05 par value, at exercise prices ranging from
$2.00 to $10.00 per share, exercisable at various times until June 30, 2004.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Company, whose address is 40 Wall Street, New York, New York,
10005, telephone number (212) 936-5100.
PLAN OF DISTRIBUTION
The common stock may be offered and sold from time to time by one or
more of the selling security holders, or by pledgees, donees, transferees or
other successors in interest. No selling security holder is required to offer or
sell any of his common stock. The selling security holders anticipate that, if
and when offered and sold, the common stock will be offered and sold in
transactions effected on the Nasdaq Stock Market at then prevailing market
prices. These transactions could include block transactions. The selling
security holders reserve the right, however, to offer and sell the common stock
on any other national securities exchange on which the common stock is or may
become listed or in the over-the-counter market, in each case at then prevailing
market prices, or in privately negotiated transactions each at a price then to
be negotiated. All offers and sales made on the Nasdaq Stock Market or any other
national securities exchange or in the over-the-counter market will be made
through or to licensed brokers and dealers. No agreements, arrangements or
understandings have been entered into with any broker or dealer, and no brokers
or dealers have been selected, in connection with the offer and sale of the
common stock. All proceeds from the sale of the common stock will be paid
directly to the selling security holders and will not be deposited in an escrow,
trust or other similar arrangement. We will not receive any of the proceeds from
the sales of the common stock by the selling security holders. However, we will
receive proceeds from the exercise of the warrants by the selling security
holders. No discounts, commissions or other compensation will be allowed or paid
by the selling security holders or by us in connection with the offer and sale
of the common stock except that usual and customary brokers' commissions may be
paid by the selling security holders.
The selling broker may act as agent or may acquire shares of common
stock or interests in common stock as principal or pledgee and may, from time to
time, effect distributions of shares of common stock or interests. If a dealer
is utilized in the sale of common stock in respect of which the prospectus is
delivered, the selling security holders will sell common stock to the dealer as
principal. The dealer may then resell the common stock to the public at varying
prices to be determined by the dealer at the time of resale.
We and the selling security holders have agreed to indemnify each other
with respect to any liability that results from:
o any untrue statement or alleged untrue statement contained
in this prospectus; or
o any material omission or alleged omission from the
registration statement or this prospectus
to the extent the untrue statement or omission was included in the registration
statement or this prospectus in reliance upon information furnished by the
indemnifying party.
We will pay the legal, accounting and other fees and expenses related
to the offer and sale of the common stock contemplated by this prospectus,
excluding commissions charged by any broker or dealer acting on behalf of a
12
<PAGE>
selling security holder. The fees and expenses we will pay are estimated to be
$10,000.
LEGAL MATTERS
The validity of the common stock offered by this prospectus will be
passed upon for Netrix by Kelley Drye & Warren LLP.
EXPERTS
The Audited Consolidated Financial Statements and Schedule incorporated
by reference in this prospectus and elsewhere in the registration statement have
been audited by the independent public accountant firm of Arthur Andersen LLP.
These reports are included in this prospectus in reliance upon Arthur Andersen
LLP's accounting and auditing authority and expertise in relation to the
provision of these reports.
13
<PAGE>
NO DEALER, SALES PERSON OR OTHER PERSON HAS
BEEN AUTHORIZED TO GIVE ANY INFORMATION OR
TO MAKE ANY REPRESENTATION NOT CONTAINED IN
THIS PROSPECTUS, AND, IF GIVEN OR MADE, THAT
INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY
NETRIX CORPORATION. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE NETRIX CORPORATION
NETRIX CORPORATION SECURITIES IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE AN OFFER. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE 1,470,660
MADE PURSUANT TO THIS PROSPECTUS SHALL, Shares of
UNDER ANY CIRCUMSTANCES, CREATE ANY Common Stock
IMPLICATION 1,470,660 THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF NETRIX SHARES OF
CORPORATION SINCE THE DATE OF THIS
PROSPECTUS OR THAT THE COMMON STOCK
INFORMATION CONTAINED IN THIS PROSPECTUS IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS --------------
DATE.
----------------
PROSPECTUS
_____________
TABLE OF CONTENTS
PAGE
Netrix Corporation.........................2
Risk Factors...............................2
Where to Find Additional Information.......5
Special Note Regarding Forward Looking
Statements............................6
Recent Announcement of Merger with
OpenROUTE Networks, Inc. .............6
Use of Proceeds............................7 September __, 1999
Selling Security Holders...................7
Description of the Securities..............11
Plan of Distribution.......................12
Legal Matters..............................13
Experts....................................13
14
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses to be incurred in
connection with the distribution of the securities being registered. The
expenses will be paid by Netrix Corporation.
<TABLE>
<CAPTION>
TYPE OR NATURE OF EXPENSE AMOUNT TO BE PAID
------------------------- -----------------
<S> <C>
SEC registration fee............................................ $1,247.74
Accounting fees and expenses.................................... 5,000.00
Legal fees and expenses......................................... 1,500.00
Miscellaneous................................................... 1,000.00
---------
Total........................................................... $8,747.74
=========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law (the "DGCL")
provides that a Delaware corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (a "proceeding") (other than an action by or in the right of the
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with that action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. A Delaware corporation may indemnify any person under
Section 145 who was, is or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the corporation to
procure judgment in its favor, by reason of such fact as provided in the
preceding sentence, against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of that
action or suit, except that no indemnification shall be made in respect of the
an action or suit if he did not act in good faith and in a manner he reasonably
believed to be in or not opposed to our best interests and unless, and then only
to the extent that, a court of competent jurisdiction shall determine upon
application that he is fairly and reasonably entitled to indemnity for those
expenses as the court shall deem proper. A Delaware corporation must indemnify
any person who was successful on the merits or otherwise in defense of any
action, suit or proceeding or in defense of any claim, issue or matter in any
proceeding, by reason of such fact as provided in the preceding two sentences
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection the indemnified claim. A Delaware corporation may pay for the
expenses (including attorneys' fees) incurred by an officer or director in
defending a proceeding in advance of the final disposition to repay the amount
advances if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
II-1
<PAGE>
Section 102(b)(7) of the DGCL permits a corporation to provide in its
certificate of incorporation that a director shall not be personally liable to
the corporation or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for any
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) in respect of certain unlawful dividend payments
or stock redemptions or repurchases, or (iv) for any transaction from which the
director derived an improper personal benefit. The DGCL permits the purchase of
insurance on behalf of directors and officers against any liability asserted
against directors and officers and incurred by them in their capacity as an
officer or director, or arising out of their status as an officer or director,
whether or not the corporation would have the power to indemnify directors and
officers against that liability. We have acquired officers' and directors'
liability insurance of $1 million for members of our Board of Directors and
executive officers.
At present, there is no pending litigation or other proceeding
involving any of our directors or officers for which indemnification is being
sought, and we are not aware of any threatened litigation that may result in
claims for indemnification by any officer or director.
Article Eighth of our certificate of incorporation provides that we
will indemnify all persons we are permitted to indemnify under the Delaware
General Corporation Law, and that this indemnification will be to the fullest
extent permitted the Delaware General Corporation Law.
ITEM 16. EXHIBITS
The exhibits listed below have been filed as part of this registration
statement.
4.1* Amended and restated certificate of incorporation
(incorporated into this registration statement by reference to
Exhibit 3.1 to Netrix's registration of Form S-1 filed on
September 18, 1992, as amended (File No. 33-50464) (the "1992
S-1").
4.2* Amended and restated by-laws of Netrix (incorporated into this
registration statement by reference to Exhibit 3.2 of
the 1992 S-1).
4.3* Specimen certificate of common stock of the registrant
(incorporated into this registration statement by reference to
Exhibit 4.2 to the 1992 S-1).
4.4* Certificate of designations for the form of Series A 8%
convertible preferred stock.
4.5* Supplemental certificate of designations for the form of
Series A 8% convertible preferred stock (incorporated by
reference to Exhibit 4.2 to Netrix's quarterly report on Form
10-Q filed on August 16, 1999, Commission file no.
0-50464).
4.6* Form of Warrant issued to Renwick Securities, Inc.
(incorporated by reference to Exhibit 10.3 to Netrix's
quarterly report on Form 10-Q filed on August 16, 1999,
Commission file no. 0-50464).
4.7* Form of Warrant issued to Coast Business Credit (incorporated
by reference to Exhibit 10.2 to Netrix's quarterly report on
Form 10-Q filed on August 16, 1999, Commission file
no. 0-50464).
4.8 Amendment to Certificate of Incorporation dated
August 26, 1999.
10.1 Memorandum of Understanding between Netrix Corporation and
OpenROUTE Networks, Inc.
5.1** Opinion on Legality.
23.1 Consent of Arthur Andersen LLP.
23.2** Consent of Kelley Drye & Warren LLP (contained in
Exhibit 5.1).
24** Power of Attorney (included within signature page).
--------------------------------
* Incorporated by reference.
** Filed previously
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
A. To file, during any period in which offers or sales are being
made, a post-effective amendment of this registration
statement:
(i) To include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933.
(ii) To include in the prospectus any facts or events
arising after the effective date of the registration
statement (or most recent post-effective amendment
thereof) which, individually or in the aggregate,
represent a fundamental change in the information set
forth in the registration statement.
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
B. That, for the purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
C. To remove from registration by means of post-effective
amendment any of the securities registered which remain unsold
at the termination of the offering.
D. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrant pursuant to
any charter provisions, by-laws, contract, arrangements,
statute or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by
a director, officer or controlling person of the registrant of
expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with
the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by a
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
E. Subject to the terms and conditions of Section 15(d) of the
Securities Exchange Act of 1934, as amended, Netrix
Corporation hereby undertakes to file with the Securities and
Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any
rule or regulation of the Commission heretofore or hereafter
duly adopted pursuant to authority conferred in that Section.
11-3
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, Netrix Corporation certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and authorizes this
registration statement to be signed on its behalf by the undersigned, in the
City of Herndon, State of Virginia, on September 8, 1999.
NETRIX CORPORATION
By: /s/ Steven T. Francesco
____________________________
Steven T. Francesco
Chief Executive Officer
In accordance with the requirements of the Securities Act of 1933, this
amendment to the registration statement has been signed by the following persons
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
Chief Executive Officer and
/s/ Steven T. Francesco Chairman of the Board of Directors September 8, 1999
- ------------------------------------------- Principal Executive Officer)
Steven T. Francesco
/s/ Lynn C. Chapman President, Chief Operating Officer September 8, 1999
- ------------------------------------------- and Director
Lynn C. Chapman
/s/ Peter J. Kendrick Vice President-Finance and Administration September 8, 1999
- ------------------------------------------- and Chief Financial Officer
Peter J. Kendrick (Principal Financial and Accounting Officer)
Director September 8, 1999
- -------------------------------------------
Gregory McNulty
/s/ John M. Faccibene* Director September 8, 1999
- -------------------------------------------
John M. Faccibene
/s/ Richard Yalen* Director September 8, 1999
- -------------------------------------------
Richard Yalen
/s/ Douglas J. Mello* Director September 8, 1999
- -------------------------------------------
Douglas J. Mello
* By Steven T. Francesco, attorney-in-fact.
</TABLE>
11-4
<PAGE>
ITEM 27. EXHIBITS
(a) The exhibits listed below have been filed as part of this
registration statement.
EXHIBIT NO. DESCRIPTION
----------- -----------
The exhibits listed below have been filed as part of this registration
statement.
4.1* Amended and restated certificate of incorporation
(incorporated into this registration statement by reference to
Exhibit 3.1 to Netrix's registration of Form S-1 filed on
September 18, 1992, as amended (File No. 33-50464) (the "1992
S-1").
4.2* Amended and restated by-laws of Netrix (incorporated into this
registration statement by reference to Exhibit 3.2 of
the 1992 S-1).
4.3* Specimen Certificate of common stock of the registrant
(incorporated into this registration statement by reference to
Exhibit 4.2 to the 1992 S-1).
4.4* Certificate of designations for the form of Series A 8%
convertible preferred stock.
4.5* Supplemental certificate of designations for the form of
Series A 8% convertible preferred stock (incorporated into
this registration statement by reference to Exhibit 4.2 to
Netrix's quarterly report on Form 10-Q filed on August 16,
1999, Commission file no. 0-50464).
4.6* Form of warrant issued to Renwick Securities, Inc.
(incorporated into this registration statement by reference to
Exhibit 10.3 to Netrix Corporation's quarterly report on Form
10-Q filed on August 16, 1999, Commission file no.
0-50464).
4.7* Form of warrant issued to Coast Business Credit (incorporated
into this registration statement by reference to Exhibit 10.2
to Netrix's quarterly report on Form 10-Q filed on August 16,
1999, Commission file no. 0-50464).
4.8 Amendment to Certificate of Incorporation dated August 26,
1999.
5.1** Opinion on Legality.
10.1 Memorandum of Understanding between Netrix Corporation and
OpenROUTE Networks, Inc.
23.1 Consent of Arthur Andersen LLP.
23.2** Consent of Kelley Drye & Warren LLP (contained in
Exhibit 5.1).
24** Power of attorney (included within signature page).
---------------
*Incorporated by reference
**Filed previously
<PAGE>
EXHIBIT 4.8
AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
NETRIX CORPORATION
----------
PURSUANT TO
SECTION 242 OF THE DELAWARE GENERAL CORPORATION LAW
----------
The undersigned, Steven T. Francesco, being Chairman and Chief Executive
Officer of Netrix Corporation (the "Corporation"), hereby certifies that:
1. The name of the Corporation is Netrix Corporation.
2. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on March 9, 1987.
3. The text of the first sentence of Article Fourth of the Corporation's
Certificate of Incorporation shall be and hereby is amended to read in its
entirety as follows:
"FOURTH: I. The total number of shares of all classes of stock that
the Corporation shall have authority to issue is 44,249,599 shares,
consisting of: (i) 29,000,000 shares of common stock, $0.05 par value per
share (the "Common Stock") and (ii) 15,249,599 shares of preferred stock,
$0.05 par value per share (the "Preferred Stock") consisting of (A)
2,499,946 shares that are designated as Class A Convertible Preferred Stock
("Class A Preferred Stock"); (B) 3,639,333 shares that are designated as
Class B Convertible Preferred Stock ("Class B Preferred Stock"); (C)
4,686,026 shares that are designated as Class C Convertible Preferred Stock
("Class C Preferred Stock"); (D) 3,424,294 shares that are designated as
Class D Convertible Preferred Stock ("Class D Preferred Stock"); and (E)
1,000,000 shares that initially are undesignated."
4. This Amendment to the Certificate of Incorporation of the Corporation
was duly authorized by the unanimous written consent of the Board of Directors
of the Corporation and the consent of a majority of the outstanding shares of
the Corporation entitled to vote on the proposal to adopt this Amendment at a
<PAGE>
duly noticed and conducted regular meeting of stockholders in a reconvened
session on August 26, 1999 following the meeting's July 27, 1999 adjournment.
IN WITNESS WHEREOF, the undersigned has subscribed this document on the
26th day of August, 1999, and does hereby affirm, under the penalty of perjury,
that the statements contained herein are true and correct.
/S/ STEVEN T. FRANCESCO
------------------------------------
Steven T. Francesco
Chairman and Chief Executive Officer
<PAGE>
MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding ("MOU") is entered into this 27th day of
August 1999, by and between Netrix Corporation, a Delaware corporation with
offices at 13595 Dulles Technology Drive, Herndon, VA 20171-3424 (hereinafter
"Company") and OpenROUTE, a Massachusetts corporation, with offices at Nine
Technology Drive, Westborough, MA 01581 (hereinafter "OpenROUTE").
1. This MOU is intended to set forth the non-binding understanding of
the parties as to the terms and conditions under which OpenROUTE
will merge with and into Company in a stock for stock transaction
(the "Merger").
2. Upon the closing of the Merger (the "Closing"), all outstanding
shares of OpenROUTE common stock will be converted into shares of
Company common stock in the ratio of one share of Company common
stock for one share of OpenROUTE common stock. All employee options
to purchase OpenROUTE common stock that are granted and outstanding
at the Closing (less any options that have expired or will expire as
a result of a reorganization due to the Merger) will be converted,
on a one to one basis, into options to purchase shares of Company
common stock, on comparable terms and with a comparable vesting
schedule. It is the parties' mutual intent that all other options,
warrants or other rights or securities to purchase, exchange for or
convert into OpenROUTE stock that are outstanding at the Closing
(other than such options, warrants or other rights or securities
which would, under their terms, expire upon consummation of the
Merger) will be converted into substantially equivalent options,
warrants or rights or securities to purchase, exchange for or
convert into shares of Company stock.
3. The parties shall use their best efforts to meet all necessary
conditions in order for this transaction to be accounted for as a
pooling of interest, and a reorganization that is tax free under
Section 368 of the Internal Revenue Code of 1986, as amended, as to
Company common stock received by the stockholders of OpenROUTE;
provided however, the parties agree that the consummation of the
transaction on the terms set forth herein shall not be contingent
upon such accounting treatment.
4. OpenROUTE and Company each agree to provide the other with necessary
access to their books and records and other information to complete
their respective due diligence review and to provide reasonable
access to their properties, suppliers, customers and employees, as
may be requested by the other party, and to work in good faith to
complete the proposed Merger.
5. Subject to paragraph 16, this is a non-binding agreement which is
subject to the conditions set forth herein and in any definitive
agreements executed by the parties in connection with the Merger.
<PAGE>
6. Upon execution and delivery of this MOU, the parties and their
respective counsel will commence negotiation of the terms of a
definitive Merger Agreement ("Merger Agreement"). The parties agree
to negotiate in good faith the Merger Agreement, which will contain
customary representations, warranties, covenants and conditions,
including without limitations termination or break up fees and
representations as to litigation or threatened claims, financial
statements, significant contingencies, regulatory approvals and
compliance with laws and regulations.
7. The Closing under the Merger Agreement will be held as soon as
practicable after all conditions to it have been satisfied or, if
appropriate, waived, and the Merger will become effective as soon as
practicable thereafter.
The conditions to the Closing will include, without limitation, the
following:
1. approval of the Merger Agreement and the transactions
contemplated thereby by the Board of Directors of each of
Company and OpenROUTE,
2. approval of the Merger by the stockholders of OpenROUTE,
3. approval of the Merger by the stockholders of Company,
4. all material approvals, consents and waivers of lenders,
lessors, governmental agencies (including approvals under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended) and other third parties on a basis appropriate to the
Merger,
5. receipt by each party of a written fairness opinion from its
financial advisor,
6. absence of any litigation relating to the Merger and any
injunction, order or decree prohibiting the consummation of
the Merger, and
7. continued operation of OpenROUTE's and Company's respective
businesses in the ordinary course until the Closing, without
material adverse change in their respective assets,
operations, contracts, financial condition or prospects,
except to such extent as may be specified in the Merger
Agreement, and
8. OpenROUTE and Company will cooperate in the preparation of and will
file with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934, as amended, a joint proxy
statement/prospectus for use in connection with the meetings of the
stockholders of Company and OpenROUTE for the purpose of obtaining
their approval of the Merger. OpenROUTE and Company will cooperate
with each other in order to make, as soon as appropriate, all
governmental and regulatory filings appropriate for the consummation
of the Merger Agreement, including, without limitation, filing under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended.
<PAGE>
9. Recognizing that the Company's investigation concerning OpenROUTE's
business and properties will be time-consuming and expensive,
OpenROUTE agrees that after the date hereof and until September 30,
1999 it will not (a) solicit or encourage any offer from any person
or entity other than Company relating to any acquisition of a
substantial equity interest in OpenROUTE or a material part of its
assets (other than in the ordinary course of OpenROUTE's business),
or (b) furnish any non-public information concerning OpenROUTE's
business or properties to, or negotiate with, any such person or
entity with a view to any such acquisition (an "Acquisition
Transaction"), unless prior to such action by OpenROUTE, Company has
terminated this MOU, consented to such action or refused to execute
the Merger Agreement. In the event that OpenROUTE breaches its
promise contained in the preceding sentence, Company may terminate
this MOU.
OpenROUTE shall advise Company orally and in writing of all the
terms and conditions of any inquiries or proposals relating to an
Acquisition Transaction and the identity of the party making any
such inquiry or proposal or on whose behalf such inquiry or proposal
is being made, within one day following OpenROUTE's receipt of any
such inquiry or proposal. The Merger Agreement will contain a
provision extending the undertaking in this paragraph 9, and will
provide for appropriate "fiduciary outs."
10. OpenROUTE and the Company shall each continue to conduct their
respective businesses in the ordinary course from and after the date
hereof through the earlier to occur of the termination of this MOU
or September 30, 1999.
11. Company and OpenROUTE will identify key management and technical
employees of OpenROUTE and will make arrangements to provide for
their continued employment with Company under employment agreements
and terms and conditions acceptable to Company and such employees.
12. Company shall appoint four designees of OpenROUTE to its Board of
Directors at Closing; provided that Company's Board of Directors at
Closing shall not exceed nine persons (including the four designees
of OpenROUTE).
13. Except as otherwise required by law, no public disclosure of the
terms of the transactions contemplated hereby shall be made by
either party hereto and then only with the prior written consent of
the other party, which will not be unreasonably withheld or delayed.
Each party shall furnish to the other party advance copies of any
releases which it proposes to make concerning the transaction. It is
the intent of the parties not to publicly announce the transactions
until this MOU is executed and delivered.
14. This MOU will continue in effect until the earlier of (i) such time
as a Merger Agreement is entered into between OpenROUTE and Company
or (ii) September 30, 1999.
15. This MOU and any discussions regarding this matter will be subject
to the Non-Disclosure Agreement ("NDA") executed by OpenROUTE and
Company.
<PAGE>
16. It is not the intention of the parties that this MOU, or any actions
of the parties with respect hereto, be, or be deemed to constitute,
a legally binding obligation of the parties hereto, except that the
provisions in paragraphs, 9, 13, 14 and 15 above and this paragraph
16 shall be binding and enforceable obligations on the parties. Each
party agrees to negotiate in good faith to consummate the
transactions described herein. Any other legally binding obligation
with respect to this proposed Merger Agreement shall exist only upon
the execution and delivery of a definitive Merger Agreement and all
rights and obligations of the parties shall be governed by such
agreement. Accordingly, subject to the provisions of paragraph 9,
either party is free to abandon negotiations regarding the Merger at
any time for any reason or for no reason, by notice to the other in
writing, and the decision of either party to so abandon discussions
shall not be subject to legal challenge by the other.
IN WITNESS WHEREOF, the parties have executed this Agreement the 27
day of August, 1999.
Netrix Corporation OPENROUTE Networks, Inc.
By: /s/ Steven T. Francesco By:/s/ Brian Holley
_________________________________ ______________________________
Name: /s/ Steven T. Francesco Name: /s/ Brian Holley
_______________________________ ____________________________
Title: Chairman and Chief Executive Title: President & Chief
Officer Executive Officer
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this registration statement of our reports dated
April 14, 1999 included (or incorporated by reference) in Netrix Corporation's
Form 10-K/A for the year ended December 31, 1998 and to all reference to our
firm included in this registration statement.
/s/ ARTHUR ANDERSEN LLP
Vienna, VA
September 8, 1999
