-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FMr5CMFTT1WtdLD+rUgzOLZcWLmANtZ56Z39S0U5ravYgbrwd3rIHbVWBeBcGiyE yaQ3eJ8bfSe1Wd38dk6kSA== 0000950134-99-003409.txt : 19990503 0000950134-99-003409.hdr.sgml : 19990503 ACCESSION NUMBER: 0000950134-99-003409 CONFORMED SUBMISSION TYPE: 20-F PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990430 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OLICOM A S CENTRAL INDEX KEY: 0000891426 STANDARD INDUSTRIAL CLASSIFICATION: COMPUTER COMMUNICATIONS EQUIPMENT [3576] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 20-F SEC ACT: SEC FILE NUMBER: 000-20738 FILM NUMBER: 99605934 BUSINESS ADDRESS: STREET 1: NYBROVEJ 114 STREET 2: DK 2800 LYNGBY CITY: DENMARK STATE: G7 BUSINESS PHONE: 2144237560 20-F 1 FORM 20-F - ANNUAL REPORT FOR YEAR END 12/31/98 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 20-F [ ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 or [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1998 or [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to ___________ Commission File number 0-20738 ------------------------ OLICOM A/S (Exact name of registrant as specified in its charter) N/A THE KINGDOM OF DENMARK (Translation of Registrant's (Jurisdiction of incorporation or name into English) organization) ------------------------ NYBROVEJ 114 DK-2800 LYNGBY DENMARK (Address of principal executive offices) ------------------------ Securities registered or to be registered pursuant to Section 12(b) of the Act: None Securities registered or to be registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE ON TITLE OF EACH CLASS WHICH REGISTERED Common Shares, nominal value DKK 0.25 each Nasdaq National Market Common Stock Purchase Warrants Nasdaq National Market
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: Common Shares, nominal value DKK 0.25 each Common Stock Purchase Warrants ------------------------ Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report: Common Shares, nominal value DKK 0.25 each: 18,523,473 Common Stock Purchase Warrants: 923,158 Indicate by check mark whether the Registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark which financial statement item the Registrant has elected to follow: Item 17 [ ] Item 18 [X] 2 DOCUMENTS INCORPORATED BY REFERENCE None. 2 3 ITEM 1. DESCRIPTION OF BUSINESS. Certain statements included in this Report include trend analysis and are forward-looking statements (within the meaning of Section 27A of the United States Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the United States Securities Exchange Act of 1934, as amended (the "Exchange Act")), including, without limitation, statements containing the words "believes", "anticipates", "expects" , "plans", "may", "will", "should", "objective", "target", "goal", "strategy" or "continue" or the negative of such terms or other words of similar import. Such forward-looking statements relate to future events, the future financial performance of the Company, and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Prospective investors should specifically consider the various factors identified in this Report that could cause actual results to differ, including, without limitation, those discussed in the following section, as well as in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations". The Company is under no duty to update any such factors or to update any of the forward-looking statements after the date of this Report to conform such statements to actual results. Olicom A/S ("Olicom" or the "Company") develops, markets and supports network software and hardware products that enable personal and work-group computer users to communicate, exchange data and share computing resources in local area networks ("LANs"), in wide area networks ("WANs") and over the Internet. Olicom's target customers include Global 1000 corporations with mission-critical enterprise networks that require additional bandwidth to support increasingly demanding applications. The Company believes that its suite of Token-Ring, ATM and Ethernet solutions offer superior performance, are price competitive and are fully compatible with applicable industry standards (such as Institute of Electrical and Electronics Engineers ("IEEE") standards) and networking products manufactured by other major vendors. Olicom's products are marketed worldwide, primarily through distributors, value-added resellers (including dealers, systems integrators and other resellers) ("VARs") and original equipment manufacturer customers ("OEMs"). COMPANY HISTORY Olicom was organized in the Kingdom of Denmark in 1985. Since 1987, Olicom has been involved in the design, development and production of high-quality networking products. In 1988, Olicom began marketing an increasingly broader range of network interface cards ("NICs" or "adapters"), internetworking products, hubs and cabling components, repeaters, converters, filters and associated software drivers. In order to provide global support for an increasingly broad product line, the Company established Olicom, Inc. in 1990, with its headquarters in metropolitan Dallas, to coordinate marketing in North and South America. In late 1991, Olicom introduced a line of Token-Ring bridging products. In 1992, an acquisition enabled Olicom to broaden its product line to Ethernet networks, and in 1995, Olicom began shipping 155 Mbps Asychronous Transfer Mode ("ATM") NICs. 3 4 In June 1997, with the acquisition of CrossComm Corporation ("CrossComm"), Olicom acquired a chassis-based integrated networking platform for its Token-Ring, Ethernet and ATM solutions. In September 1997, Olicom introduced advanced Token-Ring and ATM switching solutions, including the CrossFire(R) 8600 Token Ring Switch. In March 1998, the Company announced a suite of Fast Ethernet switching products designed for customers migrating from Token-Ring to Fast Ethernet. STRATEGY The Company's objective is to improve its profitability and enhance its market position as a leading provider of Token Ring NIC and switching products. Additionally, the Company is taking steps to position itself to take advantage of a current transition in data networking to a more diversified environment as exemplified by the growth of Fast Ethernet. During 1998, accelerated pricing pressure, particularly in Olicom's Token-Ring NIC business, prompted a detailed evaluation of the Company's Token-Ring business. As a result of this review, Olicom embarked on a strategy to regain profitability by streamlining expenses and costs, while implementing a new sales and marketing model that is designed to increase brand awareness and consideration for its products, as well as enhance the productivity of Olicom's sales force. At the same time, Olicom's strategy addresses the perceived change to a more diversified environment by focusing the Company on carefully selected, growth-oriented niche markets where it is likely to benefit from the growth in mission critical, Fast Ethernet local area networks. Olicom's reputation for product reliability and excellence in customer support are expected to be of a substantial value to this segment of the market. The key elements of the Company's strategy include the following: o IMPROVE PROFITABILITY AND ENHANCE LEADERSHIP POSITION IN THE TOKEN-RING DATA NETWORKING MARKET The Company remains fully committed to the Token-Ring business, where Olicom's technological expertise and service excellence have enabled the Company to achieve market leadership. The Company will continue to develop products for this market. Olicom's goal is to improve the profitability of its products, and maintain its leadership position, in this market segment. o HELP TOKEN RING USERS MIGRATE TO FAST ETHERNET While the Company continues to believe that Token-Ring has a crucial place in networks for the foreseeable future, the Company believes that Token-Ring enterprises are likely to incorporate Fast Ethernet in parts of their network architecture going forward. Against this backdrop, Olicom is making a concerted effort to address the needs of carefully selected niche markets among Fast Ethernet users. 4 5 Olicom's approach to penetrating the Fast Ethernet market is based on a two-step, niche marketing approach to the business. During the first stage, Olicom will target the subset of its highly loyal Token-Ring customer base that has decided to begin using Fast Ethernet in data networks. The Company will launch products that facilitate the transition of these Token-Ring users to the Fast Ethernet environment. The Company will draw upon its broad understanding of the needs of Token-Ring users to develop products that support Fast Ethernet and other technologies in the local area network environment, while offering high function availability. In the second stage, Olicom intends to build upon its anticipated success in transitioning Token-Ring users to Fast Ethernet by targeting medium-sized, mission critical Fast Ethernet installations. The Company expects that its Fast Ethernet products should benefit from the competencies derived from its leadership position in mission critical Token-Ring networks, where availability and service responsiveness drive the buying decision. Olicom expects the medium size network market to grow substantially over the next three to five years as a result of the networked global economy encompassing electronic commerce and supply chain integration with the Internet. In this complex, multi-topological networking environment, Olicom, with its reputation for technological sophistication, combined with its existing base of Token-Ring users, believes the Company will be well-positioned to succeed. o ALLIANCES AND PARTNERSHIPS To exploit new and emerging technologies and to further develop the Company's market reach in core businesses, Olicom intends to actively pursue strategic alliances and partnerships. Pursuant to the strategy of focussing on the Company's core businesses, in January 1999 Olicom divested its interest in Lasat A/S ("Lasat"), a producer of PC modems. Additionally, in February 1999 the Company signed a letter of intent with Cabletron Systems ("Cabletron") to establish a global marketing agreement whereby Cabletron will OEM a variety of Olicom's Token-Ring Switch products, and Olicom will OEM Cabletron's award-winning SmartSwitch Router 8000. The global agreement enables both Olicom and Cabletron to enhance current product offerings with complementary strengths. Olicom is the industry's price performance leader in the Token-Ring Switch market and is recognized worldwide for its excellence in engineering and design. Cabletron's SmartSwitch Router is considered best of class in its product category, offering feature-rich, low-cost, high-performance networking capabilities. PRODUCTS The Company's strategic focus is to address the local area networking needs of large and medium size corporations and organizations, as they transition from shared, medium speed network topologies like 16 Mbps Token Ring and 10 Mbps Ethernet to switched, high-speed networks. Olicom offers enterprises using Token-Ring LANs a comprehensive migration strategy known as ClearStep(R), to increase LAN capacity in a controlled, cost-effective manner, while preparing the way for technologies such as ATM, Fast Ethernet, Gigabit Ethernet and High-Speed Token-Ring. In addition to offering superior performance and features, the Company's products are fully compatible with applicable industry standards, adhere to all relevant IEEE standards, and provide connectivity among all major PC architectures and network operating systems. 5 6 The Company selectively broadens its product line as the market for specific networking and internetworking products develops, working closely with key end-users to define emerging market requirements and features that should be addressed. Desktop Network Interface Cards. Network Interface Cards ("NICs" or "adapters") provide connectivity between a PC and the network. Olicom NICs provide support for industry standard speeds and features, as well as support for leading network operating systems developed by major vendors. In addition, the Company continues to develop specially tuned high-performance versions of its NIC software drivers and Application Specific Integrated Circuit ("ASIC") technology, providing highly competitive performance and features. Notebook Connectivity Products. Olicom's GoCard(R) range of PC Card (formerly called "PCMCIA") adapters provides network connection for the rapidly growing portable computing market. Olicom offers GoCard(R) adapters for Token-Ring and Ethernet networks. Network System Products. Olicom's network systems products include LAN switches, routers, router switches and network management products. Together, these products provide the high-speed solutions for implementing the Company's ClearStep migration strategy. The CrossFire(R) family of switches provides cost-effective solutions for building local area networks that connect desktop work groups and servers. The Company's Token-Ring and Fast Ethernet switches also provide uplinks to high-speed technologies such as ATM, High-Speed Token-Ring, Fast Ethernet and Gigabit Ethernet. In addition, the CrossFire 8000 Chassis solution houses up to eight modules for flexible networking solutions. The Company also markets chassis-based and stand-alone multi-protocol routers for internetwork communication. In addition, Olicom's hubs and cabling products provide a broad range of connectivity options, including Controlled Access Units ("CAUs"), Controlled Attachment Modules ("CAMs") and Multistation Access Units ("MAUs"). With the purchase of CrossComm in 1997, Olicom acquired an advanced network management system. This system, now called the ClearSight(TM) Network Management System, has been further developed, providing end-to-end management and diagnostic support for Olicom enterprise products. In addition, many Olicom products are shipped with Simple Network Management Protocol (SNMP) software utilities, allowing integration into industry-standard management systems such as HP OpenView for Windows. Network Services. Olicom network services include network monitoring, training, installation and on call site maintenance. These services are sold by Olicom and performed by selected partners such as Vital Network Services and other value added resellers around the world. STRATEGIC RELATIONSHIPS The Company's strategy of working with third parties to develop new product capabilities has resulted in either joint-development agreements, joint-marketing agreements, OEM sales agreements, 6 7 technology alliances or other types of relationships with several companies such as Cabletron, Cisco Systems, Inc. ("Cisco"), Texas Instruments and International Business Machines Corporation ("IBM"). During 1996, Olicom and Cisco signed a long-term agreement to jointly develop Token-Ring products and technology. Under this agreement, the two companies have developed and launched several Token-Ring switches. These products are offered separately and under each company's respective brand names. Under the agreement, Cisco is purchasing core Token-Ring technology from Olicom, including Olicom's PowerMACH(TM) software, for use in present and future Cisco internetworking products. With this Token-Ring switch, Olicom intends to focus on delivering industry leading price/performance. In connection with the license of the Cisco technology, Olicom has agreed not to enter into direct relationships with certain vendors for the licensing, distribution or development of products based on, or using, Cisco technology or its derivatives. PRODUCT SALES AND MARKETING Olicom markets and sells its products through carefully targeted indirect distribution channels that include distributors, resellers (including dealers, systems integrators, VARs and other resellers) and OEMs. The Company's sales strategy is to create a demand for its products using a "push-pull" strategy. The "push" factor is comprised of incentives for distributors and resellers to sell Olicom products. The "pull" factor describes the Company's efforts to generate demand from end users through extensive marketing efforts and the creation of product awareness. The Company's resellers generally represent other lines of products that are complementary to, or compete with, those of the Company. While the Company encourages its resellers to focus on Olicom products through marketing and support programs, there can be no assurance that these resellers will not give higher priority to products of other suppliers, thereby reducing the efforts devoted to selling the Company's products. As distributors, resellers and OEMs have no long-term obligations to purchase products from the Company, there is a risk of unanticipated declines in sales to the Company's material customers for competitive reasons or because of the internalization of the manufacture of products purchased from the Company on an OEM basis. The Company's marketing programs include generating sales leads for its resellers, as well as supporting the efforts of its distributors, resellers and OEMs. To this end, the Company provides sales tools, including demand creation through telemarketing, an extensive training and support certification program, and the creation of brand name recognition for Olicom and its products. Brand name recognition is enhanced through frequent participation in industry trade shows, seminars and meetings, advertisement in major trade and other publications, ongoing communication with end users of Olicom products, and participation in public benchmark testing. The Company undertakes mailings of sales literature, technical articles and product evaluations, and provides sales manuals and demonstration kits to end-users. In addition, the Company assists its distributors, resellers and OEMs with on-site support by way of sales presentations and product demonstrations. The Company's distributors, resellers and OEMs generally have non-exclusive agreements with the Company, and purchase the Company's products at discounts that are typical in the industry. As is common in the LAN industry, distributor inventory is protected with respect to price as to inventories that a distributor may have on hand at the time of a change in the published list price, and with respect to the rotation of slow-moving inventory in exchange for other products of equal value. 7 8 The Company has also developed a marketing presence on the Internet and promotes its products and services through its own World Wide Web server. This medium allows publicly available Olicom literature to be accessible to anyone who has an Internet connection. The Company markets its products worldwide, with established distribution channels in North and South America, Europe and the Asia-Pacific region. The Company has sales representatives in the major metropolitan areas of North America and on the major continents, including the key Western European markets. During 1998, approximately 51% of the Company's total sales were concentrated in North and South America (the "Americas"), while sales outside the Americas accounted for approximately 49% of total sales. See note 13 to the Consolidated Financial Statements for information relating to net sales during 1996, 1997 and 1998 by geographical market, as well as information regarding net sales during 1996, 1997 and 1998 to major customers. The Company's international sales headquarters is located in greater Copenhagen, Denmark. The marketing of products in North and South America is coordinated through Olicom, Inc., which is headquartered in Richardson, Texas. The Company also maintains regional sales offices in Australia, Canada, France, Germany, Japan, the Netherlands, Poland, Spain, Sweden and the United Kingdom. The Company operates with a relatively short-term backlog, and substantially all of its net sales in each quarter result from orders booked within a generally short cycle between order and shipment (typically less than 45 days). Consequently, if near-term demand for the Company's products weakens or if significant anticipated sales in any quarter are not realized as expected, the Company's net sales for that quarter could be adversely affected. The Company does not believe that its backlog as of a particular date is indicative of future sales levels. The Company's net sales may fluctuate as a result of other factors, including increased price and other competition, the timing of significant orders, announcements of new products by the Company or its competitors, variations in net revenues by product and distribution channel, decisions by distributors and OEMs as to the quantity of the Company's products to be maintained in inventories, delays in shipment of existing or new products, and capital spending patterns of end-users. PRODUCT SUPPORT The Company's distribution partners, who, in turn, have access to the Company's sales support engineers and field engineers for end-user support, support the Company's products. The Company's resellers and large accounts receive sales and technical training from the Company at its training centers in greater Copenhagen, Denmark, Marlborough, Massachusetts and Richardson, Texas, as well as at resellers' offices. The Company conducts product training for partners and large end-users of its products, in which features of such products and their installation, aspects of networking principles and solutions are addressed. The Company provides on-line information access through the World Wide Web, electronic bulletin boards, CompuServe and the Internet, as well as additional technical support, available by telephone and telefax during extended business hours. Olicom also offers a number of maintenance and support contracts that include on-site service and 24-hour telephone dial-in support. 8 9 Depending on the distribution channel, the Company's products generally are warranted free of defects in materials and workmanship for one to three years. Before and after the expiration of the product warranty period, the Company offers factory-based support, parts replacement and repair services. To date, the Company has not encountered any significant product maintenance problems. During 1995, the Company introduced a limited lifetime warranty to registered users of NIC products. RESEARCH AND DEVELOPMENT Olicom is very focused on research and development and believes that its future success depends in substantial part on the timely enhancement of existing products, together with the development of new products that continue to offer technological excellence. Included among the core technologies the Company develops are advanced ASICs for Token-Ring, Ethernet switch and NIC products, as well as advanced network management software, embedded switch software (including software for routing Internet/Intranet TCP/IP protocols) and ATM LAN emulation software. The Company is currently developing new products and enhancements to existing products, with the goal of further improving performance, increasing price competitiveness, assuring continued interoperability and increasing market share. During 1998, the Company completed the development of a number of new products and technologies, including 100 Mbps High-Speed Token-Ring products. In 1998 Olicom was the first company to introduce a High-Speed Token-Ring solution comprising an uplink to its Token-Ring stackable switch and a server adapter. The Token-Ring switch line has been expanded to include lower-cost desktop switches and switches supporting fiber-optic links. The NIC product line for Token-Ring has been updated to include Power Management, Wake-on-LAN, CardBus adapter and other Microsoft Windows standards. In the Ethernet arena, the Company released two new Fast Ethernet switches sourced from a third party and new Fast Ethernet adapters with Power Management and Wake-on-LAN capabilities. The Company released significant enhancements to its line of ATM products by introducing a new high-capacity 32 port ATM switch, new higher speed (622 Mbps) port modules for its ATM switches, and increased performance for ATM NICs. In 1998, the Company supported its ClearStep Token-Ring migration strategy with ATM connectivity to its Token-Ring switch line. The ClearSession high-availability strategy is supported by technologies for rapid recovery within ATM networks and resilient server links. Research and development efforts are increasingly focused on Fast Ethernet and Gigabit Ethernet switching, ClearStep migration strategies, and ClearSession high-availability technologies. In March 1999 the Company announced plans to release new high-performance, lower cost Ethernet switches (including Layer 3 switch addressing) to the growing Intranet market. The ClearStep strategy will be expanded to include Token-Ring to Fast Ethernet translation modules, Fast Ethernet Translation switches and enhancements to the High-Speed Token-Ring product line. The ClearSession strategy will be expanded to include fast recovery methods for switched Ethernet and Token-Ring networks. During 1996, 1997, and 1998 the Company incurred expenses of $11,218,000, $15,477,000 and $20,975,000, respectively, with respect to research and development activities. In 1996, 1997 and 1998 the Company's research and development expenditures were 7.9%, 7.4% and 10.1% of net sales, respectively. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." 9 10 Although the Company believes that it has certain technological and other advantages over its competitors, maintaining such advantages will require continued investment by the Company in product development and marketing. There can be no assurance that the Company will be able to make the technological advances necessary to maintain such competitive advantages. Further, there can be no assurance that the Company's products will not be rendered obsolete by new industry standards or changing technology. The Company's testing laboratories in Copenhagen, Denmark, and Gdansk, Poland perform product benchmark testing, compatibility certification and conduct ongoing tests for interoperability with other vendors' products. The Company is a beta partner of IBM, Intel Corporation, Novell, Inc., and Microsoft Corporation, which provides the Company with timely access to new versions of these vendors' LAN operating system software while facilitating Olicom's development of interoperable software drivers. The Company also participates in interoperability testing sessions at several venues, including UNH (University of New Hampshire) for ATM and Token-Ring testing, as well as PCI SIG (Special Interest Group) interoperability testing. Schedules for the development of high technology products are inherently difficult to predict, and there can be no assurance that the Company will achieve its scheduled initial customer shipment dates. In addition, as the Company's strategy is driven in significant part by customer demand, its product development schedules are inherently subject to revision as a result of indications of change in the requirements of its customers. The Company's business, financial condition or results of operations could be adversely affected if the Company were to incur significant delays or be unsuccessful in developing these or other new products or enhancements, or if any such products or enhancements did not gain market acceptance. MANUFACTURING AND DISTRIBUTION Olicom outsources all of its manufacturing needs. Its products are manufactured in fully automated, high-quality production lines utilizing Surface Mounting Technology techniques, and are manufactured to meet Olicom specifications on a turnkey basis. Olicom utilizes multiple manufacturers for high volume products in order to decrease dependence on any single manufacturer. Olicom requires that all its manufacturers be ISO 9002 certified. The Company's manufacturing strategy is to combine Far East-based low-cost manufacturing with U.S.-compliant manufacturing for sales to governmental agencies in the United States. The Company's manufacturing strategy and goal is to achieve short time-to-market cycles of 7-12 weeks from completion of product design to start of volume production. The Company manages quality assurance of its products through extensive quality control procedures (which the Company believes have been instrumental in achieving the superior performance and reliability of its products). The Company's distribution strategy is to maintain finished goods inventories at the Company's distribution centers at a level of typically 1-2 months of equivalent sales volume. Distribution effectiveness is optimized through direct customer delivery and factory shipments to the Company's distribution centers in Copenhagen, Denmark and Richardson, Texas. The Company's manufacturers procure components and sub-assemblies for the Company's products directly from third party vendors, except for certain critical components, including chipsets and 10 11 ASICs. The Company has entered into a number of Volume Purchase Agreements ("VPAs") with major material vendors in order to secure material availability and the most favorable worldwide terms and conditions for material procurement. The Company has not experienced any significant problems in obtaining required supplies of sole or limited source components. However, the inability to develop alternative sources of supply, if required, or a reduction or interruption in supply or a significant increase in the price of one or more critical components, could materially and adversely affect the Company's business, financial condition or results of operations and could negatively impact customer relationships. The Company has granted certain customers a non-exclusive license to use, manufacture and sell products currently being manufactured and sold by the Company on an OEM basis. Such licenses generally become effective in the event that the Company discontinues manufacturing the products being purchased by such customer, or is unable to provide specified quantities of products or levels of quality, and/or upon the bankruptcy or insolvency of the Company. The grants of manufacturing rights are not subject to payment of royalties. COMPETITION Olicom's competition in the market for network interconnection products is primarily derived from other vendors and manufacturers of LAN products (such as IBM, Northern Telecom Limited, Cisco, Cabletron, Madge Networks N.V. and 3Com Corporation). The LAN industry is intensely competitive and is characterized by rapid technological advances and evolving industry standards. The industry can be significantly affected by new product introductions, increased product capabilities, and improvements in the relative price and performance of networking products, as well as by the market activities of industry participants. The Company believes that, in order to successfully differentiate Olicom from its competitors, Olicom products and systems must excel in product quality and functionality, compatibility, interoperability, performance, reliability, product support, customer satisfaction and price. IBM is both the dominant supplier of Token-Ring network products and an established vendor of computer and networking systems and products to a substantial number of existing and potential end-users of the Company's products. As a result, the Company believes that, in order to compete successfully in the market for Token-Ring network products, the Company's products and systems must have more features, greater functionality and performance, and/or lower prices than those offered by IBM. In addition, from time to time IBM establishes strategic working relationships with independent networking vendors relating to IBM's long-term product development programs. If IBM were to select, on a preferential basis, one or more of the Company's competitors for such relationships, the Company's business, financial condition or results of operations could be materially and adversely affected. While the Company believes that it has been able to compete effectively to date, competition in the industry is likely to intensify as current competitors expand their product lines and new companies enter the market. 11 12 An increase in competition could have a material adverse effect on the Company's business, financial condition or results of operations because of price reductions and/or loss of market share. There can be no assurance that the Company will be able to compete successfully in the future with these existing or potential competitors. The Company believes that price competition has been increasing and will continue to increase. Such price competition is the result, in part, of price decreases announced by IBM and other competitors on competitive products, as well as the success of the Company and its competitors in successfully engineering cost reductions into their products and the entrance of new competitors into the market. The Company's ability to compete successfully with current and potential competitors will depend to a significant extent on its ability to continue developing technologically superior products and to adapt to changes in the marketplace. There can be no assurance that price competition will not have a material adverse effect on the Company's business, financial condition or results of operations. LASAT A/S As part of its new strategy announced November 30, 1998, the Company decided to divest its 75% holding in Lasat A/S ("Lasat"), a provider of PC modems. On January 15, 1999, Olicom's 75% holding in Lasat was sold to a consortium of Lasat management, employees and two Denmark-based venture funds. The gain from the divestiture amounted to approximately $1.4 million, which will be recognized in 1999. INTELLECTUAL PROPERTY The Company's success is dependent on its proprietary technology. The Company currently relies upon a combination of copyright and trade secret laws to establish and maintain proprietary rights to its products. There can be no assurance that such measures are or will be adequate to protect the Company's proprietary technology. However, Olicom believes that these measures should be sufficient to protect the Company's technology. The Company has a program to file applications for and obtain patents in the United States. While the Company has not been issued any patents to date, several patent applications are currently pending. There can be no assurance that patents will be issued from pending applications, or that claims allowed on any future patents will be sufficiently broad to protect the Company's technology. In addition, to the extent that patents are issued from pending applications, there can be no assurance that any of such patents will not be challenged, invalidated or circumvented, or that any rights granted thereunder will provide competitive advantages to the Company. Although the Company believes that its products and technology do not infringe the proprietary rights of others, and the Company does not have any knowledge that its products infringe the proprietary rights of any third parties, there can be no assurance that third parties will not assert infringement claims in the future or that such claims will not be successful. The Company generally enters into confidentiality agreements with its customers, suppliers and industry partners, and limits access to sensitive information. Despite these precautions, it may be technologically possible for competitors of the Company to "reverse engineer" or otherwise obtain information regarding aspects of the Company's products that the Company regards as proprietary. The laws of some foreign countries in which the Company sells or may sell its products do not protect the Company's proprietary rights in its products to the same extent, as do the laws of the Kingdom of Denmark and/or the United States. The Company believes that, due to the rapid pace of innovation within the LAN industry, factors such as the technological and creative skills of its personnel, ongoing product support and 12 13 the management abilities of its employees are as important in establishing and maintaining a leadership position within the industry as are the various legal protections of its technology. Many of the Company's products are designed to include software or other intellectual property licensed from third parties, and the loss of such software or other rights might require significant changes in, or otherwise disrupt or delay the distribution of, such products. While it may be necessary in the future to seek or renew licenses relating to various aspects of its products, the Company believes that, based upon past experience and standard industry practice, such licenses generally could be obtained on commercially reasonable terms. From time to time the Company receives communications from third parties asserting that its use of trademarks, or that its products, infringe or may infringe the rights of third parties. There can be no assurance that any such claims will not result in protracted and costly litigation; however, based upon general practice in the industry, the Company believes that such matters can ordinarily be resolved without any material adverse impact on its business, financial condition or results of operations. Nevertheless, there can be no assurance that the necessary licenses would be available on acceptable terms, if at all, or that the Company would prevail in any such challenge. The inability to obtain certain licenses or other rights or to obtain such licenses or rights on favorable terms, or litigation arising out of such other parties' assertion, could have a material adverse effect on the business, financial condition or results of operations of the Company. TRADEMARK AGREEMENT The trademark "Olicom" (the "Trademark") is a registered trademark of Ing. C. Olivetti & C., S.p.A. ("Olivetti"). Pursuant to a Trademark Agreement dated December 11, 1998, Olivetti extended the grant to the Company of a worldwide license to use the Trademark. The term of the Trademark Agreement expires on September 1, 2009, with the Company having the right to extend the term for an additional ten years. During the term of the Trademark Agreement and for a period of one year after any termination thereof, Olivetti has agreed not to use itself or grant to a third party any rights to use the Trademark on products or services of the type manufactured, marketed or offered by the Company. The Company has the right to terminate the Trademark Agreement for convenience upon the provision of notice, as provided therein. The Trademark Agreement supersedes a previous agreement between the Company and Olivetti. Olicom has trademarks on several selected products, such as PowerMACH(TM), CellDriver(R), Lanscout(TM), RapidLan(TM) and WebSetGo(TM), and on products and services included in the ClearStep(R) strategy such as CrossFire(R), GoCard(R), RapidFire(R), ClearServer(TM), ClearSession(TM), ClearSight(TM), ClearCare(TM), ClearPartner(TM) and ExpertWatch(TM). EMPLOYEES In connection with corporate restructurings in September and November, 1998, the Company reduced its workforce by approximately 25%, primarily in sales and marketing and in general and administrative functions (see note 8 to Consolidated Financial Statements). As of March 1, 1999, the Company employed or retained (as employees or independent contractors) approximately 615 persons, including 225 in sales and marketing, 210 in product research and development, 85 in operations/production (including quality assurance), and 95 in administration and finance. Of these employees and independent contractors, approximately 190 were located in the United States, 120 in Poland, 65 were located in the Company's offices in Europe, Australia and Japan, and the remainder were located in Denmark 13 14 Competition in the recruiting of highly qualified personnel in the computer and communications industry is intense. The Company believes that its future success will depend, in part, on its continued ability to hire, motivate and retain qualified management, marketing and technical personnel. To date, the Company has not experienced significant difficulty in attracting and retaining qualified employees. The Company has entered into a local labor agreement covering its warehouse employees in Denmark, a group comprised of approximately 20 persons. No other employees are represented by a labor union. The Company has not experienced any work stoppages and considers its relations with its employees to be good. ITEM 2. DESCRIPTION OF PROPERTY. The Company's principal administrative, marketing, product development, support facilities, and training center, as well as a warehouse and distribution facility, are located in a modernized three-story building and newly-constructed adjacent buildings in Lyngby in the greater Copenhagen area where the Company presently leases a total of approximately 125,000 square feet of floor space as its international headquarters. The Company leases its international headquarters from a third-party lessor pursuant to a lease that may be terminated by either party commencing in 2008, upon six months' notice, and which provides for increases in annual rentals based on the increase in the Danish net price index, with an agreed annual minimum increase of 2.5%. An immediately adjacent building that forms part of the Company's headquarters complex is leased from a third party lessor pursuant to a lease that may be terminated by either party commencing in 2006, upon 12 months' notice, and which provides for an increase in annual rental payments based on the increase in the Danish net price index, with an agreed annual minimum increase of 2.5%. As a consequence of the Company's decision to restructure its business as announced on November 30, 1998, it was decided to sublet the adjacent building to a third party. Consequently, the Company has entered into a contract with a local commercial real estate agent with the purpose of identifying possible tenants and to conclude rental or sublease agreements commencing in 1999. The Company has made provisions in the 1998 financial accounts to provide for lease payments for the estimated time required to sublet the building (see note 8 to Consolidated Financial Statements). The Company believes that its existing facilities are adequate for its current needs. The Company believes that suitable space is available in the Copenhagen area and that the three facilities should provide sufficient additional space for foreseeable future expansion in Copenhagen. In December 1998, the Company entered into a 10 year lease agreement with a third party for approximately 37,700 square feet of office space in Gdansk, Poland, primarily for its Poland-based research and development activities. The Company currently leases from third-party lessors an aggregate of approximately 40,400 square feet of office space, together with warehouse space, in metropolitan Dallas, Texas, to support North and South American sales and marketing. Furthermore, the Company leases office space in numerous cities in Europe to support sales and marketing, and also leases space for sales offices in Singapore; Tokyo, Japan; Sydney, Australia; and Sandton, South Africa. The Company believes that suitable additional space will be available in such locations as required. 14 15 ITEM 3. LEGAL PROCEEDINGS From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of the date of this Report, the Company was not a party to any legal proceedings, the adverse outcome of which, in management's opinion, would have a material adverse effect on the Company's business, results of operations or financial position. See also "Description of Business -- Proprietary Rights." On or about September 13, 1996, Datapoint Corporation ("Datapoint") commenced litigation in the United States District Court for the Eastern District of New York against CrossComm Corporation (now known as Olicom, Inc.), Cisco Systems, Inc., Plaintree Systems Corporation, Accton Technology Corporation, Cabletron Systems, Inc., Bay Networks, Inc. and Asante Technologies, Inc., individually, and as representatives of a putative class of all manufacturers, vendors and users of Fast Ethernet dual protocol local-area network products. In its complaint, Datapoint alleges that the defendants have been, and still are, directly infringing U.S. Patent No. 5,077,732 by making, using, selling and/or offering for sale products embodying inventions claimed in that patent, and that the defendants are also infringing U.S. Patent No. 5,008,879 by using or selling products encompassed within that patent's claims. On or about December 30, 1996, CrossComm filed its Answer and Counterclaims to Datapoint's complaint by denying the essential allegations; asserting defenses that the cited patents are invalid and void; and seeking declaratory judgment of patent non-infringement and invalidity under applicable sections of the United States Code. On October 9, 1998, the Court's magistrate adopted a special master's claim construction, which favored a claim construction advocated by the defendants. Subsequently, the parties entered into a Stipulated Order and Judgment whereby the Court adopted the special master's claim construction in total, and the Court granted summary judgment to the defendants, finding that the accused products do not infringe Datapoint's patents involved in the proceeding. On February 3, 1999, Datapoint appealed such judgment to the Court of Appeals for the Federal Circuit. The outcome remains somewhat uncertain in the event that the Court of Appeals were to reverse the lower court's judgment; however, the Company does not believe that an adverse outcome to such litigation would have a material adverse effect on the Company's business, financial condition or results of operations. ITEM 4. CONTROL OF REGISTRANT As of March 22, 1999, the Company was not aware of any person who was the beneficial owner of more than 10% of the outstanding shares of the Company, nominal value DKK 0.25 per share ("Common Shares"). The following table sets forth as of such date the number of Common Shares beneficially owned by all directors and executive officers of the Company as a group: 15 16
Amount of Percent of Beneficial Ownership Class (1) -------------------- ---------- All directors and executive officers as a group (consisting of 10 persons) 276,748 1.5%
- ---------------- (1) Percentages in the foregoing table are based on 17,907,676 Common Shares issued and outstanding as of March 22, 1999, excluding 667,340 Common Shares owned by the Company. ITEM 5. NATURE OF TRADING MARKET The Common Shares are traded on the Nasdaq National Market (under the symbol OLCMF) and, since November 4, 1997, have been traded on the Copenhagen Stock Exchange ("CSE"). The following table sets forth the high and low sales prices of the Common Shares for the periods indicated, as reported by the Nasdaq National Market ("Nasdaq") and the Copenhagen Stock Exchange.
Nasdaq (1) CSE (1) -------------------- ------------------ High Low High Low ------ ------ ------ ------ Calendar 1999 First Quarter (through March 10, 1999) 8.00 3.88 52.4 25.9 Calendar 1998 First Quarter 30.75 24.81 214.0 177.0 Second Quarter 30.81 26.50 210.0 186.0 Third Quarter 28.44 13.69 197.0 82.4 Fourth Quarter 14.50 4.88 87.1 32.5 Calendar 1997 First Quarter 19.63 14.50 Second Quarter 18.75 13.50 Third Quarter 30.00 15.50 Fourth Quarter (2) 34.63 25.00 212.0 175.0
- ---------------- (1) Prices reported for Nasdaq are expressed in U.S. dollars; prices reported for the CSE are expressed in Danish kroner. (2) The Common Shares began trading on the CSE on November 4, 1997. As of March 16, 1999, there were approximately 137 United States record holders of Common Shares, who held approximately 83.7% of the outstanding Common Shares as of such date. The foregoing includes 14,865,491 Common Shares held of record by Depository Trust Company, as nominee for various beneficial holders of the foregoing shares held of record by Depository Trust Company, on March 16, 1999, 13,021,223 Common Shares were held through the Danish Securities Center, as nominee for various beneficial holders. 16 17 In connection with the Company's acquisition of CrossComm on June 12, 1997, the Company issued three-year warrants ("Warrants") to purchase Common Shares at an exercise price of $19.74 per whole Common Share. The Warrants are traded only on the Nasdaq National Market (under the symbol OLCWF). The following table sets forth the high and low sales prices of the Warrants for the periods indicated, as reported by the Nasdaq National Market.
Nasdaq ----------------- High Low ------ ------ Calendar 1999 First Quarter (through March 10, 1999) 0.69 0.25 Calendar 1998 First Quarter 12.75 8.13 Second Quarter 12.00 7.25 Third Quarter 9.00 1.00 Fourth Quarter 1.50 0.13 Calendar 1997 Second Quarter (1) 4.00 3.00 Third Quarter 12.00 3.50 Fourth Quarter 15.25 8.25
- ---------------- (1) The warrants began trading on the Nasdaq National Market on June 13, 1997. As of March 16, 1999, there were approximately 94 United States record holders of Warrants, who held approximately 99.9% of the outstanding Warrants as of such date. The foregoing includes 918,823 Warrants held of record by Depository Trust Company, as nominee for various beneficial holders. ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS. There are no governmental laws, decrees or regulations of the Kingdom of Denmark that restrict the export or import of capital (including, without limitation, foreign exchange controls), or that affect the remittance of dividends, interest or other payments to nonresident holders of Common Shares. There are no limitations imposed by the laws of the Kingdom of Denmark or the Company's Articles of Association (except for the Share Ownership Limit described below) on the right of nonresident or foreign holders to hold or vote Common Shares. The Articles of Association provide that no person, firm or entity (each, a "person") may, without obtaining the approval of the Company's Board of Directors, own more than 33% of the Company's share capital or votes at any time (the "Share Ownership Limit"). The Company's Board of Directors may condition its approval on the satisfaction of such conditions that it determines to be appropriate. For the purpose of determining ownership of Common Shares or votes, a person will generally be deemed to own Common Shares or votes which are considered to be beneficially owned by such person under Rule 13d-3 under the Exchange Act. A person who owns more than 33% of the Company's share capital or votes at any time who has not obtained the approval of the Board of Directors cannot be registered or otherwise accepted as a shareholder, and such person will have no voting rights, rights to dividends or distributions, 17 18 or any other rights as a shareholder for the portion of such person's shareholding that exceeds 33%. The Board of Directors may approve the ownership by a person of more than 33% of the Company's share capital or votes in (i) the event that such person has, prior to purchasing more than 33% of the Company's share capital or votes, requested the approval by the Board of Directors to own more than the Share Ownership Limit, (ii) the event that such person has made a legally binding and irrevocable bona fide offer to all shareholders of the Company (other than such person, to the extent that he or she is a shareholder) to purchase all the Common Shares and votes in the Company at a price deemed favorable by the Board of Directors, in its discretion, or (iii) in such other circumstances, as determined by the Company's Board of Directors. Other than the foregoing, there are no limitations by the Company's Articles of Association on the right of holders to hold or vote Common Shares. ITEM 7. TAXATION. The following summary of certain United States federal and Danish tax matters is based on tax laws of the United States and Denmark as in effect on the date of this Report, and is subject to changes in United States and Danish law, including changes that could have retroactive effect. The following summary is also based on the current United States-Denmark Double Taxation Convention which is subject to change. This discussion is based on current laws and interpretations thereof, and there can be no assurance that future legislation, regulations, administrative rulings or court decisions will not adversely affect the accuracy of the statements contained herein. The following summary does not consider or discuss the tax laws of any country other than the United States or Denmark. This summary does not describe United States federal estate and gift tax considerations, nor state, local or provincial tax considerations. Furthermore, this summary does not address United States federal income tax or Danish tax considerations relevant to United States holders of Common Shares or Warrants subject to taxing jurisdictions other than or in addition to the United States, and does not address all possible categories of United States holders, some of whom (such as financial institutions, trusts, estates, insurance companies, dealers in securities, certain retirement plans and tax exempt organizations) may be subject to special rules. This summary contains a description of the material United States federal income tax and Danish tax consequences of the purchase, ownership and disposition of Common Shares and Warrants by a beneficial owner that (i) is an individual citizen or resident in the United States (for United States federal income tax purposes), a corporation or partnership organized under the laws of the United States or any state thereof, or estates or trusts the income of which is subject to United States federal income tax regardless of its source, (ii) is not also a resident or corporation of Denmark and is not domiciled in Denmark, (iii) does not hold Common Shares or Warrants in connection with any permanent establishment or fixed base in Denmark, (iv) does not own, and has not owned (directly, indirectly or by attribution) at any time, 10% or more of the total combined voting power of the Company, and (v) holds Common Shares or Warrants as capital assets. The term "United States holder," as used in this summary, means a beneficial owner of Common Shares or Warrants meeting these requirements. UNITED STATES HOLDERS OF COMMON SHARES OR WARRANTS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES, DANISH OR OTHER TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON SHARES AND WARRANTS. 18 19 UNITED STATES TAX CONSEQUENCES OF OWNERSHIP OF COMMON SHARES Dividends. For United States federal income tax purposes, the gross amount of all dividends (that is, the amount before reduction for Danish withholding tax) paid with respect to Common Shares out of the current or accumulated earnings and profits of Olicom ("E&P") to a United States holder will be subject to United States federal income taxation as foreign source dividend income. United States corporations that hold Common Shares will not be entitled to the dividends received deduction available for dividends received from United States corporations. To the extent that a distribution exceeds E&P, it will be treated first as a return of capital to the extent of the United States holder's basis, and then, as gain from the sale of a capital asset. For United States federal income tax purposes, the amount of any dividend paid in Danish kroner will be the United States dollar value of the kroner at the exchange rate in effect on the date of receipt, whether or not the kroner is converted into United States dollars at that time. The withholding tax imposed by Denmark generally is a creditable foreign tax for United States federal income tax purposes. Therefore, a United States holder generally will be entitled to include the amount withheld as foreign tax paid in computing a foreign tax credit (or in computing a deduction for foreign income taxes paid, if the United States holder does not elect to use the foreign tax credit provisions of the Internal Revenue Code of 1986, as amended (the "Code")). The Code, however, imposes a number of limitations on the use of foreign tax credits, based on the particular facts and circumstances of each taxpayer. United States holders who hold Common Shares should consult their tax advisors regarding the availability of the foreign tax credit. A United States holder also may be subject to backup withholding at the rate of 31% with respect to dividends paid on or proceeds from the sale or other disposition of Common Shares, unless the United States holder (i) is a corporation or comes within certain other exempt categories or (ii) provides a taxpayer identification number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. Sale or Other Disposition of Common Shares. Gain or loss recognized by a United States holder on the sale or other disposition of Common Shares will be subject to United States federal income taxation as capital gain or loss in an amount equal to the difference between such United States holder's basis in the Common Shares and the amount realized upon such disposition. The capital gain or loss will be long term or short term depending on whether the holder has held the Common Shares for (i) more than 12 months (which is subject to a maximum United States federal income tax rate of 20% for certain non-corporate taxpayers) or (ii) not more than one year (which is subject to a maximum United States federal income tax rate of 39.6% for certain non-corporate taxpayers). Capital losses are generally deductible only against capital gains and not against ordinary income. Capital gain recognized by a United States holder on the sale or other disposition of Common Shares will be United States source gain. Treasury Regulations have been finalized under which losses from the sale of Common Shares would generally be sourced in the same manner as gains from the sale of such Common Shares. However, the final regulations include a dividend recapture rule and other exceptions that may apply. United States holders of Common Shares should consult their tax advisors regarding the proper treatment of such losses. 19 20 UNITED STATES TAX CONSEQUENCES OF OWNERSHIP OF WARRANTS Exercise of Warrants. Generally, no gain or loss will be recognized for United States federal income tax purposes upon exercise of a Warrant. A holder's initial tax basis in a Warrant will be equal to the value of the Warrant at the time the holder receives such Warrant. The tax basis of the Common Shares acquired upon exercise of a Warrant will be equal to the sum of (i) the holder's tax basis in such Warrant and (ii) the exercise price. The holding period of the Common Shares acquired upon exercise of a Warrant will begin on the date of the exercise of the Warrant. Disposition of Warrants. In general, the sale, exchange or other taxable disposition of a Warrant will result in gain or loss to the holder in an amount equal to the difference between the amount realized on such sale, exchange or other disposition and the holder's tax basis in the Warrant. Such gain or loss generally will be capital gain or loss (so long as the Warrant is a capital asset in the hands of the holder) and such capital gain or loss will be long term or short term depending on whether the holder has held the Warrant for (i) more than 12 months (which is subject to a maximum United States federal income tax rate of 20% for certain non-corporate taxpayers) or (ii) not more than one year (which is subject to a maximum United States federal income tax rate of 39.6% for certain non-corporate taxpayers). Expiration. The expiration of a Warrant should generally result in a capital loss to the holder equal to the holder's tax basis in the Warrant if the Common Shares issuable upon exercise of the Warrant would have been a capital asset if acquired by such holder. Adjustments to Conversion Ratio. Adjustments made to the number of Common Shares that may be acquired upon the exercise of a Warrant, or the failure to make such adjustments, may result in a taxable distribution to the holder of a Warrant pursuant to Section 305 of the Code. DANISH TAX CONSEQUENCES OF OWNERSHIP OF COMMON SHARES Dividends. For Danish income tax purposes, the gross amount of all distributions made by the Company to its shareholders prior to the fiscal year in which the Company is completely liquidated and dissolved is taxed as a dividend. Distributions made by the Company to its shareholders during the fiscal year in which the Company is completely liquidated and dissolved are taxed as capital gain. In addition, the gross amount paid by the Company to redeem Common Shares owned by a shareholder generally is taxed as a dividend. However, a shareholder may apply to Danish tax authorities for an exemption from the dividend tax. If the exemption request is granted, the redemption will be taxed as capital gain. The granting of bonus shares to shareholders, and the right of shareholders to subscribe for Common Shares at a price that is less than the current trading value of such Common Shares, are not considered taxable distributions to shareholders. In general, a Danish withholding tax of 25% is levied on all dividends. However, a United States holder may apply to the Danish tax authorities for a partial refund of the dividends tax that has been withheld. If this refund request is granted, the Danish withholding tax on such dividends is effectively reduced to 15%. The Company does not presently contemplate the payment of any cash dividends on Common Shares. However, should the Company decide to make payment of a cash dividend, the Company will apply to the Danish tax authorities for a blanket exemption that would allow the Company to withhold only 15% of all dividends paid to a United States holder. While the Company believes that such an exemption will be granted, there can be no assurance that this will occur. 20 21 Sale or Other Disposition of Common Shares. Capital gains realized by United States holders upon the sale or other disposition of Common Shares should be exempt from Danish taxation. DANISH TAX CONSEQUENCES OF OWNERSHIP OF WARRANTS Exercise of Warrants. Generally, a United States holder should not recognize taxable gain or loss for Danish income tax purposes upon the exercise of a Warrant. Sale of Warrants. Generally, a United States holder should not recognize taxable gain or loss for Danish income tax purposes upon the sale of a Warrant. Expiration. Upon the expiration of a Warrant, a United States holder should not recognize taxable gain or loss for Danish income tax purposes. DANISH SHARE TRANSFER DUTY No Danish share transfer duty is levied on the disposal of Common Shares or Warrants by a United States holder. DANISH ESTATE AND GIFT TAXES. Generally, if a United States holder acquires or disposes of Common Shares or Warrants by inheritance, legacy or gift, such holder will not be subject to Danish gift or inheritance taxes. If a United States holder should make a gift of such Common Shares or Warrants to a close relative resident in Denmark other than a spouse, the United States holder could be liable for Danish gift tax; however the tax is subject to reduction under the United States-Denmark Double Taxation Convention with respect to taxes on estates, inheritance and gifts. ITEM 8. SELECTED FINANCIAL DATA. The following table sets forth certain financial information with respect to the Company for the five years ended December 31, 1998. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Company's Consolidated Financial Statements and related notes included elsewhere herein. 21 22
YEAR ENDED DECEMBER 31, ------------------------------------------------------------- 1994 1995 1996 1997 1998 --------- --------- --------- --------- --------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Net sales $ 113,604 $ 127,469 $ 142,437 $ 209,985 $ 206,817 Cost of sales 61,198 65,191 77,048 101,633 119,336 Special charges related to inventories 0 0 0 0 3,463 --------- --------- --------- --------- --------- Gross profit 52,406 62,278 65,389 108,352 84,018 --------- --------- --------- --------- --------- OPERATING EXPENSES: Sales and marketing 23,783 31,660 37,399 50,204 68,216 Research and development 7,531 9,193 11,218 15,477 20,975 General and administrative 4,440 5,662 7,103 10,833 13,296 Acquisition-related expenses 0 0 3,787 40,917 0 Restructuring charges 0 0 0 0 7,327 --------- --------- --------- --------- --------- Total operating expenses 35,754 46,515 59,507 117,431 109,814 --------- --------- --------- --------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS 16,652 15,763 5,882 (9,079) (25,796) Interest income, net 2,411 3,211 1,672 3,037 2,425 Foreign currency gains (losses) 19 (31) (632) (2,483) 448 Related party gain on sale of investment 0 0 2,878 0 0 Settlement of litigation (4,200) 0 0 0 0 --------- --------- --------- --------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 14,882 18,943 9,800 (8,525) (22,923) Provision for income taxes 5,026 6,223 3,992 10,332 (153) --------- --------- --------- --------- --------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE CHANGE IN ACCOUNTING METHOD 9,856 12,720 5,808 (18,857) (22,770) Income (loss) from discontinued operations 51 86 1,617 736 (169) Cumulative effect of change in accounting methods, net of taxes 161 0 0 0 0 --------- --------- --------- --------- --------- NET INCOME (LOSS)$ $ 10,068 $ 12,806 $ 7,425 $ (18,121) $ (22,939) ========= ========= ========= ========= ========= DILUTED EARNINGS (LOSS) PER SHARE $ 0.66 $ 0.87 $ 0.50 $ (1.15) $ (1.28) ========= ========= ========= ========= ========= WEIGHTED AVERAGE SHARES OUTSTANDING EXCLUDING COMMON STOCK EQUIVALENTS IN 1997 AND 1998 15,298 14,748 14,786 15,745 17,894 ========= ========= ========= ========= =========
DECEMBER 31, 1994 1995 1996 1997 1998 -------- -------- -------- -------- -------- (IN THOUSANDS) BALANCE SHEET DATA: Working capital $ 66,427 $ 78,600 $ 79,827 $ 92,905 $ 71,848 Total assets 108,917 127,327 114,079 159,038 142,146 Total shareholders' equity 78,191 90,127 90,945 125,559 103,023
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Certain statements included in this Report include trend analysis and are forward-looking statements (within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act), including, without limitation, statements containing the words "believes", "anticipates", "expects", "plans", "may", "will", "should", "objective", "target", "goal", "strategy" or "continue" or the negative of such terms or other words of similar import. Such forward-looking statements relate to future 22 23 events, the future financial performance of the Company, and involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company or industry results to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Prospective investors should specifically consider the various factors identified in this Report that could cause actual results to differ, including, without limitation, those discussed in the following section, as well as in the section titled "Description of Business". The Company is under no duty to update any such factors or to update any of the forward-looking statements after the date of this Report to conform such statements to actual results. The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes. OVERVIEW The Company's wholly-owned subsidiaries include Olicom Ventures A/S ("Olicom Ventures"), Olicom Finance Limited and Olicom Trading A/S. Olicom, Inc. is a wholly-owned subsidiary of Olicom Trading A/S. Prior to the date of this Report, Olicom Enterprise Products, Inc. (which formerly operated CrossComm) merged with Olicom, Inc. On January 15, 1999, the Company closed the divestiture of its shareholding in Lasat. The Consolidated Statements of Income for 1996, 1997 and 1998 include the results of operations of Lasat through December 1998 (the measurement date), under the caption "Income (loss) from discontinued operations, net of tax". Accordingly, the Consolidated Statements of Income do not consolidate Lasat's operations with the Company's other operations during such periods. The Consolidated Balance Sheets as of December 31, 1997 and 1998, have been restated to segregate the Company's investment in Lasat under the caption "Net assets of discontinued operations". The Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998, similarly have been restated to reflect the results of operations of Lasat under the caption "Income (loss) from discontinued operations". The gain from the divestiture amounts to approximately $1.4 million, which will be recognized in 1999. The Company's functional currency is the U.S. dollar. The Company prepares its financial statements in U.S. dollars and in accordance with accounting principles generally accepted in the United States ("U.S. GAAP"). References herein to "U.S. dollars" or "$" are references to United States currency, and references to "Danish kroner," "kroner" or "DKK" are references to Danish currency. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain financial data as percentages of the Company's net sales. The Company believes that period to period comparisons of its financial results are not necessarily meaningful and should not be relied upon as an indicator of future performance: 23 24
YEAR ENDED DECEMBER 31, -------------------------- 1996 1997 1998 ------ ------ ------ Net sales ...................................... 100.0% 100.0% 100.0% Cost of sales .................................. 54.1 48.4 57.5 Special charges related to inventories ......... -- -- 1.7 ------ ------ ------ Gross profit ................................ 45.9 51.6 40.6 Operating expenses: Sales and marketing ......................... 26.3 23.9 33.0 Research and development .................... 7.9 7.4 10.1 Purchased research and development .......... -- -- -- General and administrative .................. 5.0 5.2 6.4 Restructuring charges ....................... -- -- 3.5 Acquisition-related expenses ................ 2.7 19.5 -- ------ ------ ------ Total operating expenses .................... 41.8 55.9 53.1 ------ ------ ------ Income (loss) from continuing operations ....... 4.1 (4.3) (12.5) Interest income, net ........................ 1.2 1.4 1.2 Foreign currency gains (losses) ............. (0.4) (1.2) 0.2 Related party gain on sale of investment .... 2.0 -- -- ------ ------ ------ Income (loss) from continuing operations before income taxes ............................ 6.9 (4.1) (11.1) Provision for income taxes .................. (2.8) (4.9) 0.1 ------ ------ ------ Income (loss) from discontinued operations ..... 1.1 0.4 (0.1) ------ ------ ------ Net income (loss) .............................. 5.2% (8.6)% (11.1)% ====== ====== ======
YEARS ENDED DECEMBER 31, 1997 AND 1998 Divestiture of Lasat A/S. As noted above, the Company has divested its interest in Lasat. Therefore, for comparison reasons, the following discussion of the years ended December 31, 1997 and 1998, excludes the results of operations of Lasat. Net sales. Net sales decreased from $210.0 million in 1997 to $206.8 million in 1998. Net sales in North and South America (the "Americas") decreased from $112.3 million in 1997 to $106.0 million in 1998, while sales outside of the Americas increased from $97.7 million in 1997 to $100.8 million in 1998. During fiscal 1998, Olicom brand-name sales (which increased 56% and 1% during 1997 and 1998, respectively) constituted 92% of net sales, while sales to OEMs (which decreased 2% and 3% in 1997 and 1998, respectively) accounted for 8% of net sales. During 1998, the Company's revenues were favorably influenced by the sales of Network Infrastructure Products, as to which net sales increased from $49.2 million in 1997 to $64.9 million in 1998. This product group includes Token-Ring and ATM switches and the product portfolio acquired from the former CrossComm. In addition, the Company's revenues reflected 12 months operations of the former CrossComm, while revenues during 1997 reflected only operations of the former CrossComm subsequent to June 12, 1997. As a consequence, primarily due to increased price competition with respect to Network Interface Cards, revenue derived from such products decreased to $110.6 million, from $128.5 million in 1997, a decrease of 14%. 24 25 Total service revenue during 1998 was $8.5 million, an increase of 43% compared with 1997. However, the expansion of the Company's professional service relationship with Vital Network Services during the fourth quarter of 1998, resulted in decreased service revenue during such quarter, and is expected to further decrease service revenue during 1999. It should be noted that levels of service revenue during 1997 substantially related to revenue during the last six months of such period, owing to the acquisition of the former CrossComm in June 1997 (and, as a result, service revenues during 1998 reflected revenues during a longer period than in 1997). Sales to a single distributor were $24.7 million, or 11.8% of net sales, in 1997, compared to $37.1 million, or 17.9% of net sales during 1998. Gross Profit. Gross profit decreased by 22.5%, from $108.4 million in 1997 to $84.0 million in 1998, and decreased as a percentage of net sales from 51.6% in 1997 to 40.6% in 1998. The decrease in gross margins was primarily due to increased price competition for both the Network Interface Card and switch markets, and the Company's inability during 1998 to sufficiently reduce manufacturing costs in its product line to compensate for declines in selling prices. In addition, during 1998 the Company incurred a $3.5 million special charge, primarily related to write-offs of inventory of obsolete products. The Company will continue to seek reductions in manufacturing costs to enable it to remain price competitive and to temper the impact that price reductions may have on gross margins. Expenses. Total operating expenses decreased by $7.6 million during 1998; however, when adjusted for acquisition-related expenses in 1997 of $40.9 million and restructuring charges of $7.3 million in 1998, there would have been a net increase in total operating expenses of $26.0 million during 1998, an increase of 34% when compared to 1997. The main reason for this increase is that 1997 did not reflect a full year of inclusion of CrossComm's operations in the Company's results of operations (such operations were included subsequent to CrossComm's acquisition in June 1997). The major increases in expenses during 1998 related to employee costs as well as sales promotion. As a consequence of revenue not developing as planned, the Company launched a new strategy on November 30, 1998, in order to better align expenses to revised revenue expectations. Employee Costs. Total employee costs rose 38% to $62.1 million in 1998. This increase is mainly attributable to CrossComm's operations being included in the Company's results during only the last six months of 1997, as well as a higher average number of employees for the entire 12 months of 1998, when compared to 1997 (when employee headcount increased during the last six months of such year as a result of the CrossComm acquisition). During the first ten months of 1998, the number of employees increased slightly, when compared to 1997; however, by December 31, 1998, employee headcount decreased to 671, a 16.9% reduction compared with the headcount at December 31, 1997. Depreciation and Amortization. Total depreciation and amortization, which are included in the respective expense items, increased 51% during 1998, to $8.9 million. The increase is attributable in part to the expense associated with the amortization for a full 12 months during 1998 of goodwill recorded in connection with the acquisition of CrossComm that was included only for six months in 1997. The major part of the increase in depreciation and amortization is due to increased investment in hardware and software in 1998, as well as improvements associated with the lease of new premises in Lyngby, Denmark, in late 1997. The depreciation of capitalized software relates to the further implementation of the Company's integrated management information system. 25 26 Sales and Marketing. Sales and marketing expenses increased 36%, from $50.2 million in 1997 to $68.2 million in 1998. The increase in the amount of sales and marketing expenses during 1998 was primarily due to increased marketing activities in the United States, Europe and the Far East. In late 1998, the Company significantly reduced its headcount in this area, and expenses relating to sales and marketing personnel are expected to decrease accordingly in the future. Research and Development. Research and development expenses increased 36%, from $15.4 million in 1997 to $21.0 million in 1998. The increase in research and development expenses is in line with the strategic decision to be a leading supplier of Token-Ring solutions and ATM and Ethernet switching. The Company considers research and development expenditures to be critical to future net sales and intends to continue these expenditures at a level that constitutes a significant percentage of net sales. General and Administrative. General and administrative expenses increased 23%, from $10.8 million in 1997 to $13.3 million in 1998. The increase is attributed to an increased average number of employees in 1998 compared to 1997, and to increased occupancy expense during 1998. Restructuring Charges. The Company incurred restructuring charges related to two separate corporate actions. The expansion of the Company's professional service relationship with Vital Network Services in September 1998 resulted in the transfer or termination of approximately 50 employees in administrative functions. As a result thereof, the Company recorded charges of $2.3 million related to staff reductions and fixed asset write-offs. The second corporate action was the implementation of a new strategy designed to optimize the business model and the efficiency of the organization. A result of this initiative was a reduction in the number of employees by approximately 20%. As a result thereof, the Company recorded charges of $6.6 million related to staff reductions and fixed asset write-offs. Interest and Other Financial Income/Expenses. Net interest and other financial income and expenses decreased from an income of $3.0 million in 1997 to $2.4 million in 1998. This decrease was primarily caused by a reduction in cash and cash equivalents from $45.3 million as of the end of 1997 to $22.2 million as of the end of 1998. Income Taxes. The Company's income tax decreased from $10.3 million during 1997 to a tax benefit of ($153,000) for 1998. YEARS ENDED DECEMBER 31, 1997 AND 1996 Divestiture of Lasat A/S. As noted above, the Company has divested its interest in Lasat. Therefore, for comparison reasons, the following discussion of the years ended December 31, 1996 and 1997, excludes the results of operations of Lasat. Net sales. Net sales increased from $142.4 million in 1996 to $210 million in 1997, which was an increase of 47 %. Net sales in the Americas increased from $61.7 million in 1996 to $112.3 million in 1997, while sales outside of the Americas increased from $80.7 million in 1996 to $97.7 million in 1997. The increase in net sales in 1997 was primarily due to the inclusion, since June 12, 1997, of the net sales of the former CrossComm, as well as increase in the sales of Olicom products, particularly in the Americas. 26 27 Gross Profit. Gross profit increased by 65.7%, from $65.4 in 1996 to $108.4 million in 1997 and increased as a percentage of net sales from 45.9% in 1996 to 51.6% in 1997. The increase in gross margins was due to a more favorable product mix and the inclusion of the former CrossComm in the results of the Company's operations, as CrossComm operated at a higher average gross margin than the Company had historically experienced. Also, gross margins were favorable impacted by cost reductions resulting primarily from cost improved product designs, volume-based component purchasing efficiencies, large-scale manufacturing, and continued reductions in other material costs. Sales and Marketing. Sales and marketing expenses increased from $37.4 million in 1996 to $50.2 million in 1997, but decreased as a percentage of net sales from 26.3% in 1996 to 23.9% in 1997. The increase in the amount of sales and marketing expenses during 1997 was primarily due to increased marketing activities in the United States, Europe and the Far East, including increased travel, office and personnel expenses and due to the inclusion of the former CrossComm's operations within the Olicom group. During 1997, the Company committed significant additional resources to support its direct sales organization and expand its marketing organization and programs both in the United States and in Europe. Research and Development. Research and development expenses increased from $11.2 million in 1996 to $15.4 million in 1997, but decreased as a percentage of net sales from 7.9% in 1996 to 7.4% in 1997. The increase in research and development expenses was primarily attributable to increased personnel expenses associated with enhancements of current products and to expenditures related to new product development, including ATM and LAN switching. General and Administrative. General and administrative expenses increased from $7.1 million in 1996 to $10.8 million in 1997 and increased as a percentage of net sales from 5.0% in 1996 to 5.2% in 1997. These increased expenses reflected the inclusion of the former CrossComm's operations within the Company, together with the expense of salaries for additional personnel and costs related to increases in volume. Acquisition Related Expenses and Other Charges and Income. During the second quarter of 1997, the Company purchased the former CrossComm. For fiscal 1997, a $40.9 million non-recurring charge was taken as a result of the write-off of in-process research and development projects of the former CrossComm and other transaction related expenses. During 1997 the Company also exercised its option to acquire a 35% interest in Digianswer A/S, a Danish high tech development company. Income Taxes. The Company's income tax increased from $4.0 million during 1996 to $10.3 for 1997 despite the net loss for the year, as the one time charges in 1997 relating to the CrossComm acquisition were not deductible for tax purposes. 27 28 LIQUIDITY AND CAPITAL RESOURCES During 1998, Olicom had a negative cash flow of $16.1 million from operating activities and made $9.6 million (net) in capital expenditures. The Company's available cash and short-term investments totaled $22.2 million as of December 31, 1998, which represented 15.7% of total assets. The Company had unsecured line of credit facilities for an aggregate amount of $9.3 million at December 31, 1998, of which no advances were outstanding at such date. These facilities support working capital requirements. In addition, Olicom has established a committed facility for an aggregate amount of $10 million to support the Company's future operations. The decrease in net cash provided by operating activities to $16.1 million in 1998 was due in significant part to the Company's net loss of $22.9 million and depreciation and amortization expense of $8.9 million. This decrease was offset somewhat by a reduction in accounts receivable of $11.5 million, due to decreased fourth quarter sales, and by an increase in inventories of $11.9 million, due to the decision made by the Company in the fourth quarter to reduce channel inventory levels. Net cash used in investing activities during 1997 and 1998 was $5.9 million and $9.6 million, respectively, and consisted in large part of capital expenditures associated with the expansion of sales and marketing, research and development, and general and administrative activities. At December 31, 1998, the Company had no material commitments for capital expenditures. The Company believes that cash presently at its disposal, together with established credit facilities, will be sufficient to finance the Company's operations and currently projected capital expenditures through 1999. To date, inflation has not had a material impact on the Company's financial results. The Company presently intends to retain any earnings for use in its business and, therefore, does not anticipate paying any cash dividends in the foreseeable future. If and when dividends are paid, such payment will be made in Danish kroner. Olicom believes that the financial resources presently at its disposal will be sufficient to finance the Company's operations for the next twelve months. RECENT DEVELOPMENTS During the first quarter of 1999, the Company acquired an additional 31.9% interest in Digianswer A/S, a provider of technology for local wireless communication, with competencies with respect to the design and development of products and technologies for mobile communications, hands-free telephony, voice recognition and software code for digital signal processing of voice. Digianswer is involved in the development and implementation of the new "Bluetooth" technology for local wireless communication, which is supported by major vendors in the converging telecom and data networking industries. The Company recently reported results of operations for the first quarter of 1999. Net sales for such period were $37.1 million, a 37.9% decrease compared to the same period in 1998 (but, a 60.7% increase compared to the fourth quarter of 1998). The net loss for the quarter was $5.8 million, compared 28 29 to $4.6 million in net income reported for the first quarter of 1998 (the Company reported a net loss of $29.9 million during the fourth quarter of 1998). The loss per share for the first quarter of 1999 was $0.32, compared to earnings per share of $0.25 during the same period in 1998 (and a loss per share of $1.68 during the fourth quarter of 1998). The loss per share during the first quarter of 1999 reflected a special charge of $1 million, and a $1.4 million gain on the sale of discontinued operations. If the Token-Ring market continues to weaken, and with the disappointing first quarter revenue, achievement of Olicom's financial targets for full year 1999 will be more difficult. Achievement of Olicom's financial goals is predicated on the Company's penetration of the Fast Ethernet switching market, the successful establishment of strategic alliances, and its continued leadership in Token-Ring. YEAR 2000 As is the case with many computer software systems, some of the Company's systems use two digit data fields which recognize dates using the assumption that the first two digits are "19". Therefore, the Company's date critical functions relation to the Year 2000 and beyond, such as sales, distribution, purchasing, inventory control, facilities, and financial systems may be severely affected unless changes are made to these systems. Olicom has since mid-1998 been in the process of reviewing the Company internal systems to identify applications that are not Year 2000 compliant. The Company expects that the initiatives currently being implemented will be sufficient in addressing issues relating to internal systems. The Company does not anticipate that addressing the Year 2000 problem for its internal information systems will have a material adverse effect on its business, financial condition or results of operations. Costs incurred by the Company to modify or replace non-compliant systems have not been material to date. Based on current assessment, the Company does not foresee the remediation costs to be material. The main contributions to such costs have been and are the acceleration of system upgrades and application projects. However, there can be no assurance that these costs will not be greater than anticipated, or that corrective actions undertaken will be completed before any Year 2000 problems could occur. The Company's business, financial condition and results of operations also could be materially adversely affected if it were to be held responsible for the failure of any products sold by the Company to be Year 2000 compliant The Year 2000 issue could negatively affect the demand for the Company products especially in the fourth quarter of 1999. The costs can also be negatively affected by the Year 2000 issue. These combining factors, while not quantified, could have a material adverse effect on the Company's business, financial condition and results of operations. The Company has certain key relationships with suppliers and certain customers. If these suppliers or customers fail to adequately address the Year 2000 issue for their processes, this could have a material adverse effect the Company's business, financial condition and results of operations. The Company is still assessing the effect the Year 2000 issue will have on its suppliers and customers, and at this time cannot determine the impact, if any, that it will have. 29 30 COMMON EUROPEAN CURRENCY The Treaty on European Economic and Monetary Union provides for the introduction of a single European currency, the Euro, in substitution for the national currencies of the member states of the EU that adopt the Euro. The Euro became a reality on January 1, 1999 when irrevocable conversion rates were set between the national currencies of the 11 member states of the EU that have qualified to participate, and have elected to participate, in the Euro at this time and when foreign exchange operations in the Euro commenced. Of the European countries in which Olicom maintains a presence, the Netherlands, France, Germany and Spain are among such 11 member states. Sweden did not qualify, and the United Kingdom and Denmark elected not to participate in the Euro at this time. Poland is not currently a member state of the EU. In the near term, the introduction of the Euro is not expected to impact the Company's business significantly, as the Company plans to continue to conduct its operations primarily in U.S. dollars, which is generally the functional currency in the data networking industry. In the long term, however, management believes that adoption of the Euro might reduce the Company's risk exposure to currency exchange fluctuations, the Company's costs of maintaining different accounting and other systems for different currencies, and the management of foreign currency risk. BUSINESS ENVIRONMENT AND RISK FACTORS The Company's future operating results may be affected by various trends and factors, which the Company must successfully manage in order to achieve favorable operating results. In addition, there are trends and factors that are beyond the Company's control that may affect its operations. Such trends and factors include, without limitation, the following: conditions within the networking industry, and economic conditions generally; rapid technological change, frequent product introductions, changes in customer needs and evolving industry standards, which require that the Company continue to add engineering refinements to its existing products and develop and introduce new products which achieve market acceptance; difficulties or delays in the development, production and marketing of products, including, without limitation, any failure to ship new products and technologies when anticipated and a failure of manufacturing economies to develop when planned; fluctuations in the Company's revenues and operating results from quarter to quarter, due to a variety of factors, including, among others, the timing of significant orders, the timing of product introductions by the Company or its competitors, variations in net revenues by product and distribution channel, increased price and other competition, and decisions by distributors and OEMs as to the quantity of the Company's products to be maintained in inventories; the failure of the Company to timely and successfully execute material aspects of its revised business strategy; pricing, purchasing, operational and promotional decisions by distributors, value added resellers and OEMs, which could affect their supply of, or end-user demand for, the Company's products; the absence of long-term obligations on the part of distributors and OEMs to purchase products from the Company (and the implicit risk of any unanticipated declines in sales to any of the Company's material customers for competitive reasons or because of the internalization of production of products purchased from the Company on an OEM basis); the Company's shipment of products shortly after receipt of a purchase order, with the result that a substantial portion of the Company's revenues for any quarter results from orders received during such quarter, and minor shifts in the timing of purchase orders can have a significant effect on net sales for any quarter; the Company's failure to accurately anticipate the demand for its products, due to, among other things, the fact that the Company's expectations of future net sales as well as its expenditures are based largely on its own estimate of future demand and not on firm customer orders; declines in the demand for Desktop Network Interface Cards, 30 31 which accounted for approximately 53.5% of the Company's net sales during 1998; the effect that consolidation in the LAN industry may have on the competitive position of the Company and its revenues and operating results; the acquisition of assets and businesses and the making or incurring of any expenditures and expenses in connection therewith, including, without limitation, any research and development expenses relating thereto; the ability of the Company to reduce product and other costs; the activities of any parties with whom the Company has an agreement or understanding, including, without limitation, issues affecting joint development projects in which the Company is a participant; unexpected changes in regulatory requirements, tariffs and other trade barriers, longer accounts receivable payment cycles and other risks associated with international operations; the ability or inability of the Company to hedge against foreign currency, exchange rates and fluctuations in such rates; and a change in the value of the U.S. dollar (the Company's functional currency) relative to other currencies. In light of the foregoing factors, as well as other factors affecting the Company's operating results, past trends should not be used by investors or others to anticipate future trends, and prior operating performance may not be an accurate indicator of future performance. ITEM 9A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. As the Company conducts its business world-wide, the Company's sales may be affected by changes in demand resulting from fluctuations in currency exchange rates, as well as by governmental controls and other risks associated with international sales (such as export licenses, political instability, trade restrictions and changes in tariff and freight rates). The Company generates sales primarily in U.S. dollars and incurs expenses in a number of currencies, principally in U.S. dollars and Danish kroner. Although the Company seeks to manage its foreign currency exposures by matching non-dollar revenues and expenses and by entering into hedging transactions, there can be no assurance that exchange rate fluctuations will not have a material adverse effect on the Company's business, financial condition or results of operations. See also "Management's Discussion and Analysis of Financial Condition and Results of Operations - Common European Currency". At December 31, 1998, the effect of a hypothetical uniform 10% strengthening in the value of the U.S. dollar relative to the Danish kroner would result in an increase in operating income of approximately $8.7 million for the year ending December 31, 1999. Comparatively, at December 31, 1997, the effect of a hypothetical uniform 10% strengthening in the value of the dollar relative to the Danish kroner would have resulted in an increase in operating income of approximately $4.6 million for the year-ended December 31, 1998. In addition to the direct effects of changes in exchange rates, which are a changed dollar value of the resulting expenses, changes in exchange rates also might affect the volume of sales outside the US. The Company's sensitivity analysis of the effects of changes in foreign currency exchange rates does not factor in a potential change in sales levels. ITEM 10. OFFICERS AND DIRECTORS OF THE REGISTRANT. As of March 22, 1999, the members of the Company's Board of Directors, the executive officers of the Company, and other key employees are as follows: 31 32
Name Age Position - ---- --- -------- Jan Bech........................... 59 Chairman of the Board of Directors Bo F. Vilstrup..................... 56 Deputy Chairman of the Board of Directors Frank G. Petersen.................. 66 Member of the Board of Directors Michael J. Peytz................... 42 Member of the Board of Directors Anders Knutsen..................... 52 Member of the Board of Directors Soren Bjerre-Nielsen............... 46 Member of the Board of Directors Niels Christian Furu............... 42 President and Chief Executive Officer Lars Larsen........................ 34 Executive Vice President and Chief Financial Officer Niels E.L. Jorgensen............... 42 Chief Technology Officer and Executive Vice President of Research, Development and Engineering Per Bruno Larsen .................. 46 Executive Vice President of Global Marketing of the Company and President of Olicom, Inc. Per Friis.......................... 36 Vice President, Operations Jorgen Hog......................... 52 Vice President of Network Product Marketing Kristian Thyregod.................. 37 Vice President of Global Marketing & EMEA Sales William A. Harper.................. 52 Vice President of Sales, Americas Prem Athwal ....................... 39 Vice President of Sales, Asia-Pacific Michael W. Jackman................. 40 Vice President, Sales and Marketing Operations Mette R.L. Fogt.................... 36 Director of Legal Affairs David Harrell...................... 41 Vice President of Information Technology
Mr. Bech has been Chairman of the Company's Board of Directors since 1985. He serves as Chairman of the Board and Managing Director of ARCO-TECH Ltd., a company engaged in the business of consulting in strategic marketing. Mr. Bech previously served as a Vice President of Ing. C. Olivetti & C., S.p.A., with responsibility for its commercial activities in Scandinavia (from 1985 to 1992). Mr. Vilstrup has been a member of the Board of Directors since 1992 and Deputy Chairman of the Board since 1994. He is an attorney and was a partner in the law firm of Lett, Vilstrup & Partnere, Copenhagen, Denmark (from 1972 to 1999). Mr. Petersen has been a director of the Company since 1996. He was employed by IBM from 1957 until his retirement in 1994. At the time of his retirement, he served as Chairman and President of IBM Nordic AB, with responsibility for IBM's commercial activities in Scandinavia. Mr. Petersen is Chairman of Dansk Erhvervsudvikling A/S, Aretex A/S, Delfin Software A/S, Club La Santa A/S and Lalago ApS and a director of Dan Net A/S, Gretoma Style Furniture ApS, Bay Jacobsen A/S and PAS Scandinavia ApS. Mr. Peytz has been a director of the Company since 1996. He has served as Managing Director and Chief Executive Officer of EuroCom Industries A/S since 1997. Mr. Peytz previously served as Division Director for Alcatel Kirk A/S, with responsibility for Alcatel's space electronics business in Denmark (from 1994 to 1997). He previously was a management consultant with McKinsey & Company (from 1985 to 1994). 32 33 Mr. Knutsen has been a director of the Company since 1997. He has served as Managing Director and Chief Executive Officer of Bang & Olufsen A/S since 1991, a company that develops and markets audio and visual products. Mr. Bjerre-Nielsen has been a director of the Company since May 7, 1998. He has served as Vice Executive Officer and Chief Financial Officer of Danisco A/S (since 1995), a food ingredients conglomerate. Prior thereto, he was a state-authorized Public Accountant, being a partner at Deloitte & Touche (from 1982 to 1995) and managing partner (from 1986 to 1995). Mr. Bjerre-Nielsen is also a director of Velux Industri A/S and Velux A/S, companies engaged in the business of global manufacturing of skylights. Mr. Furu was appointed as President and Chief Executive Officer in October 1998. He joined the Company in 1997 as Executive Vice President and Chief Operating Officer. Prior to joining the Company, Mr. Furu served as Vice President of IBM Denmark A/S and Director of Nordic PC Sales (from 1995 to 1997). Prior thereto, he served as Director of Sales for Finance and Telecommunications for IBM Denmark A/S (from 1993 to 1995) and as Assistant to the General Manager of Marketing, IBM Europe (from 1991 to 1993). Mr. Lars Larsen has been employed by the Company since February 1999 as Executive Vice President and Chief Financial Officer. Prior to joining the Company, Mr. Larsen was Director of Health Care, Finance and Information Technology (and prior thereto, Director of Corporate Planning & Economy) at Novo Nordisk A/S, a Danish pharmaceuticals manufacturer (from 1995 to 1999). Prior thereto, he was Group Controller at Baltica Holding A/S (from 1991 to 1995). Mr. Jorgensen has been employed by the Company since 1988 and was appointed Chief Technology Officer and Executive Vice President of Research, Development and Engineering in April 1998. He has had primary responsibility for the Company's Project Development Group since joining the Company, and served as Director of Engineering from 1990 and became Vice President of Research, Development and Engineering in November 1994. Mr. Per Bruno Larsen has been employed by the Company since April 1998, as Executive Vice President of Global Marketing, and President of Olicom, Inc. Prior to joining the Company, he served as Vice President, Brand Marketing, Mobile Computing with IBM Corporation (from 1994 to 1998). Prior thereto, he held various positions within IBM. Mr. Friis has been employed by the Company since November 1998 as Vice President, Operations. Prior to joining the Company, Mr. Friis was Vice President of Logistics in DanaData A/S (July 1995 to 1998). Prior thereto, he served as Purchasing Manager for computer equipment in a Danish retail chain. Mr. Hog has been employed by the Company since 1994, having served as its Director of Business Development. In May 1996, Mr. Hog became Vice President of Strategic Marketing. Prior to joining the Company, Mr. Hog was the President of CR Systems A/S, a Danish data communications company. Mr. Thyregod was employed by the Company as Vice President of Corporate Marketing in May 1998 and was appointed Vice President of Global Marketing & EMEA Sales in December 1998. Prior to joining the Company, Mr. Thyregod served as Vice President Commercial Operations and Marketing Manager International Operations at Navision Software A/S, an enterprise resource planning software company (from 1995 to 1998). From 1991 to 1995, Mr. Thyregod was Marketing Manager at Ingram Micro A/S, a network products distributor. 33 34 Mr. Harper has been employed by the Company since September 1998 as Vice President of Sales, Americas. Prior to joining the Company, Mr. Harper was the Vice President of Network Integration for Racal Datacom, Inc. (from 1997 to 1998). Prior thereto, he served as Director of Worldwide Vertical Sales & Marketing for Equant International (from 1996 to 1997). Prior thereto, he served as Director of Network Integration for BellSouth Corporation (from 1989 to 1996). Mr. Athwal was appointed Vice President of Sales for Asia-Pacific (APAC) in January 1998. He has been with the Company since January 1994 and previously served as Assistant Vice President of Corporate Marketing, and earlier as Director of Commercial Marketing. Prior to joining the Company, Mr. Athwal held various marketing positions at Cray Communications in the UK and NEC in Germany. Mr. Jackman has been employed by the Company since January 1999 as Vice President of Global Sales and Marketing Operations. Prior to joining the Company, he served as Vice President of Systems and Technology, IBM Corporation (from 1997 to 1998). Prior thereto, he served as Director of Mobile Computing Brand Operations, IBM Corporation (from 1991 to 1996). Prior thereto, he held various positions within IBM. Ms. Fogt has served as Director of Legal Affairs since 1997. Prior to joining the Company, Ms. Fogt served as Secretary to the Management at Jacob Holm & Sons A/S, a Danish manufacturer of fiber products, primarily for the hygiene industry (from 1995 to 1997). Prior thereto, Ms. Fogt was an attorney at the law firm Kromann & Munter (from 1988 to 1995). Mr. Harrell was appointed Vice President of Information Technology in July 1998. He has been with the Company since June 1996 and has previously served as Director of Information Technology and earlier as Director of Support Services, Americas. Prior to joining the Company, he was Assistant Vice President of LAN Services for USLIFE, from 1993 to 1996. Except for Messrs. Harper, Athwal, Harrell and Jackman, all directors and members of corporate management are Danish citizens. There are no family relationships among directors and executive officers of the Company or its subsidiaries. The Company's Articles of Association provide for a Board of Directors of four to eight members, to be elected by the shareholders to serve one-year terms. In addition, directors may be elected for four-year terms by the Company's employees, in accordance with Danish law. The statutory rights of the Company employees to elect directors have not been exercised to date. Officers of the Company serve at the discretion of the Board of Directors. LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS The Company has entered into Indemnification Agreements with its directors, executive officers and key employees. Each such Indemnification Agreement provides for indemnification of the Company's directors, executive officers and key employees to the fullest extent permitted by the Companies Act of the Kingdom of Denmark (the "Companies Act"). Additionally, Olicom, Inc., has entered into Indemnification Agreements with its directors, executive officers and key employees. Each such 34 35 Indemnification Agreement provides for indemnification of the directors, executive officers and key employees of Olicom, Inc., to the fullest extent permitted by the Delaware General Corporation Law. Further, such Indemnification Agreements permit advancing attorney's fees and all other costs, expenses, obligations, fines and losses paid or incurred by a director, executive officer or key employee generally in connection with the investigation, defense or other participation in any threatened, pending or completed action, suit or proceeding or any inquiry or investigation thereof, whether conducted by or on behalf of the Company or any other party. If it is later determined that the director, executive officer or key employee is or was not entitled to indemnification under applicable law, the Company will be entitled to reimbursement by the director, executive officer or key employee. The Indemnification Agreements further provide that in the event of a change in control of the Company or Olicom, Inc., with respect to all matters thereafter arising concerning the rights of directors, executive officers and key employees to indemnity payments and expense advances, all determinations regarding claims will be made only by a court of competent jurisdiction or by special independent legal counsel selected by the director, executive officer or key employee and approved by the Company or Olicom, Inc., as appropriate. To the extent that the Board of Directors of the Company or Olicom, Inc., or their respective shareholders may in the future wish to limit or repeal the ability of the Company or Olicom, Inc., to indemnify directors, executive officers and key employees, such repeal or limitation may not be effective as to directors, executive officers and key employees who are parties to such Indemnification Agreements, because their rights to full protection will be contractually assured by the Indemnification Agreements. It is anticipated that similar contracts may be entered into, from time to time, with future directors, executive officers and key employees of the Company and Olicom, Inc. ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS. An aggregate of approximately $1,056,326 was paid by the Company to its directors and executive officers as a group (9 persons) for services rendered during fiscal year 1998 in all capacities, and approximately $841,000 was paid by the Company during fiscal year 1998 to its senior management, consisting of the Company's President and Chief Executive Officer, its Chief Financial Officer and its Chief Technology Officer, registered with the Commercial and Companies Agency of the Kingdom of Denmark. ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES. At March 22, 1999, the Company had outstanding options to its employees and directors, and employees and directors of Olicom, Inc., to purchase an aggregate of 2,570,38 Common Shares (the foregoing includes options assumed by the Company in connection with the acquisition of CrossComm). The exercise price for such options ranges from $3.35 to $30.25. Such options terminate on various dates through December 14, 2003. At March 22, 1999, options to purchase an aggregate of 740,800 Common Shares were held by directors and executive officers of the Company. 35 36 On December 10, 1998, the exercise prices of 482,300 outstanding options issued in March 1998 (314,500 options) and August 1998 (167,800 options) were reset with reference to the then prevailing market price for the Company's Common Shares. The original exercise prices for the options reset were $26.25 and $19.50, respectively. The new exercise price for these options is $10.00. The market price for the Company's Common Shares at the date of the reset was $5.25. ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS. See "Officers and Directors of the Registrant -- Limitation of Liability and Indemnification Agreements." In connection with the repricing of options on December 10, 1998, the exercise prices of options issued to officers and directors were adjusted. Of the options held by officers and directors, the exercise price for 184,000 options issued in 1998 were reset to $10.00 (a premium to the $5.25 market price for the Common Shares on the date of repricing). The Company's policy is to require that all transactions between the Company and its officers, directors and other affiliates be on terms no less favorable to the Company than could be obtained from unaffiliated third parties, and that all such transactions be approved by a majority of the disinterested members of the Company's Board of Directors. 36 37 PART II Not applicable. PART III ITEM 15. DEFAULTS UPON SENIOR SECURITIES Not applicable. ITEM 16. CHANGES IN SECURITIES AND CHANGES IN SECURITY FOR REGISTERED SECURITIES. Not applicable. PART IV ITEM 17. FINANCIAL STATEMENTS. The Company has responded to Item 18 in lieu of responding to this Item. 37 38 ITEM 18. FINANCIAL STATEMENTS. Report of Independent Auditors The Board of Directors and Shareholders, Olicom A/S We have audited the accompanying consolidated balance sheets of Olicom A/S and subsidiaries as of December 31, 1997 and 1998, and the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. 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 auditing standards generally accepted in the United States of America. 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 consolidated financial position of Olicom A/S and subsidiaries at December 31, 1997 and 1998, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with accounting principles generally accepted in the United States of America. /s/ Ernst & Young Ernst & Young Statsautoriseret Revisionsaktieselskab Copenhagen, February 4, 1999 38 39 Olicom A/S Consolidated Balance Sheets
DECEMBER 31 1997 1998 --------- --------- ASSETS (In thousands) Current assets: Cash and cash equivalents $ 45,305 $22,246 Short-term investments (Note 4) 915 0 Accounts receivable, less allowance of $3,170 in 1997 and $2,522 in 1998 50,527 39,035 Inventories: Finished goods 17,397 29,345 Raw materials 7,692 7,605 --------- --------- 25,089 36,950 Deferred income taxes (Note 6) 2,150 4,335 Prepaid expenses and other current assets 2,398 8,405 --------- --------- Total current assets 126,384 110,971 Net assets of discontinued operations (Note 7) 7,300 4,044 Investments in affiliated companies 733 958 Property and equipment: Leasehold improvements 2,858 4,269 Equipment 30,290 33,900 --------- --------- 33,148 38,169 Accumulated depreciation (17,699) (19,165) --------- --------- 15,449 19,004 Goodwill, net of accumulated amortization of $1,638 in 1997 and $3,641 in 1998 9,172 7,169 --------- --------- Total assets $ 159,038 $ 142,146 ========= =========
See accompanying notes 39 40 Olicom A/S Consolidated Balance Sheets
DECEMBER 31 1997 1998 --------- --------- (In thousands) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 18,458 $ 22,027 Accrued payroll and related expenses 3,815 6,051 Accrued product warranty expense 1,118 1,123 Deferred revenue 2,942 611 Accrued restructuring costs 0 4,935 Other accrued expenses 7,101 4,376 Income taxes payable 45 0 --------- --------- Total current liabilities 33,479 39,123 Shareholders' equity: Common stock, DKK 0.25 nominal value Authorized and issued - 18,495 in 1997 and in 18,594 1998 712 715 Additional paid-in capital 102,633 104,364 Retained earnings 38,728 15,789 Treasury stock - 940 in 1997 and in 731 1998 (14,988) (17,462) Unearned compensation (1,594) (383) Other comprehensive income 68 0 --------- --------- Total shareholders' equity 125,559 103,023 --------- --------- Total liabilities and shareholders' equity $ 159,038 $ 142,146 ========= ==========
See accompanying notes 40 41 Olicom A/S Consolidated Statements of Income
YEAR ENDED DECEMBER 31 1996 1997 1998 --------- --------- --------- (In thousands except per share amounts) Net sales $ 142,437 $ 209,985 $ 206,817 Cost of sales 77,048 101,633 119,336 Special charges related to inventories (Note 8) 0 0 3,463 --------- --------- --------- Gross profit 65,389 108,352 84,018 --------- --------- --------- Operating expenses: Sales and marketing 37,399 50,204 68,216 Research and development 11,218 15,477 20,975 General and administrative 7,103 10,833 13,296 Restructuring charges (Note 8) 0 0 7,327 Acquisition-related expenses 3,787 40,917 0 --------- --------- --------- Total operating expenses 59,507 117,431 109,814 --------- --------- --------- Income (loss) from continuing operations before interest and income taxes 5,882 (9,079) (25,796) Interest and other financial income 2,441 3,611 2,881 Interest and other financial expense (769) (574) (456) Foreign currency gains (losses) (632) (2,483) 448 Related party gain on sale of investment (Note 12) 2,878 0 0 --------- --------- --------- Income (loss) from continuing operations before income taxes 9,800 (8,525) (22,923) Income taxes (Note 6) 3,992 10,332 (153) --------- --------- --------- Income (loss) from continuing operations 5,808 (18,857) (22,770) Income (loss) from discontinued operations net of tax of $551 in 1996, $268 in 1997 and $(283) in 1998 (Note 7) 1,617 736 (169) --------- --------- --------- Net income (loss) $ 7,425 $ (18,121) $ (22,939) ========= ========= ========= Earnings (loss) per share from continuing operations: Basic earnings (loss) per share $ 0.40 $ (1.19) $ (1.27) ========= ========= ========= Weighted average shares outstanding 14,653 15,821 17,894 ========= ========= ========= Diluted earnings (loss) per share $ 0.39 $ (1.19) $ (1.27) ========= ========= ========= Weighted average shares outstanding including common stock equivalents in 1996 14,786 15,821 17,894 ========= ========= =========
See accompanying notes 41 42 Olicom A/S Consolidated Statements of Income (continued)
YEAR ENDED DECEMBER 31 1996 1997 1998 ------- -------- ------- (In thousands except per share amounts) Earnings (loss) per share: Basic earnings (loss) per share $ 0.51 $ (1.15) $ (1.28) ======= ======== ======= Weighted average shares outstanding 14,653 15,821 17,894 ======= ======== ======= Diluted earnings (loss) per share $ 0.50 $ (1.15) $ (1.28) ======= ======== ======= Weighted average shares outstanding including common stock equivalents in 1996. 14,786 15,821 17,894 ======= ======== =======
Olicom A/S Consolidated Statements of Comprehensive Income
YEAR ENDED DECEMBER 31 1996 1997 1998 -------- -------- -------- (In thousands) Net income (loss) $ 7,425 $(18,121) $(22,939) Other comprehensive income (loss), net of tax: Currency translation adjustments (617) 0 0 Change in unrecognized gain (loss) on short-term investments Unrealised holding gains (losses) arising during period (213) 660 30 Less: reclassification adjustment for gains included in net income 0 (121) (98) -------- -------- -------- Comprehensive net income (loss) $ 6,595 $(17,582) $(23,007) ======== ======== ========
42 43 Olicom A/S Consolidated Statements of Shareholders' Equity
Other Additional Unearned compre- Common paid-in Retained Treasury compen- hensive stock capital earnings stock sation income Total ------- ---------- ---------- --------- -------- -------- --------- (In thousands) BALANCE AT DEC. 31, 1995 $ 610 $ 51,754 $ 49,424 $ (12,020) $ 0 $ 359 $ 90,127 Net income for 1996 7,425 7,425 Purchase of treasury stock - 3 common stock (28) (28) Options and warrants exercised - 23 common stock (10) 217 207 Warrants exercised - 101 common stock 4 604 608 Change in unrealized gains (losses) (213) (213) Currency translation adjustments (617) (617) ------- ---------- ---------- --------- -------- --------- --------- BALANCE AT DEC. 31, 1996 $ 614 $ 52,348 $ 56,849 $ (11,831) $ 0 $ (471) $ 97,509 Net (loss) for 1997 (18,121) (18,121) Issuance of 2,537 common stock to acquire CrossComm 97 38,691 38,788 Issuance of 1,023 warrants to acquire CrossComm 3,806 3,806 Exchange of vested CrossComm options for Olicom options 3,834 3,834 Exchange of unvested CrossComm options for Olicom options 1,859 (1,859) 0 Purchase of treasury stock - 630 common stock (15,716) (15,716) 320 common stock sold through offering at Copenhagen Stock Exchange 5,295 3,030 8,325 Options exercised - 626 common stock (3,326) 9,529 6,203 Warrants exercised - 20 common stock 1 126 127 Change in unrealized gains (losses) 539 539 Amortization of unearned compensation 265 265 ------- ---------- ---------- --------- -------- -------- --------- BALANCE AT DEC. 31, 1997 $ 712 $ 102,633 $ 38,728 $ (14,988) $ (1,594) $ 68 $ 125,559 Net (loss) for 1998 (22,939) (22,939) Purchase of treasury stock - 400 common stock (10,358) (10,358) Options exercised - 609 common stock (12) 7,884 7,872 Warrants exercised - 99 common stock 3 1,950 1,953 Change in unrealized gains (losses) (68) (68) Amortization of unearned compensation (207) 1,211 1,004 ------- ---------- --------- --------- -------- -------- --------- BALANCE AT DEC. 31, 1998 $ 715 $ 104,364 $ 15,789 $ (17,462) $ (383) $ 0 $ 103,023 ------- ---------- --------- --------- -------- -------- ---------
See accompanying notes 43 44 Olicom A/S Consolidated Statements of Cash Flows
YEAR ENDED DECEMBER 31 1996 1997 1998 -------- -------- -------- (In thousands) OPERATING ACTIVITIES Net income (loss) $ 7,425 $(18,121) $(22,939) Less: Income (loss) from discontinued operations (1,617) (736) 169 -------- -------- -------- Income (loss) from continuing operations 5,808 (18,857) (22,770) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation 2,259 4,654 6,942 Amortization 1,326 1,262 2,003 Non cash compensation 0 265 1,004 Gain on sale of investment (2,878) (121) (98) Deferred income taxes (1,141) (994) (2,185) Share of net income (loss) of affiliates 0 (206) (225) Acquisition-related expenses 2,170 40,917 0 Changes in operating assets and liabilities: Accounts receivable 4,771 (14,713) 11,492 Inventories 12,136 (2,810) (11,861) Prepaid expenses and other current assets (39) (523) (6,007) Accounts payable (9,800) 1,971 3,569 Accrued payroll and related expenses (3,684) 350 2,236 Accrued product warranty expense 119 (886) 5 Deferred revenue 0 (638) (2,331) Accrued restructuring costs 0 0 4,935 Other accrued liabilities 4,957 6,782 (2,724) Income taxes payable 831 (301) (45) -------- -------- -------- Net cash provided by/(used in) operating activities 16,835 16,152 (16,060) INVESTING ACTIVITIES Capital expenditures (8,587) (7,964) (12,410) Proceeds from sale of property and equipment 0 136 1,912 Proceeds from sale of investments 7,193 42,089 945 Business acquisitions - net of cash acquired and other investments (2,545) (40,161) 0 -------- -------- -------- Net cash used in investing activities (3,939) (5,900) (9,553)
See accompanying notes 44 45 Olicom A/S Consolidated Statements of Cash Flows (continued)
YEAR ENDED DECEMBER 31 1996 1997 1998 -------- -------- -------- (In thousands) FINANCING ACTIVITIES Change in short-term borrowings $ (6,451) $ 0 $ 0 Proceeds from sale of treasury stock - Copenhagen Stock Exchange 0 8,325 0 Proceeds from options and warrants exercised 816 6,330 9,825 Purchase of treasury stock (28) (15,716) (10,358) -------- -------- -------- Net cash used in financing activities (5,663) (1,061) (533) Cash flows provided by/(used in) discontinued operations (697) (1,883) 3,087 Effects of exchange rates on cash (689) (915) 0 -------- -------- -------- Net increase (decrease) in cash and cash equivalents 5,847 6,393 (23,059) Cash and cash equivalents at beginning of year 33,065 38,912 45,305 -------- -------- -------- Cash and cash equivalents at end of year $ 38,912 $ 45,305 $ 22,246 ======== ======== ======== Interest paid during the year $ 187 $ 58 $ 50 ======== ======== ======== Income taxes paid during the year $ 4,819 $ 10,645 $ 6,566 ======== ======== ========
In 1997, the Company exercised an option to acquire 35% of the equity in Digianswer A/S, through conversion of a note receivable, recorded at December 31, 1996, at $681. The acquisition of CrossComm Corporation was completed partly as a non-cash transaction. See Note 2. See accompanying notes 45 46 Olicom A/S Notes to Consolidated Financial Statements 1. ACCOUNTING POLICIES DESCRIPTION OF BUSINESS The Company is a world-wide vendor of Asynchronous Transfer Mode, Token Ring, Ethernet and multi-protocol routing products used in local area and wide area networks. The Company designs, develops, markets and supports software and hardware products which permit computer users operating different types of equipment to communicate, exchange data and share computing resources. REPORTING CURRENCY Although the Company and its subsidiaries maintain their books and records in local currencies, as required by law, the Consolidated Financial Statements have been prepared in U.S. dollars because the U.S. dollar is the currency of the primary economic environment in which the Company and its subsidiaries conduct their operations. The majority of the Company's sales are billed and collected in U.S. dollars, and the majority of the Company's purchases of raw materials and finished goods inventories are invoiced and paid in U.S. dollars. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of Olicom A/S and its majority-owned subsidiaries (the Company). The Company's investments in 20-50% owned companies are accounted for by the equity method of accounting. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions, which affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The Company's inventories and capitalized technologies consist primarily of items which are susceptible to technological obsolescence, a fact which has been considered in determining asset valuation reserves as of December 31, 1998. However, in the event of certain circumstances, such as the emergence of otherwise unforeseen new technologies and significant changes in anticipated market requirements and conditions, additional reserves related to assets held as of December 31, 1998 could be required in the future. CASH AND CASH EQUIVALENTS Cash and cash equivalents represent cash and short-term deposits with maturities of less than three months at the time of purchase. SHORT-TERM INVESTMENTS Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each balance sheet date. Short-term investments not classified as held-to-maturity are classified as available-for-sale. Short-term investments available-for-sale are carried at fair value, with the unrealized gains and losses, net of tax, reported as other comprehensive income. Realized 46 47 gains and losses and declines in value judged to be other than temporary on available-for-sale short-term investments are included in interest income. The cost of short-term investments is based on the average cost method. Interest and dividends on short-term investments classified as available-for-sale are included in interest income. INVENTORIES Inventories are stated as the lower of cost or market with cost determined on the basis of the first in, first out method. Raw materials inventories are sold at the Company's cost to subcontractors who assemble products to the Company's specifications. Finished goods inventories include completed products purchased from subcontractors. LEASEHOLD IMPROVEMENTS AND EQUIPMENT Leasehold improvements and equipment are carried at cost. Depreciation is charged on a straight-line basis to costs and expenses over the expected useful lives of the assets. Equipment is depreciated over four years, and leasehold improvements are amortized over the shorter of their estimated lives or non-cancelable term of the lease. GOODWILL Cost in excess of net assets of businesses acquired (goodwill) represents the unamortized excess of the cost of acquiring a business over the fair value of the assets acquired at the date of acquisition. Amortization is computed by the straight-line method over the estimated life of the benefit received, which is five to seven years. On an annual basis, an impairment test is performed on the basis of future undiscounted operating cash-flows expected in respect of the assets to which the goodwill relates. Should the amount of these undiscounted operating cash-flows exceed the carrying amount of the related assets, an impairment write-off would be recorded based on discounted expected operating cash-flows. REVENUE RECOGNITION Revenue is recognized when products are shipped. Service revenues are deferred and recognized ratably over the contractual periods. Certain sales have been made allowing a limited right of return. ACCRUED PRODUCT WARRANTY EXPENSE The Company provides for the estimated cost of warranty at the time of product shipment. RESEARCH AND DEVELOPMENT COSTS Research and development costs, including costs of developing software products, are expensed as incurred. Application of Statement of Financial Accounting Standards No. 86, "Accounting for the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed," has not had any material effect on the Company's consolidated financial position or results of operations. FOREIGN CURRENCY TRANSLATION Gains and losses resulting from non-U.S. dollar transactions, and the remeasurement of foreign currency balances and accounts denominated in currencies other than the U.S. dollar, are included in the determination of net income in the period in which they occur, in accordance with the requirements of Statement of Financial Accounting Standards No. 52, "Foreign Currency Translation". 47 48 Gains and losses resulting from translation of the Company's equity investments into U.S. dollars are included as other comprehensive income. INCOME TAXES The Company accounts for income taxes by the liability method, as required by Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". ADVERTISING Costs associated with advertising the Company's products and services are expensed as incurred. Advertising costs for the years ended December 31, 1996, 1997 and 1998 approximated $1,355,000, $1,398,000 and $2,464,000, respectively. RECLASSIFICATION The prior year amounts have been reclassified to conform to the current year presentation. RECENT ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which is required to be adopted in years beginning after June 15, 1999. Management does not anticipate that the adoption of the new Statement will have a significant impact on earnings or the financial position of the Company. 2. BUSINESS COMBINATIONS In June 1997, the Company consummated its acquisition of CrossComm Corporation, a provider of ATM and multi-protocol router technology for mission-critical SNA/Token-Ring environments. The consideration, which was a combination of $47.6 million in cash, 2,537,423 Common Shares and 1,022,771 three-year warrants to purchase Common Shares, totalled approximately $96.0 million. The acquisition was accounted for as a purchase. Accordingly, the results of operations of the acquired business and the fair market values of the acquired assets and assumed liabilities were included in the Company's financial statements as of the effective date. This accounting treatment resulted in approximately $9.7 million of intangible assets that will be amortized over their estimated period of benefit. Approximately $40.9 million of the acquisition cost represented purchased in process research and development, which was determined through known valuation techniques in the high-technology communications industry and was immediately expensed in the period of acquisition because technological feasibility had not been established and no alternative commercial use had been identified. The following summary, prepared on a pro forma basis, combines the results of operations as if CrossComm had been acquired as of the beginning of the periods presented. The summary includes the impact of certain adjustments such as goodwill amortization and estimated changes in interest income because of cash outlays associated with the transaction and the related income tax effect: 48 49
DECEMBER 31 1996 1997 ------------------------- (In thousands, except per share amounts) (Unaudited) Net sales $ 213,102 $ 254,781 Net income (loss) (1,433) 18,832 Basic earnings (loss) per share (0.08) 1.11 Diluted earnings (loss) per share (0.08) 1.06
The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been in effect for all periods presented. In addition, they are not intended to be a projection of future results and do not reflect any synergies that might or might not be achieved from the combined operations. 3. WARRANTS In connection with the acquisition of CrossComm Corporation, the Company's shareholders approved the issuance of three-year warrants, each whole warrant being the right to acquire a Common Share at a price of $19.74 per each full Common Share. During 1998, 98,947 warrants were exercised at a price of $19.74 per share. The holders of the remaining 923,158 outstanding warrants as of December 31, 1998, may exercise a warrant, at a price of $19.74 per share, no later than June 12, 2000. In the event that all or any part of the warrants are not exercised by June 12, 2000, then such warrants will expire. The warrants are listed on the Nasdaq National Market (OLCWF). 4. SHORT-TERM INVESTMENTS The following is a summary of available-for-sale securities held as current assets:
UNREALIZED UNREALIZED BOOK COST GAINS LOSSES VALUE ------------------------------------------ (In thousands) Equity securities $ 847 $ 127 $ 59 $ 915 ------------------------------------------ December 31, 1997 $ 847 $ 127 $ 59 $ 915 ==========================================
The equity securities were sold in 1998 at a gain of $98,000. The net adjustment to unrealized holding gains/(losses) on available-for-sale short-term investments included as a separate component of shareholders' equity totalled $(471,000), $68,000 and $0 in 1996, 1997 and 1998, respectively. 5. LINES OF CREDIT The Company has unsecured lines of credit with two banks, providing maximum facilities as of December 31, 1997 and 1998 of $10.7 million and $9.3 million, respectively. The credit lines were unused as of December 31, 1998. 49 50 6. INCOME TAXES Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets as of December 31, 1997 and 1998 are as follows:
1997 1998 -------- -------- (In thousands) Deferred tax liabilities Tax over book depreciation $ 1,497 $ 1,373 Inventory write down 646 0 Other 819 343 -------- -------- 2,962 1,716 Deferred tax assets Book over tax depreciation 960 2,314 Allowance for uncollectible receivables 935 316 Inventory valuations 3,205 4,467 Net operating losses carried forward (NOL) 9,877 12,936 Tax credit carryforwards 1,207 1,710 Other accruals 3,829 2,546 -------- -------- Deferred tax assets, gross 20,013 24,289 -------- -------- Net deferred tax liabilities (assets) before valuation allowance $(17,051) $(22,573) Valuation allowance $ 14,901 $ 18,238 -------- -------- Net deferred tax liabilities (assets) $ (2,150) $ (4,335) ======== ========
The deferred tax asset valuation allowance, taken over at the acquisition of CrossComm, is primarily attributed to U.S. federal and state deferred tax assets. Management believes sufficient uncertainty exists regarding the realizability of these items that a valuation allowance is required. As of December 31, 1998 the Company has approximately $31.1 million of United States federal net operating loss carryover. Of this amount approximately $25 million is subject to limitation under Section 382 of the United States Internal Revenue Code. In addition, the Company has approximately $1.2 million of research and development credit carryover at December 31, 1998, subject to limitation under Section 383 of the Internal Revenue Code. As of December 31, 1998 the Company also has net operating losses for its Danish operations of approximately $11.2 million. These losses can be carried forward and offset against taxable income of the Danish operations for the following five years. For financial reporting purposes, income before income taxes includes the following components: 50 51
1996 1997 1998 -------- -------- -------- (In thousands) Pretax income: Denmark $ 6,143 $(33,151) $(22,639) United States 3,657 24,626 (284) -------- -------- -------- $ 9,800 $ (8,525) $(22,923) ======== ======== ========
Significant components of the provision for income taxes are as follows:
1996 1997 1998 -------- -------- -------- (In thousands) Current: Denmark $ 2,944 $ 747 $ 3,147 United States 2,189 10,579 (1,115) -------- -------- -------- 5,133 11,326 2,032 -------- -------- -------- Deferred: Denmark (312) 1,298 (2,185) United States (829) (2,292) 0 -------- -------- -------- (1,141) (994) (2,185) -------- -------- -------- $ 3,992 $ 10,332 $ (153) ======== ======== ========
The reconciliation of income tax computed at the Danish statutory tax rates to income tax expense is:
1996 1997 1998 ------------------------------------------------- (In thousands) % % % Danish tax $ 3,332 34 $ (2,899) (34) $ (7,794) (34) Goodwill amortization 247 2 411 6 2,003 9 Increase in valuation allowance 0 0 0 0 3,337 15 Acquisition-related expenses 336 2 12,827 179 0 0 Benefit of foreign tax relief (117) (1) (112) (2) 0 0 United States taxes net of credits 118 1 0 0 (304) (1) Adjustments prior years 0 0 0 0 2,496 11 Other net 76 (1) 105 0 109 0 ------------------------------------------------- $ 3,992 37 $ 10,332 149 $ (153) 0 =================================================
Undistributed earnings of the Company's United States subsidiaries amounted to $78.9 million in 1998. Those earnings are considered to be indefinitely reinvested. Upon distribution of those earnings in the form of dividends, the amount thereof would be subject only to withholding tax at a rate of 5% in accordance with the provisions of the Denmark/United States double tax treaty. 7. DISCONTINUED OPERATIONS As part of its new strategy announced November 30, 1998, the Company decided to divest its 75% holding in Lasat A/S ("Lasat"), a provider of PC modems. On January 15, 1999, Olicom's 75% holding in 51 52 Lasat was sold to a consortium of Lasat management, employees and two Denmark-based venture funds. The gain from the divestiture amounted to approximately $1.4 million, which will be recognized in 1999. The results of Lasat A/S have been reported separately as income from discontinued operations, net of tax, in the Consolidated Statements of Income. Prior year Consolidated Statements of Income have been restated accordingly. The Consolidated Balance Sheets as of December 31, 1997 and 1998 have been restated to segregate the Company's investment in Lasat A/S. On the Consolidated Statements of Cash Flows, the Company's share of income of Lasat A/S in 1996, 1997 and 1998 are reported as Income from discontinued operations. Sales in Lasat A/S were $26 million, $28 million and $22 million in 1996, 1997 and 1998, respectively. On December 31, 1998, the assets of Lasat A/S consisted primarily of inventories, accounts receivable and fixed assets amounting to approximately $7.7 million, and liabilities amounted to approximately $3.7 million. 8. SPECIAL CHARGES AND RESTRUCTURING CHARGES On September 9, 1998, the Company announced plans to discontinue its U.S. based Research and Development activities and to consolidate all such activities in Denmark and Poland. Also, the Company expanded its professional service relationship with Vital Network Services. Vital has according to the agreement assumed responsibility for certain of the Company's professional services. As part of the agreement Vital purchased the resources and assets of Olicom's North American professional service operations. The actions were part of a global consolidation, which resulted in the release of approximately 50 employees in Administrative functions, Marketing, Research & Development and Operations. As a consequence of these actions the Company has recorded special charges of approximately $1 million, related to inventory write-offs, and restructuring charges of $2.3 million, primarily related to staff reductions and fixed asset write-offs. On November 30, 1998, the Company announced its strategy for 1999 and forward. This included a major corporate restructuring in the fourth quarter of 1998. The restructuring included a staff reduction of approximately 20 percent, the closing of some offices and discontinuation of certain of products. The Company recorded special charges of $2.5 million in connection with the restructuring, related primarily to discontinued product write-offs. Furthermore, restructuring charges of $5 million were recorded, primarily related to the staff reduction and fixed asset write-offs. The total restructuring charges and special charges are specified as follows: 52 53
Accrued Total expenses Dec. 31, 1998 ------------------------------------- (In thousands) Employee expenses $ 3,939 $ 1,207 Other expenses 3,388 2,727 ------------------------------------- Restructuring charges 7,327 3,934 Special charges related to inventories 3,463 1,001 ------------------------------------- $ 10,790 $ 4,935 =====================================
Employees terminated in connection with the implementation of the new strategy announced November 30, 1998 were distributed as follows: Operations 29 Sales and marketing 81 General and administrative 11 ----- Total number of employees terminated 121 =====
9. EMPLOYEE STOCK OPTION PLANS The Company has elected to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related Interpretations in accounting for its employee stock options because, as discussed below, the alternative fair value accounting provided for under FASB Statement No. 123, "Accounting for Stock-Based Compensation", requires use of option valuation models that were not developed for use in valuing employee stock options and warrants. Under APB 25, because the exercise price of the Company's employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recognized. 1994, 1996 AND 1997 SHARE INCENTIVE PLANS The Company's 1994, 1996 and 1997 Share Incentive Plans have authorized the grant of options to directors, executives and key employees for up to 425,000, 1,000,000 and 2,000,000 shares, respectively, of the Company's common stock. The majority of options granted have 5 year terms and vest and become fully exercisable at the end of 4 years of continued employment. CROSSCOMM STOCK OPTIONS EXCHANGED FOR OLICOM STOCK OPTIONS At the acquisition of CrossComm approximately 1,500,000 CrossComm stock options were exchanged for 905,511 Olicom stock options ("CrossComm options"), with comparable exercise prices and terms. PRO FORMA INFORMATION Pro forma information regarding net income and earnings per share is required by Statement 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 1996, 1997 and 1998: risk-free interest rates of 6.5%; dividend yields of 0%; volatility factors of the expected market price of the Company's common stock of 0.4; 25% of these options granted are expected to expire without being exercised; and weighted-average expected life of the options of 5 years. 53 54 The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions including the expected stock price volatility. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options' vesting period. The Company's pro forma information follows:
1996 1997 1998 ------------------------------------------- (In thousands, except earnings per share) Net income (loss) - as reported $ 7,425 $(18,121) $(22,939) Net income (loss) - pro forma $ 7,156 $(20,307) $(25,792) Basic earnings (loss) per share - as reported $ 0.51 $ (1.15) $ (1.28) Basic earnings (loss) per share - pro forma $ 0.49 $ (1.28) $ (1.44) Diluted earnings (loss) per share - as reported $ 0.50 $ (1.15) $ (1.28) Diluted earnings (loss) per share - pro forma $ 0.48 $ (1.28) $ (1.44)
SUMMARY OF STOCK OPTION ACTIVITY On December 10, 1998, the exercise prices of 482,300 outstanding options issued in March 1998 (314,500 options) and August 1998 (167,800 options) were reset with reference to the then prevailing market price for the Company's Common Shares. The original exercise prices for the options reset were $26.25 and $19.50, respectively. The new exercise price for these options is $10.00. The market price for the Company's Common Shares at the date of the reset was $5.25. A summary of the Company's stock option activity, and related information for the three years ended December 31, 1998, follows: 54 55
Outstanding Exercisable Weighted-average Weighted-average number of number of exercise fair value of options options price option granted ----------- ----------- ---------------- ---------------- January 1, 1996 291,500 47,250 9 Granted 466,100 11.49 $ 3.63 Exercised (23,000) 9 Expired (68,875) 9 ----------- ------ December 31, 1996 665,725 77,875 10.74 CrossComm options 905,511 10.52 Granted 710,200 14.79 $ 6.36 Exercised (589,794) 9.98 Expired (170,814) 16.87 ----------- ------ December 31, 1997 1,520,828 326,699 $12.11 Granted 1,001,605 12.24 $ 7.99 Exercised (608,910) 12.89 Expired (246,349) 15.48 ----------- ------ December 31, 1998 1,667,174 425,960 $11.53 =========== =========== ======
The following table summarizes the status of the Company's stock options, outstanding and exercisable at December 31, 1998:
Outstanding Weighted-average Weighted-average Exercisable Weighted-average Range of number of remaining exercise number of exercise Exercise Prices shares contractual life price shares price --------------- ----------- ----------------- ---------------- ----------- ---------------- $ 3.35 - $ 6.00 96,268 2.93 years $ 5.46 268 $ 3.36 $ 8.40 - $ 9.00 261,351 4.45 years $ 8.66 214,892 $ 8.70 $ 9.00 - $12.00 868,405 3.58 years $ 10.31 81,347 $11.30 $14.00 - $17.00 356,650 2.92 years $ 14.62 126,453 $15.62 $26.25 - $30.25 84,500 3.15 years $ 26.75 3,000 $29.79 ----------- ----------- 1,667,174 425,960
10. EMPLOYEE BENEFIT PLANS The Company's subsidiaries in the U.S. have a 401(k) Plan. The Plan has been in place since May 1, 1993. Effective January 1, 1997, the Plan allows for both the Company and eligible employees to contribute. All employees over 21 years of age are eligible to participate. The Company's contribution equals 50% of an employee's contribution that does not exceed 6% of compensation. The Company's contribution expenses for 1997 and 1998, were $255,759 and $ 398,106, respectively. The Company does not provide its employees with other post-retirement and post-employment benefits. 11. LEASE COMMITMENTS The Company leases its headquarters and main warehouse facility under noncancellable operating leases which expire during the period from 2006 to 2008. The leases contain escalation clauses. 55 56 Additionally, the Company and its subsidiaries are lessees in other noncancellable lease arrangements for office buildings and warehouses, expiring on different dates. The total future minimum lease payments under the foregoing leases at December 31, 1998, are:
Headquarters Other Total ------------------------------------- (In thousands) 1999 $ 2,192 $ 2,589 $ 4,781 2000 1,991 2,093 4,084 2001 2,041 1,810 3,851 2002 2,092 1,745 3,837 2003 2,144 1,287 3,431 Remaining 11,766 4,237 16,003 -------------------------------------- $ 22,226 $ 13,761 $ 35,987 ======================================
Total lease amounts charged to expense are $ 2,294,000 in 1996, $3,488,000 in 1997 and $3,892,000 in 1998. 12. RELATED PARTY TRANSACTIONS On January 23, 1996 the Company completed the sale of its 35.6% investment in Contex A/S to Nilex Systems ApS, a related party, for a cash consideration of $7.2 million (DKK 41.0 million). The sale resulted in a gain of $2,878,000 net of taxes. 13. SEGMENT INFORMATION The Company currently operates in the data networking industry, primarily within the following technologies: Asynchronous Transfer Mode, Token-Ring and Fast Ethernet. The Company considers its products being one group of similar products. The Company manages its business primarily in two separate geographical areas: Americas, incorporating North and South America, and International, incorporating Europe and Asia Pacific. Information about the Company's operations by reportable segments is as follows: 56 57
INTER- ELIMI- CONSO- NATIONAL AMERICAS NATIONS LIDATED --------- --------- --------- --------- (In thousands) 1998 Net sales: External customers $ 100,828 $ 105,989 $ 0 $ 206,817 Intercompany 76,588 10,471 (87,059) $ 0 --------- --------- --------- --------- Total $ 177,416 $ 116,460 $ (87,059) $ 206,817 ========= ========= ========= ========= Depreciation and amortization $ 6,982 $ 1,963 $ 0 $ 8,945 ========= ========= ========= ========= Operating income (loss) $ (20,568) $ (3,447) $ (1,781) $ (25,796) ========= ========= ========= ========= Investments in affiliated companies $ 958 $ 0 $ 0 $ 958 ========= ========= ========= ========= Total assets $ 71,174 $ 84,313 $ (44,516) $ 110,971 ========= ========= ========= ========= Long-lived assets $ 12,677 $ 6,327 $ 0 $ 19,004 ========= ========= ========= ========= 1997 Net sales: External customers $ 97,716 $ 112,269 $ 0 $ 209,985 Intercompany 49,825 6,076 (55,901) 0 --------- --------- --------- --------- Total $ 147,541 $ 118,345 $ (55,901) $ 209,985 ========= ========= ========= ========= Depreciation and amortization $ 4,589 $ 1,327 $ 0 $ 5,916 ========= ========= ========= ========= Operating income (loss) $ (30,843) $ 22,955 $ (1,191) $ (9,079) ========= ========= ========= ========= Investments in affiliated companies $ 733 $ 0 $ 0 $ 733 ========= ========= ========= ========= Total assets $ 111,143 $ 57,397 $ (42,156) $ 126,384 ========= ========= ========= ========= Long-lived assets $ 11,964 $ 3,485 $ 0 $ 15,449 ========= ========= ========= ========= 1996 Net sales: External customers $ 80,716 $ 61,721 $ 0 $ 142,437 Intercompany 22,002 0 (22,002) 0 --------- --------- --------- --------- Total $ 102,718 $ 61,721 $ (22,002) $ 142,437 ========= ========= ========= ========= Depreciation and amortization $ 3,136 $ 449 $ 0 $ 3,585 ========= ========= ========= ========= Operating income (loss) $ 3,193 $ 3,657 $ (968) $ 5,882 ========= ========= ========= =========
57 58 In the year 1996, no single customer exceeded 10% of sales. In the year 1997, sales to a single customer exceeded 10% of sales, amounting to $24.7 million. In the year 1998, sales to one customer exceeded 10% of sales, amounting to $37.1 million 14. FINANCIAL INSTRUMENTS A. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash and cash equivalents: The carrying amount reported in the balance sheet for cash and cash equivalents approximates its fair value. Short-term investments: The fair values for short-term investments are based on quoted market prices. Foreign currency exchange contracts: The fair value of the Company's foreign currency exchange contracts are based on quoted market prices. The carrying amounts and fair values of the Company's financial instruments at December 31, 1997 and 1998 are as follows:
1997 1998 ----------------------- ---------------------- Carrying Fair Carrying Fair amount value amount value ----------------------- ---------------------- (In thousands) Cash and cash equivalents $ 45,305 $ 45,305 $ 22,246 $ 22,246 Short-term investments 915 915 0 0 Foreign currency exchange contract 0 (222) 0 1,251
B. OFF-BALANCE SHEET RISK The Company enters into forward currency exchange contracts and options to hedge foreign currency transactions on a continuing basis for periods consistent with its foreign currency exposures. The objective of this practice is to reduce the impact of foreign exchange movements on the Company's operating results. The Company's hedging activities do not create exchange rate risk because gains and losses on these contracts generally offset losses and gains on the assets, liabilities and transactions being hedged. At December 31, 1997 and 1998 the stated or notional amounts of the Company's forward currency exchange contracts amounted to $12.0 million and $21.4 million, respectively. C. CONCENTRATIONS OF CREDIT RISK The Company's financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, short-term investments and accounts receivable. 58 59 Cash is maintained with major banks in Denmark and the United States. Foreign currency exchange contracts and options are entered into with a major bank in Denmark. The Company markets its products principally to distributors, value added resellers and original equipment manufacturers in the computer industry. Concentrations of credit risk with respect to accounts receivable from customers located outside Denmark are limited under the terms of an agreement entered into with the company "EKR CreditInsurance A/S". This agreement guarantees up to 90% of the amount of the related receivables. The amounts so covered at December 31, 1997 and 1998 were $23,791,000 and $18,728,000, respectively. 15. LITIGATION From time to time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. As of December 31, 1998, the Company is not a party to any legal proceedings, the adverse outcome of which, in management's opinion, would have a material adverse effect on the Company's results of operations or financial position. ITEM 19. FINANCIAL STATEMENTS AND EXHIBITS. (a) The following consolidated financial statements are filed as part of this Annual Report:
Page no ------- 1. Consolidated Financial Statements Report of Independent Auditors 38 Consolidated Balance Sheets at December 31, 1997 and 1998 39 Consolidated Statements of Income for the years ended December 31, 1996, 1997 and 1998 41 Consolidated Statements of Comprehensive Income for the years ended December 31, 1996, 1997 and 1998 42 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1996, 1997 and 1998 43 Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998 44 Notes to Consolidated Financial Statements 46
All other supplementary schedules relating to the Company are omitted because they are not required or because the required information, where material, is contained in the Consolidated Financial Statements or Notes thereto. 59 60 (b) The following exhibits are filed as part of this Annual Report:
Exhibit Number Description of Exhibits ------- ----------------------- 1.1 -- Articles of Association of the Company, as amended (1). 1.2 -- Rules of Procedure for the Board of Directors (2). 2.1 -- 1994 Share Incentive Plan, as amended (3). 2.2 -- 1996 Share Incentive Plan (4). 2.3 -- 1997 Share Incentive Plan (4). 3.1 -- Agreement of Substitution (License Agreement) dated as of September 1, 1990, between Willemijn Houdstermaatschappij BV and the Company (5).+ 3.2 -- Form of Indemnification Agreement between the Company and/or Olicom, Inc.) and Jan Bech, Lars Stig Nielsen, Bo Vilstrup, Frank G. Petersen, Michael Peytz, Soren Bjerre-Nielsen, Boje Rinhart, Niels Jorgensen, Jorgen Hog, Steen B. Lohse, Per Bruno Larsen, Niels Christian Furu, Lars Larsen, Per Friis, Kristian Thyregod, William A. Harper, Prem Athwal, Michael W. Jackman, Mette R.L. Fogt and David Harrell (5). 3.3 -- Service Contract dated August 31, 1992, between the Company and Lars Stig Nielsen (5). 3.4 -- Trademark Agreement effective as of December 11, 1998, between the Company and Ing. C. Olivetti & C., S.p.A. 3.5 -- License Agreement dated October 19, 1988, between the Company and Texas Instruments France, as amended by Amendment to License Agreement dated November 29, 1989, together with Texas Instruments Program License Agreement dated October 11, 1989, between the Company and Texas Instruments A/S, Amendment to License Agreements dated October 6, 1992, between the Company and Texas Instruments France, and Amendment to License Agreement(s) dated January 1, 1992, between the Company and Texas Instruments Trade Corporation (5).+ 3.6 -- Share Purchase Agreement dated January 23, 1996, between the Company and Nilex Systems ApS.(1).
60 61 3.7 -- Agreement and Plan of Reorganization dated as of March 20, 1997, among the Company, PW Acquisition Corporation and CrossComm Corporation (1). 3.8 -- Agreement re sale of shareholding in Lasat.
------------- (1) Incorporated herein by reference to the Company's registration statement on Form F-4, registration no. 333-24655. (2) Incorporated herein by reference to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 1997, file no. 0-20738. (3) Incorporated herein by reference to the Company's registration statement on Form S-8, registration no. 33-93684. (4) Incorporated herein by reference to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 1996, file no. 0-20738. (5) Incorporated herein by reference to the Company's registration statement on Form F-1, registration no. 33-51818. (6) Incorporated herein by reference to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 1993, file no. 0-20738. + Confidential treatment granted as to portions thereof. 61 62 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant certifies that it meets all of the requirements for filing on Form 20-F and has duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized. OLICOM A/S By: /s/ Niels Christian Furu ---------------------------- Niels Christian Furu President and Chief Executive Officer April 28, 1999 62 63 Exhibit Index
Exhibit Number Description of Exhibits ------- ----------------------- 1.1 -- Articles of Association of the Company, as amended (1). 1.2 -- Rules of Procedure for the Board of Directors (2). 2.1 -- 1994 Share Incentive Plan, as amended (3). 2.2 -- 1996 Share Incentive Plan (4). 2.3 -- 1997 Share Incentive Plan (4). 3.1 -- Agreement of Substitution (License Agreement) dated as of September 1, 1990, between Willemijn Houdstermaatschappij BV and the Company (5).+ 3.2 -- Form of Indemnification Agreement between the Company and/or Olicom, Inc.) and Jan Bech, Lars Stig Nielsen, Bo Vilstrup, Frank G. Petersen, Michael Peytz, S0ren Bjerre-Nielsen, Boje Rinhart, Niels J0rgensen, J0rgen H0g, Steen B. Lohse, Per Bruno Larsen, Niels Christian Furu, Lars Larsen, Per Friis, Kristian Thyregod, William A. Harper, Prem Athwal, Michael W. Jackman, Mette R.L. Fogt and David Harrell (5). 3.3 -- Service Contract dated August 31, 1992, between the Company and Lars Stig Nielsen (5). 3.4 -- Trademark Agreement effective as of December 11, 1998, between the Company and Ing. C. Olivetti & C., S.p.A. 3.5 -- License Agreement dated October 19, 1988, between the Company and Texas Instruments France, as amended by Amendment to License Agreement dated November 29, 1989, together with Texas Instruments Program License Agreement dated October 11, 1989, between the Company and Texas Instruments A/S, Amendment to License Agreements dated October 6, 1992, between the Company and Texas Instruments France, and Amendment to License Agreement(s) dated January 1, 1992, between the Company and Texas Instruments Trade Corporation (5).+ 3.6 -- Share Purchase Agreement dated January 23, 1996, between the Company and Nilex Systems ApS.(1).
64 3.7 -- Agreement and Plan of Reorganization dated as of March 20, 1997, among the Company, PW Acquisition Corporation and CrossComm Corporation (1). 3.8 -- Agreement re sale of shareholding in Lasat.
------------- (1) Incorporated herein by reference to the Company's registration statement on Form F-4, registration no. 333-24655. (2) Incorporated herein by reference to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 1997, file no. 0-20738. (3) Incorporated herein by reference to the Company's registration statement on Form S-8, registration no. 33-93684. (4) Incorporated herein by reference to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 1996, file no. 0-20738. (5) Incorporated herein by reference to the Company's registration statement on Form F-1, registration no. 33-51818. (6) Incorporated herein by reference to the Company's Annual Report on Form 20-F for the fiscal year ended December 31, 1993, file no. 0-20738. + Confidential treatment granted as to portions thereof. EX-3.4 2 TRADEMARK AGREEMENT EFFECTIVE AS OF 12/11/98 1 Exhibit 3.4 0098012007 TRADEMARK AGREEMENT THIS AGREEMENT dated December 11, 1998 ("Effective Date") by and between ING. C. OLIVETTI & C., S.p.A., an Italian company with registered office at Via Jervis 77, 10015 Ivrea, Italy (hereinafter called "Olivetti") and OLICOM A/S, a Danish company with offices at Nybrovej 114, DK-2800 Lyngby, Denmark (hereinafter called "Company"), acting on its behalf and on behalf of its Subsidiaries, as defined below, WITNESSETH: WHEREAS, Olivetti is the owner of the trademark "OLICOM" and the related registrations set forth in Schedule A to this Agreement (such trademark and registrations, including any other registration that Olivetti may apply for and/or obtain in any country being hereinafter called "the Trademark"); WHEREAS, Company is licensed by Olivetti to use the Trademark in Denmark and elsewhere in accordance with the terms of the Trademark Agreement dated September 2, 1992, as amended on June 10, 1993 (hereinafter called the "Existing Agreement'); and WHEREAS, the parties wish to restructure the terms and conditions of the existing Trademark Agreement as set forth herein; NOW, THEREFORE, it is agreed as follows: SECTION 1 - GRANT OF LICENSE a) Olivetti hereby grants a worldwide, exclusive license to Company and its Subsidiaries, subject to the terms and conditions of this Agreement, to use the Trademark on or in connection with the sourcing, imparting, exporting, manufacture, promotion, advertising, merchandising, sale and offering for sale and distribution of Company's products and services, including products and services procured on OEM basis, and as corporate or business name of Company and its Subsidiaries, b) The term "Subsidiaries" of either party, as used herein, shall mean any corporation or other business organization in which such party owns the majority of the shares entitled to vote in the Shareholders' ordinary meetings, For avoidance of doubt, Olicom, Inc., a Texas corporation, is a Subsidiary of Company. c) Company acknowledges the trademark co-existence agreement entered into by Olivetti on April 8, 1992 with Olympus optical Co, (Europa) GmbH, a copy of which has been delivered to Company prior to the execution of this Agreement, and therefore Company agrees that neither it nor its Subsidiaries shall use the Trademark on or in connection with the following products: dictating machines (including tape cassettes therefor), photocopying machines, facsimile equipment, electronic person identification apparatus, and telephone equipment. Additionally, 2 Company agrees that neither it nor its Subsidiaries shall use the Trademark in connection with telecommunication services of the type provided by Olivetti or its Subsidiaries. d) For the term of this Agreement and for one year thereafter, Olivetti shall not use itself, nor grant to any third party (including Olivetti's Subsidiaries) any right to use the Trademark on or in connection with products or services of the type manufactured or marketed, or offered by Company and its Subsidiaries. During the term of this Agreement, Olivetti shall not use itself, nor grant to any third party (including Olivetti's Subsidiaries) any right to use the Trademark on or in connection with any product or service or as corporate name or business name. SECTION 2 - QUALITY STANDARDS a) Company and its Subsidiaries undertake to use the Trademark only on or in connection with products or services which meet the reasonable quality standards established by Olivetti and notified to Company from time to time. Olivetti agrees that the products and services presently offered by the Company satisfy the requirements of this Section 2. b) Upon Olivetti's request, Company shall provide samples of its and its Subsidiaries' products to Olivetti to permit Olivetti to inspect their quality level and conformance to this Agreement. Such products shall be considered approved if written notice of disapproval is not received by the Company within thirty (30) days after their being provided to Olivetti, Once approval has been obtained, further approvals need not be obtained for additional or repeated use of the same or substantially similar materials. Olivetti agrees that the materials presently being used by the Company are approved. Company and its Subsidiaries shall not use the Trademark on or in connection with any product which has been rejected by Olivetti by written notice to Company upon such inspection. SECTION 3 - APPEARANCE OF TRADEMARK a) Company and its Subsidiaries agree to strictly comply with the rules established by Olivetti and notified by Company from time to time with respect to the appearance and manner of presentation of Olivetti's trademarks. Representative samples of products, literature or other items where the Trademark is used shall be provided by Company to Olivetti at the latter's request. Such literature or other items shall be considered approved if notice of disapproval is not received by the Company within ten (10) days. b) If so required by Olivetti in writing, Company shall indicate in the manner specified by Olivetti that the Trademark is owned by Olivetti, SECTION 4 - REGISTRATION, ENFORCEMENT AND DEFENSE OF THE TRADEMARK a) Company and its Subsidiaries shall not register in any country, directly or indirectly, the Trademark or any other name suggesting a connection with Olivetti, subject to Section 8(c) hereof. At Company's request and expense, Olivetti shall apply to register the Trademark, where possible, and Olivetti shall identify Company as its registered user under the Trademark. If so requested by Company, such applications in the name of Olivetti shall be done through patent firms retained by Company, in proper coordination with Olivetti, 2 3 b) Prosecution of any infringer of the Trademark shall be at Olivetti's sole judgment and under its sole control. If Olivetti declines to do so, Company may take action to stop such infringement provided such action does not impair Olivetti's rights in the Trademark, c) In the event any third party should make or file any claim for trademark infringement against Company arising out of the use of the Trademark, Company shall promptly notify Olivetti which will undertake at Company's expense reasonable efforts to have such claim withdrawn, settled or defended. Company shall cooperate with and assist such efforts by Olivetti. SECTION 5 - LICENSE FEES In consideration of the rights granted by Olivetti to Company and its Subsidiaries under this Agreement, Company shall pay to Olivetti the following fees: a) An upfront fee of One Hundred and Fifty Thousand US Dollars (US$ 150,000,000) payable on January 30, 1999; b) For each twelve month period starting with September 2, 1999 during the term of this Agreement, a yearly fee of One Hundred Thousand US Dollars (US$ 100,000), payable in quarterly installments of US$ 25,000 at the end of each calendar quarter. c) Each payment set forth above shall be made in US currency by wire transfer to Olivetti's account number No. 1023 of "Istituto Bancario S. Paolo di Torino", Ivrea branch (ABI 1025, CAB 30540), unless otherwise indicated in writing by Olivetti. d) Company may withhold taxes from the fees set forth above up only to the extent that (1) such withholding is compulsory under the Danish laws, (ii) Company has availed itself of the applicable tax treaty, the tax withholding does not exceed five percent (5%) and (iv) Company provides to Olivetti a receipt of the tax paid, suitable to claim tax credit in Italy. In the event that the tax withholding exceeds 5%, the fees shall be increased to result into net payments to Olivetti equal to the fees less 5%. Olivetti will provide to the Company all documents required under the applicable tax treaty, as specified in writing by Company. e) Delayed payments shall bear interest at the rate of five percentage points over the offered interbank rate for six months deposits in US Dollars as published by "Sole - 24 Ore" or, absent such publication, as otherwise announced by Associazione Bancaria Italiana. SECTION 6 - ASSIGNMENT AND CHANGE OF CONTROL a) Without Olivetti's prior consent, which shall not be unreasonably withheld, the license and any rights herein granted shall not be assigned or otherwise transferred by Company or its Subsidiaries and shall not inure to the benefit of any other person, including a successor of the Company or a trustee in bankruptcy. b) Olivetti may terminate this Agreement by ninety (90) days written notice to Company stating a reasonable ground for such termination, in the event that the majority of the voting shares in the Company are acquired by a third party, where such third party is a direct competitor 3 4 of Olivetti or its Subsidiaries, provided that Olivetti shall not unreasonably exercise this termination right, SECTION 7 - TERM OF AGREEMENT a) This Agreement and the license granted herein shall become effective on the Effective Date, and shall continue in effect for the term of this Agreement as specified in the following paragraph b) unless earlier terminated as provided in Section 8 hereof. b) Subject to Section 8, the term of this Agreement shall be until September 1, 2009, provided that Company shall have the right, by giving Olivetti's written notice at least six months prior to such date, to renew this Agreement for further tan (10) years under the same terms and conditions, except that fees shall be adjusted in light of inflation to reflect the variation in the Consumer Price Index for All Urban Consumers (CPI-U), as calculated by the US Bureau of Labor Statistics, from the Effective Date to September 2, 2009. In the event that the CPI-U is discontinued, the closest index shall be determined by mutual agreement. SECTION 8 - TERMINATION a) Company shall have the right to terminate this Agreement for convenience by giving Olivetti at least twelve (12) months written notice prior to the beginning of a yearly period starting with September 2"' of any year, b) In addition to the termination right pursuant to Section 6(b), Olivetti shall have the right to terminate this Agreement by written notice to Company in any of the following events, and in any such event the termination shall be immediately effective upon Olivetti's giving of such notice, without the need for any judicial action and without prejudice to any other relief to which Olivetti may be entitled: (i) if Company or any of its Subsidiaries are in default of this Agreement and fail to cure such default within thirty (30) days after the date of Olivetti's notification of the default to Company; or (ii) if Company or its Subsidiaries file a petition in bankruptcy or are adjudicated bankrupt or make a general assignment in favor of creditors or become insolvent, or in the event that any procedure for the liquidation or dissolution of Company or its Subsidiaries is initiated. c) Upon expiration or termination of this Agreement all licenses granted herein shall terminate, and Company and its Subsidiaries shall immediately start, and complete within a reasonable period not exceeding twelve (12) months, actions to cease using the Trademark in any manner, including change of their corporate name to a new one that does not contain the Trademark or otherwise suggests a connection with Olivetti. The parties agree that a name like "Colicom" would not be deemed as indicating a connection with Olivetti. For a period of twelve (12) months following Olivetti's notice of termination under this Section or Section 6(b), Company and its Subsidiaries shall be permitted to sell or otherwise distribute (in a manner consistent with the reputation of the Trademark) (i) its inventory of products bearing the 4 5 Trademark which exists on the date of such notice, and (H) all items ordered prior to such notice, if the related purchase order cannot be canceled. d) Company shall be entitled to associate the Trademark to another tradename owned by it, so as to achieve a smooth transition upon termination of this Agreement. SECTION 9 - MISCELLANEOUS PROVISIONS a) Company hereby acknowledges Olivetti's rights to the Trademark, and that the license granted hereunder is conditional upon fulfillment of the obligations contained herein, including without limitation the obligation on termination to cease using the Trademark as part of the corporate name of Licensee or its Subsidiaries. b) This Agreement shall be governed by the Italian law. c) The Existing Agreement is hereby superseded. ING. C. OLIVETTI & C., S.p.A. OLICOM A/S by: /s/ Roberto Colaninno by: /s/ Niels Christian Furu name: Roberto Colaninno name: Niels Christian Furu title: CEO title: President, CEO date: December 15, 1998 date: December 11, 1998 5 6 EXHIBIT A List of Registrations of the Trademark OLICOM DENMARK Registration Number 1048-1988, classes 9, 16, 38 and 42, registered on March 11, 1988. 1 ITALY Registration Number 411098, class 9, registered on March 10, 1986. USA Registration Number 1,867,494, class 9, registered on December 13, 1994. EX-3.8 3 AGREEMENT RE SALE OF SHAREHOLDING IN LASAT 1 Exhibit 3.8 ADVOKATERNE VINGARDSHUS J.nr. 210 . 905 LT/LV 14.01.99 Mellem undertegnede Olicom Ventures A/S reg.nr. A/S Nybrovej 114 2800 Lyngby - i det folgende kaldet saelger og medundertegnede Lasat Holding A/S Lars Poelsen Benny Jensen Medarbejdere i h.t. vedhaeftede liste Erhvervsinvest Nord A/S A/S Dansk Erhvervsinvestering i det folgende kaldet koberne Er d.d. indgaet folgende AKTIEOVERDRAGELSESAFTALE 1. Det overdragne 1.1 Saelger ejer 75% af aktiekapitalen svarende til nom kr. 577.500,00 aktier i Lasat A/S, reg.nr. A/S 199.686. Lasat A/S er i det folgende benaevnt a "selskabet". 1.2 Saelger overdrager til koberne saelgers samlede besiddelse af aktier i selskabet. 1.3 Kobesummen for de anforte aktier i selskabet udgor kr. 26.250.000,00. Kursen pa aktierne er saledes 4.545,4545. 1.4 Kobesummen betagles kontant pa overtagelsesdagen mod samtidig overlevering af de solgte aktier forsynet med blanco transportpategning. 1.5 Koberne erherver aktierne i det indbyrdes forhold saledes: Lasat Holding A/S nom. kr. 50.200,00 Lars Povelsen nom. kr. 38.500,00 Benny Jensen nom. kr. 38.500,00 Medarbejdern i h.t. vedhaeftede liste nom. kr. 26.800,00 Ernvervsinvest Nord A/S nom. kr. 211.750,00 A/S Dansk Erhvervsinvestering nom. kr. 211.750,00
2 2. Overtaqelsesdaq 2.1 Overtagelsesdagen er aftalt til d.d. 2.2 Koberne forpligter sig til umiddelbart efter overtagelsesdagen at afholde generalforsamling til valg af ny bestyrelse. 3. Offentliggorelse 3.1 Pressemeddelelse samt information af selskabets medarbejdere udarbejdes af parterne i forening. Medarbejderne underrettes straks efter underskrift af naervaerende aftale. 4. Omkostninger 4.1 Aktieafgiften betales af saelger. 4.2 Hver part afholder omkostninger til egne radgivere. 5. Vaerneting 5.1 Enhver tvist med tilknytning til naervaerende aftale skal afgo+res ved Retten i Aalborg som vaerneting. Dato: 14.1.1999 Som saelger: /s/ For Olicom Ventures A/S: /s/ Lars Povelsen /s/ Benny Jensen /s/ For Erhervsinvest Nord A/S: /s/ For A/S Dansk Erhversinvestering: /s/ 2 -----END PRIVACY-ENHANCED MESSAGE-----