AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 10, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NETRIX CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 54-1345159
(State or other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) Number)
13595 DULLES TECHNOLOGY DRIVE
HERNDON, VIRGINIA 22071
(703) 742-6000
(Address and Telephone Number of Principal Executive Offices)
STEVEN T. FRANCESCO
CHIEF EXECUTIVE OFFICER
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
281 TRESSER BOULEVARD, 14th FLOOR
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 delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. |_|
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Proposed
Proposed Maximum Maximum Amount of
Title of Shares Amount to be Aggregate Price Aggregate Registration
to be Registered Registered Per Unit Offering Price Fee
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Common Stock, 1,327,275 $19.81 (1) $25,521,317 (1) $6,323 (2)
$0.01 par value
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) and Rule 457(c) of the Securities Act. For
1,200,000 shares included in the Form S-3 filed on February 4, 2000, the
proposed maximum aggregate price per unit and offering price were based upon
the market value of Netrix common stock as established by the average of the
high and low sales prices of Netrix common stock on February 1, 2000, which
was $19.75. For the 127,275 additional shares included herein, the proposed
maximum aggregate price per unit and offering price is based upon the market
value of Netrix common stock as established by the average of the high and
low sales price of Netrix common stock on February 2, 2000,which was $19.81.
(2) The registration fee has been calculated pursuant to Section 6(b) of the
Securities Act by multiplying the aggregate offering amount of by
$23,952,132 by 0.000264. $6,256 of this amount was paid on February 4, 2000
in connection with the initial filing of this Form S-3 registration
statement. Pursuant to Rule 457(b) under the Securities Act, the
registration fee payable herewith has been reduced by $6,256, the amount
previously paid and an additional fee of $67 is being paid herewith.
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 that 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.
SUBJECT TO COMPLETION, DATED FEBRUARY 10, 2000
PRELIMINARY PROSPECTUS
NETRIX CORPORATION
This prospectus relates to the offer of 1,327,275 shares of common
stock of Netrix Corporation. 1,000,000 shares are being offered by Netrix,
and 327,275 shares are being offered by the security holders identified on
page 12 of this prospectus under the caption "Selling Security Holders."
Netrix will sell the shares offered by it through Kaufman Bros.
L.P. and Tucker Anthony, Inc., each of whom is a broker-dealer, in
at-the market transactions on the Nasdaq Stock Market. Netrix expects
to sell the shares promptly after the date of this prospectus, subject
to prevailing market conditions. Kaufman Bros. And Tucker Anthony
have agreed to act as agent for Netrix in selling the stock, but
they have not committed to purchase any of the shares themselves.
Netrix will not receive any proceeds from the sale of the common stock
by the security holders.
Netrix Corporation's common stock is currently traded on the Nasdaq
National Market under the trading symbol "NTRX." On February 9, 2000, the
last sale price of the common stock on that market was $24.00 per share.
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INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 4.
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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.
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THE DATE OF THIS PROSPECTUS IS FEBRUARY _____, 2000
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.
SUMMARY
NETRIX - NOW CALLED NX NETWORKS
We are a worldwide provider of internet telephony and data networking
products and services. 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 tariffable network services.
Reflecting our new identity resulting from our merger with OpenRoute
Networks, Inc. in December 1999, we are in the process of changing the name of
our company from Netrix Corporation to Nx Networks, Inc.
We were 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.
RECENT DEVELOPMENTS
ACQUISITION OF OPENROUTE
On December 22, 1999 we completed the acquisition of OpenRoute Networks.
In the transaction, we issued one share of our common stock for each share of
OpenRoute common stock. This resulted in our issuing 15,805,797 shares of common
stock to the former OpenRoute stockholders.
OpenRoute has distinguished itself as a pioneer in the data communications
industry and as a leader in networking and in networking connectivity solutions
that focus exclusively on the Internet's edge. OpenRoute provides network
connectivity products and solutions that are designed to meet the needs of
Internet service providers and corporate enterprises. OpenRoute's data
networking products and services combine cost effectiveness with ease of
operation, interoperability, network security, reliability and performance.
OpenRoute provides solutions that complement and optimize the edge of a
business' network-at the point at which the business connects to its telephone
company or Internet service provider. OpenRoute is committed to providing
solutions that make the Internet a more cost-effective, secure and comfortable
place to grow a business. Its customers include Global 1000 multinational
corporations, ISPs and other enterprises looking to the Internet to grow their
businesses. Historically, OpenRoute's local area networking products have
provided connectivity solutions in more than 70% of the Fortune 100 companies.
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AGREEMENT TO ACQUIRE AETHERWORKS
On December 31, 1999 we entered into an agreement to acquire AetherWorks
Corporation. The acquisition will be effected, upon closing, through the merger
of AetherWorks with and into Nx1 Acquisition Corp., a wholly-owned subsidiary of
ours.
AetherWorks provides innovative voice and data carrier class convergence
solutions for the telecommunications industry, including soft switch technology.
AetherWorks focuses on the multi-protocol telecom switch featuring smart
management, universal messaging and other telephony functions. We believe the
combination of AetherWorks and our technologies will serve the converged markets
and allow secure and seamless end-to-end interoperability while providing
advanced voice services. In particular, the combination of AetherWorks and our
technology enables telcos, internet service providers (ISPs), and enterprise
wide area networks and local area networks (WAN/LANs) to provide a secure
end-to-end solution that simplifies networking setups and expands services.
The transaction was approved by the boards of directors of the three
companies and by the stockholders of Nx1 Acquisition Corp. The holders of over
90% of AetherWorks' common stock have consented in writing to the merger and the
remaining stockholders are expected to deliver their written consent in the near
future. Holders of a majority of the AetherWorks common stock have granted
proxies to us to vote their shares in favor of the merger if a stockholders
meeting is required in lieu of a unanimous written consent.
Under the terms of the Agreement and Plan of Merger, we will issue
approximately 3.49 million shares of common stock in the acquisition. This total
number of shares includes the number of shares necessary to satisfy AetherWorks
obligations to its option holders and warrant holders. The total number of
shares we will issue is also subject to reduction to reflect the cost of
satisfying an existing $8 million obligation of AetherWorks, and so the exact
number of shares to be issued will be determined at the closing. The total
number of shares will then be apportioned among the holders of AetherWorks
common stock (including for this purpose options and warrants to acquire common
stock) and Class B common stock in accordance with AetherWorks' charter
documents. Each holder of an option or warrant to acquire AetherWorks common
stock will become entitled to acquire the number of shares of our common stock
into which the shares of AetherWorks originally provided in such option or
warrant are converted in the merger.
Under the terms of the Merger Agreement, a further adjustment will be made
to the merger consideration if the closing price of our common stock on the
Nasdaq Stock Market for the 15 trading day period ended October 31, 2000 does
not equal or exceed $22.50 per share. In such event, additional shares of our
common stock will be issued such that the consideration per share of AetherWorks
common stock is equal to $22.50 per share based upon that average closing price;
provided the total number of shares of our common stock issued in the merger
will not exceed 19.9% of the total of our then outstanding shares.
We will also issue to AetherWorks' employees options to acquire a total of
1.0 million shares of our common stock. The options will be issued at the
closing, have an exercise price of $6.81 per share and vest over a two to three
year period after the closing of the acquisition.
The closing of the merger is conditioned upon satisfaction of certain
conditions, including satisfaction of certain outstanding debt obligations of
AetherWorks and finalizing the approval of the merger by AetherWorks'
stockholders.
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REVOLVING LINE OF CREDIT
Steven Francesco, our Chairman and Chief Executive Officer, has provided
us with a $10.0 million unsecured revolving line of credit to fund our current
working capital needs. There is no commitment fee for the line of credit. We
will pay interest at the rate of prime plus 5% per annum on the amount of any
borrowings. The line of credit will be terminated on the earlier of May 31, 2001
or the date we raise $10 million of equity through this offering or other future
equity offerings.
THE OFFERING
Common Stock offered by the Company....... 1,000,000 shares
Common Stock offered by the Selling
Stockholder............................... 327,275 shares
Common Stock to be outstanding after the
Offering.................................. 28,788,897 shares
Use of proceeds........................... We intend to use the net
proceeds of the offering to
satisfy an $8 million
obligation of AetherWorks
Corporation, which is a
condition to closing our
acquisition of AetherWorks. We
will use the remaining
proceeds for general corporate
and working capital purposes.
Nasdaq Stock Market symbol................ NTRX
RISK FACTORS
This offering involves a high degree of risk. Before investing in the
Common Stock, 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.
TO DATE, WE HAVE INCURRED SUBSTANTIAL NET LOSSES, AND IF THIS CONTINUES, WE MAY
BE UNABLE TO MEET OUR WORKING CAPITAL REQUIREMENTS
For the years ended December 31, 1998 and 1997, respectively, we incurred
net losses of approximately $6.3 million and $8.6 million and, on a pro forma
basis, after giving effect to the mergers with OpenRoute and AetherWorks, we
would have had a net loss of $64.7 million for the year ended December 31, 1998.
Through September 30, 1999, we have incurred additional losses of approximately
$5.9 million and, on a pro forma basis, after giving effect to the mergers with
OpenRoute and AetherWorks, we would have had a net loss of $45.4 million in this
period. These losses present a significant risk to our stockholders. We expect
to recognize efficiencies in the future and to benefit from better marketing
opportunities and product offerings as a result of the mergers, however, we
cannot assure you that after the mergers we will achieve or sustain
profitability or positive cash flows from operating activities. If we cannot
achieve profitability or positive cash flows from operating activities, we may
be unable to meet our working capital and future debt service requirements,
which would have a material adverse effect on our business, financial condition
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and results of operation and the price of our common stock. In addition, 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 MAY REQUIRE ADDITIONAL CAPITAL TO FULLY IMPLEMENT OUR BUSINESS PLAN, AND WE
CANNOT BE CERTAIN THAT THE NECESSARY FUNDS WILL BE AVAILABLE
Our ability to return to and maintain profitability is largely dependent
upon our ability to introduce new products and technologies and expand our sales
efforts 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 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 marketing and 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.
OUR CASH FLOW MAY NOT BE SUFFICIENT TO PERMIT REPAYMENT OF OUR INDEBTEDNESS
WHEN DUE
Our ability to make payments on and to refinance our indebtedness will
depend on our ability to generate cash in the future. There can be no assurance
that our business will generate sufficient cash flow from operations to meet our
debt service requirements. Our cash flow from operations may be insufficient to
repay our indebtedness at scheduled maturity and some or all of such
indebtedness may have to be refinanced. If we are unable to refinance our debt
or if additional financing is not available on acceptable terms, we could be
forced to dispose of assets under circumstances that might not be favorable to
realizing the highest price for the assets or to default on its obligations with
respect to our indebtedness, either of which could have a material adverse
effect on the price of our common stock.
WE MAY ENCOUNTER DIFFICULTIES IN COMBINING OPERATIONS WITH OPENROUTE AND
AETHERWORKS AND REALIZING SYNERGIES FROM THE MERGERS
We merged with OpenRoute and we have entered into the merger agreement with
AetherWorks with the expectation that the mergers will result in certain
benefits including operating efficiencies, cost savings, synergies and other
benefits. Achieving the benefits of the mergers will depend in part upon the
integration of our businesses with OpenRoute and AetherWorks in an efficient
manner, which we believe will require considerable effort. In addition, the
consolidation of operations will require substantial attention from management.
The diversion of management attention and any difficulties encountered in the
transition and integration process could have a material adverse effect on the
combined company. We cannot assure you that we will succeed in integrating our
operations with those of OpenRoute and AetherWorks in a timely manner or that
the expected efficiencies, cost savings and synergies of the mergers will be
realized.
FAILURE TO COMPLETE, OR DELAYS IN COMPLETING, THE AETHERWORKS MERGER COULD HURT
OUR STOCK PRICE AND FUTURE OPERATIONS
If the AetherWorks merger is not completed for any reason, the price of
our common stock may decline to the extent that the current market price of the
companies' common stock reflects a market assumption that the merger will be
completed.
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In addition, current and prospective employees of Netrix and AetherWorks
may experience uncertainty about their future role with the companies until
after the merger is completed or if the merger is not completed. This may
adversely affect our ability to attract and retain key management, sales,
marketing and technical personnel.
WE WILL INCUR SIGNIFICANT MERGER-RELATED CHARGES
We estimate that, as a result of the mergers, we will incur integration
costs associated with:
o consolidating corporate headquarters and other administrative
functions;
o terminating certain leases and severance and facility closing costs
associated with consolidating certain product lines; and
o merger-related costs such as financial advisory, legal and accounting
fees and financial printing and other related charges.
OUR ABILITY TO USE OUR AND OPENROUTE AND AETHERWORKS' NET OPERATING LOSS
CARRYFORWARDS MAY BE LIMITED
As of December 31, 1998, we had federal income tax net operating loss
carryforwards of $38.1 million which begin to expire in 2002. The ability to use
our net operating loss carryforwards to reduce our future tax payments would be
limited if, within three years of incurring such loss, an ownership change of
more than 50% were to occur. As a result of the OpenRoute merger, our net
operating loss carryforwards from before the date of the merger are subject to
this limitation. In addition, as of December 31, 1998, OpenRoute had federal
income tax net operating loss carryforwards of approximately $33.0 million that
begin to expire in 2010. The extent to which we may use OpenRoute's net
operating loss carryforwards to reduce our future tax liability may be limited.
In addition, as of September 30, 1998, AetherWork's had federal income tax net
operating loss carryforwards of approximately $18.5 million that begin to expire
in 2010. A tax asset related to this loss carryforward does not appear on
AetherWorks' balance sheet because it is unclear if AetherWorks will generate
taxable income prior to the expiration of the net operating loss carryforwards.
The extent to which we may use AetherWorks' net operating loss carryforwards to
reduce our future tax liability may be limited. As a result of these
limitations, our future tax liability may be greater than the combined tax
liabilities of Netrix, OpenRoute and AetherWorks in the absence of the mergers.
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 Netrix products. The
loss of one or more significant resellers could adversely affect our business 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.
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WE ARE EXPOSED TO POTENTIAL DELAYS IN PRODUCT SHIPMENTS BECAUSE WE CONTRACT OUT
PRODUCT MANUFACTURING AND SOME COMPONENTS FOR OUR PRODUCTS ARE AVAILABLE ONLY
FROM A SINGLE SUPPLIER OR A LIMITED NUMBER OF SUPPLIERS
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 our voice 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.
OUR BUSINESS WILL SUFFER IF WE LOSE CERTAIN KEY PERSONNEL OR FAIL TO ATTRACT AND
RETAIN OTHER QUALIFIED PERSONNEL
The success of our business will be dependent, to a significant extent,
upon the abilities and continued efforts of our management, marketing,
engineering and technical personnel, many of whom would be difficult to replace.
We do not have employment contracts with all of our key employees and we do not
have "key man" life insurance on any of our officers or directors.
Our success will also depend on our ability to attract, retain and
motivate qualified management, marketing, technical and sales executives and
other personnel who are in high demand and who often have multiple employment
options. In addition, as a result of the changes to Netrix resulting from the
OpenRoute and AetherWorks mergers, many employees that we would like to retain
may decide to pursue other opportunities or we may be forced to increase their
compensation to retain them. The loss of the services of key personnel, or the
inability to attract, retain and motivate qualified personnel, could have a
material adverse effect on our business, financial condition, results of
operations and the price of Netrix common stock.
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:
o patents and nondisclosure agreements that we have obtained;
o technical measures that we take to protect confidential information;
and
o trade secret, copyright and trademark laws that we rely on to
establish and protect our proprietary rights.
If any of our proprietary rights are successfully challenged or
circumvented by competitors, or if other companies are able to market
functionally similar products, systems or processes without infringing our
proprietary rights, then our results of operations and the value of our common
stock could be materially and adversely affected.
THE MARKET PRICE OF OUR COMMON STOCK IS VOLATILE
The market price of the Netrix common stock has been and can be expected
to be significantly affected by factors such as:
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o quarterly variations in our results of operations;
o the announcement of new services or service enhancements by us or
our competitors;
o technological innovations by us or our competitors;
o changes in earnings estimates or buy/sell recommendations by
analysts;
o the operating and stock price performance of other comparable
companies; and
o general market conditions or market conditions specific to
particular industries.
In particular, the stock prices for many companies in the
telecommunications equipment sector have experienced wide fluctuations that have
often been unrelated to their operating performance. We have been, and we are
likely to continue to be, subject to such fluctuations.
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 Netrix 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 impose
procedures impeding business combinations with "interested stockholders" that
are not approved of by our board of directors.
RAPIDLY CHANGING TECHNOLOGY MAY MAKE OUR PRODUCTS OBSOLETE OR UNMARKETABLE
We and AetherWorks have focused our products on the edge of the Internet
and telephony. The markets for products in this market is characterized by rapid
technological change, frequent new product introduction and evolving industry
standards. The introduction of products embodying new technologies by our
competitors and the emergence of new industry standards could render our
existing products obsolete and could cause new products to be unmarketable.
Under these circumstances, our revenue would be adversely effected.
Our success will depend on the ability to address the increasingly
sophisticated needs of customers, to enhance existing products and to develop
and introduce, on a timely basis, new competitive products that keep pace with
technological development and emerging industry standards. If we cannot
successfully identify, manage, develop manufacture or market products
enhancements or new products, our business will be materially and adversely
effected.
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A PORTION OF OUR REVENUES ARE DERIVED FROM INTERNATIONAL SALES, WHICH ARE
SUBJECT TO FOREIGN REGULATORY STANDARDS AND CURRENCY EXCHANGE RATE FLUCTUATIONS
International sales accounted for 53%, 62% and 63% of our total revenues
in 1998, 1997 and 1996, respectively, and international sales will continue to
be significant to us after the mergers with OpenROUTE and AetherWorks. The
conduct of international operations subjects us to certain risks. Foreign
regulatory bodies continue to establish standards different from those in the
United States, and our products are designed generally to meet those standards.
Our inability to design products in compliance with such foreign standards could
have an adverse effect on our operating results. Also, our international
business may be affected by changes in demand resulting from fluctuation in
currency exchange rates and tariffs and difficulties in obtaining export
licenses. We do not expect that we will hedge against fluctuations in currency
exchange rates.
PURCHASERS OF COMMON STOCK FROM US WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL
DILUTION OF THE BOOK VALUE OF THE INVESTMENT
We expect that the price at which we sell the common stock in this
offering will be substantially higher than the net tangible book value per share
of our outstanding common stock. Our net tangible book value per share as of
September 30, 1999 was $.70 per share, taking into account the pro forma
adjustments for the OpenROUTE and AetherWorks transactions. As a result, you
will incur immediate, substantiate dilution if you purchase the shares from us.
For example, if we sold all 1.0 million shares of common stock in this offering
for $22.50 per share as of September 30, 1999, then our net tangible book value
per share after the sale transaction would have been $1.13 as a result of
receiving the net cash proceeds. In this event, the buyer would experience
dilution of $21.37 per share, resenting the difference between the purchase
price and the net tangible book value per share after the offering.
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WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act. 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 common stock 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;
o Our Quarterly Reports on Form 10-Q for the quarters ending March 31,
1999, June 30, 1999, and September 30, 1999;
o Our Current Reports on Form 8-K dated October 14, 1999, December 23
1999 and January 14, 2000.
o The Annual Report on Form 10-K for the year ending December 31, 1998
of OpenRoute Networks, Inc.; and
o The Quarterly Reports on Form 10-Q for the quarters ending March 31,
1999, June 30, 1999 and September 30, 1999 of OpenRoute Networks,
Inc.
10
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 2 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.
USE OF PROCEEDS
We estimate that we will receive approximately $21.6 million in net
proceeds from the sale of the stock. This estimate assumes a sales price per
share of $22.50, a 3.5% sales commission and expenses payable by us of $50,000
in connection with the offering. Since we will sell the shares at prevailing
market prices, we may receive greater or less net proceeds than we expect.
We will use $8 million of the net proceeds to pay an $8 million promissory
note issued by AetherWorks to Digi International Inc. The note does not bear
interest, and it is scheduled to mature in May 2001. The maturity date, however,
will accelerate upon a change of control of AetherWorks. Accordingly, the note
will become due on the date we close the acquisition of AetherWorks, and
satisfaction of the note is a condition to closing the AetherWorks acquisition.
We have agreed that we will sell shares of our common stock to fund repayment of
the Digi International note, and the number of shares we issue to AetherWorks
security holders in the merger will be reduced by the number of shares we sell
for this purpose. We will use the remainder of the net proceeds for general
corporate and working capital purposes. Pending application of the net proceeds,
we will place the net proceeds in short term, interest bearing securities.
We will not receive any proceeds from the sale of common stock by the
selling security holders. The shares which Kaufman Bros. may sell are currently
represented by a warrant we issued to Kaufman Bros. In order to obtain the
common stock for sale, Kaufman Bros. must exercise the warrant. The warrant has
an exercise price of $3.00 per share, so Kaufman Bros. will pay us $300,000 if
it exercises its warrant in full. We will use the proceeds from this warrant
exercise for general corporate and working capital purposes.
11
SELLING SECURITY HOLDERS
This prospectus relates to the resale of 1,327,275 shares of common
stock. 100,000 shares are owned by Bryan R. Holley, 100,000 shares are
issuable upon the exercise of warrants that we have issued to Kaufman Bros.,
L.P. and 127,275 shares are issuable upon conversion of preferred stock we have
issued to The Advent Fund, LLC. The following table sets forth, to our
knowledge:
o the number of shares of common stock beneficially owned by each of
Kaufman Bros. and Mr. Holley and The Advent Fund;
o the number of shares of common stock to be offered and sold by each
of Kaufman Bros. and Mr. Holley and The Advent Fund; and
o the number of shares of common stock and percentage of outstanding
shares of common stock to be beneficially owned by each of Kaufman
Bros., Mr. Holley and The Advent Fund after the offer and sale
contemplated by this prospectus, assuming that all the shares
offered by the selling security holder are in fact sold.
To our knowledge, each person has sole investment and voting power, with
respect to the securities set forth in the following table.
As of December 31, 1999, we had 28,561,622 shares of common stock issued
and outstanding.
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
---------------- --------------------- ------- ------ ----------
The Advent Fund LLC.... 127,275 127,275 0 *
Kaufman Bros., L.P..... 5,000 100,000 5,000 *
Bryan Holley(2)........ 622,333 100,000 522,333 1.8%
- ----------------------
* Less than 1 percent
(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 February
2, 2000 and assumes that there is outstanding an aggregate of 28,561,622
shares of common stock, not including treasury shares.
(2) Includes 33,333 shares which Mr. Holley may acquire pursuant to options
which have vested or which will vest in the next 60 days.
The shares offered by Kaufman Bros. are issuable to it upon its
exercise of warrants we issued to it. We issued the warrants to Kaufman
Bros. in connection with an investment banking advisory agreement which we
entered into in May 1999. The warrants are exercisable at $3.00 per share,
and are exercisable until August 2004. Kaufman Bros. is acting as our agent
in connection with our offering of shares under this prospectus. In
addition, Kaufman Bros. acted as our financial advisor in connection with the
OpenRoute merger. These relationships are described under the caption "Plan
of Distribution - Sales by Nx Networks," below.
We issued the shares to Bryan Holley as part of his severance package from
Netrix. Mr. Holley had been the chief executive officer of OpenRoute until the
merger. At the time of the merger, Mr. Holley became our chief operating officer
and president. His severance was finalized on January 24, 2000.
The shares offered by The Advent Fund were issued in connection with a
private offering of 298,187 shares of our Series A 8% convertible preferred
stock. 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 stock for every share of preferred stock. In connection with
the private placement, we received net proceeds of approximately $4.0 million.
We have applied these proceeds to fund operations, severance and other
restructuring activities and marketing and sales initiatives.
Each share of preferred stock has a liquidation preference equal to its
purchase price plus accrued and unpaid dividends. Dividends are payable semi-
annually in arrears on April 30 and October 31 of each year. Dividends are
payable in cash or shares of common stock, at 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 ten
consecutive trading days. The redemption price is $17.50 per share plus accrued
but unpaid dividends to the date of repurchase. The redemption price is $17.50
per share plus accrued but unpaid dividends to the date of repurchase. We have
sent a notice of redemption to the holders of the preferred stock.
In connection with the offering of the preferred stock, we paid
compensation to an entity that introduced us to investors. 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. The SEC has informed
us that they believe that in performing its services to us, this entity may have
acted as an unregistered broker-dealer in violation of the Securities Exchange
Act of 1934. As a result of the SEC's position, we offered to repurchase all of
the preferred stock at the initial issue price. Each holder of preferred stock
refused our offer and reconfirmed their investment in the preferred stock.
12
NETRIX SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with Netrix's "Management's Discussion and Analysis of Financial
Condition and Results of Operations," its consolidated financial statements,
including the notes thereto, and the other financial data of Netrix incorporated
by reference into this prospectus. The statement of operations data and balance
sheet data as of and for the years ended December 31, 1994, 1995, 1996, 1997 and
1998 are derived from the consolidated financial statements of Netrix and the
notes related thereto, which were audited by Arthur Andersen, LLP, independent
public accountants. The consolidated financial statements as of December 31,
1997 and 1998 and for each of the years in the three-year period ended December
31, 1998, and the report of Arthur Andersen, LLP thereon are incorporated by
reference into this prospectus. The selected consolidated statement of
operations data and balance sheet data as of and for the nine month periods
ended September 30, 1998 and 1999 are derived from the unaudited consolidated
financial statements of Netrix incorporated by reference into this prospectus
which, in the opinion of management, include all adjustments necessary for a
fair presentation of the financial condition and results of operations of Netrix
for such periods. The results of operations for interim periods are not
necessarily indicative of a full year's operations. Net loss per share is
computed on the basis described in the notes to Netrix's consolidated financial
statements.
NINE MONTHS
YEARS ENDED DECEMBER 31, ENDED SEPTEMBER 30,
-------------------------------------- -------------------
1994 1995 1996 1997 1998 1999 1998
---- ---- ---- ---- ---- ---- ----
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
STATEMENT OF OPERATIONS DATA:
Total revenues $53,021 $48,891 $43,635 $33,087 $31,482 $21,388 23,383
Gross profit 27,557 25,225 21,572 14,647 15,388 10,238 11,816
Operating expenses:
Sales and
marketing 12,572 14,162 11,632 10,120 9,292 4,621 7,774
Research and
development 10,073 10,776 11,079 8,323 6,771 5,337 4,939
General and
administrative 4,982 4,787 4,266 4,002 4,324 3,683 3,080
Stock compensation
expense 763
Restructuring
charge 910 - 900 875 - 900 -
Bad debt expense - - - 100 1,489 - -
------- ------- ------- ------- ------- ------- ------
Loss from operations (980) (4,500) (6,305) (8,773) (6,488) (5,066) (3,977)
Comprehensive loss (579) (3,795) (5,968) (8,577) (6,517) (5,324) (4,167)
Basic and diluted net
loss per share (0.06) (0.40) (0.63) (0.89) (0.60) (0.51) (0.37)
BALANCE SHEET DATA (END OF PERIOD):
Working capital 25,055 21,790 17,782 10,271 7,600 8,676 9,407
Total assets 45,343 41,985 34,493 24,024 20,241 20,269 21,391
Total long-term
liabilities 843 943 614 97 - - -
Stockholders' equity 33,632 30,396 24,847 16,480 12,117 12,170 14,495
13
NETRIX UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet of
Netrix as of September 30, 1999 and the Unaudited Pro Forma Condensed
Consolidated Statement of Operations of Netrix for the nine months ended
September 30, 1999 and the year ended December 31, 1998 illustrate the effect of
the mergers with OpenRoute and AetherWorks. The Unaudited Pro Forma Condensed
Consolidated Balance Sheet assumes that the mergers with OpenRoute and
AetherWorks had been completed as of September 30, 1999 and the Unaudited Pro
Forma Condensed Consolidated Statements of Operations assume that the mergers
with OpenRoute and AetherWorks were completed as of the beginning of the fiscal
year presented, January 1, 1998. Certain reclassifications have been made to
OpenRoute's and AetherWorks' financial statements to conform with Netrix's
presentation.
Under the terms of the OpenRoute transaction, the holders of OpenRoute
common stock and stock options received one share of Netrix common stock for
each OpenRoute share converted. Under the terms of the AetherWorks transaction,
it is assumed the holders of AetherWorks common stock, warrants, and stock
options will receive an aggregate of 1.36 shares of Netrix Common Stock. This
conversion ratio is subject to adjustment based upon the number of Netrix shares
required to satisfy an existing $8,000,000 obligation of AetherWorks, which must
be redeemed upon closing of the proposed merger. The Pro Forma Condensed
Consolidated Financial Statements reflect the use of the $8,000,000 of proceeds
to redeem the note payable.
ACCOUNTING TREATMENT
Netrix recorded the OpenRoute merger as a purchase transaction, and it
will record the AetherWorks merger as a purchase transaction. For accounting
purposes, Netrix is deemed to be the acquiring corporation in each merger.
The pro forma adjustments are based upon currently available information
and assumptions that Netrix management believes are reasonable and certain
information provided by OpenRoute management and AetherWorks management. Netrix
will account for each merger based upon the estimated fair market value of the
net tangible assets, intangible assets and liabilities acquired at the date of
acquisition. The adjustments included in the Unaudited Pro Forma Condensed
Consolidated Financial Statements represent the preliminary determination of
these adjustments based upon available information. Netrix cannot assure you
that the actual adjustments will not differ significantly from the pro forma
adjustments reflected in the Unaudited Pro Forma Condensed Consolidated
Financial Statements.
For illustrative purposes, Netrix has made a preliminary allocation of
excess cost over estimated net assets acquired to goodwill as OpenROUTE's assets
and liabilities are estimated to approximate fair value. The final allocation of
purchase price to assets and liabilities acquired will depend upon the final
purchase price and final estimates of fair values of assets and liabilities of
OpenROUTE at the closing date, Netrix will undertake a study to determine the
fair values of assets and liabilities acquired and will allocate the purchase
price accordingly. Netrix believes that the carrying value of current assets and
current liabilities approximates fair value and that the excess of cost over
historical net assets acquired will be allocated to property and equipment,
goodwill and other identifiable intangibles. However, there can be no assurance
that the actual allocation will not differ significantly from the pro forma
allocation.
For illustrative purposes, Netrix has made a preliminary allocation of
excess cost over estimated net assets acquired to goodwill as AetherWorks'
assets and liabilities are estimated to approximate fair value. For purposes of
this Pro Forma Financial Information, Netrix assumed the price per share to be
$22.50, as guaranteed in the merger agreement. Netrix has also engaged an
independent third party to determine the amount, if any, of the excess purchase
price related to purchased in-process research and development. To the extent
that a portion of the purchase price of AetherWorks is allocated to purchased
14
in-process research and development, the other intangibles would be reduced for
this amount. For every $1.0 million change in the amount allocated to purchased
in-process research and development, annual amortization expense reflected in
the pro forma consolidated statement of operations would decrease by $250,000.
The final allocation of purchase price to assets and liabilities acquired will
depend upon the final purchase price and final estimates of fair values of
assets and liabilities of AetherWorks at the closing date, Netrix will undertake
a study to determine the fair values of assets and liabilities acquired and will
allocate the purchase price accordingly. Netrix believes that the carrying value
of current assets and current liabilities approximates fair value and that the
excess of cost over historical net assets acquired will be allocated to property
and equipment, in-process research and development, goodwill and other
identifiable intangibles. However, there can be no assurance that the actual
allocation will not differ significantly from the pro forma allocation.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
give effect to the 1,000,000 shares of common stock that are to be issued to
Steven T. Francesco pursuant to his employment agreement. The compensation
charge relating to that transaction will be approximately $16,375,000, based
upon a closing price of $16.375 per share, which was the closing price of the
common stock on the date that the merger with OpenROUTE was consummated.
The Unaudited Pro Forma Condensed Consolidated Financial Statements are
not necessarily indicative of either future results of operations or results
that might have been achieved if the mergers with OpenRoute and AetherWorks had
been consummated as of the indicated dates. The Unaudited Pro Forma Condensed
Consolidated Financial Statements should be read in conjunction with the
historical financial statements of Netrix, OpenRoute and AetherWorks, together
with the related notes thereto, which are incorporated by reference into this
registration statement.
15
NETRIX CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
OPEN AETHER NETRIX
NETRIX OPEN AETHER PRO FORMA PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS ADJUSTMENTS COMBINED
------------- ------------- ------------- ----------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 4,698 $ 2,804 $ 550 $ - $ - $ 8,052
Marketable securities - - - - - -
Accounts receivable, net 6,957 3,450 - - - 10,407
Inventories 4,761 5,563 - - - 10,324
Other current assets 359 343 61 - - 763
-------- -------- -------- ------- ------- --------
Total current assets 16,775 12,160 611 - - 29,546
-------- -------- -------- ------- ------- --------
Property and equipment, net 3,043 2,239 1,993 - - 7,275
Goodwill and intangibles, net 330 - - 58,085 (4) 71,743 (5) 130,158
Other assets 121 41 - - - 162
-------- -------- -------- ------- ------- --------
Total assets $ 20,269 $ 14,440 $ 2,604 $58,085 $71,743 $167,141
======== ======== ======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit $ 1,174 $ - $ - $ - $ - $ 1,174
Accrued expenses 3,018 2,087 150 500 (6) 500 (6) 6,255
Accounts payable 3,907 1,226 773 - - 5,906
Current portion of long term
debt and capital lease
obligations - - 861 - - 861
-------- -------- -------- ------- ------- --------
Total current liabilities 8,099 3,313 1,784 500 500 14,196
-------- -------- -------- ------- ------- --------
Long-term debt and capital lease - - 9,816 - (8,000)(7) 1,816
-------- -------- -------- ------- ------- --------
Stockholders' equity:
Preferred stock 4,424 - 3 - (3)(9) 4,424
Common stock 581 160 12 636 (8) 110 (9) 1,499
Additional paid-in capital 59,231 49,689 10,027 18,227 (8) 60,098 (9) 197,272
Deferred compensation (637) - - - - (637)
Accumulated deficit (52,131) (37,835) (19,038) 37,835 (8) 19,038 (9) (52,131)
Warrants 862 - - - - 862
Less, Treasury stock at cost - (1,010) - 1,010 (8) - -
Accumulated other comprehensive
income (loss) (160) 123 - (123) - (160)
-------- -------- -------- ------- ------- --------
Total stockholders' equity 12,170 11,127 (8,996) 57,585 79,243 151,129
-------- -------- -------- ------- ------- --------
Total liabilities and
stockholders' equity $ 20,269 $ 14,440 $ 2,604 $58,085 $71,810 $167,141
======== ======== ======== ======= ======= ========
The accompanying notes are an integral part of this unaudited pro
forma condensed consolidated financial statement.
16
NOTES TO NETRIX CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(1) Information obtained from the historical unaudited condensed consolidated
balance sheet of Netrix.
(2) Information obtained from the historical unaudited consolidated balance
sheet of OpenROUTE.
(3) Information obtained from the historical unaudited consolidated balance
sheet of OpenROUTE.
(4) Reflects goodwill resulting from the purchase of all of the outstanding
stock of OpenROUTE and the allocation of the purchase price using the
purchase method of accounting for the transaction after adjusting the
assets acquired and the liabilities assumed to their respective fair
values.
(5) Reflects goodwill resulting from the purchase of all of the outstanding
stock of AetherWorks and the allocation of the purchase price using the
purchase method of accounting for the transaction after adjusting the
assets acquired and the liabilities assumed to their respective fair
values.
(6) Reflects the transaction costs, primarily investment banking, legal and
accounting fees, directly incurred related to the acquisition and is shown
as a pro forma adjustment to accrued expenses and the purchase price.
(7) Reflects the assumption of AetherWorks' $8,000,000 note payable, which
must be redeemed upon closing of the proposed merger; Reflects the
issuance of 355,556 shares of Netrix common stock at $22.50 per share;
Reflects the use of the $8,000,000 proceeds to redeem the note payable.
(8) Eliminates the equity of OpenROUTE upon consolidation with Netrix;
reflects the issuance of 15.9 million shares of Netrix common stock using
an exchange ratio of one share of Netrix for each share of OpenROUTE
common stock. The issued shares are valued at $3.90 per share, which is
the average of the closing prices for the three days before and after
the public announcement of the merger; reflects the value of OpenROUTE
stock options and warrants. Such value has been determined using the
Black-Scholes method assuming 98% volatility, a risk free interest rate
of 5.0% and an exercise period of three years.
(9) Eliminates the equity of AetherWorks upon consolidation with Netrix;
reflects the issuance of 3.49 million shares of Netrix common stock at
$22.50 per share using an exchange ratio of 1.36 share of Netrix for each
share of AetherWorks common stock (subject to adjustments); reflects the
value of AetherWorks stock options. Such value has been determined using
the Black-Scholes method assuming 130% volatility, a risk free interest
rate of 5.0% and an exercise period of three years.
17
NETRIX CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
OPEN AETHER NETRIX
NETRIX OPEN AETHER PRO FORMA PRO FORMA PRO FORMA
HISTORICAL(1) HISTORICAL(2) HISTORICAL(3) ADJUSTMENTS ADJUSTMENTS COMBINED
------------- ------------- ------------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Product $ 16,079 $ 8,425 $ - $ - $ - $ 24,504
Service and other 5,309 1,401 - - - 6,710
Software licensing - 785 - - - 785
-------- -------- -------- ------- ------- --------
Total revenues 21,388 10,611 - - - 31,999
-------- -------- -------- ------- ------- --------
Cost of revenues:
Product 7,512 5,058 - - - 12,570
Service and other 3,638 1,187 - - - 4,825
Software licensing - - - - - -
Total cost of revenues 11,150 6,245 - - - 17,395
-------- -------- -------- ------- ------- --------
Gross profit 10,238 4,366 - - - 14,604
-------- -------- -------- ------- ------- --------
Operating expenses
Sales and marketing 4,621 3,181 - - - 7,802
General and administrative 3,683 2,418 1,335 10,891 (7) 13,452 (7) 31,779
Research and development 5,337 2,935 4,932 - - 13,204
Stock compensation expense 763 - - - 4,903 (8) 5,666
Restructuring reserve 900 243 - - - 1,143
Loss from operations (5,066) (4,411) (6,267) (10,891) (18,355) (44,990)
Interest and other income, net (218) 112 247 - - 141
-------- -------- -------- ------- ------- --------
Loss before income taxes (5,284) (4,299) (6,020) (10,891) (18,355) (44,849)
Provision for income taxes - 10 - - - 10
-------- -------- -------- ------- ------- --------
Net loss (5,284) (4,309) (6,020) (10,891) (18,355) (44,859)
Dividends on preferred stock (574) - - - - (574)
-------- -------- -------- ------- ------- --------
Net loss attributable to common
stockholders $(5,858) $(4,309) $(6,020) $(10,891) $(18,355) $(45,433)
======== ======== ======== ======= ======= ========
Basic and diluted loss per
common share ($0.51) ($1.51)
======== ========
Weighted average common shares
outstanding, basic and diluted 11,513 30,045 (9)
======== ========
The accompanying notes are an integral part of this unaudited pro
forma condensed consolidated financial statement.
18
NETRIX CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
OPEN AETHER NETRIX
NETRIX OPEN AETHER PRO FORMA PRO FORMA PRO FORMA
HISTORICAL(6) HISTORICAL(5) HISTORICAL(6) ADJUSTMENTS ADJUSTMENTS COMBINED
------------- ------------- ------------- ----------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues:
Product $ 21,840 $ 10,416 - - - $ 32,256
Service and other 9,642 2,247 - - - 11,889
Software licensing - 1,663 - - - 1,663
-------- -------- -------- ------- ------- --------
Total revenues 31,482 14,326 - - - 45,808
-------- -------- -------- ------- ------- --------
Cost of revenues:
Product 10,939 6,836 - - - 17,775
Service and other 5,155 1,760 - - - 6,915
Software licensing - - - - - -
-------- -------- -------- ------- ------- --------
Total cost of revenues 16,094 8,596 - - - 24,690
-------- -------- -------- ------- ------- --------
Gross profit 15,388 5,730 - - - 21,118
Operating expenses
Sales and marketing 10,781 8,018 - - - 18,799
General and administrative 4,324 5,376 2,051 14,521 (7) 17,936 (7) 44,208
Research and development 6,771 4,610 3,614 - - 14,995
Stock compensation expense - - - - 6,851 (8) 6,851
Restructuring reserve - - - - - -
-------- -------- -------- ------- ------- --------
Loss from operations (6,488) (12,274) (5,665) (14,521) (24,787) (63,735)
Interest and other income, net (29) 589 (1,307) - - (747)
-------- -------- -------- ------- ------- --------
Loss before income taxes (6,517) (11,685) (6,972) (14,521) (24,787) (64,482)
Provision for income taxes - 175 - - - 175
-------- -------- -------- ------- ------- --------
Net loss (6,517) (11,860) (6,972) (14,521) (24,787) (64,657)
======== ======== ======== ======= ======= ========
Basic and diluted loss per common
share ($0.60) ($2.19)
======== ========
Weighted average common shares
outstanding, basic and diluted 10,891 29,513 (9)
======== ========
The accompanying notes are an integral part of this unaudited pro
forma condensed consolidated financial statement.
19
NOTES TO NETRIX CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND THE NINE MONTHS ENDED SEPTEMBER 30,
1999
(1) Information obtained from the historical unaudited condensed consolidated
statement of operations of Netrix.
(2) Information obtained from the historical unaudited consolidated statement
of operations of OpenROUTE.
(3) Information obtained from the historical statement of operations of
AetherWorks for the year ended September 30, 1999 less the historical
unaudited statement of operations of AetherWorks for the three months
ended December 31, 1998.
(4) Information obtained from the historical consolidated statement of
operations of Netrix.
(5) Information obtained from the historical statement of operations of
OpenROUTE.
(6) Information obtained from the historical statement of operations of
AetherWorks for its year ended September 30, 1998.
(7) Reflects the amortization expense of the excess of cost over historical
net assets acquired in the merger by use of the straight-line method over
4 years.
(8) Reflects the amortization of $15.7 million of compensation expense for the
assumed intrinsic value of stock options to be granted to AetherWorks'
employees immediately subsequent to closing to acquire 1,000,000 shares of
Netrix common stock at an exercise price of $6.81 per share. The
compensation expense will be recognized over the options vesting period,
generally two to three years.
(9) The average common shares outstanding used in calculating basic and
diluted pro forma loss per common share are calculated assuming that the
estimated number of shares of Netrix common stock to be issued in the
mergers were outstanding from the beginning of the periods presented. For
purposes of this Pro Forma Financial Information, the Company assumed that
it would issue approximately 15,900,000 and 2,632,000 million shares of
common stock in connection with the OpenROUTE acquisition and the
AetherWorks acquisition, respectively. Options and warrants to purchase
shares of common stock were not included in computing pro forma diluted
earnings per common share because their inclusion would result in a
smaller loss per common share.
20
BUSINESS
Netrix, now called Nx Networks, is a worldwide provider of internet
telephony and data networking solutions. We deliver a high performance, scalable
product suite that serves today's voice and data convergence needs while
anticipating tomorrow's demands for secure packet and cell based telephony
solutions. We combine patented, switched, compressed voice and data technology
with advanced packet data networking capabilities to provide networking
solutions that improve network performance and deliver an array of tangible
network services.
We have distinguished ourselves as a pioneer in the data communications
industry and as a leader in voice, data networking and networking connectivity.
Currently, we are pioneering next generation softswitch and intelligent service
technologies that will simplify networking setups and service offerings and
provide a platform for application services. Our customers include service
providers, multinational corporations and government agencies in over 60
countries.
CORPORATE OBJECTIVES
Our goal is to be a leading provider of internet telephony solutions. We
recognize that internet telephony is driving the communications industry to
achieve an intelligent, feature rich and all-encompassing network. We intend to
deliver solutions that offer secure, seamless end-to-end interoperability and
voice services to this market.
Our acquisition of AetherWorks provides us with superior softswitch
technology and the resources to significantly expand our penetration of the
rapidly growing internet telephony services market. Specifically, we believe
this technology allows us to bring differentiated services to customers faster
than our competitors. We will capitalize on our services segment by introducing
innovative new products.
We believe that our product developments enhance the growth of the
deployment of multi-service networks, the adoption of virtual private networking
(VPNs) and the implementation voice over virtual private networking (VoVPN). Our
tactical developments also reflect service provider deregulation and
competition, the growth of e-commerce and the increased demand for comprehensive
internet protocol services.
During 2000, we plan to deliver the following solutions to service
providers, corporations and carriers in the market segments indicated:
o VIRTUAL PRIVATE NETWORKING -Nx Networks GT and GTX Series is an award
winning full-featured VPN edge router products.
o VOICE OVER VIRTUAL PRIVATE NETWORKING (VOVPN) - Nx Networks 3000
Series combines voice and data within a VPN.
o CARRIER CLASS VoIP GATEWAY - The upcoming Nx Networks 4000 Series
delivers carrier class voice over IP gateways that are standards
based and scalable.
o CARRIER GRADE SOFTSWITCH TECHNOLOGY - Our superior softswitch
technology runs on virtually all Unix platforms and is easily
enhanced. This technology will debut in the Nx Networks 6000 Series,
presently under development.
21
o CUSTOMER PREMISE EQUIPMENT - We offer a complete series of edge
products - both voice and data - with full feature sets and robust
quality.
BACKGROUND
The coming together of internet standards, voice over internet protocol
(VOIP) and virtual private networking (VPN) makes the combining of voice and
data, long treated as separate technologies, a sound business decision. As
network infrastructures converge and consolidate, fewer networks and protocols
support an increasing number of applications. The internet protocol (IP) for the
local area network (LAN), along with frame relay and asynchronous transfer mode
(ATM) for wide area networks (WAN) are the leading technologies in this market
space, displacing previous technologies.
These technological trends, combined with the proliferation of global
trade, have created a growing reliance on secure converged telecommunications to
facilitate commerce. In an environment where wide area networking is critical to
daily operations, secure voice and data communications over different network
media types represent a significant and increasing component of operating costs
for enterprises. We have focused our new products to support needs of this new
network model.
The varying traffic characteristics of different types of networking
applications, together with the need to transmit voice and image as well as
data, has created the need for vendors to supply multi-service platforms to meet
the user requirements within a single network fabric. Technologies in use today
include IP, frame relay, integrated services digital network (ISDN), and ATM.
Multi-service platforms, such as Nx Network Exchange products, enable our
customers to support multiple applications across a single network, thereby
resulting in improved connectivity, generally reduced communications costs, and
improved network performance.
The increasing availability of IP and frame relay services on the public
networks has fueled a trend toward building corporate networks that access these
services on an as-needed basis. Our products can be used to implement voice and
data networks based upon private lines, public services, or a combination of
private and public services. We believe that the trend toward the use of
services will continue to grow, especially with global telecommunications
deregulation. The use of the internet will also expand voice and fax
applications.
In November, 1999, we launched a comprehensive equipment leasing solution
through a strategic partnership with First Venture Leasing Corporation. This
leasing solution allows us to offer emerging and established carriers the
financial tools needed to build a complete internet telephony infrastructure
using our equipment without traditional large up-front capital expenditures.
In December, 1999, we introduced the 3000 Series, which delivers a secure
solution for converged internet telephony and data. The 3000 Series combines
high-quality IP voice and routing into a single end-to-end solution for secure
voice and data communications.
The 3000 Series positions us firmly in the VoIP and VPN telephony market
space, which is emerging as the next wave of network consolidation and which
leverages the vast worldwide IP infrastructures being deployed. It also
positions us for the emerging service provider space by enabling them to offer
low cost telephony solutions while realizing a short-term return on the
equipment investment.
We believe that secure internet telephony, in particular, represents a
short-term opportunity to gain substantial service provider market share. We
believe that our current product offering provides several advantages over
existing competing products in the areas of performance, security, scalability,
22
flexibility, cost, channel capacity and bandwidth efficiency. We have recently
been able to offer carrier quality voice over packet solutions to service
providers over wide area networks at significant reductions in per minute
operating costs. Particularly with regard to bandwidth allocation, our
capability to bundle multiple voice samples from different calls in a single
packet allows improved bandwidth management over long distances. We believe we
are positioned to be among the leaders in IP voice/data wide area networking
equipment in 2000.
With the introduction and continued development of the Series 3000, we are
moving toward the ability to deliver secure voice and data integration over
almost any carrier infrastructure, with the goal of making the products as easy
to configure and provision as possible. In addition our products' ability to
shape traffic and prioritize applications and to customize bandwidth utilization
on demand to suit end users needs, make the 3000 Series an ideal platform for
service providers looking to deliver next generation services in order to
differentiate themselves. Whether provisioning service or selling customer
premise equipment (CPE) to end users, the range of products will be well
positioned for the service provider market.
On December 31, 1999 we entered into an agreement to acquire AetherWorks
Corporation, a provider of innovative softswitch technology for the
telecommunications industry. We believe that the addition of AetherWorks'
technology provides us with a distinct competitive advantage in developing
solutions our customers need to succeed in the internet telephony arena.
Specifically, AetherWorks provides the technology which will enable an
intelligent, feature-rich and all encompassing network to emerge. In addition,
this acquisition moves us from the customer premise "edge" to the telco and
carrier "edge". We believe the combination of our and AetherWorks' technologies
will serve a growing converged market and allow secure, seamless end-to-end
interoperability while providing feature rich services at a significant cost
savings.
PRODUCTS
We currently offer three types of networking products:
o Voice and Data Gateway Routers - 3000 Series
o Voice Gateways - 2200 and 2500 Network Exchange Series
o Backbone Switches - 2500 Network Exchange Series
o Data Networking Routers - GT and GTX Series
VOICE AND DATA GATEWAY ROUTERS
3000 SERIES The 3000 Series is a modular voice over virtual private
network (VoVPN) gateway router. It is a voice gateway and data router combined
to work over WAN and LAN connections. With the 3000, data and voice transmission
are secure using industry standard firewalls, encryption and authentication
protocols. This product enables companies to combine their voice and data
networks within a VPN.
VOICE GATEWAYS
We have two platforms which comprise the Voice Gateway product line, the
2210 and the 2201. The products scale from a gateway consisting of as few as
four voice ports to larger central sites comprising hundreds of ports. This
scaleable product offering permits the customer to choose the most appropriate
platform for each site based upon functionality and performance requirements.
All are designed to enhance the efficiency and cost-effectiveness of the
communications infrastructure.
23
NETWORK EXCHANGE 2210. The Network Exchange 2210 is a voice gateway that
combines switched compressed voice and data switching in a single platform. The
2210 incorporates Nx Networks Vodex voice gateway software, one of the
industry's first voice gateways to simultaneously deliver high quality voice
over IP and voice over frame relay with the ability to gateway between the two.
This scaleable product, designed to take advantage of available IP and frame
relay facilities/services, is based upon enhanced voice over frame capabilities
we have developed. The 2210 has a complete set of features which support
switched compressed voice, LAN traffic as well as the traditional capabilities
found in typical access level products. The 2210 is also available with
redundant AC or DC power supplies. This configuration is called the Network
Exchange 2214.
NETWORK EXCHANGE 2201. Nx Networks Network Exchange 2201 was introduced
mid-1998 as the entry-level product in the 2200 range. The 2201 is a voice over
data switching platform that delivers the benefits of internet telephony and WAN
switching together with multi-protocol data support. The 2201 offers a unique
combination of switched compressed voice and data switching support in a single
compact platform. As a stand-alone voice and data access switch, or in
conjunction with the other Network Exchange 2000 series products, it gives
networks flexibility, scalability, and efficiency.
BACKBONE SWITCHES. Software selectable transmission technologies allow the
2500 series to provide superior cost-effective leased line, public or hybrid
networking solutions for data, voice and image applications.
NETWORK EXCHANGE 2550. The 2550 performs as a central site voice/data
switch to provide a resilient fault-tolerant hub. The 2550 interworks with the
2210 to provide complete multi-service networking support for compressed voice
traffic as well as all existing network technologies. With the 2550, networks
can be constructed to provide support for voice over IP, frame relay, and ATM
using narrowband or high speed broadband interfaces running at speeds up to DS3
(45 Mbps) and E3 (34 Mbps) rates.
NETWORK EXCHANGE 2510. Nx Networks Network Exchange 2510 is the
entry-level switch in the Network Exchange 2500 series of high-performance,
multi-service switching platforms. It combines ATM, frame relay, X.25, TDM, and
ISDN for data, voice and image applications. Functioning as either an enterprise
backbone or a carrier edge switch, the 2510 provides cost-effective bandwidth
management of public, private, and hybrid networks, with extensive network
management and diagnostic capabilities.
Nx Networks Network Exchange products provide flexible and scaleable
network solutions for small to large voice/data networks. The products are used
together to provide coverage from the access level through to the network
backbone. Nx Networks products provide integrated voice and data network
solutions that use state of the art networking technology. In addition to the
Network Exchange product line, our other products include the Series 10 (S10),
the Series 100 (S100), the Series 1000 (S1000), and specialized telecom
products.
NX NETWORKS NETWORK MANAGEMENT SYSTEM (NMS). Each of the products listed
above is managed by Nx Networks' Network Management System (NMS). The NMS
provides a full graphical user interface and remote diagnostics, allowing nodes
at several different locations to be viewed and managed by the network manager
at one central location. The NMS has the capability to monitor attached SNMP
devices, such as a router, and to participate in global network management
architecture with other SNMP managers. Built into the NMS is the capability to
support virtual private networks, remote diagnostics, and extensive "gatekeeper"
functionality such as call detail records for accounting and performance
statistics for on-going capacity planning/tuning. The NMS provides extensive
capabilities to insure non-stop operation with the lowest personnel costs. Nx
Networks supplies network management software for operation with Windows 95 and
Sun Sparc platforms.
24
DATA NETWORKING ROUTERS
Our GT Series is designed to provide customers with a secure, highly
efficient data router. The product line includes six platforms and scale from a
fixed configuration supporting one ethernet and one WAN connection to a modular
device supporting multiple ethernet and WAN connections. All of the routers
include a standards based design that assures interoperabilty. In addition, the
GT Series includes award winning software that delivers proven reliability and
performance.
GT 60 & 70 - Both the GT 60 & 70 are customer premise data routers that
combine VPN capabilities, multi-protocol routing and software encryption into a
cost effective, easily managed solution. The GT 60 & 70 are fixed configuration
platforms.
GT 90 & 900 - The GT90 and 900 data are flexible, secure and
cost-effective routers designed for cable, wireless and xDSL applications. The
900 includes a "packet accellerator" security processor for higher speed
encryption that delivers unequaled performance to meet the needs of the most
demanding VPN. Both are deployed as Customer Premise Equipment (CPE) solution
through internet service providers.
GTX 1000 - This modular router allows the mix and match of LAN/WAN
protocols and media. Its is VPN complete and offers a unique combination of
performance, price, interface flexibility and security.
GTX 1500 - This modular router is the industry's first router to include a
VPN "packet accelerator" - a security processor for higher speed compression and
encryption. This means network managers can provide the security provided for a
VPN without sacrificing performance.
MARKETING AND SALES
Our customers include service providers, multi-national corporations and
government agencies in over 60 countries. To address these markets throughout
the world, we have established a multi-channel distribution and sales network.
Our products are designed to provide enterprise voice/data solutions and are
marketed mostly through indirect channels, either via carriers or enterprise
focused partners worldwide. We also have a direct sales force who sell directly
to large corporations worldwide. Service providers resell our products as part
of their service offerings as well. Marketing programs to support all these
channels center around advertising, direct lead generation programs and industry
analyst cultivation.
Our breadth of voice and data products, now enhanced by the acquisition of
AetherWorks softswitch technology, has strengthened our position as a leading
worldwide provider of internet telephony and data networking solutions.
Specifically, our strategy to move from the customer edge to the carrier edge is
now firmly in place, with product development underway. In addition, the Nx
Networks 3000 Series has combined voice and data security technologies and is
positioned to capture the convergence of these markets. In addition, our leasing
program is effectively expanding our reach into many more opportunities.
CUSTOMER SUPPORT AND SERVICE
A significant element of our strategy has been to provide service, repair,
and technical support for its customers throughout the world. A substantial
portion of our service and support activity relates to software and network
configuration and is provided by 24-hour per day, 7 days per week telephone
support through the Nx Networks Technical Assistance Center ("TAC"). Our
products are designed to allow the TAC to be on line with any Nx Networks
network in the world to diagnose problems and to respond with solutions. In
25
addition, our hardware is designed to facilitate replacement of failed boards;
in many cases, the customer's personnel can replace a board themselves under the
direction of the TAC. TAC service is provided directly to end users and as a
backup service to our international distributors.
Our personnel and third party providers perform most domestic hardware
maintenance and installation. For customers outside the United States, these
services are generally provided by our international Value Added Resellers
(VARs). We typically offer our customers a hardware warranty ranging from 90
days to one year and offers an optional annually renewable hardware maintenance
and software support contract with the network.
With the acquisition of OpenRoute line of VPN/Data routers, we added a
line of routers that are easily locally/remotely managed. Because of the
strength of product engineering, we offer a lifetime warranty on these units.
We offer support contracts to our customers with optional levels of
support, with each option being priced accordingly. In addition, we provide
technical consulting and training both to end-users and to distributors. Many of
our customers currently have support and maintenance contracts with us. Customer
service as a percent of revenue was 31% in 1998, 32% in 1997 and 26% in 1996.
RESEARCH AND DEVELOPMENT
We believe our future success depends on our ability to continue to
enhance our products to improve performance and functionality and to develop new
products that address emerging networking market niches. Research and
development as a percent of revenue was 22% in 1998, and 25% in 1997 and 1996.
MANUFACTURING
Our manufacturing operations are a combination of system level
integration and testing and full turnkey. We have strategic relationships
with The SMT Centre of Charlotte, North Carolina (SMTC), U.S. Assemblies of
Taunton, Massachusetts (U.S. Assemblies) and Venture Manufacturing Ltd. Of
Singapore (Venture).
Effective October 1, 1999, we entered into an agreement with SMTC to
outsource all manufacturing and test operations for current products. SMTC is a
contract manufacturer that offers a cost-effective, high volume, manufacturing,
distribution and repair capabilities worldwide. Historically SMTC has produced
various sub-assemblies for us, but the new agreement calls for them to
manufacture, test and ship final products. Our employees associated with
manufacturing, distribution and repair operations were transferred to SMTC
effective October 1, 1999.
U.S. Assemblies and Venture manufacture our board assemblies for certain
router products and provide turnkey manufacturing for certain other router
products. SMTC provides full turnkey manufacturing for our voice products. We
believe that in the event of an interruption in manufacturing at any of our
subcontractors, we will be able to shift our production needs to an unaffected
facility and continue to meet expected demand. Each of our subcontractors
operate a number of other plants in the United States and Asia.
We perform some final assembly and testing of routers at our Westborough
facility. A repair depot is also located at the Westborough facility,
coordinating service requirements for our router products.
26
COMPETITION
We encounter substantial competition in the marketing of our products, and
many of our competitors have greater financial, marketing and technical
resources. Important competitive factors in our product markets are established
customer base, product performance and features, service and support, as well as
price. We believe that we compete favorably with respect to these factors. There
can be no assurance that our products will compete successfully with competitive
products that may be offered in the future or that aggressive pricing will not
adversely impact our profitability.
PROPRIETARY RIGHTS
We rely on a combination of patents, trade secret, copyright and trademark
law, non-disclosure agreements, and technical measures to establish and protect
our proprietary rights in our products. Despite these precautions, it may be
possible for unauthorized third parties to copy aspects of our products or to
obtain and use information that we regard as proprietary. The laws of some
foreign countries in which we sell or may sell our products do not protect our
proprietary rights to the same extent as do the laws of the United States.
We believe that because of the rapid pace of technological change in the
networking industry, patent and copyright protection, while important, are less
significant to our competitive position than factors such as the knowledge,
ability, and experience of our personnel, new product development, market
recognition, and ongoing product maintenance and support. We believe that our
products and trademarks do not infringe upon the proprietary rights of third
parties. There can be no assurance, however, that third parties will not assert
infringement claims in the future.
To protect our intellectual property rights in the "voice over" market
space, the prime patents held by us in packetized compressed voice networking
have been brought to the attention of both the voice over internet protocol and
frame relay forum organizations.
We also use various licensed products of other companies in certain of our
products.
EMPLOYEES
We had 190 employees at December 31, 1999. None of the employees are
represented by collective bargaining agreements. We have never experienced any
work stoppage. We believe that our employee relations are satisfactory.
PROPERTIES
Our principal administrative and research and development facilities
consist of approximately 45,000 square feet located in Herndon, Virginia and
approximately 44,000 square feet in Westborough, Massachusetts. The Herndon
premises are occupied under a lease agreement that was negotiated for a ten-year
term expiring April 30, 2009. The Westborough premises are occupied under a
lease expiring in April 2002. In connection with cost savings initiatives we
undertook in 1999, we subleased approximately 22,000 square feet of the Herndon
facility, thereby reducing rent expense by approximately $50,000 per month. A
separate facility of 8,600 square feet is under lease in Longmont, Colorado for
product development operations. Additionally, we maintain six sales and support
offices in the United States and abroad. We believe our facilities are adequate
for our current needs.
27
LITIGATION
We are periodically a party to disputes arising from normal business
activities. In the opinion of our management, resolution of these matters will
not have a material adverse effect upon our financial condition or future
operating results, and adequate provision for any potential losses have been
made in our financial statements.
28
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages, position and business experience of
our executive officers and directors.
AGE OF
NAME OF DIRECTOR DIRECTOR
OR EXECUTIVE OR
OFFICER OFFICER POSITION OF DIRECTOR OR OFFICER
- -------------------- ---------- -----------------------------------------
Steven T. Francesco 42 Director, Chairman of the Board of
Directors and Chief Executive Officer
Lynn C. Chapman 45 Vice Chairman and Director
John M Faccibene (2) 53 Director
Gregory C. McNulty 43 Executive Vice President - World Wide
Sales and Director
Richard Yalen (1) 54 Director
Douglas J. Mello (2) 56 Director
Thomas Lieberman (1) 59 Director
Robert Glorioso 50 Director
Peter J. Kendrick 45 Vice President and Chief Financial
Officer
- -------------
(1) Member of the Audit Committee of the Board of Directors.
(2) Member of the Compensation Committee of the Board of Directors.
STEVEN T. FRANCESCO. Mr. Francesco has been a Director and Chairman of
the Board since March 1999. Mr. Francesco is founder and President of Darien
Corporation, and was founder and former President and COO of SmartServ
Online, Inc. From 1989 to 1991, he was Senior Vice President of Strategic
Planning and Operations for a division of Cantor-Fitzgerald Securities. Mr.
Francesco has served as a senior strategic advisor to GTE Advanced Network
Services, KeyTrade and e-Tel. Mr. Francesco has served as a consultant to
numerous companies, including AT&T, GTE, Citibank, Chemical Bank, Chase
Manhattan Bank, J.J. Kenny, ADP, Telerate, and the Chicago Mercantile
Exchange. Mr. Francesco founded the Market Technology Group, a computer and
technology service company providing financial systems and market data
retrieval to the financial services industry.
LYNN C. CHAPMAN. Mr. Chapman has served as a director of Netrix since
February 1997 and as Vice Chairman since December 1999. Mr. Chapman joined
Netrix in December 1992 and was named Vice President in February 1993.
During 1996 Mr. Chapman assumed additional responsibility as Vice President
- -- Network Products, and was named President and CEO in February 1997. Mr.
Chapman became President in March 1999 when Mr. Francesco joined Netrix.
Prior to joining NETRIX, Mr. Chapman served in various management positions
at Data General Corporation from 1989 to November 1992.
JOHN M. FACCIBENE. Mr. Faccibene has been a director of Netrix since March
1999. Since January 1999, Mr. Faccibene has been Managing Director, Americas,
for ixNet, a subsidiary of IPC Information Systems, Inc. From 1997 to 1998, he
was Executive Director of CIBC/Oppenheimer & Co. From 1973 to 1998, he was a
senior member of the Security Industry Association (SIA), and for two years
served as Chairman of the SIATechnology Management Committee. For 22 years, Mr.
Faccibene has been a senior member of the Wall Street Telecommunications
Association (WSTA) Executive Committee, and for three years served as President
of the WSTA. He has previously served as Chairman of the NYNEX Executive Forum,
Newbridge Worldwide User Group, Ascom/Timeplex User Group, and is a Director of
29
the New York Technical College. Mr. Faccibene also serves as a Director of
ADVESTA, a software company, Bridgewater Systems, a software company, and
Timestep, a software security company.
GREGORY C. MCNULTY. Mr. McNulty has been the Senior Group Manager,
Business Development at Microsoft Corporation since 1997. Mr. McNulty also
served as Major Accounts Executive for Microsoft. From 1996 to 1997, Mr.
McNulty was Vice President of Sales at CIDCO, Inc., a manufacturer of
intelligent network terminal devices. From 1993 to 1996, Mr. McNulty served
as Director of Major Accounts for Wind River Systems, Inc., the leading
supplier of real time operating systems software and related software
development tools. From 1992 to 1993, Mr. McNulty was cofounder of Rugged
Digital Systems, Inc., the leading manufacturer of military standard,
ruggedized computer systems and served in various high-level executive
positions from 1982 to 1992. Prior to that, Mr. McNulty was employed by ROLM
Corporation and by FMC Corporation.
RICHARD YALEN. Mr. Yalen became a director of Netrix in April, 1999.
Mr. Yalen is the Chief Executive Officer of Dynamic Telcom Engineering LLC, a
telecommunications company. From 1992 to 1998, prior to joining Dynamic
Telcom, Mr. Yalen served in various positions at Cable & Wireless USA,
including that of Chief Executive Officer.
DOUGLAS J. MELLO. Mr. Mello became a director of Netrix in April,
1999. Mr. Mello was employed by Bell Atlantic and its predecessor
corporations from 1965 until March, 1999. From 1997 to 1999, he served as
President, Large Business Sales-North for Bell Atlantic. From 1996 to 1997,
he was NYNEX Vice President-Business Marketing and Amp Sales, responsible for
all business customers in the New York and New England areas. From 1994 to
1996, he served as Vice President-Sales for NYNEX Corporation. Prior to
1994, Mr. Mello was the Group Vice President-Manhattan Market Area for New
York Telephone, where he was responsible for the provisioning of
telecommunications technology. From 1985 to 1991, he was President of
Business Information Systems Corp. Mr. Mello is a director of IXnet, Inc.
and of Telexis Co.
THOMAS LIEBERMANN. Mr. Liebermann has been a member of the board of
directors since December 1999. Previously, since July 1998, he was a member
of OpenRoute's board of directors. Mr. Liebermann has been Chairman and
Chief Executive Officer of Advanced Frequency Products, LLC, which develops
specialized subsystems and components for the wireless communications and
motion sensing markets, since 1997. Prior to that Mr. Liebermann was
President and Chief Executive Officer of Kaye Instruments from 1989 until
1996. Mr. Liebermann serves as a director on several boards of directors and
holds a leadership role in the Young President's Organization.
DR. ROBERT M. GLORIOSO. Dr. Glorioso has been a member of the Board of
Directors since the merger with OpenRoute on December 22, 1999, and he was
previously a member of the Board of Directors of OpenRoute from March 1997.
Since April 1993, Dr. Glorioso has held the position of President and Chief
Executive Officer of, and has served as a board member of, Marathon
Technologies Corp. From January 1976 to December 1992, Dr. Glorioso held
several senior executive positions at Digital Equipment Corporation,
including Vice President of Information Systems Business and Vice President
of Executive Consulting.
PETER J. KENDRICK Mr. Kendrick joined the company in August, 1999 as Vice
President and Chief Financial Officer. Prior to joining Netrix, he served as
Vice President and Chief Financial Officer of PACI, a Nasdaq listed company.
From 1991 to 1996, he was Vice President and Chief Financial Officer of
Capital-Carousel, Inc. Mr. Kendrick also served as Senior Vice
President-Corporate Finance for Johnston, Lemon and Company and Vice President
and Chief Financial Officer of VSC, Inc. In addition he has held senior
executive roles with C3, Inc., The Source and SCS.
30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of January 31, 2000
with respect to the beneficial ownership of common stock by:
o each person known by Netrix to beneficially own more than 5% of the
outstanding shares of common stock;
o each director of Netrix;
o each executive officer of Netrix; and
o all directors and executive officers of Netrix as a group:
NUMBER OF
SHARES PERCENTAGE OF
BENEFICIALLY COMMON STOCK
BENEFICIAL OWNER OWNED(1) OUTSTANDING (2)
---------------- ------------ ---------------
Steven T. Francesco .................... 2,600,000 9.1
Lynn C. Chapman ........................ 172,596 *
Peter J. Kendrick * .................... 100,000 *
John M Faccibene * (3).................. 50,000 *
Gregory C. McNulty * (4)................ 100,000 *
Richard Yalen * (3)..................... 50,000 *
Douglas J. Mello * (3).................. 50,000 *
Thomas Lieberman (3).................... 12,500 *
Robert Glorioso (3)..................... 12,500 *
All directors and executive officers as
a group (9 persons) (5)............... 3,147,596 11.0
------------
* Less than 1%.
(1) The number of shares of Netrix common stock beneficially owned by each
person is determined under the rules of the SEC, and the information is not
necessarily indicative of beneficial ownership for any other purpose. Under
such rules, beneficial ownership includes any shares as to which the
individual has sole or shared voting power or investment power and also any
shares of Netrix common stock which the individual has the right to acquire
within 60 days after February 2, 2000 through the exercise of any stock
option or other right. The inclusion herein of any shares of Netrix common
stock deemed beneficially owned does not constitute an admission of
beneficial ownership of those shares. Unless otherwise indicated, the
persons named in the table have sole voting and investment power with
respect to all shares of Netrix common stock shown as beneficially owned by
them.
(2) Number of shares deemed outstanding includes 28,561,622 shares outstanding
as of December 31, 1999 plus any shares subject to options held by the
person or entity in question that are currently exercisable or exercisable
within 60 days after February 2, 2000.
(3) Represents shares underlying currently exercisable stock options or stock
options that will become exercisable within 60 days.
(4) Includes 50,000 shares underlying currently exercisable stock options or
stock options that will become exercisable within 60 days.
(5) Includes 2,147,596 shares underlying currently exercisable stock options or
stock options that will become exercisable within 60 days.
31
PLAN OF DISTRIBUTION
SALES BY NX NETWORKS
We will sell the 1,000,000 shares offered by us through Kaufman Bros.
L.P. and/or Tucker Anthony, Incorporated, from time to time in a series of
"at the market" transactions effected on the Nasdaq Stock Market. In
offering the shares, Kaufman Bros. and Tucker Anthony will act as our agents
and use their reasonable best efforts to find buyers for the shares. Kaufman
Bros. and Tucker Anthony, Inc. are not obligated to purchase any of the
shares for their own account and we are not obligated to sell all of the
1,000,000 shares.
Kaufman Bros. and Tucker Anthony do not expect to undertake any special
selling efforts in connection with the distribution of shares on our behalf.
Under the rules of the SEC, however, they are considered underwriters as a
result of their actions as our agents. Accordingly, they will have to comply
with applicable prospectus delivery requirements and Regulation M under the
Securities Exchange Act. Regulation M will preclude Kaufman Bros. and Tucker
Anthony from making a market in our common stock during the offering of our
shares.
For their services as agents, Kaufman Bros. and Tucker Anthony will be
paid 3.5% of the sales price of the shares they sell. In addition, we will
indemnify Kaufman Bros. and Tucker Anthony for certain liabilities, including
liabilities under the Securities Act of 1933.
Kaufman Bros. provided financial advisory services to us from May 1999
through December 1999 pursuant to an investment advisory agreement. Pursuant to
the agreement, we issued to Kaufman Bros. warrants to acquire the 100,000 shares
that they are offering hereby. In addition, Kaufman Bros. acted as our financial
advisors in connection our acquisition of OpenRoute. For their services in that
transaction we issued to them 54,500 shares of common stock, which had a value
of approximately $1.0 million on the date of issue. Tucker Anthony acted as the
financial advisor to OpenRoute in connection with our acquisition of OpenRoute.
For their services in that transaction, OpenRoute issued to them 145,500 shares
of OpenRoute common stock, which converted into an equal number of our shares
when the merger was completed. On the date the merger was completed, those
shares had a value of approximately $2.0 million.
Kaufman Bros. is also a selling shareholder, and will sell up to
100,000 shares of common stock that it currently owns. Kaufman Bros. will
not sell any shares for its own account until after it has completed its
distribution activities as our agent.
SALES BY SELLING STOCKHOLDERS
The common stock may be offered and sold from time to time by one or more
of the selling stock holders, or by pledgees, donees, transferees or other
successors in interest. No selling stock holder is required to offer or sell any
of his common stock. The selling stock 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 stock 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
32
stock 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 stock holders. However, we will receive proceeds
from the exercise of the warrants by Kaufman Bros. No discounts, commissions or
other compensation will be allowed or paid by the selling stock 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 stock 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 stock 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 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
selling security holder. The fees and expenses we will pay are estimated to be
$50,000.
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 consolidated financial statements and schedule of Netrix and its
subsidiaries as of December 31, 1997 and 1998 and for each of the years in the
three year period ended December 31, 1998 incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in giving said reports.
The consolidated financial statements of OpenROUTE and its subsidiaries as
of and for the year ended December 31, 1998 incorporated by reference in this
Prospectus and in the Registration Statement have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent and for the periods
set forth in their reports (which contain an explanatory paragraph regarding the
Company's ability to continue as a going concern) incorporated by reference
herein and in the Registration Statement, and are incorporated herein by
reference in reliance upon such reports given upon the authority of said firm as
experts in auditing and accounting.
The consolidated financial statements and schedule of OpenRoute and its
subsidiaries as of December 31, 1996 and 1997, and for each year in the two year
period ended December 31, 1997, (except as to the segment information for the
years ended December 31, 1996 and 1997 presented in Note 8), have been
incorporated herein and in the registration statement in reliance upon the
report of PricewaterhouseCoopers, LLP, independent certified public accountants
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing. The financial statements as of December 31, 1996 and
1997, and for the two years ended December 31, 1997, incorporated by reference
in this prospectus and elsewhere in the registration statement have been audited
by Pricewaterhouse Coopers, LLP, independent public accountants, as indicated in
33
their reports with respect thereto, and are incorporated by reference
herein in reliance upon the authority of said firm as experts in giving said
reports.
The financial statements of AetherWorks Corporation at September 30, 1999
and 1998, and for the years then ended and the period from February 24, 1993
(inception) to September 30, 1999, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given on the authority of such firm as experts in
accounting and auditing.
34
INDEX TO AETHERWORKS CORPORATION FINANCIAL STATEMENTS
Report of Independent Auditors......................................F-2
Audited Financial Statements:
Balance Sheets......................................................F-3
Statements of Operations............................................F-4
Statement of Shareholders' Equity (Deficit).........................F-5
Statements of Cash Flows............................................F-7
Notes to Financial Statements.......................................F-8
F-1
Report of Independent Auditors
Board of Directors and Shareholders
AetherWorks Corporation
We have audited the accompanying balance sheets of AetherWorks Corporation
(a development stage company) as of September 30, 1999 and 1998, and the related
statements of operations, shareholders' equity (deficit) and cash flows for the
years then ended and the period from February 24, 1993 (inception) to September
30, 1999. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AetherWorks Corporation (a
development stage company) at September 30, 1999 and 1998, and the results of
its operations and its cash flows for the years then ended and the period from
February 24, 1993 (inception) to September 30, 1999, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company's deficit accumulated during the development
stage raises substantial doubt about its ability to continue as a going concern.
The Company intends to obtain additional financing to permit it to continue its
operations. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
ERNST & YOUNG LLP
Minneapolis, Minnesota
December 7, 1999
F-2
AETHERWORKS CORPORATION
BALANCE SHEETS
September 30,
1999 1998
-------------------------
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 550,205 $ 1,862,889
Prepaid expenses................................... 60,463 50,182
-------------------------
Total current assets................................. 610,668 1,913,071
Property and equipment:
Computer hardware.................................. 3,438,896 3,307,754
Computer software.................................. 906,092 719,088
Furniture and fixtures............................. 779,779 779,779
-------------------------
5,124,767 4,806,621
Less accumulated depreciation and amortization..... 3,131,548 1,880,911
-------------------------
1,993,219 2,925,710
Note receivable from related party................... -- 128,511
-------------------------
Total assets......................................... $ 2,603,887 $ 4,967,292
=========================
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Accounts payable and accrued liabilities........... $ 921,659 $ 435,186
Accrued interest................................... 2,025 2,576
Current portion of long-term debt and capital
lease obligations................................. 860,532 788,137
-------------------------
Total current liabilities............................ 1,784,216 1,225,899
Long-term debt and capital lease obligations......... 9,816,488 9,641,880
Shareholders' equity (deficit):
Series B Common Stock, par value $.01 per share:
Authorized shares - 392,202
Issued and outstanding shares - 251,413 Series
B-1 in 1999 and 121,391 Series B-1 in 1998...... 2,514 1,214
Common Stock, par value $.01 per share:
Authorized shares - 9,607,798
Issued and outstanding shares - 1,200,409......... 12,004 12,004
Additional paid-in capital......................... 10,026,701 5,208,001
Deficit accumulated during the development stage... (19,038,036) (11,121,706)
-------------------------
Total shareholders' equity (deficit)................. (8,996,817) (5,900,487)
-------------------------
Total liabilities and shareholders' equity (deficit). $ 2,603,887 $ 4,967,292
=========================
SEE ACCOMPANYING NOTES.
F-3
AETHERWORKS CORPORATION
STATEMENTS OF OPERATIONS
Period from
February 24, 1993
(inception) to
Year ended September 30, September 30,
1999 1998 1999
Operating expenses:
Research and development...... $ 5,796,944 $3,614,479 $ 16,736,857
General and administrative.... 1,823,277 2,050,596 7,732,523
----------------------------------------
Operating loss ................. (7,620,221) (5,665,075) (24,469,380)
Other income (expense):
Interest income............... 47,497 38,471 167,342
Interest expense.............. (210,065) (1,345,217) (3,338,801)
Note receivable write-off..... (133,541) - (133,541)
----------------------------------------
Net loss before extraordinary
item for the period........... (7,916,330) (6,971,821) (27,774,380)
Extraordinary gain - debt
restructuring................. - 8,428,590 8,428,590
========================================
Net (loss) income for the period $(7,916,330) $1,456,769 $(19,345,790)
========================================
SEE ACCOMPANYING NOTES.
F-4
AETHERWORKS CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Deficit
Series B-1 Accumulated
Common Stock Common Stock Additional During the
------------------------------ Paid-in Development
Shares Amount Shares Amount Capital Stage Total
--------------------------------------------------------------------
Balance at February 24, 1993 (inception)...... - $ - - $ - $ - $ - $ -
Sale of Common Stock at $.01 per share to
the founder in June 1993................... - - 600,000 6,000 507 - 6,507
Sale of Common Stock at $.71 per share
between March 1993 and March 1994.......... - - 105,000 1,050 73,950 - 75,000
Sale of Common Stock at $.93 per share in
January 1994............................... - - 7,500 75 6,925 - 7,000
Sale of Common Stock at $.43 per share in -
January 1994............................... - - 23,333 233 9,767 - 10,000
Sale of Common Stock at $.80 per share in
March 1994................................. - - 37,500 375 29,625 - 30,000
Sale of Common Stock at $1.11 per share in
March 1994................................. - - 126,000 1,260 138,740 - 140,000
Sale of Common Stock at $.19 per share in
March 1994................................. - - 30,000 300 5,250 - 5,550
Net loss for the period..................... - - - - - (180,764) (180,764)
------------------------------------------------------------------
Balance at March 31, 1994..................... - - 929,333 9,293 264,764 (180,764) 93,293
Sale of Common Stock at $1.11 per share in
April 1994................................. - - 28,286 283 31,146 - 31,429
Sale of Common Stock at $.43 per share in
May 1994................................... - - 81,667 817 34,183 - 35,000
Sale of Common Stock at $1.11 per share in
May 1994................................... - - 70,714 707 77,864 - 78,571
Value of warrants granted to consultants
for services in May 1994................... - - - - 2,250 - 2,250
Sale of Common Stock at $6.00 per share in
June 1994.................................. - - 15,033 150 90,050 - 90,200
Note payable converted to Common Stock at
$6.00 per share in January 1995............ - - 1,667 17 9,983 - 10,000
Recapitalization resulting from election of
C Corporation status....................... - - - - (307,754) 307,754 -
Net loss for the period..................... - - - - - (1,934,387) (1,934,387)
--------------------------------------------------------------------
Balance at September 30, 1995................. - - 1,126,700 11,267 202,486 (1,807,397) (1,593,644)
Value of warrants issued in connection with
note payable in October 1995............... - - - - 2,000 - 2,000
Net loss for the year....................... - - - - - (4,048,076) (4,048,076)
--------------------------------------------------------------------
Balance at September 30, 1996 (carried - - 1,126,700 11,267 204,486 (5,855,473) (5,639,720)
forward)....................................
F-5
AETHERWORKS CORPORATION
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
Deficit
Series B-1 Accumulated
Common Stock Common Stock Additional During the
----------------------------------- Paid-in Development
Shares Amount Shares Amount Capital Stage Total
----------------------------------------------------------------------------------
Balance at September 30, 1996 (brought forward). - $ - 1,126,700 $11,267 $204,486 $(5,855,473) $(5,639,720)
Value of warrants granted for services in
June 1997.................................... - - - - 14,772 - 14,772
Notes payable converted to Common Stock at
$6.00 per share in January 1997.............. - - 73,209 732 438,522 - 439,254
Sale of Common Stock at $6.00 per share in
January 1997................................. - - 500 5 2,995 - 3,000
Net loss for the year......................... - - - - - (6,723,002) (6,723,002)
-----------------------------------------------------------------------------------
Balance at September 30, 1997................... - - 1,200,409 12,004 660,775 (12,578,475) (11,905,696)
Value of warrants granted for services in
January 1998................................ - - - - 48,440 - 48,440
Sale of Series B-1 Common Stock at $37.07 per
share between May 1998 and September 1998.... 121,391 1,214 - - 4,498,786 - 4,500,000
Net income for the year....................... - - - - - 1,456,769 1,456,769
-----------------------------------------------------------------------------------
Balance at September 30, 1998................... 121,391 1,214 1,200,409 12,004 5,208,001 (11,121,706) (5,900,487)
Sale of Series B-1 Common Stock at $37.07 per
share between January 1999 and September 1999 130,022 1,300 - - 4,818,700 - 4,820,000
Net loss for the year......................... - - - - - (7,916,330) (7,916,330)
-----------------------------------------------------------------------------------
Balance at September 30, 1999................... 251,413 $2,514 1,200,409 $12,004 $10,026,70 $(19,038,03) $(8,996,817)
===================================================================================
SEE ACCOMPANYING NOTES.
F-6
AETHERWORKS CORPORATION
STATEMENTS OF CASH FLOWS
Period From
February 24, 1993
Year Ended September 30, (inception) to
--------------------------- September 30,
1999 1998 1999
---- ---- ----
OPERATING ACTIVITIES
Net (loss) income for the period.......... $(7,916,330 $1,456,769 $(19,345,790)
Adjustments to reconcile net (loss)
income to net cash used in
operating activities:
Depreciation and amortization.......... 1,250,636 1,409,839 3,792,891
Interest expense forgiven in debt
restructuring........................ - 1,019,722 1,019,722
Cancellation of notes receivable from
related party........................ 133,541 - 133,541
Contributed parts used in development.. 320,000 - -
Extraordinary item..................... - (8,428,590) (8,428,590)
Value of warrants granted in
connection with note payable......... - - 2,000
Value of warrants granted for services. - 48,440 65,462
Changes in operating assets and
liabilities:
Prepaid expenses and other assets.... (10,281) 23,273 (66,188)
Accounts payable and accrued
liabilities........................ 480,892 (168,110) 2,419,712
-----------------------------------------------------------
Net cash used in operating activities..... (5,741,542) (4,638,657) (20,407,240)
INVESTING ACTIVITIES
Purchases of property and equipment....... (318,145) - (1,129,742)
Retirements of property and equipment..... - 6,645 6,645
Note receivable from related party........ - - (110,000)
------------------------------------------------------------
Net cash (used in) provided by investing
activities.............................. (318,145) 6,645 (1,233,097)
FINANCING ACTIVITIES
Net proceeds from issuance of notes
payable................................. 1,035,147 2,000,000 15,290,680
Payments of debt and capital leases....... (788,144) (879,364) (2,932,395)
Proceeds from sale of Common Stock........ - - 512,257
Proceeds from sale of Series B-1 Common
Stock................................... 4,500,000 4,500,000 9,320,000
--------------------------------------------------------------
Net cash provided by financing activities. 4,747,003 5,620,636 22,190,542
--------------------------------------------------------------
(Decrease) increase in cash and cash
equivalents............................. (1,312,684) 988,624 550,205
Cash and cash equivalents at beginning of
period.................................. 1,862,889 874,265 -
--------------------------------------------------------------
Cash and cash equivalents at end of period $ 550,205 $ 1,862,889 $ 550,205
===============================================================
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Conversion of note payable for Common
Stock................................... $ - $ - $ 439,254
Property and equipment acquired through
financing agreements.................... - - (4,001,669)
Note payable for capital lease guarantee.. - - 370,000
SUPPLEMENTAL SCHEDULE OF CASH FLOW
INFORMATION
Cash paid for interest.................... 210,616 298,239 827,781
SEE ACCOMPANYING NOTES.
F-7
NOTES TO AETHERWORKS FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. DESCRIPTION OF BUSINESS
AetherWorks Corporation (the "Company") was formed on February 24, 1993
and is a development stage company engaged in the design and development of
hardware and software which will integrate voice and data. In addition, the
software developed provides a computer telephony framework on which software
applications can operate in the telephony environment.
2. GOING CONCERN
As reflected in the accompanying financial statements, the Company has
accumulated a deficit during its development stage. The Company may be unable to
maintain solvency unless it continues to obtain additional financing to continue
as a going concern. The Company intends to obtain additional debt or equity
financing in fiscal 2000 to fund operations.
Because of uncertainties regarding the achievability of management's
plans, no assurances can be given as to the Company's ability to continue in
existence. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amount and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
3. SUMMARY OF ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. Cash equivalents are
carried at cost which approximates market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using
the straight-line method over the estimated useful lives of the assets of three
or five years.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting and
tax bases of assets and liabilities.
RESEARCH AND DEVELOPMENT
All research and development costs are charged to operations as incurred.
F-8
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related interpretations in
accounting for its stock options. Under APB 25, no compensation expense is
recognized when the exercise price of stock options equals the market price of
the underlying stock on the date of grant.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long-term debt, including capital leases, is:
September 30,
1999 1998
---- ----
Notes payable under Note Purchase
Agreement:
(See description of 1998 Note below)...... $ 8,000,000 $ 8,000,000
Convertible note payable................... 1,035,147 -
Note payable to the City of St. Paul....... 52,695 67,029
Capitalized leases......................... 1,589,178 2,362,988
-------------------------------
10,677,020 10,430,017
Less current portion....................... 860,532 788,137
------------------------------
$ 9,816,488 $ 9,641,880
==============================
In October 1995, the Company entered into a 1995 Note Purchase Agreement
("the Agreement") with a data communications company ("Creditor"). Upon the
closing of the Agreement, the Company issued a convertible note for $3,363,235.
The Creditor committed to provide additional funding in the event that certain
milestones were attained, but had no obligation to provide continued funding in
the event two or more milestones were missed.
In June 1996, the Creditor and the Company restated and amended the 1995
Note Purchase Agreement, principally to eliminate milestones set forth in the
Agreement as well as to obtain additional financing to acquire and develop new
technology and to modify the Creditor's option to convert all, but not less than
all, of the aggregate outstanding principal and interest of the Note into
between 51% and 62.7% of the Common Stock of the Company, depending on the
amount of the Company's borrowings from the Creditor. Upon the closing of the
1996 Restated and Amended Note Purchase Agreement (the "1996 Note Purchase
Agreement"), the Company issued an additional note to the Creditor in the amount
of $1,433,290. The 1996 Note Purchase Agreement also gave the Company the option
to issue additional notes to the Creditor, provided that the aggregate amount of
the additional notes did not exceed $9 million. The Company had issued
F-9
additional notes for $500,000 as of September 30, 1996. In 1997, the Company
issued additional notes for $6,500,000 which brought the total amount of notes
outstanding at September 30, 1997 to $11,796,525.
In October 1997, the Creditor and the Company restated and amended the
1996 Note Purchase Agreement, principally to provide the Company the ability to
pay back a portion of convertible notes. Upon the closing of the 1997 Note
Purchase Agreement ("the 1997 Agreement"), the Company exchanged all outstanding
convertible notes for a new convertible note ("Note A") to the Creditor in the
amount of $11,796,525. Under the terms of the 1997 Agreement, the Company
obtained additional advances from the Creditor in the amount of $2,000,000.
Funds advanced to the Company were added to Note A, which incurred interest at
prime plus 3% and was payable in full on December 31, 1998.
The Company also issued a second non-convertible note ("Note B") under the
1997 Agreement in the amount of $1,802,626 to the Creditor. This amount
consisted of $1,402,895 for all of the outstanding aggregate accrued interest at
September 30, 1997 on the previously outstanding notes, $29,731 for accrued
interest to the date of the 1997 Agreement, and $370,000 as consideration for
certain lease guarantees provided by the Creditor. The outstanding balance of
Note B increased by the amount of interest that accrued on Note A ($120,925
through May 12, 1998). Note B incurred interest at prime plus 3% and was payable
in full (interest and principal) on December 31, 2000.
In May 1998 (the "1998 Agreement") the Creditor and the Company restated
and amended the 1997 Note Purchase Agreement, principally to rescind all
convertible rights of the Creditor and to release the Creditor from guarantees
on certain lease agreements. Upon the closing of the 1998 Agreement the Company
exchanged Notes A and B for a new non-interest-bearing, non-convertible note
("1998 Note") to the Creditor in the amount of $8,000,000. The 1998 Note is due
and payable on May 12, 2001. The $8,482,590 of debt forgiveness in restructuring
Notes A and B into the 1998 Agreement is recorded as an extraordinary gain in
the statement of operations for the year ended September 30, 1998.
In connection with the financing agreements, the Company incurred
cumulative financing costs of $805,139, including $370,000 payable to the
Creditor as compensation for their guarantee of certain lease agreements. Under
the 1998 Agreement, the Creditor was released from all guarantees on certain
lease agreements. Since the creditor no longer guaranteed the lease agreements
upon execution of the Securities Purchase Agreement (see Note 5), the deferred
financing costs were written down to zero during the year ended September 30,
1998.
On November 27, 1996, the Company entered into a promissory note (the
"Note") for $80,000 with the Housing and Redevelopment Authority of the City of
Saint Paul. The Note bears interest at 10.25% per annum and is payable
semi-annually through its maturity date of November 27, 2001. The provisions of
the accompanying loan agreement allow for all or a portion of the Note to be
forgiven based on defined employment levels and for events of default which may
accelerate the due date.
On September 14, 1999, the Company entered into an unsecured, convertible
note payable (the "Note") with a network and enterprise management software
company (the "Investor" in Note 5) in the amount of up to $1,790,000. Upon the
execution of the Note, the Investor advanced $1,035,147 to the Company. In
October 1999, the Investor advanced the remaining funds to the aggregate amount
of $1,790,000. Under the Note, the outstanding principal and all accrued
interest shall be converted into Series B-1 Common Stock on September 14, 2004
at a conversion price of $37.07 per share.
The outstanding principal of the Note and all accrued interest can be
converted into Series B-1 Stock at $37.07 per share at any time by the Investor.
The Company has the right to convert the Note and all accrued interest upon the
F-10
closing of any future equity financing of at least $3,000,000 from an investor
other than the holder of the Note (the "First Financing"), immediately prior to
the closing of a merger, sale or consolidation of the Company which occurs prior
to the First Financing or immediately prior to an initial public offering of the
Company's stock.
Under the Note, interest is due on the unpaid principal at the rate of 8%
per year and will accrue every six months beginning on March 14, 2000 until the
conversion into Series B-1 Common Stock.
The carrying amounts of the Company's debt instruments at September 30,
1999 and 1998 approximate fair value except for the 1998 Note whose fair value
is approximately $6,365,000 and $5,443,000, respectively, based on an assumed
interest rate of 15%.
During fiscal 1996 and 1997, the Company entered into several long-term
lease agreements covering certain equipment, computer hardware and computer
software which are classified as capital leases.
Leased assets included in the accompanying balance sheet as of September
30, 1999 consist of:
Property and equipment:
Computer hardware............................ $2,948,874
Computer software............................ 109,775
Furniture and fixtures....................... 698,791
-------------
3,757,440
Less accumulated amortization................. (2,415,016)
-------------
Net assets under capital leases............... $1,342,424
===============
Future minimum lease payments under capital leases and principal
maturities of long-term debt consist of the following:
Capital Long-Term
Leases Debt Total
-------------------------------------
Year ending September 30:
2000 $ 969,427 $ 15,841 $ 985,268
2001 542,750 8,017,507 8,560,257
2002 266,896 19,347 286,243
2003 - - -
2004 - 1,035,147 1,035,147
-------------------------------------
Total minimum payments 1,779,073 9,087,842 10,866,915
Less amount representing interest 189,895 - 189,895
-------------------------------------
Present value of net minimum 1,589,178 9,087,842 10,677,020
payments
Less current portion 844,691 15,841 860,532
-------------------------------------
Long-term debt and capital lease $ 744,487 $9,072,001 $ 9,816,488
obligations
=====================================
5. SALE OF SERIES B-1 COMMON STOCK
On May 12, 1998, the Company entered into a Securities Purchase Agreement
(the "Agreement") with a network and enterprise management software company (the
"Investor"). Under the Agreement, the Investor agreed to purchase an aggregate
of 148,365 shares of Series B-1 Common Stock at $37.07 per share for total
proceeds of $5,500,000 contingent upon the achievement of certain technical
F-11
milestones. As of September 30, 1999, the Company had issued 148,365 shares
(26,974 shares issued during 1999) of Series B-1 Common Stock at $37.07 per
share for total proceeds of $5,500,000 ($1,000,000 in 1999).
In connection with the Agreement, the Company granted the Investor a
warrant to purchase 140,789 shares of Series B-2 Common Stock at $37.07 per
share. The warrant is immediately exercisable and expires on May 12, 2008.
Additionally, the Investor agreed to guarantee certain lease obligations
previously guaranteed by the Creditor of the 1998 Agreement (see Note 4). The
Company granted the investor a security interest in all assets of the Company to
secure the guarantee.
The Series B Common Stock has liquidation preference over other Common
Stock equal to $5,500,000 (assuming all Series B-1 shares are issued). The
liquidation is junior to the $8,000,000 non-interest-bearing note payable under
the 1998 Agreement (See Note 4). The Series B Common Stock is redeemable at the
option of the Investor at any time after May 12, 2005 at $5,500,000 (assuming
all Series B-1 shares are issued) plus the amount paid to exercise the warrants
if the warrants have been exercised. The Series B Common Stock is convertible
into general Common Stock at any time at the option of the Investor and
automatically upon an initial public offering as defined in the Agreement.
On March 10, 1999, the Company issued 53,952 shares of Series B-1 Common
Stock at $37.07 per share to the Investor for total proceeds of $2,000,000.
On September 14, 1999, the Company entered into an agreement and release
with Investor, under which the Company issued 49,096 shares of Series B-1 Common
Stock at $37.07 per share or total consideration of $1,820,000. The total
consideration consisted of $1,500,000 of cash and $320,000 of parts used in the
development of the Company's technology and products. Under the agreement, the
Company also agreed to pay the Investor a royalty of .5% of future sales in
excess of $10,000,000 of products utilizing Investor's technology under a
perpetual, non-exclusive license as defined in the agreement.
Additionally, the Company issued the Investor a warrant to purchase 40,000
shares of the Company's Common Stock at the offering price to the public in an
initial public offering of the Company's stock. The exercise price of the
warrant is the fair market value of the Company's Common Stock on the date of
its initial public offering. If the Company's Common Stock is not traded on an
exchange at the time of exercise, the fair market value is the price established
by the Company's Board of Directors. The warrant expires on September 13, 2004.
6. OPERATING LEASES
The Company leases various property and equipment under operating leases
that expire on various dates through fiscal 1999. In 1996, the Company entered
into operating leases for its office facility in St. Paul, Minnesota and its
technical facility in Santa Clara, California, which expire in fiscal 2002 and
1999, respectively. Operating expenses including maintenance, certain utilities
and insurance are paid by the Company. Total rent expense under non-cancelable
operating leases was $498,922 and $512,051 for the years ended September 30,
1999 and 1998, respectively.
F-12
Future minimum lease rental payments, excluding operating costs, required
under non-cancelable operating leases in excess of one year as of September 30,
1999 are as follows:
2000............................ $164,829
2001............................ 170,817
2002............................ 73,461
-------------
$409,107
=============
7. INCOME TAXES
Upon inception, the Company operated as an S Corporation whereby taxable
income or loss was passed through to the shareholders. The Subchapter S election
was terminated on May 31, 1994 and, as a result, the Company became subject to
federal and state income taxes. Also, as of that date, the Company's accumulated
deficit of $307,754 incurred while the Company was an S Corporation was
reclassified to additional paid-in capital.
At September 30, 1999, the Company had net operating loss carryforwards of
approximately $18.5 million which are available to offset future taxable income
and begin to expire in the year 2010 and which are subject to limitations if
significant ownership changes occur.
The net deferred tax assets resulting from net operating loss
carryforwards and other temporary differences are fully offset by a valuation
allowance.
8. STOCK OPTIONS AND WARRANTS
The Company has a stock option plan (the 1997 Stock Option Plan) which
provides for the granting up to a total of 600,534 incentive stock options to
employees and nonqualified stock options to employees, directors, and
consultants. Certain incentive stock options granted to employees vest according
to a two-phase schedule. In phase one no options shall vest until the sooner of
the following dates: (1) January 2, 1999, or (2) 90 days after the Company's
initial public offering. Upon the occurrence of the sooner of the dates in phase
one, options shall vest according to optionee's years of service with the
Company, measured retroactively from the date of first employment with the
Company and extending over a subsequent period of no longer than six years,
beginning with 20% vesting on the first anniversary date of employment and
increasing in 20% increments each year thereafter. The incentive stock options
granted during 1999 generally vest 25% each year from the grant date. The
non-qualified stock options granted vest immediately.
F-13
Stock options and warrants outstanding are summarized as follows:
Shares Available Weighted Average
For Grant Under Plan Options Outstanding Exercise Price
the Plan Incentive Non-Qualified Per Share
-------------------------------------------------------------------------
Balance at September 30, 1997 142,899 132,358 25,010 $7.20
Additional shares authorized 300,267 - - -
Granted (200,224) 156,224 44,000 7.20
Canceled 74,695 (74,695) - 7.20
---------------------------------------------------
Balance at September 30, 1998 317,637 213,887 69,010 7.20
Granted (316,840) 213,840 103,000 7.26
Canceled 4,000 (4,000) - 7.20
---------------------------------------------------
Balance at September 30, 1999 4,797 423,727 172,010 $7.23
===================================================
Options and warrants exercisable
at September 30, 1999 162,591 172,010 $7.25
================================
Options and warrants exercisable
at September 30, 1998 - 69,010 $7.20
================================
The Company accounts for stock options under APB 25, under which no
compensation cost has been recognized. Had compensation cost for these options
been determined consistent with Statement of Financial Accounting Standards No.
123 (FAS No. 123), ACCOUNTING FOR STOCK-BASED COMPENSATION, the net loss would
have been increased to $8,263,034 compared to $7,916,330 as reported for the
year ended September 30, 1999. The impact of FAS No. 123 was not material for
1998.
For purposes of calculating the above required disclosure, the fair value
of each option grant is estimated on the date of grant using the minimum value
option pricing model with the following weighted average assumptions used for
grants in 1999, respectively, risk-free interest rates of 5.25%, no expected
dividend yield and expected life of four years.
The weighted average fair value of options granted during 1999 was $1.31
per share. Options issued which remain outstanding at September 30, 1999, have a
weighted average exercise price of $7.23 per share and had a weighted average
remaining contractual life of 7.5 years.
For the year ended September 30, 1998, the Company recorded compensation
expense of $48,440 in connection with non-qualified stock options granted to
outside consultants.
As of September 30, 1999, the Company had outstanding warrants to purchase
a total of 218,153 shares of Common Stock at a weighted average exercise price
of $31.87 per share. The warrants expire at various dates through May 2008.
9. RELATED PARTY TRANSACTION
In June 1996, the Company loaned the President and Chief Executive Officer
of the Company $110,000 under a promissory note. The note, including accrued
interest at 7.25% per annum, was due on or before June 10, 2001. During 1999,
the Board of Directors agreed to cancel the promissory note along with the
accrued interest which resulted in a $133,541 expense to the Company. This
amount is shown as a separate line item in the statement of operations for the
year ended September 30, 1999.
F-14
10. BENEFIT PLAN
The Company has a defined contribution retirement plan covering
substantially all employees under Section 401(k) of the Internal Revenue Code.
The Company recorded an expense of $57,082 and $45,897 for contributions to the
Plan for the years ended September 30, 1999 and 1998, respectively.
11. YEAR 2000 (UNAUDITED)
Like other business organizations, the Company could be adversely affected
if the computer systems used by the Company or its customers and suppliers do
not properly process and calculate date-related information and data from and
after January 1, 2000. This is commonly known as the "Year 2000 Issue."
Management is taking steps that it believes are reasonably designed to address
the Year 2000 Issue with respect to computer systems that the Company uses, and
to obtain reasonable assurances that appropriate steps are taken by customers,
suppliers and other major service providers. At this time, however, there can be
no assurance that these steps will be sufficient to avoid any adverse impact to
the Company.
F-15
START HERE
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
NETRIX CORPORATION. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES IN ANY JURISDICTION TO ANY 1,327,275
PERSON TO WHOM IT IS UNLAWFUL TO MAKE AN SHARES OF
OFFER. NEITHER THE DELIVERY OF THIS COMMON STOCK
PROSPECTUS NOR ANY SALE MADE PURSUANT TO
THIS PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF NETRIX CORPORATION SINCE THE
DATE OF THIS PROSPECTUS OR THAT THE -------------
INFORMATION CONTAINED IN THIS PROSPECTUS
IS CORRECT AS OF ANY TIME SUBSEQUENT TO PROSPECTUS
ITS DATE.
-------------
----------------
TABLE OF CONTENTS
PAGE
SUMMARY.................................2
RISK FACTORS............................4
WHERE YOU CAN FIND MORE INFORMATION....10
SPECIAL NOTE REGARDING FORWARD FEBRUARY ___, 2000
LOOKING STATEMENTS..................11
USE OF PROCEEDS........................11
SELLING SECURITY HOLDERS...............12
NETRIX SELECTED CONSOLIDATED
FINANCIAL DATA......................14
NETRIX UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS...16
BUSINESS...............................21
MANAGEMENT.............................29
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT....31
PLAN OF DISTRIBUTION...................32
LEGAL MATTERS..........................33
EXPERTS................................33
INDEX TO AETHERWORKS FINANCIAL
STATEMENTS.........................F-1
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.
TYPE OR NATURE OF EXPENSE AMOUNT TO BE PAID
SEC registration fee........................ $ 6,323
Accounting fees and expenses................ 25,000
Legal fees and expenses..................... 15,000
Miscellaneous............................... 10,000
-----------
Total................................ $ 56,323
============
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.
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
II-1
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
Exhibit
Number Description
- ------- -----------
2.1 Agreement and Plan of Merger, dated September 30, 1999, between
Netrix Corporation and OpenROUTE Networks, Inc. (incorporated by
reference to Exhibit 4.2 to Netrix's quarterly report on Form 10-Q
filed on August 16, 1999).
2.2 Amendment to Agreement and Plan of Merger between Netrix
Corporation and OpenROUTE Networks, Inc., dated November 9, 1999
(incorporated by reference to Netrix's registration statement on
Form S-4 filed on November 19, 1999).
2.3 Agreement and Plan of Merger, dated December 31, 1999 among Netrix
Corporation, Nx1 Acquisition Corp. and AetherWorks Corporation
(incorporated by reference to Exhibit 2.1 to Netrix's current
report on Form 8-K filed on January 14, 2000).
3.1 Amended and Restated Certificate of Incorporation of Netrix
Corporation (incorporated by reference to Exhibit 3.1 to Netrix's
registration statement on Form S-1 filed on September 18, 1992,
as amended, File No. 33-50464 (the "1992 S-1")).
3.2 Amendment to Certificate of Incorporation of Netrix Corporation
dated August 26, 1999 (incorporated by reference to Exhibit 4.8 to
Netrix's registration statement on Form S-3, filed on June 18,
1999, as amended, File No. 333-81109 (the "1999 S-3")).
3.3 Certificate of Merger between Netrix Corporation and OpenROUTE
Networks, Inc.
4.1 Specimen certificate of common stock of Netrix Corporation
(incorporated by reference to Exhibit 4.2 to Netrix's 1992 S-1).
4.2 Certificate of designations for the form of Series A 8%
convertible preferred stock of Netrix Corporation (incorporated
by reference to Exhibit 4.4 to Netrix's 1999 S-3).
4.3 Supplemental certificate of designations for the form of Series A
8% convertible preferred stock of Netrix Corporation (incorporated
by reference to Exhibit 4.2 to Netrix's quarterly report on Form
10-Q filed on August 16, 1999).
II-2
Exhibit
Number Description
- ------- -----------
4.4 Form of Warrant issued to Kaufman Bros., L.P. (incorporated by
reference to Exhibit 4.6 of Netrix's quarterly report on Form
10-Q, filed November 15, 1999).
5.1 Opinion of Kelley Drye & Warren LLP regarding the validity of
the securities being registered.
10.1 Loan and Security Agreement, dated November 18, 1997, by and
between Netrix Corporation and Coast Business Credit, a division
of Southern Pacific Bank (incorporated by reference to Exhibit
4.2 to Netrix's quarterly report on Form 10-Q filed on August
16, 1999).
10.2 Amendment to Loan and Security Agreement, dated April 19, 1999, by
and between Netrix Corporation and Coast Business Credit, a
division of Southern Pacific Bank (incorporated by reference to
Exhibit 4.2 to Netrix's quarterly report on Form 10-Q filed on
August 16, 1999).
10.3 Employment Agreement between Netrix Corporation and Steven T.
Francesco, dated March 22, 1999 (incorporated by reference to
Exhibit 10.5 to Netrix's quarterly report on Form l0-Q, filed on
November 15, 1999).
10.4 Employment Agreement between Netrix Corporation and Peter J.
Kendrick, dated August 2, 1999 (incorporated by reference to
Exhibit 10.6 to Netrix's quarterly report on Form 10-Q, filed on
November 15, 1999).
10.5 Form of Retention Agreement with Executive Officers of Netrix
Corporation (incorporated by reference to Exhibit 10.7 to Netrix's
quarterly report on Form l0-Q, filed on November 15, 1999).
10.6+ Manufacturing Agreement, dated September, 1999, by and between
Netrix Corporation and SMT Centre S.F. Inc. (incorporated by
reference to Exhibit 10.8 to Netrix's quarterly report on Form
10-Q, filed on November 15, 1999).
10.7 1999 Long Term Incentive Plan of Netrix Corporation, as amended
(incorporated by reference to Exhibit 10.9 to Netrix's quarterly
report on Form 10-Q filed on November 15, 1999).
10.8 Amended and Restated Incentive Stock Option plan of Netrix
Corporation, as amended (incorporated by reference to Exhibit 10.1
of the Annual Report of Form 10-K for the fiscal year ended
December 31, 1995).
10.9 1992 Employee Stock Purchase Plan of Netrix Corporation
(incorporated by reference to Exhibit 10.2 of Netrix's 1995
10-K).
10.10 1992 Directors Stock Option Plan of Netrix Corporation
(incorporated by reference to Exhibit 10.3 of Netrix's 1995
10-K).
10.11 1996 Stock Option Plan of Netrix Corporation (incorporated by
reference to Exhibit 10.4 of Netrix's 1995 10-K).
II-3
Exhibit
Number Description
- ------- -----------
10.12 Office lease, dated December 9,1988, as amended, by and between
Netrix Corporation and Dulles Technology Center Venture, for
Netrix's principal executive offices at 13595 Dulles Technology
Drive, Herndon, Virginia (incorporated by reference to Exhibit
10.6 of Netrix's 1992 S-1).
10.13 Office Sublease, dated September 30, 1999, by and between Netrix
Corporation and Scoreboard, Inc. (incorporated by reference to
Exhibit 10.14 to Netrix's quarterly report on Form l0-Q, filed on
November 15, 1999).
10.14 Manufacturing Services Agreement, dated August 1, 1989, by and
between OpenROUTE Networks, Inc., and Texas Instruments, Inc.
(filed as Exhibit 10.3 to OpenROUTE's registration statement on
Form S-1, Commission File No. 33-40073).
10.15 Purchase Agreement, dated December 1, 1990, by and between
OpenROUTE Networks, Inc., and Texas Instruments, Inc. (filed as
Exhibit 10.4 to OpenROUTE's registration statement on Form S-1).
10.16+ Software License Agreement, dated January 1, 1990, by and
between OpenROUTE Networks, Inc. and Noel Chiappa (filed as
Exhibit 10.5 to OpenROUTE's registration statement on Form S-1).
10.17 1991 Restated Stock Option Plan of OpenROUTE Networks, Inc.
(filed as Exhibit 19.1 to OpenROUTE's quarterly report on Form
10-Q for the quarter ended June 27, 1992).
10.18 1988 Nonqualified Stock Option Plan of OpenROUTE Networks, Inc.
(filed as Exhibit 10.7 to OpenROUTE's registration statement on
Form S-l).
10.19 Restated Employee Stock Award Plan of OpenROUTE Networks, Inc.
(filed as Exhibit 10.8 to OpenROUTE's registration statement on
Form S-1).
10.20 Lease Agreement, dated December 19, 1994, by and between OpenROUTE
Networks, Inc. and WCB Twenty Limited Partnership (filed as
Exhibit 10.31 to OpenROUTE's annual report on Form 10-K for the
year ended December 31, 1994).
II-4
Exhibit
Number Description
- ------- -----------
10.21 Amendment to Lease Agreement, dated December 19, 1994, by and
between OpenROUTE Networks, Inc. and WCB Twenty Limited
Partnership, dated May 23, 1997 (filed as Exhibit 10.18 to
OpenROUTE's annual report on Form 10-K for the fiscal year ended
December 31, 1997).
10.22 Revolving Credit Facility, dated February 2, 2000, between
Netrix Corporation and Steven T. Francesco.
10.23 Employment Agreement, dated January 4, 2000, between Netrix
Corporation and Greg McNulty.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of PricewaterhouseCoopers, LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Kelley Drye & Warren LLP (included in the opinion filed
as Exhibit 5.1 to this registration statement).
24 Power of Attorney (included in signature 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,
II-5
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.
II-6
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 February 10, 2000.
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.
SIGNATURE TITLE DATE
Chief Executive Officer;
Director; Chairman of the Board February 10, 2000
/s/ Steven T. Francesco of Directors
- ------------------------
Steven T. Francesco (Principal Executive Officer)
Vice President-Finance and
Administration and Chief February 10, 2000
/s/ Peter J. Kendrick Financial Officer (Principal
- ------------------------
Peter J. Kendrick Financial and Accounting Officer
/s/ John M. Faccibene* Director February 10, 2000
- ------------------------
John M. Faccibene
/s/ Gregory C. McNulty* Executive Vice President - February 10, 2000
- ------------------------
Gregory C. McNulty Worldwide Sales and Director
/s/ Douglas J. Mello* Director February 10, 2000
- ------------------------
Douglas J. Mello
11-7
/s/ Richard Yalen* Director February 10, 2000
- ------------------------
Richard Yalen
/s/ Thomas Liebermann* Director February 10, 2000
- ------------------------
Thomas Liebermann
/s/ Robert Glorioso* Director
- ------------------------
Robert Glorioso February 10, 2000
/s/ Lynn C. Chapman Vice Chairman and Director February 10, 2000
- ------------------------
Lynn C. Chapman
*By Peter J. Kendrick, attorney-in-fact
11-8
ITEM 27. EXHIBITS
(a) The exhibits listed below have been filed as part of this
registration statement.
Exhibit
Number Description
- ------- -----------
2.1 Agreement and Plan of Merger, dated September 30, 1999, between
Netrix Corporation and OpenROUTE Networks, Inc. (incorporated by
reference to Exhibit 4.2 to Netrix's quarterly report on Form 10-Q
filed on August 16, 1999).
2.2 Amendment to Agreement and Plan of Merger between Netrix
Corporation and OpenROUTE Networks, Inc., dated November 9, 1999
(incorporated by reference to Netrix's registration statement on
Form S-4 filed on November 19, 1999).
2.3 Agreement and Plan of Merger, dated December 31, 1999 among Netrix
Corporation, Nx1 Acquisition Corp. and AetherWorks Corporation
(incorporated by reference to Exhibit 2.1 to Netrix's current
report on Form 8-K filed on January 14, 2000).
3.1 Amended and Restated Certificate of Incorporation of Netrix
Corporation (incorporated by reference to Exhibit 3.1 to Netrix's
registration statement on Form S-1 filed on September 18, 1992,
as amended, File No. 33-50464 (the "1992 S-1")).
3.2 Amendment to Certificate of Incorporation of Netrix Corporation
dated August 26, 1999 (incorporated by reference to Exhibit 4.8 to
Netrix's registration statement on Form S-3, filed on June 18,
1999, as amended, File No. 333-81109 (the "1999 S-3")).
3.3 Certificate of Merger between Netrix Corporation and OpenROUTE
Networks, Inc.
4.1 Specimen certificate of common stock of Netrix Corporation
(incorporated by reference to Exhibit 4.2 to Netrix's 1992 S-1).
4.2 Certificate of designations for the form of Series A 8%
convertible preferred stock of Netrix Corporation (incorporated
by reference to Exhibit 4.4 to Netrix's 1999 S-3).
4.3 Supplemental certificate of designations for the form of Series A
8% convertible preferred stock of Netrix Corporation (incorporated
by reference to Exhibit 4.2 to Netrix's quarterly report on Form
10-Q filed on August 16, 1999).
II-9
Exhibit
Number Description
- ------- -----------
4.4 Form of Warrant issued to Kaufman Bros., L.P. (incorporated by
reference to Exhibit 4.6 of Netrix's quarterly report on Form
10-Q, filed November 15, 1999).
5.1 Opinion of Kelley Drye & Warren LLP regarding the validity of
the securities being registered.
10.1 Loan and Security Agreement, dated November 18, 1997, by and
between Netrix Corporation and Coast Business Credit, a division
of Southern Pacific Bank (incorporated by reference to Exhibit
4.2 to Netrix's quarterly report on Form 10-Q filed on August
16, 1999).
10.2 Amendment to Loan and Security Agreement, dated April 19, 1999, by
and between Netrix Corporation and Coast Business Credit, a
division of Southern Pacific Bank (incorporated by reference to
Exhibit 4.2 to Netrix's quarterly report on Form 10-Q filed on
August 16, 1999).
10.3 Employment Agreement between Netrix Corporation and Steven T.
Francesco, dated March 22, 1999 (incorporated by reference to
Exhibit 10.5 to Netrix's quarterly report on Form l0-Q, filed on
November 15, 1999).
10.4 Employment Agreement between Netrix Corporation and Peter J.
Kendrick, dated August 2, 1999 (incorporated by reference to
Exhibit 10.6 to Netrix's quarterly report on Form 10-Q, filed on
November 15, 1999).
10.5 Form of Retention Agreement with Executive Officers of Netrix
Corporation (incorporated by reference to Exhibit 10.7 to Netrix's
quarterly report on Form l0-Q, filed on November 15, 1999).
10.6+ Manufacturing Agreement, dated September, 1999, by and between
Netrix Corporation and SMT Centre S.F. Inc. (incorporated by
reference to Exhibit 10.8 to Netrix's quarterly report on Form
10-Q, filed on November 15, 1999).
10.7 1999 Long Term Incentive Plan of Netrix Corporation, as amended
(incorporated by reference to Exhibit 10.9 to Netrix's quarterly
report on Form 10-Q filed on November 15, 1999).
10.8 Amended and Restated Incentive Stock Option plan of Netrix
Corporation, as amended (incorporated by reference to Exhibit 10.1
of the Annual Report of Form 10-K for the fiscal year ended
December 31, 1995).
10.9 1992 Employee Stock Purchase Plan of Netrix Corporation
(incorporated by reference to Exhibit 10.2 of Netrix's 1995
10-K).
10.10 1992 Directors Stock Option Plan of Netrix Corporation
(incorporated by reference to Exhibit 10.3 of Netrix's 1995
10-K).
10.11 1996 Stock Option Plan of Netrix Corporation (incorporated by
reference to Exhibit 10.4 of Netrix's 1995 10-K).
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Exhibit
Number Description
- ------- -----------
10.12 Office lease, dated December 9,1988, as amended, by and between
Netrix Corporation and Dulles Technology Center Venture, for
Netrix's principal executive offices at 13595 Dulles Technology
Drive, Herndon, Virginia (incorporated by reference to Exhibit
10.6 of Netrix's 1992 S-1).
10.13 Office Sublease, dated September 30, 1999, by and between Netrix
Corporation and Scoreboard, Inc. (incorporated by reference to
Exhibit 10.14 to Netrix's quarterly report on Form l0-Q, filed on
November 15, 1999).
10.14 Manufacturing Services Agreement, dated August 1, 1989, by and
between OpenROUTE Networks, Inc., and Texas Instruments, Inc.
(filed as Exhibit 10.3 to OpenROUTE's registration statement on
Form S-1, Commission File No. 33-40073).
10.15 Purchase Agreement, dated December 1, 1990, by and between
OpenROUTE Networks, Inc., and Texas Instruments, Inc. (filed as
Exhibit 10.4 to OpenROUTE's registration statement on Form S-1).
10.16+ Software License Agreement, dated January 1, 1990, by and
between OpenROUTE Networks, Inc. and Noel Chiappa (filed as
Exhibit 10.5 to OpenROUTE's registration statement on Form S-1).
10.17 1991 Restated Stock Option Plan of OpenROUTE Networks, Inc.
(filed as Exhibit 19.1 to OpenROUTE's quarterly report on Form
10-Q for the quarter ended June 27, 1992).
10.18 1988 Nonqualified Stock Option Plan of OpenROUTE Networks, Inc.
(filed as Exhibit 10.7 to OpenROUTE's registration statement on
Form S-l).
10.19 Restated Employee Stock Award Plan of OpenROUTE Networks, Inc.
(filed as Exhibit 10.8 to OpenROUTE's registration statement on
Form S-1).
10.20 Lease Agreement, dated December 19, 1994, by and between OpenROUTE
Networks, Inc. and WCB Twenty Limited Partnership (filed as
Exhibit 10.31 to OpenROUTE's annual report on Form 10-K for the
year ended December 31, 1994).
II-11
Exhibit
Number Description
- ------- -----------
10.21 Amendment to Lease Agreement, dated December 19, 1994, by and
between OpenROUTE Networks, Inc. and WCB Twenty Limited
Partnership, dated May 23, 1997 (filed as Exhibit 10.18 to
OpenROUTE's annual report on Form 10-K for the fiscal year ended
December 31, 1997).
10.22 Revolving Credit Facility, dated February 2, 2000, between
Netrix Corporation and Steven T. Francesco.
10.23 Employment Agreement, dated January 4, 2000, between Netrix
Corporation and Greg McNulty.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of BDO Seidman, LLP.
23.3 Consent of PricewaterhouseCoopers, LLP.
23.4 Consent of Ernst & Young LLP.
23.5 Consent of Kelley Drye & Warren LLP (included in the opinion filed
as Exhibit 5.1 to this registration statement).
24 Power of Attorney (included in signature page).
II-12