<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[ X ] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarterly Period Ended June 30, 1996
Commission File Number 0-23282
Natural MicroSystems Corporation
(Exact name of registrant as specified in its charter)
Delaware 04-2814586
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
8 Erie Drive, Natick, Massachusetts 01760
(Address of principal executive offices) (Zip Code)
(508) 650-1300
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [ X ] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 4,934,887 shares of Common
Stock, $.01 par value, outstanding at July 31, 1996.
The Index to Exhibits appears on Page 14.
<PAGE>
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
Page
Item 1. Financial Statements and Notes
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flow 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
2
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Natural MicroSystems Corporation
Consolidated Balance Sheets
(In $000 except share data)
<TABLE>
<CAPTION>
December 31, 1995 June 30, 1996
----------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 6,729 $ 18,214
Marketable securities 134 15,121
Accounts receivable, net of allowance for uncollectible
accounts of $648 and $598, respectively 10,318 11,626
Inventories 3,704 5,093
Prepaid expenses and other assets 1,018 1,458
Deferred tax asset, net of valuation allowance 541 531
-------- --------
Total current assets 22,444 52,043
-------- --------
Property and equipment, net of accumulated depreciation
of $1,968 and $2,495, respectively 2,190 3,098
License agreements, net of accumulated amortization
of $197 and $292, respectively 1,197 1,182
Other assets 369 390
Excess of purchase price over net assets acquired -- 757
Deferred tax asset, net of valuation allowance 328 275
-------- --------
$ 26,528 $ 57,745
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit -- 504
Accounts payable 4,293 4,470
Other liabilities 215 218
Accrued expenses and other liabilities 3,703 3,943
-------- --------
Total current liabilities 8,211 9,135
-------- --------
Deferred tax liability 132 1
Capital lease obligations, less current portion 11 --
Long-term debt, less current portion 82 --
Refundable advance 347 328
Commitments and contingencies:
Stockholders' equity:
Preferred stock, 3,000,000 shares authorized, none issued
Common stock; $.01 par value; 15,000,000 authorized,
3,545,317 and 4,934,887 issued and outstanding at
December 31, 1995 and June 30, 1996 35 49
Additional paid-in capital 20,067 52,929
Accumulated deficit (2,556) (4,766)
Other equity 19 19
Foreign currency translation adjustment 180 50
-------- --------
Total stockholders' equity 17,745 48,281
-------- --------
Total liabilities and stockholders' equity $ 26,528 $ 57,745
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
3
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Natural MicroSystems Corporation
Consolidated Statements of Operations
(In $000 except share and per share data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30,
1995 1996 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 7,243 $ 12,203 $ 14,407 $ 22,553
Cost of revenues 2,646 4,723 5,245 8,715
----------- ----------- ----------- -----------
Gross profit 4,597 7,480 9,162 13,838
Operating expenses:
Selling, general and administrative 2,476 3,582 4,709 6,646
Research and development 1,537 2,265 2,949 4,354
Purchased in-process research and development -- 4,426 -- 4,426
----------- ----------- ----------- -----------
Total operating expenses 4,013 10,273 7,658 15,426
----------- ----------- ----------- -----------
Operating income (loss) 584 (2,793) 1,504 (1,588)
Gain on sale of marketable securities -- -- -- 2
Interest income 88 435 168 519
Interest expense 9 11 33 19
----------- ----------- ----------- -----------
Other income (expense), net 79 424 135 502
----------- ----------- ----------- -----------
Income (loss) before income taxes 663 (2,369) 1,639 (1,086)
Income tax expense 235 694 599 1,124
=========== =========== =========== ===========
Net income (loss) $ 428 $ (3,063) $ 1,040 $ (2,210)
=========== =========== =========== ===========
Fully diluted:
Net income (loss) per common share $ 0.12 $ (0.63) $ 0.28 $ (0.50)
=========== =========== =========== ===========
Weighted average shares outstanding 3,694,805 4,887,151 3,670,685 4,424,675
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
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Natural MicroSystems Corporation
Consolidated Statements of Cash Flow
(In $000)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1996
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 1,040 $ (2,210)
Adjustments to reconcile net income to cash
provided by (used in) operating activities:
Depreciation and amortization 396 558
Purchased in process research & development -- 4,426
Deferred income taxes 128 (131)
Changes in assets and liabilities:
Increase in accounts receivable (1,241) (1,186)
Increase in inventories (87) (1,253)
Increase in prepaid expenses and other assets (306) (441)
Decrease in income tax receivable 122 55
Decrease in deferred tax asset -- 62
Increase (Decrease) in accounts payable 214 (85)
Increase (Decrease) in accrued expenses and other liabilities 195 (759)
-------- --------
Cash provided by (used in) operating activities 461 (934)
-------- --------
Cash flow from investing activities:
Additions to property and equipment (1,587) (1,073)
Purchases of marketable securities (718) (21,341)
Proceeds from the sale of marketable securities 942 6,354
Purchase of PSR Systems, Inc. and Tek-Nique, Inc., net of
cash acquired -- (3,232)
-------- --------
Cash used in investing activities (1,363) (19,292)
-------- --------
Cash flow from financing activities:
Payments on capital lease obligations (18) (23)
Payments of dividends by acquired company (248) --
Payments on long-term debt -- (159)
Payments on refundable advances 138 (19)
Payment of bank line of credit (28) --
Proceeds from bank line of credit 400 504
Proceeds from issuance of common stock related to the Company's
follow-on offering (net of issuance costs) -- 30,114
Proceeds from excercise of stock options 37 589
Proceeds from excercise of warrants -- 585
Proceeds from isssuance of common stock under
employee purchase plan 148 241
Grant of non-statutory stock options 9 9
-------- --------
Cash provided by financing activities 438 31,841
-------- --------
Effect of exchange rate changes on cash 10 (130)
Net increase (decrease) in cash and cash equivalents (454) 11,485
Cash and cash equivalents, beginning of period 7,707 6,729
-------- --------
Cash and cash equivalents, end of period $ 7,253 $ 18,214
======== ========
</TABLE>
SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITITES:
<TABLE>
<S> <C>
Issuance of common stock for purchase of PSR Systems, Inc. and
Tek-Nique, Inc. $1,339
Accrued acquisition expenses 784
Assets and liabilities recognized upon acquisition of
PSR Systems, Inc. and Tek-Nique, Inc.:
Accounts receivable 122
Inventory 136
Other current assets 74
Property and equipment 409
Purchased in process research and development 4,426
Goodwill 757
Notes payable 55
Accounts payable 264
Accrued expenses and other liabilities 250
</TABLE>
See accompanying notes to consolidated financial statements
5
<PAGE>
Natural MicroSystems Corporation
Notes to Unaudited Interim Consolidated Financial Statements
(In $000 except share and per share data)
A. UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of June 30, 1996, the consolidated statements
of cash flow for the six month periods ended June 30, 1996 and 1995, and the
consolidated statement of operations for the three and six month periods ended
June 30, 1996 and 1995 have been prepared by the Company and include the
accounts of Natural MicroSystems Corporation and its wholly owned subsidiaries
(the "Company"). In the opinion of management, all adjustments (consisting only
of normal recurring accruals) necessary to present fairly the financial
position, results of operations and cash flow for all periods presented have
been made. The operating results for the six month period ended June 30, 1996
are not necessarily indicative of the operating results to be expected for the
full fiscal year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted.
The interim consolidated financial statements should be read in conjunction with
the consolidated financial statements of the Company as of and for the year
ended December 31, 1995.
B. STOCKHOLDERS' EQUITY:
(In $000)
<TABLE>
<CAPTION>
Foreign
Common Stock Additional Currency
------------------ Paid In Accumulated Translation Other
Shares Amount Capital Deficit Adjustment Equity Total
------ ------ ------- ------- ---------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 3,545 $ 35 $ 20,067 $ (2,556) $ 180 $ 19 $ 17,745
Issuance of common stock from follow
on offering, net of issuance costs 1,240 13 30,099 30,112
Exercise of common stock purchase
warrants 50 1 585 586
Issuance of common stock under
employee stock purchase plan 12 241 241
Exercise of common stock options 47 589 589
Grant of non-statutory stock options 9 9
Issuance of common stock
related to acquisition 41 1,339 1,339
Foreign currency translation
adjustment (130) (130)
Net loss for six months
ended June 30, 1996 (2,210) (2,210)
----- ---- --------- -------- ------- ---- --------
Balance at June 30, 1996 4,935 $ 49 $ 52,929 $ (4,766) $ 50 $ 19 $ 48,281
===== ==== ========= ======== ======= ==== ========
</TABLE>
6
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C. INDEBTEDNESS
At June 30, 1996, the Company had a $2.5 million unused line of credit with a
U.S. bank, against which the Company may borrow up to the lesser of $2.5 million
or a formula limit based on the Company's accounts receivable. Borrowings under
the line of credit are unsecured and bear interest at the bank's prime rate. The
line of credit has an expiration date of June 3, 1997. Under the line of credit,
the Company is subject to certain profitability and equity covenants and certain
leverage and liquidity ratios. At June 30, 1996, the Company was in compliance
with its debt covenants and no borrowings were outstanding under the line. The
full amount of the line was available for borrowing. The Company has a line of
credit with a European bank and had borrowings of $504,000 as of June 30, 1996.
D. INCOME PER COMMON SHARE
Net income (loss) per common share is computed based upon the weighted average
number of common shares outstanding using the treasury stock method for common
share equivalents. Common share equivalents are excluded when their effect is
antidilutive.
E. 1993 STOCK OPTION PLAN
During March 1996, the Company's Board of Directors adopted an amendment to
increase the maximum number of shares issuable under the 1993 Stock Option Plan
from 490,000 to 730,000 shares. This amendment was approved by the Company's
stockholders at the Annual Meeting of Stockholders on May 3, 1996.
F. TEKnique ACQUISITION
On June 14, 1996, the Company acquired all of the outstanding shares of
TEK-Nique, Inc. and an affiliate ("TEKnique") and paid $3.6 million in cash and
issued 41,479 shares of its common stock. Costs associated with the transactions
were $284,000 for a total purchase price of $5.7 million.
The acquisition was accounted for as a purchase and accordingly, the purchase
price has been allocated to assets purchased and liabilities assumed based on
the fair values at the date of acquisition. The excess of purchase price over
the fair value of the net assets acquired was $757,000 and was recorded as
goodwill, which is being amortized over 7 years. The Company's consolidated
financial statements include the accounts and operations of TEKnique for the
period from the date of the acquisition to June 30, 1996. In connection with the
acquisition $4.4 million of in-process research and development costs have been
charged to expense in the three and six month periods ended June 30, 1996.
Additional consideration of $3.0 million, consisting of $2.5 million in cash and
$500,000 in common stock, is payable based upon future product deliveries,
revenue and operating results for periods before December 31, 1998. The
contingent cash consideration is not included in the acquisition costs above,
but will be recorded if and when the above requirements are met.
The total purchase price, in $000, was allocated as follows:
<TABLE>
<S> <C>
Working capital $ 81
Property and equipment 409
In-process research and development 4,426
Goodwill 757
------
Total $5,673
</TABLE>
7
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results Of Operations
The results of operations for the three and six months ended June 30, 1996 and
1995 include the results of VOX S. A. (VOX), which was acquired by the Company
in November 1995 in a transaction accounted for as a pooling of interests. Prior
thereto, VOX was a privately held firm. The results for the three and six months
ended June 30, 1996 include the results of PSR Systems, Inc. and its affiliate
Tek-Nique, Inc. ("TEKnique") from the date of acquisition, June 14, 1996. The
acquisition of TEKnique has been accounted for as a purchase. Prior thereto,
TEKnique was privately held.
Revenues
Revenues of $12.2 million for the three months ended June 30, 1996 increased
69.4% from revenues of $7.2 million for the three months ended June 30, 1995.
Revenues of $22.6 million for the six months ended June 30, 1996, increased
56.9% from revenues of $14.4 million for six months ended June 30, 1995. The
increases for both periods are primarily due to shipment of greater unit volume
of AG products, as sales of such products continue to supplant sales of VBX
products for higher density and more complex applications.
Revenues from customers located outside North America accounted for 28.9% of
revenues for the three months ended June 30, 1996 compared to 43.4% for three
months ended June 30, 1995. Revenues from customers located outside North
America accounted for 34.6% of revenues for the six months ended June 30, 1996
versus 47.0% for the six months ended June 30, 1995. The decreases for both
periods are due to lower revenues from the sale of AG products in Europe, less
revenues from manufacturing licenses for VOX products in Europe and an increase
in the growth rate of North American revenues.
Cost of Revenues
Cost of revenues consists of costs associated with components, subcontracted
manufacturing, labor and overhead of quality control, warehousing and shipping
of the Company's products.
Cost of revenues for the three months ended June 30, 1996 increased to 38.7% of
revenues from 36.5% for the three months ended June 30, 1995. Cost of revenues
for the six months ended June 30, 1996 increased to 38.6% of revenues from 36.4%
for six months ended June 30, 1995. The increases in cost of revenues as a
percent of revenues are attributable to lower manufacturing license revenue
for VOX products, and an increase of lower margin sales to major OEM customers,
partially offset by overall increased sales volume without a corresponding
increase in manufacturing overhead.
Selling, General and Administrative
Selling, general and administrative expenses for the three months ended June 30,
1996 increased 44.0% to $3.6 million from $2.5 million for the three months
ended June 30, 1995, and were 29.4% and 34.2% of revenues for the respective
periods. Selling, general and administrative expenses increased 41.1% to $6.6
million for six months ended June 30, 1996 from $4.7 million for the six months
ended June 30, 1995, and were 29.5% and 32.7% of revenues, respectively. The
dollar increase was due to costs associated with increased sales and
administrative personnel as well as increased expenditures for marketing and
international operations, including expenses in 1996 of a new international
sales office located in Buenos Aires, which was opened late in the second
quarter of 1996. The percentage decrease reflects the Company's increased sales
volume in the three and six months ended June 30, 1996 with a less than
corresponding increase in sales and administrative expenses. The Company expects
its expenditures in sales and marketing,
8
<PAGE>
customer support and international operations to increase, but the amount of
such increases may vary as a percentage of product revenues for future periods.
Research and Development
Research and development expenditures for the three months ended June 30, 1996
increased 47.4% to $2.3 million from $1.5 million for the three months ended
June 30, 1995 and were 18.6% and 21.2% of revenues, respectively. Research and
development expenditures for the six months ended June 30, 1996 increased 47.6%
to $4.4 million from $2.9 million for the six months ended June 30, 1995 and
were 19.3% and 20.5% of revenues for the respective periods. The dollar
increases are primarily due to additional personnel and increased project
development costs associated with the AG product line and associated software
tools, implementation of mixed media extensions such as fax, text-to-speech
recognition and speech recognition, VOX software development tools and a new
generation of VOX's QUATTRO product line. The Company expects that its research
and development expenditures will continue to increase, but may vary as a
percentage of future product revenues for future periods.
In-Process Research and Development
The acquisition of TEKnique was accounted for as a purchase and, accordingly,
the purchase price has been allocated to assets purchased and liabilities
assumed based on the fair values at the date of acquisition. In connection with
the merger $4.4 million of in-process research and development costs were
charged to expense in the three and six months ended June 30, 1996.
Other Income, Net
Other income, net was $424,000 and $79,000, for the three months ended June 30,
1996 and 1995 respectively. Other income, net was $502,000 and $135,000, for the
six months ended June 30, 1996 and 1995, respectively. These increases reflected
increased net interest income and gains from the sale of marketable securities
for all periods. The increase in net interest income was generated from proceeds
of the Company's 1996 follow-on stock offering.
Income Tax Expense
Income tax expense for the three months ended June 30, 1996 and 1995 was
$694,000 and $235,000, respectively. Income tax expense for the six months ended
June 30, 1996 and 1995 was $1.1 million and $599,000, respectively. Tax expenses
are based on an effective tax rate which differed from the U. S. federal
statutory rate primarily due to the effect of state and foreign
income taxes. For income tax purposes, the charge associated with the write-off
of in-process research and development is not deductible.
Operating and Net (Loss) Income
As a result of the foregoing, operating (loss) income for the three months ended
June 30, 1996 and 1995 was ($2.8 million) and $584,000, respectively. Net (loss)
income was ($3.1 million) and $428,000 for the same periods, respectively.
Operating (loss) income for the six months ended June 30, 1996 and 1995 was
($1.6 million) and $1.5 million, respectively. Net (loss) income was ($2.2
million) and $1.0 million for the same periods, respectively.
LIQUIDITY AND CAPITAL RESOURCES
Cash (used in) provided by operations for the six months ended June 30, 1996 and
1995 was $(934,000) and $461,000, respectively. Cash was used in operations for
the six months ended June 30, 1996 due to increases in accounts receivable and
inventory to support increased revenues and a reduction in accrued expenses.
Cash was provided by operations for the six months ended June 30, 1995 from net
income partially offset by increases in accounts receivable and inventory to
support increased revenues.
Cash used in investing activities for the six months ended June 30, 1996 and
1995 was $19.3 and $1.4 million, respectively. During both periods, $1.1 and
$1.5 million of property and equipment was purchased and transactions in
marketable securities used $15.0 million in 1996 versus providing $224,000 in
1995. Cash of $3.2 million, net of cash acquired, was used as part of the
purchase price of TEKnique. See Note F to Notes to Unaudited Interim
Consolidated Financial Statements elsewhere herein.
Cash provided by financing activities for the six months ended June 30, 1996 and
1995 was $31.8 million and $438,000, respectively. The increase in 1996 is
primarily due to the proceeds from the Company's follow-on stock offering of
$31.1 million and exercise of common stock purchase warrants of $585,000.
9
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Current assets at June 30, 1996 were $52.0 million, 132% greater than current
assets of $22.4 million at December 31, 1995, due principally to proceeds from
the Company's 1996 follow-on stock offering and increased accounts receivable
and inventory necessary to support increased revenue. Current liabilities at
June 30, 1996 were $9.1 million, 11.3% greater than current liabilities of $8.2
million at December 31, 1995, principally due to use of a bank line of credit in
Europe and increased accounts payable, reflecting growth in operations.
For U. S. federal income tax purposes the Company has net operating loss
carryforwards available to reduce future income of approximately $4.4 million at
June 30, 1996. These carryforwards expire beginning in 2002. Utilization of net
operating loss carryforwards are subject to an annual limitation of
approximately $750,000 under Internal Revenue Code section 382. In addition, for
U. S. federal income tax purposes TEKnique has net operating loss carryforwards
available to reduce future income of approximately $500,000 at June 30, 1996.
These carryforwards expire beginning in 2011. Utilization of net operating loss
carryforwards are subject to annual limitations of approximately $300,000
under Internal Revenue Code section 382 and will be available to reduce future
taxable income of TEKnique only.
Cautionary Statement
When used anywhere in this Form 10-Q and in future filings by the Company with
the Securities and Exchange Commission, in the Company's press releases and in
oral statements made with the approval of an authorized executive officer of the
Company, the words or phrases "will likely result", "the company expects", "will
continue", "is anticipated", "estimated", "project", or "outlook" or similar
expressions (including confirmations by an authorized executive officer of the
Company of any such expressions made by a third party with respect to the
Company) are intended to identify "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical earnings and those presently
anticipated or projected. Such risk factors are set forth in Part I of the
Company's annual report on Form 10-K for the year ended December 31, 1995. The
Company specifically declines any obligation to publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances occurring after the date of
such statements.
10
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PART II - OTHER INFORMATION
ITEMS 1 - 3
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
On May 3, 1996, the Company held its Annual Meeting of Stockholders. The matters
considered at the meeting consisted of the following:
1. Election of Zenas W. Hutcheson, III and Charles T. Foskett as directors,
each for a three year term. The results of the voting were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
For Against Withheld Authority
--- ------- ------------------
<S> <C> <C> <C>
Zenas W. Hutcheson, III 3,547,170 1,900 3,015
Charles T. Foskett 3,547,870 0 4,215
</TABLE>
2. Approval of an amendment to the Company's 1993 Stock Option Plan (i)
increasing the maximum number of shares issuable thereunder from 490,000 to
730,000 (ii) requiring the exercise price of the options granted thereunder to
be at least the fair market value of the Common Stock on the date of grant and
(iii) limiting the rate at which options granted under the Plan may be
exercisable to no more than 12.50% of the shares under options per quarter. The
results of the voting were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 2,115,988
Against 790,742
Abstain 5,086
Broker Non-Vote 640,269
</TABLE>
3. Approval of an amendment to the Company's 1993 Non-Employee Directors Stock
Option Plan (i) increasing the number of shares for which options shall be
granted to newly elected non-employee directors from 5,000 to 7,500 and (ii)
increasing the number of shares for which options shall be granted annually to
incumbent non-employee directors from 1,000 to 2,500. The results of the voting
were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 2,890,906
Against 618,286
Abstain 5,086
Broker Non-Vote 37,807
</TABLE>
4. Approval of an amendment to the Company's 1993 Employee Stock Purchase Plan
(i) to increase number of shares issuable thereunder from 50,000 to 100,000. The
results of the voting were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 2,893,716
Against 19,978
Abstain 5,086
Broker Non-Vote 633,305
</TABLE>
11
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5. Ratification of the selection of KPMG Peat Marwick LLP as the Company's
independent auditors for 1996. The results of the voting were as follows:
<TABLE>
<CAPTION>
Number of Shares
----------------
<S> <C>
For 3,546,245
Against 2,000
Abstain 3,840
</TABLE>
ITEM 5. Other Information.
Not applicable.
ITEM 6. Exhibits and Reports on Form 8-K.
A. Exhibits
No. 2.1* - Merger Agreement and Plan of Reorganization dated as
of June 14, 1996 among Natural MicroSystems
Corporation, NMS Acquisition Corp., Tek-Nique, Inc.
and certain of the stockholders of Tek-Nique, Inc.
dated as of June 14, 1996.
No. 2.2* - Stock Purchase Agreement among Natural MicroSystems
Corporation and the stockholders of PSR Systems,
Inc. dated as of June 14, 1996.
No. 10.1 - Agreement for Electronic Manufacturing Service between
Registrant and Sanmina Corporation dated June 1,
1996
No. 10.11 - Loan Modification Agreements dated May 17, 1996 and
June 4, 1996 Between Registrant and Silicon
Valley Bank
No. 11.1 - Statement of Computation of Earnings Per Share
No. 27.1 - Financial Data Schedule
* Filed with Form 8-K filed on June 28, 1996.
B. Reports on Form 8-K and Form 8-K/a
The Company filed a report on Form 8-K on June 28, 1996 and a
report on Form 8-K/a on August 12, 1996 both relating to its
acquisition of TEKnique.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Natural MicroSystems Corporation
Dated: August 14, 1996 By /s/ Robert P. Schechter
------------------------------
Robert P. Schechter
President and Chief Executive Officer
Dated: August 14, 1996 By /s/ John F. Kennedy
----------------------------------
John F. Kennedy
Chief Financial Officer
13
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Natural MicroSystems Corporation
Exhibit Index
2.1 Merger Agreement and Plan of Reorganization dated as
of June 14, 19996 among Natural MicroSystems Corporation, NMS
Acquisition Corp., Tek-Nique, Inc. and certain of the stockholders of
Tek-Nique, Inc. dated as of June 14, 1996.
2.2* Stock Purchase Agreement among Natural MicroSystems Corporation and
the stockholders of PSR Systems, Inc. dated as of June 14, 1996.
10.1 Agreement for Electronic Manufacturing Service between Registrant and
Sanmina Corporation dated June 1, 1996
10.11 Loan Modification Agreements dated May 17, 1996 and June
4, 1996 between Registrant and Silicon Valley Bank
11.1 Statement of Computation of Earnings Per Share
27.1 Financial Data Schedule
* Filed with Form 8-K filed on June 28, 1996.
14
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EXHIBIT 10.1
SANMINA CORPORATION
AGREEMENT FOR
ELECTRONIC MANUFACTURING SERVICES
This Agreement between Natural Microsystems, Inc. ("the Customer") and
Sanmina Corporation ("Sanmina") is entered into on June 1, 1996. Sanmina shall
perform manufacturing services for the Customer under the terms and conditions
set forth herein.
1. TERM
This Agreement shall be in effect for ten (10) months from the date of
this Agreement. Unless the parties agree to extend such initial term of the
Agreement, for any period, prior to the termination of such initial term, the
Agreement shall terminate.
2. SCOPE OF WORK PERFORMED
Sanmina shall manufacture the products ("Products") for the Customer at the
prices identified in Exhibit A. Sanmina and the Customer shall mutually agree
upon a delivery schedule for the Products. Sanmina shall purchase components
for the Products in accordance with a vendor list approved by the Customer
("AVL"). In the event Sanmina cannot purchase a component from an approved
vendor for any reason, including unavailability or commercial infeasibility of
the purchase of such components, Sanmina may purchase such components from an
alternate vendor with the written consent of the Customer.
3. GENERAL TERMS
On the date this Agreement is executed and the first business day of each
calendar month thereafter, the Customer shall provide Sanmina with firm,
monthly, rolling purchase orders covering a minimum period of three (3) months
("Purchase Orders"). On the same dates, the Customer shall provide Sanmina with
an additional monthly, rolling three (3) month forecast covering the three (3)
month period immediately following the Purchase Order period ("Forecast").
Upon receipt of the Purchase Order, Sanmina shall order the necessary
components to fulfill the Purchase Order. The Customer and Sanmina shall
mutually agree on the specific components (including minimum purchase amounts
and noncancelable or nonrefundable items) necessary to fulfill the Forecast
which may require lengthy lead-times to procure, and Sanmina shall order such
components to prepare for the Forecast ("Forecast Components"). Sanmina and the
Customer shall review and approve the list of Forecast Components on a quarterly
basis during the second week of each calendar quarter. The components Sanmina
purchases or orders to fulfill the Purchase Order and the Forecast on behalf of
the Customer to manufacture the Products, and any associated expenses related to
<PAGE>
purchasing, ordering, manufacturing (labor and overhead), shipping, storing and
eliminating such components and agreed upon mark-up shall constitute the
Customer's total liability ("Total Liability").
If necessary and with the Customer's written consent, Sanmina shall
purchase any necessary tools to fulfilll the Purchase Order and Forecast. Such
tools shall be deemed a Total Liability. All such tooling purchased by Sanmina
shall remain the Customer's property, and Sanmina shall return such tooling
(normal wear and tear excepted) to the Customer upon request, the completion of
the relevant order or the termination of the Agreement.
<TABLE>
<CAPTION>
4. RESCHEDULES
<S> <C>
</TABLE>
The Customer may reschedule delivery dates of Products subject to the
following matrix:
<TABLE>
<CAPTION>
Notice Prior to Percent of Original
Original Delivery Quantity that can be
Date Rescheduled
<S> <C>
0 to 30 days 0%
31 to 60 days 15%
61 to 90 days 30%
Beyond 90 days 100%
</TABLE>
As an example, if the Customer notifies Sanmina in writing between 31 to 60 days
prior to the scheduled delivery date of the Products, the Customer may
reschedule a maximum of 15% of the total amount of the Products to be delivered
on such date.
For a decrease in quantity of Products to be delivered on a specific
delivery date, Sanmina and the Customer shall mutually agree upon a date to
deliver the undelivered Products within 90 days from the original delivery date.
For an increase in quantity of Products to be delivered on a specific delivery
date, Sanmina, on a best efforts basis, will attempt to accommodate such
increase. Any change in the delivery dates of any Products for a period
exceeding 90 days in the aggregate shall be deemed a cancellation by the
Customer with respect to such Products.
5. REVISIONS
In the event the Customer requests an engineering change to a Product,
Sanmina shall notify the Customer of any impact on the cost and/or scheduled
delivery of such Products within five business days of the receipt of the
Customer's request. Unless the
2
<PAGE>
Customer consents to the amended costs and/or rescheduled delivery of the
Products within three business days of receipt of such notification from
Sanmina, the requested engineering change shall be deemed canceled. Any
increases in the cost of the Products resulting from such engineering change
order ("ECO") shall be deemed a Total Liability as defined above.
6. CANCELLATIONS
The Customer may cancel any order by notifying Sanmina in writing at least
60 days prior to the delivery date of such order. Within 30 days of such
cancellation, Sanmina shall provide the Customer with the amount of the Total
Liability, if any related to such canceled order. The Customer shall pay such
cancellation amount to Sanmina on a net 30 day basis. After receipt of such
cancellation amount, Sanmina shall deliver to the Customer, at the Customer's
expense, any components purchased but unused as a result of such cancellation or
scrap such components, at the discretion of the Customer.
7. PRICING
The prices for the Products are shown in Exhibit A and shall remain fixed
for the term of this Agreement absent ECOs requested by the Customer or material
variations on the market prices of components necessary to manufacture the
Products. If any material variations occur that substantially affect unit
costs, Natural Microsystems will be notified for review and approval prior to
adjustments.
8. DELIVERY
Delivery of all items under this Agreement shall be delivered F.O.B.
Customer Dock specified in Exhibit A ("Delivery Point").
Sanmina shall use reasonable efforts to deliver the Products on the agreed
upon delivery dates and will make every effort to notify Customer in a timely
fashion of potential late shipments.
9. PAYMENT AND INVOICING
Payment terms will be net 30 days from invoice date. In the event that
the Customer has outstanding invoices for more than 60 days, Sanmina may stop
shipments of Products to Customer until the Customer makes sufficient payment to
bring its account consistent with terms outlined above.
10. WARRANTY
Sanmina warrants that the Products (excluding components purchased from
third-party vendors ("Vendor Components") shall be free from any defects in
workmanship for a period of ninety (90) days from date of manufacture. Sanmina
shall pass on any unexpired
3
<PAGE>
warranty for such Vendor Components provided by third-party vendors or passed on
by such third-party vendors from the original manufacturers until the expiration
of such warranties or up to a maximum of one (1) year from date of manufacture
of the Product by Sanmina, whichever is shorter. As the Customer's sole remedy
under the warranty, Sanmina will, at no charge, rework, repair and retest any
such Products returned to Sanmina and found to contain such defects caused by
Sanmina. Warranty coverage does not include failures due to the Customer design
errors, the supply or selection of improper or defective parts or materials used
by the Customer, the Customer requested changes, damages caused by the
Customer's misuse, unauthorized repair or negligence. Sanmina does not assume
any liability for expendable items such as lamps and fuses. Sanmina reserves the
right to inspect the Products and verify that they are defective or non-
conforming. Sanmina's total liability shall be limited to the value of the
Product supplied under this Agreement.
EXCEPT FOR THE ABOVE EXPRESS WARRANTIES, SANMINA MAKES AND THE CUSTOMER
RECEIVES NO WARRANTIES OR CONDITIONS ON AN THE PRODUCTS, EXPRESS, IMPLIED,
STATUTORY, OR OTHERWISE, AND SANMINA SPECIFICALLY DISCLAIMS ANY IMPLIED WARRANTY
OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
11. GENERAL INDEMNITY
The Customer shall indemnify Sanmina against, and hold it harmless from,
any loss, cost, liability or expense (including court costs and the reasonable
fees of attorneys and other professionals) to the extent that such loss, cost,
liability or expense arises out of, or in connection with, in whole or in part,
(A) infringements of any patent, trademark, copyright or other intellectual
property right related to the Products, the components of the Products or any
property of the Customer or (B) any negligence or willful misconduct by the
Customer, its employees or a gents and subcontractors, including but not limited
to any such act or omission that contributes to: (i) any bodily injury,
sickness, disease or death; (ii) any injury or destruction to tangible or
intangible property of the injured party or any loss of use resulting therefrom;
or (iii) any violation of any statute, ordinance or regulation.
12. QUALITY, INSPECTION AND REPORTING
The Customer will have the right at all reasonable times, upon reasonable
advance notice, to visit Sanmina's plant to inspect the work performed on the
Products. Inspection of the work shall not relieve Sanmina of any of its
obligations under the Agreement or purchase orders. Sanmina shall provide
Customer with all mutually agreed upon quality reports at agreed upon intervals.
Sanmina reserves the right to restrict the Customer's access to any area of the
plant as necessary to protect confidential information of Sanmina or its other
customers.
If Customer demands inspection of the Products prior to the delivery of
such Products as a condition of acceptance of such Products, the Customer must
inspect the
4
<PAGE>
Products within 48 hours of a transmission of written notice by facsimile or
other electronic or telephonic delivery system from Sanmina informing the
Customer that the Products are ready to be shipped. If Customer does not inspect
the Products within such 48 hour period, Customer shall be deemed to have waived
its right to inspect the Products as a condition of acceptance of such Products.
13. TERMINATION
Either party may, without penalty, terminate this Agreement upon 60 days
written notice to the other party in either one of the following events:
(a) The other party materially breaches this Agreement and such breach
remains uncured for thirty (30) days following written notice of breach by the
non breaching party;
(b) The other party becomes involved in any voluntary or involuntary
bankruptcy or other insolvency petition or proceeding for the benefit of its
creditors, and such petition, assignment or proceeding is not dismissed within
sixty (60) days after it was filed.
Upon termination, the Customer will be responsible for any work in progress
and any material which has been identified as strategic due to long lead time or
is non-cancelable or non-returnable. Upon termination Customer shall pay all
invoiced charges in net thirty (30) days
14. LIMITATION OF LIABILITY
IN NO EVENT WILL SANMINA BE LIABLE FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL, OR INCIDENTAL DAMAGES, HOWEVER CAUSED AND ON AN ANY THEORY OF
LIABILITY, ARISING IN ANY WAY OUT OF THIS AGREEMENT. THIS LIMITATION WILL APPLY
EVEN IF THE CUSTOMER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED
HEREIN.
15. MISCELLANEOUS
(a) Governing Law. This Agreement will be governed by and interpreted
under the laws of the State of California, without reference to conflict of laws
principles.
(b) Jurisdiction. For any dispute arising out of this Agreement, the
parties consent to personal and exclusive jurisdiction of and venue in the state
and federal courts within Santa Clara County, California.
(c) Entire Agreement; Enforcement of Rights. This Agreement sets forth
the entire agreement and understanding of the parties relating to the subject
matter herein and
5
<PAGE>
therein and merge all prior discussions between them. No modification of or
amendment to this Agreement, nor any waiver of any rights under this Agreement,
will be effective unless in writing signed by the party to be charged. The
failure by either party to enforce any rights hereunder will not be construed as
a waiver of any rights of such party.
(d) Assignment. The rights and liabilities of the parties hereto will
bind and inure to the benefit of their successors, executors or administrators.
(e) Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement will continue in full force and effect
without said provision; provided that no such severability will be effective if
it materially changes the economic benefit of this Agreement to either Sanmina
or the Customer.
(f) Notices. Any required notices hereunder will be given in writing at
the address of each party set forth above, or to such other address as either
party may substitute by written notice to the other in the manner contemplated
herein, and will be deemed served when delivered by facsimile or mail or when
tendered in person.
(g) Force Majeure. Neither party will be liable to the other for any
default hereunder if such default is caused by an event beyond such party's
control, including without limitation acts or failures to act of the other
party, strikes or labor disputes, component shortages, unavailability of
transportation, floods, fires, governmental requirements and acts of God (a
"Force Majeure Event"). In the event of threatened or actual non-performance as
a result of any of the above causes, the non-performing party will exercise
commercially reasonable efforts to avoid and cure such non-performance. Should
a Force Majeure Event prevent a party's performance hereunder for a period in
excess of ninety (90) days, then the other party may elect to terminate this
Agreement by written notice thereof.
(h) Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original and all of which together
will constitute one instrument.
CUSTOMER SANMINA CORPORATION
By: John P. Tincler By: Robin A. Walker, Sr.
Title: V.P. Operations Title: Vice President/General Manager
East Coast Operations
Date: 6/12/96 Date: May 30, 1996
ds1-283396
6
<PAGE>
EXHIBIT 10.11
LOAN MODIFICATION AGREEMENT
This Loan Modification Agreement is entered into as of May 17, 1996, by and
between Natural Microsystems Corporation ("Borrower") whose address is 8 Erie
Drive, Natick, MA 01760, and Silicon Valley Bank, a California-chartered bank
("Lender"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, MA 02181, doing business under
the name "Silicon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among
other documents, a Promissory Note, dated February 18, 1992, in the original
principal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the
"Note"). The Note has been modified pursuant to Change in Terms Agreements dated
November 23, 1992 and April 5, 1993, and those certain Loan Modification
Agreements dated August 4, 1993, April 5, 1994, May 31, 1994, pursuant to which,
among other things, the principal amount of the Note was increased to Two
Million and 00/100 Dollars ($2,000,000.000) April 3, 1995 and June 2, 1995. The
Note, together with other promissory notes from Borrower to Lender, is governed
by the terms of a Letter Agreement dated April 5, 1993, as amended from time to
time, between Borrower and Lender (the "Letter Agreement"). The Letter Agreement
supersedes any and all previous letter agreements between Borrower and Lender.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness".
2. DESCRIPTION OF COLLATERAL: Repayment of the Indebtedness is secured by a
Commercial Security Agreement, dated February 18, 1992, and Borrower's agreement
not to further encumber or pledge any of its intellectual property evidenced by
that certain Negative Pledge Agreement dated August 2, 1994. Hereinafter, the
above-described security documents, together with all other documents securing
payment of the indebtedness shall be referred to as the "Security Documents".
Hereinafter, the Security Documents, together with all other documents
evidencing or securing the indebtedness shall be referred to as the "Existing
Loan Documents".
3. DESCRIPTION OF CHANGE IN TERMS.
A. Modification(s) to Note.
1. The interest rate to be applied to the unpaid principal balance
of the Note is hereby decreased, effective as of the date hereof,
to a rate equal to Lender's current index.
B. Release of Security Interest.
1. Lender, by its acceptance hereof, agrees to release its security
interest in the Security Documents, provided no Event of Default
has occurred and is continuing under any of the Existing Loan
Documents.
4. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the above-described changes.
5. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligation to pay any amounts under the Indebtedness.
<PAGE>
6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing indebtedness, Lender is relying upon Borrower's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the indebtedness. Nothing in this Loan Modification
Agreement shall constitute a satisfaction of the indebtedness. It is the
intention of Lender and Borrower to retain as liable parties all makers and
endorsers of Existing Loan Documents, unless the party is expressly released by
Lender in writing. No maker, endorser, or guarantor will be released by virtue
of this Loan Modification Agreement. The terms of this Paragraph apply not only
to this Loan Modification Agreement, but also to all subsequent loan
modification agreements.
7. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Lender cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
8. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Lender (provided, however,
in no event shall this Loan Modification Agreement become effective until signed
by an officer of Lender in California).
This Loan Modification Agreement is executed as of the date first written
above.
BORROWER: LENDER:
NATURAL MICROSYSTEMS CORPORATION SILICON VALLEY BANK, a California-
chartered bank, doing business as
Silicon Valley East
By: /s/ John F. Kennedy By: /s/ Jane A. Brown
- ---------------------------------- -------------------------------------
Name: John F. Kennedy Name: Jane A. Brown
- ---------------------------------- -------------------------------------
Title: Chief Financial Officer Title: Vice President
- ---------------------------------- -------------------------------------
(Signed at Santa Clara County, CA)
SILICON VALLEY BANK
By: /s/ Pamela S. Doyle
-------------------------------------
Name: Pamela S. Doyle
-------------------------------------
Title: SVP
-------------------------------------
<PAGE>
LOAN MODIFICATION AGREEMENT
This loan Modification Agreement is enter into as of June 4, 1996, by and
between Natural Microsystems Corporation ("Borrower") whose address is 8 Erie
Drive, Natick, MA 01760, and Silicon Valley Bank, a California-chartered bank
("Lender"), with its principal place of business at 3003 Tasman Drive, Santa
Clara, CA 95054 and with a loan production office located at Wellesley Office
Park, 40 William Street, Suite 350, Wellesley, MA 02151, doing business under
the name "Silcon Valley East".
1. DESCRIPTION OF EXISTING INDEBTEDNESS: Among other indebtedness which may be
owing by Borrower to Lender, Borrower is indebted to Lender pursuant to, among
other documents, a Promissory Note, dated February 18, 1992, in the original
principal amount of Five Hundred Thousand and 00/100 Dollars ($500,000.00) (the
"Note"). The Note has been modified pursuant to Change in Terms Agreements dated
November 23, 1992 and April 5, 1993, and those certain Loan Modification
Agreements dated August 4, 1993, April 5, 1994, May 31, 1994, April 3, 1995,
June 2, 1995 pursuant to which, among other things, the principal amount of the
Note was increased to Two Million Five Hundred Thousand and 00/1000 Dollars
($2,500,000.00) and May 17, 1996. The Note, together with other promissory notes
from Borrower to Lender, is governed by the terms of a Letter Agreement dated
May 16, 1995, as amended from time to time, between Borrower and Lender (the
"Letter Agreement"). Defined terms used but not others defined herein shall have
the same meanings as in the Letter Agreement.
Hereinafter, all indebtedness owing by Borrower to Lender shall be referred to
as the "Indebtedness".
Hereinafter, the above-described security documents, together with all other
documents securing payment of the indebtedness shall be referred to as the
"Security Documents". Hereinafter, the Security Documents, together with all
other documents evidencing or securing the Indebtedness shall be referred to as
the "Existing Loan Documents".
2. DESCRIPTION OF CHANGE IN TERMS
A. Modification(s) to Note.
1. Payable in one payment of all outstanding principal plus all
accrued unpaid interest on June 3, 1997 (the "Maturity Date"). In
addition, Borrower will pay regular monthly payments of all
accrued unpaid interest due as each payment date beginning July
3, 1998, and all subsequent interest payments are due on the same
date of each month thereafter.
B. Modification(s) to Letter Agreement
1. Lender shall not perform annual accounts receivable audits,
provided no Event of Default has occurred and is continuing under
any of the Existingf Loan Documents.
2. The Paragraph entitled "Tangible Capital Base" is hereby amended
in its entirety to read as follows:
TANGIBLE CAPTIAL BASE. (Tested Quarterly) Maintain a minimum Tangible
Capital Base of $45,000,000.00. Tangible Capital Base is defined as
stockholders equity plus subordinated debt (which is formally
subordinated to Lender) less
<PAGE>
intangibles (including but not limited to goodwill, capitalized
software and excess purchase costs).
3. CONSISTENT CHANGES. The Existing Loan Documents are hereby amended wherever
necessary to reflect the above-described changes.
4. PAYMENT OF LOAN FEE. Borrower shall pay to Lender a fee in the amount of
Seven Thousand Five Hundred and 00/100 Dollars ($7,500.00) (the "Loan Fee").
5. NO DEFENSES OF BORROWER. Borrower agrees that, as of this date, it has no
defenses against the obligations to pay any amounts under the Indebtedness.
6. CONTINUING VALIDITY. Borrower understands and agrees that in modifying the
existing Indebtedness, Lender is relying upon Borrow's representations,
warranties, and agreements, as set forth in the Existing Loan Documents. Except
as expressly modified pursuant to this Loan Modification Agreement, the terms of
the Existing Loan Documents remain unchanged and in full force and effect.
Lender's agreement to modifications to the existing indebtedness pursuant to
this Loan Modification Agreement in no way shall obligate Lender to make any
future modifications to the Indebtedness. It is the intention of Lender and
Borrower to retain as liable parties all makers and endorsers of Existing
Loan Documents, unless the party is expressly released by Lender in writing. No
maker, endorser, or guarantor will be released by virtue of this Loan
Modification Agreement. The terms of this Paragraph apply not only to this Loan
Modification Agreement, but also to all subsequent loan modification agreements.
7. JURISDICTION/VENUE. Borrower accepts for itself and in connection with its
properties, unconditionally, the non-exclusive jurisdiction of any state or
federal court of competent jurisdiction in the Commonwealth of Massachusetts in
any action, suit, or proceeding of any kind against it which arises out of or by
reason of this Loan Modification Agreement; provided, however, that if for any
reason Lender cannot avail itself of the courts of the Commonwealth of
Massachusetts, then venue shall lie in Santa Clara County, California.
8. COUNTERSIGNATURE. This Loan Modification Agreement shall become effective
only when it shall have been executed by Borrower and Lender (provided, however,
in no event shall the Loan Modification Agreement become effective until signed
by an officer of the Lender in California).
9. CONDITIONS. The effectiveness of this Loan Modification Agreement is
conditioned upon the receipt of the Loan Fee.
<PAGE>
This Loan Mofication Agreement is executed as of the date first written
above.
BORROWER: LENDER:
NATURAL MICROSYSTEMS CORPORATION SILICON VALLEY BANK, a California-
chartered bank, doing business as
Silicon Valley East.
By: /s/ John F. Kennedy By: /s/ <Illegible>
----------------------------- -----------------------------
Name: John F. Kennedy Name: <Illegible>
Title: CFO Title: VP
SILICON VALLEY BANK
By: /s/ Pamela S. Doyle
-----------------------------
Name: Pamela S. Doyle
Title: SVP
(signed at Santa Clara County, CA)
<PAGE>
EXHIBIT 11.1
Natural MicroSystems Corporation
Computation of Earnings Per Share Exhibit 11.1
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
1995 1996 1995 1996
------- -------- ------- -------
<S> <C> <C> <C> <C>
Net income (loss) $ 428 $ (3,063) $ 1,040 $(2,210)
======= ======== ======= =======
Weighted average shares outstanding 3,500 4,887 3,500 4,425
Common shares attributable to
dilutive options and warrants 195 -- 171 --
------- -------- ------- -------
Fully diluted weighted average shares outstanding 3,695 4,887 3,671 4,425
======= ======== ======= =======
Fully diluted net income (loss) per share $ 0.12 $ (0.63) $ 0.28 $ (0.50)
======= ======== ======= =======
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
QUARTERLY UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 18,214
<SECURITIES> 15,121
<RECEIVABLES> 12,224
<ALLOWANCES> 598
<INVENTORY> 5,093
<CURRENT-ASSETS> 52,043
<PP&E> 5,593
<DEPRECIATION> 2,495
<TOTAL-ASSETS> 57,745
<CURRENT-LIABILITIES> 9,135
<BONDS> 0
0
0
<COMMON> 49
<OTHER-SE> 19
<TOTAL-LIABILITY-AND-EQUITY> 57,745
<SALES> 22,553
<TOTAL-REVENUES> 22,553
<CGS> 8,715
<TOTAL-COSTS> 8,715
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19
<INCOME-PRETAX> (1,086)
<INCOME-TAX> 1,124
<INCOME-CONTINUING> (2,210)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,210)
<EPS-PRIMARY> 0
<EPS-DILUTED> (0.50)
</TABLE>
