<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CORSAIR COMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
DELAWARE 3663 77-0390406
<S> <C> <C>
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
</TABLE>
3408 HILLVIEW AVENUE
PALO ALTO, CALIFORNIA 94304
(650) 842-3300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MARY ANN BYRNES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
CORSAIR COMMUNICATIONS, INC.
3408 HILLVIEW AVENUE
PALO ALTO, CALIFORNIA 94304
(650) 842-3300
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES OF ALL COMMUNICATIONS, INCLUDING ALL COMMUNICATIONS SENT TO THE AGENT FOR
SERVICE, SHOULD BE SENT TO:
JOHN A. DENNISTON
MICHAEL S. KAGNOFF
BROBECK, PHLEGER & HARRISON LLP
550 WEST "C" STREET, SUITE 1300
SAN DIEGO, CALIFORNIA 92101
(619) 234-1966
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
Upon consummation of the merger described herein and after the effective date of
this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<S> <C> <C>
==============================================================================================================
TITLE OF SECURITIES TO BE PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
REGISTERED(1) OFFERING PRICE(2) FEE
- --------------------------------------------------------------------------------------------------------------
Common Stock, $0.001 par value per share........... $73,000,000 $21,535
==============================================================================================================
</TABLE>
(1) This Registration Statement relates to securities of the Registrant to be
issued to the holders of Common Stock $.01 par value per share, Series A
Preferred Stock, $.01 par value per share and Series B Preferred Stock, $.01
par value per share of Subscriber Computing, Inc., a Delaware corporation.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(c) and 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
CORSAIR COMMUNICATIONS, INC.
3408 HILLVIEW AVENUE
PALO ALTO, CALIFORNIA 94304
Dear Stockholder: , 1998
A Special Meeting of the Stockholders of Corsair Communications, Inc., a
Delaware corporation ("Corsair"), will be held on , 1998, at 8:00
a.m., local time, at Corsair's executive offices located at 3408 Hillview
Avenue, Palo Alto, California (the "Corsair Meeting").
At the Corsair Meeting, you will be asked to consider and vote to (i)
approve and adopt the Agreement and Plan of Reorganization, dated April 2, 1998
(the "Merger Agreement"), by and among Corsair, Anteater Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Corsair ("Merger Sub"),
and Subscriber Computing, Inc., a Delaware corporation ("Subscriber"), to
approve Corsair's acquisition of Subscriber through the merger of Merger Sub
with and into Subscriber, with Subscriber being the surviving corporation and
becoming a wholly-owned subsidiary of Corsair (the "Merger") and to authorize
the issuance of Corsair Common Stock, par value $.001 per share, as
consideration for Corsair's acquisition of Subscriber; (ii) to vote upon the
proposed amendment to Corsair's 1997 Stock Incentive Plan to increase the
authorized number of shares of Corsair Common Stock available for issuance under
such plan from 1,337,633 to 2,587,633; (iii) to vote upon the proposed amendment
to Corsair's 1997 Employee Stock Purchase Plan to increase the authorized number
of shares of Corsair Common Stock available for issuance under such plan from
166,667 to 266,667 and (iv) to transact such other business as may properly come
before the meeting or any postponements or adjournments thereof.
The Merger will occur as soon as possible after Corsair and Subscriber
obtain all necessary regulatory and stockholder approvals, and satisfy certain
other conditions set forth in the Merger Agreement (the "Effective Time").
Pursuant to formulas set forth in the Merger Agreement, (i) each share of
Subscriber Common Stock, Subscriber Series A Preferred Stock and Subscriber
Series B Preferred Stock (collectively, the "Subscriber Capital Stock") will be
converted into the right to receive a fraction of a share of Corsair Common
Stock and (ii) all options and warrants to acquire Subscriber Capital Stock will
be assumed by Corsair and converted into the right to acquire shares of Corsair
Common Stock. The aggregate number of shares of Corsair Common Stock that
Corsair will issue pursuant to the Merger Agreement (the "Merger Consideration")
depends on several factors that cannot be determined definitively until the
Effective Time, including, but not limited to, the average of the closing price
per share of Corsair Common Stock as reported in the Wall Street Journal for the
ten (10) consecutive trading days immediately preceding the closing date of the
Merger. Assuming that there has been no change in the number of issued and
outstanding options and warrants to purchase Subscriber Capital Stock since the
date of the Merger Agreement and Subscriber's Borrowings (as defined in the
Merger Agreement) do not exceed $10,000,000 at the Effective Time, Corsair will
issue a minimum of approximately 3,600,000 shares and a maximum of approximately
4,400,000 shares of Corsair Common Stock in the Merger. Based on these same
assumptions, at the Effective Time, the Subscriber stockholders will hold or
have a right to acquire approximately 20% to 23.5% of Corsair Common Stock on a
fully-diluted basis. Each of these aspects of the Merger are more fully
described in the enclosed Joint Proxy Statement/Prospectus.
Corsair is registering the issuance of the Merger Consideration under the
Securities Act of 1933, as amended. The Merger is structured to be a tax-free
reorganization which will not be taxable to Corsair, Subscriber or the
Subscriber stockholders.
THE CORSAIR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT AND THE MERGER DESCRIBED IN THE ATTACHED MATERIAL AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS IN THE BEST INTERESTS
OF CORSAIR AND THE CORSAIR STOCKHOLDERS. THE BOARD OF DIRECTORS RECOMMENDS THAT
THE CORSAIR STOCKHOLDERS APPROVE THE MATTERS DESCRIBED IN THE ACCOMPANYING
MATERIAL.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to, among
other things, the actions to be taken by the Corsair
<PAGE> 3
stockholders at the Corsair Meeting and a proxy card. The Joint Proxy
Statement/Prospectus more fully describes the Merger Agreement, the proposed
Merger and the Merger Consideration to be issued by Corsair in the Merger, and
includes important information about Corsair and Subscriber. It also serves as a
Prospectus for Corsair describing the investment decision in Corsair that the
Subscriber stockholders will be making upon approving the Merger.
All stockholders are cordially invited to attend the Corsair Meeting in
person. However, whether or not you plan to attend the Corsair Meeting, please
complete, sign, date and return your proxy in the enclosed postage-paid
envelope. If you attend the Corsair Meeting, you may vote in person if you wish,
even though you have previously returned your proxy.
Sincerely,
Mary Ann Byrnes,
President and Chief Executive Officer
<PAGE> 4
CORSAIR COMMUNICATIONS, INC.
3408 HILLVIEW AVENUE
PALO ALTO, CALIFORNIA 94304
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Corsair
Communications, Inc., a Delaware corporation ("Corsair"), will be held on
, 1998, at 8:00 a.m., local time, at Corsair's executive offices
located at 3408 Hillview Avenue, Palo Alto, California (the "Corsair Meeting")
to consider and vote upon the following matters, which are more fully described
in the accompanying Joint Proxy Statement/Prospectus:
1. To approve and adopt the Agreement and Plan of Reorganization,
dated April 2, 1998 (the "Merger Agreement"), by and among Corsair,
Anteater Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Corsair ("Merger Sub"), and Subscriber Computing, Inc., a
Delaware corporation ("Subscriber"), to approve Corsair's acquisition of
Subscriber through the merger of Merger Sub with and into Subscriber, with
Subscriber being the surviving corporation and becoming a wholly-owned
subsidiary of Corsair (the "Merger") and to authorize the issuance of
Corsair Common Stock, par value $.001 per share, as consideration for
Corsair's acquisition of Subscriber.
The Merger will occur as soon as possible after Corsair and Subscriber
obtain all necessary regulatory and stockholder approvals, and satisfy
certain other conditions set forth in the Merger Agreement (the "Effective
Time"). Pursuant to formulas set forth in the Merger Agreement, (i) each
share of Subscriber Common Stock, Subscriber Series A Preferred Stock and
Subscriber Series B Preferred Stock (collectively, the "Subscriber Capital
Stock") will be converted into the right to receive a fraction of a share
of Corsair Common Stock and (ii) all options and warrants to acquire
Subscriber Capital Stock will be assumed by Corsair and converted into the
right to acquire shares of Corsair Common Stock. The aggregate number of
shares of Corsair Common Stock that Corsair will issue pursuant to the
Merger Agreement (the "Merger Consideration") depends on several factors
that cannot be determined definitively until the Effective Time, including,
but not limited to, the average of the closing price per share of Corsair
Common Stock as reported in the Wall Street Journal for the ten (10)
consecutive trading days immediately preceding the closing date of the
Merger. Assuming that there has been no change in the number of issued and
outstanding options and warrants to purchase Subscriber Capital Stock since
the date of the Merger Agreement and Subscriber's Borrowings (as defined in
the Merger Agreement) do not exceed $10,000,000 at the Effective Time,
Corsair will issue a minimum of approximately 3,600,000 shares and a
maximum of approximately 4,400,000 shares of Corsair Common Stock in the
Merger. Based on these same assumptions, at the Effective Time, the
Subscriber stockholders will hold or have a right to acquire approximately
20% to 23.5% of Corsair Common Stock on a fully-diluted basis. Each of
these aspects of the Merger are more fully described in the enclosed Joint
Proxy Statement/Prospectus.
2. To vote upon the proposed amendment to Corsair's 1997 Stock
Incentive Plan to increase the authorized number of shares of Corsair
Common Stock available for issuance under such plan from 1,337,633 to
2,587,633.
3. To vote upon the proposed amendment to Corsair's 1997 Employee
Stock Purchase Plan to increase the authorized number of shares of Corsair
Common Stock available for issuance under such plan from 166,667 to
266,667.
4. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
<PAGE> 5
Only stockholders of record at the close of business on May 15, 1998 are
entitled to notice of, and to vote at the Corsair Meeting, or at any
adjournments or postponements thereof.
Palo Alto, California By Order of the Board of Directors,
, 1998
Martin J. Silver,
Secretary
APPROVAL OF THE MERGER AGREEMENT, THE MERGER AND THE ISSUANCE OF THE MERGER
CONSIDERATION REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE
OUTSTANDING SHARES OF CORSAIR COMMON STOCK. APPROVAL OF THE AMENDMENTS TO
CORSAIR'S 1997 STOCK INCENTIVE PLAN AND EMPLOYEE STOCK PURCHASE PLAN REQUIRES
THE AFFIRMATIVE VOTE OF THE HOLDERS OF A MAJORITY OF THE SHARES OF CORSAIR
COMMON STOCK VOTED AT THE CORSAIR MEETING. ABSTENTIONS AND BROKER NON-VOTES WILL
BE COUNTED FOR PURPOSES OF DETERMINING WHETHER A QUORUM IS PRESENT AT THE
CORSAIR MEETING AND ABSTENTIONS WILL HAVE THE EFFECT OF NEGATIVE VOTES. WHETHER
OR NOT YOU PLAN TO ATTEND THE CORSAIR MEETING, PLEASE COMPLETE, SIGN AND DATE
THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE,
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES. YOU MAY REVOKE YOUR
PROXY IN THE MANNER DESCRIBED IN THE ACCOMPANYING JOINT PROXY
STATEMENT/PROSPECTUS. IF YOU ATTEND THE MEETING, YOU MAY VOTE IN PERSON, IF YOU
WISH TO DO SO, EVEN IF YOU HAVE PREVIOUSLY SENT IN YOUR PROXY. PLEASE NOTE,
HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 6
SUBSCRIBER COMPUTING, INC.
18881 VON KARMAN AVENUE, SUITE 450
IRVINE, CALIFORNIA 92612
, 1998
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders of
Subscriber Computing, Inc., a Delaware corporation ("Subscriber"), to be held on
, 1998, at 8:00 a.m., local time, at Subscriber's executive offices,
located at 18881 Von Karman Avenue, Suite 1000, Irvine, California (the
"Subscriber Meeting").
At the Subscriber Meeting, you will be asked to consider and vote (i) to
approve and adopt the Agreement and Plan of Reorganization, dated April 2, 1998
(the "Merger Agreement"), by and among Subscriber, Corsair Communications, Inc.,
a Delaware corporation ("Corsair"), and Anteater Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Corsair ("Merger Sub") and to
approve Corsair's acquisition of Subscriber through the merger of Merger Sub
with and into Subscriber, with Subscriber being the surviving corporation and
becoming a wholly-owned subsidiary of Corsair (the "Merger") and (ii) to
transact such other business as may properly come before the meeting or any
postponements or adjournments thereof.
The Merger will occur as soon as possible after Corsair and Subscriber
obtain all necessary regulatory and stockholder approvals, and satisfy certain
other conditions set forth in the Merger Agreement (the "Effective Time").
Pursuant to formulas set forth in the Merger Agreement, (i) each share of
Subscriber Common Stock, Subscriber Series A Preferred Stock and Subscriber
Series B Preferred Stock (collectively, the "Subscriber Capital Stock") will be
converted into the right to receive a fraction of a share of Corsair Common
Stock and (ii) all options and warrants to acquire Subscriber Capital Stock will
be assumed by Corsair and converted into the right to acquire shares of Corsair
Common Stock. The aggregate number of shares of Corsair Common Stock that
Corsair will issue pursuant to the Merger Agreement (the "Merger Consideration")
depends on several factors that cannot be determined definitively until the
Effective Time, including, but not limited to, the average of the closing price
per share of Corsair Common Stock as reported in the Wall Street Journal for the
ten (10) consecutive trading days immediately preceding the closing date of the
Merger. Assuming that there has been no change in the number of issued and
outstanding options and warrants to purchase Subscriber Capital Stock since the
date of the Merger Agreement and Subscriber's Borrowings (as defined in the
Merger Agreement) do not exceed $10,000,000 at the Effective Time, Corsair will
issue a minimum of approximately 3,600,000 shares and a maximum of approximately
4,400,000 shares of Corsair Common Stock in the Merger. Based on these same
assumptions, at the Effective Time, the Subscriber stockholders will hold or
have a right to acquire approximately 20% to 23.5% of Corsair Common Stock on a
fully-diluted basis. Each of these aspects of the Merger are more fully
described in the enclosed Joint Proxy Statement/Prospectus.
Corsair is registering the issuance of the Merger Consideration under the
Securities Act of 1933, as amended. The Merger is structured to be a tax-free
reorganization which will not be taxable to Corsair, Subscriber or the
Subscriber stockholders.
YOUR BOARD OF DIRECTORS HAS CAREFULLY CONSIDERED THE TERMS AND CONDITIONS
OF THE MERGER AGREEMENT AND THE PROPOSED MERGER, AND HAS DETERMINED THAT THE
MERGER IS IN THE BEST INTERESTS OF SUBSCRIBER AND ITS STOCKHOLDERS. THE BOARD
HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE MERGER, AND UNANIMOUSLY
RECOMMENDS THAT THE STOCKHOLDERS OF SUBSCRIBER APPROVE THE MERGER AND THE MERGER
AGREEMENT.
In the material accompanying this letter, you will find a Notice of Special
Meeting of Stockholders, a Joint Proxy Statement/Prospectus relating to, among
other things, the actions to be taken by Subscriber stockholders at the
Subscriber Meeting and a proxy card. The Joint Proxy Statement/Prospectus more
fully describes the Merger Agreement, the proposed Merger and the Merger
Consideration the Subscriber stockholders will receive in the Merger, and
includes important information about Corsair and Subscriber. It
<PAGE> 7
also serves as a Prospectus for Corsair describing the investment decision in
Corsair that the Subscriber stockholders will be making upon approving the
Merger.
All stockholders are cordially invited to attend the Subscriber Meeting in
person. However, whether or not you plan to attend the Subscriber Meeting,
please complete, sign, date and return your proxy in the enclosed envelope. If
you attend the Subscriber Meeting, you may vote in person if you wish, even
though you have previously returned your proxy. It is important that your shares
be represented and voted at the Subscriber Meeting.
On behalf of your Board of Directors, thank you for your continued support.
Sincerely,
Dennis Andrews,
President and Chief Executive Officer
<PAGE> 8
SUBSCRIBER COMPUTING, INC.
18881 VON KARMAN AVENUE, SUITE 450
IRVINE, CALIFORNIA 92612
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , 1998
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Subscriber
Computing, Inc., a Delaware corporation ("Subscriber"), will be held on
, 1998, at 8:00 a.m., local time, at Subscriber's executive offices
located at 18881 Von Karman Avenue, Suite 1000, Irvine, California (the
"Subscriber Meeting") to consider and vote upon the following matters, which are
more fully described in the accompanying Joint Proxy Statement/Prospectus:
1. To approve and adopt the Agreement and Plan of Reorganization,
dated April 2, 1998 (the "Merger Agreement"), by and among Subscriber,
Corsair Communications, Inc., a Delaware corporation ("Corsair"), and
Anteater Acquisition Corp., a Delaware corporation and a wholly-owned
subsidiary of Corsair ("Merger Sub") and to approve Corsair's acquisition
of Subscriber through the merger of Merger Sub with and into Subscriber,
with Subscriber being the surviving corporation and becoming a wholly-owned
subsidiary of Corsair (the "Merger").
The Merger will occur as soon as possible after Corsair and Subscriber
obtain all necessary regulatory and stockholder approvals, and satisfy
certain other conditions set forth in the Merger Agreement (the "Effective
Time"). Pursuant to formulas set forth in the Merger Agreement, (i) each
share of Subscriber Common Stock, Subscriber Series A Preferred Stock and
Subscriber Series B Preferred Stock (collectively, the "Subscriber Capital
Stock") will be converted into the right to receive a fraction of a share
of Corsair Common Stock and (ii) all options and warrants to acquire
Subscriber Capital Stock will be assumed by Corsair and converted into the
right to acquire shares of Corsair Common Stock. The aggregate number of
shares of Corsair Common Stock that Corsair will issue pursuant to the
Merger Agreement (the "Merger Consideration") depends on several factors
that cannot be determined definitively until the Effective Time, including,
but not limited to, the average of the closing price per share of Corsair
Common Stock as reported in the Wall Street Journal for the ten (10)
consecutive trading days immediately preceding the closing date of the
Merger. Assuming that there has been no change in the number of issued and
outstanding options and warrants to purchase Subscriber Capital Stock since
the date of the Merger Agreement and Subscriber's Borrowings (as defined in
the Merger Agreement) do not exceed $10,000,000 at the Effective Time,
Corsair will issue a minimum of approximately 3,600,000 shares and a
maximum of approximately 4,400,000 shares of Corsair Common Stock in the
Merger. Based on these same assumptions, at the Effective Time, the
Subscriber stockholders will hold or have a right to acquire approximately
20% to 23.5% of Corsair Common Stock on a fully-diluted basis. Each of
these aspects of the Merger are more fully described in the enclosed Joint
Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
meeting or any postponements or adjournments thereof.
Only stockholders of record at the close of business on May 15, 1998 are
entitled to notice of, and to vote at the Subscriber Meeting, or at any
adjournments or postponements thereof.
Stockholders of Subscriber who do not vote in favor of the Merger and who
otherwise comply with the applicable statutory procedures set forth in Section
262 of the Delaware General Corporation Law may exercise appraisal rights and
receive cash for their shares of Subscriber Capital Stock ("Appraisal Rights").
Alternatively, although Subscriber is a Delaware corporation, Section 2115 of
the California General Corporation Law (the "CGCL") provides that Subscriber may
be subject to California law with respect to dissenters' rights. Accordingly,
pursuant to Chapter 13 of the CGCL, stockholders of Subscriber who do not vote
in favor of the Merger and who comply with the other requirements of Chapter 13
will have a right to demand payment for, and appraisal of the "fair value" of,
their shares ("Dissenters' Rights"). Although a dissenting stockholder
<PAGE> 9
may choose to proceed under either state's statute, a dissenting stockholder of
Subscriber must follow the appropriate procedures under either Delaware or
California law or suffer the termination or waiver of such rights. Corsair has
no obligation to consummate the Merger if demands for Appraisal and/or
Dissenters' rights are made with respect to five percent (5%) or more of the
outstanding shares of Subscriber Capital Stock. A description of the Appraisal
and Dissenters' Rights of the holders of Subscriber Capital Stock is more fully
described in the enclosed Joint Proxy Statement/Prospectus.
Irvine, California By Order of the Board of Directors,
, 1998
Patricia Howe,
Assistant Secretary
APPROVAL OF THE MERGER AGREEMENT AND THE MERGER REQUIRES THE AFFIRMATIVE VOTE OF
THE HOLDERS OF A MAJORITY OF THE OUTSTANDING SHARES OF (A) SUBSCRIBER CAPITAL
STOCK, VOTING TOGETHER ON AN AS CONVERTED TO SUBSCRIBER COMMON STOCK BASIS, AND
(B) EACH CLASS OF SUBSCRIBER CAPITAL STOCK, VOTING AS A SEPARATE CLASS.
ABSTENTIONS AND BROKER NON-VOTES WILL BE COUNTED FOR PURPOSES OF DETERMINING
WHETHER A QUORUM IS PRESENT AT THE SUBSCRIBER MEETING AND ABSTENTIONS WILL HAVE
THE EFFECT OF NEGATIVE VOTES. WHETHER OR NOT YOU PLAN TO ATTEND THE SUBSCRIBER
MEETING, PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED RETURN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN
THE UNITED STATES. YOU MAY REVOKE YOUR PROXY IN THE MANNER DESCRIBED IN THE
ACCOMPANYING JOINT PROXY STATEMENT/PROSPECTUS. IF YOU ATTEND THE MEETING, YOU
MAY VOTE IN PERSON, IF YOU WISH TO DO SO, EVEN IF YOU HAVE PREVIOUSLY SENT IN
YOUR PROXY.
<PAGE> 10
CORSAIR COMMUNICATIONS, INC.
PROSPECTUS
([***] shares of Corsair Common Stock)
and
CORSAIR COMMUNICATIONS, INC.
and
SUBSCRIBER COMPUTING, INC.
JOINT PROXY STATEMENT FOR THEIR RESPECTIVE
SPECIAL MEETINGS OF STOCKHOLDERS TO BE HELD , 1998
This Joint Proxy Statement/Prospectus is being furnished to the holders of
the common stock of Corsair Communications, Inc., a Delaware corporation
("Corsair"), and to the holders of the capital stock of Subscriber Computing,
Inc., a Delaware corporation ("Subscriber"), in connection with the solicitation
by their Boards of Directors of proxies for use at their respective Special
Meetings of Stockholders, and at any adjournments or postponements thereof, for
the purposes set forth herein and in their respective Notice of Meeting of
Stockholders accompanying this Joint Proxy Statement/Prospectus. Corsair's
meeting will be held on , 1998, at 8:00 a.m., local time, at
Corsair's executive offices located at 3408 Hillview Avenue, Palo Alto,
California (the "Corsair Meeting"). Subscriber's meeting will be held on
, 1998, at 8:00 a.m., local time, at Subscriber's executive office
located at 18881 Von Karman Avenue, Suite 1000, Irvine, California (the
"Subscriber Meeting"). This Joint Proxy Statement/Prospectus is first being
mailed to the stockholders of Corsair and the stockholders of Subscriber on or
about , 1998.
AT THE CORSAIR MEETING, THE CORSAIR STOCKHOLDERS ARE BEING ASKED TO VOTE ON
EACH OF THE FOLLOWING SEPARATE PROPOSALS (COLLECTIVELY, THE "CORSAIR
PROPOSALS"):
(A) To approve and adopt the Agreement and Plan of Reorganization, dated
April 2, 1998 (the "Merger Agreement"), by and among Corsair, Anteater
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Corsair ("Merger Sub"), and Subscriber, to approve Corsair's acquisition of
Subscriber through the merger of Merger Sub with and into Subscriber, with
Subscriber being the surviving corporation and becoming a wholly-owned
subsidiary of Corsair (the "Merger") and to authorize the issuance of
Corsair Common Stock, par value $.001 per share, as consideration for
Corsair's acquisition of Subscriber.
(B) To vote upon the proposed amendment to Corsair's 1997 Stock
Incentive Plan to increase the authorized number of shares of Corsair Common
Stock available for issuance under such plan from 1,337,633 to 2,587,633.
(C) To vote upon the proposed amendment to Corsair's 1997 Employee Stock
Purchase Plan to increase the authorized number of shares of Corsair Common
Stock available for issuance under such plan from 166,667 to 266,667.
(D) To transact such other business as may properly come before the
Corsair Meeting, or any postponements or adjournments thereof.
AT THE SUBSCRIBER MEETING, THE SUBSCRIBER STOCKHOLDERS WILL BE ASKED TO VOTE
ON EACH OF THE FOLLOWING SEPARATE PROPOSALS (COLLECTIVELY, THE "SUBSCRIBER
PROPOSALS"):
(A) To approve and adopt the Merger Agreement and to approve the Merger.
(B) To transact such other business as may properly come before the
Subscriber Meeting, or any postponements or adjournments thereof.
This Joint Proxy Statement/Prospectus also constitutes the prospectus of
Corsair filed as part of the Registration Statement on Form S-4 relating to the
Corsair Common Stock issuable under the Merger as consideration for Corsair's
acquisition of Subscriber. All information herein with respect to Corsair has
been furnished by Corsair, and all information herein with respect to Subscriber
has been furnished by Subscriber.
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED CAREFULLY BEFORE VOTING ON OR CONSENTING TO THE MATTERS MORE FULLY
DESCRIBED HEREIN.
------------------------
NEITHER THIS TRANSACTION NOR THE SHARES OF CORSAIR COMMON STOCK TO BE ISSUED IN
THE MERGER HAVE BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
------------------------
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS , 1998
1
<PAGE> 11
AVAILABLE INFORMATION
Corsair is subject to the reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and, in accordance therewith,
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and other
information can be inspected and copied at public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and should be available at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and at Citicorp Center,
500 West Madison Street, Room 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained at prescribed rates at the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains a World Wide Web site (the "Commission
Website") on the Internet at http://www.sec.gov that contains reports, proxy
statements and other information regarding Corsair. Corsair Common Stock is
traded on the Nasdaq National Market. Reports and other information concerning
Corsair also can be inspected at the offices of the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
Corsair has filed with the Commission a Registration Statement on Form S-4
(together with all amendments or exhibits thereto, the "Registration Statement")
under the Securities Act of 1933, as amended (the "Act"), with respect to the
shares of Corsair Common Stock to be issued pursuant to the Merger Agreement.
This Joint Proxy Statement/Prospectus does not contain all of the information
set forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to Corsair and the shares of Corsair Common Stock
offered hereby, reference is made to the Registration Statement which may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of the fees prescribed by the
Commission, or on the Commission Website. Statements contained in this Joint
Proxy Statement/Prospectus concerning the provisions of any documents are not
necessarily complete, and in each instance reference is made to the copy of such
document filed as an exhibit to the Registration Statement, each such statement
is qualified in its entirety by such reference.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE MERGER, AND IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY CORSAIR, SUBSCRIBER OR ANY OTHER PERSON. NEITHER THE DELIVERY OF THIS JOINT
PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF CORSAIR OR SUBSCRIBER SINCE THE DATE HEREOF OR THAT THE
INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE. THIS JOINT PROXY STATEMENT/PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY
PERSON TO WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION.
TRADEMARKS
PhonePrint(R) is a registered trademark and Corsair(TM), PhoneCheck(TM),
PhonePrint(TM), Roaming Network(TM) and PhoneTrack(TM) are trademarks of Corsair
Communications, Inc. FraudWatch(R), DataMax(R) and TouchTalk(R) are registered
trademarks and GateKeeper(TM) and CRM Insight(TM) are trademarks of Subscriber
Computing, Inc. All other trademarks or service marks appearing in this Joint
Proxy Statement/ Prospectus are the property of their respective holders.
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FORWARD LOOKING STATEMENTS
OTHER THAN STATEMENTS OF HISTORICAL FACT, STATEMENTS MADE IN THIS JOINT
PROXY STATEMENT/PROSPECTUS, INCLUDING STATEMENTS AS TO THE BENEFITS EXPECTED TO
RESULT FROM THE MERGER AND AS TO FUTURE FINANCIAL PERFORMANCE AND THE ANALYSIS
PERFORMED BY THE FINANCIAL ADVISOR TO CORSAIR AND THE PROJECTIONS RELIED UPON BY
SUCH FINANCIAL ADVISOR, ARE FORWARD LOOKING STATEMENTS WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL
RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED IN SUCH FORWARD-LOOKING
STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN "RISK
FACTORS" BEGINNING ON PAGE 28 HEREIN, WHICH THE STOCKHOLDERS OF CORSAIR AND
SUBSCRIBER SHOULD CAREFULLY REVIEW.
Neither Corsair nor Subscriber makes any express or implied representation
or warranty as to the attainability of the projected or estimated financial
information, if any, referenced or set forth under "The Merger -- Opinion of
Corsair's Financial Advisor" or elsewhere herein or as to the accuracy or
completeness of the assumptions from which such projected or estimated
information is derived. Projections or estimations of Corsair's and Subscriber's
future performance are necessarily subject to a high degree of uncertainty and
may vary materially from actual results. Reference is made to the particular
discussions set forth under "Risk Factors."
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION....................................... 2
TRADEMARKS.................................................. 2
FORWARD LOOKING STATEMENTS.................................. 3
SUMMARY..................................................... 6
INTRODUCTION................................................ 24
RISK FACTORS................................................ 28
Risks Relating to the Merger.............................. 28
Risks Relating to the Combined Company.................... 28
Risks Relating to Subscriber.............................. 38
THE MERGER.................................................. 40
Background of the Merger.................................. 40
Reasons of the Corsair and Subscriber Boards for the
Merger................................................. 41
Recommendation of the Corsair Board of Directors.......... 42
Opinion of Corsair's Financial Advisor.................... 43
Interests of Certain Persons in the Merger -- Corsair..... 46
Recommendation of the Subscriber Board of Directors....... 46
Interests of Certain Persons in the
Merger -- Subscriber................................... 47
Federal Income Tax Consequences........................... 48
Subscriber Voting Agreements.............................. 50
Corsair Voting Agreements................................. 50
Accounting Treatment...................................... 50
Resales of Corsair Common Stock; Affiliate Agreements..... 51
Regulatory Requirements................................... 51
Applicability of California Law to Subscriber............. 52
Appraisal and Dissenters' Rights.......................... 52
THE MERGER AGREEMENT........................................ 57
The Merger................................................ 57
Closing Date and Effective Time........................... 57
Certificate; Bylaws; Directors and Officers............... 57
Merger Consideration...................................... 57
Conversion of Subscriber Capital Stock.................... 58
Conversion of Subscriber Options.......................... 59
Conversion of Subscriber Warrants......................... 59
Adjustment of Exchange Ratio.............................. 59
Fractional Shares......................................... 59
Escrow and Indemnification................................ 60
Securityholder Agent...................................... 60
Exchange of Certificates.................................. 61
Representations and Warranties............................ 61
Conditions to Closing..................................... 62
Certain Covenants and Agreements.......................... 62
Non-Solicitation.......................................... 64
Amendments and Waivers.................................... 64
Termination............................................... 64
Expenses; Termination Fee................................. 65
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS........... 66
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
APPROVAL OF AN AMENDMENT TO CORSAIR'S 1997
STOCK INCENTIVE PLAN...................................... 76
APPROVAL OF AN AMENDMENT TO CORSAIR'S 1997
EMPLOYEE STOCK PURCHASE PLAN.............................. 84
CORSAIR COMMUNICATIONS, INC. ............................... 87
BUSINESS.................................................. 87
PRICE RANGE OF CORSAIR COMMON STOCK AND DIVIDEND POLICY... 97
SELECTED FINANCIAL DATA OF CORSAIR........................ 98
CORSAIR'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 99
PRINCIPAL STOCKHOLDERS OF CORSAIR......................... 104
MANAGEMENT................................................ 105
COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT........ 107
EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS....... 109
CERTAIN TRANSACTIONS...................................... 116
SUBSCRIBER COMPUTING, INC. ................................. 118
BUSINESS.................................................. 118
SELECTED FINANCIAL INFORMATION OF SUBSCRIBER.............. 124
SUBSCRIBER'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.......... 125
PRINCIPAL STOCKHOLDERS OF SUBSCRIBER...................... 130
DESCRIPTION OF CORSAIR CAPITAL STOCK........................ 132
COMPARISON OF RIGHTS OF HOLDERS OF CORSAIR COMMON STOCK AND
SUBSCRIBER CAPITAL STOCK.................................. 135
LEGAL MATTERS............................................... 141
EXPERTS..................................................... 141
OTHER MATTERS............................................... 142
INDEX TO FINANCIAL STATEMENTS............................... 143
ANNEX A -- Opinion of Hambrecht & Quist LLC................. A-1
ANNEX B -- Section 262 of the Delaware General Corporation
Law....................................................... B-1
ANNEX C -- Sections 1300 to 1304 of the California General
Corporation Law........................................... C-1
ANNEX D -- Agreement and Plan of Reorganization, dated April
2, 1998................................................... D-1
</TABLE>
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SUMMARY
The following is a summary of certain of the information contained in this
Joint Proxy Statement/ Prospectus. The summary does not purport to be complete
and is qualified in its entirety by the more detailed information contained in
this Joint Proxy Statement/Prospectus and in the documents annexed hereto, all
of which should be carefully reviewed. Cross-references in this summary refer to
indicated captions or portions of this Joint Proxy Statement/Prospectus.
THE PARTIES
CORSAIR
Corsair provides an open architecture hardware and software system that can
serve as a platform for the delivery of multiple products and services to the
wireless telecommunications industry. The genesis for the platform is
PhonePrint(R), a system that has proven highly effective in reducing cloning
fraud. The PhonePrint system has prevented over 120 million fraudulent call
attempts and some customers have reported up to a 95% reduction in cloning fraud
losses after deploying PhonePrint. In addition to providing cloning fraud
prevention, Corsair's platform is designed to support a broad range of products
and services for the wireless telecommunications industry, including churn
reduction and phone location products. Corsair believes that new products can be
integrated with its open, scalable platform, which can provide a number of
benefits to wireless telecommunications carriers, including accelerated
development and deployment, reduced costs, efficient use of cell site space and
improved customer service.
Corsair sells and markets its products to wireless telecommunications
carriers domestically and internationally. Corsair's customers include AT&T
Wireless Services, Inc., Baja Celular Mexicana, S.A. de C.V., Bell Atlantic
Mobile, Inc., BellSouth Cellular Corp., Celular de Telefonia, S.A. de C.V., CCPR
Services, Inc., Centennial Cellular Corp., Comcast Cellular Communications,
Inc., Dobson Cellular Systems, Inc., GTE Wireless, Inc., Grupo Iusacell, S.A. de
C.V., Houston Cellular Telephone Company, Los Angeles Cellular Telephone
Company, Pilipino Telephone Corporation (Piltel), PriCellular Wireless
Corporation, Puerto Rico Telephone Company, RadioMovil DIPSA, S.A. de C.V.
(Telcel), Southwestern Bell Mobile Systems Inc., Southwestern Bell Wireless,
Inc., United States Cellular Corp. and Vanguard Cellular Financial Corp.
Corsair was incorporated in Delaware in December 1994. Corsair's
headquarters are located at 3408 Hillview Avenue, Palo Alto, California 94304,
and its telephone number is (650) 842-3300.
SUBSCRIBER
Subscriber provides scalable billing, customer care, fraud detection,
prepaid billing and mediation solutions for paging, cellular and Personal
Communications Services ("PCS") service providers. Subscriber supports its
products with consulting services to assist customers in the integration and
implementation of its products. Subscriber believes that by using its software
technology, wireless service providers can increase customer acquisition and
retention, improve operating efficiencies, reduce costs and implement enhanced
services.
Subscriber is a leading third-party provider of billing systems for the
paging industry. Subscriber's Communications Resources Manager ("CRM") is an
application that manages billing, activations and customer care functions. For
large cellular and PCS carriers, Subscriber provides real time applications,
including FraudWatch(R) Pro, a subscription and cloning fraud detection
profiler, PrePay, a prepaid metered billing application, and IMR, a mediation
device. For smaller or start-up service providers, Subscriber bundles its CRM
and real time applications as a comprehensive software solution (the "Suite").
Subscriber sells and markets its products to wireless telecommunications
service providers domestically and internationally. Subscriber's customers
include: ALLTEL Mobile, Cellcom Israel Limited (Israel), Conxus Corporation,
Douglass Telecommunications Inc., Hutchison Telecommunications Limited
(Australia), Infomobile (France), Metrocall of Delaware Inc., Page One
Communications (United Kingdom),
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<PAGE> 16
Pagemart Limited (Canada), Radiomovil DIPSA, S.A. de C.V. (Telcel) (Mexico),
SouthWestCo Wireless, J.P. and Western Wireless Corporation. Subscriber system
solutions currently service approximately 20 million wireless communications
users on six continents.
Subscriber was incorporated in California in 1978, and reincorporated in
Delaware in December 1996. Subscriber's headquarters are located at 18881 Von
Karman Avenue, Suite 450, Irvine, California 92612, and its telephone number is
(714) 260-1500.
MERGER SUB
Merger Sub is a Delaware corporation recently organized by Corsair for the
purpose of effecting the Merger. It has no material assets and has not engaged
in any activities except in connection with the Merger. Merger Sub's executive
offices are located at 3408 Hillview Avenue, Palo Alto, California 94304, and
its telephone number is (650) 842-3300.
THE MEETINGS
INTRODUCTION
At the Corsair Meeting, the Corsair stockholders will be asked to vote on
the following Corsair Proposals:
(A) To approve and adopt the Merger Agreement, to approve the Merger
and to authorize Corsair's issuance of Corsair Common Stock as
consideration for its acquisition of Subscriber.
(B) To vote upon the proposed amendment to Corsair's 1997 Stock
Incentive Plan to increase the authorized number of shares of Corsair
Common Stock available for issuance under such plan from 1,337,633 to
2,587,633.
(C) To vote upon the proposed amendment to Corsair's 1997 Employee
Stock Purchase Plan to increase the authorized number of shares of Corsair
Common Stock available for issuance under such plan from 166,667 to
266,667.
(D) To transact such other business as may properly come before the
Corsair Meeting, or any postponements or adjournments thereof.
At the Subscriber Meeting, the Subscriber stockholders will be asked to
vote on the following Subscriber Proposals:
(A) To approve and adopt the Merger Agreement and to approve the
Merger.
(B) To transact such other business as may properly come before the
Subscriber Meeting, or any postponements or adjournments thereof.
See "Introduction -- Voting and Proxies."
TIME, DATE AND PLACE
The Corsair Meeting will be held on , 1998, at 8:00 a.m., local
time, at Corsair's executive offices located at 3408 Hillview Avenue, Palo Alto,
California.
The Subscriber Meeting will be held on , 1998, at 8:00 a.m.,
local time, at Subscriber's executive offices located at 18881 Von Karman
Avenue, Suite 1000, Irvine, California.
RECORD DATE; SHARES ENTITLED TO VOTE
Holders of record of Corsair Common Stock at the close of business on May
15, 1998 (the "Corsair Record Date") will be entitled to notice of and to vote
at the Corsair Meeting. At the close of business on May 15, 1998, [***] shares
of Corsair Common Stock were issued and outstanding. Each outstanding share of
Corsair Common Stock is entitled to one vote at the Corsair Meeting.
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<PAGE> 17
Holders of record of Subscriber Common Stock, Subscriber Series A Preferred
Stock and Subscriber Series B Senior Convertible Participating Preferred Stock
(the "Subscriber Series B Preferred Stock" and collectively, the "Subscriber
Capital Stock") at the close of business on May 15, 1998 (the "Subscriber Record
Date") will be entitled to notice of and to vote at the Subscriber Meeting. At
the close of business on May 15, 1998, there were [***] shares of Subscriber
Common Stock, [***] shares of Subscriber Series A Preferred Stock and [***]
shares of Subscriber Series B Preferred Stock issued and outstanding. Each
outstanding share of Subscriber Common Stock, Subscriber Series A Preferred
Stock and Subscriber Series B Preferred Stock is entitled to one vote at the
Subscriber Meeting.
See "Introduction -- Voting and Proxies."
VOTE REQUIRED -- CORSAIR
Approval of the Merger requires the affirmative vote of the holders of a
majority of the outstanding shares of Corsair Common Stock. Approval of the
amendments to Corsair's 1997 Stock Incentive Plan and Employee Stock Purchase
Plan requires the affirmative vote of the holders of a majority of the shares of
Corsair Common Stock voted at the Corsair Meeting. The presence, either in
person or by proxy, of the holders of at least a majority of the outstanding
shares of Corsair Common Stock entitled to vote is necessary to constitute a
quorum at the Corsair Meeting.
The directors and executive officers of Corsair and certain of their
affiliates have entered into agreements with Corsair and Subscriber whereby they
have agreed to vote the shares of Corsair Common Stock over which they have
voting control in favor of the Merger Agreement, the Merger and any matter that
could reasonably be expected to facilitate the Merger, and in connection
therewith, have granted irrevocable proxies to the Board of Directors of
Subscriber covering approximately 3,500,000 shares of Corsair Common Stock, or
approximately % of the outstanding Corsair Common Stock as of the Corsair
Record Date. See "The Merger -- Corsair Voting Agreements."
VOTE REQUIRED -- SUBSCRIBER
Approval of the Subscriber Proposals requires the affirmative vote of the
holders of a majority of the outstanding shares of (a) Subscriber Capital Stock,
voting together on an as converted to Subscriber Common Stock basis and (b) each
class of Subscriber Capital Stock, voting as a separate class. The presence,
either in person or by proxy, of the holders of at least a majority of the
outstanding shares of Subscriber Capital Stock entitled to vote is necessary to
constitute a quorum at the Subscriber Meeting.
The directors and executive officers of Subscriber and certain of their
affiliates have entered into agreements with Subscriber and Corsair whereby they
have agreed to vote the shares of Subscriber Capital Stock over which they have
voting control in favor of the Merger Agreement, the Merger and any matter that
could reasonably be expected to facilitate the Merger, and in connection
therewith, have granted irrevocable proxies to the Board of Directors of Corsair
covering approximately 8,175,000 shares of Subscriber Common Stock, or
approximately % of the outstanding Subscriber Common Stock as of the
Subscriber Record Date, and 4,070,000 shares of Subscriber Preferred Stock, or
approximately % of the outstanding Subscriber Preferred Stock as of the
Subscriber Record Date. See "The Merger -- Subscriber Voting Agreements."
THE MERGER
GENERAL
Upon consummation of the Merger, Merger Sub will be merged with and into
Subscriber. Merger Sub will then cease to exist, and Subscriber will be the
surviving corporation and a wholly-owned subsidiary of Corsair.
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<PAGE> 18
REASONS FOR THE MERGER
The Corsair and Subscriber Boards of Directors (the "Corsair Board" and the
"Subscriber Board", respectively, and collectively, the "Boards") have
identified several potential benefits of the Merger that they believe, if
achieved, will contribute to the success of the combined company. These
potential benefits include principally the following:
Expanded product offering. The Boards believe that the broader array of
products that would be offered by the combined company could expand the
potential customer base, reduce the dependency of the individual companies on
any one product and smooth the impact of potential revenue and cost fluctuations
that any one product may have on the combined company's results of operations.
The combined company would offer products and services to cellular, PCS and
paging service providers, address the requirements of carriers operating in
analog and digital environments, target large and small operators and market to
potential customers located in most parts of the world.
Leverage customer relationships to cross-sell products. The Boards believe
that Corsair's and Subscriber's customer bases would represent strong prospects
for each other's products. The Boards believe that the relationships, personal
contacts and reputation for high-quality products and service that each company
maintains with its customers would enhance and potentially accelerate the sales
opportunity for the other's products with these customers. In the case where
Corsair and Subscriber currently provide products and services to the same
customers, the Boards believe that the Merger could further strengthen
relationships with these customers.
Enhance worldwide distribution and marketing relationships. The Boards also
believe that the combination of Corsair and Subscriber would enhance potential
distribution and marketing relationships. The Boards believe that the combined
company could offer these parties more products with potentially improved
integration prospects from a single source, which could reduce management
complexity, streamline internal training processes and enhance sales and
marketing prospects. The Boards also believe that a larger portfolio of products
from the combined company could increase negotiating strength, generate more
attention from third party sales and marketing organizations and increase the
potential to attract distribution and marketing partners.
Leverage worldwide customer support infrastructure. Corsair and Subscriber
have several common customers around the world currently and may have more in
the future, which could provide opportunities to leverage investments in service
and support infrastructure across multiple products. The Boards believe that a
combination of support organizations could increase the capacity of the combined
company to support international growth and ultimately reduce the total cost of
customer support that would otherwise be borne by the companies independently.
Software technologies, such as UNIX, NT and relational databases, are common to
several of Corsair's and Subscriber's products, which could enhance
cross-training opportunities. Additionally, field technicians now located
throughout the U.S., Mexico and Asia in support of PhonePrint would be able to
provide certain support for several of the combined company's products.
Broader product development capability. The Boards believe that the Merger
could strengthen the combined company's product development capabilities. By
combining the technical competencies of the two companies, the Boards believe
that the combined company could reduce the inherent risk in product development
currently underway, and may be able to develop new products more effectively
than would be the case as separate companies. Corsair has competencies in radio
frequency signal analysis, digital signal processing and real-time distributed
systems design and operation. Subscriber has competencies in telecommunications
billing processing, real-time data processing, interfacing with wireless
switches and designing scalable software applications.
Increased Scale of Operation. The Boards also believe that wireless
telecommunications service providers increasingly value the prospect of doing
business with larger companies, and that the combination of Corsair and
Subscriber would present such an image more effectively than they do
individually.
Synergies and Other Cost Savings. The Boards believe that the Merger would
provide an opportunity to generate organizational and financial synergies
through the elimination or reduction of certain general and
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<PAGE> 19
administrative, marketing, sales and support redundancies. Both Corsair and
Subscriber realize that the Merger would require an aggressive program to
rationalize and strategically focus the combined company and reduce costs and
that this process will be inherently difficult to manage. See "Risk
Factors -- Risks Relating to the Merger -- No Assurance that Businesses Can Be
Successfully Combined."
RECOMMENDATION OF THE CORSAIR BOARD
The Corsair Board of Directors unanimously approved the Corsair Proposals.
The Corsair Board unanimously recommends that Corsair stockholders vote FOR the
Corsair Proposals, which will constitute a vote to approve and adopt the Merger
Agreement, to approve the Merger, to authorize the issuance of Corsair Common
Stock as consideration for Corsair's acquisition of Subscriber, to approve the
proposed amendment to Corsair's 1997 Stock Incentive Plan and to approve the
proposed amendment to Corsair's 1997 Employee Stock Purchase Plan. See "The
Merger -- Recommendation of the Corsair Board of Directors" for a discussion of
the factors considered by the Corsair Board.
OPINION OF CORSAIR'S FINANCIAL ADVISOR
Corsair's financial advisor, Hambrecht & Quist LLC ("H&Q"), rendered a
written opinion, dated March 31, 1998, that as of the date of such opinion, and
subject to certain assumptions, factors and limitations set forth in such
opinion, the consideration to be paid by Corsair in the Merger is fair to
Corsair from a financial point of view. Corsair has agreed to pay H&Q certain
fees for acting as financial advisor in connection with the Merger. This opinion
should be read in its entirety and is set forth in Appendix A.
See "The Merger -- Opinion of Corsair's Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER -- CORSAIR
As of March 31, 1998, directors and executive officers of Corsair and their
affiliates may be deemed to be beneficial owners of approximately 37.7% of the
outstanding shares of Corsair Common Stock. See "Corsair Communications,
Inc. -- Common Stock Ownership of Directors and Management."
The directors and executive officers of Corsair and certain of their
affiliates are obligated to vote or direct the vote of all of the shares of
Corsair Common Stock over which they have voting control in favor of the Merger
Agreement, the Merger and any matter that could reasonably be expected to
facilitate the Merger. See "The Merger -- Corsair Voting Agreements."
The foregoing interests of the directors, executive officers and certain
stockholders of Corsair in the Merger may mean that such persons have a personal
interest in the Merger which may not be identical to the interests of the other
Corsair stockholders.
RECOMMENDATION OF THE SUBSCRIBER BOARD
The Subscriber Board unanimously approved the Subscriber Proposals. The
Subscriber Board unanimously recommends that Subscriber stockholders vote FOR
the Subscriber Proposals, which will consist of a vote to approve and adopt the
Merger Agreement and to approve the Merger. See "The Merger -- Recommendation of
the Subscriber Board of Directors" for a discussion of the factors considered by
the Subscriber Board.
INTERESTS OF CERTAIN PERSONS IN THE MERGER -- SUBSCRIBER
As of March 31, 1998, directors and executive officers of Subscriber and
their affiliates may be deemed to be beneficial owners of approximately 86.1% of
the outstanding shares of Subscriber Common Stock, 96.7% of the outstanding
shares of Subscriber Preferred Stock and 89.4% of the outstanding shares of all
Subscriber Capital Stock. See "Subscriber Computing, Inc. -- Principal
Stockholders of Subscriber."
The directors and executive officers of Subscriber and certain of their
affiliates are obligated to vote or direct the vote of all of the shares of
Subscriber Capital Stock over which they have voting control in favor of
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<PAGE> 20
the Merger Agreement, the Merger and any matter that could reasonably be
expected to facilitate the Merger. See "The Merger-- Subscriber Voting
Agreements."
As of March 31, 1998, affiliates of Advent International Corporation
("Advent") owned 4,069,534 shares of Subscriber Series B Preferred Stock which
is convertible into 4,069,534 shares of Subscriber Common Stock. In the Merger,
assuming the Corsair Average Stock Price (as defined below) does not exceed
$20.11 and is not less than $16.45, holders of each share of Subscriber Series B
Preferred Stock would receive that number of shares of Corsair Common Stock
equal in value to approximately $7.47, while holders of each share of Subscriber
Common Stock would receive that number of shares of Corsair Common Stock equal
in value to approximately $3.90. Douglas Kingsley, a director of Subscriber, is
Vice President of Advent. Mr. Kingsley disclaims beneficial ownership of the
shares held by affiliates of Advent.
Certain directors and all executive officers of Subscriber have been
granted options ("Subscriber Options") to purchase Subscriber Common Stock under
Subscriber's 1997 Incentive Stock Option Plan. Of the Subscriber Options,
342,421 are exercisable within 60 days of March 31, 1998, and an additional
335,255 will become exercisable upon the Closing Date (as defined below). The
exercise price of the Subscriber Options range from $.50 to $1.00 per share.
Except as specified below, the Subscriber Options vest over periods ranging from
2 3/4 years to 5 years and expire within 10 years of their date of grant. Upon
the effective date of the Merger, the vesting of any portion of the Subscriber
Options held by Mr. Thomas Fedro, the Vice President of Sales and Marketing of
Subscriber, or Mr. David McCann, the Vice President and General Manager of
Real-Time Billing of Subscriber, which will vest within two years after the
effective date of the Merger (including any partially earned but not yet vested
options through such two year period) will be accelerated as of the effective
date of the Merger. Upon the effective date of the Merger, the vesting of any
portion of the Subscriber Options held by any directors or executive officers of
Subscriber (other than Mr. Fedro or Mr. McCann) which will vest within one year
after the effective date of the Merger will be accelerated as of the effective
date of the Merger. In addition, Subscriber has entered into an agreement with
Mr. Mark Nielsen, a director of Subscriber, pursuant to which all Subscriber
Options held by Mr. Nielsen will fully vest as of June 30, 1998.
The foregoing interests of the directors, executive officers and certain
stockholders of Subscriber in the Merger may mean that such persons have a
personal interest in the Merger which may not be identical to the interests of
the other Subscriber stockholders.
RISK FACTORS
In connection with a determination to approve the Corsair and Subscriber
Proposals, stockholders should evaluate the risk factors associated with the
Merger, Corsair's business and Subscriber's business. Stockholders should note
that the aggregate number of shares of Corsair Common Stock that Corsair will
issue in the Merger depends on several factors that cannot be determined
conclusively until the Effective Time, including the average of the closing
price per share of Corsair Common Stock as reported in the Wall Street Journal
for the ten (10) consecutive trading days immediately preceding the closing date
of the Merger.
SEE "RISK FACTORS" FOR A MORE DETAILED DESCRIPTION OF THE RISK FACTORS
ASSOCIATED WITH THE MERGER, CORSAIR'S BUSINESS AND SUBSCRIBER'S BUSINESS.
CLOSING DATE AND EFFECTIVE TIME
Unless the Merger Agreement is terminated or the parties agree to another
time, the closing of the Merger (the "Closing") will take place no later than
five (5) business days following the satisfaction or waiver of the conditions
set forth in Article VI of the Merger Agreement (the "Closing Date"). On the
Closing Date, Corsair and Subscriber will consummate the Merger by filing a
Certificate of Merger with the Secretary of State of the State of Delaware. The
date on which the Delaware Secretary of State confirms the filing of the
Certificate of Merger is referred to herein as the "Effective Time." See
"-- Conditions to Closing" below.
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MERGER CONSIDERATION
As consideration for Corsair's acquisition of Subscriber through the
Merger, the shares of Subscriber Capital Stock which either (a) are issued and
outstanding at the Effective Time or (b) would be outstanding upon exercise of
each option, warrant or other right to acquire Subscriber Capital Stock, whether
vested or unvested, outstanding at the Effective Time will be converted into the
right to receive (or acquire in the case of options, warrants or other rights to
acquire Subscriber Capital Stock), in the aggregate, a certain number of shares
of Corsair Common Stock (the "Merger Consideration"). The Merger Consideration
will be determined as follows: by dividing (A) the sum of (x) $70,000,000 and
(y) the exercise price of all options and warrants to acquire Subscriber Capital
Stock outstanding at the Effective Time (the "Aggregate Exercise Price
Outstanding") and (z) any cash received by Subscriber after April 1, 1998, but
prior to the Effective Time, as payment for the exercise of options or warrants
to acquire Subscriber Capital Stock (the "Aggregate Exercise Price Received,"
and collectively, the "Purchase Price") by (B) the average of the closing price
per share of Corsair Common Stock as reported in the Wall Street Journal for the
ten (10) consecutive trading days immediately preceding the Closing Date (the
"Corsair Average Stock Price"). Notwithstanding the foregoing, the Corsair
Average Stock Price shall in no event be greater than $20.11 per share, nor less
than $16.45 per share. Further, the Purchase Price will be reduced by that
amount of the obligations of Subscriber relating to any mortgages, indentures,
loans or credit agreements, security agreements or other arrangements or
instruments relating to the borrowing of money or extension of credit to
Subscriber including guaranties (collectively, "Borrowings") that exceed
$10,000,000 as of the Effective Time, excluding any Borrowings by Subscriber in
the form of capital leases.
As of April 30, 1998, the sum of the Aggregate Exercise Price Outstanding
and the Aggregate Exercise Price Received equaled $2,760,588.71. Furthermore, as
of April 30, 1998, Subscriber had incurred $ of Borrowings, excluding
Borrowings in the form of capital leases. Assuming that there are no changes to
the Aggregate Exercise Price Outstanding, the Aggregate Exercise Price Received
and Subscriber's Borrowings remain below $10,000,000 before the Effective Time,
Corsair will issue a minimum of approximately 3,600,000 and a maximum of
approximately 4,400,000 shares of Corsair Common Stock in the Merger. Based on
these same assumptions, at the Effective Time, the Subscriber stockholders will
hold or have a right to acquire approximately 20% to 23.5% of Corsair Common
Stock on a fully-diluted basis. The distribution of Corsair Common Stock to the
holders of Subscriber Capital Stock and to the holders of options, warrants or
other rights to acquire Subscriber Capital Stock is more fully described below.
CONVERSION OF SUBSCRIBER CAPITAL STOCK
Subject to the foregoing limitations on the Merger Consideration, each
share of Subscriber Capital Stock which is issued and outstanding at the
Effective Time will be automatically converted, without any action on the part
of the holder, into the consideration set forth below:
(i) Each share of Subscriber Series B Preferred Stock (other than
shares, if any, held by persons exercising appraisal or dissenters' rights,
if available) will be converted into the right to receive a fraction of a
fully-paid and nonassessable share of Corsair Common Stock that is equal to
the quotient of (A) $3.563, divided by (B) the Corsair Average Stock Price.
(ii) In addition, each share of Subscriber Series B Preferred Stock
(other than shares, if any, held by persons exercising appraisal or
dissenters' rights, if available) will be converted into the right to
receive a fraction of a fully-paid and nonassessable share of Corsair
Common Stock that is equal to the quotient of (A) the Merger Consideration
less the aggregate number of shares of Corsair Common Stock issuable to
holders of Subscriber Series B Preferred Stock in accordance with Paragraph
(i) above, divided by (B) the sum of the aggregate number of shares of
Subscriber Common Stock which are (x) issued and outstanding as of the
Effective Time, (y) issuable upon conversion of the Subscriber Series A
Preferred Stock and Subscriber Series B Preferred Stock outstanding as of
the Effective Time and (z) issuable upon exercise of all options, warrants
and other rights to acquire shares of Subscriber Common Stock outstanding
at the Effective Time (the "Exchange Ratio").
12
<PAGE> 22
(iii) Each share of Subscriber Common Stock (other than shares, if
any, held by persons exercising appraisal or dissenters' rights, if
available) will be converted into the right to receive a fraction of a
fully-paid and nonassessable share of Corsair Common Stock that is equal to
the Exchange Ratio.
(iv) Each share of Subscriber Series A Preferred Stock (other than
shares, if any, held by persons exercising appraisal or dissenters' rights,
if available) will be converted into the right to receive a fraction of a
fully paid and nonassessable share of Corsair Common Stock that is equal to
the product of (A) 1.03718 and (B) the Exchange Ratio.
Assuming that there has been no change in Subscriber's capital structure
since the date of the Merger Agreement, that Subscriber's Borrowings do not
exceed $10,000,000 at the Effective Time and that the Corsair Average Stock
Price does not exceed $20.11 and is not less than $16.45, the holders of each
share of Subscriber Common Stock would receive that number of shares of Corsair
Common Stock equal in value, based on the Corsair Average Stock Price, to $3.90
and the holders of each share of Subscriber Series B Preferred Stock would
receive that number of shares of Corsair Common Stock equal in value, based on
the Corsair Average Stock Price, to $7.47.
CONVERSION OF SUBSCRIBER OPTIONS
At the Effective Time, each outstanding option to purchase shares of
Subscriber Common Stock issued under Subscriber's 1997 Incentive Stock Option
Plan (the "Subscriber Option Plan") or pursuant to a separate stock option
agreement, whether vested or unvested (the "Subscriber Options"), will be
assumed by Corsair. Thereafter, each Subscriber Option will be exercisable for
that number of whole shares of Corsair Common Stock equal to the product of (A)
the number of shares of Subscriber Common Stock that would have been issuable
upon exercise of such Subscriber Option immediately prior to the Effective Time
and (B) the Exchange Ratio, rounded down (in the case of Subscriber Options
granted under the Subscriber Option Plan) to the nearest whole number of shares.
The per share exercise price for the shares of Corsair Common Stock issuable
upon exercise of an assumed Subscriber Option will be equal to the quotient
determined by dividing (A) the exercise price per share of the Subscriber Common
Stock at which such Subscriber Option was exercisable immediately prior to the
Effective Time by (B) the Exchange Ratio, rounded up to the nearest whole cent.
Other than the number of shares and the exercise price for the Subscriber
Options, each assumed Subscriber Option will continue to have and be subject to
the same terms and conditions set forth in the Subscriber Option Plan and/or as
provided in the respective stock option agreement governing such Subscriber
Option immediately prior to the Effective Time. Promptly following the Effective
Time, Corsair will issue each holder of an outstanding Subscriber Option a
document evidencing Corsair's assumption of such Subscriber Option.
CONVERSION OF SUBSCRIBER WARRANTS
At the Effective Time, each outstanding warrant to purchase shares of
Subscriber Capital Stock (each a "Subscriber Warrant") will be assumed by
Corsair. Thereafter, each Subscriber Warrant will be exercisable for that number
of whole shares of Corsair Common Stock that would have been issued in respect
of the warrant in the Merger had the warrant been exercised immediately prior to
the Effective Time, rounded to the nearest whole number of shares of Corsair
Common Stock, with one-half share being rounded up. The per share exercise price
for the assumed Subscriber Warrants will be equal to the quotient determined by
dividing the aggregate cash exercise price at which such Subscriber Warrant
would have been exercisable in full immediately prior to the Effective Time by
the number of shares of Corsair Common Stock issuable upon exercise of such
warrant, rounded to the nearest whole cent, with one-half cent being rounded up.
Other than the number of shares and the exercise price for the Subscriber
Warrants, each assumed Subscriber Warrant will continue to have and be subject
to the same terms and conditions set forth in the respective agreement governing
such Subscriber Warrant immediately prior to the Effective Time. Promptly
following the Effective Time, Corsair will issue each holder of an outstanding
Subscriber Warrant a document evidencing Corsair's assumption of such Subscriber
Warrant.
13
<PAGE> 23
ESCROW AND INDEMNIFICATION
As part of the Merger, each holder of Subscriber Capital Stock at the
Effective Time will be deemed to have automatically received and deposited into
an escrow account (the "Escrow Fund") ten percent (10%) of the shares of Corsair
Common Stock issuable to such holder in the Merger (the "Escrow Amount"). No
portion of the Escrow Amount will be contributed in respect to any Subscriber
Options or Subscriber Warrants. The Escrow Fund will continue in existence from
the Effective Time to the earlier of (a) one year following the Closing Date or
(b) the date of the filing with the Commission of the next audit opinion issued
by Subscriber's auditors (the "Escrow Period").
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Subscriber and Corsair made certain
representations and warranties relating to, among other things (i) corporate
existence and power, (ii) corporate authorization for the Merger Agreement and
the transactions contemplated by the Merger Agreement, (iii) governmental
consents and approvals, (iv) capital structure, (v) financial statements and
Commission filings, (vi) the absence of certain changes, (vii) litigation and
(viii) intellectual property. In addition, Subscriber made representations and
warranties concerning (i) its subsidiaries, (ii) the absence of undisclosed
material liabilities, (iii) taxes, tax returns and audits, (iv) the absence of
restrictions on business activities, (v) title to its properties, (vi) absence
of liens and encumbrances, (vii) agreements, contracts and commitments, (viii)
interested party transactions, (ix) compliance with laws, (x) insurance, (xi)
minute books, (xii) environmental matters, (xiii) finders' fees and third party
expenses, (xiv) labor matters and benefit plans, (xv) employees, (xvi) matters
affecting the availability of pooling of interest accounting, (xvii) disclosure
documents and (xviii) the completeness of Subscriber's representations.
CONDITIONS TO CLOSING
The Merger Agreement provides that consummation of the Merger is subject to
the fulfillment or waiver of a number of conditions at or prior to the Effective
Time. The following are conditions to both parties' obligations to consummate
the Merger: (i) receipt of the requisite approval from the Corsair and
Subscriber stockholders; (ii) receipt of all necessary governmental approvals;
(iii) the absence of any legal or regulatory restraint preventing the
consummation of the Merger; (iv) receipt by Corsair and Subscriber of
substantially identical written tax opinions from their respective legal counsel
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended and
(v) receipt of notice from the Commission that the registration statement with
respect to the Corsair Common Stock issuable upon consummation of the Merger is
effective.
The obligation of Corsair to consummate the Merger is also subject to the
satisfaction of the following conditions: (i) the accuracy of Subscriber's
representations and warranties contained in the Merger Agreement in all material
respects on and as of the Closing Date (subject to certain limited exceptions)
and the delivery of an appropriate certificate by Subscriber to such effect;
(ii) Subscriber having performed and complied with all of its agreements and
covenants contained in the Merger Agreement in all material respects on or
before the Closing Date; (iii) receipt by Corsair of evidence satisfactory to
Corsair that Subscriber obtained certain consents, approvals and waivers
required under the Merger Agreement; (iv) receipt of an opinion from
Subscriber's legal counsel, in substantially the form attached as Exhibit F to
the Merger Agreement; (v) receipt of executed Affiliate Agreements as
contemplated below for each affiliate of Subscriber; (vi) the absence of any
material adverse change in the business, assets, financial condition, results of
operations, liabilities or prospects of Subscriber since February 28, 1997
(subject to certain limited exceptions); (vii) the holders of five percent (5%)
or less of the outstanding Subscriber Capital Stock having exercised or
continuing to have the right to exercise appraisal and/or dissenters' rights;
and (viii) receipt by Corsair of a letter from KPMG Peat Marwick LLP regarding
such firm's conclusion as to the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16.
The obligation of Subscriber to consummate the Merger is subject to the
satisfaction of the following further conditions: (i) the accuracy of Corsair's
representations and warranties contained in the Merger
14
<PAGE> 24
Agreement in all material respects on and as of the Closing Date (subject to
certain limited exceptions) and the delivery of an appropriate certificate by
Corsair to such effect; (ii) Corsair having performed and complied with all of
its agreements and covenants contained in the Merger Agreement in all material
respects on or before the Closing Date; (iii) receipt of an opinion from
Corsair's legal counsel, in substantially the form attached as Exhibit E to the
Merger Agreement; (iv) the absence of any material adverse change in the
business, assets, financial condition, results of operations, liabilities or
prospects of Corsair since December 31, 1997 (subject to certain limited
exceptions); and (v) a majority of the current holders of Registrable Securities
(as defined in the Corsair Investor's Rights Agreement) shall have executed the
Amendment to Investor's Rights Agreement contemplated by the Merger Agreement.
CERTAIN COVENANTS AND AGREEMENTS
As part of the Merger Agreement, Subscriber agreed from the date of the
Merger Agreement until the Effective Time to: (i) conduct its business in the
ordinary course in substantially the same manner as previously conducted; (ii)
pay its debts, taxes and other obligations when due; (iii) use reasonable
efforts to preserve intact its present business organization, its present
officers and key employees and its relationships with customers, suppliers,
distributors and licensors; and (iv) promptly notify Corsair of any event or
occurrence or emergency not in the ordinary course of its business and any
material event involving or adversely affecting Subscriber or its business. In
addition, Subscriber has agreed not to take a number of other actions prior to
the Effective Time without Corsair's consent.
As part of the Merger Agreement, Corsair agreed, during the period from the
date of the Merger Agreement and continuing until the earlier of the termination
of the Merger Agreement, the Effective Time or June 15, 1998, not to issue
securities of Corsair with an aggregate fair market value in excess of
$30,000,000 without the prior written consent of Subscriber. This limitation
does not include the fair market value of (i) any securities issued upon the
conversion or exercise of currently outstanding convertible or exercisable
securities; (ii) shares of Corsair Common Stock issued in the Merger; (iii)
warrants or options to acquire Corsair Common Stock issued in the Merger; or
(iv) the issuance or sale of Corsair Common Stock to employees, consultants and
directors, directly or pursuant to a stock option plan or employee stock
purchase plan.
In addition, Corsair and Subscriber have agreed to (i) give each other
reasonable access to their respective books and records; (ii) give the other
notice of specified material events; (iii) use reasonable efforts to consult
with each other before making public announcements; (iv) keep information or
knowledge obtained during any investigation of the other company or as a result
of negotiating and executing the Merger Agreement confidential; and (v) use
reasonable efforts to cause the Merger to be accounted for as a pooling of
interests.
NON-SOLICITATION
Subscriber has agreed, until the earlier of the Effective Time or the date
of termination of the Merger Agreement, not to directly or indirectly take any
of the following actions with any party other than Corsair: (i) solicit any
proposals or offers from, conduct discussions with or engage in negotiations
with any person relating to any possible acquisition of Subscriber or any of its
subsidiaries, any material portion of Subscriber's or its subsidiaries' capital
stock or assets or any equity interest in Subscriber or any of its subsidiaries;
(ii) provide information, facilitate or encourage any effort or attempt by any
person to acquire Subscriber, any material portion of Subscriber's or its
subsidiaries' capital stock or assets or any equity interest in Subscriber or
any of its subsidiaries; (iii) enter into an agreement with any person providing
for the acquisition of Subscriber, any material portion of Subscriber's or its
subsidiaries' capital stock or assets or any equity interest in Subscriber or
any of its subsidiaries; or (iv) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of Subscriber or any of
its subsidiaries, any material portion of Subscriber's or its subsidiaries'
capital stock or assets or any equity interest in Subscriber or any of its
subsidiaries by any person.
15
<PAGE> 25
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after the approval of the
stockholders of Subscriber and/or Corsair, under any of the following
circumstances: (i) by the mutual written consent of Corsair and Subscriber; (ii)
by either Corsair or Subscriber if (a) the Effective Time has not occurred
before 5:00 p.m. (Pacific time) on September 30, 1998, (b) there is a final
nonappealable order of a federal or state court in effect preventing the
consummation of the Merger or (c) there is any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity that would make consummation of the Merger illegal; (iii) by
Corsair if there is any action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would (a) prohibit Corsair's or Subscriber's ownership
or operation of all or any part of the business of Subscriber or (b) compel
Corsair or Subscriber to dispose of or hold separate all or a portion of the
business or assets of Subscriber or Corsair as a result of the Merger; (iv) by
Corsair if it is not in material breach of its obligations under the Merger
Agreement and (a) Subscriber has materially breached any representation,
warranty, covenant or agreement contained in the Merger Agreement, (b) such
breach has not been cured within five (5) business days after written notice and
(c) as a result of such breach a condition to Corsair's obligation to consummate
the Merger would not then be satisfied; and (v) by Subscriber if it is not in
material breach of its obligations under the Merger Agreement and (a) Corsair
has materially breached any representation, warranty, covenant or agreement
contained in the Merger Agreement, (b) such breach has not been cured within
five (5) business days after written notice and (c) as a result of such breach a
condition to Subscriber's obligation to consummate the Merger would not then be
satisfied.
EXPENSES; TERMINATION FEE
Both Corsair and Subscriber will be responsible for paying their respective
fees and expenses incurred in connection with the Merger, including without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("Third Party Expenses") incurred in
connection with the negotiation and consummation of the terms and conditions of
the Merger Agreement and the transactions contemplated by the Merger Agreement.
Notwithstanding the foregoing, in the event the Merger is consummated Corsair
will reimburse Subscriber up to $1,250,000 for Third Party Expenses incurred by
Subscriber. In the event the Merger Agreement is terminated solely due to
Corsair's failure to obtain the requisite approval of its stockholders, Corsair
must pay Subscriber a termination fee of $2,000,000 within five (5) days of such
termination.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger is intended to be a tax-free reorganization which will not be
taxable to Corsair, Subscriber or the Subscriber stockholders, except in respect
to cash received pursuant to the exercise of appraisal and/or dissenters'
rights. It is a condition to the consummation of the Merger that Corsair and
Subscriber will each have received an opinion from their respective legal
counsel to the effect that the Merger will constitute a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended. ALL STOCKHOLDERS SHOULD READ CAREFULLY THE DISCUSSION IN "THE MERGER --
FEDERAL INCOME TAX CONSEQUENCES." STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN
TAX ADVISORS AS TO THE SPECIFIC CONSEQUENCES TO THEM OF THE MERGER UNDER
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS. For a further discussion of federal
income tax consequences of the Merger, see "The Merger -- Federal Income Tax
Consequences."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes in accordance with generally accepted
accounting principles. It is a condition to the closing of the Merger that (i)
Corsair receives a letter from KPMG Peat Marwick LLP, Corsair's independent
auditors, as to their concurrence with the conclusion of the management of
Corsair as to the appropriateness of pooling of interests accounting for the
Merger under Accounting Principles Board Opinion No. 16 if the Merger is
consummated
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<PAGE> 26
in accordance with the Merger Agreement and (ii) Deloitte & Touche LLP, provide
Subscriber a letter at or prior to the Closing, satisfactory in form and
substance to Corsair and Subscriber, as to their concurrence with the conclusion
of the management of Subscriber regarding the appropriateness of pooling of
interests accounting for a transaction involving Subscriber. See "The
Merger -- Accounting Treatment."
SUBSCRIBER VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, each of the
directors and executive officers of Subscriber and certain of their affiliates
(who collectively, as of May 15, 1998, held approximately % of the
outstanding shares of Subscriber Common Stock and approximately % of the
outstanding shares of Subscriber Preferred Stock) entered into voting agreements
(the "Subscriber Voting Agreements") pursuant to which such persons agreed,
among other things, (i) to vote the shares of Subscriber Capital Stock over
which they have voting control in favor of the Merger Agreement, the Merger and
any matter which could be reasonably be expected to facilitate the Merger; (ii)
to execute and deliver an irrevocable proxy to the Corsair Board authorizing the
Corsair Board to vote all shares over which they have voting control as set
forth in item (i); (iii) not to transfer, sell, exchange, pledge or otherwise
dispose of or encumber any shares of Subscriber Capital Stock, except as
otherwise allowed by Staff Accounting Bulletin 76 of the Commission, prior to
the earliest of the consummation of the Merger or the termination of the Merger
Agreement; (iv) not to solicit proposals or offers or otherwise assist,
facilitate or encourage any agreement or understanding with any party other than
Corsair in connection with any merger, consolidation or sale of substantial
assets of Subscriber or any sale of equity interests in Subscriber; and (v) that
ten percent (10%) of all Corsair Capital Stock received by that stockholder as
part of the Merger will be automatically deposited into an escrow fund
established under the Merger. See "The Merger -- Subscriber Voting Agreements."
CORSAIR VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, each of the
directors and executive officers of Corsair and certain of their affiliates (who
collectively, as of May 15, 1998, held approximately % of the outstanding
shares of Corsair Common Stock) entered into voting agreements (the "Corsair
Voting Agreements") pursuant to which such persons agreed, among other things,
(i) to vote the shares of Corsair Common Stock over which they have voting
control in favor of the Merger Agreement, the Merger and any matter which could
be reasonably be expected to facilitate the Merger; (ii) to execute and deliver
an irrevocable proxy to the Subscriber Board authorizing the Subscriber Board to
vote all shares over which they have voting control as set forth in item (i);
and (iii) not to transfer, sell, exchange, pledge or otherwise dispose of or
encumber any shares of Corsair Common Stock, except as otherwise allowed by
Staff Accounting Bulletin 76 of the Commission, prior to the earliest of the
consummation of the Merger or the termination of the Merger Agreement. See "The
Merger -- Corsair Voting Agreements."
RESALES OF CORSAIR COMMON STOCK; AFFILIATE AGREEMENTS
The Corsair Common Stock to be issued to the Subscriber stockholders
pursuant to the Merger Agreement will be freely transferable under the Act,
except for shares issued to any person who may be deemed to be an "affiliate" of
Subscriber within the meaning of Rule 145 under the Act ("Affiliate").
Concurrently with the execution of the Merger Agreement, Subscriber delivered to
Corsair an executed Affiliate Agreement from each person, who in Subscriber's
reasonable judgment, is or may be an Affiliate. Pursuant to the terms of the
Affiliate Agreements, each Affiliate of Subscriber agreed not to make any sale
of Corsair Common Stock received upon consummation of the Merger in violation of
the Act or the rules and regulations promulgated thereunder. The certificates
evidencing Corsair Common Stock issued to Affiliates will bear a legend
summarizing the restrictions on resale imposed on their Corsair Common Stock.
See "The Merger -- Resales of Corsair Common Stock; Affiliate Agreements."
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<PAGE> 27
APPRAISAL AND DISSENTERS' RIGHTS
Stockholders of Subscriber who do not vote in favor of the Merger may,
under certain circumstances and by following procedures prescribed by the
Delaware General Corporation Law (the "DGCL"), exercise appraisal rights and
receive cash for their shares of Subscriber Capital Stock ("Appraisal Rights").
Alternatively, although Subscriber is a Delaware corporation and is therefore
subject to Delaware law, Section 2115 of the California General Corporation Law
(the "CGCL") provides that Subscriber may be subject to California law with
respect to dissenters' rights. Accordingly, pursuant to Chapter 13 of the CGCL,
stockholders of Subscriber who do not vote in favor of the Merger and who comply
with the other requirements of the CGCL will have a right to demand payment for,
and an appraisal of the "fair value" of, their shares ("Dissenters' Rights").
Although a dissenting stockholder may choose to proceed under either state's
statute, a dissenting stockholder of Subscriber must follow the appropriate
procedures under either Delaware or California law or suffer the termination or
waiver of such rights. In the event a Subscriber stockholder relinquishes or
losses his, her or its Appraisal and Dissenters' Rights, the stockholder will
receive from Corsair the same number of shares of Corsair Common Stock that the
stockholder would have received in the Merger had such stockholder not attempted
to exercise his, her or its Appraisal and/or Dissenters' rights. Corsair has no
obligation to consummate the Merger if more than five percent (5%) of the
outstanding shares of Subscriber Capital Stock request or continue to have the
right to exercise Appraisal and/or Dissenters' Rights. See "The
Merger -- Appraisal and Dissenters' Rights" and "-- Applicability of California
Law to Subscriber."
COMPARISON OF STOCKHOLDER RIGHTS
See "Comparison of Rights of Holders of Corsair Common Stock and Subscriber
Capital Stock" for a summary of the material differences between the rights of
holders of Corsair Common Stock and Subscriber Capital Stock.
MARKET PRICE INFORMATION
Neither the Subscriber Common Stock nor any series of Subscriber Preferred
Stock is traded in an established public market. The Corsair Common Stock is
quoted on The Nasdaq National Market under the symbol "CAIR."
The following table sets forth, for the calendar quarters indicated (ended
March 31, June 30, September 30 and December 31), the reported high and low
closing sale prices of Corsair Common Stock as reported on The Nasdaq National
Market since Corsair's initial public offering on July 29, 1997.
<TABLE>
<CAPTION>
CORSAIR COMMON STOCK
--------------------
PERIOD HIGH LOW
------ -------- --------
<S> <C> <C>
Year Ended December 31, 1997
Third Quarter (commencing July 29, 1997)....... $ 21.625 $ 16.00
Fourth Quarter................................. $ 26.00 $ 15.00
Year Ending December 31, 1998
1st Quarter.................................... $ 21.75 $ 15.00
2nd Quarter (through April 30, 1998)........... $ 20.00 $ 16.875
</TABLE>
On April 2, 1998, the last trading date prior to the joint public
announcement by Corsair and Subscriber of the signing of the Merger Agreement,
the last reported sale price of Corsair Common Stock on The Nasdaq National
Market was $18.563 per share. As of April 2, 1998, there were approximately 250
stockholders of record of Corsair Common Stock.
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<PAGE> 28
On April 30, 1998, the most recent practicable date prior to the filing of
the Registration Statement, the last sale price of Corsair Common Stock as
reported on The Nasdaq National Market was $18.50 per share.
Because the market price of Corsair Common Stock is subject to fluctuation,
the number of shares of Corsair Common Stock the holders of Subscriber Capital
Stock will receive in the Merger (and the market value of those shares of
Corsair Common Stock) may increase or decrease prior to the Merger. CORSAIR AND
SUBSCRIBER STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
CORSAIR COMMON STOCK.
Neither Corsair nor Subscriber has paid any cash dividends on their
respective capital stock since their respective inceptions. Following the
Merger, Corsair intends to retain any future earnings for use in its business
and does not anticipate paying cash dividends in the foreseeable future.
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<PAGE> 29
SUMMARY FINANCIAL INFORMATION
CORSAIR COMMUNICATIONS, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
DATA:
Total revenues......................... $ 7,593 $ 19,606 $47,838 $ 9,096 $15,235
Gross profit (deficit)................. (544) 409 16,322 787 8,009
Total operating costs and expenses..... 8,190 12,948 18,329 3,921 5,850
Operating income (loss)................ (8,734) (12,539) (2,007) (3,134) 2,159
Income (loss) before extraordinary
item................................. (8,517) (12,761) (640) (3,140) 2,756
Loss on debt extinguishment............ -- -- (428) -- --
-------- -------- ------- ------- -------
Net income (loss)...................... $ (8,517) $(12,761) $(1,068) $(3,140) $ 2,756
======== ======== ======= ======= =======
Diluted net income (loss) per share
data:
Income (loss) before extraordinary
item................................. $(774.27) $ (96.67) $ (0.10) $ (3.08) $ 0.19
Loss on debt extinguishment............ $ -- $ -- $ (0.06) $ -- $ --
-------- -------- ------- ------- -------
Net income (loss)...................... $(774.27) $ (96.67) $ (0.16) $ (3.08) $ 0.19
======== ======== ======= ======= =======
Shares used in per share calculation... 11 132 6,643 1,019 14,354
======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------- MARCH 31,
1994 1995 1996 1997 1998
------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash, cash equivalents, & short term
investments........................ $ 6,819 $ 9,029 $ 19,504 $ 59,160 $ 60,554
Working capital...................... 9,560 9,767 19,561 54,835 58,022
Total assets......................... 11,305 14,156 34,911 77,677 81,722
Long-term obligations................ 3,010 1,155 4,394 438 328
Accumulated deficit.................. (5,992) (14,459) (27,220) (28,288) (25,532)
Total stockholders' equity........... 7,273 10,592 18,011 59,947 63,231
</TABLE>
20
<PAGE> 30
SUBSCRIBER COMPUTING, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Total revenues................... $3,757 $4,918 $7,546 $11,610 $13,018 $ 5,207 $ 6,457
Gross profit..................... 1,803 1,855 2,966 5,872 7,667 2,789 2,779
Total operating costs and
expenses....................... 1,468 1,636 3,051 12,442 15,039 6,211 10,172
Operating income (loss).......... 335 219 (85) (6,569) (7,372) (3,422) (7,393)
Net income (loss)................ 289 167 (123) (6,844) (7,556) (3,532) (7,404)
Diluted net income (loss) per
share data:
Net income (loss)................ $ 0.04 $ 0.02 $(0.02) $ (0.92) $ (0.96) $ (0.47) $ (0.89)
====== ====== ====== ======= ======= ======= =======
Shares used in per share
calculation.................... 6,670 6,791 7,426 7,426 8,023 7,665 8,415
====== ====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH
------------------------------------------------- 31,
1993 1994 1995 1996 1997 1998
------ ------ ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash, cash equivalents, short term
investments and restricted cash.......... $ 252 $ 326 $ 6,540 $ 2,577 $ 4,075 $ 2,320
Working capital (deficit).................. 626 (224) 5,378 (1,891) (1,552) (6,442)
Total assets............................... 3,525 4,680 12,551 6,815 11,621 11,145
Long-term obligations...................... 828 8 6,875 3,901 968 2,568
Retained earnings (accumulated deficit).... 1,791 2,259 2,135 (4,709) (12,400) (19,893)
Total stockholders' equity (deficit)....... 1,868 2,608 2,484 (4,360) 2,268 (5,102)
</TABLE>
21
<PAGE> 31
CORSAIR AND SUBSCRIBER
COMBINED CONDENSED PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------ ------------------
1995 1996 1997 1997 1998
------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED CONDENSED STATEMENT
OF OPERATIONS DATA(1):
Total revenues.......................... $15,139 $ 31,216 $60,856 $12,158 $18,837
Gross profit............................ 2,423 6,281 23,989 2,603 9,691
Total operating costs and expenses...... 11,242 25,389 33,367 6,165 10,074
Operating loss.......................... (8,819) (19,108) (9,378) (3,562) (383)
Income (loss) before extraordinary
item.................................. (8,640) (19,605) (8,196) (3,694) 307
Loss on debt extinguishment............. -- -- (428) -- --
------- -------- ------- ------- -------
Net income (loss)....................... $(8,640) $(19,605) $(8,624) $(3,694) $ 307
======= ======== ======= ======= =======
Diluted net income (loss) per share
data(2):
Loss per share before extraordinary
item.................................. $ (5.49) $ (11.57) $ (0.85) $ (1.39) $ 0.02
Loss on debt extinguishment............. $ -- $ -- $ (0.05) $ -- $ --
------- -------- ------- ------- -------
Net income (loss)....................... $ (5.49) $ (11.57) $ (0.90) $ (1.39) $ 0.02
======= ======== ======= ======= =======
Shares used in per share calculation.... 1,573 1,694 9,626 2,658 18,115
======= ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1998
---------
<S> <C>
PRO FORMA COMBINED BALANCE SHEET DATA(1)(2):
Cash, cash equivalents, & short term investments............ $ 63,091
Working capital............................................. 49,497
Total assets................................................ 93,084
Long-term obligations....................................... 2,896
Accumulated deficit......................................... (47,725)
Total stockholders' equity.................................. 56,046
</TABLE>
- ---------------
(1) The unaudited Pro Forma Combined Condensed Statements of Operations combine
the historical statements of operations of Corsair for the three months
ended March 31, 1998 and 1997 and the fiscal years ended December 31, 1997,
1996 and 1995 with the historical statements of operations of Subscriber for
the three months ended March 31, 1998 and December 31, 1996, and the fiscal
years ended September 30, 1997, 1996 and 1995, respectively. Subscriber's
net revenues of $2.9 million and net loss of $5.0 million for the three
months ended December 31, 1997 are not included in the Pro Forma Combined
Condensed Statements of Operations. The unaudited Pro Forma Combined Balance
Sheet Data, combines Corsair's unaudited balance sheet as of March 31, 1998
with Subscriber's unaudited balance sheet as of March 31, 1998, giving
effect to the Merger as if it had occurred on March 31, 1998.
(2) Corsair and Subscriber estimate they will incur direct transaction costs of
approximately $2.3 million associated with the Merger, which will be charged
to operations upon consummation of the Merger. The Pro Forma Combined
Balance Sheet Data gives effect to the estimated direct transaction costs,
as if such costs had been incurred as of the respective balance sheet date.
The Pro Forma Combined Balance Sheet Data does not include additional costs,
which costs are not currently estimable, expected to be incurred relating to
integrating the companies. The direct transaction costs and
integration-related charges are not included in the Pro Forma Condensed
Combined Statement of Operations Data. See "Unaudited Pro Forma Combined
Condensed Financial Statements" and accompanying notes therewith.
22
<PAGE> 32
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
-------- ------- ------ ------- -------
<S> <C> <C> <C> <C> <C>
Historical -- Corsair(1):
Diluted net income (loss) per share...... $(774.27) $(96.67) $(0.10) $(3.08) $ 0.19
Basic net income (loss) per share........ (774.27) (96.67) (0.10) (3.08) 0.20
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
-------- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Historical -- Subscriber:
Basic and diluted net loss per share.... $ (0.02) $ (0.92) $(0.96) $(0.47) $(0.89)
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------- ------------------
1995 1996 1997 1997 1998
-------- ------- ------ -------- ------
<S> <C> <C> <C> <C> <C>
Pro Forma Combined Per Share
Results(1)(2)(3):
Per Corsair share -- diluted............ $ (5.49) $(11.57) $(0.85) $(1.39) $ 0.02
Per Corsair share -- basic.............. (5.49) (11.57) (0.85) (1.39) 0.02
Equivalent per Subscriber (1.16) (2.43) (0.18) (0.29) 0.00
share -- diluted(4)..................
Equivalent per Subscriber (1.16) (2.43) (0.18) (0.29) 0.00
share -- basic(4)....................
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF AS OF
SEPTEMBER 30, DECEMBER 31, MARCH 31,
1997 1997 1998
------------- ------------ ---------
<S> <C> <C> <C>
Book value per share:(2)(5)
Historical Corsair........................................ $4.40 $ 4.61
Historical Subscriber..................................... $0.27 (0.60)
Pro forma combined per Corsair share(3)................... 3.50 3.26
Equivalent pro forma combined per Subscriber
share(3)(4)............................................ 0.74 0.69
</TABLE>
- ---------------
(1) All amounts presented represent income (loss) before extraordinary item. Per
share amounts for income (loss) before extraordinary item are the same as
net income (loss) in all periods except the year ended December 31, 1997
when historical Corsair basic and diluted net loss per share were each
$(0.16), Pro Forma Combined basic and diluted net loss per share were each
$(0.90), and Pro Forma Combined basic and diluted equivalent per Subscriber
share net loss per share were each $(0.19).
(2) The unaudited Pro Forma Combined Condensed Statements of Operations combine
the historical statements of operations of Corsair for the three months
ended March 31, 1998 and 1977 and the fiscal years ended December 31, 1997,
1996 and 1995 with the historical statements of operations of Subscriber for
the three months ended March 31, 1998 and December 31, 1996, and the fiscal
years ended September 30, 1997, 1996 and 1995, respectively. Subscriber's
net revenues of $2.9 million and net loss of $5.0 million for the three
months ended December 31, 1997 are not included in the Pro Forma Combined
Condensed Statements of Operations. The unaudited Pro Forma Combined Balance
Sheet Data combines Corsair's unaudited balance sheet as of March 31, 1998
with Subscriber's unaudited balance sheet as of March 31, 1998, giving
effect to the Merger as if it had occurred on March 31, 1998.
(3) Corsair and Subscriber estimate they will incur direct transaction costs of
approximately $2.3 million associated with the Merger, which will be charged
to operations upon consummation of the Merger. The pro forma combined book
value per share data gives effect to the estimated direct transaction costs,
as if such costs had been incurred as of the respective balance sheet date.
The pro forma combined book value per share data does not include additional
costs, which costs are not currently estimable, expected to be incurred
relating to integrating the companies. The direct transaction costs and
integration-related charges are not included in the pro forma combined per
share data. See "Unaudited Pro Forma Combined Condensed Financial
Statements" and accompanying notes thereto.
(4) The Subscriber equivalent pro forma combined per share amounts are
calculated by multiplying the Corsair combined pro forma per share amounts
by the current Common Stock Exchange Ratio of 0.2103.
(5) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock outstanding, including
preferred stock on an as-if converted basis, at the end of each period. The
pro forma combined book value per share is computed by dividing pro forma
stockholders' equity by the pro forma number of shares of Common Stock
outstanding as of March 31, 1998.
23
<PAGE> 33
INTRODUCTION
GENERAL
This Joint Proxy Statement/Prospectus is being furnished to the
stockholders of Subscriber in connection with the solicitation of proxies by the
Subscriber Board from the holders of outstanding shares of Subscriber Capital
Stock for use at the Subscriber Meeting. At the Subscriber Meeting, the
Subscriber stockholders will be asked to consider and vote upon the Subscriber
Proposals, which include the proposal to approve and adopt the Merger Agreement
and to approve the Merger.
This Joint Proxy Statement/Prospectus is also being furnished to the
stockholders of Corsair in connection with the solicitation of proxies by the
Corsair Board from holders of outstanding shares of Corsair Common Stock for use
at the Corsair Meeting. At the Corsair Meeting, the Corsair stockholders will be
asked to consider and vote upon the Corsair Proposals, which include proposals
(i) to approve and adopt the Merger Agreement, to approve the Merger and to
authorize the issuance of shares of Corsair Common Stock as consideration for
Corsair's acquisition of Subscriber, (ii) to approve and adopt the proposed
amendment to Corsair's 1997 Stock Incentive Plan and (iii) to approve and adopt
the proposed amendment to Corsair's 1997 Employee Stock Purchase Plan.
This Joint Proxy Statement/Prospectus constitutes the Prospectus of Corsair
with respect to the shares of Corsair Common Stock to be issued in the Merger.
The information in this Joint Proxy Statement/Prospectus with respect to Corsair
has been supplied by Corsair, and the information with respect to Subscriber has
been supplied by Subscriber.
The principal executive offices of Corsair are located at 3408 Hillview
Avenue, Palo Alto, California 94304, and its telephone number is (650) 842-3300.
The principal executive offices of Subscriber are located at 18881 Von Karman
Avenue, Suite 450, Irvine, California 92612, and its telephone number is (714)
260-1500.
EFFECT OF MERGER
If the Merger is consummated, Merger Sub will merge with and into
Subscriber. Merger Sub will then cease to exist and Subscriber will be the
surviving corporation and a wholly-owned subsidiary of Corsair. The Merger will
be effective after satisfaction (absent waiver) of all conditions set forth in
the Merger Agreement, including the approval of the Merger Agreement by the
stockholders of Corsair and Subscriber.
Pursuant to formulas set forth in the Merger Agreement, (i) each
outstanding share of Subscriber Capital Stock will be converted into the right
to receive a fraction of a share of Corsair Common Stock and (ii) all
outstanding options and warrants to acquire Subscriber Capital Stock will be
assumed by Corsair and converted into the right to acquire shares of Corsair
Common Stock. The aggregate number of shares of Corsair Common Stock that
Corsair will issue pursuant to the Merger Agreement (the "Merger Consideration")
depends on several factors that cannot be determined definitively until the
Effective Time, including, but not limited to, the average of the closing price
per share of Corsair Common Stock as reported in the Wall Street Journal for the
ten (10) consecutive trading days immediately preceding the closing date of the
Merger (the "Corsair Average Stock Price"). Assuming that there has been no
change in the number of issued and outstanding options and warrants to purchase
Subscriber Capital Stock since the date of the Merger Agreement and Subscriber's
Borrowings (as defined in the Merger Agreement) do not exceed $10,000,000 at the
Effective Time, Corsair will issue a minimum of approximately 3,600,000 shares
and a maximum of approximately 4,400,000 shares of Corsair Common Stock in the
Merger. Based on these same assumptions, at the Effective Time, the Subscriber
stockholders will hold or have a right to acquire approximately 20% to 23.5% of
Corsair Common Stock on a fully-diluted basis.
24
<PAGE> 34
Subject to the foregoing, each share of Subscriber Capital Stock which is
issued and outstanding at the Effective Time will be automatically converted,
without any action on the part of the holder, into the consideration set forth
below:
(i) Each share of Subscriber Series B Preferred Stock (other than
shares, if any, held by persons exercising appraisal or dissenters' rights,
if available) will be converted into the right to receive a fraction of a
fully-paid and nonassessable share of Corsair Common Stock that is equal to
the quotient of (A) $3.563, divided by (B) the Corsair Average Stock Price.
(ii) In addition, each share of Subscriber Series B Preferred Stock
(other than shares, if any, held by persons exercising appraisal or
dissenters' rights, if available) will be converted into the right to
receive a fraction of a fully-paid and nonassessable share of Corsair
Common Stock that is equal to the quotient of (A) the Merger Consideration
less the aggregate number of shares of Corsair Common Stock issuable to
holders of Subscriber Series B Preferred Stock in accordance with Paragraph
(i) above, divided by (B) the sum of the aggregate number of shares of
Subscriber Common Stock which are (x) issued and outstanding as of the
Effective Time, (y) issuable upon conversion of the Subscriber Series A
Preferred Stock and Subscriber Series B Preferred Stock outstanding as of
the Effective Time and (z) issuable upon exercise of all options, warrants
and other rights to acquire shares of Subscriber Common Stock outstanding
at the Effective Time (the "Exchange Ratio").
(iii) Each share of Subscriber Common Stock (other than shares, if
any, held by persons exercising appraisal or dissenters' rights, if
available) will be converted into the right to receive a fraction of a
fully-paid and nonassessable share of Corsair Common Stock that is equal to
the Exchange Ratio.
(iv) Each share of Subscriber Series A Preferred Stock (other than
shares, if any, held by persons exercising appraisal or dissenters' rights,
if available) will be converted into the right to receive a fraction of a
fully paid and nonassessable share of Corsair Common Stock that is equal to
the product of (A) 1.03718 and (B) the Exchange Ratio.
At the Effective Time, each outstanding option to purchase shares of
Subscriber Common Stock issued under Subscriber's 1997 Incentive Stock Option
Plan or pursuant to a separate stock option agreement (the "Subscriber Options")
will be assumed by Corsair. Similarly, each outstanding warrant to purchase
shares of Subscriber Capital Stock (the "Subscriber Warrants") will be assumed
by Corsair at the Effective Time. Thereafter, each Subscriber Option and each
Subscriber Warrant will be exercisable for that number of shares of Corsair
Common Stock and at that exercise price described more fully below. See "The
Merger -- Conversion of Subscriber Options" and "-- Conversion of Subscriber
Warrants."
VOTING AND PROXIES
Corsair. Holders of record of shares of Corsair Common Stock at the close
of business on the Corsair Record Date will be entitled to vote at the Corsair
Meeting, and at any adjournments or postponements thereof. At the close of
business on the Corsair Record Date, Corsair had [***] shares of its Common
Stock outstanding.
The affirmative vote of the holders of a majority of the outstanding shares
of Corsair Common Stock is required for approval of the Merger. The affirmative
vote of the holders of a majority of the shares of Corsair Common Stock voted at
the Corsair Meeting will be required to approve the amendments to Corsair's 1997
Stock Incentive Plan and Employee Stock Purchase Plan. The presence, either in
person or by proxy, of the holders of at least a majority of the outstanding
shares of Corsair Common Stock entitled to vote is necessary to constitute a
quorum at the Corsair Meeting. The holder of each outstanding share of Corsair
Common Stock is entitled to one vote per share at the Corsair Meeting.
The directors and executive officers of Corsair and certain of their
affiliates have entered into agreements with Corsair and Subscriber whereby they
have agreed to vote the shares of Corsair Common Stock over which they have
voting control in favor of the Merger Agreement, the Merger and any matter that
could reasonably be expected to facilitate the Merger, and in connection
therewith, have granted irrevocable proxies to the Subscriber Board covering
approximately 3,500,000 shares of Corsair Common Stock, or approximately
25
<PAGE> 35
% of the outstanding Corsair Common Stock as of the Corsair Record Date. See
"The Merger -- Corsair Voting Agreements."
All shares of Corsair Common Stock represented by properly executed proxies
will be voted at the Corsair Meeting in accordance with the directions indicated
on the respective proxies unless the proxies have been previously revoked.
Unless contrary direction is given, all shares of Corsair Common Stock
represented by such proxies will be voted FOR the Corsair Proposals and in the
proxyholder's discretion as to such other matters incident to the conduct of the
Corsair Meeting as may properly come before stockholders at the Corsair Meeting.
THE CORSAIR BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
CORSAIR PROPOSALS. See "The Merger -- Recommendation of the Corsair Board of
Directors," "Approval of an Amendment to Corsair's 1997 Stock Incentive Plan,"
"Approval of an Amendment to Corsair's 1997 Employee Stock Purchase Plan." If
any other matters are properly presented at the Corsair Meeting for action,
including a question of adjourning the meeting from time to time, the persons
named in the proxies and acting thereunder will have discretion to vote on those
matters in accordance with their best judgment. The Corsair Meeting may be
adjourned, and additional proxies solicited, if at the time of the Corsair
Meeting the vote necessary to approve the Corsair Proposals has not been
obtained. Any adjournment of the Corsair Meeting will require the affirmative
vote of the holders of at least a majority of the shares of Corsair Common Stock
represented at the Corsair Meeting (regardless of whether those shares
constitute a quorum).
A Corsair stockholder executing and returning a proxy has the power to
revoke it at any time before it is voted. A stockholder who wishes to revoke a
proxy can do so by executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Corsair prior to the vote at the Corsair
Meeting, by written notice of revocation to the Secretary prior to the vote at
the Corsair Meeting or by appearing in person at the Corsair Meeting and voting
in person the shares to which the proxy relates. Any written notice revoking a
Corsair proxy should be sent to Corsair at 3408 Hillview Avenue, Palo Alto,
California 94304, Attention: Martin J. Silver, Secretary.
The expenses of printing and mailing proxy materials to Corsair
stockholders will be borne by Corsair. In addition to the solicitation of
proxies by mail, solicitation may also be made by personal interview, telephone,
telegraph, or facsimile transmission by certain directors, officers and
employees of Corsair or a professional proxy solicitor. Corsair has retained
Corporate Investor Communications, Inc. ("CIC") to assist it in the solicitation
of proxies for which CIC will receive an estimated fee of $5,500. Corsair has
agreed to indemnify CIC and its agents for losses, claims and expense incurred
by CIC in conjunction with services provided except to the extent such losses,
claims or expenses are the result of CIC's negligence. No additional
compensation will be paid to directors, officers or employees of Corsair for
such services. Copies of solicitation materials will be furnished to brokerage
houses, fiduciaries and custodians to forward to beneficial owners of shares
held in their names. Those persons will be reimbursed for their reasonable
expenses in forwarding solicitation materials to beneficial owners.
Subscriber. Holders of record of shares of Subscriber Capital Stock at the
close of business on the Subscriber Record Date will be entitled to vote at the
Subscriber Meeting, and at any adjournments or postponements thereof. As of the
close of business on the Subscriber Record Date, Subscriber had shares
of Subscriber Common Stock outstanding, shares of Subscriber Series A
Preferred Stock outstanding and shares of Subscriber Series B
Preferred Stock outstanding.
Approval of the Subscriber Proposals requires the affirmative vote of the
holders of a majority of the outstanding shares of (a) Subscriber Capital Stock,
voting together on an as converted to Subscriber Common Stock basis and (b) each
class of Subscriber Capital Stock, voting as a separate class. The presence,
either in person or by proxy, of the holders of at least a majority of the
outstanding shares of Subscriber Capital Stock entitled to vote is necessary to
constitute a quorum at the Subscriber Meeting. The holder of each outstanding
share of Subscriber Capital Stock is entitled to one vote per share.
The directors and executive officers of Subscriber and certain of their
affiliates have entered into agreements with Subscriber and Corsair whereby they
have agreed to vote the shares of Subscriber Capital
26
<PAGE> 36
Stock over which they have voting control in favor of the Merger Agreement, the
Merger and any matter that could reasonably be expected to facilitate the
Merger, and in connection therewith, have granted irrevocable proxies to the
Corsair Board covering approximately 8,175,000 shares of Subscriber Common
Stock, or approximately % of the outstanding Subscriber Common Stock as of the
Subscriber Record Date and 4,070,000 shares of Subscriber Series B Preferred
Stock, or approximately % of the outstanding Subscriber Series B Preferred
Stock as of the Subscriber Record Date. See "The Merger -- Subscriber Voting
Agreements."
All shares of Subscriber Capital Stock represented by properly executed
proxies will be voted at the Subscriber Meeting in accordance with the
directions indicated on the respective proxies unless the proxies previously
have been revoked. Unless contrary direction is given, the shares of Subscriber
Capital Stock will be voted FOR the Subscriber Proposals and in the
proxyholder's discretion as to such other matters incident to the conduct of the
Subscriber Meeting as may properly come before stockholders at the Subscriber
meeting.
THE SUBSCRIBER BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
SUBSCRIBER PROPOSALS. See "The Merger -- Recommendation of the Subscriber
Board." If any other matters are properly presented at the Subscriber Meeting
for action, including a question of adjourning the meeting from time to time,
the proxyholders will have discretion to vote on those matters in accordance
with their best judgment. The Subscriber Meeting may be adjourned, and
additional proxies solicited, if at the time of the Subscriber Meeting the vote
necessary to approve the Subscriber Proposals has not been obtained. Any
adjournment of the Subscriber Meeting will require the affirmative vote of the
holders of at least a majority of the shares of Subscriber Capital Stock
represented at the Subscriber Meeting (regardless of whether those shares
constitute a quorum).
A stockholder executing and returning a proxy has the power to revoke it at
any time before it is voted. A stockholder who wishes to revoke a proxy can do
so by executing a later-dated proxy relating to the same shares and delivering
it to the Assistant Secretary of Subscriber prior to the vote at the Subscriber
Meeting, by giving written notice of revocation to the Assistant Secretary prior
to the vote at the Subscriber Meeting or by appearing in person at the
Subscriber Meeting and voting in person the shares to which the proxy relates.
Any written notice revoking a Subscriber proxy should be sent to Subscriber at
18881 Von Karmen Avenue, Suite 450, Irvine, California 92612, Attention:
Patricia Howe, Assistant Secretary.
The expense of printing and mailing proxy materials to Subscriber
stockholders will be borne by Subscriber. In addition to the solicitation of
proxies by mail, solicitation may be made by personal interview, telephone,
telegraph or facsimile transmission by certain directors, officers and employees
of Subscriber. No additional compensation will be paid to directors, officers or
employees of Subscriber for such services. Copies of solicitation material will
be furnished to brokerage houses, fiduciaries and custodians to forward to
beneficial owners of shares held in their names. Those persons will be
reimbursed for their reasonable expenses in forwarding solicitation material to
beneficial owners.
27
<PAGE> 37
RISK FACTORS
The following are among the factors that should be considered carefully in
evaluating Corsair, Subscriber and the operation of the combined company after
the Merger. These factors should be considered in conjunction with other
information included in this Joint Proxy Statement/Prospectus. This Joint Proxy
Statement/Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Securities Exchange Act
of 1934. Actual results could differ materially from those projected in these
forward-looking statements as a result of a variety of factors, including those
set forth below and elsewhere in this Joint Proxy Statement/Prospectus.
RISKS RELATING TO THE MERGER
No Assurance that Businesses Can Be Successfully Combined. The combined
company will be significantly more complex and diverse than either Subscriber or
Corsair prior to the combination. Following the Merger, to achieve optimal
synergies, the combined company will need to successfully integrate and
streamline overlapping functions and control expenditures resulting from its
respective business operations located in Palo Alto and Irvine, California. Some
Subscriber employees, including officers of Subscriber, will leave and others
may leave if they find new assignments unattractive or unacceptable. These
departures may create operating difficulties and could adversely affect morale
and operations at Subscriber for some period of time following the Merger.
Although specific areas of reduction have not been defined, it is likely that
reductions in force will occur in areas for which Corsair and Subscriber have
overlapping functions. In addition, the two companies have different systems and
procedures in many areas which must be reconciled. The effort to reconcile
systems and procedures required and the impact of success or failure may be
material. There can be no assurance that the process of integrating the two
companies can be effectively managed to achieve desired results. There can be no
assurance that any of the objectives or reasons for the Merger, including
reducing the combined company's dependence on any one product, creating an
opportunity to cross-sell products to Corsair's and Subscriber's respective
customer bases, enhancing distribution and marketing relationships, leveraging
customer support infrastructure to reduce costs and improve efficiency,
broadening product development capabilities or achieving other financial
synergies, can be achieved. See "The Merger -- Reasons of the Corsair and
Subscriber Boards for the Merger."
Uncertainty Relating to the Number of Shares of Corsair Common Stock to be
Issued in the Merger. Stockholders should note that the aggregate number of
shares of Corsair Common Stock that Corsair will issue in the Merger depends on
several factors that cannot be determined conclusively until the Effective Time,
including the average of the closing price per share of Corsair Common Stock as
reported in the Wall Street Journal for the ten (10) consecutive trading days
immediately preceding the closing date of the Merger.
RISKS RELATING TO THE COMBINED COMPANY
Corsair Limited Operating History and Lack of Sustained
Profitability. Corsair was incorporated in December 1994 and first shipped its
PhonePrint system in March 1995. Accordingly, Corsair has only a limited
operating history upon which to base an evaluation of its business and
prospects. Despite achieving profitability in the latter half of fiscal 1997,
Corsair has incurred net losses since its incorporation resulting in an
accumulated deficit of $25.5 million as of March 31, 1998. There can be no
assurance that Corsair's existing revenue levels can be sustained, and past and
existing revenue levels should not be considered indicative of future results or
growth. Moreover, there can be no assurance that Corsair will sustain
profitability on a quarterly or annual basis. Operating results for future
periods are subject to numerous uncertainties specified elsewhere herein.
Corsair's prospects must be considered in light of the risks encountered by
companies with limited operating histories, particularly companies in new and
rapidly evolving markets such as the markets in which Corsair now competes and
may in the future compete. Corsair's future operating results will depend upon,
among other factors: the demand for PhonePrint; Corsair's ability to introduce
successful new products and product enhancements, including products that are
sold to both analog network carriers and emerging digital network carriers such
as PCS and Enhanced Specialized Mobile Radio ("ESMR") carriers; the level of
product and price competition; the ability of Corsair to expand its
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international sales; Corsair's success in expanding distribution channels; the
degree to which Corsair successfully integrates Subscriber and the time period
during which integration efforts occur; Corsair's success in attracting and
retaining motivated and qualified personnel; and the ability of Corsair to avoid
patent and intellectual property litigation. If Corsair is not successful in
addressing such risks, as well as the others set forth herein, the combined
company's business, operating results and financial condition will be materially
adversely affected.
Dependence on PhonePrint; Dependence on Analog Networks. To date, all of
Corsair's revenues have primarily been attributable to PhonePrint, Corsair's
cloning fraud prevention system, and Corsair anticipates that PhonePrint will
continue to account for substantially all of Corsair's revenues at least through
the end of 1998. As a result, Corsair's future operating results will depend on
the demand for and market acceptance of PhonePrint. A relatively small number of
analog network carriers constitute the potential customers for PhonePrint. A
large majority of the analog carriers in the largest U.S. markets have to
varying degrees already implemented cloning fraud solutions, and there can be no
assurance that Corsair will be able to achieve material revenues from the sale
of PhonePrint to remaining potential customers in the U.S. Corsair anticipates
that the demand for cloning fraud solutions in the U.S. will decline in the
future. If not offset by growth in international markets, this trend will have a
material adverse effect on Corsair's business, operating results and financial
condition. Over time, this trend could also occur in international markets. As
analog network carriers adopt cloning fraud solutions for their existing
networks, the future commercial success of PhonePrint will depend in part on the
further expansion of analog networks by those carriers. If analog networks do
not continue to expand, expand slowly or expand in a manner that does not create
significant new demand for cloning fraud solutions, then the future demand for
PhonePrint would be materially adversely affected. There can be no assurance
that the international market for cloning fraud solutions will grow as the U.S.
market declines as a result of U.S. analog network carriers adopting solutions
to their cloning fraud problems, or that current or future levels of revenues
attributable to PhonePrint will be maintained or will not decline. Any reduction
in the demand for PhonePrint would have a material adverse effect on the
combined company's business, operating results and financial condition.
All of Corsair's customers to date have been carriers that operate analog
networks. Wireless services operating in digital mode, including PCS and ESMR in
the U.S. and Global System for Mobile Communications ("GSM") in many foreign
countries (including many European countries), use or may use authentication
processes that automatically establish the validity of a phone each time it
attempts to access the wireless telecommunications network. Corsair is not aware
of any information that suggests that cloners have been able to break the
authentication encryption technologies. Unless the encryption technologies that
form the basis for authentication are broken by cloners, Corsair does not
believe that operators of digital networks will purchase third party radio
frequency ("RF") fingerprinting solutions for cloning fraud such as PhonePrint.
In addition, authentication processes for analog networks are also currently
available. Corsair is also very dependent on the continued widespread use of
analog networks. While there are currently over 40 million analog phones in
existence in the U.S., industry experts project that the number of analog phones
will decline in the future. Any reduction in demand by analog network carriers
for cloning fraud solutions would, or any reduction in the use of analog phones
could, have a material adverse effect on the combined company's business,
operating results and financial condition.
Dependence on Product Introductions and Product Enhancements. The combined
company's future success depends on the timely introduction and acceptance of
new products, new versions of existing products and product enhancements.
However, there can be no assurance that any new products, new versions of
existing products or product enhancements the combined company attempts to
develop will be developed successfully or on schedule, or if developed, that
they will achieve market acceptance. In addition, there can be no assurance that
Corsair will successfully execute its strategy of acquiring additional
businesses, products and technologies from third parties. In the case of
products that can locate wireless phones, the U.S. Federal Communications
Commission ("FCC") has mandated that wireless telecommunications carriers be
able to identify the location of emergency 911 callers by October 2001. Corsair
has a significant product development effort underway addressing the need of
U.S. wireless telecommunications carriers resulting from the FCC mandate. There
can be no assurance that the FCC mandate will not be abolished or altered in a
fashion that
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reduces or eliminates any potential demand for products addressing phone
location. There can be no assurance that any wireless telecommunications
carriers will purchase any phone location products before the effective date of
the FCC mandate, October 2001. Furthermore, Subscriber has significant product
development efforts underway aimed at developing next versions of CRM,
FraudWatch Pro, PrePay and IMR. Any failure to introduce commercially successful
new products, new versions of existing products or product enhancements or any
significant delay in the introduction of such new products, new versions of
existing products or product enhancements would have a material adverse effect
on the combined company's business, operating results and financial condition.
The process of developing new products, new versions of existing products
and product enhancements for use in the wireless telecommunications industry is
extremely complex and is expected to become more complex and expensive in the
future as new platforms and technologies emerge. In particular, Corsair is aware
of significant technical challenges with respect to the phone location product
it is currently attempting to develop. In the past, Corsair and Subscriber have
experienced delays in the introduction of certain product enhancements, and
there can be no assurance that new products, new versions of existing products
or product enhancements will be introduced on schedule or at all. Any new
products, new versions of existing products or product enhancements may also
contain defects when first introduced or when new versions are released. There
can be no assurance that, despite testing, defects will not be found in new
products, new versions of existing products or product enhancements after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance. Any loss of or delay in market acceptance would have a material
adverse effect on combined company's business, operating results and financial
condition.
Fluctuations in Quarterly Financial Results; Lengthy Sales Cycle. Corsair
and Subscriber have each experienced significant fluctuations in revenues and
operating results from quarter to quarter due to a combination of factors and
expect significant fluctuations to continue in future periods. Factors that are
likely to cause the combined company's revenues and operating results to vary
significantly from quarter to quarter include, among others: the level and
timing of revenues associated with PhonePrint; the timing of the introduction or
acceptance of new products and services and product enhancements offered by the
combined company and its competitors; changes in governmental regulations or
mandates affecting the wireless telecommunications industry; technological
changes or developments in the wireless telecommunications industry; the size,
product mix and timing of significant orders; the timing of system revenue;
competition and pricing in the markets in which the combined company competes;
the degree to which Corsair successfully integrates Subscriber and the time
period during which integration efforts occur; possible recalls; lengthy sales
cycles; production or quality problems; the timing of development expenditures;
further expansion of sales and marketing operations; changes in material costs;
disruptions in sources of supply; capital spending; the timing of payments by
customers; and changes in general economic conditions. These and other factors
could cause the combined company to recognize relatively large amounts of
revenue over a very short period of time, followed by a period during which
relatively little revenue is recognized. Because of the relatively fixed nature
of most of the combined company's costs, including personnel and facilities
costs, any unanticipated shortfall in revenues in any quarter would have a
material adverse impact on the combined company's operating results in that
quarter and would likely result in substantial adverse fluctuations in the price
of Corsair's Common Stock. Accordingly, Corsair expects that from time to time
its future operating results of the combined company will be below the
expectations of market analysts and investors, which would likely have a
material adverse effect on the prevailing market price of the Corsair Common
Stock.
A carrier's decision to deploy PhonePrint and other products offered by the
combined company typically involves a significant commitment of capital by the
carrier and approval by its senior management. Consequently, the timing of
purchases are subject to uncertainties and delays frequently associated with
significant capital expenditures, and the combined company is not able to
accurately forecast future sales of PhonePrint or any of its other products. In
addition, purchases of PhonePrint and certain of the combined company's other
products involve testing, integration, implementation and support requirements.
For these and other reasons, the sales cycle associated with the purchase of
PhonePrint and the combined company's other products typically ranges from three
to 18 months and is subject to a number of risks over which the combined company
has little control, including the carrier's budgetary and capital spending
constraints and
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internal decision-making processes. In addition, a carrier's purchase decision
may be delayed as a result of announcements by the combined company or
competitors of new products or product enhancements or by regulatory
developments. Corsair expects that there will be a lengthy sales cycle with
respect to new products, if any, that the combined company may offer in the
future. Because of this lengthy sales cycle and the relatively large size of a
typical order and because Corsair does not recognize revenue on PhonePrint sales
upon shipment if a sales agreement contemplates that Corsair provide testing,
integration or implementation services or contains other contractual acceptance
criteria, if revenues forecasted from a specific customer for a particular
quarter are not realized in that quarter, the combined company's operating
results for that quarter could be materially and adversely affected.
Risks Associated with International Markets. To date, Corsair has conducted
a limited number of deployments of PhonePrint systems internationally. In an
effort to offset what Corsair expects will be declining demand in the U.S. for
cloning fraud solutions, the combined company intends to devote significant
marketing and sales efforts over the next several years to increase its sales of
PhonePrint and sales of Subscriber's CRM, FraudWatch Pro, PrePay and IMR to
international customers. This expansion of sales efforts outside of the U.S.
will require significant management attention and financial resources.
Subscriber's sales outside of the U.S. accounted for a significant portion of
its total revenues in 1996 and 1997, and Corsair expects that sales outside of
the U.S. will continue to account for a significant portion of the revenues the
combined company derives from CRM, FraudWatch Pro, PrePay and IMR. There can be
no assurance that the combined company will be successful in achieving
significant sales of PhonePrint and other products in international markets.
Corsair does not expect to sell PhonePrint in the many international markets
that rely primarily on digital wireless networks, including many European
countries. There may not be demand in foreign countries with respect to new
products, if any, that the combined company may offer. For example, Corsair is
currently developing a product addressing the U.S. FCC mandate that wireless
telecommunications carriers be able to identify the location of emergency 911
callers by October 2001. Corsair is not aware of any corresponding regulatory
requirement in any foreign country.
The combined company's international sales may be denominated in foreign or
U.S. currencies. Neither Corsair nor Subscriber currently engages in foreign
currency hedging transactions. As a result, a decrease in the value of foreign
currencies relative to the U.S. dollar could result in losses from transactions
denominated in foreign currencies. With respect to the combined company's
international sales that are U.S. dollar-denominated, such a decrease could make
the combined company's products less price-competitive. Additional risks
inherent in the combined company's international business activities include
changes in regulatory requirements, the costs and risks of localizing and
supporting systems and software in foreign countries, tariffs and other trade
barriers, political and economic instability, reduced protection for
intellectual property rights in certain countries, difficulties in staffing and
managing foreign operations, difficulties in managing distributors, potentially
adverse tax consequences, foreign currency exchange fluctuations, the burden of
complying with a wide variety of complex foreign laws and treaties and the
possibility of difficulty in accounts receivable collections. Product service
and support is generally more complicated and expensive with respect to products
sold in international markets. The combined company may need to adapt its
products to conform to different technical standards that may exist in foreign
countries. Future customer purchase agreements may be governed by foreign laws,
which may differ significantly from U.S. laws. Therefore, the combined company
may be limited in its ability to enforce its rights under such agreements and to
collect damages, if awarded. There can be no assurance that any of these factors
will not have a material adverse effect on the combined company's business,
operating results and financial condition.
Potential Acquisitions. Corsair has in the past evaluated and expects in
the future to pursue acquisitions of businesses, products or technologies that
complement Corsair's business. Future acquisitions may result in the potentially
dilutive issuance of equity securities, the use of cash resources, the
incurrence of additional debt, the write-off of in-process research and
development or software acquisition and development costs and the amortization
of expenses related to goodwill and other intangible assets, any of which could
have a material adverse effect on the combined company's business, operating
results and financial condition. Future acquisitions would involve numerous
additional risks, including difficulties in the assimilation of the operations,
services, products and personnel of an acquired business, the diversion of
management's attention
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from other business concerns, entering markets in which the combined company has
little or no direct prior experience and the potential loss of key employees of
an acquired business. In addition, there can be no assurance that the combined
company would be successful in completing any acquisition. Neither Corsair nor
Subscriber currently has any agreement or understanding with regard to any
acquisition other than the Merger.
Highly Competitive Industry. The market for PhonePrint is new and intensely
and increasingly competitive. Corsair believes that the primary competitive
factors in the cloning fraud prevention market in which it currently competes
include product effectiveness and quality, price, service and support capability
and compatibility with cloning fraud prevention systems used by the carrier in
other geographic markets and by the carrier's roaming partners. There has been a
tendency for carriers that purchase cloning fraud prevention systems to purchase
products from the company that supplies cloning fraud prevention systems to
other carriers with whom the purchasing carrier has a roaming arrangement. As a
result, Corsair expects it will be significantly more difficult to sell
PhonePrint to a carrier if the carrier's roaming partners use cloning fraud
prevention systems supplied by a competitor. Furthermore, once a competitor has
made a sale of RF-based cloning fraud prevention systems to a carrier, Corsair
expects that it is unlikely that it would be able to sell PhonePrint to that
carrier in the same markets in which the competitor's products have been
deployed.
Corsair's principal competitor for RF-based cloning fraud prevention
systems is Cellular Technical Services Company, Inc. ("CTS"). CTS has agreements
pursuant to which it has installed or will install its RF-based cloning fraud
prevention system in many major U.S. markets. PhonePrint also competes with a
number of alternative technologies, including profilers, personal identification
numbers and authentication. Corsair is aware of numerous companies, including
GTE Telecommunications Services, Inc. ("GTE"), Authentix Network, Inc.,
Lightbridge, Inc. ("Lightbridge"), Systems/Link Corporation ("Systems/Link"),
International Business Machines Corporation ("IBM"), Digital Equipment Corp.
("DEC") and Hewlett-Packard Corporation ("Hewlett Packard") that currently are
or are expected to offer products in the cloning fraud prevention area. In
addition, carriers may themselves develop technologies that limit the demand for
PhonePrint. There can be no assurance that any such company or any other
competitor will not introduce a new product at a lower price or with greater
functionality than PhonePrint. Furthermore, the demand for PhonePrint would be
materially adversely affected if wireless telecommunications carriers implement
authentication technology applicable to analog phones as their sole cloning
fraud solution in major markets, if U.S. wireless telecommunications carriers
adopt a uniform digital standard that reduces the need for digital phones to
operate in analog mode while roaming, or if analog phone makers change product
designs and/or improve manufacturing standards to a point where the difference
from phone to phone in the radiowave form becomes so small that it is difficult
for PhonePrint to identify a clone. Any currently available alternative
technology or any new technology may render Corsair's products obsolete or
significantly reduce the market share afforded to RF-based cloning fraud
prevention systems like PhonePrint.
The market for other products and services provided to wireless
telecommunications carriers is highly competitive and subject to rapid
technological change, regulatory developments and emerging industry standards.
In addition, many wireless telecommunications carriers and vendors of switches
and other telecommunications equipment may be capable of developing and offering
products and services competitive with new products, if any, that the combined
company may offer in the future. Trends in the wireless telecommunications
industry, including greater consolidation and technological or other
developments that make it simpler or more cost-effective for wireless
telecommunications carriers to provide certain services themselves could affect
demand for new products, if any, offered by the combined company, and could make
it more difficult for the combined company to offer a cost-effective alternative
to a wireless telecommunications carrier's own capabilities. Corsair is aware of
a number of companies that have either announced an intention to develop or are
capable of developing products that would compete with the products Corsair and
Subscriber are developing, and Corsair anticipates the entrance of new
competitors in the wireless telecommunications carrier service industry in the
future. The combined company's ability to sell new products, if any, may be
hampered by relationships that competitors have with carriers based upon the
prior sale of other products to carriers.
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Corsair believes that the ability of the combined company to compete in the
future depends in part on a number of competitive factors outside its control,
including the ability to hire and retain employees, the development by others of
products and services that are competitive with the combined company's products
and services, the price at which others offer comparable products and services
and the extent of its competitors' responsiveness to customer needs. Many of the
combined company's competitors and potential competitors have significantly
greater financial, marketing, technical and other competitive resources than the
combined company's. As a result, the combined company's competitors may be able
to adapt more quickly to new or emerging technologies and changes in customer
requirements or may be able to devote greater resources to the promotion and
sale of their products and services. To remain competitive in the market for
products and services sold to wireless telecommunications carriers, the combined
company will need to continue to invest substantial resources in engineering,
research and development and sales and marketing. There can be no assurance that
Corsair will have sufficient resources to make such investments or that the
combined company will be able to make the technological advances necessary to
remain competitive. Accordingly, there can be no assurance that the combined
company will be able to compete successfully with respect to new products, if
any, it offers in the future.
Customer Concentration. To date, a very significant portion of the
Corsair's revenues in any particular period has been attributable to a limited
number of customers, comprised entirely of wireless telecommunications carriers
that operate analog networks. BellSouth Cellular Corporation, GTE Wireless Inc.
("GTE Wireless"), Southwestern Bell Mobile Systems, Inc. and Radiomovil DIPSA
S.A. de C.V. each accounted for greater than 10% of Corsair's total revenues in
1997, and collectively accounted for over 52% of Corsair's total revenues in
1997. For the same period in 1996, AT&T Wireless Services, Comcast Cellular
Communications, Inc., Los Angeles Cellular Telephone Company and Southwestern
Bell Mobile Systems, Inc., each accounted for greater than 10% of Corsair's
total revenues, and collectively accounted for over 70% of Corsair's total
revenues in 1996. Air Touch Communications, Inc. and AT&T Wireless Services,
Inc. accounted for virtually all of Corsair's total revenues in 1995. A
relatively small number of analog network carriers are potential customers for
PhonePrint. Corsair believes that the number of potential customers for future
products, if any, will be relatively small. Any failure to capture a significant
share of those customers could have a material adverse effect on Corsair's
business, operating results and financial condition. Corsair expects a
relatively small number of customers will continue to represent a significant
percentage of its total revenues for each quarter for the foreseeable future,
although the companies that comprise the largest customers in any given quarter
may change from quarter to quarter. The terms of Corsair's agreements with its
PhonePrint customers are generally for periods of between two and five years.
Although these agreements typically contain annual software license fees and
various service and support fees, there are no minimum payment obligations or
obligations to make future purchases of hardware or to license additional
software. Therefore, there can be no assurance that any of the Corsair's current
customers will generate significant revenues in future periods.
To date, a significant portion of Subscriber's revenue in any particular
period has been attributable to a limited number of customers. Two customers
each accounted for more than 10% of Subscriber's total revenues in fiscal 1996
and 1997. Subscriber expects that a relatively small number of customers will
continue to represent a significant percentage of its total revenues for each
fiscal year for the foreseeable future, although the companies that comprise the
largest customers in any given fiscal year are expected to change from year to
year and there can be no assurance that any of Subscriber's existing customers
will generate significant revenues in future periods. The concentration of
customers can cause Subscriber's revenues and earnings to fluctuate from quarter
to quarter, based on such customers' requirements and the timing of their
respective orders. A loss of or significant decrease in business from any of
Subscriber's major customers would have a material adverse effect on
Subscriber's business, results of operations and financial condition.
Additionally, the acquisition by a third party of one of Subscriber's major
customers could result in the loss of that customer and have a material adverse
effect on Subscriber's business, operating results and financial condition. See
"Subscriber's Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Uncertainty Regarding Patents and Protection of Proprietary Technology;
Risks of Future Litigation. The combined company relies on a combination of
patent, trade secret, copyright and trademark protection
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and nondisclosure agreements to protect its proprietary rights. As of March 31,
1998, Corsair had two issued U.S. patents, seven pending U.S. patent
applications; one issued foreign patent and thirteen pending foreign patent
applications, and Subscriber had two issued U.S. patents. The combined company's
success will depend in large part on its ability to obtain patent protection,
defend patents once obtained, license third party proprietary rights, maintain
trade secrets and operate without infringing upon the patents and proprietary
rights of others. The patent positions of companies in the wireless
telecommunications industry are generally uncertain and involve complex legal
and factual questions. There can be no assurance that patents will issue from
any patent applications owned or licensed or that, if patents do issue, the
claims allowed would be sufficiently broad to protect the applicable technology.
In addition, there can be no assurance that any issued patents owned or licensed
will not be challenged, invalidated or circumvented, or that the rights granted
thereunder will provide competitive advantages. Furthermore, the laws of certain
countries in which Corsair and Subscriber sell their respective products do not
protect software and intellectual property rights to the same extent as do the
laws of the U.S.
Patents issued and patent applications filed relating to products used in
the wireless telecommunications industry are numerous and there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not received
or in the future will not receive, patents or obtain additional proprietary
rights relating to products used or proposed to be used by the combined company.
Corsair is aware of patents granted to third parties that relate to the
potential products currently being developed. The combined company will need to
either design those potential products in a manner that does not infringe the
third-party patents or obtain licenses from the third parties, and there can be
no assurance that the combined company will be able to do so. There can be no
assurance that either Corsair or Subscriber is aware of all patents or patent
applications that may materially affect the combined company's ability to make,
use or sell any current or future products. U.S. patent applications are
confidential while pending in the U.S. Patent and Trademark Office, and patent
applications filed in foreign countries are often first published six months or
more after filing. There can also be no assurance that third parties will not
assert infringement claims in the future or that any such assertions will not
result in costly litigation or require Corsair or Subscriber to obtain a license
to intellectual property rights of such parties. There can be no assurance that
any such licenses would be available on terms acceptable to Corsair or
Subscriber, if at all. Furthermore, parties making such claims may be able to
obtain injunctive or other equitable relief that could effectively block the
combined company's ability to make, use, sell or otherwise practice its
intellectual property (whether or not patented or described in pending patent
applications), or to further develop or commercialize its products in the U.S.
and abroad and could result in the award of substantial damages. Defense of any
lawsuit or failure to obtain any such license could have a material adverse
effect on the combined company's business, operating results or financial
condition.
The combined company also relies on unpatented trade secrets to protect its
proprietary technology, and no assurance can be given that others will not
independently develop or otherwise acquire the same or substantially equivalent
technologies or otherwise gain access to the combined company's proprietary
technology or disclose such technology or that the combined company can
ultimately protect its rights to such unpatented proprietary technology. No
assurance can be given that third parties will not obtain patent rights to such
unpatented trade secrets, which patent rights could be used to assert
infringement claims against Corsair or Subscriber. Corsair and Subscriber also
rely on confidentiality agreements with their respective employees, vendors,
consultants and customers to protect proprietary technology. There can be no
assurance that these agreements will not be breached, that there would be
adequate remedies for any breach or that trade secrets will not otherwise become
known to or be independently developed by competitors. Failure to obtain or
maintain patent and trade secret protection, for any reason, could have a
material adverse effect on the combined company's business, operating results
and financial condition. Moreover, the laws of certain countries in which
Corsair and Subscriber sell their respective products do not protect software
and intellectual property rights to the same extent as do the laws of the U.S.
Unauthorized copying or misuse of products could have a material adverse effect
on the combined company's business, operating results and financial condition.
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Dependence on Third-Party Products and Services; Sole or Limited Sources of
Supply. Corsair relies to a substantial extent on outside vendors to manufacture
many of the components and subassemblies used in PhonePrint, some of which are
obtained from a single supplier or a limited group of suppliers. Corsair's
reliance on outside vendors generally, and a sole or a limited group of
suppliers in particular, involves several risks, including a potential inability
to obtain an adequate supply of required components and reduced control over
quality, pricing and timing of delivery of components. In the past, Corsair has
experienced delays in receiving materials from vendors, sometimes resulting in
delays in the assembly of products by Corsair. Such delays, or other significant
vendor or supply quality issues, may occur in the future, which could result in
a material adverse effect on the combined company's business, operating results
or financial condition. The manufacture of certain of these components and
subassemblies is specialized and requires long lead times, and there can be no
assurance that delays or shortages caused by vendors will not reoccur. Any
inability to obtain adequate deliveries, or any other circumstance that would
require Corsair to seek alternative sources of supply or to manufacture such
components internally could delay the shipment of products, increase cost of
goods sold and have a material adverse effect on the combined company's
business, operating results and financial condition. In addition, from time to
time, Corsair must also rely upon third parties to develop and introduce
components and products to enable Corsair, in turn, to develop new products and
product enhancements on a timely and cost-effective basis. There can be no
assurance that Corsair will be able to obtain access in a timely manner to
third-party products and development services necessary to enable Corsair to
develop and introduce new and enhanced products, that Corsair will obtain
third-party products and development services on commercially reasonable terms
or that Corsair will be able to replace third-party products in the event such
products become unavailable, obsolete or incompatible with future versions of
Corsair's products. The absence of, or any significant delay in, the replacement
of third-party products could have a material adverse effect on the combined
company's business, operating results and financial condition.
Dependence on Personnel. The success of the combined company is dependent,
in part, on its ability to attract and retain highly qualified personnel.
Corsair's future business and operating results depend upon the continued
contributions of its senior management and other employees, many of whom would
be difficult to replace and certain of whom perform important functions beyond
those functions suggested by their respective job titles or descriptions.
Competition for such personnel is intense and the inability to attract and
retain additional senior management and other employees or the loss of one or
more members of Corsair's senior management team or current employees,
particularly to competitors, could materially adversely affect the combined
company's business, operating results or financial condition. There can be no
assurance that Corsair or Subscriber will be successful in hiring or retaining
requisite personnel. None of Corsair's employees has entered into employment
agreements with Corsair, and Corsair does not have any key-person life insurance
covering the lives of any members of its senior management team.
Management of Growth. Corsair is at an early stage of development and
Corsair and Subscriber have each rapidly and significantly expanded their
operations. The number of Corsair employees has grown from 36 on January 1, 1995
to 158 on March 31, 1998, while the number of employees of Subscriber expanded
from 75 to 132 over the same period. Such growth has placed, and, if sustained,
will continue to place, significant demands on management, information systems,
operations and resources. The strain experienced to date has chiefly been in
hiring, integrating and effectively managing sufficient numbers of qualified
personnel to support the expansion of the combined company's business. The
combined company's ability to manage any future growth, should it occur,will
continue to depend upon the successful expansion of its sales, marketing,
research and development, customer support and administrative infrastructure and
the ongoing implementation and improvement of a variety of internal management
systems, procedures and controls. There can be no assurance that the combined
company will be able to attract, manage and retain additional personnel to
support any future growth, if any, or will not experience significant problems
with respect to any infrastructure expansion or the attempted implementation of
systems, procedures and controls. Any failure in one or more of these areas
could have a material adverse effect on the combined company's business, results
of operations and financial condition.
Government Regulation and Legal Uncertainties. While most of the combined
company's operations are not directly regulated, existing and potential
customers are subject to a variety of U.S. and foreign
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governmental regulations. Such regulations may adversely affect the wireless
telecommunications industry, limit the number of potential customers for the
combined company's products or impede the combined company's ability to offer
competitive products and services to the wireless telecommunications industry or
otherwise have a material adverse effect on the combined company's business,
financial condition and results of operations. Recently enacted legislation,
including the Telecommunications Act of 1996, deregulating the
telecommunications industry may cause changes in the wireless telecommunications
industry, including the entrance of new competitors and industry consolidation,
which could in turn increase pricing pressures on the combined company, decrease
demand for the combined company's products, increase the combined company's cost
of doing business or otherwise have a material adverse effect on the combined
company's business, operating results and financial condition. The
Telecommunications Act of 1996 contains several provisions that may bear
directly on the combined company's existing and potential customers in the U.S.,
including provisions that require wireless carriers to interconnect with local
exchange carriers and contribute to a universal service fund, that limit the
ability of state and local governments to discriminate against or prohibit
certain wireless services and that may allow certain companies to bundle local
and long distance services with wireless offerings. These provisions may cause
an increase in the number of wireless telecommunications carriers which could in
turn increase the number of potential customers of the combined company. This
could require the combined company to expand its marketing efforts with no
assurance that revenues would increase proportionately or at all. Alternatively,
these provisions could encourage industry consolidation, which would reduce the
combined company's potential customer base. Currently the FCC and state
authorities are implementing the provisions of the Telecommunications Act of
1996 and several of the decisions by the FCC and state authorities are already
being challenged in court. Therefore, Corsair cannot at this time predict the
extent to which the Telecommunications Act of 1996 will affect its current and
potential customers or ultimately affect the combined company's business,
financial condition or results of operations. If the recent trend toward
privatization and deregulation of the wireless telecommunications industry
outside of the U.S. were to discontinue, or if currently deregulated
international markets were to reinstate comprehensive government regulation of
wireless telecommunications services, the combined company's business, operating
results and financial condition could be materially and adversely affected. In
addition, the problem of cloning fraud has received heightened attention from
Congress and the FCC, which are exploring legislative and regulatory initiatives
that would impose stricter penalties for, and increase enforcement against,
cloning fraud. Corsair cannot predict the effect of such initiatives on the
combined company's business, operating results or financial condition, including
demand for the combined company's products.
Dependence on Growth of Wireless Telecommunications Industry. The combined
company's future financial performance will depend in part on the number of
carriers seeking third-party solutions. Although the wireless telecommunications
industry has experienced significant growth in recent years, there can be no
assurance that such growth will continue at similar rates, or that, if the
industry does grow, there will be continued demand for the cloning fraud
prevention or other products. Any decline in demand for wireless
telecommunications products and services in general would have a material
adverse effect on the combined company's business, operating results and
financial condition.
Risk of System Failure. The continued, uninterrupted operation of the
PhonePrint system depends on protecting it from damage from fire, earthquake,
power loss, communications failure, unauthorized entry or other events. Any
damage to or failure of a component or combination of components that causes a
significant reduction in the performance of a PhonePrint system could have a
material adverse effect on Corsair's business, operating results and financial
condition. Corsair currently does not have liability insurance to protect
against these risks and there can be no assurance that such insurance will be
available to Corsair on commercially reasonable terms, or at all. In addition,
if any carrier using PhonePrint encounters material performance problems, the
combined company's reputation and its business, operating results and financial
condition could be materially adversely affected.
Year 2000 Compliance. Corsair's and Subscriber's products use and are
dependent upon certain internally developed and third party software programs.
Corsair and Subscriber each have initiated a review and assessment of all
hardware and software used in their respective products to confirm that they
will function properly in the year 2000. With respect to software developed
internally, the results of that evaluation
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to date have revealed certain source codes that are unable to appropriately
interpret the upcoming calendar year 2000, and the parties are working
diligently to upgrade programs to make them capable of processing data
incorporating year 2000 dates without material errors or interruptions. With
respect to third party software incorporated in products, all vendors whose
software is incorporated in PhonePrint have indicated that their software is or
will be year 2000 compliant. Evaluation of year 2000 issues is continuing, and
there can be no assurance that additional issues, not presently known by Corsair
or Subscriber, will not be discovered which could present a material risk to the
function of their respective products and have a material adverse effect on the
Corsair's business, operating results and financial condition.
Dependence on Distributors. PhonePrint is currently marketed primarily
through Corsair's direct sales efforts. Corsair has entered into distribution
agreements with respect to PhonePrint with Motorola, Inc., Ericsson Radio
Systems AB ("Ericsson") and Aurora Wireless Technologies, Ltd. ("Aurora") and
sales referral agreements with Lucent Technologies, Inc. ("Lucent") and Sumitomo
Corporation of America. Subscriber has entered into distribution agreements with
a number of distributors, including Ericsson, Daewoo Information Systems
Company, Groupe Bull-Integris and Aurora and a sales referral agreement with
Lucent. In addition, Subscriber has relationships with a number of third party
integrators and may rely on these integrators to a greater extent in the future.
Corsair and Subscriber each seek to pursue distribution agreements and other
forms of sales and marketing arrangements with other companies and Corsair
believes that the combined company's dependence on distributors and these other
sales and marketing relationships will increase in the future, both with respect
to PhonePrint and to other products. Generally, there are no minimum purchase
obligations applicable to any existing distributor or other sales and marketing
partners and Corsair does not expect to have any guarantees of continuing
orders. There can be no assurance that any existing or future distributors or
other sales and marketing partners will not become competitors of the combined
company with respect to current products or any future product. Any failure by
the combined company's existing and future distributors or other sales and
marketing partners to generate significant revenues could have a material
adverse effect on the combined company's business, operating results and
financial condition.
Future Capital Requirements. The combined company's future capital
requirements will depend upon many factors, including the commercial success of
PhonePrint, the timing and success of new product introductions, if any, the
progress of the combined company's research and development efforts, the
combined company's results of operations, the status of competitive products,
the degree to which Corsair successfully integrates Subscriber and the time
period during which integration efforts occur, and the potential acquisition of
businesses, technologies or assets. Corsair believes that combination of
existing sources of liquidity and internally generated cash will be sufficient
to meet the combined company's projected cash needs for at least the next 12
months. There can be no assurance, however, that the combined company will not
require additional financing prior to such date to fund its operations. In
addition, the combined company may require additional financing after such date
to fund its operations. There can be no assurance that any additional financing
will be available to the combined company on acceptable terms, or at all, when
required. If additional funds are raised by issuing equity securities, further
dilution to the existing stockholders will result. If adequate funds are not
available, the combined company may be required to delay, scale back or
eliminate one or more of its development or manufacturing programs or obtain
funds through arrangements with third parties that may require the combined
company to relinquish rights to certain of its technologies or potential
products or other assets that the combined company would not otherwise
relinquish. Accordingly, the inability to obtain such financing could have a
material adverse effect on the combined company's business, operating results
and financial condition.
Volatility of Stock Price. The market price of Corsair's Common Stock is
likely to be highly volatile and could be subject to wide fluctuations in
response to numerous factors, including, but not limited to, revenues
attributable to PhonePrint, new products or new contracts by the combined
company or its competitors, actual or anticipated variations in operating
results, the level of operating expenses, changes in financial estimates by
securities analysts, potential acquisitions, regulatory announcements,
developments with respect to patents or proprietary rights, conditions and
trends in the wireless telecommunications and other industries, adoption of new
accounting standards affecting the industry and general market conditions. As a
result, Corsair expects
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that from time to time future operating results will be below the expectations
of market analysts and investors, which would likely have a material adverse
effect on the prevailing market price of the Corsair Common Stock. The
realization of any of the risks described in these "Risk Factors" could have a
dramatic and adverse impact on the market price of Corsair Common Stock.
Further, the stock market has experienced extreme price and volume
fluctuations that have particularly affected the market prices of equity
securities of many companies in the telecommunications industry and that often
have been unrelated or disproportionate to the operating performance of such
companies. These market fluctuations, as well as general economic, political and
market conditions such as recessions or international currency fluctuations may
adversely affect the market price of Corsair Common Stock. In the past,
following periods of volatility in the market price of the securities of
companies in the telecommunications industry, securities class action litigation
has often been instituted against those companies. Such litigation, if
instituted against Corsair, could result in substantial costs and a diversion of
management attention and resources, which would have a material adverse effect
on the combined company.
Antitakeover Effects of Charter, Bylaws and Delaware Law. Corsair's
Restated Certificate of Incorporation authorizes the Corsair Board to issue
shares of undesignated Preferred Stock without stockholder approval on such
terms as the Board may determine. The rights of the holders of Corsair Common
Stock will be subject to, and may be adversely affected by,the rights of the
holders of any such Preferred Stock that may be issued in the future. Moreover,
the issuance of such Preferred Stock may make it more difficult for a third
party to acquire, or may discourage a third party from acquiring, a majority of
the voting stock of Corsair. Corsair's Restated Bylaws provide that Corsair's
Board will be classified into three classes of directors beginning at the 1998
annual meeting of stockholders. With a classified Board, one class of directors
is elected each year with each class serving a three-year term. These and other
provisions of the Restated Certificate of Incorporation and the Restated Bylaws,
as well as certain provisions of Delaware law, could delay or impede the removal
of incumbent directors and could make more difficult a merger, tender offer or
proxy contest involving Corsair, even if such events could be beneficial to the
interest of the stockholders. Such provisions could limit the price that certain
investors might be willing to pay in the future for Corsair Common Stock.
RISKS RELATING TO SUBSCRIBER
History of Losses; No Assurance of Profitability. Subscriber has incurred
net losses in each of its past three fiscal years. As of March 31, 1998,
Subscriber had incurred approximately $19.9 million in cumulative net losses
since inception, only a portion of which had resulted in any loss carryforwards
for federal tax purposes due to Subscriber's former status as an "S corporation"
under the Internal Revenue Code of 1986, as amended. There can be no assurance
that Subscriber will achieve or sustain profitability on a quarterly basis or
annual basis in the future. Enhanced versions of CRM, FraudWatch Pro, PrePay and
IMR were introduced as recently as 1997. Therefore, Subscriber's prospects must
be considered in light of the risks encountered by developing companies
attempting to compete in new and rapidly evolving markets. Subscriber's
operating results will depend upon, among other factors, the demand for
Subscriber's products, the level of product and price competition, the degree to
which Corsair successfully integrates Subscriber and the time period during
which integration efforts occur. Subscriber's ability to manage its direct and
indirect distribution channels, the ability of Subscriber to develop and market
new products, new versions of existing products and product upgrades and manage
product transitions and implementations, the ability of Subscriber to control
costs and avoid complications and delays, and general economic conditions. Many
of these factors are beyond Subscriber's control. A failure to successfully
address these risks would have a material adverse effect on Subscriber's and the
combined company's business, operating results and financial condition.
Subscriber will be materially adversely affected.
Competition. The markets for Subscriber's products are intensely and
increasingly competitive, subject to rapid change and significantly affected by
new product introductions and other market activities of industry participants.
A large number of companies currently offer one or more products that compete
directly with those offered by Subscriber. For example, Subscriber competes
directly with In-Touch Management Systems, Inc. in paging billing systems; with
AG Communications Systems, National Telemanagement Corporation, Systems/Link,
GTE, Glenayre Technologies, Inc., Brite Voice Systems, Inc. and Boston
Communications
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Group, Inc. for prepaid billing; with GTE, Lightbridge, Systems/Link, IBM, DEC
and Hewlett-Packard in real time fraud profiler systems; with Metapath Software
Corp. and ACE*Comm Corporation for mediation systems; and with Daleen
Technologies, Inc., Keenan Systems Corporation, Sema Group Telecoms, Inc., LHS
Group, Inc. and AMDOCS, Inc. for its suite billing products. Subscriber also
competes with companies offering a breadth of software knowledge applicable to a
variety of industries, including communications businesses. Such companies
include Andersen Consulting and Electronic Data Systems Corporation. Several of
these competitors have significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a larger installed
base of customers than Subscriber. As a result, Subscriber's competitors may be
able to adapt more quickly to new or emerging technologies and changes in
subscriber requirements or may be able to devote greater resources to the
promotion and sale of their products and services.
In addition, many wireless service providers are providing, or can provide,
products and services developed in-house that compete directly with those that
Subscriber offers. If technological or other developments make it simpler or
more cost-effective for wireless service providers to provide certain services
themselves, such development could affect demand for Subscriber's services and
could make it more difficult for Subscriber to offer a cost-effective
alternative to a wireless service provider's own capabilities. There can be no
assurance that Subscriber will be able to compete successfully with its existing
competitors or with new competitors. An increase in competition through entry of
new competitors or additional product offerings by existing competitors could
result in price reductions or the loss of market share by Subscriber which would
have a material adverse effect on Subscriber's and the combined company's
business, operating results and financial condition. See "Subscriber Computing,
Inc. -- Business -- Competition."
Contractual Relationships with Customers. Substantially all of Subscriber's
revenues are derived from the sale of products and services under contracts with
its customers. Most of Subscriber's existing customers have no obligation to
purchase additional products or services. Therefore, there can be no assurance
that any of Subscriber's existing customers will continue to purchase new
systems, systems enhancements and services in amounts similar to previous years.
The failure of existing customers to purchase additional products and services
from Subscriber could have a material adverse effect on Subscriber's and the
combined company's business, operating results and financial condition.
Risk of Product Defects. Software products such as those offered by
Subscriber frequently contain errors or failures, especially when first
introduced or when new versions are released. Subscriber could, in the future,
lose revenues as a result of software errors or defects. Subscriber's products
are intended for use in sales applications that may be critical to a customer's
business. As a result, Subscriber expects that its customers and potential
customers have a greater sensitivity to product defects than the market for
software products generally. There can be no assurance that, despite testing by
Subscriber and by current and potential customers, errors will not be found in
new products or releases after commencement of commercial shipments, resulting
in loss of revenue or delay in market acceptance, diversion of development
resources, damage to Subscriber's and the combined company's reputation, or
increased service and warranty costs, any of which could have a material adverse
effect on Subscriber's and the combined company's business, operating results
and financial condition.
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THE MERGER
(PROPOSAL FOR BOTH CORSAIR AND SUBSCRIBER MEETINGS)
BACKGROUND OF THE MERGER
The acquisition of complementary businesses and products is an important
part of Corsair's overall business strategy. Corsair continually evaluates
potential acquisition opportunities and considers potential alliances,
combinations and other strategic transactions with other participants in the
wireless telecommunications industry.
On October 21, 1997, at a regular meeting, the Subscriber Board discussed
the merits of raising additional capital for Subscriber. At this meeting, based
on preliminary discussions with Nationsbanc Montgomery Securities
("Nationsbanc"), the Subscriber Board decided to issue and sell $10,000,000 of
Series C Preferred Stock in a private placement (the "Private Placement"). The
Subscriber Board authorized Subscriber's management to proceed with the Private
Placement and to retain Nationsbanc as Subscriber's financial advisor for the
Private Placement. Subscriber retained Nationsbanc as its financial advisor on
October 28, 1997.
The Private Placement Memorandum for the Private Placement was completed on
November 21, 1997 at which time Nationsbanc began soliciting offers to purchase
shares of Subscriber's Series C Preferred Stock.
On February 17, 1998, Subscriber received a term sheet from a third party
with respect to the purchase of $10,000,000 of Subscriber's Series C Preferred
Stock.
On March 2, 1998, Mary Ann Byrnes, Corsair's President and Chief Executive
Officer, John Scott, Corsair's Vice President, Strategy and Business
Development, Martin Silver, Corsair's Chief Financial Officer, David Thompson,
Corsair's Vice President, Marketing, and Dennis Andrews, Subscriber's President
and Chief Executive Officer met and discussed Corsair's potential interest in
entering into a business combination or similar transaction with Subscriber.
On March 6, 1998, Corsair retained Hambrecht & Quist LLC ("H&Q") as its
financial advisor to examine the potential acquisition of Subscriber.
On March 10, 1998, Subscriber's management retained Nationsbanc as
Subscriber's financial advisor on the potential sale or merger of Subscriber. On
March 12, 1998, at a special meeting, the Subscriber Board discussed the merits
of selling the assets of Subscriber to or merging Subscriber with another
company. At this meeting, the Subscriber Board decided to continue with the
Private Placement, but at the same time ratified the retainer of Nationsbanc as
Subscriber's financial advisor to pursue a possible sale or merger of
Subscriber.
Beginning on March 16, 1998 and continuing until April 1, 1998,
representatives of Corsair and its financial advisor and counsel met with
representatives of Subscriber and its financial advisor and counsel to complete
various aspects of each party's due diligence review of the other party's
business, financial and legal affairs. Beginning on March 16, 1998 and
continuing until April 2, 1998, Corsair and Subscriber, and their respective
financial advisors and counsel, negotiated the terms of the Merger Agreement.
On March 20, 1998, at a regular meeting, the Corsair Board discussed the
merits of Corsair acquiring Subscriber. Mr. Scott reported on the status of
discussions with Subscriber and it was resolved that the officers of Corsair
continue to negotiate the potential acquisition of Subscriber.
On March 31, 1998, at a special meeting of the Subscriber Board, (i)
representatives of Nationsbanc reported on the financial terms proposed by
Corsair and other business terms of the proposed Merger and (ii) Subscriber's
legal counsel reviewed with the Subscriber Board the proposed terms of the
Merger Agreement. At the meeting, the Subscriber Board approved the Merger
Agreement and related matters and authorized Subscriber's management to proceed
with the Merger.
On March 31, 1998, at a special meeting of the Corsair Board, (i)
representatives of H&Q reported on the financial terms of the proposed Merger,
(ii) Corsair's legal counsel reviewed with the Corsair Board the proposed terms
of the Merger Agreement and (iii) representatives of H&Q provided financial
analyses
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relating to the proposed Merger and delivered its written fairness opinion. At
the meeting, the Corsair Board unanimously approved the Merger Agreement and
related matters and authorized Corsair's management to proceed with the Merger.
On April 2, 1998, following the special meetings of the Subscriber Board
and the Corsair Board approving the Merger Agreement, Corsair, Merger Sub and
Subscriber executed the Merger Agreement.
On April 3, 1998, prior to the opening of trading on The Nasdaq National
Market, Corsair issued a news release announcing the Merger.
REASONS OF THE CORSAIR AND SUBSCRIBER BOARDS FOR THE MERGER
The Corsair and Subscriber Boards (collectively, the "Boards") have
identified several potential benefits of the Merger that they believe, if
achieved, will contribute to the success of the combined company. These
potential benefits include principally the following:
Expanded product offering. The Boards believe that the broader array of
products that would be offered by the combined company could expand the
potential customer base, reduce the dependency of the individual companies on
any one product and smooth the impact of potential revenue and cost fluctuations
that any one product may have on the combined company's results of operations.
The combined company would offer products and services to cellular, PCS and
paging service providers, address the requirements of carriers operating in
analog and digital environments, target large and small operators and market to
potential customers located in most parts of the world.
Leverage customer relationships to cross-sell products. The Boards believe
that Corsair's and Subscriber's customer bases would represent strong prospects
for each other's products. The Boards believe that the relationships, personal
contacts and reputation for high-quality products and service that each company
maintains with its customers would enhance and potentially accelerate the sales
opportunity for the other's products with these customers. In the case where
Corsair and Subscriber currently provide products and services to the same
customers, the Boards believe that the Merger could further strengthen
relationships with these customers.
Enhance worldwide distribution and marketing relationships. The Boards also
believe that the combination of Corsair and Subscriber would enhance potential
distribution and marketing relationships. The Boards believe that combined
company could offer these parties more products with potentially improved
integration prospects from a single source, which could reduce management
complexity, streamline internal training processes and enhance sales and
marketing prospects. The Boards also believe that a larger portfolio of products
from the combined company could increase negotiating strength, generate more
attention from third party sales and marketing organizations and increase the
potential to attract distribution and marketing partners.
Leverage worldwide customer support infrastructure. Corsair and Subscriber
have several common customers around the world currently and may have more in
the future, which could provide opportunities to leverage investments in service
and support infrastructure across multiple products. The Boards believe that a
combination of support organizations could increase the capacity of the combined
company to support international growth and ultimately reduce the total cost of
customer support that would otherwise be borne by the companies independently.
Software technologies, such as UNIX, NT and relational databases, are common to
several of Corsair's and Subscriber's products, which could enhance
cross-training opportunities. Additionally, field technicians now located
throughout the U.S., Mexico and Asia in support of PhonePrint would be able to
provide certain support for several of the combined company's products.
Broader product development capability. The Boards believe that the Merger
could strengthen the combined company's product development capabilities. By
combining the technical competencies of the two companies, the Boards believe
that the combined company could reduce the inherent risk in product development
currently underway, and may be able to develop new products more effectively
than would be the case as separate companies. Corsair has competencies in radio
frequency signal analysis, digital signal processing and real-time distributed
\systems design and operation. Subscriber has competencies in telecom-
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munications billing processing, real-time data processing, interfacing with
wireless switches and designing scalable software applications.
Increased Scale of Operation. The Boards also believe that wireless
telecommunications service providers increasingly value the prospect of doing
business with larger companies, and that the combination of Corsair and
Subscriber would present such an image more effectively than they do
individually.
Synergies and Other Cost Savings. The Boards believe that the Merger would
provide an opportunity to generate organizational and financial synergies
through the elimination or reduction of certain general and administrative,
marketing, sales and support redundancies. Both Corsair and Subscriber realize
that the Merger would require an aggressive program to rationalize and
strategically focus the combined company and reduce costs and that this process
will be inherently difficult to manage. See "Risk Factors -- Risks Relating to
the Merger -- No Assurance that Businesses Can Be Successfully Combined."
RECOMMENDATION OF THE CORSAIR BOARD OF DIRECTORS
The Corsair Board unanimously approved the Merger Agreement as fair to and
in the best interests of the stockholders of Corsair, and unanimously recommends
that Corsair stockholders vote FOR the proposal to approve and adopt the Merger.
See "-- Reasons of the Corsair and Subscriber Boards for the Merger."
In reaching this conclusion, the Corsair Board considered a number of
factors, including the following:
Expanded Product Offering. The Corsair Board considered that the broader
array of products that would be offered by the combined company could expand the
potential customer base for its products, reduce the dependency of Corsair on
any one product and smooth the impact of potential revenue and cost fluctuations
that any one product may have on the combined company's operating results.
Leverage Customer Relationships to Cross-Sell Products. The Corsair Board
believes that Corsair's and Subscriber's customer bases are strong prospects for
each other's products. The relationships, personal contacts and reputation for
high-quality products and services that each company maintains with its
customers would enhance and potentially accelerate the sales opportunity for
other products with these customers. In the case where Corsair and Subscriber
currently provide products and services to the same customers, the Corsair Board
believes that the Merger may further strengthen relationships with these
customers.
Leverage Worldwide Customer Support Infrastructure. The Corsair Board
believes that a combination of support organizations may increase the capacity
of the combined company to support rapid international growth, while at the same
time may ultimately reduce the total cost of customer support that would
otherwise be borne by the companies independently. The Corsair Board considered
that software technologies, such as UNIX, Windows NT and relational databases
are common to several of Corsair's and Subscriber's products, which enhances
cross-training opportunities. Additionally, field technicians now located
throughout the U.S., Mexico and Asia in support of PhonePrint would be able to
provide certain support for several of the combined company's products.
Optimize Economies of Scale and Efficiencies. The Corsair Board considered
that the combined company should have economies of scale and efficiencies
through the elimination or reduction of redundancies in general and
administrative and sales and marketing. The Corsair Board recognizes that the
Merger will require an aggressive program to reduce costs and that this process
will be inherently difficult to manage. See "Risk Factors -- Risks Relating to
the Merger -- No Assurance that Businesses Can Be Successfully Combined."
Merger Consideration. The Corsair Board believes that the Merger Agreement
provides for a fair method of combining the equities of the two companies. The
Corsair Board obtained the opinion of H&Q that, as of the date of such opinion,
and subject to certain assumptions, factors and limitations set forth in such
opinion, that the consideration to be paid to Subscriber stockholders is fair to
Corsair from a financial point of view. See "-- Opinion of Corsair Financial
Advisor." Because of the expected benefits resulting from the Merger as outlined
above, the Corsair Board concurred in this opinion.
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Dilution to Corsair Stockholders. The Corsair Board considered the fact
that, following the consummation of the Merger, Subscriber stockholders would
own between approximately 20% and 23.5% of the combined company on a
fully-diluted basis. The Corsair Board also considered the impact this dilution
would have on Corsair's current stockholders. The Corsair Board acknowledged the
potential benefits of the proposed Merger identified above, and determined that
these potential benefits justified the immediate dilution resulting from the
proposed Merger.
Effect of Assumed Subscriber Options, Warrants on Number of Shares of
Corsair Common Stock Outstanding. The Corsair Board considered the provisions of
the Merger Agreement related to the assumption of certain Subscriber stock
options and warrants, the terms of such options and warrants, the potential need
to grant new options to Subscriber employees and the need to harmonize the
benefit plans of the two companies. These factors would result in an increase in
the number of shares of Corsair Common Stock that may be issued as a result of
the Merger and following the Merger. The Corsair Board, however, recognized the
importance of honoring certain contractual rights of Subscriber employees and
securityholders as well as putting in place appropriate incentives for the
Subscriber employees, and in this regard, the Corsair Board considered the
provisions of the Merger Agreement fair to Corsair. The foregoing were negative
factors in the Corsair Board's consideration of the Merger, but the Corsair
Board concluded that they were substantially outweighed by the benefits which it
believed would accrue from the Merger, as outlined in this section.
In view of the variety of factors considered by the Corsair Board in
connection with its evaluation of the Merger, the Corsair Board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
specific factors considered in reaching its determination.
OPINION OF CORSAIR'S FINANCIAL ADVISOR
Corsair engaged H&Q to act as its financial advisor in connection with the
Merger and to render an opinion as to the fairness to Corsair from a financial
point of view of the consideration to be paid by Corsair to acquire Subscriber.
H&Q was selected by the Corsair Board based on H&Q's qualifications, expertise
and reputation, as well as H&Q's historic investment banking relationship and
familiarity with Corsair.
H&Q rendered its oral opinion (subsequently confirmed in writing) on March
31, 1998 to the Corsair Board that, as of such date, the consideration to be
paid by Corsair in the Merger is fair to Corsair from a financial point of view.
The full text of H&Q's opinion, dated March 31, 1998, which sets forth the
assumptions made, matters considered, the scope and limitations of the review
undertaken and the procedures followed by H&Q is attached as Annex A to this
Joint Proxy Statement/Prospectus. Corsair stockholders are advised to read such
opinion carefully in its entirety.
The Corsair Board placed no limitations on H&Q with respect to the scope of
investigation made or the procedures followed in preparing and rendering its
opinion.
In its review of the acquisition of Subscriber, and in arriving at its
opinion, H&Q, among other things: (i) reviewed certain internal financial and
operating information, including certain projections provided by the management
of Subscriber; (ii) discussed the business, financial condition and prospects of
Subscriber with certain of its officers; (iii) reviewed the financial statements
of Corsair for recent years and interim periods to date and certain other
relevant financial and operating data of Corsair made available to H&Q from
published sources; (iv) discussed the business, financial condition and
prospects of Corsair with certain of its officers; (v) reviewed the recent
reported price and trading activity for Corsair Common Stock and compared such
information and certain financial information for Corsair with similar
information for certain other companies engaged in businesses H&Q considered
comparable to Corsair; (vi) reviewed the financial terms, to the extent publicly
available, of certain comparable merger and acquisition transactions; (vii)
reviewed the Merger Agreement; and (viii) performed such other analyses and
examinations and considered such other information, financial studies, analyses
and investigations and financial, economic and market data as H&Q deemed
relevant.
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H&Q did not independently verify any of the information concerning Corsair
or Subscriber considered in connection with its review of the Merger and, for
purposes of its opinion, H&Q assumed and relied upon the accuracy and
completeness of all such information. In connection with its opinion, H&Q did
not prepare or obtain any independent evaluation or appraisal of any of the
assets or liabilities of Corsair or Subscriber, nor did it conduct a physical
inspection of the properties and facilities of Corsair or Subscriber. With
respect to the financial forecasts and projections used in its analysis, H&Q
assumed that they reflected the best currently available estimates and judgments
of the expected future financial performance of Subscriber and Corsair. For the
purposes of its opinion, H&Q also assumed that neither Corsair nor Subscriber
was a party to any pending transactions, including external financings (other
than those contemplated that have been disclosed to H&Q), recapitalizations or
merger discussions, other than the Merger and those in the ordinary course of
conducting their respective businesses. For purposes of its opinion, H&Q assumed
that the Merger will qualify as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended, for the stockholders of Subscriber and that
the Merger will be accounted for as a pooling of interests. H&Q's opinion is
necessarily based upon market, economic, financial and other conditions as they
existed and can be evaluated as of the date of the opinion, and any subsequent
change in such conditions would require a reevaluation of such opinion.
The preparation of a fairness opinion is a complex process, and is not
necessarily susceptible to partial analysis or summary description. The summary
of H&Q's analyses set forth below does not purport to be a complete description
of the presentation by H&Q to the Corsair Board. In arriving at its opinion, H&Q
did not attribute any particular weight to any analyses or factors considered by
it, but rather made qualitative judgments as to the significance and relevance
of each analysis and factor. Accordingly, H&Q believes that its analyses and the
summary set forth below must be considered as a whole, and that selecting
portions of its analyses, without considering all analyses, or of the following
summary, without considering all factors and analyses, could create an
incomplete view of the processes underlying the analyses set forth in the H&Q
presentation to the Corsair Board and its opinion. In performing its analyses,
H&Q made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of Corsair and Subscriber. The analyses performed by H&Q (and summarized
below) are not necessarily indicative of actual values or actual future results,
which may be significantly more or less favorable than suggested by such
analyses. Additionally, analyses relating to the values of businesses do not
purport to be appraisals or to reflect the prices at which businesses actually
may be acquired.
In performing its analyses, H&Q used its published research projections of
Corsair's financial performance for fiscal year 1998 and 1999. H&Q used internal
projections provided by Subscriber's management for Subscriber's fiscal year
1998 and 1999 financial performance.
The following is a brief summary of certain financial analyses performed by
H&Q in connection with providing its written opinion to the Corsair Board on
March 31, 1998:
Contribution Analysis. H&Q analyzed the contribution of each of Corsair and
Subscriber to certain calendar 1999 financial statement categories of the pro
forma combined company with no revenue or expense adjustments. The financial
statement categories included revenue, operating income, net income, cash and
total assets. This contribution analysis was then compared to the pro forma
ownership percentage of Corsair and Subscriber stockholders in the pro forma
post-Merger combined company. H&Q observed that, calculated on a fully-diluted
basis using the treasury stock method, Corsair stockholders are expected to own
approximately 79% of the combined company equity at the close of the Merger and
Subscriber stockholders are expected to own approximately 21% of the combined
company equity at the close of the Merger. At the close of the Merger, it was
estimated that Subscriber would contribute less than 30% of the combined cash,
total assets, revenues, operating income, pretax income, combined revenues,
combined operating income and net income for calendar year 1999.
Pro Forma Acquisition Analysis. H&Q analyzed the pro forma impact of the
Merger on the combined company's calendar 1999 earnings per share ("EPS") using
(i) internal estimates of Subscriber's financials in calendar 1999, provided by
Subscriber's management and (ii) H&Q's published research estimate of Corsair's
EPS in calendar 1999 of $0.78. The analysis indicated that the EPS of the pro
forma combined company
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would be $0.91 in calendar 1999, significantly higher than for Corsair as a
stand-alone company. The actual results and savings achieved by the combined
company resulting from the Merger may vary from the projected results and
variations may be material.
Analysis of Publicly Traded Comparable Companies. H&Q compared selected
historical and projected financial information of Subscriber to publicly traded
companies it deemed to be comparable to Subscriber. Such information included
the ratio of market value to historical and projected net income. H&Q also
examined the ratio of the enterprise value (market value plus debt less cash) to
historical revenue, historical earnings before interest and taxes, historical
earnings before interest, taxes, depreciation and amortization ("EBITDA"), and
projected calendar year 1998 and 1999 revenue. Companies deemed comparable
included selected communication companies such as Corsair, International
Telecommunications Data Systems, Inc., LHS Group, Inc., Lightbridge, Inc., and
Saville Systems PLC (collectively, the "Communication Comparables"). The
foregoing multiples were applied to historical financial results of Subscriber
for the latest-twelve-month ("LTM") period ended December 31, 1997 and projected
financial results of Subscriber from internal financial projections provided by
Subscriber's management. H&Q determined average multiples excluding the high and
low values for the Communication Comparables.
Based on the analysis of publicly traded comparable companies, Subscriber's
implied equity value applying Communication multiples to historical results and
the projections from Subscriber's management ranged from $34.4 million to $206.3
million. This compared with an offer in the proposed acquisition of
approximately $70 million.
Analysis of Selected Merger and Acquisition Transactions. H&Q compared the
proposed acquisition with selected merger and acquisition transactions. This
analysis included seven (7) transactions involving companies in the
communications industry (the "Communication Transactions"). In examining these
transactions, H&Q analyzed certain income statement and balance sheet parameters
of the acquired company relative to the consideration offered. The foregoing
multiples were applied to historical financial results of Subscriber for the
twelve-month period ended December 31, 1997. Multiples analyzed included
consideration offered to LTM revenue. Based on the analysis of selected merger
and acquisition transactions, Subscriber's implied equity value applying
Communication Transaction multiples to historical results ranged from values
between approximately $80.9 million and approximately $105.7 million. This
result compared with an implied value in the proposed acquisition of
approximately $70 million.
No company or transaction used in the above analyses is identical to
Subscriber or the Merger. Accordingly, an analysis of the results of the
foregoing is not mathematical; rather it involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading values of
the companies or company to which they are compared.
The foregoing description of H&Q's opinion is qualified in its entirety by
reference to the full text of such opinion which is attached as Annex A to this
Joint Proxy Statement/Prospectus.
H&Q, as part of its investment banking services, is regularly engaged in
the valuation of businesses and their securities in connection with mergers and
acquisitions, corporate restructurings, strategic alliances, negotiated
underwriting, secondary distributions of listed and unlisted securities, private
placements and valuations for corporate and other purposes. In the past, H&Q has
provided investment banking services to Corsair and has received fees for
rendering these services. In the ordinary course of business, H&Q acts as a
market maker and broker in the publicly traded securities of Corsair, and
receives customary compensation in connection therewith. H&Q also provides
research coverage for Corsair. In the ordinary course of business, H&Q actively
trades in the equity and derivative securities of Corsair for its own account
and for the accounts of its customers and, accordingly, may at any time hold a
long or short position in such securities. H&Q may in the future provide
additional investment banking or other financial advisory services to Corsair.
In addition, H&Q acted as a placement agent for Subscriber's $15,000,000 Series
B Preferred Stock Offering in 1996 and received a fee for these services, which
fee included warrants for the purchase of 61,043 shares of Subscriber Series B
Preferred Stock at an exercise price of $3.56 per share. A total of nine (9)
Managing Directors of
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H&Q acquired shares of Subscriber in this private placement and own a total of
19,375 shares of Subscriber Series B Preferred Stock.
Pursuant to an engagement letter dated March 16, 1998, Corsair has agreed
to pay H&Q a fee (a "Fairness Opinion Fee") of $300,000 in connection with the
delivery of a fairness opinion. Such fee shall be netted against any further
fees payable as part of this engagement. Upon consummation of the Merger,
Corsair will pay H&Q a fee, payable in cash, of $900,000 in connection with its
services as financial advisor to Corsair in connection with the Merger (the
"Transaction Fee"). Corsair also has agreed to reimburse H&Q for its reasonable
out-of-pocket expenses and to indemnify H&Q against certain liabilities,
including liabilities under the federal securities laws or relating to or
arising out of Corsair's engagement of H&Q as its financial advisor.
INTERESTS OF CERTAIN PERSONS IN THE MERGER -- CORSAIR
As of March 31, 1998, directors and executive officers of Corsair and their
affiliates may be deemed to be beneficial owners of approximately 37.7% of the
outstanding shares of Corsair Common Stock. See "Corsair Communications,
Inc. -- Common Stock Ownership of Directors and Management."
The directors and executive officers of Corsair and certain of their
affiliates are obligated to vote or direct the vote of all of the shares of
Corsair Common Stock over which they have voting control in favor of the Merger
Agreement, the Merger and any matter that could reasonably be expected to
facilitate the Merger. See "-- Corsair Voting Agreements."
The foregoing interests of the directors, executive officers and certain
stockholders of Corsair in the Merger may mean that such persons have a personal
interest in the Merger which may not be identical to the interests of the other
Corsair stockholders.
RECOMMENDATION OF THE SUBSCRIBER BOARD OF DIRECTORS
The Subscriber Board unanimously approved the Merger Agreement as fair to
and in the best interests of the stockholders of Subscriber, and unanimously
recommends that Subscriber stockholders vote FOR the proposal to approve the
Merger. See "-- Reasons of the Corsair and Subscriber Boards for the Merger."
In reaching this conclusion, the Subscriber Board considered a number of
factors, including the following:
Enhance sales, distribution and marketing channels. The Subscriber Board
believes that the combination of Corsair and Subscriber would enhance potential
sales, distribution and marketing channels. Subscriber and Corsair have
developed independent sales, distribution and marketing channels. The combined
company offers these parties a more developed network of sales, distribution and
marketing channels which will enhance their ability to distribute products to a
larger customer base on an accelerated and more efficient basis than if the
parties independently developed a comparable network of sales, distribution and
marketing channels.
Access to capital. The Subscriber Board believes that the combination of
Corsair and Subscriber would enhance Subscriber's ability to obtain the capital
necessary for its operations, product development and continued growth. In
evaluating Subscriber's future capital needs, the Subscriber Board evaluated
numerous options including raising funds through the Private Placement and
selling Subscriber to or merging Subscriber with another company. The Subscriber
Board believes that Subscriber would be able to raise the necessary capital
through the Private Placement, however if the Private Placement is successfully
completed, the current stockholders of Subscriber would be substantially diluted
and the amount of proceeds which would be required by Subscriber in connection
with a subsequent financing, sale or merger would be substantially increased due
to the increased capital investment in Subscriber. The Subscriber Board believes
that the combination of Corsair and Subscriber will result in a company which
has adequate capital resources to finance its future operations, product
development and growth and which will not be required to pursue an additional
financing, sale or merger activity in the near future. In addition, the
Subscriber Board believes that the combination of Corsair and Subscriber lowers
the risk to the Subscriber stockholders for achieving liquidity and value for
their investment in Subscriber.
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Expansion of product and customer base. The Subscriber Board believes that
a combination of Corsair and Subscriber will result in a company with an
expanded product and customer base. The Subscriber Board considered the
diversity of products offered by Corsair and Subscriber, the complementary
nature of such products and the breadth of their combined customers. The
Subscriber Board believes that the combined company will be able to offer more
products to Corsair's and Subscriber's markets which should result in a greater
increase in overall sales than that which would be achieved if the companies
operated independently. In addition, the Subscriber Board believes that value
will be added to Corsair's and Subscriber's individual products by offering
these products together and that new products may be created by combining the
individual products of Corsair and Subscriber.
Merger Consideration. The Subscriber Board believes that the Merger
Agreement provides for a fair method of combining the equities of the two
companies and that the consideration to be paid to Subscriber stockholders is
fair to the Subscriber stockholders from a financial point of view.
In view of the variety of factors considered by the Subscriber Board in
connection with its evaluation of the Merger, the Subscriber Board did not find
it practicable to and did not quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination.
INTERESTS OF CERTAIN PERSONS IN THE MERGER -- SUBSCRIBER
As of March 31, 1998, directors and executive officers of Subscriber and
their affiliates may be deemed to be beneficial owners of approximately 86.1% of
the outstanding shares of Subscriber Common Stock, 96.7% of the outstanding
shares of Subscriber Preferred Stock and 89.4% of the outstanding shares of all
Subscriber Capital Stock. See "Subscriber Computing Inc. -- Principal
Stockholders of Subscriber."
The directors and executive officers of Subscriber and certain of their
affiliates are obligated to vote or direct the vote of all of the shares of
Subscriber Capital Stock over which they have voting control in favor of the
Merger Agreement, the Merger and any matter that could reasonably be expected to
facilitate the Merger. See "-- Subscriber Voting Agreements."
As of March 31, 1998, affiliates of Advent International Corporation
("Advent") owned 4,069,534 shares of Subscriber Series B Preferred Stock which
is convertible into 4,069,534 shares of Subscriber Common Stock. In the Merger,
holders of Subscriber Series B Preferred Stock would receive that number of
shares of Corsair Common Stock equal in value to approximately $7.47, while
holders of Subscriber Common Stock would receive that number of shares of
Corsair Common Stock equal in value to approximately $3.90. Douglas Kingsley, a
director of Subscriber, is Vice President of Advent. Mr. Kingsley disclaims
beneficial ownership of the shares held by affiliates of Advent.
Certain directors and all executive officers of Subscriber have been
granted options ("Subscriber Options") to purchase Subscriber Common Stock under
Subscriber's 1997 Incentive Stock Option Plan. Of the Subscriber Options,
342,421 are exercisable within 60 days of March 31, 1998, and an additional
335,255 will become exercisable upon the Closing Date of the Merger. The
exercise price of the Subscriber Options range from $.50 to $1.00 per share.
Except as specified below, the Subscriber Options vest over periods ranging from
2 3/4 years to 5 years and expire within ten (10) years of their date of grant.
Upon the Effective Time of the Merger, the vesting of any portion of the
Subscriber Options held by Mr. Thomas Fedro, the Vice President of Sales and
Marketing of Subscriber, or Mr. David McCann, the Vice President and General
Manager of Real-Time Billing of Subscriber, which will vest within two years
after the Effective Time of the Merger (including any partially earned but not
yet vested options through such two year period) will be accelerated as of the
Effective Time of the Merger. Upon the Effective Time of the Merger, the vesting
of any portion of the Subscriber Options held by any directors or executive
officers of Subscriber other than Mr. Fedro or Mr. McCann which will vest within
one year after the Effective Time of the Merger will be accelerated as of the
Effective Time of the Merger. In addition, Subscriber has entered into an
agreement with Mr. Mark Nielsen, a director of Subscriber, pursuant to which all
Subscriber Options held by Mr. Nielsen will fully vest as of June 30, 1998.
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The foregoing interests of the directors, executive officers and certain
stockholders of Subscriber in the Merger may mean that such persons have a
personal interest in the Merger which may not be identical to the interests of
the other Subscriber stockholders.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material federal income tax
consequences to Corsair, Subscriber and the Subscriber stockholders of the
exchange of Subscriber Common Stock for Corsair Common Stock in the Merger. It
is intended to provide only a general summary and does not address all federal
income tax consequences that may be relevant to particular Subscriber
stockholders in light of their particular circumstances, such as stockholders
who are dealers in securities, foreign stockholders or stockholders who received
stock pursuant to stock option plans, stock purchase plans or other compensatory
arrangements. In addition, except as specifically set forth below, the following
discussion does not address the tax consequences of transactions effectuated
prior to or after the Merger (whether or not such transactions are in connection
with the Merger) including, without limitation, (i) the exercise of options,
warrants or similar rights to purchase stock, (ii) the exchange, assumption or
substitution of options, warrants or similar rights to purchase Subscriber stock
for rights to purchase Corsair stock or (iii) the effect of the reference of any
Escrow Shares to Corsair to satisfy any claim. Furthermore, no foreign, state or
local tax considerations are addressed herein.
This discussion is based on legal authorities in existence as of the date
hereof. No assurances can be given that future legislation, regulations,
administrative pronouncements or court decisions will not significantly change
the law and materially affect the conclusions expressed herein. Any such change,
even though made after consummation of the Merger, could be applied
retroactively. In light of the above, STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER AND RELATED
TRANSACTIONS, INCLUDING THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES TO THEM OF THE MERGER AND SUCH RELATED TRANSACTIONS.
Tax Opinion
Corsair has received an opinion of Brobeck, Phleger & Harrison LLP, counsel
to Corsair, and Subscriber has received an opinion from Paul, Hastings, Janofsky
& Walker LLP, counsel to Subscriber (the "Tax Opinions") that the Merger will
qualify as a reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Tax Opinions are not binding
on the Internal Revenue Service ("IRS"). Moreover, the parties are not
requesting a ruling from the IRS in connection with the Merger. Accordingly,
there can be no assurance that the IRS would not take a position contrary to
that described above regarding the tax consequences of the Merger.
This discussion and the Tax Opinions are based on certain representations
made or to be made by Corsair, Subscriber and certain Subscriber stockholders,
including representations in certificates delivered or to be delivered to
Brobeck, Phleger & Harrison LLP and Paul, Hastings, Janofsky & Walker LLP by
management and such stockholders. Should any such representations be inaccurate,
the tax consequences of the Merger could differ materially from those set forth
below.
A successful IRS challenge to the "reorganization" status of the Merger
would result in each Subscriber stockholder recognizing gain or loss with
respect to each share of Subscriber Capital Stock surrendered equal to the
difference between such stockholder's basis in such share and the fair market
value, as of the Effective Time, of the Corsair Common Stock received in
exchange therefor. In such event, each Subscriber stockholder's aggregate basis
in the Corsair Common Stock so received would equal their respective fair market
values and the holding period for such stock would begin the day after the
Merger is consummated.
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Tax Consequences of Merger
If the Merger qualifies as a reorganization within the meaning of Section
368(a) of the Code, the following federal income tax consequences will result:
1. No gain or loss will be recognized by Corsair, Merger Sub or
Subscriber.
2. A Subscriber stockholder will not recognize gain or loss upon
receipt of shares of Corsair Common Stock in exchange for his or her shares
of Subscriber Capital Stock pursuant to the Merger. The aggregate basis of
the Corsair Common Stock received by such stockholder will be the same as
the aggregate basis of his or her shares of Subscriber Capital Stock
exchanged therefor (less any basis attributable to a fractional share of
Corsair Common Stock deemed to be received and disposed of). The holding
period of the shares of Corsair Common Stock received by a Subscriber
stockholder will include the stockholder's holding period for his or her
Subscriber Capital Stock exchanged therefor, provided the Subscriber shares
were held as a capital asset by the Subscriber stockholder.
3. A Subscriber stockholder who exercises appraisal or dissenters'
rights with respect to a share of capital stock of Subscriber and receives
payment from Subscriber for such share in cash will generally recognize
gain or loss for federal income tax purposes measured by the difference
between the holder's basis in such share and the amount of cash received,
provided that the payment is neither essentially equivalent to a dividend
within the meaning of Section 302 of the Code nor has the effect of a
distribution of a dividend with the meaning of Section 356(a)(2) of the
Code (collectively, a "Dividend Equivalent Transaction"). A sale of
Subscriber Capital Stock pursuant to an exercise of appraisal or
dissenters' rights will generally not be a Dividend Equivalent Transaction
if, as a result of such exercise, the Subscriber stockholder exercising
appraisal or dissenters' rights owns no shares of Corsair capital stock
(either actually or constructively within the meaning of Section 318 of the
Code).
4. Any Subscriber stockholder who receives cash in lieu of a
fractional share of Corsair Common Stock will recognize gain or loss for
federal income tax purposes equal to the difference between the cash
received and the basis which would otherwise be allocable to the fractional
share of Corsair Common Stock. For this purpose, the basis of a fractional
share of Corsair Common Stock will be determined as if such stockholder had
received such fractional share of Corsair Common Stock in the Merger.
Utilization of Net Operating Losses
Corsair and Subscriber each have accumulated net operating loss ("NOL"),
built-in loss, tax credit and capital loss carryovers ("Tax Carryovers") which
are available to reduce federal income tax liabilities in future taxable years.
These carryovers were accumulated in years which have not yet been reviewed by
the IRS, and there is no assurance that the IRS will not successfully contend
upon audit that these carryovers should be reduced. In addition, Sections 382
and 383 of the Code impose limitations on the use of Tax Carryovers following an
"ownership change" as defined in Section 382.
Where there has been an ownership change, an annual limitation is imposed
on the amount of taxable income in subsequent years which can be offset by Tax
Carryovers accumulated prior to the ownership change. Any portion of the annual
limitation not offset in one year is added to the annual limitation for the next
year. The annual limitation is generally an amount equal to the value of the
corporation immediately prior to the ownership change multiplied by the
"long-term tax-exempt rate" in effect for the month in which the ownership
change occurred (which rate was 5.05% for transactions occurring in April 1998).
For this purpose, the value of the corporation generally means the value of the
stock of the corporation must be reduced by certain capital contributions and
nonbusiness assets. The reduction for capital contributions is limited to those
contributions made as part of a plan a principal purpose of which is to increase
the annual limitation under Code Section 382 following a change of ownership.
However, the Code creates a presumption that, except to the extent provided in
regulations, any capital contribution received within two-years prior to the
ownership change were received pursuant to such a plan. The value of the
corporation must also be reduced by the fair market value of any nonbusiness
assets if the loss corporation has substantial nonbusiness assets immediately
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after the ownership change. Regulations have not been issued with respect to the
reduction for capital contributions. The definition of nonbusiness assets or any
other aspect of this rule.
Subscriber will undergo an ownership change at the time of the Merger. It
is also likely that the Merger will, in combination with other transactions
occurring prior to or following the Merger, result in Corsair undergoing an
ownership change. Because the impact of an ownership change on the ability of a
corporation to utilize Tax Carryovers is an inherently factual questions, some
of which cannot be currently known (including the future profitability of
Subscriber and/or Corsair), the extent to which the ownership change occurring
as a result of the Merger will materially affect the ability of Subscriber and
Corsair to utilize their NOLs cannot be predicted. The limitations on the use of
Tax Carryovers attributes under Code Sections 382 and 383 did not affect the
respective decisions of the Corsair Board or the Subscriber Board to approve the
Merger.
SUBSCRIBER VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, each of the
directors and executive officers of Subscriber and certain of their affiliates
(who collectively, as of May 15, 1998, held approximately % of the
outstanding shares of Subscriber Common Stock and approximately % of the
outstanding shares of Subscriber Preferred Stock) entered into voting agreements
(the "Subscriber Voting Agreements") pursuant to which such persons agreed,
among other things, (i) to vote the shares of Subscriber Capital Stock over
which they have voting control in favor of the Merger Agreement, the Merger and
any matter which could be reasonably be expected to facilitate the Merger, (ii)
to execute and deliver an irrevocable proxy to the Corsair Board authorizing the
Corsair Board to vote all shares over which they have voting control as set
forth in item (i), (iii) not to transfer, sell, exchange, pledge or otherwise
dispose of or encumber any shares of Subscriber Capital Stock, except as
otherwise allowed by Staff Accounting Bulletin 76 of the Commission, prior to
the earliest of the consummation of the Merger or the termination of the Merger
Agreement, (iv) not to solicit proposals or offers or otherwise assist,
facilitate or encourage any agreement or understanding with any party other than
Corsair in connection with any merger, consolidation or sale of substantial
assets of Subscriber or any sale of equity interests in Subscriber, and (v) to
authorize ten percent (10%) of all Corsair Capital Stock received by such
stockholders as part of the Merger to be automatically deposited into an escrow
fund established under the Merger. See "The Merger Agreement -- Escrow and
Indemnification."
CORSAIR VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, each of the
directors and executive officers of Corsair and certain of their affiliates (who
collectively, as of May 15, 1998, held approximately % of the outstanding
shares of Corsair Common Stock) entered into voting agreements (the "Corsair
Voting Agreements") pursuant to which such persons agreed, among other things,
(i) to vote the shares of Corsair Common Stock over which they have voting
control in favor of the Merger Agreement, the Merger and any matter which could
be reasonably be expected to facilitate the Merger, (ii) to execute and deliver
an irrevocable proxy to the Subscriber Board authorizing the Subscriber Board to
vote all shares over which they have voting control as set forth in item (i),
and (iii) not to transfer, sell, exchange, pledge or otherwise dispose of or
encumber any shares of Corsair Common Stock, except as otherwise allowed by
Staff Accounting Bulletin 76 of the Commission, prior to the earliest of the
consummation of the Merger or the termination of the Merger Agreement.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for accounting
and financial reporting purposes in accordance with generally accepted
accounting principles. It is a condition to the closing of the Merger that (i)
Corsair receives a letter from KPMG Peat Marwick LLP, Corsair's independent
auditors, as to their concurrence with the conclusion of the management of
Corsair as to the appropriateness of pooling of interests accounting for the
Merger under Accounting Principles Board Opinion No. 16 if the Merger is
consummated in accordance with the Merger Agreement and (ii) Subscriber's
accountants, Deloitte & Touche LLP, provide Subscriber with a letter at or prior
to the Closing, satisfactory in form and substance to Subscriber and
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Corsair, as to their concurrence with the conclusion of the management of
Subscriber, regarding the appropriateness of pooling of interests accounting for
a transaction involving Subscriber.
Under pooling of interests accounting, the recorded assets and liabilities
of Corsair will be carried forward to the combined company at their recorded
amounts, income of the combined company will include the income of Corsair and
Subscriber for the entire fiscal year in which the combination occurs and the
reported results of the separate companies for prior periods will be combined
and restated as results of the combined company.
To help ensure that the parties meet the prerequisites for pooling of
interests accounting treatment, each affiliate of Subscriber has executed and
delivered to Corsair an agreement, which provides that such person will not
sell, transfer or otherwise reduce his, her or its interest or risk in his, her
or its shares of Subscriber Capital Stock or Corsair Common Stock during the
period commencing on the date of the Merger Agreement and ending on the date
that Corsair publishes financial statements which reflect thirty days of
combined operations of Corsair and Subscriber, subject to certain limited
exceptions. See "-- Resales of Corsair Common Stock; Affiliate Agreements."
RESALES OF CORSAIR COMMON STOCK; AFFILIATE AGREEMENTS
The Corsair Common Stock to be issued to the Subscriber stockholders
pursuant to the Merger Agreement will be freely transferable under the Act,
except for shares issued to any person who may be deemed to be an "affiliate" of
Subscriber within the meaning of Rule 145 under the Act. Persons who may be
deemed to be affiliates of Subscriber generally include individuals or entities
that control, are controlled by, or are under common control with, Subscriber
and may include certain officers and directors of Subscriber as well as
principal stockholders of Subscriber.
Concurrently with the execution of the Merger Agreement, Subscriber
delivered to Corsair an executed agreement from each person, who in Subscriber's
reasonable judgment, is or may be an affiliate (individually, an "Affiliate" and
collectively, "Affiliates"). Pursuant to the terms of the these agreements, each
Affiliate of Subscriber agreed not to make any sale of Corsair Common Stock
received upon consummation of the Merger in violation of the Act or the rules
and regulations promulgated thereunder. Generally, this will require that such
sales be made in accordance with Rule 145(d) under the Securities Act. Rule
145(d) requires that, for specified periods, such sale be made in compliance
with the volume limitations, manner of sale provisions and current information
requirements of Rule 144 under the Act. The volume limitations should not pose
any material limitations on any Subscriber stockholder who owns less than one
percent of the outstanding Corsair Common Stock after the Merger (approximately
137,144 shares of Corsair Common Stock as of March 31, 1998) unless, pursuant to
Rule 144, such stockholder's shares are required to be aggregated with those of
another stockholder.
In addition, each Affiliate agreed (i) not to sell, exchange, transfer,
pledge, dispose of or otherwise reduce his risk relative to shares of Subscriber
Capital Stock owned by such Affiliate for thirty days prior to the Effective
Time; (ii) not to sell, exchange, transfer, pledge, dispose or otherwise reduce
his risk relative to Corsair Common Stock until such time as financial results
covering at least thirty days of the combined operations of Corsair and
Subscriber after the Effective Time have been filed with the Commission; and
(iii) not to offer, sell, exchange, transfer, pledge or otherwise dispose of any
Corsair Common Stock except as permitted by Rule 145 promulgated under the
Securities Act by the Commission or pursuant to a registration statement under,
or an exemption from, the Securities Act.
The certificates evidencing Corsair Common Stock issued to Affiliates will
bear a legend summarizing the restrictions on resale imposed on their Corsair
Common Stock.
REGULATORY REQUIREMENTS
Other than the effectiveness of this Registration Statement, Subscriber and
Corsair are not aware of any federal, state or foreign governmental or
regulatory approval that is required in order to consummate the
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Merger. Should any such approval be required, it is currently contemplated that
such approval would be sought.
APPLICABILITY OF CALIFORNIA LAW TO SUBSCRIBER
Section 2115 of the CGCL makes substantial portions of the CGCL applicable,
with limited exceptions, to a foreign corporation with more than half of its
outstanding stock held of record by persons having addresses in California and
more than half of its business conducted in the state (as measured by factors
based on the corporation's levels of property, payroll and sales as determined
for California franchise tax purposes), irrespective of the corporation's state
of incorporation. Although Subscriber is incorporated in Delaware, it is subject
to Section 2115. The statutory provisions of the CGCL to which Subscriber is
subject include, but are not limited to, provisions governing a director's
standard of care in performing the duties of a director, a stockholder's right
to vote cumulatively in any election of directors, a director's or stockholder's
right to inspect corporate records, indemnification requirements concerning
directors, officers and others and the corporate requirements to effectuate
corporate reorganizations (including mergers and acquisitions). Section 2115
also invokes the application of Chapter 13 of the CGCL to the Merger with
respect to Subscriber stockholders who elect to exercise dissenters' rights.
Under Section 2115, the provisions of the CGCL made applicable pursuant to such
section apply to the exclusion of the law of the jurisdiction in which the
foreign corporation is incorporated.
Upon completion of the Merger, the statutory protections available to
Subscriber stockholders pursuant to Section 2115 will cease to exist.
APPRAISAL AND DISSENTERS' RIGHTS
Holders of shares of Corsair Common Stock are not entitled to Appraisal or
Dissenters' Rights.
Holders of Subscriber Capital Stock who do not vote in favor of the Merger
may, under certain circumstances and by following the procedure prescribed by
Section 262 of the DGCL, exercise Appraisal Rights and receive cash for their
shares of Subscriber Capital Stock. Alternatively, although Subscriber is a
Delaware corporation and is therefore subject to the DGCL, Section 2115 of the
CGCL provides that Subscriber may be subject to California law with respect to
Dissenters' Rights. Accordingly, pursuant to Chapter 13 of the CGCL,
stockholders of Subscriber who do not vote in favor of the Merger and who comply
with the requirements of Chapter 13 will have a right to demand payment for, and
appraisal of the "fair value" of, their shares. Although a dissenting
stockholder may choose to proceed under one or both of the states' statutes, a
dissenting stockholder must follow the appropriate procedures under either the
DGCL or the CGCL or suffer the termination or waiver of such rights. See
"Applicability of California Law to Subscriber."
Delaware Appraisal Rights. Holders of record of Subscriber Capital Stock
who do not vote in favor of the Merger and who otherwise comply with the
procedures set forth in Section 262 of the DGCL, and summarized herein, will be
entitled to have their shares of Subscriber Capital Stock appraised (the
"Appraisal Shares") and will receive a payment in cash for such shares
("Appraisal Rights"). The failure of a Subscriber stockholder to follow the
appropriate procedures set forth in Section 262 will result in the termination
or waiver of the stockholder's Appraisal Rights. A person having a beneficial
interest in shares of Subscriber Capital Stock held of record in the name of
another person, such as a broker or nominee, must act promptly to cause the
record holder to follow the steps summarized below properly and in a timely
manner to perfect Appraisal Rights.
THE FOLLOWING DISCUSSION IS NOT A COMPLETE STATEMENT OF THE LAW PERTAINING
TO APPRAISAL RIGHTS UNDER THE DGCL AND IS QUALIFIED IN ITS ENTIRETY BY THE FULL
TEXT OF SECTION 262 WHICH IS REPRINTED IN ITS ENTIRETY AS APPENDIX B. ALL
REFERENCES IN SECTION 262 AND THIS SUMMARY TO A "STOCKHOLDER" OR "HOLDER" ARE TO
THE RECORD HOLDER OF THE SHARES OF SUBSCRIBER CAPITAL STOCK AS TO WHICH
APPRAISAL RIGHTS ARE ASSERTED.
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Under the DGCL, holders of shares of Subscriber Capital Stock who follow
the procedures set forth in Section 262 will be entitled to have their Appraisal
Shares appraised by the Delaware Chancery Court and to receive payment in cash
of the "fair value" of such Appraisal Shares, exclusive of any element of value
arising from the accomplishment or expectation of the Merger, together with a
fair rate of interest, if any, as determined by such court. Pursuant to the
terms of the Merger Agreement, Corsair has no obligation to consummate the
Merger if demands for Appraisal and/or Dissenters' Rights are made or continue
to exist with respect to more than five percent (5%) of the outstanding shares
of Subscriber Capital Stock. If the Merger is not consummated, no Subscriber
stockholder will be entitled to Appraisal Rights.
Under Section 262, where a proposed merger (like the Merger) is to be
submitted for approval at a meeting of stockholders, the corporation, must
notify each of its stockholders, as determined on the record date for such
meeting, not less than twenty (20) days prior to the meeting that appraisal
rights are available. The corporation must also include a copy of Section 262 in
such notice.
This Joint Proxy Statement/Prospectus constitutes notice to the holders of
Subscriber Capital Stock of their Appraisal Rights as required by Section 262.
Section 262 is attached to this Joint Proxy Statement/ Prospectus as Annex B.
Any Subscriber stockholder who wishes to exercise his, her or its Appraisal
Rights, or who wishes to preserve his, her or its right to do so, should review
the following discussion and Annex B carefully. Failure to comply timely and
properly with the procedures specified in Section 262 will result in the loss of
Appraisal Rights.
A HOLDER OF APPRAISAL SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL
RIGHTS MUST (1) NOT VOTE IN FAVOR OF THE MERGER AND (2) DELIVER TO SUBSCRIBER
PRIOR TO THE VOTE ON THE MERGER AGREEMENT AT THE SUBSCRIBER MEETING TO BE HELD
ON , 1998, A WRITTEN DEMAND FOR APPRAISAL. A HOLDER OF APPRAISAL
SHARES WISHING TO EXERCISE SUCH HOLDER'S APPRAISAL RIGHTS MUST BE THE RECORD
HOLDER OF SUCH APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL IS
MADE AND MUST CONTINUE TO HOLD SUCH APPRAISAL SHARES OF RECORD UNTIL THE
CONSUMMATION OF THE MERGER. ACCORDINGLY, A HOLDER OF APPRAISAL SHARES WHO IS THE
RECORD HOLDER OF APPRAISAL SHARES ON THE DATE THE WRITTEN DEMAND FOR APPRAISAL
IS MADE, BUT WHO THEREAFTER TRANSFERS SUCH APPRAISAL SHARES PRIOR TO THE
CONSUMMATION OF THE MERGER, WILL LOSE ANY RIGHT TO APPRAISAL IN RESPECT OF SUCH
APPRAISAL SHARES. A PROXY OR VOTE AGAINST THE APPROVAL OF THE MERGER DOES NOT IN
ITSELF CONSTITUTE A DEMAND FOR APPRAISAL.
Only a holder of record of Appraisal Shares is entitled to assert Appraisal
Rights for the Appraisal Shares registered in that holder's name. A demand for
appraisal should be executed by or on behalf of the holder of record, fully and
correctly, as such holder's name appears on such holder's stock certificate. If
the Appraisal Shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of the demand should be made in that
capacity, and if the Appraisal Shares are owned of record by more than one
person as in a joint tenancy or tenancy in common, the demand should be executed
by or on behalf of all joint owners. An authorized agent, including one or more
joint owners, may execute a demand for appraisal on behalf of a holder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, the agent is agent
for such owner or owners. A record holder such as a broker who holds Appraisal
Shares as a nominee for several beneficial owners may exercise appraisal rights
with respect to the Appraisal Shares held for one or more beneficial owners
while not exercising such rights with respect to the Appraisal Shares held for
other beneficial owners; in such case, the written demand should set forth the
number of Appraisal Shares as to which appraisal is sought. When no number of
Appraisal Shares is expressly mentioned, the demand will be presumed to cover
all Appraisal Shares held in the name of the record owner. Stockholders who hold
their Appraisal Shares in brokerage accounts or other nominee forms and who wish
to exercise Appraisal Rights are urged to consult with their brokers to
determine the appropriate procedures for the making of a demand for appraisal by
such a nominee.
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ALL WRITTEN DEMANDS FOR APPRAISAL SHOULD BE SENT OR DELIVERED TO SUBSCRIBER
COMPUTING, INC., 18881 VON KARMAN AVENUE, SUITE 450, IRVINE, CALIFORNIA 92612,
ATTENTION: DENNIS ANDREWS.
Within ten (10) days after the consummation of the Merger, the combined
company will provide notice of the date on which the Merger was consummated to
each stockholder who has properly asserted Appraisal Rights under Section 262
and has not voted in favor of the Merger.
Within 120 days after the consummation of the Merger but not thereafter,
the combined company or any stockholder who has complied with the statutory
requirements summarized above may file a petition in the Delaware Chancery Court
demanding a determination of the fair value of the Appraisal Shares.
Accordingly, it is the obligation of the stockholders to initiate all necessary
action to perfect their Appraisal Rights within the time prescribed in Section
262. At any time within sixty (60) days from the consummation of the Merger, a
stockholder may withdraw his, her or its demand for appraisal, and accept the
terms offered under the Merger Agreement.
Within 120 days after the consummation of the Merger, any stockholder who
has complied with the requirements for exercise of Appraisal Rights will be
entitled, upon written request, to receive from the combined company a statement
setting forth the aggregate number of Appraisal Shares and the aggregate number
of holders of such Appraisal Shares not voted in favor of the Merger and with
respect to which demands for appraisal have been received. The combined company
must mail the statement within ten (10) days after it has received a written
request.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Chancery Court will determine the stockholders entitled
to Appraisal Rights and will appraise the fair value of their Appraisal Shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Stockholders considering whether to
seek appraisal should be aware that the fair value of their Appraisal Shares as
determined under Section 262 could be more than, the same as or less than the
value of the consideration they would receive pursuant to the Merger Agreement
if they did not seek appraisal of their Appraisal Shares. Investment banking
opinions as to fairness from a financial point of view are not necessarily
opinions as to fair value under Section 262. The Delaware Supreme Court has
stated that proof of value by any techniques or methods which are generally
considered acceptable in the financial community and otherwise admissible in
court should be considered in the appraisal proceedings.
The Delaware Chancery Court will determine the amount of interest, if any,
to be paid upon the amounts to be received by persons whose Appraisal Shares
have been appraised. The costs of the action may be determined by the Delaware
Chancery Court and taxed upon the parties as the Delaware Chancery Court deems
equitable. The Delaware Chancery Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts utilized in the appraisal proceeding, be charged pro rata
against the value of all the Appraisal Shares entitled to appraisal.
Any holder of Appraisal Shares who had duly demanded an appraisal in
compliance with Section 262 will not, after the consummation of the Merger, be
entitled to vote the Appraisal Shares subject to such demand for any purpose or
be entitled to the payment of dividends or other distributions on those
Appraisal Shares (except dividends or other distributions payable to holders of
record of Appraisal Shares as of a record date prior to the consummation of the
Merger).
If any stockholder who properly demands appraisal of his Appraisal Shares
under Section 262 fails to perfect, or effectively withdraws or loses, his, her
or its Appraisal Rights, the Appraisal Shares of such stockholder will be
converted into the right to receive the consideration receivable with respect to
such Appraisal Shares in accordance with the Merger Agreement. A stockholder
will fail to perfect, or effectively lose or withdraw his, her or its right to
appraisal if, among other things, no petition for appraisal is filed within 120
days after the consummation of the Merger, or if the stockholder delivers to
Corsair a written withdrawal
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of his, her or its demand for appraisal. Any such attempt to withdraw an
appraisal demand more than sixty (60) days after the consummation of the Merger
will require the written approval of Corsair.
FAILURE TO FOLLOW THE STEPS REQUIRED BY SECTION 262 FOR PERFECTING
APPRAISAL RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH
RESPECT TO SUCH APPRAISAL SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN
VIEW OF THE COMPLEXITY OF THE PROVISIONS OF SECTION 262, SUBSCRIBER STOCKHOLDERS
WHO ARE CONSIDERING OBJECTING TO THE MERGER SHOULD CONSULT THEIR OWN LEGAL
ADVISORS.
See "Comparison of Rights of Holders of Corsair Common Stock and Subscriber
Capital Stock."
California Dissenters' Rights. By virtue of Section 2115 of the CGCL, if
holders of Subscriber Capital Stock exercise Dissenters' Rights in connection
with the Merger under Sections 1300 to 1312 of the CGCL ("Chapter 13"), any
shares of Subscriber Capital Stock as to which such Dissenters' Rights are
exercised will not be converted into the right to receive shares of Corsair
Common Stock but instead will be converted into the right to receive such
consideration as may be determined to be due with respect to such Dissenting
Shares pursuant to the CGCL. See "Applicability of California Law to
Subscriber."
THE FOLLOWING SUMMARY OF THE PROVISIONS OF CHAPTER 13 IS NOT INTENDED TO BE
A COMPLETE STATEMENT OF SUCH PROVISIONS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF CHAPTER 13. A COPY OF WHICH IS ATTACHED HERETO AS
ANNEX C AND IS INCORPORATED HEREIN BY REFERENCE.
If the Merger is approved by the required vote of Subscriber's
stockholders, each holder of Subscriber Capital Stock who does not vote in favor
of the Merger and who follows the procedures set forth in Chapter 13 will be
entitled to have his, her or its Subscriber Capital Stock purchased by
Subscriber for cash at the fair market value of the shares of Subscriber Capital
Stock. The fair market value of shares of Subscriber Capital Stock will be
determined as of the day before the first announcement of the terms of the
proposed Merger, excluding any appreciation or depreciation in consequence of
the proposed Merger (i.e., valuing the shares of Subscriber Capital Stock as if
the Merger had not occurred.) The shares of Subscriber Capital Stock with
respect to which holders have perfected their purchase demand in accordance with
Chapter 13 and have not effectively withdrawn or lost such Dissenters' Rights
are referred to in this Joint Proxy Statement/Prospectus as the "Dissenting
Shares."
Within ten (10) days after approval of the Merger by Subscriber's
stockholders, Subscriber must mail a notice of such approval (the "Approval
Notice") to all stockholders who have not voted in favor of the Merger, together
with a statement of the price determined by Subscriber to represent the fair
market value of the applicable Dissenting Shares, a brief description of the
procedures to be followed in order for the stockholder to pursue Dissenters'
Rights, and a copy of Sections 1300 to 1304 of the CGCL. The statement of price
by Subscriber constitutes an offer by Subscriber to purchase all Dissenting
Shares at the stated amount.
A stockholder of Subscriber electing to exercise Dissenters' Rights must,
within thirty (30) days after the date in which the Approval Notice is mailed to
such stockholder, mail or deliver a written demand to Subscriber stating that
such holder is demanding purchase of his or her shares of Subscriber Capital
Stock, stating the number of shares which Subscriber must purchase, what the
stockholder claims to be the fair market value of such shares and enclosing the
share certificates for endorsement by Subscriber. A holder who elects to
exercise Dissenters' Rights should mail or deliver his, her or its written
demand to Subscriber Computing, Inc., 18881 Von Karman Avenue, Suite 450,
Irvine, California 92612, Attention: Dennis Andrews. The statement of fair
market value constitutes an offer by the stockholder to sell the shares at the
stated amount. Any Subscriber stockholder who executes and delivers the proxy
accompanying this Joint Proxy Statement/Prospectus voting in favor of the Merger
will have waived his, her or its Dissenters' Rights.
If Subscriber and the stockholder agree that the shares are Dissenting
Shares and agree upon the price of the shares, Subscriber must pay the
stockholder the agreed upon price plus interest thereon at the legal rate
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from the date of the agreement on Dissenting Shares within thirty (30) days from
the later of (i) the date of the agreement on Dissenting Shares or (ii) the date
all contractual conditions to the Merger are satisfied.
If Subscriber denies that the shares are Dissenting Shares, or if
Subscriber and the stockholder fail to agree upon the fair market value of
shares of Subscriber Capital Stock, then within six (6) months after the date
the Approval Notice was mailed to stockholders, any stockholder who has made a
valid written purchase demand and who has not voted in favor of approval and
adoption of the Merger may file a complaint in California superior court
requesting a determination as to whether the shares are Dissenting Shares or as
to the fair market value of such holder's shares of Subscriber Capital Stock, or
both.
Any holder of Dissenting Shares who has duly demanded the purchase of his,
her or its shares under Chapter 13 will not, after the Effective Time of the
Merger, be entitled to vote the shares subject to such demand for any purposes
or be entitled to the payment of dividends or other distributions on such
Dissenting Shares (except dividends or other distributions payable to
stockholders of record as of the date prior to the Effective Time of the
Merger).
If any holder of Subscriber Capital Stock who demands the purchase of his,
her or its shares under Chapter 13 fails to perfect, or effectively withdraws or
loses his or her right to such purchase, the shares of such holder will be
converted into a right to receive a number of shares of Corsair Common Stock in
accordance with the terms of the Merger Agreement. Dissenting Shares lose their
status as Dissenting Shares if (a) the Merger is abandoned; (b) the shares are
transferred prior to their submission for the required endorsement; (c) the
dissenting stockholder fails to make a timely written demand for purchase, along
with a statement of fair market value; (d) the Dissenting Shares are voted in
favor of the Merger; (e) the dissenting stockholder and Subscriber do not agree
upon the status of the shares as Dissenting Shares or do not agree on the
purchase price, but neither Subscriber nor the stockholder files a complaint or
intervenes in a pending action within six months after mailing of the Approval
Notice; or (f) with Subscriber's consent, the stockholder delivers to Corsair a
written withdrawal of such stockholder's demand for purchase of his, her or its
shares.
FAILURE TO FOLLOW THE STEPS REQUIRED BY CHAPTER 13 FOR PERFECTING
DISSENTERS' RIGHTS MAY RESULT IN THE LOSS OF SUCH RIGHTS (IN WHICH EVENT A
STOCKHOLDER WILL BE ENTITLED TO RECEIVE THE CONSIDERATION RECEIVABLE WITH
RESPECT TO SUCH DISSENTING SHARES IN ACCORDANCE WITH THE MERGER AGREEMENT). IN
VIEW OF THE COMPLEXITY OF THE PROVISIONS OF CHAPTER 13, SUBSCRIBER STOCKHOLDERS
WHO ARE CONSIDERING OBJECTING TO THE MERGER SHOULD CONSULT THEIR OWN LEGAL
ADVISORS.
See "Comparison of Rights of Holders of Corsair Common Stock and Subscriber
Capital Stock."
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THE MERGER AGREEMENT
(PROPOSAL FOR BOTH CORSAIR AND SUBSCRIBER MEETINGS)
The following is a brief summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex D to this Joint Proxy
Statement/Prospectus and incorporated herein by reference. This summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
Corsair and Subscriber are urged to carefully read the Merger Agreement in its
entirety for a more complete description of the Merger. The Merger Agreement
rather than the summary set forth herein, will control the terms of the Merger
and the rights of the parties and the stockholders of Corsair and Subscriber
thereunder.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger
Agreement by the stockholders of Subscriber and Corsair and the satisfaction or
waiver of the other conditions to the Merger Agreement, Merger Sub will be
merged with and into Subscriber. Upon consummation of the Merger, the separate
corporate existence of Merger Sub will end, and Subscriber will continue as the
surviving corporation and as a wholly-owned subsidiary of Corsair. Subscriber as
the surviving corporation after the Merger is sometimes referred to herein as
the "Surviving Corporation."
CLOSING DATE AND EFFECTIVE TIME
Unless the Merger Agreement is terminated or the parties agree to another
time, the closing of the Merger (the "Closing") will take place no later than
five (5) business days following the satisfaction or waiver of the conditions
set forth in Article VI of the Merger Agreement (the "Closing Date"). On the
Closing Date, Corsair and Subscriber will consummate the Merger by filing a
Certificate of Merger with the Secretary of State of the State of Delaware. The
date on which the Delaware Secretary of State confirms the filing of the
Certificate of Merger is referred to herein as the "Effective Time." See
"-- Conditions to Closing."
CERTIFICATE; BYLAWS; DIRECTORS AND OFFICERS
The Merger Agreement provides that the Certificate of Incorporation and the
Bylaws of Merger Sub in effect immediately prior to the Effective Time will
become the Certificate of Incorporation and the Bylaws of the Surviving
Corporation. The Merger Agreement also provides that the directors and officers
of Merger Sub immediately prior to the Effective Time will become the directors
and officers of the Surviving Corporation.
MERGER CONSIDERATION
As consideration for Corsair's acquisition of Subscriber through the
Merger, the shares of Subscriber Capital Stock which either (a) are issued and
outstanding at the Effective Time or (b) would be outstanding upon exercise of
each option, warrant or other right to acquire Subscriber Capital Stock, whether
vested or unvested, outstanding at the Effective Time will be converted into the
right to receive (or acquire in the case of options, warrants or other rights to
acquire Subscriber Capital Stock), in the aggregate, a certain number of shares
of Corsair Common Stock (the "Merger Consideration"). The Merger Consideration
will be determined as follows: by dividing (A) the sum of (x) $70,000,000 and
(y) the exercise price of all options and warrants to acquire Subscriber Capital
Stock outstanding at the Effective Time (the "Aggregate Exercise Price
Outstanding") and (z) any cash received by Subscriber after April 1, 1998, but
prior to the Effective Time, as payment for the exercise of options or warrants
to acquire Subscriber Capital Stock (the "Aggregate Exercise Price Received,"
and collectively, the "Purchase Price") by (B) the average of the closing price
per share of Corsair Common Stock as reported in the Wall Street Journal for the
ten (10) consecutive trading days immediately preceding the Closing Date (the
"Corsair Average Stock Price"). Notwithstanding the foregoing, the Corsair
Average Stock Price shall in no event be greater than $20.11 per share nor less
than $16.45 per share. Further, the Purchase Price will be reduced by that
amount of the obligations of Subscriber relating to any mortgages, indentures,
loans or credit agreements, security agreements or other arrangements or
instruments relating to the borrowing of money or extension of credit to
Subscriber including guaranties
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(collectively, "Borrowings") that exceed $10,000,000 as of the Effective Time,
excluding any Borrowings by Subscriber in the form of capital leases.
As of April 30, 1998, the sum of the Aggregate Exercise Price Outstanding
and the Aggregate Exercise Price Received equaled $2,760,588.71. Furthermore, as
of April 30, 1998, Subscriber had incurred $ of Borrowings, excluding
Borrowings in the form of capital leases. Assuming that there are no changes to
the Aggregate Exercise Price Outstanding, the Aggregate Exercise Price Received
and Subscriber's Borrowings remain below $10,000,000 before the Exercise Time,
Corsair will issue a minimum of approximately 3,600,000 and a maximum of
approximately 4,400,000 shares of Corsair Common Stock in the Merger. Based on
these same assumptions, at the Effective Time, the Subscriber stockholders will
hold or have a right to acquire approximately 20% to 23.5% of Corsair Common
Stock on a fully-diluted basis. The distribution of Corsair Common Stock to the
holders of Subscriber Capital Stock and to the holders of option, warrants or
other rights to acquire Subscriber Capital Stock is more fully described below.
CONVERSION OF SUBSCRIBER CAPITAL STOCK
Subject to the foregoing limitations on the Merger Consideration, each
share of Subscriber Capital Stock which is issued and outstanding at the
Effective Time will be automatically converted, without any action on the part
of the holder, into the consideration set forth below:
(i) Each share of Subscriber Series B Preferred Stock (other than
shares, if any, held by persons exercising appraisal or dissenters' rights,
if available) will be converted into the right to receive a fraction of a
fully-paid and nonassessable share of Corsair Common Stock that is equal to
the quotient of (A) $3.563, divided by (B) the Corsair Average Stock Price.
(ii) In addition, each share of Subscriber Series B Preferred Stock
(other than shares, if any, held by persons exercising appraisal or
dissenters' rights, if available) will be converted into the right to
receive a fraction of a fully-paid and nonassessable share of Corsair
Common Stock that is equal to the quotient of (A) the Merger Consideration
less the aggregate number of shares of Corsair Common Stock issuable to
holders of Subscriber Series B Preferred Stock in accordance with Paragraph
(i) above, divided by (B) the sum of the aggregate number of shares of
Subscriber Common Stock which are (x) issued and outstanding as of the
Effective Time, (y) issuable upon conversion of the Subscriber Series A
Preferred Stock and Subscriber Series B Preferred Stock outstanding as of
the Effective Time and (z) issuable upon exercise of all options, warrants
and other rights to acquire shares of Subscriber Common Stock outstanding
at the Effective Time (the "Exchange Ratio").
(iii) Each share of Subscriber Common Stock (other than shares, if
any, held by persons exercising appraisal or dissenters' rights, if
available) will be converted into the right to receive a fraction of a
fully-paid and nonassessable share of Corsair Common Stock that is equal to
the Exchange Ratio.
(iv) Each share of Subscriber Series A Preferred Stock (other than
shares, if any, held by persons exercising appraisal or dissenters' rights,
if available) will be converted into the right to receive a fraction of a
fully paid and nonassessable share of Corsair Common Stock that is equal to
the product of (A) 1.03718 and (B) the Exchange Ratio.
Assuming that there has been no change in Subscriber's capital
structure since the date of the Merger Agreement, that Subscriber's
Borrowings do not exceed $10,000,000 at the Effective Time and that the
Corsair Average Stock Price does not exceed $20.11 and is not less than
$16.45, the holders of each share of Subscriber Common Stock would receive
that number of shares of Corsair Common Stock equal in value, based on the
Corsair Average Stock Price, to $3.90 and the holders of each share of
Subscriber Series B Preferred Stock would receive that number of shares of
Corsair Common Stock equal in value, based on the Corsair Average Stock
Price, to $7.47.
(v) Each issued and outstanding share of Subscriber Capital Stock
owned by Subscriber, or any direct or indirect wholly-owned subsidiary of
Subscriber, immediately prior to the Effective Time will automatically be
canceled and extinguished without any conversion thereof.
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(vi) Each issued and outstanding share of Common Stock of Merger Sub
will be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each
stock certificate of Merger Sub evidencing ownership of any such shares
will continue to evidence ownership of shares of Common Stock of the
Surviving Corporation.
CONVERSION OF SUBSCRIBER OPTIONS
At the Effective Time, each outstanding option to purchase shares of
Subscriber Common Stock issued under Subscriber's 1997 Incentive Stock Option
Plan (the "Subscriber Option Plan") or pursuant to a separate stock option
agreement, whether vested or unvested (the "Subscriber Options"), will be
assumed by Corsair. Thereafter, each Subscriber Option will be exercisable for
that number of whole shares of Corsair Common Stock equal to the product of (A)
the number of shares of Subscriber Common Stock that would have been issuable
upon exercise of such Subscriber Option immediately prior to the Effective Time
and (B) the Exchange Ratio, rounded down (in the case of Subscriber Options
granted under the Subscriber Option Plan) to the nearest whole number of shares.
The per share exercise price for the shares of Corsair Common Stock issuable
upon exercise of an assumed Subscriber Option will be equal to the quotient
determined by dividing (A) the exercise price per share of the Subscriber Common
Stock at which such Subscriber Option was exercisable immediately prior to the
Effective Time by (B) the Exchange Ratio, rounded up to the nearest whole cent.
Other than the number of shares and the exercise price for the Subscriber
Options, each assumed Subscriber Option will continue to have and be subject to
the same terms and conditions set forth in the Subscriber Option Plan and/or as
provided in the respective stock option agreement governing such Subscriber
Option immediately prior to the Effective Time. Promptly following the Effective
Time, Corsair will issue each holder of an outstanding Subscriber Option a
document evidencing Corsair's assumption of such Subscriber Option.
CONVERSION OF SUBSCRIBER WARRANTS
At the Effective Time, each outstanding warrant to purchase shares of
Subscriber Capital Stock (each a "Subscriber Warrant") will be assumed by
Corsair. Thereafter, each Subscriber Warrant will be exercisable for that number
of whole shares of Corsair Common Stock that would have been issued in respect
of the warrant in the Merger had the warrant been exercised immediately prior to
the Effective Time, rounded to the nearest whole number of shares of Corsair
Common Stock, with one-half share being rounded up. The per share exercise price
for the assumed Subscriber Warrants will be equal to the quotient determined by
dividing the aggregate cash exercise price at which such Subscriber Warrant
would have been exercisable in full immediately prior to the Effective Time by
the number of shares of Corsair Common Stock issuable upon exercise of such
warrant, rounded to the nearest whole cent, with one-half cent being rounded up.
Other than the number of shares and the exercise price for the Subscriber
Warrants, each assumed Subscriber Warrant will continue to have and be subject
to the same terms and conditions set forth in the respective agreement governing
such Subscriber Warrant immediately prior to the Effective Time. Promptly
following the Effective Time, Corsair will issue each holder of an outstanding
Subscriber Warrant a document evidencing Corsair's assumption of such Subscriber
Warrant.
ADJUSTMENT OF EXCHANGE RATIO
The Exchange Ratio will be appropriately adjusted, if between the date of
the Merger Agreement and the Effective Time the outstanding shares of Subscriber
Capital Stock are changed into a different number of shares or a different class
by reason of any stock split, reverse split, stock dividend, reorganization,
recapitalization or other like change.
FRACTIONAL SHARES
No fractional shares of Corsair Common Stock will be issued in connection
with the Merger, but in lieu thereof, each holder of shares of Subscriber
Capital Stock who would otherwise be entitled to receive a
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<PAGE> 69
fraction of a share of Corsair Common Stock will receive from Corsair an amount
of cash equal to the average closing price of a share of Corsair Common Stock
for the five (5) consecutive days ending on the trading day immediately prior to
the Closing Date as reported in the Wall Street Journal multiplied by the
fraction of a share of Corsair Common Stock to which such holder would otherwise
be entitled to receive.
ESCROW AND INDEMNIFICATION
As part of the Merger, each holder of Subscriber Capital Stock at the
Effective Time will be deemed to have automatically received and deposited into
an escrow account (the "Escrow Fund") ten percent (10%) of the shares of Corsair
Common Stock issuable to such holder in the Merger (the "Escrow Amount"). No
portion of the Escrow Amount will be contributed in respect to any Subscriber
Options or Subscriber Warrants. The Escrow Fund will continue in existence from
the Effective Time to the earlier of (a) one year following the Closing Date or
(b) the date of the filing with the Commission of the next audit opinion issued
by Subscriber's auditors (the "Escrow Period").
As soon as practicable after the Effective Time, Corsair will deliver a
certificate or certificates representing the Escrow Amount to an escrow agent
(the "Escrow Agent") acceptable to Corsair and the Subscriber Securityholder
Agent (as defined below). The Escrow Fund will be available to indemnify Corsair
for any claims, losses, liabilities, damages, deficiencies, costs and expenses
(individually, a "Loss" and collectively, "Losses") incurred by Corsair as a
result of any inaccuracy or breach of a representation or warranty of Subscriber
contained in the Merger Agreement or any failure by Subscriber to perform or
comply with any covenant contained in the Merger Agreement. Claims against the
Escrow Fund are Corsair's sole remedy following the Merger for any Losses
arising from Subscriber's breach of the terms of the Merger Agreement.
Notwithstanding the foregoing, the Escrow Fund will only be available to
compensate Corsair to the extent that the aggregate amount of Corsair's Losses
exceed $500,000. To obtain indemnity for any Loss, Corsair must deliver notice
of the Loss to the Escrow Agent in the form of a certificate signed by an
officer of Corsair. The Escrow Agent then will deliver a duplicate copy of the
certificate to the Securityholder Agent. If the Securityholder Agent does not
dispute Corsair's claim, the Escrow Agent will deliver shares of Corsair Common
Stock from the Escrow Fund to Corsair. If the Securityholder Agent objects to
Corsair's claim and Corsair and the Securityholder Agent cannot resolve the
objection in good faith, the matter will be resolved by binding arbitration. For
the purpose of compensating Corsair for its Losses, the Corsair Common Stock
delivered by the Escrow Agent will be valued at a price equal to the average of
the closing price of Corsair Common Stock on The Nasdaq National Market for the
five (5) consecutive trading days immediately preceding the Closing Date.
Upon termination of the Escrow Period, Corsair will deliver to the Escrow
Agent a list of each timely filed claim of Loss which remains not fully resolved
(collectively, the "Unresolved Claims"). The Escrow Agent will reserve out of
the Escrow Fund an amount equal to the Unresolved Claims, and then shall deliver
to the stockholders of Subscriber the remaining portion, if any, of the Escrow
Fund that is not required to satisfy the Unresolved Claims. Following the
resolution of each Unresolved Claim, the Escrow Agent shall deliver to the
stockholders of the Company the remaining portion of the Escrow Fund, if any,
not used in the satisfaction of that claim. Deliveries of amounts from the
Escrow Fund to the Subscriber stockholders will be made in proportion to their
respective original contributions to the Escrow Fund.
SECURITYHOLDER AGENT
Upon approving the Merger, the Subscriber stockholders will be deemed to
have appointed a committee comprised of Ms. Arlene Harris, Mr. Mark Nielsen and
Mr. Doug Kingsley to serve as their agent and attorney-in-fact (the
"Securityholder Agent"). A majority vote of these three committee members shall
be deemed to be the act of the Securityholder Agent.
The Securityholder Agent will serve an important function and is empowered
to make significant decisions on behalf of the stockholders of Subscriber,
including but not limited to the following: (i) to give and receive on behalf of
all stockholders of Subscriber notices and communications; (ii) to deliver to
Corsair
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<PAGE> 70
shares of Corsair Common Stock from the Escrow Fund in satisfaction of claims
made by Corsair against the Escrow Fund; (iii) to object to deliveries of
Corsair Common Stock to Corsair from the Escrow Fund; (iv) to agree to,
negotiate, enter into settlements and compromises of, and demand arbitration and
comply with orders of courts and awards of arbitrators with respect to any
claims made by Corsair against the Escrow Fund; and (v) to take all actions
necessary or appropriate in the judgment of the Securityholder Agent to
accomplish the foregoing. ANY ACT OR DECISION OF THE SECURITYHOLDER AGENT WILL
CONSTITUTE A DECISION OF ALL SUBSCRIBER STOCKHOLDERS AND WILL BE BINDING ON ALL
OF THE SUBSCRIBER STOCKHOLDERS.
The Securityholder Agent may be removed by the vote of stockholders
representing two-thirds of the shares in the Escrow Fund, and any vacancy may be
filled by the vote of stockholders representing a majority of the shares in the
Escrow Fund.
The Securityholder Agent will not be liable to any Subscriber stockholder
for any action taken in good faith on behalf of the Subscriber stockholders. By
approving the Merger Agreement, the Subscriber stockholders will be deemed to
have severally indemnified the Securityholder Agent and agreed to hold the
Securityholder Agent harmless against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Securityholder Agent
and arising out of or in connection with the acceptance or administration of the
Securityholder Agent's duties, including the reasonable fees and expenses of any
legal counsel retained by the Securityholder Agent.
EXCHANGE OF CERTIFICATES
Prior to the Effective Time, Corsair will appoint a bank or trust company
to act as exchange agent ("Exchange Agent") to facilitate the exchange of
certificates representing Subscriber Capital Stock ("Certificates") for
certificates representing Corsair Common Stock. Promptly after the Effective
Time, Corsair will make available to the Exchange Agent the Corsair Common Stock
issuable to the Subscriber stockholders in the Merger. Promptly after the
Effective Time, Subscriber will mail to holders of record of Subscriber Capital
Stock as of the Subscriber Record Date a letter of transmittal and instructions
for surrendering their Certificates in exchange for a certificate or
certificates representing Corsair Common Stock. SUBSCRIBER STOCKHOLDERS ARE
REQUESTED NOT TO SURRENDER THEIR CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE A
LETTER OF TRANSMITTAL AND INSTRUCTIONS FROM SUBSCRIBER.
Upon surrender of a Certificate for cancellation to the Exchange Agent,
together with a duly executed letter of transmittal, the holder of the
Certificate will be entitled to receive in exchange a certificate for the number
of whole shares of Corsair Common Stock represented by the Certificate so
surrendered, less that number of shares of Corsair Common Stock to be deposited
in escrow on such holder's behalf, plus cash in lieu of fractional shares of
Corsair Common Stock. The Certificate surrendered will then be canceled.
In the event of a transfer of ownership of shares of Subscriber Capital
Stock which are not registered in the transfer records of Subscriber, or its
transfer agent, Corsair Common Stock may be delivered to a transferee if the
Certificate representing the Subscriber Capital Stock is presented to the
Exchange Agent and accompanied by all documents required to evidence and effect
such transfer and to evidence that any applicable stock transfer taxes have been
paid.
At the Effective Time, stockholders of Subscriber will be treated as
stockholders of record of Corsair, but no dividends will be paid to the holder
of an unsurrendered Certificate until the Certificate has been surrendered, at
which time the amount of any dividends, if any, which theretofore became payable
but which were not paid with respect to the number of shares of Corsair Common
Stock represented by the new certificate issued upon such surrender will be
paid.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, Subscriber and Corsair made certain
representations and warranties relating to, among other things (i) corporate
existence and power, (ii) corporate authorization for the Merger
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<PAGE> 71
Agreement and the transactions contemplated by the Merger Agreement, (iii)
governmental consents and approvals, (iv) capital structure, (v) financial
statements and Commission filings, (vi) the absence of certain changes, (vii)
litigation and (viii) intellectual property. In addition, Subscriber made
representations and warranties concerning (i) its subsidiaries, (ii) the absence
of undisclosed material liabilities, (iii) taxes, tax returns and audits, (iv)
the absence of restrictions on business activities, (v) title to its properties,
(vi) absence of liens and encumbrances, (vii) agreements, contracts and
commitments, (viii) interested party transactions, (ix) compliance with laws,
(x) insurance, (xi) minute books, (xii) environmental matters, (xiii) finders'
fees and third party expenses, (xiv) labor matters and benefit plans, (xv)
employees, (xvi) matters affecting the availability of pooling of interest
accounting, (xvii) disclosure documents and (xviii) the completeness of
Subscriber's representations.
CONDITIONS TO CLOSING
The Merger Agreement provides that consummation of the Merger is subject to
the fulfillment or waiver of a number of conditions at or prior to the Effective
Time. The following are conditions to both parties' obligations to consummation
the Merger: (i) receipt of the requisite approval from the Corsair and
Subscriber stockholders; (ii) receipt of all necessary governmental approvals;
(iii) the absence of any legal or regulatory restraint preventing the
consummation of the Merger; (iv) receipt by Corsair and Subscriber of
substantially identical written tax opinions from their respective legal counsel
to the effect that the Merger will constitute a reorganization within the
meaning of Section 368(a) of the Code; and (v) receipt of notice from the
Commission that the registration statement with respect to the Corsair Common
Stock issuable upon consummation of the Merger is effective.
The obligation of Corsair to consummate the Merger is also subject to the
satisfaction of the following conditions: (i) the accuracy of Subscriber's
representations and warranties contained in the Merger Agreement in all material
respects on and as of the Closing Date (subject to certain limited exceptions)
and the delivery of an appropriate certificate by Subscriber to such effect;
(ii) Subscriber having performed and complied with all of its agreements and
covenants contained in the Merger Agreement in all material respects on or
before the Closing Date; (iii) receipt by Corsair of evidence satisfactory to
Corsair that Subscriber has obtained certain consents, approvals and waivers
required under the Merger Agreement; (iv) receipt of an opinion from
Subscriber's legal counsel, in substantially the form attached as Exhibit F to
the Merger Agreement; (v) receipt of executed Affiliate Agreements for each
affiliate of Subscriber; (vi) the absence of any material adverse change in the
business, assets, financial condition, results of operations, liabilities or
prospects of Subscriber since February 28, 1997 (subject to certain limited
exceptions); (vii) the holders of five percent (5%) or less of the outstanding
Subscriber Capital Stock having exercised or continuing to have the right to
exercise appraisal and/or dissenters rights; (viii) receipt by Corsair of a
letter from KPMG Peat Marwick LLP, Corsair's independent auditors as to their
concurrence with the conclusion of the management of Corsair as to the
appropriateness of pooling of interests accounting for the Merger under
Accounting Principles Board Opinion No. 16 if the Merger is consummated in
accordance with the Merger Agreement; and (ix) Subscriber receives a letter at
or prior to the Closing Date from Deloitte & Touche LLP, in form and substance
satisfactory to Corsair and Subscriber, as to their concurrence with the
conclusion of the management of Subscriber regarding the appropriateness of
pooling of interests accounting for a transaction involving Subscriber.
The obligation of Subscriber to consummate the Merger is subject to the
satisfaction of the following further conditions: (i) the accuracy of Corsair's
representations and warranties contained in the Merger Agreement in all material
respects on and as of the Closing Date (subject to certain limited exceptions)
and the delivery of an appropriate certificate by Corsair to such effect; (ii)
Corsair having performed and complied with all of its agreements and covenants
contained in the Merger Agreement in all material respects on or before the
Closing Date; (iii) receipt of an opinion from Corsair's legal counsel, in
substantially the form attached as Exhibit E to the Merger Agreement; (iv) the
absence of any material adverse change in the business, assets, financial
condition, results of operations, liabilities or prospects of Corsair since
December 31, 1997 (subject to certain limited exceptions); and (v) a majority of
the current holders of Registrable
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Securities (as defined in the Corsair Investor's Rights Agreement) shall have
executed the Amendment to Investor's Rights Agreement contemplated by the Merger
Agreement.
CERTAIN COVENANTS AND AGREEMENTS
As part of the Merger Agreement, Subscriber agreed from the date of the
Merger Agreement until the Effective Time to: (i) conduct its business in the
ordinary course in substantially the same manner as previously conducted; (ii)
pay its debts, taxes and other obligations when due; (iii) use reasonable
efforts to preserve intact its present business organization, its present
officers and key employees and its relationships with customers, suppliers,
distributors and licensors; and (iv) promptly notify Corsair of any event or
occurrence or emergency not in the ordinary course of its business and any
material event involving or adversely affecting Subscriber or its business.
In addition, Subscriber has agreed not to take the following actions prior
to the Effective Time without Corsair's consent: (i) enter into any commitment,
activity or transaction not in the ordinary course of business; (ii) transfer to
any person or entity any intellectual property rights (with certain exceptions);
(iii) enter into or amend any agreements granting manufacturing, marketing or
distribution rights of any type or scope with respect to its products; (iv)
amend or violate the terms of any of the agreements listed by Subscriber in its
schedules attached to the Merger Agreement; (v) initiate any litigation or any
arbitration proceeding; (vi) declare or pay any dividends on or make any other
distributions in respect of any Subscriber Capital Stock, split, combine or
reclassify any of Subscriber Capital Stock, issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares of
Subscriber Capital Stock, and repurchase, redeem or otherwise acquire, directly
or indirectly, any shares of Subscriber Capital Stock; (vii) issue, authorize or
propose the issuance of or purchase or propose the purchase of any shares of
Subscriber Capital Stock or securities convertible into Subscriber Capital
Stock; (vii) amend its Certificate of Incorporation or Bylaws; (ix) acquire or
agree to acquire any business or any corporation, partnership, association or
other business organization (x) sell, lease, license or otherwise dispose of any
of its properties or assets except in the ordinary course of business and
consistent with past practice; (xi) incur any indebtedness for borrowed money or
guarantee any such indebtedness nor issue or sell any debt securities or
guarantee any debt securities of others (with certain exceptions); (xii) grant
any severance or termination pay to any director, officer, employee or
consultant (with certain exceptions); (xiii) adopt or amend any employee benefit
plan, program, policy or arrangement, enter into any employment contract, extend
any employment offer, pay or agree to pay any special bonus or special
remuneration to any director, employee or consultant and increase the salaries
or wage rates of its employees; (xiv) revalue any of its assets; (xv) take any
action that would be reasonably likely to interfere with Corsair's ability to
account for the Merger as a pooling of interests nor any other action that could
jeopardize the tax-free reorganization; (xvi) pay, discharge or satisfy, in an
amount in excess of $10,000, in any one case, or $25,000, in the aggregate, any
claim, liability or obligation other than the payment, discharge or satisfaction
in the ordinary course of business of liabilities reflected or reserved against
in the Subscriber Financial Statements or liabilities incurred in the ordinary
course of business consistent with past practices after the date of the
Subscriber Financial Statements; (xvii) make or change any material election in
respect of taxes, adopt or change any accounting method in respect of taxes,
enter into any closing agreement, settle any claim or assessment in respect of
taxes and consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of taxes; (xviii) enter into any strategic
alliance, joint development or joint marketing arrangement; (xix) fail to pay or
otherwise satisfy its monetary obligations as they become due (with certain
exceptions); (xx) waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $25,000, in the aggregate; (xxi) cancel, materially
amend or renew any insurance policy other than in the ordinary course of
business; (xxii) alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity in
which Subscriber directly or indirectly holds any interest on the date of the
Merger Agreement; and (xxiii) take or agree to take any other action that would
prevent it from performing or cause it not to perform its covenants under the
Merger Agreement.
As part of the Merger Agreement, Corsair agreed, during the period from the
date of the Merger Agreement and continuing until the earlier of the termination
of the Merger Agreement, the Effective Time or
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June 15, 1998, not to issue securities of Corsair with an aggregate fair market
value in excess of $30,000,000 without the prior written consent of Subscriber.
This limitation does not include the fair market value of (i) any securities
issued upon the conversion or exercise of currently outstanding convertible or
exercisable securities; (ii) shares of Corsair Common Stock issued in the
Merger; (iii) warrants or options to acquire Corsair Common Stock issued in the
Merger; or (iv) the issuance or sale of Corsair Common Stock to employees,
consultants and directors, directly or pursuant to a stock option plan or
employee stock purchase plan.
In addition, Corsair and Subscriber have agreed to (i) give each other
reasonable access to their respective books and records; (ii) give the other
notice of specified material events; (iii) use reasonable efforts to consult
with each other before making public announcements; (iv) keep information or
knowledge obtained during any investigation of the other company or as a result
of negotiating and executing the Merger Agreement confidential; and (v) use
reasonable efforts to cause the Merger to be accounted for as a pooling of
interests.
NON-SOLICITATION
Subscriber has agreed, until the earlier of the Effective Time or the date
of termination of the Merger Agreement, not to directly or indirectly take any
of the following actions with any party other than Corsair: (i) solicit any
proposals or offers from, conduct discussions with or engage in negotiations
with any person relating to any possible acquisition of Subscriber or any of its
subsidiaries, any material portion of Subscriber's or its subsidiaries' capital
stock or assets or any equity interest in Subscriber or any of its subsidiaries;
(ii) provide information, facilitate or encourage any effort or attempt by any
person to acquire Subscriber, any material portion of Subscriber's or its
subsidiaries' capital stock or assets or any equity interest in Subscriber or
any of its subsidiaries; (iii) enter into an agreement with any person providing
for the acquisition of Subscriber, any material portion of Subscriber's or its
subsidiaries' capital stock or assets or any equity interest in Subscriber or
any of its subsidiaries; or (iv) make or authorize any statement, recommendation
or solicitation in support of any possible acquisition of Subscriber or any of
its subsidiaries, any material portion of Subscriber's or its subsidiaries'
capital stock or assets or any equity interest in Subscriber or any of its
subsidiaries by any person.
AMENDMENTS AND WAIVERS
Any term of the Merger Agreement may be amended, and the observance of any
term, condition or representation in the Merger Agreement may be waived, by a
writing signed by each of the parties to the Merger Agreement, except as is
otherwise required by Delaware law after the stockholders of Subscriber approve
the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the Effective Time, whether before or after the approval of the
stockholders of Subscriber and/or Corsair, under any of the following
circumstances: (i) by the mutual written consent of Corsair and Subscriber; (ii)
by either Corsair or Subscriber if (a) the Effective Time has not occurred
before 5:00 p.m. (Pacific time) on September 30, 1998, (b) there is a final
nonappealable order of a federal or state court in effect preventing the
consummation of the Merger or (c) there is any statute, rule, regulation or
order enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity that would make consummation of the Merger illegal; (iii) by
Corsair if there is any action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
governmental entity which would (a) prohibit Corsair's or Subscriber's ownership
or operation of all or any part of the business of Subscriber or (b) compel
Corsair or Subscriber to dispose of or hold separate all or a portion of the
business or assets of Subscriber or Corsair as a result of the Merger; (iv) by
Corsair if it is not in material breach of its obligations under the Merger
Agreement and (a) Subscriber has materially breached any representation,
warranty, covenant or agreement contained in the Merger Agreement, (b) such
breach has not been cured within five (5) business days after written notice and
(c) as a result of such breach a condition to Corsair's obligation to consummate
the Merger
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would not then be satisfied; and (v) by Subscriber if it is not in material
breach of its obligations under the Merger Agreement and (a) Corsair has
materially breached any representation, warranty, covenant or agreement
contained in the Merger Agreement, (b) such breach has not been cured within
five (5) business days after written notice and (c) as a result of such breach a
condition to Subscriber's obligation to consummate the Merger would not then be
satisfied.
EXPENSES; TERMINATION FEE
Both Corsair and Subscriber will be responsible for paying their respective
fees and expenses incurred in connection with the Merger, including without
limitation, all legal, accounting, financial advisory, consulting and all other
fees and expenses of third parties ("Third Party Expenses") incurred in
connection with the negotiation and consummation of the terms and conditions of
the Merger Agreement and the transactions contemplated by the Merger Agreement.
Notwithstanding the foregoing, in the event the Merger is consummated Corsair
will reimburse Subscriber up to $1,250,000 for Third Party Expenses incurred by
Subscriber. In the event the Merger Agreement is terminated solely due to
Corsair's failure to obtain the requisite approval of its stockholders, Corsair
must pay Subscriber a termination fee of $2,000,000 within five (5) days of such
termination.
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PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma combined condensed balance sheet combines Corsair's
unaudited balance sheet as of March 31, 1998 with Subscriber's unaudited balance
sheet as of March 31, 1998, giving effect to the Merger as if it occurred on
March 31, 1998. The unaudited pro forma combined condensed statements of
operations for the periods ended March 31, 1998 and 1997, respectively, combine
Corsair's statements of operations for the three month periods ended March 31,
1998 and 1997 with Subscribers statements of operations for the three month
periods ended March 31, 1998 and December 31, 1996, and the unaudited pro forma
combined condensed statements of operations for the years ended December 31,
1997, 1996 and 1995, respectively, combine Corsair's statements of operations
for each of the years in the three-year period ended December 31, 1997 with
Subscriber's statements of operations for each of the years in the three-year
period ended September 30, 1997, giving effect to the Merger as if it had
occurred at the beginning of each period presented on a pooling of interests
basis. The financial information of Corsair has been derived from Corsair's
audited financial statements for each of the years in the three-year period
ended December 31, 1997 and Corsair's unaudited financial statements for each of
the three month periods ended March 31, 1998 and 1997 which are included
elsewhere herein and should be read in conjunction with such financial
statements and the notes thereto. The financial information of Subscriber has
been derived from Subscriber's audited financial statements for each of the
years in the three-year period ended September 30, 1997 which are included
herein and should be read in conjunction with such financial statements and
notes thereto and Subscriber's unaudited financial statements for each of the
three month periods ended March 31, 1998 and December 31, 1996 which are not
included elsewhere herein. The pro forma information is not necessarily
indicative of the operating results or financial position that would have
occurred had the Merger been consummated at the beginning of the periods
presented, nor is it necessarily indicative of future operating results or
financial position.
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PRO FORMA COMBINED CONDENSED BALANCE SHEET
(IN THOUSANDS; UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
CORSAIR SUBSCRIBER PRO FORMA PRO FORMA
COMMUNICATIONS COMPUTING, INC. ADJUSTMENTS COMBINED
MARCH 31, 1998 MARCH 31, 1998 (SEE NOTE 2) MARCH 31, 1998
-------------- --------------- ------------ ---------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents.............. $ 11,433 $ 1,513 $ 217 $ 13,163
Short-term investments................. 49,121 807 -- 49,928
Trade accounts receivable, net......... 7,616 4,060 -- 11,676
Other receivables...................... 970 278 -- 1,248
Evaluation inventory................... 2,873 -- -- 2,873
Inventories, net....................... 3,861 -- -- 3,861
Prepaid expenses....................... 311 579 -- 890
-------- -------- ------- --------
Total current assets........... 76,185 7,237 217 83,639
Property and equipment, net.............. 3,820 3,716 -- 7,536
Other assets............................. 1,717 192 -- 1,909
-------- -------- ------- --------
$ 81,722 $ 11,145 $ 217 $ 93,084
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable....................... $ 992 $ 1,796 $ -- $ 2,788
Accrued expenses....................... 6,250 2,263 2,300 10,813
Current portion of notes payable....... -- 5,864 -- 5,864
Current portion of capital lease
obligations......................... 440 372 -- 812
Deferred revenue....................... 10,481 3,384 -- 13,865
-------- -------- ------- --------
Total current liabilities...... 18,163 13,679 2,300 34,142
Notes payable, net of current
portion............................. -- 2,188 -- 2,188
Capital lease obligations, net of
current portion..................... 328 241 -- 569
Other long-term liabilities............ -- 139 -- 139
-------- -------- ------- --------
Total liabilities.............. 18,491 16,247 2,300 37,038
-------- -------- ------- --------
Commitments and contingencies
Stockholders' equity (deficit):
Convertible preferred stock............ -- 42 (42) --
Common stock........................... 14 84 (80) 18
Note receivable from stockholder....... (100) (404) -- (504)
Additional paid-in capital............. 89,382 15,069 339 104,790
Deferred compensation.................. (533) -- -- (533)
Accumulated deficit.................... (25,532) (19,893) (2,300) (47,725)
-------- -------- ------- --------
Total stockholders' equity
(deficit).................... 63,231 (5,102) (2,083) 56,046
-------- -------- ------- --------
$ 81,722 $ 11,145 $ 217 $ 93,084
======== ======== ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
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PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA: UNAUDITED)
<TABLE>
<CAPTION>
CORSAIR SUBSCRIBER PRO FORMA
COMMUNICATIONS COMPUTING, INC. COMBINED
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1998 MARCH 31, 1998
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Product revenue......................... $12,965 $ 1,911 $14,876
Service revenue......................... 2,270 1,691 3,961
------- ------- -------
Total revenues.................. 15,235 3,602 18,837
Cost of revenues:
Product revenue costs................... 6,038 963 7,001
Service revenue costs................... 1,188 957 2,145
------- ------- -------
Total cost of revenues.......... 7,226 1,920 9,146
------- ------- -------
Gross profit.................... 8,009 1,682 9,691
Operating costs and expenses:
Research and development................ 2,194 2,431 4,625
Sales and marketing..................... 2,363 1,092 3,455
General and administrative.............. 1,293 701 1,994
------- ------- -------
Total operating costs and
expenses...................... 5,850 4,224 10,074
------- ------- -------
Operating income (loss)......... 2,159 (2,542) (383)
Interest income (expense), net............ 851 93 944
------- ------- -------
Income (loss) before income taxes....... 3,010 (2,449) 561
Income taxes.............................. 254 -- 254
------- ------- -------
Net income (loss)......................... $ 2,756 $(2,449) $ 307
======= ======= =======
Basic net income (loss) per share data:
Basic net income (loss)................... $ 0.20 $ (0.30)(1) $ 0.02
======= ======= =======
Shares used in per share calculation...... 13,672 8,444 17,150
======= ======= =======
Diluted net income (loss) per share data:
Diluted net income (loss)................. $ 0.19 $ (0.30)(1) $ 0.02
======= ======= =======
Shares used in per share calculation...... 14,354 8,444 18,115
======= ======= =======
</TABLE>
- ---------------
(1) The reported amount considers accretion attributable to preferred
stockholders.
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
68
<PAGE> 78
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA: UNAUDITED)
<TABLE>
<CAPTION>
CORSAIR SUBSCRIBER PRO FORMA
COMMUNICATIONS COMPUTING, INC. COMBINED
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 DECEMBER 31, 1996 MARCH 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Product revenue......................... $ 8,167 $1,952 $10,119
Service revenue......................... 929 1,110 2,039
------- ------ -------
Total revenues.................. 9,096 3,062 12,158
Cost of revenues:
Product revenue costs................... 7,480 280 7,760
Service revenue costs................... 829 966 1,795
------- ------ -------
Total cost of revenues.......... 8,309 1,246 9,555
------- ------ -------
Gross profit.................... 787 1,816 2,603
Operating costs and expenses:
Research and development................ 1,382 824 2,206
Sales and marketing..................... 1,548 422 1,970
General and administrative.............. 991 998 1,989
------- ------ -------
Total operating costs and
expenses...................... 3,921 2,244 6,165
------- ------ -------
Operating loss.................. (3,134) (428) (3,562)
Interest expense, net..................... (3) (125) (128)
------- ------ -------
Loss before income taxes................ (3,137) (553) (3,690)
Income taxes.............................. 3 1 4
------- ------ -------
Net loss.................................. $(3,140) $ (554) $(3,694)
======= ====== =======
Basic and diluted net income (loss) per
share data:
Basic and diluted net income (loss)....... $ (3.08) $(0.07)(1) $ (1.39)
======= ====== =======
Shares used in per share calculation...... 1,019 7,435 2,658
======= ====== =======
</TABLE>
- ---------------
(1) The reported amount considers accretion attributable to preferred
stockholders.
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
69
<PAGE> 79
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA: UNAUDITED)
<TABLE>
<CAPTION>
CORSAIR SUBSCRIBER PRO FORMA
COMMUNICATIONS COMPUTING, INC. COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 SEPTEMBER 30, 1997 DECEMBER 31, 1997
----------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues:
Product revenue.......................... $41,887 $ 8,298 $50,185
Service revenue.......................... 5,951 4,720 10,671
------- ------- -------
Total revenues................... 47,838 13,018 60,856
Cost of revenues:
Product revenue costs.................... 27,954 1,887 29,841
Service revenue costs.................... 3,562 3,464 7,026
------- ------- -------
Total cost of revenues........... 31,516 5,351 36,867
Gross profit..................... 16,322 7,667 23,989
Operating costs and expenses:
Research and development................. 6,975 5,550 12,525
Sales and marketing...................... 7,486 3,925 11,411
General and administrative............... 3,868 5,564 9,432
------- ------- -------
Total operating costs and
expenses....................... 18,329 15,039 33,368
------- ------- -------
Operating loss................... (2,007) (7,372) (9,379)
Interest income (expense), net............. 1,374 (183) 1,189
------- ------- -------
Loss before income taxes and
extraordinary item.................... (633) (7,555) (8,188)
Income taxes............................... 7 1 8
------- ------- -------
Loss before extraordinary item............. (640) (7,556) (8,196)
Loss on debt extinguishment, net of
taxes.................................... (428) -- (428)
------- ------- -------
Net loss................................... $(1,068) $(7,556) $(8,624)
======= ======= =======
Basic and diluted net loss per share data:
Loss before extraordinary item............. $ (0.10) $ (0.96)(1) $ (0.85)
Extraordinary item......................... $ (0.06) $ -- $ (0.05)
------- ------- -------
Basic and diluted net loss per share....... $ (0.16) $ (0.96)(1) $ (0.90)
======= ======= =======
Shares used in per share calculation....... 6,643 8,023 9,626
======= ======= =======
</TABLE>
- ---------------
(1) The reported amount considers accretion attributable to preferred
stockholders.
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
70
<PAGE> 80
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA: UNAUDITED)
<TABLE>
<CAPTION>
CORSAIR SUBSCRIBER PRO FORMA
COMMUNICATIONS COMPUTING, INC. COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 SEPTEMBER 30, 1996 DECEMBER 31, 1996
----------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues:
Product revenue.......................... $ 18,178 $ 7,380 $ 25,558
Service revenue.......................... 1,428 4,230 5,658
-------- ------- --------
Total revenues................... 19,606 11,610 31,216
Cost of revenues:
Product revenue costs.................... 17,235 2,444 19,679
Service revenue costs.................... 1,962 3,294 5,256
-------- ------- --------
Total cost of revenues........... 19,197 5,738 24,935
-------- ------- --------
Gross profit..................... 409 5,872 6,281
Operating costs and expenses:
Research and development................. 4,983 3,600 8,583
Sales and marketing...................... 5,374 2,390 7,764
General and administrative............... 2,591 2,691 5,282
Write-off of capitalized software........ -- 3,760 3,760
-------- ------- --------
Total operating costs and
expenses....................... 12,948 12,441 25,389
-------- ------- --------
Operating loss................... (12,539) (6,569) (19,108)
Interest expense, net...................... (220) (274) (494)
-------- ------- --------
Loss before income taxes................. (12,759) (6,843) (19,602)
Income taxes............................... 2 1 3
-------- ------- --------
Net loss................................... $(12,761) $(6,844) $(19,605)
======== ======= ========
Basic and diluted net loss per share....... $ (96.67) $ (0.92) $ (11.57)
======== ======= ========
Shares used in per share calculation....... 132 7,426 1,694
======== ======= ========
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
71
<PAGE> 81
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA: UNAUDITED)
<TABLE>
<CAPTION>
CORSAIR SUBSCRIBER PRO FORMA
COMMUNICATIONS COMPUTING, INC. COMBINED
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1995 DECEMBER 31, 1995
----------------- ------------------ -----------------
<S> <C> <C> <C>
Revenues:
Product revenue.......................... $ 7,351 $4,731 $12,082
Service revenue.......................... 242 2,815 3,057
-------- ------ -------
Total revenues...................... 7,593 7,546 15,139
Cost of revenues:
Product revenue costs.................... 7,522 2,177 9,699
Service revenue costs.................... 615 2,402 3,017
-------- ------ -------
Total cost of revenues.............. 8,137 4,579 12,716
-------- ------ -------
Gross profit (deficit).............. (544) 2,967 2,423
Operating costs and expenses:
Research and development................. 3,094 327 3,421
Sales and marketing...................... 2,981 1,293 4,274
General and administrative............... 2,115 1,432 3,547
-------- ------ -------
Total operating costs and
expenses.......................... 8,190 3,052 11,242
-------- ------ -------
Operating loss...................... (8,734) (85) (8,819)
Interest income (expense), net................ 218 (37) 181
-------- ------ -------
Loss before income taxes................. (8,516) (122) (8,638)
Income taxes.................................. 1 1 2
-------- ------ -------
Net loss...................................... $ (8,517) $ (123) $(8,640)
======== ====== =======
Basic and diluted net loss per share.......... $(774.27) $(0.02) $ (5.49)
======== ====== =======
Shares used in per share calculation.......... 11 7,426 1,573
======== ====== =======
</TABLE>
See accompanying notes to Pro Forma Combined Condensed Financial Statements.
72
<PAGE> 82
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. PERIODS COMBINED
The unaudited Pro Forma Combined Condensed Statements of Operations combine
the historical statements of operations of Corsair for the three months ended
March 31, 1998 and 1997 and the fiscal years ended December 31, 1997, 1996 and
1995 with the historical statements of operations of Subscriber for the three
months ended March 31, 1998 and December 31, 1996, and the fiscal years ended
September 30, 1997, 1996 and 1995, respectively. Due to the periods combined as
described above, Subscriber's net revenues of $2.9 million and net loss of $5.0
million for the three months ended December 31, 1997 are not included in the Pro
Forma Combined Condensed Statements of Operations. The unaudited Pro Forma
Combined Condensed Balance Sheet combines Corsair's unaudited balance sheet as
of March 31, 1998 with Subscriber's unaudited Balance Sheet as of March 31,
1998, giving effect to the Merger as if it had occurred on March 31, 1998.
The pro forma information presented is not necessarily indicative of the
future consolidated results of operations of the Combined Company or the
consolidated results of operations which would have resulted had the Merger
taken place during the periods presented. The Unaudited Pro Forma Financial
Statements reflect the effects of the Merger, assuming the Merger and related
events occurred as of March 31, 1998 for the purposes of the unaudited Pro Forma
Combined Condensed Balance Sheet and as of January 1, 1995 for the purposes of
the unaudited Pro Forma Combined Condensed Statements of Operations.
NOTE 2. BASIS OF PRESENTATIONS
Pro forma outstanding Corsair common stock
The maximum number of shares of Corsair common stock to be issued in the
Merger (including Corsair common stock to be reserved for issuance upon exercise
of Subscriber's options and warrants to be assumed by Corsair) in exchange for
the acquisition by Corsair of all outstanding Subscriber capital stock and all
outstanding options and warrants to acquire Subscriber capital stock, assuming
the transaction took place on March 31, 1998, would have been approximately
3,919,703 shares. Consequently, the actual exchange ratios will depend on the
capitalization of Subscriber and the closing market price of Corsair Common
Stock for the preceding ten trading days at the Effective Time. Assuming that
the capitalization of Subscriber at the Effective Time is in all other respects
identical to the capitalization as of March 31, 1998, the common exchange ratio
would be 0.21030 of a share of Corsair common stock for each outstanding share
of Subscriber common stock and would be 0.40224 of a share of Corsair common
stock for each outstanding share of Subscriber Series B Preferred Stock
(assuming a market price of $18.563 per share of Corsair common stock). Such
exchange ratios were used in preparing the pro forma combined financial data and
the following table which provides the pro forma share issuance in connection
with the Merger:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER CORSAIR
OUTSTANDING AS OF EQUIVALENT
OUTSTANDING EQUITY INTERESTS OF SUBSCRIBER MARCH 31, 1998 RATIO SHARES
------------------------------------------ ----------------- -------- ----------
<S> <C> <C> <C>
Series B Senior Convertible Participating Preferred
Stock................................................ 4,209,863 0.40224 1,693,375
Common Stock........................................... 8,443,944 0.21030 1,775,761
---------
Total Corsair common shares to be issued............... 3,469,136
=========
</TABLE>
73
<PAGE> 83
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
NUMBER OF
CORSAIR
EQUIVALENT
NUMBER EQUITY
OUTSTANDING AS OF SHARES TO BE
POTENTIALLY DILUTIVE EQUITY INTERESTS OF SUBSCRIBER MARCH 31, 1998 RATIO ISSUED
--------------------------------------------------- ----------------- -------- ---------------
<S> <C> <C> <C>
Warrant to purchase Series B Senior Convertible
Participating Preferred Stock...................... 61,043 0.40224 24,554
Warrant to purchase Series A Convertible Preferred
Stock.............................................. 361,652 0.21030 76,055
Warrant to purchase Common Stock..................... 25,000 0.21030 5,258
Options to purchase Common Stock..................... 1,639,089 0.21030 344,700
---------
Total other potentially dilutive securities of
Corsair to be issued............................... 450,567
=========
</TABLE>
Pro Forma Adjustments
Corsair and Subscriber estimate that they will incur Merger-related
expenses, consisting primarily of transaction costs for investment bankers fees,
attorneys, accountants, financial printing and other related charges, of
approximately $2.3 million. This estimate is preliminary and is therefore
subject to change. These nonrecurring expenses will be charged to operations in
the fiscal quarter in which the Merger is consummated.
It is expected that following the Merger, the Combined Company will incur
additional costs associated with integrating the two companies. These costs are
not currently estimable and have not been reflected on the pro forma combined
condensed balance sheet.
The Pro Forma Combined Condensed Balance Sheet gives effect to such
expenses as if they had been incurred as of March 31, 1998, but the Pro Forma
Combined Condensed Statements of Operations do not give effect to such expenses.
The Pro Forma Combined Condensed Balance Sheet also gives effect to the
assumed conversion of Subscriber's outstanding warrant to purchase 61,043 shares
of Series B Senior Convertible Participating Preferred Stock (24,554 equivalent
number of Corsair shares) for proceeds of approximately $217,000, due to the
warrantholder's expressed intent to exercise the warrant in connection with the
Merger.
Conforming adjustments
No adjustments were required to conform the accounting policies of
Subscriber and Corsair. Certain amounts for Subscriber have been reclassified to
conform to Corsair's financial statements presentation.
NOTE 3. PRO FORMA NET INCOME (LOSS) PER SHARE
The pro forma diluted combined net income (loss) per share data is based on
the combined weighted average number of common and dilutive common stock
equivalent shares of Corsair's common stock and Subscriber's common stock and
assumes conversion of all outstanding Subscriber preferred stock at the
beginning of the earliest period presented and further assumes a common exchange
ratio as of March 31, 1998 of 0.21030 of a share of Corsair common stock for
each outstanding share of Subscriber common stock and a preferred stock exchange
ratio as of March 31, 1998 of 0.40224 of a share of Corsair common stock for
each outstanding share of Subscriber preferred stock. The actual number of
shares of Corsair Common Stock to be exchanged for all of the outstanding
Subscriber stock will be determined at the Effective Time based on the
capitalization of Subscriber and the closing market-price of Corsair Common
Stock for the preceding ten trading days at the Effective Time.
74
<PAGE> 84
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
The following table reconciles the number of shares used in the pro forma
earnings per share computations to the numbers set forth in Corsair's and
Subscriber's historical statements of operations (in thousands, except the
Exchange Ratio):
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA FISCAL THREE MONTHS
YEARS ENDED DECEMBER 31, ENDED MARCH 31,
------------------------ ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Shares used in basic and diluted per share
computation:
Historical Subscriber -- Common Stock............... 7,426 7,426 8,023 7,435 8,444
Exchange Ratio -- Common Stock...................... 0.2103 0.2103 0.2103 0.2103 0.2103
------ ------ ------ ------ ------
1,562 1,562 1,688 1,564 1,776
------ ------ ------ ------ ------
Historical Subscriber -- Preferred Stock(1)......... -- -- 3,220 186 4,232
Exchange Ratio -- Preferred Stock................... 0.4022 0.4022 0.4022 0.4022 0.4022
------ ------ ------ ------ ------
-- -- 1,295 75 1,702
------ ------ ------ ------ ------
Historical Corsair.................................. 11 132 6,643 1,019 13,672
------ ------ ------ ------ ------
Pro Forma Combined -- Basic......................... 1,573 1,694 9,626 2,658 17,150
====== ====== ====== ====== ======
Historical Subscriber -- Common Stock
equivalents(2).................................... -- -- -- -- 1,346
------ ------ ------ ------ ------
Exchange Ratio -- Common Stock equivalents(2)....... 0.2103 0.2103 0.2103 0.2103 0.2103
------ ------ ------ ------ ------
-- -- -- -- 283
------ ------ ------ ------ ------
Historical Corsair -- Common Stock equivalents(2)... -- -- -- -- 682
------ ------ ------ ------ ------
Pro Forma Combined -- Diluted....................... 1,573 1,694 9,626 2,658 18,115
------ ------ ------ ------ ------
</TABLE>
- ---------------
(1) Includes the assumed exercise of the warrant to purchase 61,043 shares of
Series B Senior Convertible Participating Preferred Stock issued in December
1996, using the treasury stock method, due to the warrantholder's expressed
intent to exercise the warrant in connection with the Merger.
(2) Using the treasury stock method.
75
<PAGE> 85
APPROVAL OF AN AMENDMENT TO CORSAIR'S
1997 STOCK INCENTIVE PLAN
(PROPOSAL FOR THE CORSAIR MEETING)
Stockholders are being asked to consider and vote upon a proposal to ratify
and approve certain amendments to Corsair's 1997 Stock Incentive Plan (the
"Plan"). The Plan was originally adopted by the Corsair Board on May 27, 1997,
and was subsequently approved by the Corsair stockholders on May 27, 1997 and
became effective on July 29, 1997 (the "Effective Date").
The amendments proposed to the Plan were adopted by the Corsair Board on
March 20, 1998. These amendments will increase the total number of shares
available for issuance under the Plan from 1,337,633 to 2,587,633 shares.
The affirmative vote of a majority of the stockholders represented and
voting at the Corsair Meeting is required for approval of the amendments to the
Plan. The Plan, as amended, will become effective immediately upon approval by
Corsair's stockholders at the Corsair Meeting. The following is a summary of the
material terms and provisions of the Plan. This summary, however, does not
purport to be a complete description of all the provisions of the Plan. Copies
of the actual plan document may be obtained by any Corsair stockholder upon
written request to the Secretary of Corsair at the corporate offices in Palo
Alto, California.
PLAN STRUCTURE
The Plan is divided into four separate parts:
O The Discretionary Option Grant Program, under which eligible individuals
in Corsair's employ or service (including officers and other employees,
non-employee Corsair Board members and independent consultants) may, at
the discretion of the Plan Administrator, be granted options to purchase
shares of Corsair Common Stock at an exercise price not less than 85% of
their fair market value on the grant date. The granted options may be
either incentive stock options which are designed to meet the
requirements of Section 422 of the Code or nonstatutory options not
intended to satisfy such requirements.
O The Automatic Option Grant Program under which option grants will
automatically be made at periodic intervals to eligible non-employee
Corsair Board members to purchase shares of Corsair Common Stock at an
exercise price equal to 100% of their fair market value on the grant
date.
O The Stock Issuance Program, under which such individuals may, in the Plan
Administrator's discretion, be issued shares of Corsair Common Stock
directly, through the purchase of such shares at a price not less than
100% of their fair market value at the time of issuance or as a bonus
tied to the past performance of services,
O The Salary Investment Option Grant Program under which executive officers
and other highly compensated employees may elect to apply a portion of
their base salary to the acquisition of special stock option grants
As of March 31, 1998, approximately 158 officers and employees were
eligible to participate in the Discretionary Option Grant Program and the Stock
Issuance Program, there are currently five nonemployee directors who will be
eligible to receive automatic grants under the Automatic Grant Program, and the
Plan Administrator has not activated the Salary Investment Option Grant Program.
PLAN ADMINISTRATION
The Discretionary Option Grant, Stock Issuance and Salary Investment Option
Grant Programs will generally be administered by the Corsair Board or one or
more committees appointed by the Corsair Board except that a committee
consisting of two or more non-employee directors will administer each of these
programs with respect to any person subject to Section 16 of the Securities and
Exchange Act of 1934, as amended (the "Plan Administrator"). The Plan
Administrator, will have complete discretion to determine
76
<PAGE> 86
which eligible individuals will receive option grants or stock issuances, the
time or times at which such option grants or stock issuances are to be made, the
number of shares subject to each such grant or issuance, the vesting schedule to
be in effect for the option grant or stock issuance, the maximum term for which
any granted option is to remain outstanding and whether an option will be
granted as an incentive stock option or a non-statutory stock option under the
Federal tax laws. The administration of the Automatic Option Grant Program will
be self-executing in accordance with the express provisions of such program. All
employees, directors and consultants or independent contractors of Corsair are
eligible to receive option grants or stock issuances under the Plan.
ISSUABLE SHARES
Shares of the Corsair Common Stock will be available for issuance under the
Plan. The maximum number of shares of Corsair Common Stock reserved for issuance
over the 10 year term of the Plan, measured from the Effective Date of the Plan,
will not exceed 2,587,633 shares. Such authorized share reserve is comprised of
(i) the number of shares that remained available for issuance under the Plan,
including the shares subject to the outstanding options incorporated into the
Plan and any other shares that would have been available for future option grant
or share issuance under predecessor plans as last approved by the stockholders,
plus (ii) an additional 1,250,000 shares being added to the Plan pursuant to
this Proposal. The number of shares of Corsair Common Stock included in the Plan
will automatically be increased by an additional two percent of the outstanding
number of shares of capital stock of Corsair per year. The share reserve
available for issuance under the Plan will be subject to periodic adjustment for
changes in Corsair's Common Stock occasioned by stock splits, stock dividends,
recapitalizations, conversions or other changes affecting the outstanding Common
Stock as a class without Corsair's receipt of consideration.
Should an option expire or terminate for any reason prior to exercise in
full (including options canceled in accordance with the cancellation-regrant
provisions described below), the shares subject to the portion of the option not
so exercised will be available for subsequent option grants or share issuances
under the Plan.
TERMS OF DISCRETIONARY GRANT PROGRAM
Option Price and Term. The option price per share for incentive stock
options will not be less than 100% of the fair market value of each share of
Corsair Common Stock issuable under the option on the grant date of such option.
The option price per share for nonstatutory stock options may not be less than
85% of the fair market value per share of each share of Corsair Common Stock
issuable under the option on the grant date of such option. No option will have
a term in excess of 10 years measured from the grant date.
Valuation. For purposes of establishing the option exercise price for
Corsair Common Stock, the "Fair Market Value" per share of the stock on any
relevant date will be the closing selling price per share on such date, as
quoted on the Nasdaq National Market. If there is no reported selling price for
such date, then the closing selling price for the last previous date for which
such quotation exists will be determinative of Fair Market Value.
Vesting of Options. The vesting schedule for each granted option will be
determined by the Plan Administrator and will be set forth in the instrument
evidencing such grant. The granted option may be (i) immediately exercisable for
vested shares, (ii) immediately exercisable for unvested shares subject to
Corsair's repurchase rights or (iii) exercisable in installments for vested
shares over the optionee's period of service. At a minimum, options must vest at
a rate of at least 20% each year and must be fully vested at the end of five
years.
Payment. Upon exercise of the option, the option price for the purchased
shares will become immediately payable in cash, check or in shares of Corsair
Common Stock valued at fair market value on the date of exercise. The option may
also be exercised through a cashless exercise procedure pursuant to which the
optionee provides irrevocable written instructions to a designated brokerage
firm to effect the immediate sale of the purchased shares and remit to Corsair,
out of the sale proceeds, an amount equal to the aggregate option price payable
for the purchased shares plus all applicable withholding taxes.
77
<PAGE> 87
Financial Assistance. The Plan Administrator may assist any optionee
(including an officer) in the exercise of one or more outstanding options under
the Plan by (i) authorizing a loan from Corsair or (ii) permitting the optionee
to pay the option price in installments over a period of years. The terms and
conditions of any such loan or installment payment will be established by the
Plan Administrator in its sole discretion, but in no event will the maximum
credit extended to the optionee exceed the aggregate option price for the
purchased shares plus any Federal or State tax liability incurred in connection
with the option exercise.
Termination of Service. Should the optionee cease to remain in Corsair's
service while holding one or more options under the Plan, then those options
will not remain exercisable beyond the limited post-service period designated by
the Plan Administrator at the time of the option grant, subject to certain
minimum post-service periods. Under no circumstances, however, may any option be
exercised after the specified expiration date of the option term. Each such
option will, during such limited period, be exercisable only to the extent of
the number of shares for which the option is exercisable on the date of the
optionee's cessation of service.
Should the optionee die while holding one or more outstanding options, then
the personal representative of the optionee's estate or the person or persons to
whom each such option is transferred pursuant to the optionee's will or in
accordance with the laws of inheritance will have the right to exercise such
option for any or all of the shares for which the option is exercisable on the
date of the optionee's cessation of service, less any option shares previously
purchased by the optionee prior to death. Such right will lapse, and the option
will terminate, upon the earlier of (i) the end of the limited post-service
period designated by the Plan Administrator at the time of the option grant or
(ii) the specified expiration date of the option term.
The Plan Administrator will have complete discretion to extend the period
following the optionee's termination of service during which his or her
outstanding options may be exercised and/or to accelerate the exercisability of
such options in whole or in part. Such discretion may be exercised at any time
while the options remain outstanding, whether before or after the optionee's
actual cessation of service.
Stockholder Rights and Option Assignability. No optionee is to have any
stockholder rights with respect to the option shares until such optionee has
exercised the option, paid the option price for the purchased shares and been
issued a stock certificate for such shares. Options are not assignable or
transferable other than by will or by the laws of inheritance following the
optionee's death, and the option may, during the optionee's lifetime, be
exercised only by the optionee.
Acceleration. In the event that Corsair is acquired by merger or asset
sale, the unvested portion of each outstanding option under the Discretionary
Option Grant Program that is not to be assumed by the successor corporation and
each outstanding option under the Salary Investment Option Grant Program will
automatically vest in full. Similarly, unless Corsair assigns the repurchase
rights associated with any unvested shares issued under such programs or the
Stock Issuance Program to the successor corporation, such unvested shares will
vest in full. Any outstanding options assumed by the successor corporation and
shares that remain subject to repurchase rights assigned to the successor
corporation will not vest immediately, but will vest in accordance with their
original vesting schedule. The Plan Administrator will have the authority under
the Discretionary Option Grant, Salary Investment Option Grant and Stock
Issuance Programs to grant options and to structure repurchase rights so that
the shares subject to those options or repurchase rights will automatically vest
in the event the individual's service is terminated, whether involuntarily or
through a resignation for good reason, within a specified period (not to exceed
18 months) following (i) a merger or asset sale in which those options are
assumed or those repurchase rights are assigned, or (ii) the sale, transfer or
disposition of all or substantially all of Corsair's assets (each a "Corporate
Transaction"). The Plan Administrator will also have the discretion to provide
for the automatic acceleration of options and the lapse of any repurchase rights
upon (i) a hostile change in control of Corsair effected by a successful tender
offer for more than 50% of Corsair's outstanding voting stock or by proxy
contest for the election of Board members or (ii) the termination of the
individual's service, whether involuntarily or through a resignation for good
reason, within a specified period (not to exceed 18 months) following such a
hostile change in control. Pursuant to the terms of the option agreements the
unvested portion of the options currently outstanding under predecessor plans
will accelerate and such options will terminate and cease to be exercisable upon
an acquisition of Corsair by merger or asset sale, unless those options are
assumed by the acquiring entity. One-half of the unvested
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portion of any options assumed by the successor corporation will automatically
accelerate upon the involuntary termination of the optionee's service within 18
months following the occurrence of a Corporate Transaction in which the options
are assumed or replaced by the successor corporation.
Stock Appreciation Rights. Stock appreciation rights may be issued in
tandem with option grants made under the Discretionary Option Grant Program. The
holders of these rights will have the opportunity to elect between the exercise
of their outstanding stock options for shares of Common Stock or the surrender
of those options for an appreciation distribution from Corsair equal to the
excess of (i) the fair market value of the vested shares of Corsair Common Stock
subject to the surrendered option over (ii) the aggregate exercise price payable
for such shares. The appreciation distribution may be made in cash or in shares
of Corsair Common Stock. There are currently no outstanding stock appreciation
rights.
Cancellation/Regrant. The Plan Administrator has the authority to effect
the cancellation of outstanding options under the Discretionary Option Grant
Program (including options incorporated from predecessor plans), with the
consent of the holders of such options, in return for the grant of new options
for the same or a different number of option shares with an exercise price per
share based upon the fair market value of the Corsair Common Stock on the new
grant date.
TERMS OF AUTOMATIC GRANT PROGRAM
Under the Automatic Option Grant Program, at each annual stockholders
meeting each non-employee Corsair Board member will receive an option to
purchase 1,500 shares of Corsair Common Stock. Each option granted pursuant to
the Automatic Option Grant Program will have an exercise price equal to the fair
market value per share of Corsair Common Stock on the grant date and will have a
maximum term of 10 years, subject to earlier termination following the
optionee's cessation of service on the Corsair Board. The grant of 1,500 shares
will vest in 12 equal monthly installments following the grant date during which
the optionee continues to serve as a Corsair Board member. In addition, the
option shares will become fully vested upon (i) certain changes in the ownership
or control of Corsair or (ii) the death or disability of the optionee while
serving as a Corsair Board member. The options may only be exercised to the
extent vested.
TERMS OF STOCK ISSUANCE PROGRAM
Issue Price. The purchase price per share will not be less than 100% of the
fair market value of any share of Corsair Common Stock being issued on the date
the Plan Administrator authorizes the issuance.
Vesting of Shares. The vesting schedule for each share issued will be
determined by the Plan Administrator and set forth in the issuance agreement.
The shares may be fully and immediately vested upon issuance or may vest in one
or more installments, subject to Corsair's repurchase right, over the
participant's period of service. At a minimum, shares must vest at a rate of at
lest 20% per year and must be fully vested at the end of five years.
Stockholder Rights. The recipient of the share issuance will have full
stockholder rights, including voting and dividend rights, with respect to the
issued shares, whether or not the shares are vested. However, the recipient may
not sell, transfer or assign any unvested shares issued under the Plan, except
for certain limited family transfers.
Repurchase Rights. Should the recipient of unvested shares cease to remain
in Corsair's service before vesting in such shares, then those unvested shares
are to be immediately surrendered to Corsair for cancellation, and the recipient
will have no further stockholder rights with respect to those shares. To the
extent the surrendered shares were previously issued to the recipient for
consideration paid in cash or promissory note, Corsair will refund the cash
consideration paid for the surrendered shares and cancel the principal balance
of the note to the extent attributable to such surrendered shares.
Payment. Upon issuance of the shares, the issue price for the purchased
shares will become immediately payable in cash, in shares of Corsair Common
Stock valued at fair market value on the date of issuance, or by promissory note
payable to Corsair's order. The promissory note may, at the discretion of the
Plan
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Administrator, be subject to cancellation over the participant's period of
service. Shares may also be issued for past or future services, without any cash
or other payment required of the participant.
Acceleration. Corsair has entered into agreements with certain individuals
holding unvested shares under the Plan, pursuant to which the vesting of such
shares will accelerate in the event the individual's employment is terminated
within 18 months after a change in control of Corsair. The change in control
events under these agreements include transactions in addition to those in
effect for Plan purposes. These agreements assure such individuals that either
their services will continue to be required after any such change in control or
that they will in fact receive the appreciated value of their outstanding shares
despite the change in control.
TERMS OF STOCK ISSUANCE PROGRAM
In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program for one or more calendar years, each executive
officer and other highly compensated employee of Corsair selected for
participation may elect, prior to the start of the calendar year, to reduce his
or her base salary for that calendar year by a specified dollar amount not less
than $10,000 nor more than $50,000. If such election is approved by the Plan
Administrator, the officer will be granted, as soon as possible after the start
of the calendar year for which the salary reduction is to be in effect, a
non-statutory option to purchase that number of shares of Common Stock
determined by dividing the total salary reduction amount by an amount equal to
at least one-third and no more than two-thirds (the exact amount to be
established by the Plan Administrator) of the fair market value per share of
Common Stock on the grant date. The option will be exercisable at a price per
share equal to the difference between the amount of the salary reduction agreed
to by the optionee for the option and the fair market value of the option shares
on the grant date. As a result, upon exercise of the options issued under the
Salary Investment Option Grant Program, the optionee will have paid 100% of the
fair market value of the option shares as of the grant date through the payment
of the exercise price and the agreed salary reduction. The option will become
exercisable in a series of twelve (12) equal monthly installments over the
calendar year for which the salary reduction is in effect and will become fully
exercisable upon certain changes in the ownership or control of Corsair or sale
of its assets.
CHANGES IN CAPITALIZATION
In the event any change is made to the Corsair Common Stock issuable under
the Plan by reason of any recapitalization, stock dividend, stock split,
combination of shares, exchange of shares, or other change in corporate
structure effected without Corsair's receipt of consideration, appropriate
adjustments will be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities and price
per share in effect under each outstanding option.
Each outstanding option which is assumed or is otherwise to continue in
effect after a Corporate Transaction will be appropriately adjusted to apply and
pertain to the number and class of securities which would have been issuable, in
connection with such Corporate Transaction, to an actual holder of the same
number of shares of Corsair Common Stock as are subject to such option
immediately prior to such Corporate Transaction. Appropriate adjustments will
also be made to the option price payable per share and to number and class of
securities available for issuance under the Plan.
Option grants under the Plan will not affect the right of Corsair to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
SPECIAL TAX WITHHOLDING ELECTION
The Plan Administrator may provide one or more participants in the Plan
with the election to have Corsair withhold, from the shares of Corsair Common
Stock otherwise issuable upon the exercise of nonqualified options or the
vesting of unvested shares, a portion of those shares in satisfaction of the tax
liability incurred in connection with their acquisition or vesting. Any election
so made will be subject to the approval of the Plan Administrator, and no shares
will be accepted in satisfaction of such tax liability except to the extent the
Plan Administrator approves the election. Alternatively, one or more
participants may be
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granted the right, subject to Plan Administrator approval, to deliver existing
shares of Corsair Common Stock in satisfaction of such tax liability. The
withheld or delivered shares will be valued at their then current fair market
value.
AMENDMENT AND TERMINATION
The Board of Directors may amend or modify the Plan in any or all respects
whatsoever, subject, however, to the limitation on plan amendments to the
Automatic Grant Program. However, no such amendment may adversely affect the
rights of existing optionees without their consent and unless otherwise
necessary to comply with applicable tax laws and regulations. In addition, the
Board may not (i) materially increase the maximum number of shares issuable
under the Plan or the number of shares for which automatic grants may be made to
nonemployee Board members, except in the event of certain changes to Corsair's
capital structure as indicated above, (ii) materially modify the eligibility
requirements for option grants or (iii) otherwise materially increase the
benefits accruing to participants under the Plan without the approval of
Corsair's stockholders.
The Board may terminate the Plan at any time, and the Plan will in all
events terminate on the tenth anniversary of the Effective Date. Each stock
option outstanding at the time of such termination will remain in force in
accordance with the provisions of the instruments evidencing such grant.
FEDERAL TAX CONSEQUENCES
Options granted under the Plan may be either incentive stock options which
satisfy the requirements of Section 422 of the Internal Revenue Code or
nonqualified options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as described
below:
Incentive Options. No taxable income is recognized by the optionee at the
time of the option grant, and no taxable income is generally recognized at the
time the option is exercised. The optionee will, however, recognize taxable
income in the year in which the purchased shares are sold or otherwise made the
subject of disposition.
For Federal tax purposes, dispositions are divided into two categories: (i)
qualifying and (ii) disqualifying. The optionee will make a qualifying
disposition of the purchased shares if the sale or other disposition of such
shares is made after the optionee has held the shares for more than two years
after the grant date of the option and more than one year after the exercise
date. If the optionee fails to satisfy either of these two holding periods prior
to the sale or other disposition of the purchased shares, then a disqualifying
disposition will result.
Upon a qualifying disposition of the shares, the optionee will recognize
long-term capital gain in an amount equal to the excess of (i) the amount
realized upon the sale or other disposition of the purchased shares over (ii)
the exercise price paid for such shares. If there is a disqualifying disposition
of the shares, then the excess of (i) the fair market value of those shares on
the date the option was exercised over (ii) the exercise price paid for the
shares will be taxable as ordinary income. Any additional gain recognized upon
the disposition will be a capital gain.
If the optionee makes a disqualifying disposition of the purchased shares,
then Corsair will be entitled to an income tax deduction, for the taxable year
in which such disposition occurs, equal to the excess of (i) the fair market
value of such shares on the date the option was exercised over (ii) the exercise
price paid for the shares. In no other instance will Corsair be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Nonqualified Options. No taxable income is recognized by an optionee upon
the grant of a nonqualified option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the date of exercise
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
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Special provisions of the Internal Revenue Code apply to the acquisition of
Corsair Common Stock under a nonqualified option, if the purchased shares are
subject to repurchase by Corsair. These special provisions may be summarized as
follows:
A. If the shares acquired upon exercise of the nonqualified option are
subject to repurchase by Corsair at the original exercise price in the
event of the optionee's termination of service prior to vesting in such
shares, the optionee will not recognize any taxable income at the time of
exercise but will have to report as ordinary income, as and when Corsair's
repurchase right lapses, an amount equal to the excess of (i) the fair
market value of the shares on the date Corsair's repurchase right lapses
with respect to such shares over (ii) the exercise price paid for the
shares.
B. The optionee may, however, elect under Section 83(b) of the
Internal Revenue Code to include as ordinary income in the year of exercise
of the nonqualified option an amount equal to the excess of (i) the fair
market value of the purchased shares on the date of exercise (determined as
if the shares were not subject to Corsair's repurchase right) over (ii) the
exercise price paid for such shares. If the Section 83(b) election is made,
the optionee will not recognize any additional income as and when the
Corsair's repurchase right lapses.
Corsair will be entitled to a business expense deduction equal to the
amount of ordinary income recognized by the optionee with respect to the
exercised nonqualified option. The deduction will in general be allowed for the
taxable year of Corsair in which such ordinary income is recognized by the
optionee.
Stock Appreciation Rights. An optionee who is granted a stock appreciation
right will recognize ordinary income in the year of exercise equal to the amount
of the appreciation distribution. Corsair will be entitled to a business expense
deduction equal to the appreciation distribution for the taxable year of Corsair
in which the ordinary income is recognized by the optionee.
Direct Stock Issuances. The tax consequences of individuals who receive
direct stock issuances under the Plan will be substantially the same as the
treatment described above for the exercise of nonqualified stock options.
ACCOUNTING TREATMENT
Option grants with exercise prices less than the fair market value of the
option shares on the grant date and direct stock issuances at purchase prices
less than the fair market value of the issued shares will result in a
compensation expense to Corsair's earnings equal to the difference between such
exercise or purchase prices and the fair market value of the shares on the
option grant date or (for direct stock issuances) the fair market value on the
issue date. Such expense will be recorded by Corsair over the period the
optionee or share recipient vests in the option shares or directly-issued
shares. Option grants and direct stock issuances to employees at 100% of fair
market value will not result in any charge to Corsair's earnings. Whether or not
granted at a discount, the number of outstanding options may be a factor in
determining Corsair's earnings per share.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to be
charged against Corsair's earnings. Accordingly, at the end of each fiscal
quarter, the amount (if any) by which the fair market value of the shares of
Corsair Common Stock subject to such outstanding stock appreciation rights has
increased from the prior quarter-end will be accrued as compensation expense, to
the extent such amount is in excess of the aggregate exercise price in effect
for such rights.
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OUTSTANDING OPTION GRANTS UNDER THE PLAN
The table below shows, as to Corsair's President and Chief Executive
Officer and each of the other four most highly compensated executive officers of
Corsair (collectively, the "Named Executive Officers") and as to the various
indicated groups, the following information with respect to stock options
granted during fiscal 1997 and during the first quarter of 1998, plus options
which Corsair has determined to grant under the Plan to the extent currently
known or determinable: (i) the number of shares of Corsair Common Stock subject
to options granted and (ii) the weighted average exercise price per share for
such options.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
OPTIONS EXERCISE
(#) PRICE
------- --------
<S> <C> <C>
Mary Ann Byrnes.......................................... 124,421 $10.41
Director, President and Chief Executive Officer
David G. Thompson........................................ 44,761 13.15
Vice President, Marketing
Martin J. Silver......................................... 50,000 13.80
Chief Financial Officer and Secretary
Donald R. Oestreicher.................................... 52,330 13.13
Vice President, Engineering
Thomas Meyer............................................. 44,201 13.04
Vice President, Operations
All current directors who are not executive officers..... 22,500 14.50
All current executive officers as a group................ 601,045 9.94
All employees, including all current officers who are not
executive officers, as a group......................... 384,200 12.81
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Corsair Board believes that the Plan, as amended, is necessary in order
to continue to provide equity incentives to attract and retain the services of
key employees, consultants and nonemployee members of the Corsair Board. For
this reason, the Corsair Board recommends a vote FOR this proposal. If this
proposal is not approved, the number of shares available for issuance will
remain at 1,337,633 shares.
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APPROVAL OF AN AMENDMENT TO CORSAIR'S
1997 EMPLOYEE STOCK PURCHASE PLAN
(PROPOSAL FOR THE CORSAIR MEETING)
INTRODUCTION
Stockholders are also being asked to consider and vote upon a proposal to
approve an amendment to Corsair's 1997 Employee Stock Purchase Plan (the
"Purchase Plan"). The Purchase Plan was originally adopted by the Corsair Board
on May 20, 1997, and was subsequently approved by the Corsair stockholders on
May 27, 1997 and became effective on July 29, 1997.
The amendment proposed to the Purchase Plan was adopted by the Corsair
Board on March 20, 1998, subject to stockholder approval. The amendment will
increase the total number of shares available for issuance under the Purchase
Plan by an additional 100,000 shares to a total of 266,667.
The affirmative vote of a majority of the stockholders represented and
voting at the Corsair Meeting is required for approval of the amendment to the
Purchase Plan. The Purchase Plan, as amended, will become effective immediately
upon approval by Corsair's stockholders at the Corsair meeting. The following is
a summary of the material terms and provisions of the Purchase Plan. This
summary, however, does not purport to be a complete description of the Purchase
Plan. Copies of the actual plan document may be obtained by any stockholder upon
written request to the Secretary of Corsair at the corporate offices in Palo
Alto, California.
SHARE RESERVE AND PLAN ADMINISTRATION
The maximum number of shares that may be sold to participants over the term
of the Purchase Plan may not exceed 266,667 shares of Corsair Common Stock,
assuming stockholder approval of this proposal. As of March 31, 1998, 28,064
shares of Corsair Common Stock had been issued under the Purchase Plan and
238,603 shares will be available for future issuance (assuming stockholder
approval of the 100,000-share increase). Appropriate adjustments will be made to
(i) the class and maximum number of securities purchasable under the Purchase
Plan, (ii) the class and maximum number of securities purchasable per
participant during any one purchase period and (iii) the class and number of
securities and the price per share in effect under each outstanding purchase
right in order to preserve participant rights should any change be made to the
outstanding Corsair Common Stock by reason of any stock dividend, stock split,
combination of shares or other similar change affecting the outstanding Corsair
Common Stock as a class without the Corsair's receipt of consideration.
The Purchase Plan is administered by the Compensation Committee of the
Board of Directors. The committee as Plan Administrator has full authority to
adopt administrative rules and procedures and to interpret the provisions of the
Purchase Plan and any outstanding purchase rights.
ELIGIBILITY
Each individual customarily employed by Corsair or a participating
subsidiary for more than 20 hours per week and more than five months per
calendar year is eligible to participate in the Purchase Plan upon completion of
five months of continuous service. As of March 31, 1998, approximately 158
employees were eligible to participate under the Purchase Plan.
PLAN OPERATION
The Purchase Plan will be implemented in a series of successive offering
periods, each with a maximum duration of 24 months. Individuals who are eligible
employees on the start date of any offering period may enter the Purchase Plan
on that start date or on any subsequent semi-annual entry date (March 1 or
September 1 each year). Individuals who become eligible employees after the
start date of the offering period may join the Purchase Plan on any subsequent
semi-annual entry date within that period.
Each participant may, through authorized payroll deductions, contribute up
to 10% of base pay (in one percent multiples) during each offering period.
However, no participant may purchase more than 7,500 shares
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of Corsair Common Stock during any one offering period nor more than $25,000
worth of Corsair Common Stock (based upon the value of the Corsair Common Stock
at the time the offering period begins) for each calendar year the purchase
right remains outstanding.
The purchase price will be equal to the lesser of (i) 85% of the fair
market value per share of Corsair Common Stock on the last business day
immediately preceding the start date of the offering period or (ii) 85% of the
fair market value per share of Corsair Common Stock on each semi-annual date the
purchase right is exercised during that offering period. Should the fair market
value of Corsair Common Stock on any semi-annual purchase date be less than the
fair market value of the Corsair Common Stock on the first day of the offering
period, then the current offering period will automatically end and a new
24-month offering period will begin, based on the lower fair market value.
The fair market value of the Corsair Common Stock on any relevant date will
be the closing selling price per share on such date as reported on the Nasdaq
National Market System. As of May 15, 1998 the fair market value per share of
Common Stock was $ , based on the closing selling price per share on
such date on the Nasdaq National Market System.
No participant will have any stockholder rights with respect to the shares
covered by his or her outstanding purchase right until the shares are actually
purchased on his or her behalf. No purchase right will be assignable or
transferable except by will or by the laws of descent and distribution following
the participant's death. Accordingly, during the participant's lifetime, the
purchase right will be exercisable only by the participant.
In the event all or substantially all of the assets or outstanding capital
stock of Corsair is sold by means of a sale, merger or other reorganization in
which Corsair will not be the surviving corporation, all outstanding purchase
rights will automatically be exercised immediately prior to the effective date
of such transaction.
The purchase right of a participant will cease to accrue automatically in
the event the participant ceases to be an employee of Corsair, and any payroll
deductions collected from such individual during the fiscal semi-annual in which
such termination occurs will, at participants election, either (i) be refunded
to participant or (ii) held for the purchase of shares on the semi-annual
purchase date immediately following the cessation of employment. A participant
may also terminate his or her outstanding purchase right at any time prior to
the last five (5) business days of a semi-annual period and receive a refund of
all payroll deductions not yet applied to the purchase of Common Stock on his or
her behalf.
AMENDMENT AND TERMINATION
The Purchase Plan will terminate upon the earlier of (i) the last business
day in July 2007, (ii) the date on which all shares available for issuance
thereunder are sold pursuant to exercised purchase rights, or (iii) the date on
which all purchase rights are exercised in connection with an acquisition of
Corsair. However, Corsair has specifically reserved the right, exercisable in
the sole discretion of the Plan Administrator, to terminate all outstanding
purchase rights under the Purchase Plan immediately following any semi-annual
purchase date. If such right is exercised by Corsair, then the Purchase Plan
will terminate in its entirety, and no further purchase rights will be granted
or exercised thereunder.
The Corsair Board may amend or modify the provisions of the Purchase Plan
at any time. However, the Corsair Board may not, without stockholder approval,
(i) materially increase the number of shares issuable under the Purchase Plan or
the maximum number of shares which any one participant may purchase during a
single offering period, (ii) alter the purchase price formula so as to reduce
the purchase price, (iii) materially increase the benefits accruing to
participants or (iv) materially modify the requirements for eligibility to
participate in the Purchase Plan.
FEDERAL TAX CONSEQUENCES
The Purchase Plan is intended to be a qualified plan under Section 423 of
the Code. Accordingly, the Participant will not recognize any taxable income at
the time one or more shares of Corsair Common Stock are purchased on his/her
behalf on any semi-annual purchase date under the Purchase Plan.
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ACCOUNTING TREATMENT
All of the existing accounting rules for employee stock benefit plans are
currently being reviewed by the Financial Accounting Standards Board.
Accordingly, the accounting treatment for stock issuances under the Purchase
Plan may change significantly in the future.
PURCHASES UNDER THE PLAN
The table below shows, as to the Named Executive Officers and as to the
various indicated groups, the following information with respect to stock
issuances during fiscal 1997 and during the first quarter of 1998, plus stock
issuances under the Purchase Plan to the extent currently known or determinable:
(i) the number of shares of Corsair Common Stock and (ii) the weighted average
purchase price per share.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES PURCHASE
(#) PRICE
------ --------
<S> <C> <C>
Mary Ann Byrnes........................................... 803 $12.75
Director, President, Chief Executive Officer
David G. Thompson......................................... 594 12.75
Vice President, Marketing
Martin J. Silver.......................................... 700 12.75
Chief Financial Officer and Secretary
Donald R. Oestreicher..................................... 666 12.75
Vice President, Engineering
Thomas Meyer.............................................. 595 12.75
Vice President, Operations
All current executive officers as a group................. 5,216 12.75
All employees, including all current officers who are not
executive officers, as a group.......................... 22,848 12.75
</TABLE>
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors believes that the amendment to the Purchase Plan are
necessary in order to continue to provide meaningful equity incentives to
attract and retain the services of valued employees. For this reason, the Board
of Directors recommends that the stockholders vote FOR this proposal.
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CORSAIR COMMUNICATIONS, INC.
BUSINESS
GENERAL
Corsair provides an open architecture hardware and software system that can
serve as a platform for the delivery of multiple products and services to the
wireless telecommunications industry. The genesis for the platform is
PhonePrint(R), a system that has proven highly effective in reducing cloning
fraud. The PhonePrint system has prevented over 120 million fraudulent call
attempts and some customers have reported up to a 95% reduction in cloning fraud
losses after deploying PhonePrint. In addition to providing cloning fraud
prevention, Corsair's platform is designed to support a broad range of products
and services for the wireless telecommunications industry, including churn
reduction and phone location products. Corsair believes that new products can be
integrated with its open, scalable platform, which can provide a number of
benefits to wireless telecommunications carriers, including accelerated
development and deployment, reduced costs, efficient use of cell site space and
improved customer service.
Corsair sells and markets its products to wireless telecommunications
carriers domestically and internationally. Corsair's customers include AT&T
Wireless Services, Inc., Baja Celular Mexicana, S.A. de C.V., Bell Atlantic
Mobile, Inc., BellSouth Cellular Corp., Celular de Telefonia, S.A. de C.V., CCPR
Services, Inc., Centennial Cellular Corp., Comcast Cellular Communications,
Inc., Dobson Cellular Systems, Inc., GTE Wireless, Inc., Grupo Iusacell, S.A. de
C.V., Houston Cellular Telephone Company, Los Angeles Cellular Telephone
Company, Pilipino Telephone Corporation (Piltel), PriCellular Wireless
Corporation, Puerto Rico Telephone Company, RadioMovil DIPSA, S.A. de C.V.
(Telcel), Southwestern Bell Mobile Systems Inc., Southwestern Bell Wireless,
United States Cellular Corp. and Vanguard Cellular Financial Corp.
INDUSTRY BACKGROUND
The worldwide demand for wireless telecommunications services has grown
significantly in recent years as those services have become widely available and
increasingly affordable. The growth in the worldwide subscriber base, together
with changes in telecommunications regulations and allocations of additional
radio spectrum frequencies, has resulted in the build-out of a significant
number of new networks and plans for additional networks. Dataquest Incorporated
has estimated that the number of wireless telecommunications subscribers
worldwide increased from approximately 16 million in 1991 to approximately 125
million in 1996, and the number of subscribers is expected to exceed 360 million
by the end of 2000.
There are two types of wireless telecommunications networks: analog and
digital. Analog networks broadcast the actual voice waveform; digital networks
digitize the voice waveform using various coding techniques before the signal is
broadcast. In the 1980s, carriers around the world installed primarily analog
networks. In North America, all analog networks use a single transmission
standard, called Advanced Mobile Phone Services ("AMPS"), that enables carriers
to provide nearly seamless roaming coverage by partnering with other carriers.
Corsair believes that over 90% of wireless telecommunications subscribers in
North America use analog networks. Worldwide, a substantial majority of wireless
telecommunications subscribers use analog networks.
Corsair believes that analog networks will continue to play a significant
role in wireless telecommunications for the foreseeable future. Corsair believes
that the costs required to replace existing analog phones, the capacity
available on existing analog networks, the existence of multiple digital
transmission standards and the need to provide seamless roaming services make
the exclusive implementation of digital networks across all markets impractical
and unlikely for the foreseeable future. However, because digital standards are
gaining market share, Corsair has plans to develop products to serve markets
using digital standards.
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Issues Facing Wireless Telecommunications Carriers
As the wireless telecommunications industry evolves, it faces severe
competitive, pricing and cost pressures and additional regulatory hurdles. In
the U.S., existing carriers are seeing increased competition as new Personal
Communications Services ("PCS") and Enhanced Specialized Mobile Radio ("ESMR")
carriers enter their markets. Also, as the industry shifts from a predominantly
high usage business subscriber base to the mass market, carriers are being
impacted by a decline in the average revenue per subscriber. As a result,
carriers must retain subscribers for a longer period of time to recover their
marketing investment per subscriber and the high costs of spectrum acquisition
and network build-out. In order to retain or acquire market share, carriers are
faced with a growing need to differentiate service offerings from their
competitors, using enhanced features, security, voice quality, coverage, pricing
and other factors as differentiators.
These market forces have identified the need for carriers to improve their
service offerings and to address a number of issues that have been facing the
industry for some time. Three of these issues are objects of Corsair's products
and product development efforts: fraud, customer churn, and the impending need
for a wireless location capability.
Fraud
Fraud is one of the most pervasive problems facing the wireless
telecommunications industry. The most common types of fraud are cloning fraud,
subscription fraud and phone theft. Fraud in the U.S. cost wireless
telecommunications carriers in excess of $1 billion in 1996, according to the
Yankee Group. It is also believed that fraud poses a significant problem for
wireless telecommunications carriers worldwide.
Corsair believes that cloning fraud accounts for most fraud losses in
analog networks. Cloning occurs when a thief uses a scanning device to steal the
mobile identification number ("MIN") and electronic serial number ("ESN")
transmitted over the air during a wireless call, and then reprograms other
phones with the stolen numbers. The reprogrammed phones, or "clones," are then
used to make fraudulent calls on the wireless carriers' networks.
To address cloning fraud, a number of prevention techniques, including
fraud profilers, personal identification numbers ("PINs") and voice recognition,
have been developed. None of these techniques has proven to be a practical and
effective solution to preventing cloning fraud on analog networks. A fraud
profiler is a software tool that tracks anomalies in a subscriber's behavior and
notifies a carrier of unusual calling patterns. Profilers detect suspicious
activity after it has occurred, assist carriers in identifying fraud and require
manual intervention. PINs involve the use of a numeric code that must be dialed
by the subscriber before a call is connected. PINs are considered inconvenient,
and because they are transmitted over the air during a call, they have been
compromised in the same manner as MIN/ESN numbers. Voice recognition requires
the use of a spoken password before a call is connected. The technological
feasibility of voice recognition systems for the prevention of cloning fraud is
still being evaluated and voice recognition systems are not generally viewed as
a cost-effective or convenient solution.
Another cloning fraud prevention technique, known as authentication, uses
encryption technologies and requires a phone to prove its validity before a call
is connected. While authentication has been adopted by many carriers and is
expected to be used in a large number of networks in the future, Corsair
believes that it will not be cost effective to replace the large number of
existing analog phones that do not allow authentication. Because authentication
is generally considered expensive and difficult to implement, a number of
carriers, especially in international and smaller U.S. markets, have not yet
deployed it. In addition, recent announcements relating to breaches of other
wireless encryption algorithms have heightened concerns about the vulnerability
of authentication processes in preventing fraud.
Customer Churn
New competitive market forces have focused carriers on reducing the rate at
which subscribers switch to another carrier's services or cease using wireless
telecommunications services altogether, a phenomenon known as "churn." According
to industry sources, churn is in the range of 20% to 30% per year for many
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carriers, and is expected to remain a significant issue as competition
intensifies. Corsair believes that the high rates of churn experienced in the
wireless telecommunications industry can be attributed, in part, to subscriber
dissatisfaction with the scope and quality of service. In order to increase
subscriber satisfaction and improve the overall quality of service, carriers are
currently attempting to increase network capacity, offer enhanced services,
improve network security and voice quality and reduce the impact of fraud on
legitimate subscribers. Corsair believes wireless telecommunications carriers
will seek solutions to reduce churn by identifying and correcting problems
before subscriber turnover occurs.
Wireless Location
Wireless telecommunications carriers in the U.S. are also seeking
cost-effective means to comply with new industry regulations. A Federal
Communications Commission ("FCC") mandate currently requires that by October
2001 all wireless telecommunications carriers in the U.S. be capable of locating
emergency 911 callers on their networks within a certain range of accuracy.
Although the FCC mandate contains a provision that may allow carriers to pass
the cost of this service to their subscribers, Corsair believes that cost
containment and pricing pressures likely will encourage the implementation of
low-cost solutions that minimize the cost of service to subscribers. Given the
regulatory requirement to implement wireless location, carriers are also
considering ways to leverage their investment in a location capability to offer
location-based commercial services to their subscribers. Corsair believes
location systems may introduce commercially significant service enhancements
such as location-based billing, tracking, and information services.
CORSAIR'S SOLUTIONS
Fraud
Corsair's PhonePrint system provides highly effective cloning fraud
prevention to wireless telecommunications carriers by using proprietary radio
frequency ("RF") signal analysis technology to identify attempted fraudulent
calls and prevent cloners from gaining access to a carrier's analog network. The
system measures specific characteristics of each phone's unique RF waveform to
develop an "RF fingerprint" that is a reliable tool to distinguish between a
clone and a legitimate phone. Just as no two human fingerprints are the same,
differences in phone designs and components as well as subtle manufacturing
differences mean that no two wireless phones generate the same waveform. The RF
fingerprint of one wireless phone cannot be emulated by another wireless phone,
and is therefore not subject to being compromised like MIN/ESN numbers, PINs or
potentially authentication codes. The scalable design of the PhonePrint system
allows carriers to deploy the system initially in areas where fraud is most
prevalent and to further deploy the system over time in other parts of their
networks. In addition, by purchasing subscriptions to Corsair's PhonePrint
Roaming Network(TM), carriers can share RF fingerprints in real-time between
PhonePrint systems in different markets to protect against losses associated
with roaming fraud.
Customer Churn
Corsair's PhoneCheck(TM) system, first made commercially available in
November 1997, provides a means for wireless telecommunications carriers to
collect data on the performance of subscribers' phones as they use the wireless
network. Using the PhonePrint system as the backbone for signal collection,
PhoneCheck gathers phone performance information from throughout the carrier's
wireless network. The system presents this information through a graphical user
interface to carrier personnel to focus their customer retention service
efforts. PhoneCheck allows carriers to detect phones with performance problems,
report on specific indicators of those problems, and track the handling of the
affected subscriber. Using PhoneCheck performance data, the carrier's customer
service, marketing, and engineering groups can address a financially significant
source of subscriber dissatisfaction and churn.
Wireless Location
Corsair's PhoneTrack(TM) wireless location system is currently under
development. Corsair is taking a technological approach that it believes will
both support commercial applications and permit cost-effective
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compliance with the FCC Mandate. The PhoneTrack system will be a network-based
time difference of arrival system, a technology Corsair believes provides an
attractive combination of flexibility, low cost, and high accuracy. PhoneTrack
is currently scheduled for release in 1999.
The Corsair platform has been designed as a distributed, open architecture
system into which products addressing other needs of wireless telecommunications
carriers can be integrated. Corsair believes that this platform is capable of
supporting a broad range of products that may be demanded by the wireless
telecommunications industry. Additionally, Corsair believes that the open
platform will provide significant cost advantages for products developed for it,
as compared to stand-alone products offered by others, because of the ability to
leverage common designs and components.
STRATEGY
Corsair's objective is to be the leading provider of value-added solutions
to wireless telecommunications carriers. Key elements of Corsair's strategy
include:
Maintain Leadership in RF Fingerprinting Solutions. Corsair believes that
its proprietary approach to developing RF fingerprints, based upon technology
originally developed for the military, is a key differentiator of Corsair's
solution that results in highly effective cloning fraud prevention. Corsair also
believes that it deployed the first real-time network for the exchange of
fingerprints between carriers, and that it was also the first to expand
real-time roaming protection internationally. Corsair intends to focus on
enhancing and improving PhonePrint in order to optimize its performance.
Further Penetrate Market for Cloning Fraud Prevention Solutions. Corsair
intends to leverage its reputation and experience as a leading provider of RF
fingerprinting solutions to increase its share of the market for cloning fraud
prevention solutions. Corsair plans to capitalize on the PhonePrint system's
initial success in reducing cloning fraud. Corsair believes that carriers in
international markets are experiencing substantial cloning fraud on their analog
networks and present a greater future opportunity for PhonePrint sales than
domestic markets. Corsair intends to expand PhonePrint sales internationally by
increasing its direct sales force and marketing through distribution partners.
Corsair believes that the reputation, customer relationships and global field
support capabilities of distribution partners may accelerate the penetration of
its products in international markets. To date, Corsair has deployed PhonePrint
in Mexico, the Philippines and Malaysia.
Leverage Core Expertise to Develop and Acquire New Products. Corsair
intends to use its core expertise in RF signal analysis, digital signal
processing and real-time networking in distributed systems environments to
develop and introduce other products that can be integrated into the Corsair
platform. Corsair has recently developed the PhoneCheck wireless phone
performance monitoring system, which addresses the wireless telecommunications
industry's concerns over voice quality and customer churn. Corsair is currently
developing the PhoneTrack wireless location system to address the challenge
presented by the FCC phone location mandate. Corsair also seeks to strategically
acquire complementary businesses, products and technologies from third parties.
Corsair has in the past evaluated and expects in the future to pursue
acquisitions with third parties.
Leverage Corsair Platform to Provide Low-Cost Solutions. Corsair intends to
use the PhonePrint system as an open platform from which additional products and
services can be provided to the wireless telecommunications industry. Corsair
believes that new products can be integrated with certain hardware and software
designs and components of its open, scalable platform, which can provide a
number of benefits, including accelerated development and deployment, reduced
costs, efficient use of cell site space and improved customer service. Once
installed, the Corsair platform can support additional Corsair and third-party
products that Corsair believes would be more cost-effective than stand-alone
products. Corsair seeks to collaborate with third party product developers to
integrate new products into the Corsair platform.
Provide Superior Customer Support. Corsair believes that providing superior
customer support is critical to maintaining long-term relationships and to
capitalizing upon future sales opportunities. Corsair has invested in building a
customer support organization with the range of technical skills and depth of
expertise necessary
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to serve various wireless customers. Corsair has developed proprietary software
tools that permit extensive monitoring and diagnosis of system performance and
provide for the flexibility of remote operation.
THE PHONEPRINT SYSTEM
PhonePrint is an open architecture hardware and software system that
reduces cloning fraud by detecting and promptly disconnecting fraudulent call
attempts. A key element of the architecture is its distributed processing
capability, which provides high performance and efficiency and reduces network
bandwidth requirements. The system supports real-time network connectivity,
allowing PhonePrint markets to interoperate both domestically and abroad. The
scalable design of the PhonePrint system has allowed both large and small
carriers to deploy the system initially in areas where cloning fraud is most
prevalent and to further deploy the system over time in other parts of their
networks.
PhonePrint's cloning fraud prevention capability is based upon proprietary
RF signal analysis technology. Every wireless phone's signal creates a unique
waveform due to differences in phone designs and components, as well as subtle
manufacturing variances. PhonePrint creates an RF fingerprint by using complex
proprietary algorithms to measure physical features of these waveforms. RF
fingerprints of legitimate subscribers' phones are stored in a database.
PhonePrint compares the observed RF fingerprint of the caller with the RF
fingerprint of the Subscriber in the database. If the two fingerprints do not
match, the call is promptly disconnected. In addition, PhonePrint reduces
roaming fraud by exchanging RF fingerprints between markets connected to the
PhonePrint Roaming Network in real-time, allowing the immediate disconnection of
fraudulent roaming call attempts.
The PhonePrint system is comprised of three components for each market:
radio frequency units located in multiple cell sites, a single system control
center and a single real-time application server. All of these components are
connected by a real-time open internet protocol ("IP") network.
Radio Frequency Units ("RFUs"). Each RFU is an intelligent, self-contained
unit that detects fraudulent calls. Key elements of the RFU include
sophisticated receivers, a PC-based processor and a database of subscriber RF
fingerprints. An RFU constantly monitors the RF waveforms generated by phones,
analyzes them via proprietary algorithms and initiates disconnections when fraud
is detected. The RF collection, signal analysis and fraud detection process
requires less than 0.5 seconds. RFUs have been designed so that they can be
installed, exchanged or taken off-line without interrupting the carrier's
wireless network.
System Control Center ("SCC"). An SCC administers and maintains the master
database of RF fingerprints and activates RF fingerprint validation processes
for a market. An SCC also communicates with the market's RFUs to receive new RF
fingerprint observations and update RF fingerprint databases. The SCC also
supports remote system diagnostics and configuration administration.
Real-Time Application Server ("RTAS"). The RTAS hosts a graphical user
interface that allows different carrier personnel, including customer care
representatives and fraud analysts, to generate a variety of system activity
reports based on real-time and historical data.
Real-Time Network. The RFUs, SCC and RTAS for each market are connected
together, and the PhonePrint system is connected to the carrier's network
infrastructure, using an open IP network. Carrier can subscribe to the
PhonePrint Roaming Network service to exchange RF fingerprints with other
markets in real-time to reduce roaming fraud.
The hardware and software components of the PhonePrint system have been
designed to be compatible with various vendors' infrastructure equipment to
maximize the testability, reliability and performance of the system and to
reduce software release cycle times.
THE PHONECHECK SYSTEM
PhoneCheck is a software and hardware system, which uses the PhonePrint
system's hardware, software, and network to provide a second application to
wireless telecommunications carriers. Introduced in November 1997, PhoneCheck
uses RF signal data collected by the PhonePrint RFUs to analyze the performance
of
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phones throughout the wireless network. This application delivers performance
data to the carrier via a Windows-based graphical user interface which allows
the carrier to identify poorly performing phones, selectively sort and
distribute performance data, and track contacts made with subscribers.
PhoneCheck data and the interface application are designed specifically to
support the carrier's proactive efforts to contact subscribers at risk of churn
because of poor call quality.
The PhoneCheck system consists of several software and hardware additions
to the PhonePrint system on which it depends. The PhonePrint RFUs contain
software to measure a number of RF signal performance features during normal
operation of the PhonePrint system. The RFUs store this data temporarily,
downloading to the PhonePrint SCC periodically. The SCC then forwards the data
to the PhoneCheck Data Server ("PDS"), which analyzes the performance data and
enters it into the PhoneCheck database. The PDS is the only hardware addition to
the PhonePrint system necessary to implement PhoneCheck. The PDS structures the
performance data for use by Windows-based client workstations running the
PhoneCheck graphical user interface.
PhoneCheck's graphical user interface allows the carrier's customer service
or marketing representatives to sort and structure the phone performance data to
support both outbound and inbound subscriber contact programs. Outbound contact
programs typically are used to "save" subscribers at risk of churning; inbound
programs are used to handle subscribers' complaints about call quality and other
issues. The system's outbound contact features allow for the generation of
subscriber lists for contact, tracking of contacts made and actions taken, and
management reporting. Inbound contact features allow call center representatives
to look up phone performance data rapidly and identify phone problems while the
Subscriber is on the line. PhoneCheck is designed to fit smoothly into the
carriers' operations and systems, with minimal need for special equipment,
software, or networking. To date, Corsair has recognized no revenues from
PhoneCheck.
PRODUCT DEVELOPMENT
Corsair believes that it has established a platform from which multiple
integrated products can be offered to customers at relatively low cost compared
to stand-alone products through the use of common designs and components. The
platform was designed to use standard computer and networking protocols to allow
for the integration of future products. For example, the platform operates in
UNIX, and uses a structured query language ("SQL") relational database, standard
PC processor, and network massaging supported via TCP/IP standards. The Corsair
platform, by virtue of its flexibility, distributed processing power and
location within a carrier's cell site, is positioned to perform a variety of
tasks. Decreasing the cost of cell site equipment, obtaining superior customer
support and saving cell site space are all important considerations for carriers
in selecting products. Corsair believes that all of these considerations can be
addressed by leveraging common designs and components incorporated within the
Corsair platform across a broad range of products.
Corsair's product development enhancements to the PhonePrint system and
development of new products will address perceived market opportunities. Future
releases of PhonePrint are being developed to support additional signal
transmission standards, particularly digital standards. Additional research and
development activities are focused on developing new products that would
integrate into the Corsair platform and expand and enhance the capabilities of
the platform.
Corsair is currently developing a phone location product (PhoneTrack),
currently targeted to be introduced in 1999, which is intended to leverage the
key designs and components of its existing platform to create a product that
enables U.S. wireless telecommunications carriers to meet the FCC mandate that
requires them to be capable of identifying the location of wireless callers to
911 emergency systems. The mandate requires that these products be operational
and accurate to within 125 meters of the wireless caller not less than 67% of
the time by October 2001. The FCC mandate has also focused the wireless
telecommunications industry on finding commercial applications for wireless
location systems. Corsair believes that its knowledge of RF signal analysis
technologies, its digital signal processing ("DSP") expertise and its installed
base of PhonePrint systems are competitive advantages in its development of an
emergency 911 caller location product for the wireless telecommunications
industry.
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The process of developing new products and product enhancements for use in
the wireless telecommunications industry is extremely complex and is expected to
become more complex and expensive in the future as new platforms and
technologies emerge. In particular, Corsair is aware of significant technical
challenges with respect to the phone location product it is currently attempting
to develop. In the past, Corsair has experienced delays in the introduction of
certain product enhancements, and there can be no assurance that new products or
product enhancements will be introduced on schedule or at all. Any new products
or product enhancements may also contain defects when first introduced or when
new versions are released. There can be no assurance that, despite testing by
Corsair, defects will not be found in new products or product enhancements after
commencement of commercial shipments, resulting in loss of or delay in market
acceptance. Any loss of or delay in market acceptance would have a material
adverse effect on Corsair's business, operating results and financial condition.
Total research and development expenditures were $7.0 million, $5.0
million, and $3.1 million in fiscal 1997, 1996, and 1995, respectively. Corsair
anticipates that it will continue to commit substantial resources to product
development in the future. All research and development expenditures have been
expensed as incurred. For the past three years, product development activities
have significantly improved the PhonePrint system by identifying new algorithms
and refining existing algorithms to bolster PhonePrint's fraud detection
capabilities and by improving reliability and manufacturability. During this
same period of time, end-to-end real-time network connectivity capabilities and
a graphical user interface were also developed, and significant size and cost
reductions were achieved.
As of December 31, 1997, 44 employees were engaged in research and
development programs, including hardware and software development, test and
engineering support. Corsair believes that recruiting and retaining engineering
personnel is essential to its success. Competition for such personnel is
intense. See "Risks Factors -- Dependence on Personnel."
CUSTOMERS
The end users of Corsair's PhonePrint system are both domestic and
international wireless telecommunications carriers. BellSouth Cellular
Corporation, GTE Wireless Inc., Southwestern Bell Mobile Systems, Inc. and
Radiomovil DIPSA S.A. de C.V. each accounted for greater than 10% of Corsair's
total revenues in 1997, and collectively accounted for over 52% of Corsair's
total revenues in 1997. For the same period in 1996, Los Angeles Cellular
Telephone Company, AT&T Wireless Services, Inc., Southwestern Bell Mobile
Systems, Inc. and Comcast Cellular Communications, Inc. each accounted for
greater than 10% of Corsair's total revenues, and collectively accounted for
over 70% of Corsair's total revenues for the year. AT&T Wireless Services, Inc.
and AirTouch Communications, Inc. accounted for virtually all of Corsair's total
revenues in 1995. See "Risks Factors -- Customer Concentration."
The following is a list of wireless telecommunications carriers that have
deployed Corsair's PhonePrint system:
AT&T Wireless Services, Inc.
Baja Cellular Mexicana, S.A. de C.V.
Bell Atlantic Mobile, Inc.
BellSouth Cellular Corporation
Celular de Telefonio, S.A. de C.V.
Centennial Cellular Corporation
Comcast Cellular Communications, Inc.
CCPR Services, Inc. (Cellular One Puerto Rico)
Dobson Cellular Systems, Inc.
GTE Wireless Inc.
Grupo Iusacell, S.A. de C.V.
Houston Cellular Telephone Company
Los Angeles Cellular Telephone Company
Pilipino Telephone Corporation (PILTEL)
PriCellular Wireless Corporation
Puerto Rico Cellular Telephone Company
RadioMovil DIPSA, S.A. de C.V. (Telcel)
Southwestern Bell Mobile Systems, Inc.
United States Cellular Corporation
Vanguard Cellular Financial Corp.
SALES, MARKETING, DISTRIBUTION AND CUSTOMER SUPPORT
Corsair markets its products to wireless telecommunications carriers
domestically and internationally primarily through its direct sales force.
Corsair has also entered into several distribution agreements. Corsair
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sells and licenses PhonePrint pursuant to agreements that typically provide for
hardware purchases and software licenses, customer service and support and
roaming service fees. A carrier's decision to deploy PhonePrint typically
involves a significant commitment of capital by the carrier, with the attendant
delays frequently associated with significant capital expenditures. In addition,
purchases of PhonePrint involve testing, integration, implementation and support
requirements. For these and other reasons, the sales cycle associated with the
purchase of PhonePrint typically ranges from three to 18 months and is subject
to a number of risks over which Corsair has little control, including the
carrier's budgetary and capital spending constraints and the internal decision
making processes. See "Risks Factors -- Risks Relating to the Combined
Company -- Fluctuations in Quarterly Financial Results; Lengthy Sales Cycle."
For the year ended December 31, 1997, international revenues accounted for
approximately 19% of Corsair's total revenues. Revenue from international
customers did not account for any of Corsair's total revenues in 1996 or 1995.
Corsair expects that revenue from international customers may account for a
significantly larger portion of Corsair's total revenues in the foreseeable
future then it did in 1997. Corsair is expanding its sales efforts outside of
the United States, both directly and through distributors and switch vendors.
Any such expansion will require significant management attention and financial
resources. See "Risks Factors -- Risks Associated with International Expansion."
Corsair is actively seeking to enter into distribution agreements and other
marketing arrangements as it believes it will depend on distributors in the
future, both with respect to PhonePrint and new products, if any, that Corsair
may offer. During 1997, Corsair entered into distribution agreements with
Motorola, Inc. ("Motorola") and Ericsson Radio Systems AB ("Ericsson"), which
provide these companies the ability to distribute PhonePrint worldwide on a
non-exclusive basis. Corsair also entered into sales referral agreements with
Lucent Technologies, Inc. ("Lucent") and Sumitomo Corporation of America
("Sumitomo") allowing Lucent and Sumitomo to work with Corsair to generate sales
leads in certain situations. In 1996, Corsair entered into a distribution
agreement with Aurora Wireless Technologies, Ltd. ("Aurora"), which provides
Aurora with the ability to distribute PhonePrint throughout the Asia/Pacific
region, as defined in the agreement. Pursuant to these arrangements, PhonePrint
systems have been placed with carriers in the Philippines, Malaysia, and Europe.
See "Risks Factors -- Risks Relating to the Combined Company -- Dependence on
Distributors."
Corsair provides service and technical support for its products through
both its direct field service and support personnel and its distributors. A high
level of continuing service and support is critical to Corsair's objective of
developing long-term relationships with its customers. Corsair also provides
on-site installations and technical assistance as part of the standard support
and service package that its customers typically purchase for the length of
their respective agreements with Corsair. Corsair also offers various training
courses for its distributors and customers.
COMPETITION
The market for PhonePrint is new and intensely and increasingly
competitive. Corsair believes that the primary competitive factors in the
cloning fraud prevention market in which it currently competes include product
effectiveness and quality, price, service and support capability and
compatibility with cloning fraud prevention systems used by the carrier in other
geographic markets and by the carrier's roaming partners. There has been a
tendency for carriers that purchase cloning fraud prevention systems to purchase
products from the company that supplies cloning fraud prevention systems to
other carriers with whom the purchasing carrier has a roaming arrangement. As a
result, Corsair expects it will be significantly more difficult to sell
PhonePrint to a carrier if the carrier's roaming partners use cloning fraud
prevention systems supplied by a competitor. Furthermore, once a competitor has
made a sale of RF-based cloning fraud prevention systems to a carrier, Corsair
expects that it is unlikely that it would be able to sell PhonePrint to that
carrier.
Corsair's principal competitor for RF-based cloning fraud prevention
systems is Cellular Technical Services Company, Inc. ("CTS"). CTS has agreements
pursuant to which it has installed or will install its RF-based cloning fraud
prevention system in many major U.S. markets. PhonePrint also competes with a
number of alternative technologies, including profilers, personal identification
numbers and authentication.
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Corsair is aware of numerous companies, including GTE Telecommunications
Services, Inc., Authentix Network, Inc., Lightbridge, Inc., Systems/Link
Corporation, International Business Machines Corporation, Digital Equipment
Corp. and Hewlett-Packard Corporation that currently are or are expected to
offer products in the cloning fraud prevention area. In addition, carriers may
themselves develop technologies that limit the demand for PhonePrint. There can
be no assurance that any such company or any other competitor will not introduce
a new product at a lower price or with greater functionality than PhonePrint.
Furthermore, the demand for PhonePrint would be materially adversely affected if
wireless telecommunications carriers implement authentication technology
applicable to analog phones as their sole cloning fraud solution in major
markets, if U.S. wireless telecommunications carriers adopt a uniform digital
standard that reduces the need for digital phones to operate in analog mode
while roaming, or if analog phone makers change product designs and/or improve
manufacturing standards to a point where the difference from phone to phone in
the radiowave form becomes so small that it is difficult for PhonePrint to
identify a clone. There can be no assurance that any currently available
alternative technology or any new technology will not render Corsair's products
obsolete or significantly reduce the market share afforded to RF-based cloning
fraud prevention systems like PhonePrint.
The market for other products and services provided to wireless
telecommunications carriers is highly competitive and subject to rapid
technological change, regulatory developments and emerging industry standards.
In addition, many wireless telecommunications carriers and vendors of switches
and other telecommunications equipment may be capable of developing and offering
products and services competitive with new products, if any, that the Corsair
may offer in the future. Trends in the wireless telecommunications
industry,including greater consolidation and technological or other developments
that make it simpler or more cost-effective for wireless telecommunications
carriers to provide certain services themselves could affect demand for new
products, if any, offered by Corsair, and could make it more difficult for
Corsair to offer a cost-effective alternative to a wireless telecommunications
carrier's own capabilities. Corsair is aware of a number of companies that have
either announced an intention to develop or are capable of developing products
that would compete with the products Corsair is developing, and Corsair
anticipates the entrance of new competitors in the wireless telecommunications
carrier service industry in the future. Corsair's ability to sell new products,
if any, may be hampered by relationships that competitors have with carriers
based upon the prior sale of other products to carriers.
Corsair believes that its ability to compete in the future depends in part
on a number of competitive factors outside its control, including the ability to
hire and retain employees, the development by others of products and services
that are competitive with Corsair's products and services, the price at which
others offer comparable products and services and the extent of its competitors'
responsiveness to customer needs. Many of Corsair's competitors and potential
competitors have significantly greater financial, marketing, technical and other
competitive resources than Corsair. As a result, Corsair's competitors may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements or may be able to devote greater resources to the
promotion and sale of their products and services. To remain competitive in the
market for products and services sold to wireless telecommunications carriers,
Corsair will need to continue to invest substantial resources in engineering,
research and development and sales and marketing. There can be no assurance that
Corsair will have sufficient resources to make such investments or that Corsair
will be able to make the technological advances necessary to remain competitive.
Accordingly, there can be no assurance that Corsair will be able to compete
successfully with respect to new products, if any, it offers in the future.
MANUFACTURING
Corsair's manufacturing objective is to produce products that conform to
Corsair's specifications at the lowest possible manufacturing cost.
Manufacturing, system integration and certain testing operations are performed
at Corsair's headquarters in Palo Alto, California. Corsair's manufacturing
operations consist primarily of assembling finished goods from components and
subassemblies purchased from third parties. Corsair monitors quality at each
stage of the production process, including the selection of component suppliers,
the assembly of finished goods and final testing, packaging and shipping.
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Corsair relies to a substantial extent on outside vendors to manufacture
many of the components and subassemblies used in PhonePrint, some of which are
obtained from a single supplier or a limited group of suppliers. Corsair's
reliance on outside vendors generally, and a sole or a limited group of
suppliers in particular, involves several risks, including a potential inability
to obtain an adequate supply of required components and reduced control over
quality, pricing and timing of delivery of components. In the past Corsair has
experienced delays in receiving materials from vendors,sometimes resulting in
delays in the assembly of products by Corsair. See"Risks Factors -- Risks
Relating to the Combined Company -- Dependence on Third-Party Products and
Services; Sole or Limited Sources of Supply."
PATENTS AND PROPRIETARY RIGHTS
Corsair relies on a combination of patent, trade secret, copyright and
trademark protection and nondisclosure agreements to protect its proprietary
rights. As of December 31, 1997, Corsair had one issued U.S. patent, six pending
U.S. patent applications; one issued foreign patent and nine pending foreign
patent applications. Corsair's success will depend in large part on the ability
of Corsair to obtain patent protection, defend patents once obtained, license
third-party proprietary rights, maintain trade secrets and operate without
infringing upon the patents and proprietary rights of others. The patent
positions of companies in the wireless telecommunications industry, including
Corsair, are generally uncertain and involve complex legal and factual
questions. There can be no assurance that patents will issue from any patent
applications owned or licensed to Corsair or that, if patents do issue, the
claims allowed would be sufficiently broad to protect Corsair's technology. In
addition, there can be no assurance that any issued patents owned by or licensed
to Corsair will not be challenged, invalidated or circumvented, or that the
rights granted thereunder will provide competitive advantages to Corsair.
Patents issued and patent applications filed relating to products used in
the wireless telecommunications industry are numerous and there can be no
assurance that current and potential competitors and other third parties have
not filed or in the future will not file applications for, or have not received
or in the future will not receive, patents or obtain additional proprietary
rights relating to products used or proposed to be used by Corsair. Corsair is
aware of patents granted to third parties that relate to the potential products
Corsair is currently developing. Corsair will need to either design those
potential products in a manner that does not infringe the third-party patents or
obtain licenses from the third parties and there can be no assurance that
Corsair will be able to do so. There can be no assurance that Corsair is aware
of all patents or patent applications that may materially affect Corsair's
ability to make, use or sell any current or future products. U.S. patent
applications are confidential while pending in the U.S. Patent and Trademark
Office, and patent applications filed in foreign countries are often first
published six months or more after filing. There can also be no assurance that
third parties will not assert infringement claims against Corsair in the future
or that any such assertions will not result in costly litigation or require
Corsair to obtain a license to intellectual property rights of such parties.
There can be no assurance that any such licenses would be available on terms
acceptable to Corsair, if at all. Furthermore, parties making such claims may be
able to obtain injunctive or other equitable relief that could effectively block
Corsair's ability to make, use, sell or otherwise practice its intellectual
property (whether or not patented or described in pending patent applications),
or to further develop or commercialize its products in the U.S. and abroad and
could result in the award of substantial damages. Defense of any lawsuit or
failure to obtain any such license could have a material adverse effect on
Corsair's business, operating results or financial condition.
Corsair also relies on unpatented trade secrets to protect its proprietary
technology, and no assurance can be given that others will not independently
develop or otherwise acquire the same or substantially equivalent technologies
or otherwise gain access to Corsair's proprietary technology or disclose such
technology or that Corsair can ultimately protect its rights to such unpatented
proprietary technology. No assurance can be given that third parties will not
obtain patent rights to such unpatented trade secrets, which patent rights could
be used to assert infringement claims against Corsair. Corsair also relies on
confidentiality agreements with its employees, vendors, consultants and
customers to protect its proprietary technology. There can be no assurance that
these agreements will not be breached, that Corsair would have adequate remedies
for any breach or that Corsair's trade secrets will not otherwise become known
to or be independently developed by
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<PAGE> 106
competitors. Failure to obtain or maintain patent and trade secret protection,
for any reason, could have a material adverse effect on Corsair's business,
operating results and financial condition.
EMPLOYEES
As of March 31, 1998, Corsair had 158 employees, including 52 in sales and
marketing, 18 in manufacturing, 49 in research and development, 20 in
operations, field service and customer support and 19 in finance and
administration. None of Corsair's employees are represented by a collective
bargaining agreement, nor has Corsair experienced any work stoppages. Corsair
believes that its relations with its employees are good.
PRICE RANGE OF CORSAIR COMMON STOCK AND DIVIDEND POLICY
MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
Corsair's Common Stock trades on The Nasdaq Stock Market under the symbol
"CAIR." The table below sets forth the high and low closing sales prices per
share as reported on The Nasdaq Stock Market since Corsair's initial public
offering on July 29, 1997.
<TABLE>
<CAPTION>
CORSAIR COMMON
STOCK
-----------------
PERIOD HIGH LOW
------ ------- -------
<S> <C> <C>
Year Ended December 31, 1997
Third Quarter (commencing July 29, 1997)................. $21.625 $ 16.00
Fourth Quarter........................................... $26.00 $ 15.00
Year Ending December 31, 1998
1st Quarter.............................................. $21.75 $ 15.00
2nd Quarter (through April 30, 1998)..................... $20.00 $ 16.875
</TABLE>
On April 2, 1998, the last trading date prior to the joint public
announcement by Corsair and Subscriber of the signing of the Merger Agreement,
the last reported sale price of Corsair Common Stock on The Nasdaq National
Market was $18.563 per share. As of April 2, 1998, there were approximately 250
stockholders of record of Corsair Common Stock.
On April 30, 1998, the most recent practicable date prior to the filing of
the Registration Statement, the last sale price of Corsair Common Stock as
reported on The Nasdaq National Market was $18.50 per share.
Because the market price of Corsair Common Stock is subject to fluctuation,
the number of shares of Corsair Common Stock the holders of Subscriber Capital
Stock will receive in the Merger (and the market value of those shares of
Corsair Common Stock) may increase or decrease prior to the Merger. CORSAIR AND
SUBSCRIBER STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
CORSAIR COMMON STOCK.
Corsair has declared no cash dividends on its Common Stock. Corsair
currently intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.
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<PAGE> 107
SELECTED FINANCIAL DATA OF CORSAIR
The following selected financial data should be read in conjunction with
Corsair's financial statements and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere herein. The selected financial data presented below under the
captions "Statement of Operations Data" for each of the periods ended December
31, 1994, 1995, 1996 and 1997 and "Balance Sheet Data" as of December 31, 1994,
1995, 1996 and 1997 are derived from the financial statements of Corsair, which
have been audited by KPMG Peat Marwick LLP, independent auditors. The selected
financial data presented below for the three months ended March 31, 1997 and
1998, and as of March 31, 1998, are derived from the unaudited financial
statements of Corsair. The unaudited financial statements have been prepared by
Corsair on a basis consistent with Corsair's audited financial statements and in
the opinion of management include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the Company's operating
results and financial position for the periods and dates to which such
statements relate. Historical results are not necessarily indicative of future
results of operations.
CORSAIR COMMUNICATIONS, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 5,
1994 THREE MONTHS ENDED
(INCEPTION) YEAR ENDED DECEMBER 31, MARCH 31,
TO DECEMBER 31, ----------------------------- -------------------
1994 1995 1996 1997 1997 1998
--------------- -------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF
OPERATIONS DATA:
Total revenues................. $ -- $ 7,593 $ 19,606 $47,838 $ 9,096 $15,235
Gross profit (deficit)......... -- (544) 409 16,322 787 8,009
Total operating costs and
expenses..................... 5,961 8,190 12,948 18,329 3,921 5,850
Operating income (loss)........ (5,961) (8,734) (12,539) (2,007) (3,134) 2,159
Income (loss) before
extraordinary item........... (5,942) (8,517) (12,761) (640) (3,140) 2,756
Loss on debt extinguishment.... -- -- -- (428) -- --
-------- -------- -------- ------- ------- -------
Net income (loss).............. $ (5,942) $ (8,517) $(12,761) $(1,068) $(3,140) $ 2,756
======== ======== ======== ======= ======= =======
Diluted net income (loss) per
share data:
Loss before extraordinary
item......................... $(774.27) $ (96.67) $ (0.10) $ (3.08) $ 0.19
Extraordinary item............. $ -- $ -- $ (0.06) $ -- $ --
-------- -------- ------- ------- -------
Net income (loss).............. $(774.27) $ (96.67) $ (0.16) $ (3.08) $ 0.19
======== ======== ======= ======= =======
Shares used in per share
calculation.................. 11 132 6,643 1,019 14,354
======== ======== ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------- MARCH 31,
1994 1995 1996 1997 1998
------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash, cash equivalents, & short term
investments............................ $ 6,819 $ 9,029 $ 19,504 $ 59,160 $ 60,554
Working capital.......................... 9,560 9,767 19,561 54,835 58,022
Total assets............................. 11,305 14,156 34,911 77,677 81,722
Long-term obligations.................... 3,010 1,155 4,394 438 328
Accumulated deficit...................... (5,942) (14,459) (27,220) (28,288) (25,532)
Total stockholders' equity............... 7,273 10,592 18,011 59,947 63,231
</TABLE>
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<PAGE> 108
CORSAIR'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This discussion may contain forward-looking statements that involve risks
and uncertainties. Corsair's actual results may differ materially from the
results discussed in such forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risks
Factors" below. Corsair undertakes no obligation to release publicly the results
of any revisions to these forward-looking statements to reflect events or
circumstances arising after the date hereof.
The following should be read in conjunction with Corsair's condensed
financial statements and notes thereto.
OVERVIEW
Corsair was incorporated in December 1994 in connection with the purchase
of certain in-process research and development and certain assets from a
subsidiary of TRW Inc. Corsair further developed this technology into the
PhonePrint cloning fraud prevention system and first recorded revenues from
commercial shipment of this system in June 1995. From inception, Corsair's
operating activities have related primarily to the commercialization, continued
development and enhancement of PhonePrint, the sale and marketing of PhonePrint,
and the development of potential new products. In 1995, Corsair generated
revenues of $7.6 million based upon sales of PhonePrint to two customers. In
1996, Corsair generated revenues of $19.6 million based upon sales of PhonePrint
to nine customers. In 1997, Corsair generated revenues of $47.8 million based
upon sales of PhonePrint to twenty-three customers.
To date, all of Corsair's revenues have been attributable to PhonePrint,
and Corsair anticipates that the sale and license of the hardware and software
that constitute PhonePrint and the sale of associated services will continue to
account for substantially all of Corsair's revenues at least through the end of
1998. As a result, Corsair's future operating results will depend on the demand
for and market acceptance of PhonePrint. A relatively small number of analog
network carriers constitute the potential customers for PhonePrint. A large
majority of the analog carriers in the largest U.S. markets have to varying
degrees already implemented cloning fraud solutions, and Corsair anticipates
that the demand for cloning fraud solutions in the U.S. has begun to decline and
will continue to decline in the future. If not offset by growth in international
markets, this trend could also occur in international markets. To date, Corsair
has conducted a limited number of deployments of PhonePrint systems
internationally, In an effort to offset what Corsair expects will be declining
demand in the U.S. for cloning fraud solutions, Corsair intends to devote
significant marketing and sales efforts over the next several years to increase
its sales of PhonePrint to international customers and intends to pursue
acquisitions of businesses, products or technologies that complement Corsair's
business.
There are two components of revenues attributable to PhonePrint: system
revenue and service revenue. System revenue is comprised of both the sale of
hardware and the licensing of software. Revenue from hardware sales is
recognized upon shipment, unless a sales agreement contemplates that Corsair
provide testing, integration or implementation services, in which case hardware
revenue is recognized upon commissioning and acceptance of the product (the
activation of the cell site equipment, following testing, integration and
implementation). Software license revenue is recognized over the period of the
software license term. Service revenue is primarily derived from maintenance
contracts and subscriptions to the PhonePrint Roaming Network, which is
recognized monthly over the term of the contract. Service revenue also includes
revenue resulting from time and material billing, training courses, consulting,
operations support, and the provision of spare parts, each of which is
recognized in the month the service is provided to the customer.
Cost of system revenue consists of the cost of hardware and software, as
well as license and royalty fees. Cost of hardware revenue consists of
manufacturing overhead for Corsair's test and assembly operation, materials
purchased from Corsair's subcontractors and vendors, hardware purchased from
third party vendors, depreciation of rental units, and shipping costs. Cost of
software license revenue primarily includes fees paid to third party software
vendors, as well as costs associated with the installation and configuration of
the software. Cost of service revenue consists primarily of expenses for
personnel engaged in network support, customer
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<PAGE> 109
support, installation, training and consulting as well as communications charges
and network equipment depreciation.
Corsair's gross margin has varied significantly in the past and may vary
significantly in the future, depending on the mix of services and systems.
Corsair's software licenses have a higher gross margin than its service and
hardware revenue. In addition, the hardware gross margin varies from customer to
customer depending on the contract and from model to model depending upon the
customer's cell site and switch configuration. Therefore, Corsair's operating
results will be affected by the mix of hardware units, software licenses, and
service fees recognized during the period.
Corsair sells PhonePrint primarily through its direct sales force, but has
also entered into distribution agreements with Motorola, Ericsson, and Aurora
and seeks to enter into additional distribution agreements for international
markets. Corsair has entered into sales referral agreements with Lucent and
Sumitomo. Corsair's gross margin will also vary depending on the mix of direct
sales and sales through distribution channels and sales referral arrangements.
Corsair continues to make efforts to achieve profitability by increasing
sales volume, decreasing costs of goods sold, and through certain other
measures. While Corsair has certain programs in place intended to reduce the
costs of certain components of the PhonePrint system, Corsair expects that its
operating expenses will continue to increase in the foreseeable future. As a
result, there can be no assurance that Corsair will maintain or achieve
sustained profitability.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED MARCH 31, 1998
Revenues. For the three months ended March 31, 1998, total revenues were
$15.2 million, compared with $9.1 million for the comparable 1997 period. This
increase resulted primarily from an increase in sales of PhonePrint systems.
System revenue was $13.0 million for the three months ended March 31, 1998,
compared with $8.2 million for the comparable 1997 period. Service revenue was
$2.3 million for the three months ended March 31, 1998, compared with $929,000
for the comparable 1997 period. The increase in service revenue was attributable
to growth in the installed base of PhonePrint units covered by service contracts
and additional revenue attributable to Corsair's PhonePrint Roaming Network
service.
Gross Profit. Gross profit increased to $8.0 million in the three months
ended March 31, 1998 from a gross profit of $787,000 in the comparable 1997
period. The increase in gross profit was due primarily to system revenue which
contributed $6.9 million in gross profit for the three months ended March 31,
1998 as compared to gross profit of $687,000 in the comparable 1997 period.
Service revenue gross profit for the three months ended March 31, 1998 improved
to $1.1 million as compared to a gross profit of $100,000 in the comparable 1997
period. In the three months ended March 31, 1998, total gross margin was 52.6%
consisting of 53.4% system gross margin and 47.7% service gross margin.
Research and Development. Research and development expenses were $2.2
million, or 14.4% of total revenues, for the three months ended March 31, 1998,
compared with $1.4 million for the comparable 1997 period. This increase in
expenditures was due primarily to the hiring of additional engineering personnel
related to the continued development of PhonePrint and development work on new
products.
Sales and Marketing. Sales and marketing expenses were $2.4 million, or
15.5% of total revenues, during the three months ended March 31, 1998, compared
with $1.5 million for the comparable 1997 period. The increase in expenses
resulted from the hiring of additional sales and marketing personnel to support
the increased sales of PhonePrint and to support the increase in service
revenue. Corsair expects its sales and marketing expenses to increase in
absolute dollars in the foreseeable future as it expands the scope of its sales
and marketing efforts.
General and Administrative. General and administrative expenses increased
to $1.3 million or 8.5% of total revenues, in the three months ended March 31,
1998, compared with $991,000 for the comparable 1997 period. This increase in
expenditures was due primarily to higher personnel expenses related to increased
staffing.
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Interest Income (Expense), Net. Net interest income was $851,000 in the
three months ended March 31, 1998 as compared to net interest expense of $3,000
in the comparable 1997 period. Net interest income and expense consists of
interest income from Corsair's cash and short-term investments, net of interest
expense on Corsair's equipment loans, equipment lease lines and other loans. The
increase in net interest income was a result of larger average cash investments
attributable to the proceeds received from Corsair's initial public offering of
Common Stock completed in July 1997.
Income Taxes. The income tax expense in the three months ended March 31,
1998 represents a provision of 8% of the income before taxes, while the
comparable period in 1997 represents minimum state tax liabilities.
RESULTS OF OPERATIONS-YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
Revenues. For the year ended December 31, 1997, total revenues were $47.8
million, compared with $19.6 and $7.6 million for the comparable 1996 and 1995
periods, respectively. System revenue was $41.9 million for the year ended
December 31, 1997, compared with $18.2 million for 1996 and $7.4 million for
1995. This increase resulted primarily from an increase in sales of PhonePrint
systems. In 1997, the Company generated revenues based upon sales of the
PhonePrint system to twenty-three customers. In 1996, revenues were based on
sales to nine customers, while in 1995, two customers generated the Company's
PhonePrint systems revenues.
Service revenue was $6.0 million for the year ended December 31, 1997,
compared with $1.4 million and $242,000 for the comparable periods in 1996 and
1995, respectively. The increase in service revenue was attributable to growth
in the installed base of PhonePrint units covered by service contracts over the
years and initial revenue attributable to the Company's PhonePrint Roaming
Network service released late in 1996.
Gross Profit (Deficit). Gross profit increased to $16.3 million for the
year ended December 31, 1997 from a gross profit of $409,000 in 1996 and a gross
deficit of $544,000 in 1995. The increase in gross profit was due primarily to
improved margins from system revenues which contributed $13.9 million in gross
profit for the year ended December 31, 1997 as compared to a gross profit of
$943,000 for the year ended December 31, 1996, and a gross deficit of $171,000
for the same period in 1995. Service revenue gross profit for the year ended
December 31, 1997 improved to $2.4 million as compared to a gross deficit of
$534,000 and $373,000 in the previous two fiscal years.
Research and Development. Research and development expenses were $7.0
million, or 14.6% of total revenues, for the year ended December 31, 1997,
compared with $5.0 million (25.4% of total revenues), and $3.1 million (40.8% of
total revenues) for the years ended December 31, 1996 and 1995, respectively.
This increase in expenditures was due primarily to the hiring of additional
engineering personnel related to the continued development of PhonePrint and
development work on new products and the decrease in percentage of total
revenues was due to the overall increase in the Company's revenues from period
to period.
Sales and Marketing. Sales and marketing expenses were $7.5 million, or
15.6% of total revenues, during the year ended December 31, 1997, compared with
$5.4 million or 27.4% of total revenues for the year ended December 31, 1996 and
$3.0 million or 39.3% of total revenues for the comparable 1995 period. The
increase in expenses resulted from the hiring of additional sales and marketing
personnel to support the increased sales of PhonePrint and to support the
increase in service revenue. The decrease in percentage of total revenues was
due to the overall increase in the Company's revenues form period to period. The
Company expects its sales and marketing expenses to increase in absolute dollars
in the foreseeable future as it expands the scope of its sales and marketing
efforts.
General and Administrative. General and administrative expenses increased
to $3.9 million (8.1% of total revenues) in the year ended December 31, 1997,
compared with $2.6 million (13.2% of total revenues) and $2.1 million (27.9% of
total revenues) for the years ended December 31, 1996 and 1995, respectively.
This increase in expenditures was due primarily to higher personnel expenses
related to increased staffing. The decrease in percentage of total revenues was
due to the overall increase in the Company's revenues form period to period.
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Interest Income (Expense), Net. Net interest income was $1.4 million in the
year ended December 31, 1997 as compared to net interest expense of $220,000 in
1996 and net interest income of $218,000 in 1995. Net interest income and
expense consists of interest income from the Company's cash and short-term
investments, net of interest expense on the Company's equipment loans, equipment
lease lines and other loans obtained primarily in 1996. The increase in net
interest income in 1997 was a result of larger average cash investments
attributable to the proceeds received from the Company's initial public offering
of Common Stock completed in July 1997.
Extraordinary Item. During the year ended December 31, 1997, the Company
incurred a loss on debt extinguishment of $428,000 associated with paying the
principal and interest of $5.1 million on short-term and long-term notes
payable.
Income Taxes. The income tax expense for the years ended December 31, 1997,
1996 and 1995 represent minimum state tax liabilities.
LIQUIDITY AND CAPITAL RESOURCES
Corsair has funded its operations from inception primarily through a series
of Preferred Stock private placements, debt financings, and an initial public
offering. From its incorporation through March 31, 1998, Corsair completed four
Preferred Stock financings providing aggregate net proceeds of approximately
$47.9 million, and debt financings provided aggregate net proceeds of
approximately $5.9 million. In July 1997, Corsair completed its initial public
offering generating $39.1 million of net proceeds. At March 31, 1998, Corsair
had cash and cash equivalents of approximately $11.4 million and short-term
investments of approximately $49.1 million. At December 31, 1997, the Company
had cash and cash equivalents of approximately $15.4 million and short-term
investments of approximately $43.7 million.
In June 1997, Corsair signed a loan and security agreement, which made
available a $3.0 million equipment term loan facility at prime plus 0.75% (9.5%
at March 31, 1998). The loan facility is available through July 1998 and is
secured by any underlying equipment purchased. As of March 31, 1998, Corsair did
not have any borrowings under the equipment term loan, and any future borrowings
will be repaid over three years.
Corsair's operating activities generated cash of $1.8 million for the three
months ended March 31, 1998. The improvement in 1998, as compared to 1997 was
due primarily to improved operating results and lower inventory requirements.
Corsair's operating activities generated cash of $5.9 million for the year ended
December 31, 1997. The improvement in 1997 over previous years was due primarily
to improved operating results, increased cash collections in accounts
receivable, lower inventory balances, and an increase in deferred revenue.
Corsair's investing activities used cash of $6.1 million for the three
months ended March 31, 1998. Net cash of $5.4 million was used for purchasing
short-term investments, and cash of $743,000 was used for the purchase of
property and equipment, primarily computer hardware and software. Corsair's
investing activities used cash of $43.6 million for the year ended December 31,
1997. Net cash of $41.3 million was used for purchasing short-term investments,
and cash of $2.3 million was used for the purchase of property and equipment,
primarily computer hardware and software, and for leasehold improvements to the
Company's facility.
Corsair's financing activities generated cash of $378,000 for the three
months ended March 31, 1998. In the three months ended March 31, 1998, cash
provided by financing activities was primarily from the purchase of Corsair's
stock by participants in the Purchase Plan. Corsair's financing activities
generated cash of $36.1 million for the year ended December 31, 1997, primarily
attributable to the Company's July 1997 initial public offering, which resulted
in net proceeds to the Company of $39.1 million.
Management has initiated an enterprise-wide program to prepare Corsair's
computer systems and applications for the year 2000. Corsair expects to incur
internal staff costs as well as consulting and other expenses related to
infrastructure and facilities enhancements necessary to prepare the systems for
the year 2000. Corsair expects its year 2000 date conversion project to be
completed on a timely basis. However, there
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can be no assurance that the systems of other companies on which Corsair's
systems rely also will be timely converted or that any such failure to convert
by another company would not have an adverse effect on Corsair's systems.
Testing and conversion of system applications is expected to cost approximately
$600,000 over the next year. A significant proportion of these costs are not
likely to be incremental costs to Corsair, but rather will represent the
redeployment of existing information technology resources. Accordingly, Corsair
does not expect the amounts required to be expensed over the next three years to
have a material effect on its financial position or results of operations.
Corsair believes that existing sources of liquidity and internally
generated cash, if any, will be sufficient to meet Corsair's projected cash
needs for at least the next 12 months. Corsair intends to continue its
significant product development efforts in the future and expects to fund those
activities out of working capital. There can be no assurance, however, that
Corsair will not require additional financing prior to such date to fund its
operations or possible acquisitions. In addition, Corsair may require additional
financing after such date to fund its operations. There can be no assurance that
any additional financing will be available to Corsair on acceptable terms, or at
all, if and when required by Corsair.
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PRINCIPAL STOCKHOLDERS OF CORSAIR
The following table sets forth certain information regarding the beneficial
ownership of Corsair's Common Stock as of March 31, 1998 by all those known by
Corsair to be beneficial owners of more than 5% of its outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER(1) PERCENT(2)
--------------------------------------- ---------- -----------
<S> <C> <C>
Kleiner Perkins Caufield & Byers(3)......................... 1,135,236 8.3%
2750 Sand Hill Road
Menlo Park, CA 94025
Sevin Rosen Funds(4)........................................ 1,431,563 10.4
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, TX 75420
Norwest Equity Partners(5).................................. 949,194 6.9
245 Lytton Avenue, Suite 250
Palo Alto, CA 94301
TRW Inc..................................................... 1,346,567 9.8
1 Federal System Park Drive
Fairfax, VA 22033
Integral Capital Partners(6)................................ 694,161 5.1
2750 Sand Hill Road
Menlo Park, CA 94025
</TABLE>
- ---------------
(1) Except as indicated in the footnotes to this table, the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by them.
(2) Percentage of ownership is calculated based on 13,714,475 shares of Common
Stock outstanding on March 31, 1998, and is calculated pursuant to Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, as amended.
(3) Includes 1,125,998 shares held by Kleiner Perkins Caufield & Byers VII and
9,238 shares held by KPCB Information Sciences Zaibatsu Fund II.
(4) Includes 1,428,229 shares held by Sevin Rosen Fund IV L.P. and 3,334 shares
held by Sevin Rosen Bayless Management Company.
(5) Includes 566,767 shares held by Norwest Equity Partners, IV and 382,427
shares held by Norwest Equity Partners, V.
(6) Includes 410,302 shares held by Integral Capital Partners II, L.P., 146,852
shares held by Integral Capital Partners International II, C.V., 111,647
shares held by Integral Capital Partners III, L.P., and 25,360 shares held
by Integral Capital Partners International III, L.P.
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<PAGE> 114
MANAGEMENT
The directors and executive officers of Corsair as of March 31, 1998, are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Mary Ann Byrnes........................ 41 President, Chief Executive Officer and Director
Martin J. Silver....................... 41 Chief Financial Officer and Secretary
Evan J. McDowell....................... 51 Vice President, Sales
Thomas C. Meyer........................ 41 Vice President, Operations
Donald R. Oestreicher.................. 52 Vice President, Engineering
Walter M. Price........................ 38 Vice President, Manufacturing
Jeanette Robinson...................... 47 Vice President, Human Resources
John F. Scott.......................... 34 Vice President, Strategy and Business Development
David G. Thompson...................... 37 Vice President, Marketing
Kevin R. Compton....................... 38 Chairman of the Board and Director
Peter L.S. Currie...................... 40 Director
Stephen M. Dow......................... 41 Director
David H. Ring.......................... 42 Director
Roland L. Robertson.................... 62 Director
</TABLE>
MARY ANN BYRNES. Ms. Byrnes has served as President of Corsair since
December 1994, as a Director of Corsair since February 1995 and as Chief
Executive Officer since July 1995. Before joining Corsair, from June 1987 to
November 1994, Ms. Byrnes served at Bay Area Cellular Telephone Company, a
wireless telecommunications carrier, as Vice President of Sales and Marketing
and Vice President of Operations. Ms. Byrnes holds a BA in economics from
Wellesley College and an MBA from Harvard Business School.
MARTIN J. SILVER. Mr. Silver has served as Chief Financial Officer and
Secretary of Corsair since January 1996. Mr. Silver most recently served as
Chief Financial Officer and Treasurer at Superconductivity, Inc., a developer of
magnets for use by utilities to store energy, from January 1993 to December
1995. Prior to that, Mr. Silver served as Chief Financial Officer and Corporate
Secretary at Credence Systems Corporation, a developer of testing devices for
semiconductors, from November 1988 to December 1992. Mr. Silver holds a BS in
electrical engineering from Purdue University and an MBA from The University of
Pennsylvania, The Wharton School of Business.
EVAN J. MCDOWELL. Mr. McDowell has served as Vice President, Sales of
Corsair since January 1997. Prior to joining Corsair, Mr. McDowell was employed
by Polycom, Inc., a telecommunications products company, where he served as Vice
President of Sales and Marketing from November 1993 to January 1997. From March
1989 to November 1993, Mr. McDowell served as General Manager of the Voice
Information Services Division at Octel Communications Corporation, a voice
messaging company. Mr. McDowell holds a BS in accounting and an MBA from San
Diego State University.
THOMAS C. MEYER. Mr. Meyer has served as Vice President, Operations of
Corsair since April 1996. Before joining Corsair, Mr. Meyer was Senior Vice
President of Operations at Blyth Software Inc., a software development company,
from April 1994 to March 1996. Previous to that, he was Vice President and
General Manager of the Customer Services Division of Pyramid Technology
Corporation, a company that develops open systems servers for the commercial
computing market, from January 1990 to March 1994. Mr. Meyer holds a BS in
computer engineering from the University of Bridgeport in Connecticut.
DONALD R. OESTREICHER. Dr. Oestreicher has served as Vice President,
Engineering of Corsair since joining Corsair in July 1996. Prior to joining
Corsair, Dr. Oestreicher was employed by AirSoft, Inc., a software development
company, where he was Vice President of Engineering from July 1995 to July 1996.
Dr. Oestreicher served as Vice President, Research & Development at Blyth
Software Inc., a software development company, from January 1993 to June 1995.
From August 1990 to December 1992, Dr. Oestreicher was Director, Software
Product Development for Dow Jones & Company Inc., a publishing
105
<PAGE> 115
company. Dr. Oestreicher holds a BS in economics from the Massachusetts
Institute of Technology, a PhD in computer science from the University of Utah,
and an MBA from Santa Clara University.
WALTER M. PRICE. Mr. Price joined Corsair in May 1995 as Director of
Manufacturing and was promoted to Vice President, Manufacturing of Corsair in
January 1997. Prior to joining Corsair, Mr. Price was Operations Director at
Ericsson-Raynet Corporation, a fiber optics telecommunications company, from
June 1993 to May 1995. From February 1989 to June 1993, Mr. Price served in
various positions including Marketing Operations Manager, Supply Planning
Manager and Process Engineering Manager while at Sun Microsystems, Inc., a
provider of network-based distributed computing systems. Mr. Price holds a BS in
industrial engineering from Stanford University and an MBA from Santa Clara
University.
JEANNETTE ROBINSON. Ms. Robinson joined Corsair in January 1996 as Director
of Human Resources and was promoted to Vice President, Human Resources of
Corsair in January 1997. Prior to joining Corsair, Ms. Robinson was employed by
Cisco Systems Inc., a provider of internet-working products, where she held
several human resources management and recruiting positions from June 1990 to
January 1996. Ms. Robinson holds a BS in business administration and a BA in
sociology from San Jose State University.
JOHN F. SCOTT. Mr. Scott has served as Vice President, Strategy and
Business Development of Corsair since January 1995. Prior to joining Corsair,
Mr. Scott served as Director of Marketing Strategy and Marketing Product Manager
at Bay Area Cellular Telephone Company from September 1992 to January 1995. Mr.
Scott served as a consultant with Boston Consulting Group, a consulting firm,
from August 1990 to March 1992, and served as an independent consultant from
April 1992 to September 1992. Mr. Scott holds a BA in economics from Claremont
McKenna College and an MBA from Harvard Business School.
DAVID G. THOMPSON. Mr. Thompson has served as Vice President, Marketing of
Corsair since January 1995. Mr. Thompson also served as Vice President, Sales of
Corsair from January 1995 to January 1997. Prior to joining Corsair, Mr.
Thompson served as Director of Marketing at Digital Pictures, Inc., a software
development company, from August 1994 to January 1995. Previous to that, he was
Director of Marketing and Manager of Marketing Strategy at Bay Area Cellular
Telephone Company from March 1992 to August 1994. Mr. Thompson holds a AB in
economics from Harvard University.
KEVIN R. COMPTON. Mr. Compton has served as Chairman of the Board and a
Director of the Company since December 1994 and served as Secretary of the
Company from December 1994 to December 1995. Since 1990, Mr. Compton has served
as a general partner of Kleiner Perkins Caufield & Byers, a venture capital
investment firm. Mr. Compton is a director of Citrix Systems, Inc., Digital
Generation Systems, Inc., Global Village Communication, Inc. and VeriSign, Inc.,
and is also a director of several privately-held companies.
PETER L.S. CURRIE. Mr. Currie has served as a Director of the Company since
December 1995. Mr. Currie is currently Senior Vice President and Chief Financial
Officer of Netscape Communications Corporation, an internet and intranet
software company, where he has been employed since April 1995. From April 1989
to March 1995, Mr. Currie held various management positions at McCaw Cellular
Communications, Inc., a wireless telecommunications carrier, including Executive
Vice President of Corporate Development and Chief Financial Officer.
STEPHEN M. DOW. Mr. Dow has served as a Director of the Company since May
1996. Since 1983, Mr. Dow has served as a general partner of Sevin Rosen Funds,
a venture capital investment firm. Mr. Dow is a director of Arqule Inc., Citrix
Systems, Inc. and Viropharma Incorporated, and is also a director of several
privately-held companies.
DAVID H. RING. Mr. Ring has served as a Director of the Company since July
1995. Since April 1996, Mr. Ring has served as Chairman of the Board of Tzabaco
Group, Inc., a direct marketing company, and has also served as Chief Executive
Officer of Tzabaco Group, Inc. since October 1996. From December 1988 to
November 1993, Mr. Ring served as Vice President of Manufacturing for Cisco
Systems Inc. where he also served as a Director from November 1993 to November
1995. Mr. Ring was also a Director of Global Village Communication, Inc. from
May 1991 to July 1996.
106
<PAGE> 116
ROLAND L. ROBERTSON. Mr. Robertson has served as a Director of the Company
since April 1996. Since February 1997, Mr. Robertson has served as Vice
President and Deputy General Manager for Operations of the System Integration
Group of TRW Inc., a company focused primarily on government engineering
contracting. From January 1991 through January 1997, Mr. Robertson served as
President and General Manager of TRW Environmental Safety Systems, Inc., a
subsidiary of TRW Inc.
COMMON STOCK OWNERSHIP OF DIRECTORS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 31, 1998 by (i) each
director, (ii) each of the Company's executive officers and (iii) all directors
and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
-------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER(1) PERCENT(2)
--------------------------------------- ---------- -----------
<S> <C> <C>
Mary Ann Byrnes(3).......................................... 430,325 3.1%
Kevin R. Compton (4)........................................ 1,147,625 8.4
2750 Sand Hill Road
Menlo Park, CA 94025
Peter L.S. Currie(5)........................................ 33,334 *
Stephen M. Dow(6)........................................... 1,439,063 10.5
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, TX 75240
David H. Ring............................................... 43,261 *
Roland L. Robertson(7)...................................... 1,354,067 9.9
1 Federal System Park Drive
Fairfax, VA 22033
Martin J. Silver(8)......................................... 110,200 *
Evan J. McDowell(9)......................................... 104,958 *
Thomas C. Meyer(10)......................................... 87,202 *
Donald R. Oestreicher(11)................................... 102,612 *
Walter M. Price(12)......................................... 60,436 *
Jeanette Robinson(13)....................................... 60,024 *
John F. Scott(14)........................................... 93,405 *
David G. Thompson(15)....................................... 101,762 *
All directors and executive officers as a group (14
persons)(16).............................................. 5,168,274 37.7
</TABLE>
- ---------------
* Less than 1%
(1) Except as otherwise indicated, (i) the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws,
where applicable and (ii) the address for all persons named in the table
is: 3408 Hillview Avenue, Palo Alto, California 94304.
(2) Percentage of ownership is based on 13,714,475 shares of Common Stock
outstanding on March 31, 1998, and is calculated pursuant to Rule
13d-3(d)(1) under the Securities Exchange Act of 1934, as amended.
(3) Includes 75,754 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998. Also includes 353,768 shares beneficially
owned by the Wampler-Byrnes Family Trust. Ms. Byrnes is co-trustee and a
beneficiary of the Wampler-Byrnes Family Trust. Ms. Byrnes has pledged
185,050 shares to the Company in exchange for a loan.
(4) Includes 1,125,998 shares held by Kleiner Perkins Caufield & Byers VII and
9,238 shares held by KPCB Information Sciences Zaibatsu Fund II. Mr.
Compton is a Director of the Company and a general partner of each of
Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences
107
<PAGE> 117
Zaibatsu Fund II. Mr. Compton disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. Also includes 4,889
shares held by Mr. Compton and 7,500 shares issuable to Mr. Compton upon
the exercise of options exercisable within 60 days of March 31, 1998.
(5) Includes 33,334 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(6) Includes 1,428,229 shares held by Sevin Rosen Fund IV L.P. and 3,334 shares
held by Sevin Rosen Bayless Management Company. Mr. Dow is a Director of
the Company, a general partner of SRB Associates IV L.P., the general
partner of Sevin Rosen Fund IV L.P., and an officer of Sevin Rosen Bayless
Management Company. Mr. Dow disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. Also includes 7,500
shares issuable to Mr. Dow upon the exercise of options exercisable within
60 days of March 31, 1998.
(7) Includes 1,346,567 shares held by TRW Inc. Mr. Robertson is a Director of
the Company and an officer of TRW Inc. Because Mr. Robertson does not have
voting or dispository control over such shares, he disclaims beneficial
ownership of all of such shares. Also includes 7,500 shares issuable to Mr.
Robertson upon the exercise of options exercisable within 60 days of March
31, 1998.
(8) Includes 20,000 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998. Also includes 89,500 shares beneficially
held by Martin J. Silver or Victoria H. Silver as joint tenants with right
of survivorship.
(9) Includes 18,667 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(10) Includes 56,535 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(11) Includes 19,728 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(12) Includes 35,832 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(13) Includes 43,837 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998. Also includes 21,180 shares beneficially
held by the Robinson Family Trust. Ms. Robinson is co-trustee and a
beneficiary of the Robinson Family Trust.
(14) Includes 18,000 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(15) Includes 26,627 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998.
(16) Includes 370,764 shares issuable upon the exercise of options exercisable
within 60 days of March 31, 1998. See also footnotes 4, 6, 7 and 8.
108
<PAGE> 118
EXECUTIVE COMPENSATION AND OTHER EMPLOYMENT MATTERS
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the aggregate
compensation paid by Corsair to its President and Chief Executive Officer and to
the four additional most highly compensated executive officers (the "Named
Executive Officers") for services rendered in all capacities to Corsair for the
years ended December 31, 1996 and 1997:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
----------------------------------- ---------------
NAME AND OTHER SECURITIES
PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR(1) SALARY(2) BONUS COMPENSATION OPTIONS/SARS(#) COMPENSATION
--------- ------- --------- -------- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Mary Ann Byrnes............. 1997 $176,261 $ 79,076 $-0- 84,421 --
President and Chief 1996 165,000 82,500 -0- 66,667 --
Executive Officer and
Director
David G. Thompson........... 1997 130,000 58,500 -0- 19,761 --
Vice President, 1996 128,334 456,550(3) -0- 26,667 --
Marketing
Martin J. Silver............ 1997 153,118 67,823 -0- 20,000 12,750(4)
Chief Financial Officer 1996 140,000 55,800 -0- 20,000 --
and Secretary
Donald R. Oestreicher....... 1997 144,284 65,570 -0- 23,330 --
Vice President, 1996 -- -- -0- 93,334 --
Engineering
Thomas Meyer................ 1997 127,650 58,590 -0- 19,196 --
Vice President, 1996 -- -- -0- 40,001 --
Operations
</TABLE>
- ---------------
(1) Pursuant to Instruction to Item 402(b) of Regulation S-K promulgated by the
Commission, information with respect to fiscal years prior to 1996 has not
been included as Corsair was not a reporting company pursuant to Section
13(a) or 15(d) of the Exchange Act and the information has not been
previously reported to the Commission in response to a filing requirement.
(2) Includes amounts deferred pursuant to Corsair's 401(k) Plan.
(3) Includes $455,000 earned as commissions while serving as Vice President,
Sales and Marketing.
(4) Represents forgiveness of $10,000 of principal and approximately $2,750 of
interest of a loan made in connection with Mr. Silver's relocation to the
Palo Alto, California area.
109
<PAGE> 119
Stock Options
The following table sets forth information concerning stock option grants
made to each of the Named Executive Officers during the year ended December 31,
1997. Corsair did not grant any stock appreciation rights ("SARs") during the
year ended December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS EXERCISE APPRECIATION FOR
UNDERLYING GRANTED TO PRICE OPTION TERM(4)
OPTIONS EMPLOYEES IN PER EXPIRATION ---------------------
NAME GRANTED(1) FISCAL YEAR(2) SHARE(3) DATE 5% 10%
---- ---------- -------------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Mary Ann Byrnes................. 8,667 1.2% $0.83 1/8/2007 $ 4,524 $ 11,464
75,754 10.4 7.50 3/12/2003 193,227 438,366
David G. Thompson............... 1,467 0.3 0.83 1/8/2007 766 1,941
18,294 2.5 7.50 3/12/2003 46,663 105,862
Martin J. Silver................ 20,000 2.8 7.50 3/12/2003 51,014 115,734
Donald R. Oestreicher........... 3,052 0.5 0.83 1/8/2007 1,593 4,037
19,278 2.7 7.50 3/12/2003 49,173 111,556
Thomas Meyer.................... 2,662 0.4 0.83 1/8/2007 1,390 3,521
16,534 2.3 7.50 3/12/2003 42,174 95,677
</TABLE>
- ---------------
(1) The rights of the optionees vest at various times over a four-year period.
While the options are fully exercisable upon grant, any shares purchased by
the optionee which do not vest prior to the termination of the optionee's
employment may be repurchased by Corsair at cost. In accordance with the
terms of the Plan under which the options were granted, all rights of the
optionee will accelerate and vest in full upon an acquisition of Corsair
unless the options are assumed or replaced by or Corsair's repurchase rights
are assigned to the acquiring corporation. Under the terms of the Plan,
following any acquisition of Corsair in which the rights of the optionees do
not accelerate and vest in full, the rights of each optionee shall
accelerate and vest (or Corsair's repurchase rights will lapse in the case
of exercised options) with respect to one-half of the then unvested shares
if the employment of the optionee is involuntarily terminated within one
year of the acquisition.
(2) Corsair granted options to purchase a total of 733,345 shares to employees
in fiscal year 1997.
(3) The exercise price per share of options granted represented the fair market
value of the underlying shares of Corsair Common Stock on the dates the
respective options were granted as determined by the Corsair Board,
considering all relevant factors. The exercise price may be paid in cash or
in shares of Corsair Common Stock valued at fair market value on the
exercise date. The fair market value of shares of Corsair Common Stock is
determined in accordance with certain provisions of the Plan based on the
closing selling price of a share of Corsair Common Stock on the date in
question on the Nasdaq National Market. If shares of Corsair Common Stock
are neither listed or admitted to trading on any stock exchange nor traded
on the Nasdaq National Market, then the fair market value shall be
determined by the Plan Administrator after taking into account such factors
as the Plan Administrator shall deem appropriate.
(4) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Commission. The price used for computing this
appreciation is the exercise price of the options, not the price of Corsair
Common Stock. There is no assurance provided to any Named Executive Officer
or any other holder of Corsair's securities that the actual stock price
appreciation over the 10-year option term will be at the assumed 5% or 10%
levels or at any other defined level.
110
<PAGE> 120
Option Exercises and Unexercised Option Holdings. The following table
provides information concerning option exercises during 1997 by the Named
Executive Officers and the value of unexercised options held by each of the
Named Executive Officers as of December 31, 1997. No SARs were exercised during
1997 or outstanding as of December 31, 1997.
AGGREGATE OPTION EXERCISES IN 1997 AND 1997 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
ACQUIRED DECEMBER 31, 1997 AT DECEMBER 31, 1997(3)
ON VALUE ------------------------------ ------------------------------
NAME EXERCISE REALIZED(1) EXERCISABLE(2) UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE
---- --------- ----------- -------------- ------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mary Ann Byrnes.......... 8,667 $ 31,808 75,754 0 $662,848 0
David G. Thompson........ 83,134 341,423 26,627 0 289,817 0
Martin J. Silver......... 100,000 382,000 20,000 0 175,000 0
Donald R. Oestreicher.... 3,052 11,201 19,278 0 168,683 0
Thomas Meyer............. 42,667 222,586 56,535 0 767,488 0
</TABLE>
- ---------------
(1) "Value realized" is calculated on the basis of the fair market value of the
Corsair Common Stock on the date of exercise minus the exercise price and
does not necessarily indicate that the optionee sold such stock, and does
not take into account that some of such shares are subject to rights of
repurchase on the part of Corsair which lapse at various times over four
years after the date of grant.
(2) The options are immediately exercisable; however, any shares purchased upon
exercise may be subject to rights of repurchase on the part of Corsair which
lapse at various times over four years after the date of grant.
(3) "Value" is defined as fair market price of the Corsair Common Stock at
fiscal year-end (16.25) less exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of the members of the Compensation Committee is an officer or employee
of Corsair. No interlocking relationship exists between Corsair's Board or
Compensation Committee and the board of directors or compensation committee of
any other company, nor has such an interlocking relationship existed in the
past.
EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Options granted to Named Executive Officers are immediately exercisable;
however, any shares purchased upon exercise are subject to rights of repurchase
on the part of Corsair that generally expire over four or five years from the
date of option grant. In accordance with the terms of the 1996 Stock
Option/Stock Issuance Plan and the 1997 Officer Stock Option Plan under which
options were granted to Named Executive Officers, all of the Named Executive
Officers' options will immediately vest and Corsair's repurchase rights will
immediately lapse with respect to shares held by the Named Executive Officers
upon an acquisition of Corsair, unless the options are assumed or replaced by,
or Corsair's repurchase rights are assigned to, the acquiring entity. Following
any acquisition of Corsair in which options remain subject to vesting and
repurchase rights do not lapse in the manner provided above, 50% of a Named
Executive Officer's options will vest and the repurchase rights with respect to
50% of such Named Executive Officer's shares will lapse if the employment of the
Named Executive Officer is involuntarily terminated within one year of the
acquisition.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee presents this report regarding compensation for
Corsair's executive officers and the Chief Executive Officer of Corsair.
111
<PAGE> 121
GENERAL COMPENSATION POLICY
Corsair's primary objective is to maximize the value of Corsair's shares
over time. Accomplishing this objective requires achieving specific Corsair
milestones and developing and ultimately marketing superior products that
provide cost-effective solutions for the wireless communications industry. The
overall goal of the Corsair Compensation Committee is to develop compensation
practices that will allow Corsair to attract and retain the people needed to
create, develop, manufacture and market such products.
Corsair compensates its executive officers with a combination of salary and
incentives designed to focus and balance their efforts on maximizing both the
near-term and long-term financial performance of Corsair. In addition, Corsair's
compensation structure rewards individual performance that furthers Corsair's
goals. Elements of each officer's compensation include the following:
- Base Salary
- Annual Incentives
- Long-term Incentives
- Benefits
Each officer's compensation package is designed to provide an appropriately
weighted mix of these elements which cumulatively provides a level of
compensation roughly equivalent to that paid by companies of similar size and
complexity in similar industries.
BASE SALARY. Base salary and increases in base salary are determined by
individual performance and the salary levels in effect for companies of similar
size and complexity in similar industries. The Corsair Compensation Committee
attempts to keep the base salaries of Corsair's officers at a level broadly in
line with the median of the salaries of officers in comparative companies. The
Corsair Compensation Committee also evaluates individual experience and
performance and specific issues particular to Corsair, such as success in
raising capital, creation of stockholder value and achievement of specific
Corsair milestones. Certain of the companies contained in the survey on which
the Corsair Compensation Committee relied are included in the indices used to
compare shareholder returns in the Stock Performance Graph.
ANNUAL INCENTIVES. Annual Incentives are paid in accordance with an annual
Incentive Compensation Plan. Bonus awards are set at a level competitive among
peer group companies and early-stage high growth technology companies. Potential
cash incentive compensation paid under this plan is set as a significant
percentage of each officers' base salary. All of the incentive compensation is
directly tied to performance and is at risk. Each officer earns incentive
compensation based upon a mix of Corsair performance and personal performance.
Corsair performance is measured by achievement of specific Corsair milestones.
Compensation for personal performance under this plan is awarded by the Corsair
Compensation Committee based upon both an objective and subjective evaluation of
the performance of each officer. No incentive compensation is paid for Corsair
performance or personal performance unless specific and individual goals are
achieved during the fiscal year. In 1997, incentive compensation earned by
officers was approximately 45% of base salary.
LONG-TERM INCENTIVE. Long-term incentive compensation in the form of stock
options is expected to be the largest element of total compensation over time.
Grants of stock options are designed to align the long-term interests of each
officer with the long-term interests of the Corsair and its stockholders. Stock
options provide each officer with a significant incentive to manage Corsair from
the perspective of an owner with an equity stake in the business. The size of
the option grant to each officer is based on the officer's current and expected
future contributions to the business and vesting position. Awards of stock
options are designed to have an expected aggregate exercise value over time
equal to a multiple of salary which will create a significant opportunity for
stock ownership, motivation to remain with Corsair and incentive to increase
stockholder value.
BENEFITS. Benefits offered to Corsair's officers serve as a safety net of
protection against the financial catastrophes that can result from illness,
disability or death. Benefits offered to Corsair's officers are substantially
the same as those offered to all Corsair's regular employees.
112
<PAGE> 122
CEO COMPENSATION
In setting compensation payable to Corsair's Chief Executive Officer, Ms.
Byrnes, we have sought to be competitive with companies of similar size and
complexity in similar industries. Ms. Byrnes's incentive compensation under
Corsair's annual Incentive Compensation Plan is entirely dependent upon
Corsair's performance and our evaluation of her personal contribution to
Corsair's performance. No incentive compensation is paid to Ms. Byrnes unless
progress is made toward specific Corsair goals or these goals are achieved
during the fiscal year. In 1997, incentive compensation earned by Ms. Byrnes was
approximately 45% of base salary.
We conclude our report with the acknowledgement that no member of the
Corsair Compensation Committee is a current officer or employee of Corsair or
any of its subsidiaries.
Submitted by the Corsair Compensation Committee of the Corsair Board.
113
<PAGE> 123
PERFORMANCE GRAPH
The following graph compares total stockholder returns since Corsair became
a reporting company under the Exchange Act to the Nasdaq CRSP Total Return Index
("Nasdaq Broad Index") for the Nasdaq Stock Market (U.S. Companies) and the
Nasdaq Computer Data and Processing Index ("Nasdaq Computer Index"). The total
return for each of Corsair's Common Stock, the Nasdaq Broad Index and the Nasdaq
Computer Index assumes the reinvestment of dividends, although dividends have
not been declared on Corsair's Common Stock. The companies comprising the Nasdaq
Computer Index are available upon written request to Investor Relations at
Corsair's executive offices. The stockholder return shown on the graph below is
not necessarily indicative of future performance and Corsair will not make or
endorse any predictions as to future stockholder returns.
<TABLE>
<CAPTION>
'CORSAIR NASDAQ
Measurement Period COMMUNICATIONS, STOCK NASDAQ
(Fiscal Year Covered) INC' MARKET (U.S.) COMPUTER
<S> <C> <C> <C>
7/29/97 100 100 100
12/31/97 108 91 100
</TABLE>
114
<PAGE> 124
DIRECTOR COMPENSATION
Corsair reimburses its Directors for all reasonable and necessary travel
and other incidental expenses incurred in connection with their attendance at
meetings of the Board. Directors are not currently compensated in cash for
serving on the Board. No Director who is an employee of Corsair will receive
separate compensation for services rendered as a director. Under the Automatic
Option Grant Program of the Plan, at each annual stockholders meeting, beginning
with the 1998 Annual Stockholders Meeting, each non-employee Board member will
receive an option to purchase 1,500 shares of Common Stock. Each option granted
pursuant to the Automatic Option Grant Program will have an exercise price equal
to the fair market value per share of Corsair Common Stock on the grant date and
will have a maximum term of 10 years, subject to earlier termination following
the optionee's cessation of service on the Corsair Board. The grant of 1,500
shares will vest in 12 equal monthly installments following the grant date
during which the optionee continues to serve as a member of the Corsair Board.
In addition, the option shares will become fully vested upon (i) certain changes
in the ownership or control of Corsair or (ii) the death or disability of the
optionee while serving as a member of the Corsair Board. The options may only be
exercised to the extent vested.
In April 1996, Mr. Currie received an option to purchase 33,334 shares of
Corsair Common Stock for his service as a director. In August 1995, Mr. Ring
received an option to purchase 50,750 shares of Corsair Common Stock for his
service as a director. Each of these options vests monthly over a four-year
period from the date of grant. In May 1997, Mr. Compton and Mr. Dow each
received an option to purchase 7,500 shares of Corsair Common Stock for their
service as directors. In September 1997, Mr. Robertson received an option to
purchase 7,500 shares of Corsair Common Stock for his service as a director.
Each of these options vests monthly over a three-year period from the date of
grant.
115
<PAGE> 125
CERTAIN TRANSACTIONS
Since its formation in December 1994, Corsair has issued, in private
placement transactions, shares of its Preferred Stock (as adjusted in price and
number of shares to show the number of shares of Common Stock into which the
Preferred Stock will automatically convert upon the completion of this Offering
at a conversion ratio of 1 to 1) as follows: 5,413,340 shares of Series A
Preferred Stock at a price of $3.00 per share in December 1994; 1,328,084 shares
of Series B Preferred Stock at a price of $6.65 per share in October 1995;
2,424,864 shares of Series C Preferred Stock at a price of $8.25 per share in
October 1996; and 266,668 shares of Series D Preferred Stock at a price of
$11.25 per share in March 1997. The purchasers of Corsair Preferred Stock
include, among others, the following directors and holders of more than five
percent of Corsair's outstanding stock and their respective affiliates:
<TABLE>
<CAPTION>
PREFERRED STOCK
------------------- TOTAL
EXECUTIVE OFFICERS, DIRECTORS AND 5% STOCKHOLDERS SERIES A SERIES B SERIES C SERIES D CONSIDERATION
- ------------------------------------------------- --------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Kevin R. Compton(1)............................ 1,333,334 248,308 121,212 -- $6,650,001
Stephen M. Dow(2).............................. 1,333,334 37,624 60,606 -- 4,750,002
Roland L. Robertson(3)......................... 1,346,568 -- -- -- 4,039,700
David H. Ring(4)............................... -- 7,526 6,062 -- 100,002
Entities affiliated with Kleiner Perkins Caufield
& Byers(1)................................... 1,333,334 248,308 121,212 -- 6,650,001
Entities affiliated with Sevin Rosen Funds(2)... 1,333,334 37,624 60,606 -- 4,750,002
Entities affiliated with Norwest Equity
Partners(5).................................. 1,066,768 165,538 207,274 -- 6,010,300
TRW Inc.(3).................................... 1,346,568 -- -- -- 4,039,700
Entities affiliated with Integral Capital
Partners(6).................................. -- -- 242,424 -- 1,999,998
</TABLE>
- ---------------
(1) Includes 1,693,616 shares purchased by Kleiner Perkins Caufield & Byers VII
and 9,238 shares purchased by KPCB Information Sciences Zaibatsu Fund II.
Mr. Compton is a Director of Corsair and a general partner of each of
Kleiner Perkins Caufield & Byers VII and KPCB Information Sciences Zaibatsu
Fund II. Mr. Compton disclaims beneficial ownership of such shares except to
the extent of his pecuniary interest therein.
(2) Includes 1,428,230 shares purchased by Sevin Rosen Fund IV L.P. and 3,334
shares purchased by Sevin Rosen Bayless Management Company. Mr. Dow is a
Director of Corsair, a general partner of SRB Associates IV L.P., the
general partner of Sevin Rosen Fund IV L.P., and an officer of Sevin Rosen
Bayless Management Company. Mr. Dow disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(3) Includes 1,346,568 shares purchased by ESL Incorporated and subsequently
transferred to TRW Inc. Mr. Robertson is a Director of Corsair and an
officer of TRW Inc. Because Mr. Robertson does not have voting or
dispository control over such shares, he disclaims beneficial ownership of
such shares.
(4) Includes 7,526 shares purchased by Eureka Investments, L.P. and 6,062 shares
purchased by the David H. Ring Charitable Remainder Unitrust. Mr. Ring is a
director of Corsair, a general partner of Eureka Investments, L.P. and the
trustee of the David H. Ring Charitable Remainder Unitrust. Mr. Ring
disclaims beneficial ownership of the shares held by Eureka Investments,
L.P. and the David H. Ring Charitable Remainder Unitrust except to the
extent of his pecuniary interest therein.
(5) Includes 1,066,768 shares purchased by Norwest Equity Partners, IV and
372,812 shares purchased by Norwest Equity Partners, V.
(6) Includes 178,500 shares purchased by Integral Capital Partners II, L.P., and
63,924 shares purchased by Integral Capital Partners International II, C.V.
Holders of Preferred Stock are entitled to certain registration rights with
respect to the Common Stock issued or issuable upon conversion thereof.
In December 1994, Corsair sold 5,413,340 shares of its Series A Preferred
Stock to ESL Incorporated ("ESL"), a subsidiary of TRW Inc., and various venture
capital funds, including funds which are principal
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<PAGE> 126
stockholders of Corsair and/or are affiliated with directors of Corsair, in a
private placement pursuant to which Corsair received $13,240,000 and various
promissory notes in the aggregate principal amount of $3,000,000, bearing
interest at a rate of 6.34% per annum. All principal and interest accrued with
respect to the notes has been repaid to Corsair and the notes have been
cancelled.
In December 1994, Corsair purchased from ESL certain in-process research
and development and assets relating to wireless telecommunications fraud
prevention, including its rights and obligations under a certain Development and
License Agreement with AirTouch Communications, Inc. (the "Acquired
Technology"), in exchange for $6,240,000 and a promissory note in the principal
amount of $3,000,000 bearing interest at a rate of 6.66% per annum (the
"$3,000,000 Note"). In connection with its purchase of the Acquired Technology,
Corsair also obtained a perpetual license with respect to certain trade secrets
and know-how related to the Acquired Technology for use in the fields of
wireless telecommunications, transportation and systems integration (the
"License"). The price of the Acquired Technology and the License was determined
based on negotiations between Corsair and ESL, and was not fixed based on a
third party's independent appraisal. All principal and interest with respect to
the $3,000,000 Note has been repaid by Corsair and the $3,000,000 Note has been
cancelled.
In December 1994, in connection with the purchase of the Acquired
Technology, Corsair entered into an Assignment and Assumption Agreement with ESL
providing for the assignment to Corsair of and the assumption by Corsair of all
of ESL's right, title and interest under a certain lease with Westminster
Management Corporation (the "Lease") with respect to a certain facility located
at 207 East Java Drive in Sunnyvale, California. The Lease expired on February
15, 1995.
In April 1996, Corsair made a loan in the amount of $100,000 to Martin J.
Silver, the Chief Financial Officer of Corsair, which loan is represented by two
promissory notes, each in the principal amount of $50,000, and is secured
pursuant to a Deed of Trust by Mr. Silver's residence. Both promissory notes
bear annual interest at the greater of 5.5% or the lowest applicable federal
rate of interest as published by the Internal Revenue Service. One of the
promissory notes is to be forgiven at a rate of 20% per year on each anniversary
date of such note for so long as Mr. Silver continues to be employed as a
full-time employee of Corsair, and otherwise the outstanding principal and
accrued interest with respect to such note is due and payable upon the
expiration of the 60-day period following the date Mr. Silver ceases to be a
full-time employee of Corsair. The other promissory note has been repaid by Mr.
Silver in full.
In November 1996, Corsair made a loan in the amount of $200,000 bearing
interest at the rate of 7% per annum to Mary Ann Byrnes, the President and Chief
Executive Officer of Corsair, which loan was represented by a promissory note
and was secured pursuant to a pledge agreement by 370,101 shares of Common Stock
of Corsair held by Ms. Byrnes. Ms. Byrnes has repaid one-half of the principal
and interest due under this note, and the Company has released one-half of the
pledged shares.
All of Corsair's officers are employed by Corsair at will. Corsair has
entered into indemnification agreements with each of its directors and executive
officers.
Corsair believes that all of the transactions set forth above were
initially made on terms no less favorable to Corsair than could have been
obtained from unaffiliated third parties. Corsair expects that all future
transactions between Corsair and its officers, directors and principal
stockholders and their affiliates will be approved in accordance with the
Delaware General Corporation Law by a majority of the Board, as well as by a
majority of the independent and disinterested directors, and will be on terms no
less favorable to Corsair than could be obtained from unaffiliated third
parties.
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SUBSCRIBER COMPUTING, INC.
BUSINESS
GENERAL
Subscriber Computing, Inc. ("Subscriber") provides scalable billing,
customer care, fraud detection, prepaid billing and mediation solutions for
paging, cellular and PCS service providers. Subscriber supports its products
with consulting services to assist customers in the integration and
implementation of its products. Subscriber believes that by using its software
technology, wireless service providers can increase customer acquisition and
retention, improve operating efficiencies, reduce costs, and implement enhanced
services.
Subscriber is a leading third-party provider of billing systems for the
paging industry. Subscriber's Communications Resources Manager (CRM) is an
application that manages billing, activations and customer care functions. For
large cellular and PCS carriers, Subscriber provides real time applications,
including FraudWatch Pro, a subscription and cloning fraud detection profiler,
PrePay, a prepaid metered billing application, and IMR, a mediation device. For
smaller or start-up service providers, Subscriber bundles its CRM and real time
applications as a comprehensive software solution (the "Suite").
Subscriber sells and markets its products to wireless telecommunications
service providers domestically and internationally. Subscriber's customers
include: ALLTEL Mobile, Cellcom Israel Limited (Israel), Conxus Corporation,
Douglass Telecommunications Inc., Hutchison Telecommunications Limited
(Australia), Infomobile (France), Metrocall of Delaware Inc., Page One
Communications (United Kingdom), Pagemart Limited (Canada), Radiomovil DIPSA,
S.A. de C.V. (Telcel) (Mexico), SouthWestCo Wireless, J.P. and Western Wireless
Corporation. Subscriber system solutions currently service approximately 20
million wireless telecommunications users on six continents.
INDUSTRY BACKGROUND
Wireless telecommunications services have been one of the fastest growing
areas of the worldwide telecommunications industry in recent years. The paging
market is expected to continue to experience rapid growth, increasing from 114
million subscribers in 1996 to 181 million subscribers in the year 2000,
according to RCR magazine and Cellular Business magazine. The growth in the
worldwide cellular and PCS subscriber base, together with the allocation in the
U.S. of additional spectrum frequencies, has resulted in the build-out of a
significant number of new networks and plans for additional networks. Dataquest
Incorporated has estimated that the number of wireless voice service subscribers
worldwide will increase from 125 million in 1996 to 360 million by the end of
2000.
Issues Facing Wireless Telecommunications Service Providers
As the worldwide wireless telecommunications industry evolves, it faces
severe competitive, pricing and cost pressures. In the U.S., current and
potential paging subscribers often have the choice of service from multiple
providers, and it is becoming more difficult for carriers to retain subscribers
who increasingly view paging service as a commodity. This competitive pressure
has frequently resulted in price competition, which serves to intensify cost
management pressures. The paging industry has increasingly experienced
consolidation, which presents service providers with complex integration
challenges. Cellular carriers in the U.S. are seeing increased competition as
new PCS and ESMR carriers enter their markets. Also, as the industry shifts from
a predominantly high usage business subscriber to the mass market, service
providers are being impacted by a decline in the average revenue per subscriber.
In order to retain or acquire subscribers, service providers are faced with a
growing need to manage customer interaction more effectively, differentiate
service offerings from their competitors, reduce costs and improve operational
efficiencies.
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The following are some of the areas service providers have focused on in an
effort to address competitive pressures and improve their financial results.
Improve Billing Systems for Paging, Cellular and PCS
Paging service providers are seeking ways to improve customer retention
while at the same time increasing the rate of subscriber acquisition. In order
to improve subscriber satisfaction and retention, Subscriber believes a wireless
service provider must be able to respond promptly to subscriber inquiries
regarding billing matters, rate plans, service problems and other issues; offer
a simplified, consolidated service and billing program; and offer flexible
billing programs and improved customer service.
Increasingly, certain paging service providers are growing through mergers
and acquisitions at a faster rate than the paging industry as a whole. In order
to minimize potential churn by subscribers as a result of service problems
caused during the integration of acquisitions, service providers carefully
manage the data conversion required to move subscribers between billing systems.
Importantly, as the industry has matured, certain paging carriers have acquired
millions of subscribers, which stresses the ability of their billing systems to
support real time functionality.
Cellular and PCS carriers are dealing with many of the same issues that
face paging service providers in their efforts to improve customer retention
while at the same time increasing the rate of subscriber acquisition. Smaller or
start-up carriers face a particular financial constraint in their selection of
and ongoing operation of billing systems. While these carriers require the same
or similar levels of functionality from billing systems, they may be most
appropriately served by system infrastructures that are low-cost in their design
and support requirements. The smaller or startup carriers have a heightened
requirement for rapid implementation with low initial capital outlays.
Reduce Losses Resulting from Fraud
Another issue facing cellular and PCS carriers is fraud, which encompasses
a variety of different techniques for obtaining unauthorized service. According
to the Yankee Group, fraud accounted for over $1 billion in losses across the
U.S. cellular and PCS market in 1996. It is also believed that fraud poses a
significant problem for wireless telecommunications carriers worldwide.
Subscriber believes that cloning fraud and subscription fraud account for
most fraud losses incurred by carriers. Cloning occurs when a thief uses a
scanning device to steal the mobile identification number ("MIN") and electronic
serial number ("ESN") transmitted over the air during a wireless call, and then
reprograms other phones with the stolen numbers. The reprogrammed phones, or
"clones," are then used to make fraudulent calls on the wireless carriers'
networks. Subscription fraud occurs when a thief uses false identification when
applying for service or otherwise has no intention of paying for service. The
fraudulent use of the network may not be detected and terminated by the service
provider for as many as several months.
Increase Revenue by Providing Prepaid Service
Cellular and PCS carriers have identified potential subscribers who prefer
the use of cash over credit, as well as potential subscribers who do not qualify
for credit, as an attractive segment for which to target their service
offerings. Additionally, traditional monthly billing arrangements are often not
practical for individuals who want wireless service only temporarily or for
businesses that want to control employee usage. Prepaid service provides
carriers with the opportunity to offer an alternative payment approach to these
potential subscribers. Accordingly, wireless carriers are seeking cost-effective
ways to solve the technological and marketing challenges in providing prepaid
service, including monitoring usage, inbound and outbound calling and roaming.
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<PAGE> 129
Reduce Costs through the use of Mediation Systems
In addition to exploring ways to increase revenues and retain subscribers,
wireless carriers are also developing strategies to reduce the cost of operating
information systems through the use of mediation devices, which provide real
time data collection, filtering, formatting and distribution.
SUBSCRIBER'S SOLUTIONS
Billing for Paging, Cellular and PCS
Subscriber's CRM is a scalable, open and feature-rich billing system
designed to support paging, cellular and PCS services. Subscriber introduced a
fully year 2000 ("Y2K") compliant version of its billing system in 1997. The
basic CRM services integrate billing, customer care, customer activation,
inventory management information and switch activation functions for a
comprehensive, integrated system. CRM is scalable to fit the needs of carriers
ranging from smaller or start-up operations to nationwide systems with thousands
of customer service representatives supporting millions of subscribers. CRM
features user-friendly screens which facilitate efficient data-entry and
ease-of-use to operators. CRM also offers the ability to export data to external
databases so that a wide variety of data queries can be supported.
CRM can be scaled to accommodate carriers' subscriber growth. CRM also
supports large-scale integration of subscriber bases that may be acquired by
Subscriber's customers, and Subscriber is experienced at providing data
conversion consulting services to its customers for this purpose. CRM's design
lends itself to rapid implementation, which Subscriber believes is increasingly
perceived as valuable to potential paging, cellular and PCS customers.
CRM is available with over 20 optional modules for increased power and
flexibility. These optional modules include: CRM Insight(TM) for customer
account query via the Internet; CRM API Software Development Kit for application
program interfaces; Gatekeeper(TM) for real time, automated number assignment
and unit activation, suspension or deactivation of pagers and cellular phones
through automated reconciliation between the switch and billing system;
DataMax(R) for manipulation and exportation of data compiled by CRM; and
TouchTalk(R) end-user for access to account information from a touch-tone
telephone 24-hours a day. Additionally, CRM is capable of functioning across any
Roman character-based language and several symbol-based languages.
Fraud
FraudWatch Pro is an automated fraud detection tool that uses advanced
subscriber usage profiling techniques to identify fraudulent usage, in order to
help cellular and PCS carriers to reduce the costs associated with that usage.
FraudWatch Pro analyzes historical usage patterns to build profiles for each
subscriber and alerts the carrier when calls deviate from the existing profile,
in a manner similar to the methodology used by credit card companies to track
spending patterns. FraudWatch Pro analyzes all calls on the network, including
roamer calls, and can identify system-wide patterns that indicate fraud.
FraudWatch Pro operates in a multi-market, multi-switch environment and analyzes
call data on a real time basis. One of the distinguishing features of FraudWatch
Pro is that it uses advanced behavioral-based individual profiling technology
instead of more commonly used threshold-based group profiling technology. This
advanced technology enables FraudWatch Pro to recognize the fraudulent calling
pattern of a thief who may repeatedly assume different identities to gain
fraudulent access to the network.
Prepaid Metered Billing
PrePay allows carriers to market services to customers who prefer the use
of cash over credit or who do not qualify for credit and are required to pay
high deposits, thus expanding their potential customer base. PrePay is
differentiated from most other competitive offerings by its wireless intelligent
network ("WIN") based architecture, which enables carriers to use existing
switch infrastructure equipment rather than requiring costly additional adjunct
switches and voice trunk resources. All calls by prepaid subscribers are rated
in real time, and an integrated interactive voice response ("IVR") system
automatically informs the
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<PAGE> 130
customer when account funds are low. If prepaid funds are depleted during a
call, the call is automatically terminated and service is suspended until
additional funds are deposited. The deposit of additional funds can be made over
the air with a credit card or in cash at a replenishment center, ensuring
continuity of cellular service.
Mediation
IMR collects call data from switches, Home Location Registers ("HLR"),
Visitor Location Registers ("VLR"), as well as voicemail and short-messaging
platforms and other enhanced service platforms. IMR then filters and formats the
data and distributes the data to various downstream applications. Systems that
receive the call records from IMR include: billing systems, network management
systems, fraud detection systems and other third party applications, as well as
Subscriber's other real time applications. Subscriber believes that carriers
that implement IMR benefit from the lower operating costs and reduced complexity
of data networking that result from a single data interface with switches and
other networked elements, and from the lower costs in managing the impact of
switch software upgrades on multiple downstream applications. Additionally,
enhanced services may be implemented more quickly through open interfaces to IMR
instead of through switch ports.
The Suite
The Suite includes a range of low-cost products marketed to smaller and
start-up cellular and PCS carriers. With the breadth of billing, customer care,
prepaid billing, mediation and fraud detection applications all running on
entry-level platforms, the Suite allows carriers to address most of their
operational needs through one key relationship with Subscriber.
STRATEGY
Subscriber's objective is to become the leading provider of software
solutions that enable wireless service providers to increase customer
acquisition and retention, improve operating efficiencies, reduce costs and
quickly implement enhanced services. Subscriber currently has a significant
installed base of customers in the paging market using its CRM billing and
customer care system and, as a result, Subscriber believes that it is well
positioned to compete for new customers in the paging market worldwide.
Additionally, CRM will continue to be the foundation of Subscriber's billing and
customer care offering to cellular and PCS carriers. Subscriber seeks to expand
and develop relationships with wireless systems integrators, resellers,
infrastructure providers and platform providers to gain access to the marketing
and support resources of these parties so as to accelerate its sales and augment
its internal support capacity. By establishing and maintaining long-term
customer relationships, Subscriber intends to develop a loyal customer base from
which it can gain input for product improvement and development. Subscriber
seeks to capitalize on its broad product offering to not only attract new
customers with a need for multiple products, but also to promote the sale of
additional products to existing customers.
PRODUCT DEVELOPMENT AND TECHNOLOGY
Subscriber's future success depends in part on its ability to enhance its
existing products and develop new products to address the evolving needs of
wireless carriers. Subscriber spent approximately $3.6 million, $5.6 million and
$5.0 million on research and development in the fiscal years ended September 30,
1996 and 1997, and the six-months ended March 31, 1998, respectively.
Subscriber seeks to rapidly upgrade its products to be responsive to the
changing needs of its customers. Subscriber has implemented a product
development lifecycle ("PDLC") process to manage its product development and
evolution. This process provides a structured approach to guide Subscriber's
product management and development teams from product conception throughout the
entire lifecycle of a product. All products are managed in accordance with this
process. The PDLC is based on a series of six stages in the product lifecycle,
with each stage requiring review and concurrence among sales, marketing,
development and support teams.
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Subscriber's CRM software operates on DOS/Novell platforms. The current
PC-Local Area Network solution provides a flexible, scalable, cost effective
solution that has been implemented to efficiently support customers whose
subscriber bases range from less than 10,000 to more than two million. In
response to perceived market demand, Subscriber is currently porting CRM to
Windows NT and UNIX platforms. Subscriber plans to make a Windows NT-based
version of CRM commercially available to cellular and PCS service providers in
1998 and to paging service providers in 1999 and to make a UNIX version of CRM
commercially available in 1999. Furthermore, the CRM development plan includes
the scheduled implementation in 1999 of a relational database management system,
replacing the current navigational database or file management systems as the
production database.
First generation versions of FraudWatch Pro, PrePay and IMR were developed
and deployed on DOS/ Novell platforms. Current versions of these products have
been developed using an open system approach based on the UNIX operating system
and relational database management systems. Fraud Watch Pro, PrePay and IMR
currently operate on Sun Solaris and Hewlett Packard HP-UX UNIX operating
systems using Sybase and Oracle relational databases. Subscriber has established
ties with these vendors in order to ensure that it remains coupled with their
technology and product evolution plans. These relationships have been
established in order to prevent product compatibility problems as these vendors
introduce new product releases. Subscriber is establishing similar relationships
with major switching system manufacturers to ensure that it understands the
directions these manufacturers are taking their products, with the objective of
eliminating compatibility problems as the infrastructure providers introduce new
software releases.
The underlying technology for FraudWatch Pro comes from a defense
intelligence background, which helps to differentiate this product from
competitive offerings. The algorithms underlying FraudWatch Pro are designed to
enable the system to identify an individual based upon their pattern of
telecommunications usage. Existing competitive offerings are commonly designed
to identify and reconcile billing discrepancies and utilize network-wide
thresholds to identify possible incidents of fraud.
Subscriber's PrePay uses WIN technology that provides an open platform for
the provision of new services. This architectural framework builds on the
signaling system 7 (SS7) infrastructure that many carriers are deploying to
support intersystem roaming and new service implementations.
The core patented technology underlying IMR provides the ability to collect
call data and distinguish between classes of calls for specific usage, which
enables metered billing solutions such as PrePay. IMR currently has interfaces
to Nortel, Lucent, Ericsson and Motorola switches with a capability to develop
new interfaces within a relatively short timeframe.
SALES AND MARKETING
Subscriber markets its products to paging, cellular and PCS service
providers, domestically and internationally. Subscriber distributes its products
principally through a direct sales force and, to a growing extent, through
indirect sales channel relationships with system integrators, resellers,
infrastructure providers and hardware platform providers who may integrate their
own products and/or services with Subscriber's solutions or market Subscriber's
solutions directly to customers.
Subscriber targets small to large paging providers for its CRM product and
targets smaller and start-up cellular and PCS providers for its Suite product.
Because CRM and the Suite both offer comprehensive operational capabilities, the
sales model for these products is very similar. Subscriber primarily employs a
direct sales model and has key strategic relationships with infrastructure
providers to obtain access to customers. The sales process and early
implementation phase include a substantial amount of planning and business
analysis. The need for ongoing support and maintenance associated with these
products typically results in a long-term relationship being established between
Subscriber and these customers. With respect to FraudWatch Pro, PrePay and IMR,
Subscriber targets medium to large size cellular and PCS providers. Strategic
relationships with systems integrators, resellers, infrastructure providers and
hardware platform providers are important in obtaining access to these
customers.
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CUSTOMER SERVICE AND SUPPORT
Subscriber offers a range of services, including maintenance, training,
consulting and project management, technical support, conversions and custom
software development to assist its clients in optimizing Subscriber's products
to meet the diverse requirements of their respective markets. These services are
designed to provide feedback to Subscriber as to market demands and
requirements.
Subscriber currently offers worldwide support through offices in Europe and
California. Support is provided both on-site and remotely from Subscriber's
corporate headquarters in Irvine, California. For initial installations,
Subscriber generally places personnel on-site at the client's location. A client
support hotline operates during standard business hours from 6 a.m. to 9 p.m.
Pacific Standard Time. In addition, emergency telephone service is available 24
hours a day, seven days a week.
COMPETITION
The markets for Subscriber's products are intensely and increasingly
competitive, subject to rapid change and significantly affected by new product
introductions and other market activities of industry participants. A large
number of companies currently offer one or more products that compete directly
with those offered by Subscriber. For example, Subscriber competes directly with
In-Touch Management Systems, Inc. in paging billing systems; with AG
Communications Systems, National Telemanagement Corporation, Systems/Link, GTE,
Glenayre Technologies, Inc., Brite Voice Systems, Inc. and Boston Communications
Group, Inc. for prepaid billing; with GTE, Lightbridge, Systems/Link, IBM, DEC
and Hewlett-Packard in real time fraud profiler systems; with Metapath Software
Corp. and ACE*Comm Corporation for mediation systems; and with Daleen
Technologies, Inc., Keenan Systems Corporation, Sema Group Telecoms, Inc., LHS
Group, Inc. and AMDOCS, Inc. for its suite billing products. Subscriber also
competes with companies offering a breadth of software knowledge applicable to a
variety of industries, including communications businesses. Such companies
include Andersen Consulting and Electronic Data Systems Corporation. Several of
these competitors have significantly greater financial, technical, marketing and
other resources, significantly greater name recognition and a larger installed
base of customers than Subscriber. As a result, Subscriber's competitors may be
able to adapt more quickly to new or emerging technologies and changes in
subscriber requirements or may be able to devote greater resources to the
promotion and sale of their products and services.
In addition, many wireless service providers are providing, or can provide,
products and services developed in-house that compete directly with those that
Subscriber offers. If technological or other developments make it simpler or
more cost-effective for wireless service providers to provide certain services
themselves, such development could affect demand for Subscriber's services and
could make it more difficult for Subscriber to offer a cost-effective
alternative to a wireless service provider's own capabilities. There can be no
assurance that Subscriber will be able to compete successfully with its existing
competitors or with new competitors. An increase in competition through entry of
new competitors or additional product offerings by existing competitors could
result in price reductions or the loss of market share by Subscriber which would
have a material adverse effect on Subscriber's business and results of
operations and thus financial condition.
EMPLOYEES
As of March 31, 1998, Subscriber had 132 employees, including 14 in sales
and marketing, 71 in research and development and 47 in client service and
support, including finance and administration.
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SELECTED FINANCIAL INFORMATION OF SUBSCRIBER
The selected financial data set forth below with respect to Subscriber's
statements of operation data for each of the three years in the period ended
September 30, 1997 and with respect to Subscriber's balance sheets at September
30, 1996 and 1997 are derived from the financial statements of Subscriber that
have been audited by Deloitte & Touche, LLP, independent auditors, which are
included elsewhere herein. The statement of operations data for the year ended
September 30, 1994 and the balance sheet data at September 30, 1994 and 1995
have been derived from the Company's audited financial statements, which are not
included herein. The statement of operations data for the year ended September
30, 1993 and the balance sheet data at September 30, 1993 are derived from the
Company's unaudited financial statements not included herein. The statement of
operations data for the six periods ended March 31, 1997 and 1998 and the
balance sheet data at March 31, 1998 has been derived from the unaudited
financial statements included elsewhere herein. The unaudited condensed
financial statements include all adjustments, consisting only of normal
recurring adjustments that management considered necessary for a fair
presentation of the financial position and results of operations for these
periods. Operating results for the six months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for the entire fiscal
year ending September 30, 1998. The data set forth below should be read in
conjunction with "Subscriber's Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Subscriber's financial statements and
related notes included elsewhere in the Prospectus.
SUBSCRIBER COMPUTING, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------- -----------------
1993 1994 1995 1996 1997 1997 1998
------ ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL STATEMENT OF OPERATIONS
DATA:
Total revenues..................... $3,757 $4,918 $7,546 $11,610 $13,018 $ 5,207 $ 6,457
Gross profit....................... 1,803 1,855 2,966 5,872 7,667 2,789 2,779
Total operating costs and
expenses......................... 1,468 1,636 3,051 12,442 15,039 6,211 10,172
Operating income (loss)............ 335 219 (85) (6,569) (7,372) (3,422) (7,393)
Net income (loss).................. 289 167 (123) (6,844) (7,556) (3,532) (7,404)
Diluted net income (loss) per share
data:
Net income (loss).................. $ 0.04 $ 0.02 $(0.02) $ (0.92) $ (0.96) $ (0.47) $ (0.89)
Shares used in per share
calculation...................... 6,670 6,791 7,426 7,426 8,023 7,665 8,415
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------- MARCH 31,
1993 1994 1995 1996 1997 1998
------ ------ ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL BALANCE SHEET DATA:
Cash, cash equivalents, short term
investments and restricted cash........ $ 252 $ 326 $ 6,540 $ 2,577 $ 4,075 $ 2,320
Working capital (deficit)................ 626 (224) 5,378 (1,891) (1,552) (6,442)
Total assets............................. 3,525 4,680 12,551 6,815 11,621 11,145
Long-term obligations.................... 828 8 6,875 3,901 968 2,568
Retained earnings (accumulated
deficit)............................... 1,791 2,259 2,135 (4,709) (12,400) (19,893)
Total stockholders' equity (deficit)..... 1,868 268 2,484 (4,360) 2,268 (5,102)
</TABLE>
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SUBSCRIBER'S MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis may contain forward-looking
statements that involve risks and uncertainties. Subscriber's actual results may
differ materially from the results discussed in such forward-looking statements.
Subscriber undertakes no obligation to release publicly the results of any
provisions to these forward-looking statements to reflect events or
circumstances arising after the date hereof.
The following should be read in conjunction with Subscriber's financial
statements and notes thereto.
OVERVIEW
Subscriber provides scalable billing, customer care, fraud detection,
prepaid billing and mediation solutions for paging, cellular and PCS service
providers. Subscriber supports its products with consulting services to assist
customers in the integration and implementation of its products. Subscriber
believes that by using its software technology, wireless service providers can
increase customer acquisition and retention, improve operating efficiencies,
reduce costs, and implement enhanced services.
Subscriber's objective is to become the leading provider of software
solutions that enable wireless service providers to increase customer
acquisition and retention, improve operating efficiencies, reduce costs and
quickly implement enhanced services. The implementation of Subscriber's strategy
has resulted in compounded annual revenue growth of over 38% since the fiscal
year ended September 30, 1994. To date, a significant portion of Subscriber's
revenue in any particular year has been attributable to a limited number of
customers. In the fiscal year ended September 30, 1995, two customers accounted
for 13% and 11% of total revenues, and two other customers each accounted for
10% of total revenues. In the fiscal year ended September 30, 1996, two
customers accounted for 18% and 13% of total revenues. In the fiscal year ended
September 30, 1997 two customers accounted for 27% and 11% of total revenues. In
the six months ended March 31, 1998, two customers accounted for 19% and 18% of
total revenues, and one other customer accounted for 10% of total revenues.
Subscriber expects that a relatively small number of customers will continue to
represent a significant percentage of its total revenues for each fiscal year
for the foreseeable future, although the companies that comprise the largest
customers in any given fiscal year are expected to change from year to year due
to the upfront revenues associated with new customers.
Subscriber derives revenues from two sources: product revenue from sales of
software products and related hardware sales, if any, and fees from sales of
services and other revenues, including software support and maintenance,
consulting, software customization. Since 1991, Subscriber's focus has been on
the licensing of its billing and customer care and real time software solutions.
Thus, product revenue has accounted for a majority of Subscriber's revenue, at
63%, 64%, and 58% of total revenues for the fiscal years ended September 30,
1995 ("fiscal 1995"), September 30, 1996 ("fiscal 1996"), September 30, 1997
("fiscal 1997"), and the six months ended March 31, 1998, respectively.
Subscriber has historically been able to realize higher margins on sales of its
software products than on its services.
Product revenue is recognized on delivery of the product to the customer,
provided that Subscriber has no significant related obligations or collection
uncertainties remaining. Deferred revenue represents software license fees,
consulting fees and customer support and maintenance agreements paid in advance.
Deferred revenue related to software license fees and consulting fees is
recognized when software is delivered or services are completed. Deferred
revenue related to customer support agreements is generally recognized ratably
over the term of the agreement, from three months to one year, using the
straight-line method.
Research and development expenses are comprised of the salaries, benefits
and related expenses of the employees involved in software development. Research
and development costs are expensed as incurred. Historically, Subscriber has
capitalized software development costs, if material, and amortized such costs
over the estimated economic life of the product on the straight-line basis
(generally five years) when sufficient evidence exists that technological
feasibility has been established. Software development costs capitalized during
fiscal 1995 amounted to $1.9 million, and amortization expense amounted to
$893,000. In the fourth quarter of fiscal 1996 Subscriber wrote off all
capitalized software development costs, net of amortization,
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<PAGE> 135
totaling approximately $3.8 million after evaluating the recoverability of
capitalized costs and determining that such costs were not recoverable. No
capitalized software development costs have been recorded subsequent to
September 30, 1995.
Subscriber believes that its future success depends on its ability to
enhance its current products and services, and to develop new products which
address the needs of its customers. As a result, Subscriber has committed and
intends to continue to commit substantial resources to its product development
efforts. This commitment is reflected in an increase of $2.7 million in research
and development costs from the first half of fiscal 1997 to the first half of
fiscal 1998.
Subscriber has experienced seasonal and quarterly fluctuations in its
results of operations due to industry purchasing and product installation
patterns. Specifically, Subscriber's revenues and operating income have usually
been lowest in the first and second fiscal quarters and highest in the fourth
fiscal quarter.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
total revenues represented by certain items in Subscriber's Statements of
Operations:
<TABLE>
<CAPTION>
YEAR ENDING SIX MONTHS
SEPTEMBER 30, ENDED MARCH 31,
-------------------- ----------------
1995 1996 1997 1997 1998
---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Total revenues....................................... 100% 100% 100% 100% 100%
Cost of sales:....................................... 61 49 41 46 57
Operating costs and expenses:
Research and development........................... 4 31 43 46 78
Sales and marketing................................ 17 21 30 30 30
General and administrative......................... 19 23 43 44 50
Write-off of capitalized software costs............ -- 32 -- -- --
--- --- --- --- ----
Total operating costs and expenses......... 40 107 116 120 158
--- --- --- --- ----
Operating income (loss).............................. (1) (56) (57) (66) (115)
Interest and other income (expense).................. -- (2) (1) (2) --
Net income (loss).................................... (1) (58) (58) (68) (115)
</TABLE>
SIX MONTHS ENDED MARCH 31, 1997 AND 1998
Revenues. Total revenue increased 25% from $5.2 million during the six
months ended March 31, 1997 to $6.5 million during the six months ended March
31, 1998. A substantial portion of the growth in total revenues resulted from an
increase in the average sale size, as well as an increase in the number of new
customers as Subscriber continues to increase its market share penetrating both
new and existing markets.
Product Revenue. License fee and hardware revenue increased slightly
from $3.1 million during the six months ended March 31, 1997 to $3.7
million during the six months ended March 31, 1998. The increase was due to
sales mix change to higher margin products, primarily in the prepaid
billing product line. In the first half of fiscal 1998, more than one third
of the total revenue was derived from new customers (primarily in the
prepaid product line).
Services and Other Revenues. Services and other revenues increased 33%
from $2.1 million during the six months ended March 31, 1997 to $2.8
million during the six months ended March 31, 1998. The increase was due to
greater consulting and systems support services provided to new customers
as a result of the sales of new products.
Gross Margin. Gross margin was relatively flat, after adjusting for the
write off of a prepaid license agreement of $0.6 million resulting from the IOS
acquisition in 1996. The gross margin for product revenue decreased from 78% in
the six months ended March 31, 1997 to 69% in the six months ended March 31,
1998,
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before the write-off of the prepaid license agreement. Gross margin from service
and other revenue increased from 20% to 31%, over the same period.
Sales and Marketing Expenses. Sales and marketing expenses increased by
$0.3 million from $1.6 million during the six months ended March 31, 1997 to
$1.9 million during the six months ended March 31, 1998. However, as a
percentage of total revenues, these expenses decreased slightly from 30% to 28%.
The increase was due the additions of sales representatives with expertise in
specific product lines and key geographic areas as well as an executive officer.
General and Administrative Expenses. General and administrative expenses
increased 30% from $2.3 million in the first half of fiscal 1997 to $3.2 million
in the six months ended March 31, 1998. As a percentage of total revenues these
expenses increased from 44% to 50%. The $0.9 million increase arose primarily
from an increase in the allowance for doubtful accounts of $0.6 million and a
$0.2 million write-off of goodwill that was deemed to be not recoverable from
the IOS acquisition in 1996.
Research and Development Expenses. Research and development expenses
increased from $2.4 million during the six months ended in March 31, 1997 to
$5.0 million in the six months ended March 31, 1998. The increase was
attributable to the development of new versions of several products including
FraudWatch Pro and Prepay as well as the standardization of existing products
from many customer-specific applications to the current code release.
Interest and Other Income (Expense), Net. Net interest expense was $0.3
million during the six months ended March 31, 1998 compared to net interest
expense of $0.1 million during the six months ended March 31, 1997. Net interest
income and expense consists of interest income from Subscriber's cash and short
term investments, net of interest expense on Subscriber's equipment loans,
equipment lease lines and other loans. The increase in net interest expense was
a result of an increase in equipment financing and the reduction of interest
income from invested cash. Also included in other income during the six months
ended March 31, 1998 was $325,000 related to the favorable settlement of a
customer dispute.
YEARS ENDED SEPTEMBER 30, 1996 AND 1997
Revenues. Total revenues increased 12% from $11.6 million in fiscal 1996 to
$13.0 million in fiscal 1997. A substantial portion of the growth in total
revenues resulted from an increase in revenues from Subscriber's existing client
base.
Product Revenue. License fee and hardware revenue increased 12% from
$7.4 million in fiscal 1996 to $8.3 million in fiscal 1997. The increase
was primarily attributable to further enhancement of Subscriber's existing
products, particularly in the Messaging Division, and also from license
fees earned from its installed base of customers.
Services and Other Revenues. Services and other revenues increased 12%
from $4.2 million in fiscal 1996 to $4.7 million in fiscal 1997. The
increase was primarily due to an increase in maintenance revenue which
increased as a result of larger contracts from new customers and support
services from prior years.
Gross Margin. Gross margin increased $1.8 million from 1996 to 1997. As a
percentage of revenue, the gross margin was 51% in the year ended September 30,
1996 and 59% in the year ended September 30, 1997. Cost of product revenue and
services decreased 21% from $2.4 million in fiscal 1996 to $1.9 million in
fiscal 1997. The decrease in total expenses was primarily due to a decrease in
software cost of sales. Cost of services increased 6% from $3.3 million in
fiscal 1996 to $3.5 million in fiscal 1997. The slight increase was due to
increased costs associated with consulting and training projects.
Sales and Marketing Expenses. Sales and marketing expenses increased 65% or
$1.5 million in fiscal 1997 compared to fiscal 1996. As a percentage of total
revenue, such expenses increased from 21% in fiscal 1996 to 30% in fiscal 1997.
The increase in 1997 was primarily due to headcount additions for sales
representatives and sales executives.
General and Administrative Expenses. General and administrative expenses
increased 106% or $2.9 million in fiscal 1997 compared to fiscal 1996. As a
percentage of total revenue, such expenses increased from
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23% in fiscal 1996 to 43% in fiscal 1997. The increase was due primarily to
greater recruiting and relocation expenses.
Research and Development Expenses. Research and development expenses
increased by 56% or $2.0 million from $3.6 million in fiscal 1996 to $5.6
million in fiscal 1997. As a percentage of total revenue, such expenses
increased from 31% in fiscal 1996 to 43% in fiscal 1997. The increase is
attributable to the standardization of existing products from many
customer-specific codes to the current code release and the next version
development of the FraudWatch(R)Pro, IMR(TM) and PrePay(TM) products.
Write-off of Capitalized Software. During fiscal 1996, Subscriber
determined that $3.8 million of previously capitalized software research and
development costs were not recoverable out of future operating cash flows based
on changes in product mix.
YEARS ENDED SEPTEMBER 30, 1995 AND 1996
Revenues. Total revenues increased 55% from $7.5 million in fiscal 1995 to
$11.6 million in fiscal 1996. A substantial portion of the growth in total
revenues resulted from an increase in the average sale size, as well as an
increase in revenues from Subscriber's existing client base.
Product Revenue. License fee and hardware revenues increased 57% from
$4.7 million in fiscal 1995 to $7.4 million in fiscal 1996. The increase
was attributable to the ongoing enhancement of Subscriber's existing
products resulting in an increase in the number of installations. Increased
sales were also attributable to increased marketing efforts. In addition,
during fiscal 1996, Subscriber continued to earn license fees with respect
to installations made in prior years as the model sizes (based on the
number of subscribers) of the existing client base grew.
Services and Other Revenues. Services and other revenues increased 50%
from $2.8 million in fiscal 1995 to $4.2 million in fiscal 1996. The
increase was due to greater consulting and systems support services as a
result of the growth and consolidation of the messaging industry.
Gross Margin. The gross margin for the fiscal year ended September 30, 1995
was 39% and increased to 51% in the fiscal year ended September 30, 1996. Cost
of product revenue increased 85% from $1.3 million in fiscal year 1995 to $2.4
million in fiscal year 1996 due to increased hardware cost of sales. This
resulted in a gross margin for product revenue of 54% and 67% in the fiscal
years ended September 30, 1995 and 1996, respectively. Cost of services was flat
at $3.3 million in the fiscal year ended September 30, 1995 and the fiscal year
ended September 30, 1995. Gross margin for services was 15% and 22% for the
fiscal years ended September 30, 1995 and 1996, respectively.
Sales and Marketing Expenses. Sales and marketing expenses increased 85% or
$1.1 million in fiscal 1996 compared to fiscal 1995. As a percentage of total
revenues, such expenses increased from 17% in fiscal 1995 compared to 21% in
fiscal 1996. The increased in 1996 was due to increases in headcount and an
increase in advertising and trade show participation to support the growth in
sales.
General and Administrative Expenses. General and administrative expenses
increased 88% or $1.3 million in fiscal 1996 compared to fiscal 1995. As a
percentage of total revenues, such expenses increased from 19% in fiscal 1995 to
23% in fiscal 1996. The increase in 1996 was due to increases in corporate
relocation expenses, and legal expenses related to an acquisition that did not
occur.
Research and Development Expenses. Research and development expenses
increased from $0.3 million in fiscal 1995 to $3.6 million in fiscal 1996,
exclusive of $2.0 million of capitalized software development costs in fiscal
1995. This increase was attributable to development efforts undertaken during
fiscal 1996 with respect to Subscriber's next generation products.
LIQUIDITY AND CAPITAL RESOURCES
Subscriber has financed its operations and capital requirements from fiscal
1995 through March 31, 1998 through a combination of borrowings from financial
institutions and customers and, in fiscal 1997, proceeds of approximately $14.1
million from the issuance of Series B Preferred Stock. Subscriber's primary
source of
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funds at March 31, 1998 consisted of $1.5 million in cash and cash equivalents
and available borrowings under its funding agreements with a lending
institution.
Subscriber used cash for operating activities of approximately $4.7
million, $8.1 million and $4.0 million for the six months ended March 31, 1998,
fiscal 1997 and fiscal 1996, respectively. The use of cash as due to the net
loss for the period and increases in accounts receivable offset by depreciation
expense, the write-off of intangible assets and increases in accrued expenses
and deferred revenue. The use of cash for operating activities in fiscal 1997
and 1996 was primarily due to Subscriber's operating losses and decreases in
deferred revenue offset by depreciation expense and, in 1996, the write-off of
$3.8 million in capitalized software development costs.
Subscriber generated $0.8 million in cash from investing activities during
the six months ended March 31, 1998 primarily from the sale of marketable
securities of $1.4 million offset by $0.5 million of fixed asset purchases.
Subscriber used cash in investing activities of $3.9 million in fiscal 1997 and
$0.9 million in fiscal 1996. The use of cash was primarily due to the purchase
of $2.5 million and $0.9 million of fixed asset purchases in fiscal 1997 and
1996 and the net purchase of $1.3 million of marketable securities in fiscal
1996.
Net cash provided from financing activities was $3.4 million, $12.2 million
and $0.9 million for the six months ended March 31, 1998, fiscal 1997 and fiscal
1996, respectively. The net cash provided by financing activities for the six
months ended March 31, 1998 was from borrowings of $5.1 million offset by $1.7
million in payments on long-term debt. The $5.1 million of borrowings was funded
by a lending institution with a $2.6 million three year note in December 1997
and a $2.5 million short term note in March 1998. The $2.5 million and $2.6
million notes are payable monthly at an implied rate of approximately 15% and 5%
over prime rate, respectively. The principal balance of the $2.6 million note is
payable at the earlier of the consummation of the Merger, the completion of a
private placement or June 30, 1998. The net cash provided by financing
activities in fiscal 1997 was primarily derived from the net proceeds of the
Series B Preferred Stock issuance. The net cash provided by financing activities
in fiscal 1996 of $0.9 million was primarily from short-term borrowings and the
issuance of long-term debt.
Subscriber believes that existing cash resources, the existing line of
credit, cash flow from operations, if any, together with Subscriber's borrowing
capacity will be sufficient to fund Subscriber's operations during the next 12
months.
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. These date code fields
will need to accept four digit entries, or be modified in some fashion, to
distinguish 21st century dates from 20th century dates. This problem could force
computers to either shut down or provide incorrect data. As a result, in less
than three years, computer systems and software used by many companies may need
to be upgraded to comply with "Year 2000" requirements. Subscriber has examined
its products and internal computer systems and contacted its software providers
to determine whether Subscriber's software applications are compliant with the
Year 2000. While Subscriber believes that most of its products and internal
systems are, or will be, fully Year 2000 compliant, Subscriber intends to
continue to review its products and internal systems for any problems as well as
monitor its key customers and suppliers for any impact that the Year 2000 may
have on their information systems which in turn could impact Subscriber. While
it is difficult to quantify the total cost to Subscriber of Year 2000 compliance
activities, Subscriber's best estimate of expenditures is between $100,000 and
$500,000. However, there can be no guarantee that Year 2000 issues will not have
a material adverse impact on Subscriber's business, results of operations or
financial condition. In addition, Subscriber believes that the purchasing
patterns of customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by Subscriber, which could
result in a material adverse effect on Subscriber's business, results of
operations and financial condition.
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PRINCIPAL STOCKHOLDERS OF SUBSCRIBER
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and Preferred Stock of Subscriber as of March 31,
1998 by: (i) each person known by Subscriber to be the beneficial owner of more
than 5% of the outstanding Common Stock of Subscriber or more than 5% of the
outstanding shares of Preferred Stock of Subscriber; (ii) each director and
executive officer of Subscriber; and (iii) all directors and executive officers
of Subscriber as a group. Unless otherwise indicated, the persons named in this
table have sole voting and sole investment power with respect to all shares
shown as beneficially owned, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
ALL CLASSES OF
COMMON STOCK PREFERRED STOCK CAPITAL STOCK
----------------------- ----------------------- ------------------------
NAME AND ADDRESS NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT
OF BENEFICIAL OWNERS(1) OF SHARES OF CLASS(2) OF SHARES OF CLASS(2) OF SHARES OF CLASS(2)
----------------------- --------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Arlene Harris(3)............... 5,717,986 67.7 % -- -- 5,717,986 45.2 %
100 Via De La Valle
Del Mar, CA 92014
Affiliates of Advent
International
Corporation(4)............... -- -- 4,069,534 96.7 % 4,069,534 32.2
101 Federal Street
Boston, MA 02110
Paul Hoberg.................... 1,000,000 11.8 -- -- 1,000,000 7.9
Motorola, Inc.(5).............. -- -- 348,687 7.7 361,652 2.8
1301 East Algonquin Road
Schaumburg, IL 60196
Dennis Andrews(6).............. 235,408 2.7 -- -- 235,408 1.8
Thomas Fedro(7)................ 56,250 * -- -- 56,250 *
Patricia Howe(8)............... 27,584 * -- -- 27,584 *
Steve Johnson(9)............... 310,850 3.6 -- -- 310,850 2.4
David McCann(10)............... 50,000 * -- -- 50,000 *
Theresa Rizzo(11).............. 49,334 * -- -- 49,334 *
Alan Van Boven(12)............. 42,500 * -- -- 42,500 *
Martin Cooper(13).............. 29,300 * -- -- 29,300 *
100 Via De La Valle
Del Mar, CA 92014
Douglas Kingsley(4)............ -- -- 4,069,534 96.7 4,069,534 32.2
Mark Nielsen(14)............... 1,334,683 15.6 -- -- 1,334,683 10.5
All directors and executive
officers as a group(12
persons)(15)................. 7,853,895 86.1 4,069,534 96.7 11,923,429 89.4
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. The address for those
individuals for which an address is not otherwise indicated is: 18881 Von
Karman Avenue, Suite 450, Irvine, California 92612.
(2) Percentages have been calculated in accordance with Commission Rule
13d-3(d)(1) and are based on 8,443,944 shares of Common Stock and 4,209,863
shares of Preferred Stock outstanding as of March 31, 1998.
(3) Excludes 29,300 shares of Common Stock held by Martin Cooper, the husband
of Ms. Harris.
(4) Includes 2,134,767 shares beneficially owned by Advent Global GECC LP,
1,371,036 shares beneficially owned by Global Private Equity II LP, 596,969
shares beneficially owned by Advent Partners LP and 68,552 shares
beneficially owned by Advent Partners LP (collectively the "Advent Funds").
Mr. Kingsley is a Senior Vice President of Advent International
Corporation, which is the manager of
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<PAGE> 140
the Advent Funds, and he is a limited partner of Advent Partners Limited
Partnership. Mr. Kingsley disclaims beneficial ownership of these shares
except to the extent of his individual interest.
(5) Represents a warrant to purchase 348,687 shares of Series A Preferred Stock
held by Motorola, Inc., which is convertible into 361,652 shares of Common
Stock.
(6) Includes 117,704 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 1998, and 117,704
shares of Common Stock issuable upon the exercise of options that will
become exercisable upon the Closing Date, assuming a Closing Date of June
30, 1998.
(7) Includes 56,250 shares of Common Stock issuable upon the exercise of
options that will become exercisable upon the Closing Date, assuming a
Closing Date of June 30, 1998.
(8) Includes 21,667 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 1998, and 5,917
shares of Common Stock issuable upon the exercise of options that will
become exercisable upon the Closing Date, assuming a Closing Date of June
30, 1998.
(9) Includes 115,800 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 1998, and 800
shares of Common Stock issuable upon the exercise of options that will
become exercisable upon the Closing Date, assuming a Closing Date of June
30, 1998.
(10) Includes 50,000 shares of Common Stock issuable upon the exercise of
options that will become exercisable upon the Closing Date, assuming a
Closing Date of June 30, 1998.
(11) Includes 32,667 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 1998 and 16,667
shares of Common Stock issuable upon the exercise of options that will
become exercisable upon the Closing Date, assuming a Closing Date of June
30, 1998.
(12) Includes 21,250 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 1998, and 21,250
shares of Common Stock issuable upon the exercise of options that will
become exercisable upon the Closing Date, assuming a Closing Date of June
30, 1998.
(13) Excludes 5,717,986 shares of Common Stock held by Arlene Harris, wife of
Mr. Cooper.
(14) Includes 33,333 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 1998, and 66,667
shares of Common Stock issuable upon the exercise of options that will
become exercisable upon the Closing Date, assuming a Closing Date of June
30, 1998. Also includes 5,000 shares of Common Stock held by Nancy
Witomsky, Mr. Nielsen's mother, and 4,000 shares of Common Stock held by
Torben Nielsen, Mr. Nielsen's father.
(15) Includes (i) 342,421 shares of Common Stock issuable upon the exercise of
options that are exercisable within 60 days of March 31, 1998, (ii) 335,255
shares of Common Stock issuable upon the exercise of options that will
become exercisable upon the Closing Date, assuming a Closing Date of June
30, 1998, and (iii) 4,069,534 shares of Series B Preferred Stock
beneficially owned by the Advent Funds.
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DESCRIPTION OF CORSAIR CAPITAL STOCK
COMMON STOCK
At March 31, 1998, there were 13,714,475 shares of Corsair Common Stock
outstanding and held of record by approximately 250 stockholders. The holders of
Corsair Common Stock are entitled to one vote for each share held of record on
all matters submitted to a vote of the stockholders. Subject to preferences that
may be applicable to any outstanding shares of Preferred Stock, holders of
Corsair Common Stock are entitled to receive ratably such dividends as may be
declared by the Board out of funds legally available. See "Price Range of
Corsair Common Stock and Dividend Policy." All outstanding shares of Corsair
Common Stock are fully paid and nonassessable.
PREFERRED STOCK
The Corsair Board has the authority, without further action by the
stockholders, to issue up to 10,000,000 shares of Preferred Stock in one or more
series and to fix the rights, priorities, preferences, qualifications,
limitations and restrictions, including dividend rights, conversion rights,
voting rights, terms of redemption, terms of sinking funds, liquidation
preferences and the number of shares constituting any series or the designation
of such series, which could decrease the amount of earnings and assets available
for distribution to holders of Corsair Common Stock or adversely affect the
rights and powers, including voting rights, of the holders of the Corsair Common
Stock. The issuance of Preferred Stock could have the effect of delaying or
preventing a change in control of Corsair or make removal of management more
difficult. Additionally, the issuance of Preferred Stock may have the effect of
decreasing the market price of the Corsair Common Stock and may adversely affect
the voting and other rights of the holders of Corsair Common Stock.
WARRANTS
In conjunction with a Master Lease Agreement, Corsair issued a warrant to
Comdisco, Inc., which may be exercised to purchase 5,834 shares of Corsair
Common Stock at $6.65 per share until August 5, 2006. This warrant contains
provisions for the adjustment of the exercise price and the aggregate number of
shares issuable upon exercise of the warrant under certain circumstances,
including stock dividends, stock splits, reorganizations, reclassifications or
consolidations. This warrant further provides that the warrant holder may
exercise the warrant without payment of cash by surrendering the warrant and
receiving shares of Corsair Common Stock equal to the value of the warrant
surrendered.
In July 1996, Corsair issued warrants to Comdisco, Inc. and MMC/GATX
Partnership No. 1 which may be exercised to purchase 50,000 and 75,000 shares of
Corsair Common Stock, respectively, at $6.65 per share until July 31, 2006.
MMC/GATX Partnership No. 1 has exercised this warrant, in part, and may exercise
the remaining portion of this warrant to purchase up to 52,500 shares of Corsair
Common Stock. These warrants contain provisions for the adjustment of the
exercise price and the aggregate number of shares issuable upon exercise of the
warrant under certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications or consolidations. Each warrant provides that
the warrant holder may exercise the warrant without payment of cash by
surrendering the warrant and receiving shares of Corsair Common Stock equal to
the value of the warrant surrendered.
REGISTRATION RIGHTS
The holders of approximately 7,500,000 shares of Corsair Common Stock or
their permitted transferees (the "Holders") are entitled to certain rights with
respect to the registration of such shares under the Securities Act. Under the
terms of agreements between Corsair and such Holders, if Corsair proposes to
register any of its securities under the Securities Act for its own account,
such Holders are entitled to notice of such registration and are entitled to
include shares of such Corsair Common Stock therein, provided, among other
conditions, that the underwriters of any such offering have the right to limit
the number of shares included in such registration in certain ways. In addition,
Holders of at least 33% of approximately 7,500,000 shares of Corsair Common
Stock with demand registration rights may require Corsair to prepare and file a
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<PAGE> 142
registration statement under the Securities Act with respect to the shares
entitled to demand registration rights, and provided that the aggregate offering
price, net of underwriting discounts and commissions, exceeds $2,500,000,
Corsair is required to use its best efforts to effect such registration, subject
to certain conditions and limitations. Corsair is not obligated to effect more
than two of these stockholder-initiated registrations nor to effect such a
registration until six (6) months after the Offering made hereby. The Holders of
approximately 7,500,000 shares of Corsair Common Stock may also request Corsair
to register such shares on Form S-3 provided the shares registered have an
aggregate market value of at least $1,000,000. Corsair is not obligated to
effect more than two of these registrations pursuant to Form S-3 per year.
Generally, Corsair is required to bear the expense of all such registrations.
Corsair has agreed to make any shares of Corsair Common Stock issued to Arlene
Harris and affiliates of Advent International Corporation in the Merger subject
to the existing agreements with regard to registration rights between Corsair
and the Holders.
POSSIBLE ANTITAKEOVER EFFECTS OF CERTAIN CHARTER PROVISIONS
Amended and Restated Certificate of Incorporation and Restated Bylaws
Corsair's Amended and Restated Certificate of Incorporation authorizes the
Board to establish one or more series of undesignated Preferred Stock, the terms
of which can be determined by the Board at the time of issuance. See
"-- Preferred Stock." The Amended and Restated Certificate of Incorporation also
provides that all stockholder action must be effected at a duly called meeting
of stockholders and not by a consent in writing. Corsair's Restated Bylaws
provide that Corsair's Board will be classified into three classes of directors
beginning at the 1998 annual meeting of stockholders. See "Management." In
addition, the Restated Bylaws will not permit stockholders of Corsair to call a
special meeting of stockholders; only Corsair's Chief Executive Officer,
President, Chairman of the Board or a majority of the Board will be permitted to
call a special meeting of stockholders. The Restated Bylaws will also require
that stockholders give advance notice to Corsair's secretary of any nominations
for director or other business to be brought by stockholders at any
stockholders' meeting and will require a supermajority vote of members of the
Board and/or stockholders to amend certain Bylaw provisions. These provisions of
the Amended and Restated Certificate of Incorporation and the Restated Bylaws
could discourage potential acquisition proposals and could delay or prevent a
change in control of Corsair. Such provisions may also have the effect of
preventing changes in the management of Corsair. See "Risk Factors -- Risks
Relating to the Combined Company -- Antitakeover Effects of Charter, Bylaws and
Delaware Law."
Delaware Takeover Statute
Corsair is subject to Section 203 of the Delaware General Corporation Law
("Section 203") which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder (defined as any person or entity that is the beneficial owner of at
least 15% of a corporation's voting stock) for a period of three years following
the time that such stockholder became an interested stockholder, unless: (i)
prior to such time, the board of directors of the corporation approved either
the business combination or the transaction that resulted in the stockholder's
becoming an interested stockholder; (ii) upon consummation of the transaction
that resulted in the stockholder's becoming an interested stockholder, the
interested stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding, for purposes of
determining the number of shares outstanding, those shares owned (x) by persons
who are directors and also officers and (y) by employee stock plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer;
or (iii) at or subsequent to such time, the business combination is approved by
the Board and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, lease, exchange, mortgage, transfer, pledge or other disposition involving
the interested stockholder and 10% or more of the assets of the corporation;
(iii) subject to certain exceptions, any transaction which results in the
issuance or transfer by the corporation of any stock
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of the corporation to the interested stockholder; (iv) any transaction involving
the corporation that has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the
interested stockholder; or (v) the receipt by the interested stockholder of the
benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Corsair Common Stock is
BankBoston, N.A.
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COMPARISON OF RIGHTS OF HOLDERS
OF CORSAIR COMMON STOCK AND SUBSCRIBER CAPITAL STOCK
The rights of the Corsair stockholders are governed by the Corsair Amended
and Restated Certificate of Incorporation (the "Corsair Certificate"), the
Corsair Restated Bylaws (the "Corsair Bylaws") and the Delaware General
Corporation Law (the "DGCL"). The rights of the Subscriber stockholders are
governed by the Subscriber Certificate of Incorporation, as amended (the
"Subscriber Certificate"), the Subscriber Bylaws (the "Subscriber Bylaws"), the
DGCL and, to the extent provided in Section 2115 of the California General
Corporation Law (the "CGCL"), by the CGCL. After the effective time of the
Merger, the rights of the Subscriber stockholders who become Corsair
stockholders will be governed by the Corsair Certificate, the Corsair Bylaws and
the DGCL. In many respects, the rights of the Corsair stockholders and the
Subscriber stockholders are similar. The following paragraphs discuss certain
similarities and material differences between (i) the DGCL and the CGCL in the
areas in which the CGCL applies to Subscriber and (ii) the rights of the Corsair
stockholders and the rights of the Subscriber stockholders under their
respective certificates and bylaws to the extent that such differences could
materially affect the rights of the Subscriber stockholders after the
consummation of the Merger. This discussion is only a summary, and does not
purport to be a complete description of the similarities and differences between
the rights of the Corsair and Subscriber stockholders. The following discussion
is qualified in its entirety by reference to the DGCL, the CGCL and the full
texts of the respective certificates and bylaws of Corsair and Subscriber.
Copies of such documents may be obtained from Corsair and Subscriber, as the
case may be.
APPLICABILITY OF CALIFORNIA LAW TO SUBSCRIBER
Section 2115 of the CGCL makes substantial portions of the CGCL applicable,
with limited exceptions, to a foreign corporation with more than half of its
outstanding stock held of record by persons having addresses in California and
more than half of its business conducted in the state (as measured by factors
based on a corporation's levels of property, payroll and sales determined for
California franchise tax purposes), irrespective of the corporation's state of
incorporation. Although Subscriber is incorporated in Delaware, it is subject to
Section 2115. The statutory provisions of the CGCL to which Subscriber is
subject include, but are not limited to, provisions governing a director's
standard of care in performing the duties of a director, a stockholder's right
to vote cumulatively in any election of directors, a director's or stockholder's
right to inspect corporate records, indemnification requirements concerning
directors, officers and others and the corporate requirements to effectuate
corporate reorganizations (including mergers and acquisitions). Section 2115
also invokes the application of Chapter 13 of the CGCL to the Merger with
respect to Subscriber stockholders who elect to exercise dissenters' rights.
Under Section 2115, the provisions of the CGCL made applicable pursuant to such
section apply to the exclusion of the law of the jurisdiction in which the
foreign corporation is incorporated.
Upon completion of the Merger, the statutory protections available to
Subscriber stockholders pursuant to Section 2115 will cease to exist.
COMPARISON OF AUTHORIZED AND OUTSTANDING CAPITAL STOCK.
Subscriber: The authorized capital stock of Subscriber consists of
20,000,000 shares of Subscriber Common Stock, 348,687 shares of Subscriber
Series A Preferred Stock and 4,300,000 shares of Subscriber Series B Preferred
Stock. As of March 31, 1998, there were 8,443,944 shares of Subscriber Common
Stock outstanding, no shares of Subscriber Series A Preferred Stock outstanding
and 4,209,863 shares of Subscriber Series B Preferred Stock outstanding.
Corsair: The authorized capital stock of Corsair consists of 75,000,000
shares of Corsair Common Stock and 10,000,000 shares of Corsair Preferred Stock.
As of March 31, 1998, there were 13,714,475 shares of Corsair Common Stock
outstanding and no shares of Corsair Preferred Stock outstanding.
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COMPARISON OF RIGHTS OF COMMON STOCK.
Subscriber: Holders of Subscriber Common Stock are entitled to one vote per
share in the election of directors and on all other matters on which
stockholders are entitled or permitted to vote. Subject to the preferences of
the holders of Subscriber Preferred Stock, the holders of Subscriber Common
Stock are entitled to receive dividends as may be declared from time to time by
the Subscriber Board. The Subscriber Common Stock has no redemption, preemptive,
conversion or other subscription rights.
Corsair: Holders of Corsair Common Stock are entitled to one vote per share
in the election of directors and on all other matters on which stockholders are
entitled or permitted to vote. Holders of Corsair Common Stock have no
redemption, conversion, preemptive or other subscription rights. In the event of
the liquidation, dissolution or winding up of Corsair, holders of Corsair Common
Stock are entitled to share ratably in all of the assets of Corsair, if any,
remaining after satisfaction of the debts and liabilities of Corsair. The
Corsair Bylaws authorize the Corsair Board to declare dividends on Corsair
Common Stock at any regular or special meeting.
COMPARISON OF RIGHTS AND PREFERENCES OF PREFERRED STOCK.
Corsair: The Corsair Board is authorized, subject to certain limitations
prescribed by DGCL, to issue preferred stock in one or more classes or series,
and to fix the designations, powers, preferences, rights, qualifications,
limitations or restrictions of any such class or series. The rights of the
holders of Corsair Common Stock will be subject to, and may be adversely
affected by, the rights of the holders of any preferred stock that may be issued
in the future. The issuance of preferred stock, while providing desirable
flexibility in connection with possible acquisitions and other corporate
purposes, could have the effect of making it more difficult for a third party to
acquire a majority of the outstanding voting stock of Corsair. Corsair has no
current plans to issue shares of preferred stock.
Subscriber: Upon consummation of the Merger, the holders of Subscriber
Preferred Stock will become holders of Corsair Common Stock. Thereafter, these
stockholders will no longer be entitled to the following rights, privileges and
preferences of the Subscriber Preferred Stock:
(i) Dividend Preference: Both the holders of Subscriber Preferred
Stock and Subscriber Common Stock are entitled to receive dividends when,
as and if declared by the Subscriber Board. The Subscriber Board, however,
cannot declare or pay any dividend or other distribution to the holders of
Subscriber Common Stock without the approval of a majority of the shares of
Subscriber Series A Preferred Stock and Subscriber Series B Preferred
Stock, each acting as a separate class. Further, the Subscriber Board
cannot declare or pay a dividend or other distribution to the holders of
Subscriber Series A Preferred Stock without the consent or vote of at least
a majority of the shares of Subscriber Series B Preferred Stock.
(ii) Liquidation Preference: In the event of any liquidation,
dissolution or winding up of Subscriber, the holders of Subscriber Common
Stock and Subscriber Preferred Stock will receive the following amounts in
the following order of priority: first, holders of Subscriber Series B
Preferred Stock will receive $3.563 per share, plus any declared but unpaid
dividends on such shares (the "Series B Liquidation Payment"); second,
holders of Subscriber Series A Preferred Stock will receive $4.00 per
share, plus any declared but unpaid dividends on such shares (the "Series A
Liquidation Payment"); third, holders of Subscriber Series B Preferred
Stock and Subscriber Common Stock will receive on a pro rata basis
(assuming all Subscriber Series B Preferred Stock is converted into
Subscriber Common Stock) an aggregate amount equal to the Series A
Liquidation Payment; and finally, the remaining assets of Subscriber will
be distributed ratably among the holders of Subscriber Common Stock,
Subscriber Series A Preferred Stock and Subscriber Series B Preferred Stock
on an as converted to Subscriber Common Stock basis.
Unless the holders of a majority of the Subscriber Series B Preferred
Stock elect otherwise, a consolidation or merger of Subscriber in which
Subscriber is not the surviving corporation (like the
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Merger), will be deemed to be a liquidation with respect to the Subscriber
Series B Preferred Stock, but not with respect to any other class or series
of stock.
The holders of Subscriber Series B Preferred Stock are limited to a
liquidation payment of $10.698 per share if a liquidation is completed
prior to June 30, 1998. Notwithstanding the foregoing, if the holders of
Subscriber Series B Preferred Stock would be entitled to receive more than
$10.698 per share if such stock was converted to Subscriber Common Stock,
then the holders of Subscriber Series B Stock will receive a liquidation
payment as though such stock had been converted into Subscriber Common
Stock.
(iii) Conversion: At the option of the holder, each share of
Subscriber Preferred Stock may be converted at any time into one share of
Subscriber Common Stock, subject to adjustment for, among other things,
stock splits, stock dividends and issuances of additional shares of
Subscriber Common Stock and securities convertible into Subscriber Common
Stock at a per share price less than the original issue price of such share
of Subscriber Preferred Stock. Each share of Subscriber Series A Preferred
Stock automatically converts into Subscriber Common Stock upon (a) the vote
of 66 2/3% of the outstanding shares of Subscriber Series A Preferred
Stock, (b) the sale of Subscriber Common Stock in an underwritten public
offering or (c) the sale of substantially all the assets or capital stock
of Subscriber for a purchase price which would result in all holders of
Subscriber Series A Preferred Stock receiving an amount equal to or greater
than the aggregate face amount of the Subscriber Series A Preferred Stock
held by such holders. The Subscriber Series B Preferred Stock automatically
converts into Subscriber Common Stock upon the sale of Subscriber Common
Stock in a firm commitment underwritten public offering with gross proceeds
to Subscriber of at least $20,000,000.
(iv) Protective Provisions: As a general matter, the holders of
Subscriber Preferred Stock vote together with the holders of Subscriber
Common Stock as a single class on all actions to be taken by the Subscriber
stockholders. The Subscriber Certificate, however, provides that Subscriber
cannot take the following actions without the consent of at least a
majority of the outstanding shares of Subscriber Series B Preferred Stock:
(a) authorize any class or series of stock unless the class or series of
stock ranks junior to the Subscriber Series B Preferred Stock as to
conversion, dividends, redemption and liquidation; (b) amend the Subscriber
Certificate or Bylaws or take any other corporate action that would alter,
change or adversely affect the terms, conditions, rights or privileges of
the Subscriber Preferred Stock; (c) declare or pay dividends on any
Subscriber Common Stock or Subscriber Series A Preferred Stock; (d)
increase or decrease the total number of authorized shares of Subscriber
Series A Preferred Stock or Subscriber Series B Preferred Stock or increase
the number of shares of stock reserved for issuance to Subscriber
employees; (e) increase the authorized number of directors beyond seven;
(f) redeem, purchase or otherwise acquire the Subscriber Series A Preferred
Stock or Subscriber Common Stock or any Subscriber options or warrants; (g)
acquire a controlling position in, or purchase all or substantially all of
the assets of any entity with a valuation of more than $1,000,000 for cash
acquisitions or a valuation of more than $1,500,000 for acquisitions using
Subscriber securities.
(v) Redemption Rights: The holders of any shares of Subscriber Series
B Preferred Stock outstanding after December 27, 2001 may elect to have
Subscriber redeem all or any portion of such shares at a redemption price
equal to $3.563 per share.
(vi) Election of Directors: In an election of directors to the
Subscriber Board, the Subscriber Certificate provides that the holders of
Subscriber Series B Preferred Stock are entitled to vote as a separate
class to elect one director. The holders of Subscriber Common Stock,
Subscriber Series A Preferred Stock and Subscriber Series B Preferred
Stock, voting together as a single class on an as converted to Subscriber
Common Stock basis, are entitled to elect all other directors.
(vii) Contractual Rights: Certain contractual rights presently
possessed by holders of Subscriber Series A Preferred Stock and Subscriber
Series B Preferred Stock will cease to exist after the Merger, including
but not limited to, certain information rights, registration rights, rights
of representation on the Subscriber Board, rights to attend meetings of the
Subscriber Board and other rights unique to the organization and financing
of Subscriber.
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COMPARISON OF STOCKHOLDER RIGHTS.
The Merger will result in changes to the following rights and privileges of
the Subscriber stockholders. Such changes may cause stockholder actions to be
relatively more difficult under Corsair's Bylaws and Certificate than under
Subscriber's Bylaws and Certificate.
Annual Meeting: Both the Subscriber Bylaws and the Corsair Bylaws require
that an annual stockholder meeting be held each year at a time and place
designated by the respective Boards.
Quorum: Both Subscriber's Bylaws and Corsair's Bylaws provide that the
holders of a majority of the stock entitled to vote at a stockholder meeting,
present in person or represented by proxy, constitutes a quorum. Subscriber's
Bylaws, however, authorize the stockholders to continue to conduct business once
a quorum is present even though a sufficient number of stockholders subsequently
leave the meeting so that a quorum is no longer present. Corsair's Bylaws do not
authorize the stockholders to continue to conduct business when less than a
quorum is present.
Voting: The holders of Subscriber Common Stock are entitled to one vote per
share of Subscriber Common Stock and the holders of Subscriber Series A
Preferred Stock and Subscriber Series B Preferred Stock are entitled to the
number of votes equal to the number of shares of Subscriber Common Stock into
which such share of Subscriber Series A Preferred Stock and Subscriber Series B
Preferred Stock could be converted as of the record date for such vote. When a
quorum is present, all matters at a Subscriber stockholder meeting shall be
decided by the vote of a majority of the stock having power to vote at such
meeting, present in person or represented by proxy, unless a different vote is
otherwise provided by statute or the Subscriber Certificate.
Each holder of Corsair Common Stock is entitled to one vote for each share
of stock held by such stockholder. Similar to Subscriber, all matters at a
Corsair stockholder meeting in which a quorum is present shall be decided by the
vote of a majority of the stock having power to vote at such meeting, present in
person or represented by proxy, unless a different vote is otherwise provided by
statute or the Certificate.
Upon completion of the Merger, the percentage ownership of Corsair by each
former Subscriber stockholder will be substantially less than his, her or its
current percentage ownership of Subscriber. Accordingly, former Subscriber
stockholders will have a significantly smaller voting influence over the affairs
of Corsair than they currently enjoy over the affairs of Subscriber.
Business Conducted at Annual Meetings: In contrast to the Subscriber
Bylaws, the Corsair Bylaws establish a formal procedure for stockholders to
properly bring an item of business or to nominate a director at the annual
meeting of Corsair stockholders, including but not limited to, providing Corsair
with notice of the business item or nominee for director by the date established
in the Corsair proxy statement for the previous year.
Stockholder Action Without Meeting: Subscriber's Bylaws permit the
Subscriber stockholders to act by the written consent of the outstanding shares
of Subscriber having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Corsair's Bylaws specifically
prohibit the Corsair stockholders from taking any action by written consent.
Cumulative Voting: Under DGCL, stockholders are not entitled to cumulative
voting in the election of directors unless such right is specifically provided
for in the corporation's certificate. Neither Subscriber's Certificate nor
Corsair's Certificate contain such a provision. Notwithstanding the foregoing,
provisions of the CGCL provide Subscriber stockholders with the right to
cumulate their vote to elect directors; subject to the stockholders providing
notice of their intent to cumulate votes prior to voting. The CGCL provisions
relating to cumulative voting do not apply to Corsair.
Power to Call Special Stockholder Meetings: Under Subscriber's Bylaws,
special meetings of the Subscriber stockholders may be called at any time by the
Subscriber Board, a Committee of the Subscriber Board or by one or more
stockholders holding shares entitled to cast not less than twenty percent (20%)
of the votes at such meeting. In contrast, Corsair's Bylaws do not authorize
stockholders to call special stockholder
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meetings. Special meetings of the Corsair stockholders may only be called by the
President, the Chief Executive Officer, the Chairman of the Corsair Board or a
majority of the Corsair Board.
COMPARISON OF THE PROVISIONS GOVERNING THE BOARD OF DIRECTORS.
The bylaw and certificate provisions governing the Corsair Board differ
from many of the bylaw and certificate provisions governing the Subscriber
Board. The following differences may make it relatively more difficult for
stockholders to elect and remove directors from the Corsair Board than from the
Subscriber Board.
Classified Board: A classified board is one in which a certain number, but
not all, of the directors are elected on a rotating basis each year. DGCL
permits, but does not require, a classified board of directors divided into as
many as three classes with staggered terms of office, with only one class of
directors standing for election each year. Corsair's Bylaws provide for a
classified board divided into three classes serving staggered terms of office,
with one class of directors elected annually. A Corsair director's term will
expire at the third annual stockholder meeting after his or her election. In
contrast, the Subscriber Bylaws and Certificate do not provide for a staggered
board.
Size of Board: Subscriber's Bylaws authorize five (5) directors, and the
Subscriber Board currently has five (5) members. The Bylaws of Corsair provide
for a board between five (5) and seven (7) directors, with the number of
directors currently set at six (6). The number of Corsair directors may only be
changed by a vote of 66 2/3% of the directors then in office or by a vote of
66 2/3% of the stockholders at the annual meeting of stockholders.
Removal of Directors: Subscriber's Bylaws provide that any director or the
entire board of directors may be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote at an election of directors.
Notwithstanding the rights set forth in the Subscriber Bylaws, under the CGCL no
director may be removed without cause (unless the entire board is removed) when
the votes cast against removal, or not consenting in writing to removal, would
be sufficient to elect the director if voted cumulatively at an election at
which the same total number of votes were cast (or, if the action is taken by
written consent, all shares entitled to vote were voted) and the entire number
of directors authorized at the time of the director's most recent election were
then being elected. Corsair's Bylaws, in comparison, provide that (and the DGCL
does not prohibit) the entire board or any director may be removed from office
only with cause by the affirmative vote of the holders of at least a majority of
the shares entitled to vote at an election of directors.
COMPARISON OF CERTAIN OTHER RIGHTS
Amendments to Charter Documents: Subscriber's Bylaws may be rescinded,
altered, amended or repealed and new bylaws may adopted by a majority vote of
the Subscriber stockholders or by a majority vote of the Subscriber Board. The
section of Subscriber's Bylaws relating to special meetings of stockholders may
only be amended if the section as amended would not conflict with Subscriber's
Certificate.
In contrast, Corsair's Bylaws provide that the Bylaws may be altered or
amended or new Bylaws adopted by the Corsair stockholders or the Corsair Board,
when such power is conferred upon the Corsair Board by the Corsair Certificate.
The Corsair Certificate expressly authorizes a majority of the Corsair Board to
make, amend, supplement or repeal the Corsair Bylaws. The Corsair Certificate
prohibits the Corsair Board from any amendment or supplement to the Corsair
Bylaws which varies or conflicts with any amendment or supplement adopted by the
Corsair stockholders. Notwithstanding the foregoing, the affirmative vote of
66 2/3% of the voting stock of Corsair is required to alter, amend or repeal
certain sections of the Corsair Bylaws, including the sections governing annual
and special stockholder meetings, the section preventing stockholder actions by
written consent, the section governing the class, number, term and qualification
of directors, the section governing the filling of board vacancies and the
section governing the removal of directors.
Both Subscriber's Certificate and Corsair's Certificate authorize the
respective corporations to amend, alter, change or repeal their respective
certificates in the manner now or hereafter provided by the DGCL. Under the
DGCL, amendments to a corporation's certificate must be approved by the
affirmative vote of the
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holders of a majority of the outstanding stock entitled to vote thereon, unless
such amendments would increase or decrease the number of authorized shares or
any class or series or the par value of such shares or would adversely affect
the shares of such class or series, in which case a majority of the outstanding
stock of such class or series would have to approve the amendment.
Loans to Officers and Employees: Both the Subscriber Bylaws and the Corsair
Bylaws authorize the respective corporations to lend money to or to guarantee or
otherwise assist any officer or other employee, with or without interest and
whether unsecured or secured.
Indemnification and Limitation of Liability: Both the Subscriber
Certificate and the Corsair Bylaws provide for the indemnification of directors,
officers, employees and other agents to the fullest extent permissible under the
DGCL. Both Subscriber's Certificate and Corsair's Certificate provide that a
director will not be personally liable to the corporation or its stockholders
for monetary damages for a breach of fiduciary duty as a director, except for
liability for (i) any breach of the director's duty of loyalty to Corsair or
Subscriber or their respective stockholders, (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the Delaware law or (iv) any transaction from which
the director derived any improper personal benefit.
Notwithstanding the foregoing, provisions of the CGCL governing the
indemnification of directors, officers and employees apply to Subscriber. The
DGCL is generally more favorable to directors than the CGCL. The significant
differences in directors' protection between the CGCL and the DGCL today deal
with limitation of liability and indemnification.
The CGCL and the DGCL both permit a corporation to adopt provisions
eliminating personal monetary liability of directors, and both impose certain
restrictions on the corporation's right to eliminate such liability. The CGCL
prohibits elimination of liability for a broader class of acts than does the
DGCL, including: reckless disregard of duty in the face of a serious risk of
injury to the corporation or its shareholders and acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the director's obligation to the corporation. Elimination of liability for such
acts would be permitted under the DGCL, unless a court concluded that such
exculpation was void as contrary to public policy. As a result, directors of a
company governed by the CGCL have a greater likelihood of a possible stockholder
challenge to the elimination of their monetary liability.
Both the CGCL and the DGCL now allow corporations to authorize in their
charter documents and bylaws broader indemnification of officers and directors
as provided to such persons by statute. Both states also allow corporations to
expand indemnification of their directors and officers through written
agreements. However, the CGCL provides that a corporation may not indemnify a
director for the following matters for which the DGCL permits indemnification:
(i) matters as to which a person is adjudged liable to the corporation in the
performance of his or her duties (unless the court expressly authorizes
indemnity); (ii) amounts paid in settlements of pending derivative actions if
the court has not approved the settlement; (iii) expenses incurred in defending
a pending derivative action if the court has not approved the settlement; (iv)
matters for which indemnification is inconsistent with provisions in the
corporation's articles of incorporation or bylaws or an agreement, resolution of
the shareholders, or condition expressly imposed by a court in approving a
settlement; and (v) any acts for which elimination of liability is prohibited,
including those described above.
Further, the standard of care required to be met prior to allowing director
indemnification under the CGCL is higher than under the DGCL, and the procedures
required to obtain such indemnification are more restrictive under the CGCL.
Accordingly, a director's right of indemnification is broader and more certain
under the DGCL.
Business Combinations: As a corporation organized under the laws of the
State of Delaware, Corsair is subject to Section 203 of the Delaware General
Corporation Law which restricts certain business combinations between Corsair
and an "interested stockholder" (in general, a stockholder owning 15% or more of
Corsair's outstanding voting stock) or its affiliates or associates for a period
of three years following the date on which the stockholder becomes an
"interested stockholder." The restrictions do not apply if (i) prior to an
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interested stockholder becoming such, the Corsair Board approves either the
business combination or the transaction in which the stockholder becomes an
interested stockholder, (ii) upon consummation of the transaction in which any
person becomes an interested stockholder, such interested stockholder owns at
least 85% of the voting stock of Corsair outstanding at the time the transaction
commences (excluding shares owned by persons who are both directors and officers
of Corsair) or (iii) on or subsequent to the date an interested stockholder
becomes such, the business combination is both approved by the Corsair Board and
authorized at an annual or special meeting of the Corsair stockholders by the
affirmative vote of at least 66 2/3% of the outstanding voting stock not owned
by the interested stockholder.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Corsair Common Stock offered hereby will be passed upon for Corsair by
Brobeck, Phleger & Harrison LLP, San Diego, California. Certain attorneys of
Brobeck, Phleger & Harrison LLP own 3,930 shares of Corsair's Common Stock.
Paul, Hastings, Janosfsky & Walker LLP, is acting as counsel for Subscriber
in connection with certain legal matters relating to the Merger and the
transactions contemplated thereby.
EXPERTS
The financial statements and schedule of Corsair as of December 31, 1996
and 1997, and for each of the years in the three-year period ended December 31,
1997, have been included herein and in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent auditors, appearing
elsewhere herein and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of Subscriber Computing, Inc. as of
September 30, 1996 and 1997, and for each of the years in the three-year period
ended September 30, 1997, included in this Joint Proxy Statement have been
audited by Deloitte & Touche LLP, independent auditors, as set forth in their
report appearing elsewhere herein and have been so included in reliance upon the
report given on the authority of such firm as experts in accounting and
auditing.
141
<PAGE> 151
OTHER MATTERS
Corsair. The Corsair Board of Directors know of no other business which
will be presented at the Corsair Meeting. If any other business is properly
brought before the Corsair Meeting, it is intended that proxies in the enclosed
form will be voted in respect thereof in accordance with the judgments of the
persons voting the proxies. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE
CORSAIR MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY.
Subscriber. The Subscriber Board know of no other business which will be
presented at the Subscriber Meeting. If any other business is properly brought
before the Subscriber Meeting, it is intended that proxies in the enclosed form
will be voted in respect thereof in accordance with the judgments of the persons
voting the proxies. WHETHER OR NOT YOU INTEND TO BE PRESENT AT THE SUBSCRIBER
MEETING, YOU ARE URGED TO COMPLETE, SIGN AND RETURN YOUR PROXY PROMPTLY.
BY ORDER OF THE CORSAIR BOARD OF
DIRECTORS
Palo Alto, California Mary Ann Byrnes, Chief Executive
Officer and
[***] President
BY ORDER OF THE SUBSCRIBER BOARD OF
DIRECTORS
Irvine, California Dennis Andrews, Chief Executive
Officer and President
[***]
142
<PAGE> 152
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Corsair Communications, Inc.
Report of KPMG Peat Marwick LLP........................... F-1
Balance Sheets as of December 31, 1996 and 1997 and March
31, 1998 (unaudited)................................... F-2
Statements of Operations for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1997 and 1998 (unaudited).......................... F-3
Statements of Stockholders' Equity for the Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1998 (unaudited)....................... F-4
Statements of Cash Flows for the Years Ended December 31,
1995, 1996 and 1997 and the Three Months Ended March
31, 1997 and 1998 (unaudited).......................... F-5
Notes to Financial Statements............................. F-6
Subscriber Computing, Inc.
Report of Deloitte & Touche LLP........................... F-18
Balance Sheets as of September 30, 1997 and 1996.......... F-19
Statements of Operations for the Years Ended September 30,
1997, 1996 and 1995.................................... F-20
Statements of Stockholders' Equity (Deficit) for the Years
Ended September 30, 1997, 1996 and 1995................ F-21
Statements of Cash Flows for the Years Ended September 30,
1997, 1996 and 1995.................................... F-22
Notes to Financial Statements for the Years Ended
September 30, 1997, 1996 and 1995...................... F-23
Balance Sheet as of March 31, 1998 (unaudited)............ F-31
Statements of Operations for the Six Months Ended March
31, 1998 and 1997 (unaudited).......................... F-32
Statements of Cash Flows for the Six Months Ended March
31, 1998 and 1997 (unaudited).......................... F-33
Notes to Unaudited Financial Statements for the Six Months
Ended March 31, 1998 and 1997.......................... F-34
</TABLE>
143
<PAGE> 153
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Corsair Communications, Inc.:
We have audited the accompanying balance sheets of Corsair Communications,
Inc. as of December 31, 1996 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Corsair Communications, Inc.
as of December 31, 1996 and 1997, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1997, in
conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
San Francisco, California
January 26, 1998
F-1
<PAGE> 154
CORSAIR COMMUNICATIONS, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............................... $ 17,052 $ 15,426 $11,433
Short-term investments.................................. 2,452 43,734 49,121
Trade accounts receivable, less allowance for doubtful
accounts of $404 for 1996, $501 for 1997, and $651
for 1998............................................. 3,260 3,836 7,616
Other receivables....................................... 43 754 970
Evaluation inventory.................................... 5,328 4,590 2,873
Inventories, net........................................ 3,849 3,618 3,861
Prepaid expenses........................................ 83 169 311
-------- -------- -------
Total current assets............................ 32,067 72,127 76,185
Property and equipment, net............................... 2,424 3,511 3,820
Other assets.............................................. 420 2,039 1,717
-------- -------- -------
$ 34,911 $ 77,677 $81,722
======== ======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 3,428 $ 696 $ 992
Accrued expenses........................................ 2,502 5,790 6,250
Current portion of notes payable........................ 1,803 -- --
Current portion of capital lease obligations............ 286 437 440
Deferred revenue........................................ 4,487 10,369 10,481
-------- -------- -------
Total current liabilities....................... 12,506 17,292 18,163
Notes payable, net of current portion..................... 3,780 -- --
Capital lease obligations, net of current portion......... 614 438 328
-------- -------- -------
Total liabilities............................... $ 16,900 $ 17,730 $18,491
-------- -------- -------
Commitments and contingencies
Stockholders' equity:
Convertible preferred stock, $.001 par value; 14,548,963
shares authorized; 9,166,288 shares issued and
outstanding at December 31, 1996; none issued and
outstanding at December 31, 1997 and March 31, 1998,
respectively......................................... 9 -- --
Common stock, $.001 par value; 20,000,000 shares
authorized; 604,094, 13,635,440 and 13,714,475 shares
issued and outstanding at December 31, 1996 and 1997,
and March 31, 1998, respectively..................... 1 14 14
Note receivable from stockholder........................ (136) (136) (100)
Additional paid-in capital.............................. 45,426 89,005 89,382
Deferred compensation................................... (69) (648) (533)
Accumulated deficit..................................... (27,220) (28,288) (25,532)
-------- -------- -------
Total stockholders' equity...................... 18,011 59,947 63,231
-------- -------- -------
$ 34,911 $ 77,677 $81,722
======== ======== =======
</TABLE>
See accompanying notes to financial statements.
F-2
<PAGE> 155
CORSAIR COMMUNICATIONS, INC.
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ----------------------
1995 1996 1997 1997 1998
-------- -------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
System revenue..................... $ 7,351 $ 18,178 $41,887 $ 8,167 $12,965
Service revenue.................... 242 1,428 5,951 929 2,270
-------- -------- ------- ------- -------
Total revenues............. 7,593 19,606 47,838 9,096 15,235
-------- -------- ------- ------- -------
Cost of revenues:
System revenue costs............... 7,522 17,235 27,954 7,480 6,038
Service revenue costs.............. 615 1,962 3,562 829 1,188
-------- -------- ------- ------- -------
Total cost of revenues..... 8,137 19,197 31,516 8,309 7,226
-------- -------- ------- ------- -------
Gross profit (deficit)..... (544) 409 16,322 787 8,009
-------- -------- ------- ------- -------
Operating costs and expenses:
Research and development........... 3,094 4,983 6,975 1,382 2,194
Sales and marketing................ 2,981 5,374 7,486 1,548 2,363
General and administrative......... 2,115 2,591 3,868 991 1,293
-------- -------- ------- ------- -------
Total operating costs and
expenses................. 8,190 12,948 18,329 3,921 5,850
-------- -------- ------- ------- -------
Operating income (loss).... (8,734) (12,539) (2,007) (3,134) 2,159
Interest income (expense) net...... 218 (220) 1,374 (3) 851
-------- -------- ------- ------- -------
Income (loss) before income
taxes an extraordinary
item..................... (8,516) (12,759) (633) (3,137) 3,010
Income taxes......................... 1 2 7 3 254
-------- -------- ------- ------- -------
Income (loss) before extraordinary
item............................... (8,517) (12,761) (640) (3,140) 2,756
Loss on debt extinguishment, net of
taxes.............................. -- -- (428) -- --
-------- -------- ------- ------- -------
Net income (loss).................... $ (8,517) $(12,761) $(1,068) $(3,140) $ 2,756
======== ======== ======= ======= =======
Basic net income (loss) per share
data:
Income (loss) per share before
extraordinary item................. $(774.27) $ (96.67) $ (0.10) $ (3.08) $ 0.20
Extraordinary item................... $ -- $ -- $ (0.06) $ -- $ --
-------- -------- ------- ------- -------
Basic net income (loss) per share.... $(774.27) $ (96.67) $ (0.16) $ (3.08) $ 0.20
======== ======== ======= ======= =======
Shares used in per share
calculation........................ 11 132 6,643 1,019 13,672
======== ======== ======= ======= =======
Diluted net income (loss) per share
data:
Income (loss) per share before
extraordinary item................. $(774.27) $ (96.67) $ (0.10) $ (3.08) $ 0.19
Extraordinary item................... $ -- $ -- $ (0.06) $ -- $ --
-------- -------- ------- ------- -------
Diluted net income (loss) per
share.............................. $(774.27) $ (96.67) $ (0.16) $ (3.08) $ 0.19
======== ======== ======= ======= =======
Shares used in per share
calculation........................ 11 132 6,643 1,019 14,354
======== ======== ======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 156
CORSAIR COMMUNICATIONS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE NOTE
PREFERRED STOCK COMMON STOCK RECEIVABLE ADDITIONAL
------------------- -------------------- FROM PAID-IN DEFERRED ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCKHOLDER CAPITAL COMPENSATION DEFICIT
---------- ------ ----------- ------ ----------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances as of December 31,
1995........................ 6,741,424 7 50,750 -- -- 25,044 -- (14,459)
Exercise of common stock
options..................... -- -- 553,344 1 (136) 230 -- --
Issuance of convertible
preferred stock warrants in
conjunction with debt
financings.................. -- -- -- -- -- 131 -- --
Issuance of Series C
convertible preferred stock,
net of issuance costs of
$56......................... 2,424,864 2 -- -- -- 19,948 -- --
Deferred compensation related
to grant of stock options... -- -- -- -- -- 73 (73) --
Amortization of deferred
compensation................ -- -- -- -- -- -- 4 --
Net loss...................... -- -- -- -- -- -- -- (12,761)
---------- ----- ----------- --- ------- -------- ------- --------
Balances as of December 31,
1996........................ 9,166,288 9 604,094 1 (136) 45,426 (69) (27,220)
Exercise of common stock
options..................... -- -- 730,416 1 -- 402 -- --
Issuance of Series D
convertible preferred stock,
net of issuance costs of
$3.......................... 266,668 -- -- -- -- 2,996 -- --
Deferred compensation related
to grant of stock options... -- -- -- -- -- 1,129 (1,129) --
Conversion of preferred stock
to common stock............. (9,432,956) (9) 9,432,956 9 -- -- -- --
Issuance of common stock net
of issuance costs of
$1,049...................... -- -- 2,875,000 3 -- 39,055 -- --
Repurchase of common stock.... -- -- (7,026) -- -- (3) -- --
Amortization of deferred
compensation................ -- -- -- -- -- -- 550 --
Net loss...................... -- -- -- -- -- -- -- (1,068)
---------- ----- ----------- --- ------- -------- ------- --------
Balances as of December 31,
1997........................ -- -- 13,635,440 $14 $ (136) $ 89,005 $ (648) $(28,288)
Exercise of common stock
options (unaudited)......... -- -- 36,956 -- -- 18 -- --
Net exercise of warrants
(unaudited)................. -- -- 14,520 -- -- -- -- --
Purchase of common stock under
Employee Stock Purchase Plan
(unaudited)................. -- -- 28,064 -- -- 359 -- --
Collection of stockholders'
notes (unaudited)........... -- -- -- -- 36 -- -- --
Repurchase of common stock
(unaudited)................. -- -- (505) -- -- -- -- --
Amortization of deferred
compensation (unaudited).... -- -- -- -- -- -- 115 --
Net income (unaudited)...... -- -- -- -- -- -- -- 2,756
---------- ----- ----------- --- ------- -------- ------- --------
Balances as of March 31, 1998
(unaudited)................. -- $ -- 13,714,475 $14 $ (100) $ 89,382 $ (533) $(25,532)
========== ===== =========== === ======= ======== ======= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balances as of December 31,
1995........................ 10,592
Exercise of common stock
options..................... 95
Issuance of convertible
preferred stock warrants in
conjunction with debt
financings.................. 131
Issuance of Series C
convertible preferred stock,
net of issuance costs of
$56......................... 19,950
Deferred compensation related
to grant of stock options... --
Amortization of deferred
compensation................ 4
Net loss...................... (12,761)
--------
Balances as of December 31,
1996........................ 18,011
Exercise of common stock
options..................... 403
Issuance of Series D
convertible preferred stock,
net of issuance costs of
$3.......................... 2,996
Deferred compensation related
to grant of stock options... --
Conversion of preferred stock
to common stock............. --
Issuance of common stock net
of issuance costs of
$1,049...................... 39,058
Repurchase of common stock.... (3)
Amortization of deferred
compensation................ 550
Net loss...................... (1,068)
--------
Balances as of December 31,
1997........................ $ 59,947
Exercise of common stock
options (unaudited)......... 18
Net exercise of warrants
(unaudited)................. --
Purchase of common stock under
Employee Stock Purchase Plan
(unaudited)................. 359
Collection of stockholders'
notes (unaudited)........... 36
Repurchase of common stock
(unaudited)................. --
Amortization of deferred
compensation (unaudited).... 115
Net income (unaudited)...... 2,756
--------
Balances as of March 31, 1998
(unaudited)................. 63,231
========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 157
CORSAIR COMMUNICATIONS, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------- ------------------
1995 1996 1997 1997 1998
------- -------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $(8,517) $(12,761) $ (1,068) $(3,140) $ 2,756
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization................ 472 1,013 2,001 316 778
Amortization of deferred compensation........ -- 4 550 85 115
Extraordinary loss on extinguishment of
debt....................................... -- -- 428 -- --
Loss on disposition of fixed assets.......... -- -- 100 100 --
Changes in operating assets and liabilities
Trade accounts receivable.................. (808) (2,453) (576) (4,341) (3,780)
Other receivables.......................... -- (28) (711) (59) (216)
Inventories................................ 1,551 (6,965) 969 (2,147) 1,474
Prepaid expenses and other assets.......... (162) (199) (2,235) (453) (164)
Accounts payable and accrued expenses...... 302 4,870 556 (1,443) 756
Deferred revenue........................... 1,423 3,024 5,882 5,126 112
------- -------- -------- ------- -------
Net cash (used in) provided by operating
activities............................ (5,739) (13,495) 5,896 (5,956) 1,759
------- -------- -------- ------- -------
Cash flows from investing activities:
Purchase of short-term investments............. (1,957) (2,452) (64,452) (6,474) (8,967)
Proceeds from sales and maturities of
short-term investments....................... -- 1,957 23,170 1,973 3,580
Purchases of property and equipment............ (1,528) (605) (2,292) (70) (743)
------- -------- -------- ------- -------
Net cash used in investing activities... (3,485) (1,100) (43,574) (4,571) (6,130)
------- -------- -------- ------- -------
Cash flows from financing activities:
Proceeds from sale of preferred stock, net..... 8,791 19,950 2,996 2,997 --
Proceeds from issuance of common stock, net.... -- -- 39,055 -- --
Proceeds from stock option and purchase
plans........................................ 15 95 403 296 377
Proceeds from notes payable.................... 970 4,925 -- -- --
Proceeds from issuance of warrants............. 30 131 -- -- --
Payments on note payable....................... (82) (230) (6,011) (330) --
Payments on capital leases..................... (12) (232) (391) (75) (107)
Loan to stockholder............................ -- (64) -- -- --
Repayment of notes payable to ESL
Incorporated................................. (3,235) -- -- -- --
Proceeds from note receivable from
stockholders................................. 3,000 -- -- -- 36
------- -------- -------- ------- -------
Net cash provided by financing
activities............................ 9,477 24,575 36,052 2,888 378
------- -------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................. 253 9,980 (1,626) (7,639) (3,993)
Cash and cash equivalents, beginning of
period....................................... 6,819 7,072 17,052 17,052 15,426
------- -------- -------- ------- -------
Cash and cash equivalents, end of period....... $ 7,072 $ 17,052 $ 15,426 $ 9,413 $11,433
======= ======== ======== ======= =======
Cash paid during the period:
Interest..................................... $ 112 $ 458 $ 533 $ 218 $ 16
======= ======== ======== ======= =======
Income taxes................................. $ 1 $ 2 $ 7 $ 3 $ 13
======= ======== ======== ======= =======
Noncash financing and investing activities:
Assets recorded under capital leases......... $ 165 $ 979 $ 366 $ 168 $ --
======= ======== ======== ======= =======
Common stock issued upon exercise of stock
options in exchange for stockholder note... $ -- $ 136 $ -- $ -- $ --
======= ======== ======== ======= =======
Deferred compensation relating to stock
option grants.............................. $ -- $ 73 $ 1,129 $ 1,093 $ --
======= ======== ======== ======= =======
Conversion of preferred stock to common
stock...................................... $ -- $ -- $ 31,737 $ -- --
======= ======== ======== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 158
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
1. BUSINESS
Corsair Communications, Inc. (the "Company") was incorporated in the state
of Delaware in December 1994 to develop an open architecture hardware and
software system that can serve as a platform for the delivery of multiple
products and services to the wireless telecommunications industry. The Company
sells and markets its products to wireless telecommunications carriers
domestically and internationally.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Financial Statements
The accompanying unaudited financial statements as of March 31, 1998 and
for the three months ended March 31, 1997 and 1998, have been prepared on
substantially the same basis as the audited financial statements, and include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of the financial information set forth therein.
Revenue Recognition
System revenue is comprised of hardware sales and software licensing, net
of estimated allowances. Revenue from hardware sales is recognized upon
shipment, unless a sales agreement contemplates that the Company provide
testing, integration or implementation services, in which case hardware revenue
is recognized upon commissioning and acceptance of the product (the activation
of the cell site equipment, following testing, integration and implementation).
Revenue from the licensing of system software, which includes post-contract
customer support and certain product enhancements, is recognized ratably over
the term of the license period.
Service revenue is comprised of field maintenance and other services.
Revenue from field maintenance contracts is recognized ratably over the term of
the maintenance period. Revenue from other sources is recognized as the services
are performed.
Deferred revenue primarily includes deferred software license and
maintenance revenue and deposits received from customers after shipment but
prior to installation of systems.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2, Software Revenue Recognition (SOP 97-2).
Effective January 1, 1998, the Company adopted SOP 97-2. SOP 97-2 generally
requires revenue earned on software arrangements involving multiple elements
such as software products, upgrades, enhancements, post-contract customer
support, installation and training to be allocated to each element based on the
relative fair values of the elements. The fair value of an element must be based
on evidence which is specific to the vendor. The revenue allocated to software
products, including specified upgrades or enhancements, generally is recognized
upon delivery of the products. The revenue allocated to unspecified upgrades and
updates and post contract customer support generally is recognized as the
services are performed. If evidence of the fair value for all elements of the
arrangement do not exist, all revenue from the arrangement is deferred until
such evidence exists or until all elements are delivered. There was no material
change to the Company's accounting for revenues as a result of the adoption of
SOP 97-2.
Concentration of Credit Risk
Financial instruments that potentially expose the Company to concentrations
of credit risk principally consist of cash, cash equivalents, short-term
investments, and accounts receivable.
F-6
<PAGE> 159
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
The Company limits the amounts invested in any one type of investment. The
Company maintains its cash investments with several financial institutions.
Management believes the financial risks associated with such deposits are
minimal.
The Company has historically sold its products directly to wireless
telecommunications carriers. Sales generally are not collateralized, credit
evaluations are performed as appropriate, and allowances are provided for
estimated credit losses. The Company has not experienced significant losses on
trade receivables from any particular customer or geographic region.
Cash Equivalents and Short-Term Investments
Cash equivalents consist of instruments with remaining maturities of 90
days or less at the date of acquisition. Certain cash equivalents and all of the
Company's investments are classified as available-for-sale. The securities are
carried at fair value, which approximates cost. To date, the fair value of the
securities has not differed significantly from the cost basis of the securities.
The amortized cost of available-for-sale debt securities is adjusted for
amortization of premiums and accretion of discounts to maturity. Realized gains
and losses, and declines in value judged to be other than temporary on
available-for-sale securities, if any, are included in interest income, net. The
cost of securities sold is based on the specific identification method. Interest
and dividends on securities classified as available-for-sale are included in
interest income, net.
Investments, all of which are debt securities maturing in one year or less
and are classified as available-for-sale, consisted of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1996 1997
------ -------
<S> <C> <C>
Commercial paper.................................. $3,955 $10,874
Corporate debt securities......................... -- 24,505
Certificates of deposit........................... 525 13,994
------ -------
$4,480 $49,373
====== =======
</TABLE>
Inventories
Inventories, including evaluation inventory, are stated at the lower of
first-in, first-out cost, or market. Evaluation inventory is comprised of
finished hardware units delivered to a customer which are pending commissioning
of the product.
Property and Equipment
Property and equipment are recorded at cost. Equipment recorded under
capital leases is stated at the lower of fair value of the present value of
minimum lease payments at the inception of the lease. Depreciation is calculated
under the straight-line method over the estimated useful lives of the assets,
generally three to five years. Equipment recorded under capital leases is
amortized over the shorter of the lease term or the estimated useful life of the
asset. Leasehold improvements are amortized on a straight-line method over the
shorter of the lease term or the estimated useful life of the asset.
F-7
<PAGE> 160
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
Software Research and Development Costs
All costs incurred to establish the technological feasibility of software
are expensed as incurred. Costs incurred subsequent to establishing
technological feasibility are capitalized and amortized on a straight-line basis
over their estimated useful lives. The Company determines that technological
feasibility has been established once a product design and working model have
been completed and tested. No software research and development costs have been
capitalized to date as qualified amounts have not been significant.
Other Assets
Included in other assets are spare parts that are generally amortized on a
straight-line basis over the course of their respective useful lives, generally
two years.
Comprehensive Income
On January 1, 1998, the Company adopted SFAS No. 130, Reporting
Comprehensive Income, which establishes standards for reporting and disclosure
of comprehensive income and its components (revenues, expenses, gains and
losses) in a full set of general-purpose financial statements. In the Company's
circumstances, total comprehensive income (loss) for all periods presented
herein would not have differed from reported net income (loss).
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years that those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed Of
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, on
January 1, 1996. SFAS No. 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be
F-8
<PAGE> 161
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
recognized is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell. The adoption
of SFAS No. 121 did not have a material impact on the Company's financial
position, results of operations, or liquidity.
Net Income (Loss) Per Share
During 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 128, Earnings Per Share. SFAS No. 128 requires the
presentation of basic earnings per share (EPS) and, for companies with
potentially dilutive securities, such as options, diluted EPS. Basic earnings
per share is computed using the weighted average number of shares of common
stock outstanding. Diluted earnings per share is computed using the weighted
average number of shares of common stock and, when dilutive, convertible
preferred stock outstanding on an as if converted basis and common equivalent
shares from options to purchase common stock and warrants outstanding using the
treasury stock method. The Company has excluded the impact of approximately
1,043,958, 973,927 and 946,219 outstanding options to purchase common stock and
outstanding warrants to purchase 27,073, 157,907, and 157,907 shares of common
stock as of December 31, 1995, 1996 and 1997, respectively, since their
inclusion in diluted per share results would have been antidilutive.
The following table summarizes pro forma diluted net loss per share data,
assuming conversion of all convertible preferred stock from their date of
issuance (shares in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ------------------
1996 1997 1997
---------- --------- ------------------
<S> <C> <C> <C>
Pro forma diluted net loss per share data:
Net loss per share before extraordinary item......... $ (1.75) $ (0.05) $(0.40)
Extraordinary item................................... $ -- $ (0.04) $ --
-------- ------- ------
Pro forma diluted net loss per share................. $ (1.75) $ (0.09) $(0.40)
-------- ------- ------
Shares used in per share calculation................. 7,312 11,697 7,766
======== ======= ======
</TABLE>
Effective February 3, 1998, the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin (SAB) No. 98, which changes the calculation of
earnings per share in periods prior to initial public offerings, as previously
applied under SAB No. 83. When a registrant issued common stock, warrants,
options, or other potentially dilutive instruments for consideration or with
exercise prices below the initial public offering price, within a one year
period prior to the filing or a registration statements relating to an initial
public offering, SAB No. 83 required such equity instruments to be treated as
outstanding for all periods covered by income statements in the filing, using
the anticipated initial public offering price and the treasury stock method.
Under SAB No. 98 equity securities issued or granted for nominal consideration
are to be reflected in per share calculations for all periods presented. Based
on the Company's current understanding of the definition of "nominal
consideration", the Company has concluded that during all periods prior to the
Company's initial public offering, no equity instruments were issued for nominal
consideration. Per share data for periods prior to the Company's initial public
offering have been restated in accordance with SAB No. 98.
F-9
<PAGE> 162
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
Reclassifications
Certain amounts reported in previous years have been reclassified to
conform to the fiscal 1997 presentation.
3. BALANCE SHEET AND STATEMENT OF OPERATIONS COMPONENTS
Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1996 1997 1998
------ ------ ---------
<S> <C> <C> <C>
Raw materials................................... $2,371 $1,479 $2,007
Work in process................................. 1,026 189 505
Finished goods.................................. 452 1,950 1,349
------ ------ ------
$3,849 $3,618 $3,861
====== ====== ======
</TABLE>
Property and Equipment
Property and equipment consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Computer equipment......................................... $1,779 $2,914
Furniture and fixtures..................................... 589 740
Purchased software......................................... 407 665
Leasehold improvements..................................... 524 892
Machinery & equipment...................................... 579 1,324
------ ------
$3,878 $6,535
Less accumulated depreciation and amortization............. 1,454 3,024
------ ------
$2,424 $3,511
====== ======
</TABLE>
The total amount of assets recorded under capital leases included in
property and equipment is approximately $1,109,000 and $1,473,00 as of December
31, 1996 and 1997, respectively. Accumulated amortization thereon was $214,000
and $401,000 as of December 31, 1996 and 1997, respectively.
F-10
<PAGE> 163
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
Accrued Expenses
Accrued expenses consisted of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------ ------
<S> <C> <C>
Accrued benefits........................................... $ 820 $1,204
Accrued warranty costs..................................... 140 949
Accrued professional fees.................................. 163 782
Accrued retrofit........................................... 912 622
Other...................................................... 467 2,233
------ ------
$2,502 $5,790
====== ======
</TABLE>
Significant Customers
The following tables summarize the Company's significant customers as of
and for the years ended December 31, 1995, 1996 and 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL REVENUES
--------------------
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Customer A................................................ 56% -- --
Customer B................................................ 40 15% 6%
Customer C................................................ -- 18 5
Customer D................................................ -- 27 13
Customer E................................................ -- 13 2
Customer F................................................ -- 9 15
Customer G................................................ -- 5 14
Customer H................................................ -- -- 10
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF
TRADE
ACCOUNTS
RECEIVABLE
--------------
1996 1997
----- -----
<S> <C> <C>
Customer D.................................................. 48% 14%
Customer I.................................................. -- 18
Customer J.................................................. 17 12
</TABLE>
4. DEBT
In August 1995, the Company entered into a loan and security agreement with
a lending institution pursuant to which the Company borrowed $1.0 million,
secured by the Company's inventory and fixed assets, at a 14.95% stated interest
rate. In July 1996, the Company entered into additional agreements with two
lending institutions pursuant to which the Company borrowed $5.0 million at a
14.55% stated interest rate. These creditors were granted a security interest in
certain of the Company's tangible and intangible assets. The Company issued
warrants in conjunction with both debt financing to purchase an aggregate
157,907 shares of Series B convertible preferred stock at an exercise price of
$5.91 to $6.65 per share. The warrants, exercisable
F-11
<PAGE> 164
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
until July 2002, were assigned an aggregate value of $161,000, with the value
being amortized over the term of the loan and recorded as interest expense. As
of December 31, 1997, no warrants had been exercised.
In the third quarter of 1997, the Company recorded an extraordinary loss of
$428,000 in connection with the payment of $5.1 million in principal and
interest for the early extinguishment of all three loan and security agreements.
The loss was comprised of pre-payment penalties and amortization of the
remaining discount on the debt associated with the warrants issued along with
the notes payable.
In June 1997, the Company signed a Loan and Security Agreement which made
available a $3.0 million equipment term loan facility at prime plus 0.75% (9.25%
at December 31, 1997). The loan facility is available through July 1998 and is
secured by any underlying equipment purchased. As of December 31, 1997, the
Company did not have any borrowings under the equipment term loan.
5. INCOME TAXES
A reconciliation of the federal statutory rate of 34% to the Company's
effective tax rate is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
------- ------- -----
<S> <C> <C> <C>
Benefit at U.S. federal statutory rate.......... $(2,895) $(4,338) $(215)
Unutilized net operating losses................. 2,856 4,244 7
State income taxes.............................. 1 2 7
Nondeductible expenses.......................... 39 94 208
------- ------- -----
Total tax expense..................... $ 1 $ 2 $ 7
======= ======= =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Inventory, due to reserves and additional amounts
capitalized for tax............................... $ 553 $ 401
Other accruals and reserves not currently deductible
for tax purposes.................................. 761 1,185
Technology asset..................................... 1,817 1,677
Net operating loss carryforward and deferred start-up
costs............................................. 7,548 7,706
Credit carryforwards................................. 543 1,014
Property and equipment............................... -- 182
Other................................................ 104 54
-------- --------
Gross deferred tax assets.............................. 11,326 12,219
Less valuation allowance............................. (11,326) (12,219)
-------- --------
Net deferred tax assets.............................. $ -- $ --
======== ========
</TABLE>
The net change in the valuation allowance for the years ended December 31,
1996 and 1997, was an increase of approximately $4,955,000 and $893,000,
respectively. Management believes that sufficient
F-12
<PAGE> 165
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
uncertainty exists as to whether the deferred tax assets will be realized, and
accordingly, a valuation allowance is required.
As of December 31, 1997, the Company had net federal and California
operating loss carryforwards of approximately $18.6 million and $14.4 million,
respectively, for income tax reporting. The federal net operating loss
carryforwards expire beginning in 2009 through 2012.
The Company also has research and experimental tax credits aggregating
approximately $497,000 and $377,000 for federal and California purposes,
respectively. The federal credits expire beginning in 2009 through 2012. The
California credits carry over indefinitely until utilized.
There are also California credit carryforwards for qualified manufacturing
and research and development equipment of approximately $140,000; these credits
expire in 2006.
The Tax Reform Act of 1986 imposed substantial restrictions on the
utilization of net operating losses and tax credits in the event of an
"ownership change" of a corporation. An "ownership change" occurred in October
1996. The approximate amounts of carryforward items affected by this restriction
are as follows (in thousands):
<TABLE>
<CAPTION>
FEDERAL CALIFORNIA
------- ----------
<S> <C> <C>
Net operating losses.................................... $16,500 $12,900
Research credits........................................ 230 180
Manufacturing credits................................... -- 70
</TABLE>
The "ownership change" restrictions are not expected to impair the
Company's ability to utilize the affected carryforward items. If there should be
a subsequent "ownership change," as defined, of the Company, its ability to
utilize all stated carryforwards could be further reduced.
6. STOCKHOLDERS' EQUITY
Common Stock
As of December 31, 1997, employees held 530,710 shares of common stock
outstanding by virtue of option exercises which were subject to repurchase by
the Company at prices ranging from $0.30 to $0.69 per share. The Company's right
of repurchase expires 25% on the first anniversary of the original issuance date
and monthly thereafter, over a four-year period.
Preferred Stock
Upon the Company's initial public offering of its common stock on July 29,
1997, all shares of issued and outstanding Preferred Stock were converted to
9,432,956 shares of common stock. Following the conversion, the Company had no
preferred stock outstanding.
1997 Stock Incentive Plan
In May 1997, the Company adopted the 1997 Stock Incentive (the Plan) and
authorized 1,337,633 shares of the Company's common stock to be issued under the
Plan. Under provisions of the Plan, options are granted at fair market value at
date of grant for incentive stock options or no less than 85% of fair market
value for nonqualified options. Options generally vest over 4 years with 25%
vesting on the first
F-13
<PAGE> 166
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
anniversary of the vesting commencement date and monthly thereafter. Options
generally expire 10 years from the date of grant.
Included in the Plan is a provision for the automatic grant of nonstatutory
options to nonemployee Board of Director members of 1,500 shares per annum. The
options are exercisable at the then current fair market value and generally vest
over a 12-month period beginning one month after the grant date. The option
grants to nonemployees expire 10 years from grant date.
The 1997 Plan succeeds the 1996 Stock Option/Stock Issuance Plan and the
1997 Officer Stock Option Plan.
1997 Employee Stock Purchase Plan
In May 1997, the Board adopted the 1997 Employee Stock Purchase Plan (the
Purchase Plan) and reserved 166,667 shares of common stock for issuance under
the Purchase Plan. As of December 31, 1997, no shares have been issued under the
Purchase Plan.
Accounting for Stock-based Compensation
The Company uses the intrinsic value-based method to account for all of its
stock-based employee compensation plans. The Company recorded deferred
compensation costs totaling $1,202,000 related to its stock option plans for the
difference between the exercise price of each option and the fair market value
of the underlying common stock as of the grant date for each stock option. This
amount is being amortized over the vesting period of the individual options,
generally four years. Amortization of deferred compensation totaled $4,000 and
$550,000 in 1996 and 1997 respectively, and has been charged to operating
expenses.
Compensation cost for the Company's stock option and employees purchase
plans been determined consistent with the fair value approach enumerated in SFAS
No. 123 Accounting for Stock-Based Compensation, the Company's 1995 and 1996 net
losses would not have been materially impacted. For pro forma purposes, the
Company's 1997 net loss would have been as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
AS REPORTED PRO FORMA
----------- ---------
<S> <C> <C>
Net loss.............................................. $(1,068) $(1,683)
Basic and diluted net loss per share.................. $ (0.16) $ (0.25)
</TABLE>
The fair value of each option under the Plan is estimated based on the date
of grant using the minimum value method in 1995 and 1996 and the Black-Scholes
method in 1997, using the following weighted-average assumptions:
<TABLE>
<CAPTION>
1995 & 1996 1997
----------- ----
<S> <C> <C>
Expected life (years)..................................... 2.50 2.86
Expected stock price volatility........................... 0% 19%
Risk-free interest rate................................... 6.00% 6.12%
</TABLE>
No dividend impact was considered as the Company has never declared, and
does not have plans to declare any future dividends.
The pro forma net loss and loss per share include expenses related to the
Purchase Plan. The weighted average fair value of purchase rights granted during
1997 under the Purchase Plan is $6.48. The fair value is
F-14
<PAGE> 167
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
estimated using the Black-Scholes model assuming no expected dividends on the
date of grant, a risk-free rate of 6.2%, volatility of 60%, and an expected life
of 1.34 years. No employee stock purchase plan was in place in 1996.
Stock Option Activity and Status
The following table summarizes activity under the Plan:
<TABLE>
<CAPTION>
WEIGHTED- OPTIONS WEIGHTED-
AVERAGE VESTED AT AVERAGE
EXERCISE PERIOD- FAIR VALUE OF
SHARES PRICE END OPTIONS GRANTED
--------- --------- --------- ---------------
<S> <C> <C> <C> <C>
Outstanding as of December 31, 1994.......... -- $ --
Options granted............................ 1,223,543 0.33 $0.04
=====
Options exercised.......................... (50,750) 0.30
Options canceled........................... (128,835) 0.30
--------- -----
Outstanding as of December 31, 1995.......... 1,043,958 0.34 148,351
=======
Options granted............................ 644,634 0.70 $0.20
=====
Options exercised.......................... (553,344) 0.42
Options canceled........................... (161,321) 0.50
--------- -----
Outstanding as of December 31, 1996.......... 973,927 0.51 243,699
=======
Options granted............................ 733,345 8.54 $4.61
=====
Options exercised.......................... (730,416) 0.55
Options canceled........................... (30,637) 1.17
--------- -----
Outstanding as of December 31, 1997.......... 946,219 $6.67 159,962
=======
Options granted (unaudited)................ 274,400 18.08 $7.97
=====
Options exercised (unaudited).............. (36,956) 0.48
Options canceled (unaudited)............... (15,690) 7.00
--------- -----
Outstanding as of March 31, 1998
(unaudited)................................ 1,167,973 $9.54 220,351
========= ===== =======
</TABLE>
The following table summarizes information about fixed stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
OUTSTANDING
- ----------------------------------------------------------------- EXERCISABLE
WEIGHTED-AVERAGE ----------------------------
NUMBER OF REMAINING WEIGHTED-AVERAGE NUMBER OF WEIGHTED-AVERAGE
EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICES
- --------------- --------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$0.30 - $0.68 341,068 7.51 $ 0.51 137,410 $ 0.43
$0.83 - $1.13 141,690 8.48 $ 0.98 18,178 $ 0.83
$7.50 201,305 5.19 $ 7.50 -- $ 0.00
$9.75 - $18.63 226,006 9.68 $16.71 2,916 $12.00
$18.88 - $25.25 36,150 9.79 $19.62 1,458 $19.50
- --------------- ------- ---- ------ ------- ------
$0.30 - $25.25 946,219 7.77 $ 6.67 159,962 $ 0.86
=============== ======= ==== ====== ======= ======
</TABLE>
F-15
<PAGE> 168
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
Notes Receivable from Stockholder
In November 1996, the Company issued an aggregate of 370,101 shares of
common stock in connection with option exercises by the Company's President.
In connection with such issuance, the Company's President paid for the
stock by issuing a note payable (secured pursuant to a pledge agreement for
370,101 shares of common stock held by the Company's President) to the Company.
The Company has the right to repurchase such stock at the original purchase
price per share upon the purchaser's cessation of service prior to vesting in
such shares. The repurchase right lapses over the following four years. As of
December 31, 1997, 121,694 of such shares of common stock are included in the
530,710 total shares of common stock subject to repurchase by the Company. The
secured note payable bears interest at the rate of 7% per annum with the entire
principal balance of the note, together with all accrued or unpaid interest, due
and payable on the earlier of (a) November 13, 2000; (b) the expiration of the
60-day period following the date the Company's President ceases employment on a
regular or full-time basis with the Company; (c) the expiration of the 190-day
period following the date the Company completes a successful IPO; or (d) the
date on which the Company completes a transaction where 50% of the outstanding
shares of common stock of the Company is acquired by a single purchaser or by a
group of purchasers acting together.
7. COMMITMENTS AND CONTINGENCIES
Leases
In August 1995, the Company entered into a leasing agreement to finance the
purchase of up to $1.0 million in equipment. In 1996, the Company entered into a
second leasing agreement to finance the purchase of an additional $500,000 in
equipment. Lease terms under both agreements are for 42 months and are accounted
for as capital leases. As of December 31, 1997, the Company had no remaining
amounts available borrowings under these leasing agreements.
The Company is obligated under certain noncancelable operating leases for
office space and equipment expiring at various dates through 1999. Total rental
expense was approximately $508,000, $461,000 and $775,000 for the years ended
December 31, 1995, 1996, and 1997 respectively.
Future minimum payments under capital and operating leases that have
initial or remaining noncancelable lease terms in excess of one year are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR ENDING DECEMBER 31, LEASES LEASES
------------------------ ------- ---------
<S> <C> <C>
1998...................................................... $487 $1,466
1999...................................................... 377 1,660
2000...................................................... 82 1,710
2001...................................................... -- 1,761
Thereafter................................................ 743
---- ------
Total minimum lease payments.................... $946 $7,340
======
Less amount representing interest......................... 71
----
875
Less current portion of obligations under capital lease... 437
----
Long-term portion of capital lease obligations............ $438
====
</TABLE>
F-16
<PAGE> 169
CORSAIR COMMUNICATIONS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1995, 1996 AND 1997
(Information as of March 31, 1997 and 1998 and for the
three months then ended is unaudited)
Litigation
The Company is involved in various legal matters that have arisen in the
normal course of business. Management believes, after consultation with counsel,
any liability that may result from the disposition of such legal matters will
not have a material adverse effect on the Company's financial condition or
results of operations.
8. INDUSTRY AND GEOGRAPHIC INFORMATION
The Company operates in a single industry segment and markets its products
in the United States and in foreign countries primarily through its direct sales
force.
Revenue by geographic region were comprised primarily of sales within the
United States of 81.1% of total revenues for the year ended December 31, 1997.
All other geographical regions comprised 18.9% of total revenues, with no one
region exceeding 10%. The Company did not have export sales in 1995 or 1996,
respectively.
The Company has no material operating assets outside of the United States.
F-17
<PAGE> 170
SUBSCRIBER COMPUTING, INC.
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Subscriber Computing, Inc.
Irvine, California
We have audited the accompanying balance sheets of Subscriber Computing,
Inc. (the Company) as of September 30, 1997 and 1996, and the related statements
of operations, stockholders' equity (deficit) and cash flows for each of the
three years in the period ended September 30, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Subscriber Computing, Inc.
as of September 30, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended September 30, 1997 in
conformity with generally accepted accounting principles.
Costa Mesa, California
January 7, 1998
F-18
<PAGE> 171
SUBSCRIBER COMPUTING, INC.
BALANCE SHEETS
AS OF SEPTEMBER 30, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents (Note 1).......................... $ 1,312,868 $ 1,776,928
Investments (Note 1)........................................ 1,350,000 --
Restricted cash (Notes 1, 4 and 6).......................... 1,411,801 800,000
Accounts receivable, net of allowance for doubtful accounts
of $387,875 (1997) and $463,000 (1996) (Note 7)........... 2,437,661 2,464,027
Current portion of long-term installments receivable (Note
1)........................................................ -- 219,760
Prepaid expenses and other current assets................... 271,664 72,328
Officer advances (Note 7)................................... 49,953 49,953
------------ -----------
Total current assets.............................. 6,833,947 5,382,996
LONG-TERM INSTALLMENTS RECEIVABLE (Note 1).................. 154,880
PROPERTY AND EQUIPMENT, net (Notes 2 and 5)................. 3,738,483 1,212,356
OTHER ASSETS:
Software license fees, net (Note 1)......................... 637,500 --
Goodwill, net (Note 1)...................................... 195,529 --
Other....................................................... 215,434 64,275
------------ -----------
Total other assets................................ 1,048,463 64,275
------------ -----------
$ 11,620,893 $ 6,814,507
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable (Note 7)................................... $ 1,289,904 $ 1,224,542
Accrued expenses............................................ 1,006,081 799,159
Short-term borrowings (Note 4).............................. 1,160,000 1,000,000
Current portion of obligations under capital leases (Note
5)........................................................ 371,574 146,662
Current portion of notes payable (Note 6)................... 2,858,334 2,008,333
Current portion of deferred revenue......................... 1,699,602 2,094,816
------------ -----------
Total current liabilities......................... 8,385,495 7,273,512
DEFERRED RENT (Note 1)...................................... 139,191 120,820
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion
(Note 5).................................................. 411,733 254,743
NOTES PAYABLE, net of current portion (Note 6).............. 416,666 2,525,000
DEFERRED REVENUE, net of current portion.................... -- 1,000,334
------------ -----------
Total long-term liabilities....................... 967,590 3,900,897
COMMITMENTS AND CONTINGENCIES (Notes 5 and 9)
STOCKHOLDERS' EQUITY (DEFICIT) (Notes 7 and 10):
Preferred stock -- Series A convertible -- $.01 par value;
348,687 shares authorized; none issued and outstanding
Preferred stock -- Series B Senior Convertible
Participating -- $.01 par value; 4,300,000 shares
authorized; 4,209,863 shares issued and outstanding....... 14,228,661 --
Common stock -- $.01 par value; 20,000,000 shares
authorized; 8,386,338 and 7,425,970 shares issued and
outstanding at September 30, 1997 and 1996,
respectively.............................................. 829,185 349,000
Accumulated deficit......................................... (12,399,595) (4,708,902)
Notes receivable from sale of common stock (Note 7)......... (390,443) --
------------ -----------
Total stockholders' equity (deficit).............. 2,267,808 (4,359,902)
------------ -----------
$ 11,620,893 $ 6,814,507
============ ===========
</TABLE>
See notes to accompanying financial statements.
F-19
<PAGE> 172
SUBSCRIBER COMPUTING, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
REVENUES (Notes 1, 11 and 12):
Software license fees................................. $ 7,466,941 $ 5,396,235 $4,609,210
Services and other revenue............................ 5,551,516 6,214,009 2,937,101
----------- ----------- ----------
Total revenues.............................. 13,018,457 11,610,244 7,546,311
EXPENSES:
Software production................................... 5,351,258 5,737,915 4,579,871
Selling, general and administrative (Notes 1, 5 and
7).................................................. 9,488,430 5,080,877 2,724,655
Research and development.............................. 5,550,269 3,600,152 327,196
Write-off of capitalized software (Note 1)............ -- 3,760,546 --
----------- ----------- ----------
Total expenses.............................. 20,389,957 18,179,490 7,631,722
----------- ----------- ----------
LOSS FROM OPERATIONS.................................. (7,371,500) (6,569,246) (85,411)
----------- ----------- ----------
OTHER INCOME (EXPENSE):
Interest expense, net (Notes 4, 5, 6 and 7)........... (238,228) (268,146) (40,867)
Other income (expense), net........................... 54,478 (6,173) 3,625
----------- ----------- ----------
Total other expense, net.................... (183,750) (274,319) (37,242)
----------- ----------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES................ (7,555,250) (6,843,565) (122,653)
PROVISION FOR INCOME TAXES (Note 3)................... 800 800 800
----------- ----------- ----------
NET LOSS.............................................. $(7,556,050) $(6,844,365) $ (123,453)
=========== =========== ==========
</TABLE>
See notes to accompanying financial statements.
F-20
<PAGE> 173
SUBSCRIBER COMPUTING, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
NOTES
RECEIVABLE RETAINED
COMMON STOCK SERIES B PREFERRED STOCK FROM SALE EARNINGS
-------------------- ------------------------- OF COMMON (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT STOCK DEFICIT) TOTAL
--------- -------- ---------- ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, October 1, 1994....... 7,425,970 $349,000 -- $ -- $ -- $ 2,258,916 $2,607,916
Net loss....................... -- -- -- -- -- (123,453) (123,453)
--------- -------- --------- ----------- --------- ------------ ----------
BALANCE, September 30, 1995.... 7,425,970 349,000 -- -- -- 2,135,463 2,484,463
Net loss....................... -- -- -- -- -- (6,844,365) (6,844,365)
--------- -------- --------- ----------- --------- ------------ ----------
BALANCE, September 30, 1996.... 7,425,970 349,000 -- -- -- (4,708,902) (4,359,902)
Issuance of preferred stock,
net (Note 10)................ -- -- 4,209,863 14,094,018 -- -- 14,094,018
Issuance of common stock for an
acquisition (Note 1)......... 210,119 105,060 -- -- -- -- 105,060
Issuance of common stock for
notes receivable (Note 7).... 750,249 375,125 -- -- (375,125) -- --
Accrued interest on notes
receivable from sale of
common stock................. -- -- -- -- (15,318) -- (15,318)
Accretion attributable to
preferred stock.............. -- -- -- 134,643 -- (134,643) --
Net loss....................... -- -- -- -- -- (7,556,050) (7,556,050)
--------- -------- --------- ----------- --------- ------------ ----------
BALANCE, September 30, 1997.... 8,386,338 $829,185 4,209,863 $14,228,661 $(390,443) $(12,399,595) $2,267,808
========= ======== ========= =========== ========= ============ ==========
</TABLE>
See notes to accompanying financial statements.
F-21
<PAGE> 174
SUBSCRIBER COMPUTING, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(7,556,050) $(6,844,365) $ (123,453)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 932,937 376,175 983,516
Loss on disposal of property and equipment.................. -- 2,759 --
Write-off of capitalized software development costs......... -- 3,760,546 --
Accrued interest on stockholder notes receivable............ (15,318) -- --
Changes in operating assets and liabilities, net of effects
of acquisition:
Accounts receivable, net.................................. 26,366 (516,779) (500,999)
Prepaid expenses.......................................... 57,146 (38,084) 5,416
Installments receivable................................... 374,640 (374,640) --
Other assets.............................................. (147,513) (36,851) (4,077)
Accounts payable.......................................... (11,082) 655,347 (568)
Accrued expenses.......................................... (410,404) 257,675 130,082
Deferred Rent............................................. 18,371 120,820 --
Deferred revenue.......................................... (1,395,548) (1,332,053) 3,124,792
----------- ----------- -----------
Net cash (used in) provided by operating
activities....................................... (8,126,455) (3,969,450) 3,614,709
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property and equipment................ -- 18,849 --
Purchase of property and equipment.......................... (2,530,023) (899,320) (164,063)
Officer advances............................................ -- (2,400) (19,953)
Purchase of marketable securities........................... (2,129,412) -- --
Proceeds from sale and maturity of marketable securities.... 799,412 -- --
Capitalized software development costs...................... -- -- (1,957,025)
----------- ----------- -----------
Net cash used in investing activities.............. (3,880,023) (882,871) (2,141,041)
</TABLE>
<TABLE>
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Net proceeds from short-term bank borrowings................ 160,000 596,675 161,325
Proceeds from issuance of long-term debt.................... 500,000 500,000 4,650,000
Repayment of obligations under capital leases............... (341,466) (116,019) --
Repayment of long-term debt................................. (2,258,333) (91,667) (71,215)
Net proceeds from issuance of Series B preferred stock...... 14,094,018 -- --
----------- ----------- -----------
Net cash provided by financing activities.......... 12,154,219 888,989 4,740,110
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND
RESTRICTED CASH........................................... 147,741 (3,963,332) 6,213,778
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of
year...................................................... 2,576,928 6,540,260 326,482
----------- ----------- -----------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of year..... $ 2,724,669 $ 2,576,928 $ 6,540,260
=========== =========== ===========
SUPPLEMENTAL CASH FLOW INFORMATION -- Cash paid during the
year for:
Interest.................................................. $ 574,835 $ 376,601 $ 44,204
=========== =========== ===========
Income taxes.............................................. $ 800 $ -- $ 18,275
=========== =========== ===========
</TABLE>
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
During the year ended September 30, 1995, $500,000 of the Company's
unsecured long-term debt was converted to deferred revenue. Under the terms of
the agreement, the creditor agreed to receive $500,000 in services in lieu of a
$500,000 cash repayment.
During the year ended September 30, 1997 and 1996, the Company financed
$498,385 and $517,424 in equipment through capital lease obligations,
respectively (Note 5).
During the year ended September 30, 1997, $134,643 was accreted towards the
Series B Senior Convertible Participating Preferred Stock liquidation
preference, using the effective interest method.
DETAIL OF BUSINESS ACQUIRED IN PURCHASE BUSINESS COMBINATION:
On December 27, 1996, the Company acquired the net assets of Intelligent
Object Solutions, Inc.
A summary of the transaction is as follows:
<TABLE>
<S> <C>
Goodwill.................................................... $ 211,382
Fair value of software license fees......................... 750,000
Fair value of other assets acquired......................... 562,431
Common stock issued......................................... (105,060)
Liabilities assumed......................................... (1,418,753)
</TABLE>
See notes to accompanying financial statements.
F-22
<PAGE> 175
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations -- Subscriber Computing, Inc. (the Company) was
incorporated on September 28, 1978. The Company was reincorporated in Delaware
in connection with a financing transaction in December 1996 (Note 10). The
Company is engaged in the design, development and maintenance of computer
software for the wireless telecommunications industry.
Acquisition -- On December 27, 1996, the Company acquired the net assets of
Intelligent Object Solutions, Inc. (IOS), a developer of cellular fraud
prevention software. The Company issued 210,119 shares of common stock, valued
at $105,060, in exchange for the net assets of IOS. The acquisition was recorded
as a purchase and the results of operations for the period from December 27,
1996 to September 30, 1997 are included in the accompanying financial
statements. The purchase price was allocated $750,000 to software license fees,
$562,431 to other assets acquired, $211,382 to goodwill and $1,418,753 to
liabilities assumed, based on fair values at the date of acquisition. Pursuant
to the purchase agreement, the Company placed 94,643 additional shares of common
stock valued at $47,322 into an escrow account, to be distributed to the seller
upon the occurrence of certain future events. Additionally, the agreement
provides for the issuance of up to 266,667 shares of common stock if revenue
from the purchased technology exceeds certain levels.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting years. Actual results could differ from those estimates.
Cash and Cash Equivalents -- Cash equivalents consist of short-term debt
instruments with an original maturity date of 90 days or less at the time of
purchase.
Restricted Cash -- The restricted cash consists of cash that is restricted
under the terms of the Company's line of credit and long-term debt agreements
(Notes 4 and 6) and a $420,000 performance deposit associated with a customer
contract.
Investments -- The Company accounts for investments in accordance with
Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for
Certain Investments and Equity Securities. The Company's investments consist
primarily of high-grade corporate and government securities with maturities of
less than three years. The Company classifies all of its investments as
available-for-sale. Available-for-sale securities are carried at fair value,
with the unrealized gains and losses, net of tax, reported in a separate
component of stockholders' equity. Realized and unrealized gains and losses on
available-for-sale securities were immaterial at September 30, 1997.
Accounts Receivable -- The Company grants credit to businesses located
worldwide. The Company performs on-going credit evaluations of its customers
and, generally, requires no collateral.
Installments Receivable -- Installments receivable represent the present
value of future payments under noncancelable software license agreements which
provide for payments in installments over a two-year period. A portion of the
revenue from each installment payment is recognized as interest income in the
accompanying statements of operations.
Property and Equipment -- Property and equipment are stated at cost.
Depreciation and amortization are provided for on the straight-line and
accelerated methods over the shorter of their estimated useful lives or the
related lease terms, generally three to five years.
F-23
<PAGE> 176
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
Goodwill -- Goodwill relating to the IOS acquisition is amortized over ten
years on a straight-line basis. The Company assesses the recoverability of
goodwill at each balance sheet date by determining whether the amortization of
the balance over its remaining useful life can be recovered through projected
undiscounted future cash flows expected to be realized from continued sales of
the related products purchased in the IOS acquisition. As of September 30, 1997,
there was no impairment of the recorded amounts for goodwill. Accumulated
amortization was $15,853 at September 30, 1997.
Long-Lived Assets -- The Company accounts for the impairment and
disposition of long-lived assets in accordance with SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of.
In accordance with SFAS No. 121, long-lived assets to be held are reviewed for
events or changes in circumstances which indicate that their carrying value may
not be recoverable. The Company wrote off $3,760,546 of previously capitalized
software costs during the year ended September 30, 1996 after evaluating the
recoverability of capitalized costs and determining that such costs were not
recoverable based on changes in product mix. At September 30, 1997, there was no
impairment of long-lived assets.
Software License Fees -- Software license fees resulting from the IOS
acquisition are amortized using the straight-line method over three years, the
term of the license agreement. Accumulated amortization was $112,500 at
September 30, 1997.
Deferred Rent -- The Company's long-term, noncancelable facility lease
agreements provide for increases in the monthly base rent. Accordingly, rental
expense has been recognized on a straight-line basis over the term of the lease,
and deferred rent has been included in the accompanying balance sheets as of
September 30, 1997 and 1996.
Revenue Recognition -- Revenue is generally recognized on delivery of the
software or hardware or when services are completed and collectibility is
probable in accordance with Statement of Position (SOP) 91-1, Software Revenue
Recognition. Any remaining obligations are accounted for either by accruing the
remaining costs or by deferring a portion of revenue and recognizing it as the
obligations are fulfilled. Revenue from software fees, consulting, support and
maintenance, or hardware sales that is not separately identified in a contract
is recognized ratably over the term of the contract. Revenue related to customer
support agreements is recognized ratably over the term of the agreement,
generally from three months to one year, using the straight-line method.
In October 1997, the American Institute of Certified Public Accountants
issued SOP 97-2, Software Revenue Recognition, which supercedes SOP 91-1. The
provisions of SOP 97-2 are effective for fiscal years beginning after December
15, 1997. The Company is reviewing the impact of the statement on its financial
statements.
Income Taxes -- The Company accounts for income taxes according to SFAS No.
109, Accounting for Income Taxes. SFAS No. 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events other
than enactments of changes in the tax laws or rates.
Stock-Based Compensation -- The Company accounts for stock-based awards to
employees using the intrinsic value method in accordance with Accounting
Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees.
Reclassifications -- Certain prior-year balances have been reclassified to
conform with the current year presentation.
F-24
<PAGE> 177
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Computers and software.............................. $5,139,712 $1,838,131
Furniture and fixtures.............................. 249,209 220,078
---------- ----------
5,388,921 2,058,209
Less accumulated depreciation....................... (1,650,438) (845,853)
---------- ----------
$3,738,483 $1,212,356
========== ==========
</TABLE>
3. INCOME TAXES
The Company had elected to be taxed as an S corporation under the
provisions of the federal and state tax codes. Under federal laws, taxes based
on income of S corporations are payable by the corporation's stockholders. In
connection with a financing transaction in December 1996 (Note 10), the Company
terminated its S corporation election. A provision for income taxes has been
provided in the financial statements at statutory rates of 1 1/2% under
California laws, through December 1996, and at applicable statutory rates
thereafter.
The income tax provision consists of the following at September 30, 1997:
<TABLE>
<S> <C>
Current:
Federal................................................... $ --
State..................................................... 800
-----------
800
Deferred:
Federal................................................... 2,540,637
State..................................................... 571,701
-----------
3,112,338
Change in valuation allowance............................... (3,112,338)
-----------
Total income tax provision........................ $ 800
===========
</TABLE>
The Company provides deferred income taxes for temporary differences
between assets and liabilities recognized for financial reporting and income tax
purposes. The income tax effects of these temporary differences representing
significant portions of the deferred tax assets and deferred tax liabilities at
September 30, 1997 are as follows:
<TABLE>
<S> <C>
Allowance for doubtful accounts............................. $ 291,251
General business credits.................................... 454,184
Net operating loss carryforwards............................ 2,449,463
Other....................................................... (82,560)
-----------
Net deferred tax asset...................................... 3,112,338
Valuation allowance......................................... (3,112,338)
-----------
Net deferred income taxes......................... $ --
===========
</TABLE>
As of September 30, 1997, a valuation allowance of $3,112,338 has been
provided based on the Company's assessment of the future realizability of
certain deferred tax assets.
F-25
<PAGE> 178
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
The Company has federal and California net operating loss carryforwards
available of approximately $6,300,000 and $3,200,000, respectively, which may be
used to offset future taxable income. These carryforwards expire in 2012 and
2002, respectively. The Company's ability to utilize its carryforwards can be
restricted if there is a change of ownership within a described three-year
period.
4. SHORT-TERM BANK BORROWINGS
The Company has a line of credit with a bank in the amount of $1,500,000,
which expires in April 1998 and of which $1,160,000 and $1,000,000 were
outstanding at September 30, 1997 and 1996, respectively. All borrowings are
payable on demand. Interest is paid monthly at the bank's prime interest rate
(8.5% at September 30, 1997). Borrowings against the line of credit are
collateralized by substantially all assets of the Company, including a minimum
deposit required with the bank, which was $184,857 at September 30, 1997 (Note
1) and which is recorded as restricted cash in the accompanying balance sheets
(Note 1). The agreement requires the Company to maintain certain financial
ratios. The Company was not in compliance with certain of these ratios at
September 30, 1997 but received a waiver of such noncompliance. Subsequent to
September 30, 1997, the Company amended its line of credit arrangement with the
same bank and is currently in compliance with all applicable covenants. In
connection with the amendment, the Company issued warrants to purchase 25,000
shares of common stock at $4.00 per share for a period of five years from the
date the warrants were issued.
5. OBLIGATIONS UNDER CAPITAL LEASES
Capital lease obligations have been recorded in the accompanying financial
statements at the present value of future minimum lease payments, discounted at
interest rates ranging from 10% to 19%.
Assets included in property and equipment financed under capital leases
consist of the following at September 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
<S> <C> <C>
Computers and software.............................. $1,039,970 $ 517,424
Less accumulated amortization....................... (370,507) (117,560)
---------- ---------
Property and equipment financed under capital
leases, net....................................... $ 669,463 $ 399,864
========== =========
</TABLE>
Depreciation of property and equipment financed under capital leases
amounted to $252,947 and $117,560 for the years ended September 30, 1997 and
1996, respectively.
Future minimum lease payments under capital leases and the present value of
future minimum lease payments as of September 30, 1997 are as follows:
<TABLE>
<S> <C>
Year ending September 30:
1998...................................................... $ 440,180
1999...................................................... 294,272
2000...................................................... 127,758
2001...................................................... 35,573
2002...................................................... 9,664
---------
Total future minimum lease payments............... 907,447
Less amount representing interest........................... (124,140)
---------
Present value of future minimum lease payments.............. 783,307
Less current portion........................................ (371,574)
---------
Present value of future minimum lease payments, net of
current portion........................................... $ 411,733
=========
</TABLE>
F-26
<PAGE> 179
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
Operating Leases -- The Company leases its facility and various equipment
under long-term, noncancelable operating lease agreements which expire between
1998 and 2002. The facility lease contains a renewal option. Total rent expense
for the years ended September 30, 1997, 1996 and 1995 was $677,384, $472,015 and
$240,349, respectively, for the Company's facilities, and $86,757, $136,960 and
$148,898, respectively, for the Company's equipment.
The following is a schedule by years of future minimum rental payments
required under the operating lease agreements:
<TABLE>
<CAPTION>
FACILITY EQUIPMENT TOTAL
---------- --------- ----------
<S> <C> <C> <C>
Year ending September 30:
1998.................................. $ 602,451 $ 94,912 $ 697,363
1999.................................. 649,977 80,399 730,376
2000.................................. 649,152 80,399 729,551
2001.................................. 307,944 80,399 388,343
2002.................................. 73,699 73,699
---------- -------- ----------
Total minimum payments
required.................... $2,209,524 $409,808 $2,619,332
========== ======== ==========
</TABLE>
6. NOTES PAYABLE
Notes payable consist of the following at September 30:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Note payable to a bank, monthly payments of
$13,889 plus interest at the bank's prime rate
(8.5% at September 30, 1997) plus 1% per annum
through June 1, 1999, balance of principal and
interest due July 1, 1999, collateralized by
substantially all assets of the Company,
including a minimum deposit required with the
bank, which was $319,444 at
September 30, 1997.............................. $ 305,566 $ 458,333
Note payable to a bank, monthly payments of
$13,889 plus interest at the bank's prime rate
(8.5% at September 30, 1997) plus 1% per annum
through April 3, 2000, balance of principal and
interest due May 3, 2000, collateralized by
substantially all assets of the Company,
including a minimum deposit required with the
bank, which was $458,333 at September 30,
1997............................................ 444,434
Note payable to a bank, monthly payments of
$4,167, plus interest at the bank's prime rate
(8.5% at September 30, 1997) plus 1.5% per
annum, collateralized by substantially all
assets of the Company, due March 1998, including
a minimum deposit required with the bank, which
was $29,167 at September 30, 1997............... 25,000 75,000
Unsecured subordinated note payable to a customer,
payment of $2,500,000 due on July 1, 1998,
interest payable quarterly at 9% per annum,
through July 1, 1998 (Note 10).................. 2,500,000 4,000,000
----------- -----------
3,275,000 4,533,333
Less current portion.............................. (2,858,334) (2,008,333)
----------- -----------
Notes payable, net of current portion............. $ 416,666 $ 2,525,000
=========== ===========
</TABLE>
F-27
<PAGE> 180
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
As of September 30, 1997, future maturities of notes payable are $2,858,334
and $305,556 and $111,110 for the years ended September 30, 1997, 1998 and 1999,
respectively.
Interest expense related to notes payable and short-term bank borrowings
(Note 4) was $540,807, $461,427 and $88,588 at September 30, 1997, 1996 and
1995, respectively.
7. RELATED-PARTY TRANSACTIONS
Shared Expenses -- The Company engaged in certain transactions with a
corporation in which the Company's major stockholder is also a stockholder. Such
transactions involved cost reimbursements for shared insurance expenses and
resulted in a net account payable to the related party in the amount of $1,704
and $4,883 for the years ended September 30, 1997 and 1996, respectively.
Officer Advances -- From November 30, 1992 through November 30, 1995, the
Company made monthly advances to an officer of the Company. Such advances are
due on demand and accrue interest at various rates ranging from 5.8% to 7%.
Stockholder Notes Receivable -- In connection with the adoption of the 1997
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Option
Plan (the Plan) (Note 10), certain stockholders were issued restricted stock in
return for cancellation of options under the previous plan. As consideration for
the stock received, the stockholders issued notes payable to the Company
totaling $375,125. The notes bear interest at a rate of 7% per annum, with
principal and interest due on February 28, 2002, and are secured by the stock
received. The notes, including accrued interest of $15,318, have been included
as a separate component of stockholders' equity in the accompanying financial
statements at September 30, 1997.
8. EMPLOYEE BENEFIT PLAN
The Company has a qualified 401(k) Employee Savings and Profit Sharing Plan
(the Plan) for the benefit of its employees. The Plan covers substantially all
full-time employees over 21 years of age with at least six months of service.
Under the Plan, employees can contribute and defer taxes on compensation
contributed. The Company also has the option to make contributions at the
discretion of its Board of Directors. No Company contributions were made for the
years ended September 30, 1997, 1996 and 1995.
9. CONTINGENCIES
At September 30, 1997, the Company is involved in certain pending legal
actions and proceedings involving one of its customers. Management of the
Company, taking into account its insurance coverage, believes that the outcome
of this litigation will not have a material adverse financial impact on the
Company. Accordingly, no provision for pending legal actions and proceedings has
been made in the accompanying financial statements as of September 30, 1997.
10. STOCKHOLDERS' EQUITY
Issuance of Preferred Shares -- On December 27, 1996, the Company issued
4,209,863 shares of Series B Senior Convertible Participating Preferred Stock
for $14,999,741 (Series B preferred stock). The Series B preferred stock has a
liquidation preference of $3.56 per share, plus any declared and unpaid
dividends. The liquidation preference is subject to adjustment as defined.
During the year ended September 30, 1997, $134,643 was accreted toward the
Series B preferred stock liquidation preference, using the effective interest
method.
Each share of Series B preferred stock is convertible into common stock, at
the option of the holder, at any time after the date of issuance, based on the
then-applicable conversion ratio (initial liquidation
F-28
<PAGE> 181
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
preference divided by a calculated conversion price). Such price adjusts for
certain sales of capital stock below the then-existing conversion price.
The terms of the Series B preferred stock provide for redemption, at the
option of the holder, after December 27, 2001, if such redemption has been
requested by a majority of Series B preferred stockholders. The stock is
redeemable at an amount equal to the sum of $3.56 per share, plus any declared
and unpaid dividends. The stock is subject to a mandatory conversion upon the
completion of an initial public offering by the Company, which exceeds
$20,000,000 in gross proceeds. If the valuation of the Company immediately prior
to such offering is less than $131,125,000, as defined, the conversion formula
will be adjusted to provide for issuance of common stock such that each share of
the Series B preferred stock will have a value in the offering of at least
$8.91.
The Company is prohibited from declaring dividends on any form of stock
without the approval of the majority of the holders of the Series B preferred
stock. The Series B stockholders are also entitled to one seat on the Company's
Board of Directors.
Immediately preceding such financing, the Company reincorporated in the
State of Delaware. The effect of such reincorporation was to place a $.01 par
value on the Company's common stock, authorize 4,300,000 shares of Series B
preferred stock at a $.01 par value, and reduce the authorized number of Series
A preferred stock to 348,687 shares at a $.01 par value. The financial
statements have been retroactively restated for all periods presented to reflect
the effect of such reincorporation.
Stock-Option Plans -- In February 1997, the Company adopted the 1997
Incentive Stock Option, Nonqualified Stock Option and Restricted Stock Purchase
Plan (the Plan). The total number of shares, in aggregate, of common stock that
may be issued under the Plans shall not exceed 2,750,000 unless certain changes
in the Company's capital structure, as indicated in the agreement, occur.
Incentive options may be issued to officers, key employees and members of the
Board of Directors. Nonqualified options and restricted shares may be issued to
officers, key employees, members of the Board of Directors, or other parties as
determined by the Board of Directors. The exercise prices are to be determined
pursuant to formulas specified in the Plans but not less than the fair market
value at the grant date. Incentive options expire within a period of ten years
from the date the incentive option is granted, unless it is granted to a person
who is the beneficial owner of 10% or more of the outstanding stock of the
Company, in which case the option will expire within a period of five years.
Nonqualified options expire within a period of ten years from the date of the
grant. An offeree of restricted shares has 90 days to accept such offer.
In connection with the adoption of the 1997 Plan, all previous options
outstanding were canceled and reissued at fair market value.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at October 1, 1995.............................. 1,017,523 $0.26
Granted................................................... 121,000 0.50
Canceled.................................................. (95,000) 0.23
----------
Outstanding at September 30, 1996........................... 1,043,523 0.29
Granted (weighted average fair value of $0.22)............ 1,377,019 0.51
Canceled.................................................. (1,068,523) 0.29
----------
Outstanding at September 30, 1997........................... 1,352,019 0.51
==========
</TABLE>
F-29
<PAGE> 182
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------- ----------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------- ----------- ---------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
0$.50.. 1,325,019 9.5 $0.50 416,250 $0.50
1.00.. 27,000 9.5 1.00 5,000 1.00
--------- -------
1,352,019 421,250
========= =======
</TABLE>
Additional Stock Option Information -- As discussed in Note 1, the Company
continues to account for its stock-based awards using the intrinsic value method
in accordance with APB Opinion No. 25, Accounting for Stock Issued to Employees,
and its related interpretations. No compensation expense has been recognized in
the financial statements for employee stock arrangements.
SFAS No. 123, Accounting for Stock-Based Compensation, requires the
disclosure of pro forma net income had the Company adopted the fair value method
as of the beginning of fiscal 1996. Under SFAS No. 123, the fair value of
stock-based awards to employees is calculated through the use of option-pricing
models, even though such models were developed to estimate the fair value of
freely tradable, fully transferable options without vesting restrictions, which
significantly differ from the Company's stock option awards. These models also
require subjective assumptions, including future stock price volatility and
expected time to exercise, which greatly affect the calculated values. The
effect of applying the fair value method of SFAS No. 123 to the Company's option
grants would not result in net income that is materially different from the
amounts reported in the Company's financial statements.
Warrants -- In August 1995, the Company issued warrants to purchase 348,687
shares of Series A convertible preferred stock at $4.00 per share for a period
of three years from the date the warrants were issued or one year after the
completion of an initial public offering, whichever is later. As of September
30, 1997, all of the warrants were exercisable and none were exercised. No value
was originally ascribed to such warrants.
11. MAJOR CUSTOMERS
During the year ended September 30, 1997, sales to two customers accounted
for 27% and 11% of total revenues. During the year ended September 30, 1996, the
Company recorded substantial sales to two customers, accounting for 18% and 13%
of total revenues. During the year ended September 30, 1995, the Company
recorded substantial sales to four customers, which accounted for 13%, 11%, 10%
and 10% of total revenue. As of September 30, 1996 and 1997, the Company also
has deferred revenue of $2,000,666 and $578,276, respectively, from a
significant customer for consulting services and future license deliveries. A
decision by a significant customer to decrease the amount purchased from the
Company or to cease carrying the Company's products could have a material
adverse effect on the Company's financial condition and results of operations.
12. GEOGRAPHIC INFORMATION
The Company had worldwide export sales of approximately 36%, 28% and 44%
for fiscal years 1997, 1996 and 1995, respectively.
F-30
<PAGE> 183
SUBSCRIBER COMPUTING, INC.
BALANCE SHEET
AS OF MARCH 31, 1998 (UNAUDITED)
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents................................... $ 1,512,688
Restricted cash............................................. 806,944
Accounts receivable, net of allowance for doubtful accounts
of $978,967............................................... 4,338,148
Prepaid expenses and other current assets................... 578,824
------------
Total current assets.............................. 7,236,604
PROPERTY AND EQUIPMENT, net................................. 3,715,814
OTHER ASSETS................................................ 192,696
------------
$ 11,145,114
============
LIABILITIES AND CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Accounts payable............................................ $ 1,796,393
Accrued expenses............................................ 2,263,069
Short-term borrowings....................................... 2,500,000
Deferred revenue............................................ 3,383,665
Current portion of obligations under capital leases......... 371,574
Current portion of notes payable............................ 3,364,135
------------
Total current liabilities......................... 13,678,836
DEFERRED RENT............................................... 139,089
OBLIGATIONS UNDER CAPITAL LEASES, net of current portion.... 240,987
NOTES PAYABLE, net of current portion....................... 2,188,063
------------
Total liabilities................................. 16,246,975
COMMITMENTS AND CONTINGENCIES
CAPITAL DEFICIENCY:
Preferred stock -- Series A convertible -- $.01 par value;
348,687 shares authorized; none issued and outstanding.... --
Preferred stock -- Series B senior convertible
participating -- $.01 par value; 4,300,000 shares
authorized; 4,209,863 shares issued and outstanding....... 14,318,423
Common stock -- $.01 par value; 20,000,000 shares
authorized; 8,443,944 shares issued and outstanding....... 876,738
Accumulated deficit......................................... (19,893,450)
Notes receivable from sale of common stock.................. (403,572)
------------
Total capital deficiency.......................... (5,101,861)
------------
$ 11,145,114
============
</TABLE>
See notes to accompanying financial statements.
F-31
<PAGE> 184
SUBSCRIBER COMPUTING, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
REVENUES:
Product revenue............................................. $ 3,673,916 $ 3,061,397
Service revenue............................................. 2,782,887 2,145,162
----------- -----------
Total revenues.................................... 6,456,803 5,206,559
COST OF SALES:
Product..................................................... 1,749,184 690,634
Service..................................................... 1,928,727 1,726,907
----------- -----------
Total cost of sales............................... 3,677,911 2,417,541
----------- -----------
GROSS MARGIN................................................ 2,778,892 2,789,018
----------- -----------
OPERATING COSTS AND EXPENSES:
Research and development.................................... 5,033,239 2,376,749
Sales and marketing......................................... 1,927,439 1,553,016
General and administrative.................................. 3,211,506 2,280,923
----------- -----------
Total operating costs and expenses................ 10,172,184 6,210,688
----------- -----------
OPERATING LOSS.............................................. (7,393,292) (3,421,670)
INTEREST AND OTHER INCOME (EXPENSE), net.................... (10,001) (109,973)
----------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES...................... (7,403,293) (3,531,643)
PROVISION FOR INCOME TAXES.................................. 800 800
----------- -----------
NET LOSS.................................................... $(7,404,093) $(3,532,443)
=========== ===========
</TABLE>
See notes to accompanying financial statements.
F-32
<PAGE> 185
SUBSCRIBER COMPUTING, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................... $(7,404,093) $ (3,532,443)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 567,642 315,675
Write-off of intangibles.................................. 790,244 --
Expense related to additional acquisition costs........... 37,500 --
Changes in operating assets and liabilities, net of
effects of acquisition:
Accounts receivable, net............................... (1,900,487) (134,836)
Prepaid expenses and other current assets.............. (257,207) (152,888)
Installments receivable................................ -- 89,880
Other assets........................................... 22,738 (138,011)
Accounts payable....................................... 506,489 (452,411)
Accrued expenses....................................... 1,256,988 395,983
Deferred rent.......................................... (102) (6,711)
Deferred revenue....................................... 1,684,063 (182,544)
Note receivable........................................ -- (2,188)
----------- ------------
Net cash used in operating activities............. (4,696,225) (3,800,494)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.......................... (502,188) (1,132,036)
Purchase of Intangibles..................................... -- (1,336,507)
Proceeds from sale and maturity of marketable securities.... 1,350,000 --
----------- ------------
Net cash provided by (used in) investing
activities...................................... 847,812 (2,468,543)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from short-term borrowings..................... 5,100,000 --
Proceeds from issuance of long-term debt.................... -- 916,275
Repayment of long-term debt................................. (1,653,548) (1,608,336)
Net proceeds from issuance of common stock.................. 10,053 480,185
Net proceeds from issuance of Series B preferred stock...... -- 14,094,018
Note receivable from sale of common stock................... (13,129) --
----------- ------------
Net cash provided by financing activities......... 3,443,376 13,882,142
----------- ------------
NET (DECREASE) INCREASE IN CASH, CASH
EQUIVALENTS AND RESTRICTED CASH............................. (405,037) 7,613,105
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, beginning of the
period.................................................... 2,724,669 1,776,928
----------- ------------
CASH, CASH EQUIVALENTS AND RESTRICTED CASH, end of the
period.................................................... $ 2,319,632 $ 9,390,033
=========== ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION -- Cash paid during the year for:
Interest.................................................. $ 402,647 $ 270,937
=========== ============
Income taxes.............................................. $ 800 $ 800
=========== ============
</TABLE>
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES:
During the six months ended March 31, 1998 and 1997, $89,762 and $44,881,
respectively, was accreted towards the Series B Senior Convertible Participating
Preferred Stock liquidation preference, using the effective interest method.
See notes to accompanying financial statements.
F-33
<PAGE> 186
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
1. BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit and certain information and footnote disclosures, normally
included in the annual financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or omitted. In the
opinion of management, the condensed financial statements included herein
reflect all normal, recurring adjustments necessary to present fairly the
financial position of the Company as of March 31, 1998 and the results of its
operation and its cash flows for the six-month periods ended March 31, 1997 and
1998. The results of operations for the interim periods are not necessarily
indicative of the results of operations for the full year.
2. STOCK OPTION PLAN
The following is a summary of stock option transactions under the 1997 plan
for the six-month period ended March 31, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
OUTSTANDING, September 30, 1997............................. 1,352,019 $0.51
Granted..................................................... 443,109 1.00
Canceled.................................................... (156,039) 0.54
---------
OUTSTANDING, March 31, 1998................................. 1,639,089 $0.74
========= =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- -------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.50 1,181,489 9 $0.50 516,530 $0.50
$1.00 457,600 9 1.00 15,667 1.00
--------- -------
1,639,089 532,197
========= =======
</TABLE>
Warrants -- In August 1995, the Company issued warrants to purchase 348,687
shares of Series A convertible preferred stock at $4.00 per share for a period
of three years from the date the warrants were issued or one year after the
completion of an initial public offering, whichever is later. No value was
originally ascribed to such warrants. In December 1997, in connection with an
extension of a line of credit agreement with a bank referred to in Note 8, the
Company issued warrants to purchase 25,000 shares of common stock at $4.00 per
share for a period of five years from the date of issue. As of March 31, 1998,
all of the warrants were exercisable and no warrants were exercised.
3. WRITE DOWN OF INTANGIBLE ASSETS
During the six-month period ended March 31, 1998, the Company, in
accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, evaluated the recoverability of the remaining amounts recorded
for goodwill and prepaid license fees related to the acquisition of Intelligent
Object Solutions, Inc. in December 1996. Based on this evaluation, the Company
determined that $190,244 of goodwill and $600,000 of prepaid
F-34
<PAGE> 187
SUBSCRIBER COMPUTING, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE SIX-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED)
license fees were not recoverable and wrote off those amounts to general and
administrative expense and cost of software revenue, respectively.
4. CONTINGENCIES
Litigation -- At March 31, 1998, the Company is involved in certain pending
legal actions and proceedings involving one of its employee's former employers.
Management of the Company believes that the outcome of this litigation will not
have an material adverse financial impact on the Company. Accordingly, no
provision for pending legal actions and proceedings has been made in the
accompanying financial statements.
During the six months ended March 31, 1998 the Company favorably settled an
outstanding dispute with a customer and received $325,000, which is recorded in
other income, net.
5. PROPOSED ACQUISITION
On April 2, 1998, the Company and Corsair Communications, Inc. (Corsair)
signed a definitive agreement whereby the Company will merge into a newly formed
subsidiary of Corsair. Corsair will issue common stock to the Company valued at
approximately $70 million and will pay the Company's expenses incurred in
completing the transaction, which is expected to be accounted for as a pooling
of interests. The transaction's anticipated closing date is June 1998, subject
to approval by the Securities and Exchange Commission (SEC) and approval by the
shareholders of Corsair and the Company.
6. MAJOR CUSTOMERS
During the six months ended March 31, 1998, sales to three customers
accounted for 19%, 18% and 10% of total revenues. During the six months ended
March 31, 1997, the Company recorded sales to one customer accounting for 37% of
total revenues. As of March 31, 1998, the Company also has deferred revenue of
$284,236 from a significant customer for consulting services and future license
deliveries. A decision by a significant customer to decrease the amount
purchased from the Company or to cease carrying the Company's products could
have a material adverse effect on the Company's financial condition and results
of operations.
7. GEOGRAPHIC INFORMATION
The Company had worldwide export sales of approximately 31% and 44% for the
six months ended March 31, 1997 and 1998, respectively.
8. SHORT-TERM BORROWINGS
The Company amended its line of credit arrangement with its bank in
December 1997 and, in connection with the amendment, issued warrants to purchase
25,000 shares of common stock at $4.00 per share for a period of five years from
the date the warrants were issued. As of March 31, 1998 all of the warrants
issued were exercisable and none were exercised. No value was ascribed to such
warrants.
In March 1998, the Company entered into a new financing agreement with a
lending institution in the amount of $2,500,000 and terminated its line of
credit agreement referred to above. Interest on borrowings under the new
agreement is payable at 5% over prime rate (13.5% at March 31, 1998) and is
payable monthly. The principal balance is payable at the earlier of the
consummation of the transaction referred to in Note 5, the completion of a
private placement, or June 30, 1998.
F-35
<PAGE> 188
ANNEX A
OPINION OF HAMBRECHT & QUIST LLC
[HAMBRECHT & QUIST LLC LETTERHEAD]
March 31, 1998
Confidential
The Board of Directors
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, CA 94304
Ladies and Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Corsair Communications, Inc. ("Corsair" or the "Company") of the
consideration to be paid by the Company in connection with the proposed
acquisition by Corsair of the equity of Subscriber Computing, Inc.
("Subscriber") (the "Proposed Transaction") under the terms of the Agreement and
Plan of Reorganization, dated as of March 29, 1998, among Subscriber and Corsair
and the related Exhibits and Schedules thereto (the "Agreement"). The Agreement
provides, among other things, that Corsair will pay to Subscriber, upon
consummation of the Proposed Transaction, $70 million in common stock, and
reserve an additional $2.7 million in common stock for issuance upon exercise of
Subscriber options and warrants to be assumed by Corsair. For purposes of this
opinion, we have assumed that the Proposed Transaction will qualify as a
tax-free reorganization under the United States Internal Revenue Code and that
the Proposed Transaction will be accounted for as a pooling of interests.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of Corsair in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
In the past, we have provided investment banking and other financial
advisory services to Corsair and have received fees for rendering these
services. In the ordinary course of business, Hambrecht & Quist acts as a market
maker and broker in the publicly traded securities of Corsair and receives
customary compensation in connection therewith, and also provides research
coverage for Corsair. In the ordinary course of business, Hambrecht & Quist
actively trades in the equity and derivative securities of Corsair for its own
account and for the accounts of its customers and, accordingly, may at any time
hold a long or short position in such securities. Hambrecht & Quist may in the
future provide additional investment banking or other financial advisory
services to Corsair. In addition, Hambrecht and Quist acted as a placement agent
for Subscriber's $15,000,000 Series B Preferred Stock Offering in 1996 and
received a fee for these services, which fee included warrants for the purchase
of 61,043 shares of Subscriber stock at an exercise price of $3.56. A total of 9
Managing Directors of Hambrecht & Quist acquired shares of Subscriber in this
private placement and own a total of 19,375 shares of the Series B Preferred
Stock.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of Corsair
for recent years and interim periods to date and certain other relevant
financial and operating data of Corsair made available to us from published
sources and from the internal records of Corsair;
(ii) reviewed certain internal financial and operating information
relating to Corsair prepared by the management of Corsair;
(iii) discussed the business, financial condition and prospects of
Corsair with certain of its officers;
A-1
<PAGE> 189
The Board of Directors
Corsair, Inc.
Page 2
(iv) reviewed the financial statements of Subscriber for recent years
and interim periods to date and certain other relevant financial and
operating data of Subscriber made available to us from the internal records
of Subscriber;
(v) reviewed certain internal financial and operating information
relating to Subscriber prepared by the management of Subscriber;
(vi) discussed the business, financial condition and prospects of the
Subscriber with certain of its officers;
(vii) reviewed the recent reported prices and trading activity for the
common stocks of Corsair and compared such information and certain
financial information for Corsair and Subscriber with similar information
for certain other companies engaged in businesses we consider comparable;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement;
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Corsair or Subscriber
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information. We have not undertaken any independent valuation or appraisal of
any of the assets or liabilities of Corsair or Subscriber; nor have we conducted
a physical inspection of the properties and facilities of either company. With
respect to the financial forecasts and projections made available to us and used
in our analysis, we have assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of Corsair
and Subscriber. For purposes of this Opinion, we have assumed that neither
Corsair nor Subscriber is a party to any pending transactions, including
external financings, recapitalizations or material merger discussions, other
than the Proposed Transaction and those activities undertaken in the ordinary
course of conducting their respective businesses. Our opinion is necessarily
based upon market, economic, financial and other conditions as they exist and
can be evaluated as of the date of this letter and any change in such conditions
would require a reevaluation of this opinion.
It is understood that this letter is for the information of the Board of
Directors only and may not be used for any other purpose without our prior
written consent; provided, however, that this letter may be reproduced in full
in the Proxy Statement/Prospectus. This letter does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the consideration to be paid by Corsair in the Proposed Transaction is fair to
the Company from a financial point of view.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ PAUL B. CLEVELAND
------------------------------------
Paul B. Cleveland
Managing Director
A-2
<PAGE> 190
ANNEX B
SECTION 262 OF THE DELAWARE
GENERAL CORPORATION LAW
DELAWARE CORPORATIONS CODE
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
SECTION 262. Appraisal Rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to Section 228
of this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257, Section
258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
B-1
<PAGE> 191
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section
228 or Section 253 of this title, each constituent corporation, either
before the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this
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subsection. An affidavit of the secretary or assistant secretary or of the
transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date that shall be not more than
10 days prior to the date the notice is given, provided, that if the notice
is given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and
the notice is given prior to the effective date, the record date shall be
the close of business on the day next preceding the day on which the notice
is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or
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resulting corporation pursuant to subsection (f) of this section and who has
submitted his certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that he is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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ANNEX C
CALIFORNIA CORPORATIONS CODE
TITLE 1. CORPORATIONS
DIVISION 1. GENERAL CORPORATION LAW
CHAPTER 13. Dissenters' Rights
SECTION 1300. REORGANIZATION OR SHORT-FORM MERGER; DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS
(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b) or
subdivision (e) or (f) of Section 1201, each shareholder of the corporation
entitled to vote on the transaction and each shareholder of a subsidiary
corporation in a short-form merger may, by complying with this chapter, require
the corporation in which the shareholder holds shares to purchase for cash at
their fair market value the shares owned by the shareholder which are dissenting
shares as defined in subdivision (b). The fair market value shall be determined
as of the day before the first announcement of the terms of the proposed
reorganization or short-form merger, excluding any appreciation or depreciation
in consequence of the proposed action, but adjusted for any stock split, reverse
stock split, or share dividend which becomes effective thereafter.
(b) As used in this chapter, "dissenting shares" means shares which come
within all of the following descriptions:
(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities exchange
certified by the Commissioner of Corporations under subdivision (o) of
Section 25100 or (B) listed on the list of OTC margin stocks issued by the
Board of Governors of the Federal Reserve System, and the notice of meeting
of shareholders to act upon the reorganization summarizes this section and
Sections 1301, 1302, 1303 and 1304; provided, however, that this provision
does not apply to any shares with respect to which there exists any
restriction on transfer imposed by the corporation or by any law or
regulation; and provided, further, that this provision does not apply to
any class of shares described in subparagraph (A) or (B) if demands for
payment are filed with respect to 5 percent or more of the outstanding
shares of that class.
(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not voted
in favor of the reorganization or, (B) if described in subparagraph (A) or
(B) of paragraph (1)(without regard to the provisos in that paragraph),
were voted against the reorganization, or which were held of record on the
effective date of a short-form merger; provided, however, that subparagraph
(A) rather than subparagraph (B) of this paragraph applies in any case
where the approval required by Section 1201 is sought by written consent
rather than at a meeting.
(3) Which the dissenting shareholder has demanded that the corporation
purchase at their fair market value, in accordance with Section 1301.
(4) Which the dissenting shareholder has submitted for endorsement, in
accordance with Section 1302.
(c) As used in this chapter, "dissenting shareholder" means the
recordholder of dissenting shares and includes a transferee of record.
SECTION 1301. NOTICE TO HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS
(a) If, in the case of a reorganization, any shareholders of a corporation
have a right under Section 1300, subject to compliance with paragraphs (3) and
(4) of subdivision (b) thereof, to require the corporation to purchase their
shares for cash, such corporation shall mail to each such shareholder a notice
of the approval of the reorganization by its outstanding shares (Section 152)
within 10 days after the date of such approval, accompanied by a copy of
Sections 1300, 1302, 1303, 1304 and this section, a statement of the price
determined by the corporation to represent the fair market value of the
dissenting shares, and a brief
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description of the procedure to be followed if the shareholder desires to
exercise the shareholder's right under such sections. The statement of price
constitutes an offer by the corporation to purchase at the price stated any
dissenting shares as defined in subdivision (b) of Section 1300, unless they
lose their status as dissenting shares under Section 1309.
(b) Any shareholder who has a right to require the corporation to purchase
the shareholder's shares for cash under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, and who desires the
corporation to purchase such shares shall make written demand upon the
corporation for the purchase of such shares and payment to the shareholder in
cash of their fair market value. The demand is not effective for any purpose
unless it is received by the corporation or any transfer agent thereof (1) in
the case of shares described in clause (i) or (ii) of paragraph (1) of
subdivision (b) of Section 1300 (without regard to the provisos in that
paragraph), not later than the date of the shareholders' meeting to vote upon
the reorganization, or (2) in any other case within 30 days after the date on
which the notice of the approval by the outstanding shares pursuant to
subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder.
(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of what such shareholder claims to be the
fair market value of those shares as of the day before the announcement of the
proposed reorganization or short-form merger. The statement of fair market value
constitutes an offer by the shareholder to sell the shares at such price.
SECTION 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFIED
SECURITIES
Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was
mailed to the shareholder, the shareholder shall submit to the corporation at
its principal office or at the office of any transfer agent thereof, (a) if the
shares are certificated securities, the shareholder's certificates representing
any shares which the shareholder demands that the corporation purchase, to be
stamped or endorsed with a statement that the shares are dissenting shares or to
be exchanged for certificates of appropriate denomination so stamped or endorsed
or (b) if the shares are uncertificated securities, written notice of the number
of shares which the shareholder demands that the corporation purchase. Upon
subsequent transfers of the dissenting shares on the books of the corporation,
the new certificates, initial transaction statement, and other written
statements issued therefor shall bear a like statement, together with the name
of the original dissenting holder of the shares.
SECTION 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT
(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the legal
rate on judgments from the date of the agreement. Any agreements fixing the fair
market value of any dissenting shares as between the corporation and the holders
thereof shall be filed with the secretary of the corporation.
(b) Subject to the provisions of Section 1306, payment of the fair market
value of dissenting shares shall be made within 30 days after the amount thereof
has been agreed or within 30 days after any statutory or contractual conditions
to the reorganization are satisfied, whichever is later, and in the case of
certificated securities, subject to surrender of the certificates therefor,
unless provided otherwise by agreement.
SECTION 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION; JOINDER; CONSOLIDATION; DETERMINATION OF ISSUES;
APPOINTMENT OF APPRAISERS
(a) If the corporation denies that the shares are dissenting shares, or the
corporation and the shareholder fail to agree upon the fair market value of the
shares, then the shareholder demanding purchase of such shares as dissenting
shares or any interested corporation, within six months after the date on which
notice of the approval by the outstanding shares (Section 152) or notice
pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but
not thereafter, may file a complaint in the superior court of the proper county
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praying the court to determine whether the shares are dissenting shares or the
fair market value of the dissenting shares or both or may intervene in any
action pending on such a complaint.
(b) Two or more dissenting shareholders may join as plaintiffs or be joined
as defendants in any such action and two or more such actions may be
consolidated.
(c) On the trial of the action, the court shall determine the issues. If
the status of the shares as dissenting shares is in issue, the court shall first
determine that issue. If the fair market value of the dissenting shares is in
issue, the court shall determine, or shall appoint one or more impartial
appraisers to determine, the fair market value of the shares.
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ANNEX D
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CORSAIR COMMUNICATIONS, INC.,
ANTEATER ACQUISITION CORP.
AND
SUBSCRIBER COMPUTING, INC.
DATED AS OF APRIL 2, 1998
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I THE MERGER............................................. 1
1.1 The Merger.................................................. 1
1.2 Effective Time.............................................. 1
1.3 Effect of the Merger........................................ 1
1.4 Certificate of Incorporation; Bylaws........................ 2
1.5 Directors and Officers...................................... 2
1.6 Maximum Shares to Be Issued; Effect on Capital Stock........ 2
1.7 Dissenting Shares........................................... 6
1.8 Surrender of Certificates................................... 6
1.9 No Further Ownership Rights in Company Common Stock......... 7
1.10 Lost, Stolen or Destroyed Certificates...................... 7
1.11 Tax and Accounting Consequences............................. 7
1.12 Taking of Necessary Action; Further Action.................. 7
1.13 Company Certificate; Release................................ 8
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY......... 8
2.1 Organization of the Company................................. 8
2.2 Company Capital Structure................................... 8
2.3 Subsidiaries................................................ 9
2.4 Authority................................................... 9
2.5 Company Financial Statements................................ 10
2.6 No Undisclosed Liabilities.................................. 10
2.7 No Changes.................................................. 10
2.8 Tax and Other Returns and Reports........................... 11
2.9 Restrictions on Business Activities......................... 12
2.10 Title to Properties; Absence of Liens and Encumbrances...... 12
2.11 Intellectual Property....................................... 13
2.12 Agreements, Contracts and Commitments....................... 14
2.13 Interested Party Transactions............................... 15
2.14 Compliance with Laws........................................ 15
2.15 Litigation.................................................. 15
2.16 Insurance................................................... 15
2.17 Minute Books................................................ 15
2.18 Environmental Matters....................................... 16
2.19 Brokers' and Finders' Fees: Third Party Expenses............ 16
2.20 Employee Matters and Benefit Plans.......................... 16
2.21 Employees................................................... 19
2.22 Pooling of Interest......................................... 19
2.23 Disclosure Documents........................................ 19
2.24 Representation Complete..................................... 19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB...................................................... 19
3.1 Organization, Standing and Power............................ 19
3.2 Authority................................................... 19
3.3 Capital Structure........................................... 20
3.4 SEC Documents; Parent Financial Statements.................. 20
3.5 No Material Adverse Change.................................. 21
</TABLE>
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<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
3.6 Litigation.................................................. 21
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME................... 21
4.1 Conduct of Business of the Company.......................... 21
4.2 No Solicitation............................................. 23
4.3 Conduct of Business of Parent............................... 24
5.1 Sale and Registration of Shares; Stockholder Matters........ 24
5.2 Access to Information....................................... 25
5.3 Confidentiality............................................. 25
5.4 Expenses.................................................... 26
5.5 Public Disclosure........................................... 26
5.6 Consents.................................................... 26
5.7 FIRPTA Compliance........................................... 26
5.8 Reasonable Efforts.......................................... 26
5.9 Notification of Certain Matters............................. 26
5.10 Certain Benefit Plans....................................... 26
5.11 Pooling Accounting.......................................... 26
5.12 Affiliate Agreements........................................ 27
5.13 Voting Agreement............................................ 27
5.14 Additional Documents and Further Assurances................. 27
5.15 Registration Statement on Form S-8.......................... 27
5.16 Company Auditors............................................ 27
5.17 Termination Fee............................................. 27
5.18 Nasdaq National Market Listing.............................. 27
ARTICLE VI CONDITIONS TO THE MERGER.............................. 28
6.1 Conditions to Obligations of Each Party to Effect the
Merger...................................................... 28
6.2 Additional Conditions to Obligations of the Company......... 28
6.3 Additional Conditions to the Obligations of Parent and
Merger Sub.................................................. 29
ARTICLE VII ESCROW............................................... 30
7.1 Escrow Period............................................... 30
7.2 Escrow Arrangements......................................... 30
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................... 35
8.1 Termination................................................. 35
8.2 Effect of Termination....................................... 35
8.3 Amendment................................................... 36
8.4 Extension; Waiver........................................... 36
ARTICLE IX GENERAL PROVISIONS..................................... 36
9.1 Survival of Representations, Warranties and Agreements...... 36
9.2 Notices..................................................... 36
9.3 Interpretation.............................................. 37
9.4 Counterparts................................................ 37
9.5 Entire Agreement: Assignment................................ 37
9.6 Severability................................................ 37
9.7 Other Remedies.............................................. 38
9.8 Governing Law............................................... 38
9.9 Rules of Construction....................................... 38
9.10 Specific Performance........................................ 38
</TABLE>
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<PAGE> 200
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<S> <C>
Exhibit A..................................... Form of Stockholder Questionnaire
Exhibit B..................................... Form of Affiliate Agreement
Exhibit C..................................... Form of Company Stockholder Voting Agreement
Exhibit D..................................... Form of Parent Stockholder Voting Agreement
Exhibit E..................................... Form of Legal Opinion of Counsel to Parent
Exhibit F..................................... Form of Legal Opinion of Counsel to the Company
</TABLE>
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
-------- -----------
<S> <C>
3.6.......................................... Litigation
5.12......................................... Affiliate Agreement Signatories
5.13......................................... Voting Agreement Signatories
6.3(C)....................................... Third Party Consents
</TABLE>
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<PAGE> 201
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of April 2, 1998 among Corsair Communications, Inc., a Delaware
corporation ("Parent"), Anteater Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Subscriber Computing,
Inc., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") and all outstanding
options, warrants or other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive shares of voting
Common Stock of Parent ("Parent Common Stock").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of Parent. The Company as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Brobeck Phleger & Harrison LLP, 550 West C Street, Suite 1300, San Diego,
California, unless another place or time is agreed to by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing an Agreement or Certificate of Merger (or like
instrument) with the Secretary of State of the State of Delaware (the "Merger
Agreement"), in accordance with the relevant provisions of applicable law (the
time of confirmation by the Secretary of State of Delaware of such filing being
referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in the applicable provisions of Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of the Company
and Merger
<PAGE> 202
Sub shall vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts, liabilities and
duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, the Certificate of Incorporation of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Subscriber
Computing, Inc."
(b) Unless otherwise determined by Parent, the Bylaws of Merger Sub, as in
effect immediately prior to the Effective Time, shall be the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
1.6 Maximum Shares to Be Issued; Effect on Capital Stock. The maximum
number of shares of Parent Common Stock to be issued (including Parent Common
Stock to be reserved for issuance upon exercise of any of the Company's options
and warrants to be assumed by Parent) in exchange for the acquisition by Parent
of all outstanding Company Capital Stock and all unexpired and unexercised
options, warrants or other rights to acquire Company Capital Stock shall be
equal to that number of shares of Parent Common Stock obtained by dividing (x)
the sum of (A) Seventy Million Dollars ($70,000,000) and (B) the exercise price
of all warrants and options to acquire Company Capital Stock outstanding
immediately prior to the Effective Time and (C) any cash received by the Company
after April 1, 1998, but prior to the Effective Time, as payment for the
exercise of warrants or options to acquire Company Capital Stock (collectively,
the "Purchase Price") by (y) the Parent Closing Average Price Per Share (as
defined in Section 1.6(j)(v)) (the "Total Parent Shares"), provided, however,
that the Purchase Price shall be reduced by that amount of the obligations of
the Company relating to any mortgages, indentures, loans or credit agreements,
security agreements or other arrangements or instruments relating to the
borrowing of money or extension of credit to the Company including guaranties
(collectively, "Borrowings) that exceed Ten Million Dollars ($10,000,000) as of
the Effective Time excluding any Borrowings by the Company in the form of
capital equipment leases, but including, without limitation, that certain Master
Loan and Security Agreement dated December 10, 1997 in the amount of Two Million
Six Hundred Thousand Dollars ($2,600,000) with Transamerica. Subject to the
terms and conditions of this Agreement, as of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any shares of the Company Capital Stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock of
the Company (the "Company Common Stock") issued and outstanding immediately
prior to the Effective Time (other than any shares of Company Capital Stock
to be canceled pursuant to Section 1.6(d) and any Dissenting Shares (as
defined and to the extent provided in Section 1.7(a)) will be canceled and
extinguished and be converted automatically into the right to receive that
number of shares of Parent Common Stock (except for the number of shares of
Parent Common Stock contributed to the Escrow Fund (as defined in Section
7.2(b)) equal to the Exchange Ratio (as defined in Section 1.6(j)(vii)
below), upon surrender of the certificate representing such share of
Company Common Stock in the manner provided in Section 1.8, provided,
however, that if the Company has a repurchase right with respect to the
Company Common Stock of any holder, then the shares of Parent Common Stock
issuable to the respective holder shall be subject to a schedule with
respect to the lapse of repurchase rights such that repurchase rights lapse
with respect to the number of shares of Parent Common Stock in the same
proportion as the number of shares of Company Common Stock which would have
lapsed multiplied by the Exchange Ratio.
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(b) Conversion of Company Series A Preferred Stock. Each share of
Series A Preferred Stock of the Company ("Company Series A Preferred
Stock") issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Capital Stock to be canceled pursuant to
Section 1.6(d) and any Dissenting Shares (as defined and to the extent
provided in Section 1.7(a)) will be canceled and extinguished and be
converted automatically into the right to receive that number of shares of
Parent Common Stock (except for the number of shares of Parent Common Stock
contributed to the Escrow Fund (as defined in Section 7.2(b)) equal to the
number of shares of Company Common Stock that would have been issued upon
conversion of such share of Company Series A Preferred Stock immediately
prior to the Effective Time multiplied by the Exchange Ratio, upon
surrender of the certificate representing such share of Company Series A
Preferred Stock in the manner provided in Section 1.8.
(c) Conversion of Company Series B Preferred Stock. Each share of
Series B Preferred Stock of the Company ("Company Series B Preferred
Stock") issued and outstanding immediately prior to the Effective Time
(other than any shares of Company Capital Stock to be canceled pursuant to
Section 1.6(d) and any Dissenting Shares (as defined and to the extent
provided in Section 1.7(a)) will be canceled and extinguished and be
converted automatically into the right to receive that number of shares of
Parent Common Stock (except for the number of shares of Parent Common Stock
contributed to the Escrow Fund (as defined in Section 7.2(b)) equal to (i)
the Series B Preference Shares (as defined in Section 1.6(j)(i) below)
divided by the Aggregate Series B Number (as defined in Section 1.6(j)(iii)
below), plus (ii) the Exchange Ratio, upon surrender of the certificate
representing such share of Company Series B Preferred Stock in the manner
provided in Section 1.8.
(d) Cancellation of Company-Owned Stock. Each share of Company Capital
Stock owned by the Company or any direct or indirect wholly-owned
subsidiary of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(e) Stock Options. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's 1997 Incentive
Stock Option Plan (the "Option Plan") or otherwise shall be assumed by
Parent in accordance with provisions described below.
(i) At the Effective Time, each outstanding option to purchase
shares of Company Common Stock (each a "Company Option") under the
Option Plan or otherwise, whether vested or unvested, shall be, in
connection with the Merger, assumed by Parent. Each Company Option so
assumed by Parent under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Option Plan
and/or as provided in the respective option agreements governing such
Company Option immediately prior to the Effective Time, except that (A)
such Company Option shall be exercisable for that number of whole shares
of Parent Common Stock equal to the product of the number of shares of
Company Common Stock that were issuable upon exercise of such Company
Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded down (in the case of Company Options granted
under the Option Plan) to the nearest whole number of shares of Parent
Common Stock and (B) the per share exercise price for the shares of
Parent Common Stock issuable upon exercise of such assumed Company
Option shall be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company
Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent.
(ii) It is the intention of the parties that the Company Options
assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), to the extent the Company Options
qualified as incentive stock options immediately prior to the Effective
Time.
(iii) Promptly following the Effective Time, Parent will issue to
each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
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(f) Warrants. At the Effective Time, the warrants to purchase shares
of Company Common Stock ( a "Common Warrant"), Company Series A Preferred
Stock (a "Series A Warrant") and Company Series B Preferred Stock (a
"Series B Warrant") listed on Schedule 1.6(f) then outstanding, if any,
(each a "Warrant") shall be assumed by Parent in accordance with the
provisions described below:
(i) At the Effective Time, each Warrant shall be, in connection
with the Merger, assumed by Parent. Each Warrant so assumed by Parent
under this Agreement shall continue to have, and be subject to, the same
terms and conditions set forth in the respective agreement governing
such Warrant immediately prior to the Effective Time, except that (A)
each such Common Warrant shall be exercisable for that number of whole
shares of Parent Common Stock equal to the product of the number of
shares of Company Common Stock that were issuable upon exercise of such
Common Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded to the nearest whole number of shares of Parent
Common Stock, with one-half share being rounded up, at that exercise
price per share equal to the quotient determined by dividing the
exercise price per share at which such Common Warrant was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded
to the nearest whole cent, with one-half cent being rounded up, (B) each
such Series A Warrant shall be exercisable for that number of whole
shares of Parent Common Stock equal to the number of shares of Parent
Common Stock that would have been issued in respect of such Warrant in
the Merger had such Warrant been exercised in full immediately prior to
the Effective Time, rounded to the nearest whole number of shares of
Parent Common Stock, with one-half share being rounded up, at that
exercise price per share equal to the quotient determined by dividing
the aggregate exercise price at which such Series A Warrant was
exercisable immediately prior to the Effective Time if exercised in full
by the number of shares of Parent Common Stock issuable upon exercise of
such Warrant following the Merger, rounded to the nearest whole cent,
with one-half cent being rounded up, and (C) each such Series B Warrant
shall be exercisable for that number of whole shares of Parent Common
Stock equal to the number of shares of Parent Common Stock that would
have been issued in respect of such Warrant in the Merger had such
Warrant been exercised in full immediately prior to the Effective Time,
rounded to the nearest whole number of shares of Parent Common Stock,
with one-half share being rounded up, at that exercise price per share
equal to the quotient determined by dividing the aggregate exercise
price at which such Series B Warrant was exercisable immediately prior
to the Effective Time if exercised in full by the number of shares of
Parent Common Stock issuable upon exercise of such Warrant following the
Merger, rounded to the nearest whole cent, with one-half cent being
rounded up,
(ii) Promptly following the Effective Time, Parent will issue to
each holder of an outstanding Warrant a document evidencing the
foregoing assumption of such Warrant by Parent.
(g) Capital Stock of Merger Sub. Each share of Common Stock of Merger
Sub issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each
stock certificate of Merger Sub evidencing ownership of any such shares of
Common Stock of the Merger Sub shall, as of the Effective Time, evidence
ownership of such shares of Common Stock of the Surviving Corporation.
(h) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Company Capital Stock), reorganization, recapitalization
or other like change with respect to Company Capital Stock occurring after
the date hereof and prior to the Effective Time.
(i) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof, each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of
Parent Common Stock (after aggregating all fractional shares of Parent
Common Stock to be received by such holder) shall be entitled to receive,
without any interest, from Parent an amount of cash (rounded to the nearest
whole cent) equal to the product of (i) such fraction, multiplied by (ii)
the
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average closing price of a share of Parent Common Stock for the five (5)
consecutive trading days ending on the trading day immediately prior to the
Closing Date, as reported on the Nasdaq National Market.
(j) Definitions.
(i) Series B Preference Shares. The "Series B Preference Shares"
shall mean the quotient obtained by dividing (x) the product of $3.563
multiplied by the Aggregate Series B Number (as defined below), by (y)
the Parent Closing Average Price Per Share (as defined below).
(ii) Aggregate Common Number. The "Aggregate Common Number" shall
mean the aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time.
(iii) Aggregate Series A Number. The "Aggregate Series A Number"
shall mean the aggregate number of shares of Company Common Stock
issuable upon conversion of all of the Company Series A Preferred Stock
outstanding immediately prior to the Effective Time (including all
shares of Company Series A Preferred Stock issued or issuable upon
exercise of the Series A Preferred Warrants).
(iv) Aggregate Series B Number. The "Aggregate Series B Number"
shall mean the aggregate number of shares of Company Series B Preferred
Stock outstanding immediately prior to the Effective Time (including all
shares of Company Series B Preferred Stock issued or issuable upon
exercise of the Series B Preferred Warrants).
(v) Aggregate Option Number. The "Aggregate Option Number" shall
mean the aggregate number of shares of Company Common Stock issuable
upon the exercise of all outstanding Company options, warrants and other
rights to acquire shares of Company Common Stock (excluding Common Stock
issuable upon conversion of the Company Series A Preferred Stock and/or
Company Series B Preferred Stock issuable upon the exercise of the
Series A Warrants or the Series B Warrants) immediately prior to the
Effective Time.
(vi) Parent Closing Average Price Per Share. The "Parent Closing
Average Price Per Share" shall mean the average of the closing prices
per share of Parent Common Stock as quoted on the Nasdaq National Market
(or such other exchange or quotation system on which Parent Common Stock
is then traded or quoted) and reported in The Wall Street Journal for
the ten (10) trading days immediately preceding (but not including) the
Closing Date, provided, however, that notwithstanding the foregoing, the
Parent Closing Average Price Per Share shall in no event be greater than
one hundred ten percent (110%) nor less than ninety percent (90%) of the
average of the closing prices per share of Parent Common Stock as quoted
on the Nasdaq National Market (or such other exchange or quotation
system on which Parent Common Stock is then traded or quoted) and
reported in The Wall Street Journal for the ten (10) trading days
immediately preceding (but not including) the date hereof.
(vii) Escrow Amount. The "Escrow Amount" shall be a number of
shares of Parent Common Stock equal to the sum of (x) (i) 0.10
multiplied by (ii) the sum of the Exchange Ratio multiplied by (iii) the
sum of the Aggregate Common Number, the Aggregate Series A Number
(excluding all shares of Series A Preferred Stock issuable upon exercise
of Series A Warrants outstanding as of the Effective Time) and the
Aggregate Series B Number, and (y) 0.10 multiplied by the number of
Series B Preference Shares.
(viii) Exchange Ratio. The "Exchange Ratio" shall mean the quotient
obtained by dividing (x) the difference between (A) the Total Parent
Shares and (B) the Series B Preference Shares, by (y) the sum of (A) the
Aggregate Common Number, (B) the Aggregate Series A Number, (C) the
Aggregate Series B Number and (D) the Aggregate Option Number.
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1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Company Capital Stock held by a holder who has demanded and perfected
appraisal or dissenters' rights for such shares in accordance with Delaware Law
and who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal or dissenters' rights ("Dissenting Shares") shall not be converted
into or represent a right to receive Parent Common Stock pursuant to Section
1.6, but the holder thereof shall only be entitled to such rights as are granted
by Delaware Law.
(b) Notwithstanding the provisions of subsection(a), if any holder of
shares of Company Capital Stock who demands appraisal of such shares under
Delaware Law shall effectively withdraw or lose (through failure to perfect or
otherwise) the right to appraisal, then, as of the later of the Effective Time
and the occurrence of such event, such holder's shares shall automatically be
converted into and represent only the right to receive Parent Common Stock and
payment for any fractional share as provided in Section 1.6, without interest
thereon, upon surrender of the certificate representing such shares.
(c) The Company shall give Parent (i) prompt notice of any written demands
for appraisal of any shares of Company Capital Stock, withdrawals of such
demands, and any other instruments served pursuant to Delaware Law and received
by the Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under Delaware Law. The
Company shall not, except with the prior written consent of Parent, voluntarily
make any payment with respect to any demands for appraisal of capital stock of
the Company or offer to settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall designate a
bank or trust company with assets of not less than $500 million to act as
exchange agent (the "Exchange Agent").
(b) Parent to Provide Common Stock. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in accordance
with this Article I, the aggregate number of shares of Parent Common Stock
issuable pursuant to Section 1.6 in exchange for outstanding shares of Company
Capital Stock; provided that, on behalf of the holders of Company Capital Stock,
Parent shall deposit into an escrow account a number of shares of Parent Common
Stock equal to the Escrow Amount out of the aggregate number of shares of Parent
Common Stock otherwise issuable pursuant to Section 1.6. The portion of the
Escrow Amount contributed on behalf of each holder of Company Capital Stock
shall be in proportion to the aggregate number of shares of Parent Common Stock
which such holder would otherwise be entitled to receive under Section 1.6 by
virtue of ownership of outstanding shares of Company Capital Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which immediately prior to the Effective
Time represented outstanding shares of Company Capital Stock and which shares
were converted into the right to receive shares of Parent Common Stock pursuant
to Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock, less the number of shares of Parent Common Stock,
if any, to be deposited in escrow on such holder's behalf pursuant to Article
VII hereto, plus cash in lieu of fractional shares in accordance with Section
1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing the
number of shares of Parent Common Stock equal to the Escrow Amount, which
certificate shall be registered
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in the name of the Escrow Agent. Such shares shall be beneficially owned by the
holders on whose behalf such shares were deposited in the Escrow Fund and shall
be available to compensate Parent as provided in Article VII. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Capital Stock will be deemed from and after the
Effective Time, for all corporate purposes, other that the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Capital Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock declared or made after the
Effective Time and with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following surrender
of any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective Time
theretofore payable with respect to such whole shares of Parent Common Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
1.8, none of the Exchange Agent, the Surviving Corporation or any party hereto
shall be liable to a holder of shares of Parent Common Stock or Company Capital
Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article 1.
1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates
evidencing shares of Company Capital Stock shall have been lost, stolen or
destroyed, the Exchange Agent shall issue in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereto, such shares of Parent Common Stock and cash for fractional
share, if any, as may be required pursuant to Section 1.6; provided, however,
that Parent may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed Certificates to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Parent or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall (i) constitute a reorganization within the meaning of
Section 368 of the Code and (ii) qualify for accounting treatment as a pooling
of interests.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any such further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises
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of the Company and Merger Sub, the officers and directors of the Company and
Merger Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action.
1.13 Company Certificate; Release.
(a) Certificate. At or prior to the Closing, the Company shall deliver to
Parent a certificate signed on behalf of the Company by the chief executive
office and chief financial officer of the Company (the "Company Certificate")
identifying each of the holders of Company Capital Stock, Company Options and
Warrants and the consideration that each such holder is entitled to receive
pursuant to Section 1.6 above. Parent shall be entitled to rely without
investigation on the information set forth in the Company Certificate in
delivering the consideration set forth in the Company Certificate to the holders
of Company Capital Stock, Company Options and Warrants. Notwithstanding anything
to the contrary in this Agreement, Parent shall not be obligated to deliver any
portion of the consideration set forth in Section 1.6 to the holders of Company
Capital Stock, Company Options and Warrants unless and until the Company shall
have delivered the Company Certificate to Parent.
(b) Release. The Company, for itself, and each of its officers, directors,
stockholders, partners, agents, administrators, representatives, affiliates,
predecessors in interest, successors and assigns, hereby unconditionally and
forever releases and discharges Parent, each of its subsidiaries (including the
Surviving Corporation), and each of their respective officers, directors,
stockholders, partners, agents, administrators, representatives, affiliates,
predecessors in interest, successors and assigns (the "Released Parties") of and
from any and all claims, causes of action, liabilities, obligations, costs and
expenses of every kind and nature whatsoever, at law or in equity, whether
contractual, common law, statutory, federal, state or otherwise, known or
unknown, suspected or unsuspected, direct or derivative, which now exists or may
exist at any time in the future based upon or relating in any manner to the
allocation of the consideration pursuant to Section 1.6 or any dispute with
respect to the interpretation of the manner in which such consideration is to be
distributed. This release shall not apply to Parent's obligation to deliver the
consideration set forth in Section 1.6 to the holders of Company Capital Stock,
Company Options and Warrants in accordance with the information contained in the
Company Certificate.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are disclosed in the disclosure letter supplied by
the Company to Parent (the "Company Schedules") and dated as of the date hereof,
as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have, or would reasonably be expected
to have, a material adverse effect on the business, assets (including intangible
assets), financial condition, results of operations, liabilities or prospects of
the Company (hereinafter referred to as a "Material Adverse Effect"). The
Company has delivered a true and correct copy of its Certificate of
Incorporation and Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of 20,000,000
shares of authorized Common Stock, of which 8,443,944 shares are issued and
outstanding, 348,687 shares of authorized Series A Preferred Stock, of which -0-
shares are issued and outstanding and 4,300,000 shares of authorized Series B
Preferred Stock, of which 4,209,863 shares are issued and outstanding. The
Company Capital Stock is held of record by the persons, with the addresses of
record and in the amounts set forth on Schedule 2.2(a) along with the vesting
schedule for such shares, if any. Except as set forth on Schedule 2.2(a), all
outstanding shares of
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Company Capital Stock are duly authorized, validly issued, fully paid and
non-assessable and not subject to preemptive rights created by statute, the
Certificate of Incorporation or Bylaws of the Company or any agreement to which
the Company is a party or by which it is bound.
(b) The Company has reserved 2,750,000 shares of Common Stock for issuance
to employees and consultants pursuant to the Option Plan, of which 1,618,489
shares are subject to outstanding, unexercised options, 1,111,405 shares remain
available for future grant and 20,106 shares have been issued pursuant to the
exercise of options issued under the Option Plan. The Company has reserved -0-
shares of Common Stock for issuance upon exercise of outstanding Company Options
granted outside the Option Plan and 447,695 shares of Common Stock for issuance
upon exercise of the Warrants. Schedule 2.2(b) sets forth for each outstanding
Company Option or Warrant the name of the holder of such option or Warrant, the
domicile address of such holder, the number of shares of Common Stock subject to
such option or Warrant, the exercise price of such option or Warrant and the
vesting schedule for such option or Warrant, including the extent vested to date
and whether the exercisability of such option or Warrant will be accelerated and
become exercisable by reason of the transactions contemplated by this Agreement.
Except as set forth on Schedule 2.2(b), there are no options, warrants, calls,
rights, commitments or agreements of any character, written or oral, to which
the Company is a party or by which it is bound obligating the Company to issue,
deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any shares of the capital stock of the Company or
obligating the Company to grant, extend, accelerate the vesting of, change the
price of, otherwise amend or enter into any such option, warrant, call, right,
commitment or agreement. The holders of Company Options and Warrants have been
or will be given, or shall have properly waived, any required notice prior to
the Merger, and all such rights will be exercised or exchanged for substantially
identical rights in Parent's securities at or prior to the Effective Time. As a
result of the Merger, Parent will be the record and sole beneficial owner of all
capital stock of the Company and rights to acquire or receive such capital
stock.
2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Company's
stockholders to duly approve the Merger and this Agreement is a majority of the
outstanding shares of (a) Common Stock and Preferred Stock, voting together on
an as-converted basis and (b) of each class of the Company's stock. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger and this Agreement by the Company's stockholders. The Company's Board of
Directors has unanimously approved the Merger and this Agreement. This Agreement
has been duly executed and delivered by the Company and constitutes the valid
and binding obligation of the Company, enforceable in accordance with its terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting enforcement of
creditors' rights generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Except as set forth on Schedule 2.4, subject only to the approval of
the Merger and this Agreement by the Company's stockholders, the execution and
delivery of this Agreement by the Company does not, and, as of the Effective
Time, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (any
such event, a "Conflict") (i) any provision of the Certificate of Incorporation
or Bylaws of the Company or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, country, local or
foreign governmental authority, instrumentality, agency or commission
("Governmental Entity") or any
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third party (so as not to trigger any Conflict) is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (i) the
filing of the Merger Agreement with the Delaware Secretary of State, (ii) such
consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable federal and state
securities laws and (iii) such other consents, waivers, authorizations, filings,
approvals and registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
balance sheet (the "Balance Sheet") and the related unaudited profit and loss
statement as at and for the five-month period ended February 28, 1998
(collectively, the "Company Financials"). The Company Financials are correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a basis consistent throughout
the periods indicated and consistent with each other, except that the Company
Financials may not contain all footnotes required by GAAP and are subject to
normal year-end adjustments, which such adjustments will not be material in
amount or significance. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject to normal year-end adjustments, which such
adjustments will not be material in amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, other
than the obligations of the Company under all executory contracts and agreements
to which it is a party and liabilities incurred in the ordinary course of
business since the date of the Balance Sheet, the Company does not have any
material liability, indebtedness, obligations, expense, claim, deficiency,
guaranty or endorsement of any type, whether accrued, absolute, matured, or to
its knowledge, contingent, unmatured or other (whether or not required to be
reflected in financial statements in accordance with GAAP), which individually
or in the aggregate, has not been reflected in the Balance Sheet. Except as set
forth on Schedule 2.7, the accounts receivable balance, net of reserves, as
recorded on the Balance Sheet is correct in all respects and all accounts
receivable will be collected within twelve (12) months.
2.7 No Changes. Except as set forth in Schedule 2.7, since the date of the
Balance Sheet, there has not been, occurred or arisen any:
(a) material transaction by the Company except in the ordinary course
of business as conducted on the date of the Balance Sheet and consistent
with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $100,000;
(d) destruction of, damage to or loss of any material assets, business
or customer of the Company (whether or not by covered by insurance);
(e) claim of wrongful discharge or other claim of unlawful labor
practice or action;
(f) material revaluation by the Company of any of its assets;
(g) declaration, setting aside of payment of a dividend or other
distribution with respect to the capital stock of the Company, or any
direct or indirect redemption, purchase or other acquisition by the Company
of any Company Capital Stock;
(h) material sale, lease, license or other disposition of any of the
assets or properties of the Company, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(i) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
(j) loan by the Company to any person or entity, incurring by the
Company of any indebtedness for borrowed money, guaranteeing by the Company
or any indebtedness, issuance or sale of any debt
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securities of the Company or guaranteeing of any debt securities of others,
except for advances to employees for travel and business expenses in the
ordinary course of business, consistent with past practices;
(k) material waiver or release of any right or claim of the Company,
including any material write-off or other compromise of any account
receivable of the Company;
(l) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of the Company or its affairs;
(m) notice of any claim of ownership by a third party of Company
Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's intellectual property
rights;
(n) issuance or sale by the Company of any of its shares of Company
Capital Stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(o) material change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Company Intellectual Property Rights
to the Company;
(p) to the Company's knowledge, any event or condition of any
character that has or could be reasonably expected to have a Material
Adverse Effect on the Company; or
(q) agreement by the Company or any officer or employees thereof to do
any of the things described in the preceding clauses (a) through (p).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
collectively, "Taxes" means any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities,
including taxes based upon or measured by gross receipts, income, profits,
sales, use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, exercise and property taxes,
together with all interest, penalties and additions imposed with respect to such
amounts and any obligations under any agreements or arrangements with any other
person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
(i) The Company as of the Effective Time will have prepared and filed
all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to any and all
Taxes concerning or attributable to the Company or its operations and such
Returns are true and correct and have been completed in accordance with
applicable law.
(ii) The Company as of the Effective Time: (A) will have paid or
accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes,
FICA, FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, proposed or assessed against
the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of
any Tax.
(iv) No audit or other examination of any Return of the Company is
currently in progress, nor has the Company been notified of any request for
such an audit or other examination.
(v) The Company does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has no knowledge of
any basis of the assertion of any such liability attributable to the
Company, its assets or operations.
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(vi) The Company has provided to Parent copies of its three most
recent federal and state income and state sales and use Tax Returns.
(vii) There are (and as of immediately following the Effective Date
there will be) no liens, pledges, charges, claims, security interests or
other encumbrances of any sort ("Liens") on the assets of the Company
relating to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for the assertion of
any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any contract,
agreement, plan or arrangement, including but not limited to the provisions
of this Agreement, covering any employee or former employee of the Company
that, individually or collectively, could give rise to the payment of any
amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(xi) The Company has not filed any consent agreement under Section
341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply to
any disposition of a subsection (f) asset (as defined in Section 341(f)(4)
of the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xiii) The Company has not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Company's tax books and
records.
2.9 Restrictions on Business Activities. Except as set forth in Schedule
2.9, there is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. Except as set forth in Schedule 2.9, without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property currently, or
at any time in the past, leased by the Company, the name of the lessor, the date
of the lease and each amendment thereto and, with respect to any current lease,
the aggregate annual rental and/or other fees payable under any such lease. All
such current leases are in full force and effect, are valid and effective in
accordance with their respective terms, and there is not, under any of such
leases, any existing default or event of default (or event which with notice or
lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens (as defined in Section 2.8(b)(vii)),
except as reflected in the Company Financials or in Schedule 2.10(b) and except
for liens for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or extent, and
which do not materially detract from the value, or materially interfere with the
present use, of the property subject thereto or affected thereby.
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2.11 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications in both source
code and object code form ("Software"), and tangible or intangible proprietary
information or material that are used in the business of the Company as
currently conducted or as proposed to be conducted by the Company (collectively,
the "Company Intellectual Property Rights").
(b) Schedule 2.11(a) sets forth a complete list of all patents, registered
and material unregistered trademarks, registered copyrights, trade names and
service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners (collectively, the "Patents and Trademarks").
Schedule 2.11(b) sets forth a complete list of Software, except for commercially
available software licensed from third parties ("Third Party Software"). Except
for Third Party Software, Schedule 2.11(c) sets forth a complete list of all
licenses, sublicenses and other agreements (i) as to which the Company is a
licensee or sublicensee ("Licenses-In") and (ii) to which any other person is
authorized to use any Company Software, Patents and Trademarks or trade secrets
("License-Out") (excluding object code end-user licenses granted to end-users in
the ordinary course of business that permit use of software products without a
right to modify, distribute or sublicense the same ("End-User Licenses")), and
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty or other fees and the term
thereof. The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in material violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except for Third Party Software and as set forth in Schedule 2.11(a),
2.11(b) or 2.11(c), subject to the terms of the Licenses-In, the Licenses-Out
and the End-User Licenses, the Company is the sole and exclusive owner of all,
patents, trademarks (to the extent used in connection with computer programs or
applications sold or licensed by the Company), trade names, service marks,
copyrights (to the extent related to the computer software programs or
applications sold or licensed by the Company), and computer software programs or
applications in both source code and object code form (excluding Third Party
Software) that are used in the business of the Company as currently conducted or
as proposed to be conducted by the Company (the "Exclusive Intellectual Property
Rights"), with all right, title and interest in and to (free and clear of any
liens or encumbrances), and has sole and exclusive rights (and is not
contractually obligated to pay any compensation to any third party in respect
thereof) to the use thereof or the material covered thereby in connection with
the services or products in respect to which the Exclusive Intellectual Property
Rights are being used. Except as set forth in Schedule 2.11(a), 2.11(b) or
2.11(c), the Licenses-In, the Licenses-Out and the End-User Licenses, the
Company is the owner, a licensee or otherwise has the right to use all Company
Intellectual Property Rights, and has rights (and is not contractually obligated
to pay any compensation to any third party in respect thereof) to the use
thereof or the material covered thereby in connection with the services or
products in respect to which the Company Intellectual Property Rights are being
used.
(c) No claims with respect to the Company Intellectual Property Rights have
been asserted or are, to the Company's knowledge, threatened by any person, nor
to the Company's knowledge are there any valid grounds for any bona fide claims,
(i) to the effect that the manufacture, sale, licensing or use of any of the
products of the Company infringes on any copyright, patent, trade mark, service
mark, trade secret or other proprietary right, (ii) against the use by the
Company of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in the Company's business as currently conducted
or as proposed to be conducted by the Company, or (iii) challenging the
ownership by the Company, validity or effectiveness of any of the Company
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by the Company are valid and subsisting. To the Company's
knowledge, the Company has not infringed, and the business of the Company as
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currently conducted or as proposed to be conducted does not infringe, any
copyright, patent, trademark, service mark, trade secret or other proprietary
right of any third party. To Company's knowledge, there is not material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restriction in any manner the licensing
thereof by the Company. Each employee, consultant or contractor of the Company
has executed a proprietary information and confidentiality agreement
substantially in the Company's standard forms. Except as set forth on Schedule
2.11(c), all software included in the Company Intellectual Property Rights is
original work of the Company and has been either created by employees of the
Company on a work-for-hire basis or by consultants or contractors who have
created such software themselves and have assigned all rights they may have had
in such software to the Company.
2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it bound
by:
(i) any collective bargaining agreements.
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements;
(iv) any employment or consulting agreement, contract or commitment
(other than an oral offer of employment as an employee at will) with an
employee or individual consultant or salesperson or any consulting or sales
agreement, contract or commitment under which any firm or other
organization provides services to the Company.
(v) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value individually in
excess of $100,000;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or to
compete with any person;
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $100,000;
(xi) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside
the ordinary course of the Company's business;
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other arrangements or instruments relating to the borrowing
of money or extension of credit, including guaranties referred to in clause
(viii) hereof;
(xiii) any purchase order or contract for the purchase of raw
materials involving $100,000 or more;
(xiv) any construction contracts;
(xv) any distribution, joint marketing or development agreement;
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(xvi) any agreement pursuant to which the Company has granted or may
grant in the future, to any party, a source-code license or option or other
right to use or acquire source-code, or,
(xvii) any other agreement, contract or commitment that involves
future obligations of or payments to the Company of $100,000 or more.
Except for such alleged breaches, violations and defaults, and events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, as are all noted in Schedule 2.12(b), the Company has not
materially breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule 2.12(a)
or Schedule 2.11(b) (any such agreement, contract or commitment, a "Contract").
Each Contract is in full force and effect and, except as otherwise disclosed in
Schedule 2.12(b), is not subject to any material default thereunder of which the
Company has knowledge by any party obligated to the Company pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule 2.13,
no officer, director or stockholder of the Company (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an interest), has or has
had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that the Company
furnishes or sells or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to, the Company, any goods
or services or (iii) a beneficial interest in any contract or agreement set
forth in Schedule 2.12(a) or Schedule 2.11(b); provided, that ownership of no
more than one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "economic interest in any entity" for
purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation, except those pertaining to employment matters, as to which the
Company represents that to the best of its knowledge it has complied therewith
in all material respects.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no action,
suit or proceeding of any nature pending or to its knowledge threatened against
the Company, its properties or any of its officers or directors, in their
respective capacities as such. Except as set forth in Schedule 2.15, there is no
investigation pending or to its knowledge threatened against the Company, its
properties or any of its officers or directors by or before any governmental
entity. Schedule 2.15 sets forth, with respect to any pending or to its
knowledge threatened action, suit, proceeding or investigation, the forum, the
parties thereto, the subject matter thereof and the amount of damages claims or
other remedy requested. No governmental entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof.
2.16 Insurance. The Company maintains valid and enforceable insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company, which
are identified in Schedule 2.16, and there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company.
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2.18 Environmental Matters.
(a) Hazardous Material. The Company has not operated any underground
storage tanks, and has no knowledge of the existence, at any time, of any
underground storage tank (or related piping or pumps), at any property that the
Company has at any time owned, operated, occupied or leased. The Company has not
released any amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBS, asbestos, oil and petroleum
products, urea-formaldehyde and all substances listed as a "hazardous
substance," "hazardous waste," "hazardous material" or "toxic substance" or
words of similar import, under any law, including but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended; the Resource Conservation and Recovery Act of 1976, as amended; the
Federal Water Pollution Control Act, as amended; the Clean Air Act, as amended,
or the regulations promulgated pursuant to said laws (a "Hazardous Material").
No Hazardous Materials are present as a result of the actions or omissions of
the Company, or, to the Company's knowledge, as a result of any actions of any
third party or otherwise, in, on or under any property, including the land and
the improvements, ground water and surface water thereof, that the Company has
at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
permits, licenses, clearances, and consents (the "Environmental Permits")
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.19 Brokers' and Finders' Fees: Third Party Expenses. Except as set forth
on Schedule 2.19, the Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby. Schedule 2.19 sets forth the principal terms and conditions
of any agreement, written or oral, with respect to such fees. Schedule 2.19 sets
forth the Company's current reasonable estimate of all Third Party Expenses (as
defined in Section 5.4) expected to be incurred by the Company in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
(a) Definitions. With the exception of the definition of "Affiliate" set
forth in Section 2.20(a)(i) below (which definition shall apply only to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
control with the Company within the meaning of Section 414(b), (c), (m) or
(o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended;
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(iii) "Company Employee Plan" shall refer to any plan, program,
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether formal or informal, funded or unfunded
and whether or not legally binding, including without limitation, each
"employee benefit plan," within the meaning of Section 3(3) of ERISA, other
than a Multiemployer Plan, which is or has been maintained, contributed to,
or required to be contributed to, by the Company or any Affiliate for the
benefit of any "Employee" (as defined below), and pursuant to which the
Company or any Affiliate has or may have any material liability contingent
or otherwise;
(iv) "Employee" shall mean any current, former, retired employee,
officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management, employment,
severance, consulting, relocation, repatriation, expiration, visas, work
permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
below) which is a "multiemployer plan," as defined in Section 3(37) of
ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee Plan which
is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete list of
each Employee Agreement. Except as expressly set forth on Company Schedule
2.20(b), all liabilities under each Company Employee Plan or Employee Agreement
have been properly and accurately reflected on the Balance Sheet to the extent
required by GAAP. The Company does not have any plan or commitment, whether
legally binding or not, to establish any new Company Employee Plan or Employee
Agreement, to modify any Company Employee Plan or Employee Agreement (except to
the extent required by law or to conform any such Company Employee Plan or
Employee Agreement to the requirements of any applicable law, in each case as
previously disclosed to Parent in writing, or as required by this Agreement), or
to enter into any Company Employee Plan or Employee Agreement, nor does it have
any intention or commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent (i) correct and complete
copies of all documents embodying or relating to each Company Employee Plan and
each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications, if
any, required under ERISA with respect to each Company Employee Plan; (vi) all
IRS determination letters and rulings relating to Company Employee Plans and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; and (viii) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule 2.20(d), (i)
the Company has performed in all material respects all obligations required to
be performed by it under each Company Employee Plan, and each Company Employee
Plan has been established and maintained in all materials respects in accordance
with its terms and in compliance with all applicable laws, statutes, orders,
rules and regulations, including but not limited to ERISA or the Code; (ii) no
"prohibited transaction," within the meaning of Section 4975 of the Code or
Section 406 of ERISA, has occurred with respect to any Company
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Employee Plan; (iii) there are no actions, suits or claims pending, or, to the
knowledge of the Company, threatened or anticipated (other than routine claims
for benefits) against any Company Employee Plan or against the assets of any
Company Employee Plan; and (iv) each Company Employee Plan can be amended,
terminated or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to the Company, Parent or any of its Affiliates
(other than ordinary administration expenses typically incurred in a termination
event); (v) there are not inquiries or proceedings pending or, to the knowledge
of the Company or any affiliates, threatened by the IRS or DOL with respect to
any Company Employee Plan; and (vi) neither the Company nor any Affiliate is
subject to any penalty or tax with respect to any Company Employee Plan under
Section 402(i) of ERISA or Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever, maintained,
established, sponsored, participated in, or contributed to, any Pension Plan
which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of ERISA
or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to or been
requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule
2.20(g), no Company Employee Plan provides, or has any liability to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason, except as may be
required by statute, and the Company has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(h) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(h)(i), the execution of this
Agreement and the consummation of the transactions contemplated hereby will
not (either alone or upon the occurrence of any additional or subsequent
events) constitute an event under any Company Employee Plan, Employee
Agreement, trust or loan that will or may result in any payment (whether of
severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits
with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no payment or
benefit of which will or may be made by the Company or Parent or any of
their respective affiliates with respect to any Employee will be
characterized as an "excess parachute payment," within the meaning of
Section 280G(b)(1) of the Code.
(i) Employment Matters. The Company (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii)
has withheld all amounts required by law or by agreement to be withheld from the
wages, salaries, and other payments to Employees; (iii) is not liable for any
arrears of wages or any taxes or any penalty for failure to comply with any of
the foregoing; and (iv) is not liable for any payment to any trust or other fund
or to any governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Employees (other than routine payments to be made in the normal course of
business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company is pending
or threatened. Except as set forth in Schedule 2.20(j)), the Company is not
involved in or threatened with, any labor dispute, grievance, or litigation
relating to labor, safety or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. Neither the Company nor
any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company. Except
as set forth in Schedule 2.20(j)), the Company is not presently, nor has it been
in the past,
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a party to, or bound by, any collective bargaining agreement or union contract
with respect to Employees and no collective bargaining agreement is being
negotiated by the Company.
2.21 Employees. To the best of the Company's knowledge, (i) no employees of
the Company are in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
the Company because of the nature of the business conducted or presently
proposed to be conducted by the Company or to the use of trade secrets or
proprietary information of others and (ii) no officer or key employee has given
notice to the Company, nor is the Company otherwise aware, that any employee
intends to terminate his or her employment with the Company.
2.22 Pooling of Interest. To the Company's knowledge, based on consultation
with its independent accountants, neither the Company nor any of its directors,
officers or stockholders has taken any action which would interfere with
Parent's ability to account for the Merger as a pooling of interests.
2.23 Disclosure Documents. None of the information supplied or to be
supplied by the Company for inclusion in and which is in fact included in (i)
the combined proxy statement relating to the meetings of the Company's and
Parent's stockholders to be held in connection with the Merger (the "Proxy
Statement"), and (ii) the registration statement on Form S-4 or other
appropriate registration form to be filed with the SEC by Parent in connection
with the offer and issuance of Parent Common Stock in or as a result of the
Merger (the "Registration Statement") including the Proxy Statement included
therein, will, in the case of the Proxy Statement, at the time of mailing of the
Proxy Statement to stockholders of the Company and/or Parent, contain any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading or will, in the
case of the Registration Statement, at the time the Registration Statement
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. The Proxy Statement will comply as
to form in all material respects with the provisions of the Securities Exchange
Act of 1934 (the "Exchange Act") and the rules and regulations thereunder,
except that no representation is made by the Company with respect to information
supplied by Parent or Merger Sub for inclusion therein.
2.24 Representation Complete. To the best of its knowledge, none of the
representations or warranties made by the Company (as modified by the Company
Schedules), nor any statement made in any schedule or certificate furnished by
the Company pursuant to this Agreement, or furnished in or in connection with
documents mailed or delivered to the stockholders of the Company in connection
with soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and its
stockholders as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on Parent and Merger Sub as
a whole.
3.2 Authority. Parent and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
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Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Parent and
Merger Sub. This Agreement has been duly executed and delivered by Parent and
Merger Sub and constitutes the valid and binding obligations of Parent and
Merger Sub, enforceable in accordance with its terms except (i) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors' rights generally and
(ii) as limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies. The execution and delivery of
this Agreement by Parent does not, and, as of the Effective time, the
consummation of the transactions contemplated hereby will not result in a
Conflict with (i) any provision of the Certificate of Incorporation or Bylaws of
Parent or (ii) any mortgage, indenture, lease, contract, or other agreement or
instrument to which Parent is a party, or any permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or its properties or assets. No consent, waiver, approval,
order or authorization of, or registration, declaration or filing with any
Governmental Entity or any third party (so as not to trigger any Conflict) is
required by or with respect to Parent or Merger Sub in connection with the
execution and delivery of this Agreement or the consummation of the transactions
contemplated hereby, except for (i) the filing of the Merger Agreement with the
Delaware Secretary of State, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 3.2.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 75,000,000 shares of Common
Stock, of which 13,693,151 shares were issued and outstanding as of February 28,
1998, and 10,000,000 shares of Preferred Stock, none of which is issued or
outstanding. The authorized capital stock of Merger Sub consists of 1,000 shares
of Common Stock, all of which, as of the date hereof, are issued and outstanding
and are held by Parent. All such shares have been duly authorized, and all such
issued and outstanding shares have been validly issues, are fully paid and
nonassessable and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to the Merger,
when issued, will be duly authorized, validly issued, fully paid and
nonassessable.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Exchange Act for all periods since July 29,
1997, all in the form so filed (all the foregoing being collectively referred to
as the "SEC Documents"). As of the date hereof, Parent has filed with the SEC
all reports, proxy statements and other information required to be filed by it
under the Exchange Act. As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, including where applicable the
requirements under Item 601(10) of Regulation S-K to file certain contracts, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC. The financial statements of Parent, including
the notes thereto, included in the SEC Documents (the "Parent Financial
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with GAAP consistently
applied (except as may be indicated in the notes thereto or, in the case of
unaudited statements, as permitted by Form 10-Q of the SEC) and present fairly
the consolidated financial position of Parent at the dates thereof and the
consolidated results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal audit adjustments).
There has been no change in Parent accounting policies except as described in
the notes to the Parent Financial Statements.
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3.5 No Material Adverse Change. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-K, Parent has
conducted its business in the ordinary course and except as otherwise disclosed
in Parent's most recently filed report on Form 10-K, there has not occurred: (a)
any material adverse change in the business, assets (including intangible
assets), financial condition, results of operations, liabilities or prospects of
the Parent; (b) any amendment or change in the Certificate of Incorporation or
Bylaws of parent, or (c) any damage to, destruction or loss of any assets of the
Parent (whether or not covered by insurance) that materially and adversely
affects the financial condition or business of Parent.
3.6 Litigation. Except as set forth in Schedule 3.6, there is no action,
suit or proceeding of any nature pending or threatened against Parent, its
properties or any of its officers or directors, in their respective capacities
as such. Except as set forth in Schedule 3.6, there is no investigation pending
or to its knowledge threatened against Parent, its properties or any of its
officers or directors by or before any governmental entity. Schedule 3.6 sets
forth, with respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claims or other remedy requested. No governmental entity
has at any time challenged or questioned the legal right of Parent to
manufacture, offer or sell any of its products in the present manner or style
thereof.
3.7 Intellectual Property.
(a) Parent owns, or is licensed or otherwise possesses legally enforceable
rights to use, all patents, trademarks, trade names, service marks, copyrights,
and any applications therefor, maskworks, net lists, schematics, technology,
know-how, computer software programs or applications (in both source code and
object code form), and tangible or intangible proprietary information or
material that are used in the business of Parent as currently conducted or as
proposed to be conducted by Parent (the "Parent Intellectual Property Rights").
(b) No claims with respect to the Parent Intellectual Property Rights have
been asserted or are, to Parent's knowledge, threatened by any person, nor to
Parent's knowledge are there any valid grounds for any bona fide claims, (i) to
the effect that the manufacture, sale, licensing or use of any of the products
of Parent infringes on any copyright, patent, trade mark, service mark, trade
secret or other proprietary right, (ii) against the use by Parent of any
trademarks, service marks, trade names, trade secrets, copyrights, maskworks,
patents, technology, know-how or computer software programs and applications
used in Parent's business as currently conducted or as proposed to be conducted
by Parent, or (iii) challenging the ownership by Parent, validity or
effectiveness of any of the Parent Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by Parent are valid and
subsisting. To Parent's knowledge, Parent has not infringed, and the business of
Parent as currently conducted or as proposed to be conducted does not infringe,
any copyright, patent, trademark, service mark, trade secret or other
proprietary right of any third party. To Parent's knowledge, there is not
material unauthorized use, infringement or misappropriation of any of Parent's
Intellectual Property Rights by any third party, including any employee or
former employee of Parent. No Parent Intellectual Property Right or product of
Parent or any of its subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restriction in any manner the licensing thereof by
Parent. Each employee, consultant or contractor of Parent has executed a
proprietary information and confidentiality agreement substantially in Parent's
standard forms. All software included in the Parent Intellectual Property Rights
that is original work of the Company has been either created by employees of the
Company on a work-for-hire basis or by consultants or contractors who have
created such software themselves and have assigned all rights they may have had
in such software to the Company.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual,
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regular and ordinary course in substantially the same manner as heretofore
conducted, to pay its debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practice and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve its relationships with
customers, suppliers, distributors, licensors, and others having business
dealings with it, all with the goal of preserving unimpaired its goodwill and
ongoing businesses at the Effective Time. The Company shall promptly notify
Parent of any event or occurrence or emergency not in the ordinary course of its
business, and any material event involving or adversely affecting the Company or
its business. Except as expressly contemplated by this Agreement, the Company
shall not, without the prior written consent of Parent (which such consent shall
not be unreasonably withheld by Parent):
(a) Enter into any commitment, activity or transaction not in the
ordinary course of business.
(b) Transfer to any person or entity any rights to any Company
Intellectual Property Rights (other than pursuant to End-User Licenses in
the ordinary course of business).
(c) Enter into or amend any agreements pursuant to which any other
party is granted manufacturing, marketing, distribution or similar rights
of any type or scope with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements
set forth or described in the Company Schedules;
(e) Commence any litigation or any dispute resolution process;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any
Company Capital Stock, or split, combine or reclassify any of Company
Capital Stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of Company Capital
Stock, or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of Company Capital Stock (or options, warrants or other rights
exercisable therefor);
(g) Except for the issuance of shares of Company Capital Stock upon
exercise or conversion of presently outstanding Company Options or
Warrants, issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase
of, any shares of Company Capital Stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements
or commitments of any character obligating it to issue any such shares or
other convertible securities;
(h) Cause or permit any amendments to its Certificate of Incorporation
or Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any assets or equity securities of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire
any assets which are material, individually or in the aggregate, to the
business of the Company;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets except in the ordinary course of business and consistent with
past practice;
(k) Except as contemplated on Schedule 2.7(a), incur any indebtedness
for borrowed money or guarantee any such indebtedness or issue or sell any
debt securities of the Company or guarantee any debt securities of others;
(l) Grant any severance or termination pay to any director, officer,
employee or consultant, except payments made pursuant to standard written
agreements outstanding on the date hereof (which such agreements are
disclosed on Schedule 4.1(1));
(m) Adopt or amend any employee benefit plan, program, policy or
arrangement (other than changes made to the Company's health insurance
plans made in the ordinary course of business
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consistent with past practices), or enter into any employment contract,
extend any employment offer, pay or agree to pay any special bonus or
special remuneration to any director, employee or consultant, or increase
the salaries or wage rates of its employees;
(n) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past
practice;
(o) Take any action, including the acceleration of vesting of any
options, warrants, restricted stock or other rights to acquire shares of
Company capital stock, which would be reasonably likely to interfere with
Parent's ability to account for the Merger as a pooling of interests or any
other action that could jeopardize the tax-free reorganization hereunder;
(p) Pay, discharge or satisfy, in an amount in excess of $10,000, in
any one case, or $25,000, in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the
ordinary course of business of liabilities reflected or reserved against in
the Company Financial Statements or liabilities incurred in the ordinary
course of business consistent with past practices after the date of the
Company Financial Statements;
(q) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent
to any extension or waiver of the limitation period applicable to any claim
or assessment in respect of Taxes;
(r) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(s) Fail to pay or otherwise satisfy its monetary obligations as they
become due, except such as are being contested in good faith;
(t) Waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $25,000, in the aggregate;
(u) Cancel, materially amend or renew any insurance policy other than
in the ordinary course of business;
(v) Alter, or enter into any commitment to alter, its interest in any
corporation, association, joint venture, partnership or business entity in
which the Company directly or indirectly holds any interest on the date
hereof; or
(w) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (v) above, or any other action that
would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the date
of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, stockholders, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, initiate, entertain, or encourage
any proposals or offers from, or conduct discussions with or engage in
negotiations with, any person relating to any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, (b) provide information with respect to it to any person,
other than Parent, relating to, or otherwise cooperate with, facilitate or
encourage any effort or attempt by any such person with regard to, any possible
acquisition of the Company (whether by way of merger, purchase of capital stock,
purchase of assets or otherwise), any material portion of its or their capital
stock or assets or any equity interest in the Company or any of its
subsidiaries, (c) enter into an agreement with any person, other than Parent,
providing for the acquisition of the Company
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(whether by way of merger, purchase of capital stock, purchase of assets or
otherwise), any material portion of its or their capital stock or assets or any
equity interest in the Company or any of its subsidiaries, or (d) make or
authorize any statement, recommendation or solicitation in support of any
possible acquisition of the Company or any of its subsidiaries (whether by way
of merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity interest
in the Company or any of its subsidiaries by any person, other than by Parent.
The Company shall immediately cease and cause to be terminated any such contacts
or negotiations with third parties relating to any such transaction or proposed
transaction. In addition to the foregoing, if the Company receives prior to the
Effective Time or the termination of this Agreement any offer or proposal
relating to any of the above, the Company shall immediately notify Parent
thereof, including information as to the identity of the offeror or the party
making any such offer or proposal and the specific terms of such offer or
proposal, as the case may be, and such other information related thereto as
Parent may reasonably request. Except as contemplated by this Agreement,
disclosure by the Company of the terms hereof (other than the prohibition of
this section) shall be deemed to be a violation of this Section 4.2.
4.3 Conduct of Business of Parent. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement,
the Effective Time or June 15, 1998, except in connection with the transactions
contemplated hereby, Parent shall not, without the prior written consent of the
Company (which such consent shall not be unreasonably withheld by the Company),
issue securities of Parent with an aggregate fair market value in excess of
$30,000,000 (exclusive of the fair market value of (i) any securities issued
upon the conversion or exercise of currently outstanding convertible or
exercisable securities, (ii) shares of Parent Common Stock issued in the Merger,
(iii) warrants or options to acquire Parent Common Stock issued in the Merger,
(iv) the issuance or sale of Parent Common Stock (or options therefor) to
employees, consultants and directors, directly or pursuant to a stock option
plan or employee stock purchase plan).
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Sale and Registration of Shares; Stockholder Matters.
(a) Registration Statement on Form S-4; Stockholder Matters. As promptly as
reasonably practicable after the execution of this Agreement, Parent and the
Company shall prepare the Registration Statement pertaining to the offer and
sale of shares of Parent Common Stock to be issued by virtue of the Merger. The
Registration Statement shall include therein the Proxy Statement relating to the
solicitation of the consent of the stockholders of Parent and the Company to the
Merger. Parent shall file with the SEC the Registration Statement as soon as is
reasonably practicable following preparation thereof. As promptly as reasonably
practicable after the date of this Agreement, parent will file any other filings
required under the Exchange Act, the Securities Act or any other Federal or Blue
Sky laws related to the Merger and the transactions contemplated by this
Agreement (collectively, the "Other Filings"). The Company shall provide to
Parent and its counsel for inclusion in the Proxy Statement and Other Filings,
in form and substance reasonably satisfactory to Parent and its counsel, such
information concerning the Company, and its operations, capitalization,
technology, share ownership and other material information as Parent or its
counsel may reasonably request in connection with any action contemplated by
this Section 5.1(a). Each of Parent and the Company shall use its commercially
reasonable efforts to respond to any comments of the SEC, to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing and to cause the Proxy Statement to be mailed
to the Parent's stockholders and Company's stockholders at the earliest
practicable time. Each party will notify the other parties hereto promptly of
the receipt of any comments from the SEC or its staff and of any request by the
SEC or its staff or any other government officials for amendments or supplements
to the Registration Statement, the Proxy Statement or any Other Filing or for
additional information and will supply the other party with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government official, on the other
hand, with respect to the Registration Statement, the Proxy Statement or any
Other
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Filing. Whenever any event occurs which should be set forth in an amendment or
supplement to the Proxy Statement, Registration Statement or any Other Filing,
Parent or the Company, as the case may be, shall promptly inform the other of
such occurrence and cooperate in filing with the SEC or its staff or any other
government officials, such amendment or supplement.
(b) Stockholder Questionnaire. The Company will use reasonable efforts to
cause each stockholder of the Company to execute and deliver to Parent a
Stockholder Questionnaire in the form attached hereto as Exhibit A (the
"Stockholder Questionnaire").
(c) Stockholders' Meeting; Proxy Material. The Company and Parent shall
each cause a meeting of its respective stockholders to be duly called and held
as soon as practicable following the mailing of the Proxy Statement for the
purpose of voting on the approval of this Agreement and the Merger. The Board of
Directors of each of the Company and Parent shall, subject to their fiduciary
duties, unanimously recommend approval and adoption of this Agreement and the
Merger by their respective stockholders. In connection with such meetings, each
of the Company and Parent:
(i) will, together with Merger Sub, promptly prepare and file with the
SEC, will use its best efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable the Proxy
Statement and all other proxy materials for its respective meeting and will
hold its respective meeting no later than 15 days after the effectiveness
of the Registration Statement;
(ii) will, subject to its directors' fiduciary duties, use all
reasonable efforts to obtain the necessary approvals by its stockholders of
this Agreement and the transactions contemplated hereby; and
(iii) will otherwise comply with all legal requirements applicable to
its respective meeting.
(d) Registration Rights. Parent shall use commercially reasonable efforts
to amend its Amended and Restated Investors' Rights Agreement dated October 30,
1996, as amended (the "Investors' Rights Agreement"), to cause the recipients of
Parent Common Stock set forth on Schedule 5.1(d) (the "Scheduled Shareholders")
to be included as parties to the Investors' Rights Agreement; provided, however,
that such parties shall not have the right to request the initiation of a
registration under Section 1.2 or Section 1.12 of the Investors' Rights
Agreement (but shall be entitled to request inclusion in such registrations
pursuant to the terms of such sections). For the purposes of determining 33%
pursuant to the terms of Section 1.2 of the Investor Rights Agreement only, the
Scheduled Shareholders shall be excluded from the denominator of Registrable
Securities.
(e) Additional Assurances. At the request of Parent, the Company shall use
its best efforts to cause the Company's stockholders to execute and deliver to
Parent such instruments and do and perform such acts and things as may be
necessary or desirable for complying with all applicable securities laws and
state corporate law.
5.2 Access to Information. Each party shall afford the others and their
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request,
subject, in the case of Parent, to reasonable limits on access to its technical
and other non-public information. No information or knowledge obtained in any
investigation pursuant to this Section 5.2 shall affect or be deemed to modify
any representation or warranty contained herein or, except as provided by
Section 6.3(n), the conditions of the parties to consummate the Merger.
5.3 Confidentiality. Each of the parties hereto hereby agrees to keep such
information or knowledge obtained in any investigation pursuant to Section 5.2,
or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by
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order of court or government agency with subpoena powers or (f) which is
disclosed in the course of any litigation between any of the parties hereto.
5.4 Expenses. All fees and expenses incurred in connection with the Merger
including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties ("Third Party
Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby shall be the obligation of the respective party incurring
such fees and expenses; provided, however, that at the Closing, Parent shall pay
the Third Party Expenses of the Company (not to exceed $1,250,000.00).
5.5 Public Disclosure. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of the Nasdaq Stock Market Inc., prior to the Effective
Time, no public disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld.
5.6 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of and benefits to the
Company thereunder.
5.7 FIRPTA Compliance. On or prior to the Closing Date, the Company shall
deliver to Parent a properly executed statement in a form reasonably acceptable
to Parent for purposes of satisfying Parent's obligations under Treasury
Regulation Section 1.145-2(c)(3).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or any business, assets or property of
Parent or its subsidiaries or affiliates or the Company or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
5.9 Notification of Certain Matters. The Company shall give prompt notice
to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of the Company and
Parent, respectively, contained in this Agreement to be untrue or inaccurate at
or prior to the Effective Time and (ii) any failure of the Company or Parent, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise
affect any remedies available to the party receiving such notice.
5.10 Certain Benefit Plans. Subject to compliance with pooling-of-interest
accounting treatment of the Merger, Parent shall take such reasonable actions as
are necessary to allow eligible employees of the Company to participate in the
benefit of the programs of Parent, or alternative benefits programs
substantially comparable to those applicable to employees of Parent, as soon as
practicable after the Effective Time.
5.11 Pooling Accounting. The Company and Parent shall each use its
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. The Company shall use its
reasonable efforts to cause its respective employees, directors, stockholders
and affiliates not to
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take any action that would adversely affect the ability of Parent to account for
the business combination to be effected by the Merger as a pooling of interests.
5.12 Affiliate Agreements. Schedule 5.12 sets forth those persons who, in
the Company's reasonable judgment, are or may be "affiliates" of the Company
within the meaning of Rule 145 (each such person an "Affiliate") promulgated
under the Securities Act ("Rule 145"). The Company shall provide Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company has delivered or shall cause to be delivered to
Parent, concurrently with the execution of this Agreement an executed Affiliate
Agreement from each "Affiliate" in the form attached hereto as Exhibit B. Parent
shall be entitled to place appropriate legends on the certificates evidencing
any Parent Common Stock to be received by such Affiliates pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate Agreements.
5.13 Voting Agreement. The Company shall deliver or cause to be delivered
to Parent, concurrently with the execution of this Agreement, from each person
listed on Schedule 5.13(a), an executed Voting Agreement (the "Voting
Agreements") in the form attached hereto as Exhibit C, agreeing, among other
things, to vote in favor of the Merger. Parent shall deliver or cause to be
delivered to Company, concurrently with the execution of this Agreement, from
each person listed on Schedule 5.13(b), an executed Voting Agreement in the Form
attached hereto as Exhibit D.
5.14 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions and contemplated hereby.
5.15 Registration Statement on Form S-8. Parent shall file a registration
statement on Form S-8 for the shares of Parent Common Stock issuable with
respect to assumed Company Options promptly after the Effective Time.
5.16 Company Auditors. The Company will use its commercially reasonable
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) as required by Parent to comply with
applicable SEC regulations, (ii) the review of the Company's audit work papers
for up to the past three years, including the examination of selected interim
financial statements and data, and (iii) the delivery of such representations
from the Company's independent accountants as may be reasonably requested by
Parent or its accountants in order for Parent's accountants to render the
opinion called for by Section 6.3(l) hereof.
5.17 Termination Fee. In the event that this Agreement is terminated
pursuant to Section 8.1(b)(i) solely due to the failure of Parent to obtain the
approval of its stockholders as provided in Section 6.1(a), then Parent shall,
within five (5) business days after termination of this Agreement, pay the
Company, by cashier's check or wire transfer, a termination fee of Two Million
Dollars ($2,000,000) (the "Termination Fee") as liquidated damages.
5.18 Nasdaq National Market Listing. Prior to Closing, Parent shall
authorize for listing on the Nasdaq National Market the shares of Parent Common
Stock issuable, and those required to be reserved for issuance, in connection
with the Merger, upon official notice of issuance.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the stockholders of the Company and Parent by
the requisite vote under applicable law and the respective Certificates of
Incorporation of the Company and Parent.
(b) Government Approvals. All approvals of governments and
governmental agencies necessary to consummate the transactions hereunder
shall have been received.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Brobeck
Phleger & Harrison LLP and Paul, Hastings, Janosfsky & Walker LLP,
respectively, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code. The parties to this Agreement agree to make
reasonable representations as requested by such counsel for the purpose of
rendering such opinions.
(e) Registration Statement Effective. The SEC shall have declared the
Registration effective. No stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the
Proxy Statement, shall have been initiated or threatened in writing by the
SEC.
6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company:
(a) Representations and Warranties. The representations and warranties
of Parent and Merger Sub contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations
and warranties which address matters only as of a particular date (which
shall remain true and correct as of such date), with the same force and
effect as if made on and as of the Closing Date, except, in all such cases,
for such breaches, inaccuracies or omissions of such representations and
warranties which have neither had nor reasonably would be expected to have
a material adverse effect on Parent; and the Company shall have received a
certificate to such effect signed on behalf of Parent by a duly authorized
officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or compiled in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by
them or prior to the Effective Time, and the Company shall have received a
certificate to such effect signed by a duly authorized officer of Parent.
(c) Third Party Consents. The Company shall have been furnished with
evidence satisfactory to it that Parent has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. The Company shall have received a legal opinion
from Brobeck Phleger & Harrison LLP, counsel to Parent, in substantially
the form attached hereto as Exhibit E.
(e) Material Adverse Change. Except as disclosed in Parent's Annual
Report on Form 10-K for the period ended December 31, 1997, there shall not
have occurred any material adverse change in the
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business, assets (including intangible assets), financial condition,
results of operations, liabilities or prospects of the Parent since
December 31, 1997, except for changes directly caused by changes in general
economic conditions or changes which affect the Parent's industry as a
whole.
(f) Amendment to Investors' Rights Agreement. A majority of the
current holders of Registrable Securities (as defined in the Investors'
Rights Agreement) shall have executed the Amendment to the Amended and
Restated Investors' Rights Agreement contemplated by Section 5.1(d).
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representation and Warranties. The representation and warranties
of the Company contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as
if made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties
which have neither had nor reasonably would be expected to have a Material
Adverse Effect on the Company or Parent; and Parent and Merger Sub shall
have received a certificate to such effect signed on behalf of the Company
by the chief executive officer and chief executive financial officer of the
Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and Parent and Merger Sub shall have received
a certificate to such effect signed by a duly authorized officer of the
Company.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. Parent shall have received a legal opinion from
Paul, Hastings, Janosfsky & Walker LLP, legal counsel to the Company, in
substantially the form attached hereto as Exhibit F.
(e) Affiliate Agreements. Each of the parties identified by the
Company as being an Affiliate of the Company shall have delivered to Parent
an executed Affiliate Agreement which shall be in full force and effect.
(f) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible
assets), financial condition, results of operations, liabilities or
prospects of the Company since February 28, 1997, except for changes
directly caused by changes in general economic conditions or changes which
affect the Company's industry as a whole, or losses of the Company's
customers in cases where such customers certify that the primary reason for
terminating business with the Company was not wanting to do business with
Parent.
(g) Dissenters' Rights. Holders of more than 5% of the outstanding
shares of Company Capital Stock shall not have exercised, nor shall they
have any continued right to exercise, appraisal, dissenters' or similar
rights under applicable law with respect to their shares by virtue of the
Merger.
(h) Opinion of Accountants. Parent shall have received a letter from
KPMG Peat Marwick LLP regarding such firm's concurrence with Parent
management's conclusion as to the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16,
if consummated in accordance with this Agreement. In addition, the
Company's accountants shall have provided a letter, satisfactory in form
and substance to Parent, regarding the appropriateness of pooling of
interests accounting for a transaction involving the Company.
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ARTICLE VII
ESCROW
7.1 Escrow Period. Subject to the following requirements, the Escrow Fund
shall be in existence immediately following the Effective Time and terminate at
5:00 p.m., California time, on the date which is the earlier of (i) one year
following the Closing Date or (ii) the date of the filing with the SEC of the
next audit opinion issued by the Company's auditors (the "Escrow Period"),
provided that the Escrow Period shall not terminate with respect to such amount
(or some portion thereof), that together with the aggregate amount remaining in
the Escrow Fund is necessary in the reasonable judgment of Parent, subject to
the objection of the Securityholder Agent (as defined below) and the subsequent
arbitration of the matter in the manner provided in Section 7.2(f) hereof, to
satisfy any unsatisfied claims concerning facts and circumstances existing prior
to the termination of such Escrow Period specified in any Officer's Certificate
delivered to the Escrow Agent prior to termination of such Escrow Period.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time, the Company's stockholders will be
deemed to have received and deposited with the Escrow Agent (as defined below)
the Escrow Amount (plus any additional shares as may be issued upon any stock
split, stock dividend or recapitalization effected by Parent after the Effective
Time) without any act of any stockholder. As soon as practicable after the
Effective Time, the Escrow Amount, without any act of any stockholder, will be
deposited with an institution acceptable to Parent and the Securityholder Agent
(as defined in Section 7.2(g) below)) as Escrow Agent (the "Escrow Agent"), such
deposit to constitute an escrow fund (the "Escrow Fund") to be governed by the
terms set forth herein and at Parent's cost and expense. The portion of the
Escrow Amount contributed on behalf of each stockholder of the Company shall be
in proportion to the aggregate Parent Common Stock which such holder would
otherwise be entitled under Section 1.6(a). No portion of the Escrow Amount
shall be contributed in respect of any Company Options or Warrants. The Escrow
Fund shall be available to compensate Parent and its affiliates for any claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defense (hereinafter individually a "Loss" and collectively "Losses") incurred
by Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly or indirectly as a result of any inaccuracy or breach of a
representation or warranty of the Company contained in Article II herein (as
modified by the Company Schedules), or any failure by the Company to perform or
comply with any covenant contained herein; provided, however, that the Escrow
Fund shall only be available to compensate Parent, its officers, directors or
affiliates to the extent that the aggregate amount of Losses is in excess of
$500,000, in which event the full amount of the Escrow Fund shall be available
to so compensate Parent, its officers, directors or affiliates for any Losses.
Parent and the Company each acknowledge that such Losses, if any, would relate
to the unresolved contingencies existing at the Effective Time, which, if
resolved at the Effective Time would have led to a reduction in the aggregate
Merger consideration. The Escrow Fund shall be the sole source of damages to
Parent arising from any claim hereunder (other than for damages due to fraud or
willful misrepresentation). Nothing herein shall limit the liability of the
Company for any such breach of any representation, warranty or covenant if the
Merger does not close.
(b) Distribution Upon Termination of Escrow Period. Upon termination of the
Escrow Period, the Parent shall cause to be delivered to the Escrow Agent a list
of each timely filed claim of loss submitted by the Parent in accordance with
the provisions of this Article VII which remains not fully resolved ("Unresolved
Claims"), for which there shall be reserved out of the Escrow Fund an amount
equal to the Losses claimed by the Parent, and the Escrow Agent shall deliver to
the stockholders of the Company that portion of the Escrow Fund that is not
required to satisfy the Unresolved Claims. Following the resolution of each
Unresolved Claim, the Escrow Agent shall deliver to the stockholders of the
Company the remaining portion of the Escrow Fund, if any, not used in the
satisfaction of that claim. Deliveries of Escrow Amounts to the stockholders of
the Company pursuant to this Section 7.2(b) shall be made in proportion to their
respective original contributions to the Escrow Fund.
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(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow Fund during the
Escrow Period, shall treat such fund as a trust fund in accordance with the
terms of this Agreement and not as the property of Parent and shall hold and
dispose of the Escrow Fund only in accordance with the terms hereof.
(ii) Any shares of Parent Common Stock or other equity securities issued or
distributed by Parent (including shares issued upon a stock split) ("New
Shares") in respect of Parent Common Stock in the Escrow Fund which have not
been released from the Escrow Fund shall be added to the Escrow Fund and become
a part thereof. New Shares issued in respect of shares of Parent Common Stock
which have been released from the Escrow Fund shall not be added to the Escrow
Fund but shall be distributed to the recordholders thereof. Cash dividends on
Parent Common Stock shall not be added to the Escrow Fund but shall be
distributed to the recordholders thereof.
(iii) Each stockholder shall have voting rights with respect to the shares
of Parent Common Stock contributed to the Escrow Fund by such stockholder (and
any voting securities added to the Escrow Fund in respect of such shares of
Parent Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or before the last day
of the Escrow Period of a certificate signed by any officer of Parent (an
"Officer Certificate"): (A) stating that Parent has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue Losses, and (B)
specifying in reasonable detail the individual items of Losses included in the
amount so stated, the date each such item was paid or properly accrued, or the
basis for such anticipated liability, and the nature of the misrepresentation,
breach of warranty or covenant to which such item is related. The Escrow Agent
shall, subject to the provisions of Section 7.2(d)(iii) hereof, deliver to
Parent out of the Escrow Fund, as promptly as practicable after such Losses have
been incurred in excess of $500,000, shares of Parent Common Stock held in the
Escrow Fund in an amount equal to such Losses so incurred.
(ii) For purposes of determining the number of shares of Parent Common
Stock to be delivered to Parent out of the Escrow Fund pursuant to Section
7.2(d)(i) hereof or to Securityholder Agent pursuant to either Section 7.2(b) or
Section 7.2(e)(iv) hereof, the shares of Parent Common Stock shall be valued at
the average of the closing prices of Parent's Common Stock on the principal
securities exchange on which Parent's Common Stock is then traded or if not so
traded, the National Market System of the National Association of Securities
Dealers Automated Quotation system, in either case as reported in The Wall
Street Journal for the five (5) consecutive trading days ending on the date that
is one (1) trading day prior to the Closing Date. Parent and the Securityholder
Agent shall certify such fair market value in a certificate signed by both
Parent and the Securityholder Agent, and shall deliver such certificate to the
Escrow Agent.
(iii) At the time of delivery of any Officer's Certificate to the Escrow
Agent, a duplicate copy of such certificate shall be delivered to the
Securityholder Agent and for a period of thirty (30) days after such delivery,
the Escrow Agent shall make no delivery to Parent of any Escrow Amounts pursuant
to Section 7.2(d) hereof unless the Escrow Agent shall have received written
authorization from the Securityholder Agent to make such delivery. After the
expiration of such thirty (30) day period, the Escrow Agent shall make delivery
of shares of Parent Common Stock from the Escrow Fund in accordance with Section
7.2(d) hereof, provided that no such payment or delivery may be made if the
Securityholder Agent shall object in a written statement to the claim made in
the Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent prior to the expiration of such thirty (30) day period.
(e) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall so object in writing to any
claim or claims made in any Officer's Certificate, the Securityholder Agent and
Parent shall attempt in good faith to agree upon the rights of the respective
parties with respect to each of such claims. If the Securityholder Agent and
Parent should so agree, a memorandum setting forth such agreement shall be
prepared and signed by both parties and shall be
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furnished to the Escrow Agent. The Escrow Agent shall be entitled to rely on any
such memorandum and distribute shares of Parent Common Stock form the Escrow
Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
either Parent or the Securityholder Agent may demand arbitration of the matter
unless the amount of the damage or loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced until such amount
is ascertained or both parties agree to arbitration; and in either such event
the matter shall be settled by arbitration conducted by one arbitrator. Parent
and the Securityholder Agent shall agree on one arbitrator; provided that if
Parent and Securityholder Agent cannot agree on one arbitrator, either Parent or
Securityholder Agent can request that the Judicial Arbitration and Mediation
Services ("JAMS") select the arbitrator. The arbitrator shall set a limited time
period and establish procedures designed to reduce the cost and time for
discovery while allowing the parties an opportunity, adequate in the sole
judgment of the arbitrator, to discover relevant information from the opposing
parties about the subject matter of the dispute. The arbitrator shall rule upon
motions to compel or limit discovery and shall have the authority to impose
sanctions, including attorneys' fees and costs, to the same extent as a court of
competent law or equity, should the arbitrator determine that discovery was
sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator as
to the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in Section 7.2(d) hereof, the Escrow Agent shall be entitled to act in
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrator.
(iii) Judgment upon any award rendered by the arbitrator may be entered in
any court having jurisdiction. Any such arbitration shall be held in Orange
County, California under the rules then in effect of the American Arbitration
Association. For purposes of this Section 7.2(e), in any arbitration hereunder
in which any claim or the amount thereof stated in the Officer's Certificate is
at issue, Parent shall be deemed to be the Non-Prevailing Party in the event
that the arbitrator awards Parent less than the sum of one-half (1/2) of the
disputed amount plus any amounts not in dispute; otherwise, the stockholders of
the Company as represented by the Securityholder Agent shall be deemed to be the
Non-Prevailing Party. The Non-Prevailing Party to an arbitration shall pay its
own expenses, the fees of the arbitrator, the administrative costs of the
arbitration and the expenses, including without limitation, reasonable
attorneys' fees and costs, incurred by the other party to the arbitration.
(iv) In connection with any claims made by Corsair against the Escrow
Amount, Securityholder Agent shall have the right, upon the delivery of invoices
therefor to Parent and the Escrow Agent, to have delivered to Securityholder
Agent out of the Escrow Fund a number of shares of Parent Common Stock not to
exceed $250,000 in value in the aggregate for purposes of paying its expenses
and costs thereof, including, but not limited to reasonable attorneys' fees and
costs, fees of the arbitrator, administrative costs of arbitration and expenses
of arbitration.
(f) Securityholder Agent of the Stockholders; Power of Attorney.
(i) In the event that the Merger is approved, effective upon such vote, and
without further act of any stockholder, a committee comprised of Ms. Arlene
Harris, Mr. Mark Nielsen and Mr. Doug Kingsley shall be appointed as agent and
attorney-in-fact (the "Securityholder Agent," and a majority vote of these three
members of such committee shall be deemed to be the act of the Securityholder
Agent) for each stockholder of the Company (except such stockholders, if any, as
shall have perfected their appraisal or dissenters' rights under Delaware Law),
for an one behalf of stockholders of the Company, to give and receive notices
and communication, to authorize delivery to Parent of shares of Parent Common
Stock from the Escrow Fund in satisfaction of claims by Parent, to object to
such deliveries, to agree to, negotiate, enter into settlements and compromises
of, and demand arbitration and comply with order of courts and awards of
arbitrators with respect to such claims, and to take all actions necessary or
appropriate in the judgment of Securityholder Agent for the accomplishment of
the foregoing. Such Securityholder Agent may be changed by the stockholders of
the Company from time to time upon not less than thirty (30) days prior written
notice to
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Parent; provided that the Securityholder Agent may not be removed unless holders
of a two-thirds interest of the Escrow Fund agree to such removal and to the
identity of the substituted agent. Any vacancy in the position of Securityholder
Agent may be filled by approval of the holders of a majority in interest of the
Escrow Fund. No bond shall be required of the Securityholder Agent, and the
Securityholder Agent shall not receive compensation for his or her services.
Notice or communications to or from the Securityholder Agent shall constitute
notice to or form each of the stockholders of the Company.
(ii) In performing any duties under the Agreement, the Securityholder Agent
shall not be liable to any party for damages, losses, or expenses, except for
gross negligence or willful misconduct on the part of the Securityholder Agent.
The Securityholder Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Securityholder Agent shall in good faith
believe to be genuine, nor will the Securityholder Agent be liable or
responsible for forgeries, fraud, impersonations, or determining the scope of
any representative authority. In addition, the Securityholder Agent may consult
with the legal counsel in connection with Securityholder Agent's duties under
this Agreement and shall be fully protected in any act taken, suffered, or
permitted by it in good faith in accordance with the advice of counsel. The
Securityholder Agent is not responsible for determining and verifying the
authority of any person acting or purporting to act on behalf of any party to
this Agreement. Each stockholder of the Company on whose behalf the Escrow
Amount was contributed to the Escrow Fund shall, up to an amount equal to ten
percent (10%) of (total number of shares of Parent Common Stock allocated to
such stockholder, including escrowed shares x the Parent Average Price Per
Share), indemnify the Securityholder Agent and hold the Securityholder Agent
harmless against any loss, liability or expense incurred without gross
negligence or willful misconduct on the part of the Securityholder Agent and
arising out of or in connection with the acceptance or administration of the
Securityholder Agent's duties hereunder, including the reasonable fees and
expenses of any legal counsel retained by the Securityholder Agent.
(g) Actions of the Securityholder Agent. A decision, act, consent or
instruction of the Securityholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
are deposited in the Escrow Fund and shall be final, binding and conclusive upon
each of such stockholders, and the Escrow Agent and Parent may rely upon any
such decision, act, consent or instruction of the Securityholder Agent as being
the decision, act, consent or instruction of each every such stockholder of the
Company. The Escrow Agent and Parent are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Securityholder Agent.
(h) Third-Party Claims. In the event Parent becomes aware of a third-party
claim which Parent believes may result in a demand against the Escrow Fund,
Parent shall notify the Securityholder Agent of such claims, and the
Securityholder Agent, as representative for the stockholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that unless such settlement was made with the consent
of the Securityholder Agent, no settlement of any such claim with third-party
claimants shall be evidence of the validity or amount of Losses attributable to
that claim against the Escrow Fund. In the event that the Securityholder Agent
has consented to any such settlement, the Securityholder Agent shall have no
power or authority to object under any provision of this Article VII to the
amount of any claim by Parent against the Escrow Fund with respect to such
settlement.
(i) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the performance of such
duties as are specifically set forth herein, and as set forth in any additional
written escrow instructions which the Escrow Agent may receive after the date of
this Agreement which are signed by an officer of Parent and the Securityholder
Agent, and may rely and shall be protected in relying or refraining from acting
on any instruction reasonably believed to be genuine and to have been signed or
presented by the proper party or parties. The Escrow Agent shall not be liable
for any act done or omitted hereunder as Escrow Agent while acting in good faith
and in the
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exercise of reasonable judgment, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith.
(ii) The Escrow Agent is hereby expressly authorized to comply with and
obey orders, judgments or decrees of any court of law, notwithstanding any
notices, warning or other communications form any party or any other person to
the contrary. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
justification.
(iii) The Escrow Agent shall not be liable in any respect on account of the
identity, authority or rights of the parties executing or delivering or
purporting to execute or deliver this Agreement or any documents or papers
deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the expiration of any rights
under any statute of limitations with respect to this Agreement or any documents
deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the Escrow Agent shall
not be liable to any party for damages, losses, or expenses, except for gross
negligence or willful misconduct on the part of the Escrow Agent. The Escrow
Agent shall not incur any such liability for (A) any act or failure to act made
or omitted in good faith, or (B) any action taken or omitted in reliance upon
any instrument, including any written statement or affidavit provided for in
this Agreement that the Escrow Agent shall in good faith believe to be genuine,
nor will the Escrow Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Escrow Agent may consult with the legal counsel in connection with
Escrow Agent's duties under this Agreement and shall be fully protected in any
act taken, suffered, or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this Agreement, or
with any other party, concerning the subject matter of this Agreement, its terms
or conditions, the Escrow Agent will not be required to determine the
controversy or to take any action regarding it. The Escrow Agent may hold all
documents and shares of Parent Common Stock may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in the
Escrow Agent's discretion, the Escrow Agent may be required, despite what may be
set forth elsewhere in this Agreement. In such event, the Escrow Agent will not
be liable for damage. Furthermore, the Escrow Agent may at its option, file an
action of interpleader requiring the parties to answer and litigate any claims
and rights among themselves. The Escrow Agent is authorized to deposit with the
clerk of the court all documents and shares of Parent Common Stock held in
escrow except all cost, expenses, charges and reasonable attorney fees incurred
by the Escrow Agent due to the interpleader action and which the parties jointly
and severally agree to pay. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
(vii) The parties (excluding the Securityholder Agent) and their respective
successors and assigns agree jointly and severally to indemnify and hold Escrow
Agent harmless against all losses, claims, damages, liabilities, and expenses,
including reasonable costs of investigation, counsel fees, and disbursements
that may be imposed on Escrow Agent or incurred by Escrow Agent in connection
with the performance of his/her duties under this Agreement, including but not
limited to any litigation arising from this Agreement or involving its subject
matter.
(viii) The Escrow Agent may resign at any time upon giving at least thirty
(30) days written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor escrow
agent which shall be accomplished as follows: the parties shall use their best
efforts to mutually agree on a successor escrow agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested
34
<PAGE> 235
with all the estates, properties, rights, powers, and duties of the predecessor
escrow agent as if originally named as escrow agent. The Escrow Agent shall be
discharged from any further duties and liability under this Agreement.
(j) Fees. All fees of the Escrow Agent for performance of its duties
hereunder shall be paid by Parent. It is understood that the fees and usual
charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) on September 30, 1998 (provided
that the right to terminate this Agreement under this clause 8.1(b)(i)
shall not be available to any party whose willful failure to fulfill any
obligation hereunder has been the cause of, or resulted in, the failure of
the Effective Time to occur on or before such date); (ii) there shall be a
final nonappealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation order enacted, promulgated or issued or deemed applicable to the
Merger by any governmental entity that would make consummation of the
Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Merger, by any Governmental Entity, which would: (i)
prohibit Parent's or the Company's ownership or operation of all or any
portion of the business of the Company or (ii) compel Parent or the Company
to dispose of or hold separate all or a portion of the business or assets
of the Company or Parent as a result of the Merger;
(d) by Parent if it is not in material breach of its obligations under
this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of
the Company and (i) such breach has not been cured within five (5) business
days after written notice to the Company (provided that, no cure period
shall be required for a breach which by its nature cannot be cured), and
(ii) as a result of such breach the conditions set forth in Section 6.3(a)
or 6.3(b), as the case may be, would not then be satisfied;
(e) by the Company if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement
on the part of the Parent or Merger Sub and (i) such breach has not been
cured within five (5) business days after written notice to Parent
(provided that, no cure period shall be required for a breach which by its
nature cannot be cured), and (ii) as a result of such breach the conditions
set forth in Section 6.2(a) or 6.2(b), as the case may be, would not then
be satisfied.
When action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent,
35
<PAGE> 236
Merger Sub or the Company, or their respective officer, directors or
stockholders, provided that each party shall remain liable for any breaches of
this Agreement prior to its termination; and provided further that, that
provisions of Sections 5.3 and 5.4 and Articles VIII and IX (other than Section
9.1) of this Agreement shall remain in full force and effect and survive any
termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after the
stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
Merger Sub, on the one hand, and the Company, on the other, may, to the extent
legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed in behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except as otherwise specifically provided
herein) terminate at 5:00 p.m., California time, on the date which is the
earlier of (i) one year following the Closing Date or (ii) the date of the
filing with the SEC of the next audit opinion issued by the Company's auditors.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgement of complete transmission)
to the parties at the following addressed (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, California 94304
Attention: Chief Financial Officer
Telephone No: (650) 842-3281
Facsimile No: (650) 493-1426
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101-3532
Attention: John A. Denniston, Esq.
Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
(b) if to the Company, to:
Subscriber Computing, Inc.
18881 Von Karman Avenue, Suite 450
Irvine, California 92612
Attention: General Counsel
Telephone No: (714) 221-8462
Facsimile No: (714) 260-1515
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<PAGE> 237
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
17th Floor
Costa Mesa, California 92626
Attention: William J. Simpson, Esq.
Telephone: (714) 668-6205
Facsimile: (619) 979-1921
(c) if to the Securityholder Agent:
Doug Kingsley
c/o Advent International
101 Federal Street, 5th Floor
Boston, Massachusetts 02110
Telephone: (617) 951-9412
Facsimile: (617) 951-0566
Arlene Harris
2704 Oceanfront
Del Mar, California 92014
Telephone: (619) 481-2700
Facsimile: (619) 481-2322
Mark Nielson
31621 Via Quixote
San Juan Capistrano, California 92675
Telephone: (714) 248-1421
Facsimile: (714) 833-2030
9.3 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement: Assignment. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder except as otherwise contemplated
in Article III where it is the parties intention to cause the Company's
stockholders to become third party beneficiaries to Parent's and Merger Sub's
representations and warranties; and (c) shall not be assigned by operation of
law or otherwise except as otherwise specifically provided, except that Parent
and Merger Sub may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
9.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonable to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
37
<PAGE> 238
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by any party of any one remedy will not preclude
the exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[Remainder of This Page Intentionally Left Blank]
38
<PAGE> 239
IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the Securityholder
Agent (but only as to Articles VII and IX for Securityholder Agent) and have
caused this Agreement to be signed by their duly authorized respective officers,
all as of the date first written above.
<TABLE>
<S> <C>
CORSAIR COMMUNICATIONS, INC. SUBSCRIBER COMPUTING, INC.
By: /s/ MARY ANN BYRNES By: /s/ DENNIS ANDREWS
--------------------------------------------------
- ----------------------------------------------------- Name: Dennis Andrews
Name: Mary Ann Byrnes Title: President and CEO
Title: President and CEO
SECURITYHOLDER AGENT: ANTEATER ACQUISITION CORP.
/s/ ARLENE HARRIS By: /s/ MARY ANN BYRNES
- ----------------------------------------------------- --------------------------------------------------
Arlene Harris Name: Mary Ann Byrnes
Title: President and CEO
/s/ MARK NIELSEN
- -----------------------------------------------------
Mark Nielsen
/s/ DOUG KINGSLEY
- -----------------------------------------------------
Doug Kingsley
</TABLE>
39
<PAGE> 240
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law permits indemnification
of officers and directors of Corsair under certain conditions and subject to
certain limitations. Section 145 of the Delaware General Corporation Law also
provides that a corporation has the power to purchase and maintain insurance on
behalf of its officers and directors against any liability asserted against such
person and incurred by him or her in such capacity, or arising out of his or her
status as such, whether or not the corporation would have the power to indemnify
him or her against such liability under the provisions of Section 145 of the
Delaware General Corporation Law.
Article VII, Section 1 of the Restated Bylaws of Corsair provides that
Corsair shall indemnify its directors and executive officers to the fullest
extent not prohibited by the Delaware General Corporation Law. The rights to
indemnity thereunder continue as to a person who has ceased to be a director,
officer, employee or agent and inure to the benefit of the heirs, executors and
administrators of the person. In addition, expenses incurred by a director or
executive officer in defending any civil, criminal, administrative or
investigative action, suit or proceeding by reason of the fact that he or she is
or was a director or officer of Corsair (or was serving at Corsair's request as
a director or officer of another corporation) shall be paid by Corsair in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that he or she is not entitled to be
indemnified by Corsair as authorized by the relevant section of the Delaware
General Corporation Law.
As permitted by Section 102(b)(7) of the Delaware General Corporation Law,
Article V, Section (A) of Corsair's Amended and Restated Certificate of
Incorporation provides that a director of Corsair shall not be personally liable
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to Corsair or its
stockholders, (ii) for acts or omissions not in good faith or acts or omissions
that involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Delaware General Corporation Law or (iv) for any transaction
from which the director derived any improper personal benefit.
Corsair has entered into indemnification agreements with each of its
directors and executive officers. Generally, the indemnification agreements
attempt to provide the maximum protection permitted by Delaware law as it may be
amended from time to time. Moreover, the indemnification agreements provide for
certain additional indemnification. Under such additional indemnification
provisions, however, an individual will not receive indemnification for
judgments, settlements or expenses if he or she is found liable to Corsair
(except to the extent the court determines he or she is fairly and reasonably
entitled to indemnity for expenses), for settlements not approved by Corsair or
for settlements and expenses if the settlement is not approved by the court. The
indemnification agreements provide for Corsair to advance to the individual any
and all reasonable expenses (including legal fees and expenses) incurred in
investigating or defending any such action, suit or proceeding. In order to
receive an advance of expenses, the individual must submit to Corsair copies of
invoices presented to him or her for such expenses. Also, the individual must
repay such advances upon a final judicial decision that he or she is not
entitled to indemnification.
Corsair intends to enter into additional indemnification agreements with
each of its directors and executive officers to effectuate these indemnity
provisions and to purchase directors' and officers' liability insurance.
II-1
<PAGE> 241
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
2.1+++* Agreement and Plan of Reorganization by and among Corsair
Communications, Inc., Anteater Acquisition Corp. and
Subscriber Computing, Inc. dated April 2, (other Exhibits
omitted, but will be filed by Corsair with the Commission
upon request).
2.2* Acknowledgement regarding Amendment to Agreement and Plan of
Reorganization by and among Corsair Communications, Inc.,
Anteater Acquisition Corp. and Subscriber Computing, Inc.
dated April 28, 1998.
2.3* Form of Certificate of Merger.
3.1+ Amended and Restated Certificate of Incorporation of the
Company (Exhibit 3.2).
3.2+ Restated Bylaws of the (Exhibit 3.4).
5.1* Opinion of Brobeck, Phleger & Harrison LLP with respect to
the Common Stock being registered.
8.1* Opinion of Brobeck, Phleger & Harrison LLP as tax counsel.
10.1+ Series A Preferred Stock Purchase Agreement between the
Company and the purchasers listed on Schedule A thereto,
dated December 10, 1994.
10.2+ Asset Purchase Agreement between the Company and ESL
Incorporated, dated December 14, 1994.
10.3+ Series A Preferred Stock Purchase Agreement between the
Company and ESL Incorporated, dated December 14, 1994.
10.4+ License and Technical Assistance Agreement between the
Company, TRW Inc. and ESL Incorporated, dated December 14,
1994.
10.5+ AirTouch Assignment Agreement between the Company and ESL
Incorporated, dated December 14, 1994.
10.6+ Development and License Agreement between ESL Incorporated
and PacTel Corporation, dated October 4, 1993.
10.7+ First Amendment to the Development and License Agreement
between ESL Incorporated and PacTel Corporation, dated
October 23, 1994.
10.8+ Second Amendment to and Consent of Assignment of the
Development and License Agreement between the Company and
AirTouch, dated December 14, 1994.
10.9+ Third Amendment to the Development and License Agreement
between the Company and AirTouch, dated August 18, 1995.
10.10+ 1995 Stock Option/Stock Issuance Plan.
10.11+ 1995 Stock Option/Stock Issuance Plan Form of Notice of
Grant.
10.12+ 1995 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement.
10.13+ 1995 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement.
10.14+ Patent License Agreement.
10.15+ Master Lease Agreement, as amended, and Schedules VL-1 and
VL-2 between the Company and Comdisco, Inc., dated August
31, 1995.
10.16+ Loan and Security Agreement between the Company and
Comdisco, Inc., dated August 31, 1995.
10.17+ Secured Promissory Note from the Company to Comdisco, Inc.,
dated August 31, 1995.
10.18+ Warrant granted to Comdisco, Inc. to purchase Series B
Preferred Stock, dated August 31, 1995.
10.19+ Series B Preferred Stock Purchase Agreement between the
Company and
10.20+ 1996 Stock Option/Stock Issuance Plan, as amended.
10.21+ 1996 Stock Option/Stock Issuance Plan Form of Notice of
Grant, as amended.
10.22+ 1996 Stock Option/Stock Issuance Plan Form of Stock Option
Agreement.
10.23+ 1996 Stock Option/Stock Issuance Plan Form of Stock Purchase
Agreement, as amended.
10.24+ Promissory Note from Martin Silver to the Company, dated
April 10, 1996.
</TABLE>
II-2
<PAGE> 242
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
10.25+ Promissory Note from Martin Silver to the Company, dated
April 10, 1996.
10.26+ Loan and Security Agreement between the Company and
Comdisco, Inc., dated July 31, 1996.
10.27+ Warrant granted to Comdisco, Inc. to purchase Series B
Preferred Stock, dated July 31, 1996.
10.28+ Secured Promissory Note from the Company to Comdisco, Inc.,
dated July 31, 1996.
10.29+ Loan and Security Agreement between the Company and MMC/GATX
Partnership No. 1, dated July 31, 1996.
10.30+ Warrant granted to MMC/GATX Partnership No. 1 to purchase
Series B Preferred Stock, dated July 31, 1996.
10.31+ Secured Promissory Note from the Company to MMC/GATX
Partnership No. 1, dated July 31, 1996.
10.32+ Warrant granted to Comdisco, Inc. to purchase Series B
Preferred Stock, dated August 5, 1996.
10.33+ Loan and Security Agreement between the Company and Silicon
Valley Bank, dated August 30, 1996.
10.34+ Series C Preferred Stock Purchase Agreement between Company
and the investors listed on Schedule A thereto dated October
30, 1996.
10.35+ Amended and Restated Investors' Rights Agreement between the
Company and various stockholders, dated October 30, 1996.
10.36+ Amendment No. 1 to the Amended and Restated Investors'
Rights Agreement between the Company and various
stockholders, dated March 7, 1997.
10.37+ Directed Share Agreement between the Company and the
investors listed on Exhibit A thereto, dated October 30,
1996.
10.38+ Promissory Note from Mary Ann Byrnes to the Company,
November 14, 1996, as amended.
10.39+ 1997 Officer Stock Option Plan.
10.40+ 1997 Officer Stock Option Plan Form of Stock Option
Agreement, as amended.
10.41+ 1997 Employee Stock Purchase Plan.
10.42+ 1997 Stock Incentive Plan.
10.43+ 1997 Stock Incentive Plan Form of Notice of Grant.
10.44+ 1997 Stock Incentive Plan Form of Stock Option Agreement.
10.45+ Lease dated January 10, 1997 between the Company and San
Thomas Investment Company.
10.46+ Series D Preferred Stock Purchase Agreement between the
Company and the investors listed on Schedule A thereto,
dated March 7, 1997.
10.47+ Form of Master Purchase and Licensing Agreement.
10.48+ Form of Confidential Disclosure Agreement.
10.49+ Form of Indemnification Agreement between the Company and
each of its directors.
10.50+ Form of Indemnification Agreement between the Company and
each of its officers.
10.51+ Form of Written Consent of Holders of Series A, Series B,
Series C and Series D Preferred Stock to conversion.
10.52+ Form of Waiver of Registration Rights.
10.53* Form of Corsair Communications, Inc. Affiliate Agreement.
10.54* Form of Subscriber Computing, Inc. Affiliate Agreement.
10.55* Form of Corsair Communications, Inc. Voting Agreement.
10.56* Form of Subscriber Computing, Inc. Voting Agreement.
23.1* Consent of Brobeck, Phleger & Harrison LLP (contained in
their opinion filed as Exhibit 5.1).
23.2* Consent of KPMG Peat Marwick LLP, Independent Auditors.
23.3* Consent of Deloitte & Touche LLP, Independent Auditors.
</TABLE>
II-3
<PAGE> 243
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
24.1* Power of Attorney (See page II-5).
27.1* Financial Data Schedule.
99.1* Form of Corsair Communications, Inc. proxy card.
99.2* Form of Subscriber Computing, Inc. proxy card.
</TABLE>
- ---------------
* Filed herewith.
+ Incorporated by reference to the same numbered exhibit (except as otherwise
indicated) to the Company's Registration Statement on Form S-1 (no.
333-28519), filed on June 4, 1997 as amended.
+++ Also annexed as an Appendix to the Joint Proxy Statement/Prospectus included
in this Registration Statement.
(b) FINANCIAL STATEMENT SCHEDULES
Schedule II: Valuation of Qualifying Accounts
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this Registration Statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (c) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(e) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 244
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Palo Alto, County of
Santa Clara, State of California, on the 6th day of May.
CORSAIR COMMUNICATIONS, INC.
By /s/ MARY ANN BYRNES
------------------------------------
Mary Ann Byrnes
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mary Ann Byrnes and Kevin R. Compton, or either
of them, as his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
registration statement related to this Registration Statement and filed pursuant
to Rule 462 under the Securities Act of 1933, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in connection therewith as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or their substitute or
substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ KEVIN R. COMPTON Chairman of the Board of Directors May 6, 1998
- ------------------------------------------
Kevin R. Compton
/s/ MARY ANN BYRNES
- ------------------------------------------
Mary Ann Byrnes Director May 6, 1998
/s/ PETER L.S. CURRIE
- ------------------------------------------
Peter L.S. Currie Director May 6, 1998
/s/ STEPHEN M. DOW
- ------------------------------------------
Stephen M. Dow Director May 6, 1998
/s/ DAVID H. RING
- ------------------------------------------
David H. Ring Director May 6, 1998
/s/ ROLAND L. ROBERTSON
- ------------------------------------------
Roland L. Robertson Director May 6, 1998
</TABLE>
II-5
<PAGE> 245
SCHEDULE II
CORSAIR COMMUNICATIONS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
Reserve for bad debt and allowances
<TABLE>
<CAPTION>
BALANCE AT THE CHARGED ON BALANCE AT THE
BEGINNING OF COSTS AND END OF THE
DESCRIPTION THE PERIOD EXPENSES DEDUCTIONS PERIOD
----------- -------------- ---------- ---------- --------------
<S> <C> <C> <C> <C>
Year ended December 31, 1995............... $ -- $404 $-- $404
Year ended December 31, 1996............... $404 $ -- $-- $404
Year ended December 31, 1997............... $404 $ 97 $-- $501
</TABLE>
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
CORSAIR COMMUNICATIONS, INC.,
ANTEATER ACQUISITION CORP.
AND
SUBSCRIBER COMPUTING, INC.
DATED AS OF APRIL 2, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I THE MERGER................................................................ 1
1.1 The Merger................................................................ 1
1.2 Effective Time............................................................ 2
1.3 Effect of the Merger...................................................... 2
1.4 Certificate of Incorporation; Bylaws...................................... 2
1.5 Directors and Officers.................................................... 2
1.6 Maximum Shares to Be Issued; Effect on Capital Stock...................... 3
1.7 Dissenting Shares......................................................... 8
1.8 Surrender of Certificates................................................. 9
1.9 No Further Ownership Rights in Company Common Stock....................... 10
1.10 Lost, Stolen or Destroyed Certificates.................................... 11
1.11 Tax and Accounting Consequences........................................... 11
1.12 Taking of Necessary Action; Further Action................................ 11
1.13 Company Certificate; Release.............................................. 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE
COMPANY................................................................... 12
2.1 Organization of the Company............................................... 12
2.2 Company Capital Structure................................................. 12
2.3 Subsidiaries.............................................................. 13
2.4 Authority................................................................. 13
2.5 Company Financial Statements.............................................. 14
2.6 No Undisclosed Liabilities................................................ 14
2.7 No Changes................................................................ 15
2.8 Tax and Other Returns and Reports......................................... 16
2.9 Restrictions on Business Activities....................................... 18
2.10 Title to Properties; Absence of Liens and Encumbrances.................... 18
2.11 Intellectual Property..................................................... 19
2.12 Agreements, Contracts and Commitments..................................... 20
2.13 Interested Party Transactions............................................. 22
2.14 Compliance with Laws...................................................... 22
2.15 Litigation................................................................ 22
2.16 Insurance................................................................. 23
2.17 Minute Books.............................................................. 23
2.18 Environmental Matters..................................................... 23
2.19 Brokers' and Finders' Fees: Third Party Expenses.......................... 24
2.20 Employee Matters and Benefit Plans........................................ 24
2.21 Employees................................................................. 28
2.22 Pooling of Interest....................................................... 28
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
2.23 Disclosure Documents...................................................... 28
2.24 Representation Complete................................................... 29
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB................................................................ 29
3.1 Organizati on, Standing and Power......................................... 29
3.2 Authority................................................................. 29
3.3 Capital Structure......................................................... 30
3.4 SEC Documents; Parent Financial Statements................................ 30
3.5 No Material Adverse Change................................................ 31
3.6 Litigation................................................................ 31
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME....................................... 32
4.1 Conduct of Business of the Company........................................ 32
4.2 No Solicitation........................................................... 35
4.3 Conduct of Business of Parent............................................. 36
5.1 Sale and Registration of Shares; Stockholder Matters...................... 36
5.2 Access to Information..................................................... 38
5.3 Confidentiality........................................................... 38
5.4 Expenses.................................................................. 38
5.5 Public Disclosure......................................................... 38
5.6 Consents.................................................................. 39
5.7 FIRPTA Compliance......................................................... 39
5.8 Reasonable Efforts........................................................ 39
5.9 Notification of Certain Matters........................................... 39
5.10 Certain Benefit Plans..................................................... 39
5.11 Pooling Accounting........................................................ 40
5.12 Affiliate Agreements...................................................... 40
5.13 Voting Agreement.......................................................... 40
5.14 Additional Documents and Further Assurances............................... 40
5.15 Registration Statement on Form S-8........................................ 40
5.16 Company Auditors.......................................................... 40
5.17 Termination Fee........................................................... 41
5.18 Nasdaq National Market Listing............................................ 41
ARTICLE VI CONDITIONS TO THE MERGER.................................................. 41
6.1 Conditions to Obligations of Each Party to Effect the Merger.............. 41
6.2 Additional Conditions to Obligations of the Company....................... 42
6.3 Additional Conditions to the Obligations of Parent and Merger Sub......... 43
ARTICLE VII ESCROW.................................................................... 44
7.1 Escrow Period............................................................. 44
7.2 Escrow Arrangements....................................................... 45
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER......................................... 52
8.1 Termination............................................................... 52
8.2 Effect of Termination..................................................... 53
8.3 Amendment................................................................. 53
8.4 Extension; Waiver......................................................... 54
ARTICLE IX GENERAL PROVISIONS........................................................ 54
9.1 Survival of Representations, Warranties and Agreements.................... 54
9.2 Notices................................................................... 54
9.3 Interpretation............................................................ 56
9.4 Counterparts.............................................................. 56
9.5 Entire Agreement: Assignment.............................................. 56
9.6 Severability.............................................................. 56
9.7 Other Remedies............................................................ 57
9.8 Governing Law............................................................. 57
9.9 Rules of Construction..................................................... 57
9.10 Specific Performance...................................................... 57
</TABLE>
iii
<PAGE> 5
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<S> <C>
Exhibit A Form of Stockholder Questionnaire
Exhibit B Form of Affiliate Agreement
Exhibit C Form of Company Stockholder Voting Agreement
Exhibit D Form of Parent Stockholder Voting Agreement
Exhibit E Form of Legal Opinion of Counsel to Parent
Exhibit F Form of Legal Opinion of Counsel to the Company
</TABLE>
iv
<PAGE> 6
INDEX OF SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE DESCRIPTION
- -------- -----------
<S> <C>
3.6 Litigation
5.12 Affiliate Agreement Signatories
5.13 Voting Agreement Signatories
6.3(C) Third Party Consents
</TABLE>
v
<PAGE> 7
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is made and
entered into as of April 2, 1998 among Corsair Communications, Inc., a Delaware
corporation ("Parent"), Anteater Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Merger Sub"), and Subscriber Computing,
Inc., a Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that Parent acquire the Company through the statutory merger of
Merger Sub with and into the Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, and subject to the terms
and conditions of this Agreement, all of the issued and outstanding shares of
capital stock of the Company ("Company Capital Stock") and all outstanding
options, warrants or other rights to acquire or receive shares of Company
Capital Stock shall be converted into the right to receive shares of voting
Common Stock of Parent ("Parent Common Stock").
C. A portion of the shares of Parent Common Stock otherwise issuable by
Parent in connection with the Merger shall be placed in escrow by Parent, the
release of which amount shall be contingent upon certain events and conditions,
all as set forth in Article VII hereof.
D. The Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease, and the Company shall continue as the
surviving corporation and as a wholly-owned subsidiary of
<PAGE> 8
Parent. The Company as the surviving corporation after the Merger is hereinafter
sometimes referred to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing of the Merger (the "Closing") will take place as
promptly as practicable, but no later than five (5) business days, following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of Brobeck Phleger & Harrison LLP, 550 West C Street, Suite 1300, San Diego,
California, unless another place or time is agreed to by Parent and the Company.
The date upon which the Closing actually occurs is herein referred to as the
"Closing Date." On the Closing Date, the parties hereto shall cause the Merger
to be consummated by filing an Agreement or Certificate of Merger (or like
instrument) with the Secretary of State of the State of Delaware (the "Merger
Agreement"), in accordance with the relevant provisions of applicable law (the
time of confirmation by the Secretary of State of Delaware of such filing being
referred to herein as the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, all the property, rights, privileges, powers and franchises of
the Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of the Company and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time, the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Subscriber
Computing, Inc."
(b) Unless otherwise determined by Parent, the Bylaws of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The director(s) of Merger Sub immediately
prior to the Effective Time shall be the initial director(s) of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. The officers of Merger
Sub immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, each to hold office in accordance with the Bylaws of the
Surviving Corporation.
-2-
<PAGE> 9
1.6 Maximum Shares to Be Issued; Effect on Capital Stock. The maximum
number of shares of Parent Common Stock to be issued (including Parent Common
Stock to be reserved for issuance upon exercise of any of the Company's options
and warrants to be assumed by Parent) in exchange for the acquisition by Parent
of all outstanding Company Capital Stock and all unexpired and unexercised
options, warrants or other rights to acquire Company Capital Stock shall be
equal to that number of shares of Parent Common Stock obtained by dividing (x)
the sum of (A) Seventy Million Dollars ($70,000,000) and (B) the exercise price
of all warrants and options to acquire Company Capital Stock outstanding
immediately prior to the Effective Time and (C) any cash received by the Company
after April 1, 1998, but prior to the Effective Time, as payment for the
exercise of warrants or options to acquire Company Capital Stock (collectively,
the "Purchase Price") by (y) the Parent Closing Average Price Per Share (as
defined in Section 1.6(j)(v)) (the "Total Parent Shares"), provided, however,
that the Purchase Price shall be reduced by that amount of the obligations of
the Company relating to any mortgages, indentures, loans or credit agreements,
security agreements or other arrangements or instruments relating to the
borrowing of money or extension of credit to the Company including guaranties
(collectively, "Borrowings) that exceed Ten Million Dollars ($10,000,000) as of
the Effective Time excluding any Borrowings by the Company in the form of
capital equipment leases, but including, without limitation, that certain Master
Loan and Security Agreement dated December 10, 1997 in the amount of Two Million
Six Hundred Thousand Dollars ($2,600,000) with Transamerica. Subject to the
terms and conditions of this Agreement, as of the Effective Time, by virtue of
the Merger and without any action on the part of Merger Sub, the Company or the
holder of any shares of the Company Capital Stock, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common
Stock of the Company (the "Company Common Stock") issued and outstanding
immediately prior to the Effective Time (other than any shares of Company
Capital Stock to be canceled pursuant to Section 1.6(d) and any Dissenting
Shares (as defined and to the extent provided in Section 1.7(a)) will be
canceled and extinguished and be converted automatically into the right to
receive that number of shares of Parent Common Stock (except for the number of
shares of Parent Common Stock contributed to the Escrow Fund (as defined in
Section 7.2(b)) equal to the Exchange Ratio (as defined in Section 1.6(j)(vii)
below), upon surrender of the certificate representing such share of Company
Common Stock in the manner provided in Section 1.8, provided, however, that if
the Company has a repurchase right with respect to the Company Common Stock of
any holder, then the shares of Parent Common Stock issuable to the respective
holder shall be subject to a schedule with respect to the lapse of repurchase
rights such that repurchase rights lapse with respect to the number of shares of
Parent Common Stock in the same proportion as the number of shares of Company
Common Stock which would have lapsed multiplied by the Exchange Ratio.
(b) Conversion of Company Series A Preferred Stock. Each share of
Series A Preferred Stock of the Company ("Company Series A Preferred Stock")
issued and
-3-
<PAGE> 10
outstanding immediately prior to the Effective Time (other than any shares of
Company Capital Stock to be canceled pursuant to Section 1.6(d) and any
Dissenting Shares (as defined and to the extent provided in Section 1.7(a)) will
be canceled and extinguished and be converted automatically into the right to
receive that number of shares of Parent Common Stock (except for the number of
shares of Parent Common Stock contributed to the Escrow Fund (as defined in
Section 7.2(b)) equal to the number of shares of Company Common Stock that would
have been issued upon conversion of such share of Company Series A Preferred
Stock immediately prior to the Effective Time multiplied by the Exchange Ratio,
upon surrender of the certificate representing such share of Company Series A
Preferred Stock in the manner provided in Section 1.8.
(c) Conversion of Company Series B Preferred Stock. Each share of
Series B Preferred Stock of the Company ("Company Series B Preferred Stock")
issued and outstanding immediately prior to the Effective Time (other than any
shares of Company Capital Stock to be canceled pursuant to Section 1.6(d) and
any Dissenting Shares (as defined and to the extent provided in Section 1.7(a))
will be canceled and extinguished and be converted automatically into the right
to receive that number of shares of Parent Common Stock (except for the number
of shares of Parent Common Stock contributed to the Escrow Fund (as defined in
Section 7.2(b)) equal to (i) the Series B Preference Shares (as defined in
Section 1.6(j)(i) below) divided by the Aggregate Series B Number (as defined in
Section 1.6(j)(iii) below), plus (ii) the Exchange Ratio, upon surrender of the
certificate representing such share of Company Series B Preferred Stock in the
manner provided in Section 1.8.
(d) Cancellation of Company-Owned Stock. Each share of Company
Capital Stock owned by the Company or any direct or indirect wholly-owned
subsidiary of the Company immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
(e) Stock Options. At the Effective Time, all options to purchase
Company Common Stock then outstanding under the Company's 1997 Incentive Stock
Option Plan (the "Option Plan") or otherwise shall be assumed by Parent in
accordance with provisions described below.
(i) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each a "Company Option") under the
Option Plan or otherwise, whether vested or unvested, shall be, in connection
with the Merger, assumed by Parent. Each Company Option so assumed by Parent
under this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the Option Plan and/or as provided in the respective
option agreements governing such Company Option immediately prior to the
Effective Time, except that (A) such Company Option shall be exercisable for
that number of whole shares of Parent Common Stock equal to the product of the
number of shares of Company Common Stock that were issuable upon exercise of
such Company Option immediately prior to the Effective Time multiplied by the
Exchange Ratio, rounded
-4-
<PAGE> 11
down (in the case of Company Options granted under the Option Plan) to the
nearest whole number of shares of Parent Common Stock and (B) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed Company Option shall be equal to the quotient determined by
dividing the exercise price per share of Company Common Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent.
(ii) It is the intention of the parties that the Company
Options assumed by Parent qualify following the Effective Time as incentive
stock options as defined in Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), to the extent the Company Options qualified as incentive
stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, Parent will
issue to each holder of an outstanding Company Option a document evidencing the
foregoing assumption of such Company Option by Parent.
(f) Warrants. At the Effective Time, the warrants to purchase
shares of Company Common Stock ( a "Common Warrant"), Company Series A Preferred
Stock (a "Series A Warrant") and Company Series B Preferred Stock (a "Series B
Warrant") listed on Schedule 1.6(f) then outstanding, if any, (each a "Warrant")
shall be assumed by Parent in accordance with the provisions described below:
(i) At the Effective Time, each Warrant shall be, in
connection with the Merger, assumed by Parent. Each Warrant so assumed by Parent
under this Agreement shall continue to have, and be subject to, the same terms
and conditions set forth in the respective agreement governing such Warrant
immediately prior to the Effective Time, except that (A) each such Common
Warrant shall be exercisable for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock that
were issuable upon exercise of such Common Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded to the nearest whole
number of shares of Parent Common Stock, with one-half share being rounded up,
at that exercise price per share equal to the quotient determined by dividing
the exercise price per share at which such Common Warrant was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded to the
nearest whole cent, with one-half cent being rounded up, (B) each such Series A
Warrant shall be exercisable for that number of whole shares of Parent Common
Stock equal to the number of shares of Parent Common Stock that would have been
issued in respect of such Warrant in the Merger had such Warrant been exercised
in full immediately prior to the Effective Time, rounded to the nearest whole
number of shares of Parent Common Stock, with one-half share being rounded up,
at that exercise price per share equal to the quotient determined by dividing
the aggregate exercise price at which such Series A Warrant was exercisable
immediately prior to the Effective Time if exercised in full by the number of
shares of Parent Common Stock issuable upon
-5-
<PAGE> 12
exercise of such Warrant following the Merger, rounded to the nearest whole
cent, with one-half cent being rounded up, and (C) each such Series B Warrant
shall be exercisable for that number of whole shares of Parent Common Stock
equal to the number of shares of Parent Common Stock that would have been issued
in respect of such Warrant in the Merger had such Warrant been exercised in full
immediately prior to the Effective Time, rounded to the nearest whole number of
shares of Parent Common Stock, with one-half share being rounded up, at that
exercise price per share equal to the quotient determined by dividing the
aggregate exercise price at which such Series B Warrant was exercisable
immediately prior to the Effective Time if exercised in full by the number of
shares of Parent Common Stock issuable upon exercise of such Warrant following
the Merger, rounded to the nearest whole cent, with one-half cent being rounded
up,
(ii) Promptly following the Effective Time, Parent will
issue to each holder of an outstanding Warrant a document evidencing the
foregoing assumption of such Warrant by Parent.
(g) Capital Stock of Merger Sub. Each share of Common Stock of
Merger Sub issued and outstanding immediately prior to the Effective Time shall
be converted into and exchanged for one validly issued, fully paid and
nonassessable share of Common Stock of the Surviving Corporation. Each stock
certificate of Merger Sub evidencing ownership of any such shares of Common
Stock of the Merger Sub shall, as of the Effective Time, evidence ownership of
such shares of Common Stock of the Surviving Corporation.
(h) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend (including any dividend or distribution of securities convertible into
Company Capital Stock), reorganization, recapitalization or other like change
with respect to Company Capital Stock occurring after the date hereof and prior
to the Effective Time.
(i) Fractional Shares. No fraction of a share of Parent Common
Stock will be issued, but in lieu thereof, each holder of shares of Company
Capital Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock to
be received by such holder) shall be entitled to receive, without any interest,
from Parent an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average closing price of a
share of Parent Common Stock for the five (5) consecutive trading days ending on
the trading day immediately prior to the Closing Date, as reported on the Nasdaq
National Market.
-6-
<PAGE> 13
(j) Definitions.
(i) Series B Preference Shares. The "Series B Preference
Shares" shall mean the quotient obtained by dividing (x) the product of $3.563
multiplied by the Aggregate Series B Number (as defined below), by (y) the
Parent Closing Average Price Per Share (as defined below).
(ii) Aggregate Common Number. The "Aggregate Common
Number" shall mean the aggregate number of shares of Company Common Stock
outstanding immediately prior to the Effective Time.
(iii) Aggregate Series A Number. The "Aggregate Series A
Number" shall mean the aggregate number of shares of Company Common Stock
issuable upon conversion of all of the Company Series A Preferred Stock
outstanding immediately prior to the Effective Time (including all shares of
Company Series A Preferred Stock issued or issuable upon exercise of the Series
A Preferred Warrants).
(iv) Aggregate Series B Number. The "Aggregate Series B
Number" shall mean the aggregate number of shares of Company Series B Preferred
Stock outstanding immediately prior to the Effective Time (including all shares
of Company Series B Preferred Stock issued or issuable upon exercise of the
Series B Preferred Warrants).
(v) Aggregate Option Number. The "Aggregate Option Number"
shall mean the aggregate number of shares of Company Common Stock issuable upon
the exercise of all outstanding Company options, warrants and other rights to
acquire shares of Company Common Stock (excluding Common Stock issuable upon
conversion of the Company Series A Preferred Stock and/or Company Series B
Preferred Stock issuable upon the exercise of the Series A Warrants or the
Series B Warrants) immediately prior to the Effective Time.
(vi) Parent Closing Average Price Per Share. The "Parent
Closing Average Price Per Share" shall mean the average of the closing prices
per share of Parent Common Stock as quoted on the Nasdaq National Market (or
such other exchange or quotation system on which Parent Common Stock is then
traded or quoted) and reported in The Wall Street Journal for the ten (10)
trading days immediately preceding (but not including) the Closing Date,
provided, however, that notwithstanding the foregoing, the Parent Closing
Average Price Per Share shall in no event be greater than one hundred ten
percent (110%) nor less than ninety percent (90%) of the average of the closing
prices per share of Parent Common Stock as quoted on the Nasdaq National Market
(or such other exchange or quotation system on which Parent Common Stock is then
traded or quoted) and reported in The Wall Street Journal for the ten (10)
trading days immediately preceding (but not including) the date hereof.
-7-
<PAGE> 14
(vii) Escrow Amount. The "Escrow Amount" shall be a number
of shares of Parent Common Stock equal to the sum of (x) (i) 0.10 multiplied by
(ii) the sum of the Exchange Ratio multiplied by (iii) the sum of the Aggregate
Common Number, the Aggregate Series A Number (excluding all shares of Series A
Preferred Stock issuable upon exercise of Series A Warrants outstanding as of
the Effective Time) and the Aggregate Series B Number, and (y) 0.10 multiplied
by the number of Series B Preference Shares.
(viii) Exchange Ratio. The "Exchange Ratio" shall mean the
quotient obtained by dividing (x) the difference between (A) the Total Parent
Shares and (B) the Series B Preference Shares, by (y) the sum of (A) the
Aggregate Common Number, (B) the Aggregate Series A Number, (C) the Aggregate
Series B Number and (D) the Aggregate Option Number.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Company Capital Stock held by a holder who has demanded
and perfected appraisal or dissenters' rights for such shares in accordance with
Delaware Law and who, as of the Effective Time, has not effectively withdrawn or
lost such appraisal or dissenters' rights ("Dissenting Shares") shall not be
converted into or represent a right to receive Parent Common Stock pursuant to
Section 1.6, but the holder thereof shall only be entitled to such rights as are
granted by Delaware Law.
(b) Notwithstanding the provisions of subsection(a), if any
holder of shares of Company Capital Stock who demands appraisal of such shares
under Delaware Law shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time and the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive Parent
Common Stock and payment for any fractional share as provided in Section 1.6,
without interest thereon, upon surrender of the certificate representing such
shares.
(c) The Company shall give Parent (i) prompt notice of any
written demands for appraisal of any shares of Company Capital Stock,
withdrawals of such demands, and any other instruments served pursuant to
Delaware Law and received by the Company and (ii) the opportunity to participate
in all negotiations and proceedings with respect to demands for appraisal under
Delaware Law. The Company shall not, except with the prior written consent of
Parent, voluntarily make any payment with respect to any demands for appraisal
of capital stock of the Company or offer to settle or settle any such demands.
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<PAGE> 15
1.8 Surrender of Certificates.
(a) Exchange Agent. Prior to the Effective Time, Parent shall
designate a bank or trust company with assets of not less than $500 million to
act as exchange agent (the "Exchange Agent").
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, the aggregate number of shares of Parent Common
Stock issuable pursuant to Section 1.6 in exchange for outstanding shares of
Company Capital Stock; provided that, on behalf of the holders of Company
Capital Stock, Parent shall deposit into an escrow account a number of shares of
Parent Common Stock equal to the Escrow Amount out of the aggregate number of
shares of Parent Common Stock otherwise issuable pursuant to Section 1.6. The
portion of the Escrow Amount contributed on behalf of each holder of Company
Capital Stock shall be in proportion to the aggregate number of shares of Parent
Common Stock which such holder would otherwise be entitled to receive under
Section 1.6 by virtue of ownership of outstanding shares of Company Capital
Stock.
(c) Exchange Procedures. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock and which
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock, less the number of shares of Parent Common Stock,
if any, to be deposited in escrow on such holder's behalf pursuant to Article
VII hereto, plus cash in lieu of fractional shares in accordance with Section
1.6, to which such holder is entitled pursuant to Section 1.6, and the
Certificate so surrendered shall forthwith be canceled. As soon as practicable
after the Effective Time, and subject to and in accordance with the provisions
of Article VII hereof, Parent shall cause to be distributed to the Escrow Agent
(as defined in Article VII) a certificate or certificates representing the
number of shares of Parent Common Stock equal to the Escrow Amount, which
certificate shall be registered in the name of the Escrow Agent. Such shares
shall be beneficially owned by the holders on whose behalf such shares were
deposited in the Escrow Fund and shall be available to compensate Parent as
provided in Article VII. Until so surrendered, each outstanding Certificate
that, prior to the
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Effective Time, represented shares of Company Capital Stock will be deemed from
and after the Effective Time, for all corporate purposes, other that the payment
of dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Capital Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.6.
(d) Distributions with Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock declared or
made after the Effective Time and with a record date after the Effective Time
will be paid to the holder of any unsurrendered Certificate with respect to the
shares of Parent Common Stock represented thereby until the holder of record of
such Certificate shall surrender such Certificate. Subject to applicable law,
following surrender of any such Certificate, there shall be paid to the record
holder of the certificates representing whole shares of Parent Common Stock
issued in exchange therefor, without interest, at the time of such surrender,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore payable with respect to such whole shares of Parent
Common Stock.
(e) Transfers of Ownership. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Certificate so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for shares of Parent Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the satisfaction of
Parent or any agent designated by it that such tax has been paid or is not
payable.
(f) No Liability. Notwithstanding anything to the contrary in
this Section 1.8, none of the Exchange Agent, the Surviving Corporation or any
party hereto shall be liable to a holder of shares of Parent Common Stock or
Company Capital Stock for any amount properly paid to a public official pursuant
to any applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Capital Stock in accordance with the terms hereof (including any cash paid in
respect thereof) shall be deemed to have been issued in full satisfaction of all
rights pertaining to such shares of Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article 1.
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<PAGE> 17
1.10 Lost, Stolen or Destroyed Certificates. In the event any
Certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent shall issue in exchange for such lost,
stolen or destroyed Certificates, upon the making of an affidavit of that fact
by the holder thereto, such shares of Parent Common Stock and cash for
fractional share, if any, as may be required pursuant to Section 1.6; provided,
however, that Parent may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the Certificates alleged to have been lost, stolen or
destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall (i) constitute a reorganization within the meaning
of Section 368 of the Code and (ii) qualify for accounting treatment as a
pooling of interests.
1.12 Taking of Necessary Action; Further Action. If, at any time after
the Effective Time, any such further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights, privileges,
powers and franchises of the Company and Merger Sub, the officers and directors
of the Company and Merger Sub are fully authorized in the name of their
respective corporations or otherwise to take, and will take, all such lawful and
necessary action.
1.13 Company Certificate; Release.
(a) Certificate. At or prior to the Closing, the Company shall
deliver to Parent a certificate signed on behalf of the Company by the chief
executive office and chief financial officer of the Company (the "Company
Certificate") identifying each of the holders of Company Capital Stock, Company
Options and Warrants and the consideration that each such holder is entitled to
receive pursuant to Section 1.6 above. Parent shall be entitled to rely without
investigation on the information set forth in the Company Certificate in
delivering the consideration set forth in the Company Certificate to the holders
of Company Capital Stock, Company Options and Warrants. Notwithstanding anything
to the contrary in this Agreement, Parent shall not be obligated to deliver any
portion of the consideration set forth in Section 1.6 to the holders of Company
Capital Stock, Company Options and Warrants unless and until the Company shall
have delivered the Company Certificate to Parent.
(b) Release. The Company, for itself, and each of its officers,
directors, stockholders, partners, agents, administrators, representatives,
affiliates, predecessors in interest, successors and assigns, hereby
unconditionally and forever releases and discharges Parent, each of its
subsidiaries (including the Surviving Corporation), and each of their respective
officers, directors, stockholders, partners, agents, administrators,
representatives,
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<PAGE> 18
affiliates, predecessors in interest, successors and assigns (the "Released
Parties") of and from any and all claims, causes of action, liabilities,
obligations, costs and expenses of every kind and nature whatsoever, at law or
in equity, whether contractual, common law, statutory, federal, state or
otherwise, known or unknown, suspected or unsuspected, direct or derivative,
which now exists or may exist at any time in the future based upon or relating
in any manner to the allocation of the consideration pursuant to Section 1.6 or
any dispute with respect to the interpretation of the manner in which such
consideration is to be distributed. This release shall not apply to Parent's
obligation to deliver the consideration set forth in Section 1.6 to the holders
of Company Capital Stock, Company Options and Warrants in accordance with the
information contained in the Company Certificate.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Merger Sub,
subject to such exceptions as are disclosed in the disclosure letter supplied by
the Company to Parent (the "Company Schedules") and dated as of the date hereof,
as follows:
2.1 Organization of the Company. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its properties and to carry
on its business as now being conducted. The Company is duly qualified to do
business and in good standing as a foreign corporation in each jurisdiction in
which the failure to be so qualified would have, or would reasonably be expected
to have, a material adverse effect on the business, assets (including intangible
assets), financial condition, results of operations, liabilities or prospects of
the Company (hereinafter referred to as a "Material Adverse Effect"). The
Company has delivered a true and correct copy of its Certificate of
Incorporation and Bylaws, each as amended to date, to Parent.
2.2 Company Capital Structure.
(a) The authorized capital stock of the Company consists of
20,000,000 shares of authorized Common Stock, of which 8,443,944 shares are
issued and outstanding, 348,687 shares of authorized Series A Preferred Stock,
of which -0- shares are issued and outstanding and 4,300,000 shares of
authorized Series B Preferred Stock, of which 4,209,863 shares are issued and
outstanding. The Company Capital Stock is held of record by the persons, with
the addresses of record and in the amounts set forth on Schedule 2.2(a) along
with the vesting schedule for such shares, if any. Except as set forth on
Schedule 2.2(a), all outstanding shares of Company Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Certificate of
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<PAGE> 19
Incorporation or Bylaws of the Company or any agreement to which the Company is
a party or by which it is bound.
(b) The Company has reserved 2,750,000 shares of Common Stock for
issuance to employees and consultants pursuant to the Option Plan, of which
1,618,489 shares are subject to outstanding, unexercised options, 1,111,405
shares remain available for future grant and 20,106 shares have been issued
pursuant to the exercise of options issued under the Option Plan. The Company
has reserved -0- shares of Common Stock for issuance upon exercise of
outstanding Company Options granted outside the Option Plan and 447,695 shares
of Common Stock for issuance upon exercise of the Warrants. Schedule 2.2(b) sets
forth for each outstanding Company Option or Warrant the name of the holder of
such option or Warrant, the domicile address of such holder, the number of
shares of Common Stock subject to such option or Warrant, the exercise price of
such option or Warrant and the vesting schedule for such option or Warrant,
including the extent vested to date and whether the exercisability of such
option or Warrant will be accelerated and become exercisable by reason of the
transactions contemplated by this Agreement. Except as set forth on Schedule
2.2(b), there are no options, warrants, calls, rights, commitments or agreements
of any character, written or oral, to which the Company is a party or by which
it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, otherwise amend or enter
into any such option, warrant, call, right, commitment or agreement. The holders
of Company Options and Warrants have been or will be given, or shall have
properly waived, any required notice prior to the Merger, and all such rights
will be exercised or exchanged for substantially identical rights in Parent's
securities at or prior to the Effective Time. As a result of the Merger, Parent
will be the record and sole beneficial owner of all capital stock of the Company
and rights to acquire or receive such capital stock.
2.3 Subsidiaries. The Company does not have and has never had any
subsidiaries or affiliated companies and does not otherwise own and has never
otherwise owned any shares of capital stock or any interest in, or control,
directly or indirectly, any other corporation, partnership, association, joint
venture or other business entity.
2.4 Authority. Subject only to the requisite approval of the Merger and
this Agreement by the Company's stockholders, the Company has all requisite
corporate power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The vote required of the Company's
stockholders to duly approve the Merger and this Agreement is a majority of the
outstanding shares of (a) Common Stock and Preferred Stock, voting together on
an as-converted basis and (b) of each class of the Company's stock. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject only to the approval of the
Merger and this Agreement by the Company's stockholders. The Company's Board of
Directors has unanimously approved the
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<PAGE> 20
Merger and this Agreement. This Agreement has been duly executed and delivered
by the Company and constitutes the valid and binding obligation of the Company,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. Except as set forth on Schedule 2.4, subject
only to the approval of the Merger and this Agreement by the Company's
stockholders, the execution and delivery of this Agreement by the Company does
not, and, as of the Effective Time, the consummation of the transactions
contemplated hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a right of termination, cancellation or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other federal,
state, country, local or foreign governmental authority, instrumentality, agency
or commission ("Governmental Entity") or any third party (so as not to trigger
any Conflict) is required by or with respect to the Company in connection with
the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except for (i) the filing of the Merger
Agreement with the Delaware Secretary of State, (ii) such consents, waivers,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under applicable federal and state securities laws and (iii)
such other consents, waivers, authorizations, filings, approvals and
registrations which are set forth on Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5 sets forth the Company's
balance sheet (the "Balance Sheet") and the related unaudited profit and loss
statement as at and for the five-month period ended February 28, 1998
(collectively, the "Company Financials"). The Company Financials are correct in
all material respects and have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a basis consistent throughout
the periods indicated and consistent with each other, except that the Company
Financials may not contain all footnotes required by GAAP and are subject to
normal year-end adjustments, which such adjustments will not be material in
amount or significance. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject to normal year-end adjustments, which such
adjustments will not be material in amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6,
other than the obligations of the Company under all executory contracts and
agreements to which it is a party and liabilities incurred in the ordinary
course of business since the date of the Balance
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Sheet, the Company does not have any material liability, indebtedness,
obligations, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, matured, or to its knowledge, contingent, unmatured
or other (whether or not required to be reflected in financial statements in
accordance with GAAP), which individually or in the aggregate, has not been
reflected in the Balance Sheet. Except as set forth on Schedule 2.7, the
accounts receivable balance, net of reserves, as recorded on the Balance Sheet
is correct in all respects and all accounts receivable will be collected within
twelve (12) months.
2.7 No Changes. Except as set forth in Schedule 2.7, since the date of
the Balance Sheet, there has not been, occurred or arisen any:
(a) material transaction by the Company except in the ordinary
course of business as conducted on the date of the Balance Sheet and consistent
with past practices;
(b) amendments or changes to the Certificate of Incorporation or
Bylaws of the Company;
(c) capital expenditure or commitment by the Company, either
individually or in the aggregate, exceeding $100,000;
(d) destruction of, damage to or loss of any material assets,
business or customer of the Company (whether or not by covered by insurance);
(e) claim of wrongful discharge or other claim of unlawful labor
practice or action;
(f) material revaluation by the Company of any of its assets;
(g) declaration, setting aside of payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any Company
Capital Stock;
(h) material sale, lease, license or other disposition of any of
the assets or properties of the Company, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(i) amendment or termination of any material contract, agreement
or license to which the Company is a party or by which it is bound;
(j) loan by the Company to any person or entity, incurring by the
Company of any indebtedness for borrowed money, guaranteeing by the Company or
any indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any
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<PAGE> 22
debt securities of others, except for advances to employees for travel and
business expenses in the ordinary course of business, consistent with past
practices;
(k) material waiver or release of any right or claim of the
Company, including any material write-off or other compromise of any account
receivable of the Company;
(l) commencement or notice or threat of commencement of any
lawsuit or proceeding against or investigation of the Company or its affairs;
(m) notice of any claim of ownership by a third party of Company
Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's intellectual property rights;
(n) issuance or sale by the Company of any of its shares of
Company Capital Stock, or securities exchangeable, convertible or exercisable
therefor, or of any other of its securities;
(o) material change in pricing or royalties set or charged by the
Company to its customers or licensees or in pricing or royalties set or charged
by persons who have licensed Company Intellectual Property Rights to the
Company;
(p) to the Company's knowledge, any event or condition of any
character that has or could be reasonably expected to have a Material Adverse
Effect on the Company; or
(q) agreement by the Company or any officer or employees thereof
to do any of the things described in the preceding clauses (a) through (p).
2.8 Tax and Other Returns and Reports.
(a) Definition of Taxes. For the purposes of this Agreement,
"Tax" or, collectively, "Taxes" means any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties, impositions
and liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, exercise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits. Except as set forth in Schedule 2.8:
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(i) The Company as of the Effective Time will have
prepared and filed all required federal, state, local and foreign returns,
estimates, information statements and reports ("Returns") relating to any and
all Taxes concerning or attributable to the Company or its operations and such
Returns are true and correct and have been completed in accordance with
applicable law.
(ii) The Company as of the Effective Time: (A) will have
paid or accrued all Taxes it is required to pay or accrue and (B) will have
withheld with respect to its employees all federal and state income taxes, FICA,
FUTA and other Taxes required to be withheld.
(iii) The Company has not been delinquent in the payment
of any Tax nor is there any Tax deficiency outstanding, proposed or assessed
against the Company, nor has the Company executed any waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of the
Company is currently in progress, nor has the Company been notified of any
request for such an audit or other examination.
(v) The Company does not have any liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
against in accordance with GAAP on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company has no knowledge of any
basis of the assertion of any such liability attributable to the Company, its
assets or operations.
(vi) The Company has provided to Parent copies of its
three most recent federal and state income and state sales and use Tax Returns.
(vii) There are (and as of immediately following the
Effective Date there will be) no liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("Liens") on the assets of the
Company relating to or attributable to Taxes.
(viii) The Company has no knowledge of any basis for the
assertion of any claim relating or attributable to Taxes which, if adversely
determined, would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
(x) As of the Effective Time, there will not be any
contract, agreement, plan or arrangement, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or
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<PAGE> 24
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Section 280G or 162 of the Code.
(xi) The Company has not filed any consent agreement under
Section 341(f) of the Code or agreed to have Section 341(f)(2) of the Code apply
to any disposition of a subsection (f) asset (as defined in Section 341(f)(4) of
the Code) owned by the Company.
(xii) The Company is not a party to a tax sharing or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiii) The Company has not, and has not been at any time,
a "United States real property holding corporation" within the meaning of
Section 897(c)(2) of the Code.
(xiv) The Company's tax basis in its assets for purposes
of determining its future amortization, depreciation and other federal income
tax deductions is accurately reflected on the Company's tax books and records.
2.9 Restrictions on Business Activities. Except as set forth in Schedule
2.9, there is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Company is a party or otherwise binding
upon the Company which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of the Company, any acquisition
of property (tangible or intangible) by the Company or the conduct of business
by the Company. Except as set forth in Schedule 2.9, without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
(a) The Company owns no real property, nor has it ever owned any
real property. Schedule 2.10(a) sets forth a list of all real property
currently, or at any time in the past, leased by the Company, the name of the
lessor, the date of the lease and each amendment thereto and, with respect to
any current lease, the aggregate annual rental and/or other fees payable under
any such lease. All such current leases are in full force and effect, are valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing default or event of default (or event which
with notice or lapse of time, or both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets,
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<PAGE> 25
real, personal and mixed, used or held for use in its business, free and clear
of any Liens (as defined in Section 2.8(b)(vii)), except as reflected in the
Company Financials or in Schedule 2.10(b) and except for liens for taxes not yet
due and payable and such imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
2.11 Intellectual Property.
(a) The Company owns, or is licensed or otherwise possesses
legally enforceable rights to use, all patents, trademarks, trade names, service
marks, copyrights, and any applications therefor, maskworks, net lists,
schematics, technology, know-how, computer software programs or applications in
both source code and object code form ("Software"), and tangible or intangible
proprietary information or material that are used in the business of the Company
as currently conducted or as proposed to be conducted by the Company
(collectively, the "Company Intellectual Property Rights").
(b) Schedule 2.11(a) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners (collectively, the "Patents and Trademarks").
Schedule 2.11(b) sets forth a complete list of Software, except for commercially
available software licensed from third parties ("Third Party Software"). Except
for Third Party Software, Schedule 2.11(c) sets forth a complete list of all
licenses, sublicenses and other agreements (i) as to which the Company is a
licensee or sublicensee ("Licenses-In") and (ii) to which any other person is
authorized to use any Company Software, Patents and Trademarks or trade secrets
("License-Out") (excluding object code end-user licenses granted to end-users in
the ordinary course of business that permit use of software products without a
right to modify, distribute or sublicense the same ("End-User Licenses")), and
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty or other fees and the term
thereof. The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in material violation or default under any such license,
sublicense or agreement, nor entitle any other party to any such license,
sublicense or agreement to terminate or modify such license, sublicense or
agreement. Except for Third Party Software and as set forth in Schedule 2.11(a),
2.11(b) or 2.11(c), subject to the terms of the Licenses-In, the Licenses-Out
and the End-User Licenses, the Company is the sole and exclusive owner of all,
patents, trademarks (to the extent used in connection with computer programs or
applications sold or licensed by the Company), trade names, service marks,
copyrights (to the extent related to the computer software programs or
applications sold or licensed by the
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<PAGE> 26
Company), and computer software programs or applications in both source code and
object code form (excluding Third Party Software) that are used in the business
of the Company as currently conducted or as proposed to be conducted by the
Company (the "Exclusive Intellectual Property Rights"), with all right, title
and interest in and to (free and clear of any liens or encumbrances), and has
sole and exclusive rights (and is not contractually obligated to pay any
compensation to any third party in respect thereof) to the use thereof or the
material covered thereby in connection with the services or products in respect
to which the Exclusive Intellectual Property Rights are being used. Except as
set forth in Schedule 2.11(a), 2.11(b) or 2.11(c), the Licenses-In, the
Licenses-Out and the End-User Licenses, the Company is the owner, a licensee or
otherwise has the right to use all Company Intellectual Property Rights, and has
rights (and is not contractually obligated to pay any compensation to any third
party in respect thereof) to the use thereof or the material covered thereby in
connection with the services or products in respect to which the Company
Intellectual Property Rights are being used.
(c) No claims with respect to the Company Intellectual Property
Rights have been asserted or are, to the Company's knowledge, threatened by any
person, nor to the Company's knowledge are there any valid grounds for any bona
fide claims, (i) to the effect that the manufacture, sale, licensing or use of
any of the products of the Company infringes on any copyright, patent, trade
mark, service mark, trade secret or other proprietary right, (ii) against the
use by the Company of any trademarks, service marks, trade names, trade secrets,
copyrights, maskworks, patents, technology, know-how or computer software
programs and applications used in the Company's business as currently conducted
or as proposed to be conducted by the Company, or (iii) challenging the
ownership by the Company, validity or effectiveness of any of the Company
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by the Company are valid and subsisting. To the Company's
knowledge, the Company has not infringed, and the business of the Company as
currently conducted or as proposed to be conducted does not infringe, any
copyright, patent, trademark, service mark, trade secret or other proprietary
right of any third party. To Company's knowledge, there is not material
unauthorized use, infringement or misappropriation of any of the Company
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product of the Company or any of its subsidiaries is subject to any outstanding
decree, order, judgment, or stipulation restriction in any manner the licensing
thereof by the Company. Each employee, consultant or contractor of the Company
has executed a proprietary information and confidentiality agreement
substantially in the Company's standard forms. Except as set forth on Schedule
2.11(c), all software included in the Company Intellectual Property Rights is
original work of the Company and has been either created by employees of the
Company on a work-for-hire basis or by consultants or contractors who have
created such software themselves and have assigned all rights they may have had
in such software to the Company.
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2.12 Agreements, Contracts and Commitments. Except as set forth on
Schedule 2.12(a), the Company does not have, is not a party to nor is it bound
by:
(i) any collective bargaining agreements.
(ii) any agreements or arrangements that contain any
severance pay or post-employment liabilities or obligations;
(iii) any bonus, deferred compensation, pension, profit
sharing or retirement plans, or any other employee benefit plans or
arrangements;
(iv) any employment or consulting agreement, contract or
commitment (other than an oral offer of employment as an employee at will) with
an employee or individual consultant or salesperson or any consulting or sales
agreement, contract or commitment under which any firm or other organization
provides services to the Company.
(v) any agreement or plan, including, without limitation,
any stock option plan, stock appreciation rights plan or stock purchase plan,
any of the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which will
be calculated on the basis of any of the transactions contemplated by this
Agreement;
(vi) any fidelity or surety bond or completion bond;
(vii) any lease of personal property having a value
individually in excess of $100,000;
(viii) any agreement of indemnification or guaranty;
(ix) any agreement, contract or commitment containing any
covenant limiting the freedom of the Company to engage in any line of business
or to compete with any person;
(x) any agreement, contract or commitment relating to
capital expenditures and involving future payments in excess of $100,000;
(xi) any agreement, contract or commitment relating to the
disposition or acquisition of assets or any interest in any business enterprise
outside the ordinary course of the Company's business;
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(xii) any mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or instruments relating to
the borrowing of money or extension of credit, including guaranties referred to
in clause (viii) hereof;
(xiii) any purchase order or contract for the purchase of
raw materials involving $100,000 or more;
(xiv) any construction contracts;
(xv) any distribution, joint marketing or development
agreement;
(xvi) any agreement pursuant to which the Company has
granted or may grant in the future, to any party, a source-code license or
option or other right to use or acquire source-code, or,
(xvii) any other agreement, contract or commitment that
involves future obligations of or payments to the Company of $100,000 or more.
Except for such alleged breaches, violations and defaults, and events that would
constitute a breach, violation or default with the lapse of time, giving of
notice, or both, as are all noted in Schedule 2.12(b), the Company has not
materially breached, violated or defaulted under, or received notice that it has
breached, violated or defaulted under, any of the terms or conditions of any
agreement, contract or commitment required to be set forth on Schedule 2.12(a)
or Schedule 2.11(b) (any such agreement, contract or commitment, a "Contract").
Each Contract is in full force and effect and, except as otherwise disclosed in
Schedule 2.12(b), is not subject to any material default thereunder of which the
Company has knowledge by any party obligated to the Company pursuant thereto.
2.13 Interested Party Transactions. Except as set forth on Schedule
2.13, no officer, director or stockholder of the Company (nor any ancestor,
sibling, descendant or spouse of any of such persons, or any trust, partnership
or corporation in which any of such persons has or has had an interest), has or
has had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that the Company
furnishes or sells or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to, the Company, any goods
or services or (iii) a beneficial interest in any contract or agreement set
forth in Schedule 2.12(a) or Schedule 2.11(b); provided, that ownership of no
more than one percent (1%) of the outstanding voting stock of a publicly traded
corporation shall not be deemed an "economic interest in any entity" for
purposes of this Section 2.13.
2.14 Compliance with Laws. The Company has complied in all material
respects with, is not in material violation of, and has not received any notices
of violation with respect to, any foreign, federal, state or local statute, law
or regulation, except those
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pertaining to employment matters, as to which the Company represents that to the
best of its knowledge it has complied therewith in all material respects.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no
action, suit or proceeding of any nature pending or to its knowledge threatened
against the Company, its properties or any of its officers or directors, in
their respective capacities as such. Except as set forth in Schedule 2.15, there
is no investigation pending or to its knowledge threatened against the Company,
its properties or any of its officers or directors by or before any governmental
entity. Schedule 2.15 sets forth, with respect to any pending or to its
knowledge threatened action, suit, proceeding or investigation, the forum, the
parties thereto, the subject matter thereof and the amount of damages claims or
other remedy requested. No governmental entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof.
2.16 Insurance. The Company maintains valid and enforceable insurance
policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company, which
are identified in Schedule 2.16, and there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid and the Company
is otherwise in material compliance with the terms of such policies and bonds
(or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.17 Minute Books. The minute books of the Company made available to
counsel for Parent are the only minute books of the Company and contain a
reasonably accurate summary of all meetings of directors (or committees thereof)
and stockholders or actions by written consent since the time of incorporation
of the Company.
2.18 Environmental Matters.
(a) Hazardous Material. The Company has not operated any
underground storage tanks, and has no knowledge of the existence, at any time,
of any underground storage tank (or related piping or pumps), at any property
that the Company has at any time owned, operated, occupied or leased. The
Company has not released any amount of any substance that has been designated by
any Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the
environment, including, without limitation, PCBS, asbestos, oil and petroleum
products, urea-formaldehyde and all substances listed as a "hazardous
substance," "hazardous waste," "hazardous material" or "toxic substance" or
words of similar import, under any law, including but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended; the Resource Conservation and Recovery Act of 1976, as
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amended; the Federal Water Pollution Control Act, as amended; the Clean Air Act,
as amended, or the regulations promulgated pursuant to said laws (a "Hazardous
Material"). No Hazardous Materials are present as a result of the actions or
omissions of the Company, or, to the Company's knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property, including
the land and the improvements, ground water and surface water thereof, that the
Company has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not
transported, stored, used, manufactured, disposed of, released or exposed its
employees or others to Hazardous Materials in violation of any law in effect on
or before the Effective Time, nor has the Company disposed of, transported,
sold, or manufactured any product containing a Hazardous Material (any or all of
the foregoing being collectively referred to as "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute promulgated
by any Governmental Entity in effect prior to or as of the date hereof to
prohibit, regulate or control Hazardous Materials or any Hazardous Material
Activity.
(c) Permits. The Company currently holds all environmental
approvals, permits, licenses, clearances, and consents (the "Environmental
Permits") necessary for the conduct of the Company's Hazardous Material
Activities and other businesses of the Company as such activities and businesses
are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or to the
Company's knowledge, threatened concerning any Environmental Permit, Hazardous
Material or any Hazardous Materials Activity of the Company. The Company is not
aware of any fact or circumstance which could involve the Company in any
environmental litigation or impose upon the Company any environmental liability.
2.19 Brokers' and Finders' Fees: Third Party Expenses. Except as set
forth on Schedule 2.19, the Company has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby. Schedule 2.19 sets forth the principal terms
and conditions of any agreement, written or oral, with respect to such fees.
Schedule 2.19 sets forth the Company's current reasonable estimate of all Third
Party Expenses (as defined in Section 5.4) expected to be incurred by the
Company in connection with the negotiation and effectuation of the terms and
conditions of this Agreement and the transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
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(a) Definitions. With the exception of the definition of
"Affiliate" set forth in Section 2.20(a)(i) below (which definition shall apply
only to this Section 2.20), for purposes of this Agreement, the following terms
shall have the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity
under common control with the Company within the meaning of Section 414(b), (c),
(m) or (o) of the Code and the regulations thereunder;
(ii) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan,
program, policy, practice, contract, agreement or other arrangement providing
for compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits or remuneration
of any kind, whether formal or informal, funded or unfunded and whether or not
legally binding, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan,
which is or has been maintained, contributed to, or required to be contributed
to, by the Company or any Affiliate for the benefit of any "Employee" (as
defined below), and pursuant to which the Company or any Affiliate has or may
have any material liability contingent or otherwise;
(iv) "Employee" shall mean any current, former, retired
employee, officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management,
employment, severance, consulting, relocation, repatriation, expiration, visas,
work permit or similar agreement or contract between the Company or any
Affiliate and any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "Multiemployer Plan" shall mean any "Pension Plan"
(as defined below) which is a "multiemployer plan," as defined in Section 3(37)
of ERISA; and
(viii) "Pension Plan" shall refer to each Company Employee
Plan which is an "employee pension benefit plan," within the meaning of Section
3(2) of ERISA.
(b) Schedule. Schedule 2.20(b) contains an accurate and complete
list of each Employee Agreement. Except as expressly set forth on Company
Schedule 2.20(b), all liabilities under each Company Employee Plan or Employee
Agreement have been properly and accurately reflected on the Balance Sheet to
the extent required by GAAP. The Company does not have any plan or commitment,
whether legally binding or not, to establish
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any new Company Employee Plan or Employee Agreement, to modify any Company
Employee Plan or Employee Agreement (except to the extent required by law or to
conform any such Company Employee Plan or Employee Agreement to the requirements
of any applicable law, in each case as previously disclosed to Parent in
writing, or as required by this Agreement), or to enter into any Company
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(c) Documents. The Company has provided to Parent (i) correct and
complete copies of all documents embodying or relating to each Company Employee
Plan and each Employee Agreement including all amendments thereto and written
interpretations thereof; (ii) the most recent annual actuarial valuations, if
any, prepared for each Company Employee Plan; (iii) the three most recent annual
reports (Series 5500 and all schedules thereto), if any, required under ERISA or
the Code in connection with each Company Employee Plan or related trust; (iv) if
the Company Employee Plan is funded, the most recent annual and periodic
accounting of Company Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material modifications, if
any, required under ERISA with respect to each Company Employee Plan; (vi) all
IRS determination letters and rulings relating to Company Employee Plans and
copies of all applications and correspondence to or from the IRS or the
Department of Labor ("DOL") with respect to any Company Employee Plan; (vii) all
communications material to any Employee or Employees relating to any Company
Employee Plan and any proposed Company Employee Plans, in each case, relating to
any amendments, terminations, establishments, increases or decreases in
benefits, acceleration of payments or vesting schedules or other events which
would result in any material liability to the Company; and (viii) all
registration statements and prospectuses prepared in connection with each
Company Employee Plan.
(d) Employee Plan Compliance. Except as set forth on Schedule
2.20(d), (i) the Company has performed in all material respects all obligations
required to be performed by it under each Company Employee Plan, and each
Company Employee Plan has been established and maintained in all materials
respects in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) no "prohibited transaction," within the meaning of
Section 4975 of the Code or Section 406 of ERISA, has occurred with respect to
any Company Employee Plan; (iii) there are no actions, suits or claims pending,
or, to the knowledge of the Company, threatened or anticipated (other than
routine claims for benefits) against any Company Employee Plan or against the
assets of any Company Employee Plan; and (iv) each Company Employee Plan can be
amended, terminated or otherwise discontinued after the Effective Time in
accordance with its terms, without liability to the Company, Parent or any of
its Affiliates (other than ordinary administration expenses typically incurred
in a termination event); (v) there are not inquiries or proceedings pending or,
to the knowledge of the Company or any affiliates, threatened by the IRS or DOL
with respect to any Company Employee Plan; and (vi) neither the Company nor any
Affiliate is subject to any penalty or
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tax with respect to any Company Employee Plan under Section 402(i) of ERISA or
Section 4975 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed
to or been requested to contribute to any Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in
Schedule 2.20(g), no Company Employee Plan provides, or has any liability to
provide, life insurance, medical or other employee benefits to any Employee upon
his or her retirement or termination of employment for any reason, except as may
be required by statute, and the Company has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be provided
with life insurance, medical or other employee welfare benefits upon their
retirement or termination of employment, except to the extent required by
statute.
(h) Effect of Transaction.
(i) Except as set forth on Schedule 2.20(h)(i), the
execution of this Agreement and the consummation of the transactions
contemplated hereby will not (either alone or upon the occurrence of any
additional or subsequent events) constitute an event under any Company Employee
Plan, Employee Agreement, trust or loan that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h)(ii), no
payment or benefit of which will or may be made by the Company or Parent or any
of their respective affiliates with respect to any Employee will be
characterized as an "excess parachute payment," within the meaning of Section
280G(b)(1) of the Code.
(i) Employment Matters. The Company (i) is in compliance in all
material respects with all applicable foreign, federal, state and local laws,
rules and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours, in each case, with respect to
Employees; (ii) has withheld all amounts required by law or by agreement to be
withheld from the wages, salaries, and other payments to Employees; (iii) is not
liable for any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing; and (iv) is not liable for any payment to any
trust or other fund or to any governmental or administrative authority, with
respect to
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unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the normal
course of business and consistent with past practice).
(j) Labor. No work stoppage or labor strike against the Company
is pending or threatened. Except as set forth in Schedule 2.20(j)), the Company
is not involved in or threatened with, any labor dispute, grievance, or
litigation relating to labor, safety or discrimination matters involving any
Employee, including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would, individually
or in the aggregate, result in liability to the Company. Neither the Company nor
any of its subsidiaries has engaged in any unfair labor practices within the
meaning of the National Labor Relations Act which would, individually or in the
aggregate, directly or indirectly result in a liability to the Company. Except
as set forth in Schedule 2.20(j)), the Company is not presently, nor has it been
in the past, a party to, or bound by, any collective bargaining agreement or
union contract with respect to Employees and no collective bargaining agreement
is being negotiated by the Company.
2.21 Employees. To the best of the Company's knowledge, (i) no employees
of the Company are in violation of any term of any employment contract, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
the Company because of the nature of the business conducted or presently
proposed to be conducted by the Company or to the use of trade secrets or
proprietary information of others and (ii) no officer or key employee has given
notice to the Company, nor is the Company otherwise aware, that any employee
intends to terminate his or her employment with the Company.
2.22 Pooling of Interest. To the Company's knowledge, based on
consultation with its independent accountants, neither the Company nor any of
its directors, officers or stockholders has taken any action which would
interfere with Parent's ability to account for the Merger as a pooling of
interests.
2.23 Disclosure Documents. None of the information supplied or to be
supplied by the Company for inclusion in and which is in fact included in (i)
the combined proxy statement relating to the meetings of the Company's and
Parent's stockholders to be held in connection with the Merger (the "Proxy
Statement"), and (ii) the registration statement on Form S-4 or other
appropriate registration form to be filed with the SEC by Parent in connection
with the offer and issuance of Parent Common Stock in or as a result of the
Merger (the "Registration Statement") including the Proxy Statement included
therein, will, in the case of the Proxy Statement, at the time of mailing of the
Proxy Statement to stockholders of the Company and/or Parent, contain any untrue
statement of a material fact or will omit to state any material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they are made, not misleading or will, in the
case of the Registration Statement, at the time the Registration
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Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances under which they were made, not misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Securities Exchange Act of 1934 (the "Exchange Act") and the rules and
regulations thereunder, except that no representation is made by the Company
with respect to information supplied by Parent or Merger Sub for inclusion
therein.
2.24 Representation Complete. To the best of its knowledge, none of the
representations or warranties made by the Company (as modified by the Company
Schedules), nor any statement made in any schedule or certificate furnished by
the Company pursuant to this Agreement, or furnished in or in connection with
documents mailed or delivered to the stockholders of the Company in connection
with soliciting their consent to this Agreement and the Merger, contains or will
contain at the Effective Time, any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company and its
stockholders as follows:
3.1 Organization, Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and Merger
Sub has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which the failure to
be so qualified would have a material adverse effect on Parent and Merger Sub as
a whole.
3.2 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub,
enforceable in accordance with its terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws of general
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application affecting enforcement of creditors' rights generally and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief or other equitable remedies. The execution and delivery of this Agreement
by Parent does not, and, as of the Effective time, the consummation of the
transactions contemplated hereby will not result in a Conflict with (i) any
provision of the Certificate of Incorporation or Bylaws of Parent or (ii) any
mortgage, indenture, lease, contract, or other agreement or instrument to which
Parent is a party, or any permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to Parent
or its properties or assets. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with any Governmental
Entity or any third party (so as not to trigger any Conflict) is required by or
with respect to Parent or Merger Sub in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby, except for (i) the filing of the Merger Agreement with the Delaware
Secretary of State, (ii) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable federal and state securities laws and (iii) such other consents,
waivers, authorizations, filings, approvals and registrations which are set
forth on Schedule 3.2.
3.3 Capital Structure.
(a) The authorized stock of Parent consists of 75,000,000 shares
of Common Stock, of which 13,693,151 shares were issued and outstanding as of
February 28, 1998, and 10,000,000 shares of Preferred Stock, none of which is
issued or outstanding. The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, all of which, as of the date hereof, are issued
and outstanding and are held by Parent. All such shares have been duly
authorized, and all such issued and outstanding shares have been validly issues,
are fully paid and nonassessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof.
(b) The shares of Parent Common Stock to be issued pursuant to
the Merger, when issued, will be duly authorized, validly issued, fully paid and
nonassessable.
3.4 SEC Documents; Parent Financial Statements. Parent has furnished or
made available to the Company true and complete copies of all reports or
registration statements filed by it with the U.S. Securities and Exchange
Commission (the "SEC") under the Exchange Act for all periods since July 29,
1997, all in the form so filed (all the foregoing being collectively referred to
as the "SEC Documents"). As of the date hereof, Parent has filed with the SEC
all reports, proxy statements and other information required to be filed by it
under the Exchange Act. As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, including where applicable the
requirements under Item 601(10) of Regulation S-K to file certain contracts, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated
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<PAGE> 37
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a document subsequently filed with the SEC. The financial
statements of Parent, including the notes thereto, included in the SEC Documents
(the "Parent Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and present fairly the consolidated financial position of Parent at the dates
thereof and the consolidated results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments). There has been no change in Parent accounting policies
except as described in the notes to the Parent Financial Statements.
3.5 No Material Adverse Change. Since the date of the balance sheet
included in the Parent's most recently filed report on Form 10-K, Parent has
conducted its business in the ordinary course and except as otherwise disclosed
in Parent's most recently filed report on Form 10-K, there has not occurred: (a)
any material adverse change in the business, assets (including intangible
assets), financial condition, results of operations, liabilities or prospects of
the Parent; (b) any amendment or change in the Certificate of Incorporation or
Bylaws of parent, or (c) any damage to, destruction or loss of any assets of the
Parent (whether or not covered by insurance) that materially and adversely
affects the financial condition or business of Parent.
3.6 Litigation. Except as set forth in Schedule 3.6, there is no action,
suit or proceeding of any nature pending or threatened against Parent, its
properties or any of its officers or directors, in their respective capacities
as such. Except as set forth in Schedule 3.6, there is no investigation pending
or to its knowledge threatened against Parent, its properties or any of its
officers or directors by or before any governmental entity. Schedule 3.6 sets
forth, with respect to any pending or threatened action, suit, proceeding or
investigation, the forum, the parties thereto, the subject matter thereof and
the amount of damages claims or other remedy requested. No governmental entity
has at any time challenged or questioned the legal right of Parent to
manufacture, offer or sell any of its products in the present manner or style
thereof.
3.7 Intellectual Property.
(a) Parent owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, maskworks, net lists, schematics,
technology, know-how, computer software programs or applications (in both source
code and object code form), and tangible or intangible proprietary information
or material that are used in the business of Parent as currently conducted or as
proposed to be conducted by Parent (the "Parent Intellectual Property Rights").
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(b) No claims with respect to the Parent Intellectual Property Rights
have been asserted or are, to Parent's knowledge, threatened by any person, nor
to Parent's knowledge are there any valid grounds for any bona fide claims, (i)
to the effect that the manufacture, sale, licensing or use of any of the
products of Parent infringes on any copyright, patent, trade mark, service mark,
trade secret or other proprietary right, (ii) against the use by Parent of any
trademarks, service marks, trade names, trade secrets, copyrights, maskworks,
patents, technology, know-how or computer software programs and applications
used in Parent's business as currently conducted or as proposed to be conducted
by Parent, or (iii) challenging the ownership by Parent, validity or
effectiveness of any of the Parent Intellectual Property Rights. All registered
trademarks, service marks and copyrights held by Parent are valid and
subsisting. To Parent's knowledge, Parent has not infringed, and the business of
Parent as currently conducted or as proposed to be conducted does not infringe,
any copyright, patent, trademark, service mark, trade secret or other
proprietary right of any third party. To Parent's knowledge, there is not
material unauthorized use, infringement or misappropriation of any of Parent's
Intellectual Property Rights by any third party, including any employee or
former employee of Parent. No Parent Intellectual Property Right or product of
Parent or any of its subsidiaries is subject to any outstanding decree, order,
judgment, or stipulation restriction in any manner the licensing thereof by
Parent. Each employee, consultant or contractor of Parent has executed a
proprietary information and confidentiality agreement substantially in Parent's
standard forms. All software included in the Parent Intellectual Property Rights
that is original work of the Company has been either created by employees of the
Company on a work-for-hire basis or by consultants or contractors who have
created such software themselves and have assigned all rights they may have had
in such software to the Company.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement and the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing) to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, to pay its debts and Taxes when due, to pay or perform
other obligations when due, and, to the extent consistent with such business, to
use all reasonable efforts consistent with past practice and policies to
preserve intact its present business organization, keep available the services
of its present officers and key employees
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and preserve its relationships with customers, suppliers, distributors,
licensors, and others having business dealings with it, all with the goal of
preserving unimpaired its goodwill and ongoing businesses at the Effective Time.
The Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of its business, and any material event involving or
adversely affecting the Company or its business. Except as expressly
contemplated by this Agreement, the Company shall not, without the prior written
consent of Parent (which such consent shall not be unreasonably withheld by
Parent):
(a) Enter into any commitment, activity or transaction not in the
ordinary course of business.
(b) Transfer to any person or entity any rights to any Company
Intellectual Property Rights (other than pursuant to End-User Licenses in the
ordinary course of business).
(c) Enter into or amend any agreements pursuant to which any
other party is granted manufacturing, marketing, distribution or similar rights
of any type or scope with respect to any products of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
(e) Commence any litigation or any dispute resolution process;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any Company
Capital Stock, or split, combine or reclassify any of Company Capital Stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of Company Capital Stock, or repurchase, redeem
or otherwise acquire, directly or indirectly, any shares of Company Capital
Stock (or options, warrants or other rights exercisable therefor);
(g) Except for the issuance of shares of Company Capital Stock
upon exercise or conversion of presently outstanding Company Options or
Warrants, issue, grant, deliver or sell or authorize or propose the issuance,
grant, delivery or sale of, or purchase or propose the purchase of, any shares
of Company Capital Stock or securities convertible into, or subscriptions,
rights, warrants or options to acquire, or other agreements or commitments of
any character obligating it to issue any such shares or other convertible
securities;
(h) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
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(i) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(j) Sell, lease, license or otherwise dispose of any of its
properties or assets except in the ordinary course of business and consistent
with past practice;
(k) Except as contemplated on Schedule 2.7(a), incur any
indebtedness for borrowed money or guarantee any such indebtedness or issue or
sell any debt securities of the Company or guarantee any debt securities of
others;
(l) Grant any severance or termination pay to any director,
officer, employee or consultant, except payments made pursuant to standard
written agreements outstanding on the date hereof (which such agreements are
disclosed on Schedule 4.1(1));
(m) Adopt or amend any employee benefit plan, program, policy or
arrangement (other than changes made to the Company's health insurance plans
made in the ordinary course of business consistent with past practices), or
enter into any employment contract, extend any employment offer, pay or agree to
pay any special bonus or special remuneration to any director, employee or
consultant, or increase the salaries or wage rates of its employees;
(n) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past practice;
(o) Take any action, including the acceleration of vesting of any
options, warrants, restricted stock or other rights to acquire shares of Company
capital stock, which would be reasonably likely to interfere with Parent's
ability to account for the Merger as a pooling of interests or any other action
that could jeopardize the tax-free reorganization hereunder;
(p) Pay, discharge or satisfy, in an amount in excess of $10,000,
in any one case, or $25,000, in the aggregate, any claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or otherwise),
other than the payment, discharge or satisfaction in the ordinary course of
business of liabilities reflected or reserved against in the Company Financial
Statements or liabilities incurred in the ordinary course of business consistent
with past practices after the date of the Company Financial Statements;
(q) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle
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any claim or assessment in respect of Taxes, or consent to any extension or
waiver of the limitation period applicable to any claim or assessment in respect
of Taxes;
(r) Enter into any strategic alliance, joint development or joint
marketing arrangement or agreement;
(s) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(t) Waive or commit to waive any rights with a value in excess of
$10,000, in any one case, or $25,000, in the aggregate;
(u) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business;
(v) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity in
which the Company directly or indirectly holds any interest on the date hereof;
or
(w) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(a) through (v) above, or any other action that
would prevent the Company from performing or cause the Company not to perform
its covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time and the
date of termination of this Agreement pursuant to the provisions of Section 8.1
hereof, the Company will not (nor will the Company permit any of the Company's
officers, directors, stockholders, agents, representatives or affiliates to)
directly or indirectly, take any of the following actions with any party other
than Parent and its designees: (a) solicit, initiate, entertain, or encourage
any proposals or offers from, or conduct discussions with or engage in
negotiations with, any person relating to any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger,
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purchase of capital stock, purchase of assets or otherwise), any material
portion of its or their capital stock or assets or any equity interest in the
Company or any of its subsidiaries, (b) provide information with respect to it
to any person, other than Parent, relating to, or otherwise cooperate with,
facilitate or encourage any effort or attempt by any such person with regard to,
any possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company or any of
its subsidiaries, (c) enter into an agreement with any person, other than
Parent, providing for the acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise), any material
portion of its or their capital stock or assets or any equity interest in the
Company or any of its subsidiaries, or (d) make or authorize any statement,
recommendation or solicitation in support of any possible acquisition of the
Company or any of its subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company or any of
its subsidiaries by any person, other than by Parent. The Company shall
immediately cease and cause to be terminated any such contacts or negotiations
with third parties relating to any such transaction or proposed transaction. In
addition to the foregoing, if the Company receives prior to the Effective Time
or the termination of this Agreement any offer or proposal relating to any of
the above, the Company shall immediately notify Parent thereof, including
information as to the identity of the offeror or the party making any such offer
or proposal and the specific terms of such offer or proposal, as the case may
be, and such other information related thereto as Parent may reasonably request.
Except as contemplated by this Agreement, disclosure by the Company of the terms
hereof (other than the prohibition of this section) shall be deemed to be a
violation of this Section 4.2.
4.3 Conduct of Business of Parent. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement, the Effective Time or June 15, 1998, except in connection with the
transactions contemplated hereby, Parent shall not, without the prior written
consent of the Company (which such consent shall not be unreasonably withheld by
the Company), issue securities of Parent with an aggregate fair market value in
excess of $30,000,000 (exclusive of the fair market value of (i) any securities
issued upon the conversion or exercise of currently outstanding convertible or
exercisable securities, (ii) shares of Parent Common Stock issued in the Merger,
(iii) warrants or options to acquire Parent Common Stock issued in the Merger,
(iv) the issuance or sale of Parent Common Stock (or options therefor) to
employees, consultants and directors, directly or pursuant to a stock option
plan or employee stock purchase plan).
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Sale and Registration of Shares; Stockholder Matters.
(a) Registration Statement on Form S-4; Stockholder Matters. As
promptly as reasonably practicable after the execution of this Agreement, Parent
and the Company shall prepare the Registration Statement pertaining to the offer
and sale of shares of Parent Common Stock to be issued by virtue of the Merger.
The Registration Statement shall include therein the Proxy Statement relating to
the solicitation of the consent of the stockholders of Parent and the Company to
the Merger. Parent shall file with the SEC the Registration Statement as soon as
is reasonably practicable following preparation thereof. As promptly as
reasonably practicable after the date of this Agreement, parent will file any
other filings required under the Exchange Act, the Securities Act or any other
Federal or Blue Sky laws related to the Merger and the transactions contemplated
by this Agreement (collectively,
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the "Other Filings"). The Company shall provide to Parent and its counsel for
inclusion in the Proxy Statement and Other Filings, in form and substance
reasonably satisfactory to Parent and its counsel, such information concerning
the Company, and its operations, capitalization, technology, share ownership and
other material information as Parent or its counsel may reasonably request in
connection with any action contemplated by this Section 5.1(a). Each of Parent
and the Company shall use its commercially reasonable efforts to respond to any
comments of the SEC, to have the Registration Statement declared effective under
the Securities Act as promptly as practicable after such filing and to cause the
Proxy Statement to be mailed to the Parent's stockholders and Company's
stockholders at the earliest practicable time. Each party will notify the other
parties hereto promptly of the receipt of any comments from the SEC or its staff
and of any request by the SEC or its staff or any other government officials for
amendments or supplements to the Registration Statement, the Proxy Statement or
any Other Filing or for additional information and will supply the other party
with copies of all correspondence between such party or any of its
representatives, on the one hand, and the SEC, or its staff or any other
government official, on the other hand, with respect to the Registration
Statement, the Proxy Statement or any Other Filing. Whenever any event occurs
which should be set forth in an amendment or supplement to the Proxy Statement,
Registration Statement or any Other Filing, Parent or the Company, as the case
may be, shall promptly inform the other of such occurrence and cooperate in
filing with the SEC or its staff or any other government officials, such
amendment or supplement.
(b) Stockholder Questionnaire. The Company will use reasonable
efforts to cause each stockholder of the Company to execute and deliver to
Parent a Stockholder Questionnaire in the form attached hereto as Exhibit A (the
"Stockholder Questionnaire").
(c) Stockholders' Meeting; Proxy Material. The Company and Parent
shall each cause a meeting of its respective stockholders to be duly called and
held as soon as practicable following the mailing of the Proxy Statement for the
purpose of voting on the approval of this Agreement and the Merger. The Board of
Directors of each of the Company and Parent shall, subject to their fiduciary
duties, unanimously recommend approval and adoption of this Agreement and the
Merger by their respective stockholders. In connection with such meetings, each
of the Company and Parent:
(i) will, together with Merger Sub, promptly prepare and
file with the SEC, will use its best efforts to have cleared by the SEC and will
thereafter mail to its stockholders as promptly as practicable the Proxy
Statement and all other proxy materials for its respective meeting and will hold
its respective meeting no later than 15 days after the effectiveness of the
Registration Statement;
(ii) will, subject to its directors' fiduciary duties, use
all reasonable efforts to obtain the necessary approvals by its stockholders of
this Agreement and the transactions contemplated hereby; and
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(iii) will otherwise comply with all legal requirements
applicable to its respective meeting.
(d) Registration Rights. Parent shall use commercially reasonable
efforts to amend its Amended and Restated Investors' Rights Agreement dated
October 30, 1996, as amended (the "Investors' Rights Agreement"), to cause the
recipients of Parent Common Stock set forth on Schedule 5.1(d) (the "Scheduled
Shareholders") to be included as parties to the Investors' Rights Agreement;
provided, however, that such parties shall not have the right to request the
initiation of a registration under Section 1.2 or Section 1.12 of the Investors'
Rights Agreement (but shall be entitled to request inclusion in such
registrations pursuant to the terms of such sections). For the purposes of
determining 33% pursuant to the terms of Section 1.2 of the Investor Rights
Agreement only, the Scheduled Shareholders shall be excluded from the
denominator of Registrable Securities.
(e) Additional Assurances. At the request of Parent, the Company
shall use its best efforts to cause the Company's stockholders to execute and
deliver to Parent such instruments and do and perform such acts and things as
may be necessary or desirable for complying with all applicable securities laws
and state corporate law.
5.2 Access to Information. Each party shall afford the others and their
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning its business, properties and personnel (subject to
restrictions imposed by applicable law) as the others may reasonably request,
subject, in the case of Parent, to reasonable limits on access to its technical
and other non-public information. No information or knowledge obtained in any
investigation pursuant to this Section 5.2 shall affect or be deemed to modify
any representation or warranty contained herein or, except as provided by
Section 6.3(n), the conditions of the parties to consummate the Merger.
5.3 Confidentiality. Each of the parties hereto hereby agrees to keep
such information or knowledge obtained in any investigation pursuant to Section
5.2, or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) became known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by order of court or
government agency with subpoena powers or (f) which is disclosed in the course
of any litigation between any of the parties hereto.
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5.4 Expenses. All fees and expenses incurred in connection with the
Merger including, without limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third parties ("Third Party
Expenses") incurred by a party in connection with the negotiation and
effectuation of the terms and conditions of this Agreement and the transactions
contemplated hereby shall be the obligation of the respective party incurring
such fees and expenses; provided, however, that at the Closing, Parent shall pay
the Third Party Expenses of the Company (not to exceed $1,250,000.00).
5.5 Public Disclosure. Unless otherwise required by law (including,
without limitation, federal and state securities laws) or, as to Parent, by the
rules and regulations of the Nasdaq Stock Market Inc., prior to the Effective
Time, no public disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release, provided that such approval
shall not be unreasonably withheld.
5.6 Consents. The Company shall use its best efforts to obtain the
consents, waivers and approvals under any of the Contracts as may be required in
connection with the Merger (all of such consents, waivers and approvals are set
forth in Company Schedules) so as to preserve all rights of and benefits to the
Company thereunder.
5.7 FIRPTA Compliance. On or prior to the Closing Date, the Company
shall deliver to Parent a properly executed statement in a form reasonably
acceptable to Parent for purposes of satisfying Parent's obligations under
Treasury Regulation Section 1.145-2(c)(3).
5.8 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use its reasonable efforts to
ensure that its representations and warranties remain true and correct in all
material respects, and to take promptly, or cause to be taken all actions, and
to do promptly, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings, and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Parent shall not be required to agree to any
divestiture by Parent or the Company or any of Parent's subsidiaries or
affiliates of shares of capital stock or any business, assets or property of
Parent or its subsidiaries or affiliates or the Company or its affiliates, or
the imposition of any material limitation on the ability of any of them to
conduct their businesses or to own or exercise control of such assets,
properties and stock.
5.9 Notification of Certain Matters. The Company shall give prompt
notice to Parent, and Parent shall give prompt notice to the Company, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any
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representation or warranty of the Company and Parent, respectively, contained in
this Agreement to be untrue or inaccurate at or prior to the Effective Time and
(ii) any failure of the Company or Parent, as the case may be, to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 5.9 shall not limit or otherwise affect any remedies available to
the party receiving such notice.
5.10 Certain Benefit Plans. Subject to compliance with
pooling-of-interest accounting treatment of the Merger, Parent shall take such
reasonable actions as are necessary to allow eligible employees of the Company
to participate in the benefit of the programs of Parent, or alternative benefits
programs substantially comparable to those applicable to employees of Parent, as
soon as practicable after the Effective Time.
5.11 Pooling Accounting. The Company and Parent shall each use its
reasonable efforts to cause the business combination to be effected by the
Merger to be accounted for as a pooling of interests. The Company shall use its
reasonable efforts to cause its respective employees, directors, stockholders
and affiliates not to take any action that would adversely affect the ability of
Parent to account for the business combination to be effected by the Merger as a
pooling of interests.
5.12 Affiliate Agreements. Schedule 5.12 sets forth those persons who,
in the Company's reasonable judgment, are or may be "affiliates" of the Company
within the meaning of Rule 145 (each such person an "Affiliate") promulgated
under the Securities Act ("Rule 145"). The Company shall provide Parent such
information and documents as Parent shall reasonably request for purposes of
reviewing such list. The Company has delivered or shall cause to be delivered to
Parent, concurrently with the execution of this Agreement an executed Affiliate
Agreement from each "Affiliate" in the form attached hereto as Exhibit B. Parent
shall be entitled to place appropriate legends on the certificates evidencing
any Parent Common Stock to be received by such Affiliates pursuant to the terms
of this Agreement, and to issue appropriate stop transfer instructions to the
transfer agent for Parent Common Stock, consistent with the terms of such
Affiliate Agreements.
5.13 Voting Agreement. The Company shall deliver or cause to be
delivered to Parent, concurrently with the execution of this Agreement, from
each person listed on Schedule 5.13(a), an executed Voting Agreement (the
"Voting Agreements") in the form attached hereto as Exhibit C, agreeing, among
other things, to vote in favor of the Merger. Parent shall deliver or cause to
be delivered to Company, concurrently with the execution of this Agreement, from
each person listed on Schedule 5.13(b), an executed Voting Agreement in the Form
attached hereto as Exhibit D.
5.14 Additional Documents and Further Assurances. Each party hereto, at
the request of the other party hereto, shall execute and deliver such other
instruments and do and
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perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions and
contemplated hereby.
5.15 Registration Statement on Form S-8. Parent shall file a
registration statement on Form S-8 for the shares of Parent Common Stock
issuable with respect to assumed Company Options promptly after the Effective
Time.
5.16 Company Auditors. The Company will use its commercially reasonable
efforts to cause its management and its independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) as required by Parent to comply with
applicable SEC regulations, (ii) the review of the Company's audit work papers
for up to the past three years, including the examination of selected interim
financial statements and data, and (iii) the delivery of such representations
from the Company's independent accountants as may be reasonably requested by
Parent or its accountants in order for Parent's accountants to render the
opinion called for by Section 6.3(l) hereof.
5.17 Termination Fee. In the event that this Agreement is terminated
pursuant to Section 8.1(b)(i) solely due to the failure of Parent to obtain the
approval of its stockholders as provided in Section 6.1(a), then Parent shall,
within five (5) business days after termination of this Agreement, pay the
Company, by cashier's check or wire transfer, a termination fee of Two Million
Dollars ($2,000,000) (the "Termination Fee") as liquidated damages.
5.18 Nasdaq National Market Listing. Prior to Closing, Parent shall
authorize for listing on the Nasdaq National Market the shares of Parent Common
Stock issuable, and those required to be reserved for issuance, in connection
with the Merger, upon official notice of issuance.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the stockholders of the Company and Parent by
the requisite vote under applicable law and the respective Certificates of
Incorporation of the Company and Parent.
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(b) Government Approvals. All approvals of governments and
governmental agencies necessary to consummate the transactions hereunder shall
have been received.
(c) No Injunctions or Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect.
(d) Tax Opinions. Parent and the Company shall each have received
substantially identical written opinions from their counsel, Brobeck Phleger &
Harrison LLP and Paul, Hastings, Janosfsky & Walker LLP, respectively, in form
and substance reasonably satisfactory to them, to the effect that the Merger
will constitute a reorganization within the meaning of Section 368(a) of the
Code. The parties to this Agreement agree to make reasonable representations as
requested by such counsel for the purpose of rendering such opinions.
(e) Registration Statement Effective. The SEC shall have declared
the Registration effective. No stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the Proxy
Statement, shall have been initiated or threatened in writing by the SEC.
6.2 Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the Merger and the transactions contemplated by
this Agreement shall be subject to the satisfaction at or prior to the Closing
of each of the following conditions, any of which may be waived, in writing,
exclusively by the Company.
(a) Representations and Warranties. The representations and
warranties of Parent and Merger Sub contained in this Agreement shall be true
and correct in all material respects on and as of the Closing Date, except for
changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a material adverse
effect on Parent; and the Company shall have received a certificate to such
effect signed on behalf of Parent by a duly authorized officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or compiled in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them or prior to
the Effective Time,
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and the Company shall have received a certificate to such effect signed by a
duly authorized officer of Parent.
(c) Third Party Consents. The Company shall have been furnished
with evidence satisfactory to it that Parent has obtained the consents,
approvals and waivers set forth in Schedule 6.2(c).
(d) Legal Opinion. The Company shall have received a legal
opinion from Brobeck Phleger & Harrison LLP, counsel to Parent, in substantially
the form attached hereto as Exhibit E.
(e) Material Adverse Change. Except as disclosed in Parent's
Annual Report on Form 10-K for the period ended December 31, 1997, there shall
not have occurred any material adverse change in the business, assets (including
intangible assets), financial condition, results of operations, liabilities or
prospects of the Parent since December 31, 1997, except for changes directly
caused by changes in general economic conditions or changes which affect the
Parent's industry as a whole.
(f) Amendment to Investors' Rights Agreement. A majority of the
current holders of Registrable Securities (as defined in the Investors' Rights
Agreement) shall have executed the Amendment to the Amended and Restated
Investors' Rights Agreement contemplated by Section 5.1(d).
6.3 Additional Conditions to the Obligations of Parent and Merger Sub.
The obligations of Parent and Merger Sub to consummate the Merger and the
transactions contemplated by this Agreement shall be subject to the satisfaction
at or prior to the Closing of each of the following conditions, any of which may
be waived, in writing, exclusively by Parent:
(a) Representation and Warranties. The representation and
warranties of the Company contained in this Agreement shall be true and correct
in all material respects on and as of the Closing Date, except for changes
contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such date), with the same force and effect as if
made on and as of the Closing Date, except, in all such cases, for such
breaches, inaccuracies or omissions of such representations and warranties which
have neither had nor reasonably would be expected to have a Material Adverse
Effect on the Company or Parent; and Parent and Merger Sub shall have received a
certificate to such effect signed on behalf of the Company by the chief
executive officer and chief executive financial officer of the Company.
(b) Agreements and Covenants. The Company shall have performed or
complied in all material respects with all agreements and covenants required by
this
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Agreement to be performed or complied with by it on or prior to the Effective
Time, and Parent and Merger Sub shall have received a certificate to such effect
signed by a duly authorized officer of the Company.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it that the Company has obtained the consents,
approvals and waivers set forth in Schedule 6.3(c).
(d) Legal Opinion. Parent shall have received a legal opinion
from Paul, Hastings, Janosfsky & Walker LLP, legal counsel to the Company, in
substantially the form attached hereto as Exhibit F.
(e) Affiliate Agreements. Each of the parties identified by the
Company as being an Affiliate of the Company shall have delivered to Parent an
executed Affiliate Agreement which shall be in full force and effect.
(f) Material Adverse Change. There shall not have occurred any
material adverse change in the business, assets (including intangible assets),
financial condition, results of operations, liabilities or prospects of the
Company since February 28, 1997, except for changes directly caused by changes
in general economic conditions or changes which affect the Company's industry as
a whole, or losses of the Company's customers in cases where such customers
certify that the primary reason for terminating business with the Company was
not wanting to do business with Parent.
(g) Dissenters' Rights. Holders of more than 5% of the
outstanding shares of Company Capital Stock shall not have exercised, nor shall
they have any continued right to exercise, appraisal, dissenters' or similar
rights under applicable law with respect to their shares by virtue of the
Merger.
(h) Opinion of Accountants. Parent shall have received a letter
from KPMG Peat Marwick LLP regarding such firm's concurrence with Parent
management's conclusion as to the appropriateness of pooling of interests
accounting for the Merger under Accounting Principles Board Opinion No. 16, if
consummated in accordance with this Agreement. In addition, the Company's
accountants shall have provided a letter, satisfactory in form and substance to
Parent, regarding the appropriateness of pooling of interests accounting for a
transaction involving the Company.
ARTICLE VII
ESCROW
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7.1 Escrow Period. Subject to the following requirements, the Escrow
Fund shall be in existence immediately following the Effective Time and
terminate at 5:00 p.m., California time, on the date which is the earlier of (i)
one year following the Closing Date or (ii) the date of the filing with the SEC
of the next audit opinion issued by the Company's auditors (the "Escrow
Period"), provided that the Escrow Period shall not terminate with respect to
such amount (or some portion thereof), that together with the aggregate amount
remaining in the Escrow Fund is necessary in the reasonable judgment of Parent,
subject to the objection of the Securityholder Agent (as defined below) and the
subsequent arbitration of the matter in the manner provided in Section 7.2(f)
hereof, to satisfy any unsatisfied claims concerning facts and circumstances
existing prior to the termination of such Escrow Period specified in any
Officer's Certificate delivered to the Escrow Agent prior to termination of such
Escrow Period.
7.2 Escrow Arrangements.
(a) Escrow Fund. At the Effective Time, the Company's
stockholders will be deemed to have received and deposited with the Escrow Agent
(as defined below) the Escrow Amount (plus any additional shares as may be
issued upon any stock split, stock dividend or recapitalization effected by
Parent after the Effective Time) without any act of any stockholder. As soon as
practicable after the Effective Time, the Escrow Amount, without any act of any
stockholder, will be deposited with an institution acceptable to Parent and the
Securityholder Agent (as defined in Section 7.2(g) below)) as Escrow Agent (the
"Escrow Agent"), such deposit to constitute an escrow fund (the "Escrow Fund")
to be governed by the terms set forth herein and at Parent's cost and expense.
The portion of the Escrow Amount contributed on behalf of each stockholder of
the Company shall be in proportion to the aggregate Parent Common Stock which
such holder would otherwise be entitled under Section 1.6(a). No portion of the
Escrow Amount shall be contributed in respect of any Company Options or
Warrants. The Escrow Fund shall be available to compensate Parent and its
affiliates for any claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses, and expenses of
investigation and defense (hereinafter individually a "Loss" and collectively
"Losses") incurred by Parent, its officers, directors, or affiliates (including
the Surviving Corporation) directly or indirectly as a result of any inaccuracy
or breach of a representation or warranty of the Company contained in Article II
herein (as modified by the Company Schedules), or any failure by the Company to
perform or comply with any covenant contained herein; provided, however, that
the Escrow Fund shall only be available to compensate Parent, its officers,
directors or affiliates to the extent that the aggregate amount of Losses is in
excess of $500,000, in which event the full amount of the Escrow Fund shall be
available to so compensate Parent, its officers, directors or affiliates for any
Losses. Parent and the Company each acknowledge that such Losses, if any, would
relate to the unresolved contingencies existing at the Effective Time, which, if
resolved at the Effective Time would have led to a reduction in the aggregate
Merger consideration. The Escrow Fund shall be the sole source of damages to
Parent arising from any claim hereunder (other than for
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damages due to fraud or willful misrepresentation). Nothing herein shall limit
the liability of the Company for any such breach of any representation, warranty
or covenant if the Merger does not close.
(b) Distribution Upon Termination of Escrow Period. Upon
termination of the Escrow Period, the Parent shall cause to be delivered to the
Escrow Agent a list of each timely filed claim of loss submitted by the Parent
in accordance with the provisions of this Article VII which remains not fully
resolved ("Unresolved Claims"), for which there shall be reserved out of the
Escrow Fund an amount equal to the Losses claimed by the Parent, and the Escrow
Agent shall deliver to the stockholders of the Company that portion of the
Escrow Fund that is not required to satisfy the Unresolved Claims. Following the
resolution of each Unresolved Claim, the Escrow Agent shall deliver to the
stockholders of the Company the remaining portion of the Escrow Fund, if any,
not used in the satisfaction of that claim. Deliveries of Escrow Amounts to the
stockholders of the Company pursuant to this Section 7.2(b) shall be made in
proportion to their respective original contributions to the Escrow Fund.
(c) Protection of Escrow Fund.
(i) The Escrow Agent shall hold and safeguard the Escrow
Fund during the Escrow Period, shall treat such fund as a trust fund in
accordance with the terms of this Agreement and not as the property of Parent
and shall hold and dispose of the Escrow Fund only in accordance with the terms
hereof.
(ii) Any shares of Parent Common Stock or other equity
securities issued or distributed by Parent (including shares issued upon a stock
split) ("New Shares") in respect of Parent Common Stock in the Escrow Fund which
have not been released from the Escrow Fund shall be added to the Escrow Fund
and become a part thereof. New Shares issued in respect of shares of Parent
Common Stock which have been released from the Escrow Fund shall not be added to
the Escrow Fund but shall be distributed to the recordholders thereof. Cash
dividends on Parent Common Stock shall not be added to the Escrow Fund but shall
be distributed to the recordholders thereof.
(iii) Each stockholder shall have voting rights with
respect to the shares of Parent Common Stock contributed to the Escrow Fund by
such stockholder (and any voting securities added to the Escrow Fund in respect
of such shares of Parent Common Stock).
(d) Claims Upon Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period of a certificate signed by any officer
of Parent (an "Officer Certificate"): (A) stating that Parent has paid or
properly accrued or reasonably anticipates
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that it will have to pay or accrue Losses, and (B) specifying in reasonable
detail the individual items of Losses included in the amount so stated, the date
each such item was paid or properly accrued, or the basis for such anticipated
liability, and the nature of the misrepresentation, breach of warranty or
covenant to which such item is related. The Escrow Agent shall, subject to the
provisions of Section 7.2(d)(iii) hereof, deliver to Parent out of the Escrow
Fund, as promptly as practicable after such Losses have been incurred in excess
of $500,000, shares of Parent Common Stock held in the Escrow Fund in an amount
equal to such Losses so incurred.
(ii) For purposes of determining the number of shares of
Parent Common Stock to be delivered to Parent out of the Escrow Fund pursuant to
Section 7.2(d)(i) hereof or to Securityholder Agent pursuant to either Section
7.2(b) or Section 7.2(e)(iv) hereof, the shares of Parent Common Stock shall be
valued at the average of the closing prices of Parent's Common Stock on the
principal securities exchange on which Parent's Common Stock is then traded or
if not so traded, the National Market System of the National Association of
Securities Dealers Automated Quotation system, in either case as reported in The
Wall Street Journal for the five (5) consecutive trading days ending on the date
that is one (1) trading day prior to the Closing Date. Parent and the
Securityholder Agent shall certify such fair market value in a certificate
signed by both Parent and the Securityholder Agent, and shall deliver such
certificate to the Escrow Agent.
(iii) At the time of delivery of any Officer's Certificate
to the Escrow Agent, a duplicate copy of such certificate shall be delivered to
the Securityholder Agent and for a period of thirty (30) days after such
delivery, the Escrow Agent shall make no delivery to Parent of any Escrow
Amounts pursuant to Section 7.2(d) hereof unless the Escrow Agent shall have
received written authorization from the Securityholder Agent to make such
delivery. After the expiration of such thirty (30) day period, the Escrow Agent
shall make delivery of shares of Parent Common Stock from the Escrow Fund in
accordance with Section 7.2(d) hereof, provided that no such payment or delivery
may be made if the Securityholder Agent shall object in a written statement to
the claim made in the Officer's Certificate, and such statement shall have been
delivered to the Escrow Agent prior to the expiration of such thirty (30) day
period.
(e) Resolution of Conflicts; Arbitration.
(i) In case the Securityholder Agent shall so object in
writing to any claim or claims made in any Officer's Certificate, the
Securityholder Agent and Parent shall attempt in good faith to agree upon the
rights of the respective parties with respect to each of such claims. If the
Securityholder Agent and Parent should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and shall be furnished to
the Escrow Agent. The Escrow Agent shall be entitled to rely on any such
memorandum and distribute shares of Parent Common Stock form the Escrow Fund in
accordance with the terms thereof.
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(ii) If no such agreement can be reached after good faith
negotiation, either Parent or the Securityholder Agent may demand arbitration of
the matter unless the amount of the damage or loss is at issue in pending
litigation with a third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to arbitration; and in
either such event the matter shall be settled by arbitration conducted by one
arbitrator. Parent and the Securityholder Agent shall agree on one arbitrator;
provided that if Parent and Securityholder Agent cannot agree on one arbitrator,
either Parent or Securityholder Agent can request that the Judicial Arbitration
and Mediation Services ("JAMS") select the arbitrator. The arbitrator shall set
a limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator, to discover relevant information from the
opposing parties about the subject matter of the dispute. The arbitrator shall
rule upon motions to compel or limit discovery and shall have the authority to
impose sanctions, including attorneys' fees and costs, to the same extent as a
court of competent law or equity, should the arbitrator determine that discovery
was sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the arbitrator as
to the validity and amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and notwithstanding
anything in Section 7.2(d) hereof, the Escrow Agent shall be entitled to act in
with such decision and make or withhold payments out of the Escrow Fund in
accordance therewith. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrator.
(iii) Judgment upon any award rendered by the arbitrator
may be entered in any court having jurisdiction. Any such arbitration shall be
held in Orange County, California under the rules then in effect of the American
Arbitration Association. For purposes of this Section 7.2(e), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Parent shall be deemed to be the Non- Prevailing Party
in the event that the arbitrator awards Parent less than the sum of one-half
(1/2) of the disputed amount plus any amounts not in dispute; otherwise, the
stockholders of the Company as represented by the Securityholder Agent shall be
deemed to be the Non- Prevailing Party. The NonPrevailing Party to an
arbitration shall pay its own expenses, the fees of the arbitrator, the
administrative costs of the arbitration and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by the other party to
the arbitration.
(iv) In connection with any claims made by Corsair against
the Escrow Amount, Securityholder Agent shall have the right, upon the delivery
of invoices therefor to Parent and the Escrow Agent, to have delivered to
Securityholder Agent out of the Escrow Fund a number of shares of Parent Common
Stock not to exceed $250,000 in value in the aggregate for purposes of paying
its expenses and costs thereof, including, but
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not limited to reasonable attorneys' fees and costs, fees of the arbitrator,
administrative costs of arbitration and expenses of arbitration.
(f) Securityholder Agent of the Stockholders; Power of Attorney.
(i) In the event that the Merger is approved, effective
upon such vote, and without further act of any stockholder, a committee
comprised of Ms. Arlene Harris, Mr. Mark Nielsen and Mr. Doug Kingsley shall be
appointed as agent and attorney-in-fact (the "Securityholder Agent," and a
majority vote of these three members of such committee shall be deemed to be the
act of the Securityholder Agent) for each stockholder of the Company (except
such stockholders, if any, as shall have perfected their appraisal or
dissenters' rights under Delaware Law), for an one behalf of stockholders of the
Company, to give and receive notices and communication, to authorize delivery to
Parent of shares of Parent Common Stock from the Escrow Fund in satisfaction of
claims by Parent, to object to such deliveries, to agree to, negotiate, enter
into settlements and compromises of, and demand arbitration and comply with
order of courts and awards of arbitrators with respect to such claims, and to
take all actions necessary or appropriate in the judgment of Securityholder
Agent for the accomplishment of the foregoing. Such Securityholder Agent may be
changed by the stockholders of the Company from time to time upon not less than
thirty (30) days prior written notice to Parent; provided that the
Securityholder Agent may not be removed unless holders of a two-thirds interest
of the Escrow Fund agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Securityholder Agent may be filled by
approval of the holders of a majority in interest of the Escrow Fund. No bond
shall be required of the Securityholder Agent, and the Securityholder Agent
shall not receive compensation for his or her services. Notice or communications
to or from the Securityholder Agent shall constitute notice to or form each of
the stockholders of the Company.
(ii) In performing any duties under the Agreement, the
Securityholder Agent shall not be liable to any party for damages, losses, or
expenses, except for gross negligence or willful misconduct on the part of the
Securityholder Agent. The Securityholder Agent shall not incur any such
liability for (A) any act or failure to act made or omitted in good faith, or
(B) any action taken or omitted in reliance upon any instrument, including any
written statement or affidavit provided for in this Agreement that the
Securityholder Agent shall in good faith believe to be genuine, nor will the
Securityholder Agent be liable or responsible for forgeries, fraud,
impersonations, or determining the scope of any representative authority. In
addition, the Securityholder Agent may consult with the legal counsel in
connection with Securityholder Agent's duties under this Agreement and shall be
fully protected in any act taken, suffered, or permitted by it in good faith in
accordance with the advice of counsel. The Securityholder Agent is not
responsible for determining and verifying the authority of any person acting or
purporting to act on behalf of any party to this Agreement. Each stockholder of
the Company on whose behalf the Escrow Amount was contributed to the Escrow Fund
shall, up to an amount equal to ten percent
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(10%) of (total number of shares of Parent Common Stock allocated to such
stockholder, including escrowed shares x the Parent Average Price Per Share),
indemnify the Securityholder Agent and hold the Securityholder Agent harmless
against any loss, liability or expense incurred without gross negligence or
willful misconduct on the part of the Securityholder Agent and arising out of or
in connection with the acceptance or administration of the Securityholder
Agent's duties hereunder, including the reasonable fees and expenses of any
legal counsel retained by the Securityholder Agent.
(g) Actions of the Securityholder Agent. A decision, act, consent
or instruction of the Securityholder Agent shall constitute a decision of all
the stockholders for whom a portion of the Escrow Amount otherwise issuable to
them are deposited in the Escrow Fund and shall be final, binding and conclusive
upon each of such stockholders, and the Escrow Agent and Parent may rely upon
any such decision, act, consent or instruction of the Securityholder Agent as
being the decision, act, consent or instruction of each every such stockholder
of the Company. The Escrow Agent and Parent are hereby relieved from any
liability to any person for any acts done by them in accordance with such
decision, act, consent or instruction of the Securityholder Agent.
(h) Third-Party Claims. In the event Parent becomes aware of a
third-party claim which Parent believes may result in a demand against the
Escrow Fund, Parent shall notify the Securityholder Agent of such claims, and
the Securityholder Agent, as representative for the stockholders of the Company,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that unless such settlement was made with the consent
of the Securityholder Agent, no settlement of any such claim with third-party
claimants shall be evidence of the validity or amount of Losses attributable to
that claim against the Escrow Fund. In the event that the Securityholder Agent
has consented to any such settlement, the Securityholder Agent shall have no
power or authority to object under any provision of this Article VII to the
amount of any claim by Parent against the Escrow Fund with respect to such
settlement.
(i) Escrow Agent's Duties.
(i) The Escrow Agent shall be obligated only for the
performance of such duties as are specifically set forth herein, and as set
forth in any additional written escrow instructions which the Escrow Agent may
receive after the date of this Agreement which are signed by an officer of
Parent and the Securityholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instruction reasonably believed to be
genuine and to have been signed or presented by the proper party or parties. The
Escrow Agent shall not be liable for any act done or omitted hereunder as Escrow
Agent while acting in good faith and in the exercise of reasonable judgment, and
any act done or omitted pursuant to the advice of counsel shall be conclusive
evidence of such good faith.
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(ii) The Escrow Agent is hereby expressly authorized to
comply with and obey orders, judgments or decrees of any court of law,
notwithstanding any notices, warning or other communications form any party or
any other person to the contrary. In case the Escrow Agent obeys or complies
with any such order, judgment or decree of any court, the Escrow Agent shall not
be liable to any of the parties hereto or to any other person by reason of such
compliance, notwithstanding any such order, judgment or decree being
subsequently reversed, modified, annulled, set aside, vacated or found to have
been entered without justification.
(iii) The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Agreement or any documents
or papers deposited or called for hereunder.
(iv) The Escrow Agent shall not be liable for the
expiration of any rights under any statute of limitations with respect to this
Agreement or any documents deposited with the Escrow Agent.
(v) In performing any duties under the Agreement, the
Escrow Agent shall not be liable to any party for damages, losses, or expenses,
except for gross negligence or willful misconduct on the part of the Escrow
Agent. The Escrow Agent shall not incur any such liability for (A) any act or
failure to act made or omitted in good faith, or (B) any action taken or omitted
in reliance upon any instrument, including any written statement or affidavit
provided for in this Agreement that the Escrow Agent shall in good faith believe
to be genuine, nor will the Escrow Agent be liable or responsible for forgeries,
fraud, impersonations, or determining the scope of any representative authority.
In addition, the Escrow Agent may consult with the legal counsel in connection
with Escrow Agent's duties under this Agreement and shall be fully protected in
any act taken, suffered, or permitted by it in good faith in accordance with the
advice of counsel. The Escrow Agent is not responsible for determining and
verifying the authority of any person acting or purporting to act on behalf of
any party to this Agreement.
(vi) If any controversy arises between the parties to this
Agreement, or with any other party, concerning the subject matter of this
Agreement, its terms or conditions, the Escrow Agent will not be required to
determine the controversy or to take any action regarding it. The Escrow Agent
may hold all documents and shares of Parent Common Stock may wait for settlement
of any such controversy by final appropriate legal proceedings or other means
as, in the Escrow Agent's discretion, the Escrow Agent may be required, despite
what may be set forth elsewhere in this Agreement. In such event, the Escrow
Agent will not be liable for damage. Furthermore, the Escrow Agent may at its
option, file an action of interpleader requiring the parties to answer and
litigate any claims and rights among themselves. The Escrow Agent is authorized
to deposit with the clerk of the court all documents and shares of Parent Common
Stock held in escrow except all cost,
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expenses, charges and reasonable attorney fees incurred by the Escrow Agent due
to the interpleader action and which the parties jointly and severally agree to
pay. Upon initiating such action, the Escrow Agent shall be fully released and
discharged of and from all obligations and liability imposed by the terms of
this Agreement.
(vii) The parties (excluding the Securityholder Agent) and
their respective successors and assigns agree jointly and severally to indemnify
and hold Escrow Agent harmless against all losses, claims, damages, liabilities,
and expenses, including reasonable costs of investigation, counsel fees, and
disbursements that may be imposed on Escrow Agent or incurred by Escrow Agent in
connection with the performance of his/her duties under this Agreement,
including but not limited to any litigation arising from this Agreement or
involving its subject matter.
(viii) The Escrow Agent may resign at any time upon giving
at least thirty (30) days written notice to the parties; provided, however, that
no such resignation shall become effective until the appointment of a successor
escrow agent which shall be accomplished as follows: the parties shall use their
best efforts to mutually agree on a successor escrow agent within thirty (30)
days after receiving such notice. If the parties fail to agree upon a successor
escrow agent within such time, the Escrow Agent shall have the right to appoint
a successor escrow agent authorized to do business in the State of California.
The successor escrow agent shall execute and deliver an instrument accepting
such appointment and it shall, without further acts, be vested with all the
estates, properties, rights, powers, and duties of the predecessor escrow agent
as if originally named as escrow agent. The Escrow Agent shall be discharged
from any further duties and liability under this Agreement.
(j) Fees. All fees of the Escrow Agent for performance of its
duties hereunder shall be paid by Parent. It is understood that the fees and
usual charges agreed upon for services of the Escrow Agent shall be considered
compensation for ordinary services as contemplated by this Agreement. In the
event that the conditions of this Agreement are not promptly fulfilled, or if
the Escrow Agent renders any service not provided for in this Agreement, or if
the parties request a substantial modification of its terms, or if any
controversy arises, or if the Escrow Agent is made a party to, or intervenes in,
any litigation pertaining to this escrow or its subject matter, the Escrow Agent
shall be reasonably compensated for such extraordinary services and reimbursed
for all costs, attorney's fees, and expenses occasioned by such default, delay,
controversy or litigation. Parent promises to pay these sums upon demand.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
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8.1 Termination. Except as provided in Section 8.2 below, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual written consent of the Company and Parent;
(b) by Parent or the Company if: (i) the Effective Time has not
occurred before 5:00 p.m. (Pacific time) on September 30, 1998 (provided that
the right to terminate this Agreement under this clause 8.1(b)(i) shall not be
available to any party whose willful failure to fulfill any obligation hereunder
has been the cause of, or resulted in, the failure of the Effective Time to
occur on or before such date); (ii) there shall be a final nonappealable order
of a federal or state court in effect preventing consummation of the Merger; or
(iii) there shall be any statute, rule, regulation order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity that would
make consummation of the Merger illegal;
(c) by Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger, by any Governmental Entity, which would: (i) prohibit Parent's or
the Company's ownership or operation of all or any portion of the business of
the Company or (ii) compel Parent or the Company to dispose of or hold separate
all or a portion of the business or assets of the Company or Parent as a result
of the Merger;
(d) by Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company and (i) such breach has not been cured within five (5) business days
after written notice to the Company (provided that, no cure period shall be
required for a breach which by its nature cannot be cured), and (ii) as a result
of such breach the conditions set forth in Section 6.3(a) or 6.3(b), as the case
may be, would not then be satisfied;
(e) by the Company if it is not in material breach of its
obligations under this Agreement and there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Parent or Merger Sub and (i) such breach has not been cured
within five (5) business days after written notice to Parent (provided that, no
cure period shall be required for a breach which by its nature cannot be cured),
and (ii) as a result of such breach the conditions set forth in Section 6.2(a)
or 6.2(b), as the case may be, would not then be satisfied.
When action is taken to terminate this Agreement pursuant to this
Section 8.1, it shall be sufficient for such action to be authorized by the
Board of Directors (as applicable) of the party taking such action.
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8.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or the
Company, or their respective officer, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, that provisions of Sections 5.3 and 5.4
and Articles VIII and IX (other than Section 9.1) of this Agreement shall remain
in full force and effect and survive any termination of this Agreement.
8.3 Amendment. Except as is otherwise required by applicable law after
the stockholders of the Company approve this Agreement, this Agreement may be
amended by the parties hereto at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent
and Merger Sub, on the one hand, and the Company, on the other, may, to the
extent legally allowed, (i) extend the time for the performance of any of the
obligations of the other party hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed in behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
9.1 Survival of Representations, Warranties and Agreements. All
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement shall survive the
consummation of the Merger and shall (except as otherwise specifically provided
herein) terminate at 5:00 p.m., California time, on the date which is the
earlier of (i) one year following the Closing Date or (ii) the date of the
filing with the SEC of the next audit opinion issued by the Company's auditors.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgement of complete transmission)
to the parties at the following addressed (or at such other address for a party
as shall be specified by like notice):
(a) if to Parent or Merger Sub, to:
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Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, California 94304
Attention: Chief Financial Officer
Telephone No: (650) 842-3281
Facsimile No: (650) 493-1426
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101-3532
Attention: John A. Denniston, Esq.
Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
(b) if to the Company, to:
Subscriber Computing, Inc.
18881 Von Karman Avenue, Suite 450
Irvine, California 92612
Attention: General Counsel
Telephone No: (714) 221-8462
Facsimile No: (714) 260-1515
with a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
17th Floor
Costa Mesa, California 92626
Attention: William J. Simpson, Esq.
Telephone: (714) 668-6205
Facsimile: (619) 979-1921
(c) if to the Securityholder Agent:
Doug Kingsley
c/o Advent International
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101 Federal Street, 5th Floor
Boston, Massachusetts 02110
Telephone: (617) 951-9412
Facsimile: (617) 951-0566
Arlene Harris
2704 Oceanfront
Del Mar, California 92014
Telephone: (619) 481-2700
Facsimile: (619) 481-2322
Mark Nielson
31621 Via Quixote
San Juan Capistrano, California 92675
Telephone: (714) 248-1421
Facsimile: (714) 833-2030
9.3 Interpretation. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.5 Entire Agreement: Assignment. This Agreement, the Schedules and
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (a) constitute the entire agreement among
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof; (b) are not intended to confer upon any
other person any rights or remedies hereunder except as otherwise contemplated
in Article III where it is the parties intention to cause the Company's
stockholders to become third party beneficiaries to Parent's and Merger Sub's
representations and warranties; and (c) shall not be assigned by operation of
law or otherwise except as otherwise specifically provided, except that Parent
and Merger Sub may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
-56-
<PAGE> 63
9.6 Severability. In the event that any provision of this Agreement or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonable
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
9.7 Other Remedies. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by any party of any one remedy will not preclude
the exercise of any other remedy.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
Each of the parties hereto agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
9.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
9.10 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
[Remainder of This Page Intentionally Left Blank]
-57-
<PAGE> 64
IN WITNESS WHEREOF, Parent, Merger Sub, the Company and the
Securityholder Agent (but only as to Articles VII and IX for Securityholder
Agent) and have caused this Agreement to be signed by their duly authorized
respective officers, all as of the date first written above.
CORSAIR COMMUNICATIONS, INC. SUBSCRIBER COMPUTING, INC.
By:______________________________ By:__________________________________
Name: Name:
Title: Title:
SECURITYHOLDER AGENT: ANTEATER ACQUISITION CORP.
_________________________________ By:__________________________________
Arlene Harris Name:
Title:
_________________________________
Mark Nielsen
_________________________________
Doug Kingsley
<PAGE> 65
SCHEDULE 5.1(d)
SCHEDULED SHAREHOLDERS
Advent Global GECC Limited Partnership
Global Private Equity II Limited Partnership
Digital Media & Communications Limited Partnership
Advent Partners Limited Partnership
Arlene Harris
<PAGE> 1
EXHIBIT 2.2
SUBSCRIBER COMPUTING, INC.
18881 VON KARMAN AVENUE, SUITE 450
IRVINE, CALIFORNIA 92715
April 28, 1998
Corsair Communications, Inc.
3708 Hillview Avenue
Palo Alto, California 94304
Attention: Chief Financial Officer
Anteater Acquisition Corp.
c/o Corsair Communications, Inc.
3708 Hillview Avenue
Palo Alto, California 94304
Attention: Chief Financial Officer
Subject: Acknowledgment Regarding Amendment to Agreement and Plan of
Reorganization
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Reorganization, dated as
of April 2, 1998 (the "Agreement"), by and among Corsair Communications, Inc., a
Delaware corporation ("Parent"), Anteater Acquisition Corp., a Delaware
corporation and wholly-owned subsidiary of Parent ("Merger Sub") and Subscriber
Computing, Inc., a Delaware corporation (the "Company") (Parent, Merger Sub and
the Company are sometimes to referred to herein as the "Parties").
The Parties have recently decided that the Company's financial
statements for the six-month period ending March 31, 1998, copies of which are
attached hereto as Exhibit "A" (the "March Financial Statements"), should be
utilized for the basis of the Company's representations and warranties and any
related closing conditions contained within the Agreement in lieu of the
Company's financial statements for the five-month period ending February 28,
1998.
Accordingly, the Parent, Merger Sub and Company hereby acknowledge and
agree that the Agreement, including any associated disclosure schedules, is
amended in the following manner:
<PAGE> 2
(i) All references to the "Balance Sheet" and the "Company
Financials" in the Agreement are hereby changed to refer to the
Company's March 31, 1998 balance sheet and the Company's March
Financial Statements, respectively; and
(ii) Schedule 2.5 to the Agreement is hereby changed to be replaced
with Exhibit "A" attached hereto.
Additionally, the Parties expressly agree that the matters reflected in
the March Financial Statements do not (i) constitute an adverse change in the
business, assets (including intangible assets), financial condition, results of
operations, liabilities or prospects of the Company; (ii) constitute a breach of
any representation, warranty, covenant or agreement contained in the Agreement
on the part of the Company; or (iii) have a "Material Adverse Effect" on the
Company as such term is used within the Agreement.
Sincerely,
SUBSCRIBER COMPUTING, INC.,
a Delaware corporation
/s/ DENNIS ANDREWS
----------------------
Dennis Andrews,
Chief Executive Officer
AGREED:
CORSAIR COMMUNICATIONS, INC.,
a Delaware corporation
/s/ MARY ANN BYRNES
- ----------------------
Mary Ann Byrnes
President and Chief Executive Officer
ANTEATER ACQUISITION CORP.,
a Delaware corporation
/s/ MARY ANN BYRNES
- ----------------------
Mary Ann Byrnes
President and Chief Executive Officer
<PAGE> 3
EXHIBIT "A"
MARCH FINANCIAL STATEMENTS
SUBSCRIBER COMPUTING, INC.
STATEMENTS OF OPERATIONS
SIX MONTHS ENDED MARCH 31, 1998
(UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended
March 31
1998
(Unaudited)
<S> <C>
Revenues
Software $ 2,887,953
Service, Maintenance and Other 3,568,850
------------
Total Revenues 6,456,803
Cost of Sales
Software 1,061,687
Service, Maintenance and Other 2,616,224
Total Cost of Sales 3,677,911
Gross Margin 2,778,892
Operating Costs and Expenses:
Research and Development 5,033,239
Sales and Marketing 1,927,439
General and Administrative 3,211,506
------------
Total Operating Costs and Expenses 10,172,184
Operating Loss (7,393,292)
Interest and Other Income (Expense), Net (10,001)
------------
Loss Before Provision For Income Taxes $ (7,403,293)
Provision For Income Taxes 800
Net Loss $ (7,404,093)
============
</TABLE>
<PAGE> 4
SUBSCRIBER COMPUTING, INC.
BALANCE SHEETS
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31,
1998
(UNAUDITED)
-----------
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,512,688
Restricted cash 806,944
Accounts receivable, net of allowance for
doubtful accounts of $978,967 and $228,628 4,060,180
Current portion of installments receivable 277,968
Prepaid expenses and other current assets 578,824
-----------
Total Current Assets 7,236,604
LONG-TERM INSTALLMENTS RECEIVABLE
PROPERTY AND EQUIPMENT, net 3,715,814
OTHER ASSETS:
Software license fees, net
Goodwill, net
Other 192,696
-----------
TOTAL ASSETS 11,145,114
===========
</TABLE>
<PAGE> 5
SUBSCRIBER COMPUTING, INC.
BALANCE SHEETS
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31
1998
(UNAUDITED)
------------
<S> <C>
LIABILITIES AND CAPITAL DEFICIENCY
CURRENT LIABILITIES:
Accounts Payable $ 1,796,394
Accrued expenses 2,263,069
Short-term borrowings 2,500,000
Deferred revenue 3,383,665
Current portion of obligations under capital leases 371,571
Current Portions of notes payable 3,364,135
------------
Total Current Liabilities 13,678,837
DEFERRED RENT 139,089
LONG TERM PORTION OF OBLIGATIONS
UNDER CAPITAL LEASES 240,987
LONG TERM PORTION OF NOTES PAYABLE 2,188,063
DEFERRED REVENUE, net of current portion
------------
Total Liabilities 16,246,976
CAPITAL DEFICIENCY:
Preferred Stock - Series A Convertible - $.01 par value; 348,687 shares
authorized; none issued and outstanding
Preferred Stock - Series B Senior Convertible Participating - $.01 par value;
4,300,000 shares authorized; 4,209,863 shares issued and
outstanding 14,318,423
Common Stock - $.01 par value; 20,000,000
Shares authorized; 8,443,944 and 8,386,338
shares issued and outstanding at March 31, 1998
and 1997, respectively 876,738
Notes receivable from sale of common stock (403,571)
Capital Deficiency (19,893,452)
------------
Total Capital Deficiency (5,101,862)
------------
TOTAL LIABILITIES AND
CAPITAL DEFICIENCY $ 11,145,114
============
</TABLE>
<PAGE> 1
EXHIBIT 2.3
CERTIFICATE OF MERGER
OF
SUBSCRIBER COMPUTING, INC.
(a Delaware corporation)
WITH
ANTEATER ACQUISITION CORP.
(a Delaware corporation)
(UNDER SECTION 251 OF THE
GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE)
The undersigned corporation organized and existing under and by virtue
of the General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger are as follows:
<TABLE>
<CAPTION>
Name State of Incorporation
---- ----------------------
<S> <C>
Subscriber Computing, Inc. Delaware
Anteater Acquisition Corp. Delaware
</TABLE>
SECOND: That an agreement and plan of reorganization has been
approved, adopted, certified, executed and acknowledged by each of the
constituent corporations in accordance with the requirements of
subsection (c) of Section 251 of the General Corporation Law of the
State of Delaware.
THIRD: That the name of the surviving corporation of the merger
is Subscriber Computing, Inc., a Delaware corporation ("SCI").
FOURTH: That as a result of the merger the Certificate of
Incorporation of SCI shall be the Certificate of Incorporation of
Anteater Acquisition Corp., as in effect immediately prior to the
Merger.
<PAGE> 2
FIFTH: That the executed agreement and plan of reorganization is
on file at the principal place of business of SCI, which is 18881 Von
Karman Avenue, Suite 450, Irvine, California 92612.
SIXTH: That a copy of the agreement and plan of reorganization
will be furnished by SCI on request and without cost to any stockholder
of SCI or Anteater Acquisition Corp.
IN WITNESS WHEREOF, Subscriber Computing, Inc., a Delaware corporation,
has caused this Certificate to be signed by Dennis Andrews, its President, on
the ____ day of _____________, 1998.
SUBSCRIBER COMPUTING, INC.
a Delaware corporation
By:_____________________________________
Dennis Andrews, President
ATTEST:
___________________________________
Patricia Howe, Assistant Secretary
-2-
<PAGE> 1
EXHIBIT 5.1
OPINION OF BROBECK, PHLEGER & HARRISON, LLP
May __, 1998
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, California 94304
Re: Corsair Communications, Inc. Registration Statement on
Form S-4 for ______________ Shares of Common Stock
Ladies and Gentlemen:
We have acted as counsel to Corsair Communications, Inc., a
Delaware corporation (the "Company"), in connection with the proposed issuance
and sale by the Company of up to _______________ shares of the Company's Common
Stock (the "Shares") pursuant to the Company's Registration Statement on Form
S-4 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended (the "Act").
This opinion is being furnished in accordance with the
requirements of Item 21(a) of Form S-4 and Item 601(b)(5)(i) of Regulation S-K.
We have reviewed the Company's charter documents and the
corporate proceedings taken by the Company in connection with the issuance and
sale of the Shares. Based on such review, we are of the opinion that the Shares
have been duly authorized, and if, as and when issued in accordance with the
Registration Statement and the related prospectus (as amended and supplemented
through the date of issuance) will be legally issued, fully paid and
nonassessable.
We consent to the filing of this opinion letter as Exhibit 5.1 to
the Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the prospectus which is part of the Registration Statement.
In giving this consent, we do not thereby admit that we are within the category
of persons whose consent is required under Section 7 of the Act, the rules and
regulations of the Securities and Exchange Commission promulgated thereunder, or
Item 509 of Regulation S-K.
<PAGE> 2
Corsair Communications, Inc.
Page 2
This opinion letter is rendered as of the date first written
above and we disclaim any obligation to advise you of facts, circumstances,
events or developments which hereafter may be brought to our attention and which
may alter, affect or modify the opinion expressed herein. Our opinion is
expressly limited to the matters set forth above and we render no opinion,
whether by implication or otherwise, as to any other matters relating to the
Company or the Shares.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 8.1
_______________, 199_
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, California 94304
Re: Merger pursuant to the Agreement and Plan of Reorganization,
dated April 2, 1998, as amended, by and among CORSAIR
COMMUNICATIONS, INC., a Delaware corporation, ANTEATER
ACQUISITION CORP., a Delaware corporation wholly owned by
CORSAIR COMMUNICATIONS, INC. and SUBSCRIBER COMPUTING, INC., a
Delaware corporation (the "Merger").
Gentlemen:
This opinion is being delivered to you pursuant to Section 6.1(d) of the
Agreement and Plan of Reorganization by and among CORSAIR COMMUNICATIONS, INC.,
a Delaware corporation ("Corsair"), ANTEATER ACQUISITION CORP., a Delaware
corporation ("Sub"), and SUBSCRIBER COMPUTING, INC., a Delaware corporation
("Target"), dated as of April 2, 1998, as amended through the date hereof (the
"Agreement"). Pursuant to the Agreement, Sub will merge with and into Target
(the "Merger"), and Target will become a wholly-owned subsidiary of Corsair.
Except as otherwise provided, capitalized terms referred to herein have
the meanings set forth in the Agreement. All section references, unless
otherwise indicated, are to the Internal Revenue Code of 1986, as amended (the
"Code").
We have acted as legal counsel to Corsair and Sub in connection with the
Merger. As such, and for the purpose of rendering this opinion, we have examined
(or will examine on or prior to the Effective Date of the Merger) and are
relying (or will rely) upon (without any independent investigation or review
thereof) the truth and accuracy, at all relevant times, of the statements,
covenants, representations and warranties contained in the the Agreement
(including all schedules and exhibits thereto), the Registration Statement
(including all schedules and exhibits thereto), certificates provided to us by
Corsair and Target, and such other instruments
<PAGE> 2
Corsair Communications, Inc. ___________, 199_
Page
and documents related to the formation, organization and operation of Corsair,
Target and Sub or to the consummation of the Merger and the transactions
contemplated thereby as we have deemed necessary or appropriate.
In connection with rendering this opinion, we have assumed or obtained
representations (and are relying thereon, without any independent investigation
or review thereof) that:
1. Original documents (including signatures) are authentic,
documents submitted to us as copies conform to the original documents, and there
has been (or will be by the Effective Date of the Merger) due execution and
delivery of all documents where due execution and delivery are prerequisites to
effectiveness thereof;
2. The Merger will be consummated in accordance with the Merger
Agreement (without any waiver, breach or amendment of any of the provisions
thereof) and will be effective under the laws of the State of Delaware;
3. The Merger will be reported by Corsair and Target on their
respective federal income tax returns in a manner consistent with the opinion
set forth below;
4. Any statement made "to the knowledge of" or otherwise similarly
qualified is correct without such qualification. As to all matters in which a
person or entity making a representation has represented that such person or
entity either is not a party to, does not have, or is not aware of any plan,
intention, understanding or agreement to take an action, there is in fact no
plan, intent, understanding or agreement and such action will not be taken;
5. All statements, descriptions and representations contained in
any of the documents referred to herein or otherwise made to us are true and
correct in all material respects and no actions have been (or will be) taken
which are inconsistent with such representations;
6. The shareholders of Target will not, on or before the Effective
Date, dispose of Target capital stock in anticipation of the Merger such that
the shareholders of Target will not receive and retain a meaningful continuing
equity ownership in Corsair that is sufficient to satisfy the continuity of
interest requirement as specified in Treas. Reg. Section1.368- 1(b) as
interpreted in certain Internal Revenue Service rulings and federal judicial
decisions;
7. After the Merger, Target will hold "substantially all" of its
and Sub's properties within the meaning of Section 368(a)(2)(E)(i) of the Code
and the regulations promulgated thereunder;
8. An opinion in form substantially the same as this opinion has
been delivered to Target by its counsel, Paul, Hastings, Janofsky & Walker, and
such opinion has not been withdrawn.
<PAGE> 3
Corsair Communications, Inc. ___________, 199_
Page
Based on our examination of the foregoing items and subject to the
assumptions, exceptions, limitations and qualifications set forth herein, we are
of the opinion that, for federal income tax purposes, the Merger will be a
"reorganization" as defined in Section 368(a) of the Code.
This opinion letter addresses only the classification of the Merger as a
reorganization under Section 368(a) of the Code. This opinion letter does not
address any other federal, state, local or foreign tax consequences that may
result from the Merger or any other transaction (including any other transaction
undertaken in connection with the Merger or in contemplation of the Merger). In
particular, we express no opinion regarding (i) whether and the extent to which
any Target shareholder who has provided or will provide services to Target,
Corsair or Sub will have compensation income under any provision of the Code;
(ii) the effects of any such compensation income, including but not limited to
the effect upon the basis and holding period of the Corsair stock received by
any such shareholder in the Merger; (iii) the potential application of the
"golden parachute" provisions (Sections 280G, 3121(v)(2) and 4999) of the Code,
the alternative minimum tax provisions (Sections 55, 56 and 57) of the Code or
Sections 108, 305, 306, 357, 424, and 708 of the Code, or the regulations
promulgated thereunder; (iv) other than the fact that the merger will be a
reorganization within the meaning of Code Section 368(a) and the consequences
that follow directly and solely from such characterization, the corporate level
tax consequences of the Merger to Corsair, Sub or Target, including without
limitation the recognition of any gain and the survival and/or availability,
after the Merger, of any of the federal income tax attributes or elections of
Corsair, Sub or Target, after application of any provision of the Code, as well
as the regulations promulgated thereunder and judicial interpretations thereof;
(v) the tax consequences to any person of the Escrow Agreement; (vi) the tax
consequences of any transaction in which Target stock or a right to acquire
Target stock was received; (vii) the tax consequences of the Merger to holders
of options, warrants or other rights to acquire Target stock; and (viii) the tax
consequences of the Merger (including the opinion set forth above) as applied to
specific shareholders of Target or that may be relevant to particular classes of
Target shareholders such as dealers in securities, corporate shareholders
subject to the alternative minimum tax, foreign persons, and holders of shares
acquired upon exercise of stock options or in other compensatory transactions.
No opinion is expressed as to (i) any transaction other than the Merger
as described in the Agreement (including without limitation any transaction in
which the Target capital stock that was exchanged in the Merger was acquired by
the exchanging shareholder) or (ii) any transaction whatsoever (including the
Merger) if all the transactions described in the Agreement are not consummated
in accordance with the terms of the Agreement and without waiver or breach of
any material provision thereof, or if any of the representations, warranties,
statements and assumptions upon which we relied are not true and accurate at all
relevant times. In the event any one of the statements, representations,
warranties or assumptions upon which we have relied to issue this opinion is
incorrect, our opinion might be adversely affected and may not be relied upon.
This opinion letter represents and is based upon our best judgment
regarding the
<PAGE> 4
Corsair Communications, Inc. ___________, 199_
Page
application of federal income tax laws arising under the Code, existing judicial
decisions, administrative regulations and published rulings and procedures. Our
opinion is not binding upon the Internal Revenue Service or the courts, and
there is no assurance that the Internal Revenue Service will not successfully
assert a contrary position. Furthermore, no assurance can be given that future
legislative, judicial or administrative changes, on either a prospective or
retroactive basis, would not adversely affect the accuracy of the conclusions
stated herein. Nevertheless, we undertake no responsibility to advise you of any
new developments in the application or interpretation of the federal income tax
laws.
This opinion is given for the purpose of satisfying the condition set
forth in Section 6.1(d) of the Agreement and is intended solely for your
benefit; it may not be relied upon for any other purpose or by any other person
or entity, and may not be made available to any other person or entity without
our prior written consent. We do hereby consent to the filing of this opinion as
an exhibit to the Registration Statement and further consent to all references
to us in the Registration Statement, the prospectus constituting a part thereof
and any further amendments thereto. In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Securities Act of 1933, as amended, or the Rules and Regulations of the
Commission thereunder.
Very truly yours,
BROBECK, PHLEGER & HARRISON LLP
<PAGE> 1
EXHIBIT 10.53
FORM OF PARENT AFFILIATE AGREEMENT
________, 1998
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, CA 94304
Attention: Mary Ann Byrnes, CEO
Parent Affiliate Agreement
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Reorganization,
dated as of ________, 1998 (the "Reorganization Agreement"; capitalized terms
used and not otherwise defined herein are used herein as defined in the
Reorganization Agreement), among Corsair Communications, Inc., a corporation
organized under the laws of the State of Delaware ("Parent"), SCI Acquisition
Corporation, a corporation organized under the laws of the State of Delaware
("Merger Sub") and a direct wholly owned subsidiary of Parent, and Subscriber
Computing, Inc., a corporation organized under the laws of the State of Delaware
(the "Company").
Pursuant to the terms of the Reorganization Agreement, at the
Effective Time, outstanding shares of Company Capital Stock will be converted
into and become exchangeable for shares of Parent Common Stock on the basis set
forth in the Reorganization Agreement.
The undersigned has been advised that as of the date hereof he
may be deemed to be an "affiliate" of Parent, as such term is used in and for
purposes of Accounting Series Releases 130 and 135, as amended, and Staff
Accounting Bulletins 65 and 76, of the Commission.
The undersigned understands that the representations, warranties
and covenants set forth herein will be relied upon by Parent, stockholders of
Parent, the Company and other stockholders of the Company and their respective
counsel and accounting firms.
The undersigned hereby represents and warrants to and agrees with
Parent that:
<PAGE> 2
1. The undersigned has full power and authority to execute
and deliver this letter agreement and to make the representations and
warranties set forth herein and to perform his obligations hereunder;
2. The undersigned has carefully read this letter
agreement and the Reorganization Agreement and, to the extent the
undersigned felt necessary, discussed the requirements of such documents
and other applicable limitations upon his ability to sell, transfer,
pledge or otherwise dispose of Parent Common Stock with his counsel or
counsel for Parent;
3. The undersigned is the beneficial owner of (has sole or
shared voting or investment power with respect to) the shares of Parent
Common Stock and options to purchase Parent Common Stock specified
beneath his name on the signature page hereto (the "Parent Securities").
Except for the Parent Securities, the undersigned does not own
beneficially any shares of Parent Common Stock or any other equity
securities of Parent or any options, warrants or other rights to acquire
any equity securities of Parent;
4. Any other provisions of this letter agreement to the
contrary notwithstanding, during the 30-day period immediately preceding
the Effective Time, the undersigned has not engaged and will not engage,
and after the Effective Time until such time as results covering at
least 30 days of combined operations of the Company and Parent have been
published by Parent, in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to
the Commission on Form 10-K, 10-Q, or 8-K, or any other public filing or
announcement which includes such combined results of operations, the
undersigned will not engage, in any sale, exchange, transfer, pledge,
disposition of or grant of any option, the establishment of any "short"
or put-equivalent position with respect to or the entry into or any
similar transaction intended to reduce the risk of the undersigned's
ownership of or investment in, any of the following:
a. any Parent Securities; or
b. any shares of Parent Common Stock or any other
equity securities of Parent which the undersigned purchases
or otherwise acquires after the execution of this letter
agreement; and
5. As promptly as practicable after the Effective Time,
Parent will publish results covering at least 30 days of combined
operations of the Company and Parent in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a
report to the Commission on Form 10-K, 10-Q, 8-K, or any other public
filing or announcement which includes such combined results of
operations; provided, however, that Parent will be under no obligation
to publish any such financial information other than with respect to a
fiscal quarter of Parent.
2
<PAGE> 3
Execution of this letter agreement should not be considered an
admission on the part of the undersigned that he is an affiliate of Parent as
described above, or as a waiver of any rights the undersigned may have to object
to any claim that he is such an affiliate on or after the date of this letter.
This Parent Affiliate Agreement may be executed in one or more counterparts,
each of which when executed and delivered, shall be deemed to be an original but
all of which taken together shall constitute one and same agreement.
Very truly yours,
______________________________________
[AFFILIATE]
By:___________________________________
Name:____________________________
Title:___________________________
Number of shares of Parent Common Stock beneficially owned: _________________
Number of shares of Parent Common Stock subject to options, warrants or other
rights to acquire Parent Common Stock beneficially owned:____________________
ACCEPTED AND AGREED
as of ________, 1998:
CORSAIR COMMUNICATIONS, INC.
By:_____________________________________________
Name: Mary Ann Byrnes
Title: President and Chief Executive Officer
3
<PAGE> 1
EXHIBIT 10.54
FORM OF COMPANY AFFILIATE AGREEMENT
April 2, 1998
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, CA 94304
Attention: Mary Ann Byrnes, CEO
Company Affiliate Agreement
Ladies and Gentlemen:
Reference is made to the Agreement and Plan of Reorganization,
dated as of April 2, 1998 (the "Reorganization Agreement"; capitalized terms
used and not otherwise defined herein are used herein as defined in the
Reorganization Agreement), among Corsair Communications, Inc, a corporation
organized under the laws of the State of Delaware ("Parent"), SCI Acquisition
Corporation, a corporation organized under the laws of the State of Delaware
("Merger Sub") and a direct wholly owned subsidiary of Parent, and Subscriber
Computing, Inc., a corporation organized under the laws of the State of Delaware
(the "Company").
Pursuant to the terms of the Reorganization Agreement, at the
Effective Time, outstanding shares of Company Capital Stock will be converted
into and become exchangeable for shares of Parent Common Stock on the basis set
forth in the Reorganization Agreement.
The undersigned has been advised that as of the date hereof he
may be deemed to be an "affiliate" of the Company, as such term is defined for
purposes of paragraphs (c) and (d) of rule 145 ("Rule 145") of the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act").
The undersigned has been advised that as of the date hereof he
may be deemed to be an "affiliate" of Company, as such term is used in and for
purposes of Accounting Series Releases 130 and 135, as amended, and Staff
Accounting Bulletins 65 and 76, of the Commission.
<PAGE> 2
The undersigned understands that the representations, warranties
and covenants set forth herein will be relied upon by Parent, stockholders of
Parent, the Company and other stockholders of the Company and their respective
counsel and accounting firms.
The undersigned hereby represents and warrants to and agrees with
Parent that:
1. The undersigned has full power and authority to execute
and deliver this letter agreement and to make the representations and
warranties set forth herein and to perform his obligations hereunder;
2. The undersigned has carefully read this letter
agreement and the Reorganization Agreement and, to the extent the
undersigned felt necessary, discussed the requirements of such documents
and other applicable limitations upon his ability to sell, transfer,
pledge or otherwise dispose of Parent Common Stock with his counsel or
counsel for the Company;
3. The undersigned is the beneficial owner of (has sole or
shared voting or investment power with respect to) the shares of Company
Capital Stock and options or warrants to purchase Company Capital Stock
specified beneath his name on the signature page hereto (the "Company
Securities"). Except for the Company Securities, the undersigned does
not own beneficially any shares of Company Capital Stock or any other
equity securities of the Company or any options, warrants or other
rights to acquire any equity securities of the Company;
4. The undersigned will not make any sale, transfer,
pledge or other disposition of Parent Common Stock in violation of the
Securities Act or the Rules and Regulations;
5. The undersigned has been advised that the issuance of
Parent Common Stock to the undersigned in connection with the Merger has
been or will be registered with the Commission under the Securities Act
on a Registration Statement on Form S-4. However, the undersigned has
also been advised that, since at the time the Merger was or will be
submitted for a vote of the stockholders of the Company the undersigned
may be deemed to be or have been an affiliate of the Company, the
undersigned may not sell, transfer, pledge or otherwise dispose of
Parent Common Stock issued to him in the Merger unless (i) such sale,
transfer, pledge or other disposition has been registered under the
Securities Act, (ii) such sale, transfer, pledge or other disposition is
made in conformity with the volume and other limitations of Rule 145 or
(iii) in the opinion of counsel reasonably acceptable to Parent, such
sale, transfer, pledge or other disposition is otherwise exempt from
registration under the Securities Act;
6. Except as set forth in the Reorganization Agreement,
the undersigned understands that Parent is under no obligation to
register the sale,
2
<PAGE> 3
transfer, pledge or other disposition of Parent Common Stock by the
undersigned or on his behalf under the Securities Act or to take any
other action necessary in order to make compliance with an exemption
from such registration available;
7. The undersigned also understands that stop transfer
instructions will be given to Parent's transfer agents with respect to
Parent Common Stock issued to him and that there will be placed on the
certificates for Parent Common Stock issued to him, or any substitutions
therefor, a legend stating in substance:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ISSUED
IN A TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SECURITIES
EVIDENCED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, AND NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE
BOOKS OF THE ISSUER, UNLESS SUCH TRANSFER, SALE, ASSIGNMENT,
PLEDGE, HYPOTHECATION OR OTHER DISPOSAL IS (A) IN ACCORDANCE WITH
THE PROVISIONS OF RULE 145, (B) IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR (C) IS
OTHERWISE EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT,
THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE
STATE SECURITIES LAWS."
8. The undersigned also understands that, unless the sale,
transfer, pledge or other disposition by him of Parent Common Stock
issued to him has been registered under the Securities Act or is a sale
made in conformity with the provisions of Rule 145, Parent reserves the
right to put the following legend on the certificates issued to any
transferee of the undersigned:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE
ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED, APPLIES, AND WERE NOT ACQUIRED BY THE HOLDER WITH A
VIEW TO, OR FOR RESALE IN CONNECTION WITH, ANY DISTRIBUTION
THEREOF WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AS
AMENDED. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS, AND MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF, AND NO
REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE
BOOKS OF THE
3
<PAGE> 4
ISSUER, UNLESS SUCH TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSAL IS MADE IN CONNECTION WITH AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS OR IS
EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT, THE RULES
AND REGULATIONS IN EFFECT THEREUNDER AND ANY APPLICABLE STATE
SECURITIES LAWS";
9. Any other provisions of this letter agreement to the
contrary notwithstanding, during the 30-day period immediately preceding
the Effective Time, the undersigned has not engaged and will not engage,
and after the Effective Time until such time as results covering at
least 30 days of combined operations of the Company and Parent have been
published by Parent, in the form of a quarterly earnings report, an
effective registration statement filed with the Commission, a report to
the Commission on Form 10-K, 10-Q, or 8-K, or any other public filing or
announcement which includes such combined results of operations, the
undersigned will not engage (except to the extent allowed by SEC Staff
Accounting Bulletin 76), in any sale, exchange, transfer, pledge,
disposition of or grant of any option, the establishment of any "short"
or put-equivalent position with respect to or the entry into or any
similar transaction intended to reduce the risk of the undersigned's
ownership of or investment in, any of the following:
a. any Company Capital Stock or Parent Common Stock; or
b. any shares of Company Capital Stock or Parent Common
Stock or any other equity securities of Parent which the
undersigned purchases or otherwise acquires after the
execution of this letter agreement;
10. As promptly as practicable after the Effective Time,
Parent will publish results covering at least 30 days of combined
operations of the Company and Parent in the form of a quarterly earnings
report, an effective registration statement filed with the Commission, a
report to the Commission on Form 10-K, 10-Q, 8-K, or any other public
filing or announcement which includes such combined results of
operations; provided, however, that Parent will be under no obligation
to publish any such financial information other than with respect to a
fiscal quarter of Parent.
11. Except to the extent written notification to the
contrary is received by Parent from the undersigned prior to the Merger,
the representations contained herein will be true, complete and correct
at all times from the date hereof through the Closing Date; and
12. The undersigned currently intends to vote all Company
Capital Stock held by him in favor of the Merger.
4
<PAGE> 5
Execution of this letter should not be considered an admission on
the part of the undersigned that he is an affiliate of the Company as described
above, or as a waiver of any rights the undersigned may have to object to any
claim that he is such an affiliate on or after the date of this letter. This
Company Affiliate Agreement may be executed in one or more counterparts, each of
which when executed and delivered, shall be deemed to be an original but all of
which taken together shall constitute one and same agreement.
Very truly yours,
__________________________________________
[AFFILIATE]
By:_______________________________________
Name:________________________________
Title:_______________________________
Number of shares of Company Capital Stock beneficially owned:
Common Stock:_____________________________
Series A Convertible Preferred Stock:_____________________________
Series B Convertible Preferred Stock:_____________________________
Number of shares of Company Capital Stock subject to options, warrants or other
rights to acquire Company Capital Stock beneficially owned:
Common Stock:_____________________________
Series A Convertible Preferred Stock:_____________________________
Series B Convertible Preferred Stock:_____________________________
ACCEPTED AND AGREED as of April 2, 1998:
CORSAIR COMMUNICATIONS, INC.
By:_____________________________
Name: Mary Ann Byrnes
Title: President and Chief Executive Officer
5
<PAGE> 1
EXHIBIT 10.55
FORM OF CORSAIR COMMUNICATIONS, INC.
STOCKHOLDER VOTING AGREEMENT
This Stockholder Voting Agreement (the "Agreement") is made and entered
into as of April 2,1998 by and among Corsair Communications, Inc., a Delaware
corporation ("Corsair"), Subscriber Computing, Inc., a Delaware corporation
("SCI"), and the undersigned stockholder (the "Stockholder") of Corsair.
Capitalized terms used herein but not otherwise defined herein shall have the
meanings ascribed to them in the Merger Agreement (as defined below).
RECITALS
III. Concurrently with the execution of this Agreement, Corsair,
Anteater Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Corsair ("Merger Sub"), and SCI have entered into an Agreement and Plan of
Reorganization, dated April 2, 1998 (the "Merger Agreement"), which provides,
among other things, for the merger (the "Merger") of Merger Sub with and into
SCI. Pursuant to the Merger Agreement, all of the issued and outstanding shares
of capital stock of SCI (the "SCI Capital Stock") and all of the outstanding
options and warrants to acquire shares of SCI Capital Stock will be converted
into the right to receive shares of the capital stock of Corsair (the "Corsair
Capital Stock") and options and warrants to acquire shares of Corsair Capital
Stock, respectively.
IV. The Stockholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) with
the right to vote or to direct the vote of such number of shares of Capital
Stock as indicated on the signature page of this Agreement (the "Shares").
V. In consideration of the execution of the Merger Agreement by SCI, the
Stockholder agrees to restrict the transfer or disposition of the Shares, or
other shares of Corsair Capital Stock acquired by the Stockholder hereafter and
prior to the Expiration Date (as defined in Section 1.1 below), agrees to vote
or to direct the vote of the Shares and any other such shares of Corsair Capital
Stock so as to facilitate consummation of the Merger, and agrees to grant SCI an
irrevocable proxy to vote the Shares and any other such shares of Corsair
Capital Stock upon the terms and subject to the conditions set forth herein.
<PAGE> 2
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the promises and
covenants contained herein and other good and valuable consideration the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
A. AGREEMENT TO RETAIN SHARES.
1. TRANSFER AND ENCUMBRANCE. The Stockholder agrees, during the
period beginning on the date hereof and ending on the Expiration Date, not to
transfer, sell, exchange, pledge or otherwise dispose of or encumber
(collectively, "Transfer") any of the Shares or any New Shares (as defined in
Section 1.2 below) except as otherwise allowed by Staff Accounting Bulletin 76
of the Securities and Exchange Commission. As used herein, the term "Expiration
Date" shall mean the earlier to occur of (i) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the Merger
Agreement or (ii) the termination of the Merger Agreement in accordance with its
terms.
2. NEW SHARES. The Stockholder agrees that any shares of Corsair
Capital Stock that the Stockholder purchases or with respect to which the
Stockholder otherwise acquires beneficial ownership with the right to vote or
direct the voting of such shares, after the date of this Agreement and prior to
the Expiration Date (collectively, the "New Shares"), shall be subject to the
terms and conditions of this Agreement to the same extent as if they constituted
Shares.
B. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of
Corsair called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Corsair with respect to any of the following, the Stockholder shall vote or
direct the vote of the Shares and any New Shares in favor of approval of the
Merger Agreement and the Merger and in favor of any matter that could reasonably
be expected to facilitate the Merger.
C. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
the Stockholder agrees to deliver to SCI a proxy, which shall be deemed to be
coupled with an interest, in the form attached as Annex A (the "Proxy"), which
shall be irrevocable to the extent permitted by applicable law, covering the
total number of Shares and New Shares of capital stock of Corsair beneficially
owned (as such term is defined in Rule 13d-3 under the Exchange Act) by the
Stockholder set forth therein.
D. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. The
Stockholder represents, warrants and covenants to SCI as follows: the
Stockholder (i) is the beneficial owner of the Shares, which at the date of this
Agreement and at all times up until the Expiration Date will be free and clear
of any liens, claims, options, charges or other encumbrances, (ii) does not
beneficially own any shares of Corsair Capital Stock other than the Shares
(excluding shares as
<PAGE> 3
to which Stockholder currently disclaims beneficial ownership in accordance with
applicable law), and (iii) has full power and authority to make, enter into and
carry out the terms of this Agreement and the Proxy.
E. COVENANTS OF CORSAIR. Corsair hereby agrees and covenants that:
a. Corsair will not and will not cause its stock transfer agent
to, register the transfer of any of the Shares or New Shares on the stock
transfer ledger of Corsair at any time prior to the termination of this
Agreement pursuant to Section 10; and
b. Corsair agrees that any shares of Corsair Capital Stock
(including Corsair Common Stock) that the Stockholder purchases or with respect
to which the Stockholder otherwise acquires beneficial ownership after the date
of this Agreement and prior to the termination of this Agreement pursuant to
Section 10 shall be considered "New Shares" and subject to each of the terms and
conditions of this Agreement.
F. ADDITIONAL DOCUMENTS. The Stockholder and Corsair hereby covenant and
agree to execute and deliver any additional documents reasonably necessary or
desirable to carry out the purpose and intent of this Agreement.
G. CONSENT AND WAIVER. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreement to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
H. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
I. MISCELLANEOUS.
1. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
2. BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by any of
the parties without the prior written consent of the other parties.
3. AMENDMENTS AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
<PAGE> 4
4. SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties
acknowledge that SCI will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
the Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to SCI upon any such violation, SCI
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to SCI at law or
in equity.
5. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
a. If to Corsair, to:
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, CA 94304
Attention: CEO
Telephone No.: (650) 856-2677
Facsimile No.: (650) 493-3588
With a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101-3532
Attention: John A. Denniston
Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
b. If to SCI, to:
Subscriber Computing, Inc.
18881 Von Karman Ave., Suite 450
Irvine, CA 92612
Attention: President
Telephone No.: (714) 260-1500
Facsimile No.: (714) 260-1515
<PAGE> 5
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
17th Floor
Costa Mesa, CA 92626
Attention: William Simpson, Esq.
Telephone No.: (714) 668-6205
Facsimile No.: (714) 979-1921
c. If to the Stockholder, to the address set forth on
the last page hereof.
6. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be governed by, construed and enforced in accordance with the internal laws of
the State of Delaware, without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware. Corsair and the Stockholder irrevocably submit to the
jurisdiction of any state or federal court sitting in the state of California in
any action or proceeding arising out of or related to this Agreement, and hereby
irrevocably agree that all claims in respect of such action or proceeding may be
heard and determined in such state or federal court. The Stockholder hereby
irrevocably consents to the service of process which may be served in any such
action or proceeding by certified mail, return receipt requested, by delivering
a copy of such process to the Stockholder or by any other method permitted by
law.
7. ENTIRE AGREEMENT. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter hereof and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
8. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
CORSAIR COMMUNICATIONS, INC. STOCKHOLDER
Name:____________________________
By:___________________________ By:______________________________
Name:
Title: Title:___________________________
Stockholder's Address for Notice:
SUBSCRIBER COMPUTING, INC.
_________________________________
_________________________________
By:___________________________
Name:
Title: Shares beneficially owned:
_____ shares of Corsair Common Stock
[SIGNATURE PAGE TO STOCKHOLDER VOTING AGREEMENT]
<PAGE> 7
Annex A
IRREVOCABLE PROXY
TO VOTE
CORSAIR COMMUNICATIONS, INC. STOCK
The undersigned stockholder of Corsair Communications, Inc., a Delaware
corporation ("Corsair"), hereby irrevocably (to the fullest extent permitted by
applicable law) appoints the directors on the Board of Directors of Subscriber
Computing, Inc., a Delaware corporation ("SCI"), and each of them, as the sole
and exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to vote and exercise all voting and related
rights (to the fullest extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of Corsair which now are or
hereafter may be beneficially owned by the undersigned, and any and all other
shares or securities of Corsair issued or issuable in respect thereof on or
after the date hereof (collectively, the "Shares") in accordance with the terms
of this Proxy. The Shares beneficially owned by the undersigned stockholder of
Corsair as of the date of this Proxy are listed on the final page of this Proxy,
along with the number(s) of the share certificate(s) which represent such
Shares. Upon the undersigned's execution of this Proxy, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Proxy is granted pursuant to that certain Stockholder Voting
Agreement, dated as of April 2, 1998, by and among Corsair, SCI and the
undersigned stockholder (the "Stockholder Agreement"), and is granted in
consideration of SCI entering into that certain Agreement and Plan of
Reorganization dated as of April 2, 1998 (the "Merger Agreement"), by and among
Corsair, SCI Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Corsair ("Merger Sub"), and SCI. The Merger Agreement provides,
among other things, for the merger of Merger Sub with and into SCI in accordance
with its terms (the "Merger"). As used herein, the term "Expiration Date" shall
mean the earlier to occur of (i) such date and time as the Merger shall become
effective in accordance with the terms and provisions of the Merger Agreement or
(ii) the termination of the Merger Agreement in accordance with its terms.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents pursuant to applicable law) at every annual, special or
adjourned meeting of the stockholders of Corsair and in every written consent in
lieu of any such meeting in favor of approval of the Merger Agreement and the
Merger and in favor of any matter that could reasonably be expected to
facilitate the Merger. The attorneys and
A-1
<PAGE> 8
proxies named above may not exercise this Irrevocable Proxy on any other matter
except as provided above. The undersigned stockholder may vote the Shares on all
other matters.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
A-2
<PAGE> 9
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is deemed to be coupled with an interest and is irrevocable
(to the fullest extent permitted by Delaware Corporate Law). This Proxy shall
terminate, and be of no further force and effect, automatically upon the
Expiration Date.
Dated: ____________, 1998
Signature of Stockholder:_________________________
Print Name of Stockholder:________________________
Shares beneficially owned: Certificate Nos.
_____ shares of Corsair Common Stock ________________________
A-3
<PAGE> 1
EXHIBIT 10.56
FORM OF SUBSCRIBER COMPUTING, INC.
STOCKHOLDER VOTING AGREEMENT
This Stockholder Voting Agreement (the "Agreement") is made and entered
into as of April 2, 1998 by and among Corsair Communications, Inc., a Delaware
corporation ("Corsair"), Subscriber Computing, Inc., a Delaware corporation
("SCI"), and the undersigned stockholder (the "Stockholder") of SCI. Capitalized
terms used herein but not otherwise defined herein shall have the meanings
ascribed to them in the Merger Agreement (as defined below).
RECITALS
III. Concurrently with the execution of this Agreement, Corsair,
Anteater Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Corsair ("Merger Sub"), and SCI have entered into an Agreement and Plan of
Reorganization, dated April 2, 1998 (the "Merger Agreement"), which provides,
among other things, for the merger (the "Merger") of Merger Sub with and into
SCI. Pursuant to the Merger Agreement, all of the issued and outstanding shares
of capital stock of SCI (the "SCI Capital Stock") and all of the outstanding
options and warrants to acquire shares of SCI Capital Stock will be converted
into the right to receive shares of the capital stock of Corsair (the "Corsair
Capital Stock") and options and warrants to acquire shares of Corsair Capital
Stock, respectively.
IV. The Stockholder is the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) with
the right to vote or to direct the vote of such number of shares of SCI Capital
Stock as indicated on the signature page of this Agreement (the "Shares").
V. In consideration of the execution of the Merger Agreement by Corsair,
the Stockholder agrees to restrict the transfer or disposition of the Shares, or
other shares of SCI Capital Stock acquired by the Stockholder hereafter and
prior to the Expiration Date (as defined in Section 1.1 below), agrees to vote
or to direct the vote of the Shares and any other such shares of SCI Capital
Stock so as to facilitate consummation of the Merger, and agrees to grant
Corsair an irrevocable proxy to vote the Shares and any other such shares of SCI
Capital Stock upon the terms and subject to the conditions set forth herein.
VI. As additional consideration for Corsair's execution of the Merger
Agreement, the Stockholder agrees that ten percent (10%) of all Corsair Capital
Stock received by that Stockholder as part of the Merger will be automatically
deposited into and governed by the
<PAGE> 2
terms of an Escrow Fund established under the Merger Agreement without any
further act or approval of the Stockholder.
<PAGE> 3
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the promises and
covenants contained herein and other good and valuable consideration the receipt
of which is hereby acknowledged, the parties hereto agree as follows:
A. AGREEMENT TO RETAIN SHARES.
1. TRANSFER AND ENCUMBRANCE. The Stockholder agrees, during the
period beginning on the date hereof and ending on the Expiration Date, not to
transfer, sell, exchange, pledge or otherwise dispose of or encumber
(collectively, "Transfer") any of the Shares or any New Shares (as defined in
Section 1.2 below) except as otherwise allowed by Staff Accounting Bulletin 76
of the Securities and Exchange Commission. Such restrictions on Transfer,
however, shall not be applicable to a gratuitous Transfer of the Shares or New
Shares made to the Stockholder's spouse or issue, including adopted children, or
to a trust for the exclusive benefit of the Stockholder or the Stockholder's
spouse or issue, provided that such Transfer shall not preclude the Merger to
qualify for accounting treatment as a pooling of interests. Each person to whom
the Shares or New Shares are Transferred by means of one of the permitted
Transfers specified above must, as a condition precedent to the validity of such
Transfer, acknowledge in writing to SCI and Corsair that such person is bound by
the provisions of this Agreement. As used herein, the term "Expiration Date"
shall mean the earlier to occur of (i) such date and time as the Merger shall
become effective in accordance with the terms and provisions of the Merger
Agreement or (ii) the termination of the Merger Agreement in accordance with its
terms.
2. NEW SHARES. The Stockholder agrees that any shares of SCI
Capital Stock that the Stockholder purchases or with respect to which the
Stockholder otherwise acquires beneficial ownership with the right to vote or
direct the voting of such shares, after the date of this Agreement and prior to
the Expiration Date (collectively, the "New Shares"), shall be subject to the
terms and conditions of this Agreement to the same extent as if they constituted
Shares.
B. AGREEMENT TO VOTE SHARES. At every meeting of the stockholders of SCI
called with respect to any of the following, and at every adjournment thereof,
and on every action or approval by written consent of the stockholders of SCI
with respect to any of the following, the Stockholder shall vote or direct the
vote of the Shares and any New Shares in favor of approval of the Merger
Agreement and the Merger and in favor of any reasonable matter that could
reasonably be expected to facilitate the Merger.
C. NON-SOLICITATION AGREEMENT. The Stockholder agrees, prior to the
Expiration Date, not to directly or indirectly take any of the following actions
with any party other than Corsair and its affiliates, agents and representatives
and their designees in connection with any Acquisition Proposal: (i) solicit or
encourage submission of any inquiries, proposals or
<PAGE> 4
offers by any person, entity or group (other than Corsair, Merger Sub and their
affiliates, agents and representatives), or (ii) participate in any discussions
or negotiations with, or disclose any information concerning SCI to, or afford
any access to the properties, books or records of SCI to, or otherwise assist,
facilitate or encourage, or enter into any agreement or understanding with, any
person, entity or group (other than Corsair, Merger Sub and their affiliates,
agents and representatives). For the purposes of this Agreement, an "Acquisition
Proposal" shall mean any inquiry or proposal relating to (i) any merger,
consolidation, sale of substantial assets or similar transactions involving SCI
(other than sales of assets or inventory in the ordinary course of business), or
(ii) any sale of equity interests in SCI (including without limitation by way of
a tender offer or an exchange offer) other than pursuant to exercise of
outstanding options and warrants. In addition, subject to the other provisions
of this Section, from and after the date of this Agreement until the Expiration
Date, Stockholder agrees not to directly or indirectly through any of its
directors, officers, employees, representatives, investment bankers, agents or
affiliates, make or authorize any statement, recommendation or solicitation in
support of any Acquisition Proposal made by any person, entity or group (other
than Corsair and/or Merger Sub). Upon execution of this Agreement, Stockholder
agrees to immediately cease any and all existing activities, discussions or
negotiations with any parties (other than Corsair, Merger Sub, and their
affiliates, agents and representatives) conducted heretofore with respect to any
of the foregoing. In the event that the Stockholder receives from any third
party any offer or indication of interest (whether made in writing or otherwise)
regarding any of the transactions referred to in the foregoing sentence, or any
request for information about SCI with respect to any of the foregoing, then the
Stockholder shall promptly communicate to Corsair the material terms of each
such offer, indication of interest, or request, including the identity of the
third party.
D. IRREVOCABLE PROXY. Concurrently with the execution of this Agreement,
the Stockholder agrees to deliver to Corsair a proxy, which shall be deemed to
be coupled with an interest, in the form attached as Annex A (the "Proxy"),
which shall be irrevocable to the extent permitted by applicable law, covering
the total number of Shares and New Shares of capital stock of SCI beneficially
owned (as such term is defined in Rule 13d-3 under the Exchange Act) by the
Stockholder set forth therein.
E. ESCROW FUND. The Stockholder hereby agrees that ten percent (10%) of
all Corsair Capital Stock received by that Stockholder as part of the Merger
will be automatically deposited into and governed by the terms of an Escrow Fund
established under the Merger Agreement without any further act or approval of
the Stockholder.
F. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDER. The
Stockholder represents, warrants and covenants to Corsair as follows: the
Stockholder (i) is the beneficial owner of the Shares, which at the date of this
Agreement and at all times up until the Expiration Date will be free and clear
of any liens, claims, options, charges or other encumbrances, (ii) does not
beneficially own any shares of SCI Capital Stock other than the
<PAGE> 5
Shares (excluding shares as to which Stockholder currently disclaims beneficial
ownership in accordance with applicable law), and (iii) has full power and
authority to make, enter into and carry out the terms of this Agreement and the
Proxy.
G. COVENANTS OF SCI. SCI hereby agrees and covenants that:
a. Except as set forth in Section 1.1 hereof, SCI will not and
will not cause its stock transfer agent to, register the transfer of any of the
Shares or New Shares on the stock transfer ledger of SCI at any time prior to
the termination of this Agreement pursuant to Section 10; and
b. SCI agrees that any shares of SCI Capital Stock (including SCI
Common Stock) that the Stockholder purchases or with respect to which the
Stockholder otherwise acquires beneficial ownership after the date of this
Agreement and prior to the termination of this Agreement pursuant to Section 10
shall be considered "New Shares" and subject to each of the terms and conditions
of this Agreement.
H. ADDITIONAL DOCUMENTS. The Stockholder and SCI hereby covenant and
agree to execute and deliver any additional documents reasonably necessary or
desirable to carry out the purpose and intent of this Agreement.
I. CONSENT AND WAIVER. The Stockholder hereby gives any consents or
waivers that are reasonably required for the consummation of the Merger under
the terms of any agreement to which the Stockholder is a party or pursuant to
any rights the Stockholder may have.
J. TERMINATION. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
K. MISCELLANEOUS.
1. SEVERABILITY. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, then the remainder of the terms, provisions, covenants
and restrictions of this Agreement shall remain in full force and effect and
shall in no way be affected, impaired or invalidated.
2. BINDING EFFECT AND ASSIGNMENT. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by any of
the parties without the prior written consent of the other parties.
<PAGE> 6
3. AMENDMENTS AND MODIFICATION. This Agreement may not be
modified, amended, altered or supplemented except by the execution and delivery
of a written agreement executed by the parties hereto.
4. SPECIFIC PERFORMANCE; INJUNCTIVE RELIEF. The parties
acknowledge that Corsair will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
the Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to Corsair upon any such violation,
Corsair shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to
Corsair at law or in equity.
5. NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with acknowledgment of complete transmission)
to the parties at the following addresses (or at such other address for a party
as shall be specified by like notice):
(a) If to Corsair, to:
Corsair Communications, Inc.
3408 Hillview Avenue
Palo Alto, CA 94304
Attention: CEO
Telephone No.: (650) 856-2677
Facsimile No.: (650) 493-3588
With a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street, Suite 1300
San Diego, California 92101-3532
Attention: John A. Denniston
Telephone No.: (619) 234-1966
Facsimile No.: (619) 234-3848
(b) If to SCI, to:
Subscriber Computing, Inc.
18881 Von Karman Ave., Suite 450
Irvine, CA 92612
Attention: President
Telephone No.: (714) 260-1500
Facsimile No.: (714) 260-1515
<PAGE> 7
With a copy to:
Paul, Hastings, Janofsky & Walker LLP
695 Town Center Drive
17th Floor
Costa Mesa, CA 92626
Attention: William Simpson, Esq.
Telephone No.: (714) 668-6205
Facsimile No.: (714) 979-1921
(c) If to the Stockholder, to the address set forth on
the last page hereof.
6. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be governed by, construed and enforced in accordance with the internal laws of
the State of Delaware, without giving effect to any choice or conflict of law
provision or rule (whether of the State of Delaware or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
State of Delaware. SCI and the Stockholder irrevocably submit to the
jurisdiction of any state or federal court sitting in Orange County in the state
of California in any action or proceeding arising out of or related to this
Agreement, and hereby irrevocably agree that all claims in respect of such
action or proceeding may be heard and determined in such state or federal court.
The Stockholder hereby irrevocably consents to the service of process which may
be served in any such action or proceeding by certified mail, return receipt
requested, by delivering a copy of such process to the Stockholder or by any
other method permitted by law.
7. ENTIRE AGREEMENT. This Agreement and the Proxy contain the
entire understanding of the parties in respect of the subject matter hereof and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
8. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9. EFFECT OF HEADINGS. The section headings herein are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 8
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
CORSAIR COMMUNICATIONS, INC. STOCKHOLDER
Name:________________________________
By:_____________________________ By:__________________________________
Name:
Title: Title:_______________________________
Stockholder's Address for Notice:
SUBSCRIBER COMPUTING, INC.
_____________________________________
_____________________________________
By:_____________________________
Name:
Title: Shares beneficially owned:
_____ shares of SCI Common Stock
_____ shares of SCI Series A Preferred Stock
_____ shares of SCI Series B Preferred Stock
[SIGNATURE PAGE TO STOCKHOLDER VOTING AGREEMENT]
<PAGE> 9
Annex A
IRREVOCABLE PROXY
TO VOTE
SUBSCRIBER COMPUTING, INC. STOCK
The undersigned stockholder of Subscriber Computing, Inc., a Delaware
corporation ("SCI"), hereby irrevocably (to the fullest extent permitted by
applicable law) appoints the directors on the Board of Directors of Corsair
Communications, Inc., a Delaware corporation ("Corsair"), and each of them, as
the sole and exclusive attorneys and proxies of the undersigned, with full power
of substitution and resubstitution, to vote and exercise all voting and related
rights (to the fullest extent that the undersigned is entitled to do so) with
respect to all of the shares of capital stock of SCI which now are or hereafter
may be beneficially owned by the undersigned, and any and all other shares or
securities of SCI issued or issuable in respect thereof on or after the date
hereof (collectively, the "Shares") in accordance with the terms of this Proxy.
The Shares beneficially owned by the undersigned stockholder of SCI as of the
date of this Proxy are listed on the final page of this Proxy, along with the
number(s) of the share certificate(s) which represent such Shares. Upon the
undersigned's execution of this Proxy, any and all prior proxies given by the
undersigned with respect to any Shares are hereby revoked and the undersigned
agrees not to grant any subsequent proxies with respect to the Shares until
after the Expiration Date (as defined below).
This Proxy is granted pursuant to that certain Stockholder Voting
Agreement, dated as of April 2, 1998, by and among Corsair, SCI and the
undersigned stockholder (the "Stockholder Agreement"), and is granted in
consideration of Corsair entering into that certain Agreement and Plan of
Reorganization dated as of April 2, 1998 (the "Merger Agreement"), by and among
Corsair, SCI Acquisition Corporation, a Delaware corporation and a wholly-owned
subsidiary of Corsair ("Merger Sub"), and SCI. The Merger Agreement provides,
among other things, for the merger of Merger Sub with and into SCI in accordance
with its terms (the "Merger"), and the undersigned stockholder will be receiving
the capital stock of Corsair under the Merger. As used herein, the term
"Expiration Date" shall mean the earlier to occur of (i) such date and time as
the Merger shall become effective in accordance with the terms and provisions of
the Merger Agreement or (ii) the termination of the Merger Agreement in
accordance with its terms.
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting, consent and similar rights of the undersigned with respect
to the Shares (including, without limitation, the power to execute and deliver
written consents pursuant to applicable law) at every annual, special or
adjourned meeting of the stockholders of SCI and in every written consent in
lieu of any such meeting in favor of approval of the Merger Agreement and the
Merger and in favor of any reasonable matter that could reasonably be expected
to facilitate the Merger. The attorneys and proxies named above may not exercise
this Irrevocable Proxy on any other
A-1
<PAGE> 10
matter except as provided above. The undersigned stockholder may vote the Shares
on all other matters.
A-2
<PAGE> 11
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is deemed to be coupled with an interest and is irrevocable
(to the fullest extent permitted by Delaware Corporate Law). This Proxy shall
terminate, and be of no further force and effect, automatically upon the
Expiration Date.
Dated: April 2, 1998
Signature of Stockholder:___________________________
Print Name of Stockholder:__________________________
Shares beneficially owned: Certificate Nos.
_____ shares of SCI Common Stock ________________________
_____ shares of SCI Series A Preferred Stock ________________________
_____ shares of SCI Series B Preferred Stock ________________________
A-3
<PAGE> 1
EXHIBIT 23.2
REPORT ON SCHEDULE AND
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Corsair Communications, Inc.:
The audits referred to in our report dated January 26, 1998, included the
related financial statement schedule as of December 31, 1997, and for each of
the years in the three-year period ended December 31, 1997 included in the
Registration Statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the headings "Selected
Financial Data of Corsair" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
San Francisco, California
May 6, 1998
<PAGE> 1
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Corsair
Communications, Inc. on Form S-4 of our report dated January 7, 1998 relating to
Subscriber Computing, Inc. appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the
headings "Selected Financial Data" and "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
May 6 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 11,433
<SECURITIES> 49,121
<RECEIVABLES> 8,267
<ALLOWANCES> 651
<INVENTORY> 6,734
<CURRENT-ASSETS> 76,185
<PP&E> 4,254
<DEPRECIATION> 434
<TOTAL-ASSETS> 81,722
<CURRENT-LIABILITIES> 18,163
<BONDS> 0
0
0
<COMMON> 14
<OTHER-SE> 63,217
<TOTAL-LIABILITY-AND-EQUITY> 81,722
<SALES> 12,965
<TOTAL-REVENUES> 15,235
<CGS> 6,038
<TOTAL-COSTS> 7,226
<OTHER-EXPENSES> 5,850
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> (851)
<INCOME-PRETAX> 3,010
<INCOME-TAX> 254
<INCOME-CONTINUING> 2,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,756
<EPS-PRIMARY> .20<F1>
<EPS-DILUTED> .19
<FN>
<F1>FOR PURPOSES OF THIS EXHIBIT, PRIMARY MEANS BASIC
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99.1
CORSAIR COMMUNICATIONS, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mary Ann Byrnes and Martin J. Silver
jointly and severally as proxies, with full power of substitution and
resubstitution, to vote all shares of stock which the undersigned is entitled to
vote at the Special Meeting of Stockholders of Corsair Communications, Inc. (the
"Company") to be held on __________, 1998, or at any adjournments or
postponements thereof, as specified below, and to vote in the proxyholders'
discretion on such other business as may properly come before the Special
Meeting and any adjournments or postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2 AND 3.
1. Approval of Merger. A proposal to approve and adopt the Agreement and
Plan of Reorganization, dated April 2, 1998 (the "Merger Agreement"), by
and among the Company, Anteater Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company ("Merger Sub"),
and Subscriber Computing, Inc., a Delaware corporation ("Subscriber"),
to approve the Company's acquisition of Subscriber through the merger of
Merger Sub with and into Subscriber, with Subscriber being the surviving
corporation and becoming a wholly-owned subsidiary of the Company (the
"Merger") and to authorize the issuance of the Company's Common Stock as
consideration for its acquisition of Subscriber.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Approval of Amendment of 1997 Stock Incentive Plan. A proposal to amend
the Company's 1997 Stock Incentive Plan to increase the authorized
number of shares of the Company's Common Stock available for issuance
under such plan from 1,337,633 to 2,587,633 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. Approval of Amendment of 1997 Employee Stock Purchase Plan. A proposal
to amend the Company's 1997 Employee Stock Purchase Plan to increase the
authorized number of shares of the Company's Common Stock available for
issuance under such plan from 166,667 to 266,667 shares.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Unless otherwise specified by the undersigned, this proxy will be voted
in the manner directed above, but if no contrary direction is made, it will be
voted FOR Proposal 1 above, voted FOR Proposal 2 above, voted FOR Proposal 3
above and by the proxyholders', in the proxyholders' discretion, as to any other
matters properly transacted at the Special Meeting or any adjournments or
postponements thereof. To vote in accordance with the Board of Directors'
recommendations, just sign below, no box need be checked.
Dated:______________________________________
____________________________________________
Signature of Stockholder
____________________________________________
Printed Name of Stockholder
____________________________________________
Title (if appropriate)
Please sign exactly as name appears hereon.
If signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such, and, if signing for
a corporation, please give your title. When
shares are in the names of more than one
person, each should sign this proxy.
CHECK HERE IF YOU PLAN TO ATTEND
THE SPECIAL MEETING [ ]
<PAGE> 1
EXHIBIT 99.2
SUBSCRIBER COMPUTING, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Dennis Andrews and Steve Johnson jointly
and severally as proxies, with full power of substitution and resubstitution, to
vote all shares of stock which the undersigned is entitled to vote at the
Special Meeting of Stockholders of Subscriber Computing, Inc. (the "Company") to
be held on __________, 1998, or at any adjournments or postponements thereof, as
specified below, and to vote in the proxyholders' discretion on such other
business as may properly come before the Meeting and any adjournments or
postponements thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1.
1. Approval of Merger. A proposal to approve and adopt the Agreement and
Plan of Reorganization, dated April 2, 1998 (the "Merger Agreement"), by
and among the Company, Corsair Communications, Inc., a Delaware
corporation ("Corsair"), and Anteater Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of Corsair ("Merger Sub"), and
to approve Corsair's acquisition of the Company through the merger of
Merger Sub with and into the Company, with the Company being the
surviving corporation and becoming a wholly-owned subsidiary of Corsair
(the "Merger").
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Unless otherwise specified by the undersigned, this proxy will be voted
in the manner directed above, but if no contrary direction is made, it will be
voted FOR Proposal 1 above and by the proxyholders, in the proxyholders'
discretion, as to any other matters properly transacted at the Special Meeting
or any adjournments or postponements thereof. To vote in accordance with the
Board of Directors' recommendation, just sign below, no box need be checked.
Dated:______________________________________
____________________________________________
Signature of Stockholder
____________________________________________
Printed Name of Stockholder
____________________________________________
Title (if appropriate)
Please sign exactly as name appears hereon.
If signing as attorney, executor,
administrator, trustee or guardian, please
give full title as such, and, if signing for
a corporation, please give your title. When
shares are in the names of more than one
person, each should sign.
CHECK HERE IF YOU PLAN TO ATTEND
THE SPECIAL MEETING [ ]
