<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 2, 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
REDBACK NETWORKS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 3576 77-0438443
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NO.) IDENTIFICATION NUMBER)
INCORPORATION OR
ORGANIZATION)
</TABLE>
1389 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 548-3500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
DENNIS L. BARSEMA
PRESIDENT AND CHIEF EXECUTIVE OFFICER
REDBACK NETWORKS INC.
1389 MOFFETT PARK DRIVE
SUNNYVALE, CALIFORNIA 94089
(408) 548-3500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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<S> <C>
ROBERT V. GUNDERSON, JR. BARRY J. KRAMER
RENEE F. LANAM TYLER R. COZZENS
DAVID B. DAVIS PAMELA A. SERGEEFF
HEATHER M. SHANE FENWICK & WEST LLP
GUNDERSON DETTMER STOUGH TWO PALO ALTO SQUARE
VILLENEUVE FRANKLIN & HACHIGIAN LLP PALO ALTO, CALIFORNIA 94306
155 CONSTITUTION DRIVE (650) 494-0600
MENLO PARK, CALIFORNIA 94025
(650) 321-2400
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective and all other
conditions to the merger of Siara Systems, Inc. with and into Redback Networks
Inc. pursuant to the Merger Agreement and Plan of Reorganization, dated as of
November 28, 1999, described in the enclosed joint proxy statement/prospectus,
have been satisfied or waived.
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. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING REGISTRATION
OF SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) PRICE(2) FEE(2)(3)
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.0001 per
share................................... 31,341,986 $.001 $26,262 $8,754
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents an estimate of the maximum number of shares of Redback common
stock, and options and warrants to purchase Redback common stock, to be
issued to former security holders of Siara Systems pursuant to the Merger
Agreement and Plan of Reorganization by and among Redback, Siara Systems and
Vivek Ragavan, as Stockholder Agent, dated November 28, 1999.
(2) Pursuant to Rule 457(f)(2) under the Securities Act of 1933, as amended, the
registration fee has been calculated on the basis of one-third of the par
value of the securities of Siara ($.001) that would be cancelled in the
merger.
(3) A fee of $877,576 was previously paid by the Registrant in connection with
the filing of the joint proxy statement/prospectus on December 27, 1999.
Pursuant to Rule 457(b) of the Securities Act, such fee is being credited
against the registration fee and, accordingly, no additional fee is being
paid in connection with this amended joint proxy statement/prospectus.
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 SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
LOGO
February , 2000
Dear Redback Stockholder:
I am pleased to forward the enclosed notice and joint proxy
statement/prospectus for the special meeting of the stockholders of Redback
Networks Inc. ("Redback") to be held at the Sheraton Hotel, 1100 North Mathilda
Avenue, Sunnyvale, California on March 8, 2000 at 10:00 a.m., local time.
THIS IS A VERY IMPORTANT SPECIAL MEETING THAT AFFECTS YOUR INVESTMENT IN
REDBACK.
At the meeting you will be asked to consider and vote upon a proposal to
approve and adopt a merger agreement with Siara Systems, Inc. ("Siara") and
approve a merger that will cause Siara and Redback to merge, with Redback being
the surviving company of the merger. You will also be asked to amend our
certificate of incorporation and our stock and stock option plans to increase
the number of shares of our common stock authorized and reserved thereunder.
Based on the capitalization of Redback as of the date of this letter, after
the merger Siara's stockholders, optionholders and warrantholders will own
approximately 38% of Redback's outstanding common stock, options and warrants,
computed on a fully-exercised basis.
After careful consideration, your board of directors unanimously approved
this transaction and concluded that it is in the best interests of Redback and
its stockholders. Your board of directors unanimously recommends that you vote
FOR the merger agreement, the merger, the issuance of the Redback stock pursuant
to the merger agreement, and the proposed amendments to our certificate of
incorporation and to our stock and stock option plans.
Attached is a notice of special meeting of stockholders and a joint proxy
statement/prospectus relating to the merger and the proposed amendments. This
document describes the merger and the proposed amendments in detail. We
encourage you to read it carefully.
The merger involves risks. You should carefully consider the discussion in
the section entitled "Risk Factors" on page 20 of the enclosed joint proxy
statement/prospectus.
Whether or not you plan to attend the meeting, please complete, sign and
date the enclosed proxy and return it to us in the enclosed envelope.
Alternatively, follow the instructions to vote by telephone or via the Internet
set forth in the enclosed notice of special meeting. We encourage you to attend
the special meeting. YOUR VOTE IS VERY IMPORTANT.
Sincerely,
Dennis L. Barsema
Director, Chief Executive Officer and
President
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE REDBACK COMMON STOCK TO BE ISSUED TO
SIARA STOCKHOLDERS PURSUANT TO THE MERGER AGREEMENT OR DETERMINED IF THIS JOINT
PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS JOINT PROXY STATEMENT/PROSPECTUS IS NOT COMPLETE
AND MAY BE CHANGED. WE MAY NOT DISTRIBUTE REDBACK COMMON STOCK TO SIARA
STOCKHOLDERS PURSUANT TO THE MERGER AGREEMENT UNTIL A THIS REGISTRATION
STATEMENT ON FORM S-4 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
CONTAINING THIS JOINT PROXY STATEMENT/PROSPECTUS IS EFFECTIVE. THIS JOINT PROXY
STATEMENT/PROSPECTUS IS NOT AN OFFER TO SELL REDBACK'S COMMON STOCK AND IS NOT
SOLICITING AN OFFER TO BUY REDBACK'S COMMON STOCK IN ANY STATE WHERE THE OFFER
OR SALE IS NOT PERMITTED.
This joint proxy statement/prospectus is dated February , 2000 and is
first being mailed to stockholders on or about February 8, 2000.
<PAGE> 3
LOGO
1389 Moffett Park Drive, Sunnyvale, California 94089
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held on March 8, 2000
-------------------------
To Our Stockholders:
You are cordially invited to attend a special meeting of stockholders of
Redback Networks Inc. ("Redback") that will be held at 10:00 a.m., local time,
on March 8, 2000 at the Sheraton Hotel, located at 1100 North Mathilda Avenue,
Sunnyvale, California. At the special meeting, you will be asked to consider and
vote on the following proposals:
(1) To approve and adopt a merger agreement dated November 28, 1999
between Redback and Siara Systems, Inc. ("Siara"), approve the merger and
approve the issuance of 31,341,986 shares of Redback common stock,
including shares subject to options and warrants to purchase Redback
shares, pursuant to the merger with Siara. In the merger, Siara will be
merged with and into Redback and each stockholder of Siara will receive
Redback common stock and each holder of an option or a warrant to acquire
Siara common or preferred stock will receive an option or a warrant, as
appropriate, to acquire Redback common stock.
(2) To amend our certificate of incorporation to increase the
authorized number of shares of our common stock from 80,000,000 to
200,000,000 to allow for the issuance of Redback stock, options and
warrants to holders of Siara's stock, options and warrants pursuant to the
merger agreement, to cover the proposed increases to Redback's stock and
stock option plan reserves set forth below and to provide flexibility in
the future for stock issuances, stock splits or acquisitions.
(3) To amend Redback's 1999 Stock Incentive Plan:
- to increase the initial number of shares of Redback common stock
reserved for issuance under the plan from 5,000,000 to 8,000,000;
and
- to increase the number of shares of Redback common stock by which
the share reserve will automatically increase on an annual basis
from the lesser of 3,000,000 or 5% of the total number of shares of
Redback common stock outstanding at the time of the increase to the
lesser of 5,000,000 or 5% of the total number of shares of Redback
common stock outstanding at the time of the increase.
If approved, the amendment will take effect only if the merger with
Siara is completed.
(4) To amend Redback's 1999 Employee Stock Purchase Plan:
- to increase the initial number of shares of Redback common stock
reserved for issuance under the plan from 2,000,000 to 3,000,000;
and
- to increase the number of shares of Redback common stock to which
the reserve will automatically be restored on an annual basis from
2,000,000 to 3,000,000.
If approved, the amendment will take effect only if the merger with
Siara is completed.
<PAGE> 4
(5) To amend Redback's 1999 Directors' Option Plan:
- to increase the initial number of shares of Redback common stock
reserved for issuance under the plan from 400,000 to 800,000; and
- to increase the number of shares of Redback common stock to which
the reserve will automatically be restored on an annual basis from
400,000 to 800,000.
If approved, the amendment will take effect only if the merger with
Siara is completed.
(6) To transact any other business that may properly come before the
Redback special meeting, including any adjournment or postponement thereof.
These proposals are more fully described in the joint proxy
statement/prospectus that accompanies this notice. We encourage you to read the
joint proxy statement/prospectus carefully.
Your board of directors has determined that the merger and the merger
agreement are in your best interests and unanimously recommends that you vote
FOR the approval of the merger agreement and the transactions associated with it
at the special meeting. Your board of directors has also determined that the
amendment to the certificate of incorporation and the amendments to the stock
and stock option plans are in your best interests and recommends that you vote
FOR the amendment to the certificate of incorporation and the amendments to the
stock and stock option plans.
When the merger agreement was signed, Redback's executive officers and
directors collectively holding approximately 2.5 million shares of Redback
common stock, representing approximately 6% of the outstanding Redback common
stock, entered into voting agreements with Siara, pursuant to which these
stockholders agreed, among other things, to vote their shares of Redback common
stock to approve the merger agreement and the transactions associated with it at
Redback's special meeting. In addition, a group of stockholders of Siara
collectively holding approximately 8.5 million shares of Siara's outstanding
common stock and approximately 6.8 million shares of Siara's outstanding
preferred stock representing a total of 50% of Siara's outstanding common stock,
and 96% of Siara's outstanding preferred stock entered into similar voting
agreements with Redback, pursuant to which these stockholders agreed to vote
their shares of Siara stock to approve the merger agreement and the transactions
associated with it at Siara's special meeting.
Only stockholders of record who own shares of common stock at the close of
business on January 31, 2000, referred to as the Redback record date, are
entitled to notice of, and to vote at, this special meeting or any adjournments
or postponements. Your vote as a stockholder of Redback is important. You may
vote your shares by:
- marking, signing, dating and returning the enclosed proxy card as
promptly as possible in the postage prepaid envelope provided;
- dialing the telephone number indicated on the enclosed proxy card and
casting your vote in accordance with the instructions given to you on the
telephone; or
- casting your vote via the Internet at http://www.cybervote.georgeson.com.
2
<PAGE> 5
You may also vote in person at the meeting, even if you use any of the three
options above. If your shares are not registered in your own name and you plan
to attend the special meeting and vote your shares in person, you will need to
ask the broker, trust company, bank or other nominee that holds your shares to
provide you with evidence of your share ownership on January 31, 2000 and bring
that evidence to the special meeting.
By Order of the Board of Directors
Dennis L. Barsema
Director, Chief Executive Officer and
President
Sunnyvale, California
February , 2000
3
<PAGE> 6
LOGO
February , 2000
Dear Siara Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Siara Systems, Inc. ("Siara") to be held on March 8, 2000 at 9:00 a.m., local
time at the Sheraton Hotel, located at 1100 North Mathilda Avenue, Sunnyvale,
California.
THIS IS A VERY IMPORTANT SPECIAL MEETING THAT AFFECTS YOUR INVESTMENT IN SIARA.
At this special meeting you will be asked to vote on a proposal to approve
a merger agreement pursuant to which Siara would be merged with and into Redback
Networks Inc., a publicly-held corporation ("Redback"). Redback will be the
surviving corporation of the merger, and the separate existence of Siara will
terminate when the merger becomes effective. Upon completion of the merger, each
share of Siara common stock and Siara preferred stock then outstanding will be
converted into that number of shares of Redback common stock, called the
"exchange ratio," that is equal to 31,341,986 Redback shares divided by the sum
of the number of shares of Siara's common and preferred stock outstanding
immediately prior to the merger plus the number of shares of Siara's common
stock and preferred stock that are issuable upon exercise of all options and
warrants issued by Siara that are outstanding immediately prior to the merger.
In addition, when the merger becomes effective, each option to purchase Siara
common stock and each warrant to purchase Siara common stock or preferred stock
that is outstanding immediately prior to the merger will be assumed by Redback
and converted into an option or warrant to purchase a number of shares of
Redback common stock equal to the number of shares of Siara stock subject to the
option or warrant multiplied by the exchange ratio. The post-merger exercise
price of each converted Siara option or warrant will be its pre-merger exercise
price divided by the exchange ratio.
Based on the number of shares, options and warrants of Siara outstanding on
the date of this letter, under the merger conversion formula, if the merger had
occurred on the date of this letter, each share of Siara capital stock would be
converted in the merger into approximately 1.193 shares of Redback common stock.
Please note, however, that the actual exchange ratio will not be determined
until the merger becomes effective and will depend on the number of shares,
options and warrants of Siara outstanding immediately prior to the consummation
of the merger. The conversion of Siara common stock and preferred stock into
shares of Redback common stock, other than cash paid for fractional shares, is
intended to be tax-free to Siara's stockholders for federal income tax purposes.
Your board of directors has unanimously approved the merger and has
determined that the merger agreement, the merger and the transactions relating
to it are in your best interests and unanimously recommends that you vote FOR
the approval of the merger agreement, the merger and the transactions
contemplated by the merger agreement at the special meeting. We have enclosed a
notice of special meeting and a joint proxy statement/prospectus discussing the
proposed merger and the related merger agreement for which your approval is
requested. The merger agreement is attached to the accompanying joint proxy
statement/prospectus as Appendix A.
We encourage you to read these documents carefully. Also enclosed is a
proxy card so you can vote on the merger agreement without attending the special
meeting in person. Please complete, sign and date the enclosed proxy card and
return it to us as soon as possible in the enclosed stamped envelope we have
provided.
Thank you for your cooperation.
Very truly yours,
Vivek Ragavan
President and Chief Executive Officer
This joint proxy statement/prospectus is dated February , 2000 and is
first being mailed to stockholders on or about February 8, 2000.
<PAGE> 7
LOGO
SIARA SYSTEMS, INC.
1195 BORREGAS AVENUE
SUNNYVALE, CALIFORNIA 94089
-------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 8, 2000
-------------------------
A special meeting of the stockholders of Siara Systems, Inc. ("Siara") will
be held at the Sheraton Hotel, located at 1100 North Mathilda Avenue, Sunnyvale,
California on March 8, 2000 at 9:00 a.m., local time. The board of directors of
Siara asks you to attend this important special meeting to vote on the following
matter:
- MERGER WITH REDBACK. Siara's board of directors is requesting approval of
a merger agreement dated November 28, 1999 between Siara and Redback
Networks Inc. ("Redback") and the transactions associated with it,
pursuant to which Siara will be merged with and into Redback, with
Redback to be the surviving corporation of the merger. The separate
existence of Siara will terminate when the merger becomes effective. If
the merger becomes effective, each share of Siara common stock and
preferred stock then outstanding will be converted into that number of
shares of Redback common stock, called the "exchange ratio," that is
equal to 31,341,986 Redback shares divided by the sum of the number of
Siara's common stock and preferred stock outstanding immediately prior to
the merger plus the number of shares of Siara's common stock and
preferred stock issuable upon exercise of all options and warrants issued
by Siara that are outstanding immediately prior to the merger. Redback
will also assume Siara's outstanding stock options and warrants in the
merger. All Siara options and warrants will be converted into options and
warrants to purchase Redback common stock at the exchange ratio. The
post-merger exercise price of each converted Siara option or warrant will
be its pre-merger exercise price divided by the exchange ratio.
Your board of directors has determined that the merger and the merger
agreement are in your best interests and unanimously recommends that you vote
FOR the approval of the merger agreement, the merger and the transactions
associated with it at the special meeting.
When the merger agreement was signed, a group of stockholders of Siara
collectively holding approximately 8.5 million shares of Siara's outstanding
common stock and approximately 6.8 million shares of Siara's outstanding
preferred stock, representing a total of approximately 50% of Siara's
outstanding common stock and 96% of Siara's outstanding preferred stock, entered
into voting agreements with Redback, pursuant to which these stockholders have
agreed to vote their shares of Siara stock to approve the merger agreement and
the transactions associated with it at Siara's special meeting. In addition,
Redback's executive officers and directors collectively holding approximately
2.5 million shares of Redback common stock, representing approximately 6% of the
outstanding Redback common stock, have entered into similar voting agreements
with Siara, pursuant to which these stockholders have agreed, among other
things, to vote their shares of Redback common stock to approve the merger
agreement and the transactions associated with it at a special meeting of
Redback's stockholders.
Only stockholders of record who held their shares of Siara common stock or
preferred stock at the close of business on January 31, 2000, referred to as the
Siara record date, will be entitled to notice of, and to vote at, the special
meeting or any adjournments or postponements. The merger cannot be
<PAGE> 8
completed unless holders of a majority of the outstanding shares of Siara common
stock and preferred stock on the record date, voting as separate classes,
affirmatively vote their shares to approve the merger agreement. Siara expects
that holders of Siara's preferred stock will agree to automatically convert each
outstanding share of Siara preferred stock into one share of Siara common stock
immediately before the merger becomes effective.
Accompanying this notice is a joint proxy statement/prospectus discussing
the proposed merger, the merger agreement and the transactions associated with
it as well as the other matters described in this notice. A copy of the merger
agreement is attached to the joint proxy statement/prospectus for your
consideration. We encourage you to read this document carefully. Also enclosed
is a proxy card so you can vote on the merger agreement without attending the
meeting. Please complete, sign and date the enclosed proxy card and return it to
us as soon as possible in the enclosed stamped envelope we have provided. If you
decide to come to the special meeting, you may vote your shares in person
whether or not you have mailed us a proxy. You may also revoke your proxy at any
time before the meeting. If your shares are not registered in your own name and
you plan to attend the special meeting and vote your shares in person, you will
need to ask the broker, trust company, bank or other nominee that holds your
shares to provide you with evidence of your share ownership on January 31, 2000
and bring that evidence to the special meeting.
By Order of the Board of Directors,
Vivek Ragavan
President and Chief Executive Officer
Date: February , 2000
2
<PAGE> 9
TABLE OF CONTENTS
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PAGE NO.
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Questions and Answers About the Redback/Siara Merger........ 1
Summary of the Joint Proxy Statement/Prospectus............. 7
The Companies............................................. 7
Our Recommendations to Stockholders....................... 7
Votes Required for Approval............................... 8
Appraisal Rights.......................................... 8
Summary of the Transaction................................ 9
Summary of Reasons for the Merger......................... 9
Conditions to Completion of the Merger.................... 10
Termination of the Merger Agreement....................... 10
Termination Fee........................................... 11
Escrow and Indemnification................................ 11
No Other Negotiations..................................... 12
Opinion from Redback's Financial Advisor.................. 12
Accounting Treatment of the Merger........................ 12
Material United States Federal Income Tax Consequences of
the Merger............................................. 12
Interests of Certain Persons in the Merger................ 13
Forward-Looking Statements in this Joint Proxy
Statement/Prospectus................................... 13
Selected Historical Financial Data.......................... 14
Selected Unaudited Pro Forma Combined Financial Data........ 16
Comparative Per Share Data.................................. 17
Market Price and Dividend Information....................... 18
Dividend Information...................................... 18
Recent Closing Prices..................................... 18
Risk Factors................................................ 19
Risks Related to the Combined Company and the Proposed
Merger................................................. 19
Risks Related to Redback's Business....................... 22
Risks Related to Siara's Business......................... 30
The Redback Meeting......................................... 38
Date, Time, Place and Purpose of Redback's Meeting........ 38
Redback Record Date and Outstanding Shares................ 39
Redback Vote and Quorum Required.......................... 39
Share Ownership of Management and Certain Stockholders.... 39
Abstentions; Broker Non-Votes on Redback's Proposals...... 39
Redback's Expenses of Proxy Solicitation.................. 39
Voting of Proxies on Redback's Proposals.................. 40
How to Revoke Your Proxy.................................. 40
No Appraisal Rights....................................... 40
The Siara Meeting........................................... 41
Date, Time, Place and Purpose of Siara's Meeting.......... 41
Siara Record Date and Outstanding Shares.................. 41
Siara Vote and Quorum Required............................ 41
Share Ownership of Management and Certain Stockholders.... 41
Abstentions; Broker Non-Votes on Siara Proposals.......... 41
</TABLE>
i
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PAGE NO.
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Siara's Expenses of Proxy Solicitation...................... 42
Voting of Proxies on Siara's Proposal..................... 42
How to Revoke Your Proxy.................................. 42
Appraisal Rights of Dissenting Siara Stockholders......... 43
The Merger.................................................. 49
Background of the Merger.................................. 49
Redback's Reasons for the Merger.......................... 50
Recommendation of Redback's Board of Directors............ 52
Siara's Reasons for the Merger............................ 52
Recommendation of Siara's Board of Directors.............. 53
Opinion of Redback's Financial Advisor.................... 54
Interests of Siara Affiliates in the Merger............... 59
Structure of the Merger and Conversion of Siara Common
Stock.................................................. 60
Exchange of Siara Stock Certificates for Redback Stock
Certificates........................................... 61
Material United States Federal Income Tax Consequences of
the Merger............................................. 61
Accounting Treatment of the Merger........................ 64
Regulatory Filings and Approvals Required to Complete the
Merger................................................. 64
Restrictions on Sales of Redback Shares to be Issued to
Siara Stockholders..................................... 65
Listing on the Nasdaq National Market of Redback Common
Stock to be Issued in the Merger....................... 65
The Merger Agreement........................................ 65
Representations and Warranties............................ 65
Escrow and Indemnification................................ 66
Indemnification by Redback................................ 67
Conduct of Business Before Completion of the Merger....... 67
No Other Negotiations..................................... 68
Treatment of Siara Stock Options and Warrants............. 69
Conditions to Completion of the Merger.................... 69
Termination of the Merger Agreement....................... 71
Payment of Termination Fee................................ 72
Extension, Waiver and Amendment of the Merger Agreement... 73
Related Agreements.......................................... 73
Irrevocable Proxy and Voting Agreements................... 73
Amendment to Redback's Amended and Restated Investors'
Rights Agreement....................................... 73
Employment Agreements..................................... 74
Unaudited Pro Forma Combined Financial Data................. 76
Unaudited Pro Forma Combined Balance Sheet As of December
31, 1999............................................... 77
Unaudited Pro Forma Combined Statement of Operations
Year Ended December 31, 1999........................... 78
Notes to Unaudited Pro Forma Combined Financial Data...... 79
Comparison of Rights of Stockholders of Redback and Siara... 81
Other Matters Submitted to Redback Stockholders............. 83
Redback Management's Discussion and Analysis of Financial
Condition and Results of Operations....................... 90
Redback's Business.......................................... 95
</TABLE>
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<TABLE>
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PAGE NO.
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<S> <C>
Siara Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 107
Siara's Business............................................ 111
Description of Capital Stock................................ 113
Shares Eligible for Future Sale............................. 115
Management of the Combined Company After the Merger......... 116
Principal Stockholders of Redback........................... 122
Principal Stockholders of Siara............................. 124
Redback Related Party Transactions.......................... 126
Siara Related Party Transactions............................ 128
Legal Matters............................................... 129
Experts..................................................... 129
Where You Can Find More Information......................... 130
Index to Redback Networks Inc. Financial Statements......... F-1
Index to Siara Systems, Inc. Consolidated Financial
Statements................................................ F-20
Appendix A: Merger and Plan of Reorganization by and among
Redback Networks Inc., Siara Systems, Inc. and the
Stockholder Agent......................................... A-1
Appendix B: Redback's Proposed Amended and Restated
Certificate of Incorporation.............................. B-1
Appendix C: Opinion of Goldman, Sachs & Co. ................ C-1
Appendix D: Delaware dissenters rights...................... D-1
Appendix E: California dissenters rights.................... E-1
Appendix F: Escrow Agreement................................ F-1
</TABLE>
iii
<PAGE> 12
QUESTIONS AND ANSWERS ABOUT THE REDBACK/SIARA MERGER
Q: WHEN AND WHERE ARE THE STOCKHOLDER MEETINGS?
A: REDBACK STOCKHOLDERS: Redback's special meeting will be held at the Sheraton
Hotel, located at 1100 North Mathilda Avenue, Sunnyvale, California on March
8, 2000, starting at 10:00 a.m., local time.
SIARA STOCKHOLDERS: Siara's special meeting will be held at the Sheraton
Hotel, located at 1100 North Mathilda Avenue, Sunnyvale, California on
March 8, 2000 starting at 9:00 a.m., local time.
Q: WHAT IS THE MERGER?
A: In the merger, Siara and its business, properties and liabilities will merge
with and into Redback. Siara stockholders, optionholders and warrantholders
will receive an aggregate total of 31,341,986 shares of Redback common stock
and shares subject to options or warrants, as applicable, in the merger,
representing approximately 38% of the combined company's outstanding common
stock, options and warrants, computed on a fully-exercised basis, as if the
merger had become effective on the date of this joint proxy
statement/prospectus.
For a more complete description of the merger, see the section entitled
"The Merger" on page 53.
Q: WHAT AM I BEING ASKED TO VOTE UPON?
A: REDBACK STOCKHOLDERS: you are being asked to:
- adopt and approve the merger agreement, approve the merger and approve
the issuance of Redback common stock pursuant to the terms of the merger
agreement with Siara;
- approve the amendment of Redback's certificate of incorporation to
increase the authorized number of shares of Redback common stock from
80,000,000 to 200,000,000 to allow for the issuance of Redback stock,
options and warrants to holders of Siara stock, options and warrants
pursuant to the merger agreement, to cover the proposed increases to
Redback's stock and stock option plan reserves and to provide flexibility
in the future for stock issuances, stock splits or acquisitions;
- to approve the amendment of Redback's 1999 Stock Incentive Plan to
increase the number of shares of Redback common stock reserved for
issuance from 5,000,000 to 8,000,000, and the number of shares of Redback
common stock by which the share reserve will automatically increase on an
annual basis from the lesser of 3,000,000 or 5% of the total number of
shares of Redback common stock outstanding at the time of the increase to
the lesser of 5,000,000 or 5% of the total number of shares of Redback
common stock outstanding at the time of the increase. If approved, the
amendment will take effect only if the merger with Siara is completed;
- to approve the amendment of Redback's 1999 Employee Stock Purchase Plan
to increase the number of shares of Redback common stock reserved for
issuance from 2,000,000 to 3,000,000, and the number of shares of Redback
common stock to which the reserve will automatically be restored on an
annual basis from 2,000,000 to 3,000,000. If approved, the amendment will
take effect only if the merger with Siara is completed; and
- to approve the amendment of Redback's 1999 Directors' Option Plan to
increase the number of shares of Redback common stock reserved for
issuance from 400,000 to 800,000, and the number of shares of Redback
common stock to which the reserve will automatically be restored on an
annual basis from 400,000 to 800,000. If approved, the amendment will
take effect only if the merger with Siara is completed.
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SIARA STOCKHOLDERS: you are being asked to approve the merger agreement and
the merger, which provides that Siara will merge with and into Redback,
with Redback being the surviving company of the merger and that holders of
Siara stock, options and warrants will have their Siara securities
converted into Redback common stock, options and warrants.
Q: WHAT WILL SIARA STOCKHOLDERS RECEIVE IN THE MERGER?
A: The number of shares of Redback common stock to be issued in the merger for
each share of Siara common stock, called the exchange ratio, is the fraction
obtained by dividing:
- 31,341,986 shares of Redback common stock by
- the sum of the total number of shares of Siara common stock and Siara
preferred stock that are outstanding immediately before the time that the
merger becomes effective plus the number of shares of Siara common stock
and preferred stock that are issuable upon the exercise of all Siara
options and warrants that are outstanding immediately before the
effective time.
Based on the number of shares of Siara stock, options and warrants that are
outstanding as of the date of this joint proxy/statement prospectus, the
exchange ratio would be approximately 1.193. Therefore, Siara stockholders
would receive approximately 1.193 shares of Redback common stock for each
share of Siara common stock or Siara preferred stock that they own. Siara
expects that holders of Siara's preferred stock will agree to automatically
convert each outstanding share of Siara preferred stock into one share of
Siara common stock immediately before the merger becomes effective. This
number will be adjusted downward for any stock, options or warrants issued
by Siara after the date of this joint proxy/statement prospectus and before
the completion of the merger. Redback will not issue fractional shares of
Redback stock in the merger. Instead of any fractional Redback share, Siara
stockholders will receive an amount of cash equal to the fractional share
they otherwise would have received multiplied by an average of closing
prices of Redback common stock for the ten trading days prior to the
closing date of the merger.
At the closing of the merger, Redback will deposit into escrow 5% of the
shares of Redback common stock otherwise issuable to the holders of Siara
common stock and preferred stock in the merger, on a pro rata basis. The
escrowed shares will be available to provide a fund against which Redback
may assert indemnification claims for losses, damages, costs and expenses
that it may have incurred by reason of any breach, violation, default or
inaccuracy of Siara's representation regarding its capitalization in the
merger agreement.
For a more complete description of what you will receive in the merger, see
the section entitled "Structure of the Merger and Conversion of Siara
Common Stock" on page 60.
Q: HOW DOES MY BOARD OF DIRECTORS RECOMMEND THAT I VOTE ON THE PROPOSALS?
A: REDBACK STOCKHOLDERS: The Redback board of directors unanimously recommends
that you vote:
- FOR the adoption and approval of the merger agreement, the approval of
the merger of Siara with and into Redback and the issuance of Redback
common stock pursuant to the terms of the merger agreement with Siara;
- FOR the amendment of Redback's certificate of incorporation to increase
the number of shares of authorized Redback common stock from 80,000,000
to 200,000,000 to allow for the issuance of Redback stock, options and
warrants to holders of Siara's stock, options and warrants pursuant to
the merger agreement, to cover the proposed increases to Redback's stock
and stock option plan reserves and to provide flexibility in the future
for stock issuances, stock splits or acquisitions;
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- FOR the amendment of Redback's 1999 Stock Incentive Plan to increase the
number of shares of Redback common stock reserved for issuance from
5,000,000 to 8,000,000, and the number of shares of Redback common stock
by which the share reserve will automatically increase on an annual basis
from the lesser of 3,000,000 or 5% of the total number of shares of
Redback common stock outstanding at the time of the increase to the
lesser of 5,000,000 or 5% of the total number of shares Redback common
stock outstanding at the time of the increase if the merger with Siara is
completed;
- FOR the amendment of Redback's 1999 Employee Stock Purchase Plan to
increase the number of shares of Redback common stock reserved for
issuance from 2,000,000 to 3,000,000, and the number of shares of Redback
common stock to which the reserve will automatically be restored on an
annual basis from 2,000,000 to 3,000,000 if the merger with Siara is
completed; and
- FOR the amendment of Redback's 1999 Directors' Option Plan to increase
the number of shares of Redback common stock reserved for issuance from
400,000 to 800,000, and the number of shares of Redback common stock to
which the reserve will automatically be restored on an annual basis from
400,000 to 800,000 if the merger with Siara is completed.
SIARA STOCKHOLDERS: The Siara board of directors unanimously recommends that
you vote FOR the approval of the merger agreement, the merger and the
transactions associated with it.
For a more complete description of the recommendations of the boards of
directors of Redback and Siara, see the sections entitled "Redback's
Reasons for the Merger" on page 50, "Recommendation of Redback's Board of
Directors" on page 57, "Siara's Reasons for the Merger" on page 52, and
"Recommendation of Siara's Board of Directors" on page 53.
Q: ARE THERE RISKS I SHOULD CONSIDER IN DECIDING WHETHER TO VOTE FOR THE
MERGER?
A: Yes. For example, the aggregate number of shares of Redback common stock
that will be issued in the merger and issuable upon exercise of options and
warrants converted in the merger will not change, even if the market price
of Redback common stock increases or decreases before the completion of the
merger. WE URGE YOU TO OBTAIN CURRENT MARKET QUOTATIONS OF REDBACK COMMON
STOCK.
In evaluating the merger, you should carefully consider these and other
factors discussed in the section entitled "Risk Factors" on page 19.
Q: WHAT DO I NEED TO DO NOW?
A: REDBACK STOCKHOLDERS: Mail your signed proxy card in the enclosed return
envelope as soon as possible so that your shares may be represented at
Redback's special meeting. Alternatively, you may dial the telephone number
indicated on the enclosed proxy card to cast your vote by following the
instructions given to you on the telephone or you may vote via the Internet
at http://www.cybervote.georgeson.com. If you do not include instructions on
how to vote your properly signed proxy, your shares will be voted FOR
approval and adoption of the merger agreement and approval of the merger,
the issuance of shares of common stock in the merger, the amendment of
Redback's certificate of incorporation and the amendments to the stock and
stock option plans.
SIARA STOCKHOLDERS: Mail your signed proxy card in the enclosed return
envelope as soon as possible so that your shares may be represented at the
Siara special meeting. If you do not include instructions on how to vote
your properly signed proxy, your shares will be voted FOR approval of the
merger agreement, the merger and the transactions associated therewith.
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For a more complete description of voting at the special meetings of
Redback and Siara, see the sections entitled "Voting of Proxies on
Redback's Proposals" and "Voting of Proxies on Siara's Proposals" on pages
40 and 42, respectively.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE?
A: If you want to change your vote, send the secretary of Siara or Redback, as
appropriate, a later-dated, signed proxy card before your stockholders
meeting or attend your meeting in person. You may also revoke your proxy by
sending written notice to the secretary of Siara or Redback, as appropriate,
before your meeting. If your shares are not registered in your own name and
you plan to attend the special meeting and vote your shares in person, you
will need to ask the broker, trust company, bank or other nominee that holds
your shares to provide you with evidence of your share ownership on January
31, 2000 and bring that evidence to the special meeting.
For a more complete description of how to change your vote, see the
sections entitled "How to Revoke Your Proxy" on pages 40 and 42.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will vote your shares only if you provide instructions on how to
vote by following the information provided to you by your broker.
For a more complete description of voting shares held in street name, see
the sections entitled "Voting of Proxies on Redback's Proposals" and
"Voting of Proxies on Siara's Proposals" on pages 40 and 42, respectively.
Q: SHOULD I SEND IN MY SIARA STOCK CERTIFICATES NOW?
A: No. If the merger is approved, then after the merger is completed, we will
send you written instructions for exchanging your Siara stock certificates
for Redback stock certificates.
Q: WHEN WILL I BE ABLE TO SELL MY SHARES?
A: The shares of Redback common stock to be issued in the merger will be
subject to the following restrictions:
Under the merger agreement, for a period of up to 180 days following the
merger, stockholders, option holders and warrant holders of Siara may not
sell their shares of Redback common stock acquired in the merger, except
under limited circumstances. During this period, the price of Redback
shares may fluctuate significantly.
In addition, affiliates of Siara who receive Redback common stock or options
or warrants to purchase Redback common stock may not sell their shares
except subject to an effective registration statement filed with the SEC or
subject to an exemption under the Securities Act.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We are working toward completing the merger as quickly as possible. We hope
to complete the merger in March of 2000.
For a more complete description of the conditions to the merger, see the
section entitled "Conditions to Completion of the Merger" on page 69.
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Q: WILL I RECOGNIZE A GAIN OR LOSS ON THE TRANSACTION?
A: We expect that if the merger is completed, you will not recognize gain or
loss for United States federal income tax purposes, except that Siara
stockholders will recognize gain or loss with respect to cash received
instead of fractional shares. However, Siara stockholders are urged to
consult their own tax advisor to determine their particular tax
consequences.
For a more complete description of tax consequences of the merger, see the
section entitled "Material United States Federal Income Tax Consequences of
the Merger" on page 61.
Q: AM I ENTITLED TO DISSENTERS' OR APPRAISAL RIGHTS?
A: Holders of Redback common stock are not entitled to dissenters' or appraisal
rights in the merger. Holders of Siara's common stock and preferred stock
are entitled to dissenters' and appraisal rights under Delaware and
California law.
For a more complete description of your dissenters and appraisal rights,
see the section entitled "No Appraisal Rights" on page 40 and "Appraisal
Rights of Dissenting Siara Stockholders" on page 43.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: If you have more questions about the merger, you should contact:
if you are a
REDBACK STOCKHOLDER:
Redback Networks Inc.
1389 Moffett Park Drive
Sunnyvale, California 94089
Attention: Olivia Martinez
Phone Number: (408) 548-3904
if you are a
SIARA STOCKHOLDER:
Siara Systems, Inc.
1195 Borregas Avenue
Sunnyvale, California 94089
Attention: Investor Relations
Phone Number: (408) 548-9480
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<PAGE> 17
If you would like additional copies of this document,
or if you have questions about the merger, you should contact:
Georgeson Shareholder Communications, Inc.
17 State Street
New York, New York 10004
Attention: Kenneth Ward
For banks & brokers, call collect:
(212) 440-9800
For all others, call toll free:
(800) 223-2064
You may also obtain additional information about Redback from documents we
have filed with the Securities and Exchange Commission by following the
instructions in the section entitled "Where You Can Find More Information"
on page 130.
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SUMMARY OF THE JOINT PROXY STATEMENT/PROSPECTUS
THE COMPANIES
LOGO
REDBACK NETWORKS INC.
1389 Moffett Park Drive
Sunnyvale, California 94089
(408) 548-3900
Redback is a leading provider of advanced networking systems that enable
carriers, cable operators and service providers to rapidly deploy high-speed
broadband access to the Internet and corporate networks. Redback's Subscriber
Management System connects and manages large numbers of subscribers using any of
the major high-speed access technologies including digital subscriber line,
cable and wireless.
LOGO
SIARA SYSTEMS, INC.
1195 Borregas Avenue
Sunnyvale, California 94089
(408) 548-9480
Siara develops and markets optical access networking products that enable
electronic network device providers to cost-effectively offer their customers
data at multiple bandwidths and to quickly create and deploy new high speed data
services. Siara is designing its flagship product, the Siara 2000, to support
any traffic interface operating at 1.54 megabits per second to 10 gigabits per
second, in a single, compact system.
OUR RECOMMENDATIONS TO STOCKHOLDERS
TO REDBACK STOCKHOLDERS:
Redback's board of directors believes that the merger is fair to you and in
your best interests and unanimously recommends that you vote:
- FOR the approval and adoption of the merger agreement, approval of the
merger and approval of the issuance of Redback shares pursuant to the
terms of the merger agreement;
- FOR the amendment to Redback's certificate of incorporation;
- FOR the amendment to the Redback 1999 Stock Incentive Plan;
- FOR the amendment to the Redback 1999 Employee Stock Purchase Plan; and
- FOR the amendment to the Redback 1999 Directors' Option Plan.
TO SIARA STOCKHOLDERS:
The Siara board of directors believes that the merger is in your best
interests and unanimously recommends that you vote FOR the proposal to approve
the merger agreement, the merger and transactions associated with it.
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<PAGE> 19
VOTES REQUIRED FOR APPROVAL
REDBACK:
The holders of a majority of the outstanding shares of Redback common stock
must approve and adopt the merger agreement, approve the merger and approve the
amendment to Redback's certificate of incorporation.
The holders of a majority of the outstanding shares of Redback common stock
represented in person or by proxy at the Redback special meeting must approve
the amendments to the 1999 Stock Incentive Plan, the 1999 Employee Stock
Purchase Plan and the 1999 Directors' Option Plan.
Redback stockholders are entitled to cast one vote per share of Redback
common stock owned as of January 31, 2000, the record date for determining
Redback stockholders entitled to vote at the Redback special meeting.
Redback's executive officers and directors, who own approximately 2.5
million shares of Redback common stock representing approximately 6% of the
outstanding Redback common stock as of the record date, have agreed to vote in
favor of the merger proposals.
SIARA:
The affirmative vote of the holders of a majority of the outstanding shares
of Siara common stock and a majority of the outstanding shares of Siara
preferred stock, voting as separate classes, is required to approve the merger
agreement, approve the merger and the transactions associated with it.
In connection with the execution of the merger agreement, a group of
stockholders of Siara collectively holding approximately 8.5 million shares of
Siara common stock and approximately 6.8 million shares of Siara preferred
stock, representing 50% of the outstanding Siara common stock and 96% of the
outstanding preferred stock, have entered into voting agreements with Redback,
pursuant to which these stockholders have agreed, among other things, to vote
their shares of Siara common stock and/or preferred stock to approve the merger
agreement, the merger and the transactions associated with it at the Siara
special meeting.
For a more complete description of the votes and quorums required for
approval of the merger see the sections entitled "Redback Vote and Quorum
Required" on page 39 and "Siara Vote and Quorum Required" on page 41.
APPRAISAL RIGHTS
Holders of Redback common stock are not entitled to dissenters' appraisal
rights with respect to the merger.
Although Siara is a Delaware corporation, Siara may be subject to appraisal
rights under both California law and Delaware law, which differ in some
respects. Siara will honor the rights of any Siara stockholder who properly
exercises and perfects these rights under either state's law. Holders of Siara
common stock or Siara preferred stock who do not vote in favor of the merger
will be entitled to exercise dissenting stockholders' appraisal rights under
Delaware or California law as described more fully under "Appraisal Rights of
Dissenting Siara Stockholders" at page 46. However, it is a condition to the
completion of the merger that holders of less than 5% of the outstanding shares
of Siara capital stock shall have exercised or have any right to exercise their
statutory dissenters' rights or appraisal rights under California law.
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<PAGE> 20
SUMMARY OF THE TRANSACTION
In the transaction, Redback and Siara will merge, with Redback being the
surviving company of the merger. As a result of the merger, Siara stockholders
will receive shares of Redback common stock and holders of options and warrants
to purchase Siara common or preferred stock will receive options and warrants to
purchase shares of Redback common stock. The total number of shares of Redback
common stock to be issued in the merger, plus the total number of shares of
Redback common stock that will be issuable under Redback options and warrants in
the merger, will not exceed 31,341,986 shares of Redback common stock. The exact
exchange ratio for the merger cannot be calculated until the merger occurs.
However, based on the number of shares of Siara common stock and preferred stock
outstanding as of the date of this joint proxy statement/prospectus and the
number of Siara options and warrants outstanding as of the date of this joint
proxy statement/prospectus, in the merger Siara stockholders would receive a
number of shares of Redback common stock equal to approximately 1.193, referred
to as the exchange ratio, for each share of Siara common stock or preferred
stock that they own. The exchange ratio will be subject to a potential downward
adjustment to reflect any shares, options or warrants issued by Siara between
the date of this joint proxy statement/prospectus and the closing. Redback will
not issue any fractional shares in the merger. Siara stockholders will instead
receive cash for any Redback fractional shares owed to them.
Siara expects that holders of Siara's preferred stock will agree to
automatically convert each outstanding share of Siara preferred stock into one
share of Siara common stock immediately before the merger becomes effective.
Current Redback stockholders will continue to own their existing Redback
common stock after the merger.
The merger agreement is attached to this joint proxy statement/prospectus
as Appendix A. We encourage you to read the merger agreement carefully. The
merger agreement is more fully discussed beginning on page 65.
SUMMARY OF REASONS FOR THE MERGER
We believe the merger will provide the combined company with the
opportunity to realize several benefits, including:
- The combined market potential for Redback and Siara network equipment and
services designed for the requirements of the new access market is
significantly larger than Redback's current market without Siara.
- The opportunities afforded by offering a more extensive product grouping
to Redback's customers as well as the development of shared technologies
and the development of new products and services.
- Additional synergies are possible from the combination of the Redback
sales resources, with over 90 sales persons and approximately 150
customers, as well as competencies in provisioning and operating new
services, including connecting high speed access subscribers, with
Siara's strong technical resources including routing protocol, silicon
and service and transport technology efforts, as well as an experienced
management and technical team.
The potential benefits of the merger may not be achieved. See the sections
entitled "Risk Factors -- Risks Related to the Combined Company and the Proposed
Merger" on page 19, "Redback's Reasons for the Merger" on page 50, and "Siara's
Reasons for the Merger" on page 52.
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<PAGE> 21
CONDITIONS TO COMPLETION OF THE MERGER
Our respective obligations to complete the merger are subject to the prior
satisfaction or waiver of certain conditions. The conditions that must be
satisfied or waived before the completion of the merger include the following,
subject to exceptions and qualifications:
- the merger agreement, the merger and the issuance of shares of Redback
common stock in the merger must be approved by the Redback stockholders;
- the merger agreement and the merger must be approved by the Siara
stockholders and holders of more than 95% of the outstanding shares of
Siara stock must have affirmatively voted in favor of the merger so that,
after the Siara stockholders vote on the merger, statutory dissenters'
appraisal rights cannot be exercised by holders of five percent or more
of Siara's outstanding stock;
- the amendment of Redback's certificate of incorporation to increase the
authorized number of Redback common stock in an amount necessary to
effect the merger must be approved by Redback stockholders;
- the applicable waiting periods under certain antitrust laws must expire
or be terminated;
- no injunction or order preventing the completion of the merger may be in
effect;
- Redback's amended and restated Investors' Rights Agreement shall have
been amended to include holders of Siara preferred stock and warrants;
- there shall not have occurred any material adverse change to either
Redback's or Siara's business, provided, however, that a material adverse
change shall not be deemed to have occurred if this change is
attributable to or results from:
-- the public announcement or pendency of the transactions contemplated
hereby on current or prospective customers of either company,
-- changes in general economic conditions or changes affecting the
industry generally in which either company operates, or
-- changes resulting from the acts or omissions of the other party. A
reduction in the market price of Redback's common stock shall not, in
and of itself, constitute a material adverse change in Redback's
business; and
- Redback and Siara must each receive an opinion of its tax counsel to the
effect that the merger qualifies as a reorganization under the Internal
Revenue Code.
For a more complete description of the conditions to completion of the
merger, see the section entitled "Conditions to Completion of the Merger" on
page 69.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated under specific circumstances any
time before the completion of the merger, as summarized below.
The merger agreement may be terminated by our mutual written consent. In
addition, subject to qualifications, the merger agreement may be terminated
under any of the following circumstances, among others:
- by either party if a court order prohibits the merger;
- by either party if the Siara stockholders do not approve and adopt the
merger agreement and the merger;
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<PAGE> 22
- by either party if the Redback stockholders do not approve and adopt the
merger agreement, the merger or the issuance of the shares in the merger
or the amendment to Redback's certificate of incorporation to increase
the number of authorized common stock to an amount sufficient to effect
the merger;
- by either party if the holders of 5% or more of Siara's outstanding
shares do not vote in favor of the merger and file demands for payment
pursuant to the exercise of dissenters' rights under California law with
respect to 5% or more of Siara's outstanding stock;
- by Siara if Redback's board of directors fails to recommend that
Redback's stockholders approve and adopt the merger agreement or makes
any recommendation or approval of an extraordinary transaction, such as a
merger other than this merger, or a sale of all or substantially all of
Redback's assets;
- by Redback if Siara's board of directors fails to recommend that Siara's
stockholders approve and adopt the merger agreement or makes any
recommendation or approval of an extraordinary transaction, such by a
merger other than this merger, or sale of all or substantially all of
Siara's assets; or
- by either party, if the merger is not completed by June 30, 2000.
For a more complete description of the manner in which the merger agreement
may be terminated, see the section entitled "Termination of the Merger
Agreement" on page 71.
TERMINATION FEE
The merger agreement provides that Redback will pay Siara a termination fee
of $50 million if Redback stockholders do not approve and adopt the merger
agreement, the merger or an amendment to Redback's certificate of incorporation
to increase Redback's authorized stock to an amount sufficient to allow Redback
to carry out the merger.
If the merger agreement is terminated because Redback's board of directors
fails to recommend the merger or because it recommends an extraordinary
transaction other than this merger or because Redback enters into a definitive
agreement relating to an extraordinary transaction other than this merger, then
Redback will be obligated to pay Siara a termination fee of $135 million.
If the merger agreement is terminated because Siara's board of directors
fails to recommend the merger or because it recommends an extraordinary
transaction other than this merger or because Siara enters into a definitive
agreement relating to an extraordinary transaction other than this merger, then
Siara will be obligated to pay Redback a termination fee of $135 million.
For a more complete description of the payment of the termination fee, see
the section entitled "Payment of Termination Fee" on page 72.
ESCROW AND INDEMNIFICATION
At the closing of the merger, Redback will deposit into an escrow account
5% of the shares of Redback common stock otherwise issuable to the holders of
Siara common stock and preferred stock in the merger, on a pro rata basis. The
escrowed shares will provide a fund against which Redback may assert claims for
losses that it may have incurred by reason of any breach or inaccuracy of
Siara's representation regarding its capitalization in the merger agreement.
Except as to claims for fraud, claims against the escrow shall be Redback's sole
remedy following the merger. The indemnification period and Redback's right to
bring claims against the escrow fund will end 180 days after the date of the
merger. Subject to some limitations, the shares in escrow at the end of this
period will be issued to the former stockholders of Siara on a pro rata basis.
Vivek Ragavan, the Siara stockholders' agent, will have broad
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<PAGE> 23
power and authority to act as the agent and attorney-in-fact for the Siara
stockholders on any matters concerning the escrow.
The escrow agreement is attached as Appendix F to this joint proxy
statement/prospectus. We encourage you to read the escrow agreement carefully.
The escrow agreement is more fully discussed on page 65.
NO OTHER NEGOTIATIONS
Until the merger is completed or the merger agreement is terminated,
Redback and Siara have each agreed not to directly or indirectly solicit or
participate in discussions or enter into any contract regarding an extraordinary
transaction, such as a merger other than this merger, or the acquisition of all
or any substantial portion of either of their assets, unless certain conditions
are met, including payment of a termination fee and a determination of their
board of directors that such action is required to fulfill the board's fiduciary
obligations.
For a more complete description of the restrictions on other negotiations,
see the section entitled "No Other Negotiations" on page 68.
OPINION FROM REDBACK'S FINANCIAL ADVISOR
In deciding to approve the merger, Redback's board of directors considered
an opinion from Redback's financial advisor, Goldman, Sachs & Co., as to the
fairness of the merger consideration from a financial point of view.
For a more complete description of the financial advisor's opinion see the
section entitled "Opinion of Redback's Financial Advisor" on page 54. This
opinion is attached as Appendix C to this joint proxy statement/prospectus.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger as a purchase for financial reporting
and accounting purposes, under generally accepted accounting principles. After
the completion of the merger, the results of operations of Siara will be
included in the consolidated financial statements of Redback. The purchase price
will be allocated to Siara's assets and liabilities based on the fair values of
the assets acquired and the liabilities assumed. Any excess of cost over the
fair value of the net tangible assets of Siara acquired will be recorded as
goodwill and other intangible assets and will be amortized by charges to
operations under generally accepted accounting principles. These allocations
will be made based upon valuations and other studies that have not yet been
finalized. We anticipate the amount of goodwill and other intangible assets to
be significant and it will therefore have a significant negative impact on our
operating results.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
We expect that if the merger is completed, Siara stockholders will not
recognize gain or loss for United States federal income tax purposes, except
that Siara stockholders will recognize gain or loss with respect to cash
received instead of fractional shares. It is a condition to the completion of
the merger that Redback and Siara each receive an opinion of its tax counsel to
the effect that the merger qualifies as a reorganization under the Internal
Revenue Code. However, tax opinions are not binding on the IRS and there can be
no assurance that the IRS will not successfully assert a contrary opinion. Siara
stockholders are urged to consult their own tax advisor to determine their
particular tax consequences.
For a more complete description of tax consequences of the merger, see the
section entitled "Material United States Federal Income Tax Consequences of the
Merger" on page 61.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the recommendations of Redback's and Siara's boards of
directors, you should be aware that some of Siara's directors and officers have
interests in the merger that are different from, or are in addition to, your
interests as a stockholder. If we complete the merger, a number of directors and
some of the existing officers of Siara will become directors and officers of the
combined company. In addition, some of the existing directors and officers of
Siara who become directors and executive officers of the combined company have
signed employment agreements with Redback which become effective upon closing of
the merger and provide for terms of employment, acceleration of vesting of stock
options and severance benefits, among other things. Also, the combined company
will provide indemnification arrangements for Siara's existing directors and
officers.
For a more complete description of the interests of persons in the merger,
see the section entitled "Interests of Siara Affiliates in the Merger" on page
59.
FORWARD-LOOKING STATEMENTS IN THIS JOINT PROXY STATEMENT/PROSPECTUS
This joint proxy statement/prospectus and the documents incorporated into
this joint proxy statement/prospectus by reference contain forward-looking
statements within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act. These statements include statements with
respect to Redback's and Siara's financial condition, results of operations and
business and on the expected impact of the merger on Redback's financial
performance. Words such as anticipates, expects, intends, plans, believes,
seeks, estimates and similar expressions identify forward-looking statements.
These forward-looking statements are not guarantees of future performance
and are subject to certain risks and uncertainties that could cause actual
results to differ materially from the results contemplated by the
forward-looking statements. These risks and uncertainties include:
- the possibility that materially adverse changes may occur in general
economic or industry conditions or in the markets served by Redback or
Siara;
- the possibility that the merger will not be consummated;
- the possibility that the anticipated benefits from the merger will not be
realized;
- the possibility that costs or difficulties related to the integration of
Redback's and Siara's businesses will be greater than expected;
- the challenges inherent in diverting management's focus and resources
from other strategic opportunities and from operational matters during
the process of integrating Redback and Siara;
- the dependence of Redback and Siara on the timely development,
introduction and market acceptance of new products;
- other risks and uncertainties, including the risks and uncertainties
relating to the development and use of new technology, the unsettled
conditions in high-technology industries, especially as they relate to
the Internet and the ability to attract and retain key personnel; and
- other risk factors as may be detailed from time to time in Redback's
public announcements and filings with the Securities and Exchange
Commission.
In evaluating the merger, you should carefully consider the discussion of
these and other factors in the section entitled "Risk Factors" on page 19.
This summary may not contain all of the information that is important to
you. You should read carefully this entire document and the other documents we
refer to for a more complete understanding of the merger. In particular, you
should read the documents attached to this joint proxy statement/ prospectus,
including the merger agreement, which is attached as Appendix A.
13
<PAGE> 25
SELECTED HISTORICAL FINANCIAL DATA -- REDBACK
The following selected financial data should be read in conjunction with
Redback's financial statements and related notes and "Redback Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this joint proxy statement/prospectus. The statement of
operations data for the years ended December 31, 1999, 1998 and 1997 and the
balance sheet data at December 31, 1999 and 1998 are derived from audited
financial statements included elsewhere in this joint proxy statement/
prospectus. The statement of operations data for the period from August 30, 1996
(inception) through December 31, 1996 and the balance sheet data at December 31,
1997 and 1996 are derived from audited financial statements not included in this
document. All Redback share numbers in this joint proxy statement/prospectus
reflect a 2 for 1 forward stock split affected August 1, 1999.
<TABLE>
<CAPTION>
PERIOD
FROM
AUGUST 30,
1996
(INCEPTION)
YEAR ENDED DECEMBER 31, THROUGH
----------------------------------------- DECEMBER 31,
1999 1998 1997 1996
----------- ----------- ----------- ------------
(IN)THOUSANDS, EXCEPT SHARE AND PER SHARE DATA
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues..................................... $ 64,274 $ 9,206 $ 48 $ --
Cost of revenues................................. 18,665 3,603 29 --
----------- ----------- ----------- ----------
Gross profit..................................... 45,609 5,603 19 --
----------- ----------- ----------- ----------
Operating expenses:
Research and development....................... 21,125 5,727 3,249 124
Selling, general and administrative............ 30,208 8,875 1,317 19
Amortization of deferred stock compensation.... 4,033 880 -- --
----------- ----------- ----------- ----------
Total operating expenses................ 55,366 15,482 4,566 143
----------- ----------- ----------- ----------
Loss from operations............................. (9,757) (9,879) (4,547) (143)
Other income (expense), net...................... 1,838 3 136 1
----------- ----------- ----------- ----------
Net loss......................................... $ (7,919) $ (9,876) $ (4,411) $ (142)
=========== =========== =========== ==========
Basic and diluted net loss per share............. $ (0.30) $ (1.78) $ (2.05) $ (.11)
=========== =========== =========== ==========
Shares used in computing net loss per share...... 26,694,000 5,538,000 2,152,000 1,316,000
=========== =========== =========== ==========
Pro forma net loss per share(1):
Basic and diluted net loss per share........... $ (.23)
===========
Shares used in computing net loss per share.... 34,564,000
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1999 1998 1997 1996
-------- --------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 56,960 $ 8,189 $ 6,223 $ 119
Working capital........................................... 49,798 4,461 5,630 12
Total assets.............................................. 94,830 14,682 7,849 216
Long-term obligations, less current portion............... 1,012 1,275 827 --
Accumulated deficit....................................... (22,348) (14,429) (4,553) (142)
Total stockholders' equity................................ 65,893 6,254 6,081 83
</TABLE>
- -------------------------
(1) Pro forma basic and diluted net loss per share has been computed using the
weighted-average number of shares of common stock outstanding during the
period, less shares subject to repurchase, and also gives effect to the
conversion of Redback's preferred stock which converted to common stock upon
the closing of Redback's initial public offering as if the conversion
occurred as of the beginning of the period or the date of issuance, if
later.
14
<PAGE> 26
SELECTED HISTORICAL FINANCIAL DATA -- SIARA
(A COMPANY IN THE DEVELOPMENT STAGE)
The following selected financial data should be read in conjunction with
Siara's financial statements and related notes and "Siara Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this joint proxy statement/prospectus. The statement of
operations data for the year ended December 31, 1999 and for the period from
Siara's inception on July 20, 1998 through December 31, 1998 and the balance
sheet data at December 31, 1999 and 1998 are derived from audited financial
statements included elsewhere in this joint proxy statement/prospectus.
<TABLE>
<CAPTION>
PERIOD FROM
JULY 20, 1998
YEAR ENDED (INCEPTION) THROUGH
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -------------------
(IN THOUSANDS, EXCEPT SHARE AND PER
SHARE DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Operating expenses:
Research and development........................ $ 18,318 $ 2,669
Selling, general and administrative............. 6,889 1,020
Amortization of deferred stock compensation..... 68,847 --
Total operating expenses................... 94,054 3,689
---------- ----------
Loss from operations................................. ( 94,054) (3,689)
Interest income (expense) and other, net............. (663) (6)
---------- ----------
Net loss............................................. $ (94,717) $ (3,695)
========== ==========
Basic and diluted net loss per share................. $ (16.34) $ (1.38)
========== ==========
Shares used in computing net loss per share.......... 5,796,000 2,673,000
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------
1999 1998
----------------- -------------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 277 $ 6,383
Working capital (deficit)............................ (10,739) 5,228
Total assets......................................... 7,621 7,909
Long-term obligations, less current portion.......... 10,396 910
Accumulated deficit.................................. (98,412) (3,695)
Total stockholders' equity (deficit)................. (14,241) 5,738
</TABLE>
15
<PAGE> 27
SELECTED UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following selected unaudited pro forma combined financial data present
the effect of the pending merger between Redback and Siara as if the merger had
been completed on January 1, 1999 for results of operations purposes and on
December 31, 1999 for balance sheet purposes. The unaudited pro forma combined
financial data was prepared using the purchase method of accounting.
The unaudited pro forma combined financial data is based on estimates and
assumptions which are preliminary and have been made solely for the purposes of
developing these unaudited pro forma combined financial data. The unaudited pro
forma combined financial data is not necessarily an indication of the results
that would have been achieved had the transaction been consummated as of the
dates indicated or results that may be achieved in the future.
These selected unaudited pro forma combined financial data should be read
in conjunction with the unaudited pro forma combined financial data, the
historical financial statements and notes thereto of Redback, the historical
financial statements and notes thereto of Siara, and other financial information
pertaining to Redback and Siara including "Redback Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Siara Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Risk Factors" included herein.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
-----------------
(IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS DATA:
Net revenues................................................ $ 64,274
Cost of revenues.......................................... 21,940
-----------
Gross profit.............................................. 42,334
-----------
Operating expenses:
Research and development.................................. 39,443
Selling, general and administrative....................... 37,097
Amortization of intangibles............................... 1,118,114
Amortization of deferred stock compensation............... 4,033
-----------
Total operating expenses........................... 1,198,687
-----------
Loss from operations........................................ (1,156,353)
Interest income (expense), net.............................. 1,175
-----------
Net loss.................................................... $(1,155,178)
===========
Basic and diluted net loss per share........................ $ (26.76)
===========
Shares used in computing net loss per share................. 43,174,000
===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------
(IN THOUSANDS)
<S> <C>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 57,237
Working capital........................................... 25,088
Intangible assets......................................... 4,461,616
Total assets.............................................. 4,557,976
Long-term obligations, less current portion............... 11,408
Accumulated deficit....................................... (37,148)
Total stockholders' equity................................ 4,493,206
</TABLE>
16
<PAGE> 28
COMPARATIVE PER SHARE DATA
The following table reflects the historical net loss and book value per
share of Redback common stock and the historical net loss and book value per
share of Siara common stock in comparison with the unaudited pro forma net loss
and book value per share after giving effect to the pending merger of Redback
and Siara. The information presented in the following table should be read in
conjunction with the unaudited pro forma combined financial data and the Redback
and Siara historical financial statements included elsewhere in this joint proxy
statement/prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
------------ ------------
<S> <C> <C>
REDBACK HISTORICAL PER SHARE DATA:
Basic and diluted net loss per share(1)..................... $ (.30) $ (1.78)
Book value per share(2)..................................... 1.50 0.40
SIARA HISTORICAL PER SHARE DATA:
Basic and diluted net loss per share(1)..................... (16.34) (1.38)
Book value per share(2)..................................... (0.84) 0.68
UNAUDITED PRO FORMA COMBINED PER SHARE DATA:
Basic and diluted net loss per Redback share(1)............. (26.76)
Basic and diluted net loss per equivalent Siara share(3).... (31.92)
Book value per Redback share................................ 61.16
Book value per equivalent Siara share(3).................... 72.96
</TABLE>
- -------------------------
(1) Basic and diluted net loss per share is computed using the weighted average
number of common shares outstanding during the period excluding shares
subject to repurchase. Common equivalent shares are excluded from the
computation as their effect is antidilutive. Common equivalent shares
include shares issuable upon the conversion of convertible preferred stock
and the exercise of stock options and warrants. Basic and diluted pro forma
net loss per share also includes the issuance of approximately 16.5 million
vested shares of approximately 29.6 million shares of Redback common stock
in the proposed merger with Siara. Siara's historical 1998 per share data is
for the period from its inception on July 20, 1998 through December 31,
1998.
(2) The historical book value per share is computed by dividing stockholders'
equity (deficit) by the number of shares of common stock outstanding at
December 31, 1999 and 1998.
(3) The equivalent pro forma basic and diluted net loss per share and book value
per share for Siara are based upon the exchange of approximately 1.193
shares of Redback common stock for each share of Siara. This assumed
exchange ratio of approximately 1.193 shares of Redback common stock for
each share of Siara was computed by applying the merger conversion formula
as if the merger had occurred on the date of this joint proxy
statement/prospectus.
17
<PAGE> 29
MARKET PRICE AND DIVIDEND INFORMATION
Redback common stock is traded on the Nasdaq National Market under the
symbol "RBAK." Redback began trading on Nasdaq on May 18, 1999, the date of its
initial public offering. The following table sets forth the range of high and
low closing sales prices, as restated to give effect to the 2-for-1 stock split
effected in August 1999, reported on the Nasdaq National Market for Redback
common stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1999
Second Quarter.............................................. $ 62.78 $ 33.78
Third Quarter............................................. 135.88 58.00
Fourth Quarter............................................ 181.63 108.00
Fiscal 2000
First Quarter (through February , 2000).................
</TABLE>
Siara common stock is not traded on an established public market.
DIVIDEND INFORMATION
Neither Redback nor Siara has ever paid any cash dividends on its stock,
and both anticipate that for the foreseeable future they will continue to retain
any earnings for use in the operation of their respective businesses.
RECENT CLOSING PRICES
The following table sets forth the closing prices per share of Redback
common stock on the Nasdaq National Market on November 26, 1999, the last
trading day before announcement of the proposed merger, and on February ,
2000, the latest practicable trading day before the printing of this joint proxy
statement/prospectus, and the equivalent per share prices for Siara common stock
based on the Redback common stock prices, assuming an exchange ratio of
approximately 1.193:
<TABLE>
<CAPTION>
REDBACK STOCK SIARA(1)
------------- --------
<S> <C> <C>
November 26, 1999....................................... $136.50 $162.84
February , 2000....................................... $ $
</TABLE>
- -------------------------
(1) Represents the equivalent of one share of Siara common stock calculated by
multiplying the closing price per share of Redback common stock by the
exchange ratio as of the latest practicable trading day before the printing
of this joint proxy statement/prospectus, based on an assumed exchange ratio
of approximately 1.193. The exchange ratio cannot finally be determined
until the consummation of the merger.
Because the market price of Redback common stock is subject to fluctuation,
the market value of the shares of Redback common stock that holders of Siara
common stock will receive in the merger may increase or decrease prior to and
following the merger. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICE OR MARKET
FOR REDBACK COMMON STOCK.
18
<PAGE> 30
RISK FACTORS
The merger involves a high degree of risk. Also, by voting in favor of the
merger, Siara stockholders will be choosing to invest in Redback common stock.
An investment in Redback common stock involves a high degree of risk. In
addition to the other information contained in this joint proxy
statement/prospectus, both Redback and Siara stockholders should carefully
consider the following risk factors in deciding whether to vote for the merger.
RISKS RELATED TO THE COMBINED COMPANY AND THE PROPOSED MERGER
THE EXCHANGE RATIO THAT DETERMINES THE NUMBER OF SHARES OF REDBACK COMMON
STOCK TO BE ISSUED PER SIARA SHARE IN THE MERGER WILL NOT BE ADJUSTED TO
REFLECT CHANGES IN THE MARKET VALUE OF REDBACK COMMON STOCK BEFORE THE
CLOSING OF THE MERGER
There will be no adjustment to the formula used to compute the exchange
ratio if the market price of Redback common stock fluctuates positively or
negatively. If the market price of Redback common stock decreases before the
merger, the market value of the Redback common stock to be received by Siara's
stockholders would decrease. As the exchange ratio will not increase or decrease
based on market price fluctuations, Siara's stockholders will not be compensated
if the market price of Redback common stock decreases before completion of the
merger. Likewise, the exchange ratio will not decrease by reason of any increase
in the market price of Redback common stock before completion of the merger. The
specific dollar value of Redback common stock that Siara stockholders will
receive upon completion of the merger will depend on the market value of Redback
common stock at the time of the merger. The closing price for Redback common
stock on November 26, 1999, the last trading day prior to the public
announcement of the merger, was $136.50. On February , 2000, the latest
practicable trading day before the printing of this joint proxy
statement/prospectus, the closing price for Redback common stock was
$ . The share price of Redback common stock is subject to price
fluctuations in the market for publicly-traded equity securities and has
experienced significant volatility. We cannot predict the market price for
Redback common stock at any time before the completion of the merger or the
market price for Redback common stock after the completion of the merger. We
encourage you to obtain current market quotations of Redback common stock.
Under the merger agreement, for a period of up to 180 days following the
merger, stockholders, option holders and warrant holders of Siara may not sell
their shares of Redback common stock acquired in the merger, except under
limited circumstances. During this period, the price of Redback may fluctuate
significantly.
IF REDBACK AND SIARA DO NOT INTEGRATE THEIR TECHNOLOGIES AND OPERATIONS
QUICKLY AND EFFECTIVELY, SOME OR ALL OF THE POTENTIAL BENEFITS OF THE
MERGER MAY NOT OCCUR
In order to achieve the benefits of the merger, Redback must successfully
combine its business with Siara's business. If Redback and Siara do not
integrate their operations and technologies smoothly, serious harm to the
combined company's business, financial condition and prospects may result.
Integrating the two businesses will entail significant diversion of management's
time and attention. We may not be able to integrate our technologies and
operations quickly and smoothly. In order to obtain the benefits of the merger,
the companies must make Siara's technology, products and services operate
together with Redback's technologies, products and services. This integration
may require the partial or wholesale conversion or redesign of some or all of
the technologies, products and services of either Redback or Siara. In addition,
Redback may be required to spend additional time or money on integration that
would otherwise be spent on developing its business and services or other
matters.
19
<PAGE> 31
IF SIARA EMPLOYEES LEAVE AS A RESULT OF THE MERGER OR IF THE COMBINED
COMPANY CANNOT ATTRACT AND RETAIN QUALIFIED PERSONNEL, THE COMBINED
COMPANY'S BUSINESS WOULD BE HARMED
The success of the combined company after the merger depends in part on the
continued service of key groups of Siara personnel. Despite Redback's efforts to
hire and retain quality employees, Redback might lose some of Siara's key
employees following the merger. Although similar, Redback and Siara have
different corporate cultures and Siara employees may be unwilling to work for a
larger company. Competitors may also recruit Siara employees prior to the merger
and during integration, as is common in high technology mergers. In addition,
many Siara employees will acquire significant amounts of Redback common stock or
vested stock options in the merger, which could provide them with substantial
amounts of cash. As a result, employees of Siara or the combined company could
leave with little or no prior notice.
Similarly, the future performance of the combined company depends on its
continuing ability to attract and retain highly qualified technical and
managerial personnel following the merger. Competition for qualified management,
engineering, technical, sales and marketing employees is intense. Therefore,
Redback and Siara cannot assure you that the combined company will be able to
attract, retain and integrate employees to develop and use the Siara technology
following the merger.
REDBACK AND SIARA WILL INCUR SUBSTANTIAL COSTS ASSOCIATED WITH THE MERGER
The merger will result in total external transaction costs of approximately
$20 million to Redback and $2 million to Siara. The aggregate costs of this
transaction consist of fees to investment bankers of approximately $17 million,
fees for attorneys, accountants and printing of approximately $4 million, and
filing fees of approximately $1 million. These are estimates and the actual
transaction costs may be much larger. In addition to these transaction costs,
Redback and Siara expect that, following the merger, the combined company will
incur additional significant costs associated with integrating the two
companies. At this time, the additional costs are not reasonably estimable. In
addition, if the merger is not consummated, Redback and Siara will have incurred
significant costs for which they will have received no benefits.
THE MERGER COULD HARM KEY THIRD PARTY RELATIONSHIPS
The present and potential relationships of Redback and Siara with customers
and other third parties with whom we have relationships may be harmed by the
proposed merger. Uncertainties following the merger may cause these parties to
delay purchasing and other decisions regarding these relationships. Any changes
in these relationships could harm Redback's business.
OFFICERS AND DIRECTORS OF SIARA HAVE DIFFERENT INTERESTS FROM YOURS THAT
MAY INFLUENCE THEM TO SUPPORT OR APPROVE THE MERGER
The officers and directors of Siara have certain interests in the merger
and participate in certain arrangements that are different from, or are in
addition to, those of Siara stockholders generally. These include the following
interests that will arise if the merger occurs:
- Promod Haque, Vinod Khosla and Vivek Ragavan, members of Siara's board of
directors, will become members of Redback's board of directors;
- Vivek Ragavan, the Chief Executive Officer of Siara and a member of
Siara's board of directors, will become the President and Chief Operating
Officer of Redback after the merger;
- William Kind and Pankaj Patel, officers of Siara, will also become
executive officers of Redback;
20
<PAGE> 32
- a small number of employees of Siara will receive an additional 12 months
of vesting of their restricted stock and options upon completion of the
merger;
- officers of Siara have entered into employment and non-competition
agreements with Redback that will become effective upon completion of the
merger. Under each of these agreements, the officer is entitled to
severance and accelerated vesting of stock if the officer is terminated
or resigns under certain circumstances set forth in the agreements;
- the holders of Siara preferred stock, including investors represented by
directors of Siara, as well as holders of Siara warrants, will receive
registration rights from Redback, which may allow these security holders
to sell their shares of Redback common stock before the other Siara
stockholders are able to; and
- Redback has agreed to indemnify each present and former Siara officer and
director against liabilities arising out of the fact that such person is
or was a director.
As a result, these officers and directors could be more likely to vote to
approve the merger agreement and the merger than if they did not hold these
interests. Siara stockholders should consider whether these interests may have
influenced these officers and directors to support or recommend the merger.
REDBACK'S PRO FORMA ACCOUNTING FOR THE MERGER MAY CHANGE
Redback has allocated the total estimated purchase price for the merger on
a preliminary basis to assets and liabilities based on Redback's best estimates
of the fair value of these assets and liabilities, with the excess costs over
the net tangible assets acquired allocated to goodwill and other intangible
assets. This allocation is subject to change pending a final analysis of the
fair values of the assets acquired and liabilities assumed. The impact of these
changes could be material and negative to Redback's future results of
operations.
THE ACCOUNTING TREATMENT OF THE MERGER WILL RESULT IN SIGNIFICANT CHARGES
TO REDBACK'S OPERATIONS.
We intend to account for the merger as a purchase for financial reporting
and accounting purposes, under generally accepted accounting principles. After
the completion of the merger, the results of operations of Siara will be
included in the consolidated financial statements of Redback. The purchase price
will be allocated to Siara's assets and liabilities based on the fair values of
the assets acquired and the liabilities assumed. Any excess of cost over the
fair value of the net tangible assets of Siara acquired will be recorded as
goodwill and other intangible assets and will be amortized by charges to
operations under generally accepted accounting principles. We anticipate this
amount of goodwill and other intangible assets to be significant and it will
therefore have a significant negative impact on our operating results which
could cause Redback's stock price to decline.
REDBACK MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE
The development and marketing of new products, particularly Siara's
products, which are not yet complete, will require a significant commitment of
resources. Likewise, the expansion of Redback's operations and reseller channels
as a result of the merger will require significant resources.
As a result, Redback could be required to raise substantial additional
capital. Additional capital may not be available to Redback at all, or, if
available, may be available only on unfavorable terms. Any inability to raise
additional capital when Redback requires may significantly harm its business,
results of operations and financial condition.
21
<PAGE> 33
IF THE MERGER DOES NOT CLOSE, SIARA WOULD BE HARMED
If the merger does not close, it would seriously harm Siara's business
because the announcement of the merger and Siara's efforts to close the merger
will:
- deplete its cash;
- disrupt its research and development efforts;
- increase employee turnover; and
- diminish Siara's ability to successfully locate an alternative strategic
partner.
In addition, depending on the circumstances, Siara may be required to pay a
$135 million "break-up" fee to Redback if the merger is terminated.
SIARA STOCKHOLDERS MAY EXERCISE DISSENTERS RIGHTS
Under state laws regarding dissenting stockholders' appraisal rights,
holders of Siara common stock and preferred stock who do not vote in favor of
the merger may be entitled to exercise dissenting stockholders' appraisal
rights. It is a condition to complete the merger that holders of less than 5% of
the outstanding shares of Siara capital stock shall have exercised or have the
right to exercise their statutory dissenters rights. However, if the merger
occurs, then Siara stockholders who do not vote their Siara shares in favor of
the merger may become entitled to be paid cash for their Siara shares instead of
receiving Redback common stock in the merger. The amount of cash that could be
paid to such dissenting Siara stockholders could be significant, and payment of
these amounts could have a material adverse effect on the combined company's
financial position. The payment to dissenting shareholders may require Redback
to raise additional capital, which may not be available.
RISKS RELATED TO REDBACK'S BUSINESS
REDBACK'S BUSINESS IS DIFFICULT TO EVALUATE BECAUSE REDBACK HAS A LIMITED
OPERATING HISTORY
Redback was founded in August 1996 and only began shipping products in
material quantities in the second quarter of 1998. You should consider the risks
and difficulties frequently encountered by companies like us in a new and
rapidly evolving market. From February 28, 1998 to December 31, 1999, we have
experienced significant growth -- from 39 employees to 274 employees. Our
ability to sell products and services, and the level of success, if any, we
achieve, depends, among other things, on the level of demand for broadband
access services, which is a new and rapidly evolving market. See "Risk
Factors -- Redback is dependent on the widespread adoption of broadband access
services." Our business strategy may be unsuccessful and we may not successfully
address the risks we face.
REDBACK HAS A HISTORY OF LOSSES AND EXPECTS TO INCUR FUTURE LOSSES
We incurred net losses of $7.9 million for the year ended December 31,
1999, $9.9 million for the year ended December 31, 1998 and $4.4 million for the
year ended December 31, 1997. As of December 31, 1999, we had an accumulated
deficit of approximately $22.3 million. We have not had a history of
profitability and may incur net losses in the future.
To date, we have funded our operations from both private and public sales
of equity securities, from bank borrowings and by means of equipment lease
financing. We expect to continue to incur significant product development, sales
and marketing, and general and administrative expense. As a result, we must
generate significant revenues to achieve profitability. We may not sustain
recent growth rates in our revenues, and we may never achieve sufficient revenue
levels to achieve profitability. If we do achieve
22
<PAGE> 34
profitability in some future period, we cannot be certain that we would sustain
profitability on a quarterly or annual basis in the future.
REDBACK'S OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY
Factors likely to cause quarterly fluctuations in Redback's revenues and
operating results include:
- fluctuations in demand for broadband access services;
- the timing and size of sales of our products and services;
- announcements of new products and product enhancements by competitors;
- the entry of new competitors into our market, including by acquisition;
- unexpected delays in introducing new or enhanced products, including
manufacturing delays;
- our ability to control expenses;
- our ability to ship products on a timely basis and at a reasonable cost;
and
- the mix of our products sold and the mix of distribution channels through
which our products are sold.
A high percentage of our expenses, including those related to engineering,
sales and marketing, research and development, and general administrative
functions, are essentially fixed in the short term. As a result, if we
experience delays in generating or recognizing revenue, our quarterly operating
results are likely to be materially adversely affected. In addition, we plan to
increase our operating expenses to expand our engineering and sales and
marketing operations, broaden our customer support capabilities, develop new
distribution channels, fund increased levels of research and development and
build our operational infrastructure. If growth in our revenues does not outpace
the increase in these expenses, our business, results of operations and
financial condition could be materially adversely affected.
We rely on a single third-party manufacturer to build our products. Any
interruption in the operations of this manufacturer would adversely affect our
ability to meet our scheduled product deliveries to our customers. This would
cause significant variations in our quarterly operating results and our
business, results of operations and financial condition would be materially
adversely affected.
Due to these and other factors, we believe that quarter-to-quarter
comparisons of our operating results may not be meaningful. You should not rely
on our results for one quarter as any indication of our future performance. It
is likely that in some future quarter our operating results may be below the
expectations of public market analysts or investors. If this occurs, the price
of our common stock would likely decrease.
REDBACK'S LENGTHY AND VARIABLE SALES CYCLE MAKES IT DIFFICULT FOR REDBACK
TO PREDICT IF OR WHEN A SALE WILL BE MADE
The timing of our sales revenue is difficult to predict because of the
length and variability of the sales cycle for our products. Customers often view
the purchase of our products as a significant and strategic decision. As a
result, customers typically undertake significant procedures relating to the
evaluation, testing, implementation and acceptance of our products. This
evaluation process frequently results in a lengthy sales cycle, typically
ranging from three months to over one year. While our customers are evaluating
our products and before they place an order with us, we may incur substantial
sales and marketing expenses and expend significant management efforts. In
addition, product purchases are frequently subject to unplanned administrative,
processing and other delays. This is particularly true for larger customers for
whom our products represent a very small percentage of their overall purchase
activities. These customers are often engaged in multiple simultaneous
purchasing decisions, some of
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which may pertain to more immediate needs and absorb the immediate attention of
the customer. If sales forecasted from a specific customer for a particular
quarter are not realized in that quarter or at all, our business, results of
operations and financial condition could be materially adversely affected.
IN ANY QUARTER, A SMALL NUMBER OF CUSTOMERS ARE LIKELY TO ACCOUNT FOR A
SUBSTANTIAL MAJORITY OF REDBACK'S REVENUE
In each of the last eight quarters in the period ended December 31, 1999,
we had at least one customer that accounted for 15% or more of our total revenue
in the quarter. In the fourth quarter of 1999, Bell Atlantic accounted for 17%
of our total revenue and GTE accounted for 12% of our total revenue. We
anticipate that a small number of customers with large orders will continue to
account for a majority of our quarterly revenue. However, we do not have any
contracts or other agreements that guarantee continued sales to these or any
other customers. If our customers alter their purchasing habits or reevaluate
their need for our products, or if we fail to receive a large order in any
future period, our business, results of operations and financial condition would
be materially adversely affected.
REDBACK IS ENTIRELY DEPENDENT ON THE SMS PRODUCT FAMILY
The SMS 1000, SMS 500 and SMS 1800 are the only products that we currently
sell. We intend to introduce new products and enhancements to existing products
in the future. Our inability to timely and successfully introduce new products
and product enhancements, or the failure of these new products or enhancements
to achieve market acceptance, could materially adversely affect our business,
results of operations and financial condition.
THERE IS A LIMITED NUMBER OF POTENTIAL CUSTOMERS FOR REDBACK'S SMS 1000 AND
SMS 1800
To date, substantially all of our revenues have been derived from sales and
service related to the SMS 1000 product. The SMS 1000 and SMS 1800 and any other
new high-end product that we may develop and introduce in the future are
marketed primarily to large customers. There are only a limited number of large
existing and potential customers and this number is not expected to increase
significantly in the future.
REDBACK'S PRODUCTS MUST ANTICIPATE AND MEET SPECIFIC CUSTOMER REQUIREMENTS
AND DEMANDS
Many of our customers require product features and capabilities that our
SMS products may not have. The requirement that we add features to our products
in order to achieve a sale may result in a longer sales cycle, increased
research and development expenses and reduced margins on our products. To
achieve market acceptance for our products, we must effectively and timely
anticipate and adapt to customer requirements and offer products and services
that meet customer demands. Our failure to develop products or offer services
that satisfy customer requirements would materially adversely affect our
business, results of operations and financial condition.
We intend to continue to invest in product and technology development. The
development of new or enhanced products is a complex and uncertain process that
requires the accurate anticipation of technological and market trends. We may
experience design, manufacturing, marketing and other difficulties that could
delay or prevent the development, introduction or marketing of new products and
enhancements. The introduction of new or enhanced products also requires that we
manage the transition from older products in order to minimize disruption in
customer ordering patterns and ensure that adequate supplies of new products can
be delivered to meet anticipated customer demand. Our inability to effectively
manage this transition would materially adversely affect our business, results
of operations and financial condition.
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REDBACK NEEDS TO GAIN ACCEPTANCE IN OTHER BROADBAND ACCESS MARKETS
To date, we have derived substantially all of our revenues from sales of
the SMS 1000 for use in the digital subscriber line market for broadband access.
We intend to expend a substantial amount of time and resources to achieve market
acceptance of our products in other markets, including the cable and wireless
markets. We may be unable to simultaneously or effectively address evolving
demands in these markets, and customers in these markets may choose to implement
competing technologies or products. In addition, if our competitors gain market
acceptance in these markets first, it will be difficult, if not impossible, for
us to gain subsequent market acceptance in these markets. If we are unable to
achieve acceptance of our products in these markets, our ability to generate
revenues will be limited, and our business, results of operations and financial
condition would be materially adversely affected.
REDBACK EXPECTS INCREASED COMPETITION
We may be unable to compete successfully with current or future
competitors. If we do not compete successfully against current or future
competitors, our business, results of operations and financial condition will be
materially adversely affected. Currently, competition in our market is intense.
The broadband access markets we are targeting, including digital subscriber
line, cable and wireless, are new and rapidly evolving and we expect these
markets to become highly competitive in the future. In addition, we expect new
competitors to emerge in the broadband access market as that market evolves due
to technological innovation and regulatory changes. We face actual and potential
competition from public and private companies providing routers connecting to
the Internet backbone, access concentrators and subscriber aggregation systems.
For instance, Cisco, the leading provider of routers connecting to the Internet
backbone, offers products that compete directly with our products, and also
provides a comprehensive range of broadband access systems.
We expect companies that offer access concentrators and routers to
incorporate some subscriber management functionality into their products. These
companies include Nortel Networks, which acquired Shasta Networks, a private
company providing subscriber management services, and Ascend, which was acquired
by Lucent. In addition, there are several other private companies that provide
subscriber management features in access concentrators or routing platforms.
Many of our principal competitors, including Cisco, Alcatel, Nortel
Networks/Shasta Networks and Lucent/Ascend, and some companies that may compete
with us in the future, are large public companies that have longer operating
histories and significantly greater financial, technical, marketing and other
resources than we have. As a result, these competitors are able to devote
greater resources to the development, promotion, sale and support of their
products. In addition, our competitors that have large market capitalizations or
cash reserves are much better positioned than we are to acquire other companies,
including our competitors, and thereby acquire new technologies or products that
may displace our product lines. Any of these acquisitions could give our
competitors a strategic advantage that would materially adversely affect our
business, results of operations and financial condition.
Many of our competitors have significantly more established customer
support and professional services organizations than we do. In addition, many of
our competitors have much greater name recognition and have a more extensive
customer base, broader customer relationships and broader product offerings than
we have. These companies can leverage their customer bases and broader product
offerings and adopt aggressive pricing policies to gain market share. We have
encountered, and expect to continue to encounter, potential customers that, due
to existing relationships with our competitors, are committed to the product
offerings of these competitors. As a result, these potential customers may not
consider purchasing our products. We expect to face competition in the following
areas:
- product pricing;
- breadth of product lines;
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- sales and distribution capabilities;
- product features and enhancements, including product performance,
reliability, size, compatibility and scalability;
- product ease of deployment;
- conformance to industry standards; and
- technical support and service.
We expect that competitive pressures may result in price reductions,
reduced margins and loss of market share, which would materially adversely
affect our business, results of operations and financial condition.
REDBACK IS DEPENDENT ON A SINGLE CONTRACT MANUFACTURER
We rely on a single third-party manufacturer, Electromax, to build our
products. We may not be able to effectively manage our relationship with
Electromax and Electromax may not meet our future requirements for timely
delivery. We have no written agreement with Electromax. We have relationships
with two other third-party manufacturers, one of which currently builds our
prototypes. Although both of these other third-party manufacturers are capable
of building our products, any interruption in the operations of Electromax would
adversely affect our ability to meet our scheduled product deliveries to our
customers, which could cause the loss of existing or potential customers and
could materially adversely affect our business, results of operations and
financial condition.
In addition, the products that Electromax or any other manufacturer builds
for us may be insufficient in quality or in quantity to meet our needs.
Electromax or any other manufacturer may not meet the technological or delivery
requirements of our current products or any future products that we may develop
and introduce. The inability of Electromax or any other of our contract
manufacturers in the future to provide us with adequate supplies of high-quality
products, or the loss of Electromax or any other of our contract manufacturers
in the future, would cause a delay in our ability to fulfill customer orders
while another of our third-party manufacturers begins production and would have
a material adverse effect on our business, results of operations and financial
condition.
SOME OF THE KEY COMPONENTS IN REDBACK'S PRODUCTS COME FROM SINGLE OR
LIMITED SOURCES OF SUPPLY
We currently purchase several key components used in the manufacture of our
SMS 500, SMS 1000 and SMS 1800 products from single or limited sources of
supply. These manufacturers include Altera, Brooktree, Connector Technologies,
Foresight, Intel, Level One, Powerspec, Siemens and Ziatech. We have no
guaranteed supply arrangement with these suppliers, and we or our manufacturers
may fail to obtain these supplies in a timely manner in the future. Financial or
other difficulties faced by these suppliers or significant changes in demand for
these components could limit the availability to us of these components. Any
interruption or delay in the supply of any of these components, or the inability
to obtain these components from alternate sources at acceptable prices and
within a reasonable amount of time, would adversely affect our ability to meet
scheduled product deliveries to our customers and would materially adversely
affect our business, results of operations and financial condition. In addition,
qualifying additional suppliers is time-consuming and expensive.
REDBACK MAY BE UNABLE TO MATCH PRODUCTION WITH PRODUCT DEMAND
We currently use a rolling six-month forecast based on anticipated product
orders, product order history and backlog to determine our materials
requirements. Lead times for the materials and components that we order vary
significantly and depend on numerous factors, including the specific supplier,
contract terms and demand for a component at a given time. If actual orders do
not match our
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forecasts, we may have excess or inadequate inventory of materials and
components, which could materially adversely affect our business, results of
operations and financial condition.
REDBACK MAY BE UNABLE TO PROPERLY MANAGE GROWTH
We have expanded our operations rapidly since our inception. The number of
our employees increased from 39 on February 28, 1998 to 274 on December 31,
1999. We intend to continue to expand in order to pursue existing and potential
market opportunities and are in the process of hiring additional engineering and
sales personnel. Our ability to continue to attract and retain highly skilled
personnel is a critical factor in determining whether we will be successful in
the future. Competition for highly skilled personnel is intense, especially in
the San Francisco Bay Area. We may fail to attract, assimilate or retain
qualified personnel to fulfill our current or future needs. If we so fail, our
business, results of operations and financial condition could be materially
adversely affected. Our planned rapid growth places a significant demand on
management and financial and operational resources. In order to grow and achieve
future success, we must:
- retain existing personnel;
- hire, train, manage and retain additional qualified personnel; and
- effectively manage multiple relationships with our customers, suppliers
and other third parties.
REDBACK'S PLANNED EXPANSION TO INTERNATIONAL MARKETS WILL INVOLVE NEW RISKS
In 1999, we derived approximately 7% of our revenues from sales to
customers outside of the United States. In 1998, we derived approximately 15% of
our revenues from sales to customers outside of the United States. Our ability
to achieve future success will depend in part on the expansion of our
international sales and operations. International operations are generally
subject to a number of risks, including:
- expenses associated with customizing products for foreign countries;
- protectionist laws and business practices that favor local competition;
- dependence on local vendors;
- multiple, conflicting and changing governmental laws and regulations;
- longer sales cycles;
- longer accounts receivable cycles;
- increased difficulties in collecting accounts receivable;
- difficulties in managing operations across disparate geographic areas;
- difficulties associated with enforcing agreements through foreign legal
systems;
- reduced or limited protection of our intellectual property rights in some
countries;
- foreign currency exchange rate fluctuations; and
- political and economic instability.
In addition, if we grow internationally, we will need to expand our
worldwide operations and enhance our communications infrastructure. If we fail
to implement and improve these systems, our ability to accurately forecast sales
demand, manage our supply chain and record and report financial and management
information would be adversely affected. This could materially adversely affect
our business, results of operations and financial condition.
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UNDETECTED SOFTWARE OR HARDWARE ERRORS COULD HAVE A MATERIAL ADVERSE
EFFECT ON REDBACK
Networking products frequently contain undetected software or hardware
errors when first introduced or as new versions are released. We have
experienced minor errors in the past in connection with new products. We expect
that errors will be found from time to time in new or enhanced products after we
begin commercial shipments. These problems may cause us to incur significant
warranty and repair costs, divert the attention of our engineering personnel
from our product development efforts and cause significant customer relations
problems. The occurrence of these problems could result in the delay or loss of
market acceptance of our products and would likely have a material adverse
effect on our business, results of operations and financial condition.
Our customers use our products to provide broadband access to their
customers. Defects, integration issues or other performance problems in our
products could result in financial or other damages to our customers or could
damage market acceptance for our products. Our customers could seek damages for
losses from us, which, if they were successful, could have a material adverse
effect on our business, results of operations and financial condition. A product
liability claim brought against us, even if unsuccessful, would likely be
time-consuming and costly.
REDBACK MAY BE UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property rights.
We have filed one U.S. patent application. There can be no assurance that this
application will be approved, that any issued patents will protect our
intellectual property or that any issued patents will not be challenged by third
parties. Furthermore, other parties may independently develop similar or
competing technology or design around any patents that may be issued to us.
Although we attempt to protect our intellectual property rights, we may be
unable to prevent the misappropriation of our intellectual property,
particularly in foreign countries where the laws may not protect our proprietary
rights as fully as in the United States.
Others may allege that our products infringe upon their proprietary rights.
Any parties asserting that our products infringe upon their proprietary rights
would force us to defend ourselves or our customers, manufacturers or suppliers
against alleged infringement of intellectual property rights. We could incur
substantial costs to prosecute or defend this litigation. In addition,
intellectual property litigation could force us to do one or more of the
following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology.
In the event of a successful claim of infringement against us and our
failure or inability to develop non-infringing technology or license the
infringed technology on acceptable terms and on a timely basis, our business,
results of operations and financial condition would be materially adversely
affected. We may be subject to these claims in the future.
We may in the future initiate claims or litigation against third parties
for infringement of our proprietary rights in order to determine the scope and
validity of our proprietary rights or the proprietary rights of competitors.
These claims could result in costly litigation and the diversion of our
technical and management personnel. As a result, our business, results of
operations and financial condition could be materially adversely affected.
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REDBACK MAY NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE
At December 31, 1999, we had approximately $57 million in cash, cash
equivalents and short-term investments. However, we have provided Siara with a
$25 million bridge loan that will utilize some of our working capital. As of the
date of this joint proxy statement/prospectus, Siara has drawn down $13 million
of this loan.
The development and marketing of new products and the expansion of reseller
channels and associated support personnel will require a significant commitment
of resources. Furthermore, if the market for broadband access develops at a
slower pace than anticipated or if we fail to establish significant market share
and achieve a meaningful level of revenue, we may continue to incur significant
operating losses and utilize significant amounts of capital. In addition, if the
merger is not completed, Redback may be required to pay a substantial
termination fee to Siara.
As a result, Redback could be required to raise substantial additional
capital. Additional capital may not be available to Redback at all, or, if
available, may be available only on unfavorable terms. Any inability to raise
additional capital when Redback requires it would materially adversely affect
Redback's business, results of operations and financial condition.
REDBACK IS DEPENDENT ON THE WIDESPREAD ADOPTION OF BROADBAND ACCESS
SERVICES
Sales of our products depend on the increased use and widespread adoption
of broadband access services, and the ability of our customers to market and
sell broadband access services. Our business, results of operations and
financial condition would be materially adversely affected if the use of
broadband access services does not increase as anticipated or if our customers'
broadband access services are not received well by the marketplace. Critical
issues concerning use of broadband access services are unresolved and will
likely affect use of broadband access services. These issues include:
- security;
- reliability;
- bandwidth;
- congestion;
- cost;
- ease of access; and
- quality of service.
Even if these issues are resolved, if the market for products that provide
broadband access to the Internet and to corporate networks fails to develop, or
develops at a slower pace than anticipated, our business, results of operations
and financial condition would be materially adversely affected.
THE BROADBAND ACCESS SERVICES MARKET IS SUBJECT TO RAPID CHANGE
The broadband access services market is new and is characterized by rapid
technological change, frequent enhancements to existing products and new product
introductions, changes in customer requirements and evolving industry standards.
We may be unable to respond quickly or effectively to these developments. The
introduction of new products by competitors, market acceptance of products based
on new or alternative technologies, or the emergence of new industry standards,
could render our existing or future products obsolete, which would materially
adversely affect our business, results of operations and financial condition.
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The emergence of new industry standards might require us to redesign our
products. If our products fail to comply with widely adopted industry standards,
our customers and potential customers may not purchase our products. This would
have a material adverse effect on our business, results of operations and
financial condition.
REDBACK'S BUSINESS MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATION OF
THE COMMUNICATIONS INDUSTRY
The jurisdiction of the Federal Communications Commission, or FCC, extends
to the communications industry, to our customers and to the products and
services that our customers sell. Future FCC regulations, or regulations set
forth by other regulatory bodies, may adversely affect the broadband access
services industry. Regulation of our customers may have a material adverse
affect on our business, results of operations and financial condition. For
example, FCC regulatory policies that affect the availability of data and
Internet services may impede our customers' penetration into broadband access
markets. In addition, international regulatory bodies are beginning to adopt
standards for the communications industry. The delays that these governmental
processes entail may cause order cancellations or postponements of product
purchases by our customers, which would materially adversely affect our
business, results of operations and financial condition.
REDBACK'S STOCK PRICE MAY BE VOLATILE
The market for technology stocks has been extremely volatile. The following
factors could cause volatility in the market price of our common stock:
- our loss of a major customer;
- our addition or the departure of key Redback Networks personnel;
- variations in our quarterly operating results;
- announcements by us or our competitors of significant contracts, new
products or product enhancements, acquisitions, distribution
partnerships, joint ventures or capital commitments;
- changes in financial estimates by securities analysts;
- our sales of common stock or other securities in the future;
- changes in market valuations of broadband access technology companies;
- changes in market valuations of networking and telecommunications
companies; and
- fluctuations in stock market prices and volumes.
REDBACK'S BUSINESS MAY BE ADVERSELY AFFECTED BY CLASS ACTION LITIGATION DUE
TO STOCK PRICE VOLATILITY
Securities class action litigation has often been brought against a company
following periods of volatility in the market price of its securities. If our
stock price is volatile, we may be the target of similar litigation. Our
management's attention and resources may be diverted by any securities
litigation, and we may incur substantial related costs, possibly resulting in a
material adverse effect to our business, results of operations and financial
condition.
RISKS RELATED TO SIARA'S BUSINESS
SIARA DOES NOT HAVE A LENGTHY OPERATING HISTORY AND ITS BUSINESS IS
DIFFICULT TO EVALUATE
We were formed in March 1998 and began operations in July 1998. Our
products are still in development and we have not yet begun shipping any
products. There are many risks and difficulties frequently encountered by
companies like Siara in a new and rapidly evolving market. From July 1998 to
December 1999, we have experienced significant growth in personnel, from 35
employees to
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186 employees, and we expect this growth to continue. Further, our ability to
successfully sell any products and services in the future depends, among other
things, on the level of demand for broadband and high-speed optical access
products, which is a relatively new and rapidly evolving market. The growth of
our business will require that we successfully adapt our business plan to meet
these changes, and we may not successfully address the risks we face.
SIARA HAS A HISTORY OF LOSSES AND EXPECTS TO INCUR FUTURE LOSSES
We have incurred significant net losses in each quarter since inception and
expect to continue to incur significant losses for the foreseeable future. In
1999, we incurred a net loss of approximately $94.7 million and as of December
31, 1999, we had an accumulated deficit of approximately $98.4 million.
We have funded our operations from the private sale of equity securities,
from borrowings and by means of equipment lease financing. We expect to continue
to incur significant product development, sales and marketing, and general and
administrative expenses. As a result, we must generate significant revenues to
achieve profitability. We may never achieve sufficient revenue levels to achieve
profitability. We have not yet completed development of our first product and we
have not recognized any revenue to date. We may never achieve profitability and
may continue to incur net losses in the future. If we do achieve profitability
in some future period, we cannot be certain that we would sustain profitability
on a quarterly or annual basis in the future.
SIARA'S OPERATING RESULTS ARE LIKELY TO FLUCTUATE SIGNIFICANTLY
Our operating results are likely to fluctuate significantly from quarter to
quarter and from year to year. Factors likely to cause quarterly fluctuations in
future revenues and operating results include:
- continued spending on research and development expenses;
- costs to build our administrative and information infrastructure;
- fluctuations in demand for broadband and other access services;
- new product introductions by our competitors;
- the entry of new competitors into our market;
- our ability to obtain supplies of components;
- market acceptance of our products;
- our ability to achieve and maintain production volumes and quality levels
for our products;
- unexpected delays in introducing products, including manufacturing
delays; and
- our ability to control expenses.
If we experience delays in generating revenue, our quarterly operating
results are likely to be materially adversely affected. In addition, we will
need to expand our engineering, sales and marketing and customer support
operations. We also need to develop distribution channels and build our
operational infrastructure. In particular, if the merger does not occur, our
expenses are expected to increase significantly. If future revenues do not
outpace the increase in these expenses, our business, results of operations and
financial condition could be harmed.
We have entered into an agreement with a single third-party manufacturer to
build our products. Any interruption in the operations of this manufacturer
would adversely affect our ability to meet our scheduled product deliveries to
our customers. This would cause significant variations in our quarterly
operating results.
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Due to these factors and because of the rapid growth of our operations
since July 1998, we believe that future quarter-to-quarter comparisons of our
operating results may not be meaningful. You should not rely on our results for
one quarter as any indication of our future performance. It is likely that in
some future quarter our operating results may be below the expectations of
investors.
WE ARE ENTIRELY DEPENDENT ON THE COMMERCIAL SUCCESS OF OUR SIARA 2000
PRODUCT
None of our products has been introduced commercially, and except for our
Siara 2000 product, all of our products are in early stages of development. Our
Siara 2000 product may not achieve commercial acceptance or generate revenues in
the future. Because of the complexity of the Siara 2000 and of our prospective
customers' network architectures, the Siara 2000 may not operate successfully
with all these customers' systems. Our inability to successfully introduce the
Siara 2000, or the failure of this product line to achieve market acceptance,
would seriously harm our business, results of operations and financial
condition.
SIARA'S PRODUCTS MUST ANTICIPATE AND MEET SPECIFIC CUSTOMER REQUIREMENTS
AND DEMANDS
Many of our potential customers require product features and capabilities
that our products may not have. The requirement that we add features to our
products in order to achieve a sale may result in a longer sales cycle,
increased research and development expenses and reduced margins on our products.
To achieve market acceptance for our products, we must anticipate and adapt to
customer requirements. Though in the future we may develop additional products,
our failure to develop products or offer services that satisfy customer
requirements would seriously harm our business and financial condition.
We intend to continue to invest in product and technology development. The
development of new or enhanced products is a complex and uncertain process that
requires the accurate anticipation of technological and market trends. We may
experience design, manufacturing, marketing and other difficulties that could
delay or prevent the development, introduction or marketing of our products.
SIARA'S MARKET IS HIGHLY COMPETITIVE AND SIARA EXPECTS INCREASED
COMPETITION
If we do not compete successfully against current or future competitors,
our business, results of operations and financial condition will be seriously
harmed. The market for delivery of data services using internet protocol, or IP,
and high-speed optical access products we are targeting is highly competitive
and we expect this market to be highly competitive in the future. In addition,
we expect new competitors to emerge in this market as the market evolves due to
technological innovation and regulatory changes. We face actual and potential
competition from a number of public and private companies.
Cisco Systems, a provider of routers connecting to the Internet backbone,
offers products that compete directly with our products, and also provides a
comprehensive range of network access systems. Cisco recently acquired Cerent
Corporation, a competitor of ours in the market for high-speed optical access
products. We also face competition from Alcatel, Lucent Technologies, Sycamore
Networks and Nortel Networks. In addition, there are several other private
companies that provide subscriber management features in access concentrators or
routing platforms.
Many of our principal competitors, including Cisco Systems/Cerent,
Sycamore, Alcatel, Nortel Networks and Lucent Technologies, and some companies
that may compete with us in the future, are large public companies that have
longer operating histories and significantly greater financial, technical,
marketing and other resources than we have. These competitors are able to devote
greater resources to the development, promotion, sale and support of their
products and may be better positioned than we are to acquire other companies and
technologies or products that may displace our product line. These acquisitions
could give our competitors a strategic advantage that would seriously harm our
business.
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Many of our competitors have significantly more established customer
support and professional services organizations than we do. These companies can
leverage their customer bases and product offerings and adopt aggressive pricing
policies to gain market share. In order to compete effectively, we must deliver
products that:
- are highly reliable;
- scale-easily and efficiently;
- deploy and operate with existing network designs and equipment; and
- are cost effective.
We expect that competitive pressures may result in price reductions,
reduced margins and loss of market share, which would seriously harm our
business.
SIARA IS DEPENDENT ON SOLE SOURCE AND LIMITED SOURCE SUPPLIERS FOR ITS
ASICS
We currently purchase several key components from single or limited
sources. In particular, we rely on Wyle Electronics and LSI Logic as our foundry
for a number of our application specific integrated circuits, or ASICs, and IBM
Microelectronics as a foundry for other ASICs. If any of our suppliers suffers
from capacity constraints, work stoppages or any other reduction or disruption
in output or if it is more profitable for them to give priority to other
customers, they may be unable to meet our delivery schedule. If we do not
receive critical components from our suppliers in a timely manner, we will be
unable to deliver those components to our manufacturer in a timely manner and
would, therefore, be unable to meet our customers' product delivery
requirements. Any failure to meet a customer's delivery requirements could harm
our reputation and decrease our sales, which would negatively affect our
business, financial condition and results of operations. We currently have no
long-term supply contracts to ensure sources of supply for several of our key
components, including ASICs. Our only agreements with Wyle, LSI and IBM are
budget quotations and general project descriptions. Our suppliers may enter into
exclusive arrangements with our competitors, stop selling their products or
components to us at commercially reasonable prices or refuse to sell their
products or components to us at any price and we may be unable to develop
alternative sources for the components.
SIARA DEPENDS ON THIRD-PARTY TECHNOLOGY IN ITS SIARA 2000 PRODUCT
Cerent Corporation has granted us a non-exclusive license to technology
related to two ASICs and parts of Cerent's system-level hardware technology that
are used in the Siara 2000 product. In November 1999, Cerent was acquired by
Cisco Systems, a provider of networking products and a significant competitor of
ours. Although we believe we have sufficient rights to this Cerent technology to
conduct our business as currently conducted, we do not have a business
relationship with Cisco. Any loss of access to the technology that is the
subject of our agreement with Cerent would seriously harm our business.
WE ARE DEPENDENT ON ONE CONTRACT MANUFACTURER
We rely on one manufacturer, Flash Electronics, to build our Siara 2000
product. We may not be able to effectively manage our relationship with Flash
and it may not meet our future requirements for timely delivery. Any
interruption in the operations of Flash could prevent us from meeting scheduled
product deliveries to our customers, which could cause the loss of customers and
could materially harm our business. If Flash cannot provide us with adequate
supplies of high-quality products, our business would be seriously harmed.
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SIARA MAY BE UNABLE TO PROPERLY MANAGE GROWTH
We have expanded our operations rapidly since our inception. The number of
our employees increased from 35 in July 1998 to 186 on December 31, 1999. We
intend to hire additional engineering and sales personnel, particularly if the
merger does not occur. Our ability to continue to attract and retain highly
skilled personnel is a critical factor in determining whether we will be
successful in the future. Competition for highly skilled personnel is intense,
especially in the San Francisco Bay Area. Our failure to attract, assimilate or
retain qualified personnel to fulfill our current or future needs would
seriously harm our business. Our planned rapid growth places a significant
demand on management and financial and operational resources. In order to grow
and achieve future success, we must:
- retain existing personnel;
- hire, train, manage and retain additional qualified personnel; and
- effectively manage relationships with our customers and suppliers.
SIARA MUST SUBSTANTIALLY EXPAND ITS SALES ORGANIZATION AND ITS MARKETING
AND CUSTOMER SERVICE ORGANIZATIONS
Because our products are complex, we must hire highly trained sales and
customer service and support personnel. We currently have small organizations in
these areas and will need to increase our staff substantially to support the
demands of our prospective customers, particularly if the merger does not occur.
Hiring sales and customer service and support personnel is extremely competitive
in our industry due to the limited number of people available with the necessary
technical skills and understanding of products of the type we develop. If we are
unable to expand our sales and customer service and support organizations, we
will be unable to significantly increase the sales of our products, which would
impair our ability to grow and would seriously harm our business, financial
condition and results of operations.
SIARA DEPENDS ON KEY PERSONNEL TO MANAGE THE BUSINESS EFFECTIVELY
Our future success depends upon the continued services of our executive
officers and other key engineering, sales, marketing and support personnel, who
have critical industry experience and relationships that we rely upon to
implement our business plan. None of our officers or key employees is bound by
an employment agreement for any specific term although some have entered into
non-competition arrangements with Redback. We do not have key person life
insurance policies covering any of our employees. The loss of the services of
any of our key employees could delay the development and introduction of, and
negatively impact our ability to sell, our products.
IF WE BECOME SUBJECT TO UNFAIR HIRING CLAIMS, WE COULD INCUR SUBSTANTIAL
COSTS IN DEFENDING AGAINST THESE CLAIMS
Companies in our industry whose employees accept positions with competitors
frequently claim that their competitors have engaged in unfair hiring practices.
We have received in the past, and may receive in the future claims of this kind
as we seek to hire qualified personnel and those claims may result in material
litigation. We could incur substantial costs in defending ourselves or our
employees against such claims, regardless of their merits. In addition,
defending ourselves from such claims could divert the attention of our
management away from our operations.
UNDETECTED SOFTWARE OR HARDWARE ERRORS COULD HARM SIARA'S BUSINESS
Networking products frequently contain undetected software or hardware
errors when first introduced. We have experienced minor errors in the past in
the development of our product. We expect that errors will be found from time to
time in new products after we begin commercial shipments. These
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problems may cause us to incur significant warranty and repair costs, divert the
attention of our engineering personnel from our product development efforts and
cause significant customer relations problems. The occurrence of these problems
could result in the delay or loss of market acceptance of our products and would
likely have a material adverse effect on our business, results of operations and
financial condition.
We anticipate that our customers will use our products to provide IP data
services and high-speed access to their customers. Defects, integration issues
or other performance problems in our products could result in financial or other
damages to our customers or could damage market acceptance for our products. Our
customers could seek damages for losses from us, which, if they were successful,
could harm our business and financial condition. A product liability claim
brought against us, even if unsuccessful, would likely be time-consuming and
costly.
SIARA MAY BE UNABLE TO PROTECT ITS PROPRIETARY TECHNOLOGY
We rely on a combination of copyright, trademark and trade secret laws and
restrictions on disclosure to protect our intellectual property rights. We have
not filed any patents relating to our intellectual property. Although we attempt
to protect our intellectual property rights, we may be unable to prevent the
misappropriation of our intellectual property, particularly in foreign countries
where the laws may not protect our proprietary rights as fully as in the United
States.
Others may allege that our products infringe upon their proprietary rights.
Any parties asserting that our products infringe upon their proprietary rights
would force us to defend ourselves or our customers, manufacturers or suppliers
against alleged infringement of intellectual property rights. We could incur
substantial costs to prosecute or defend this litigation. In addition,
intellectual property litigation could force us to do one or more of the
following:
- cease selling, incorporating or using products or services that
incorporate the challenged intellectual property;
- obtain from the holder of the infringed intellectual property right a
license to sell or use the relevant technology, which license may not be
available on acceptable terms, if at all; or
- redesign those products or services that incorporate the disputed
technology.
In the event of a successful claim of infringement against us and our
failure or inability to develop non-infringing technology or license the
infringed technology on acceptable terms and on a timely basis, we could be
prevented from marketing infringing products and our business, results of
operations and financial condition would be materially adversely affected. We
may be subject to these claims in the future.
SIARA WILL NEED ADDITIONAL CAPITAL, WHICH MAY NOT BE AVAILABLE
At December 31, 1999, we had approximately $277,000 in cash and cash
equivalents. We have obtained a loan from Redback of up to $25.0 million to
sustain our operations during the period between signing of the merger agreement
and closing of the merger. If the merger does not occur, we may have to repay in
cash or stock the amounts owed under this loan, which could harm our business
and financial condition. In addition, if the merger does not occur, we will have
to seek alternative sources of capital to continue the operation of our
business. Even if we can successfully identify new sources of capital, we may
not be able to obtain it on terms that are acceptable to us.
The development and marketing of new products and the expansion of our
sales organization and customer support personnel will require a significant
commitment of resources. In addition, if the market for broadband and high-speed
optical access develops at a slower pace than anticipated or if we fail to
introduce our products commercially and achieve a meaningful level of revenue,
we may continue to incur significant operating losses and utilize significant
amounts of capital. As a result, we could be
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required to raise substantial additional capital. Additional capital may not be
available to us at all or, if available, may be available only on unfavorable
terms. Any inability to raise additional capital when we require it would
materially harm our business and financial condition.
SIARA DEPENDS ON THE WIDESPREAD ADOPTION OF IP DATA SERVICES AND HIGH-SPEED
OPTICAL ACCESS SERVICES
Sales of our products will depend on the increased use and widespread
adoption of IP data services and high-speed optical access services and the
ability of our prospective customers to market and sell IP data services and
high-speed access services to their customers. Our business, results of
operations and financial condition would be materially harmed if the use of
these services does not increase as anticipated or if our customers' services
are not received well by the marketplace. Critical issues concerning use of our
customers' services are unresolved and will likely affect use of these products.
These issues include:
- network security;
- reliability;
- bandwidth;
- congestion;
- cost;
- ease of access; and
- quality of service.
Even if these issues are resolved, if the market for products that provide
IP data services and high-speed optical access services to the Internet and to
corporate networks fails to develop, or develops at a slower pace than
anticipated, our business, results of operations and financial condition would
be materially harmed.
THE MARKET FOR VALUE-ADDED IP SERVICES AND HIGH-SPEED OPTICAL ACCESS
PRODUCTS IS SUBJECT TO RAPID CHANGE
The market for value-added IP services and high speed optical access
products is new and is characterized by rapid technological change, frequent
enhancements to existing products and new product introductions, changes in
customer requirements and evolving industry standards. We may be unable to
respond quickly or effectively to these developments. The introduction of new
products by competitors, market acceptance of products based on new or
alternative technologies, or the emergence of new industry standards, could
render our existing or future products obsolete, which would materially harm our
business and financial condition.
The emergence of new industry standards might require us to redesign our
products. If our products fail to comply with widely adopted industry standards,
our customers and potential customers may not purchase our products. This would
have a material adverse effect on our business, results of operations and
financial condition.
OUR BUSINESS MAY BE ADVERSELY AFFECTED BY GOVERNMENT REGULATION OF THE
COMMUNICATIONS INDUSTRY
The jurisdiction of the Federal Communications Commission, or FCC, extends
to the communications industry, to our customers and to the products and
services that our customers sell. Future FCC regulations, or regulations
established by other regulatory bodies, may slow or end the growth of the
broadband access services industry. Regulation of our customers may materially
harm our business and
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financial condition. For example, FCC regulatory policies that affect the
availability of data and Internet services may impede our customers' penetration
into broadband access markets. In addition, international regulatory bodies are
beginning to adopt standards for the communications industry. The delays that
these governmental processes entail may cause order cancellations or
postponements of product purchases by our customers, which would materially harm
our business and financial condition.
INSIDERS HAVE SUBSTANTIAL CONTROL OVER SIARA AND ITS ACTIONS
The executive officers and directors of Siara and entities affiliated with
them, in the aggregate, beneficially own approximately 59% of the outstanding
shares of our capital stock. These stockholders, if acting together, are able to
influence significantly all matters requiring approval by Siara's stockholders,
including the approval of the merger agreement and the merger. Stockholders of
Siara holding approximately 64% of the outstanding shares of our capital stock
have entered into voting agreements with Redback, agreeing to vote in favor of
the merger agreement and the transactions associated with it.
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THE REDBACK MEETING
DATE, TIME, PLACE AND PURPOSE OF REDBACK'S MEETING
The special meeting of stockholders of Redback will be held at 10:00 a.m.,
local time, on March 8, 2000 at the Sheraton Hotel, located at 1100 North
Mathilda Avenue, Sunnyvale, California. At the meeting, Redback stockholders of
record at the close of business on January 31, 2000 will be asked to consider
and vote on the following proposals:
1. To approve and adopt a merger agreement dated November 28, 1999
between Redback and Siara, to approve the merger and to approve the
issuance of shares of Redback common stock pursuant to the merger
agreement. Siara will be merged with and into Redback and each stockholder
of Siara will receive Redback common stock and each holder of an option or
a warrant to acquire Siara common or preferred stock will receive an option
or a warrant, as appropriate, to acquire Redback common stock. The merger
agreement is attached as Appendix A to this joint proxy
statement/prospectus.
2. To approve Redback's amended and restated certificate of
incorporation attached as Appendix B to this joint proxy
statement/prospectus to increase the authorized number of shares of common
stock from 80,000,000 to 200,000,000 to allow for the issuance of Redback
stock, options and warrants to holders of Siara's stock, options and
warrants pursuant to the merger agreement, to cover the proposed increase
to Redback's stock and stock option plan reserves, as set forth herein and
to provide flexibility in the future for stock issuances, stock splits or
acquisitions.
3. To approve the amendment to Redback's 1999 Stock Incentive Plan:
- to increase the number of shares of Redback common stock reserved
for issuance from 5,000,000 to 8,000,000; and
- to increase the number of shares of Redback common stock by which
the share reserve will automatically increase on an annual basis
from the lesser of 3,000,000 or 5% of the total number of shares of
Redback common stock outstanding at the time of the increase to the
lesser of 5,000,000 or 5% of the total number of shares of Redback
common stock outstanding at the time of the increase.
If approved, the amendment will take effect only if the merger with
Siara is completed.
4. To approve the amendment to Redback's 1999 Employee Stock Purchase
Plan:
- to increase the initial number of shares of Redback common stock
reserved for issuance from 2,000,000 to 3,000,000; and
- to increase the number of shares of Redback common stock to which
the reserve will automatically be restored on an annual basis from
2,000,000 to 3,000,000.
If approved, the amendment will take effect only if the merger with
Siara is completed.
5. To approve the amendment to Redback's 1999 Directors' Option Plan:
- to increase the initial number of shares of Redback common stock
reserved for issuance from 400,000 to 800,000; and
- to increase the number of shares of Redback common stock to which
the reserve will automatically be restored on an annual basis from
400,000 to 800,000.
If approved, the amendment will take effect only if the merger
with Siara is completed.
6. To transact any other business that may properly come before the
Redback meeting or any adjournment of the Redback meeting.
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REDBACK RECORD DATE AND OUTSTANDING SHARES
Only holders of record of Redback common stock at the close of business on
the record date of January 31, 2000, called the record date, are entitled to
notice of, and to vote at, the meeting. As of the close of business on the
record date, there were 44,135,869 shares of Redback common stock outstanding
and entitled to vote, held of record by approximately 541 stockholders, although
Redback has been informed that there are in excess of beneficial
owners of its common stock.
REDBACK VOTE AND QUORUM REQUIRED
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Redback common stock entitled to vote at the special
meeting is necessary to constitute a quorum. Holders of Redback's common stock
are entitled to one vote for each share held as of the record date.
The holders of a majority of the outstanding shares of Redback common stock
as of the record date must approve proposal 1, relating to the merger, and
proposal 2, relating to the amendment to the certificate of incorporation.
The holders of a majority of the outstanding shares of Redback common stock
as of the record date represented in person or by proxy at the Redback meeting
must approve proposals 3, 4 and 5, relating to the amendments to Redback stock
and stock option plans.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the Redback record date, directors, executive officers and affiliates of
Redback as a group beneficially owned an aggregate of approximately 2.8 million
shares of Redback common stock, or approximately 6.3% of the outstanding shares
on that date. Directors, executive officers and their affiliates beneficially
owning an aggregate of approximately 2.8 million shares of outstanding Redback
common stock, or approximately 6.3% of outstanding Redback capital stock on the
record date have executed voting agreements with Siara, under which they have
agreed to vote their shares of Redback stock to approve the merger agreement the
merger and the transactions associated with it. See "Related
Agreements -- Irrevocable Proxy and Voting Agreements" on page 73.
ABSTENTIONS; BROKER NON-VOTES ON REDBACK'S PROPOSALS
A properly executed proxy marked ABSTAIN, although counted for purposes of
determining whether there is a quorum and for purposes of determining the number
of shares represented and entitled to vote at the meeting, will not be voted
with respect to the matter as to which the proxy is marked ABSTAIN. Any proxy
marked ABSTAIN will have the same effect as a vote against the proposals. In the
event that a broker, bank, custodian, nominee or other record holder of Redback
common stock indicates on a proxy that it does not have discretionary authority
to vote certain shares on a particular matter, which is called a broker
non-vote, those shares will not be considered for purposes of determining the
number of shares entitled to vote with respect to a particular proposal on which
the broker has expressly not voted, but will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business.
REDBACK'S EXPENSES OF PROXY SOLICITATION
Redback will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Redback and its agents also may solicit proxies by mail, telephone,
telegraph, via the Internet or in person. Following the original mailing of the
proxies and this joint proxy statement/prospectus and other soliciting
materials, Redback will request brokers, custodians, nominees and other record
holders of Redback common stock to forward copies of the proxy,
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this joint proxy statement/prospectus and other soliciting materials to persons
for whom they hold shares of Redback common stock and to request authority for
the exercise of proxies. In such cases, upon the request of the record holders,
Redback will reimburse them for their reasonable expenses.
VOTING OF PROXIES ON REDBACK'S PROPOSALS
The proxy accompanying this joint proxy statement/prospectus is solicited
on behalf of the Redback board of directors for use at the Redback stockholders
meeting. If you are a Redback stockholder, you are requested to complete, date
and sign the accompanying proxy and promptly return it in the enclosed envelope
or otherwise mail it to Redback. Alternatively, you may dial the telephone
number indicated on the enclosed proxy card to cast your vote by following the
instructions given to you on the telephone or you may vote via the Internet at
www.cybervote.georgeson.com. All properly signed proxies received by Redback
prior to the vote at the meeting that are not revoked will be voted at the
meeting according to the instructions indicated on the proxies or, if no
direction is indicated, to approve each proposal for which no direction is
indicated.
Redback's board of directors does not know of any matter that is not
referred to in this joint proxy statement/prospectus to be presented for action
at the meeting. If any other matters are properly brought before the meeting,
the persons named in the proxies will have discretion to vote on such matters in
accordance with their best judgment.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time before it is exercised at the meeting
by taking any of the following actions:
- delivering to the secretary of Redback, by any means, including
facsimile, a written notice bearing a date later than the date of the
proxy, stating that the proxy is revoked;
- signing and delivering a proxy relating to the same shares and bearing a
date later than the date of the proxy prior to the vote at the meeting;
or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a 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 bring to the
meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares as of the record date.
NO APPRAISAL RIGHTS
Redback is a Delaware corporation. Appraisal rights are not available under
Delaware law to stockholders of a corporation, such as Redback, whose securities
are listed on a national securities exchange or are designated as a national
market system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc., or NASD. Because Redback's common stock
is traded on such a system, the Nasdaq National Market, stockholders of Redback
will not have appraisal rights with respect to the merger.
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THE SIARA MEETING
DATE, TIME, PLACE AND PURPOSE OF SIARA'S MEETING
The special meeting of stockholders of Siara will be held at 9:00 a.m.,
local time, on March 8, 2000 at the Sheraton Hotel, located at 1100 North
Mathilda Avenue, Sunnyvale, California. At the meeting, stockholders of record
at the close of business on January 31, 2000 will be asked to approve the merger
agreement, the merger and the transactions associated with it.
The merger agreement is attached to this joint proxy statement/prospectus
as Appendix A. See the sections entitled "The Merger" on page 49 and "The Merger
Agreement" on page 65.
SIARA RECORD DATE AND OUTSTANDING SHARES
Only holders of record of shares of common stock or preferred stock of
Siara as of the close of business on January 31, 2000, the Siara record date,
are entitled to notice of and to vote at the meeting. As of the close of
business on the record date, there were 16,965,191 shares of Siara common stock
and 7,055,905 shares of Siara preferred stock outstanding and entitled to vote,
held of record by approximately 182 stockholders.
Siara expects that holders of Siara's preferred stock will agree to
automatically convert each outstanding share of Siara preferred stock into one
share of Siara common stock immediately before the merger becomes effective.
SIARA VOTE AND QUORUM REQUIRED
The presence, in person or by proxy, of the holders of a majority of the
outstanding common stock and a majority of the outstanding preferred stock of
Siara entitled to vote at the special meeting is necessary to constitute a
quorum. Each stockholder is entitled to one vote for each share of Siara common
stock and preferred stock held as of the Siara record date.
The affirmative vote of the holders of a majority of the outstanding shares
of Siara common stock and a majority of the outstanding shares of Siara
preferred stock, voting as separate classes, are required to approve and adopt
the merger agreement and approve the merger. Siara stockholders are entitled to
cast one vote per share of Siara common stock or preferred stock owned as of
January 31, 2000, the Siara record date.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
On the Siara record date, directors, executive officers and affiliates of
Siara as a group beneficially owned an aggregate of approximately 7.4 million
shares of Siara common stock and approximately 6.8 million shares of Siara
preferred stock, or approximately 59% of the outstanding shares of Siara on that
date. Directors, executive officers, their affiliates and others beneficially
owning approximately 8.5 million shares of outstanding Siara common stock and
approximately 6.8 million shares of outstanding Siara preferred stock, or
approximately 50% of the outstanding shares of Siara common stock and 96% of the
outstanding shares of Siara preferred stock on the record date have executed
voting agreements with Redback, under which they have agreed to vote their
shares of Siara stock to approve the merger agreement and the transactions
associated with it. See "Related Agreements -- Irrevocable Proxy and Voting
Agreements" on page 73.
ABSTENTIONS; BROKER NON-VOTES ON SIARA PROPOSALS
A properly executed proxy marked ABSTAIN, although counted for purposes of
determining whether there is a quorum and for purposes of determining the number
of shares represented and entitled to vote at the meeting, will not be voted
with respect to any matter as to which the proxy is marked ABSTAIN.
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Accordingly, a proxy marked ABSTAIN with respect to the merger agreement and the
merger will have the same effect as a vote against the merger agreement and the
merger. In the event that a broker, bank, custodian, nominee or other record
holder of Siara common stock or preferred stock indicates on a proxy that it
does not have discretionary authority to vote certain shares on a particular
mater, which is called a broker non-vote, those shares will not be considered
for purposes of determining the number of shares entitled to vote with respect
to a particular proposal on which the broker has expressly not voted, but will
be counted for purposes of determining the presence or absence of a quorum for
the transaction of business. Accordingly, a broker non-vote will have the same
effect as a vote against the merger agreement, the merger and the transactions
associated with it.
SIARA'S EXPENSES OF PROXY SOLICITATION
Siara will pay the expenses of soliciting proxies to be voted at the
meeting. Following the original mailing of the proxies and other soliciting
materials, Siara and its agents also may solicit proxies by mail, telephone,
telegraph or in person. Following the original mailing of the proxies and other
soliciting materials, Siara will request brokers, custodians, nominees and other
record holders of common stock to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Siara common stock
and to request authority for the exercise of proxies. Upon the request of these
record holders, Siara will reimburse them for their reasonable expenses incurred
in conducting this process.
VOTING OF PROXIES ON SIARA'S PROPOSAL
The proxy accompanying this joint proxy statement/prospectus is solicited
on behalf of the Siara board of directors for use at the Siara stockholders
meeting. You are requested to complete, date and sign the accompanying proxy and
promptly return it in the enclosed envelope or mail it to Siara at 1195 Borregas
Avenue, Sunnyvale, California 94089, Attn: Controller. All properly signed
proxies received by Siara prior to the vote at the meeting that are not revoked
will be voted at the meeting according to the instructions indicated on the
proxies or, if no direction is indicated, to approve the merger and the other
matters presented for approval.
Siara's board of directors does not know of any matter that is not referred
to herein to be presented for action at the meeting. If any other matters are
properly brought before the meeting, the persons named in the proxies will have
discretion to vote on such matters in accordance with their best judgment.
HOW TO REVOKE YOUR PROXY
You may revoke your proxy at any time before it is exercised at the
meeting, by taking any of the following actions:
- delivering to the secretary of Siara, by any means, including facsimile,
a written notice, bearing a date later than the date of the proxy,
stating that the proxy is revoked;
- signing and so delivering a proxy relating to the same shares and bearing
a later date prior to the vote at the meeting; or
- attending the meeting and voting in person, although attendance at the
meeting will not, by itself, revoke a 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 bring to the
meeting a letter from the broker, bank or other nominee confirming your
beneficial ownership of the shares.
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APPRAISAL RIGHTS OF DISSENTING SIARA STOCKHOLDERS
BACKGROUND
If the merger occurs, then under applicable state laws regarding dissenting
stockholders' appraisal rights, Siara stockholders who do not vote their Siara
shares in favor of the merger may, under certain conditions become entitled to
be paid cash for their Siara shares in lieu of receiving Redback common stock in
the merger. Holders of options or warrants to purchase Siara stock will not be
entitled to appraisal rights in connection with the merger by virtue of holding
such options or warrants.
The merger agreement provides that shares of Siara common stock and Siara
preferred stock that are outstanding immediately prior to the effectiveness of
the merger and have not been voted in favor of the merger will not be converted
into Redback common stock if the holder of such shares validly exercises and
perfects statutory appraisal rights with respect to such shares, although such
shares will be automatically converted into shares of Redback common stock on
the same basis as all other Siara shares are converted in the merger when and if
the holder of those shares withdraws his, hers or its demand for appraisal or
otherwise becomes legally ineligible to exercise appraisal rights.
Under the merger agreement, it is a condition to Redback's and Siara's
obligations to consummate the merger that holders of less than 5% of the
outstanding shares of Siara's capital stock have exercised, or are eligible to
exercise, dissenting stockholders' appraisal rights or similar legal rights by
virtue of the merger. Thus, if holders of 5% or more of the outstanding shares
of Siara do not affirmatively vote in favor of the merger, Redback and Siara
will not be obligated to consummate the merger.
Because Siara is a Delaware corporation, the availability of dissenting
stockholders' appraisal rights for Siara stockholders is determined by Delaware
law, which is summarized below. However, due to the location of a majority of
Siara stockholders in California and Siara's other contacts with the State of
California, Section 2115 of the California Corporations Code provides that
California law regarding dissenting stockholders' appraisal rights may also
apply to Siara stockholders in the merger. Because of the potential
applicability of California law, summaries of both Delaware and California law
regarding dissenting stockholders' appraisal rights are provided below. Because
neither Delaware nor California law regarding appraisal rights expressly
addresses the question of which law supersedes in this situation, Siara and
Redback have decided that Siara stockholders will be permitted to exercise
dissenters' appraisal rights under either Delaware or California law, except to
the extent that a court or applicable legal authority rules otherwise.
APPRAISAL RIGHTS UNDER DELAWARE LAW
When the merger becomes effective, stockholders of Siara who comply with
the procedures prescribed in Section 262 of the Delaware General Corporation
Law, or Section 262, will potentially be entitled to a judicial appraisal of the
fair value of their shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, and to receive from Redback payment
of the fair value of their shares in cash.
The following is a brief summary of the statutory procedures that must be
followed by a stockholder of Siara in order to perfect appraisal rights under
the Delaware General Corporation Law. THIS SUMMARY IS NOT INTENDED TO BE
COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SECTION 262, THE TEXT
OF WHICH IS INCLUDED AS APPENDIX D TO THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY
SIARA STOCKHOLDER CONSIDERING DEMANDING APPRAISAL IS ADVISED TO CONSULT LEGAL
COUNSEL.
In order to exercise dissenters' appraisal rights under Delaware law, a
stockholder must be the stockholder of record of the shares of Siara stock as to
which Siara appraisal rights are to be exercised on the date that the written
demand for appraisal described in the next paragraph is made, and the
stockholder must continuously hold such shares through the effective date of the
merger.
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Siara stockholders electing to exercise their appraisal rights under
Section 262 must not vote in favor of approval of the merger. A vote by a Siara
stockholder against approval of the merger is not required in order for that
stockholder to exercise appraisal rights. However, if a Siara stockholder
returns a signed proxy but does not specify a vote against approval of the
merger or a direction to abstain, then the proxy, if not revoked, will be voted
for approval of the merger, which will have the effect of waiving that
stockholder's appraisal rights.
To exercise appraisal rights, a Siara stockholder must also deliver a
written demand for appraisal to Siara before the taking of the vote on the
merger at Siara's special meeting. This written demand must be separate from any
proxy or vote abstaining from or voting against approval of the merger. Voting
against approval of the merger, abstaining from voting or failing to vote with
respect to approval of the merger will not constitute a demand for appraisal
within the meaning of Section 262. A stockholder's failure to make the written
demand prior to the taking of the vote on the merger at Siara's special meeting
under Delaware law as described above, will constitute a waiver of appraisal
rights.
A record owner who holds Siara common stock or Siara preferred stock as a
nominee for other beneficial owners of the shares may exercise appraisal rights
with respect to the Siara common stock and for Siara preferred stock held for
all or less than all beneficial owners of the Siara common stock and Siara
preferred stock for which the holder is the record owner. In that case, the
written demand must state the number of shares of Siara common stock and Siara
preferred stock covered by the demand. Where the number of shares of Siara
common stock and Siara preferred stock is not expressly stated, the demand will
be presumed to cover all shares of Siara common stock and Siara preferred stock
outstanding in the name of that record owner. Beneficial owners who are not
record owners and who intend to exercise appraisal rights should instruct the
record owner to comply strictly with the statutory requirements with respect to
the delivery of written demand prior to the taking of the vote on the merger.
A Siara stockholder who elects to exercise appraisal rights must mail or
deliver the written demand for appraisal to:
Siara Systems, Inc.
1195 Borregas Avenue
Sunnyvale, California 94089
Attn: William Kind
Dissenting stockholders may also deliver their demands for appraisal to
Siara in person at Siara's special meeting before the taking of the vote on the
proposal to approve the merger. The written demand for appraisal should specify
the stockholder's name and mailing address and the number of shares of Siara
common stock and Siara preferred stock covered by the demand, and should state
that the stockholder is thereby demanding appraisal of such stockholder's Siara
shares in accordance with Section 262.
Within 10 days after the effective date of the merger, Redback must provide
notice of the date of effectiveness of the merger to all Siara stockholders who
have timely delivered written demands for appraisal and not voted for approval
of the merger agreement. Each Siara stockholder of record who is eligible to
exercise appraisal rights under Delaware law and who has timely delivered a
written demand for appraisal to Siara and not voted for approval of the merger
will be referred to in this section as a dissenting stockholder.
Within 120 days after the effective date of the merger, any dissenting
stockholder will be entitled, upon written request, to receive from Redback a
statement of the aggregate number of Siara shares not voted in favor of approval
of the merger and with respect to which demands for appraisal have been received
by Redback, and the aggregate number of holders of those shares. This statement
must be mailed to the dissenting stockholder within 10 days after the dissenting
stockholder's written request has
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been received by Redback or within 10 days after the date of the Siara special
meeting held to vote on the merger, whichever is later.
Within 120 days after the effective date of the merger, either Redback or
any dissenting stockholder may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of each share of Siara common stock
and Siara preferred stock of all dissenting stockholders. If a petition for an
appraisal is timely filed, then after a hearing on the petition, the Delaware
Court of Chancery will determine which of the Siara stockholders are entitled to
appraisal rights and will then appraise the shares of Siara common stock and
Siara preferred stock owned by those stockholders, by determining the fair value
of the shares, exclusive of any element of value arising from the accomplishment
or expectation of the merger, together with the fair rate of interest to be
paid, if any, on the amount determined to be the fair value. If no petition for
appraisal is filed with the Delaware Court of Chancery by Redback or any
dissenting stockholder within 120 days after the effective time of the merger,
then dissenting stockholders' rights to appraisal shall cease and they shall be
entitled only to receive shares of Redback common stock in the merger. Inasmuch
as Redback has no obligation to file a petition, any Siara stockholder who
desires a petition to be filed is advised to file it on a timely basis. However,
no petition timely filed in the Delaware Court of Chancery demanding appraisal
shall be dismissed as to any Siara stockholder without the approval of the
Delaware Court of Chancery, and this approval may be conditioned on any terms
the Delaware Court of Chancery deems just.
The cost of the appraisal proceeding may be determined by the Delaware
Court of Chancery and taxed upon the parties as the court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may order
that all or a portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonably attorney's fees, and the fees and expenses of experts, be charged pro
rata against the value of all shares entitled to appraisal. In the absence of
this determination or assessment, each party bears its own expenses. A
dissenting stockholder who has timely demanded appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the Siara stock subject to such demand for any purpose or to receive
payment of dividends or other distributions on the Siara stock, except for
dividends or other distributions payable to stockholders of record at a date
prior to the effective time of the merger.
At any time within 60 days after the effective date of the merger, any
dissenting stockholder will have the right to withdraw the stockholder's demand
for appraisal and to accept the right to receive shares of Redback common stock
in the merger on the same basis on which Siara stock is converted into Redback
common stock in the merger. After this 60-day period, a dissenting stockholder
may withdraw his or her demand for appraisal only with the consent of Redback.
APPRAISAL RIGHTS UNDER CALIFORNIA LAW
Although Siara is incorporated in the State of Delaware, as noted above,
due to the location of a majority of its stockholders and Siara's other contacts
with the State of California, the provisions of the California Corporations Code
relating to the rights of dissenting stockholders in a merger may apply to the
merger.
When the merger becomes effective, stockholders of Siara who do not vote in
favor of the merger and comply with the procedures prescribed in Chapter 13 of
the California Corporations Code, or Chapter 13, will be entitled to a judicial
appraisal of the fair market value of their shares, which, for purposes of the
exercise of appraisal rights under California law, is determined as of the day
before the first announcement of the terms of the merger, excluding any
appreciation or depreciation in consequence of the merger, and to require
Redback to purchase the stockholder's shares for cash at such fair market value.
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The following is a brief summary of the statutory procedures that must be
followed by a stockholder of Siara in order to dissent from the merger and
perfect appraisal rights under the California Corporations Code. THIS SUMMARY IS
NOT INTENDED TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
CHAPTER 13, THE TEXT OF WHICH IS INCLUDED AS APPENDIX E TO THIS JOINT PROXY
STATEMENT/PROSPECTUS. ANY SIARA STOCKHOLDER CONSIDERING EXERCISING DISSENTERS'
RIGHTS IS ADVISED TO CONSULT LEGAL COUNSEL.
In order to exercise dissenters' appraisal rights under California law, a
Siara stockholder must be entitled to vote on the proposal to approve the
merger, or be a transferee of record of shares held by such a stockholder. Under
Chapter 13, appraisal rights can only be exercised with respect to shares of
Siara stock that are outstanding on the record date for the determination of
Siara stockholders entitled to vote on the merger.
If the merger is approved by Siara's stockholders, but any Siara
stockholders do not vote in favor of the merger, then within 10 days after the
date of the approval of the merger by Siara's stockholders, Redback will mail to
each Siara stockholder who did not vote in favor of the merger a notice of
approval of the merger, together with a copy of Sections 1300, 1301, 1302, 1303
and 1304 of the California Corporations Code, a statement of the price
determined by Redback to represent the fair market value of dissenting shares,
and a brief description of the procedure to be followed if the stockholder
desires to exercise dissenters' appraisal rights under California law. The
statement of the fair market value of the Siara stock in the notice of approval
will constitute an offer by Redback to purchase at that price any shares of
Siara stock for which dissenters' appraisal rights are perfected. References in
the remainder of this section to "Redback" will mean Siara with respect to any
time period before the merger becomes effective.
A stockholder of Siara wishing to require Redback to purchase his, her or
its Siara shares pursuant to Chapter 13 must take the following actions:
- The stockholder must not vote in favor of approval of the merger;
- The stockholder must make written demand upon Redback to have
Redback purchase those shares for cash at their fair market value.
The demand must be made by a person who was a stockholder of record
on the record date of the Siara special meeting, must state the
number and class of dissenting shares held of record by the
dissenting stockholder and must contain a statement of what the
stockholder claims to be the fair market value of the shares as of
the last day before the merger was first announced. The statement of
fair market value by the stockholder will constitute an offer by the
stockholder to sell the shares to Redback at the specified price.
The written demand must be received by Redback within 30 days after
the date on which the notice of the approval of the merger by
Siara's stockholders is mailed to the stockholder. If the
stockholder's demand is not received by Redback within this 30-day
period, then the stockholder will forfeit his, her or its appraisal
rights; and
- The stockholder must also submit to Redback, within 30 days after
the date on which the notice of approval of the merger by Siara's
stockholders is mailed to the stockholder, at Redback's principal
office or the office of its transfer agent, the certificates
representing any shares of Siara stock with respect to which demand
for purchase is being made, to be stamped or endorsed with a
statement that the shares are dissenting shares.
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Written demands, notices or other communications concerning the exercise of
dissenters' rights should be addressed to:
Siara Systems, Inc.
1195 Borregas Avenue
Sunnyvale, California 94089
Attn: William Kind
Under California law, a dissenting stockholder may not withdraw his, her or
its demand for payment of the fair market value of the stockholder's dissenting
shares in cash unless Redback consents.
If the stockholder and Redback agree that the shares of Siara stock as to
which the stockholder is seeking appraisal rights are dissenting shares, and
also agree upon the price to be paid to purchase the shares, then the dissenting
stockholder is entitled to the agreed price with interest thereon at the legal
rate on judgments under California law from the date of the agreement. Any
agreements fixing the fair market value of any dissenting shares as between
Redback and any dissenting stockholder must be filed with the secretary of
Redback.
However, if Redback denies that the stockholder's shares qualify as
dissenting shares eligible for purchase under Chapter 13, or Redback and the
stockholder fail to agree upon the fair market value of the shares, then the
stockholder may, within 6 months after the date on which Siara mailed to the
stockholder the notice of approval of the merger by Siara's stockholders, but
not thereafter, file a complaint in the California Superior Court requesting the
Court to determine whether the stockholder's shares qualify as dissenting shares
that are eligible to be repurchased pursuant to the exercise of appraisal
rights, the fair market value of such shares, or both, or may intervene in any
action pending on such a complaint.
If the Court is requested to determine the fair market value of the shares,
it shall appoint one or more impartial appraisers to determine the fair market
value of the shares. However, if the appraisers cannot determine the fair market
value within 10 days of their appointment or within a longer time determined by
the Court, then the Court will determine the fair market value. If the Court
determines that the stockholder's shares qualify as dissenting shares, then
following determination of their fair market value Redback will be obligated to
pay the dissenting stockholder the fair market value of the shares, as so
determined, together with interest thereon at the legal rate from the date on
which judgment is entered. Payment on this judgment will be due upon the
endorsement and delivery to Redback of the certificates for the shares as to
which the appraisal rights are being exercised.
The costs of the appraisal action, including reasonable compensation to the
appraisers appointed by the court, will be allocated among Redback and
dissenting stockholders as the Court deems equitable. However, if the appraisal
of the fair market value of the shares exceeds the price offered by Redback,
then Redback shall pay such costs. If the fair market value of the shares
awarded by the Court exceeds 125% of the price offered by Redback for the shares
in the notice of approval of the merger by Siara's stockholders, then the Court
may in its discretion include attorneys' fees, fees of expert witnesses and
interest in the costs payable by Redback.
WRITTEN DEMANDS
Whether submitting a written demand for appraisal under Delaware or
California law, a written demand for appraisal must reasonably inform Siara of
the identity of the stockholder of record making the demand and that the
stockholder intends to demand appraisal of the stockholder's shares. A demand
for appraisal should be executed by or for the Siara stockholder of record,
fully and correctly, as that stockholder's name appears on the stockholder's
stock certificate. If Siara common stock or Siara preferred stock is owned of
record in a fiduciary capacity, such as by a trustee, guardian or custodian, the
demand should be executed by the fiduciary. If Siara common stock or Siara
preferred stock is owned of
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record by more than one person, as in a joint tenancy or tenancy in common, the
demand should be executed by or for all joint owners. An authorized agent,
including an agent for two or more joint owners, should execute the demand for
appraisal for a stockholder of record; however, the agent must identify the
record owner and expressly disclose the fact that, in exercising the demand, he,
she or it is acting as agent for the record owner.
CERTAIN DIFFERENCES BETWEEN DELAWARE AND CALIFORNIA LAW ON APPRAISAL RIGHTS
As noted above there are several differences between the laws of Delaware
and California with respect to dissenting stockholders' appraisal rights. These
differences include, but are not limited to the following:
- Under Delaware law, in order to exercise dissenters' appraisal rights, a
stockholder must deliver a written appraisal demand before the taking of
the vote on the merger at the special Siara meeting. By comparison, under
California law a stockholder who has not voted in favor of the merger is
not required to deliver a written appraisal demand until 30 days after
the date on which the notice of the approval of the merger by Siara's
stockholders is mailed to the stockholder; and
- Under Delaware law, Redback or a dissenting stockholder must file a
petition for an appraisal of dissenting shares within 120 days after the
effective date of the merger to exercise appraisal rights. By comparison,
under California law, if the parties do not agree on the status of shares
as dissenting shares or their fair market value, the stockholder has
until 6 months after the date on which the notice of approval of the
merger by Siara's stockholders was mailed to the stockholder to file a
complaint in the California Superior Court requesting a determination of
these matters.
STOCKHOLDERS OF SIARA CONSIDERING WHETHER TO SEEK APPRAISAL SHOULD BEAR IN
MIND THAT THE FAIR VALUE OF THEIR SIARA COMMON STOCK AND SIARA PREFERRED STOCK
DETERMINED UNDER SECTION 262 OR CHAPTER 13 COULD BE MORE THAN, THE SAME AS, OR
LESS THAN THE VALUE OF THE RIGHT TO RECEIVE SHARES OF REDBACK COMMON STOCK IN
THE MERGER. ALSO, REDBACK RESERVES THE RIGHT TO ASSERT IN ANY APPRAISAL
PROCEEDING THAT, FOR PURPOSES THEREOF, THE "FAIR VALUE" OF THE SIARA COMMON
STOCK AND SIARA PREFERRED STOCK IS LESS THAN THE VALUE OF THE SHARES OF REDBACK
COMMON STOCK TO BE ISSUED IN THE MERGER.
THE PROCESS OF DISSENTING AND EXERCISING APPRAISAL RIGHTS REQUIRES STRICT
COMPLIANCE WITH TECHNICAL PREREQUISITES. SIARA STOCKHOLDERS WISHING TO DISSENT
SHOULD CONSULT WITH THEIR OWN LEGAL COUNSEL IN CONNECTION WITH COMPLIANCE WITH
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW OR CHAPTER 13 OF THE
CALIFORNIA CORPORATIONS CODE.
ANY STOCKHOLDER WHO FAILS TO COMPLY WITH THE REQUIREMENTS OF SECTION 262 OF
THE DELAWARE GENERAL CORPORATION LAW, ATTACHED AS APPENDIX D TO THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE,
ATTACHED AS APPENDIX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS, WILL FORFEIT
HIS, HER OR ITS RIGHTS TO DISSENT FROM THE MERGER AND EXERCISE APPRAISAL RIGHTS
AND WILL RECEIVE SHARES OF REDBACK COMMON STOCK.
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THE MERGER
This section of this joint proxy statement/prospectus describes certain
aspects of the proposed merger, including the merger agreement. While we believe
that the description covers the material terms of the merger and the related
transactions, this summary may not contain all of the information that is
important to you. You should read this entire document, the merger agreement and
the other documents we refer to carefully for a more complete understanding of
the merger.
BACKGROUND OF THE MERGER
Redback's management team held an offsite meeting on October 21 and 22,
1999 to discuss Redback's strategy, including possible strategic partnerships
and business combinations with other companies.
On October 29, 1999, as a follow up to the corporate strategy meeting,
Gaurav Garg, Redback's Vice President of Business Development, was directed by
Redback's board of directors to look at partnerships in the areas of routing
protocols, SONET, add/drop multiplexers, and digital cross connects.
On October 29, 1999, Mr. Garg contacted Vinod Khosla, a member of Siara's
board, expressing an interest in discussing a partnership including the
possibility of a business combination with Siara. Based on this initial
discussion between Mr. Khosla and Mr. Garg, a meeting was scheduled between Mr.
Garg and Vivek Ragavan, Chief Executive Officer of Siara, to further discuss a
potential relationship between Redback and Siara.
On October 31, 1999, Mr. Garg and Mr. Ragavan met to discuss the potential
for a partnership or a business combination.
During the week of November 1, 1999, Mr. Garg met with Mr. Ragavan several
times to continue their discussions.
On November 8, 1999, several members of Redback's technical management team
met with Siara's technical management team. Mr. Garg and Mr. Ragavan attended
the meeting.
On November 9, 1999, the Redback board of directors held a special meeting
with the management of Redback. At this time, Mr. Garg made the initial
presentation of a possible business combination with Siara to the board. Based
upon this presentation, the board authorized the company's management to
initiate due diligence and to begin discussing the terms of a possible business
combination, including the consideration required to be paid to the Siara
stockholders. No discussions regarding the valuation of Siara occurred at this
meeting.
On November 10 and 11, 1999, various members of the Redback management team
met with various members of Siara's management team to begin due diligence,
including initial reviews of product technology and stages of product
development.
On November 11, 1999, Redback engaged Goldman, Sachs & Co. as its financial
advisor in connection with evaluating Siara as a potential business combination
target.
On November 12, 1999, the board of directors of Redback held a special
meeting with Redback's management team and its financial and legal advisors to
discuss the possible strategic fit of Siara as it related to a potential
business combination. After lengthy discussions, the board authorized the
Redback management team to continue with preliminary discussions with Siara.
On November 14, 1999, Dennis Barsema, Craig Gentner, Gaurav Garg, Vivek
Ragavan, Vinod Khosla and individuals from Goldman, Sachs & Co. met to discuss
the possibility of a combination between Redback and Siara.
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On November 15, 1999, several members of the Siara executive team presented
the company's market position to individuals from Redback and Goldman, Sachs &
Co.
On November 16, 1999, the Redback board of directors held a special meeting
at which the board reviewed with its financial and legal advisors certain
valuation and structural issues regarding the possible business combination
transaction as well as the related valuation and purchase terms. The board
authorized management and its financial advisors to make an offer to acquire
Siara.
On November 17, 1999, Siara's board of directors held a special meeting at
which the board reviewed with its legal advisors a proposed combination with
Redback. The board authorized Siara's management team to continue discussions
with Redback.
On November 17 through November 23, 1999, additional members of the Redback
management team, as well as members of their legal and financial advisors, met
with certain individuals from Siara to further investigate the possibility of a
business combination. Redback extended an initial bid to Siara.
On November 18, 1999, Siara declined the initial offer from Redback.
On November 19, 1999, the Redback board of directors held a special meeting
with its management team and legal advisors at which time Dennis Barsema,
Redback's Chief Executive Officer, discussed the status of the possible Siara
acquisition. The board of directors authorized management to continue with its
due diligence and purchase price negotiations. Redback extended a revised bid to
the management of Siara.
On November 20, 1999, Siara's board of directors held a meeting at which
the board approved the general structure of the proposed acquisition and
authorized Siara's management team to continue negotiating the pricing and other
material terms of the proposed transaction.
On November 21 and 22, 1999, meetings were held with members of the
engineering teams from both of Redback and Siara.
On November 22 through 24, 1999, negotiations continued between the Redback
management team and the Siara management team.
On November 26, 1999, the Redback board of directors held a special meeting
with its management team and its financial and legal advisors to further discuss
the possible business combination with Siara. After lengthy discussions, the
board authorized and directed the management team to negotiate the acquisition
for a purchase price of 38% of the post-merger company.
On November 27, 1999, Siara's board of directors held a meeting at which
the board approved the purchase price offered by Redback, equal to 38% of the
equity of the combined company, as calculated on the date of signing the
agreement, together with the other material terms and conditions of the merger
agreement and the transactions associated with it.
On November 27 and 28, 1999, additional due diligence meetings were held
including detailed technical reviews of products and technology, finances and
sales and marketing strategies.
On November 28, 1999, the parties executed the merger agreement and certain
stockholders of each company executed their respective voting agreements.
On November 29, 1999, the parties publicly announced the agreement to
merge.
REDBACK'S REASONS FOR THE MERGER
At a meeting held on November 26, 1999, the board of directors of Redback
concluded that the merger was in the best interests of Redback and its
stockholders and determined to recommend that the stockholders approve the
stockholder proposals relating to the merger.
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The following are material factors that led to the foregoing determination,
approval and recommendation by the Redback board:
- Networking equipment that allows voice and data traffic to enter a
service provider's network is generally referred to as access equipment.
The makers of products with limited processing power are under pressure
to change as a result of several networking trends including: increasing
network speeds, decreasing costs of marginal bandwidth and the pervasive
use of the Internet routing protocol. To meet the increasing demands of
the growing network traffic, companies are developing new equipment to
provide access equipment that combines Internet routing protocols, SONET,
dense silicon design and integrated network management.
- Successful competition in the emerging access market will require new
competencies. Equipment for the new access network must be able to fully
connect with legacy equipment and technologies, deliver new services,
automate provisioning and operations, and, for select parts of the
network, offer high-speed access. Redback management's view is that, in
order to compete successfully, companies must have expertise in a growing
number of technology specialties, ranging from traditional TDM, ATM and
SONET technologies to transport, routing and silicon expertise.
- The combined market potential for Redback and Siara network equipment and
services designed for the requirements of the new access market is
significantly larger than Redback's current addressable market without
Siara.
- Redback management believes that Siara represents the best partner for a
business combination. While each company is well-positioned by itself,
the combined company would be stronger than either one individually,
because of the two company's complementary strengths. In particular,
Redback has sales resources, with over 120 customers as well as
competencies in provisioning and operating new services, including
connecting high speed access subscribers; Siara has strong technical
resources including routing protocol, silicon and service and transport
technology efforts, as well as an experienced management and technical
team.
- The opportunities for increased revenue afforded by expanding the
potential channel reach of Siara's products to Redback's customer base,
development of shared technologies, development of new products and
services.
- The opinion of Goldman, Sachs & Co., delivered orally to the board of
directors of Redback on November 26, 1999 and subsequently confirmed in
writing dated November 28, 1999, that, as of that date and based upon and
subject to matters set forth in the opinion, the issuance of up to
31,341,986 shares of Redback common stock, par value $0.0001 per share,
for all of the issued and outstanding shares of Siara stock, pursuant to
the merger agreement is fair from a financial point of view to Redback.
In its evaluation of the merger, the Redback board reviewed several
factors, including, but not limited to, the following:
- historical information concerning Redback's and Siara's respective
businesses, financial performance and condition, operations, technology
and management;
- Redback management's view of the financial condition, results of
operations and businesses of Redback and Siara before and after giving
effect to the merger and the Redback board's determination of the
merger's effect on stockholder value;
- Siara's core technologies;
- current financial market conditions and historical market prices,
volatility and trading information;
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- the consideration Siara stockholders will receive in the merger in light
of comparable merger transactions;
- the impact of the merger on Redback's customers and employees; and
- reports from management, legal, financial and accounting advisors as to
the results of the due diligence investigation of Siara.
The Redback board also identified and considered a number of potentially
negative factors in its deliberations concerning the merger including the
following:
- the risk that the potential benefits of the merger may not be realized;
- the possibility that the merger may not be consummated, even if approved
by Redback's and Siara's stockholders;
- the effect of the public announcement of the merger on Redback's sales;
- the risk of management and employee disruption associated with the
merger, including the risk that despite the efforts of the combined
company, key technical, sales and management personnel might not remain
employed by the combined company;
- the expectation that the merger will be accounted for as a purchase for
financial reporting purposes, and the negative impact on Redback's
operating results arising from the amortization of a large portion of the
purchase price in future periods;
- the risk that the merger could adversely affect Redback's relationship
with certain of its customers and strategic partners; and
- other applicable risks described in this joint proxy statement/prospectus
under "Risk Factors."
The board concluded however, that, on balance, the potential benefits to
Redback and its stockholders of the merger outweighed the risks associated with
the merger.
The discussion of the information and factors considered by the Redback
board is not intended to be exhaustive. In view of the variety of factors
considered in connection with its evaluation of the merger, the Redback board
did not find it practicable to, and did not quantify or otherwise assign
relative weight to, the specific factors considered in reaching its
determination.
RECOMMENDATION OF REDBACK'S BOARD OF DIRECTORS
After carefully evaluating these factors, both positive and negative, the
board of directors of Redback has determined that the merger is in the best
interests of Redback and its stockholders.
The Redback board of directors unanimously recommends that you vote FOR the
approval of the merger agreement, the merger and the issuance of Redback common
stock pursuant to the merger agreement with Siara.
SIARA'S REASONS FOR THE MERGER
The decision of the Siara board to enter into the merger agreement and to
recommend that Siara stockholders approve the merger agreement, the merger and
the transactions associated with it was the result of the Siara board's careful
consideration of a range of strategic alternatives, including potential business
combinations with companies other than Redback, and the pursuit of a long-term
independent business strategy for Siara that might involve an initial public
offering of its stock.
During the course of its deliberations, the board of directors of Siara
considered, with the assistance of management and legal counsel, a number of
factors that the board of directors believes make the merger attractive to
Siara's stockholders and could contribute to the success of the combined
companies.
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The value of the shares of Redback common stock that the Siara stockholders
will receive in the merger, as calculated on the date the merger agreement was
signed represents a significant premium for Siara's stockholders.
To date, there has been no public market for the shares of Siara's capital
stock, and all outstanding shares are subject to restrictions on resale imposed
by federal and state securities laws. By contrast, Redback's common stock is
publicly traded on the Nasdaq Stock Market and the shares of Redback common
stock to be issued to Siara's stockholders in the merger will be tradeable on
Nasdaq, subject to some limitations imposed by law and by the market standoff of
up to 180 days contained in the merger agreement. The merger may allow Siara's
stockholders to achieve liquidity of their investment sooner than they might
otherwise have been able.
The board of directors of Siara believes that the merger will offer the
stockholders of the combined company the potential benefits described above
under the heading "Redback's Reasons for the Merger." In addition, the merger
would result in a combined company with greater financial, technological and
human resources to develop new products and greater sales and marketing
resources to help promote and sell Siara's products.
Following the merger, Siara will have access to the customer base of
Redback and may benefit from increased distribution of Siara's products.
Following the merger, Siara can benefit from the broad expertise of the
Redback management team and the significant marketing resources of Redback.
In addition, Siara's board of directors considered a number of potentially
negative factors relating to the merger, including the following:
- the fixed number of shares of Redback common stock issuable in the merger
to Siara's stockholders, option holders and warrant holders;
- the risk that expected benefits of the merger may not be realized;
- the provisions of the merger agreement imposing a 180-day market standoff
on shares of Redback acquired in the merger;
- the risk that Siara may find it more difficult to attract and hire
skilled employees;
- the risk that management's attention may be diverted from Siara's
business operations; and
- the other risks described in this joint proxy statement/prospectus under
"Risk Factors."
This discussion of factors considered by the Siara board of directors is
not intended to be exhaustive, but is intended to include the material factors
considered. The Siara board of directors did not find it practical to and did
not quantify or otherwise assign relative weight to the specific factors
considered and individual directors may have given different weight to different
factors.
In considering the recommendation of the Siara board of directors with
respect to the approval of the merger agreement, Siara stockholders should be
aware that a group of directors and officers of Siara have certain interests in
the merger that are different from, or are in addition to the interests of Siara
stockholders generally. Please see the section entitled "Interests of Siara
Affiliates in the Merger" on page 59.
RECOMMENDATION OF SIARA'S BOARD OF DIRECTORS
After carefully evaluating these factors, both positive and negative, the
board of directors of Siara has determined that the merger is in the best
interests of Siara and its stockholders.
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The Siara board of directors unanimously recommends that you vote FOR the
approval of the merger agreement, the merger and the transactions associated
with it.
In considering the recommendation of the Siara board of directors with
respect to the merger, you should be aware that some directors of Siara have
interests in the merger that are different from, or are in addition to the
interests of Siara stockholders generally. Please see the section entitled
"Interests of Siara Affiliates in the Merger" on page 59.
OPINION OF REDBACK'S FINANCIAL ADVISOR
On November 26, 1999, Goldman Sachs delivered its oral opinion,
subsequently confirmed in writing dated November 28, 1999, to Redback's board of
directors that, as of such date, the issuance of up to 31,341,986 shares of
Redback common stock, par value $0.0001 per share, for all of the issued and
outstanding shares of Siara stock was fair from a financial point of view to
Redback.
The full text of the written opinion of Goldman Sachs, dated November 28,
1999, which sets forth, among other things, assumptions made, matters considered
and limitations on the review undertaken in connection with the opinion, is
attached hereto as Appendix C and is incorporated herein by reference. HOLDERS
OF REDBACK COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. GOLDMAN SACHS' OPINION IS DIRECTED TO REDBACK'S BOARD OF DIRECTORS AND
ADDRESSES ONLY THE FAIRNESS OF THE MERGER CONSIDERATION PURSUANT TO THE MERGER
AGREEMENT FROM A FINANCIAL POINT OF VIEW TO REDBACK AS OF THE DATE OF THE
OPINION, AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY HOLDER OF REDBACK
COMMON STOCK AS TO HOW TO VOTE AT THE SPECIAL MEETING.
In connection with rendering the opinion, Goldman Sachs reviewed, among
other things:
- the merger agreement;
- the Registration Statement on Form S-1, including the related prospectus,
dated May 17, 1999, relating to the initial public offering of the
Redback common stock, par value $0.0001 per share;
- the report to stockholders on Form 8-K of Redback dated August 10, 1999;
- certain interim reports to stockholders and quarterly reports on Form
10-Q of Redback;
- certain other communications from Redback and Siara to their respective
stockholders;
- certain audited financial and other information for Siara; and
- certain internal financial analyses and forecasts for Redback and Siara
prepared by their respective managements (the Redback projections being
referred to as the "Growth Case"), certain financial analyses and
forecasts for Siara prepared by the management of Redback, and certain
forecasts for the combined entity prepared on a pro forma basis by the
management of Redback, including certain potential revenue synergies
detailed below projected by the management of Redback to result from the
transaction contemplated by the merger agreement. Goldman Sachs also used
certain projections contained in the MSDW research report dated October
28, 1999 regarding Redback (the research projections being referred to as
the "Street Case").
Goldman Sachs also held discussions with members of the senior managements
of Redback and Siara regarding their assessment of the strategic rationale for,
and the potential benefits of, the transaction contemplated by the merger
agreement and the past and current business operations, financial condition and
future prospects of their respective companies. In addition, Goldman Sachs:
- reviewed the reported price and trading activity for the Redback common
stock, regarding which Goldman Sachs noted that like many Internet
related stocks has been and is likely to continue to be subject to
significant short term price and trading volatility;
- compared certain stock market information for Redback;
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- reviewed certain financial information for Redback and Siara with similar
information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the Internet infrastructure and communications technology
industries specifically and in other industries generally; and
- performed such other studies and analyses Goldman Sachs considered
appropriate.
Goldman Sachs relied upon the accuracy and completeness of all of the
financial and other information reviewed by it and Goldman Sachs assumed such
accuracy and completeness for purposes of rendering its opinion. In addition,
Goldman Sachs did not make an independent evaluation or appraisal of the assets
and liabilities of Redback or Siara or any of their subsidiaries and was not
furnished with any such evaluation or appraisal. Accordingly, Goldman Sachs
assumed, with the consent of the Redback board of directors, that the forecasts
and synergies prepared by the managements of Redback and Siara were reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of Redback, and that these forecasts and synergies
would be realized in the amounts and time periods contemplated thereby. Goldman
Sachs' opinion is directed to Redback's board of directors and addresses only
the fairness of the merger consideration pursuant to the merger agreement from a
financial point of view to Redback as of the date of the opinion, and does not
constitute a recommendation to any holder of Redback common stock as to how to
vote at the special meeting.
The following is a summary of the material financial analyses used by
Goldman Sachs in connection with providing its opinion to Redback's board of
directors on November 26, 1999.
THE FOLLOWING SUMMARIES OF FINANCIAL ANALYSES INCLUDE INFORMATION PRESENTED
IN TABULAR FORMAT. YOU SHOULD READ THESE TABLES TOGETHER WITH THE TEXT OF EACH
SUMMARY.
1. SELECTED COMPANIES ANALYSIS
Goldman Sachs reviewed and compared certain financial information and
public market revenue multiples for Juniper Networks, Inc. and Sycamore
Networks, Inc.
While Goldman Sachs believed that no publicly traded companies are directly
comparable to Siara, the selected companies were chosen because as internet
infrastructure leaders, they were the most similar to Siara.
Goldman Sachs made the following observations regarding the multiple of
market value to estimated 1999 and estimated 2000 revenue for each of the
selected companies using information obtained from the selected companies' most
recent SEC filings, publicly available research reports, the Institutional
Brokers Estimate System estimates and closing share prices on November 22, 1999:
<TABLE>
<CAPTION>
REVENUE AS A
MULTIPLE OF MARKET VALUE
--------------------------------
COMPANY 1999 ESTIMATED 2000 ESTIMATED
------- -------------- --------------
<S> <C> <C>
Juniper Networks................................... 185.2x 87.3x
Sycamore Networks.................................. 494.9x 183.8x
</TABLE>
By using these multiples and Redback management's projections for Siara,
and based on the assumption that current market multiples and market conditions
as evidenced by the selected companies would continue through the periods
examined, Goldman Sachs computed the following indicated equity
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valuation ranges for Siara based on estimated 2001 revenue and applying various
discount rates between 20% and 50%:
<TABLE>
<CAPTION>
SIARA PROJECTIONS
SIARA PROJECTIONS (DISCOUNTED 30%)
----------------- -----------------
(AMOUNTS IN BILLIONS)
<S> <C> <C>
Indicated Equity Valuation of Siara............. $6.7 - $10.8 $4.7 - $10.8
</TABLE>
2. SELECTED TRANSACTIONS ANALYSIS
Goldman Sachs reviewed certain publicly available financial information
relating to sixteen announced merger and acquisition transactions over $2
billion involving companies in the communications equipment industry since 1996.
Goldman Sachs noted that the reasons for, and circumstances surrounding, each of
the selected transactions analyzed was unique, and the characteristics of the
companies and the transactions involved were not directly comparable to either
Redback or Siara or the merger.
Goldman Sachs' analyses of the selected transactions calculated the
following:
- the ratio of the acquiror's latest twelve months market value as a
multiple of revenue to the purchase price paid as a multiple of latest
twelve months revenue for the acquired companies; and
- the ratio of Redback's market value as a multiple of estimated 2002
revenue (assumed at 19.1x for the Street Case and 11.7x for the Growth
Case) to the acquisition price for Siara as a multiple of estimated 2002
revenue.
The results of these analyses were as follows:
<TABLE>
<S> <C>
Selected transactions -- acquiror's latest twelve month
revenue multiple/target revenue multiple paid (mean)...... 0.4
Redback 2002 estimated revenue multiple (Street Case)/Siara
estimated 2002 revenue multiple............................. 0.5
Redback 2002 estimated revenue multiple (Growth Case)/Siara
estimated 2002 revenue multiple........................... 0.3
</TABLE>
3. CONTRIBUTION ANALYSIS
Goldman Sachs compared Siara and Redback stockholders' respective
percentage ownership of the combined company following the merger to the
respective percentage contribution by Siara and Redback to the combined company
using estimates of revenues, gross margin and net income from the Growth Case
and the Street Case for the years 1999 through 2002 and crediting Siara for
estimates of synergies which might be realized by the combined company. The
synergy estimates, which were provided by Redback's management, anticipated
revenue synergies of $39 and $60 million in 2000 and 2001, respectively, and
anticipated net income synergies of $6 million and $10 million in 2000 and 2001,
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respectively, there being no assurance that the synergies will be realized. The
following table presents the contribution of Siara to the combined company for
the periods shown:
<TABLE>
<CAPTION>
PERCENTAGE
CONTRIBUTION PERCENTAGE
(WITHOUT CONTRIBUTION
SYNERGIES) (WITH SYNERGIES)
---------------- ----------------
STREET CASE SIARA REDBACK SIARA REDBACK
----------- ----- ------- ----- -------
<S> <C> <C> <C> <C>
Revenues
1999 Estimated....................................... 0% 100% 0% 100%
2000 Estimated..................................... 10% 90% 10% 90%
2001 Estimated..................................... 31% 69% 38% 62%
2002 Estimated..................................... 47% 53% 51% 49%
Gross Margin
1999 Estimated..................................... 0% 100% 0% 100%
2000 Estimated..................................... 5% 95% 5% 95%
2001 Estimated..................................... 31% 69% 38% 62%
2002 Estimated..................................... 46% 54% 50% 50%
Net Income
1999 Estimated..................................... -- -- -- --
2000 Estimated..................................... -- -- -- --
2001 Estimated..................................... 7% 93% 23% 77%
2002 Estimated..................................... 53% 47% 58% 42%
% ownership of combined company following the
merger............................................. 38% 62% 38% 62%
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE
CONTRIBUTION PERCENTAGE
(WITHOUT CONTRIBUTION
SYNERGIES) (WITH SYNERGIES)
---------------- ----------------
GROWTH CASE SIARA REDBACK SIARA REDBACK
----------- ----- ------- ----- -------
<S> <C> <C> <C> <C>
Revenues
1999 Estimated....................................... 0% 100% 0% 100%
2000 Estimated..................................... 8% 92% 8% 92%
2001 Estimated..................................... 26% 74% 32% 68%
2002 Estimated..................................... 35% 65% 39% 61%
Gross Margin
1999 Estimated..................................... 0% 100% 0% 100%
2000 Estimated..................................... 4% 96% 4% 96%
2001 Estimated..................................... 24% 76% 30% 70%
2002 Estimated..................................... 34% 66% 38% 62%
Net Income 1999
Estimated.......................................... -- -- -- --
2000 Estimated..................................... -- -- -- --
2001 Estimated..................................... 4% 96% 17% 83%
2002 Estimated..................................... 31% 69% 37% 63%
% ownership of combined company following the
merger............................................. 38% 62% 38% 62%
</TABLE>
4. RELATIVE DISCOUNTED CASH FLOW ANALYSIS
Goldman Sachs performed a relative discounted cash flow analysis for
Redback and Siara based on the Street Case and the Growth Case, in each case
both with and without giving effect to the synergies, and using Redback
management's projections of (i) 50% revenue growth for Redback from 2003 through
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<PAGE> 69
2006, (ii) 75% revenue growth for Siara from 2003 through 2006 and (iii)
estimated net margins of 17.5% for 2006.
Goldman Sachs then computed implied market values for Redback and Siara
based on price to earnings multiples of 50x-70x for 2005 estimated earnings.
Goldman Sachs then calculated the relative pro forma ownership of Redback of the
combined company based on the discounted implied market value and using a price
to earnings multiple of 60x.
<TABLE>
<CAPTION>
WITH SYNERGIES WITHOUT SYNERGIES
------------------------- -------------------------
GROWTH CASE STREET CASE GROWTH CASE STREET CASE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Estimated share of Redback of combined
company.................................. 35%-58% 25%-46% 39%-62% 28%-50%
% ownership of combined company following
the merger................................. 62% 62% 62% 62%
</TABLE>
5. PRO FORMA MERGER ANALYSIS
Goldman Sachs performed a pro forma analysis of the impact on revenue per
share and operational earnings per share for the combined company based on the
Growth Case and the Street Case and the projections for Siara provided by
Redback's management, both with and without giving effect to the synergies
expected to result from the merger, and using a purchase price of 31,971,165
shares of Redback common stock at the November 22, 1999 closing price of
$142.00.
The following table presents the contribution of Siara to the combined
company for the periods shown:
<TABLE>
<CAPTION>
WITHOUT SYNERGIES WITH SYNERGIES
------------------------- -------------------------
STREET CASE GROWTH CASE STREET CASE GROWTH CASE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Pro Forma Revenue Per Share
Accretion/(Dilution)
2000 (Estimated)......................... (32%) (33%) (32%) (33%)
2001 (Estimated)......................... (10%) (17%) (1%) (10%)
2002 (Estimated)......................... 16% (5%) 26% 1%
Pro Forma Operational Earnings Per Share
Accretion/(Dilution)
2000 (Estimated)......................... (541%) (174%) (541%) (174%)
2001 (Estimated)......................... (18%) (28%) (2%) (19%)
2002 (Estimated)......................... 74% 9% 93% 16%
</TABLE>
6. GROWTH RATE ANALYSIS
Goldman Sachs analyzed on a pro forma basis the effect of the merger on the
revenue growth rate for Redback under the Growth Case and determined that the
merger would increase Redback's revenue growth rate as follows:
<TABLE>
<CAPTION>
INCREASE IN REVENUE GROWTH RATE
-----------------------------------------
REDBACK STAND-ALONE
REVENUE (GROWTH CASE) PRO FORMA COMBINED
------- ------------------- ------------------
<S> <C> <C>
2000 (Estimated)......................... 153% 174%
2001 (Estimated)......................... 103% 153%
2002 (Estimated)......................... 89% 115%
</TABLE>
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OTHER CONSIDERATIONS
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Selecting
portions of the analyses or of the summary set forth above, without considering
the analyses as a whole, may create an incomplete view of the processes
underlying Goldman Sachs' opinion. In arriving at its fairness determination,
Goldman Sachs considered the results of all such analyses. No company or
transaction used in the above analyses as a comparison is directly comparable to
Redback or Siara or the merger.
The analyses were prepared solely for purposes of Goldman Sachs providing
its opinion to Redback's board of directors as to the fairness from a financial
point of view of the merger consideration and do not purport to be appraisals or
necessarily reflect the prices at which the business or securities actually may
be sold. Analyses based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly more or less
favorable than suggested by such analyses. Because such analyses are inherently
subject to uncertainty, being based upon numerous factors or events beyond the
control of the parties or their respective advisors, none of Redback, Siara,
Goldman Sachs or any other person assumes responsibility if future results are
materially different from those forecast. As described above, Goldman Sachs'
opinion to Redback's board of directors was one of many factors taken into
consideration by Redback's board of directors in making its determination to
approve and adopt the merger agreement. The foregoing summary describes material
financial analyses used by Goldman Sachs in connection with providing its
opinion to Redback's board of directors on November 26, 1999, but does not
purport to be a complete description of the analysis performed by Goldman Sachs
in connection with such opinion and is qualified by reference to the written
opinion of Goldman Sachs set forth in Appendix C hereto.
Goldman Sachs, as part of its investment banking business, is continually
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
and valuations for estate, corporate and other purposes. Redback selected
Goldman Sachs as its financial advisor because it is a nationally recognized
investment banking firm that has substantial experience in transactions similar
to the merger.
Goldman Sachs provides a full range of financial advisory and securities
services and, in the course of its normal trading activities, may from time to
time effect transactions in and hold securities, including derivative
securities, of Redback for its own account and for the accounts of customers.
Pursuant to a letter agreement dated November 12, 1999, Redback engaged
Goldman Sachs to act as its financial advisor in connection with a potential
transaction involving Siara. Pursuant to the terms of this engagement letter,
Goldman Sachs will receive a customary fee, a substantial portion of which is
contingent on the closing of the merger. Redback has also agreed to reimburse
Goldman Sachs for its reasonable out-of-pocket expenses, including attorney's
fees and disbursements plus any sales, use or similar taxes, and to indemnify
Goldman Sachs against certain liabilities, including certain liabilities under
the federal securities laws.
INTERESTS OF SIARA AFFILIATES IN THE MERGER
When considering the recommendations of Siara's board of directors, you
should be aware that some of the directors and officers of Siara have interests
in the merger and have arrangements that are different from, or are in addition
to, those of Siara stockholders generally. Some of these interests are discussed
below.
Vinod Khosla, a member of Siara's board of directors and a general partner
of the largest stockholder of Siara, will become a member of Redback's board of
directors upon completion of the merger. Promod Haque, also a member of Siara's
board of directors, will become a member of Redback's
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<PAGE> 71
board of directors upon completion of the merger. Both of these individuals will
be granted an option to purchase 50,000 shares of Redback common stock.
Vivek Ragavan, the Chief Executive Officer of Siara, will become the
President and Chief Operating Officer of Redback and a member of Redback's board
of directors upon completion of the merger.
Vivek Ragavan, William Kind and Pankaj Patel, all of whom are current
executive officers of Siara, have entered into employment agreements with
Redback which provide for their continued employment with Redback, effective
upon consummation of the merger and other benefits, including accelerated
vesting of stock and/or options under specific circumstances on or after the
merger. For a more complete description of the employment agreements entered
into by these Siara employees in connection with the merger, see the section
entitled "Related Agreements -- Employment Agreements" on page 74.
Siara has entered into a loan agreement, dated March 30, 1999, with ADC
Telecommunications, Inc., pursuant to which Siara has borrowed $5,500,000
against a total credit line of $9,500,000. ADC is a stockholder of Siara and
William J. Cadogan, an officer and director of ADC, sits on the board of
directors of Siara. The merger may make repayment of this loan to ADC more
likely.
The holders of Siara preferred stock, including investors represented by
directors of Siara, as well as holders of Siara warrants, will receive
registration rights from Redback which may allow these security holders to sell
their shares of Redback common stock before the other Siara stockholders are
able to.
As a result of the interests above, these officers and directors could be
more likely to vote to approve the merger agreement and the merger than they
would be if they did not hold these interests.
STRUCTURE OF THE MERGER AND CONVERSION OF SIARA COMMON STOCK
Siara will be merged with and into Redback. Following the merger, Siara
will not be a separate entity. The stockholders of Siara will become
stockholders of Redback, and their rights as stockholders will be governed by
Redback's certificate of incorporation, Redback's bylaws and the laws of the
State of Delaware.
Upon completion of the merger, each outstanding share of Siara common stock
and Siara preferred stock will be converted into the right to receive a number
of shares of fully paid and nonassessable Redback common stock equal to the
exchange ratio. The exchange ratio is the quotient obtained by dividing (a)
31,341,986 shares of Redback common stock by (b) the sum of (i) the total number
of shares of Siara common stock and Siara preferred stock that are outstanding
immediately before the time that the merger becomes effective plus (ii) the
total number of shares of Siara common stock and/or preferred stock that are
issuable upon the exercise of all Siara stock options and Siara stock warrants
that are outstanding immediately before the merger becomes effective. Based on
the number of shares of Siara common stock or Siara preferred stock and the
number of Siara options and warrants that were outstanding as of the date of
this joint proxy statement/prospectus if the merger had occurred on that date,
the exchange ratio would have been approximately 1.193. To the extent that the
number of shares of Siara stock, Siara options or Siara warrants increases
between the date of this joint proxy statement/ prospectus and the effective
date of the merger, the exchange ratio will be proportionately decreased.
However, the total number of shares of Redback common stock to be issued in the
merger and issuable upon exercise of Redback options and warrants issued in the
merger will not change and will not exceed 31,341,986 shares of Redback common
stock, except that the number of shares of Redback common stock issuable in the
merger will be proportionately adjusted to reflect any stock split, stock
dividend or similar event with respect to Siara capital stock or Redback common
stock effected between the date of the merger agreement and the completion of
the merger. Redback will not issue any fractional common shares in the merger.
Siara stockholders will instead receive cash for any Redback fractional common
shares owed to them.
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In addition, when the merger becomes effective, each option to purchase
Siara common stock and each warrant to purchase Siara common stock or preferred
stock will be converted at the exchange ratio into an option to purchase Redback
common stock or a warrant to purchase Redback common stock, respectively, as
described in greater detail under "Treatment of Siara Stock Options and
Warrants" on page 69.
EXCHANGE OF SIARA STOCK CERTIFICATES FOR REDBACK STOCK CERTIFICATES
When the merger is completed, Redback's exchange agent will mail to Siara
stockholders a letter of transmittal and instructions for use in surrendering
Siara stock certificates in exchange for Redback stock certificates. When you
deliver your Siara stock certificates to the exchange agent along with an
executed letter of transmittal and any other required documents, your Siara
stock certificates will be canceled and you will receive Redback stock
certificates representing the number of whole shares of Redback common stock to
which you are entitled under the merger agreement, less 5% of the shares, which
will be held in escrow as described in "The Merger Agreement -- Escrow and
Indemnification" on page 66. Siara stockholders will receive payment in cash,
without interest, in lieu of any fractional shares of Redback common stock which
would have been otherwise issuable to you in the merger.
YOU SHOULD NOT SUBMIT YOUR SIARA STOCK CERTIFICATES FOR EXCHANGE UNLESS AND
UNTIL YOU RECEIVE THE TRANSMITTAL INSTRUCTIONS AND A FORM OF LETTER OF
TRANSMITTAL FROM THE EXCHANGE AGENT.
Siara stockholders are not entitled to receive any dividends or other
distributions on Redback common stock until the merger is completed and they
have surrendered their Siara stock certificates in exchange for Redback stock
certificates in accordance with the instructions in the letter of transmittal.
Subject to the effect of applicable laws, promptly following the surrender
of Siara stock certificates and the issuance of the corresponding Redback
certificates, Siara stockholders will be paid the amount of dividends or other
distributions, without interest, with a record date after the completion of the
merger which were previously paid with respect to their whole shares of Redback
common stock, if any. At the appropriate payment date, Siara stockholders will
also receive the amount of dividends or other distributions, without interest,
with a record date after the completion of the merger and a payment date after
they exchange their Siara stock certificates for Redback stock certificates.
Redback will only issue Siara stockholders a Redback stock certificate or a
check in lieu of a fractional share in the name in which the surrendered Siara
stock certificate is registered. If you wish to have your certificate issued in
another name you must present the exchange agent with all documents required to
show and effect the unrecorded transfer of ownership and show that you paid any
applicable stock transfer taxes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion is based on currently existing provisions of the
Internal Revenue Code of 1986, as amended, referred to herein as the IRS code,
existing treasury regulations and current administrative rulings and court
decisions, all of which are subject to change. Any such change, which may or may
not be retroactive, could alter the tax consequences to Redback, Siara or you
and the other Siara stockholders.
You should be aware that this discussion does not deal with all federal
income tax considerations that may be relevant to particular Siara stockholders
that are subject to special rules or that may be important in light of such
stockholders' individual circumstances, such as stockholders who:
- are dealers in securities;
- are subject to the alternative minimum tax provisions of the IRS code;
- are foreign persons or entities;
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<PAGE> 73
- are financial institutions or insurance companies;
- do not hold their Siara shares as capital assets;
- acquired their shares in connection with any stock option or stock
purchase plans or in other compensatory transactions;
- hold Siara common stock as part of an integrated investment, including a
"straddle" or "conversion" transaction, comprised of shares of Siara
common stock and one or more other positions; or
- may hold Siara common stock subject to the constructive sale or
constructive ownership provisions of Sections 1259 or 1260 of the IRS
code.
In addition, the following discussion does not address:
- tax consequences of the merger under foreign, state or local tax laws;
- tax consequences of transactions effectuated before, after or
concurrently with the merger (whether or not any such transactions are
undertaken in connection with the merger) including any transaction in
which Siara shares are acquired or Redback shares are disposed of,
including the possible return to Redback of shares held in escrow; or
- tax consequences to holders of options, warrants or similar rights to
acquire Siara common stock, including the assumption by Redback of
outstanding options and warrants to acquire Siara common stock.
ACCORDINGLY, YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING THE APPLICABLE FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO YOU.
Redback and Siara will receive tax opinions from their respective counsel,
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP and Fenwick & West
LLP, to the effect that the merger will be treated as a "reorganization" within
the meaning of the IRS code. As explained more fully below, these opinions will
be subject to certain assumptions, limitations and qualifications.
The following material federal income tax consequences will result from the
merger constituting a reorganization within the meaning of the IRS code:
- you should not recognize any gain or loss solely upon your receipt in the
merger of Redback common stock in exchange for your Siara common stock or
preferred stock, except to the extent of cash received in lieu of
fractional shares of Redback common stock;
- the aggregate tax basis of the Redback common stock you receive in the
merger, including any fractional shares of Redback common stock not
actually received and any shares delivered directly into escrow, should
be the same as the aggregate tax basis of your surrendered Siara common
stock;
- the holding period of the Redback common stock you receive in the merger
should include the period for which the surrendered Siara common stock
was considered to be held, provided that the Siara common stock so
surrendered is held as a capital asset at the time of the merger; and
- cash payments you receive in lieu of fractional shares of Redback common
stock should be treated as if fractional shares of Redback common stock
had been issued in the merger and then redeemed by Redback. If you
receive cash for fractional shares, you should recognize gain or loss
with respect to such payment measured by the difference, if any, between
the amount of cash received and your basis in the fractional share.
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Although Redback and Siara will receive tax opinions that the merger will
constitute a reorganization, a recipient of shares of Redback common stock could
recognize income or gain to the extent that those shares were considered to be
received in exchange for services or property other than solely Siara common
stock. All or a portion of such income or gain may be taxable as ordinary
income. You could also have to recognize gain to the extent you were treated as
receiving, directly or indirectly, consideration other than Redback common stock
in exchange for your Siara common stock.
Redback and Siara will not request a ruling from the Internal Revenue
Service in connection with the merger. You should be aware that the tax opinions
do not bind the IRS. The IRS is therefore not precluded from successfully
asserting a contrary opinion. In addition, the tax opinions are subject to
certain assumptions, limitations and qualifications, including without
limitation the assumptions that:
- original documents (including signatures) are authentic, documents
submitted to counsel as copies conform to the original documents, and
there has been (or will be by the effective time of the merger) due
execution and delivery of all documents where due execution and delivery
are prerequisites to the effectiveness of such documents;
- all statements, covenants, representations and warranties in the merger
agreement, in the representations received from Redback and Siara to
support the opinions, and in other documents related to Redback and Siara
and relied upon by counsel to support the opinions are, in each case,
true and accurate. Any such representation or statement made "to the
knowledge of" or otherwise similarly qualified is correct without such
qualification and all such statements and representations, whether or not
qualified, will remain true through the effective time of the merger. In
addition, as to all matters in which a person or entity making such 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,
intention, understanding or agreement and such action will not be taken;
- the merger will be consummated pursuant to the merger agreement and will
be effective under the laws of the state of Delaware;
- no Siara stockholder has guaranteed or will guarantee any Siara
indebtedness outstanding during the period immediately prior to the
merger, and at all relevant times, including as of the effective time of
the merger, (i) no outstanding indebtedness of Siara or Redback has or
will represent equity for tax purposes, (ii) no outstanding equity of
Redback or Siara has or will represent indebtedness for tax purposes, and
(iii) no outstanding security, instrument, agreement or arrangement that
provides for, contains, or represents either a right to acquire Siara
stock or to share in the appreciation thereof constitutes or will
constitute "stock" for purposes of Section 368(c) of the IRS code;
- Redback and Siara will report the merger on their respective U.S. federal
income tax returns in a manner consistent with the qualification of the
merger as a reorganization; and
- the truth and accuracy of certain representations made by Redback and
Siara in certain certificates to be delivered to counsel by the
respective management of Redback and Siara.
Moreover, while the tax opinions referenced above express the opinions of
the respective counsel to Redback and Siara that the merger will be treated as a
"reorganization" within the meaning of the IRS code, there are, however, no
court decisions or other authorities directly bearing on some of the criteria
that must be met in order for the merger to qualify as a "reorganization."
Accordingly, no assurance can be given that the views expressed in such tax
opinions, if contested, would be sustained by a court.
A successful IRS challenge to the reorganization status of the merger as a
result of a failure to meet any of the requirements of a reorganization would
result in you recognizing taxable gain or loss with respect to each share of
Siara common stock surrendered equal to the difference between your basis in
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such share and the fair market value, as of the date the merger is completed, of
the Redback common stock received in exchange therefor. In such event, a
stockholder's aggregate basis in the Redback common stock so received would
equal its fair market value as of the date the merger is completed and the
stockholder's holding period for such stock would begin the day after the
merger. In addition, in the event the merger fails to meet any of the
requirements of a reorganization, Siara would be treated as disposing of all of
its assets in a fully-taxable transaction and Redback, as the surviving company,
would be responsible for any resulting tax liability.
THIS DISCUSSION IS ONLY INTENDED TO PROVIDE YOU WITH A GENERAL SUMMARY OF
MATERIAL U.S. FEDERAL INCOME TAX ASPECTS OF THE MERGER, AND IT IS NOT INTENDED
TO BE A COMPLETE ANALYSIS OR DESCRIPTION OF ALL POTENTIAL UNITED STATES FEDERAL
INCOME TAX CONSEQUENCES OR ANY OTHER CONSEQUENCES OF THE MERGER. IN ADDITION,
THIS DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES WHICH MAY VARY WITH, OR ARE
CONTINGENT ON, YOUR INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT
ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF
THE MERGER. ACCORDINGLY, YOU ARE STRONGLY URGED TO CONSULT WITH YOUR TAX ADVISOR
TO DETERMINE THE PARTICULAR UNITED STATES FEDERAL, STATE, LOCAL OR FOREIGN
INCOME OR OTHER TAX CONSEQUENCES TO YOU OF THE MERGER.
ACCOUNTING TREATMENT OF THE MERGER
We intend to account for the merger as a purchase for financial reporting
and accounting purposes, under generally accepted accounting principles. After
the completion of the merger, the results of operations of Siara will be
included in the consolidated financial statements of Redback. The purchase price
will be allocated to Siara's assets and liabilities based on the fair values of
the assets acquired and the liabilities assumed. Any excess of cost over the
fair value of the net tangible assets of Siara acquired will be recorded as
goodwill and other intangible assets and will be amortized by charges to
operations under generally accepted accounting principles. These allocations
will be made based upon valuations and other studies that have not yet been
finalized. We anticipate this amount of goodwill and other intangible assets to
be significant and it will therefore have a significant negative impact on our
operating results.
REGULATORY FILINGS AND APPROVALS REQUIRED TO COMPLETE THE MERGER
Consummation of the merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act, which prevents certain
transactions from being completed until required information and materials are
furnished to the Antitrust Division of the Department of Justice and the Federal
Trade Commission and the appropriate waiting periods are terminated or expire.
Although no filings are necessary to report the Redback/Siara merger due to the
size of Siara and Redback, filings are required to report the acquisition by a
few large Siara investors of Redback voting securities in exchange for their
Siara voting securities. We filed the required information and materials with
the Department of Justice and the Federal Trade Commission on January 24, 2000.
The requirements of Hart-Scott-Rodino will be satisfied if the merger is
completed within one year from the termination of the waiting period.
The Antitrust Division of the Department of Justice or the Federal Trade
Commission may challenge the merger on antitrust grounds either before or after
expiration of the waiting period. Accordingly, at any time before or after the
completion of the merger, either the Antitrust Division of the Department of
Justice or the Federal Trade Commission could take action under the antitrust
laws. Certain other persons could take action under the antitrust laws,
including seeking to enjoin the merger. Additionally, at any time before or
after the completion of the merger, any state could take action under the
antitrust laws. A challenge to the merger could be made and if a challenge is
made we may not prevail. It is a condition to completion of the merger that no
injunction or order preventing the merger will be in effect. The existence of
any antitrust challenge to the merger could result in termination of the merger.
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Neither Redback nor Siara is aware of any other material governmental or
regulatory approval required for completion of the merger, other than the
effectiveness of the registration statement of which this joint proxy
statement/prospectus is a part, and compliance with applicable corporate law of
Delaware.
RESTRICTIONS ON SALES OF REDBACK SHARES TO BE ISSUED TO SIARA STOCKHOLDERS
The shares of Redback common stock to be issued in the merger will be
registered under the Securities Act. These shares will be freely transferable
under the Securities Act, except as follows:
- during the period beginning on the date of the merger and ending on the
earlier of 180 days after the merger becomes effective or 90 days after
the date on which a registration statement, other than a registration
statement filed on Form S-4, filed by Redback is declared effective by
the SEC, Siara stockholders, option holders and warrant holders may not
directly or indirectly sell, offer to sell, contract to sell, including
without any limitation, any short sale, grant any option to purchase or
otherwise transfer or dispose of, other than to donees who agree to be
similarly bound, any Redback common stock, or options or warrants to
purchase Redback common stock, issued in the merger; and
- affiliates of Siara who receive Redback common stock or options or
warrants to purchase Redback common stock may not sell their shares
except subject to an effective registration statement filed with the SEC
or subject to an exemption under the Securities Act.
Five percent of the shares of Redback common stock otherwise issuable to
Siara stockholders will be held in escrow for 180 days after the date of the
merger to satisfy indemnification claims by Redback. Shares held in escrow may
not be sold or transferred by Siara stockholders. For further discussion of the
escrow, please see "The Merger Agreement -- Escrow and Indemnification" on Page
66.
LISTING ON THE NASDAQ NATIONAL MARKET OF REDBACK COMMON STOCK TO BE ISSUED IN
THE MERGER
It is a condition to the closing of the merger that the shares of Redback
common stock to be issued in the merger be approved for listing on the Nasdaq
National Market, subject to official notice of issuance.
THE MERGER AGREEMENT
This section of describes the merger agreement. While we believe that the
description covers the material terms of the merger agreement, this summary may
not contain all of the information that is important to you. The merger
agreement is attached to this joint proxy statement/prospectus as Appendix A,
and is incorporated by reference in its entirety, and we urge you to read it
carefully.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary mutual representations and
warranties of Redback and Siara to each other, relating to, among other things:
- each party's corporate organization and qualification to do business;
- each party's authorization to enter into the merger agreement;
- each party's capitalization;
- each party's subsidiaries;
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- the effect of the merger on obligations of each party, on each party's
charter documents and under applicable laws;
- books and records of each party;
- each party's financial statements;
- changes in each party's business since September 30, 1999;
- liabilities of each party;
- taxes and tax obligations of each party;
- litigation with respect to each party;
- each party's compliance with applicable laws;
- each party's employee benefit plans;
- title to the properties each party owns and leases;
- the status of each party's intellectual property;
- each party's material contracts;
- regulatory approvals required by each party to complete the merger;
- each party's insurance;
- transactions with each party's affiliates;
- employee and labor relations for each party;
- compliance by each party with environmental laws;
- other negotiations and fees for financial advisors;
- treatment of the merger as a tax-free reorganization;
- approvals required to complete the merger; and
- information supplied in this joint proxy statement/prospectus and the
related registration statement.
The representations and warranties in the merger agreement are quite
detailed and not easily summarized. You are urged to carefully read the articles
of the merger agreement entitled "Representations and Warranties of Target" and
"Representations and Warranties of Acquiror." Except for Siara's representations
and warranties regarding its capitalization, neither Siara's nor Redback's
representations and warranties in the merger agreement will survive after the
merger has become effective.
ESCROW AND INDEMNIFICATION
Pursuant to Article 6 of the merger agreement, at the closing of the
merger, Redback will deposit into escrow certificates representing 5% of the
shares of Redback common stock otherwise issuable to the holders of Siara common
stock and preferred stock in the merger, on a pro rata basis. Such shares will
be deposited with State Street Bank and Trust Company of California, N.A., as
escrow agent, pursuant to the terms of an escrow agreement to be entered into
among Redback, the escrow agent and Vivek Ragavan, as agent of the Siara
stockholders. The terms of the escrow agreement will be consistent with the
terms set forth in Article 6 of the merger agreement. The escrowed shares will
be available to provide a fund against which Redback, its officers, directors,
employees and agents may assert indemnification claims for losses, damages,
costs and expenses (including reasonable legal fees and expenses) that they may
have incurred by reason of any breach, violation, default or inaccuracy of
Siara's representation
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regarding its capitalization in Section 2.3 of the merger agreement. Following
the merger, except as to claims for fraud, Redback's sole remedy will be claims
against the escrow and Siara will have no recourse for breaches of Redback's
representations and warranties.
In the case of any claims by Redback against the escrow, Redback must
deliver notice of such losses to the escrow agent and the Siara stockholders'
agent. If the Siara stockholder's agent timely disputes the claim, then the
matter must be resolved by binding arbitration. Redback's right to receive
shares from the escrow is subject to certain limitations. The indemnification
period and Redback's right to bring claims against the escrow fund, will end 180
days after the date of the merger. Any shares in escrow available for
distribution at the end of the indemnification period will be issued to the
former stockholders of Siara on a pro rata basis according to their interests in
the escrowed shares, except that if Redback timely made a claim for
indemnification from the escrow and the claim has not been resolved within 180
days after the date of the merger, then escrowed shares in an amount reasonably
sufficient to satisfy the indemnity claim may remain in escrow until the claim
has been resolved.
The Siara stockholders' agent will have broad power and authority to act as
the agent and attorney-in-fact for the Siara stockholders on any matters
concerning the escrow, including making objection to indemnity claims, defending
and making decisions with respect to such claims and settling and resolving
indemnity claims on behalf of the Siara stockholders. The actions of the
stockholders' agent will be binding on the Siara stockholders and the
stockholders' agent will have no liability for actions or omissions taken in his
capacity as the stockholders agent while acting in good faith or on the advice
of legal counsel. The escrow shares will be registered in the name of the
stockholders' agent, who will be entitled to vote the escrow shares in his
discretion, unless otherwise directed by the stockholders. Mr. Ragavan, who will
act as the stockholders' agent, is an executive officer of Siara and will be an
executive officer of Redback after the merger. Siara stockholders who together
own at least a two-thirds interest in the escrowed shares may replace the
stockholders' agent with a new agent upon thirty days prior written notice to
Redback.
The escrow agreement is attached as Appendix F to this joint proxy
statement/prospectus.
INDEMNIFICATION BY REDBACK
Redback has agreed that, from and after the closing of the merger, it will
fulfill all of Siara's obligations to indemnify, defend or advance expenses to
officers and directors, employees and agents of Siara or its subsidiary Siara
Research Canada, Inc. in respect of acts or omissions occurring on or prior to
the closing of the merger to the extent provided under Siara's then effective
certificate of incorporation or bylaws, Siara Research Canada, Inc.'s charter
documents or any indemnification agreement in effect on the date of the merger
agreement. Redback has also agreed to indemnify, defend and advance expenses to
officers and directors, of Siara and Siara Research Canada, Inc. for matters
arising prior to the merger to the extent such persons would be entitled to this
protection under Redback's certificate of incorporation or bylaws or the charter
documents of Siara Research Canada, Inc.
CONDUCT OF BUSINESS BEFORE COMPLETION OF THE MERGER
Siara and Redback have each agreed that, until the completion of the merger
or termination of the merger agreement or unless the other party consents in
writing, they will use commercially reasonable efforts consistent with their
respective past practices and policies to:
- carry on their respective businesses in the ordinary course;
- preserve intact their respective business organizations;
- keep available the services of their respective executive officers and
key employees; and
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- preserve their respective relationships with customers, suppliers,
licensors, licensees, and others with whom they have business dealings.
Siara and Redback have each also agreed that, until the completion of the
merger or termination of the merger agreement or unless the other party consents
in writing, they would conduct their respective businesses in compliance with
certain specific restrictions relating to the following:
- entrance into or modification of material contracts;
- modification of certificate of incorporation and bylaws;
- transfers and licenses of intellectual property;
- accounting policies and procedures;
- commencement or settlement of material litigation;
- the issuance of dividends or other distributions;
- the acquisition of significant assets or other entities; and
- the disposition of any significant assets.
The agreements related to the conduct of Siara's and Redback's businesses
in the merger agreement are very detailed and not easily summarized. You are
urged to carefully read the sections of the merger agreement entitled "Conduct
Prior to the Effective Time."
NO OTHER NEGOTIATIONS
Until the merger is completed or the merger agreement is terminated,
Redback and Siara have each agreed not to directly or indirectly take any of the
following actions:
- solicit, encourage, initiate, entertain or participate in any discussions
regarding an acquisition proposal, as defined below;
- disclose any non-public information with respect to any acquisition
proposal;
- assist, cooperate with, facilitate or encourage any acquisition proposal;
or
- agree to, enter into a contract regarding, approve, recommend or endorse
any acquisition proposal.
However, prior to the date on which the merger is approved by its
stockholders, Siara and Redback can furnish information, and participate in
discussions and negotiations in response to an unsolicited, written, bona fide
acquisition proposal, provided the board of directors for such company (1)
determines in good faith that such acquisition proposal represents a superior
transaction to the merger and that the person or entity making the acquisition
proposal has the financial means to successfully conclude the proposed
transaction, and (2) determines that taking such action is required to discharge
its fiduciary duties under applicable law following the receipt of advice from
such company's legal counsel.
Redback has agreed to promptly inform Siara, and Siara has agreed to
promptly inform Redback, as to any proposal or offer, or any inquiry or contact
with any person or entity with respect to any acquisition proposal. Redback and
Siara have also mutually agreed to keep each other current as to the status of
any such acquisition proposal and of any modifications to the terms to such
acquisition proposal.
An acquisition proposal is any offer or proposal, oral, written or
otherwise, formal or informal, to acquire all or any substantial portion of
Redback's or Siara's business or assets, as applicable, whether by purchase of
assets, exclusive license, joint venture formation, purchase of stock, business
combination or otherwise.
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TREATMENT OF SIARA STOCK OPTIONS AND WARRANTS
Upon completion of the merger, each option or warrant to purchase Siara
common stock or Siara preferred stock that is outstanding immediately before the
merger becomes effective will be assumed by Redback and converted into an option
or warrant, as the case may be, to purchase the number of shares Redback common
stock equal to the exchange ratio multiplied by the number of shares of Siara
common stock and Siara preferred stock that were issuable upon exercise in full
of such Siara option or warrant, immediately before the merger, rounded down to
the nearest whole Redback share. The exercise price of the resulting Redback
option or warrant will be equal to the exercise price per share of Siara common
stock or preferred stock that applied to the converted Siara option or warrant
immediately prior to the merger divided by the exchange ratio, rounded up to the
nearest whole cent.
The other terms of each option and the Siara option plans referred to above
under which the options were issued will continue to apply in accordance with
their terms, including any provisions providing for acceleration of vesting.
Upon completion of the merger, each outstanding award, including restricted
stock under any employee incentive or benefit plans, programs or arrangements
maintained by Siara which provide for grants of equity-based awards will be
amended or converted into a similar instrument of Redback, with certain
adjustments to preserve their value. The other terms of each Siara award, and
the plans or agreements under which they were issued, will continue to apply in
accordance with their terms, including any provisions providing for acceleration
of vesting.
Promptly after the merger, Redback will file a registration statement on
Form S-8 to register under the Securities Act of 1933, as amended, the shares of
Redback common stock issuable under Redback options that are issued in the
merger upon the conversion of Siara stock options that were granted by Siara to
employees, consultants or other individual service providers of Siara or Siara
Research Canada, Inc. Redback will maintain the effectiveness of that
registration statement for as long as any of the options remain outstanding.
CONDITIONS TO COMPLETION OF THE MERGER
The obligations of Redback and Siara to complete the merger and other
transactions contemplated by the merger agreement are subject to the
satisfaction or waiver of each of the following conditions before completion of
the merger:
- the SEC shall have declared effective the S-4 registration statement
registering the issuance of Redback common stock in the merger;
- no injunction or order preventing completion of the merger may be in
effect;
- we must each receive an opinion of our tax counsel to the effect that the
merger will qualify as a reorganization under the Internal Revenue Code;
- the merger agreement and the merger must be approved and adopted by
Siara's stockholders and holders of more than 95% of the outstanding
shares of Siara stock must have affirmatively voted in favor of the
merger so that, after the Siara stockholders vote on the merger,
statutory dissenters' appraisal rights cannot be exercisable by holders
of five percent or more of Siara's outstanding stock;
- the merger agreement, the merger, the issuance of shares of Redback
common stock, options and warrants in the merger and an amendment of
Redback's certificate of incorporation as described in this joint proxy
statement/prospectus must be approved by Redback stockholders;
- the shares of Redback common stock to be issued to Siara stockholders in
the merger must have been approved for listing on the Nasdaq National
Market; and
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- Redback's amended and restated Investors' Rights Agreement of July 2,
1998 shall have been amended to grant the holders of Siara's preferred
stock and warrants some registration rights.
In addition, Siara's obligations to complete the merger and the other
transactions contemplated by the merger agreement are also subject to the
satisfaction or waiver of each of the following additional conditions before
completion of the merger:
- Redback's representations and warranties in the merger agreement shall
not contain any misstatement or omission of any fact or matter that would
have a material adverse effect on the business or condition of Redback;
- no material adverse change in the business or condition of Redback shall
have occurred since November 28, 1999, the date of the merger agreement;
except that a material adverse change in the business or condition of
Redback shall not be deemed to have occurred if such change is
attributable to or results from:
-- the effect of public announcement or pendency of the transactions
contemplated by the merger agreement on current or prospective
customers of Redback;
-- changes in general economic conditions or changes generally affecting
the industry in which Redback operates; or
-- changes resulting from the acts or omissions of Siara. In addition, a
reduction in the market price of Redback's common stock shall not, in
and of itself, constitute a material adverse change in the business or
condition of Redback;
- Redback shall have performed and complied in all material respects with
its obligations under the merger agreement;
- Redback's President and Chief Executive Officer shall have delivered a
closing certificate to Siara;
- Siara shall have received a legal opinion from Redback's counsel;
- three persons designated by Siara, Promod Haque, Vinod Khosla and Vivek
Ragavan, shall have been appointed to Redback's board of directors; and
- Dennis Barsema shall be Redback's Chief Executive Officer and Vivek
Ragavan shall have been appointed President and Chief Operating Officer
of Redback.
Redback's obligations to complete the merger and the other transactions
contemplated by the merger agreement are subject to the satisfaction or waiver
of each of the following additional conditions before completion of the merger:
- Siara's representations and warranties shall not contain any misstatement
or omission of any fact or matter that would have a material adverse
effect on the business or condition of Siara;
- no material adverse change in the business or condition of Siara shall
have occurred since November 28, 1999, the date of the merger agreement;
except that a material adverse change in the business or condition of
Siara shall not be deemed to have occurred if such change is attributable
to or results from;
-- the effect of the public announcement or pendency of the transactions
contemplated by the merger agreement on current or prospective
customers of Siara;
-- changes in general economic conditions or changes generally affecting
the industry in which Siara operates; or
-- changes resulting from the acts or omissions of Redback;
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- Siara shall have performed and complied in all material respects with its
obligations under the merger agreement;
- Siara's President and Chief Executive Officer shall have delivered a
closing certificate to Redback;
- Redback shall have received a legal opinion from Siara's counsel; and
- Redback shall have received consents from designated third parties except
for such consents whose absence would not have a material adverse effect
on the business or condition of Redback after the merger.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to completion of
the merger, whether before or after approval of the merger agreement and the
merger by Siara's stockholders or approval of the merger agreement, the merger
and the issuance of shares of Redback common stock, options and warrant in the
merger and the amendment of Redback's certificate of incorporation by Redback
stockholders:
- by the mutual written consent of Siara and Redback;
- by either Redback or Siara under any of the following circumstances:
-- if any law or order of a governmental or regulatory authority would
make consummation of the merger illegal or a final non-appealable
court order prohibiting the merger is issued;
-- if the Siara stockholders do not approve and adopt the merger
agreement and the merger;
-- if the Redback stockholders do not approve and adopt the merger
agreement, the merger and the issuance of the Redback shares, options
and warrants in the merger or the proposed amendment to Redback's
certificate of incorporation described in this joint proxy
statement/prospectus;
-- if the holders of 5% or more of Siara's outstanding shares vote
against the merger and exercise their California statutory
dissenters' appraisal rights; or
-- if the merger is not completed by June 30, 2000;
- by Redback if Redback enters into a definitive agreement with respect to
a superior proposal that prohibits or materially changes the merger with
Siara, provided Redback complies with the notice requirements to Siara
regarding the superior proposal, or if, prior to the completion of the
merger, the Siara board takes any of the following actions:
-- fails to timely provide, withdraws, modifies or changes in a manner
adverse to Siara, its approval or recommendation of this merger;
-- recommends a superior proposal;
-- executes a letter of intent, an agreement in principle or definitive
agreement relating to a superior proposal or a similar business
combination with a person or entity other than Redback; or
-- exercises its rights with respect to a superior proposal and
continues discussions with any third party concerning a superior
proposal for more than 10 business days.
- by Siara if Siara enters into a definitive agreement with respect to a
superior proposal that prohibits or materially changes the merger with
Redback, provided Siara complies with the notice
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requirements to Redback regarding the superior proposal, or if, prior to
the completion of the merger, the Redback board takes any of the
following actions:
-- fails to timely provide, withdraws, modifies or changes in a manner
adverse to Redback, its approval or recommendation of this merger;
-- recommends a superior proposal;
-- executes a letter of intent, an agreement in principle or definitive
agreement relating to a superior proposal or a similar business
combination with a person or entity other than Siara; or
-- exercises its rights with respect to a superior proposal and
continues discussions with any third party concerning a superior
proposal for more than 10 business days.
PAYMENT OF TERMINATION FEE
If the merger agreement is terminated by either Redback or Siara because
the Redback stockholders do not approve and adopt the merger agreement, the
merger and the issuance of the Redback shares in the merger or the proposed
amendment to Redback's certificate of incorporation, then Redback will be
obligated to pay Siara a termination fee of $50 million.
If the merger agreement is terminated for any of the following reasons,
Redback will be obligated to pay Siara a termination fee of $135 million:
- if the agreement is terminated by Redback because Redback enters into a
definitive agreement with respect to a superior proposal pursuant to
terms permitted in the merger agreement; or
- if Siara terminates the merger agreement because, prior to the completion
of the merger, the Redback board:
-- fails to timely provide, withdraws, modifies or changes in a manner
adverse to Siara, its approval or recommendation of this merger;
-- recommends a superior proposal;
-- executes a letter of intent, an agreement in principle or definitive
agreement relating to a superior proposal or a similar business
combination with a person or entity other than Siara; or
-- exercises its rights with respect to a superior proposal and continues
discussions with any third party concerning a superior proposal for
more than 10 business days.
If the merger agreement is terminated for any of the following reasons,
Siara will be obligated to pay Redback a termination fee of $135 million:
- if the agreement is terminated by Siara because Siara enters into a
definitive agreement with respect to a superior proposal pursuant to
terms permitted in the merger agreement; or
- if Redback terminates the merger agreement because, prior to the
completion of the merger, the Siara board:
-- fails to timely provide, withdraws, modifies or changes in a manner
adverse to Redback, its approval or recommendation of this merger;
-- recommends a superior proposal;
-- executes a letter of intent, an agreement in principle or definitive
agreement relating to a superior proposal or a similar business
combination with a person or entity other than Redback; or
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-- exercises its rights with respect to a superior proposal and continues
discussions with any third party concerning a superior proposal for
more than 10 business days.
EXTENSION, WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
We may amend the merger agreement before completion of the merger provided
we comply with applicable state law in so doing.
Either of us may extend the other's time for the performance of any of the
obligations or other acts under the merger agreement, waive any inaccuracies in
the other's representations and warranties and waive compliance by the other
with any of the agreements or conditions contained in the merger agreement.
RELATED AGREEMENTS
IRREVOCABLE PROXY AND VOTING AGREEMENTS
In connection with the merger, all of the executive officers and directors
of Redback and many stockholders of Siara have entered into Irrevocable Proxy
and Voting Agreements. The terms of these agreements, which may be waived by
mutual consent, provide that such stockholders will vote all shares of Redback
or Siara capital stock beneficially owned by them (a) in favor of the approval
of the merger agreement, the merger and any actions required in furtherance of
the transactions contemplated by the merger agreement and (b) against any action
or agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of
Redback or Siara under the merger agreement or which could result in any of the
conditions to Redback's or Siara's obligations under the merger agreement not
being fulfilled.
Under the terms of the Irrevocable Proxy and Voting Agreements,
stockholders provided to Redback or Siara, as the case may be, an irrevocable
proxy to vote their shares of Siara or Redback stock, as applicable, on the
proposals relating to the merger agreement and the merger at a Redback
stockholder meeting and a Siara stockholder meeting, as applicable, and on any
competing proposal at a Redback or Siara stockholder meeting. Holders of
approximately 6% of the shares of Redback capital stock entitled to vote at the
Redback stockholder meeting and holders of approximately 64% of the shares of
Siara capital stock, entitled to vote at the Siara stockholder meeting, have
entered into Irrevocable Proxy and Voting Agreements.
Additionally, each signatory to the Irrevocable Proxy and Voting Agreement
agreed not to sell their stock and options owned, controlled or acquired, either
directly or indirectly, until the termination of the Irrevocable Proxy and
Voting Agreement, unless the transferee agrees to be bound by the terms of the
Irrevocable Proxy and Voting Agreement. The Irrevocable Proxy and Voting
Agreements terminate on the earlier to occur of the date and time that the
merger becomes effective in accordance with the terms and provisions of the
merger agreement or the date of termination of the merger agreement. The forms
of Irrevocable Proxy and Voting Agreement entered into by certain Redback and
Siara stockholders are attached as Exhibit A and Exhibit B to the merger
agreement attached as Appendix A hereto and you are urged to read these
agreements in their entirety.
AMENDMENT TO REDBACK'S AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
In connection with the execution of the merger agreement, Redback agreed to
amend its amended and restated Investors' Rights Agreement to provide to holders
of Siara's preferred stock and warrants the same registration rights held by
some stockholders of Redback. These rights include the right to request that
Redback register their shares of capital stock under the Securities Act of 1933
and the right to have some of their shares sold pursuant to a registered public
offering by Redback. The amendment to
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Redback's amended and restated Investors' Rights Agreement is attached to this
joint proxy statement/prospectus as Exhibit C to the merger agreement attached
as Appendix A hereto and you are urged to read it in its entirety.
EMPLOYMENT AGREEMENTS
Redback has entered into employment and non-competition agreements with
each of Vivek Ragavan, William Kind and Pankaj Patel. The agreements are
contingent upon the occurrence of the closing of the merger and will become
effective at such date and time as the merger shall become effective in
accordance with the terms and provisions of the merger agreement. Each
employment agreement sets forth the employee's position, duties, scope of
employment and compensation with Redback. Under the terms of these employment
agreements, each of the above-named employees is an at-will employee.
For a period beginning on the date and time that the merger shall become
effective in accordance with the terms and provisions of the merger agreement
and ending either (1) twelve months after the termination of employment of the
relevant employee, or (2) eighteen months after the date and time that the
merger shall become effective in accordance with the terms and provisions of the
merger agreement, whichever is earlier, the above-named employees also agree not
to compete with Redback directly or indirectly, cause or attempt to cause an
existing or prospective customer to limit any existing or potential business
relationship, or directly or indirectly solicit any Redback employee for
employment elsewhere.
Employment Agreement with Mr. Ragavan
Vivek Ragavan, the President and Chief Executive Officer of Siara, holds
1,200,000 shares of Siara's common stock that vest over a four-year period.
Under the terms of a new employment agreement between Mr. Ragavan and Redback,
Mr. Ragavan will become President and Chief Operating Officer of Redback and
Redback shall pay Mr. Ragavan a base salary at a gross annual rate of not less
than $325,000. All of Mr. Ragavan's shares of Redback stock and options to
purchase shares of Redback stock shall become vested in full if any of the
following occurs:
- Redback terminates Mr. Ragavan's employment for any reason except cause
or permanent disability;
- Mr. Ragavan resigns from Redback because prior to October 1, 2000 he is
required to serve in any position other than President and Chief
Operating Officer of Redback or Chief Executive Officer of Redback;
- Mr. Ragavan resigns from Redback because on or after October 1, 2000, he
is required to serve in any position other than Chief Executive Officer
of Redback; or
- Mr. Ragavan terminates his employment with Redback after a change of
control of Redback.
However, under Mr. Ragavan's employment agreement, the vesting of Mr.
Ragavan's shares of Redback stock or options to purchase shares of Redback will
accelerate as to only 50% of his then unvested shares or options if Mr. Ragavan
is made the Chief Executive Officer of Redback prior to October 1, 2000 and any
of the following occurs:
- Redback terminates Mr. Ragavan's employment;
- Mr. Ragavan, prior to a change in control of Redback, resigns from
Redback because he is required to serve in any position other than Chief
Executive Officer of Redback; or
- Mr. Ragavan resigns from Redback after a change in control of Redback and
he is offered a position comparable to that of chief executive of a
division, which represents the business of Redback following the change
in control, of the corporation or entity that acquires Redback.
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Employment Agreement with Mr. Kind
William Kind, Siara's Chief Operating Officer, holds 675,000 shares of
Siara's common stock that vest over a four-year period. Under the terms of a new
employment agreement between Mr. Kind and Redback, Mr. Kind will become Senior
Vice President of Marketing of Redback and Redback shall pay Mr. Kind a base
salary at a gross annual rate of not less than $250,000. The vesting of Mr.
Kind's shares of Redback stock and options to purchase shares of Redback stock
shall accelerate, so that Mr. Kind receives an additional 12 months of vesting,
if any of the following occurs:
- Redback terminates Mr. Kind's employment for any reason except cause or
permanent disability;
- Mr. Kind resigns from Redback because prior to October 1, 2000 he is
required to serve in any position other than Senior Vice President,
Marketing of Redback or Chief Operating Officer of Redback or a position
comparable to Chief Operating Officer following a change in control of
Redback; or
- Mr. Kind resigns from Redback because on or after October 1, 2000, he is
required to serve in any position other than Chief Operating Officer of
Redback, or a comparable position following a change in control of
Redback.
In the event of any termination of Mr. Kind's employment described above,
Redback will continue to pay Mr. Kind his base salary, at the rate in effect at
the time of termination, for up to six months following termination, or, if
earlier, until Mr. Kind secures new employment for similar compensation.
Employment Agreement with Mr. Patel
Pankaj Patel, Siara's Senior Vice President of Engineering, holds 550,000
shares of Siara's common stock that vest over a four-year period. Under the
terms of a new employment agreement between Mr. Patel and Redback, Mr. Patel
will become the Senior Vice President of Engineering of Redback and Redback
shall pay Mr. Patel a base salary at a gross annual rate of not less than
$230,000. In addition, at the effective time of the merger, the vested portion
of Mr. Patel's outstanding shares and options shall be increased by the shares
that otherwise would have vested during the 12-month period following the
effective time of the merger. During the 12-month period following the effective
time of the merger, no additional shares of Redback stock or options to purchase
shares of Redback stock held by Mr. Patel at the time of the merger will become
vested or exercisable. After this 12-month period, Mr. Patel's shares and
options shall vest according to the original terms of those shares and options.
Under the new employment agreement, Mr. Patel will become an employee of
Redback and the vesting of his shares of Redback stock and options to purchase
shares of Redback stock shall accelerate, so that he receives an additional 12
months of vesting, if either of the following occurs within 18 months after the
merger becomes effective:
- Redback terminates Mr. Patel's employment for any reason except cause or
permanent disability; or
- Mr. Patel resigns from Redback because he is required to serve in any
position lower than Senior Vice President of Engineering of Redback.
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UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
On November 28, 1999, Redback entered into an agreement to merge with Siara
in a transaction to be accounted for as a purchase. Upon consummation of the
merger, the stockholders of Siara will receive an estimated 29,570,000 shares of
Redback common stock. Additionally, Redback will convert stock options and
warrants to purchase an estimated 1,441,000 shares of Siara common stock into
stock options and warrants to purchase an estimated 1,772,000 shares of Redback
common stock. These estimates are preliminary and the actual number of shares,
stock options and warrants to purchase shares will depend on the actual number
outstanding as of the date of consummation of the merger. Based on the closing
price of Redback's common stock on the latest practicable trading date before
the printing of this joint proxy statement/prospectus, the purchase price of the
Siara acquisition is estimated to be $4.5 billion.
The following unaudited pro forma combined financial data present the
effect of the pending merger between Redback and Siara to be accounted for as a
purchase. The unaudited pro forma combined balance sheet presents the combined
financial position of Redback and Siara as of December 31, 1999 assuming that
the proposed merger had occurred as of that date. Such pro forma information is
based upon the historical balance sheet data of Redback and the historical
balance sheet data of Siara as of that date. The unaudited pro forma combined
statement of operations gives effect to the pending merger of Redback and Siara
for the year ended December 31, 1999, as if such acquisition had occurred on
January 1, 1999.
The unaudited pro forma combined financial data are based on the estimates
and assumptions set forth in the notes to such statements, which are preliminary
and have been made solely for purposes of developing such pro forma information.
The unaudited pro forma combined financial data are not necessarily an
indication of the results that would have been achieved had the transaction been
consummated as of the dates indicated or that may be achieved in the future.
These unaudited pro forma combined financial data should be read in
conjunction with the historical financial statements and notes thereto of
Redback and the historical financial statements of Siara and other financial
information pertaining to Redback and Siara including "Redback Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Siara Management's Discussion and Analysis of Financial Condition and Results
of Operations" and "Risk Factors" included elsewhere herein.
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UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
-------------------- PRO FORMA
REDBACK SIARA ADJUSTMENTS COMBINED
-------- --------- ----------- ----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $ 13,888 $ 277 $ $ 14,165
Short-term investments.................. 43,072 43,072
Accounts receivable, net................ 15,429 15,429
Inventory............................... 3,960 3,960
Other current assets.................... 1,374 450 1,824
-------- --------- ---------- ----------
Total current assets................. 77,723 727 78,450
Property and equipment, net............... 10,150 6,748 16,898
Intangible assets......................... 62 4,461,554(A) 4,461,616
Other assets.............................. 6,957 84 (4,029)(E) 1,012
(2,000)(A)
-------- --------- ---------- ----------
Total assets......................... $ 94,830 $ 7,621 $4,455,525 $4,557,976
======== ========= ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings, current..................... $ 123 $ 4,653 $ (4,029)(E) $ 747
Capital lease obligations, current...... 755 807 1,562
Accounts payable........................ 9,109 4,440 13,549
Accrued liabilities..................... 7,993 1,066 18,000(A) 27,059
Advance from related party.............. 500 500
Deferred revenue........................ 9,945 9,945
-------- --------- ---------- ----------
Total current liabilities............ 27,925 11,466 13,971 53,362
Capital lease obligations................. 1,012 1,386 2,398
Borrowings, noncurrent.................... 9,010 9,010
-------- --------- ---------- ----------
Total liabilities.................... 28,937 21,862 13,971 64,770
Stockholders' equity (deficit):
Preferred stock......................... 12,614 (12,614)(A)
Common stock............................ 91,638 630,385 4,448,374(A) 4,540,012
(630,385)(A)
Deferred stock compensation............. (3,266) (552,567) 552,567(D) (3,266)
Notes receivable from stockholders...... (131) (6,261) (6,392)
Accumulated deficit..................... (22,348) (98,412) 98,412(A) (37,148)
(14,800)(A)
-------- --------- ---------- ----------
Total stockholders' equity
(deficit).......................... 65,893 (14,241) 4,441,554 4,493,206
-------- --------- ---------- ----------
Total liabilities and stockholders'
equity (deficit)................... $ 94,830 $ 7,621 $4,455,525 $4,557,976
======== ========= ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined financial data.
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UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA
REDBACK SIARA ADJUSTMENTS COMBINED
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net revenues......................... $ 64,274 $ 64,274
Cost of revenues..................... 18,665 $ 3,275(B) 21,940
----------- ---------- ----------- -----------
Gross profit......................... 45,609 (3,275) 42,334
----------- ---------- ----------- -----------
Operating expenses:
Research and development........... 21,125 18,318 39,443
Selling, general and
administrative.................. 30,208 6,889 37,097
Amortization of intangibles........ 1,118,114(C) 1,118,114
Amortization of deferred stock
compensation.................... 4,033 68,847 (68,847)(D) 4,033
----------- ---------- ----------- -----------
Total operating expenses... 55,366 94,054 1,049,267 1,198,687
----------- ---------- ----------- -----------
Loss from operations................. (9,757) (94,054) (1,052,542) (1,156,353)
Interest income (expense), net....... 1,838 (663) 1,175
----------- ---------- ----------- -----------
Net loss............................. $ (7,919) $ (94,717) $(1,052,542) $(1,155,178)
=========== ========== =========== ===========
Basic and diluted net loss per
share.............................. $ (0.30) $ (16.34) $ (26.76)
=========== ========== ===========
Shares used in computing net loss per
share (F).......................... 26,694,000 5,796,000 16,480,000(A) 43,174,000
=========== ========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma combined financial data.
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NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA
NOTE 1 -- BASIS OF PRESENTATION:
On November 28, 1999, Redback Networks, Inc. ("Redback") entered into an
agreement to merge with Siara Systems, Inc. ("Siara") in a transaction to be
accounted for as a purchase. Siara stockholders, optionholders and
warrantholders will receive an aggregate total of 31,341,986 shares of Redback
common stock and shares subject to options or warrants, as applicable, in the
merger. Assuming the acquisition was consummated on December 31, 1999, the
stockholders of Siara will receive approximately 29,570,000 shares of Redback
common stock. Additionally, Redback will convert approximately 1,441,000 Siara
options and warrants into approximately 1,772,000 options and warrants to
purchase Redback common stock. The purchase price of the Siara acquisition is
estimated to be $4.5 billion including the estimated value of the Redback shares
and the estimated value of vested and unvested options and warrants to be issued
upon consummation of the acquisition and estimated transaction costs of $20
million. These estimates are preliminary and the actual number of shares, stock
options and warrants to purchase shares will depend on the actual number
outstanding as of the date of consummation of the merger.
The estimated value of the Redback common stock is approximately $142.00
per share based on the average closing price of Redback's common stock for the
five-day period including the date of the announcement of the signing of the
merger agreement and the two days preceding and succeeding such date. The value
of the options and warrants to purchase Redback's common stock is approximately
$140.77 per share, determined using the Black-Scholes pricing model.
The preliminary allocation of the purchase price using balances as of
December 31, 1999 is summarized below (in thousands):
<TABLE>
<S> <C>
Tangible assets............................................. $ 13,882
Developed technology........................................ 13,100
In-process research and development......................... 14,800
Workforce................................................... 27,000
Non-compete agreements...................................... 15,000
Goodwill.................................................... 4,406,454
Assumed liabilities......................................... (21,862)
----------
Total purchase price.............................. $4,468,374
==========
</TABLE>
The actual purchase price allocation is also dependent upon the fair values
of the acquired assets and assumed liabilities as of the acquisition date and
the finalization of the preliminary valuation report. The amount allocated to
in-process research and development represents the purchased in-process
technology for projects that, as of the date of the acquisition, had not yet
reached technological feasibility and had no alternative future use. Based on
preliminary assessments, the value of these projects was determined by
estimating the resulting net cash flows from the sale of the products resulting
from the completion of the projects, reduced by the portion of the revenue
attributable to developed technology and the percentage completion of the
project. The resulting cash flows were then discounted back to their present
value at appropriate discount rates.
The nature of the efforts to develop the purchased in-process research and
development into commercially viable products principally relates to the
completion of all planning, designing, prototyping and testing activities that
are necessary to establish that the product can be produced to meet its design
specification including function, features and technical performance
requirements. The resulting net cash flows from such products are based on
estimates of revenue; cost of revenue; research and development costs; sales and
marketing costs; and income taxes from such projects.
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NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA (CONTINUED)
The amounts allocated to in-process research and development will be
charged to the statement of operations in the period the acquisition is
consummated.
NOTE 2 -- PRO FORMA ADJUSTMENTS:
A To reflect acquisition of Siara based on preliminary purchase price
allocation described in Note 1.
B To reflect amortization of developed technology over the estimated useful
life of four years as if the acquisition had occurred on January 1, 1999.
The amount allocated to in-process research and development has not been
included in the unaudited pro forma combined statement of operations as
it is nonrecurring. This amount will be expensed in the period the
acquisition is consummated.
C To reflect amortization of goodwill, workforce and non-compete agreements
over their estimated useful lives of four, three and two years,
respectively, as if the acquisition occurred on January 1, 1999.
D To eliminate amortization of deferred stock compensation related to Siara
stock option grants which is duplicative, as the fair value of the
unvested options has been included in the purchase price which results in
additional goodwill amortization.
E To eliminate borrowings made by Siara from Redback under a $25 million
loan agreement.
F Basic and diluted net loss per share is computed using the weighted
average number of common shares outstanding during the period. Unaudited
pro forma combined basic and diluted net loss per share also includes an
estimated 16,480,000 shares of common stock not subject to repurchase to
be issued in connection with the proposed Siara acquisition. Common
equivalent shares, including 13,090,000 shares of common stock subject to
repurchase and stock options, are excluded from the computation as their
effect is anti-dilutive.
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COMPARISON OF RIGHTS OF STOCKHOLDERS OF REDBACK AND SIARA
This section of this joint proxy statement/prospectus describes some
differences between the rights of holders of Redback common stock and the rights
of holders of Siara capital stock. While we believe that the description covers
the material differences between the two, this summary may not contain all of
the information that is important to you. You should carefully read this entire
document and the other documents we refer to for a more complete understanding
of the differences between being a stockholder of Redback and being a
stockholder of Siara.
After the merger, the holders of Siara capital stock will become
stockholders of Redback. Because Siara and Redback are both Delaware
corporations, the Delaware General Corporation Law, or DGCL, will continue to
govern the rights of Siara stockholders. Prior to the merger, Siara was also
subject to various provisions of California law. The Siara amended and restated
certificate of incorporation and the Siara bylaws currently govern the rights of
the stockholders of Siara. As stockholders of Redback, the certificate of
incorporation and the bylaws of Redback will instead govern their rights
following the merger.
SPECIAL MEETING OF THE STOCKHOLDERS
The Redback bylaws provide that a special meeting of the stockholders may
be called at the request of the president, at the request of a majority of the
board of directors or at the request in writing of stockholders owning at least
50% of the issued and outstanding capital stock entitled to vote.
The Siara bylaws provide that a special meeting of the stockholders may be
called at any time by the board of directors, the chairman of the board, the
president or by one or more stockholders holding shares in the aggregate
entitled to cast not less than ten percent of the votes at that meeting.
ACTION BY WRITTEN CONSENT OF STOCKHOLDERS
Redback's certificate of incorporation specifically denies to stockholders
the right to take action by written consent. Any stockholder action must be
taken at a meeting of stockholders.
Siara stockholders have the ability to take action by written consent of
the holders of a majority of the outstanding shares of Siara.
AMENDMENT OF CHARTER DOCUMENTS
Amendment of the Redback certificate of incorporation is governed by the
provisions of the DGCL which provides that an amendment requires the approval of
the holders of a majority of the shares entitled to vote thereon. The board of
directors is authorized to make, repeal, alter, amend and rescind any or all of
Redback's bylaws. Redback's bylaws may also be amended by a vote of the
stockholders entitled to vote thereon in accordance with the DGCL.
The Siara certificate of incorporation provides that so long as any shares
of either its Series A preferred stock or its Series B preferred stock remain
outstanding, Siara shall not, without the approval by vote or written consent of
the holders of a majority of the outstanding shares of either series, amend its
certificate of incorporation or bylaws in a manner that would adversely affect
the rights, preferences or privileges of either series of preferred stock in a
manner different from any other outstanding series of preferred stock. The Siara
certificate of incorporation also provides that so long as 500,000 shares of
preferred stock remain outstanding, Siara shall not, without the approval of the
holders of a majority of the preferred stock and common stock, voting together
as a single class:
- amend its certificate of incorporation or bylaws in any manner that would
adversely alter or change any of the rights, preferences, privileges or
restrictions of the preferred stock;
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- authorize, create or issue any other stock or reclassify any outstanding
shares of securities of Siara into shares having rights or preferences
senior to or on a parity with the preferred stock or increase or decrease
the authorized number of shares of preferred stock;
- merge or consolidate with or into any corporation if the consolidation
would result in Siara stockholders immediately prior to the consolidation
holding less than majority of the voting power of the stock of the
surviving corporation immediately after the consolidation;
- sell all or substantially all Siara's assets or liquidate, dissolve or
wind-up;
- redeem or repurchase shares of capital stock of Siara or pay or declare
any dividend on any shares of common stock or preferred stock; or
- change the authorized number of directors of Siara's board or directors.
Amendment of Siara's certificate of incorporation is also governed by the
provisions of the DGCL which provides that an amendment requires the approval of
the holders of a majority of the shares entitled to vote thereon. The board of
directors is authorized to make, alter or repeal Siara's bylaws. The bylaws may
also be amended by a vote of the stockholders entitled to vote thereon in
accordance with the DGCL.
RECORD DATE FOR DETERMINING STOCKHOLDERS
The Redback bylaws also provide that the board of directors may set a
record date in order to determine the stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, among other
things. This record date shall also be no more than sixty nor less than ten days
before the date of the meeting. The Redback bylaws do not address a situation
where the board of directors fails to fix a record date. This situation is
governed by the DGCL which states that the record date would be the close of
business on the day next preceding the day on which the meeting is held.
The Siara bylaws provide that the board of directors may set a record date
in order to determine the stockholders entitled to notice of or to vote at any
meeting of stockholders or any adjournment thereof, among other things. This
record date shall be no more than sixty nor less than ten days before the date
of the meeting. In the event that the board of directors does not fix a record
date, then the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
NUMBER AND ELECTION OF DIRECTORS
The Redback certificate of incorporation provides that the number of
directors on the board of directors shall be fixed in the bylaws and the bylaws
provide that the number of directors on the board of directors shall be fixed by
resolution of the board of directors or by the stockholders at the annual
meeting. The number of directors currently on the board of directors is five.
The election of directors is governed by the DGCL.
The Siara certificate of incorporation provides that the number of
directors on the board of directors shall be seven. Three directors shall be
elected by vote of the holders of all shares outstanding voting together as a
single class, two directors shall be elected by vote of the holders of all
shares of Series A preferred stock and two directors shall be elected by vote of
the holders of all shares of Series B preferred stock.
REMOVAL OF DIRECTORS
The Redback bylaws provide that any director may be removed from office,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
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The Siara bylaws provide that any director elected by the holders of Series
A preferred stock or Series B preferred stock may be removed from office, with
or without cause, solely by the vote of the holders of a majority of the
outstanding shares of the applicable series of preferred stock that elected that
director. Any other director may be removed with or without cause, by the vote
of the holders of a majority of the outstanding shares entitled to vote for that
director.
SPECIAL MEETINGS OF THE BOARD OF DIRECTORS
The Redback bylaws provide that a special meeting of the board of directors
may be called by the president, the secretary or any two directors. Notice of a
special meeting of the board of directors shall be on two days' notice if by
mail, or one day's notice if delivered personally or by facsimile or telegram.
The Siara bylaws provide that a special meeting of the board of directors
may be called by the chairman of the board, the president, any vice president,
the secretary or any two directors. Notice of a special meeting of the board of
directors shall be on four days' notice if by mail, or two days' notice if
delivered personally or by telephone or telegram.
CLASSES OF STOCK
Redback has two classes of capital stock: common stock and preferred stock.
The preferred stock may have rights and privileges that are designated by
Redback's board of directors and may be superior to the rights and privileges of
Redback's common stock. There are no shares of preferred stock outstanding.
Siara has two classes of capital stock, common stock and preferred stock.
The preferred stock is divided into two series, Series A preferred stock and
Series B preferred stock. Holders of each series of Siara preferred stock have
rights and privileges that include preferred treatment in the event of a
liquidation or dissolution or the declaration of any dividend, and they have
superior voting rights, as set forth above, among other things.
OTHER MATTERS SUBMITTED TO REDBACK STOCKHOLDERS
AMENDMENT TO REDBACK'S CERTIFICATE OF INCORPORATION
Redback is asking its stockholders to approve a resolution to amend and
restate its certificate of incorporation in order to increase the authorized
number of shares of Redback common stock from 80,000,000 shares to 200,000,000
shares. A form of the amendment is attached as Appendix B to this joint proxy
statement/prospectus. This amendment is designed to allow for the issuance of
Redback stock, options and warrants to holders of Siara's stock, options and
warrants pursuant to the merger agreement, to cover the proposed increases to
Redback's stock and stock option plan reserves and to provide flexibility in the
future for stock issuances, stock splits or acquisitions.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors unanimously recommends a vote FOR the approval of
the amendment to Redback's certificate of incorporation.
AMENDMENTS TO REDBACK'S STOCK PLANS
AMENDMENT OF 1999 STOCK INCENTIVE PLAN
Existing Share Reserve. Our board of directors adopted our 1999 Stock
Incentive Plan on March 3, 1999. Our stockholders also approved this plan. We
originally reserved 5,000,000 shares of our common stock for issuance under the
1999 Stock Incentive Plan. Any shares that were not issued under our 1997
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Stock Plan on the date of our initial public offering also became available
under the 1999 Stock Incentive Plan. On January 1 of each year, starting with
the year 2000, the number of shares in the reserve automatically increases.
Under the plan as originally adopted, the increase was equal to 5% of the total
number of shares of common stock that are outstanding at the time of the
increase or, if less, 3,000,000 shares. In general, if options or shares awarded
under the 1999 Stock Incentive Plan or the 1997 Stock Plan are forfeited, then
those options or shares will again become available for awards under the 1999
Stock Incentive Plan.
Proposed Increase in Share Reserve. We are asking our stockholders to
approve an increase in the number of shares available for issuance under the
1999 Stock Incentive Plan. Under the proposed amendment of the plan, the basic
reserve would increase from 5,000,000 shares to 8,000,000 shares of our common
stock. On January 1 of each year, starting with the year 2001, the number of
shares in the reserve would automatically increase. The increase would be equal
to 5% of the total number of shares of common stock that are outstanding at the
time of the increase or, if less, 5,000,000 shares. The additional shares are
needed to accommodate the significant increase in the size of our employee
population as a result of the merger with Siara. If the merger is not approved,
then the amendment of the 1999 Stock Incentive Plan will not take effect.
Administration. The compensation committee of our board of directors
administers the 1999 Stock Incentive Plan. The committee has complete discretion
to make all decisions relating to the interpretation and operation of our 1999
Stock Incentive Plan. The committee has the discretion to determine who will
receive an award, what type of award it will be, how many shares will be covered
by the award, what the vesting requirements will be, if any, and what the other
features and conditions of each award will be. The compensation committee may
also reprice outstanding options and modify outstanding awards in other ways.
Eligibility. The following groups of individuals are eligible to
participate in the 1999 Stock Incentive Plan:
- employees;
- members of our board of directors who are not employees; and
- consultants.
As of December 31, 1999, four non-employee directors, approximately 274
employees and no consultants were eligible to participate in the plan.
Types of Award. The 1999 Stock Incentive Plan provides for the following
types of awards:
- incentive stock options to purchase shares of our common stock;
- nonstatutory stock options to purchase shares of our common stock; and
- restricted shares of our common stock.
Options. An optionee who exercises an incentive stock option may qualify
for favorable tax treatment under Section 422 of the Internal Revenue Code of
1986. On the other hand, nonstatutory stock options do not qualify for such
favorable tax treatment. The exercise price for incentive stock options granted
under the 1999 Stock Incentive Plan may not be less than 100% of the fair market
value of our common stock on the option grant date. In the case of nonstatutory
stock options, the minimum exercise price is 30% of the fair market value of our
common stock on the option grant date. As of February , 2000, the closing
price of our common stock on The Nasdaq National Market was $ per share.
Optionees may pay the exercise price by using:
- cash;
- shares of common stock that the optionee already owns;
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- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
- an immediate sale of the option shares through a broker designated by us;
or
- a loan from a broker designated by us, secured by the option shares.
Options vest at the time or times determined by the compensation committee.
In most cases, our options vest over the four-year period following the date of
grant. Options generally expire 10 years after they are granted, except that
they generally expire earlier if the optionee's service terminates earlier. The
1999 Stock Incentive Plan provides that no participant may receive options
covering more than 2,000,000 shares in the same year, except that a newly hired
employee may receive options covering up to 4,000,000 shares in the first year
of employment.
Salary Reduction Option Program. The compensation committee may offer our
employees, non-employee directors and consultants the opportunity to convert a
portion of their salaries or fees into nonstatutory stock options. Individuals
who have been selected for this program, if they wish to participate, must file
an irrevocable election before the end of a calendar year. In the election, they
must specify how much they would like to contribute during the next year, within
the limits established by the committee. On the first business day in January of
the next year, we will grant them an option under the 1999 Stock Incentive Plan.
The exercise price of this option will be equal to one-third of the market price
of our stock on the date of grant. The number of shares covered by the option
will be equal to the amount of the salary or fee reduction that the participant
elected, divided by an amount equal to two-thirds of the market price of our
stock on the date of grant. As a result, the total discount under the option,
which is the market price of the option shares on the grant date less the
aggregate exercise price payable for those shares, will be equal to the dollar
amount of the reduction in the optionee's compensation for the calendar year in
which the grant is made. The option will generally become exercisable in 12
equal monthly installments, as the optionee completes each calendar month of
service in the year of the grant. The option generally remains exercisable for
10 years from the date of grant, even if the optionee's service terminates
earlier. The other terms applicable to grants under this program are
substantially the same as the terms described above for regular nonstatutory
option grants.
Restricted Shares. Restricted shares may be awarded under the 1999 Stock
Incentive Plan in return for:
- cash;
- a full-recourse promissory note, except that the par value of newly
issued shares must be paid in cash;
- services already provided to us; and
- in the case of treasury shares only, services to be provided to us in the
future.
Restricted shares vest at the time or times determined by the compensation
committee.
Change in Control. If a change in control of Redback occurs, an option or
restricted stock award under the 1999 Stock Incentive Plan will vest on an
accelerated basis only to the extent determined by the compensation committee.
However, if the surviving corporation fails to assume the option or award and
fails to replace it with a comparable award, then the option or award will
become fully vested. A change in control includes:
- a merger of Redback after which our own stockholders own 50% or less of
the surviving corporation, or its parent company;
- a sale of all or substantially all of our assets;
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- a proxy contest that results in the replacement of more than one-half of
our directors over a 24-month period; or
- an acquisition of 50% or more of our outstanding stock by any person or
group, other than a person related to Redback, such as a holding company
owned by our stockholders.
Amendment or Termination. Our board may amend or terminate the 1999 Stock
Incentive Plan at any time. If our board amends the plan, it does not need to
ask for stockholder approval of the amendment unless applicable law requires it.
The 1999 Stock Incentive Plan will continue in effect indefinitely, unless the
board decides to terminate the plan.
New Plan Benefits. Awards under the 1999 Stock Incentive Plan are
discretionary. Therefore, it is not possible to determine the benefits that will
be received in the future by participants in the plan. To date, no grants have
been made under the 1999 Stock Incentive Plan with respect to the additional
3,000,000 shares that are subject to the approval of the stockholders.
Federal Income Tax Consequences of Options. Neither the optionee nor we
incur any federal tax consequences as a result of the grant of an option. The
optionee has no taxable income upon exercising an incentive stock option except
that the alternative minimum tax may apply, and we receive no deduction when an
incentive stock option is exercised. Upon exercising a nonstatutory stock
option, the optionee generally must recognize ordinary income equal to the
"spread" between the exercise price and the fair market value of our common
stock on the date of exercise, and we ordinarily will be entitled to a deduction
for the same amount. In the case of an employee, the option spread when a
nonstatutory stock option is exercised is subject to income tax withholding, but
the optionee generally may elect to satisfy the withholding tax obligation by
having shares of common stock withheld from those purchased under the option.
The tax treatment of a disposition of option shares acquired under the 1999
Stock Incentive Plan depends on how long the shares have been held and on
whether the shares were acquired by exercising an incentive stock option or by
exercising a nonstatutory stock option. We are not entitled to a deduction in
connection with a disposition of option shares, except in the case of a
disposition of shares acquired under an incentive stock option before the
applicable holding periods have been satisfied.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors unanimously recommends a vote FOR the approval of
the amendment of the 1999 Stock Incentive Plan.
AMENDMENT OF 1999 EMPLOYEE STOCK PURCHASE PLAN
Existing Share Reserve. Our board of directors adopted our 1999 Employee
Stock Purchase Plan on March 3, 1999. Our stockholders also approved this plan.
We originally reserved 2,000,000 shares of our common stock for issuance under
the plan. On May 1 of each year, starting with the year 2000, the number of
shares in the reserve will automatically be restored to the number initially
available, which is 2,000,000 shares under the plan as originally adopted. In
other words, the reserve will be increased by the number of shares that have
been issued under the 1999 Employee Stock Purchase Plan during the prior
12-month period. The plan is administered by the compensation committee of our
board of directors.
Proposed Increase in Share Reserve. We are asking our stockholders to
approve an increase in the number of shares available for issuance under the
1999 Employee Stock Purchase Plan. Under the proposed amendment of the plan, the
reserve would increase from 2,000,000 shares to 3,000,000 shares of our common
stock. On May 1 of each year, starting with the year 2000, the reserve would
automatically be restored to 3,000,000 shares. The additional shares are needed
to accommodate the significant increase in the size of our employee population
as a result of the merger with Siara. If the merger is not approved, then the
amendment of the 1999 Employee Stock Purchase Plan will not take effect.
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Eligibility. All of our employees are eligible to participate if they are
employed by us for more than 20 hours per week and for more than five months per
year. Eligible employees may begin participating in the 1999 Employee Stock
Purchase Plan at the start of any offering period. Each offering period lasts 24
months. Overlapping offering periods start on May 1 and November 1 of each year.
However, the first offering period started on the date of our initial public
offering and will end on April 30, 2001. As of December 31, 1999, approximately
249 employees were eligible to participate in the plan and approximately 230
employees actually participated.
Amount of Contributions. Our 1999 Employee Stock Purchase Plan permits each
eligible employee to purchase common stock through payroll deductions. Each
employee's payroll deductions may not exceed 15% of the employee's cash
compensation. Purchases of our common stock will occur on April 30 and October
31 of each year. Each participant may purchase up to 2,000 shares on any
purchase date, up to a maximum of 4,000 shares per year. But the value of the
shares purchased in any calendar year, measured as of the beginning of the
applicable offering period, may not exceed $25,000.
Purchase Price. The price of each share of common stock purchased under our
1999 Employee Stock Purchase Plan is 85% of the lower of:
- the fair market value per share of common stock on the date immediately
before the first day of the applicable offering period; or
- the fair market value per share of common stock on the purchase date.
In the case of the first offering period, the price per share under the
plan is 85% of the lower of:
- $11.50, which is the price per share to the public in our initial public
offering, as adjusted for our two-for-one stock split; or
- the fair market value per share of common stock on the purchase date.
Other Provisions. Employees may end their participation in the 1999
Employee Stock Purchase Plan at any time. Participation ends automatically upon
termination of employment with Redback. If a change in control of Redback
occurs, our 1999 Employee Stock Purchase Plan will end and shares will be
purchased with the payroll deductions accumulated to date by participating
employees, unless the plan is assumed by the surviving corporation or its
parent. Our board of directors may amend or terminate the 1999 Employee Stock
Purchase Plan at any time. Our Chief Executive Officer may also amend the plan
in certain respects. If our board increases the number of shares of common stock
reserved for issuance under the plan, except for the automatic increases
described above, it must seek the approval of our stockholders.
New Plan Benefits. Since rights to purchase shares under the 1999 Employee
Stock Purchase Plan are subject to discretion, including an employee's election
to participate in the plan and how much to contribute, awards under the plan for
the current fiscal year are not determinable. No purchase rights have been
granted with respect to the additional 1,000,000 shares for which approval is
requested.
Federal Income Tax Consequences. The 1999 Employee Stock Purchase Plan is
intended to qualify as an "employee stock purchase plan" under section 423 of
the Internal Revenue Code. No income is recognized by a participant when a right
to purchase shares is granted. Likewise, no taxable income is recognized at the
time of the purchase, even though the purchase price reflects a discount from
the market value of the shares at that time.
A participant must recognize taxable income upon a disposition of shares
acquired under the 1999 Employee Stock Purchase Plan. The tax treatment may be
more favorable if the disposition occurs after the holding-period requirements
of section 423 have been satisfied. To satisfy the holding-period requirements
of section 423, shares acquired under the plan cannot be disposed of within two
years after
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the first day of the offering period during which the shares were purchased nor
within one year after the shares were purchased. The income tax consequences of
such a disposition are as follows:
- the participant recognizes ordinary income equal to the lower of (a) the
excess of the fair market value of the shares on the date of the
disposition over the purchase price or (b) 15% of the fair market value
of the shares on the first day of the applicable offering period. We will
not be entitled to any deduction under these circumstances; and
- the excess, if any, of the fair market value of the shares on the date of
the disposition over the sum of the purchase price plus the amount of
ordinary income recognized, as described above, will be taxed as a
long-term capital gain. If a taxable disposition produces a loss, for
example, if the fair market value of the shares on the date of the
disposition is less than the purchase price, and the disposition involves
certain unrelated parties, then the loss will be a long-term capital
loss.
If a participant disposes of shares acquired under the 1999 Employee Stock
Purchase Plan without meeting the holding-period requirements, the income tax
consequences are as follows:
- the entire difference between the purchase price and the market value of
the shares on the date of purchase will be taxed to the participant as
ordinary income in the year of disposition. We will be entitled to a
deduction for the same amount, subject to certain conditions; and
- the excess, if any, of the market value of the shares on the date of
disposition over their market value on the date of purchase will be taxed
as a capital gain, either long-term or short-term, depending on how long
the shares have been held. If the value of the shares on the date of
disposition is less than their value on the date of purchase, then the
difference will result in a capital loss, either long-term or short-term,
depending on the holding period, provided the disposition involves
certain unrelated parties. Any such loss will not affect the ordinary
income recognized upon the disposition.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors unanimously recommends a vote FOR the approval of
the amendment of the 1999 Employee Stock Purchase Plan.
AMENDMENT OF 1999 DIRECTORS' OPTION PLAN
Existing Share Reserve. Our board of directors adopted our 1999 Directors'
Option Plan on March 3, 1999. Our stockholders also approved this plan. We
originally reserved 400,000 shares of our common stock for issuance under the
plan. On January 1 of each year, starting with the year 2000, the number of
shares in the reserve is automatically restored to the number initially
available. In other words, the reserve is increased by the number of shares for
which options have been granted under the 1999 Directors' Option Plan during the
prior 12-month period. In general, if options granted under the 1999 Directors'
Option Plan are forfeited, then those options will again become available for
grants under the plan. The Directors' Option Plan is administered by the
compensation committee of our board of directors, although all grants under the
plan are automatic and non-discretionary.
Proposed Increase in Share Reserve. We are asking our stockholders to
approve an increase in the number of shares available for issuance under the
1999 Directors' Option Plan. Under the proposed amendment of the plan, the
reserve would increase from 400,000 shares to 800,000 shares of our common
stock. On January 1 of each year, starting with the year 2001, the reserve would
automatically be restored to 800,000 shares. The additional shares are needed to
accommodate the significant increase in the size of our board of directors as a
result of the merger with Siara. If the merger is not approved, then the
amendment of the 1999 Directors' Option Plan will not take effect.
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Initial Grants. Only the non-employee members of our board of directors
will be eligible for option grants under the 1999 Directors' Option Plan. Each
non-employee director who did not previously receive options to buy our common
stock received an initial option to buy 50,000 shares on the date of our initial
public offering. Each non-employee director who first joins our board after our
initial public offering receives an initial option for 50,000 shares. This grant
occurs when the director takes office. For example, Messrs. Haque and Khosla,
who will join our board in connection with the merger with Siara, will each
receive an initial grant covering 50,000 shares of our common stock. The initial
options are fully vested immediately.
Annual Grants. At the time of each of our regular annual stockholders'
meetings, beginning in 2000, each non-employee director who will continue to be
a director after that meeting will automatically be granted an annual option for
20,000 shares of our common stock. However, a new non-employee director who is
receiving the 50,000-share initial option will not receive the 20,000-share
annual option in the same calendar year. The annual options are fully vested
immediately.
Other Option Terms. The exercise price of each non-employee director's
option will be equal to the fair market value of our common stock on the option
grant date. A director may pay the exercise price by using cash, shares of
common stock that the director already owns, or an immediate sale of the option
shares through a broker designated by us. The non-employee directors' options
have a 10-year term, except that they expire one year after a director leaves
the board, if earlier.
Amendments or Termination. Our board may amend or terminate the 1999
Directors' Option Plan at any time. If our board amends the plan, it does not
need to ask for stockholder approval of the amendment unless applicable law
requires it. The 1999 Directors' Option Plan will continue in effect
indefinitely, unless the board decides to terminate the plan.
New Plan Benefits. Awards under the 1999 Directors' Option Plan are
automatic, as described above. As of December 31, 1999, four non-employee
directors were eligible to participate in the plan. The following table lists
the initial and annual grants that will be made under the plan to the current
and prospective members of our board of directors during the year 2000, assuming
that the merger with Siara is completed and this proposal is approved by the
stockholders:
<TABLE>
<CAPTION>
NUMBER OF OPTIONS TO BE GRANTED UNDER 1999
NAME OF DIRECTOR DIRECTORS' OPTION PLAN IN 2000
---------------- ------------------------------------------
<S> <C>
Pierre Lamond...................................... 20,000
James Flach........................................ 20,000
William Kurtz...................................... 20,000
Dan Warmenhoven.................................... 20,000
Vinod Khosla....................................... 50,000
Promod Haque....................................... 50,000
All non-employee directors as a group.............. 180,000
</TABLE>
Federal Income Tax Consequences. Neither the optionee nor we incur any
federal tax consequences as a result of the grant of an option under the 1999
Directors' Option Plan. Upon exercising an option, the optionee generally must
recognize ordinary income equal to the spread between the exercise price and the
fair market value of our common stock on the date of exercise, and we ordinarily
will be entitled to a deduction for the same amount. The tax treatment of a
disposition of option shares acquired under the plan depends on how long the
shares have been held. We are not entitled to a deduction in connection with a
disposition of option shares.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The board of directors unanimously recommends a vote FOR the approval of
the amendment of the 1999 Directors' Option Plan.
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REDBACK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the financial
statements and related notes contained elsewhere in this joint proxy
statement/prospectus. The discussion contains forward-looking statements that
involve risks and uncertainties. These statements relate to future events or our
future financial performance. In many cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "intend" or
"continue," or the negative of such terms and other comparable terminology.
These statements are only predictions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of a
variety of factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this joint proxy statement/prospectus.
OVERVIEW
Redback provides advanced networking systems that enable carriers, cable
operators and service providers to rapidly deploy high-speed broadband access
technologies such as digital subscriber line, cable and wireless. We sell our
products to a number of different types of carriers, including incumbent local
exchange carriers, competitive local exchange carriers, cable operators and
service providers. Our products are sold through a direct sales force, resellers
and distribution partners.
We recognize revenues, net of allowances, when we ship products to our
customers, provided no significant outstanding vendor obligations remain and
collection is considered probable. We recognize support revenue ratably over the
support period and service revenues as services are performed. Currently, all of
our product sales and service arrangements provide for pricing and payment in
U.S. dollars. Since we have no other products, our business, financial condition
and results of operations are dependent on sales of our SMS 1800, SMS 1000 and
SMS 500 products in the broadband market.
From inception through December 1997, our operating activities consisted
primarily of research and development activities and building our management
team. We shipped our first products in December 1997, but did not begin shipping
our products in material quantities until the second quarter of 1998. To date,
we have derived substantially all of our revenues from sales of our flagship
product, the SMS 1000, in the digital subscriber line market. Our success will
depend on our ability to sell products not only in the digital subscriber line
market, but also in other markets, including the cable and wireless markets. We
released the SMS 500 in early March 1999. The SMS 500 is targeted at service
provider facilities supporting a smaller number of subscribers than facilities
using the SMS 1000. In October 1999 we released the SMS 1800 as the
next-generation version of the SMS 1000. We cannot be certain that the SMS 1800,
the SMS 1000, the SMS 500 or any future products will achieve widespread market
acceptance.
To date, a significant portion of our revenues has resulted from a small
number of relatively large orders. Substantially all of our sales are made on
the basis of purchase orders rather than long-term agreements. As a result, we
may commit resources to the production of products without having received
advance purchase commitments from customers. If we are unable to sell products
to which we have devoted significant resources or if orders for our products are
cancelled or delayed, our inventory levels could become excessive. Any
subsequent write-off of inventory could have a material adverse effect on our
business, results of operations and financial condition.
We anticipate that our operating results for any given period will continue
to be dependent to a significant extent on large purchase orders, which can be
delayed or cancelled by our customers without penalty. In addition, we
anticipate that our operating results for a given period will continue to be
dependent on a small number of customers. Direct and indirect sales to Bell
Atlantic and GTE accounted for 17% and 12% of our total revenues for the quarter
ended December 31, 1999 and sales to
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Bell Atlantic and Southwestern Bell Information Systems, a division of SBC,
accounted for 24% and 11%, respectively, of our total revenue for the twelve
months ended December 31, 1999. If we fail to receive a significant purchase
order that we expected for a given quarter, our revenues for that quarter, or
following quarters, will be adversely affected. This could adversely affect our
business, results of operations and financial condition. Furthermore, if any of
our customers experience financial difficulties, our sales to these customers
may be reduced and we may have difficulty in collecting accounts receivable from
these customers. Any delay in large customer orders or customer financial
difficulties could have a material adverse effect on our business, results of
operations and financial condition.
We currently use Electromax to assemble our products. We also rely on
single or limited source suppliers to manufacture key components of our
products. A significant portion of our cost of revenues is related to these
outsourcing arrangements. These relationships are subject to a variety of risks.
Currently, competition in our market is intense. We continue to add
features to our products based on the needs of our customers. This has resulted
in increased research and development expenses and may result in reduced
operating margins on our products and a longer sales cycle. We expect
competition to increase in the future. This competition may also result in price
reductions and loss of market share. We expect that product life cycles will
remain relatively short and that the average selling price and gross margins for
our products will decline as each product matures. Accordingly, we must
introduce new products on a timely basis with improved performance
characteristics. Further, we must reduce production costs and sell sufficient
volumes in order to maintain gross margins. If we fail to reduce our production
costs or achieve volume shipment requirements, our product margins will decline
rapidly. Any of the above events could have a material adverse effect on our
business, results of operations and financial condition.
In 1998 and 1999, we recorded approximately $5.6 million and $2.6 million,
respectively, in deferred stock compensation for stock options granted during
1999 at prices subsequently deemed to be below fair market value on the date of
grant. Options granted are typically subject to a four year vesting period.
Stock grants are generally subject to our right to repurchase the stock, which
lapses over a four year period. We are amortizing the deferred stock
compensation over the vesting periods of the applicable options and the
repurchase periods for the restricted stock. We amortized approximately $880,000
and $4.0 million of deferred stock compensation in 1998 and 1999, respectively,
leaving approximately $3.3 million to be amortized over the remaining vesting
periods.
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999 AND 1998
Net Revenues. Our net revenues increased to $64.3 million in 1999 from $9.2
million in 1998. The increase in net revenues in 1999 was primarily a result of
increased unit sales of the SMS 1000 and, to a lesser extent, sales of the new
SMS 500. The increase in SMS 1000 sales was attributable to increased
marketplace acceptance of the product and resulting deployment of our products
by our carriers and service provider customers as well as higher average selling
prices due to changes in product configurations.
Cost of Revenues; Gross Margin. Our cost of revenues increased to $18.7
million in 1999 from $3.6 million in 1998 as a result of increased sales of the
SMS 1000 and SMS 500 products. Gross margin, expressed as a percentage of net
revenue, increased to 71% in 1999 from 61% in 1998 primarily due to reduced
costs of key components, a decrease in related overhead cost as a percentage of
revenues resulting from an increase in shipments, and changes in product
configuration. Changes in product configuration will cause our gross margins to
vary in future periods.
Research and Development. Our research and development expenditures
increased to $21.1 million in 1999 from $5.7 million in 1998. This increase was
primarily attributable to increased personnel costs
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associated with research and development efforts for the new SMS 500 and SMS
1800 and new features and functionality for existing products, as well as the
development of future products. To date, we have expensed research and
development expenses as incurred. Because the market for our products is
characterized by rapidly changing technology, industry standards and customer
demands, we expect our research and development expenses to continue to increase
in absolute dollars in future periods.
Selling, General and Administrative. Our selling, general and
administrative expenditures increased to $30.2 million in 1999 from $8.9 million
in 1998 due to the addition of sales and administrative personnel to support our
expanded operations, commissions on higher sales, costs associated with our
expansion into foreign markets and additional marketing costs to generate
greater product awareness. We anticipate that selling, general and
administrative expenses will continue to increase in absolute dollars as a
result of increases in sales force personnel, commissions on higher revenues,
additional marketing activities and costs associated with public company
reporting requirements.
Amortization of Deferred Stock Compensation. Our amortization of deferred
stock compensation expense increased to $4.0 million in 1999 from $880,000 in
1998. This increase was a result of a greater number of shares of stock and
stock options granted during the last two quarters of 1998 and the first quarter
of 1999, which was associated with our increased hiring efforts and the
amortization of deferred compensation on prior grants. Deferred stock
compensation expense is amortized over the vesting period of the options which
is generally four years. As a result, the amortization of deferred stock
compensation will impact our reported results of operations through the first
quarter of 2003, including approximately $2.0 million in 2000.
Interest and Other Income, Net. Our interest and other income increased to
$2.2 million in 1999 from $254,000 in 1998 due primarily to the interest earned
on the proceeds received from our initial public offering, which was completed
in May of 1999. Our interest expense increased to $297,000 in 1999 from $251,000
in 1998, primarily due to higher interest expense charges resulting from higher
average capital lease obligations in 1999.
YEARS ENDED DECEMBER 31, 1998 AND 1997
Net Revenues. Our net revenues increased to $9.2 million in 1998 from
$48,000 in 1997 as we began shipping the SMS 1000 in material quantities.
Cost of Revenues; Gross Margin. Our cost of revenues increased to $3.6
million in 1998 from $29,000 in 1997 as we began shipping the SMS 1000 in
material quantities. Gross margin increased to 61% in 1998 from 40% in 1997
primarily due to decrease in related overhead costs as a percentage of revenues
resulting from an increase in shipments.
Research and Development. Our research and development expenses increased
to $5.7 million in 1998 from $3.2 million in 1997. This increase was mainly due
to an increase in the number of research and development personnel and related
costs associated with the development of the SMS 500 and new features and
functionality of the SMS 1000.
Sales, General and Administrative. Our selling, general and administrative
expenses increased to $8.9 million in 1998 from $1.3 million in 1997 due to the
addition of sales and administrative personnel, commissions on higher sales and
additional marketing costs and facility expenses.
Amortization of Deferred Stock Compensation. In 1998, we recorded
amortization of deferred stock compensation of $880,000 in connection with stock
and stock options granted during 1998 at prices subsequently deemed to be below
fair market value on the date of grant.
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Interest and Other Income, Net. Our interest and other income net decreased
from $136,000 in 1997 to $3,000 in 1998, due primarily to additional interest
arising from higher average capital lease objections in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Since our inception, we have financed our operations through private and
public sales of securities and, to a lesser extent, bank borrowings, equipment
lease financing and our operating activities. During 1999, we generated $910,000
from operating activities, as compared to 1998 where we used $6.6 million. Cash
provided by operating activities resulted from increases in our liabilities,
primarily deferred revenue (due to invoicing and cash receipts in excess of
revenue), accounts payable and accrued liabilities, partially offset by an
increase in our net loss, and increases in inventory and accounts receivable
balances. We anticipate that accounts receivable and inventory will continue to
increase if our revenues continue to rise.
Our principal source of liquidity as of December 31, 1999 consisted of
$13.9 million in cash and cash equivalents as well as $43.1 million in
short-term investments. As of December 31, 1999, we had $123,000 in outstanding
bank indebtedness, all of which was due under a term loan with one of our
banking institutions.
Purchases of property and equipment, including equipment purchased under
capital leases, increased to $9.6 million in 1999 from $2.7 million in 1998 and
consisted primarily of purchases of test equipment and computer equipment,
including workstations and servers to support our increased research and
development activities and to support our expanded operations. We expect our
capital expenditures to increase as we further expand our research and
development efforts, our employee base grows and we continue to expand into
international markets. The timing and amount of future capital expenditures will
depend primarily on our future growth. As of December 31, 1999, we had $1.8
million in outstanding capital lease obligations. Additionally, we provided a
$25 million bridge loan to Siara of which $4 million was borrowed as of December
31, 1999. The borrowings bear interest at the prime rate and are convertible
into shares of Siara capital stock at Siara's option.
For the year ended December 31, 1999, cash provided by financing activities
of $60.7 million was primarily due to our initial public offering in May of 1999
of 5,750,000 shares of common stock for net proceeds of approximately $60.0
million and other issuances of common stock. These proceeds were partially
offset by the repayment of bank borrowings.
We believe that our existing cash balances and anticipated cash flows from
operations will be sufficient to meet our operating and capital requirements,
for at least the next 12 months. However, we could be required, or could elect,
to raise additional funds during that period and we may need to raise additional
capital in the future. Additional capital may not be available at all, or may
only be available on terms unfavorable to us. Any additional issuance of equity
or equity-related securities will be dilutive to our stockholders. Further, if
the merger agreement is terminated because Redback's board of directors fails to
recommend the merger or because it recommends an extraordinary transaction other
than this merger or because Redback enters into a definitive agreement relating
to an extraordinary transaction other than this merger, then Redback will be
obligated to pay Siara a termination fee of $135 million. Redback will also pay
Siara a termination fee of $50 million if Redback stockholders do not approve
and adopt the merger agreement, the merger or an amendment to Redback's
certificate of incorporation to increase Redback's authorized stock to an amount
sufficient to allow Redback to carry out the merger.
YEAR 2000 IMPACT
We have not experienced any problems with our computer systems relating to
such systems being unable to recognize appropriate dates related to the year
2000. We are also not aware of any material
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problems with our customers or suppliers. Accordingly, we do not anticipate
incurring material expenses or experiencing any material operational disruption
as a result of any year 2000 issues.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Financial
Instruments and Hedging Activities", or SFAS No. 133, which establishes methods
of accounting for derivative financial instruments and hedging activities.
Because Redback currently holds no derivative instruments and does not engage in
hedging activities, Redback expects that the adoption of SFAS No. 133 will have
no impact on its financial position, results of operations or cash flows.
Redback will be required to adopt SFAS No. 133 for the year ending December 31,
2001.
In December 1999, the SEC issued Staff Accounting Bulletin, or SAB, 101,
"Revenue Recognition," which provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. At this time,
the Company is still assessing the impact of SAB 101 on its financial position
and results of operations.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 1999, Redback's investment portfolio includes $43
million of short-term U.S. government obligations, commercial paper and other
corporate securities which are subject to no interest rate risk when held to
maturity but may increase or decrease in value if interest rates change prior to
maturity. Redback currently maintains sufficient cash and cash equivalent
balances to typically hold its investments to maturity. An immediate 10% change
in interest rates would be immaterial to Redback's financial condition or
results of operations.
Redback's sales to customers in foreign countries are denominated in U.S.
dollars. Accordingly, the company is not directly exposed to market risks from
currency exchange rate fluctuations. However, significant fluctuations in
foreign exchange rates relative to the U.S. dollar could impact our customer's
ability to pay for our products. Any changes in foreign exchange rates relative
to the U.S. dollar could have a material adverse effect on Redback's financial
position, results of operations and cash flows.
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REDBACK'S BUSINESS
OVERVIEW
Redback is a leading provider of advanced networking systems that enable
carriers, cable operators and service providers to rapidly deploy high-speed
access to the Internet and corporate networks. Our products, consisting of the
SMS 500, SMS 1000 and SMS 1800, combine networking hardware with sophisticated
software. Our products connect and manage large numbers of subscribers using any
of the major high-speed access technologies, including digital subscriber line,
cable and wireless. We sell our products through our direct sales force,
resellers and distribution partners.
Bridging the gap between high-speed access concentrators and routers
connecting to the Internet backbone, our flagship product, the SMS 1000, is
currently being used by many of the largest carriers and service providers.
UUNET, a subsidiary of MCI Worldcom, SBC, Southwestern Bell Information Services
and Pacific Bell Internet, subsidiaries of SBC and GTE have been, since
inception, our largest customers in terms of revenues. Other representative
customers include Ameritech, Bell Canada, Bell South, Concentric, Earthlink,
Flashcom, Korea Telecom, Verio and @Work, a division of @Home.
INDUSTRY BACKGROUND
INCREASING DEMAND FOR BROADBAND ACCESS SERVICES
In recent years, there has been a significant increase in demand by
businesses and consumers for broadband, or high-speed, access to the Internet
and to corporate networks. Increasing numbers of users are relying on networks
based on Internet Protocol, the dominant software standard for the Internet, to
access corporate intranets and the Web and to participate in network-dependent
activities such as email, electronic commerce, telecommuting and on-line
entertainment. Consumers are seeking low-cost, high-speed access to
bandwidth-intensive Internet content and services such as highly graphical Web
sites, audio, video and high-speed data. Businesses have even greater
requirements for high-speed access in order to implement electronic commerce
strategies or Web-based business models, and to provide employees and others
with robust telecommuting capabilities. These applications often require the
transmission of large, multimedia-intensive files, which is practical only with
high-speed data access services.
EMERGING BROADBAND INTERNET ACCESS OPTIONS
Carriers, cable operators and service providers are responding to this
demand for high-speed access by providing inexpensive and comprehensive
broadband services. These services deliver "always on" availability that
eliminates the tedious dial-up process associated with analog modem
technologies. Changes in telecommunications regulations have facilitated the
development of broadband strategies by local access providers, using the
following technologies:
Digital Subscriber Line. The market for digital subscriber line services is
expanding rapidly. Digital subscriber line operates over standard copper
telephone wires, utilizing an extensive network infrastructure that can be
upgraded for broadband services. Various implementations of digital subscriber
line are being developed and deployed, including full-rate consumer oriented
asymmetrical digital subscriber line and G.lite and business oriented
symmetrical digital subscriber line. Digital subscriber line can also serve as
an affordable replacement for dedicated lines used to deliver high-speed data
services. Incumbent local exchange carriers, including Ameritech, Bell Atlantic,
Bell South, GTE, Pacific Bell, SBC and US West, have deployed digital subscriber
line services. Telecommunications regulatory reform has enabled the new
competitive local exchange carriers and leading Internet exchange carriers,
including Covad Communications, MCI Worldcom, NorthPoint Communications, Rhythms
NetConnections, and Sprint, to provide digital subscriber line service over the
same telephone infrastructure used by the local exchange carriers.
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Interactive Cable. High-speed interactive communication across the cable
infrastructure is made possible by the combination of two-way cable, cable
modems installed in the home and cable modem termination systems installed at
major cable concentration points. Several companies are currently deploying
broadband access services across two-way cable, including @Home and TimeWarner,
through its Roadrunner service. With upgrades to two-way cable, cable operators
are well positioned to deploy broadband access services.
Wireless. As an alternative to wireline access, carriers and service
providers are using wireless technologies to provide cost-effective broadband
access. Many of these providers are in the early stages of using their licenses
to deploy broadband wireless access services.
Fiber-to-the-Curb. Fiber optic cable supports an alternative broadband
access technology based on light and photonics that offers nearly unlimited
bandwidth capacity. Where deployment costs are justified by service opportunity,
fiber optic cable is being deployed in the "last mile" from the telephone
central office to the subscriber. Recent fiber-to-the-curb initiatives have been
pursued by several local exchange carriers.
OBSTACLES TO DEPLOYING BROADBAND ACCESS
Regardless of the type of broadband access delivered, deployments of
broadband services pose several major challenges associated with scaling and
configuring existing architectures to accommodate large numbers of new
high-speed subscribers. The traditional dial network model, relying on analog
modems and standard telephone lines, is structured so that service providers can
aggregate subscribers using remote access servers, located at the service
providers' data centers. Although constrained by speed, this network model
allows service providers not only to aggregate subscriber connections and pass
the traffic to routers, but also to manage subscriber provisioning,
authentication and accounting in the remote access server.
With broadband access technologies, however, subscriber connections are
first concentrated by the carriers and cable operators using technology-specific
access concentrators such as digital subscriber line access multiplexers and
cable modem termination systems. From there, high-speed data circuits are
aggregated at a central facility by carriers, cable operators or other service
providers who terminate subscriber connections and provide backbone connectivity
to the Internet. These service providers therefore need to manage thousands of
subscribers' connections and to route subscribers' data to and from the
Internet. While service providers have been using traditional routers to provide
both the circuit termination and Internet connectivity functions, routers were
only designed to address the Internet connection task and are limited to
managing several hundred subscribers, significantly less than the thousands of
potential subscribers associated with a widely deployed service. In addition,
unlike existing remote access servers used in the traditional analog modem dial
network model, routers were not designed to provide broadband subscriber
management functions such as provisioning, authentication and accounting.
Broadband technologies pose additional challenges for service providers
interested in offering more than one type of broadband service. Each broadband
access technology uses different equipment at the service provider's facility.
As a result, service providers offering multiple broadband services
significantly increase their costs, as they must purchase different routers and
deploy different operational models for
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each broadband service they choose to offer to their subscribers. The
traditional broadband network model is depicted below:
SEPARATE NETWORKS FOR EACH ACCESS TECHNOLOGY
[DIAGRAM]
Another obstacle to deploying broadband services is the point-to-point, or
dedicated, nature of broadband access technologies. Whether the access method is
digital subscriber line, cable or wireless, each of these technologies provides
a dedicated link from one starting point, such as a home or small office, to a
single destination network, such as a service provider or a corporation. Thus, a
telecommuter who purchases a digital subscriber line service for connecting to a
corporate network is unable to use the same line to access directly a consumer
service provider for personal Web surfing.
There is a growing demand from carriers, cable operators and service
providers to address these issues so that they are able to provide their
customers with reliable, scalable, easy-to-use high-speed access on a
cost-effective basis. Carriers, cable operators and service providers require
highly scalable networks and the ability to manage and groom individual
subscriber data streams into simplified Internet Protocol flows for routers
connecting to the Internet backbone. Service providers must be able to rapidly
and cost-effectively aggregate data streams from diverse broadband access
technologies from different carriers and cable operators.
THE REDBACK SOLUTION
Redback provides solutions that make it possible for carriers, cable
operators and service providers to connect and manage large numbers of
subscribers using high-speed access technologies such as digital subscriber
line, cable and wireless. Our SMS 500, SMS 1000 and SMS 1800 let carriers, cable
operators and service providers connect thousands of subscribers quickly and
cost-effectively, as well as manage subscriber accounts and service profiles.
Carriers, cable operators and service providers are able to deliver
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different kinds of high-speed access and a variety of service offerings with a
single operational structure. Our SMS network model is described below:
REDBACK SUPPORTS ALL MAJOR BROADBAND TECHNOLOGIES
[DIAGRAM]
Key benefits of our solution include the following:
Enhances Broadband Operations. Our products bridge the operational gap
between "last mile" access networks that serve businesses and homes and the
routers connecting to the Internet backbone used by service providers. Our
products accept a large concentration of high-speed data traffic from multiple
access concentrators and translate it to an Internet Protocol data stream,
relieving routers connecting to the Internet backbone of traffic translation and
management responsibilities. In this process, our products manage individual
subscriber connections and reduce the number of routers required for widespread
deployment of broadband services.
Supports All Major Access Technologies. Our products provide and support a
consistent operational model across major access technologies including digital
subscriber line, cable, wireless and dial, and can be deployed by all types of
access providers, including incumbent and competitive local exchange carriers,
cable operators and service providers. For example, a service provider, using
the SMS, can offer digital subscriber line services today and later add or
resell a cable or wireless service offering through the same SMS 500, SMS 1000
or SMS 1800. With our products, providers are able to utilize one product and
one familiar operational model to deliver multiple broadband access technologies
to serve thousands of subscribers.
Facilitates Rapid and Scalable Deployment. Our products support service
providers' existing accounting and management software systems. This enables
service providers to quickly deploy new high-speed access services and thus gain
a critical advantage in the highly competitive Internet access market. For
example, our products have built-in support for the industry standard for
accounting and security databases, as well as support for the major digital
subscriber line protocols and implemen-
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tations. To further facilitate rapid deployment, we designed our products to be
interoperable with equipment from multiple vendors, for each integration into
existing networks. Our products are compatible with existing routers and support
high performance levels, thereby eliminating the need to purchase new routers.
Once in place, the SMS 500, SMS 1000 and SMS 1800 architecture is inherently
more scalable than a router-based architecture. The SMS 1000 and SMS 1800
currently support 8,000 simultaneous subscriber sessions, over fifteen times the
number of subscribers supported by conventional routers.
Provides Platform for the Delivery of Value-Added Services. Our SMS enables
providers to create and market new service offerings that leverage basic
broadband connectivity and capabilities. The multiple context functionality of
our products lets service providers configure subscribers to access multiple
services across a single physical link. For example, a telecommuter can access a
corporate network from home while his or her family simultaneously accesses
consumer Internet services through the same connection. Thus, a service provider
previously generating a flat monthly access fee can offer value-added services
and generate multiple revenue streams through "re-profiling". In addition, a
wholesale provider of network services can partition high-speed transport
services among multiple service providers or corporate customers through a
single SMS 500, SMS 1000 or SMS 1800 with "re-selling". A large provider can use
this capability to provide wholesale access to up to hundreds of smaller
providers per SMS 1000 or SMS 1800 chassis -- a significant improvement for
wholesale transactions.
Simplifies End-User Administration and Support. Our approach allows easy
configuration and administration of end-user broadband modems, reducing service
providers' costs and enhancing their ability to rapidly deploy services to
thousands of subscribers. For example, we utilize a standard networking protocol
to provide individualized services for multiple users sharing a single
connection, such as multiple PCs in a home or office. Our products also support
a variety of means to manage users, resulting in reduced training and lower
operational expenses.
STRATEGY
Our objective is to be the leading provider of advanced networking systems
that enable carriers, cable operators and service providers to rapidly deploy
high-speed access to the Internet and corporate networks. Key elements of our
strategy include the following:
Extend Leadership in the Carrier and Service Provider Market. We are
focused on delivering subscriber management solutions to carriers and service
providers and have established early market leadership in the digital subscriber
line market through account wins in several major networks. We currently have
orders or installations at four of the five RBOCs, including SBC, Bell Atlantic,
Bell South and Ameritech, as well as installations at other national and
international carriers, including Bell Canada, GTE and Korea Telecom.
Additionally, we have several leading service providers as customers, including
UUNET, a subsidiary of MCI Worldcom, Earthlink, Concentric, Southwestern Bell
Information Services and Pacific Bell Internet, subsidiaries of SBC, and @Work,
a division of @Home. We plan to extend our market leadership position by
continuing to invest in sales and marketing efforts that let us further
penetrate existing accounts, develop early customer relationships and win new
service provider accounts for all types of broadband access.
Penetrate Cable and Wireless Broadband Markets. We intend to use our
leadership position in digital subscriber line subscriber management to
penetrate other critical broadband access markets, such as cable, wireless and
fiber-to-the-curb. We plan to continue to enhance our solutions that support
multiple broadband access technologies and to expand our sales and marketing
efforts.
Our solution has gained acceptance across multiple broadband access markets
by offering service providers the ability to support multiple broadband access
markets.
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Expand Global Distribution and Strengthen Relationships with Distribution
Partners. We currently pursue a direct and indirect sales strategy to penetrate
carrier, cable operator and service provider organizations in North America,
focusing primarily on large Internet service providers, or ISPs, and incumbent
and competitive local exchange carriers. We also target smaller service
providers through resellers that participate in our authorized PowerPartners
program. Resellers who participate in our PowerPartners program sell our
products to their customers. We do not have formal partnership agreements with
resellers who participate in our PowerPartners program. However, we offer
participating resellers discounts, technical training materials, access to an
exclusive web-site and exclusive marketing and sales materials.
Since inception, a substantial majority of our revenues have been generated
through direct sales. We have expanded our presence globally by increasing the
scope and size of our sales force by adding dedicated sales resources in both
Europe and Asia. To further support our global sales objectives, we have
established relationships with companies such as Nokia, which are leading
communications and networking companies with significant customer relationships
in place. Although we do not have formal partnership agreements with these
companies, which we refer to as distribution partners, they have enabled us to
rapidly expand our global sales presence and to leverage their established
relationships with major carriers and service providers. Unlike resellers who
participate in our PowerPartners program that sell our product directly to their
customers, our distribution partners integrate our products into their products
and sell the integrated product to their customers.
Leverage Leading Software Capabilities. We believe our products' operating
system software differentiates our solution and gives us a competitive advantage
in the marketplace. We intend to continue to enhance our wholesale, security,
bandwidth management, subscriber accounting and billing, and network management
capabilities with our highly experienced team of software engineers. We expect
our current and future products will share a common software foundation and
offer a consistent operational model.
Enable New Consumer and Business Services. We believe our solution provides
a highly flexible platform for the creation and delivery of new value-added
services. We will continue to work directly with our customers to develop
features and functionality that further enhance the ability of service providers
to deliver profitable new broadband-based services. We believe this approach
will increase the value we offer in both new and existing installations, as well
as contribute to the continued business success of our customers. Examples of
these new services include tiered "gold" or "platinum" high-availability
services, virtual private networks and bundled teleworker services.
Deliver Broad Product Family. Our flagship SMS 1000 and the next-generation
SMS 1800 are targeted at carriers, cable operators and large service providers.
We have expanded our product offering with the SMS 500, which is targeted at
service provider facilities with fewer subscribers than those using the SMS 1000
or SMS 1800. Our strategy is to continue to leverage our products' operating
system software across multiple access technologies and products. In so doing,
we intend to address a range of functionality, density and application
requirements of carriers, cable operators and small and large service providers.
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CUSTOMERS
The following is a list of companies that have purchased at least $200,000
worth of our products and services:
<TABLE>
<CAPTION>
SERVICE PROVIDERS CARRIERS RESELLERS
----------------- -------- ---------
<S> <C> <C>
Advanced Telecom Group Ameritech ComTrend
Concentric AT&T Wireless ECI Telecom
Earthlink Bell Atlantic Fujitsu
First World Communications Bell Canada GTI
Flashcom Bell South Lucent
InterQuest Communications CHT NCA
JumpPoint Communications France Telecom Nokia
MindSpring Enterprises GTE Network Systems Integrators
Pacific Bell Internet, a subsidiary of SBC Korea Telecom Plexus Technology
Primary Network Communications QWEST Communications Solunet
PSI Net SBC Starcom
Southwestern Bell Information Southern N.E. Telephone Structured Communications
Systems, a subsidiary of SBC Sprint Sumitomo Electronics
UUNET, a subsidiary of MCI Worldcom Williams Communications
Verio
@Work, a division of @Home
</TABLE>
The following examples illustrate how organizations are using our products
to deploy broadband service offerings.
NETWORK SERVICE PROVIDER
One of the world's largest network service providers announced that it
intended to roll out its digital subscriber line service in 1999. The rollout,
which was one of the largest digital subscriber line deployments offered by any
service provider to date, included two different categories of digital
subscriber line services: (1) symmetrical digital subscriber line services
designed to support business applications such as Web hosting, e-commerce and
bulk file transfer; and (2) asymmetrical digital subscriber line services
targeted at consumer applications such as Internet surfing, home shopping and
interactive games. In order to offer a broad deployment on a rapid time
schedule, the service provider required a solution that would enable it to
quickly and easily scale to large proportions.
The network service provider chose us to anchor its digital subscriber line
service offering, and deployed the SMS 1000 as an edge device that performs all
of the aggregation, management and conversion functions necessary to deliver
router-ready Internet Protocol data streams to the backbone. The network service
provider will aggregate as many as 8,000 subscribers per SMS 1000 over
high-speed links issuing from various central office sources. The network
service provider will be able to handle the extra volume of traffic resulting
from high-speed digital subscriber line without adding any more router power to
its backbone. Using the SMS 1000's powerful multiple context functionality, the
network service provider will deliver wholesale digital subscriber line
services.
INTERNET SERVICE PROVIDER
One of the largest consumer ISPs was interested in adding broadband access
to its portfolio of access services. The ISP was already a leader in traditional
dial-up access with hundreds of thousands of subscribers, and was looking to add
cable access and asymmetrical digital subscriber line access over various
transfer modes. Specifically, the ISP received digital subscriber line capacity
from strategic wholesale partners, and cable capacity through an affiliated
cable operator. The ISP was facing the issue of how to cost-effectively
aggregate subscriber traffic from these different access technologies while
maintaining its existing, and highly successful, operational model.
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By using our SMS 1000 in its large subscriber aggregation points, the ISP
was able to concentrate its different digital subscriber line and cable feeds
using a single vendor's device. Additionally, because the SMS 1000 was fully
integrated with the ISP's existing billing and authentication systems, the ISP
was able to leverage and retain its many years of operating expertise and
continue using its existing operational model with new broadband service
offerings.
INCUMBENT LOCAL EXCHANGE CARRIER AFFILIATE
An unregulated affiliate of an incumbent local exchange carrier had been
operating trials of its digital subscriber line Internet access service in a
limited number of communities and households for over a year and planned to
announce a much broader service deployment and breakthrough pricing levels. The
affiliate needed a highly scalable and production-proven solution to handle the
massive demand it expected to receive for its services. It was looking for a
solution that would improve upon the router-based architecture already in use in
the service trials.
The affiliate selected our SMS 1000 as the subscriber management platform
to aggregate subscriber traffic in its service. Today, SMS 1000s are being
deployed in the affiliate's digital subscriber line-enabled subscriber
aggregation points to manage live traffic from thousands of subscribers, and the
service deployment has been scaling rapidly.
SALES AND MARKETING
We sell our products through a direct sales force, resellers, and
distribution partners. Our direct sales force is located in North America and is
focused on the largest service provider, cable operator and carrier
opportunities. As of December 31, 1999, our direct sales force consisted of
approximately 90 persons located in various cities throughout North America,
Europe and Asia.
We have a variety of marketing programs and initiatives to support the sale
and distribution of our products. The audience for these activities includes our
sales organization, distribution partners and authorized resellers, existing and
prospective customers, and the trade press, analysts and others who are
influential in the industry. Marketing activities include participation in
technical conferences, preparation of sales tools, business cases, competitive
analyses and other marketing collateral, sales training, publication of customer
deployments, new product information and educational articles in industry
journals, maintenance of our World Wide Web site and direct marketing to
prospective customers. We also participate in leading industry tradeshows, such
as Networld + InterOp in Las Vegas, where we received an award for Best of Show
in May 1998 in the Wide Area Network, or WAN, and remote access devices
category. We were also awarded Telecommunications Magazine's "Hot Start-up"
award for 1999.
PRODUCTS AND TECHNOLOGY
Our SMS enables broadband service providers to deliver high-speed Internet
access and services by bridging the operational gap between high-speed access
equipment in the telco central office or cable/wireless concentration point and
network service provider routers connecting to the Internet backbone. Whether
deployed at subscriber aggregation points by telecommunications carriers, by
cable operators or by service providers, the SMS 500, SMS 1000 and SMS 1800
accept a large concentration of high-speed data traffic from such devices as
digital subscriber line concentrators, cable modem termination systems, and
wireless termination systems. The SMS 500, SMS 1000 and SMS 1800 apply scalable
user configuration and management to the data streams, and then perform all of
the translations necessary to convert the traffic to Internet Protocol,
relieving the service provider backbone routers of frame translations that can
cause congestion on high-volume networks.
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DESCRIPTION OF THE SMS PRODUCT FAMILY
We currently offer three products: (1) the SMS 500; (2) the SMS 1000; and
(3) the SMS 1800.
SMS 500. Targeted initially for service provider facilities with fewer
subscribers than those using the SMS 1000, we released the SMS 500 for general
availability in March 1999. The SMS 500 is a smaller chassis with two modular
interface slots and supports up to 2,000 simultaneous subscribers. The SMS 500
supports ATM, Frame Relay and 10/100 megabit Ethernet, as well as T-1
connections.
SMS 1000. We began shipping the flagship SMS 1000 in December 1997. UUNET,
a subsidiary of MCI Worldcom, SBC, Southwestern Bell Information Systems and
Pacific Bell Internet, subsidiaries of SBC and GTE have been, since inception,
our largest customers in terms of revenues. Other representative customers
include Ameritech, Bell Canada, Bell South, Concentric, Earthlink, Flashcom,
Korea Telecom, Verio and @Work, a division of @Home. They are representative in
terms of, among other things, the type of provider, the mixture of broadband
services offered and the mixture of regional versus national deployment. Each
SMS 1000 today can support up to 8,000 simultaneous subscribers and is targeted
at major ISPs, incumbent and competitive local exchange carriers and cable
operators. The chassis consists of six modular interface slots, which can be
populated with modules supporting DS-3 and OC-3 ATM, DS-3 Frame Relay, 10/100
megabit Ethernet and other transmission protocols. The product also has E1 and
E3 modules for Europe and Asia.
SMS 1800. We began shipping the SMS 1800 in October 1999. The SMS 1800 is
the next-generation version of the SMS 1000 and its target market is the same as
that of the SMS 1000. To date, the revenues generated from the SMS 1800 have not
been significant.
SMS OPERATING SYSTEM SOFTWARE
Our operating system software is an advanced operating system developed to
optimize the subscriber management and routing functions in our products. Our
operating system software operates on the SMS 500, SMS 1000 and SMS 1800, and
was developed specifically to support the aggregation of large numbers of
subscriber circuits. It supports a large variety of network protocols in use in
the industry today, and provides sophisticated traffic management features.
In addition, our operating system software supports the routing and
bridging of Internet Protocol packets and is capable of running dynamic routing
protocols. Our operating system software supports the unique capability to
dynamically bind subscriber sessions to services. This capability enables
dynamic service selection to be deployed by carriers and service providers
alike. Our operating system software also supports the Layer 2 Tunneling
Protocol, or L2TP, which is critical to the deployment of virtual private
networks by service providers. We are a co-author of the PPP-over-Ethernet
specification, a protocol that greatly simplifies broadband access and service
provider selection, and the functionality in our operating system software is a
leading implementation of this protocol. Another distinguishing feature of our
operating system software is its support for multiple contexts, which allows a
service provider to partition a single SMS unit into as many as twenty multiple
virtual logical devices.
Some of the key functions that our operating system software supports
include:
Traffic Management Features. Traffic management features, including
policing and rate limiting, support the creation of different service classes
and provide service providers with predictable traffic behavior for better
management of their networks.
Routing Protocol Support. Our operating system software includes support
for various popular routing protocols. In addition, we will continue to leverage
and expand the routing protocol support that our product line offers.
Layer 2 Tunneling Protocol (L2TP). We support Layer 2 Tunneling Protocol,
or L2TP, the standard method of building a virtual private network that allows
fixed and mobile users, including
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telecommuters, to simulate a private network using a shared infrastructure, such
as the Internet. Virtual private networks also allow mobile users to make secure
connections to their corporate intranets or extranets over the public Internet.
Web-based Management. The Web-based management capabilities in our
operating system software allow service providers to streamline operations and
simplify troubleshooting through a common, easy-to-use browser interface.
Bulk Statistics. The bulk statistics capabilities in our operating system
software allow service providers access to information that enables them to
provide efficient storage and transfer of high volume accounting data.
RESEARCH AND DEVELOPMENT
We have assembled a team of highly experienced networking engineers with
experience at leading communications companies. Our engineering expertise
includes routers and routing protocols, access products, ATM/Frame Relay
switching, wide area network interfaces and network management. As of December
31, 1999, we employed approximately 100 engineers, with plans to continue
expanding all functional areas of the engineering organization. During 1999 and
1998, we spent $21.1 million and $5.7 million, respectively, on research and
development.
Our research and development process is driven by market demand. Product
development begins with a comprehensive functional product specification based
on input from the product management and sales organizations. In addition, we
value feedback from customers and have incorporated a significant amount of
customer-requested functionality to date. We are also active in industry bodies
and standards committees and utilize information from these organizations in the
product development process.
We are focusing development efforts on, among other things, supporting
carrier services and additional industry standards, expanding the capacity of
existing products and extending network management capabilities. In addition, we
are committed to extending the functionality of our operating system software to
enable additional competitive advantage for our customers.
CUSTOMER SERVICE AND SUPPORT
Our customer service and support organization installs and maintains
products sold worldwide by our direct sales force, as well as products sold by
our authorized resellers and partners. Generally, our distribution partners and
authorized resellers provide installation and first-level, or preliminary,
support to their customers, while we provide backup support. Our technical
assistance center employs systems engineers who work closely with our direct
sales personnel, partners and resellers to assist end users with post-sales
support issues. We have retained field systems engineers to provide pre-sales
support and installation services for direct sales customers.
MANUFACTURING
Our manufacturing operations consist primarily of prototype development,
materials planning and procurement, final assembly, testing and quality control.
We use several independent suppliers to provide printed circuit boards, chassis
and subassemblies. In addition, we use a combination of standard parts and
components obtained through Wyle Electronics, located in Santa Clara,
California. Several key components are purchased from sole or limited sources of
supply. See "Risk Factors -- Some of the key components in Redback's products
come from single or limited sources of supply."
We subcontract substantially all of our manufacturing to Electromax,
located in San Jose, California. We have developed our own products and specify
to Electromax the exact parts necessary to build these products. We or an
outside contractor then order and assemble these parts into subassemblies and
components and provide these subassemblies and components to Electromax.
Electromax then
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provides the labor to assemble, test and ship our products, pursuant to the
exact specifications provided to them by us. While Electromax is currently the
sole manufacturer of our products, we are not entirely dependent on Electromax
to manufacture our products. We have relationships with two other third-party
manufacturers, one of which currently builds our prototypes and both of which
have the capacity necessary to assemble, test and ship our products. Because we
maintain an inventory of parts sufficient to enable us to continue manufacturing
our products for at least two months, we would be able to supply another of our
third-party manufacturers with parts to commence the assembly, testing and
shipping of our products within a couple of weeks of the loss of any of our
third-party manufacturers. However, the loss of any of our third-party
manufacturers would prevent us from meeting our scheduled product deliveries to
our customers and would materially and adversely affect our business, results of
operations and financial condition. See "Risk Factors -- Redback's operating
results are likely to fluctuate significantly," and "-- Redback is dependent on
a single contract manufacturer."
COMPETITION
The broadband access markets we are targeting, including digital subscriber
line, cable and wireless, are new and rapidly evolving and we expect these
markets to become highly competitive in the future. In addition, we expect that
new competitors will emerge as the market for broadband access itself evolves
due to technological innovation and regulatory changes. We encounter current or
potential competition from public and private companies providing routers
connecting to the Internet backbone, access concentrators and subscriber
aggregation systems.
Cisco, the leading provider of routers connecting to the Internet backbone,
offers products that compete directly with our products, and also provides a
comprehensive range of broadband access systems. We expect companies that offer
access concentrators and routers to incorporate some subscriber management
functionality into their products. These companies include Nortel Networks which
recently agreed to acquire Shasta, a private company providing subscriber
management services, and Ascend, which has announced its pending acquisition by
Lucent. In addition, there are private companies that provide subscriber
management features in access concentrators or routing platforms.
Some of our current and potential competitors, including Cisco, Alcatel,
Nortel Networks/Shasta and Lucent/Ascend are large public companies that have
longer operating histories and significantly greater financial, technical,
marketing and other resources than we do. As a result, these competitors are
able to devote greater resources to the development, promotion, sale and support
of their products. In addition, competitors with large market capitalizations or
cash reserves are much better positioned than we are to acquire other companies,
including our competitors, and thereby acquire new technologies or products that
may displace our product lines. Any of these acquisitions could give the
acquiring competitor a strategic advantage that would materially adversely
affect our business, results of operations and financial condition.
Many of our competitors have significantly more established customer
support and professional services organizations than we do. In addition, many of
our competitors have more extensive customer bases and broader customer
relationships than us, including relationships with many of our current and
potential customers. Moreover, these competitors often have broader product
offerings than we do. These companies can leverage their customer relationships
and broader product offerings and adopt aggressive pricing policies to gain
market share. As a result, we may not be able to maintain a competitive position
against current or future competitors. Our failure to maintain and enhance our
competitive position within the market could seriously harm our business,
results of operations and financial condition.
PATENTS AND PROPRIETARY RIGHTS
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology. We rely on a combination
of patent, trademark, copyright and
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trade secret laws, employee and third-party nondisclosure agreements and
licensing arrangements to protect our intellectual property. These legal
protections afford only limited protection for our technology. We have one
patent application pending in the United States and we have no foreign patents
or patent applications. Our pending patent application may not result in the
issuance of any patents. If any patent is issued, it might be invalidated or
circumvented or otherwise fail to provide us any meaningful protection. In
addition, we cannot be certain that others will not independently develop
substantially equivalent intellectual property or otherwise gain access to our
trade secrets or intellectual property, or disclose our intellectual property or
trade secrets, or that we can meaningfully protect our intellectual property.
Our failure to protect our intellectual property effectively could have a
material adverse effect on our business, financial condition or results of
operations. We have licensed technology from third parties for incorporation
into our units, and we expect to continue to enter into such agreements for
future products. Our licenses may result in royalty payments to third parties,
the cross-license of technology by us or payment of other consideration. If our
arrangements are not concluded on commercially reasonable terms, our business,
financial condition or results of operations could be materially adversely
affected.
FACILITIES
As of December 31, 1999, Redback's principal administrative, sales,
marketing and research and development facilities occupied approximately 50,000
square feet in total in Sunnyvale, California pursuant to leases that expire
March 2000 and November 2000. In October 1999, we signed a lease agreement for a
total of 196,000 square feet in San Jose, California to replace the existing
locations as their lease terms expire. We will move our research and development
operations into the first 97,000 square foot building in March of 2000. During
the first quarter of 2001, the administrative, sales and marketing operations
will move into the second building occupying 99,000 square feet. Additionally,
we have an option on a third building that is 76,000 square feet. We will
continue to monitor our space requirements and will exercise our option should
the space become necessary. We have sales offices throughout the United States,
including regional sales offices in California, Colorado, Virginia and
Washington as well as international offices in Rotterdam, Holland and Singapore.
We believe that our existing facilities and facilities for which we have
committed, are adequate.
LEGAL PROCEEDINGS
Redback is not aware of any pending legal proceedings against it that,
individually or in the aggregate, would have a material adverse effect on its
business, results of operations or financial condition. We may in the future be
party to litigation arising in the course of our business, including claims that
we allegedly infringe third-party trademarks and other intellectual property
rights. These claims, even if not meritorious, could result in the expenditure
of significant financial and managerial resources.
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SIARA MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following commentary should be read in conjunction with the financial
statements and related notes contained elsewhere in this joint proxy
statement/prospectus. The discussion contains forward-looking statements that
involve risks and uncertainties. These statements relate to future events or our
future financial performance. In many cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "expects," "plans,"
"anticipates," "believes," "estimates," "predicts," "potential," "intend" or
"continue," or the negative of such terms and other comparable terminology.
These statements are only predictions. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of a
variety of factors, including, but not limited to, those set forth under "Risk
Factors" and elsewhere in this joint proxy statement/prospectus.
Siara was incorporated in Delaware in March 1998. Activities prior to July
20, 1998, the beginning of our operations, were not significant. Comparisons
below have been made between the periods from our inception on July 20, 1998 to
December 31, 1998 and the year ended December 31, 1999.
OVERVIEW
Siara develops and markets optical access networking products that enable
electronic network service providers to cost effectively offer their customers
data at multiple bandwidths and to quickly create and deploy new high-speed data
services. Siara's target customers are competitive local exchange carriers,
incumbent local exchange carriers, long distance carriers, Internet service
providers, cable operators, foreign telephone companies and wholesale carriers.
Our access networking products are designed to allow network services providers
to better deploy, manage and optimize the performance of their fiber optic
networks.
Since our inception in 1998, we have incurred substantial costs to develop
our technology, to recruit and train personnel for our engineering, marketing
and technical support departments, and to establish an administrative
organization. As a result, we had an accumulated deficit of $98.4 million as of
December 31, 1999. We anticipate that our operating expenses will increase
substantially in the future as we further establish our sales and marketing
operations, fund greater levels of research and development, broaden our
technical support and improve our operational and financial systems.
Accordingly, we will need to generate significant revenues to achieve
profitability in the future. In addition, our limited operating history makes it
difficult for us to predict future operating results, and, accordingly, there
can be no assurance that we will achieve profitability in future periods.
As we have granted stock options to attract and retain key employees, we
have recorded unearned stock compensation of $374.4 million during the year
ended December 31, 1999. We have also recorded $247.0 million of unearned
compensation for grants of options and warrants to nonemployees and other third
party vendors. During the year ended December 31, 1999, we recorded amortization
expense for these options totaling $68.8 million. The remainder of this unearned
compensation will be recorded in the following periods:
- $290.0 million in the year ending December 31, 2000;
- $151.8 million in the year ending December 31, 2001;
- $81.4 million in the year ending December 31, 2002; and
- $29.4 million in the year ending December 31, 2003.
The amount of stock compensation expense to be recorded in future periods
could decrease if options for which accrued but unvested compensation has been
recorded are forfeited. However, when
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the non-employee options are periodically revalued pursuant to EITF 96-18, the
amount of stock compensation expense associated with those options may increase
in the future.
As of December 31, 1999, we had approximately $28 million of federal and
state net operating loss carryforwards for tax reporting purposes available to
offset future taxable income, which expire in varying amounts beginning in 2018
for federal and 2006 for state tax purposes. We have not recognized any benefit
from the loss carryforwards for any period since inception, because of the
uncertainty surrounding their realization. The amount of net operating losses
that we may utilize in the future may be limited under tax regulations in
certain circumstances including a cumulative stock ownership change of more than
50% over a three year period. It is possible that such a change may have already
occurred or could occur as a result of this merger.
We had 186 employees at December 31, 1999, which represents a substantial
increase from 39 employees as of December 31, 1998. This rapid growth has placed
significant demands on our management and operational resources. To manage our
growth effectively, we must implement and improve our operational systems,
procedures and controls in a timely manner.
RESULTS OF OPERATIONS
The year ended December 31, 1999 and the period from inception on July 20,
1998 to December 31, 1998
Revenue -- We recorded no revenue for the year ended December 31, 1999 and
the period from July 20, 1998 to December 31, 1998.
Research and Development -- Research and development expenses consist
primarily of salaries and related expenses for personnel engaged in research and
development, fees paid to consultants and outside service providers, material
costs, and other expenses related to the design and development of our future
products. Research and development expenses were $18.3 million for the year
ended December 31, 1999 and $2.7 million for the period from July 20, 1998 to
December 31, 1998. The increase in research and development expenses can be
largely attributed to an increase in personnel and payroll expenses of $10.2
million and an increase in costs from contractors performing research and
development work for Siara of $1.3 million. We believe that a significant level
of investment in product research and development is required to remain
competitive. Accordingly, we expect to continue to devote substantial resources
to product research and development and we expect these expenses to increase in
future periods.
General and Administrative -- General and administrative expenses consist
primarily of salaries and related expenses for executive, finance, accounting,
marketing, information technology, facilities, and human resources personnel,
professional fees and other administrative support costs. General and
administrative expenses increased to $6.9 million in the year ended December 31,
1999 from $1.0 million in the period from July 20, 1998 to December 31, 1998.
This increase is primarily the result of a $1.9 million increase in personnel
and payroll expenses and a $2.2 million increase in office related and
professional services expenses. These increases in administrative costs were
required to support our growing research and development operations, and we
expect these expenses to increase in the future as we expand our information
infrastructure and operations.
Interest and Other Income -- Interest and other income increased to
$152,000 in the year ended December 31, 1999 from $8,000 in the period from July
20, 1998 to December 31, 1998. The increase resulted from higher average
invested cash balances during the year ended December 31, 1999, as a result of
our equity financings in December 1998 and March 1999.
Interest Expense -- Interest expense for the year ended December 31, 1999
totaled $815,000 versus $14,000 for the period from July 20, 1998 to December
31, 1998. The increase in interest expense is due to increased borrowings to
finance the acquisition of property and equipment. Additionally, during this
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period, interest expense includes $245,000 of noncash charges associated with
warrants issued to a lender in connection with the related financing.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations primarily through private
sales of our capital stock and through borrowings. Our first significant
financing was the issuance of Series A preferred stock at $1.50 per share in
October 1998, which yielded Siara net cash proceeds of $736,000 and the
forgiveness of $1.5 million of outstanding borrowings. In conjunction with this
offering, we also raised $735,000 from the sale of common stock. In December
1998 and March 1999, we sold shares of our Series B preferred stock at $1.88 per
share, which provided us with aggregate net proceeds of $10.4 million.
We supplemented these equity financings with borrowings, primarily to fund
the acquisition of software and equipment. At December 31, 1998, we had $910,000
outstanding on a bank loan that bore interest at 8%. We paid off this loan in
April 1999. We obtained additional financing in the year ended December 31, 1999
in the form of a $3.0 million capital lease line, as well as a loan from ADC
Telecommunications, Inc., a stockholder of Siara, of up to $9.5 million bearing
interest at the prime rate, which was 8.5% at December 31, 1999. The capital
lease line has been fully utilized and bears interest at 8.5%. In connection
with the lease line, we granted a warrant to purchase shares of preferred stock.
We estimated the value of this warrant using the Black Scholes option pricing
model as $754,000, which will be recorded as additional interest expense over
the life of the lease. During the year ended December 31, 1999, we recorded
noncash interest expense of $234,000 in connection with this warrant. Our
ability to draw on the $9.5 million from the ADC loan is tied to reaching
certain product development milestones. As of December 31, 1999, $5.8 million in
principal and accrued interest was outstanding under this agreement. We also
have $3.0 million of subordinated notes outstanding, which bear interest at
12.5%.
In October 1999, we entered into a loan agreement for borrowings of up to
$2.5 million to finance the acquisition of property and equipment. We have since
signed two promissory notes for $673,000 and $237,000 with interest accruing at
annual rates of 14.83% and 14.7% respectively. In connection with this
agreement, we issued a warrant to purchase shares of common stock. We estimated
the value of the warrant using the Black-Scholes option pricing model, as
$83,000, which will be recorded as additional interest expense over the term of
the loan. During the year ended December 31, 1999, we recorded noncash interest
expense of $11,000 in connection with this warrant.
In connection with the proposed merger with Redback, we entered into a loan
agreement with Redback for borrowings of up to $25.0 million at certain
specified dates through May 1, 2000. The borrowings bear interest at the prime
rate (8.5% at December 31, 1999). We may convert the loan balance and accrued
interest into shares of common stock at $13.39 per share. If the merger is
terminated, the loan and accrued interest will mature six months after such
termination unless we elect to convert the loan into shares of common stock. The
outstanding principal balance for this loan was $4.0 million at December 31,
1999.
Cash provided from financing activities totaled $20.8 million for the year
ended December 31, 1999 and $10.3 million in the period from July 20, 1998 to
December 31, 1998. For the period from inception (July 20, 1998) to December 31,
1998, these funds were used to cover purchases of software and equipment of $1.6
million and the remaining cash of $2.4 million was used in operating activities.
At December 31, 1998, we maintained cash and cash equivalents of $6.4 million.
During the year ended December 31, 1999, we used $6.7 million in investing
activities principally for the acquisition of software and equipment and $20.2
million to fund operating activities. At December 31, 1999, we maintained cash
and cash equivalents of $277,000.
Given our rapid growth and continued operating losses, we will need to
obtain additional financing to cover our projected cash flows over the next
twelve months. Accordingly, if the merger with Redback is
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not completed, we will be required to seek additional equity or debt financing
from other third party investors to meet our anticipated cash needs for working
capital and capital expenditures for the next twelve months. Further, if the
merger agreement is terminated because Siara's board of directors fails to
recommend the merger or because it recommends an extraordinary transaction other
than this merger or because Siara enters into a definitive agreement relating to
an extraordinary transaction other than this merger, then Siara will be
obligated to pay Redback a termination fee of $135 million. However, in the
event that the merger is terminated by Redback, Redback may be required to pay
termination fees of $135 million to us, or provide us with an additional loan of
$25 million, depending on the reason for the termination.
NEW ACCOUNTING PRONOUNCEMENT
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Financial
Instruments and Hedging Activities," or SFAS No. 133, which establishes methods
of accounting for derivative financial instruments and hedging activities.
Because Siara currently holds no derivative instruments and does not engage in
hedging activities, Siara expects that the adoption of SFAS No. 133 will have no
impact on its financial position, results of operations or cash flows. Siara
will be required to adopt SFAS No. 133 for the year ending December 31, 2001.
MARKET RISK
We do not use derivative financial instruments. However, we are exposed to
certain market risks from our variable rate borrowings. To analyze the impact of
this market risk exposure on our company, we performed a sensitivity analysis
assuming a hypothetical change in interest rates. Based on the balances
outstanding at December 31, 1999, if interest rates were to increase by 10%, our
annual interest expense would increase by approximately $156,000. This estimated
loss is not necessarily indicative of the actual exposure we may face in the
future if interest rates increase.
YEAR 2000
We have not experienced any problems with our computer systems relating to
such systems being unable to recognize appropriate dates related to the year
2000. We are also not aware of any material problems with our suppliers.
Accordingly, we do not anticipate incurring material expenses or experiencing
any material operational disruption as a result of any year 2000 issues.
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SIARA'S BUSINESS
Siara develops and markets optical access networking products that enable
network service providers to cost effectively offer their customers data at
multiple bandwidths and to quickly create and deploy new high-speed data
services. Siara's target customers are competitive local exchange carriers,
incumbent local exchange carriers, long distance carriers, Internet service
providers, cable operators, foreign telephone companies and wholesale carriers,
all of which we refer to as network service providers. We believe that the use
of networks for communications will continue to grow rapidly and that existing
public communications networks will be unable to meet the demands of high-speed
data applications that are driving network growth. As data traffic on public
networks continues to grow at rates that surpass available network capacity, we
believe that network service providers will require new solutions to relieve
network congestion and create new data services. Our access networking products
are designed to address these problems by allowing network services providers to
better deploy, manage and optimize the performance of their fiber optic
networks.
Siara has assembled an experienced engineering team with ASIC, optical
transport and IP software expertise to develop and manufacture its platform. We
are developing a multi-service access networking platform designed to rapidly
provision new value-added IP services, support all legacy services and to
decrease network operating costs and increase the efficiency of bandwidth
delivery within congested transport networks. Our product, the Siara 2000, is
designed to support any traffic interface from DS-1, operating at 1.54 megabits
per second, to OC-192, operating at 10 gigabits per second. While traditional
SONET transport system architectures have been optimized for voice-only
services, our system is designed to support voice services as well as IP, ATM
and frame relay in a single, compact platform. It is also designed to support
emerging broadband access traffic.
The Siara 2000 is designed to provide a cost-effective solution for network
service providers by enabling them to rapidly deploy a wide range of
applications and revenue-generating services. The Siara 2000 product is based on
a common software architecture that we believe will accelerate our release of
new products and enable our customers to upgrade their networks without
significant new capital equipment investment or retraining expenses.
Our system is designed to easily and quickly provision new data service and
respond to unpredictable network growth and usage, enabling our network service
provider customers to quickly take advantage of future revenue opportunities.
The Siara 2000 is designed to support over-subscription of bandwidth to avoid
wasted bandwidth that is otherwise dedicated to accommodating peak volumes of
data traffic. Our system is designed to support Siara 2000 plug-ins which makes
the system scalable to higher transmission speeds. Our software-based
provisioning system delivered within the Siara 2000 is designed to support a
comprehensive set of traffic and service types.
Our Siara 2000 system was designed to be shipped, installed and configured
more quickly than legacy transport and routing equipment. Rapid service
provisioning is achieved through eliminating the need to make modifications to
the hardware elements of the network and through an innovative route assignment
architecture that simplifies the installation process and enables the efficiency
of sending information across legacy transport networks. The ASICs incorporated
into our product enable service providers to scale capacity from relatively
low-speed DS-1 electrical interfaces operating at 1.54 megabits per second to
OC-3 optical interfaces at 155 megabits per second to higher speed OC-12 optical
interfaces at 622 megabits per second to OC-192 optical transport at 10 gigabits
per second without any changes in network hardware other than a modular line
card swap. This can eliminate the need for a complete replacement of existing
equipment and preserve existing investments and minimizes the risk of downtime
and the cost of equipment redundancy. Changes or upgrades to the system can be
performed without any interruption of service.
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We believe that network service providers will require a new set of
capabilities, including increased network processing power, functional
integration, end-user service tunability and customization, rapid and dynamic
provisioning, and end-to-end network management. Our products are designed to
address the current and future needs of network service providers by offering an
end-to-end networking solution with the following benefits:
- improved flexibility and scalability of our customers' networks without
the long lead times and large capital expenditures currently required for
a network buildout;
- more rapid deployment by network service providers of increased bandwidth
and new services;
- the ability to rapidly introduce new features into our product, allowing
network service providers to offer new services to their customers; and
- increased functionality and improvement of performance of our customers'
networks without sacrificing their existing equipment and infrastructure
investments.
The following access networking products are currently under development by
Siara:
- Siara 2000. The Siara 2000 is designed to support any traffic interface
from DS-1, operating at 1.54 megabits per second, to OC-192, operating at
10 gigabits per second, in a single, compact system. The Siara 2000 is
designed to provide a cost-effective solution for network service
providers by enabling them to rapidly deploy a single element that is
capable of optical transport, IP routing and other revenue-generating
services.
- NetOp Software. Our product line will share a common software base. This
software foundation is designed to allow us to minimize product
development time by leveraging the software architecture across multiple
product lines. Our software architecture is designed to give network
service providers the tools to continue to evolve and improve their
networks without replacing the existing infrastructure. In addition, the
software is designed to enable network service providers to rapidly
integrate new optical technology and functionality into their networks
with a relatively small amount of effort, training and incremental
investment. We believe that features of our software will allow network
service providers to respond quickly to their customers' needs. New
advances in optical networking components, including new lasers, filters
and amplifiers, can also be integrated within this software-based
environment.
We use a direct sales force to promote and market our products to service
providers. We work collaboratively with our prospective customers to help them
identify and create new services that they can offer to their customers. We
believe that this assistance is an integral aspect of our sales and marketing
efforts.
BACKGROUND ON SIARA
We were originally incorporated in March 1998 under the name Telis, Inc. In
July 1998, we changed our name to Siara Systems, Inc. and commenced our
operations when a group of founding employees left Cerent Corporation to become
employees of Siara.
In October 1998, Siara and Cerent entered into a technology license
agreement, pursuant to which Cerent granted Siara a non-exclusive license to
technology related to two of Cerent's integrated circuits and parts of Cerent's
system-level hardware technology. In addition, Siara acquired Cerent's Canadian
subsidiary, which had title to Cerent's EMS software. The parties amended this
agreement in February 1999. Pursuant to the amendment, the amount to be paid by
Siara for this license was reduced, the assets and liabilities related to the
EMS software were transferred to Siara, and Cerent formally transferred to Siara
all of the outstanding shares of its Canadian subsidiary. In addition, Siara
reimbursed Cerent for a portion of Siara's start-up costs.
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From July through September 1998, we funded our operations through bridge
loans from entities affiliated with Kleiner Perkins Caufield & Byers. In late
1998, we raised funds by selling shares of our common stock, Series A preferred
stock and Series B preferred stock to entities affiliated with Kleiner Perkins
and Norwest Venture Partners, both of which were significant investors in Cerent
at the time.
In March 1999, we raised additional funds by selling shares of our Series B
preferred stock to ADC Telecommunications, Inc. We also entered into a loan
agreement providing for a line of credit of up to $9.5 million from ADC.
In December 1999, we entered into an Original Equipment Manufacturer
Agreement with ADC providing for the distribution of our products, either alone
or together with specific products developed by ADC. Pursuant to this agreement,
each of ADC and Siara has the right to distribute in a specified market,
specific products of the other party on an exclusive basis. Both Siara and ADC
have agreed not to market or promote products that are similar to these products
of the other company, subject to specified limitations. This agreement is
effective until March 2002, and will automatically extend for an additional
three year term under certain circumstances.
In November 1999, we entered into a credit agreement with Redback under
which Redback agreed to loan us up to $25.0 million, of which we have borrowed
$8.0 million as of the date of this joint proxy statement/prospectus.
Siara's executive offices are located at 1195 Borregas Avenue, Sunnyvale,
California, and the telephone number is (408) 548-9300.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The following summary of Redback's common stock and the preferred stock
does not purport to be complete and is subject to, and qualified in its entirety
by, Redback's certificate of incorporation and bylaws and by the provisions of
applicable law. The authorized capital stock of Redback consists of 80,000,000
shares of common stock, $0.0001 par value per share, and 10,000,000 shares of
preferred stock, $0.0001 par value per share. As of the close of business on
December 31, 1999, 43,896,937 shares of common stock, no shares of preferred
stock, options to purchase 7,949,875 shares of common stock and warrants to
purchase 59,000 shares of common stock were issued and outstanding.
COMMON STOCK
As of January 31, 2000, the record date, there were 43,731,102 shares of
common stock outstanding that were held of record by approximately 541
stockholders. The holders of common stock are entitled to one vote per share on
all matters to be voted upon by the stockholders. Subject to preferences that
may be applicable to any preferred stock that may be issued, the holders of
common stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by the board of directors out of funds legally
available therefor. In the event of the liquidation, dissolution or winding up
of Redback, the holders of common stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of preferred stock, if any, that may be issued. The common stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are fully paid and nonassessable, and the
shares of common stock to be issued upon completion of this merger will be fully
paid and nonassessable.
WARRANTS
There are two warrants to purchase common stock. There is one warrant
outstanding to purchase 9,000 shares of common stock at $6.50 per share, which
expires on March 29, 2002, and one warrant outstanding to purchase 50,000 shares
of common stock at $11.50 per share, which expires on May 18, 2002.
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PREFERRED STOCK
The board of directors has the authority to issue the preferred stock in
one or more series and to fix the rights, preferences, privileges and
restrictions thereof, including dividend rights, dividend rates, conversion
rights, voting rights, terms of redemption, redemption prices, liquidation
preferences and the number of shares constituting any series or the designation
of such series, without further vote or action by the stockholders. The issuance
of preferred stock may have the effect of delaying, deferring or preventing a
change in control of Redback without further action by the stockholders and may
adversely affect the voting and other rights of the holders of common stock. The
issuance of preferred stock with voting and conversion rights may adversely
affect the voting power of the holders of common stock, including the loss of
voting control to others. At present, Redback has no plans to issue any of the
preferred stock.
REGISTRATION RIGHTS
Pursuant to the terms of an amended and restated Investors' Rights
Agreement, some holders of Redback's common stock are entitled to rights with
respect to the registration of their shares under the Securities Act. Under the
terms of Redback's agreement with the holders of these shares, if Redback
proposes to register any of its securities under the Securities Act, either for
Redback's own account or for the account of other stockholders exercising
registration rights, these holders are entitled to notice of that registration
and are entitled to include shares of their registrable common stock therein.
Additionally, these holders are also entitled to demand registration rights
pursuant to which they may require Redback to file a registration statement
under the Securities Act at Redback's expense with respect to their shares of
common stock, and require Redback to use its best efforts to effect that
registration. Further, the holders of these demand rights may require Redback to
file additional registration statements on Form S-3. All of these registration
rights are subject to conditions and limitations, including the right of the
underwriters of an offering to limit the number of shares included in that
registration and Redback's right not to effect a requested registration within
six months following an offering of Redback securities, including the offering
made hereby.
EFFECT OF SELECTED PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BYLAWS,
AND THE DELAWARE ANTITAKEOVER STATUTE
Redback is subject to the provisions of Section 203 of the Delaware General
Corporation Law. Subject to exceptions, Section 203 of Delaware law prohibits a
publicly-held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years following the date
that the interested stockholder became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or unless the business combination is approved in a prescribed manner.
SHAREHOLDER ACTION; SPECIAL MEETING OF SHAREHOLDERS
Redback's certificate of incorporation provides that all stockholder
actions must be effected at a duly called meeting and not by a consent in
writing. The bylaws provide that Redback's stockholders may call a special
meeting of stockholders only upon a request of stockholders owning at least 50%
of Redback's capital stock. These provisions of the certificate of incorporation
and bylaws could discourage potential acquisition proposals and could delay or
prevent a change in control of Redback. These provisions are intended to enhance
the likelihood of continuity and stability in the composition of the board of
directors and in the policies formulated by the board of directors and to
discourage transactions that may involve an actual or threatened change of
control of Redback. These provisions are designed to reduce the vulnerability of
Redback to an unsolicited acquisition proposal. The provisions also are intended
to discourage tactics that may be used in proxy fights. However, these
provisions could have the effect of discouraging others from making tender
offers for Redback shares and, as a consequence, they also may inhibit
fluctuations in the market price of Redback shares that could result from actual
or rumored takeover attempts. These provisions also may have the effect of
preventing changes in Redback management.
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<PAGE> 126
AUTHORIZED BUT UNISSUED SHARES
Redback's authorized but unissued shares of common stock and preferred
stock are available for future issuance without shareholder approval, subject to
limitations imposed by the Nasdaq National Market. These additional shares maybe
utilized for a variety of corporate purposes, including future public offerings
to raise additional capital, corporate acquisitions and employee benefit plans.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for Redback common stock is U.S. Stock
Transfer Corporation.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the merger, approximately 73 million shares of common
stock will be outstanding. These shares will be freely tradable without
restriction under the Securities Act, except for the shares held by "affiliates"
of the combined company (within the meaning of Rule 144 or Rule 145 promulgated
under the Securities Act). The resale of those shares will be subject to the
limitations of Rule 144 or Rule 145, as applicable. In general, under Rule 144
as currently in effect, persons who may be deemed affiliates of the combined
company or affiliates of Redback or Siara prior to the merger would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of 1% of the then outstanding shares of the combined company's
common stock (approximately 7.3 million shares upon completion of the merger) or
the average weekly trading volume during the four calendar weeks preceding a
sale by such person. Sales under Rule 144 are also subject to certain provisions
relating to the manner and notice of sale and availability of current public
information about the combined company. In general, under Rule 145, affiliates
of the combined company (which generally is defined to include affiliates of
Redback and Siara prior to the merger) would also be subject to the above
restrictions on sales of the combined company's common stock.
In addition, a person or persons whose shares are aggregated who has not
been an affiliate of the combined company at any time during the 90 days
immediately preceding a sale, and who has beneficially owned the shares for at
least two years, would be entitled to sell such shares under Rule 144(k) without
regard to the volume limitation and other conditions described above.
OPTIONS
Any Redback employees or consultants who purchased shares pursuant to a
written compensatory plan or contract is entitled to sell pursuant to a
registration statement on Form S-8 filed by Redback after its initial public
offering, or rely on the resale provisions of Rule 701, which permits
nonaffiliates to sell their Rule 701 shares without having to comply with the
public information, holding period, volume limitation or notice provisions of
Rule 144 and permits affiliates to sell their Rule 701 shares without having to
comply with the Rule 144 holding period restrictions.
MARKET STAND-OFF
Under the merger agreement, for a period of up to 180 days following the
merger, stockholders, option holders and warrant holders of Siara may not sell
their shares of Redback common stock acquired in the merger, except under
limited circumstances, pursuant to the terms of the merger agreement.
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<PAGE> 127
MANAGEMENT OF THE COMBINED COMPANY AFTER THE MERGER
The following table sets forth certain information regarding our directors
and executive officers as of the effective date of the merger:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Dennis L. Barsema....................... 45 Chief Executive Officer and Director
Vivek Ragavan........................... 47 President, Chief Operating Officer and Director
Craig M. Gentner........................ 53 Senior Vice President of Finance, Chief
Financial Officer and Corporate Secretary
William H. Kind......................... 44 Senior Vice President of Marketing
Randall J. Kruep........................ 38 Senior Vice President of Worldwide Sales
Pankaj S. Patel......................... 46 Senior Vice President of Engineering
James R. Flach.......................... 52 Director
Promod Haque............................ 51 Director
Vinod Khosla............................ 44 Director
William Kurtz........................... 42 Director
Pierre R. Lamond........................ 69 Director, Chairman of the Board
Daniel J. Warmenhoven................... 49 Director
</TABLE>
Dennis L. Barsema has served as Redback's President and Chief Executive
Officer and has been a director since joining Redback in November 1997. Upon the
effective date of the merger, Mr. Barsema will continue to serve as Redback's
Chief Executive Officer and as a director. Prior to November 1997, Mr. Barsema
was the Senior Vice President and General Manager at Centigram, a
telecommunications company, from January 1996 to November 1997. From October
1993 to December 1995, he served as Vice President at SoftSwitch, a
telecommunications company. Prior to that time, he served as Vice President at
Primary Access and AT&T Paradyne. Mr. Barsema holds a BS in Business Management
from Northern Illinois University.
Vivek Ragavan will become President, Chief Operating Officer and a director
of Redback upon the effective date of the merger. Mr. Ragavan has served as the
President and Chief Executive Officer of Siara since February 1999. Prior to
that time, from February 1996 to February 1999, Mr. Ragavan was President of the
Residential Broadband Group of ADC Telecommunications, Inc., a
telecommunications equipment company. Prior to that time, from November 1991 to
February 1996, Mr. Ragavan served as Vice President of Engineering at General
Instrument, a telecommunications equipment company. Mr. Ragavan holds a BS in
Electrical Engineering from Northwestern University and an MS in Electrical
Engineering from Cornell University.
Craig M. Gentner has served as Vice President of Finance, Chief Financial
Officer and Corporate Secretary of Redback since October 1999. After completion
of the merger, he will become our Senior Vice President of Finance, Chief
Financial Officer and Corporate Secretary. From July of 1989 to December of
1998, Mr. Gentner was the Senior VP of Finance and CFO for Network Equipment
Technologies, a leading supplier of multi-service wide area networking equipment
company. Mr. Gentner holds a BS in Accounting from the University of Utah.
William H. Kind will become Senior Vice President of Marketing for Redback
upon the effective date of the merger. Mr. Kind has served as the Chief
Operating Officer of Siara since November 1999. Prior to that time Mr. Kind was
the President of Access Networks for Lucent Technologies after its merger with
Ascend Communications. From October 1996 to May 1999, he served first as the
Corporate Vice President of Engineering and then as Senior Vice President of
Access Systems at Ascend Communications. Prior to that time, he served as Senior
Director at Cisco Systems and held various management positions at Hewlett
Packard. Mr. Kind holds a BS in Electrical Engineering from San Jose State
University and an MS in Electrical Engineering from University of California at
Davis.
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<PAGE> 128
Randall J. Kruep has served as Vice President of Worldwide Sales of Redback
since January 1999. He will become Senior Vice President of Worldwide Sales for
Redback upon the effective date of the merger. From September 1997 to January
1999, Mr. Kruep served as Redback's Vice President of Sales. Previously, Mr.
Kruep was Senior Director of Telecom Sales for Fore Systems, an ATM/switching
company, from May 1996 to July 1997. Prior to that time, he was a Regional Sales
Manager at Cisco, a networking company, from May 1992 to May 1996. From May 1982
to May 1992 he was Director of Sales at Motorola in the Information Systems
Group. Mr. Kruep holds a BA in Finance and Communications from Southern Illinois
University and an MBA from Fontbonne College.
Pankaj S. Patel will become the Senior Vice President of Engineering of
Redback upon the effective date of the merger. Mr. Patel has served as the
Senior Vice President of Engineering of Siara since September 1999. Prior to
that time, Mr. Patel was Senior Director of Engineering at Cisco, a networking
company, from July 1996 to September 1999. Prior to that time, from March 1993
to July 1996, Mr. Patel served as Executive Director of Engineering at
Stratacom, Inc., a networking company. Mr. Patel holds a BE (Hons) in Electrical
Engineering from Birla Institute of Technology and Science and an MS in
Electrical Engineering from the University of Wisconsin-Madison.
James R. Flach has served as a director of Redback since January 1997. From
January 1997 to November 1997, Mr. Flach served as President and Chief Executive
Officer of Redback. Mr. Flach has been a partner of Accel Partners, a venture
capital firm, since September 1992. He currently serves as Chairman of Sentient
Networks, a multi-service access switch company, and is also a director of
Hybrid Networks, a broadband access equipment company. Additionally, Mr. Flach
serves on the board of a number of private companies. Mr. Flach holds a BS in
Physics from Rensselaer Polytechnic Institute and an MS in Applied Mathematics
from the Rochester Institute of Technology.
Promod Haque will become a director of Redback upon the effective date of
the merger. Mr. Haque joined Norwest Venture Partners in November 1990 and is a
general partner of Itasca VC Partners VII, LLP, which is the general partner of
Norwest Venture Partners VII, L.P. Mr. Haque currently serves as a director of
Extreme Networks, Ondisplay, Primus Knowledge Solutions, Showcase, Transaction
Systems Architects and several privately held companies. Mr. Haque holds a BS in
Electrical Engineering from the University of Delhi, India, an MS and Ph.D in
Electrical Engineering from Northwestern University and an MM from the J.L.
Kellogg Graduate School of Management, Northwestern University.
Vinod Khosla will become a Redback director upon the effective date of the
merger. Mr. Khosla has been a General Partner with the venture capital firm of
Kleiner Perkins Caufield & Byers from February 1986 to the present and has
served on the board of Siara since October 1998. Mr. Khosla was a co-founder of
Daisy Systems and the founding Chief Executive Officer of Sun Microsystems, Inc.
Mr. Khosla also serves on the boards of Asera, Concentric Network, Corio Inc.,
Corvis Corporation, Doublebill.com, Juniper Networks, Siara and QWEST
Communications, plus several other private companies. He has a BSE from the
Indian Institute of Technology in New Delhi.
William Kurtz has served as a Redback director since October 1999. Mr.
Kurtz has served as Chief Financial Officer of Scient since August 1998. Before
joining Scient, Mr. Kurtz served in various capacities at AT&T from July 1983 to
August 1998, including Vice President of Cost Management and Chief Financial
Officer of AT&T's Business Markets Division. Mr. Kurtz is a certified public
accountant and received a Bachelor of Science in Accounting from Rider
University and a Master of Science in Management from the Stanford University
Graduate School of Business.
Pierre R. Lamond has served as Redback's Chairman of the Board since
November 1996. Mr. Lamond has been a partner with Sequoia Capital, a venture
capital firm, since 1981. He is currently the Chairman of Vitesse Semiconductor,
a semiconductor company. Additionally, Mr. Lamond serves on the board of a
number of private companies. Prior to joining Sequoia, Mr. Lamond was a founder
and
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<PAGE> 129
technical director of National Semiconductor and the general manager of its
Integrated Circuit Division. Mr. Lamond holds an MS in Electrical Engineering
from Northeastern University and an MS in Physics from Toulouse University.
Daniel J. Warmenhoven has served as a Redback director since January 1998.
Mr. Warmenhoven has been President, Chief Executive Officer and a Director of
Network Appliance, a network data storage devices company, since October 1994.
Prior to that time, Mr. Warmenhoven served as Chairman, President and Chief
Executive Officer of Network Equipment Technologies. Prior to joining Network
Equipment Technologies, he spent five years with Hewlett-Packard serving in a
number of senior management positions. Before that time, he served thirteen
years with IBM. Mr. Warmenhoven holds a BS in Electrical Engineering from
Princeton University.
Our executive officers are appointed by our board of directors and serve
until their successors are elected or appointed. There are no family
relationships among any of our directors or executive officers.
INDEMNIFICATION
In March 1999, the board of directors authorized Redback to enter into
indemnification agreements with each of our directors and executive officers.
The form of indemnification agreement provides that we will indemnify our
directors and executive officers to the fullest extent permitted by Delaware
law, our certificate of incorporation and our bylaws, against any and all of
their expenses incurred by reason of their status as a director or executive
officer.
Our certificate of incorporation and bylaws each contain provisions
relating to the limitation of liability and indemnification of our directors and
officers. Our certificate of incorporation provides that our directors will not
be personally liable to Redback or our stockholders for monetary damages for
breach of fiduciary duty as a director, except for liability
- for any breach of the director's duty of loyalty to Redback or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- in respect of unlawful payments of dividends or unlawful stock
repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or
- for any transaction from which the director derives any improper personal
benefit.
This provision in the certificate of incorporation does not eliminate the
directors' fiduciary duty, and in appropriate circumstances equitable remedies
such as injunctive or other forms of non-monetary relief will remain available
under Delaware General Corporation law.
Our certificate of incorporation also provides that if the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of our
directors will be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law. The foregoing provisions of our certificate of
incorporation are not intended to limit the liability of our directors or
officers for any violation of applicable federal securities laws.
In addition, as permitted by Section 145 of the Delaware General
Corporation Law, our bylaws provide that
- we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law;
- we may, in our discretion, indemnify other current and former employees
of Redback as provided by the Delaware General Corporation Law;
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<PAGE> 130
- to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred bY our directors and
officers in connection with a legal proceeding provided such officer or
director acted in good faith and in a manner he reasonably believed to be
in the best interests of Redback.
- the rights conferred in the bylaws are not exclusive; and
- any retroactive amendment of our bylaw provisions relating to
indemnification shall not affect any indemnification rights or
obligations relating to any pre-existing state of facts.
EXECUTIVE COMPENSATION
The following table sets forth the total compensation, for the fiscal years
ended December 31, 1999 and December 31, 1998, paid to or accrued by those
executive officers of Redback and Siara who are expected to become executive
officers, including the chief executive officer, of the combined company.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------ ------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION FISCAL YEAR SALARY($) BONUS($) ($) OPTIONS(#)
--------------------------- ----------- --------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Dennis L. Barsema............... 1999 $225,000 $100,000 $ -- --
Chief Executive Officer and 1998 180,000 90,000 -- --
Director
Vivek Ragavan(3)................ 1999 211,538 63,461 140,768(4) 1,200,000(1)
President, Chief Operating
Officer and Director
Craig M. Gentner(5)............. 1999 45,000(6) -- -- 250,000(2)
Senior Vice President of
Finance, Chief Financial
Officer and Corporate
Secretary
William H. Kind(7).............. 1999 25,000(8) -- -- 675,000(1)
Senior Vice President of
Marketing
Randall J. Kruep................ 1999 125,000 275,000(9) -- --
Senior Vice President of 1998 90,000 135,442(9) 53,000(10) 150,000(2)
Worldwide Sales
Pankaj S. Patel(11)............. 1999 61,923(12) -- 7(13) 550,000(1)
Senior Vice President of
Engineering
</TABLE>
- -------------------------
(1) Represents shares of Siara common stock.
(2) Represents shares of Redback common stock.
(3) Mr. Ragavan joined Siara in February, 1999.
(4) Represents reimbursement for relocation expenses and premiums paid by Siara
for life insurance.
(5) Mr. Gentner joined Redback in October, 1999.
(6) Represents the total amount of compensation Mr. Gentner received in 1999.
Annualized salary for 1999 was $200,000.
(7) Mr. Kind joined Siara in November, 1999.
(8) Represents the total amount of compensation Mr. Kind received in 1999.
Annualized salary for 1999 was $250,000.
(9) Represents commission income.
(10) Represents reimbursement for relocation expenses.
(11) Mr. Patel joined Siara in September, 1999.
(12) Represents the total amount of compensation Mr. Patel received in 1999.
Annualized salary for 1999 was $230,000.
(13) Represents premiums paid by Siara for life insurance.
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OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted to the named officers
of the combined company in the last fiscal year. No stock appreciation rights
were granted to these individuals during that year.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATE OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(4)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME GRANTED(#)(1) 1999(2) ($/SH)(3) DATE 5%($) 10%($)
---- ------------- ------------ --------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Vivek Ragavan........ 1,200,000(5) 12.6% $ 0.19 2/1/09 143,388 363,373
Craig M. Gentner..... 250,000(6) 4.5 120.00 10/18/09 18,866,839 47,812,274
William H. Kind...... 675,000(5) 7.1 2.00 11/17/09 849,008 2,151,552
Pankaj S. Patel...... 550,000(5) 5.8 0.95 9/26/09 328,597 832,730
</TABLE>
- -------------------------
(1) Each of the options listed in the table is immediately exercisable. The
shares purchasable under the options may be repurchased by Redback or Siara,
as applicable, at the original exercise price paid per share if the optionee
ceases service before vesting in such shares. The repurchase right lapses
and the optionee vests as to 25% of the option shares upon completion of 12
months of service from the vesting start date and the balance in a series of
equal monthly installments over the next three years of service thereafter.
The option shares will vest upon an acquisition of Redback or Siara, as
applicable, by merger or asset sale, unless our repurchase right with
respect to the unvested option shares is transferred to the acquiring
entity.
(2) With respect to Craig Gentner, this percentage is based on options to
purchase a total of 5,585,000 shares of Redback common stock granted to
Redback employees during the 12 months ended December 31, 1999. As to all
other listed employees, this percentage is based on options to purchase a
total of 9,512,000 shares of Siara common stock granted to Siara employees
during the 12 months ended December 31, 1999.
(3) The exercise price was equal to the fair market value of common stock as
valued by the board of directors of Redback or Siara, as applicable, on the
date of grant. In determining this fair market value, the board of directors
took into account the purchase price paid by investors for shares of
preferred stock (taking into account the liquidation preferences and other
rights, privileges and preferences associated with such preferred stock) and
an evaluation by the board of directors of revenues, operating history and
prospects. The exercise price may be paid in cash, in shares of common stock
valued at fair market value on the exercise date or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
Redback and Siara may also finance the option exercise by lending the
optionee sufficient funds to pay the exercise price for the purchased
shares, together with any federal and state income tax liability incurred by
the optionee in connection with such exercise.
(4) The potential realizable value is calculated based on the ten-year term of
the option at the time of grant. Stock price appreciation of 5% and 10% is
assumed pursuant to rules promulgated by the Securities and Exchange
Commission and does not represent our prediction of our stock price
performance. The potential realizable value at 5% and 10% appreciation is
calculated by assuming that the estimated fair market value on the date of
grant appreciates at the indicated rate for the entire term of the option
and that the option is exercised at the exercise price and sold on the last
day of its term at the appreciated price. See footnote 3 for information on
how the fair market value of our common stock was estimated. The current
market price is higher than the estimated fair market value on the date of
grant, and the potential realizable value of the option grants would be
significantly higher than the numbers shown in the table if future stock
prices were projected to the end of the option term by applying the same
annual rates of stock price appreciation to the current market price.
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(5) Represents shares of Siara common stock.
(6) Represents shares of Redback common stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table provides summary information concerning options
exercised by and the value of stock option holdings of the named officers for
the fiscal year ended December 31, 1999. No stock appreciation rights were
exercised by the named officers in fiscal year 1999, and no stock appreciation
rights were outstanding at the end of that year.
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF SECURITIES UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT
AT DECEMBER 31, DECEMBER 31, 1999
SHARES VALUE 1999 (#) ($)
ACQUIRED ON REALIZED -------------------- -----------------
NAME EXERCISE(#)(1) ($)(2) VESTED UNVESTED VESTED UNVESTED
---- -------------- ----------- ------- ---------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Vivek Ragavan............ 1,200,000 $0 0 0 $0 $0
William H. Kind.......... 675,000 0 0 0 0 0
Pankaj S. Patel.......... 550,000 0 0 0 0 0
</TABLE>
- -------------------------
(1) Represents shares of Siara common stock. As of December 31, 1999, these
shares were subject to repurchase by Siara at the original exercise price
paid per share, if the optionee ceases service with Siara before vesting in
such shares.
(2) Equal to the fair market value of the purchased shares on the option
exercise date, less the exercise price paid for such shares.
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PRINCIPAL STOCKHOLDERS OF REDBACK
The following table sets forth the beneficial ownership of Redback common
stock as of December 31, 1999 and as adjusted to reflect the sale of the common
stock offered hereby for: (1) each person who is known by us to beneficially own
more than 5% of our common stock; (2) the chief executive officer and each of
our executive officers, (3) each of our directors; and (4) all of our directors
and executive officers as a group. Except as otherwise indicated, we believe
that the beneficial owners of the common stock listed below, based on
information furnished by such owners, have sole voting and investment power with
respect to such shares. The percentage of beneficial ownership prior to the
merger for the following table is based on 43,896,937 shares of common stock
outstanding as of December 31, 1999. 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. Common
stock subject to options currently exercisable within 60 days of December 31,
1999 are deemed outstanding for purposes of computing the percentage ownership
of the person holding such option but are not deemed outstanding for purposes of
computing the percentage ownership of any other person. Except where indicated,
and subject to community property laws where applicable, the persons in the
table below have sole voting and investment power with respect to all common
stock shown as beneficially owned by them. Unless otherwise indicated, the
address of each of the individuals listed in the table is c/o Redback Networks
Inc., 1389 Moffett Park Drive, Sunnyvale, CA 94089.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES BENEFICIALLY
SHARES BENEFICIALLY OWNED PRIOR TO
NAME AND ADDRESS (IF APPLICABLE) BENEFICIAL OWNER OWNED(1) THE MERGER(1)
------------------------------------------------- ------------------- -------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS
Dennis J. Barsema....................................... 1,300,710 2.96%
Craig M. Gentner........................................ 0 *
Randall J. Kruep(1)..................................... 504,300 1.1%
James R. Flach(2)....................................... 389,942 *
William Kurtz(3)........................................ 49,982 *
Pierre R. Lamond(4)..................................... 2,865,301 6.5%
Daniel J. Warmenhoven................................... 150,000 *
OTHER 5% STOCKHOLDERS
Entities affiliated with Sequoia Capital(5)............. 2,463,134 5.6%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, CA 94025
All executive officers and directors as a group (7
persons)(6)........................................... 2,797,101 6.4%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) Includes 408,300 shares and options immediately exercisable for 90,000
shares owned individually by Mr. Kruep, 2,000 shares owned by the Julia
Kruep Trust dated May 14th, 1999, 2,000 shares owned by the Andrew Kruep
Trust dated May 14th, 1999 and 2,000 shares owned by the Christian Kruep
Trust dated May 14th, 1999.
(2) Includes 339,942 shares and options immediately exercisable for 50,000
shares owned individually by Mr. Flach.
(3) Includes options immediately exercisable for 49,900 shares.
(4) Includes 61,442 shares and options immediately exercisable for 50,000 shares
owned individually by Mr. Lamond, 180,973 shares owned by the Pierre R. and
Christine E. Lamond Trust dated
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<PAGE> 134
November 22, 1985, 109,752 shares held in the David A. Lamond Trust dated
November 16, 1992, 70,101 shares held by Sequoia 1995 LLC, 2,270 shares held
by Sequoia 1997, 2,256,168 shares held by Sequoia Capital VII, 130,567
shares held by Sequoia Technology Partners VII and 4,028 shares held by SQP
1997. Mr. Lamond disclaims beneficial ownership of the shares held by
Sequoia 1995 LLC, Sequoia 1997, Sequoia Capital VII, Sequoia Technology
Partners VII and SQP 1997, except to the extent of his pecuniary interest
therein.
(5) Includes 70,101 shares held by Sequoia 1995 LLC, 2,270 shares held by
Sequoia 1997, 2,256,178 shares held by Sequoia Capital VII, 130,567 shares
held by Sequoia Technology Partners VII and 4,028 shares held by SQP 1997.
(6) Includes options immediately exercisable for 239,900 shares.
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PRINCIPAL STOCKHOLDERS OF SIARA
The following table sets forth information, as of December 31, 1999, known
to Siara with respect to the beneficial ownership of Siara capital stock by:
- each stockholder known by us to be the beneficial owner of more than 5%
of Siara's capital stock;
- each director;
- each person who served as our chief executive officer in 1999 and the two
other individuals who were serving as executive officers on December 31,
1999; and
- all current directors and executive officers as a group.
Applicable percentage ownership in the following table is based on
24,025,396 shares of Siara capital stock, consisting of 16,969,491 shares of
common stock, 1,500,000 shares of Series A preferred stock and 5,555,905 shares
of Series B preferred stock outstanding as of December 31, 1999. The table
treats as outstanding, for purposes of calculating each specific stockholder's
percent ownership, all shares subject to options held by the stockholder that
are exercisable within 60 days after December 31, 1999. Unless otherwise
indicated below, the persons and entities named in the table have sole voting
and sole investment power with respect to all shares beneficially owned, subject
to community property laws where applicable. Unless otherwise indicated, the
address of each of the individuals listed in this table is c/o Siara Systems,
Inc., 1195 Borregas Avenue, Sunnyvale, California 94089.
<TABLE>
<CAPTION>
PERCENT OF
AMOUNT AND NATURE OF OUTSTANDING
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CAPITAL STOCK
------------------------ -------------------- -------------
<S> <C> <C>
Vinod Khosla(1)....................................... 6,931,915 28.9%
Kleiner Perkins Caufield & Byers VIII, L.P.
2750 Sand Hill Road
Menlo Park, CA 94025
Promod Haque(2)....................................... 2,925,532 12.2
Norwest Venture Partners VII, L.P.
245 Lytton Street, Suite 250
Palo Alto, CA 94301
William J. Cadogan(3)................................. 1,881,703 7.8
ADC Telecommunications, Inc.
P.O. Box 1101
Minneapolis, MN 55440-1101
Vivek Ragavan......................................... 1,200,000 5.0
William H. Kind....................................... 675,000 2.8
David Stiles.......................................... 600,000 2.5
Pankaj S. Patel....................................... 550,000 2.3
S. Atiq Raza(4)....................................... 10,000 *
All executive officers and directors as a group (7
persons)............................................ 14,174,150 59.0%
</TABLE>
- -------------------------
* Represents beneficial ownership of less than 1%.
(1) The share number includes 4,515,840 shares of common stock, 1,382,400 shares
of Series A preferred stock and 490,213 shares of Series B preferred stock
held of record by Kleiner Perkins Caufield & Byers VIII, L.P.; 261,660
shares of common stock, 80,100 shares of Series A preferred stock and 28,404
shares of Series B preferred stock held of record by KPCB VIII Founders
Fund, L.P.; and 122,500 shares of common stock, 37,500 shares of Series A
preferred stock and 13,298 shares of Series B preferred stock held of record
by KPCB Information Sciences Zaibatsu Fund II,
124
<PAGE> 136
L.P. Mr. Khosla is a director of Siara and a general partner of KPCB VII
Associates, L.P., which is the general partner of Kleiner Perkins Caufield &
Byers VIII, L.P., KPCB VIII Founders Fund, L.P. and KPCB Information
Sciences Zaibatsu Fund II, L.P. Each fund disclaims beneficial ownership of
the shares held by the other. Additionally, Mr. Khosla disclaims beneficial
ownership of the shares held by these funds, except to the extent of his
pecuniary interest therein.
(2) The share number represents 2,925,532 shares of Series B preferred stock
held of record by Norwest Venture Partners VII, L.P. Mr. Haque is a director
of Siara and a general partner of Itasca VC Partners VII, LLP, which is the
general partner of Norwest Venture Partners VII, L.P. Mr. Haque disclaims
beneficial ownership of the shares held by these funds, except to the extent
of his pecuniary interest therein.
(3) The share number represents 1,861,703 shares of Series B preferred stock
held of record by ADC Telecommunications, Inc. and 20,000 shares of common
stock held of record by Mr. Cadogan. Mr. Cadogan is a director of Siara and
the Chairman of the board of directors, President and Chief Executive
Officer of ADC Telecommunications, Inc. Mr. Cadogan disclaims beneficial
ownership of all the securities listed above, except for the options held
directly by him.
(4) Mr. Raza is a director of Siara.
125
<PAGE> 137
REDBACK RELATED PARTY TRANSACTIONS
There has not been, nor is there currently proposed, any transaction or
series of similar transactions to which Redback was or is to be a party in which
the amount involved exceeds $60,000 and in which any person who is a director or
executive officer of Redback, had or will have a direct or indirect interest
other than the following:
- In December 1997, we loaned $104,696 to Dennis Barsema, our president,
chief executive officer and a director, under a promissory note. The note
accrues interest at a rate of 5.81% compounded annually and expires on
December 3, 2000, on which date all unpaid interest and principal is due
on demand. $117,330 of this note is currently outstanding, plus accrued
interest.
- In January 1998, we advanced $210,626 to Mr. Barsema for the purchase of
2,106,960 shares of Redback common stock pursuant to a subscription
agreement dated December 1997. The principal balance of this note,
together with interest accrued and unpaid to date, is due and payable in
January 2002. Interest will accrue under the note on any unpaid principal
balance at the rate of 5.93% per annum, compounded annually. $143,368 of
this note is currently outstanding, plus accrued interest. The note is
secured by a pledge of the purchased common stock.
- James R. Flach, a director of Redback, exercised an option to purchase
300,000 shares of Redback common stock on February 18, 1997. Mr. Flach
purchased 4,875 shares of Redback Series C preferred stock, at $2.00 per
share, on October 23, 1997. Redback granted Mr. Flach options to purchase
50,000 shares of Redback common stock, at an exercise price of $11.50 per
share, on May 18, 1999.
- Funds affiliated with Accel Partners purchased 2,500,001 shares of
Redback Series B preferred stock, at $1.00 per share, on January 14,
1997; 387,296 shares of Redback Series C preferred stock, at $2.00 per
share, on October 23, 1997; and 409,508 shares of Redback Series D
preferred stock, at $7.87 per share, on July 2, 1998. Mr. Flach is a
partner of Accel Partners.
- We granted William Kurtz, a director of Redback, an option to purchase
50,000 shares of Redback common stock, at an exercise price of $120.00
per share, on October 19, 1999.
- The Pierre R. and Christine E. Lamond Trust dated November 22, 1985
purchased 50,001 shares of Redback Series B preferred stock, at $1.00 per
share, on January 14, 1997, and 4,875 shares of Redback Series C
preferred stock, at $2.00 per share, on October 23, 1997. The David A.
Lamond Trust dated November 16, 1992 purchased 50,001 shares of Redback
Series B preferred stock, at $1.00 per share, on January 14, 1997, and
4,875 shares of Redback Series C preferred stock, at $2.00 per share, on
October 23, 1997. Pierre R. Lamond, a trustee of both trusts, is a
director and chairman of the board of Redback. Redback granted Mr. Lamond
an option to purchase 50,000 shares of Redback common stock, at an
exercise price of $11.50 per share, on May 18, 1999.
- Funds affiliated with Sequoia Capital purchased 1,500,000 shares of
Redback Series A preferred stock, at $0.13 per share, on September 24,
1996; 2,455,002 shares of Redback Series B preferred stock, at $1.00 per
share, on January 14, 1997; 612,703 shares of Redback Series C preferred
stock, at $2.00 per share, on October 23, 1997; and 419,130 shares of
Redback Series D preferred stock, at $7.87 per share, on July 2, 1998.
Mr. Lamond is a partner of Sequoia Capital.
- We granted Daniel Warmenhoven, a director of Redback, exercised an option
to purchase 150,000 shares of Redback common stock, at an exercise price
of $0.10 per share, on January 15, 1998. Mr. Warmenhoven exercised this
option on February 20, 1998.
126
<PAGE> 138
- Randall Kruep, Redback's Senior Vice President of Worldwide Sales,
purchased 600,000 shares of Redback common stock, at $0.027 per share, on
September 8, 1997. Mr. Kruep exercised an option to purchase 60,000
shares of Redback common stock, at an exercise price of $0.30 per share,
on May 28, 1998. Additionally, Mr. Kruep was granted an option to
purchase 90,000 shares of Redback common stock, at an exercise price of
$1.50 per share, on December 15, 1998.
- Craig M. Gentner, Redback's Senior Vice President of Finance, Chief
Financial Officer and Corporate Secretary, was granted an option to
purchase 250,000 shares of Redback common stock, at an exercise price of
$120.00 per share, on October 19, 1999.
- We have entered into an Indemnification Agreement with each of our
executive officers and directors.
127
<PAGE> 139
SIARA RELATED PARTY TRANSACTIONS
Since July 20, 1998, the date on which Siara commenced operations, there
has not been, nor is there currently proposed, any transaction or series of
similar transactions to which Siara was or is to be a party in which the amount
involved exceeds $60,000 and in which any person who will serve as a director or
executive officer of Redback following the merger, had or will have a direct or
indirect interest other than the payments described in "Executive Compensation"
on page 119 and the following:
- Vinod Khosla, a general partner Kleiner Perkins Caufield & Byers, is a
member of Siara's board of directors and will become a member of
Redback's board of directors upon completion of the merger. From July
1998 to September 1998, Siara received bridge loans totaling $1,500,000
from three affiliates of Kleiner Perkins Caufield & Byers and issued
promissory notes evidencing Siara's repayment obligations. In October
1998, the Kleiner Perkins entities purchased 4,900,000 shares of Siara's
common stock and 1,500,000 shares of Siara's Series A preferred stock by
cancellation of approximately $1,512,000 in principal and interest owed
under the promissory notes and by payment of approximately $1,473,000 in
cash.
- In December 1998, the Kleiner Perkins entities purchased 531,915 shares
of Siara's Series B preferred stock at a price of $1.88 per share.
- Promod Haque, the general partner of Itasca VC Partners VII, LLP, which
is the general partner of Norwest Venture Partners VII, L.P., is a member
of Siara's board of directors and will become a member of Redback's board
of directors upon completion of the merger. In December 1998, Norwest
Venture Partners VII, L.P. purchased 2,925,532 shares of Siara's Series B
preferred stock at a price of $1.88 per share.
- In February 1999, Vivek Ragavan, the President and Chief Executive
Officer of Siara, received an option to purchase 1,200,000 shares of
Siara's common stock at a price of $0.19 per share. Mr. Ragavan exercised
this option in full by tendering a secured full recourse promissory note
to Siara in the principal amount of $226,800. The terms of Mr. Ragavan's
offer letter with Siara provide that in the event of termination by Siara
or by an acquiring company, he will receive one year accelerated vesting
of his shares of Siara common stock and will continue to receive his full
salary until he secures alternative employment at similar compensation,
up to a maximum of one year. Mr. Ragavan has entered into an employment
agreement with Redback pursuant to which he will become an officer of
Redback following the merger and will receive a number of severance
benefits and arrangements. See "Related Agreements -- Employment
Agreements."
- In October 1998, Siara entered into a technology license agreement with
Cerent Corporation, pursuant to which Cerent granted Siara an
non-exclusive license to technology related to two of Cerent's integrated
circuits and parts of Cerent's system-level hardware technology and Siara
agreed to pay certain license fees and royalties. In addition, Siara
acquired Cerent's Canadian subsidiary and software owned by the
subsidiary. Siara and Cerent amended this agreement in February 1999 to
revise certain terms. In connection with this amendment, Siara reimbursed
Cerent for a portion of Siara's start-up costs. Vinod Khosla and Promod
Haque, directors of Siara, were also members of Cerent's board of
directors prior to Cerent's acquisition by Cisco and represented
investors with significant ownership interests in both Cerent and Siara.
- In November 1999, William Kind, the Chief Operating Officer of Siara,
received an option to purchase 675,000 shares of Siara's common stock at
a price of $2.00 per share. Mr. Kind exercised this option by tendering a
secured full recourse promissory note to Siara in a principal amount
equal to substantially the entire exercise price. The terms of Mr. Kind's
offer letter with Siara provide that in the event of termination by Siara
or by an acquiring company, he will receive one year accelerated vesting
of his shares of Siara common stock and will continue to receive his full
salary until he secures alternative employment at similar compensation,
up to a maximum of
128
<PAGE> 140
six months. Mr. Kind has entered into an employment agreement with
Redback pursuant to which he will become an officer of Redback following
the merger and will receive a number of severance benefits and
arrangements. See "Related Agreements -- Employment Agreements."
- In September 1999, Pankaj Patel, the Senior Vice President of Engineering
of Siara, received an option to purchase 550,000 shares of Siara's common
stock at a price of $0.95 per share. Mr. Patel exercised this option by
tendering a secured full recourse promissory note to Siara in a principal
amount equal to substantially the entire exercise price. Mr. Patel has
repaid this promissory note in full. The terms of Mr. Patel's offer
letter with Siara provide that in the event of termination by Siara for
any reason, or if there is a change of control of Siara, an additional
25% of his shares will become vested. Mr. Patel has entered into an
employment agreement with Redback pursuant to which he will become an
officer of Redback following the merger and will receive a number of
severance benefits and arrangements. See "Related
Agreements -- Employment Agreements."
LEGAL MATTERS
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to
Redback, will pass on the validity of the Redback common shares to be issued to
Siara stockholders in the merger.
EXPERTS
The financial statements of Redback as of December 31, 1999 and 1998 and
for each of the three years in the period ended December 31, 1999 included in
this joint proxy statement/prospectus have been so included in reliance on the
report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Siara as of December 31, 1999 and 1998 and for
the year ended December 31, 1999, the period from inception (July 20, 1998)
through December 31, 1998, and the period from inception (July 20, 1998) through
December 31, 1999 included in this joint proxy statement/prospectus have been so
included in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
129
<PAGE> 141
WHERE YOU CAN FIND MORE INFORMATION
Redback files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information that we file at the SEC's public reference rooms in
Washington, D.C., New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms.
Redback's SEC filings are also available to the public from commercial document
retrieval services and at the web site maintained by the SEC at
"http://www.sec.gov."
Siara is located at 1195 Borregas Avenue, Sunnyvale, California 94089 and
its telephone number is (408) 548-9300. Siara stockholders with questions about
the merger should contact Investor Relations at (408) 548-9480.
No person is authorized to give any information or to make any
representation with respect to the matters described in this document other than
those contained herein and, if given or made, such information or representation
must not be relied upon as having been authorized by Redback or Siara. This
document does not constitute an offer to sell, or a solicitation of an offer to
purchase, the securities offered hereby, nor does it constitute the solicitation
of a proxy, in any jurisdiction on which, or to any person to whom, it is
unlawful to make such offer or solicitation. Neither the delivery of this
document nor any sale made hereby, under any circumstances, shall create any
implication that there has been no change in the affairs of Redback or Siara
since the date hereof, or that the information herein is correct as of any time
subsequent to its date.
Redback owns or has rights to various trademarks, service marks and trade
names used in its business. These include the Redback Networks Inc. logo and
Redback Networks Inc.(TM)
Siara owns or has rights to various trademarks, service marks and trade
names used in its business. These include the Siara Systems, Inc.(TM) logo and
Siara Systems, Inc.(TM)
130
<PAGE> 142
REDBACK NETWORKS INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Balance Sheet............................................... F-3
Statement of Operations..................................... F-4
Statement of Stockholders' Equity........................... F-5
Statement of Cash Flows..................................... F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 143
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Redback Networks Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, of stockholders' equity and of cash flows present fairly, in all
material respects, the financial position of Redback Networks Inc. at December
31, 1999 and 1998, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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 of these statements in accordance with
auditing standards generally accepted in the United States, which 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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
San Jose, California
January 18, 2000
F-2
<PAGE> 144
REDBACK NETWORKS INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 13,888 $ 8,189
Short-term investments.................................... 43,072 --
Accounts receivable, less allowances of $1,149 and $340,
respectively........................................... 15,429 2,342
Inventories............................................... 3,960 821
Other current assets...................................... 1,374 262
-------- --------
Total current assets.............................. 77,723 11,614
Property and equipment, net................................. 10,150 2,822
Other assets................................................ 6,957 246
-------- --------
$ 94,830 $ 14,682
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings, current....................................... $ 123 $ 1,747
Capital lease obligations, current........................ 755 560
Accounts payable.......................................... 9,109 2,060
Accrued liabilities....................................... 7,993 2,005
Deferred revenue.......................................... 9,945 781
-------- --------
Total current liabilities......................... 27,925 7,153
Borrowings, non-current..................................... -- 144
Capital lease obligations, non-current...................... 1,012 1,131
-------- --------
28,937 8,428
-------- --------
Commitments (Note 5)
Stockholders' equity:
Convertible Preferred Stock: $0.0001 par value; 13,500,000
shares authorized, 10,456,621 issued and outstanding in
1998................................................... -- 18,884
Common Stock: $0.0001 par value; 80,000,000 and 45,000,000
shares authorized, 43,896,937 and 15,650,604 shares
issued and outstanding, respectively................... 91,638 6,741
Deferred stock compensation............................... (3,266) (4,731)
Notes receivable from stockholder......................... (131) (211)
Accumulated deficit....................................... (22,348) (14,429)
-------- --------
Total stockholders' equity........................ 65,893 6,254
-------- --------
$ 94,830 $ 14,682
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE> 145
REDBACK NETWORKS INC.
STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------
1999 1998 1997
----------- ----------- ----------
<S> <C> <C> <C>
Net revenues.................................... $ 64,274 $ 9,206 $ 48
Cost of revenues................................ 18,665 3,603 29
----------- ----------- ----------
Gross profit.................................... 45,609 5,603 19
----------- ----------- ----------
Operating expenses:
Research and development (excluding
amortization of deferred stock compensation
of $1,492, $326 and $0, respectively)...... 21,125 5,727 3,249
Selling, general and administrative (excluding
amortization of deferred stock compensation
of $2,541, $554 and $0, respectively)...... 30,208 8,875 1,317
Amortization of deferred stock compensation... 4,033 880 --
----------- ----------- ----------
Total operating expenses.............. 55,366 15,482 4,566
----------- ----------- ----------
Loss from operations............................ (9,757) (9,879) (4,547)
Interest and other income, net.................. 1,838 3 136
----------- ----------- ----------
Net loss........................................ $ (7,919) $ (9,876) $ (4,411)
=========== =========== ==========
Basic and diluted net loss per share............ $ (0.30) $ (1.78) $ (2.05)
=========== =========== ==========
Shares used in computing net loss per share..... 26,694,000 5,538,000 2,152,000
=========== =========== ==========
Pro forma net loss per share (unaudited):
Basic and diluted net loss per share.......... $ (0.23)
===========
Shares used in computing net loss per share... 34,564,000
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE> 146
REDBACK NETWORKS INC.
STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES
PREFERRED STOCK COMMON STOCK DEFERRED RECEIVABLE
---------------------- -------------------- STOCK FROM ACCUMULATED
SHARES AMOUNT SHARES AMOUNT COMPENSATION STOCKHOLDER DEFICIT
----------- -------- ---------- ------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996.... 1,687,500 $ 217 5,659,992 $ 8 $ -- $ -- $ (142)
Issuance of Convertible
Preferred Stock, net.......... 7,692,497 10,202 -- -- -- -- --
Issuance of Common Stock........ -- -- 8,613,210 391 -- (211) --
Issuance of Common Stock and
warrants for services......... -- -- 181,492 31 -- -- --
Repurchase of Common Stock...... -- -- (986,430) (4) -- -- --
Net loss........................ -- -- -- -- -- -- (4,411)
----------- -------- ---------- ------- ------- ----- --------
Balance at December 31, 1997.... 9,379,997 10,419 13,468,264 426 -- (211) (4,553)
Issuance of Convertible
Preferred Stock, net.......... 1,076,624 8,465 -- -- -- -- --
Issuance of Common Stock........ -- -- 2,936,754 487 -- -- --
Issuance of Common Stock and
warrants for services......... -- -- 205,800 255 -- -- --
Repurchase of Common Stock...... -- -- (960,214) (38) -- -- --
Deferred stock compensation..... -- -- -- 5,611 (5,611) -- --
Amortization of deferred stock
compensation.................. -- -- -- -- 880 -- --
Issuance of notes receivable.... -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- (9,876)
----------- -------- ---------- ------- ------- ----- --------
Balance at December 31, 1998.... 10,456,621 18,884 15,650,604 6,741 (4,731) (211) (14,429)
Issuance of Convertible
Preferred Stock, net.......... 63,532 491 -- -- -- -- --
Conversion of preferred stock to
common stock.................. (10,520,153) (19,375) 21,040,306 19,375 -- -- --
Issuance of Common Stock in
initial public offering....... -- -- 5,750,000 60,004 -- -- --
Issuance of Common Stock under
stock plans................... -- -- 1,826,579 2,639 -- -- --
Issuance of Common Stock and
warrants for services......... -- -- 9,200 342 -- -- --
Repurchase of Common Stock...... -- -- (379,752) (31) -- -- --
Deferred stock compensation..... -- -- -- 2,568 (2,568) -- --
Amortization of deferred stock
compensation.................. -- -- -- -- 4,033 -- --
Payment received on notes
receivable from stockholder... -- -- -- -- -- 80 --
Net loss........................ -- -- -- -- -- -- (7,919)
----------- -------- ---------- ------- ------- ----- --------
Balance at December 31, 1999.... -- $ -- 43,896,937 $91,638 $(3,266) $(131) $(22,348)
=========== ======== ========== ======= ======= ===== ========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
-------------
<S> <C>
Balance at December 31, 1996.... $ 83
Issuance of Convertible
Preferred Stock, net.......... 10,202
Issuance of Common Stock........ 180
Issuance of Common Stock and
warrants for services......... 31
Repurchase of Common Stock...... (4)
Net loss........................ (4,411)
-------
Balance at December 31, 1997.... 6,081
Issuance of Convertible
Preferred Stock, net.......... 8,465
Issuance of Common Stock........ 487
Issuance of Common Stock and
warrants for services......... 255
Repurchase of Common Stock...... (38)
Deferred stock compensation..... --
Amortization of deferred stock
compensation.................. 880
Issuance of notes receivable.... --
Net loss........................ (9,876)
-------
Balance at December 31, 1998.... 6,254
Issuance of Convertible
Preferred Stock, net.......... 491
Conversion of preferred stock to
common stock.................. --
Issuance of Common Stock in
initial public offering....... 60,004
Issuance of Common Stock under
stock plans................... 2,639
Issuance of Common Stock and
warrants for services......... 342
Repurchase of Common Stock...... (31)
Deferred stock compensation..... --
Amortization of deferred stock
compensation.................. 4,033
Payment received on notes
receivable from stockholder... 80
Net loss........................ (7,919)
-------
Balance at December 31, 1999.... $65,893
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE> 147
REDBACK NETWORKS INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss............................................. $ (7,919) $(9,876) $(4,411)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization..................... 2,273 922 281
Amortization of deferred stock compensation....... 4,033 880 --
Other noncash charges............................. 342 255 336
Changes in assets and liabilities:
Accounts receivable............................. (13,087) (2,294) (48)
Inventories..................................... (3,139) (732) (89)
Other current assets............................ (1,112) (51) (185)
Other assets.................................... (2,682) (34) (283)
Accounts payable................................ 7,049 1,609 420
Accrued liabilities............................. 5,988 1,911 (8)
Deferred revenue................................ 9,164 781 --
-------- ------- -------
Net cash provided by (used in) operating
activities................................ 910 (6,629) (3,987)
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................... (8,833) (1,234) (899)
Purchase of short-term investments................... (43,072) -- (3,139)
Sale of short term investments....................... -- 3,139 --
Note receivable from Siara Systems................... (4,029) -- --
-------- ------- -------
Net cash provided by (used in) investing
activities................................ (55,934) 1,905 (4,038)
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Convertible Preferred
Stock, net........................................ 491 8,465 10,202
Proceeds from issuance of Common Stock, net.......... 62,692 449 176
Principal payments on capital lease obligations...... (692) (338) (26)
Proceeds from bank borrowings........................ 2,500 1,500 700
Repayments of bank borrowings........................ (4,268) (247) (62)
-------- ------- -------
Net cash provided by financing activities.... 60,723 9,829 10,990
-------- ------- -------
Net increase in cash and cash equivalents.............. 5,699 5,105 2,965
Cash and cash equivalents at beginning of period....... 8,189 3,084 119
-------- ------- -------
Cash and cash equivalents at end of period............. $ 13,888 $ 8,189 $ 3,084
======== ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest............................... $ 347 $ 222 $ 60
======== ======= =======
SUPPLEMENTAL NON-CASH INVESTING AND FINANCING ACTIVITY:
Property and equipment acquired under capital
leases............................................ $ 768 $ 1,444 $ 611
======== ======= =======
Conversion of preferred to common stock.............. $ 19,375 $ -- $ --
======== ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE> 148
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
THE COMPANY
Redback Networks Inc. (the "Company" or "Redback") was incorporated in
Delaware on August 30, 1996. Redback is a leading provider of advanced
networking solutions that enable carriers, cable multiple system operators and
service providers to rapidly deploy high-speed broadband access to the Internet
and corporate networks. Redback's Subscriber Management System connects and
manages large numbers of subscribers using any of the major high-speed access
technologies including digital subscriber line, cable and wireless. The Company
operates in one business segment.
STOCK SPLITS
All share and per share information for all periods has been retroactively
restated to reflect a 4-for-1 Common Stock split effected in January 1997, a
3-for-2 Common Stock split effected in September 1998 and a 2-for-1 Common Stock
split effected in August 1999.
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 reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
REVENUE RECOGNITION
Product sales are recognized upon shipment provided that no significant
vendor obligations remain and collection is considered probable.
Services revenue consists primarily of post-contract customer support,
training, consulting and installation services. Post-contract customer support
revenues are recognized ratably over the support period, which is generally one
year. Revenues from training, consulting services and installation are
recognized as the services are performed. Service revenues to date have not been
significant.
WARRANTY AND SALES RETURNS ALLOWANCES
The Company provides a limited warranty for its products. A provision for
the estimated warranty cost and a provision for sales returns are recorded at
the time revenue is recognized based on the Company's historical experience.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents, and
investments maturing in 12 months or less to be short-term investments. Cash
equivalents at December 31, 1999 and 1998 consist of money-market funds and
commercial paper totaling $13,888,000 and $7,735,000, respectively. At December
31, 1999, the Company had short-term investments of $43,072,000 (Note 2). The
Company classifies, at
F-7
<PAGE> 149
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
the date of acquisition, its short-term investments into categories in
accordance with the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Currently, the Company classifies its short-term investments as
available-for-sale, which are reported at fair market value with the related
unrealized gains and losses included in stockholders' equity. Unrealized gains
and losses at December 31, 1999 were not material. Realized gains and losses,
declines in value of securities judged to be other than temporary, and interest
and dividends on all securities are included in interest and other income, net,
and were not material for all periods presented. The fair value of the Company's
investments are based on quoted market prices.
CONCENTRATION OF CREDIT RISK, FOREIGN OPERATIONS AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and accounts receivable. The Company places its
investments with high credit quality financial institutions. The Company's
accounts receivable are derived from revenue earned from customers located in
the U.S. and certain foreign countries throughout Europe, Asia and South
America. Sales to foreign customers for the years ended December 31, 1999 and
1998, which were denominated in U.S. dollars, accounted for 6.9% and 15%,
respectively, of total revenues. Sales to any one foreign country did not exceed
10% of total revenues in 1999 or 1998. The Company performs ongoing credit
evaluations of its customers' financial condition and, generally, requires no
collateral from its customers. The Company maintains an allowance for doubtful
accounts receivable based upon the expected collectibility of accounts
receivable.
During the year ended December 31, 1999, two customers accounted for 11%
and 24% of the Company's revenue. At December 31, 1999, three customers
accounted for 11%, 13% and 21% of total gross receivables. During the year ended
December 31, 1998, two customers accounted for 18% and 19% of the Company's
revenue and at December 31, 1998, these two customers each accounted for 9% of
total gross receivables.
The Company is dependent on a single contract manufacturer for its
products, and certain key components are obtained from single or limited sources
of supply.
FAIR VALUE
The carrying value of the Company's financial instruments, including cash
and cash equivalents, short-term investments, accounts receivable, accounts
payable and accrued liabilities approximate their fair values due to their
relatively short maturities. The carrying value of the Company's borrowings and
capital lease obligations approximate their fair values given their market rates
of interest and maturity schedules. The Company does not hold or issue financial
instruments for trading purposes.
INVENTORIES
Inventories, which consist principally of raw materials and finished goods,
are stated at the lower of cost or market, cost being determined under the
first-in, first-out method.
F-8
<PAGE> 150
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of the estimated useful lives of the
assets, generally two to five years, or the lease term of the respective assets.
LONG-LIVED ASSETS
The Company periodically evaluates the recoverability of its long-lived
assets based on expected undiscounted cash flows and recognizes an impairment
from the carrying value of long-lived assets, if any, based on the fair value of
such assets.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees," ("APB No. 25") and complies with the
disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation".
The Company accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task Force
("EITF") 96-18.
INCOME TAXES
The Company accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax bases of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating losses and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets unless it is more likely than
not that they will be realized.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Software development costs not qualifying for capitalization are included
in research and development and are expensed as incurred. After technological
feasibility is established, material software development costs are capitalized.
The capitalized cost is them amortized on a straight-line basis over the
estimated product life or on the ratio of current revenues to total projected
product revenues, if greater. The Company defines technological feasibility as
the establishment of a working model, which typically occurs upon completion of
the beta version. To date, the period between achieving technological
feasibility and the general availability of the related products has been short
and software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs to date.
F-9
<PAGE> 151
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for
reporting comprehensive income and its components in the financial statements.
Comprehensive income, as defined, includes the Company's net losses and all
other changes in equity during a period from non-owner sources. To date, the
Company has not had any material transactions that are required to be reported
as other comprehensive income.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with SFAS No. 128,
"Earnings per Share" and SEC Staff Accounting Bulletin ("SAB") No. 98. Under the
provisions of SFAS No. 128 and SAB 98, basic net loss per share is computed by
dividing the net loss for the period by the weighted average number of common
shares outstanding during the period. Weighted average shares exclude shares
subject to repurchase ("restricted shares"). Diluted net loss per share is
computed by dividing the net loss for the period by the weighted average number
of common and common equivalent shares outstanding during the period, if
dilutive. Common equivalent shares are composed of unvested restricted shares
and incremental common shares issuable upon the exercise of stock options and
warrants and upon the conversion of Preferred Stock.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1999 1998 1997
--------------- -------------- --------------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C>
Numerator:
Net loss....................................... $ (7,919) $ (9,876) $ (4,411)
============ =========== ===========
Denominator:
Weighted average common shares outstanding... 32,974,000 14,840,000 9,068,000
Weighted average unvested common shares
subject to repurchase..................... (6,280,000) (9,302,000) (6,916,000)
------------ ----------- -----------
Denominator for basic and diluted
calculation............................... 26,694,000 5,538,000 2,152,000
============ =========== ===========
Basic and diluted net loss per share........... $ (0.30) $ (1.78) $ (2.05)
============ =========== ===========
</TABLE>
Options to purchase 8,029,875, 4,209,450 and 465,000 shares of Common Stock
at an average exercise price of $22.50, $0.75 and $0.08 per share, warrants to
purchase 59,000, 258,842 and 198,750 shares of Common Stock at an average
exercise price of $10.69, $0.76 and $0.50 per share, and shares issuable upon
the conversion of Preferred Stock have not been included in the computation of
diluted net loss per share for the years ended December 31, 1999, 1998, and
1997, respectively, as their effect would have been anti-dilutive.
PRO FORMA NET LOSS PER SHARE (UNAUDITED)
Pro forma net loss per share for the year ended December 31, 1999 is
computed using the weighted average number of common shares outstanding,
including the pro forma effects of the
F-10
<PAGE> 152
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
automatic conversion of the Company's Preferred Stock into shares of the
Company's common stock effective upon the closing of the Company's initial
public offering as if such conversion occurred on January 1, 1999, or at date of
original issuance, if later. The resulting pro forma adjustment includes an
increase in the weighted average shares used to compute basic and diluted net
loss per share of 7,870,000 for the year ended December 31, 1999.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The new standard
requires companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Under SFAS No. 133, gains or losses
resulting from changes in the values of derivatives are to be reported in the
statement of operations or as a deferred item, depending on the use of the
derivatives and whether they qualify for hedge accounting. The Company is
required to adopt SFAS No. 133 in the first quarter of 2001. To date, the
Company has not engaged in any hedging activity and does not expect adoption of
this new standard to have a significant impact on the Company.
In December 1999, the SEC issued Staff Accounting Bulletin ("SAB") 101,
"Revenue Recognition," which provides guidance on the recognition, presentation,
and disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosure related to revenue recognition policies. At this time,
the Company is still assessing the impact of SAB 101 on its financial position
and results of operations.
F-11
<PAGE> 153
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- -------
<S> <C> <C>
SHORT-TERM INVESTMENTS
U.S. government obligations............................... $ 4,084
Commercial paper.......................................... 24,566
Other corporate securities................................ 14,422
--------
$ 43,072
========
INVENTORIES
Raw materials............................................. $ 3,364 $ 563
Finished goods............................................ 596 258
-------- -------
$ 3,960 $ 821
======== =======
PROPERTY AND EQUIPMENT, NET
Computer equipment........................................ $ 11,689 $ 3,554
Furniture and fixtures.................................... 683 358
Leasehold improvements.................................... 1,249 115
-------- -------
13,621 4,027
Less: Accumulated depreciation and amortization........... (3,471) (1,205)
-------- -------
$ 10,150 $ 2,822
======== =======
OTHER ASSETS
Note receivable from Siara Systems (Note 11).............. $ 4,029 --
Other..................................................... 2,928 $ 246
-------- -------
$ 6,957 $ 246
======== =======
ACCRUED LIABILITIES
Accrued compensation...................................... $ 4,112 $ 494
Accrued professional fees................................. 480 458
Accrued warranty.......................................... 928 338
Other..................................................... 2,473 715
-------- -------
$ 7,993 $ 2,005
======== =======
</TABLE>
Property and equipment includes $2,823,000 and $2,055,000 of computer
equipment, internal-use software and furniture and fixtures under capital leases
at December 31, 1999 and 1998, respectively. Accumulated amortization of assets
under capital leases totaled $1,493,000 and $552,000 at December 31, 1999 and
1998, respectively.
NOTE 3 -- INCOME TAXES:
No provisions for income taxes have been recorded as the Company has
incurred net losses since inception.
At December 31, 1999, the Company's federal and state net operating loss
carryforwards for income tax purposes were approximately $79 million and $44
million, respectively. If not utilized, the federal net operating loss
carryforwards will begin to expire in 2011, and the state net operating loss
F-12
<PAGE> 154
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
carryforwards will begin to expire in 2004. The Company's federal and state
research tax credit carryforwards for income tax purposes are approximately $2
million and $1 million, respectively. If not utilized, the federal and state tax
credit carryforwards will begin to expire in 2011. Under the Tax Reform Act of
1986, the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Events which cause limitations in
the amount of net operating losses that the Company may utilize in any one year
include, but are not limited to, a cumulative ownership change of more than 50%,
as defined, over a three year period. Such a change may have occurred as a
result of the preferred stock issuances during 1997 and 1998.
Deferred tax assets approximate $32 million as of December 31, 1999 of
which approximately $27 million relates to net operating loss carryforwards and
credit carryforwards resulting from the exercise of employee stock options. When
recognized, the tax benefit of the loss and credit carryforwards from the
exercise of employee stock options will be accounted for as a credit to
additional paid-in capital rather than a reduction of the income tax provision.
Deferred tax assets of approximately $5 million as of December 31, 1998 relate
primarily to net operating loss carryforwards and certain accruals that were not
deductible for tax purposes.
NOTE 4 -- BORROWINGS:
The Company had $123,000 and $391,000 outstanding under a loan and security
agreement with a bank at December 31, 1999 and 1998, respectively. The loan
agreement provides for borrowings of up to $750,000, which are secured by the
Company's property and equipment. Under the terms of the loan agreement, certain
transactions, including payment of dividends, are prohibited without the bank's
consent. The loan bears interest at the prime rate (8.50% at December 31, 1999)
plus .5% per annum. The Company is required to make monthly repayments on this
loan through July 2000.
The Company's loan and security agreement with this bank included a
revolving line of credit that provided for borrowings of up to $5 million, as
amended, at the prime rate plus .5% per annum. At December 31, 1998, the Company
had $1,500,000 outstanding under this line, which was repaid in 1999. This
agreement matured in July 1999.
NOTE 5 -- COMMITMENTS:
The Company leases office space and equipment under noncancelable operating
and capital leases with various expiration dates through 2002 and 2009,
respectively. Certain of the facilities leases have renewal options.
Additionally, the terms of the facilities leases provide generally for rental
payments on a graduated scale. The Company recognizes rent expense on a
straight-line basis over the lease period. Rental expense for 1999, 1998 and
1997 was $1,243,000, $441,000, and $144,000, respectively.
At December 31, 1999, the Company had $627,000 available under a capital
lease line for the acquisition of equipment.
F-13
<PAGE> 155
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease payments under noncancelable operating and capital
leases, including operating lease commitments entered into subsequent to
December 31, 1999, are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
(IN THOUSANDS)
<S> <C> <C>
YEAR ENDED DECEMBER 31,
2000................................................. $ 952 $ 4,233
2001................................................. 738 6,620
2002................................................. 353 7,012
2003................................................. -- 7,228
2004................................................. -- 7,441
2005 and thereafter.................................. -- 23,816
------ -------
Total minimum lease payments....................... 2,043 $56,350
=======
Less: Amount representing interest................... 276
------
Present value of capital lease obligations........... 1,767
Less: Current portion................................ 755
------
Non-current portion of capital lease
obligations................................ $1,012
======
</TABLE>
NOTE 6 -- CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1998 consisted of the
following:
<TABLE>
<CAPTION>
PROCEEDS
SHARES NET OF
------------------------- LIQUIDATION ISSUANCE
SERIES DESIGNATED OUTSTANDING AMOUNT COSTS
------ ---------- ----------- ----------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
A............................... 1,687,500 1,687,500 $ 225 $ 217
B............................... 5,233,875 5,134,498 5,135 5,119
C............................... 2,582,001 2,557,999 5,116 5,083
D............................... 1,350,000 1,076,624 8,477 8,465
---------- ---------- ------- -------
10,853,376 10,456,621 $18,953 $18,884
========== ========== ======= =======
</TABLE>
The holders of Convertible Preferred Stock were entitled to voting rights
equivalent to the number of shares of Common Stock into which it was
convertible. In addition, holders of Series A, B, C and D Convertible Preferred
Stock were entitled to receive noncumulative dividends at the per annum rate of
$.013, $.10, $.20 and $.787 per share, respectively, when and if declared by the
Board of Directors, as well as a liquidation preference of $.13, $1.00, $2.00
and $7.87 per share, respectively, in the event of the dissolution of the
Company.
All shares of Convertible Preferred Stock were converted into Common Stock
upon the closing of the Company's initial public offering ("IPO") in May 1999.
F-14
<PAGE> 156
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
WARRANTS FOR CONVERTIBLE PREFERRED STOCK
In connection with certain borrowings in 1998 and 1997, the Company issued
warrants to purchase 198,750, 48,000 and 12,192 shares of Series B, C and D
Convertible Preferred Stock for $.50, $1.00 and $3.94 per share. Such warrants
expire through 2004. Using the Black-Scholes pricing model, the Company
estimated that the aggregate fair value of the warrants was $98,000. The Company
recognized $28,000 of interest expense associated with these warrants in 1999
and 1998.
In connection with the Company's initial public offering, the warrants were
converted to warrants to purchase common stock.
NOTE 7 -- COMMON STOCK:
A portion of the shares of Common Stock outstanding is subject to the
Company's right to repurchase the shares at the original purchase or option
exercise price in the event that the service of the purchaser or optionee
terminates for any reason. The Company's repurchase right generally lapses as
the purchaser or optionee performs services over a four-year period. The right
generally lapses with respect to one-quarter of the shares after 12 months of
service and with respect to 1/48 of the shares each month thereafter. In certain
cases, the right of repurchase lapses on an accelerated basis in the event of a
change in control. The shares generally are not transferable and are held in
escrow while they remain subject to the Company's right of repurchase. At
December 31, 1999 and 1998, there were 5,460,000 and 8,482,800 shares
outstanding, respectively, subject to repurchase.
The Company issued 9,200, 205,800 and 181,492 shares of Common Stock to
consultants and other service providers in 1999, 1998 and 1997, respectively.
Grants to non-employee service providers and other non-employees are fully
vested at the date of issuance. The fair value of the Common Stock issued was
determined to be $107,000, $227,000 and $6,000 in 1999, 1998 and 1997,
respectively, based on the fair value of the services received or Common Stock
issued, whichever was more reliably measurable, and has been recognized in
general and administrative expenses.
The Company issued 58,504 and 4,144,460 restricted shares of Common Stock
outside the 1997 Stock Plan in 1998 and 1997, respectively. The weighted average
fair value of the restricted shares issued was $.25 and $.025 in 1998 and 1997,
respectively.
In December 1999, the Board of Directors approved, subject to stockholder
approval, an amendment to the Company's certificate of incorporation to provide
for an increase in the authorized number of shares of Common Stock from
80,000,000 to 200,000,000.
NOTE 8 -- STOCK-BASED COMPENSATION PLANS:
In April 1997, the Company adopted the 1997 Stock Plan (the "1997 Plan").
The 1997 Plan provides for the granting of stock options and common stock to
employees and consultants of the Company. Options granted under the 1997 Plan
may be either incentive stock options or nonqualified stock options. Incentive
stock options ("ISO") may be granted only to Company employees (including
officers and directors who are also employees). Nonqualified stock options
("NSO") may be granted to Company employees and consultants. As of December 31,
1999, the Company has reserved 15,542,192 shares of Common Stock for issuance
under the 1997 Plan.
F-15
<PAGE> 157
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
In May 1999, the Company adopted the 1999 Stock Incentive Plan ("1999
Plan") and has reserved 5,000,000 shares of common stock for issuance under this
Plan. Shares not yet issued under the 1997 Plan are also available under the
1999 Plan. The 1999 Plan allows grants of ISOs, NSOs and restricted stock to
employees, non-employee board members and consultants.
In May 1999, the Company adopted the 1999 Directors' Plan and has reserved
400,000 shares of Common Stock for issuance under this Plan.
Options under the Plans may be granted for periods of up to ten years and
at prices no less than 85% of the estimated fair value of the shares on the date
of grant, provided, however, that (i) the exercise price of an ISO and NSO shall
not be less than 100% and 85% of the estimated fair value of the shares on the
date of grant, respectively, and (ii) the exercise price of an ISO and NSO
granted to a 10% shareholder shall not be less than 110% of the estimated fair
value of the shares on the date of grant. Options under the 1997 Plan are
generally exercisable immediately, subject to repurchase by the Company. The
repurchase feature generally lapses over four years. Options and restricted
stock grants generally vest over four years.
The following table presents activity under the 1997 Plan, the 1999 Stock
Plan and the 1999 Directors' Plan:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE
FOR GRANT OUTSTANDING PRICE
---------- ----------- --------
<S> <C> <C> <C>
Authorized.......................................... 7,800,000 -- $ --
Options granted................................... (663,000) 663,000 .07
Common stock granted.............................. (4,436,492) -- --
Options exercised................................. -- (198,000) .03
Common stock repurchased.......................... 15,000 -- --
---------- ---------- ------
Balance at December 31, 1997........................ 2,715,508 465,000 .08
Authorized........................................ 6,342,192 -- --
Options granted................................... (5,338,200) 5,338,200 .63
Common stock granted.............................. (1,410,300) -- --
Options exercised................................. -- (1,673,750) .21
Common stock repurchased.......................... 237,000 -- --
---------- ---------- ------
Balance at December 31, 1998........................ 2,546,200 4,129,450 .74
Authorized........................................ 6,800,000 -- --
Options granted................................... (5,505,500) 5,505,500 32.59
Common stock granted.............................. (9,200) -- --
Options exercised................................. -- (1,416,075) .89
Options cancelled................................. 269,000 (269,000) 2.21
Common stock repurchased.......................... 379,752 -- --
---------- ---------- ------
Balance at December 31, 1999........................ 4,480,252 7,949,875 $22.52
========== ==========
</TABLE>
F-16
<PAGE> 158
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 31, 1999 OPTIONS EXERCISABLE AT
----------------------------------------- DECEMBER 31, 1999
WEIGHTED -----------------------
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
-------------- ------------ ------------ --------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10 - 0.50................. 1,317,378 8.36 years $ 0.26 1,317,378 $ 0.26
$1.00 - $1.50................ 1,434,823 8.88 years 1.29 1,434,823 1.29
$2.38 - $7.00................ 3,029,614 9.19 years 4.87 3,029,614 4.87
$9.50 - $11.50............... 760,860 9.37 years 9.76 760,860 9.76
$94.26 - $99.88.............. 709,200 9.61 years 97.42 -- --
$120.00 - $150.00............ 698,000 9.82 years 124.82 49,900 120.00
--------- ---------
7,949,875 9.11 years $ 22.52 6,592,575 $ 4.61
========= =========
</TABLE>
A total of 581,719 options with an average exercise price of $13.01 per
share were vested at December 31, 1999.
In 1997, the Company issued, to an employee, options to purchase 15,750
shares of Common Stock at an exercise price of $0.10 per share outside of the
1997 Plan. These options were exercised in 1997. In 1998, the Company issued
options to purchase a total of 80,000 shares of Common Stock to two employees at
an exercise price of $1.50 per share outside of the 1997 Plan. These options
were outstanding at December 31, 1999.
Effective May 18, 1999, the Company adopted the 1999 Employee Stock
Purchase Plan (the "Purchase Plan"), which provides for the issuance of a
maximum of 2,000,000 shares of Common Stock. Eligible employees can have up to
15% of their earnings withheld, up to certain maximums, to be used to purchase
shares of the Company's Common Stock on every October 31 and April 30. The price
of the Common Stock purchased under the Purchase Plan is equal to 85% of the
lower of the fair market value of the Common Stock on the offering date of each
two year offering period or the specified purchase date. During 1999, 153,000
shares were purchased at $9.78 per share.
In December 1999, the Board of Directors approved, subject to stockholder
approval, an amendment to the Company's certificate of incorporation to provide
for increases in the number of shares of common stock reserved for issuance
under the 1999 Plan from 5,000,000 to 8,000,000; under the 1999 Employee Stock
Purchase Plan from 2,000,000 to 3,000,000 with automatic increases to 3,000,000
shares each year; and under the 1999 Directors' Option Plan from 400,000 to
800,000.
FAIR VALUE DISCLOSURES
The Company applies the provisions of APB 25 and related Interpretations in
accounting for employee stock based compensation arrangements. Had compensation
cost for the Company's stock-based compensation plan been determined based on
the fair value at the grant dates for the awards under the method prescribed by
SFAS No. 123, for the years ended December 31, 1998 and 1997, the Company's net
loss would not have been materially different. For the year ended December 31,
F-17
<PAGE> 159
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1999, had compensation cost been determined pursuant to SFAS No. 123, the
Company's net loss would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1999
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C>
Net loss:
As reported................................................. $ (7,919)
========
Pro forma................................................. $(31,642)
========
Net loss per share -- basic and diluted:
As reported............................................... $ (0.30)
========
Pro forma................................................. $ (1.19)
========
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes pricing model with the following
assumptions:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Expected life (years)...................................... 2-3 5 5
Risk free interest rate.................................... 5.30% 5.12% 6.03%
Expected volatility........................................ 65% -- --
Dividend yield............................................. -- -- --
</TABLE>
Because additional stock options are expected to be granted each year, the
above pro forma disclosures are not representative of pro forma effects on
reported financial results for future years.
The weighted average fair value of options granted during 1999, 1998 and
1997 were as follows:
<TABLE>
<CAPTION>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE FAIR
PRICE PER VALUE PER
SHARE SHARE
--------------- ---------------
<S> <C> <C>
YEAR ENDED DECEMBER 31, 1999
Exercise price equal to market value............... $49.79 $23.51
Exercise price less than market value.............. 7.10 2.16
YEAR ENDED DECEMBER 31, 1998
Exercise price equal to market value............... $ 0.30 $ 0.07
Exercise price less than market value.............. 0.66 1.23
YEAR ENDED DECEMBER 31, 1997
Exercise price equal to market value............... $ 0.07 $ 0.02
</TABLE>
F-18
<PAGE> 160
REDBACK NETWORKS INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
The weighted average fair value of restricted shares of Common Stock
granted under the Plan in 1998 and 1997 was $.39 and $.07, respectively. There
were no restricted shares of Common Stock granted under the Plan in 1999.
NOTE 9 -- DEFERRED STOCK COMPENSATION:
In the years ended December 31, 1999 and 1998, the Company recorded
deferred stock compensation expense of $2,568,000 and $5,611,000, respectively,
related to the issuance of stock options and restricted shares at prices
subsequently determined to be below fair market value. These charges are being
amortized over a period of four years from the date of grant or restricted
shares issuance. Amortization of $4,033,000 and $880,000 has been recognized as
stock compensation expense in the years ended December 31, 1999 and 1998,
respectively.
NOTE 10 -- EMPLOYEE BENEFIT PLANS:
The Company sponsors a 401(k) defined contribution plan covering all
employees. Contributions made by the Company are determined annually by the
Board of Directors. There have been no Company contributions to the plan since
inception.
NOTE 11 -- PENDING ACQUISITION OF SIARA SYSTEMS:
On November 28, 1999, Redback Networks Inc. ("Redback") entered into an
agreement to merge with Siara Systems, Inc. ("Siara") in a transaction to be
accounted for as a purchase. Siara stockholders, optionholders and
warrantholders will receive an aggregate total of 31,341,986 shares of Redback
common stock and shares subject to options or warrants, as applicable, in the
merger. The aggregate purchase price of the Siara acquisition is estimated to be
approximately $4.5 billion.
The Company also entered into a loan agreement to provide financing of up
to $25 million to Siara. The loan balance totaled $4 million at December 31,
1999, accrues interest at the prime rate (8.5% at December 31, 1999), matures
six months after a termination of the merger agreement, and is convertible into
shares of Siara Common Stock at Siara's option.
If the merger is terminated due to an action of the Company or its
stockholders, Redback may be required pursuant to the terms of the merger
agreement to pay a termination fee of $135 million or provide an additional loan
of $25 million to Siara, depending on the reason for such termination.
F-19
<PAGE> 161
SIARA SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-21
Consolidated Balance Sheets................................. F-22
Consolidated Statements of Operations....................... F-23
Consolidated Statements of Stockholders' Equity (Deficit)... F-24
Consolidated Statements of Cash Flows....................... F-25
Notes to Consolidated Financial Statements.................. F-26
</TABLE>
F-20
<PAGE> 162
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Siara Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity (deficit)
and of cash flows present fairly, in all material respects, the financial
position of Siara Systems, Inc. and its subsidiary (a company in the development
stage) at December 31, 1999 and 1998, and the results of their operations and
their cash flows for the year ended December 31, 1999, the period from inception
(July 20, 1998) through December 31, 1998 and the period from inception (July
20, 1998) through December 31, 1999, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
San Jose, California
January 25, 2000
F-21
<PAGE> 163
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1999 1998
--------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 277 $ 6,383
Restricted cash........................................... 168 --
Prepaid expenses.......................................... 282 106
--------- -------
Total current assets.............................. 727 6,489
Property and equipment, net................................. 6,748 1,420
Intangible assets, net...................................... 62 --
Other assets................................................ 84 --
--------- -------
Total assets...................................... $ 7,621 $ 7,909
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable.......................................... $ 4,440 $ 882
Accrued liabilities....................................... 1,066 379
Advance from related party................................ 500 --
Short-term borrowings..................................... 4,653 --
Current portion of capital lease obligations.............. 807 --
--------- -------
Total current liabilities......................... 11,466 1,261
Long-term borrowings........................................ 9,010 910
Capital lease obligations................................... 1,386 --
--------- -------
Total liabilities................................. 21,862 2,171
--------- -------
Commitments (Note 13)
Stockholders' equity (deficit):
Convertible Preferred Stock: par value $0.001; shares
authorized 13,500; liquidation preference of $12,694
and $8,750 and 7,056 and 4,957 shares issued and
outstanding at December 31, 1999 and 1998,
respectively........................................... 12,614 8,698
Common Stock: $0.001 par value; 35,000 shares authorized;
16,988 and 8,395 shares issued and outstanding at
December 31, 1999 and 1998, respectively............... 17 8
Additional paid-in capital................................ 630,368 800
Notes receivable from stockholders........................ (6,261) (73)
Unearned compensation..................................... (552,567) --
Deficit accumulated during development stage.............. (98,412) (3,695)
--------- -------
Total stockholders' equity (deficit).............. (14,241) 5,738
--------- -------
Total liabilities and stockholders' equity
(deficit)...................................... $ 7,621 $ 7,909
========= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 164
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JULY 20, 1998) (JULY 20, 1998)
YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ --------------- ---------------
<S> <C> <C> <C>
Operating expenses:
Research and development (excluding
amortization of unearned compensation of
$50,258, $0 and $50,258).................... $ 18,318 $ 2,669 $ 20,987
General and administrative (excluding
amortization of unearned compensation
of $18,589, $0 and $18,589)............ 6,889 1,020 7,909
Amortization of unearned compensation..... 68,847 -- 68,847
-------- ------- --------
Total operating expenses.......... 94,054 3,689 97,743
-------- ------- --------
Loss from operations........................ (94,054) (3,689) (97,743)
Other income, net........................... 44 -- 44
Interest income............................. 108 8 116
Interest expense............................ (815) (14) (829)
-------- ------- --------
Net loss.................................... $(94,717) $(3,695) $(98,412)
======== ======= ========
Basic and diluted net loss per share........ $ (16.34) $ (1.38) $ (20.44)
======== ======= ========
Weighted average shares outstanding......... 5,796 2,673 4,814
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-23
<PAGE> 165
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE PERIOD FROM INCEPTION (JULY 20, 1998) THROUGH DECEMBER 31, 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
CONVERTIBLE NOTES ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE DURING
---------------- --------------- PAID-IN FROM UNEARNED DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCKHOLDERS COMPENSATION STAGE
------ ------- ------ ------ ---------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series A
Convertible Preferred Stock,
net,
in October 1998.............. 1,500 $ 2,236 -- $-- $ -- $ -- $ -- $ --
Issuance of Series B
Convertible Preferred
Stock, net,
in December 1998........... 3,457 6,462 -- -- -- -- -- --
Issuance of common stock for
cash....................... -- -- 4,900 5 730 -- -- --
Issuance of common stock for
notes receivable........... -- -- 3,495 3 70 (73) -- --
Net loss..................... -- -- -- -- -- -- -- (3,695)
----- ------- ------ --- -------- ------- --------- ---------
Balance at December 31,
1998....................... 4,957 8,698 8,395 8 800 (73) -- (3,695)
Issuance of Series B
Convertible Preferred
Stock, net,
in March 1999.............. 2,099 3,916 -- -- -- -- -- --
Issuance of warrants......... -- -- -- -- 39,400 -- (38,563) --
Issuance of common stock..... -- -- 8,857 9 7,326 (6,196) -- --
Stock repurchases............ -- -- (264) -- (9) 8 -- --
Unearned compensation related
to stock options........... -- -- -- -- 582,851 -- (582,851) --
Amortization of unearned
compensation............... -- -- -- -- -- -- 68,847 --
Net loss..................... -- -- -- -- -- -- -- (94,717)
----- ------- ------ --- -------- ------- --------- ---------
Balance at December 31,
1999....................... 7,056 $12,614 16,988 $17 $630,368 $(6,261) $(552,567) $ (98,412)
===== ======= ====== === ======== ======= ========= =========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Issuance of Series A
Convertible Preferred Stock,
net,
in October 1998.............. $ 2,236
Issuance of Series B
Convertible Preferred
Stock, net,
in December 1998........... 6,462
Issuance of common stock for
cash....................... 735
Issuance of common stock for
notes receivable........... --
Net loss..................... (3,695)
--------
Balance at December 31,
1998....................... 5,738
Issuance of Series B
Convertible Preferred
Stock, net,
in March 1999.............. 3,916
Issuance of warrants......... 837
Issuance of common stock..... 1,139
Stock repurchases............ (1)
Unearned compensation related
to stock options........... --
Amortization of unearned
compensation............... 68,847
Net loss..................... (94,717)
--------
Balance at December 31,
1999....................... $(14,241)
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-24
<PAGE> 166
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JULY 20, 1998) (JULY 20, 1998)
YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ --------------- ---------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................. $(94,717) $(3,695) $(98,412)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization.......... 1,514 141 1,655
Amortization of unearned
compensation......................... 68,847 -- 68,847
Non-cash interest expense.............. 245 -- 245
Accrued interest....................... 330 -- 330
Changes in assets and liabilities:
Prepaid expenses and other assets.... (260) (106) (366)
Accounts payable..................... 3,199 882 4,081
Accrued liabilities.................. 687 379 1,066
-------- ------- --------
Net cash used in operating
activities..................... (20,155) (2,399) (22,554)
-------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment....... (6,470) (1,561) (8,031)
Acquisition of intangible assets.......... (75) -- (75)
Investment of restricted cash............. (168) -- (168)
-------- ------- --------
Net cash used in investing
activities..................... (6,713) (1,561) (8,274)
-------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowings.................. 13,410 2,410 15,820
Payment of borrowings..................... (920) -- (920)
Capital lease borrowings.................. 2,998 -- 2,998
Payment of capital lease obligations...... (280) -- (280)
Proceeds from issuance of Series A
Convertible Preferred Stock, net of
issuance costs......................... -- 736 736
Proceeds from issuance of Series B
Convertible Preferred Stock, net of
issuance costs......................... 3,916 6,462 10,378
Proceeds from issuance of common stock,
net.................................... 1,138 735 1,873
Advance from related party................ 500 -- 500
-------- ------- --------
Net cash provided by financing
activities..................... 20,762 10,343 31,105
-------- ------- --------
Net increase (decrease) in cash and cash
equivalents............................... (6,106) 6,383 277
Cash and cash equivalents at beginning of
period.................................... 6,383 -- --
-------- ------- --------
Cash and cash equivalents at end of
period.................................... $ 277 $ 6,383 $ 277
======== ======= ========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest.................... $ 240 $ 14 $ 254
======== ======= ========
NON-CASH FINANCING ACTIVITIES:
Cancellation of promissory notes and
interest in exchange for Series A
Preferred Stock........................ $ -- $ 1,512 $ 1,512
======== ======= ========
Issuance of common stock for notes
receivable............................. $ 6,196 $ 73 $ 6,269
======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-25
<PAGE> 167
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY:
THE COMPANY
Siara Systems, Inc. ("Siara" or the "Company"), was incorporated in
Delaware in March 1998. Activities prior to July 20, 1998 were immaterial. The
Company designs and develops optical access networking products that enable
network service providers to offer data at multiple bandwidths to their
customers in a cost-effective way and to create new high-speed data services.
The Company is considered to be in the development stage, and is
principally engaged in research and development, raising capital and building
its management team. The Company operates in only one business segment.
The Company has funded its operating losses since inception through
borrowings, capital lease obligations and sales of equity securities. The
Company expects to continue to incur losses through at least the year 2000. To
fund these losses, the Company will require additional capital. The Company
expects that the proposed merger with Redback Networks (Note 14) will provide
the Company with access to such additional capital.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its Canadian subsidiary (Note 5). All significant intercompany transactions
and balances have been eliminated.
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 reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. At December
31, 1999 and 1998, $0.3 million and $6.4 million, respectively, of money market
funds, the fair value of which approximates cost, are included in cash and cash
equivalents. The Company deposits its cash and cash equivalents with high credit
quality financial institutions.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts payable, accrued liabilities and borrowings. The carrying value of cash
and cash equivalents and accounts payable approximate fair value due to their
short maturities. The carrying value of the Company's borrowings approximates
fair value, as a majority of the related interest rates are variable.
F-26
<PAGE> 168
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the shorter of the estimated useful lives of the
assets, generally three years, or the lease term of the respective assets.
START-UP COSTS
The Company expenses start-up costs as incurred.
INTERNAL USE SOFTWARE COSTS
In 1999, the Company adopted SOP 98-1 "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use," which requires companies to
capitalize certain costs related to internal use software. Adoption of this
standard did not have a material impact on the Company's results of operations
or financial position.
INTANGIBLE ASSETS
Intangible assets consist primarily of purchased technology (Note 5).
Intangible assets are amortized using the straight-line method over three to
five years. During the year ended December 31, 1999, the Company recorded
amortization expense of $13,000.
LONG-LIVED ASSETS
The Company assesses potential impairments of its long-lived assets when
there is evidence that events or changes in circumstances have made recovery of
the asset's carrying value unlikely. An impairment loss would be recognized when
the sum of the expected future net cash flows is less than the carrying amount
of the asset. To date, no impairment losses have been recorded.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements
using the intrinsic value method in accordance with the provisions of Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees" ("APB
No. 25"). Pro forma disclosures of net income and earnings per share, as if the
fair value based method outlined in Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123") were used,
are presented in Note 11.
The Company accounts for equity instruments to non-employees in accordance
with the provisions of SFAS No. 123 and Emerging Issues Task Force ("EITF")
96-18.
FOREIGN CURRENCY REMEASUREMENT AND TRANSACTIONS
The accounts of the Company's Canadian subsidiary, whose functional
currency is the U.S. dollar, have been remeasured into U.S. dollars at
appropriate rates of exchange. Remeasurement gains and losses are included in
other income, net in the statement of operations and are not material.
F-27
<PAGE> 169
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development costs are charged to operations as incurred.
CAPITALIZED SOFTWARE DEVELOPMENT COSTS
After a product's technological feasibility is established, material
software development costs are capitalized. The Company defines technological
feasibility as the establishment of a working model, which typically occurs upon
completion of the first "beta" version. Software development costs not
qualifying for capitalization are included in research and development and are
expensed as incurred. To date, the Company has not reached technological
feasibility for its products, and therefore has no capitalized software
development costs.
CONCENTRATIONS OF RISK
The Company faces concentrations of risk in its supply chain. The Company
purchases several key components from single or limited sources and generally
relies on sole-source foundries for its integrated circuits used in research and
development.
INCOME TAXES
The Company accounts for income taxes under the liability method, which
requires, among other things, that deferred income taxes be provided for
temporary differences between the tax bases of the Company's assets and
liabilities and their financial statement reported amounts. In addition,
deferred tax assets are recorded for the future benefit of utilizing net
operating loss and research and development credit carryforwards. A valuation
allowance is provided against deferred tax assets unless it is more likely than
not that they will be realized.
COMPREHENSIVE INCOME (LOSS)
The Company adopted the provisions of SFAS No. 130, "Reporting
Comprehensive Income," in 1998. SFAS No. 130 establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity (net assets) during a period
from non-owner sources. There is no difference between net loss and
comprehensive loss for the Company.
NET LOSS PER SHARE
The Company computes net loss per share in accordance with Statement of
Financial Accounting Standards No. 128 "Earnings per Share" ("SFAS No. 128") and
SEC Staff Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS
No. 128 and SAB 98, basic net loss per share is computed by dividing the net
loss for the period by the weighted average number of common shares outstanding
during the period. Weighted average shares exclude shares subject to repurchase
("restricted shares"). Diluted net loss per share is computed by dividing the
net loss for the period by the weighted average number of common and common
equivalent shares outstanding during the period, if dilutive. Common equivalent
shares include unvested restricted shares and incremental
F-28
<PAGE> 170
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
common shares issuable upon the exercise of stock options and warrants and upon
conversion of Series A and B Convertible Preferred Stock.
The following table sets forth the computation of basic and diluted net
loss per share for the periods indicated (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JULY 20, 1998) (JULY 20, 1998)
YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ --------------- ---------------
<S> <C> <C> <C>
Numerator:
Net loss.................................... $(94,717) $(3,695) $(98,412)
======== ======= ========
Denominator:
Weighted average common shares
outstanding............................ 11,228 5,105 9,152
Weighted average unvested common shares
subject to repurchase.................. (5,432) (2,432) (4,338)
Denominator for basic and diluted
calculation............................ 5,796 2,673 4,814
-------- ------- --------
Basic and diluted net loss per share........ $ (16.34) $ (1.38) $ (20.44)
======== ======= ========
</TABLE>
Shares of Convertible Preferred Stock of 7,056,000 and 4,957,000, options
to purchase 9,512,000 and 901,000 shares of Common Stock at an average exercise
price of $0.84 and $0.15 per share, warrants to purchase 42,559 and 6,649 shares
of Convertible Preferred Stock, warrants to purchase 233,303 and zero shares of
common stock, and approximately 300,000 and zero shares of Common Stock that
could be issued in connection with a convertible loan have not been included in
the computation of diluted net loss per share for (1) the year ended December
31, 1999 and (2) the period from inception (July 20, 1998) through December 31,
1998 and the period from inception (July 20, 1998) through December 31, 1999,
respectively, as their effect would have been anti-dilutive.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 establishes methods of
accounting for derivative financial instruments and hedging activities. Because
the Company currently holds no derivative instruments and does not engage in
hedging activities, the Company expects that the adoption of SFAS No. 133 will
have no impact on its financial position, results of operations or cash flows.
The Company will be required to implement SFAS No. 133 for the year ending
December 31, 2001.
F-29
<PAGE> 171
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
(IN THOUSANDS)
<S> <C> <C>
PROPERTY AND EQUIPMENT, NET:
Computer equipment........................................ $ 7,594 $ 1,470
Furniture and fixtures.................................... 600 91
Leasehold improvements.................................... 196 --
------- -------
8,390 1,561
Less: Accumulated depreciation and amortization........... (1,642) (141)
------- -------
$ 6,748 $ 1,420
======= =======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999 1998
------ ------
<S> <C> <C>
ACCRUED LIABILITIES:
Payroll and related expenses.............................. $ 530 $ 274
Accrued professional fees................................. 452 --
Other..................................................... 84 105
------ ------
$1,066 $ 379
====== ======
</TABLE>
NOTE 4 -- RELATED PARTY TRANSACTIONS:
The Company received an advance of $.5 million from an investor in 1999
related to a proposed Series C Convertible Preferred Stock offering, which was
subsequently cancelled due to the pending merger (Note 14). This amount was
repaid in January 2000.
Additionally, the Company borrowed $5.5 million from a related party under
a long-term loan in 1999 (Note 7).
NOTE 5 -- RESEARCH AGREEMENT AND ACQUISITION:
In the period ended December 31, 1998, the Company contracted with a
Canadian company for certain research and development work. Under the agreement,
the Company reimbursed the Canadian company for salaries and expenses, plus an
applicable margin. In addition, the Company purchased certain assets which were
used by the employees of the Canadian company in the contractual research and
development work. Payments made in 1998 were for salaries and expenses ($.5
million) and property and equipment ($.3 million).
In February 1999, the Company entered into a technology license agreement
with the Canadian company's parent, which provides Siara with the right to use
certain integrated circuit designs in the development of its products for
$25,000. As part of this agreement, Siara also acquired all of the outstanding
shares of the Canadian company for $93,000. The purchase price was allocated to
property and equipment ($43,000) and to the EMS software technology ($50,000).
The technology license fee and EMS software technology have been reflected as
intangible assets.
F-30
<PAGE> 172
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES:
No provision for income taxes has been recorded as the Company has incurred
net operating losses since inception.
Deferred tax assets of approximately $12.5 million and $1.5 million at
December 31, 1999 and 1998, respectively, consist primarily of net operating
loss carryforwards. Management believes that, based on a number of factors, it
is more likely than not that the deferred tax assets will not be realized.
Accordingly, a full valuation allowance has been recorded.
The Company had approximately $28 million of federal and state net
operating loss carryforwards available to offset future taxable income at
December 31, 1999. These carryforwards begin expiring in 2018 for federal and
2006 for state tax purposes. Under the Tax Reform Act of 1986, the amounts of
and benefits from net operating loss carryforwards may be impaired or limited in
certain circumstances. Events which cause limitations in the amount of net
operating losses that the Company may utilize in any one year include, but are
not limited to, a cumulative ownership change of more than 50% (as defined) over
a three year period. The issuances of Series A and B Convertible Preferred Stock
may result in an annual limitation for the Company's utilization of the net
operating loss carryforwards.
NOTE 7 -- BORROWINGS:
PROMISSORY NOTE
The Company borrowed $1.5 million from certain investors under promissory
notes from July to September 1998. In October 1998 these promissory notes were
cancelled for Series A Convertible Preferred Stock.
BANK FINANCING
In December, 1998, the Company borrowed $.9 million under a loan agreement
with Imperial Bank that also included warrants to purchase Convertible Preferred
Stock (Note 9). The loan provided for borrowings of up to $1.25 million for
working capital and equipment at a rate of prime plus 0.25% (8% at December 31,
1998), and was collateralized by the Company's property and equipment. The loan
was paid in full in 1999.
LONG-TERM LOAN FROM RELATED PARTY
On March 30, 1999, the Company entered into a loan agreement with a future
customer, which provides for borrowings of up to $9.5 million and is
collateralized by the Company's assets. To date, the Company has borrowed $5.5
million. The Company's ability to borrow against the loan is contingent upon
meeting certain product development milestones. Interest accrues at the prime
rate (8.5% at December 31, 1999). The loan balance and accrued interest mature
on December 31, 2003.
F-31
<PAGE> 173
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
EQUIPMENT FINANCING
On October 15, 1999, the Company signed a loan agreement with TransAmerica
Business Credit for borrowings of up to $2.5 million to finance the acquisition
of property and equipment. The Company has signed two promissory notes for
$673,000 and $237,000 with interest accruing at annual rates of 14.83% and
14.7%, respectively. The notes are collateralized by the related property and
equipment. The Company must make monthly principal and interest payments, and
the notes mature in 2003. In connection with this agreement, the Company issued
a warrant to purchase common stock with the price per share and number of shares
determined by a formula, which expires on October 31, 2006. Using the
Black-Scholes option pricing model, the Company estimated that the fair value of
the warrant was $83,000, which will be recorded as additional interest expense
over the term of the loan.
CONVERTIBLE LOAN FROM REDBACK NETWORKS
In connection with the pending merger (Note 14), the Company entered into a
loan agreement with Redback Networks for borrowings of up to $25 million at
certain specified dates through May 1, 2000. The borrowings bear interest at the
prime rate (8.5% at December 31, 1999). The Company may convert the loan balance
and accrued interest into shares of the Company's common stock at $13.39 per
share. If the merger is terminated, the loan and accrued interest will mature
six months after such termination, unless Siara elects it conversion rights.
SUBORDINATED NOTES
In connection with the capital lease facility (Note 8), the Company
established a $3 million subordinated credit facility, with interest accruing at
12.5% per annum. At the closing date, a fee equal to 1% of the principal amount
was incurred. The maturity date is 36 months from the advance date of each
installment of the loan. The Company had a balance of $3.0 million outstanding
under this facility at December 31, 1999.
The Company's borrowings can be summarized as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1999 1998
------- -------
<S> <C> <C>
Bank financing.............................................. $ -- $ 910
Long-term loan from related party, including accrued
interest.................................................. 5,801 --
Equipment financing, including accrued interest, net of
warrants issued........................................... 833 --
Convertible loan from Redback Networks...................... 4,029 --
Subordinated notes.......................................... 3,000
13,663 910
Less: Current portion....................................... 4,653 --
------- -------
Long-term borrowings.............................. $ 9,010 $ 910
======= =======
</TABLE>
F-32
<PAGE> 174
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- CAPITAL LEASES:
In January 1999, the Company entered into a capital lease agreement that
provides financing for the acquisition of property and equipment. The leases
have terms of 30 to 48 months, mature at various dates through 2003, and have an
interest rate of 8.5%. In connection with this financing, the Company granted
the lender a warrant to purchase Convertible Preferred Stock (Note 9).
As of December 31, 1999, $1.9 million of such equipment is included in
property and equipment net of accumulated amortization. Amortization expense was
$1.0 million for the year ended December 31, 1999.
Future minimum lease payments under capital leases at December 31, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
-------------------------
<S> <C>
2000........................................................ $ 898
2001...................................................... 1,405
2002...................................................... 506
2003...................................................... 275
------
Total net minimum lease payments............................ 3,084
Less: Amount representing interest.......................... (371)
------
Present value of net minimum lease payments................. 2,713
Less: Unamortized warrant discount.......................... (520)
------
Net balance (including current portion of $807)............. $2,193
======
</TABLE>
NOTE 9 -- CONVERTIBLE PREFERRED STOCK:
Convertible Preferred Stock at December 31, 1999 consists of the following
(in thousands):
<TABLE>
<CAPTION>
SHARES
------------------------ LIQUIDATION CARRYING
SERIES AUTHORIZED OUTSTANDING AMOUNT AMOUNT
------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C>
A...................................... 1,500 1,500 $ 2,250 $ 2,236
B...................................... 6,000 5,556 10,444 10,378
C...................................... 6,000 -- -- --
------ ----- ------- -------
13,500 7,056 $12,694 $12,614
====== ===== ======= =======
</TABLE>
Proceeds from the issuance of Series A Convertible Preferred Stock
consisted of the cancellation of promissory notes and related interest of
$1,512,000 and $736,000 of cash.
The holders of Preferred Stock have various rights and preferences as
follows:
VOTING
Each share of Series A and B Convertible Preferred Stock has voting rights
equal to an equivalent number of shares of Common Stock into which it is
convertible and votes together as one class with the Common Stock.
F-33
<PAGE> 175
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Series A Convertible Preferred Stock voting separately as a class is
entitled to elect two members of the Board. The Series B Convertible Preferred
Stock voting separately is also entitled to elect two members of the Board.
As long as any shares of a such Convertible Preferred Stock remain
outstanding, the Company must obtain approval from a majority of the holders of
Convertible Preferred Stock in order to alter the Articles of Incorporation as
related to that series of Convertible Preferred Stock, in any manner that would
adversely affect the rights, preferences and privileges of the Convertible
Preferred Stock.
DIVIDENDS
Holders of Series A and B Convertible Preferred Stock are entitled to
receive noncumulative dividends at the per annum rate of $0.15 and $0.188 per
share, respectively, when and if declared by the Board of Directors. The holders
of Series A and B Convertible Preferred Stock will also be entitled to
participate in dividends on Common Stock, when and if declared by the Board of
Directors, based on the number of shares of Common Stock held on an as-if
converted basis. No dividends on Convertible Preferred Stock or Common Stock
have been declared by the Board from inception through December 31, 1999.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
including a merger, acquisition or sale of assets where the beneficial owners of
the Company's Common Stock and Convertible Preferred Stock own less than 51% of
the resulting voting power of the surviving entity, the holders of Series A and
B Convertible Preferred Stock are entitled to receive an amount of $1.50 and
$1.88 per share, respectively, plus any declared but unpaid dividends prior to
and in preference to any distribution to the holders of Common Stock. The
remaining assets, if any, shall be distributed pro rata. Should the Company's
legally available assets be insufficient to satisfy the liquidation preferences,
the assets will be distributed pro rata among the holders of the Series A and B
Convertible Preferred Stock.
CONVERSION
Each share of Series A and B Convertible Preferred Stock is convertible, at
the option of the holder, according to a conversion ratio, subject to adjustment
for dilution. Each share of Series A and B Convertible Preferred Stock
automatically converts into the number of shares of Common Stock into which such
shares are convertible at the then effective conversion ratio upon: (1) the
closing of a public offering of Common Stock at a per share price of at least
$5.00 per share with gross proceeds of at least $10 million (2) a merger, sale
of substantially all of the assets or other transactions which result in a
change in control or (3) the consent of the holders of the majority of
Convertible Preferred Stock.
At December 31, 1999, the Company has reserved 7.5 million shares of Common
Stock for the conversion of Series A and B Convertible Preferred Stock,
respectively.
F-34
<PAGE> 176
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
WARRANTS FOR CONVERTIBLE PREFERRED STOCK
In connection with a bank financing arrangement in 1998, the Company issued
warrants to purchase 6,649 shares of Series B Convertible Preferred Stock for
$1.88 per share. Such warrants were outstanding at December 31, 1998 and expire
in December 2005. The value of the warrants, estimated using the Black-Scholes
option pricing model, was not material. Additionally, in January 1999, the
Company granted warrants to purchase Convertible Preferred Stock in connection
with the capital lease facility. The lender was issued warrants to acquire
Convertible Preferred Stock in the next equity financing at a per share price
determined by a formula. Using the Black-Scholes option pricing model, the
Company estimated that the fair value of these warrants was $754,000, which will
be recorded as additional interest expense over the term of the financing. The
Company used the following assumptions in calculating the estimated fair value
of warrants: dividend yield of 0%, weighted average expected term of four years,
volatility of 75% and risk free interest rates of 5.53% and 5.12% for the year
ended December 31, 1999 and the period from inception (July 20, 1998) to
December 31, 1998, respectively.
NOTE 10 -- COMMON STOCK:
The Company's Articles of Incorporation, as amended, authorize the Company
to issue up to 35 million shares of $0.001 par value Common Stock. A portion of
the shares sold are subject to a right of repurchase by the Company, at the
original issuance price, subject to vesting, which is generally over a four-year
period from the earlier of the grant date or employee hire date, as applicable,
until vesting is complete. At December 31, 1999 and 1998, there were 10.6
million and 3.5 million shares, respectively, subject to repurchase.
NOTE 11 -- STOCK OPTION PLANS:
In September 1998, the Company adopted the 1998 Equity Incentive Plan (the
"Plan"). The Plan provides for the granting of stock options to employees and
consultants of the Company. Options granted under the Plan may be either
incentive stock options or nonqualified stock options. Incentive stock options
("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees and consultants. The Company has reserved 13.5
million shares of Common Stock for issuance under the Plan.
Options granted under the Plan may be exercised for periods of up to ten
years from the date of grant. Options are exercisable immediately, but the stock
is subject to repurchase at the exercise price by the Company. The repurchase
right lapses over a maximum period of four years at such times and under such
conditions as determined by the Board of Directors. Options generally vest over
four years.
In the period ended December 31, 1998, the exercise price for all stock
options and restricted shares issued to employees was equal to the estimated
fair value of the shares on the date of grant. Accordingly, no compensation
expense was recorded in connection with these grants. During the year ended
December 31, 1999, the Company recorded unearned compensation of $374 million
related to the issuance of stock options and restricted shares to employees at
prices below fair market value. Such unearned compensation is being amortized
over a period of four years from the date of issuance.
F-35
<PAGE> 177
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the year ended December 31, 1999, the Company granted options and
warrants to purchase 1.5 million shares to non-employees and third-party
vendors. The Company estimated the value of the options using the Black-Scholes
option pricing model, resulting in unearned compensation of $247 million at
December 31, 1999. The unearned compensation is being remeasured in accordance
with EITF 96-18 and amortized over four years. The Company used the following
assumptions in calculating the estimated fair value of the options: dividend
yield of 0%, weighted average expected term of four years, volatility of 75%,
and a risk free interest rate of 5.53%.
The following tables summarize information on the Company's outstanding
stock options (share amounts in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-----------------------
SHARES WEIGHTED
AVAILABLE AVERAGE
FOR NUMBER EXERCISE
GRANT OUTSTANDING PRICE
--------- ----------- --------
<S> <C> <C> <C>
Options authorized..................................... 8,000 -- $ --
Options granted........................................ (901) 901 0.15
Common stock granted................................... (3,495) -- --
------ ------ -----
Balance at December 31, 1998........................... 3,604 901 0.15
Options authorized..................................... 5,500 -- --
Options granted........................................ (9,512) 9,512 0.92
Options exercised...................................... -- (8,857) 0.86
Options canceled....................................... 384 (384) 0.20
Options repurchased.................................... 264 -- 0.04
------ ------ -----
Balance at December 31, 1999........................... 240 1,172 $1.02
====== ====== =====
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING AT DECEMBER 31, 1999 OPTIONS EXERCISABLE AT
------------------------------------------ DECEMBER 31, 1999
WEIGHTED ----------------------
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE OUTSTANDING PRICE
-------- ------------- ------------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.15 99 8.96 years $0.15 99 $0.15
$0.19 124 9.29 years $0.19 124 $0.19
$0.30 297 9.53 years $0.30 297 $0.30
$0.75 190 9.69 years $0.75 190 $0.75
$2.00 462 9.70 years $2.00 462 $2.00
</TABLE>
At December 31, 1999, 65,000 options with an average exercise price of
$0.22 were vested. At December 31, 1998, no options were vested.
At December 31, 1999 and 1998, shares of common stock outstanding subject
to a repurchase option held by the Company totaled approximately 10.6 million
and 3.5 million shares at a weighted average price of $.74 and $.15 per share,
respectively.
F-36
<PAGE> 178
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRO FORMA DISCLOSURES
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value method, the Company's net loss and basic and
diluted net loss per share would be as follows for the periods indicated
(dollars in thousands):
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
INCEPTION INCEPTION
(JULY 20, 1998) (JULY 20, 1998)
YEAR ENDED THROUGH THROUGH
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1999 1998 1999
------------ --------------- ---------------
<S> <C> <C> <C>
Net loss.................................... $(95,089) $(3,703) $(98,792)
======== ======= ========
Basic and diluted net loss per share........ $ (16.41) $ (1.39) $ (20.52)
======== ======= ========
</TABLE>
The Company calculated the minimum fair value of each option grant on the
date of grant using the Black-Scholes option pricing model with the following
assumptions: dividend yield at 0%, weighted average expected option term of four
years, and a risk free interest rate of 5.53% and 5.12% for the year ended
December 31, 1999 and the period ended December 31, 1998, respectively. The
weighted average fair value of options granted during 1999 and 1998 was $45 and
$0.03, respectively.
NOTE 12 -- RETIREMENT SAVINGS PLAN:
The Company has a savings plan under Section 401(k) of the Internal Revenue
Code under which all employees of the Company are eligible to participate. Each
year employees can contribute up to the lesser of 25% of their compensation or
$10,000. The Company may elect to match employee contributions subject to
certain limitations. No Company matching contributions have been made to date.
NOTE 13 -- COMMITMENTS AND CONTINGENCIES:
LEASE COMMITMENTS
The Company leases office space under a noncancelable operating lease,
which expires on December 31, 2004. Rent expense for the year ended December 31,
1999 and the period ended December 31, 1998 was $0.8 million and $0.2 million,
respectively.
F-37
<PAGE> 179
SIARA SYSTEMS, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Future minimum lease commitments under non-cancelable operating leases are
as follows as of December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
-------------------------
<S> <C>
2000........................................................ $ 898
2001...................................................... 924
2002...................................................... 958
2003...................................................... 987
2004...................................................... 588
Thereafter................................................ --
------
$4,355
======
</TABLE>
CONTINGENCIES
The Company is subject to claims and legal proceedings in the ordinary
course of business. Management believes that the ultimate outcomes of these
matters will not have a material adverse effect on the Company's financial
position, results of operations, or cash flows.
NOTE 14 -- PENDING MERGER:
On November 29, 1999, the Company agreed to merge with Redback Networks,
Inc. ("Redback"). Redback will issue 31.3 million shares of its common stock for
all of the outstanding shares, options and warrants of the Company. The
transaction is valued at approximately $4.5 billion. Closing of the merger is
contingent upon, among other things, receiving certain regulatory approvals, as
well as receiving approval from the stockholders of both companies. In the event
the merger is terminated by Redback, as set forth in the merger agreement,
termination fees of $135 million may be paid to Siara, or Redback may be
required to loan Siara an additional $25 million, depending on the reason for
such termination.
F-38
<PAGE> 180
APPENDIX A
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
BY AND AMONG
REDBACK NETWORKS INC.
SIARA SYSTEMS, INC.
AND
THE STOCKHOLDER AGENT
DATED AS OF NOVEMBER 28, 1999
<PAGE> 181
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 1 THE MERGER........................................ 2
1.1 The Merger............................................. 2
1.2 Effective Time.................................... 2
1.3 Effect of the Merger on Constituent
Corporations.......................................... 2
1.4 Certificate of Incorporation and Bylaws of
Surviving Corporation................................. 2
1.5 Directors and Officers of Surviving Corporation... 3
1.6 Consideration to be Issued; Effect on Outstanding
Securities of Target.................................. 3
1.7 Dissenting Shares................................. 6
1.8 Exchange Procedures............................... 6
1.9 No Further Ownership Rights in Target Capital
Stock................................................. 7
1.10 Lost, Stolen or Destroyed Certificates............ 8
1.11 Further Action.................................... 8
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF TARGET.......... 8
2.1 Organization and Qualification.................... 8
2.2 Authority Relative to this Agreement.............. 8
2.3 Capitalization.................................... 9
2.4 Subsidiaries...................................... 9
2.5 No Conflicts...................................... 10
2.6 Books and Records; Organizational Documents....... 10
2.7 Target Financial Statements....................... 10
2.8 Absence of Changes................................ 11
2.9 No Undisclosed Liabilities........................ 11
2.10 Taxes............................................. 11
2.11 Legal Proceedings................................. 13
2.12 Compliance with Laws and Orders................... 13
2.13 Employee Benefit Plans............................ 13
2.14 Title to Property................................. 15
2.15 Intellectual Property............................. 16
2.16 Contracts......................................... 17
2.17 Insurance......................................... 18
2.18 Affiliate Transactions............................ 18
2.19 Employees; Labor Relations........................ 18
2.20 Environmental Matters............................. 19
2.21 Other Negotiations; Brokers; Third Party
Expenses.............................................. 20
2.22 Foreign Corrupt Practices Act..................... 20
2.23 Tax-Free Reorganization........................... 20
2.24 Approvals......................................... 20
2.25 Disclosure........................................ 21
2.26 S-4 Registration Statement; Proxy Statement....... 21
2.27 Investment Advisors............................... 21
</TABLE>
i
<PAGE> 182
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF ACQUIROR........ 22
3.1 Organization and Qualification.................... 22
3.2 Authority Relative to this Agreement.............. 22
3.3 Capitalization.................................... 22
3.4 Subsidiaries...................................... 23
3.5 No Conflicts...................................... 23
3.6 SEC Documents; Aquiror Financial Statements....... 23
3.7 Absence of Changes................................ 24
3.8 No Undisclosed Liabilities........................ 24
3.9 Taxes............................................. 24
3.10 Legal Proceedings................................. 26
3.11 Compliance with Laws and Orders................... 26
3.12 Employee Benefit Plans............................ 26
3.13 Title to Property................................. 28
3.14 Intellectual Property............................. 29
3.15 Contracts......................................... 30
3.16 Insurance......................................... 30
3.17 Affiliate Transactions............................ 31
3.18 Employees; Labor Relations........................ 31
3.19 Environmental Matters............................. 32
3.20 Other Negotiations; Brokers; Third Party
Expenses.............................................. 32
3.21 Foreign Corrupt Practices Act..................... 32
3.22 Tax-Free Reorganization........................... 33
3.23 Approvals......................................... 33
3.24 Disclosure........................................ 33
3.25 S-4 Registration Statement; Proxy Statement....... 33
3.26 Investment Advisors............................... 34
ARTICLE 4 ADDITIONAL AGREEMENTS............................. 34
4.1 Proxy Statement; S-4 Registration Statement....... 34
4.2 Stockholder Approval.............................. 34
4.3 Access to Information............................. 35
4.4 Confidentiality................................... 35
4.5 Expenses.......................................... 35
4.6 Public Disclosure................................. 36
4.7 Approvals......................................... 36
4.8 Notification of Certain Matters................... 36
4.9 Additional Documents and Further Assurances....... 36
4.10 Form S-8.......................................... 36
4.11 NNM Listing of Additional Shares Application...... 37
4.12 Auditors.......................................... 37
4.13 Directors' and Officers' Indemnification.......... 37
4.14 Benefit Arrangements.............................. 37
4.15 Treatment as Reorganization....................... 38
ARTICLE 5 CONDITIONS TO THE MERGER.......................... 38
5.1 Conditions to Obligations of Each Party to Effect
the Merger............................................ 38
5.2 Additional Conditions to Obligations of Target.... 39
5.3 Additional Conditions to the Obligations of
Acquiror.............................................. 40
</TABLE>
ii
<PAGE> 183
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE 6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS; ESCROW PROVISIONS........................... 42
6.1 Survival of Representations, Warranties, Covenants
and Agreements........................................ 42
6.2 Escrow Provisions................................. 42
ARTICLE 7 CONDUCT PRIOR TO THE EFFECTIVE TIME............... 48
7.1 Conduct of Business............................... 48
7.2 No Solicitation -- Target......................... 50
7.3 No Solicitation -- Acquiror....................... 51
ARTICLE 8 TERMINATION, AMENDMENT AND WAIVER................. 52
8.1 Termination....................................... 52
8.2 Termination Fee................................... 54
8.3 Effect of Termination............................. 54
8.4 Amendment......................................... 54
8.5 Extension; Waiver................................. 54
ARTICLE 9 MISCELLANEOUS PROVISIONS.......................... 55
9.1 Notices........................................... 56
9.2 Entire Agreement.................................. 56
9.3 Further Assurances; Post-Closing Cooperation...... 56
9.4 Waiver............................................ 56
9.5 Third Party Beneficiaries......................... 56
9.6 No Assignment; Binding Effect..................... 56
9.7 Headings.......................................... 56
9.8 Invalid Provisions................................ 56
9.9 Governing Law..................................... 57
9.10 Construction...................................... 57
9.11 Counterparts...................................... 57
9.12 Specific Performance.............................. 57
ARTICLE 10 DEFINITIONS...................................... 57
10.1 Definitions........................................ 57
</TABLE>
EXHIBITS & SCHEDULES
<TABLE>
<S> <C> <C>
Exhibit A -- Form of Irrevocable Proxy and Voting Agreement (Acquiror
stockholders to sign)
Exhibit B -- Form of Irrevocable Proxy and Voting Agreement (Target
stockholders to sign)
Exhibit C -- Form of Amendment No. 1 to Acquiror's Amended and Restated
Investors' Rights Agreement
Exhibit D -- Form of Certificate of Merger
Exhibit E -- Form of Acquiror Officer's Certificates
Exhibit F -- Matters to be Covered by Legal Opinion of Gunderson Dettmer
Stough Villeneuve Franklin & Hachigian, LLP
Exhibit G -- Form of Target Officer's Certificates
Exhibit H -- Matters to be Covered by Legal Opinion of Fenwick & West,
LLP
</TABLE>
iii
<PAGE> 184
MERGER AGREEMENT AND
PLAN OF REORGANIZATION
This MERGER AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of November 28, 1999, by and among REDBACK NETWORKS INC., a
Delaware corporation ("Acquiror"), SIARA SYSTEMS, INC., a Delaware corporation
(the "Target") and, solely for purposes of Article 6, Vivek Ragavan, as
Stockholder Agent. In the event the parties mutually agree in a writing signed
by each of them prior to the Effective Time (as defined below) to structure this
merger as a reverse triangular merger, rather than a direct merger, a wholly-
owned subsidiary of Acquiror (a "Merger Sub") shall become party to this
Agreement and this Agreement shall be amended as appropriate. Capitalized terms
used and not otherwise defined herein have the meanings set forth in Article 10.
RECITALS
A. The respective Boards of Directors of each of Acquiror and Target
believe it is in the best interests of Acquiror and Target and their respective
stockholders that Target merge with and into Acquiror (the "Merger") and, in
furtherance thereof, have approved the Merger. Upon mutual consent from the
respective Boards of Directors of each of Acquiror and Target prior to the
Effective Time, set forth in a writing signed by each of Acquiror and Target,
the Merger may be restructured as a reverse triangular merger, as contemplated
by the first paragraph hereof.
B. The Boards of Directors of each of Acquiror and Target have approved the
Merger and this Agreement and the transactions contemplated hereby.
C. Pursuant to the Merger, among other things, and subject to the terms and
conditions of this Agreement, (i) all of the shares of capital stock of Target
which are issued and outstanding immediately prior to the Effective Time of the
Merger shall be converted into the right to receive shares of Acquiror's Common
Stock, par value $0.0001 ("Acquiror Common Stock"), (ii) all Target Options then
outstanding (whether vested or unvested) shall be converted into options to
purchase Acquiror Common Stock and (iii) all Target Warrants then outstanding
shall be converted into warrants to purchase shares of Acquiror Common Stock, on
the terms and subject to the conditions set forth herein.
D. A portion of the shares of Acquiror Common Stock otherwise issuable or
reserved for issuance by Acquiror in connection with the Merger shall be placed
in escrow by Acquiror, the release of which shares shall be contingent upon
certain events and conditions, all as set forth in Article 6 herein.
E. Concurrent with the execution of this Agreement, certain stockholders of
Target and Acquiror have entered into Irrevocable Proxy and Voting Agreements in
substantially the forms attached hereto as Exhibit A for Acquiror's stockholders
to sign ("Acquiror Proxy") and Exhibit B for Target's stockholders to sign
("Target Proxy") pursuant to which, among other things, such stockholders have
agreed to vote the shares of Target Capital Stock and Acquiror Capital Stock
owned by them in favor of the Merger.
F. Concurrent with the execution of this Agreement, Acquiror shall extend
to the holders of shares of Acquiror Common Stock who acquire such shares in the
Merger and who hold registration rights under Target's Investors' Rights
Agreement dated December 21, 1998 ("Target's Existing Investor Rights
Agreement"), certain registration rights, pursuant to the terms of Acquiror's
Amended and Restated Investors' Rights Agreement of July 2, 1998, as amended by
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thereto, in the form attached hereto as Exhibit C, and Target's stockholders
shall agree to a lock-up following the closing of the Merger and in the event of
a secondary registered offering by Acquiror.
H. Concurrent with the execution of this Agreement, as an inducement to
Acquiror to enter into this Agreement, certain employees of Target shall have
entered into employment agreements, all of which will include mutually
acceptable non-competition terms.
I. Acquiror and Target intend that the Merger shall constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code, and in furtherance thereof intend that this Agreement shall be a "Plan of
Reorganization" within the meaning of Sections 354(a) and 361(a) of the Internal
Revenue Code.
J. Target and Acquiror desire to make certain representations, warranties,
covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises,
representations and warranties set forth herein, and for other good and valuable
consideration (the receipt and sufficiency of which are hereby acknowledged by
the parties), and intending to be legally bound hereby, the parties agree as
follows:
ARTICLE 1
THE MERGER
1.1 The Merger. At the Effective Time and subject to and upon the terms
and conditions of this Agreement and the applicable provisions of the DGCL, and,
to the extent applicable, the California Code, Target shall be merged with and
into Acquiror, the separate existence of Target shall cease, and Acquiror shall
continue as the surviving corporation of the Merger. Acquiror is sometimes
referred to herein as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is earlier terminated pursuant
to Section 8.1, the closing and consummation of the Merger (the "Closing") will
take place as promptly as practicable, following satisfaction or waiver of the
conditions set forth in Article 5, at the offices of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, unless another place or time is agreed to
by Acquiror and Target. 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 a certificate of
merger in substantially the form attached hereto as Exhibit D (the "Delaware
Certificate of Merger"), in each case in accordance with the relevant provisions
of applicable law (the time of acceptance by the Secretary of State of the State
of Delaware of such filing, or such later time agreed to by the parties and set
forth in the Delaware Certificate of Merger, being referred to herein as the
"Effective Time").
1.3 Effect of the Merger on Constituent Corporations. At the Effective
Time, the effect of the Merger shall be as provided in the applicable provisions
of the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers and
franchises of Target shall vest in the Surviving Corporation, and all debts,
liabilities, obligations, restrictions, disabilities and duties of Target shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.
1.4 Certificate of Incorporation and Bylaws of Surviving Corporation.
(a) The Certificate of Incorporation of Acquiror, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation from and after the
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Effective Time until thereafter amended as provided by law and such Certificate
of Incorporation and the Bylaws of the Surviving Corporation.
(b) The Bylaws of Acquiror, as in effect immediately prior to the Effective
Time, shall be the Bylaws of the Surviving Corporation until thereafter amended
as provided by such Bylaws, the Certificate of Incorporation of the Surviving
Corporation and applicable Law.
1.5 Directors and Officers of Surviving Corporation. The directors of
Surviving Corporation at, and immediately after, the Effective Time shall be
Pierre Lamond, Dennis Barsema, James Flach, Dan Warmenhoven, William Kurtz (the
"Existing Directors"), and three (3) persons designated by Target who shall be
Vinod Khosla, Vivek Ragavan and one (1) other person reasonably acceptable to a
majority of the Existing Directors (the "Target Designees"), each to hold office
in accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation. If any Target Designee cannot or will not serve as a director of
the Surviving Corporation, Target may designate a replacement Target Designee,
provided such replacement is reasonably acceptable to a majority of the Existing
Directors. The officers of Surviving Corporation at, and immediately after, the
Effective Time shall be as mutually agreed to by Target and Acquiror, except
that it is agreed that Dennis Barsema shall be Chief Executive Officer and Vivek
Ragavan shall be President and Chief Operating Officer.
1.6 Consideration to be Issued; Effect on Outstanding Securities of
Target. On the terms and subject to the conditions of this Agreement, as of the
Effective Time, by virtue of the Merger and without any action on the part of
Acquiror or Target or any holder of any Target security, all of the following
shall occur:
(a) Conversion of Target Capital Stock. At the Effective Time, each
share of Target Capital Stock that is issued and outstanding immediately
prior to the Effective Time (other than any shares of Target Capital Stock
to be canceled pursuant to Section 1.6(b) and any Dissenting Shares (as
provided in Section 1.7)) will be canceled and extinguished and will be
converted automatically into the right to receive (in accordance with this
Agreement) that number of shares of Acquiror Common Stock that is equal to
the Exchange Ratio, rounded down to the nearest whole share of Acquiror
Common Stock. The shares of Acquiror Common Stock that are issued upon the
conversion of shares of Target Capital Stock in the Merger pursuant to this
Section 1.6(a) shall, upon their issuance at the Effective Time, be
registered under the Securities Act pursuant to an effective registration
statement on Form S-4, as provided in more detail in Section 4.1.
(b) Cancellation of Acquiror-Owned and Target-Owned Capital
Stock. Each share of Target Capital Stock owned by Acquiror or Target or
any Subsidiary of Acquiror or Target immediately prior to the Effective
Time shall be automatically canceled and extinguished without any
conversion thereof and without any further action on the part of Acquiror
or Target.
(c) Target Options and Target Stock Plan. At the Effective Time all
unexpired and unexercised Target Options then outstanding, whether vested
or unvested, shall be assumed by Acquiror in accordance with provisions
described below.
(i) At the Effective Time, each unexpired and unexercised Target
Option (including without limitation each unexpired and unexercised
Target Option issued pursuant to the Siara Systems, Inc. 1998 Equity
Incentive Plan adopted on September 1, 1998, and thereafter amended (the
"Target Stock Plan")) which is then outstanding, whether or not
exercisable and whether or not vested, shall by virtue of the Merger, be
assumed by Acquiror together with the Target Stock Plan and converted
into an option to purchase Acquiror Common Stock ("Acquiror Option") as
provided herein and in such manner that
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(i) Acquiror is "assuming a stock option in a transaction to which
Section 424(a) applies" within the meaning of Section 424 of the
Internal Revenue Code, or (ii) such transaction, to the extent that
Section 424 of the Internal Revenue Code does not apply to any such
Target Options, would be a transaction within Section 424 of the
Internal Revenue Code. Each Target Option so assumed by Acquiror under
this Agreement shall continue to have, and be subject to, the same terms
and conditions as were applicable to such Target Option immediately
prior to the Effective Time (including, without limitation, any
repurchase rights (other than rights of refusal) or vesting provisions),
provided that (A) such Target Option shall be exercisable for that
number of whole shares of Acquiror Common Stock equal to the product of
the number of shares of Target Capital Stock that were issuable upon
exercise in full of such Target Option immediately prior to the
Effective Time (without regard to vesting) multiplied by the Exchange
Ratio (rounded down to the nearest whole number of shares of Acquiror
Common Stock) and (B) the per share exercise price for the shares of
Acquiror Common Stock issuable upon exercise of such assumed Target
Option shall be equal to the quotient determined by dividing the
exercise price per share of Target Capital Stock at which such Target
Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio (rounded up to the nearest whole cent). Acquiror shall,
at all times from and after the Effective Time, reserve, keep and make
available for issuance shares of Acquiror Common Stock that are issuable
upon the exercise in full of all Acquiror Options resulting from the
assumption and conversion of Target Options in accordance with this
Section and shall, as promptly as practicable after the Effective Time,
issue to each holder of a Target Option that is outstanding immediately
prior to the Effective Time a document evidencing the foregoing
assumption of such Target Option by Acquiror and the conversion of such
Target Option into an Acquiror Option as provided herein.
(ii) It is the intention of the parties that Target Options assumed
by Acquiror and converted into Acquiror Options pursuant hereto shall
qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Internal Revenue Code to the same extent
Target Options qualified as incentive stock options immediately prior to
the Effective Time and the provisions of this Section 1.6(c) shall be
applied consistent with this intent.
(iii) At the Effective Time, Acquiror shall assume Target's
obligations, and shall be assigned Target's repurchase rights and
purchase options, under any Restricted Stock Purchase Agreements entered
into pursuant to Target Stock Plan. Any and all restrictions on Target
Restricted Stock issued pursuant to Target Stock Plan or such other
agreements which do not lapse in accordance with their terms (as such
terms were in effect on the date of this Agreement) and which are not
rights of refusal shall continue in full force and effect until such
restrictions lapse pursuant to the terms of such agreements, and any
repurchase rights or purchase options which Target has with respect to
Target Restricted Stock shall also continue in full force and effect.
The Acquiror Options issued in exchange for the Target Options pursuant
to this Section 1.6(c) shall be registered under the Securities Act
pursuant to an effective registration statement on Form S-8, as provided
in more detail in Section 4.10.
(d) Target Warrants. At the Effective Time each unexpired and
unexercised Target Warrant that is then outstanding, whether or not
exercisable and whether or not vested, shall be assumed by Acquiror and
converted into a warrant to purchase shares of Acquiror Common Stock
("Acquiror Warrant") as provided herein. Each Target Warrant so assumed by
Acquiror under this Agreement shall continue to have, and be subject to,
the same terms and conditions
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as were applicable to such Target Warrant immediately prior to the
Effective Time, provided that (A) such Target Warrant shall be exercisable
for that number of whole shares of Acquiror Common Stock equal to the
product of the number of shares of Target Capital Stock that were issuable
upon exercise in full of such Target Warrant immediately prior to the
Effective Time (without regard to vesting) multiplied by the Exchange Ratio
(rounded down to the nearest whole number of shares of Acquiror Common
Stock) and (B) the per share exercise price for the shares of Acquiror
Common Stock issuable upon exercise of such assumed Target Warrant shall be
equal to the quotient determined by dividing the exercise price per share
of Target Capital Stock at which such Target Warrant was exercisable
immediately prior to the Effective Time by the Exchange Ratio (rounded up
to the nearest whole cent). Acquiror shall, at all times from and after the
Effective Time, reserve, keep and make available for issuance all shares of
Acquiror Common Stock that are issuable upon the exercise in full of all
Acquiror Warrants resulting from the assumption and conversion of Target
Warrants in accordance with this Section and shall, as promptly as
practicable after the Effective Time, issue to each holder of a Target
Warrant that is outstanding immediately prior to the Effective Time a
document evidencing the foregoing assumption of such Target Warrant by
Acquiror and the conversion of such Target Warrant into an Acquiror Warrant
as provided herein.
(e) Exchange Ratio. The "Exchange Ratio" shall be the quotient
obtained by dividing (x) 31,341,986 shares of Acquiror Common Stock by (y)
the sum of (i) the aggregate number of shares of Target Capital Stock that
are outstanding immediately prior to the Effective Time, plus (ii) the
number of shares of Target Capital Stock that are issuable upon the
exercise, conversion or exchange (in full) of all Target Equity Securities
that are outstanding immediately prior to the Effective Time (whether
vested or unvested). The Exchange Ratio shall be equitably adjusted to
reflect fully the effect of any stock split, reverse split, stock
combination, stock dividend (including any dividend or distribution of
securities convertible into Acquiror Common Stock or Target Capital Stock),
reorganization, reclassification, recapitalization or other like change
with respect to Acquiror Common Stock or Target Capital Stock occurring
after the date hereof and prior to the Effective Time. No adjustment shall
be made to the Exchange Ratio as a result of any cancellation of any Target
Equity Security or any consideration (in any form whatsoever) received by
Target as a result of any exercise, conversion or exchange of Target Equity
Securities, after the Effective Time.
(f) Fractional Shares. No fraction of a share of Acquiror Common Stock
will be issued in the Merger, but in lieu thereof, each holder of shares of
Target Capital Stock who would otherwise be entitled to a fraction of a
share of Acquiror Common Stock but for the rounding required under Section
1.6(a) (after aggregating all fractional shares of Acquiror Common Stock to
be received by such holder) shall be entitled to receive from Acquiror an
amount of cash (rounded up to the nearest whole cent) equal to the product
of (a) such fraction, multiplied by (b) the average of the closing prices
of Acquiror's Common Stock for the ten (10) trading days ended on the last
trading day prior to the Effective Time (the "Closing Price").
(g) Market Stand-Off. During the Market Stand-Off Period (as defined
below) each securityholder of Target who in the Merger receives Merger
Shares (as defined below), or Acquiror securities that are convertible into
Merger Shares, will not, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any Merger Shares held by it (the
"Market Stand-Off") unless such Merger Shares are registered by Acquiror
under the Securities Act pursuant to a registration statement (other than
the S-4 Registration Statement) filed by Acquiror. "Merger Shares" means
shares of Acquiror Common Stock issued in the Merger or upon exercise of
Acquiror Options or Acquiror Warrants
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that were issued in the Merger. "Market Stand-Off Period" means the time
period beginning on the Effective Time and ending on the earlier of (A) 180
days after the Effective Time and (B) 90 days after the date on which a
registration statement (other than the S-4 Registration Statement) filed by
Acquiror under the Securities Act is declared effective by the SEC. In
order to enforce the foregoing covenant, Acquiror may impose stop-transfer
instructions with respect to the Merger Shares until the end of such Market
Stand-Off Period.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, any
shares of Target Capital Stock held by a holder who has demanded and perfected
dissenters' rights for such shares in accordance with the DGCL and, if
applicable, the California Code, who, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("Dissenting Shares")
shall not be converted into or represent a right to receive Acquiror Common
Stock pursuant to Section 1.6 (except as provided in Section 1.7(b)) but the
holder thereof shall only be entitled to such rights as are granted by the DGCL
and, if applicable, the California Code.
(b) Notwithstanding the provisions of Section 1.7(a) above, if any holder
of shares of Target Capital Stock who demands purchase of such shares under the
DGCL shall effectively withdraw or lose (through failure to perfect or
otherwise) such holder's dissenters' rights, then, as of the later of (i) the
Effective Time or (ii) the occurrence of such event, such holder's shares of
Target Capital Stock shall automatically be converted into and represent only
the right to receive Acquiror Common Stock as provided in Section 1.6(a),without
interest thereon, upon surrender to Target of the certificate representing such
shares in accordance with Section 1.8 of this Agreement.
(c) Target shall give Acquiror (i) prompt notice of its receipt of any
written demands for purchase of any shares of Target Capital Stock, withdrawals
of such demands, and any other instruments relating to the Merger served
pursuant to the DGCL and, if applicable, the California Code, and received by
Target and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for purchase of any shares of Target Capital
Stock under the DGCL and, if applicable, the California Code. Target shall not,
except with the prior written consent of Acquiror, which shall not be
unreasonably withheld, or as may be required under applicable law, voluntarily
make any payment with respect to any demands for purchase of Target Capital
Stock or offer to settle or settle any such demands.
1.8 Exchange Procedures.
(a) Acquiror Common Stock. At the Effective Time, Acquiror shall deposit
with the Exchange Agent for exchange in accordance with this Article 1, the
aggregate number of shares of Acquiror Common Stock issuable in exchange for
outstanding shares of Target Capital Stock pursuant to Section 1.6 and cash in
an amount sufficient to permit the payment of all cash payable in lieu of
fractional shares pursuant to Section 1.6(f).
(b) Exchange Procedures. As soon as practicable after the Effective Time,
but in no event later than two (2) business days after the Effective Time,
Acquiror shall cause to be mailed to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding shares of Target Capital Stock (the "Certificates") and which shares
were converted into the right to receive shares of Acquiror Common Stock
pursuant to Section 1.6, (i) a letter of transmittal in customary form (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 Acquiror may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of Acquiror
Common Stock and cash in lieu of fractional shares. Upon surrender
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of a Certificate for cancellation (or, if such Certificate is lost, of a lost
Certificate indemnity agreement in customary form) to the Exchange Agent or to
such other agent or agents as may be appointed by Acquiror, 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 Acquiror Common Stock (less the number of shares of Acquiror Common
Stock to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article 6 hereof), to which such holder is entitled pursuant to Section 1.6 and
cash in lieu of fractional shares pursuant to Section 1.6(f), and the
Certificate so surrendered shall be canceled. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of Article
6 hereof, Acquiror shall cause to be distributed to a depositary agent mutually
agreed to by Target and Acquiror (the "Depositary Agent") a certificate or
certificates (in such denominations as may be requested by the Depositary Agent)
representing that number of shares of Acquiror Common Stock equal to the Escrow
Amount, which certificate shall be registered in the name of the Depositary
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 Acquiror as provided in Article 6. Until surrendered, each
outstanding Certificate that, prior to the Effective Time, represented shares of
Target Capital Stock will be deemed from and after the Effective Time, for all
corporate purposes, to evidence the ownership of the number of full shares of
Acquiror Common Stock into which such shares of Target Capital Stock shall have
been so converted and the right to receive cash in lieu of fractional shares as
provided herein.
(c) Distributions With Respect to Unexchanged Shares of Target Capital
Stock. No dividends or other distributions with respect to Acquiror 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 Acquiror Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate as
provided in Section 1.8 or otherwise accepted by Acquiror. 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 Acquiror 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 (but for the provisions of this
Section 1.8(c)) with respect to such whole shares of Acquiror Common Stock.
(d) Transfers of Ownership. If any certificate for shares of Acquiror
Common Stock is to be issued pursuant to the Merger 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 Acquiror or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of Acquiror Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of Acquiror or any agent designated by it that such tax has been
paid or is not payable.
1.9 No Further Ownership Rights in Target Capital Stock. All shares of
Acquiror Common Stock issued upon the surrender for exchange of shares of Target
Capital Stock in accordance with the terms hereof (including any cash in lieu of
fractional shares) shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Target Capital Stock, and there shall be
no further registration of transfers on the records of Target of shares of
Target 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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1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the owner of such lost, stolen or
destroyed Certificates shall provide Acquiror with an affidavit of that fact.
1.11 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 or to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
Target, the officers and directors of the Surviving Corporation are fully
authorized to take, and will take, all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF TARGET
Target hereby represents and warrants to Acquiror, subject to such
exceptions and qualifications as are specifically disclosed in the Target
disclosure schedule and schedule of exceptions of Target (the "Target Disclosure
Schedule") delivered herewith and dated as of the date hereof as follows:
2.1 Organization and Qualification. Each of Target and Target Subsidiary
is a corporation duly organized, validly existing and in good standing under the
laws of the state or province of its incorporation, and has all requisite
corporate power and authority to conduct its business as now conducted and as
currently proposed to be conducted and to own, use, license and lease its Assets
and Properties. Each of Target and Target Subsidiary is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the ownership, use, licensing or leasing of its Assets and Properties,
or the conduct or nature of its businesses, makes such qualification, licensing
or admission necessary, except for such failures to be so duly qualified,
licensed or admitted and in good standing that could not reasonably be expected
to have a Material Adverse Effect on Target. Section 2.1 of the Target
Disclosure Schedule sets forth each jurisdiction where each Target and Target
Subsidiary is so qualified to do business and separately lists each other
jurisdiction in which each Target and Target Subsidiary owns, uses, licenses or
leases any material Assets or Properties, has established a local office or
other permanent local presence or has employees or engages independent
contractors.
2.2 Authority Relative to this Agreement. Subject only to the requisite
approval of the Merger, this Agreement and the other agreements attached as
exhibits hereto (the "Ancillary Agreements") by the stockholders of Target,
Target has all requisite corporate power and authority to execute and deliver
this Agreement and the Ancillary Agreements to which it is a party, to perform
its obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by Target of this
Agreement and the Ancillary Agreements to which Target is a party and the
consummation by Target of the transactions contemplated hereby and thereby, and
the performance by Target of its obligations hereunder and thereunder, have been
duly and validly authorized by all necessary action by the Board of Directors of
Target, and no other action on the part of the Board of Directors of Target is
required to authorize the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which Target is a party by Target and the
consummation by Target of the transactions contemplated hereby and thereby. This
Agreement and the Ancillary Agreements to which Target is a party have been duly
and validly executed and delivered by Target and, assuming the due authorization
and valid execution and delivery of this Agreement by Acquiror and each
Ancillary Agreement by each party (other than Target) to such Ancillary
Agreement, each constitutes a legal, valid and binding obligation of Target
enforceable against Target in accordance with its respective terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other
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similar Laws relating to the enforcement of creditors' rights generally and by
general principles of equity.
2.3 Capitalization. The authorized capital stock of Target consists only
of 35,000,000 shares of Common Stock, $0.001 par value per share (the "Target
Common Stock"), of which 16,971,261 shares of Common Stock are issued and
outstanding, and 13,500,000 shares of Preferred Stock, $0.001 par value per
share (the "Target Preferred Stock"). The designation and status of Target
Preferred Stock is as follows: (i) 1,500,000 shares are designated Series A
Preferred Stock, all of which are issued and outstanding, (ii) 6,000,000 shares
are designated as Series B Preferred Stock, of which 5,555,905 are issued and
outstanding and (iii) 6,000,000 shares are designated Series C Preferred Stock,
none of which are issued or outstanding. All of the issued and outstanding
shares of Target Common Stock and Target Preferred Stock are validly issued,
fully paid and nonassessable, and have been issued in compliance with all
applicable federal, state and foreign securities Laws. Except as set forth in
Section 2.3 of the Target Disclosure Schedule, (a) no shares of Target Common
Stock or Target Preferred Stock are held in treasury or are authorized or
reserved for issuance and (b) no Options are outstanding. Section 2.3 of the
Target Disclosure Schedule lists the name (and, if such holder is not an
employee of Target, the address) of such holder of Target Common Stock, Target
Preferred Stock, Target Option and Target Warrant. With respect to any Target
Common Stock or Target Preferred Stock that has been issued subject to a
repurchase option on the part of Target, Section 2.3 of the Target Disclosure
Schedule sets forth the holder thereof, the number and type of securities
covered thereby, and the vesting schedule thereof (including a description of
the circumstances under which such vesting schedule can or will be accelerated).
Except as set forth Section 2.3 of the Target Disclosure Schedule, there are no
agreements, arrangements or understandings to which Target is a party (written
or oral) to issue any Options with respect to Target and there are no preemptive
rights or agreements, arrangements or understandings to issue preemptive rights
with respect to the issuance or sale of Target Capital Stock created by statute,
the Certificate of Incorporation or Bylaws of Target, or any agreement or other
arrangement to which Target is a party or to which it is bound and there are no
agreements, arrangements or understandings to which Target is a party (written
or oral) pursuant to which Target has the right to elect to satisfy any
Liability by issuing Target Common Stock or Equity Equivalents. With respect to
each Target Option and each Target Warrant, Section 2.3 of the Target Disclosure
Schedule sets forth the holder thereof, the number and type of securities
issuable thereunder, and, if applicable, the exercise price therefor, the
exercise period and vesting schedule thereof (including a description of the
circumstances under which such vesting schedule can or will be accelerated). All
Target Options and Target Warrants were issued in compliance with all applicable
federal, state and foreign securities Laws. Other than the Target Support
Agreements, Target is not a party or subject to any agreement or understanding,
and, to Target's knowledge, there is no agreement, arrangement or understanding
between or among any Persons which affects, restricts or relates to voting,
giving of written consents, dividend rights or transferability of shares with
respect to Target Capital Stock, including any voting trust agreement or proxy.
2.4 Subsidiaries. Siara Research Canada, Inc., a Canadian federal
corporation ("Target Subsidiary") is a wholly-owned subsidiary of Target. Except
for Target Subsidiary, Target has (and prior to the Closing will have) no
Subsidiaries and does not (and prior to the Closing will not) otherwise hold any
equity, membership, partnership, joint venture or other ownership interest in
any Person. There are no outstanding options, warrants, or other rights to
acquire capital stock of Target Subsidiary or securities convertible into or
exchangeable for such stock.
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2.5 No Conflicts. The execution and delivery by Target of this Agreement
does not, and the performance by Target of its obligations under this Agreement
and the consummation of the transactions contemplated hereby do not and will
not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Certificate of Incorporation or
Bylaws of Target or Target Subsidiary;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 2.5 of the Target
Disclosure Schedule, if any, conflict with or result in a violation or
breach of any Law or Order applicable to Target or Target Subsidiary or any
of their respective Assets and Properties; or
(c) except as would not have a Material Adverse Effect on Target (i)
conflict with or result in a violation or breach of, (ii) constitute a
default (or an event that, with or without notice or lapse of time or both,
would constitute a default) under, (iii) require Target or Target
Subsidiary to obtain any consent, approval or action of, make any filing
with or give any notice to any Person (other than the filing of the
Delaware Certificate of Merger together with the required officers'
certificates, any filing required under the HSR Act in connection with the
Merger and such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under state or federal
securities Laws) as a result or under the terms of, (iv) result in or give
to any Person any right of termination, cancellation, acceleration or
modification in or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional, accelerated or
guaranteed payments or performance under, (vi) result in the creation or
imposition of (or the obligation to create or impose) any material Lien
upon Target or Target Subsidiary or any of their respective material Assets
or Properties under or (vii) result in the loss of a material benefit under
any material Contract or License to which Target or Target Subsidiary is a
party or by which any of Target's or Target Subsidiary's material Assets
and Properties are bound.
2.6 Books and Records; Organizational Documents. The minute books and
stock record books and other similar records of Target and Target Subsidiary
have been provided or made available to Acquiror or its counsel prior to the
execution of this Agreement, are complete and correct in all material respects
and have been maintained in accordance with customary business practices. Such
minute books contain a true and complete record of all actions taken at all
meetings and by all written consents in lieu of meetings of the directors,
stockholders and committees of the Board of Directors of Target and Target
Subsidiary from the date of Target's and Target Subsidiary's respective
incorporation through the date hereof. Target has, prior to the execution of
this Agreement, delivered to Acquiror true and complete copies of its and Target
Subsidiary's Certificate of Incorporation and Bylaws, as amended through the
date hereof. Neither Target nor Target Subsidiary is in violation of any
provisions of its Certificate of Incorporation or Bylaws as so amended.
2.7 Target Financial Statements. Schedule 2.7 to the Target Disclosure
Schedule sets forth the Target Financials. Target Financials delivered to
Acquiror are correct and complete in all material respects and have been
prepared in accordance with GAAP applied on a basis consistent throughout the
periods indicated (except, with respect to any Target Financials that are
unaudited, for the absence of notes thereto and the effect of the absence of
notes thereto and the effect of the absence of year-end audit adjustments) and
consistent with each other (except as indicated in the notes thereto, as
delivered to Acquiror prior to the date hereof). Target Financials present
fairly the financial condition and operating results of Target as of the dates
and during the periods indicated therein. Since the Financial Statement Date,
there has been no change in any accounting policies, principles, methods or
practices, including any material change with respect to reserves (whether for
bad debts, contingent liabilities or otherwise), of Target.
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2.8 Absence of Changes. Since the Financial Statement Date, there has not
been any material adverse change in the Business or Condition of Target or any
occurrence or event which, individually or in the aggregate, is reasonably
expected to have Material Adverse Effect on Target. In addition, without
limiting the generality of the foregoing, except as expressly contemplated by
this Agreement, since the Financial Statement Date:
(a) neither Target nor Target Subsidiary has entered into any material
Contract or other material commitment or transaction;
(b) there has not been any material amendment or other material
modification (or agreement to do so), or material violation of the terms
of, any of the material Contracts set forth or described in Section
2.16(a)(1) of the Target Disclosure Schedule;
(c) there has not been any amendment to Target's Certificate of
Incorporation or Bylaws;
(d) there has not been any transfer (by way of a License or otherwise)
to any Person of rights to any material Target Intellectual Property, other
than licenses in the ordinary course of business consistent with past
practice;
(e) neither Target nor Target Subsidiary has made any change in
accounting policies, principles, methods, practices or procedures
(including for bad debts, contingent liabilities or otherwise, respecting
capitalization or expense of research and development expenditures,
depreciation or amortization rates or timing of recognition of income and
expense);
(f) Target has taken all commercially reasonable action required to
maintain, renew, extend or enforce any material Target Intellectual
Property;
(g) there has been no physical damage, destruction or other casualty
loss (whether or not covered by insurance) affecting any of the real or
personal property or equipment of Target or in an amount exceeding one
hundred thousand dollars ($100,000) individually or two hundred fifty
thousand dollars ($250,000) in the aggregate; and
(h) neither Target nor Target Subsidiary has entered into or approved
any contract, arrangement or understanding or acquiesced in respect of any
arrangement or understanding, to do, engage in or cause or having the
effect of any of the foregoing.
2.9 No Undisclosed Liabilities. Except as reflected or reserved against in
Target Financials (including the notes thereto), Target has no material
Liabilities, other than Liabilities incurred in the ordinary course of business
consistent with past practice since the Financial Statement Date and any
liabilities under the Note.
2.10 Taxes.
(a) All Tax returns, statements, reports, declarations and other forms and
documents (including without limitation estimated Tax returns and reports and
material information statements, returns and reports) required to be filed with
any Tax Authority with respect to any Taxable period ending on or before the
Effective Time, by or on behalf of Target (collectively, "Tax Returns" and
individually a "Tax Return"), have been or will be completed and filed when due
(including any extensions of such due date) and all amounts shown due on such
Tax Returns on or before the Effective Time have been or will be paid on or
before such date. All such Tax Returns are true, accurate and complete as filed.
The Target September 30, 1999 unaudited balance sheet included in the Target
Financial Statements (the "Target Balance Sheet") (i) fully accrues all Target's
actual and contingent liabilities for Taxes with respect to all periods through
September 30, 1999 and Target has not and will not incur any Tax liability in
excess of the amount reflected on such Target Balance Sheet with
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respect to such periods (excluding any amount thereof that reflects timing
differences between the recognition of income for purposes of GAAP and for Tax
purposes), and (ii) properly accrues in accordance with GAAP all material
liabilities for Taxes payable after September 30, 1999 with respect to all
transactions and events occurring on or prior to such date. All information set
forth in the notes to the Target Financial Statements relating to Tax matters is
true, complete and accurate in all material respects. No material Tax liability
since September 30, 1999 has been or will be incurred by Target other than in
the ordinary course of business, and adequate provision has been made by Target
for all Taxes since that date in accordance with GAAP on at least a quarterly
basis.
(b) Target has previously provided or made available to Acquiror true and
correct copies of all Tax Returns. Target has withheld and paid to the
applicable financial institution or Tax Authority all amounts required to be
withheld. Target (or any member of any affiliated or combined group of which
Target has been a member) has not granted any extension or waiver of the
limitation period applicable to any Tax Returns that is still in effect. There
is no material claim, audit, action, suit, proceeding, or (to the knowledge of
Target) investigation now pending or (to the knowledge of Target) threatened
against or with respect to Target in respect of any Tax or assessment. No notice
of deficiency or similar document of any Tax Authority asserting the Target has
unpaid Tax liability has been received by Target, and there are no liabilities
for Taxes (including liabilities for interest, additions to Tax and penalties
thereon and related expenses) with respect to the issues that have been raised
(and are currently pending) by any Tax Authority that could, if determined
adversely to Target, materially and adversely affect the liability of Target for
Taxes. There are no liens for Taxes (other than for current Taxes not yet due
and payable) upon the assets of Target. Target has never been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the
Code. Target is in full compliance with all the terms and conditions of any Tax
exemptions or other Tax-sharing agreement or order of a foreign government and
the consummation of the Merger will not have any adverse effect on the continued
validity and effectiveness of any such Tax exemption or other Tax-sharing
agreement or order. Neither Target nor any Person on behalf of Target has
entered into or will enter into any agreement or consent pursuant to the
collapsible corporation provisions of Section 341(f) of the Code (or any
corresponding provision of state, local or foreign income tax law) or agreed to
have Section 341(f)(2) of the Code (or any corresponding provision of state,
local or foreign income tax law) apply to any disposition of any asset owned by
Target. None of the assets of Target is property that Target is required to
treat as being owned by any other Person pursuant to the so-called "safe harbor
lease" provisions of former Section 168(f)(8) of the Code. None of the assets of
Target directly or indirectly secures any debt the interest on which is
tax-exempt under Section 103(a) of the Code. None of the assets of Target is
"tax-exempt use property" within the meaning of Section 168(h) of the Code.
Target has not made and will not make a deemed dividend election under Treas.
Reg. sec.1.1502-32(f)(2) or a consent dividend election under Section 565 of the
Code. Target has never been a party (either as a distributing corporation or as
a corporation that has been distributed) to any transaction intended to qualify
under Section 355 of the Code or any corresponding provision of state law.
Neither Target nor Target Subsidiary has participated in (and will not
participate in) an international boycott within the meaning of Section 999 of
the Code. Target does not have and has not had a permanent establishment in any
foreign country, as defined in any applicable tax treaty or convention between
the United States of America and any such foreign country. Target has never
elected to be treated as an S-corporation under Section 1362 of the Code or any
corresponding provision of federal or state law. All material elections with
respect to Target's Taxes made during the fiscal year ending, December 31, 1998
are reflected on the Target Tax Returns for such period, a copy of which have
been provided or made available to Acquiror. After the date of this Agreement,
no material election with respect to Taxes not made in the ordinary course of
business will be made without the prior written consent of Acquiror, which
consent will not be unreasonably withheld or delayed. Target is not party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
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Target is not currently, and never has been, subject to the reporting
requirements of Section 6038A of the Code. There is no agreement, contract or
arrangement to which Target is a party that could, individually or collectively,
result in the payment of any amount that would not be deductible by reason of
Sections 280G (as determined without regard to Section 280G(b)(4) and (5)),
162(a) (by reason of being unreasonable in amount), 162(b) through (p) or 404 of
the Code. Target is not a party to or bound by any Tax indemnity, Tax sharing or
Tax allocation agreement (whether written or unwritten or arising under
operation of federal law as a result of being a member of a group filing
consolidated Tax returns, under operation of certain state laws as a result of
being a member of a unitary group, or under comparable laws of other states or
foreign jurisdictions) which includes a party other than Target nor does Target
owe any amount under any such Agreement. Target is not, and has not been, a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code) during the applicable period specified in Section 897(c)(1)(A)(ii)
of the Code. Other than by reason of the Merger, Target has not been and will
not be required to include any material adjustment in Taxable income for any Tax
period (or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
and all taxes including, without limitation, (i) any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, value added, net worth, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any
Governmental Entity (a "Tax Authority") responsible for the imposition of any
such tax (domestic or foreign), (ii) any liability for the payment of any
amounts of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable period or as
the result of being a transferee or successor thereof and (iii) any liability
for the payment of any amounts of the type described in (i) or (ii) as a result
of any express or implied obligation to indemnify any other Person. As used in
this Section 2.10, the term "Target" means Target and any entity included in, or
required under GAAP to be included in, any of the Target Financials.
2.11 Legal Proceedings. Except as set forth in Section 2.11 of the Target
Disclosure Schedule:
(i) there are no Actions or Proceedings pending or, to the knowledge
of Target or Target Subsidiary, threatened against, relating to or
affecting Target or Target Subsidiary or their respective Assets and
Properties; and
(ii) neither Target nor Target Subsidiary has received notice, and
does not otherwise have knowledge of any Orders outstanding against Target
or Target Subsidiary.
2.12 Compliance with Laws and Orders. Neither Target nor Target Subsidiary
has violated in any material respect, and is not currently in default in any
material respect under, any Law or Order applicable to Target or Target
Subsidiary or any of their respective Assets and Properties.
2.13 Employee Benefit Plans.
(a) Except for the plans and agreements listed in Section 2.13 of the
Target Disclosure Schedule (collectively, the "Plans"), neither Target nor
Target Subsidiary maintains, is a party to, contributes to or is obligated to
contribute to, and neither Target's nor Target Subsidiary's employees or former
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employees and their dependents or survivors receive benefits under, any of the
following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section 3(3) of ERISA;
(ii) Any bonus, deferred compensation, incentive, restricted stock,
stock purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent
care, director or employee loan, fringe benefit, sabbatical, severance,
termination pay or similar plan, program, policy, agreement or arrangement
(other than any such item provided solely pursuant to the terms of a
written or oral contract with any individual employee that is disclosed in
Section 2.13 of the Target Disclosure Schedule); or
(iii) Any plan, program, agreement, policy, commitment or other
arrangement relating to the provision of any benefit described in section
3(1) of ERISA to former employees or directors or to their survivors, other
than procedures intended to comply with COBRA.
(b) Neither Target nor any ERISA Affiliate has, since January 1, 1993,
terminated, suspended, discontinued contributions to or withdrawn from any
employee pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) Target has agreed to provide to Acquiror prior to Closing complete,
accurate and current copies of each of the following:
(i) The text (including amendments) of each of the Plans, to the
extent reduced to writing;
(ii) A summary of each of the Plans, to the extent not previously
reduced to writing;
(iii) With respect to each Plan that is an employee benefit plan (as
defined in section 3(3) of ERISA), the following:
A. The most recent summary plan description that has been prepared,
as described in section 102 of ERISA;
B. Any summary of material modifications that has been distributed
to participants or filed with the U.S. Department of Labor but that has
not been incorporated in an updated summary plan description furnished
under Subparagraph (A) above; and
C. The annual report, as described in section 103 of ERISA, and
(where applicable) actuarial reports, for the most recent plan year for
which an annual report or actuarial report has been prepared; and
(iv) With respect to each Plan that is intended to qualify under
section 401(a) of the Internal Revenue Code, the most recent determination
letter concerning the Plan's qualification under section 401(a) of the
Internal Revenue Code, as issued by the Internal Revenue Service, and any
subsequent determination letter application.
(d) With respect to each Plan that is an employee benefit plan (as defined
in section 3(3) of ERISA), the requirements of ERISA applicable to such Plan
have been satisfied, except to the extent that a failure to satisfy any of such
requirements would not have a Material Adverse Effect.
(e) With respect to each Plan that is subject to COBRA, the requirements of
COBRA applicable to such Plan have been satisfied, except to the extent that a
failure to satisfy any of such requirements would not have a Material Adverse
Effect.
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(f) With respect to each Plan that is subject to the Family Medical Leave
Act of 1993, as amended, the requirements of such Act applicable to such Plan
have been satisfied, except to the extent that a failure to satisfy any of such
requirements would not have a Material Adverse Effect.
(g) Each Plan that is intended to qualify under section 401(a) of the
Internal Revenue Code meets the requirements for qualification under section
401(a) of the Internal Revenue Code and the regulations thereunder, except to
the extent that such requirements may be satisfied by adopting retroactive
amendments under section 401(b) of the Internal Revenue Code and the regulations
thereunder. Each such Plan has been administered in accordance with its terms
(or, if applicable, such terms as will be adopted pursuant to a retroactive
amendment under section 401(b) of the Internal Revenue Code) and the applicable
provisions of ERISA and the Internal Revenue Code and the regulations
thereunder, except to the extent that a failure to be so administered would not
have a Material Adverse Effect.
(h) Neither Target nor any ERISA Affiliate has any accumulated funding
deficiency under section 412 of the Internal Revenue Code or any termination or
withdrawal liability under Title IV of ERISA. For purposes of determining any
accumulated funding deficiency under section 412 of the Internal Revenue Code,
the term "ERISA Affiliate" shall include any entity that is deemed to be a
member of the same "controlled group" within the meaning of section 414(m) or
(o) of the Internal Revenue Code.
(i) All contributions, premiums or other payments due from Target or Target
Subsidiary to (or under) any Plan have been fully paid or adequately provided
for on the books and financial statements of Target or Target Subsidiary. All
accruals (including, where appropriate, proportional accruals for partial
periods) have been made in accordance with prior practices.
(j) Except as disclosed in Section 2.13 of the Target Disclosure
Schedule,the consummation of the transactions contemplated by this Agreement
(excluding any employment agreement with Acquiror entered into by any employee
or director of Target in connection with this Agreement) will not result in (i)
any amount becoming payable to any employee, director or independent contractor
of Target or Target Subsidiary, (ii) the acceleration of payment or vesting of
any benefit, option or right to which any employee, director or independent
contractor of Target or Target Subsidiary may be entitled, (iii) the forgiveness
of any indebtedness of any employee, director or independent contractor of
Target or Target Subsidiary or (iv) any cost becoming due or accruing to Target
or Target Subsidiary or Acquiror with respect to any employee, director or
independent contractor of Target or Target Subsidiary.
(k) Other than routine claims for benefits under the Plans, there are no
pending, or, to the best knowledge of Target or Target Subsidiary, threatened,
Actions or Proceedings involving the Plans, or the fiduciaries, administrators,
or trustees of any of the Plans or Target or Target Subsidiary or any of their
ERISA Affiliates as the employer or sponsor under any Plan, with any of the IRS,
the Department of Labor, the PBGC, any participant in or beneficiary of any Plan
or any other Person whomsoever. Target and Target Subsidiary know of no
reasonable basis for any such claim, lawsuit, dispute, action or controversy.
2.14 Title to Property. Except for title to Target Intellectual Property,
which is covered by Section 2.15 below, Target and Target Subsidiary have good
and marketable title to all of their respective material properties, interests
in properties and assets, real and personal, reflected in Target Financials or
acquired after the Financial Statement Date (except properties, interests in
properties and assets sold or otherwise disposed of since the Financial
Statement Date in the ordinary course of business), free and clear of all
material mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) liens for current taxes not yet due and payable, (ii) such
imperfections
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of title, liens and easements as do not and will not materially detract from or
interfere with the use of the properties subject thereto or affected thereby, or
otherwise materially impair business operations involving such properties and
(iii) liens securing debt which is reflected on Target Financials. The plants,
property and equipment of Target and Target Subsidiary that are used in the
operations of its businesses are in good operating condition and repair, subject
to normal wear and tear. All properties used in the operations of Target and
Target Subsidiary are reflected in Target Financials to the extent generally
accepted accounting principles required the same to be reflected as of the dates
of such Target Financials. With respect to properties and assets leased by
Target and Target Subsidiary, Target or Target Subsidiary, as applicable, holds
valid leasehold interests in such properties and assets in accordance with the
terms of the agreements governing such leases.
2.15 Intellectual Property.
(a) Target has all requisite right, title and interest in or valid and
enforceable rights under Contracts or Licenses to use all Target Intellectual
Property necessary to the conduct of its business as presently conducted. Each
item of Target Intellectual Property, either is owned exclusively by Target,
free and clear of any Liens, or is licensed to Target under a valid License
granting sufficient rights to permit Target to conduct its business as presently
conducted. To the best of its knowledge, Target owns or has the valid right to
use all trademarks, service marks and trade names used by Target in connection
with the operation or conduct of the business of Target, including the sale of
any products or technology or the provision of any services by Target. Target
owns exclusively, and has good title to, all copyrighted works that are Target
products or other works of authorship that Target otherwise purports to own;
provided, however, that such works may incorporate copyrighted works or works of
authorship, trademarks or trade names of third parties which are licensed to
Target or are in the public domain. Except pursuant to agreements in the
ordinary course of business, neither Target nor Target Subsidiary has
transferred ownership of any Target Intellectual Property to any other Person.
(b) To the extent that any Target Intellectual Property that is material to
Target's business has been developed or created by any Person other than Target,
Target has a written agreement with such Person with respect thereto and Target
has either (i) obtained ownership of, and is the exclusive owner of, all such
Intellectual Property by operation of law or by valid assignment of any such
rights or (ii) obtained a License under or to such Intellectual Property.
(c) The operation of the business of Target as currently conducted,
including Target's design, development, use, import, manufacture and sale of the
products, technology or services (including products, technology or services
currently under development) of Target: (i) does not infringe the copyright or
misappropriate the trade secrets of any Person; (ii) to the best of Target's
knowledge, does not infringe the patent rights or trademark rights of any
Person; (iii) does not violate in any material respect the rights of any Person
(including rights to privacy or publicity other than patent rights or trademark
rights described above); and, (iv) does not constitute unfair competition or an
unfair trade practice under any Law. Neither Target nor Target Subsidiary has
received notice from any Person claiming that such operation or any act,
product, technology or service (including products, technology or services
currently under development) of Target or Target Subsidiary infringes or
misappropriates the Intellectual Property of any Person or constitutes unfair
competition or trade practices under any Law.
(d) Each item of Target Registered Intellectual Property is valid and
subsisting, and all necessary registration, maintenance, renewal fees, annuity
fees and taxes in connection with such Registered Intellectual Property have
been paid and all necessary documents and certificates in connection with such
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions in which such
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Registered Intellectual Property is registered, as the case may be, for the
purposes of maintaining such Registered Intellectual Property.
(e) There are no Contracts or Licenses between Target and any other Person
with respect to Target Intellectual Property under which there is any dispute
known to Target regarding the scope of such Contract or License, or performance
under such Contract or License, including any dispute with respect to any
payments to be made or received by Target thereunder.
(f) Target has taken all requisite commercially reasonable steps to
maintain and preserve the confidentiality of Target's confidential information
and trade secrets of Target or any similar information provided by any other
Person to Target subject to a duty of confidentiality. Without limiting the
generality of the foregoing, Target has, and enforces, a policy requiring each
employee, consultant and independent contractor to execute proprietary
information, confidentiality and invention assignment agreements.
(g) Target has taken all commercially reasonable actions necessary and
appropriate to assure that there shall be no material adverse change to its
business or electronic systems or material interruptions in the delivery of
Target's products and services by reason of computer software errors or
miscalculations associated with the advent of the year 2000, including that all
of its products (including products currently under development) will, without
interruption or manual intervention, continue to consistently, predictably and
accurately record, store, process, calculate and present calendar dates falling
on and after (and if applicable, spans of time including) January 1, 2000, and
will consistently, predictably and accurately calculate any information
dependent on or relating to such dates in substantially the same manner, and
with the same functionality, data integrity and performance, as such products
record, store, process, calculate and present calendar dates on or before
December 31, 1999, or calculate any information dependent on or relating to such
dates.
2.16 Contracts.
(a) Section 2.16(a)(1) of the Target Disclosure Schedule contains a true
and complete list of each of Target's and Target Subsidiary's Contracts that are
material to Target's business, operations or financial condition (true and
complete copies or, if none, reasonably complete and accurate written
descriptions of which, together with all amendments and supplements thereto and
all waivers of any terms thereof, have been made available to Acquiror prior to
the execution of this Agreement).
(b) Each Contract required to be disclosed in Section 2.16(a) of the Target
Disclosure Schedule is in full force and effect and constitutes a legal, valid
and binding agreement of Target or Target Subsidiary, enforceable against Target
or Target Subsidiary in accordance with its terms (subject to the effect of
bankruptcy and other laws affecting the rights of creditors generally and
limitations on the enforcement of contracts under principles of equity), and, to
the knowledge of Target or Target Subsidiary, each other party thereto (subject
to the effect of bankruptcy and other laws affecting the rights of creditors
generally and limitations on the enforcement of contracts under principles of
equity), and, to the knowledge of Target or Target Subsidiary, no other party to
such Contract is, nor has received notice that it is, in material violation or
breach of or default under any such Contract (or with notice or lapse of time or
both, would be in material violation or breach of or default under any such
Contract).
(c) Neither Target nor Target Subsidiary is a party to or bound by any
Contract that (i) automatically terminates or allows termination by the other
party thereto upon consummation of the transactions contemplated by this
Agreement or (ii) contains any covenant or other provision which limits Target's
or Target Subsidiary's ability to compete with any Person in any line of
business or in any area or territory.
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2.17 Insurance. Target and Target Subsidiary have policies of insurance
and bonds of the type and in amounts customarily carried by companies conducting
businesses or owning assets similar to those of Target and Target Subsidiary.
There is no material claim 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 Target and Target Subsidiary are otherwise in
compliance with the terms of such policies and bonds. Neither Target nor Target
Subsidiary has knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
2.18 Affiliate Transactions. Except as disclosed in Section 2.8(f) or
2.18(a) of the Target Disclosure Schedule, and except for any stock purchase
agreements, stock option agreements and invention assignment or confidentiality
agreements in favor of Target or Target Subsidiary, (i) there are no Contracts
or Liabilities between Target or Target Subsidiary, on the one hand, and (A) any
current or former officer, director, stockholder, or to Target's or Target
Subsidiary's knowledge, any Affiliate or Associate of Target or Target
Subsidiary or (B) any Person who, to Target's or Target Subsidiary's knowledge,
is an Associate of any such officer, director, stockholder or Affiliate, on the
other hand, (ii) neither Target nor Target Subsidiary provides or causes to be
provided any assets, services or facilities to any such current or former
officer, director, stockholder, Affiliate or Associate, (iii) neither Target,
Target Subsidiary nor any such current or former officer, director, stockholder,
Affiliate or Associate provides or causes to be provided any assets, services or
facilities to Target or Target Subsidiary and (iv) neither Target nor Target
Subsidiary beneficially owns, directly or indirectly, any Investment Assets of
any such current or former officer, director, stockholder, Affiliate or
Associate.
2.19 Employees; Labor Relations.
(a) Neither Target nor Target Subsidiary is a party to any collective
bargaining agreement and there are no unfair labor practice or labor arbitration
proceedings pending with respect to Target or Target Subsidiary, or, to the
knowledge of Target or Target Subsidiary, threatened, and there are no facts or
circumstances known to Target or Target Subsidiary that could reasonably be
expected to give rise to such complaint or claim. To the knowledge of Target or
Target Subsidiary, there are no organizational efforts presently underway or
threatened involving any employees of Target or Target Subsidiary or any of the
employees performing work for Target or Target Subsidiary but those provided by
an outside employment agency, if any. There has been no work stoppage, strike or
other concerted action by employees of Target or Target Subsidiary.
(b) All employees of Target and Target Subsidiary are employed at will.
Section 2.19(b) of the Target Disclosure Schedule sets forth, individually and
by category, the name of each officer, employee and consultant, together with
such person's position or function, annual base salary or wage and any
incentive, severance or bonus arrangements with respect to such person. To the
knowledge of Target or Target Subsidiary, no employee of Target or Target
Subsidiary has made any threat, or otherwise revealed an intent, to terminate
such employee's relationship with Target or Target Subsidiary, for any reason,
including because of the consummation of the transactions contemplated by this
Agreement. Neither Target nor Target Subsidiary is a party to any agreement for
the provision of labor from any outside agency. To the knowledge of Target or
Target Subsidiary, there have been no claims by employees of such outside
agencies, if any, with regard to employees assigned to work for Target or Target
Subsidiary, and no claims by any governmental agency with regard to such
employees except as set forth in Section 2.19(b) of the Target Disclosure
Schedule.
(c) There have been no federal or state claims based on sex, sexual or
other harassment, age, disability, race or other discrimination or common law
claims, including claims of wrongful termination, by any employees of Target or
Target Subsidiary or by any of the employees performing
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work for Target or Target Subsidiary but those provided by an outside employment
agency, and there are no facts or circumstances known to Target or Target
Subsidiary that could reasonably be expected to give rise to such complaint or
claim. Both Target and Target Subsidiary have complied in all material respects
with all laws related to the employment of employees and, except as set forth in
Section 2.19(c) of the Target Disclosure Schedule, neither Target nor Target
Subsidiary has received any notice of any claim that it has not complied in any
material respect with any Laws relating to the employment of employees,
including any provisions thereof relating to wages, hours, collective
bargaining, the payment of Social Security and similar taxes, equal employment
opportunity, employment discrimination, the WARN Act, employee safety, or that
it is liable for any arrearages of wages or any taxes or penalties for failure
to comply with any of the foregoing.
(d) Neither Target nor Target Subsidiary has written policies and/or
employee handbooks or manuals except as described in Section 2.19(d) of the
Target Disclosure Schedule.
(e) To the knowledge of Target or Target Subsidiary, no officer, employee
or consultant of Target or Target Subsidiary is obligated under any Contract or
other agreement or subject to any Order or Law that would interfere with
Target's or Target Subsidiary's businesses as currently conducted. To the
knowledge of Target or Target Subsidiary, neither the execution nor delivery of
this Agreement, nor the carrying on of Target's or Target Subsidiary's
businesses as presently conducted nor any activity of such officers, employees
or consultants in connection with the carrying on of Target's or Target
Subsidiary's businesses as presently conducted, will conflict with or result in
a breach of the terms, conditions or provisions of, constitute a default under,
or trigger a condition precedent to any rights under, any Contract or other
agreement under which any of such officers, employees or consultants is now
bound.
(f) Target and Target Subsidiary have complied in all material respects
with the verification requirements and the record-keeping requirements of the
Immigration Reform and Control Act of 1986 ("IRCA"); to the best knowledge of
Target or Target Subsidiary, the information and documents on which Target and
Target Subsidiary relied to comply with IRCA are true and correct; and there
have not been any discrimination complaints filed against Target or Target
Subsidiary pursuant to IRCA, and to the best knowledge of Target or Target
Subsidiary, there is no basis for the filing of such a complaint.
2.20 Environmental Matters.
(a) Target and Target Subsidiary possess all Environmental Permits required
for the operation of their businesses.
(b) Target and Target Subsidiary are in compliance in all material respects
with (i) all terms, conditions and provisions of its Environmental Permits; and
(ii) all Environmental Laws.
(c) Neither Target nor, to the knowledge of Target, Target Subsidiary or
any predecessor of Target nor any entity previously owned by Target has any
obligation or liability with respect to any Hazardous Material, including any
Release or threatened or suspected Release of any Hazardous Material, and there
have been no events, facts or circumstances since the date of incorporation of
Target and Target Subsidiary which could reasonably be expected to form the
basis of any such obligation or liability.
(d) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or for Target or Target Subsidiary
or, to the knowledge of Target or Target Subsidiary, by or for any other Person
with respect to any Site while Target or Target Subsidiary has occupied the
Site, which have not been delivered to Acquiror prior to execution of this
Agreement.
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2.21 Other Negotiations; Brokers; Third Party Expenses. Neither Target
nor, to the knowledge of Target, any of its Affiliates (nor any investment
banker, financial advisor, attorney, accountant or other Person retained by or
acting for or on behalf of Target or at Target's direction) (a) has entered into
any Contract that conflicts with any of the transactions contemplated by this
Agreement or (b) has entered into any Contract or had any discussions with any
Person regarding any transaction involving Target which could reasonably be
expected to result in Acquiror, Target or any general partner, limited partner,
manager, officer, director, employee, agent or Affiliate of any of them being
subject to any claim for liability to said Person as a result of entering into
this Agreement or consummating the transactions contemplated hereby. Section
2.21 of the Target Disclosure Schedule sets forth the principal terms and
conditions of any Contract with respect to, and a reasonable estimate of, all
Third Party Expenses expected to be incurred by Target in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby.
2.22 Foreign Corrupt Practices Act. Neither Target, Target Subsidiary, nor
to the knowledge of Target or Target Subsidiary, any agent, employee or other
Person acting on behalf of Target or Target Subsidiary has, directly or
indirectly, used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity, made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds,
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended,
or made any bribe, rebate, payoff, influence payment, kickback or other similar
unlawful payment.
2.23 Tax-Free Reorganization. To the knowledge of Target, after Good Faith
Consultation with Target's independent accountants, neither Target nor any of
its directors, officers or stockholders has taken any action which could
reasonably be expected to jeopardize the status of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code.
2.24 Approvals.
(a) Section 2.24(a) of the Target Disclosure Schedule contains a list of
all material Approvals of Governmental or Regulatory Authorities relating to the
business conducted by Target which are required to be given to or obtained by
Target prior to the Closing from any and all Governmental or Regulatory
Authorities in connection with the consummation of the transactions contemplated
by this Agreement.
(b) Section 2.24(b) of the Target Disclosure Schedule contains a list of
all material Approvals which are required to be given to or obtained by Target
prior to the Closing from any and all third parties other than Governmental or
Regulatory Authorities in connection with the consummation of the transactions
contemplated by this Agreement.
(c) Target has obtained all material Approvals from Governmental or
Regulatory Authorities necessary to conduct the business conducted by Target in
the manner as it is currently being conducted and there has been no written
notice received by Target of any material violation or material non-compliance
with any such Approvals. All material Approvals from Governmental or Regulatory
Authorities necessary to conduct the business conducted by Target as it is
currently being conducted are set forth in Section 2.24(c) of the Target
Disclosure Schedule.
(d) The affirmative vote or consent of the holders of (i) the shares of
Target Common Stock outstanding as of the applicable record date voting
separately as a class, and (ii) the shares of Target Common Stock and Target
Preferred Stock outstanding as of the applicable record date, voting together as
a single class, are the only votes of the holders of any of Target Capital Stock
necessary to approve this Agreement and the Merger and the transactions
contemplated hereby.
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2.25 Disclosure. No representation or warranty contained in Article 2 of
this Agreement, and no statement contained in the Target Disclosure Schedule or
in any certificate, list or other writing furnished to Acquiror pursuant to any
provision of this Agreement (including Target Financials and the notes thereto)
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the representations and warranties of Target and Target
Subsidiary in Article 2 (as modified by the Target Disclosure Schedule), in the
light of the circumstances under which they were made, not misleading.
2.26 S-4 Registration Statement; Proxy Statement. The information supplied
in writing to Acquiror, or its counsel or auditors, by Target and Target
Stockholders for inclusion in the registration statement on Form S-4 (or such
other or successor form as shall be appropriate) pursuant to which the shares of
Acquiror Common Stock to be issued in the Merger and Target Options to be
assumed in the Merger will be registered with the SEC (the "S-4 Registration
Statement") shall not, at the time the S-4 Registration Statement (including any
amendments or supplements thereto) is declared effective by the SEC, contain any
untrue statement of a material fact or 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 were made, not misleading. The
information supplied by Target and Target's stockholders for inclusion in the
proxy statement/ prospectus to be sent to the stockholders of Target and
Acquiror in connection with the meeting of Target's stockholders (the "Acquiror
Stockholders Meeting") to consider approval of the Merger (the "Target
Stockholders Meeting") and in connection with the meeting of Acquiror's
stockholders to consider approval of the Merger and this Agreement and the
amendment of Acquiror's Certificate of Incorporation to increase the number of
authorized shares of Acquiror Common Stock to a number sufficient to enable
Acquiror to comply with all its obligations under this Agreement and the Merger
(the "Acquiror Charter Amendment") (such proxy statement/prospectus as amended
or supplemented is referred to herein as the "Proxy Statement") shall not, on
the date the Proxy Statement is first mailed to Target's stockholders and
Acquiror's stockholders, at the time of the Target Stockholders Meeting, at the
time of the Acquiror Stockholders Meeting and at the Effective Time, contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the Target Stockholders Meeting or the Acquiror
Stockholders Meeting which has become false or misleading. Notwithstanding the
foregoing, Target makes no representation, warranty or covenant with respect to
any information supplied by Acquiror that is contained in the S-4 Registration
Statement or the Proxy Statement.
2.27 Investment Advisors. Except as set forth in Section 2.27 of the
Target Disclosure Schedule, no broker, investment banker, financial advisor or
other Person is entitled to any broker's, finder's, financial advisor's or
similar fee or commission in connection with this Agreement and the transactions
contemplated hereby based on arrangements made by or on behalf of Target.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
Acquiror hereby represents and warrants to Target, subject to such
exceptions and qualifications as are specifically disclosed in the Acquiror
disclosure schedule and schedule of exceptions of Acquiror (the "Acquiror
Disclosure Schedule") delivered herewith and dated as of the date hereof as
follows:
3.1 Organization and Qualification. Acquiror is a corporation duly
organized, validly existing and in good standing under the Laws of the State of
Delaware. Acquiror has all requisite corporate power and authority to conduct
its business as now conducted and as currently proposed to be conducted and to
own, use and lease its Assets and Properties. Acquiror is duly qualified,
licensed or admitted to do business and is in good standing as a foreign
corporation in each jurisdiction in which the ownership, use, licensing or
leasing of its Assets and Properties, or the conduct or nature of its business,
makes such qualification, licensing or admission necessary, except for such
failures to be so duly qualified, licensed or admitted and in good standing that
could not reasonably be expected to have a Material Adverse Effect on Acquiror.
Section 3.1 of the Acquiror Disclosure Schedule sets forth each jurisdiction
where Acquiror is so qualified to do business and separately lists each other
jurisdiction in which Acquiror owns, uses, licenses or leases any material
Assets or Properties, has established a local office or other permanent local
presence or has employees or engages independent contractors.
3.2 Authority Relative to this Agreement. Acquiror has full corporate
power and authority to execute and deliver this Agreement and the Ancillary
Agreements to which it is a party, to perform its respective obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby. The execution and delivery by Acquiror of this Agreement and the
Ancillary Agreements to which Target is a party and the consummation by Acquiror
of the transactions contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action of Acquiror, and no other corporate
action on the part of Acquiror is required to authorize the execution, delivery
and performance of this Agreement and the Ancillary Agreements to which Target
is a party by Acquiror and the consummation by Acquiror of the transactions
contemplated hereby and thereby. This Agreement and the Ancillary Agreements to
which Acquiror is a party have each been duly and validly executed and delivered
by Acquiror and, assuming the due authorization and the valid execution and
delivery of this Agreement by Target and each Ancillary Agreement by each other
party (other than Acquiror) to such Ancillary Agreement, each constitutes a
legal, valid and binding obligation of Acquiror enforceable against Acquiror in
accordance with its respective terms, except as the enforceability thereof may
be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium or other similar Laws relating to the enforcement of creditors'
rights generally and by general principles of equity. The shares of Acquiror
Common Stock to be issued in the Merger pursuant to Section 1.6(a) shall, when
issued in compliance with this Agreement, be duly and validly issued, fully paid
and non-assessable, and the shares of Acquiror Common Stock that will be
issuable upon the exercise of Acquiror Options and Acquiror Warrants that are
issued in the Merger pursuant to Section 1.6(c) and (d), respectively, when
issued upon the exercise of and in compliance with such Acquiror Options and
Acquiror Warrants, will be duly and validly issued, fully paid and
non-assessable.
3.3 Capitalization. The authorized capital stock of Acquiror consists only
of 80,000,000 shares of Common Stock, $0.0001 par value per share, 10,000,000
shares of Preferred Stock, $0.0001 par value per share. As of the close of
business on November 27, 1999, 43,602,432 shares of Common Stock, no shares of
Preferred Stock, options to purchase 8,047,963 shares of Common Stock and
warrants to purchase 60,000 shares of Common Stock were issued and outstanding.
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3.4 Subsidiaries. Acquiror has one subsidiary, Redback Networks
International Inc., which is not a material subsidiary. Acquiror has no other
Subsidiaries and does not (and prior to the Closing will not) otherwise hold any
equity, membership, partnership, joint venture or other ownership interest in
any Person.
3.5 No Conflicts. The execution and delivery by Acquiror of this Agreement
does not, and the performance by Acquiror of its obligations under this
Agreement and the consummation of the transactions contemplated hereby do not
and will not:
(a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Certificate of Incorporation or
Bylaws of Acquiror;
(b) subject to obtaining the consents, approvals and actions, making
the filings and giving the notices disclosed in Section 3.5 of the Acquiror
Disclosure Schedule, if any, conflict with or result in a violation or
breach of any Law or Order applicable to Acquiror or its Assets or
Properties;
(c) except as would not have a Material Adverse Effect on Acquiror,
(i) conflict with or result in a violation or breach of, (ii) constitute a
default (or an event that, with or without notice or lapse of time or both,
would constitute a default) under, (iii) require Acquiror to obtain any
consent, approval or action of, make any filing with or give any notice to
any Person (other than the filing of the Delaware Certificate of Merger
together with the required officers' certificates, any filing required
under the HSR Act in connection with the Merger and such consents,
approvals, orders, authorizations, registrations, declarations and filings
as may be required under state or federal securities Laws) as a result of
the terms of, (iv) result in or give to any Person any right of
termination, cancellation, acceleration or modification in or with respect
to, (v) result in or give to any person any additional rights or
entitlement to increased, additional, accelerated or guaranteed payments or
performance under, (vi) result in the creation or imposition of (or the
obligation to create or impose) any material Lien upon Acquiror, any of its
subsidiaries, or any of its material Assets or Properties, or (vii) result
in the loss of a material benefit under any material Contract or License to
which Acquiror is a party or by which any of Acquiror's material Assets and
Properties are bound.
3.6 SEC Documents; Acquiror Financial Statements. Acquiror has furnished
or made available to Target or its counsel true and complete copies of all SEC
Documents filed by it with the SEC since May 17, 1999, all in the form so filed.
As of their respective filing dates, such SEC Documents filed by Acquiror and
all SEC Documents filed after the date hereof but before the Closing complied or
will comply in all material respects with the requirements of the Securities Act
and the Exchange Act and the rules and regulations of the SEC thereunder, as the
case may be, and none of the SEC Documents contained or will contain 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 such
SEC Documents have been corrected, updated or superseded by a document
subsequently filed with the SEC. The financial statements of Acquiror, including
the notes thereto, included in the SEC Documents (the "Acquiror Financial
Statements") comply as to form in all material respects 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
under the Exchange Act) and present fairly the consolidated financial position
of Acquiror 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
financial statements, to normal year-end adjustments). There has been no change
in Acquiror's accounting policies except as described in the notes to the
Acquiror Financial Statements.
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3.7 Absence of Changes. Since September 30, 1999, there has not been any
material adverse change in the Business or Condition of Acquiror or any
occurrence or event which, individually or in the aggregate is reasonably
expected to have Material Adverse Effect on Acquiror. In addition, without
limiting the generality of the foregoing, except as expressly contemplated by
this Agreement, since September 30, 1999:
(a) Acquiror has not entered into any material Contract or other
material commitment or transaction;
(b) there has not been any material amendment or other material
modification (or agreement to do so), or material violation of the terms
of, any of the material Contracts set forth or described in the Acquiror
Disclosure Schedule;
(c) there has not been any amendment to Acquiror's Certificate of
Incorporation or Bylaws;
(d) there has not been any transfer (by way of a License or otherwise)
to any Person of rights to any material Acquiror Intellectual Property,
other than licenses in the ordinary course of business consistent with past
practice;
(e) Acquiror has not made any change in accounting policies,
principles, methods, practices or procedures (including for bad debts,
contingent liabilities or otherwise, respecting capitalization or expense
of research and development expenditures, depreciation or amortization
rates or timing of recognition of income and expense);
(f) Acquiror has taken all commercially reasonable action required to
maintain, renew, extend or enforce any material Acquiror Intellectual
Property;
(g) there has been no physical damage, destruction or other casualty
loss (whether or not covered by insurance) affecting any of the real or
personal property or equipment of Acquiror or in an amount exceeding one
hundred thousand dollars ($100,000) individually or two hundred fifty
thousand dollars ($250,000) in the aggregate; and
(h) Acquiror has not entered into or approved any contract,
arrangement or understanding or acquiesced in respect of any arrangement or
understanding, to do, engage in or cause or having the effect of any of the
foregoing.
3.8 No Undisclosed Liabilities. Except as reflected or reserved against in
Acquiror's Form 10-Q for the quarter ending September 30, 1999 (Acquiror's
"September 10-Q") (including the notes thereto), Acquiror has no material
Liabilities, other than Liabilities incurred in the ordinary course of business
consistent with past practice since September 30, 1999.
3.9 Taxes.
(a) All Tax returns, statements, reports, declarations and other forms and
documents (including without limitation estimated Tax returns and reports and
material information statements, returns and reports) required to be filed with
any Tax Authority with respect to any Taxable period ending on or before the
Effective Time, by or on behalf of Acquiror (collectively, "Tax Returns" and
individually a "Tax Return"), have been or will be completed and filed when due
(including any extensions of such due date) and all amounts shown due on such
Tax Returns on or before the Effective Time have been or will be paid on or
before such date. All such Tax Returns are true, accurate and complete as filed.
The Acquiror's September 30, 1999 unaudited balance sheet included in Acquiror's
September 10-Q (the "Acquiror Balance Sheet") (i) fully accrues all Acquiror's
actual and contingent liabilities for Taxes with respect to all periods through
September 30, 1999 and Acquiror has not and will not incur any Tax liability in
excess of the amount reflected on such Acquiror
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Balance Sheet with respect to such periods (excluding any amount thereof that
reflects timing differences between the recognition of income for purposes of
GAAP and for Tax purposes), and (ii) properly accrues in accordance with GAAP
all material liabilities for Taxes payable after September 30, 1999 with respect
to all transactions and events occurring on or prior to such date. All
information set forth Acquiror's September 10-Q relating to Tax matters is true,
complete and accurate in all material respects. No material Tax liability since
September 30, 1999 has been or will be incurred by Acquiror other than in the
ordinary course of business, and adequate provision has been made by Acquiror
for all Taxes since that date in accordance with GAAP on at least a quarterly
basis.
(b) Acquiror has withheld and paid to the applicable financial institution
or Tax Authority all amounts required to be withheld. Acquiror (or any member of
any affiliated or combined group of which Acquiror has been a member) has not
granted any extension or waiver of the limitation period applicable to any Tax
Returns that is still in effect. There is no material claim, audit, action,
suit, proceeding, or (to the knowledge of Acquiror) investigation now pending or
(to the knowledge of Acquiror) threatened against or with respect to Acquiror in
respect of any Tax or assessment. No notice of deficiency or similar document of
any Tax Authority asserting that Acquiror has unpaid Tax liability has been
received by Acquiror, and there are no liabilities for Taxes (including
liabilities for interest, additions to Tax and penalties thereon and related
expenses) with respect to the issues that have been raised (and are currently
pending) by any Tax Authority that could, if determined adversely to Acquiror,
materially and adversely affect the liability of Acquiror for Taxes. There are
no liens for Taxes (other than for current Taxes not yet due and payable) upon
the assets of Acquiror. Acquiror has never been a member of an affiliated group
of corporations, within the meaning of Section 1504 of the Code. Acquiror is in
full compliance with all the terms and conditions of any Tax exemptions or other
Tax-sharing agreement or order of a foreign government and the consummation of
the Merger will not have any adverse effect on the continued validity and
effectiveness of any such Tax exemption or other Tax-sharing agreement or order.
Neither Acquiror nor any Person on behalf of Acquiror has entered into or will
enter into any agreement or consent pursuant to the collapsible corporation
provisions of Section 341(f) of the Code (or any corresponding provision of
state, local or foreign income tax law) or agreed to have Section 341(f)(2) of
the Code (or any corresponding provision of state, local or foreign income tax
law) apply to any disposition of any asset owned by Acquiror. None of the assets
of Acquiror is property that Acquiror is required to treat as being owned by any
other person pursuant to the so-called "safe harbor lease" provisions of former
Section 168(f)(8) of the Code. None of the assets of Acquiror directly or
indirectly secures any debt the interest on which is tax-exempt under Section
103(a) of the Code. None of the assets of Acquiror is "tax-exempt use property"
within the meaning of Section 168(h) of the Code. Acquiror has not made and will
not make a deemed dividend election under Treas. Reg. sec.1.1502-32(f)(2) or a
consent dividend election under Section 565 of the Code. Acquiror has never been
a party (either as a distributing corporation or as a corporation that has been
distributed) to any transaction intended to qualify under Section 355 of the
Code or any corresponding provision of state law. Acquiror has not participated
in (and will not participate in) an international boycott within the meaning of
Section 999 of the Code. Acquiror does not have and has not had a permanent
establishment in any foreign country, as defined in any applicable tax treaty or
convention between the United States of America and such foreign country.
Acquiror has never elected to be treated as an S-corporation under Section 1362
of the Code or any corresponding provision of federal or state law. All material
elections with respect to Acquiror's Taxes made during the fiscal years ending,
December 31, 1996, 1997 and 1998 are reflected on the Acquiror Tax Returns for
such periods. After the date of this Agreement, no material election with
respect to Taxes not made in the ordinary course of business will be made
without the prior written consent of Target, which consent will not be
unreasonably withheld or delayed. Acquiror is not party to any joint venture,
partnership, or other arrangement or contract which could be treated as a
partner ship for federal income tax purposes. Acquiror is not
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currently, and never has been, subject to the reporting requirements of Section
6038A of the Code. There is no agreement, contract or arrangement to which
Acquiror is a party that could, individually or collectively, result in the
payment of any amount that would not be deductible by reason of Sections 280G
(as determined without regard to Section 280G(b)(4) and (5)), 162(a) (by reason
of being unreasonable in amount), 162(b) through (p) or 404 of the Code.
Acquiror is not a party to or bound by any Tax indemnity, Tax sharing or Tax
allocation agreement (whether written or unwritten or arising under operation of
federal law as a result of being a member of a group filing consolidated Tax
returns, under operation of certain state laws as a result of being a member of
a unitary group, or under comparable laws of other states or foreign
jurisdictions) which includes a party other than Acquiror nor does Acquiror owe
any amount under any such Agreement. Acquiror is not, and has not been, a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code) during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Code. Other than by reason of the Merger, Acquiror has not been and will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the Merger.
(c) For purposes of this Agreement, the following terms have the following
meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable") means any
and all taxes including, without limitation, (i) any net income, alternative or
add-on minimum tax, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, value added, net worth, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other tax, governmental
fee or other like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount imposed by any Tax
Authority responsible for the imposition of any such tax (domestic or foreign),
(ii) any liability for the payment of any amounts of the type described in (i)
as a result of being a member of an affiliated, consolidated, combined or
unitary group for any Taxable period or as the result of being a transferee or
successor thereof and (iii) any liability for the payment of any amounts of the
type described in (i) or (ii) as a result of any express or implied obligation
to indemnify any other Person. As used in this Section 3.9, the term "Acquiror"
means Acquiror and any entity included in, or required under GAAP to be included
in, any of the Acquiror Financial Statements.
3.10 Legal Proceedings. Except as set forth in Section 3.10 of the
Acquiror Disclosure Schedule:
(i) there are no Actions or Proceedings pending or, to the knowledge
of Acquiror, threatened against, relating to or affecting Acquiror or its
Assets and Properties; and
(ii) Acquiror has not received notice, and does not otherwise have
knowledge of any Orders outstanding against Acquiror or any of its
subsidiaries.
3.11 Compliance with Laws and Orders. Acquiror has not violated in any
material respect, and is not currently in default in any material respect under,
any Law or Order applicable to Acquiror or any of its Assets and Properties.
3.12 Employee Benefit Plans.
(a) Except for the plans and agreements listed in Section 3.12 of the
Acquiror Disclosure Schedule (collectively, the "Plans"), Acquiror does not
maintain, is not a party to, does not contribute to and is not obligated to
contribute to, and Acquiror's employees or former employees and
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their dependents or survivors do not receive benefits under, any of the
following (whether or not set forth in a written document):
(i) Any employee benefit plan, as defined in section 3(3) of ERISA;
(ii) Any bonus, deferred compensation, incentive, restricted stock,
stock purchase, stock option, stock appreciation right, phantom stock,
supplemental pension, executive compensation, cafeteria benefit, dependent
care, director or employee loan, fringe benefit, sabbatical, severance,
termination pay or similar plan, program, policy, agreement or arrangement
(other than any such item provided solely pursuant to the terms of a
written or oral contract with any individual employee that is disclosed in
Section 3.12 of the Acquiror Disclosure Schedule); or
(iii) Any plan, program, agreement, policy, commitment or other
arrangement relating to the provision of any benefit described in section
3(1) of ERISA to former employees or directors or to their survivors, other
than procedures intended to comply with COBRA.
(b) Neither Acquiror nor any ERISA Affiliate has, since January 1, 1993,
terminated, suspended, discontinued contributions to or withdrawn from any
employee pension benefit plan, as defined in section 3(2) of ERISA, including
(without limitation) any multiemployer plan, as defined in section 3(37) of
ERISA.
(c) Acquiror has agreed to provide to Target prior to the Effective Time
complete, accurate and current copies of each of the following:
(i) The text (including amendments) of each of the Plans, to the
extent reduced to writing;
(ii) A summary of each of the Plans, to the extent not previously
reduced to writing;
(iii) With respect to each Plan that is an employee benefit plan (as
defined in section 3(3) of ERISA), the following:
A. The most recent summary plan description that has been prepared,
as described in section 102 of ERISA;
B. Any summary of material modifications that has been distributed
to participants or filed with the U.S. Department of Labor but that has
not been incorporated in an updated summary plan description furnished
under Subparagraph (A) above; and
C. The annual report, as described in section 103 of ERISA, and
(where applicable) actuarial reports, for the three most recent plan
years for which an annual report or actuarial report has been prepared;
and
(iv) With respect to each Plan that is intended to qualify under
section 401(a) of the Internal Revenue Code, the most recent determination
letter concerning the Plan's qualification under section 401(a) of the
Internal Revenue Code, as issued by the Internal Revenue Service, and any
subsequent determination letter application.
(d) With respect to each Plan that is an employee benefit plan (as defined
in section 3(3) of ERISA), the requirements of ERISA applicable to such Plan
have been satisfied, except to the extent that a failure to satisfy any of such
requirements would not have a Material Adverse Effect.
(e) With respect to each Plan that is subject to COBRA, the requirements of
COBRA applicable to such Plan have been satisfied, except to the extent that a
failure to satisfy any of such requirements would not have a Material Adverse
Effect.
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(f) With respect to each Plan that is subject to the Family Medical Leave
Act of 1993, as amended, the requirements of such Act applicable to such Plan
have been satisfied, except to the extent that a failure to satisfy any of such
requirements would not have a Material Adverse Effect.
(g) Each Plan that is intended to qualify under section 401(a) of the
Internal Revenue Code meets the requirements for qualification under section
401(a) of the Internal Revenue Code and the regulations thereunder, except to
the extent that such requirements may be satisfied by adopting retroactive
amendments under section 401(b) of the Internal Revenue Code and the regulations
thereunder. Each such Plan has been administered in accordance with its terms
(or, if applicable, such terms as will be adopted pursuant to a retroactive
amendment under section 401(b) of the Internal Revenue Code) and the applicable
provisions of ERISA and the Internal Revenue Code and the regulations
thereunder, except to the extent that a failure to be so administered would not
have a Material Adverse Effect.
(h) Neither Acquiror nor any ERISA Affiliate has any accumulated funding
deficiency under section 412 of the Internal Revenue Code or any termination or
withdrawal liability under Title IV of ERISA. For purposes of determining any
accumulated funding deficiency under section 412 of the Internal Revenue Code,
the term "ERISA Affiliate" shall include any entity that is deemed to be a
member of the same "controlled group" within the meaning of section 414(m) or
(o) of the Internal Revenue Code.
(i) All contributions, premiums or other payments due from Acquiror to (or
under) any Plan have been fully paid or adequately provided for on the books and
financial statements of Acquiror. All accruals (including, where appropriate,
proportional accruals for partial periods) have been made in accordance with
prior practices.
(j) Except as disclosed in Section 3.12 of the Acquiror Disclosure
Schedule, the consummation of the transactions contemplated herein will not
result in (i) any amount becoming payable to any employee, director or
independent contractor of Acquiror, (ii) the acceleration of payment or vesting
of any benefit, option or right to which any employee, director or independent
contractor of Acquiror may be entitled, (iii) the forgiveness of any
indebtedness of any employee, director or independent contractor of Acquiror or
(iv) any cost becoming due or accruing to Acquiror with respect to any employee,
director or independent contractor of Acquiror.
(k) Other than routine claims for benefits under the Plans, there are no
pending, or, to the best knowledge of Acquiror, threatened, Actions or
Proceedings involving the Plans, or the fiduciaries, administrators, or trustees
of any of the Plans or Acquiror or any of its ERISA Affiliates as the employer
or sponsor under any Plan, with any of the IRS, the Department of Labor, the
PBGC, any participant in or beneficiary of any Plan or any other Person
whomsoever. Acquiror knows of no reasonable basis for any such claim, lawsuit,
dispute, action or controversy.
3.13 Title to Property. Except for title to Acquiror Intellectual
Property, which is covered by Section 3.14 below, Acquiror has good and
marketable title to all of its material properties, interests in properties and
assets, real and personal, reflected in Acquiror's September 10-Q or acquired
after the date of Acquiror's September 10-Q (except properties, interests in
properties and assets sold or otherwise disposed of since the date of Acquiror's
September 10-Q in the ordinary course of business), free and clear of all
material mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) liens for current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject thereto or
affected thereby, or otherwise materially impair business operations involving
such properties and (iii) liens securing debt which is reflected in Acquiror's
September 10-Q. The plants, property and equipment of Acquiror that are used in
the operations of
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its business are in good operating condition and repair, subject to normal wear
and tear. All properties used in the operations of Acquiror are reflected in
Acquiror's September 10-Q to the extent generally accepted accounting principles
required the same to be reflected as of the dates of the financial statements
included in Acquiror's September 10-Q. Acquiror, with respect to properties and
assets leased by Acquiror, holds valid leasehold interests in such properties
and assets in accordance with the terms of the agreements governing such leases.
3.14 Intellectual Property.
(a) Acquiror has all requisite right, title and interest in or valid and
enforceable rights under Contracts or Licenses to use all Acquiror Intellectual
Property necessary to the conduct of its business as presently conducted. Each
item of Acquiror Intellectual Property, either is owned exclusively by Acquiror,
free and clear of any Liens, or is licensed to Acquiror under a valid License
granting sufficient rights to permit Acquiror to conduct its business as
presently conducted. To the best of its knowledge, Acquiror owns or has the
valid right to use all trademarks, service marks and trade names used by
Acquiror in connection with the operation or conduct of the business of
Acquiror, including the sale of any products or technology or the provision of
any services by Acquiror. Acquiror owns exclusively, and has good title to, all
copyrighted works that are Acquiror products or other works of authorship that
Acquiror otherwise purports to own; provided, however, that such works may
incorporate copyrighted works or works of authorship, trademarks or trade names
of third parties which are licensed to Acquiror or are in the public domain.
Except pursuant to agreements in the ordinary course of business, Acquiror has
not transferred ownership of any Acquiror Intellectual Property to any other
Person.
(b) To the extent that any Acquiror Intellectual Property that is material
to Acquiror's business has been developed or created by any Person other than
Acquiror, Acquiror has a written agreement with such Person with respect thereto
and Acquiror has either (i) obtained ownership of, and is the exclusive owner
of, all such Intellectual Property by operation of law or by valid assignment of
any such rights or (ii) obtained a License under or to such Intellectual
Property.
(c) The operation of the business of Acquiror as currently conducted,
including Acquiror's design, development, use, import, manufacture and sale of
the products, technology or services (including products, technology or services
currently under development) of Acquiror: (i) does not infringe the copyright or
misappropriate the trade secrets of any Person; (ii) to the best of Acquiror's
knowledge, does not infringe the patent rights or trademark rights of any
Person; (iii) does not violate in any material respect the rights of any Person
(including rights to privacy or publicity other than patent rights or trademark
rights described above); and, (iv) does not constitute unfair competition or an
unfair trade practice under any Law. Acquiror has not received notice from any
Person claiming that such operation or any act, product, technology or service
(including products, technology or services currently under development) of
Acquiror infringes or misappropriates the Intellectual Property of any Person or
constitutes unfair competition or trade practices under any Law.
(d) Each item of Acquiror Registered Intellectual Property is valid and
subsisting, and all necessary registration, maintenance, renewal fees, annuity
fees and taxes in connection with such Registered Intellectual Property have
been paid and all necessary documents and certificates in connection with such
Registered Intellectual Property have been filed with the relevant patent,
copyright, trademark or other authorities in the United States or foreign
jurisdictions in which such Registered Intellectual Property is registered, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property.
(e) There are no Contracts or Licenses between Acquiror and any other
Person with respect to Acquiror Intellectual Property under which there is any
dispute known to Acquiror regarding the
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scope of such Contract or License, or performance under such Contract or
License, including any dispute with respect to any payments to be made or
received by Acquiror thereunder.
(f) Acquiror has taken all requisite commercially reasonable steps to
maintain and preserve the confidentiality of Acquiror's confidential information
and trade secrets of Acquiror or any similar information provided by any other
Person to Acquiror subject to a duty of confidentiality. Without limiting the
generality of the foregoing, Acquiror has, and enforces, a policy requiring each
employee, consultant and independent contractor to execute proprietary
information, confidentiality and invention assignment agreements.
(g) Acquiror has taken all commercially reasonable actions necessary and
appropriate to assure that there shall be no material adverse change to its
business or electronic systems or material interruptions in the delivery of
Acquiror's products and services by reason of computer software errors or
miscalculations associated with the advent of the year 2000, including that all
of its products (including products currently under development) will, without
interruption or manual intervention, continue to consistently, predictably and
accurately record, store, process, calculate and present calendar dates falling
on and after (and if applicable, spans of time including) January 1, 2000, and
will consistently, predictably and accurately calculate any information
dependent on or relating to such dates in substantially the same manner, and
with the same functionality, data integrity and performance, as such products
record, store, process, calculate and present calendar dates on or before
December 31, 1999, or calculate any information dependent on or relating to such
dates.
3.15 Contracts.
(a) Section 3.15(a)(1) of the Acquiror Disclosure Schedule contains a true
and complete list of Acquiror's Contracts that are material to Acquiror's
business, operations or financial condition (true and complete copies or, if
none, reasonably complete and accurate written descriptions of which, together
with all amendments and supplements thereto and all waivers of any terms
thereof, have been made available to Target prior to the execution of this
Agreement).
(b) Each Contract required to be disclosed in Section 3.15(a) of the
Acquiror Disclosure Schedule is in full force and effect and constitutes a
legal, valid and binding agreement of Acquiror, enforceable against Acquiror in
accordance with its terms (subject to the effect of bankruptcy and other laws
affecting the rights of creditors generally and limitations on the enforcement
of contracts under principles of equity), and, to the knowledge of Acquiror and
its subsidiaries, each other party thereto (subject to the effect of bankruptcy
and other laws affecting the rights of creditors generally and limitations on
the enforcement of contracts under principles of equity), and, to the knowledge
of Acquiror and its subsidiaries, no other party to such Contract is, nor has
received notice that it is, in material violation or breach of or default under
any such Contract (or with notice or lapse of time or both, would be in material
violation or breach of or default under any such Contract).
(c) Acquiror is not a party to or bound by any Contract that (i)
automatically terminates or allows termination by the other party thereto upon
consummation of the transactions contemplated by this Agreement or (ii) contains
any covenant or other provision which limits Acquiror's ability to compete with
any Person in any line of business or in any area or territory.
3.16 Insurance. Acquiror has policies of insurance and bonds of the type
and in amounts customarily carried by companies conducting businesses or owning
assets similar to those of Acquiror. There is no material claim 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 Acquiror is
otherwise in compliance with the terms of such policies and bonds. Acquiror has
no knowledge of any threatened termination of, or material premium increase with
respect to, any of such policies.
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3.17 Affiliate Transactions. Except as disclosed in Section 3.17 of the
Acquiror Disclosure Schedule, and except for any stock purchase agreements,
stock option agreements and invention assignment or confidentiality agreements
in favor of Acquiror, (i) there are no Contracts or Liabilities between
Acquiror, on the one hand, and (A) any current or former officer, director,
stockholder, or to Acquiror's knowledge, any Affiliate or Associate of Acquiror
or (B) any Person who, to Acquiror's knowledge, is an Associate of any such
officer, director, stockholder or Affiliate, on the other hand, (ii) Acquiror
does not provide or cause to be provided any assets, services or facilities to
any such current or former officer, director, stockholder, Affiliate or
Associate, (iii) neither Acquiror nor any such current or former officer,
director, stockholder, Affiliate or Associate provides or causes to be provided
any assets, services or facilities to Acquiror and (iv) Acquiror does not
beneficially own, directly or indirectly, any Investment Assets of any such
current or former officer, director, stockholder, Affiliate or Associate.
3.18 Employees; Labor Relations.
(a) Acquiror is not a party to any collective bargaining agreement and
there are no unfair labor practice or labor arbitration proceedings pending with
respect to Acquiror, or, to the knowledge of Acquiror, threatened, and there are
no facts or circumstances known to Acquiror that could reasonably be expected to
give rise to such complaint or claim. To the knowledge of Acquiror, there are no
organizational efforts presently underway or threatened involving any employees
of Acquiror or any of the employees performing work for Acquiror but those
provided by an outside employment agency, if any. There has been no work
stoppage, strike or other concerted action by employees of Acquiror.
(b) All employees of Acquiror are employed at will. Acquiror has provided
to Target a list that sets forth the name of each officer, employee and
consultant, together with such person's position or function, annual base salary
or wage and any incentive, severance or bonus arrangements with respect to such
person. To the knowledge of Acquiror, no employee of Acquiror has made any
threat, or otherwise revealed an intent, to terminate such employee's
relationship with Acquiror, for any reason, including because of the
consummation of the transactions contemplated by this Agreement. Acquiror is not
a party to any agreement for the provision of labor from any outside agency. To
the knowledge of Acquiror, there have been no claims by employees of such
outside agencies, if any, with regard to employees assigned to work for
Acquiror, and no claims by any governmental agency with regard to such
employees.
(c) There have been no federal or state claims based on sex, sexual or
other harassment, age, disability, race or other discrimination or common law
claims, including claims of wrongful termination, by any employees of Acquiror
or by any of the employees performing work for Acquiror but those provided by an
outside employment agency, and there are no facts or circumstances known to
Acquiror that could reasonably be expected to give rise to such complaint or
claim. Acquiror has complied in all material respects with all laws related to
the employment of employees and, except as set forth in Section 3.18(c) of the
Acquiror Disclosure Schedule, Acquiror has not received any notice of any claim
that it has not complied in any material respect with any Laws relating to the
employment of employees, including any provisions thereof relating to wages,
hours, collective bargaining, the payment of Social Security and similar taxes,
equal employment opportunity, employment discrimination, the WARN Act, employee
safety, or that it is liable for any arrearages of wages or any taxes or
penalties for failure to comply with any of the foregoing.
(d) Acquiror has no written policies and/or employee handbooks or manuals
except as described in Section 3.18(d) of the Acquiror Disclosure Schedule.
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(e) To the knowledge of Acquiror and its subsidiaries, no officer, employee
or consultant of Acquiror is obligated under any Contract or other agreement or
subject to any Order or Law that would interfere with Acquiror's business as
currently conducted. To Acquiror's and its subsidiaries' knowledge, neither the
execution nor delivery of this Agreement, nor the carrying on of Acquiror's
business as presently conducted nor any activity of such officers, employees or
consultants in connection with the carrying on of Acquiror's business as
presently conducted, will conflict with or result in a breach of the terms,
conditions or provisions of, constitute a default under, or trigger a condition
precedent to any rights under, any Contract or other agreement under which any
of such officers, employees or consultants is now bound.
(f) Acquiror has complied in all material respects with the verification
requirements and the record-keeping requirements of the Immigration Reform and
Control Act of 1986 ("IRCA"); to the best knowledge of Acquiror, the information
and documents on which Acquiror relied to comply with IRCA are true and correct;
and there have not been any discrimination complaints filed against Acquiror
pursuant to IRCA, and to the best knowledge of Acquiror, there is no basis for
the filing of such a complaint.
3.19 Environmental Matters.
(a) Acquiror possesses all Environmental Permits required for the operation
of its business.
(b) Acquiror is in compliance in all material respects with (i) all terms,
conditions and provisions of its Environmental Permits; and (ii) all
Environmental Laws.
(c) Acquiror, to the knowledge of Acquiror or any predecessor of Acquiror
nor any entity previously owned by Acquiror has any obligation or liability with
respect to any Hazardous Material, including any Release or threatened or
suspected Release of any Hazardous Material, and there have been no events,
facts or circumstances since the date of incorporation of Acquiror which could
reasonably be expected to form the basis of any such obligation or liability.
(d) There have been no environmental investigations, studies, audits,
tests, reviews or other analyses conducted by or for Acquiror or, to the
knowledge of Acquiror, by or for any Other Person with respect to any Site while
Acquiror has occupied the Site, which have not been delivered to Acquiror prior
to execution of this Agreement.
3.20 Other Negotiations; Brokers; Third Party Expenses. Neither Acquiror
nor, to the knowledge of Acquiror, any of its Affiliates (nor any investment
banker, financial advisor, attorney, accountant or other Person retained by or
acting for or on behalf of Acquiror or at Acquiror's direction) (a) has entered
into any Contract that conflicts with any of the transactions contemplated by
this Agreement or (b) has entered into any Contract or had any discussions with
any Person regarding any transaction involving Acquiror which could reasonably
be expected to result in Acquiror, or any general partner, limited partner,
manager, officer, director, employee, agent or Affiliate of any of them being
subject to any claim for liability to said Person as a result of entering into
this Agreement or consummating the transactions contemplated hereby. Section
3.20 of the Acquiror Disclosure Schedule sets forth the principal terms and
conditions of any Contract with respect to, and a reasonable estimate of, all
Third Party Expenses expected to be incurred by Acquiror in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby.
3.21 Foreign Corrupt Practices Act. Neither Acquiror, nor to the knowledge
of Acquiror, any agent, employee or other Person acting on behalf of Acquiror
has, directly or indirectly, used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity, made any unlawful payment to foreign or domestic government
officials or
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employees or to foreign or domestic political parties or campaigns from
corporate funds, violated any provision of the Foreign Corrupt Practices Act of
1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback
or other similar unlawful payment.
3.22 Tax-Free Reorganization. To the knowledge of Acquiror, after Good
Faith Consultation with Acquiror's independent accountants, neither Acquiror nor
any of its directors, officers or stockholders has taken any action which could
reasonably be expected to jeopardize the status of the Merger as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code.
3.23 Approvals.
(a) Section 3.23(a) of the Acquiror Disclosure Schedule contains a list of
all material Approvals of Governmental or Regulatory Authorities relating to the
business conducted by Acquiror which are required to be given to or obtained by
Acquiror prior to the Closing from any and all Governmental or Regulatory
Authorities in connection with the consummation of the transactions contemplated
by this Agreement.
(b) Section 3.23(b) of the Acquiror Disclosure Schedule contains a list of
all material Approvals which are required to be given to or obtained by Acquiror
prior to the Closing from any and all third parties other than Governmental or
Regulatory Authorities in connection with the consummation of the transactions
contemplated by this Agreement.
(c) Acquiror has obtained all material Approvals from Governmental or
Regulatory Authorities necessary to conduct the business conducted by Acquiror
in the manner as it is currently being conducted and there has been no written
notice received by Acquiror of any material violation or material non-compliance
with any such Approvals. All material Approvals from Governmental or Regulatory
Authorities necessary to conduct the business conducted by Acquiror as it is
currently being conducted are set forth in Section 3.23(c) of the Acquiror
Disclosure Schedule.
(d) The affirmative vote or consent of the holders of the shares of
Acquiror Common Stock outstanding as of the applicable record date is the only
vote of the holders of any of Acquiror Capital Stock necessary to approve this
Agreement and the Merger and the transactions contemplated hereby.
3.24 Disclosure. No representation or warranty contained in Article 3 of
this Agreement, and no statement contained in the Acquiror Disclosure Schedule
or in any certificate, list or other writing furnished to Acquiror pursuant to
any provision of this Agreement (including Acquiror's September 10-Q) contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the representations and warranties of Acquiror in Article 3
(as modified by the Acquiror Disclosure Schedule), in the light of the
circumstances under which they were made, not misleading.
3.25 S-4 Registration Statement; Proxy Statement. The information supplied
in writing to Target, or its counsel or auditors, by Acquiror and Acquiror
Stockholders for inclusion in the S-4 Registration Statement shall not, at the
time the S-4 Registration Statement (including any amendments or supplements
thereto) is declared effective by the SEC, contain any untrue statement of a
material fact or 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 were made, not misleading. The information
supplied by Acquiror and Acquiror's stockholders for inclusion in the Proxy
Statement shall not, on the date the Proxy Statement is first mailed to
Acquiror's stockholders and Target's stockholders, at the time of the Acquiror
Stockholders Meeting, at the time of the Target's Stockholders Meeting and at
the Effective Time, contain any statement which, at such time, is false or
misleading with respect to any material fact, or omit to state any material fact
necessary in
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order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading; or omit to state any material fact
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Acquiror Stockholders Meeting or the Target
Stockholders Meeting which has become false or misleading. Notwithstanding the
foregoing, Acquiror makes no representation, warranty or covenant with respect
to any information supplied by Target that is contained in the S-4 Registration
Statement or the Proxy Statement.
3.26 Investment Advisors. Except as set forth in Section 3.26 of the
Acquiror Disclosure Schedule, no broker, investment banker, financial advisor or
other Person is entitled to any broker's, finder's, financial advisor's or
similar fee or commission in connection with this Agreement and the transactions
contemplated hereby based on arrangements made by or on behalf of Acquiror.
ARTICLE 4
ADDITIONAL AGREEMENTS
4.1 Proxy Statement; S-4 Registration Statement.
(a) As soon as practicable after the execution of this Agreement, Target
and Acquiror shall prepare, and Acquiror shall file with the SEC, preliminary
proxy materials relating to the approval of the Merger and the transactions
contemplated hereby by the stockholders of Acquiror and, as promptly as
practicable following receipt of SEC comments thereon, Acquiror shall file with
the SEC a Registration Statement on Form S-4 (or such other or successor form as
shall be appropriate) (the "S-4 Registration Statement") to register the
issuance in the Merger of all shares of Acquiror Common Stock, which complies in
form with applicable SEC requirements and shall use all reasonable efforts to
cause the S-4 Registration Statement to become effective as soon thereafter as
practicable. The Acquiror will update and amend the S-4 Registration Statement
to the extent necessary prior to the Closing.
(b) As soon as practicable after the execution of this Agreement, and
subject to Section 4.1(a), Acquiror shall use all commercially reasonable
efforts to prepare and file as soon as practicable, with the cooperation of
Target, the S-4 Registration Statement. Acquiror shall use commercially
reasonable efforts to cause the S-4 Registration Statement to comply with the
requirements of applicable Laws. Each of Acquiror and Target agrees to provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the S-4
Registration Statement, or in any amendments or supplements thereto, and to
cause its counsel and auditors to cooperate with the other's counsel and
auditors in the preparation of the S-4 Registration Statement. Target will
promptly advise Acquiror, and Acquiror will promptly advise Target, in writing
if at any time prior to the Effective Time either Target or Acquiror shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the S-4 Registration Statement in order to make the
statements contained or incorporated by reference therein not misleading or to
comply with applicable law. Anything to the contrary contained herein
notwithstanding, Acquiror shall not include in the S-4 Registration Statement
any information with respect to Target or its Affiliates or Associates, the form
and content of which information shall not have been approved by Target prior to
such inclusion.
4.2 Stockholder Approval. Target shall promptly after the date hereof take
all action necessary in accordance with the DGCL (and, if applicable, the
California Code) and its Certificate of Incorporation and Bylaws to convene the
Target Stockholders Meeting within 45 days of the S-4 Registration Statement
being declared effective by the SEC. Target shall consult with Acquiror
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and use all commercially reasonable efforts to hold the Target Stockholders
Meeting on the same day as the Acquiror Stockholders Meeting and shall not
postpone or adjourn (other than for the absence of a quorum) the Target
Stockholders Meeting without the consent of Acquiror, which consent shall not be
unreasonably withheld. Subject to Section 4.1, Target shall use all commercially
reasonable efforts to solicit from stockholders of Target proxies in favor of
the Merger and shall take all other lawful action necessary or advisable to
secure the vote or consent of stockholders required to effect the Merger.
Acquiror shall promptly after the date hereof take all action necessary in
accordance with the DGCL (and, if applicable, the California Code) and its
Certificate of Incorporation and Bylaws to convene the Acquiror Stockholders
Meeting within 45 days of the S-4 Registration Statement being declared
effective by the SEC. Acquiror shall consult with Target and use all
commercially reasonable efforts to hold the Acquiror Stockholders Meeting on the
same day as the Target Stockholders Meeting and shall not postpone or adjourn
(other than for the absence of a quorum) the Acquiror Stockholders Meeting
without the consent of Target, which consent shall not be unreasonably withheld.
Subject to Section 4.1, Acquiror shall use all commercially reasonable efforts
to solicit from stockholders of Acquiror proxies in favor of this Agreement, the
Merger and the Acquiror Charter Amendment and shall take all other lawful action
necessary or advisable to secure the vote or consent of stockholders required to
effect the Merger and the Acquiror Charter Amendment. Each of Target and
Acquiror must hold its respective Stockholders Meeting and take the vote of its
stockholders on the proposal to approve this Agreement and the Merger at its
respective Stockholders Meeting unless this Agreement has been terminated in
accordance with its terms. Target and Acquiror will take all commercially
reasonable efforts to limit the applicability of stockholders dissenters rights
to this transaction, and, to the extent that such are applicable, will take all
commercially reasonable efforts to minimize the exercise of any such rights and
will not take any action to induce stockholders to exercise any such rights.
4.3 Access to Information. Between the date of this Agreement and the
earlier of the Effective Time or the termination of this Agreement, upon
reasonable notice Target and Acquiror shall each (i) give the other party, and
their respective officers, employees, accountants and counsel full access to all
buildings, offices, and other facilities and to all its Books and Records,
whether located on its premises or at another location; (ii) permit the other
party to make such inspections as it may reasonably require; (iii) cause its
officers to furnish the other party such financial, operating, technical and
product data and other information with respect to its business and Assets and
Properties as the other party from time to time may request, including financial
statements and schedules; (iv) allow the other party the opportunity to
interview such employees and other personnel and Affiliates of the other party
with such other party's prior written consent, which consent shall not be
unreasonably withheld or delayed; and (v) assist and cooperate with the other
party in the development of integration plans for implementation following the
Effective Time; provided, however, that no investigation pursuant to this
Section 4.3 shall affect or be deemed to modify any representation or warranty
made by such party herein.
4.4 Confidentiality. The parties acknowledge that Acquiror and Target have
previously executed an Exclusivity and Confidentiality Agreement dated November
8, 1999 (the "Confidentiality Agreement"), which Confidentiality Agreement shall
continue in full force and effect in accordance with its terms. Without limiting
the foregoing, all information furnished to Acquiror and its officers,
employees, accountants and counsel by Target, and all information furnished to
Target by Acquiror and its respective officers, employees, accountants and
counsel, shall be covered by the Confidentiality Agreement.
4.5 Expenses. Whether or not the Merger is consummated, all fees and
expenses incurred in connection with the Merger, including 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
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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 Third Party Expenses, provided, however, that if
the Merger is consummated, Acquiror shall pay all Third Party Expenses incurred
by itself and by Target.
4.6 Public Disclosure. Unless otherwise required by Law (including federal
and state securities Laws) or, as to Acquiror, by the rules and regulations of
the NASD, prior to the Effective Time, no public disclosure (whether or not in
response to any inquiry) of the existence of any subject matter of, or the terms
and conditions of, this Agreement shall be made by any party hereto unless
approved by Acquiror and Target prior to release; provided, however, that such
approval shall not be unreasonably withheld or delayed; and provided further,
that if any such public disclosure is required by Law or, as to Acquiror, by the
rules and regulations of the NASD, the disclosing party will give the other
party reasonable advance notice of such disclosure and, if such disclosure is
pursuant to a court order or subpoena or similar process, the disclosing party
will cooperate with the other party's efforts to seek injunctive or other relief
preventing or limiting such disclosure.
4.7 Approvals. Acquiror and Target shall use all commercially reasonable
efforts required to obtain all Approvals from Governmental or Regulatory
Authorities or under any of the Contracts or other agreements as may be required
in connection with the Merger (all of which Approvals are set forth in either
the Target Disclosure Schedule or the Acquiror Disclosure Schedule) so as to
preserve all material rights of and benefits to Target thereunder and Acquiror
and Target shall provide each other with such assistance and information as is
reasonably required to obtain such Approvals.
4.8 Notification of Certain Matters. Target shall give prompt notice to
Acquiror, and Acquiror shall give prompt notice to Target, of (i) the occurrence
or non-occurrence of any event that is likely to cause any representation or
warranty of Target or Acquiror, respectively, contained in this Agreement to be
untrue or inaccurate in any material respect at or prior to the Closing Date and
(ii) any failure of Target or Acquiror, 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 4.8 shall not limit or otherwise affect any remedies available to
the party receiving such notice.
4.9 Additional Documents and Further Assurances. Each party hereto, at the
request of the other party hereto, shall use all requisite commercially
reasonable efforts to execute and deliver such other instruments (including the
execution by Target of the resolution and amendment to terminate Target's 401(k)
Plan prior to Closing) and do and perform such other acts and things (including
all action reasonably necessary to seek and obtain any and all consents and
approvals of any Government or Regulatory Authority or Person required in
connection with the Merger; provided, however, that neither party shall be
obligated to consent to any material divestitures or operational limitations or
activities in connection therewith and no party shall be obligated to make a
payment of money as a condition to obtaining any such condition or approval) as
may be necessary or desirable for effecting completely the consummation of the
Merger and the other transactions contemplated hereby.
4.10 Form S-8. Acquiror will file, and will use its reasonable commercial
efforts to cause the shares of Acquiror Common Stock that are subject to
issuance upon exercise of the Acquiror Options that result from the conversion
of Target Options under Section 1.6(c) to be registered on a registration
statement on Form S-8 or successor form promulgated by the SEC under the
Securities Act, as soon as commercially reasonable after the Effective Time. In
any event, Acquiror will file such Form S-8 Registration Statement with five (5)
business days after the Effective Time, and will maintain the effectiveness of
such Form S-8 for so long as such Acquiror Options remain outstanding.
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4.11 NNM Listing of Additional Shares Application. Acquiror shall cause to
be authorized for listing on the NNM, effective as of the Effective Time, all
shares of Acquiror Common Stock to be issued to Target's stockholders in the
Merger pursuant to Section 1.6(a) hereof and all shares of Acquiror Common Stock
required to be reserved for issuance, in connection with the Merger (including
without limitation all such shares to be reserved for issuance upon all Acquiror
Options and Warrants issued in or resulting from the Merger, or upon the
expiration or forfeiture of dissenters' rights as contemplated by Section 1.7),
upon official notice of issuance.
4.12 Auditors. Each party will use commercially reasonable efforts to
cause its respective management and independent auditors to facilitate on a
timely basis (i) the preparation of financial statements (including pro forma
financial statements if required) to comply with applicable SEC regulations,
(ii) the review of any audit or review work papers including the examination of
selected audited financial statements and data, and (iii) the delivery of such
representations from each party's independent accountants as may be reasonably
requested by the other party or its accountants.
4.13 Directors' and Officers' Indemnification.
(a) From and after the Effective Time, Acquiror will fulfill, honor and
perform all of the Indemnification Obligations (as defined below) of Target
arising under Target's Certificate of Incorporation or Bylaws, each as amended
or of Target Subsidiary arising under Target Subsidiary's charter documents, or
under any indemnification or similar agreement between Target or Target
Subsidiary on the one hand, and any Target Covered Person (as defined below) on
the other hand that existed prior to and remains in effect on the date hereof
(copies of which agreements have been provided to Acquiror). In addition, to the
extent that any Target Covered Person would, with respect to any action or event
relating to Target or Target Subsidiary that occurs on or prior to the Effective
Time, be entitled under Acquiror's Certificate of Incorporation or Bylaws or
Target Subsidiary charter documents, each as in effect upon the Effective Time,
to any indemnification, defense of claims or advancement of expenses by or from
Acquiror, Acquiror shall provide such indemnification, defense and advancement
of expenses to such Target Covered Person. A "Target Covered Person" means any
individual who, at any time prior to the Effective Time, was a director or
officer of Target or Target Subsidiary or was a trustee or other fiduciary of a
plan administered for the benefit of employees of Target and/or Target
Subsidiary. "Indemnification Obligations" means an obligation of Target or
Target Subsidiary to provide indemnification, defense of claims or advancement
of expenses to a person.
(b) This Section 4.13 shall survive the consummation of the Merger, is
intended to benefit Target and each indemnified party, shall be binding, jointly
and severally, on all successors and assigns of the Surviving Corporation and
Acquiror, and shall be enforceable by the indemnified persons.
(c) Target hereby represents and warrants to Acquiror that no claim for
indemnification by Target or Target Subsidiary has been made by any director or
officer of Target prior to the date of this Agreement except for any of such
claims as have been paid in full and, to the knowledge of Target, no basis
exists for any such claim for indemnification.
4.14 Benefit Arrangements. Acquiror and Target agree that, following the
Effective Time, Acquiror will provide (or will cause Target to provide) benefits
to Target's employees as of the Effective Time (other than with respect to
contributions by Target to the Target 401(k) Plan, as to which no comparable
contributions are made by Acquiror) that are at least as favorable, taken as a
whole, as the benefits currently provided to employees of Acquiror performing
functions similar to those to be performed by such Target employees after the
Effective Time. As soon as practicable after the execution of this Agreement,
Target and Acquiror shall confer and work together in good
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faith to agree upon mutually acceptable employee benefit and compensation
arrangements (and amend or terminate Target employee plans immediately prior to
the Effective Time, if appropriate). Acquiror shall use commercially reasonable
efforts to ensure that continuous employment with Target shall be credited to
employees of Target or Target Subsidiary who become employees of Target or any
of its subsidiaries on or after the Effective Time for all purposes of
eligibility and vesting of benefits but not for purposes of accrual of benefits.
Acquiror shall take commercially reasonable steps to (a) cause to be waived all
limitations as to preexisting condition limitations, exclusions and waiting
periods with respect to participation and coverage requirements applicable to
the employees of Target or Target Subsidiary under any welfare benefit plan that
such employees are eligible to participate in after the Effective Time, other
than limitations, exclusions or waiting periods that are already in effect with
respect to such employees and that have not been satisfied as of the Effective
Time under any welfare benefit plan maintained for such employees immediately
prior to the Effective Time and (b) provide each employee of Target and Target
Subsidiary with credit for any co-payments and deductibles paid during the plan
year commencing immediately prior to the Effective Time in satisfying any
applicable deductible or out-or-pocket requirements under any welfare plans that
such employees are eligible to participate in after the Effective Time for such
plan year.
4.15 Treatment as Reorganization. Neither Acquiror nor Target shall take
any action prior to or following the Closing that would reasonably be expected
to cause the Merger to fail to qualify as a "reorganization" within the meaning
of Section 368(a) of the Internal Revenue Code.
ARTICLE 5
CONDITIONS TO THE MERGER
5.1 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 or waiver by such party, at or prior to the
Closing, of all the following conditions:
(a) S-4 Registration Statement Effective. The SEC shall have declared
the S-4 Registration Statement effective. No stop order suspending the
effectiveness of the S-4 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 by the SEC and all requests for additional information on the
part of the SEC shall have been complied with to the reasonable
satisfaction of the parties thereto.
(b) Governmental and Regulatory Approvals. Approvals from any other
Governmental or Regulatory Authority (if any) necessary for consummation of
the transactions contemplated by this Agreement shall have been obtained,
and any waiting period applicable to the consummation of the Merger under
the HSR Act shall have expired or been terminated.
(c) No Injunctions or Regulatory Restraints; Illegality. No temporary
restraining order, preliminary or permanent injunction or other Order
issued by any court of competent jurisdiction or Governmental or Regulatory
Authority or other legal or regulatory restraint or prohibition preventing
the consummation of the Merger shall be in effect; nor shall there be any
action taken, or any Law or Order enacted, entered, enforced or deemed
applicable to the Merger or the other transactions contemplated by the
terms of this Agreement that would prohibit the consummation of the Merger
or which would permit consummation of the Merger only if certain material
divestitures were made or if Acquiror were to agree to material limitations
on its business activities or operations.
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(d) Tax Opinions. Acquiror and Target shall each have received written
opinions from their counsel, in form and substance reasonably satisfactory
to each of them, to the effect that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The parties to this Agreement agree to make such reasonable
representations as requested by such counsel for the purpose of rendering
such opinions. In the event that either Target's or Acquiror's counsel
shall not render such opinion, then the other party's counsel may render
such opinion in satisfaction of the condition set forth in this Section
5.1(d).
(e) Stockholder Approval. The Merger (and any increase in Acquiror's
authorized capital stock necessary to enable Acquiror to perform its
obligations hereunder and to carry out the Merger) shall have been approved
by the requisite votes of the stockholders of Acquiror and Target in
accordance with the DGCL and, if applicable, the California Code.
(f) NNM Listing. Acquiror shall cause to be authorized for listing on
the NNM, effective as of the Effective Time, all shares of Acquiror Common
Stock to be issued to Target's stockholders in the Merger pursuant to
Section 1.6(a)hereof and all shares of Acquiror Common Stock required to be
reserved for issuance, in connection with the Merger (including without
limitation all such shares to be reserved for issuance upon all Acquiror
Options and Acquiror Warrants issued in or resulting from the Merger, or
upon the expiration or forfeiture of dissenters' rights as contemplated by
Section 1.7), upon official notice of issuance.
(g) Registration Rights Agreement. The Amended and Restated Investors'
Rights Agreement of Acquiror dated as of July 2, 1998, shall have been duly
amended by the Amendment No. 1, attached hereto as Exhibit C, and Target's
Existing Investors' Rights Agreement shall have been terminated.
(h) Legal Proceedings. No Governmental or Regulatory Authority shall
have notified either party to this Agreement in writing that such
Governmental or Regulatory Authority intends to commence proceedings to
restrain or prohibit the transactions contemplated hereby or force
rescission, unless such Governmental or Regulatory Authority shall have
withdrawn such notice and abandoned any such proceedings prior to the time
which otherwise would have been the Closing Date.
(i) Limitation on Dissenters; Required Stockholder Vote. Holders of no
more than five percent (5%) of the outstanding shares of Target Capital
Stock shall have exercised, nor shall they have any right to exercise,
appraisal, dissenters' or similar rights under applicable law with respect
to their shares by virtue of the Merger.
5.2 Additional Conditions to Obligations of Target. The obligations of
Target to consummate the Merger and the other transactions contemplated by this
Agreement shall be subject to the satisfaction, or waiver by Target, at or prior
to the Closing, of each of the following conditions, any of which may be waived,
in writing, exclusively by Target:
(a) Representations and Warranties. Each of the representations and
warranties made by Acquiror in Article 3 of this Agreement (as qualified by
the Acquiror Disclosure Schedule) shall be true and correct in all material
respects on the date of this Agreement and such representations and
warranties (as qualified by the Acquiror Disclosure Schedule, as such may
be updated at the Closing Date and prior to the Effective Time, as provided
below) shall be true and correct in all material respects on and as of the
Closing Date (except, in each case, for any such representations or
warranties that, by their express terms, speak only as of a specific date
or dates, in which case such representations and warranties need only be
true and correct in all material respects on and as of such specified date
or dates); provided, that Acquiror shall have the opportunity to update the
Acquiror Disclosure Schedule as of the Closing Date; and provided
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further, that notwithstanding any failure of one or more of the
representations or warranties of Acquiror (as qualified as permitted above)
to be true and correct in all material respects as of the date of this
Agreement or as of the Closing Date, the condition set forth in this
Section 5.2(a) shall nevertheless be satisfied so long as such
representations and warranties of Acquiror (as qualified as permitted
above), do not contain any misstatement or omission of any fact or matter
that would have a Material Adverse Effect on the Business or Condition of
Acquiror (it being agreed that in any controversy concerning the
applicability of this Section 5.2(a), the party claiming the misstatement
or omission of any fact or matter shall have the burden of proving that
such fact or matter would have a Material Adverse Effect on the Business or
Condition of Acquiror).
(b) Performance. Acquiror shall have performed and complied in all
material respects with each agreement, covenant and obligation required by
this Agreement to be so performed or complied with by Acquiror at or before
the Closing.
(c) No Material Adverse Change. There shall have occurred no material
adverse change in the Business or Condition of Acquiror since the date
hereof; provided that for purposes of this Section 5.2(c), Section 3.7
and/or Section 5.2(a), a change to the Business or Condition of Acquiror
which is attributable to or results from (i) the public announcement or
pendency of the transactions contemplated hereby on current or prospective
customers of Acquiror, (ii) changes in general economic conditions or
changes affecting the industry generally in which Acquiror operates, and/or
(iii) changes resulting from the acts or omissions of Target shall not be
deemed to be a material adverse change in the Business or Condition of
Acquiror; provided further, that a reduction in the market price of
Acquiror's capital stock shall not, in and of itself, constitute a material
adverse change in the Business or Condition of Acquiror (it being agreed
that in any controversy concerning the applicability of this Section
5.2(c), Section 3.7 and/or Section 5.2(a), the party claiming that there
has occurred a material adverse change in the Business or Condition of
Acquiror since the date hereof shall have the burden of proving the
occurrence of such material adverse change).
(d) Officers' Certificates. Acquiror shall have delivered to Target
(A) a certificate, dated the Closing Date and executed by its President and
Chief Executive Officer of Acquiror and (B) a certificate, dated the
Closing Date and executed by the Secretary of Acquiror, both substantially
in the forms set forth in Exhibit E hereto.
(e) Legal Opinion. Target shall have received a legal opinion from
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, counsel to
Acquiror, as to the matters set forth on Exhibit F hereto.
(f) Directors and Officers. Each of the Target Designees shall have
been duly and validly elected to Acquiror's board of directors. The three
(3) persons designated by Target shall be Vinod Khosla, Vivek Ragavan and
one (1) other person reasonably acceptable to a majority of the Existing
Directors, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation. If any Target
Designee cannot or will not serve as a director of the Surviving
Corporation, Target may designate a replacement Designee, provided such
replacement is reasonably acceptable to a majority of the Existing
Directors. The officers of Surviving Corporation at, and immediately after,
the Effective Time shall be as mutually agreed to by Target and Acquiror,
except that it is agreed that Dennis Barsema shall be Chief Executive
Officer and Vivek Ragavan shall be President and Chief Operating Officer.
5.3 Additional Conditions to the Obligations of Acquiror. The obligations
of Acquiror to consummate the Merger and the other transactions contemplated by
this Agreement shall be subject
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to the satisfaction, or waiver by Acquiror, at or prior to the Closing, of each
of the following conditions, any of which may be waived, in writing, exclusively
by Acquiror:
(a) Representations and Warranties. Each of the representations and
warranties made by Target in Article 2 of this Agreement (as qualified by
the Target Disclosure Schedule) shall be true and correct in all material
respects on the date of this Agreement and such representations and
warranties (as qualified by the Target Disclosure Schedule, as such may be
updated at the Closing Date and prior to the Effective Time, as provided
below) shall be true and correct in all material respects on and as of the
Closing Date (except, in each case, for any such representations or
warranties that, by their express terms, speak only as of a specific date
or dates, in which case such representations and warranties need only be
true and correct in all material respects on and as of such specified date
or dates); provided, that Target shall have the opportunity to update the
Target Disclosure Schedule as of the Closing Date; and provided further,
that notwithstanding any failure of one or more of the representations or
warranties of Target (as qualified as permitted above) to be true and
correct in all material respects as of the date of this Agreement or as of
the Closing Date, the condition set forth in this Section 5.3(a) shall
nevertheless be satisfied so long as such representations and warranties of
Target (as qualified as permitted above), do not contain any misstatement
or omission of any fact or matter that could reasonably be anticipated to
have a Material Adverse Effect on the Business or Condition of Target (it
being agreed that in any controversy concerning the applicability of this
Section 5.3(a), the party claiming the misstatement or omission of any fact
or matter shall have the burden of proving that such fact or matter would
have a Material Adverse Effect on the Business or Condition of Target).
(b) Performance. Target shall have performed and complied in all
material respects with each agreement, covenant and obligation required by
this Agreement to be so performed or complied with by Target on or before
the Closing Date.
(c) No Material Adverse Change. There shall have occurred no material
adverse change in the Business or Condition of Target since the date
hereof; provided that for purposes of this Section 5.3(c), Section 2.8
and/or Section 5.3(a), a change to the Business or Condition of Target
which is attributable to or results from (i) the public announcement or
pendency of the transactions contemplated hereby on current or prospective
customers of Target, (ii) changes in general economic conditions or changes
affecting the industry generally in which Target operates and/or (iii)
changes resulting from the acts or omissions of Acquiror shall not be
deemed to be a material adverse change in the Business or Condition of
Target; provided further, that a reduction in the market value of Target's
capital stock shall not, in and of itself, constitute a material adverse
change in the Business or Condition of Target; (it being agreed that in any
controversy concerning the applicability of this Section 5.3(c), Section
2.8 and/or Section 5.3(a), the party claiming that there has occurred a
material adverse change in the Business or Condition of Target since the
date hereof shall have the burden of proving the occurrence of such
material adverse change).
(d) Officers' Certificates. Target shall have delivered to Acquiror
(i) a certificate, dated the Closing Date and executed by its President and
Chief Executive Officer of Target and (ii) a certificate, dated the Closing
Date and executed by the Secretary of Target, both substantially in the
forms set forth in Exhibit G hereto.
(e) Third Party Consents. Acquiror shall have been furnished with
evidence satisfactory to it that Target has obtained the consents,
approvals and waivers listed in Section 2.5 of the Target Disclosure
Schedule (except for such consents, approvals and waivers the failure of
which to receive would have a Material Adverse Effect on the Surviving
Corporation).
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(f) Legal Opinion. Acquiror shall have received a legal opinion from
Fenwick & West, LLP, legal counsel to Target, as to the matters set forth
on Exhibit H hereto.
(g) Termination of 40l(k) Plan. If required by Acquiror in writing at
least twenty (20) business days prior to Closing, Target shall, immediately
prior to the Closing Date, have terminated the Target 401(k) Plan and no
further contributions shall have been made to the Target 401(k) Plan after
such date of termination. Target shall have provided to Acquiror (i)
executed resolutions by the Board of Directors of Target authorizing such
termination and (ii) an executed amendment to the Target 401(k) Plan
containing proposed amendments prepared by Acquiror, if any, sufficient to
ensure compliance with all applicable requirements of the Internal Revenue
Code and regulations thereunder so that the tax-qualified status of the
Target 401(k) Plan will be maintained at the time of termination.
ARTICLE 6
SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS
AND AGREEMENTS; ESCROW PROVISIONS
6.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND
AGREEMENTS. Notwithstanding any right of Acquiror or Target (whether or not
exercised) to investigate the affairs of Acquiror or Target or a waiver by
Acquiror or Target of any condition to Closing set forth in Article 5, each
party shall have the right to rely fully upon the representations, warranties,
covenants and agreements of the other party contained in this Agreement or in
any instrument delivered pursuant to this Agreement. Other than Target's
capitalization representation set forth in Section 2.3, which shall only survive
until the Expiration Date, none of the representations and warranties of Target
or Acquiror, and none of the other covenants and agreements of Target and
Acquiror, which by their terms are to be performed on or prior to the Closing
Date, shall survive after the Merger.
6.2 ESCROW PROVISIONS.
(a) Establishment of the Escrow Fund. As soon as practicable after the
Effective Time, the Escrow Amount, without any act of any Target stockholder,
will be deposited in escrow with a depositary agent mutually acceptable to
Target and Acquiror (the "Depositary Agent") (plus a proportionate share of any
additional shares of Acquiror Common Stock as may be issued with respect to the
Escrow Amount upon any stock splits, stock dividends or recapitalizations
effected by Acquiror following the Effective Time), such deposit to constitute
the "Escrow Fund" to be governed by the terms set forth herein. The portion of
the Escrow Amount contributed on behalf of each stockholder of Target shall be
in proportion to the aggregate number of shares of Acquiror Common Stock which
such holder would otherwise be entitled under Section 1.6.
(b) Recourse to the Escrow Fund. The Escrow Amount shall be available to
compensate Acquiror and its officers, directors, employees or agents, for any
and all payments and disbursements made by Acquiror, its officers, directors,
employees or agents (including attorneys' fees and other expenses of litigation,
and amounts paid in settlement), directly or indirectly, as a result of all
Section 2.3 Losses (whether or not involving a Third Party Claim) incurred or
sustained by Acquiror, its officers, directors, employees or agents, directly or
indirectly. Other than for fraud, the provisions of this Article 6 shall be the
sole and exclusive remedy available to Acquiror and to its officers, directors,
employees and agents to obtain monetary recovery from Target's stockholders with
respect to any Section 2.3 Losses and there shall not be recourse for any other
Losses. Except for liability for fraud and the liability of a Target stockholder
for the loss of such stockholder's pro rata share of the Acquiror Common Stock
and other property included in the Escrow Fund in satisfaction of
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Section 2.3 Losses in accordance with this Article 6, no Target stockholders or
any other Target securityholder or officer or director of Target shall have any
liability to Acquiror or to any of Acquiror's officers, directors, stockholders,
employees or agents for or in respect of any Losses or other liability arising
out of this Agreement.
(c) Escrow Period; Distribution of Escrow Fund upon Termination of Escrow
Period. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time and shall terminate at 5
p.m., Pacific Time, 180 days after the Effective Time (the "Expiration Date")
(the period of time from the Effective Time through and including the Expiration
Date is referred to herein as the "Escrow Period"); and upon expiration of the
Escrow Period all shares of Acquiror Common Stock remaining in the Escrow Fund
shall be distributed as set forth in the last sentence of this Section 6.2(c);
provided, however, that the Escrow Period shall not terminate with respect to
such amount (or some portion thereof) that is necessary in the reasonable
judgment of Acquiror, subject to the objection of the Stockholder Agent and the
subsequent arbitration of the matter in the manner as provided in Section 6.2(g)
hereof, to satisfy any unsatisfied claims for Section 2.3 Losses under this
Section 6.2 concerning facts and circumstances existing prior to the termination
of such Escrow Period which claims are specified in any Officer's Certificate
delivered to the Depositary Agent prior to termination of such Escrow Period. As
soon as all such claims, if any, have been resolved, the Depositary Agent shall
deliver to the stockholders of Target the remaining portion of the Escrow Fund
not required to satisfy such claims. Deliveries of certificates for shares of
Acquiror Common Stock remaining in the Escrow Fund to the stockholders of Target
pursuant to this Section 6.2(c) shall be made ratably in proportion to their
respective contributions to the Escrow Fund and Acquiror shall use all requisite
commercially reasonable efforts to have such certificates delivered as promptly
as possible after such resolution.
(d) Protection of Escrow Fund.
(i) The Depositary 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
Acquiror and shall hold and dispose of the Escrow Fund only in accordance
with the terms hereof.
(ii) Any shares of Acquiror Common Stock or other Equity Equivalents
issued or distributed by Acquiror ("New Shares") in respect of Acquiror
Common Stock in the Escrow Fund which have not been released from the
Escrow Fund shall be added to the Escrow Fund. New Shares issued in respect
of shares of Acquiror Common Stock which have been released from the Escrow
Fund shall not be added to the Escrow Fund but shall be distributed to the
record holders thereof. Cash dividends on Acquiror Common Stock shall not
be added to the Escrow Fund but shall be distributed to the record holders
of the Acquiror Common Stock on the record date set for any such dividend.
(iii) Each stockholder shall have full voting rights with respect to
the shares of Acquiror Common Stock contributed to the Escrow Fund by such
stockholder (and on any voting securities added to the Escrow Fund in
respect of such shares of Acquiror Common Stock).
(e) Claims Upon Escrow Fund.
(i) Upon receipt by the Depositary Agent at any time on or before the
Expiration Date of a certificate signed by any officer of Acquiror (an
"Officer's Certificate"): (A) stating that Acquiror has paid or properly
accrued or reasonably anticipates that it will become obligated to pay or
accrue a Section 2.3 Loss and (B) specifying in reasonable detail the
individual items of Section 2.3 Losses included in the amount so stated,
the date on which each such item was paid or properly accrued, the basis
for and facts giving rise to, such anticipated liability, and the
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nature of the misrepresentation to which such item is related, the
Depositary Agent shall, subject to the provisions of Section 6.2(f) and
6.2(g) hereof, delivered to Acquiror out of the Escrow Fund, as promptly as
practicable, shares of Acquiror Common Stock held in the Escrow Fund in an
amount equal to such Section 2.3 Losses. Where the basis for a claim upon
the Escrow Fund by Acquiror is that Acquiror reasonably anticipates that it
will pay or accrue a Section 2.3 Loss, no payment will be made from the
Escrow Fund for such Section 2.3 Loss unless and until such Section 2.3
Loss is actually paid or accrued.
(ii) For the purposes of determining the number of shares of Acquiror
Common Stock to be delivered to Acquiror out of the Escrow Fund pursuant to
Section 6.2(e)(i), the shares of Acquiror Common Stock shall be valued at
the Closing Price.
(f) Objections to Claims. At the time of delivery of any Officer's
Certificate to the Depositary Agent, a duplicate copy of such Officer's
Certificate shall be concurrently delivered to the Stockholder Agent and for a
period of thirty (30) days after such delivery, the Depositary Agent shall make
no delivery to Acquiror of any Escrow Amounts pursuant to Section 6.2(e) hereof
unless the Depositary Agent shall have received written authorization from the
Stockholder Agent to make such delivery. After the expiration of such thirty
(30) day period, the Depositary Agent shall make delivery of shares of Acquiror
Common Stock from the Escrow Fund in accordance with Section 6.2(e) hereof,
provided that no such payment or delivery may be made if the Stockholder 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 Depositary
Agent prior to the expiration of such thirty (30) day period.
(g) Resolution of Conflicts; Arbitration.
(i) In case the Stockholder Agent shall object in writing to any claim
or claims made in any Officer's Certificate, the Stockholder Agent and
Acquiror shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the Stockholder
Agent and Acquiror should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and shall be
furnished to the Depositary Agent. The Depositary Agent shall be entitled
to rely on any such memorandum and distribute shares of Acquiror Common
Stock from the Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement can be reached after good faith negotiation,
or in any event, no such agreement has been reached within forty-five (45)
days after the delivery of the Officer's Certificate to the Stockholder
Agent, then either Acquiror or the Stockholder Agent may demand arbitration
of the dispute unless the amount of the damage or loss is at issue in a
pending Action or Proceeding involving a Third Party Claim, in which event
arbitration shall not be commenced until such amount is ascertained
(provided Acquiror acts diligently to resolve such Third-Party Claim and
allows the Stockholder Agent to participate in the defense of such
Third-Party Claim) or both parties agree to arbitration; and in either
event the matter shall be settled by arbitration conducted by three (3)
arbitrators, one (1) selected by Acquiror and one (1) selected by the
Stockholder Agent, and the two (2) arbitrators selected by Acquiror and the
Stockholder Agent shall select a third arbitrator. The Arbitration shall be
governed by the Commercial Arbitration Rules of the American Arbitration
Association. The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery of
information relating to any dispute while allowing the parties an
opportunity, adequate as determined in the sole judgment of the
arbitrators, to discover relevant information from the opposing parties
about the subject matter of the dispute. The arbitrators shall rule upon
motions to compel, limit or allow discovery as they shall deem appropriate
given the nature and extent of the disputed claim. The arbitrators shall
also have the authority to impose sanctions, including
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attorneys' fees and other costs incurred by the parties, to the same extent
as a court of law or equity, should the arbitrators determine that
discovery was sought without substantial justification or that discovery
was refused or objected to by a party without substantial justification.
The decision of a majority of the three (3) arbitrators 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 6.2(f) hereof, the Depositary Agent shall be entitled to act in
accordance 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 regarding
the dispute which shall set forth the award, judgment, decree or order
awarded by the arbitrators. Each party agrees to confirm any such
arbitration decision to the Depositary Agent in order to facilitate any
release of shares of Acquiror Common Stock or other property from the
Escrow Fund.
(iii) Judgment upon any award rendered by the arbitrators may be
entered in any court having competent jurisdiction. Any such arbitration
shall be held in the county of Santa Clara, California under the commercial
rules of arbitration then in effect of the American Arbitration
Association. For purposes of this Section 6.2(g), in any arbitration
hereunder in which any claim or the amount thereof stated in the Officer's
Certificate is at issue, Acquiror shall be deemed to be the Non-Prevailing
Party in the event that the arbitrators award Acquiror less than the sum of
one-half ( 1/2) of the disputed amount of any Section 2.3 Losses plus any
amounts not in dispute; otherwise, the stockholders of Target as
represented by the Stockholder 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 each arbitrator, the administrative costs of
the arbitration and the expenses, including reasonable attorneys' fees and
costs, incurred by the other party to the arbitration ("Arbitration Related
Fees"), provided, however, that any Arbitration Related Fees due from
Target shall be delivered to Acquiror out of the Escrow Fund, as promptly
as practicable, in the form of shares of Acquiror Common Stock held in the
Escrow Fund in an amount equal to such Arbitration Related Fees. For the
purposes of determining the number of shares of Acquiror Common Stock to be
delivered to Acquiror out of the Escrow Fund to cover any Arbitration
Related Fees, the shares of Acquiror Common Stock shall be valued at the
Closing Price.
(h) Stockholder Agent of the Stockholders; Power of Attorney.
(i) In the event that the Merger is approved by the stockholders of
Target, effective upon such vote, and without further act of any
stockholder, Vivek Ragavan shall be appointed as agent and attorney-in-fact
(the "Stockholder Agent") for each stockholder of Target (except such
stockholders, if any, as shall have perfected their appraisal or
dissenters' rights under the DGCL or California Code, if applicable), for
and on behalf of stockholders of Target, to give and receive notices and
communications, to authorize delivery to Acquiror of shares of Acquiror
Common Stock from the Escrow Fund in satisfaction of claims by Acquiror, to
object to such deliveries, 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 such claims, and to take all
actions necessary or appropriate in the judgment of the Stockholder Agent
for the accomplishment of the foregoing and to participate in the defense
of Third-Party Claim. Such agency may be changed by the stockholders of
Target from time to time upon not less than thirty (30) days prior written
notice to Acquiror; provided, however, that the Stockholder Agent may not
be removed unless holders of a two-thirds (2/3) interest in the Escrow Fund
agree to such removal and to the identity of the substituted Stockholder
Agent. Any vacancy in the position of Stockholder 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 Stockholder Agent, and the
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Stockholder Agent shall not receive compensation for his services. Notices
or communications to or from the Stockholder Agent shall constitute notice
to or from each of the stockholders of Target.
(ii) The Stockholder Agent shall not be liable for any act done or
omitted hereunder as Stockholder Agent while acting in good faith, or
acting on the advice of counsel. The Stockholder Agent shall have no duty,
obligation or responsibility to expend his personal funds in support of his
activities as Stockholder Agent.
(iii) The Stockholder Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers
and employees for purposes of performing its duties and exercising its
rights hereunder, provided that the Stockholder Agent shall treat
confidentially and not disclose any nonpublic information from or about
Target to anyone (except on a need to know basis to individuals who agree
to treat such information confidentially).
(i) Actions of the Stockholder Agent. A decision, act, consent or
instruction of the Stockholder Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
in the Merger are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each of such stockholders, and the Depositary Agent and Acquiror
may rely upon any such decision, act, consent or instruction of the Stockholder
Agent as being the decision, act, consent or instruction of every such
stockholder of Target. The Depositary Agent and Acquiror 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 Stockholder Agent.
(j) Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim (a "Third Party Claim") which Acquiror reasonably expects may
result in a Section 2.3 Loss and a demand against the Escrow Fund, Acquiror
shall notify the Stockholder Agent of such claim, and the Stockholder Agent, as
representative for the stockholders of Target, shall be entitled, at their
expense, to participate in any defense of such claim. Acquiror shall promptly
defend any such Third-Party Claim and shall have the right in its sole
discretion to settle any Third Party Claim; provided, however, that if Acquiror
settles any Third Party Claim without the Stockholder Agent's consent (which
consent shall not be unreasonably withheld or delayed), Acquiror may not make a
claim against the Escrow Fund with respect to the amount of Losses incurred by
Acquiror in such settlement. In the event that the Stockholder Agent has
consented to any such settlement, the Stockholder Agent shall have no power or
authority to object under any provision of this Article 6 to the amount of any
claim by Acquiror against the Escrow Fund with respect to the amount of Losses
incurred by Acquiror in such settlement.
(k) Depositary Agent's Duties.
(i) The Depositary 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 Depositary Agent may
receive after the date of this Agreement which are signed by an officer of
Acquiror and the Stockholder Agent, and may rely and shall be protected in
relying or refraining from acting on any instrument reasonably believed to
be genuine and to have been signed or presented by the proper party or
parties. The Depositary Agent shall not be liable for any act done or
omitted hereunder as Depositary 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.
(ii) The Depositary Agent is hereby expressly authorized to comply
with and obey Orders of any court of law or Governmental or Regulatory
Authority, notwithstanding any notices, warnings or other communications
from any party or any other person to the contrary. In case
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the Depositary Agent obeys or complies with any such Order, the Depositary
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 being
subsequently reversed, modified, annulled, set aside, vacated or found to
have been entered without jurisdiction or proper authority.
(iii) The Depositary 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 Depositary 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 Depositary Agent.
(v) In performing any duties under this Agreement, the Depositary
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
Depositary Agent. The Depositary 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
Depositary Agent shall in good faith believe to be genuine, nor will the
Depositary Agent be liable or responsible for forgeries, fraud,
impersonations or determining the scope of any representative authority. In
addition, the Depositary Agent may consult with legal counsel in connection
with the Depositary 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 Depositary 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 Depositary Agent will not be required to
determine the controversy or to take any action regarding it, except to
comply with any arbitration decision, order or award as provided in Section
6.2(g). The Depositary Agent may hold all documents and shares of Acquiror
Common Stock and may wait for settlement of any such controversy by final
appropriate legal proceedings or other means as, in the Depositary Agent's
discretion, the Depositary Agent may be required to wait for, despite what
may be set forth elsewhere in this Agreement. In such event, the Depositary
Agent will not be liable for any damages. Furthermore, the Depositary Agent
may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Depositary
Agent is authorized to deposit with the clerk of the court all documents
and shares of Acquiror Common Stock held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Depositary
Agent due to the interpleader action and which the parties jointly and
severally agree to pay. Upon initiating such action, the Depositary Agent
shall be fully released and discharged of and from all obligations and
liability imposed by the terms of this Agreement.
(vii) The parties and their respective successors and assigns agree
jointly and severally to indemnify and hold the Depositary Agent harmless
against any and all Losses incurred by the Depositary Agent in connection
with the good faith performance by the Depositary Agent of his or her
duties under this Agreement, including any litigation arising from this
Agreement or involving its subject matter.
(viii) The Depositary Agent may resign at any time upon giving at
least 30 days written notice to the parties; provided, however, that no
such resignation shall become effective until the
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appointment of a successor depositary agent which shall be accomplished as
follows: the parties shall use their commercially reasonable efforts to
mutually agree on a successor depositary agent within thirty (30) days
after receiving such notice. If the parties fail to agree upon a successor
depositary agent within such time, the Depositary Agent shall have the
right to appoint a successor depositary agent authorized to do business in
the State of California that is a bank or financial institution. The
successor Depositary 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 depositary agent as if originally named as escrow agent. The
Depositary Agent shall be discharged from any further duties and liability
under this Agreement.
(ix) All fees of the Depositary Agent for performance of its duties
hereunder shall be paid by Acquiror. In the event that the conditions of
this Agreement are not promptly fulfilled, or if the Depositary 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 Depositary Agent is made a party to, or intervenes in,
any Action or Proceeding pertaining to this escrow or its subject matter,
the Depositary 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 Action or Proceeding.
Acquiror agrees to pay these sums upon demand.
ARTICLE 7
CONDUCT PRIOR TO THE EFFECTIVE TIME
7.1 Conduct of Business.
(a) During the period from the date of this Agreement and continuing until
the earlier of the termination of this Agreement and the Effective Time, Target
and Acquiror each agree (unless such party receives prior consent in writing
from the other party, which consent shall not be unreasonably withheld) to carry
on its business in the ordinary and usual course and consistent with its past
practices, to pay its Liabilities and Taxes consistent with its past practices
(and in any event when due), to pay or perform other obligations when due
consistent with its past practices (other than Liabilities, Taxes and other
obligations, if any, contested in good faith through appropriate proceedings),
and, to the extent consistent with such business, to use commercially reasonable
efforts 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, licensees,
independent contractors and other Persons having business dealings with it, all
with the express purpose and intent of preserving unimpaired its goodwill and
ongoing businesses at the Effective Time.
(b) Without limiting Section 7.1(a), and except as otherwise specifically
provided in this Agreement, Target will not, directly or indirectly, prior to
the Effective Time, without the prior written consent of Acquiror:
(i) enter into any material Contract or other material commitment or
transaction, except in the ordinary course of its business consistent with
past practice;
(ii) amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any material
Contract;
(iii) amend its Certificate of Incorporation or Bylaws;
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(iv) transfer (by way of a License or otherwise) to any Person rights
to any of its material Intellectual Property other than pursuant to
licenses granted in the ordinary course of its business consistent with
past practice;
(v) make any change in its accounting policies, principles, methods,
practices or procedures (including for bad debts, contingent liabilities or
otherwise, respecting capitalization or expense of research and development
expenditures, depreciation or amortization rates or timing of recognition
of income and expense);
(vi) commence or settle any material litigation;
(vii) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any shares
of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock (except
upon the conversion of shares of Target Preferred Stock into shares of
Target Common Stock in accordance with the terms of such Target Preferred
Stock), or repurchase, redeem or otherwise acquire, directly or indirectly,
any shares of its Capital Stock or Equity Securities (except that Target
may repurchase or redeem shares of its capital stock at the original
purchase price of such shares in connection with the termination of
employment with Target or Target Subsidiary of the Person whose shares are
being repurchased or redeemed);
(viii) acquire any business, company or corporation, whether through
the purchase of stock, a purchase, lease or License of assets, a merger,
consolidation, tender offer or any other form of business combination;
(ix) dispose of any significant assets, other than in the ordinary
course of its business, consistent with its past practices; or
(x) enter into or approve any contract, arrangement or understanding
or acquiesce in respect of any arrangement or understanding, to do, engage
in or cause or having the effect of any of the foregoing.
(c) Without limiting Section 7.1(a), and except as otherwise specifically
provided in this Agreement, Acquiror will not, directly or indirectly, prior to
the Effective Time, without the prior written consent of Target:
(i) enter into any material Contract or other material commitment or
transaction, except in the ordinary course of its business consistent with
past practice;
(ii) amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any material
Contract;
(iii) amend its Certificate of Incorporation or Bylaws;
(iv) transfer (by way of a License or otherwise) to any Person rights
to any of its material Intellectual Property other than pursuant to
licenses granted in the ordinary course of its business consistent with
past practice;
(v) make any change in its accounting policies, principles, methods,
practices or procedures (including for bad debts, contingent liabilities or
otherwise, respecting capitalization or expense of research and development
expenditures, depreciation or amortization rates or timing of recognition
of income and expense);
(vi) commence or settle any material litigation;
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(vii) declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any shares
of its capital stock, or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock of
Acquiror, or repurchase, redeem or otherwise acquire, directly or
indirectly, any shares its capital stock (except that Acquiror may
repurchase or redeem shares of its capital stock at the original purchase
price of such shares in connection with the termination of employment with
Acquiror of the Person whose shares are being repurchased or redeemed);
(viii) acquire any business, company or corporation, whether through
the purchase of stock, a purchase, lease or License of assets, a merger,
consolidation, tender offer or any other form of business combination;
(ix) dispose of any significant assets, other than in the ordinary
course of its business, consistent with its past practices; or
(x) enter into or approve any contract, arrangement or understanding
or acquiesce in respect of any arrangement or understanding, to do, engage
in or cause or having the effect of any of the foregoing.
7.2 No Solicitation -- Target.
(a) Until the earlier of the Effective Time and the date of termination of
this Agreement pursuant to the provisions of Section 8.1 hereof, Target will not
, nor will Target permit any of its directors, officers, agents, employees,
affiliates, attorneys, accountants, financial advisers or other representatives
(collectively, "Representatives") to (directly or indirectly): (i) solicit,
encourage, initiate, entertain or participate in any negotiations or discussions
with respect to an offer or proposal, oral, written, or otherwise, formal or
informal, to acquire all or any substantial portion of Target's business or
assets, whether by purchase of assets, exclusive license, joint venture
formation, purchase of stock, business combination or otherwise, (ii) disclose
any information not customarily disclosed to any Person concerning Target and
which Target believes would be used for the purposes of formulating any such
offer or proposal, (iii) assist, cooperate with, facilitate or encourage any
Person to make any offer or proposal to acquire all or any substantial portion
of Target's business or assets (directly or indirectly), (iv) agree to, enter
into a contract regarding, approve, recommend or endorse any transaction
involving, the acquisition of all or any substantial portion of Target's
business or assets (an "Acquisition Proposal -- Target"), or (v) authorize or
permit any of Target's Representatives to take any such action. Target shall
notify Acquiror as promptly as practical if any proposal or offer (formal or
informal, oral, written or otherwise), or any inquiry or contact with any Person
with respect thereto, regarding a Acquisition Proposal is made, such notice to
include the identity of the Person proposing such Acquisition Proposal -- Target
and the terms thereof, and shall keep Acquiror apprised on a current basis of
the status of any such Acquisition Proposal -- Target and of any modifications
to the terms thereof. Target immediately shall cease and cause to be terminated
all existing discussions or negotiations with any parties other than Acquiror
conducted heretofore with respect to any Acquisition Proposal -- Target.
Notwithstanding the foregoing, prior to the date of the approval of this
Agreement and the Merger by the stockholders of Target (the "Target Stockholder
Approval Date"), Target may furnish information concerning its business,
properties or assets to any corporation, partnership, person or other entity or
group pursuant to appropriate confidentiality agreements, and may negotiate and
participate in discussions and negotiations with such entity or group concerning
an Acquisition Proposal -- Target if:
(i) such entity or group has on an unsolicited basis submitted a bona
fide written proposal to the Target Board of Directors relating to any such
transaction which the Target Board of
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Directors determines in good faith, represents a superior transaction to
the Merger (a "Competing Proposal -- Target") and in the good faith
judgment of the Target Board of Directors the person or entity making such
Competing Proposal -- Target appears to have the financial means, or the
ability to obtain the necessary financing to successfully conclude such
Competing Proposal -- Target; and
(ii) in the opinion of the Target Board of Directors such action is
required to discharge the Target Board of Directors' fiduciary duties to
the Target's stockholders under applicable law following receipt of advice
from independent legal counsel to Target.
(b) Except as set forth below in this subsection (b), neither the Target
Board of Directors nor any committee thereof shall: (i) fail to include,
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Acquiror, the approval or positive recommendation by such Board of Directors or
any such committee of this Agreement or the Merger, (ii) approve or recommend or
propose to approve or recommend, any Acquisition Proposal -- Target, or (iii)
enter into any agreement with respect to any Acquisition Proposal -- Target,
provided, however, that notwithstanding the foregoing, prior to the Target
Stockholder Approval Date, the Target Board of Directors may fail to include or
may withdraw or modify, its approval or recommendation of this Agreement or the
Merger, or may approve or recommend any Acquisition Proposal -- Target which
satisfies the requirements of each of subsection (i) and subsection (ii) of
Section 7.2(a) hereof (any such Acquisition Proposal -- Target, a "Superior
Proposal -- Target"), or enter into an agreement with respect to a Superior
Proposal -- Target, in each case at any time after the fifth business day
following Acquiror's receipt of written notice from the Target advising Acquiror
that the Target Board of Directors has received a Superior Proposal -- Target
which it intends to accept, specifying the material terms and conditions of such
Superior Proposal -- Target and identifying the Person making such Superior
Proposal -- Target.
7.3 No Solicitation -- Acquiror.
(a) Until the earlier of the Effective Time and the date of termination of
this Agreement pursuant to the provisions of Section 8.1 hereof, Acquiror will
not take, nor will Acquiror permit any of its directors, officers, agents,
employees, affiliates, attorneys, accountants, financial advisers or other
representatives (collectively, "Representatives") to (directly or indirectly):
(i) solicit, encourage, initiate, entertain or participate in any negotiations
or discussions with respect to an offer or proposal, oral, written, or
otherwise, formal or informal to acquire all or any substantial portion of
Acquiror's business or assets, whether by purchase of assets, exclusive license,
joint venture formation, purchase of stock, business combination or otherwise,
(ii) disclose any information not customarily disclosed to any Person concerning
Acquiror and which Acquiror believes would be used for the purposes of
formulating any such offer or proposal, (iii) assist, cooperate with, facilitate
or encourage any Person to make any offer or proposal to acquire all or any
substantial portion of Acquiror's business or assets (directly or indirectly),
(iv) agree to, enter into a contract regarding, approve, recommend or endorse
any transaction involving, the acquisition of all or any substantial portion of
Acquiror's business or assets (an "Acquisition Proposal -- Acquiror"), or (v)
authorize or permit any of Acquiror's Representatives to take any such action.
Acquiror shall notify Target as promptly as practical if any proposal or offer
(formal or informal, oral, written or otherwise), or any inquiry or contact with
any Person with respect thereto, regarding a Acquisition Proposal -- Acquiror is
made, such notice to include the identity of the Person proposing such
Acquisition Proposal -- Acquiror and the terms thereof, and shall keep Target
apprised, on a current basis of the status of any such Acquisition
Proposal -- Acquiror and of any modifications to the terms thereof. Acquiror
immediately shall cease and cause to be terminated all existing discussions or
negotiations with any parties other than Target conducted heretofore with
respect to any Acquisition Proposal -- Acquiror. Notwithstanding the foregoing,
prior to the date of the approval of this Agreement and the Merger by the
shareholders of
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Acquiror (the "Acquiror Stockholder Approval Date"), Acquiror may furnish
information concerning its business, properties or assets to any corporation,
partnership, person or other entity or group pursuant to appropriate
confidentiality agreements, and may negotiate and participate in discussions and
negotiations with such entity or group concerning an Acquisition
Proposal -- Acquiror if:
(i) such entity or group has on an unsolicited basis submitted a bona
fide written proposal to the Acquiror Board of Directors relating to any
such transaction which the Acquiror Board of Directors determines in good
faith, represents a superior transaction to the Merger (a "Competing
Proposal -- Acquiror") and in the good faith judgment of the Acquiror Board
of Directors the person or entity making such Competing
Proposal -- Acquiror appears to have the financial means, or the ability to
obtain the necessary financing to successfully conclude such Competing
Proposal -- Acquiror; and
(ii) in the opinion of the Acquiror Board of Directors such action is
required to discharge the Acquiror Board of Directors' fiduciary duties to
the Acquiror's stockholders under applicable law following receipt of
advice from independent legal counsel to Acquiror.
(b) Except as set forth below in this subsection (b), neither the Acquiror
Board of Directors nor any committee thereof shall: (i) fail to include,
withdraw or modify, or propose to withdraw or modify, in a manner adverse to
Target, the approval or positive recommendation by such Board of Directors or
any such committee of this Agreement or the Merger, (ii) approve or recommend or
propose to approve or recommend, any Acquisition Proposal -- Acquiror, or (iii)
enter into any agreement with respect to any Acquisition Proposal -- Acquiror,
provided, however, that notwithstanding the foregoing, prior to the Acquiror
Stockholder Approval Date, the Acquiror Board of Directors may fail to include
or may withdraw or modify its approval or recommendation of this Agreement or
the Merger, or may approve or recommend any Acquisition Proposal -- Acquiror
which satisfies the requirements of each of subsection (i) and subsection (ii)
of Section 7.3(a) hereof (any such Acquisition Proposal -- Acquiror, a "Superior
Proposal -- Acquiror"), or enter into an agreement with respect to a Superior
Proposal -- Acquiror, in each case at any time after the fifth business day
following Target's receipt of written notice from the Acquiror advising Target
that the Acquiror Board of Directors has received a Superior
Proposal -- Acquiror which it intends to accept, specifying the material terms
and conditions of such Superior Proposal -- Acquiror and identifying the Person
making such Superior Proposal -- Acquiror.
ARTICLE 8
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in this Section 8.1, this Agreement
may be terminated and the Merger abandoned at any time prior to the Effective
Time:
(a) by mutual written consent of Target and Acquiror;
(b) by Acquiror or Target if:
(i) there shall be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger by any
Governmental or Regulatory Authority that would make consummation of the
Merger illegal or there shall be a final nonappealable order of a
federal or state court in effect preventing consummation of the Merger;
(ii) if the Merger is not approved and adopted by the affirmative
vote of the stockholders of Target as required by the DGCL, the
California Code (if applicable), and Target's Certificate of
Incorporation and Bylaws;
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(iii) if the holders of 5% or more of the outstanding shares of
Acquiror Capital Stock shall have voted against the Merger and filed
demands for payment pursuant to the exercise of dissenters' rights under
the California Code with respect to 5% or more of the outstanding shares
of Acquiror Capital Stock by virtue of the Merger;
(iv) if the holders of 5% or more of the outstanding shares of
Target Capital Stock have not voted in favor of the Merger and filed
demands for payment pursuant to the exercise of dissenters' rights under
the California Code with respect to 5% or more of the outstanding shares
of Target Capital Stock by virtue of the Merger;
(v) the Merger, the issuance of Acquiror Common Stock in the
Merger, any increase in Acquiror's authorized capital stock necessary to
enable Acquiror to consummate, carry out and perform the Merger as
contemplated by this Agreement or any other matter necessary to enable
Acquiror to consummate, carry out and perform the Merger as contemplated
by this Agreement, is not approved and adopted by the stockholders of
Acquiror in accordance with the rules of the Nasdaq National Market, the
DGCL and, if applicable, the California Code; or
(vi) the Effective Time has not occurred before 5 p.m. (Pacific
Time) on June 30, 2000, provided, however, that the right to terminate
this Agreement under this Section 8.1(b)(iii) 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.
(c) by Target if:
(i) Target enters into a definitive agreement, as permitted by
Section 7.2with respect to a Superior Proposal -- Target, provided,
however, that Target has complied with all provisions thereof, including
the notice provisions therein, and that Target makes the payment to
Acquiror in the amount required by, and within the time as required by,
Section 8.2(b); or
(ii) prior to the Effective Time, Acquiror's Board of Directors
shall have (A) failed to timely provide, or withdrawn, modified or
changed in a manner adverse to Target, its approval or recommendation of
this Agreement or the Merger, (B) recommended a Superior
Proposal -- Acquiror, (C) failed to notice, call and hold the Acquiror
Stockholder Meeting within 45 days after the SEC has declared the S-4
Registration Statement effective, (D) executed a letter of intent, an
agreement in principle or definitive agreement relating to a Superior
Proposal -- Acquiror or similar business combination with a person or
entity other than Target, or (E) exercised its rights pursuant to
Section 7.3 with respect to a Superior Proposal -- Acquiror, and,
directly or through its representatives, continued discussions with any
third party concerning an Superior Proposal -- Acquiror for more than
ten business days after the date of receipt of such Superior
Proposal -- Acquiror.
(d) by Acquiror if:
(i) Acquiror enters into a definitive agreement, as permitted by
Section 7.3 with respect to a Superior Proposal -- Acquiror that
prohibits the consummation of, or requires material changes to, the
Merger or any other business combination of Acquiror and Target,
provided, however, that Acquiror has complied with all provisions
thereof, including the notice provisions therein, and that Acquiror
makes simultaneous payment to Target as required by Section 8.2(c); or
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(ii) prior to the Effective Time, Target Board of Directors shall
have (A) failed to timely provide, or withdrawn, modified or changed in
a manner adverse to Acquiror, its approval or recommendation of this
Agreement or the Merger, (B) recommended a Superior Proposal -- Target,
(C) executed a letter of intent, an agreement in principle or definitive
agreement relating to a Superior Proposal -- Target or similar business
combination with a person or entity other than Acquiror, or (D)
exercised its rights pursuant to Section 7.2 with respect to a Superior
Proposal -- Target, and, directly or through its representatives,
continued discussions with any third party concerning an Superior
Proposal -- Target for more than ten business days after the date of
receipt of such Superior Proposal -- Target.
8.2 Termination Fee.
(a) In the event that this Agreement shall have been terminated pursuant to
Section 8.1(b)(iii) or Section 8.1(b)(v), then Acquiror shall promptly, but in
no event later than two (2) days after the date of the Acquiror Stockholder
Meeting, (i) pay Target $25,000,000, plus the amount of interest that would have
accrued from the date of this Agreement until payment of such fee at the Prime
Rate as reported in the Wall Street Journal in effect on the date hereof (such
payment shall be made by check, wire transfer and/or forgiveness of debt, at
Acquiror's option) and (ii) Acquiror will give Target a promissory note (the
"Second Note") for an additional $25,000,000,due on the date that is the earlier
to occur of (A) six (6) months after the date of the Acquiror Stockholder
Meeting or (B) the closing of an offering of Acquiror securities registered
under the Securities Act provided, however, that in the event Acquiror does not
close an offering of its securities registered under the Securities Act within
six (6) months after the date of the Acquiror Stockholder Meeting, the Second
Note shall be due and payable, at Acquiror's option, in cash or Acquiror's
Common Stock, valued at the average closing price of Acquiror's Common Stock for
the ten (10) trading days prior to the due date of the Second Note.
(b) In the event that this Agreement shall have been terminated by Target
pursuant to Section 8.1(c)(i) or by Acquiror pursuant to Section 8.1(d)(ii),
then Target shall promptly, but in no event later than two (2) days after the
date of such termination, pay Acquiror a termination fee of $135,000,000.
(c) In the event that this Agreement shall have been terminated by Acquiror
pursuant to Section 8.1(d)(i) or by Target pursuant to Section 8.1(c)(ii), then
Acquiror shall promptly, but in no event later than two (2) days after the date
of such termination, pay Target a termination fee of $135,000,000.
8.3 Effect of Termination. In the event of a valid 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 Acquiror or Target,
or their respective officers, directors or stockholders or Affiliates or
Associates; provided, however, that each party shall remain liable for any
breaches of this Agreement prior to its termination; and provided further that,
the provisions of Section 8.2 of this Agreement shall remain in full force and
effect and survive any termination of this Agreement.
8.4 Amendment. Except as is otherwise required by applicable law, 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.
8.5 Extension; Waiver. At any time prior to the Effective Time, Acquiror
and Target 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
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any of the agreements, covenants 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 on behalf of such party.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 Notices. All notices, requests and other communications hereunder must
be in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission against
facsimile confirmation or mailed by prepaid first class certified mail, return
receipt requested, or mailed by overnight courier prepaid, to the parties at the
following addresses or facsimile numbers:
If to Acquiror to:
Redback Networks Inc.
1310 Moffett Park Drive
Sunnyvale, CA 94089
(408) 548-0900 Phone
(408) 543-2196
Attention: Craig Gentner
with a copy to:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, California 94025
(650) 321-2400 Phone
(650) 321-2800 Facsimile
Attention: Renee Lanam
If to Target to:
Siara Systems, Inc.
300 Ferguson Drive
Mountain View, CA 94043
Attn: CEO
Phone: (650) 237-2165
Fax: (650) 390-8645
with a copy to:
Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA 94306
(650) 494-0600 Phone
(650) 494-1417 Facsimile
Attention: Barry J. Kramer, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 9.1, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided for in this Section 9.1, be deemed given upon facsimile confirmation,
(iii) if delivered by mail in the manner described above to the address as
provided for
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in this Section 9.1, be deemed given on the earlier of the third Business Day
following mailing or upon receipt and (iv) if delivered by overnight courier to
the address as provided in this Section 9.1, be deemed given on the earlier of
the first Business Day following the date sent by such overnight courier or upon
receipt (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section 9.1). Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other party
hereto.
9.2 Entire Agreement. This Agreement and the Exhibits and Schedules
hereto, including the Target Disclosure Schedule and the Acquiror Disclosure
Schedule, and all agreements required to be executed and delivered pursuant
hereto, constitute the entire agreement and understanding 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, except for the Confidentiality Agreement, which shall
continue in full force and effect and shall survive any termination of this
Agreement or the Closing in accordance with its terms.
9.3 Further Assurances; Post-Closing Cooperation. At any time or from time
to time after the Closing, the parties shall execute and deliver to the other
party such other documents and instruments, provide such materials and
information and take such other actions as the other party may reasonably
request to consummate the transactions contemplated by this Agreement and
otherwise to cause the other party to fulfill its obligations under this
Agreement and the transactions contemplated hereby. Each party agrees to use
diligent efforts to cause the conditions to its obligations to consummate the
Merger to be satisfied.
9.4 Waiver. Any term or condition of this Agreement may be waived at any
time by the party that is entitled to the benefit thereof, but no such waiver
shall be effective unless set forth in a written instrument duly executed by or
on behalf of the party waiving such term or condition. No waiver by any party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. All remedies, either under this
Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
9.5 Third Party Beneficiaries. The terms and provisions of this Agreement
are intended solely for the benefit of each party hereto and their respective
successors or permitted assigns, and it is not the intention of the parties to
confer third-party beneficiary rights, and this Agreement does not confer any
such rights, upon any other Person.
9.6 No Assignment; Binding Effect. Neither this Agreement nor any right,
interest or obligation hereunder may be assigned (by operation of law or
otherwise) by any party without the prior written consent of the other party and
any attempt to do so will be void. Subject to the preceding sentence, this
Agreement is binding upon, inures to the benefit of and is enforceable by the
parties hereto and their respective successors and assigns.
9.7 Headings. The headings and table of contents used in this Agreement
have been inserted for convenience of reference only and do not define or limit
the provisions hereof.
9.8 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or future Law, and if the
rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid or
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unenforceable provision or by its severance herefrom and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically
as a part of this Agreement a legal, valid and enforceable provision as similar
in terms to such illegal, invalid or unenforceable provision as may be possible.
9.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of California and the DGCL,
without giving effect to any choice of law or conflict of law provision or rule
that would cause the application of the laws of any other jurisdiction.
9.10 Construction. Ambiguities in this Agreement, if any, shall not be
construed strictly or in favor of or against any party hereto but rather shall
be given a fair and reasonable construction.
9.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.12 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. Except where this Agreement specifically provides for arbitration, it
is 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.
ARTICLE 10
DEFINITIONS
10.1 Definitions.
(a) As used in this Agreement, the following defined terms shall have the
meanings indicated below:
"Acquiror" has the meaning ascribed to it in the forepart of this
Agreement.
"Acquiror Common Stock" has the meaning ascribed to it in Recital C.
"Acquiror Financial Statements" has the meaning ascribed to it in
Section 3.3.
"Acquiror Support Agreement" has the meaning ascribed to it in Recital
D.
"Acquisition Proposal -- Acquiror" has the meaning ascribed to it in
Section 7.3(a).
"Acquisition Proposal -- Target" has the meaning ascribed to it in
Section 7.2(a).
"Actions or Proceedings" means any action, suit, complaint, petition,
investigation, proceeding, arbitration, litigation or Governmental or
Regulatory Authority investigation, audit or other proceeding, whether
civil or criminal, in law or in equity, or before any arbitrator or
Governmental Regulatory Authority.
"Affiliate" means, as applied to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control
with, that Person, or (b) any other Person that owns or controls (i) twenty
percent (20%) or more of any class of voting equity securities of that
Person or any of its Affiliates or (ii) twenty percent (20%) or more of any
class of voting
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equity securities (including any equity securities issuable upon the
exercise of any option or convertible security) of that Person or any of
its Affiliates. For the purposes of this definition, "control" (including
with correlative meanings, the terms "controlling", "controlled by", and
"under common control with") as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through
ownership of voting securities or by contract or otherwise.
"Agreement" means this Merger Agreement and Plan of Reorganization,
including (unless the context otherwise requires) the Exhibits and
Schedules hereto and the certificates and instruments delivered in
connection herewith, or incorporated by reference, as the same may be
amended or supplemented from time to time in accordance with the terms
hereof.
"Ancillary Agreements" has the meaning ascribed to it in Section 2.2.
"Approval" means any approval, authorization, consent, permit,
qualification or registration, or any waiver of any of the foregoing,
required to be obtained from or made with, or any notice, statement or
other communication required to be filed with or delivered to, any
Governmental or Regulatory Authority or any other Person.
"Assets and Properties" of any Person means all assets and properties
of every kind, nature, character and description (whether real, personal or
mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the
goodwill related thereto, operated, owned, licensed or leased by such
Person, including cash, cash equivalents, Investment Assets, accounts and
notes receivable, chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods and Intellectual
Property.
"Associate" means, with respect to any Person, any corporation or
other business organization of which such Person is an officer or partner
or is the beneficial owner, directly or indirectly, of twenty percent (20%)
or more of any class of voting equity securities, any trust or estate in
which such Person has a substantial beneficial interest or as to which such
Person serves as a trustee or in a similar capacity and any relative or
spouse of such Person, or any relative of such spouse, who has the same
home as such Person.
"Books and Records" means all files, documents, instruments, papers,
books and records relating to the Business or Condition of such party,
including financial statements, internal reports, Tax Returns and related
work papers and letters from accountants, budgets, pricing guidelines,
ledgers, journals, deeds, title policies, minute books, stock certificates
and books, stock transfer ledgers, Contracts, Licenses, customer lists,
computer files and programs (including data processing files and records),
retrieval programs, operating data and plans and environmental studies and
plans.
"Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of California are authorized or obligated
to close.
"Business or Condition" means, with respect to Acquiror, the business,
condition (financial or otherwise), results of operations or Assets and
Properties of Acquiror and each of its Subsidiaries, taking Acquiror
together with such Subsidiaries as a whole, and, with respect to Target,
the business, condition, results of operations or Assets and Properties of
Target and Target Subsidiary, taking Target together with Target Subsidiary
as a whole.
"California Code" means the California Corporations Code and all
amendments and additions thereto.
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"Certificates" has the meaning ascribed to it in Section 1.8(b).
"Closing" means the closing of the transactions contemplated by
Section 1.2.
"Closing Date" has the meaning ascribed to it in Section 1.2.
"Closing Price" has the meaning ascribed to it in Section 1.6(f).
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1986, as amended.
"Consideration" means 31,341,986 shares of Acquiror Common Stock.
"Contract" means any material contract, including:
(a) any distributor, sales, advertising, agency or manufacturer's
representative contract;
(b) any continuing contract for the purchase of materials,
supplies, equipment or services involving in the case of any such
contact more than two hundred thousand dollars ($200,000) over the life
of the contract;
(c) any trust indenture, mortgage, promissory note, loan agreement
or other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction of
the type required to be capitalized in accordance with generally
accepted accounting principles;
(d) any contract for unexpended capital expenditures in excess of
two hundred thousand dollars ($200,000) in the aggregate;
(e) any contract limiting the freedom of such party to engage in
any line of business or to compete with any other Person as that term is
defined in the Exchange Act, as defined herein, or any confidentiality,
secrecy or non-disclosure contract;
(f) any contract pursuant to which such party is a lessor of any
machinery, equipment, motor vehicles, office furniture, fixtures or
other personal property;
(g) any contract with any person with whom such party does not deal
at arm's length; or
(h) any agreement of guarantee, support, indemnification,
assumption or endorsement of, or any similar commitment with respect to,
the obligations, liabilities (whether accrued, absolute, contingent or
otherwise) or indebtedness of any other Person.
"DGCL" means the General Corporation Law of the State of Delaware.
"Delaware Certificate of Merger" has the meaning set forth in Section
1.2.
"Depositary Agent" has the meaning ascribed to it in Section 1.8(b).
"Dissenting Shares" has the meaning ascribed to it in Section 1.7(a).
"Effective Time" has the meaning ascribed to it in Section 1.2.
"Environment" means air, surface water, ground water, or land,
including land surface or subsurface, and any receptors such as persons,
wildlife, fish, biota or other natural resources.
"Environmental Clean-up Site" means any location which is listed or
proposed for listing on the National Priorities List, the Comprehensive
Environmental Response, Compensation and
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Liability Information System, or on any similar state list of sites
relating to investigation or cleanup, or which is the subject of any
pending or threatened action, suit, proceeding, or investigation related to
or arising from any location at which there has been a Release or
threatened or suspected Release of a Hazardous Material.
"Environmental Law" means any federal, state, local or foreign
environmental, health and safety or other Law relating to of Hazardous
Materials, including the Comprehensive, Environmental Response Compensation
and Liability Act, the Clean Air Act, the Federal Water Pollution Control
Act, the Solid Waste Disposal Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the California Safe Drinking Water and Toxic
Enforcement Act.
"Environmental Permit" means any permit, license, approval, consent or
authorization required under or in connection with any Environmental Law
and includes without limitation any and all orders, consent orders or
binding agreements issued or entered into by a Governmental or Regulatory
Authority.
"Equity Equivalents" means securities (including Options to purchase
any shares of Target Capital Stock) which, by their terms, are or may be
exercisable, convertible or exchangeable for or into common stock,
preferred stock or other equity securities of Target at the election of the
holder thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"ERISA Affiliate" means each person (as defined in section 3(9) of
ERISA) that, together with Target, would be treated as a single employer
under section 4001(b) of ERISA or that would be deemed to be a member of
the same "controlled group" within the meaning of section 414(b) or (c) of
the Internal Revenue Code.
"Escrow Amount" means 5% of Consideration paid to Target Stockholders.
"Escrow Fund" has the meaning ascribed to it in Section 6.2(a).
"Escrow Period" has the meaning ascribed to it in Section 6.2(c).
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the SEC thereunder.
"Exchange Agent" means U.S. Stock Transfer Corporation.
"Exchange Ratio" has the meaning ascribed to it in Section 1.6(e).
"Expiration Date" shall mean the date 180 days after the Effective
Time.
"Financial Statement Date" means September 30, 1999.
"GAAP" means generally accepted accounting principles in the United
States, as in effect from time to time.
"Good Faith Consultation" with a Person's independent accountants, as
used in Sections 2.23 and 3.22 of this Agreement, means consultation with
such accountants following disclosure in good faith to such accountants of
all facts requested by such accountants or which the specified Person
otherwise had reason to believe would be relevant to such accountants'
assessment.
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"Governmental or Regulatory Authority" means any court, tribunal,
arbitrator, authority, agency, bureau, board, commission, department,
official or other instrumentality of the United States, any foreign country
or any domestic or foreign state, county, city or other political
subdivision, and shall include any stock exchange, quotation service and
the National Association of Securities Dealers.
"Hazardous Material" means (a) any chemical, material, substance or
waste including, containing or constituting petroleum or petroleum
products, solvents (including chlorinated solvents), nuclear or radioactive
materials, asbestos in any form that is or could become friable, radon,
lead-based paint, urea formaldehyde foam insulation or polychlorinated
biphenyls, (b) any chemicals, materials, substances or wastes which are now
defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous wastes,"
"restricted hazardous wastes," "toxic substances," "toxic pollutants" or
words of similar import under any Environmental Law; or (c) any other
chemical, material, substance or waste which is regulated by any
Governmental or Regulatory Authority or which could constitute a nuisance.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the regulations promulgated thereunder.
"Indebtedness" of any Person means all obligations of such Person (a)
for borrowed money, (b) evidenced by notes, bonds, debentures or similar
instruments, (c) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business), (d) under capital leases and (e) in the nature of guarantees of
the obligations described in clauses (a) through (d) above of any other
Person.
"Intellectual Property" means all trademarks and trademark rights,
trade names and trade name rights, service marks and service mark rights,
service names and service name rights, patents and patent rights, utility
models and utility model rights, copyrights, moral rights, mask work
rights, brand names, trade dress, product designs, product packaging,
business and product names, logos, slogans, rights of publicity, trade
secrets, inventions (whether patentable or not), invention disclosures,
improvements, processes, formulae, industrial models, processes, designs,
specifications, technology, methodologies, computer software (including all
source code and object code), firmware, development tools, flow charts,
annotations, all Web addresses, sites and domain names, all data bases and
data collections and all rights therein, any other confidential and
proprietary right or information, whether or not subject to statutory
registration, and all related technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications
for and registrations of patents, utility models, trademarks, service marks
and copyrights, and the right to sue for past infringement, if any, in
connection with any of the foregoing, and all documents, disks, records,
files and other media on which any of the foregoing is stored.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, and the rules and regulations promulgated thereunder.
"Investment Assets" means all debentures, notes and other evidences of
Indebtedness, stocks, securities (including rights to purchase and
securities convertible into or exchangeable for other securities),
interests in joint ventures and general and limited partnerships, mortgage
loans and other investment or portfolio assets owned of record or
beneficially by Target or Target Subsidiary.
"IRS" means the United States Internal Revenue Service or any
successor entity.
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"Law" or "Laws" means any law, statute, order, decree, consent decree,
judgment, rule, regulation, ordinance or other pronouncement having the
effect of law whether in the United States, any foreign country, or any
domestic or foreign state, county, city or other political subdivision or
of any Governmental or Regulatory Authority.
"Liabilities" means all Indebtedness, obligations and other
liabilities of a Person, whether absolute, accrued, contingent (or based
upon any contingency), known or unknown, fixed or otherwise, or whether due
or to become due.
"License" means any Contract that grants a Person the right to use or
otherwise enjoy the benefits of any Intellectual Property (including any
covenants not to sue with respect to any Intellectual Property).
"Liens" means any mortgage, pledge, assessment, security interest,
lease, lien, easement, license, covenant, condition, restriction, adverse
claim, levy, charge, option, equity, adverse claim or restriction or other
encumbrance of any kind, or any conditional sale Contract, title retention
Contract or other Contract to give any of the foregoing, except for any
restrictions on transfer generally arising under any applicable federal or
state securities law.
"Loss(es)" means any and all damages, payments, fines, fees, Taxes,
penalties, deficiencies, losses (including lost profits or diminution in
value), liabilities, expenses, reasonable expenses of investigation, court
costs, reasonable fees and expenses of attorneys, accountants and other
experts or other expenses of litigation or other proceedings or of any
claim, default or assessment (such fees and expenses to include all fees
and expenses, including, but not limited to, fees and expenses of
attorneys), incurred in connection with any breach, violation, default or
inaccuracy of Target's representations and warranties contained in this
Agreement.
"Material Adverse Effect" when used with reference to any entity or
group of related entities, means any event, change or effect that is (or
will with the passage of time be) materially adverse to the condition
(financial or otherwise), properties, assets, liabilities, business,
operations or results of operations of such entity and its subsidiaries,
taken as a whole.
"Merger" has the meaning ascribed to it in the recitals to this
Agreement.
"NASD" means the National Association of Securities Dealers, Inc.
"NNM" means the distinct tier of The Nasdaq Stock Market referred to
as the Nasdaq National Market.
"Non-Competition Agreement" has the meaning ascribed to it in Section
6.3(f).
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any
shares of capital stock or other equity interests of such Person or any
security of any kind convertible into or exchangeable or exercisable for
any shares of capital stock or other equity interests of such Person or
(ii) receive any benefits or rights similar to any rights enjoyed by or
accruing to the holder of shares of capital stock or other equity interests
of such Person, including any rights to participate in the equity, income
or election of directors or officers of such Person.
"Order" means any writ, judgment, decree, injunction or similar order
of any Governmental or Regulatory Authority (in each such case whether
preliminary or final).
"PBGC" means the Pension Benefit Guaranty Corporation established
under ERISA.
A-62
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"Permit" means any license, permit, franchise or authorization.
"Person" means any natural person, corporation, general partnership,
limited partnership, limited liability Target or partnership,
proprietorship, other business organization, trust, union, association or
Governmental or Regulatory Authority.
"Proxy Statement" has the meaning ascribed to it in Section 2.26.
"PTO" means the United States Patent and Trademark Office.
"Registered Intellectual Property" shall mean all United States,
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks and servicemarks,
applications to register trademarks and servicemarks, intent-to-use
applications, other registrations or applications to trademarks or
servicemarks, or trademarks or servicemarks in which common law rights are
owned or otherwise controlled; (iii) registered copyrights and applications
for copyright registration; (iv) any mask work registrations and
applications to register mask works; and (v) any other Intellectual
Property that is the subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any
state, government or other public legal authority.
"S-4 Registration Statement" has the meaning ascribed to it in Section
2.26.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, dumping or disposing
of a Hazardous Material into the Environment.
"Representatives" has the meaning ascribed to it in Section 7.2.
"Restricted Stock Purchase Agreement" means a Restricted Stock
Purchase Agreement in one of the forms attached to Target Stock Plan
pursuant to which Target has sold Target Restricted Stock or as may
otherwise been entered into by Target prior to the date of this Agreement.
"SEC" means the Securities and Exchange Commission or any successor
entity.
"SEC Documents" means, with respect to any Person, each report,
schedule, form, statement or other document filed with the SEC by such
Person pursuant to Section 13(a) and 15(d) of the Exchange Act and all
final and effective registration statements and prospectuses filed by such
Person with the SEC pursuant to the Securities Act.
"Section 2.3 Loss(es)" means Losses arising or resulting directly from
any breach, violation, default or inaccuracy of Target's representations
and warranties set forth in Section 2.3 of this Agreement (as qualified by
the Target Disclosure Schedule, as such may be updated at the Closing Date
and prior to the Effective Time, as provided in Article 5).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Site" means any of the real properties currently or previously owned,
leased, occupied, used or operated by Target or Target Subsidiary, any
predecessors of Target or Target Subsidiary, or any entities previously
owned by Target or Target Subsidiary, including all soil, subsoil, surface
waters and groundwater.
"Stockholder Agent" has the meaning ascribed to it in Section
6.2(h)(i).
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"Subsidiary" means, in addition to Target Subsidiary, any Person in
which Target or Acquiror, as the context requires, directly or indirectly
through Subsidiaries or otherwise, beneficially owns at least 50% of either
the equity interest in, or the voting control of, such Person, whether or
not existing on the date hereof.
"Surviving Corporation" has the meaning ascribed to it in Section 1.1.
"Target" has the meaning ascribed to it in the forepart of this
Agreement.
"Target Capital Stock" means Target Common Stock and Target Preferred
Stock.
"Target Common Stock" has the meaning ascribed to it in Section 2.3.
"Target Equity Securities" means Target Options and Target Warrants,
collectively.
"Target Financials" means the audited consolidated balance sheets of
Target as of September 30, 1999 and the related audited consolidated
statements of operations, stockholders' equity and cash flows for the
fiscal year then ended, including the notes thereto.
"Target 401(k) Plan" means Target's 401(k) Plan.
"Target Intellectual Property" shall mean the Intellectual Property
that is (i) owned by; (ii) licensed to; or (iii) was developed or created
by or for Target or Target Subsidiary, and is used in or necessary for the
conduct of the present or anticipated business of Target or Target
Subsidiary, taken as a whole.
"Target Option" means any Option to purchase Target Capital Stock,
whether or not granted pursuant to Target Stock Plan, that is granted to an
employee, consultant or other individual service provider of Target or
Target Subsidiary.
"Target Preferred Stock" has the meaning ascribed to it in Section
2.3.
"Target Registered Intellectual Property" means all Registered
Intellectual Property owned by, or filed in the name of, Target or Target
Subsidiary.
"Target Restricted Stock" means shares of Target Capital Stock which
are subject to a repurchase option by Target.
"Target Stockholder Meeting" has the meaning ascribed to it in Section
2.26.
"Target Stock Plan" has the meaning ascribed to it in Section
1.6(c)(i).
"Target Warrant" means each Target warrant to purchase Target Capital
Stock (if any) listed or required to be listed in Section 2.3 of the Target
Disclosure Schedule.
"Target Subsidiary" has the meaning ascribed to it in Section 2.4.
"Tax" or "Taxes" means Income Taxes and/or Other Taxes, as the context
requires.
"Tax Authority" has the meaning ascribed to it in Section 2.10(c).
"Tax Returns" means any return, report, information return, schedule,
certificate, statement or other document (including any related or
supporting information) filed or required to be filed with, or, where none
is required to be filed with a Taxing Authority, the statement or other
document issued by, a Taxing Authority in connection with any Tax.
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"Taxing Authority" means any governmental agency, board, bureau, body,
department or authority of any United States federal, state or local
jurisdiction or any foreign jurisdiction, having or purporting to exercise
jurisdiction with respect to any Tax.
"Third Party Claim" has the meaning ascribed to it in Section 6.2(j).
"Third Party Expenses" has the meaning ascribed to it in Section 4.5.
(b) Unless the context of this Agreement otherwise requires, (i) words of
any gender include each other gender, (ii) words using the singular or plural
number also include the plural or singular number, respectively, (iii) the terms
"hereof," "herein," "hereby" and derivative or similar words refer to this
entire Agreement as a whole and not to any particular Article, Section or other
subdivision, (iv) the terms "Article" or "Section" or other subdivision refer to
the specified Article, Section or other subdivision of the body of this
Agreement, (v) the phrases "ordinary course of business" and "ordinary course of
business consistent with past practice" refer to the business and practice of
Target, (vi) the words "include," "includes" and "including" shall be deemed to
be followed by the phrase "without limitation," and (vii) when a reference is
made in this Agreement to Exhibits, such reference shall be to an Exhibit to
this Agreement unless otherwise indicated. All accounting terms used herein and
not expressly defined herein shall have the meanings given to them under GAAP.
The term "party" or "parties" when used herein refer to Acquiror, on the one
hand, and Target, on the other.
(c) When used herein, the phrase "to the knowledge of" any Person, "to the
best knowledge of" any Person, "known to" any Person or any similar phrase,
means (i) with respect to any Person who is an individual, the actual knowledge
of such Person, and (ii) with respect to any other Person, the actual knowledge
of the directors and officers of such Person and other individuals that have a
similar position or have similar powers and duties as the officers and directors
of such Person.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, Acquiror and Target have caused this Agreement to be
signed by their duly authorized representatives, all as of the date first
written above.
<TABLE>
<S> <C>
ACQUIROR TARGET
By: By:
--------------------------------------- ---------------------------------------
President and Chief Executive Officer President and Chief Executive Officer
</TABLE>
A-66
<PAGE> 250
EXHIBIT A
IRREVOCABLE PROXY
AND
VOTING AGREEMENT
THIS IRREVOCABLE PROXY AND VOTING AGREEMENT, dated as of November 28, 1999
(this "Agreement"), is entered into by and between Siara Systems, Inc., a
Delaware corporation ("Siara"), and ("Stockholder").
WITNESSETH:
WHEREAS, concurrently herewith, Siara and Redback Networks Inc., a Delaware
corporation (the "Company"), have entered into a Merger Agreement and Plan of
Reorganization, of even date herewith (as such agreement may hereafter be
amended from time to time, the "Merger Agreement"; initially capitalized and
other terms used but not defined herein shall have the meanings ascribed to them
in the Merger Agreement), pursuant to which Siara will merge with and into the
Company, with the Company to be the surviving corporation (the "Merger");
WHEREAS, Stockholder Beneficially Owns (as defined herein)
shares of the Company's Common Stock and options to purchase the
Company's Common Stock, par value $0.0001 ("Company Common Stock") (such shares
of Company Common Stock Beneficially Owned by Stockholder being collectively
hereinafter referred to as the "Shares");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Siara has requested that Stockholder agree, and Stockholder has
agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Voting Agreement. Stockholder hereby agrees with Siara that, (except as
may be otherwise agreed to in writing by Siara with the Company or Stockholder)
at any meeting of the Company's stockholders, however called, or in connection
with any written consent of the Company's stockholders, as to which any of the
matters described below in this Section 1 is put to the vote or written consent
of the Company's stockholders, Stockholder shall vote the Shares Beneficially
Owned by Stockholder, whether now owned or hereafter acquired prior to such
vote: (i) in favor of approval of the Merger Agreement, the Merger and any
actions required in furtherance of the transactions contemplated thereby; (ii)
against any action or agreement that would result in a breach in any material
respect of (A) any representation or warranty of the Company under the Merger
Agreement that would have a Material Adverse Effect on the Company or (B) any
other agreement, covenant or obligation of the Company under the Merger
Agreement; and (iii) against: (A) any Third Party Acquisition (as defined
below), (B) any change in a majority of the individuals who, as of the date
hereof, constitute the Board of Directors of the Company, unless such change
results from an election to replace any such individual who ceases to be a
member of the Board of Directors of the Company due to such individual's death,
disability or resignation from the Company's Board of Directors for reasons
unrelated to any matter that Stockholder agrees to vote against hereunder, (C)
any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company and any Third Party (as defined
below), (D) a sale, lease, transfer or disposition of any assets of the
Company's business outside the ordinary course of business, or any
Exhibit A-1
<PAGE> 251
assets which are material to its business whether or not in the ordinary course
of business, (E) a reorganization, recapitalization, dissolution or liquidation
of the Company, (F) any change in the present capitalization of the Company or
any amendment of the Company's Certificate of Incorporation or bylaws not
contemplated by the Merger Agreement or not consented to in writing by Siara,
(G) any other material change in the Company's corporate structure other than
the approval of stock options disclosed in the Company's representations and
warranties in the Merger Agreement or in any Disclosure Schedule thereto) or any
other change materially affecting the Company's business, or (H) any other
action which is intended, or could reasonably be expected, to impede, interfere
with, delay, postpone or materially adversely affect the Merger or any of the
other transactions contemplated by the Merger Agreement, or any of the
transactions contemplated by this Agreement. Stockholder shall not enter into
any agreement or understanding with any person the effect of which would be
inconsistent or violative of the provisions and agreements contained herein.
For purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than Siara or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
any material portion (which shall include ten percent (10%) or more) of the
assets of the Company, other than the sale or license of its products in the
ordinary course of business; (iii) the acquisition by a Third Party of ten
percent (10%) or more of the outstanding shares of the Company's capital stock
(other than any such acquisition resulting from the exercise or conversion of
any stock option, stock warrant, convertible debt instrument and/or other
security of the Company that is outstanding on the date of this Agreement); (iv)
the adoption by the Company of a plan of liquidation or the declaration or
payment of an extraordinary dividend; (v) the repurchase by the Company of more
than ten percent (10%) of the outstanding Shares (other than pursuant to rights
of refusal or similar rights held by the Company as of the date of this
Agreement or pursuant to repurchase options held by the Company that are
exercisable in connection with the termination of a person's employment or
services with or to the Company or any of its subsidiaries); or (vi) the
acquisition (or any group of acquisitions) by the Company by merger, purchase of
stock or assets, joint venture or otherwise, of a direct or indirect ownership
interest or investment in any business (or businesses) whose annual revenues,
net income or assets is equal to or greater than ten percent (10%) of the most
recent annual revenues, net income or assets of the Company, respectively.
For purposes of this Agreement, "Beneficially Own," "Beneficially Owned" or
"Beneficial Ownership" with respect to any Shares shall mean Stockholder's
having record or beneficial ownership of such Shares or having, through any
agreement or arrangement, the power to direct the voting with respect to, or
otherwise enables Stockholder to legally act in a binding manner with respect
to, such Shares as contemplated hereby.
2. Irrevocable Proxy.
(a) Subject to the terms and conditions of this Agreement, the Stockholder
hereby constitutes and appoints Siara, which shall act by and through Vivek
Ragavan and Vinod Khosla (each, a "Proxy Holder"), or either of them, with full
power of substitution, its true and lawful proxy and attorney-in-fact to vote at
any meeting (and any adjournment or postponement thereof) of the Company's
stockholders called for purposes of considering whether to approve the Merger
Agreement, the Merger or any of the other transactions contemplated by the
Merger Agreement, or any Third Party Acquisition, or to execute a written
consent of stockholders in lieu of any such meeting, all Shares Beneficially
Owned by Stockholder as of the date of such meeting or written consent (i) in
favor of the approval of the Merger Agreement, the Merger and the other
transactions contemplated by the Merger Agreement, with such modifications to
the Merger Agreement as the parties thereto may make, or (ii) against a Third
Party Acquisition, as the case may be. Such proxy
Exhibit A-2
<PAGE> 252
shall be limited strictly to the power to vote the Shares Beneficially Owned by
Stockholder in the manner set forth in the preceding sentence and shall not
extend to any other matters, and shall, without limitation, not extend to any
power to vote the Shares in any manner with respect to any proposal to approve
any contract, agreement or arrangement that might constitute a "Parachute
Payment," within the meaning of Section 280G of the Internal Revenue Code and in
accordance with the requirements of Q&A Numbers 6 and 7 of the Treasury
Regulations promulgated thereunder.
(b) The proxy and power of attorney granted herein shall be irrevocable
during the term of this Agreement, shall be deemed to be coupled with an
interest sufficient in law to support an irrevocable proxy and shall revoke all
prior proxies granted by Stockholder. Stockholder shall not grant any proxy to
any person which conflicts with the proxy granted herein, and any attempt to do
so shall be void. The power of attorney granted herein is a durable power of
attorney and shall survive the death or incapacity of Stockholder.
(c) If Stockholder fails for any reason to vote his, her or its Shares in
accordance with the requirements of Section 1 hereof, then the Proxy Holder
shall have the right to vote the Shares at any meeting of the Company's
stockholders and in any action by written consent of the Company's stockholders
in accordance with the provisions of this Section 2. The vote of the Proxy
Holder shall control in any conflict between the Proxy Holder's vote of such
Shares and a vote by Stockholder of such Shares.
3. Director Matters Excluded. Siara acknowledges and agrees that no
provision of this Agreement (including without limitation the provisions of
Section 4(d) hereof) shall limit or otherwise restrict Stockholder with respect
to any act or omission that Stockholder may undertake or authorize in his
capacity as a director of the Company, including, without limitation, any vote
that Stockholder may make as a director of the Company with respect to any
matter presented to the Board of Directors of the Company.
4. Other Covenants, Representations and Warranties. Stockholder hereby
represents and warrants to Siara as follows:
(a) Ownership of Shares. Stockholder is the Beneficial Owner of all
the Shares. On the date hereof, the Shares constitute all of the Shares
Beneficially Owned by Stockholder. Stockholder has voting power with
respect to the matters set forth in Section 1 hereof with respect to all of
the Shares, with no limitations, qualifications or restrictions on such
rights.
(b) Power; Binding Agreement. Stockholder has the legal capacity,
power and authority to enter into and perform all of its obligations under
this Agreement. The execution, delivery and performance of this Agreement
by Stockholder will not violate any agreement or any court order to which
Stockholder is a party or is subject including, without limitation, any
voting agreement or voting trust. This Agreement has been duly and validly
executed and delivered by Stockholder.
(c) Restriction on Transfer, Proxies and Non-Interference. During the
term of this Agreement, except as expressly contemplated by this Agreement
or the Merger Agreement, Stockholder shall not, directly or indirectly: (i)
offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to, or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein unless the
transferee shall execute a signature page to this Irrevocable Proxy and
Voting Agreement and shall agree to be bound to the provisions hereof; (ii)
grant any proxies or powers of attorney or deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares; or (iii)
take any action that would make any representation or warranty of
Exhibit A-3
<PAGE> 253
Stockholder contained in this Section 4 untrue or incorrect or have the
effect of preventing or disabling Stockholder from performing any of
Stockholder's obligations under this Agreement.
(d) Other Potential Acquirors. Stockholder: (i) shall immediately
cease any existing discussions or negotiations, if any, with any persons
conducted heretofore with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, the Company, or any
business combination with the Company, in his, her or its capacity as a
stockholder of the Company; (ii) from and after the date hereof until the
earlier of (A) the termination of the Merger Agreement in accordance with
its terms and (B) the Effective Time, shall not, in such capacity as a
stockholder of the Company, directly or indirectly, initiate, solicit or
knowingly encourage (including, without limitation, by way of furnishing
non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any Third Party
Acquisition; and (iii) shall promptly notify Siara of any proposals for, or
inquiries with respect to, a potential Third Party Acquisition received by
Stockholder or of which Stockholder otherwise has knowledge.
(e) Reliance by Siara. Stockholder understands and acknowledges that
Siara is entering into the Merger Agreement in reliance upon Stockholder's
execution and delivery of this Agreement.
5. Stop Transfer. Stockholder agrees with, and covenants to, Siara that
Stockholder shall not request that the Company register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any
Shares, unless such transfer is made pursuant to and in compliance with this
Agreement. In the event of a dividend or distribution of capital stock of the
Company, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such shares of the Company's capital stock issued or distributed
pursuant to such stock dividends and distributions and any shares of the
Company's capital stock into which or for which any or all of the Shares may be
so changed or exchanged.
6. Termination. The proxy granted pursuant to Section 2 hereof and
Stockholder's covenants and agreements contained herein with respect to the
Shares shall terminate upon the earliest to occur of: (a) the termination of the
Merger Agreement and (b) the Effective Time.
7. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
(b) Assignment. This Agreement shall not be assigned by operation of law or
otherwise without the prior written consent of the other party; provided,
however, that Siara may, in its sole discretion, assign its rights and
obligations hereunder to any wholly-owned subsidiary of Siara.
(c) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto. No waiver by a
party hereto of any of its rights hereunder shall be effective unless and to the
extent such waiver is set forth in a writing signed by such party.
(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand
delivery, telecopy, or by mail (registered or certified mail, postage prepaid,
return receipt requested) or by any nationally-recognized overnight courier
service, such as Federal Express, providing proof of delivery. Any such notice
or communication shall be deemed to have been delivered and received (i) in the
case of hand delivery, on the date of such
Exhibit A-4
<PAGE> 254
delivery, (ii) in the case of telecopy, on the date sent if confirmation of
receipt is received and such notice is also promptly mailed by registered or
certified mail (return receipt requested), (iii) in the case of a
nationally-recognized overnight courier service, in circumstances under which
such courier guarantees next business day delivery, on the next business day
after the date when sent, and (iv) the case of mailing, on the third business
day following that on which the piece of mail containing such communication is
posted. All communications hereunder shall be delivered to the respective
parties at the following addresses:
<TABLE>
<S> <C>
If to Stockholder:
-----------------------------------------
-----------------------------------------
-----------------------------------------
Telephone:
Telecopier:
Attention:
with a copy to: Redback Networks Inc.
1389 Moffett Park Drive
Sunnyvale, CA 94089
Telecopier: 408-548-3599
Attention: Craig Gentner
If to Siara: Siara Systems, Inc.
300 Ferguson Drive, Second Floor
Mountain View, CA 94043
Telecopier: 650-237-2179
Attention: Vivek Ragavan
with a copy to: Fenwick & West, LLP
Two Palo Alto Square
Palo Alto, CA, 94036
Telecopier: (650) 494-1417
Attention: Barry J. Kramer
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the matter set forth above.
(e) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
(f) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damage for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
Exhibit A-5
<PAGE> 255
(g) No Waiver. The failure of any party hereto to exercise any right, power
or remedy provided under this Agreement or otherwise available in respect hereof
at law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(h) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
(i) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same Agreement.
[The Remainder of This Page Has Intentionally Been Left Blank]
Exhibit A-6
<PAGE> 256
IN WITNESS WHEREOF, Siara and Stockholder have caused this Agreement to be
duly executed as of the day and year first above written.
Siara Systems, Inc., a Delaware
corporation
By:
------------------------------------
Name:
Title:
STOCKHOLDER:
By:
------------------------------------
Name:
[SIGNATURE PAGE FOR REDBACK/SIARA STOCKHOLDER
IRREVOCABLE PROXY AND VOTING AGREEMENT]
Exhibit A-7
<PAGE> 257
EXHIBIT B
IRREVOCABLE PROXY
AND
VOTING AGREEMENT
THIS IRREVOCABLE PROXY AND VOTING AGREEMENT, dated as of November 28, 1999
(this "Agreement"), is entered into by and between Redback Networks Inc., a
Delaware corporation ("Redback"), and ("Stockholder").
WITNESSETH:
WHEREAS, concurrently herewith, Redback and Siara Systems, Inc., a Delaware
corporation (the "Company"), have entered into a Merger Agreement and Plan of
Reorganization, of even date herewith (as such agreement may hereafter be
amended from time to time, the "Merger Agreement"; initially capitalized and
other terms used but not defined herein shall have the meanings ascribed to them
in the Merger Agreement), pursuant to which the Company will merge with and into
Redback, with Redback to be the surviving corporation (the "Merger");
WHEREAS, Stockholder Beneficially Owns (as defined herein) the number of
shares of common stock, par value $.0001 ("Company Common Stock") of the Company
(the "Shares"), shares of Series A Preferred Stock, par value $0.001, of the
Company ("Company Preferred A Stock"), and shares of Series B Preferred Stock,
par value $0.001 ("Company Preferred B Stock"), of the Company as set forth on
the signature page to this Agreement (such shares of Company Common Stock,
Company Preferred A Stock and/or Company Preferred B Stock Beneficially Owned by
Stockholder and set forth on the signature page hereto being collectively
hereinafter referred to as the "Shares");
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Redback has requested that Stockholder agree, and Stockholder has
agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto hereby agree as follows:
1. Voting Agreement. Stockholder hereby agrees with Redback that, (except
as may be otherwise agreed to in writing by Redback with the Company or
Stockholder) at any meeting of the Company's stockholders, however called, or in
connection with any written consent of the Company's stockholders, as to which
any of the matters described below in this Section 1 is put to the vote or
written consent of the Company's stockholders, Stockholder shall vote the Shares
Beneficially Owned by Stockholder, whether now owned or hereafter acquired prior
to such vote: (i) in favor of approval of the Merger Agreement, the Merger and
any actions required in furtherance of the transactions contemplated thereby;
(ii) against any action or agreement that would result in a breach in any
material respect of (A) any representation or warranty of the Company under the
Merger Agreement that would have a Material Adverse Effect on the Company or (B)
any other agreement, covenant or obligation of the Company under the Merger
Agreement; (iii) against: (A) any Third Party Acquisition (as defined below),
(B) any change in a majority of the individuals who, as of the date hereof,
constitute the Board of Directors of the Company, unless such change results
from an election to replace any such individual who ceases to be a member of the
Board of Directors of the Company due to such individual's death, disability or
resignation from the Company's Board of Directors for
Exhibit B-1
<PAGE> 258
reasons unrelated to any matter that Stockholder agrees to vote against
hereunder, (C) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company and any Third
Party (as defined below), (D) a sale, lease, transfer or disposition of any
assets of the Company's business outside the ordinary course of business, or any
assets which are material to its business whether or not in the ordinary course
of business, (E) a reorganization, recapitalization, dissolution or liquidation
of the Company, (F) any change in the present capitalization of the Company or
any amendment of the Company's Certificate of Incorporation or bylaws not
contemplated by the Merger Agreement or not consented to in writing by Redback,
(G) any other material change in the Company's corporate structure (other than
the approval of stock options disclosed in the Company's representations and
warranties in the Merger Agreement or in any Disclosure Schedule thereto) or any
other change materially affecting the Company's business, or (H) any other
action which is intended, or could reasonably be expected, to impede, interfere
with, delay, postpone or materially adversely affect the Merger or any of the
other transactions contemplated by the Merger Agreement, or any of the
transactions contemplated by this Agreement; and (iv) if such Stockholder is a
holder of shares of Company Preferred A Stock or Company Preferred B Stock, in
favor of the conversion of the Company Preferred A Stock or Company Preferred B
Stock, respectively, into shares of Company Common Stock. If the Company
Preferred A Stock and/or the Company Preferred B Stock is not converted
automatically by their terms prior to the Effective Time, then by no later than
immediately prior to the Effective Time, Stockholder shall convert all shares of
Company Preferred A Stock or Company Preferred B Stock owned by such Stockholder
into shares of the Company's Common Stock. Stockholder shall not enter into any
agreement or understanding with any person the effect of which would be
inconsistent or violative of the provisions and agreements contained herein.
For purposes of this Agreement, "Third Party Acquisition" means the
occurrence of any of the following events: (i) the acquisition of the Company by
merger or otherwise by any person (which includes a "person" as such term is
defined in Section 13(d)(3) of the Exchange Act) other than Redback or any
affiliate thereof (a "Third Party"); (ii) the acquisition by a Third Party of
any material portion (which shall include ten percent (10%) or more) of the
assets of the Company, other than the sale or license of its products in the
ordinary course of business; (iii) the acquisition by a Third Party of ten
percent (10%) or more of the outstanding shares of the Company's capital stock
(other than any such acquisition resulting from the exercise or conversion of
any stock option, stock warrant, convertible debt instrument and/or other
security of the Company that is outstanding on the date of this Agreement); (iv)
the adoption by the Company of a plan of liquidation or the declaration or
payment of an extraordinary dividend; (v) the repurchase by the Company of more
than ten percent (10%) of the outstanding Shares (other than pursuant to rights
of refusal or similar rights held by the Company as of the date of this
Agreement or pursuant to repurchase options held by the Company that are
exercisable in connection with the termination of a person's employment or
services with or to the Company or any of its subsidiaries); or (vi) the
acquisition (or any group of acquisitions) by the Company by merger, purchase of
stock or assets, joint venture or otherwise, of a direct or indirect ownership
interest or investment in any business (or businesses) whose annual revenues,
net income or assets is equal or greater than ten percent (10%) of the most
recent annual revenues, net income or assets of the Company, respectively.
For purposes of this Agreement, "Beneficially Own," "Beneficially Owned" or
"Beneficial Ownership" with respect to any Shares shall mean Stockholder's
having record or beneficial ownership of such Shares or having, through any
agreement or arrangement, the power to direct the voting with respect to, or
otherwise enables Stockholder to legally act in a binding manner with respect
to, such Shares as contemplated hereby.
Exhibit B-2
<PAGE> 259
2. Irrevocable Proxy.
(a) Subject to the terms and conditions of this Agreement, the Stockholder
hereby constitutes and appoints Redback, which shall act by and through Dennis
Barsema and Craig Gentner (each, a "Proxy Holder"), or either of them, with full
power of substitution, its true and lawful proxy and attorney-in-fact to vote at
any meeting (and any adjournment or postponement thereof) of the Company's
stockholders called for purposes of considering whether to approve the Merger
Agreement, the Merger or any of the other transactions contemplated by the
Merger Agreement, or any Third Party Acquisition, or to execute a written
consent of stockholders in lieu of any such meeting, all Shares Beneficially
Owned by Stockholder as of the date of such meeting or written consent (i) in
favor of the approval of the Merger Agreement, the Merger and the other
transactions contemplated by the Merger Agreement, with such modifications to
the Merger Agreement as the parties thereto may make, or (ii) against a Third
Party Acquisition, as the case may be. Such proxy shall be limited strictly to
the power to vote the Shares Beneficially Owned by Stockholder in the manner set
forth in the preceding sentence and shall not extend to any other matters, and
shall, without limitation, not extend to any power to vote the Shares in any
manner with respect to any proposal to approve any contract, agreement or
arrangement that might constitute a "Parachute Payment," within the meaning of
Section 280G of the Internal Revenue Code and in accordance with the
requirements of Q&A Numbers 6 and 7 of the Treasury Regulations promulgated
thereunder.
(b) The proxy and power of attorney granted herein shall be irrevocable
during the term of this Agreement, shall be deemed to be coupled with an
interest sufficient in law to support an irrevocable proxy and shall revoke all
prior proxies granted by Stockholder. Stockholder shall not grant any proxy to
any person which conflicts with the proxy granted herein, and any attempt to do
so shall be void. The power of attorney granted herein is a durable power of
attorney and shall survive the death or incapacity of Stockholder.
(c) If Stockholder fails for any reason to vote his, her or its Shares in
accordance with the requirements of Section 1 hereof, then the Proxy Holder
shall have the right to vote the Shares at any meeting of the Company's
stockholders and in any action by written consent of the Company's stockholders
in accordance with the provisions of this Section 2. The vote of the Proxy
Holder shall control in any conflict between the Proxy Holder's vote of such
Shares and a vote by Stockholder of such Shares.
3. Director Matters Excluded. Redback acknowledges and agrees that no
provision of this Agreement (including without limitation the provisions of
Section 4(d) hereof) shall limit or otherwise restrict Stockholder with respect
to any act or omission that Stockholder may undertake or authorize in his
capacity as a director of the Company, including, without limitation, any vote
that Stockholder may make as a director of the Company with respect to any
matter presented to the Board of Directors of the Company.
4. Other Covenants, Representations and Warranties. Stockholder hereby
represents and warrants to Redback as follows:
(a) Ownership of Shares. Stockholder is the Beneficial Owner of all
the Shares. On the date hereof, the Shares constitute all of the Shares
Beneficially Owned by Stockholder. Stockholder has voting power with
respect to the matters set forth in Section 1 hereof with respect to all of
the Shares, with no limitations, qualifications or restrictions on such
rights.
(b) Power; Binding Agreement. Stockholder has the legal capacity,
power and authority to enter into and perform all of its obligations under
this Agreement. The execution, delivery and performance of this Agreement
by Stockholder will not violate any agreement or any court order to which
Stockholder is a party or is subject including, without limitation, any
voting agreement
Exhibit B-3
<PAGE> 260
or voting trust. This Agreement has been duly and validly executed and
delivered by Stockholder.
(c) Restriction on Transfer, Proxies and Non-Interference. During the
term of this Agreement, except as expressly contemplated by this Agreement
or the Merger Agreement, Stockholder shall not, directly or indirectly: (i)
offer for sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to, or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein unless the
transferee shall execute a signature page to this Irrevocable Proxy and
Voting Agreement and shall agree to be bound to the provisions hereof; (ii)
grant any proxies or powers of attorney or deposit any Shares into a voting
trust or enter into a voting agreement with respect to any Shares; or (iii)
take any action that would make any representation or warranty of
Stockholder contained in this Section 4 untrue or incorrect or have the
effect of preventing or disabling Stockholder from performing any of
Stockholder's obligations under this Agreement.
(d) Other Potential Acquirors. Stockholder: (i) shall immediately
cease any existing discussions or negotiations, if any, with any persons
conducted heretofore with respect to any acquisition of all or any material
portion of the assets of, or any equity interest in, the Company, or any
business combination with the Company, in his, her or its capacity as a
stockholder of the Company; (ii) from and after the date hereof until the
earlier of (A) the termination of the Merger Agreement in accordance with
its terms and (B) the Effective Time, shall not, in such capacity as a
stockholder of the Company, directly or indirectly, initiate, solicit or
knowingly encourage (including, without limitation, by way of furnishing
non-public information or assistance), or take any other action to
facilitate knowingly, any inquiries or the making of any Third Party
Acquisition; and (iii) shall promptly notify Redback of any proposals for,
or inquiries with respect to, a potential Third Party Acquisition received
by Stockholder or of which Stockholder otherwise has knowledge.
(e) Reliance by Redback. Stockholder understands and acknowledges that
Redback is entering into the Merger Agreement in reliance upon
Stockholder's execution and delivery of this Agreement.
5. Stop Transfer. Stockholder agrees with, and covenants to, Redback that
Stockholder shall not request that the Company register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any
Shares, unless such transfer is made pursuant to and in compliance with this
Agreement. In the event of a dividend or distribution of capital stock of the
Company, or any change in the Company Common Stock by reason of any stock
dividend, split-up, recapitalization, combination, exchange of shares or the
like, the term "Shares" shall be deemed to refer to and include the Shares as
well as all such shares of the Company's capital stock issued or distributed
pursuant to such stock dividends and distributions and any shares of the
Company's capital stock into which or for which any or all of the Shares may be
so changed or exchanged.
6. Termination. The proxy granted pursuant to Section 2 hereof and
Stockholder's covenants and agreements contained herein with respect to the
Shares shall terminate upon the earliest to occur of: (a) the termination of the
Merger Agreement and (b) the Effective Time.
7. Miscellaneous.
(a) Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supersedes all
other prior agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
Exhibit B-4
<PAGE> 261
(b) Assignment. This Agreement shall not be assigned by operation of law or
otherwise without the prior written consent of the other party; provided,
however, that Redback may, in its sole discretion, assign its rights and
obligations hereunder to any wholly-owned subsidiary of Redback.
(c) Amendments, Waivers, Etc. This Agreement may not be amended, changed,
supplemented or otherwise modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties hereto. No waiver by a
party hereto of any of its rights hereunder shall be effective unless and to the
extent such waiver is set forth in a writing signed by such party.
(d) Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by hand
delivery, telecopy, or by mail (registered or certified mail, postage prepaid,
return receipt requested) or by any nationally-recognized overnight courier
service, such as Federal Express, providing proof of delivery. Any such notice
or communication shall be deemed to have been delivered and received (i) in the
case of hand delivery, on the date of such delivery, (ii) in the case of
telecopy, on the date sent if confirmation of receipt is received and such
notice is also promptly mailed by registered or certified mail (return receipt
requested), (iii) in the case of a nationally-recognized overnight courier
service, in circumstances under which such courier guarantees next business day
delivery, on the next business day after the date when sent, and (iv) the case
of mailing, on the third business day following that on which the piece of mail
containing such communication is posted. All communications hereunder shall be
delivered to the respective parties at the following addresses:
<TABLE>
<S> <C>
If to Stockholder: -------------------------------------------
-------------------------------------------
-------------------------------------------
Telephone:
Telecopier:
Attention:
with a copy to: Siara Systems, Inc.
300 Ferguson Drive, Second Floor
Mountain View, CA 94043
Telecopier: 650-237-2179
Attention: Vivek Ragavan
If to Redback: Redback Networks Inc.
1389 Moffett Park Drive
Sunnyvale, CA 94089
Telecopier: 408-548-3599
Attention: Craig Gentner
with a copy to: Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian LLP
155 Constitution Drive
Menlo Park, CA 94025
Telecopier: (650) 321-2800
Attention: Rene F. Lanam
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the matter set forth above.
Exhibit B-5
<PAGE> 262
(e) Severability. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
(f) Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damage for which it would
not have an adequate remedy at law for money damages, and therefore each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(g) No Waiver. The failure of any party hereto to exercise any right, power
or remedy provided under this Agreement or otherwise available in respect hereof
at law or in equity, or to insist upon compliance by any other party hereto with
its obligations hereunder, and any custom or practice of the parties at variance
with the terms hereof, shall not constitute a waiver by such party of its right
to exercise any such or other right, power or remedy or to demand such
compliance.
(h) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of Delaware, without giving effect to the
principles of conflicts of law thereof.
(i) Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original, but all of which, taken together, shall
constitute one and the same Agreement.
[The Remainder of this Page Has Intentionally Been Left Blank]
Exhibit B-6
<PAGE> 263
IN WITNESS WHEREOF, Redback and Stockholder have caused this Agreement to
be duly executed as of the day and year first above written.
Redback Networks Inc., a Delaware
corporation
By:
------------------------------------
Name:
Title:
STOCKHOLDER:
By:
------------------------------------
Name:
Number of Shares of Company Common
Stock Owned (if any):
Number of Shares of Company Preferred
A Stock Owned (if any):
Number of Shares of Company Preferred
B Stock Owned (if any):
[SIGNATURE PAGE FOR REDBACK/SIARA STOCKHOLDER
IRREVOCABLE PROXY AND VOTING AGREEMENT]
Exhibit B-7
<PAGE> 264
EXHIBIT C
AMENDMENT TO REDBACK NETWORKS, INC. AMENDED
AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDMENT to the Redback Networks, Inc. Amended and Restated
Investors' Rights Agreement dated July 2, 1998 (the "Prior Agreement") is made
as of , by and among Redback Networks Inc., a Delaware
corporation (the "Company"), the investors of the Company listed on Schedule A
to the Prior Agreement, each of which is herein referred to as an "Existing
Investor," the founders listed on Schedule B to the Prior Agreement, each of
which is herein referred to as a "Founder," Siara Systems, Inc., a Delaware
corporation ("Siara") and the former security holders of Siara listed on
Schedule A hereto (the "New Investors") who have received securities of the
Company in connection with that certain Merger Agreement and Plan of
Reorganization dated November , 1999 (the "Merger Agreement") by and among the
Company and Siara. Capitalized terms used herein shall have the same meanings as
set forth in the Prior Agreement, unless otherwise specified.
RECITALS
WHEREAS, the Existing Investors have heretofore purchased Series A, Series
B, Series C and/or Series D Preferred Stock from the Company and possess
registration rights contained in the Prior Agreement;
WHEREAS, in order to induce Siara to enter into the Merger Agreement, the
Existing Investors and the Company desire to amend the Prior Agreement in order
to provide to the New Investors the same registration rights held by the
Existing Investors under the Prior Agreement;
WHEREAS, pursuant to Section 4.8 of the Prior Agreement, the Company and
the holders of a majority of the outstanding Registrable Securities may amend
the Prior Agreement on behalf of all such holders by approving this Amendment,
and the Existing Investors executing this Amendment represent such a majority;
WHEREAS, certain of the New Investors are parties to that Amended and
Restated Investors' Rights Agreement dated December 21, 1998 between Siara and
such New Investors (the "Siara Agreement");
WHEREAS, in order to induce the Company to enter into the Merger Agreement,
the New Investors and Siara desire to terminate the rights granted pursuant to
the Siara Agreement, effective upon the Effective Time (as defined in the Merger
Agreement); and
WHEREAS, pursuant to Section 5.2 of the Siara Agreement, Siara and the
holders of a majority of the outstanding Investors' Shares (as defined in the
Siara Agreement) may amend the Prior Agreement, which amendment shall be binding
on all parties thereto, and the New Investors executing this Amendment represent
such a majority;
Exhibit C-1
<PAGE> 265
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Amendment of Prior Agreement.
Paragraph 1.1(f) of the Prior Agreement is hereby amended to read in its
entirety as follows:
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock, (ii) the shares of Common Stock issued to the Founders;
provided, however, that such shares of Common Stock shall not be deemed
Registrable Securities and the aforementioned individuals shall not be
deemed Holders for the purposes of Sections 1.2, 1.12 and 4.8, (iii) the
Common Stock issued or issuable upon conversion, pursuant to the Merger
Agreement, of all "Registrable Securities," as defined in that certain
Siara Systems, Inc. Amended and Restated Investors' Rights Agreement
dated December 21, 1998; provided, however, that such shares of Common
Stock shall not be deemed Registrable Securities for the purposes of
Sections 1.2 and 1.12, (iv) any Common Stock of the Company issuable
upon the conversion or exercise of warrants issued by Siara Systems,
Inc. to U.S. Telesource, Inc., Broadband Office, Transamerica Business
Credit Corporation, Comdisco, Inc., Imperial Bank, Fenwick & West LLP,
, and , which are assumed
by the Company and converted into warrants to purchase shares of the
Company's Common Stock pursuant to the Merger Agreement; provided,
however, that such shares of Common Stock shall not be deemed
Registrable Securities for the purposes of Sections 1.2 and 1.12, and
(v) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security that is
issued as) a dividend or other distribution with respect to, or in
exchange for, or in replacement of the shares referenced in (i), (ii),
(iii), and (iv) of this paragraph, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his
rights under this Section 1 are not assigned.
2. Amendment and Termination of Siara Agreement. Siara and the New
Investors, who hold at least a majority of the Investors' Shares (as defined in
the Siara Agreement), hereby agree to terminate the Siara Agreement and all
rights and obligations of the parties thereunder, with such termination to
become effective upon the Effective Time (as defined in the Merger Agreement).
3. Counterparts. This Amendment may be executed by the Company, the
Existing Investors and the New Investors named below in any number of
counterparts and shall become effective when executed by the Company and
Existing Investors holding at least a majority of the outstanding Registrable
Securities. Each New Investor shall be offered the opportunity to become a party
to this Amendment, and the registration rights extended pursuant to Section 1 of
this Amendment shall become effective as to each New Investor upon execution and
delivery of this Amendment by such New Investor.
Exhibit C-2
<PAGE> 266
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
REDBACK NETWORKS INC.
By:
------------------------------------
Dennis L. Barsema, President
Address:
1389 Moffett Park Drive
Sunnyvale, CA 94089
SIARA SYSTEMS, INC.
By:
------------------------------------
Vivek Ragavan, President
Address:
1195 Borregas Avenue
Sunnyvale, CA 94089
SIGNATURE PAGE TO AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
Exhibit C-3
<PAGE> 267
EXISTING INVESTORS:
MAYFIELD VIII,
A CALIFORNIA LIMITED PARTNERSHIP
By: MAYFIELD VIII MANAGEMENT, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY,
Its General Partner
By:
--------------------------------------
MAYFIELD ASSOCIATES FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
By: MAYFIELD VIII MANAGEMENT, L.L.C.
A DELAWARE LIMITED LIABILITY COMPANY,
Its General Partner
By:
--------------------------------------
Address:
2800 Sand Hill Road
Menlo Park, California 94025
SIGNATURE PAGE TO AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
Exhibit C-4
<PAGE> 268
SEQUOIA CAPITAL VII
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA 1995 LLC
SQP 1997
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA 1997
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A Management, LLC
a California Limited Liability
Company,
its General Partner
By:
--------------------------------------
--------------------------------------
Print Name
--------------------------------------
Title
Address:
3000 Sand Hill Road, Building 4,
Suite 280
Menlo Park, California 94025
SIGNATURE PAGE TO AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
Exhibit C-5
<PAGE> 269
ACCEL V L.P.
By: Accel V Associates L.L.C.
Its General Partner
By:
--------------------------------------
Managing Member
ACCEL INTERNET/STRATEGIC
TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic
Technology Fund
Associates L.L.C.
Its General Partner
By:
--------------------------------------
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
Its General Partner
By:
--------------------------------------
Managing Member
ACCEL INVESTORS '96 L.P.
By:
--------------------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By:
--------------------------------------
General Partner
Address:
428 University Avenue
Palo Alto, California 94301
SIGNATURE PAGE TO AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
Exhibit C-6
<PAGE> 270
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By Lighthouse Management Partners II,
L.P.,
Its General Partner
By Lighthouse Capital Partners, Inc.,
Its
General Partner
By:
------------------------------------
Richard D. Stubblefield, Managing
Director
Address:
100 Drakes Landing Road, Suite 260
Greenbrae, California 94904-3121
MARSHALL SMITH
By:
------------------------------------
Address:
26535 Weston Drive
Los Altos Hills, California 94022
JOANNE KNIGHT
By:
------------------------------------
Address:
793 View Street
Mountain View, California 94041
SIGNATURE PAGE TO AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
Exhibit C-7
<PAGE> 271
--------------------------------------
Gaurav Garg
G & H Partners
By:
------------------------------------
SIGNATURE PAGE TO AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
Exhibit C-8
<PAGE> 272
NEW INVESTOR:
Name:
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By:
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Print Name:
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Title:
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Address:
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SIGNATURE PAGE TO AMENDMENT TO INVESTORS' RIGHTS AGREEMENT
Exhibit C-9
<PAGE> 273
SCHEDULE A
SCHEDULE OF NEW INVESTORS
Kleiner Perkins Caufield & Byers VII, L.P.
KPCB VIII Founders Fund, L.P.
KPCB Information Sciences Zaibatsu Fund II, L.P.
Norwest Venture Partners VII, LP
ADC Telecommunications, Inc.
Comdisco, Inc.
Paul Johnson
Presidio Venture Partners
John M. McQuillan
Transamerica Business Credit Corporation
Imperial Bank
U.S. Telesource, Inc.
Broadband Office
Fenwick & West LLP
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Exhibit C-10
<PAGE> 274
EXHIBIT D
CERTIFICATE OF MERGER
OF
SIARA SYSTEMS, INC.
(A DELAWARE CORPORATION)
INTO
REDBACK NETWORKS INC.
(A DELAWARE CORPORATION)
UNDER SECTION 251 OF THE DELAWARE GENERAL CORPORATION LAW
1. The undersigned corporation hereby certifies that:
FIRST: The constituent corporations of the merger are SIARA SYSTEMS, INC.,
a Delaware corporation, and REDBACK NETWORKS INC., a Delaware corporation.
SECOND: A Merger Agreement and Plan of Reorganization between the
constituent corporations has been approved, adopted, certified, executed and
acknowledged by each of the constituent corporations in accordance with Section
251 of the General Corporation Law of the State of Delaware.
THIRD: The name of the surviving corporation of the merger is REDBACK
NETWORKS INC.
FOURTH: The Restated Certificate of Incorporation of the surviving
corporation shall be in the form attached hereto as Exhibit A.
FIFTH: The executed Merger Agreement and Plan of Reorganization is on file
at the surviving corporation's office. The address of said office is 1389
Moffett Park Drive, Sunnyvale, California 94089.
SIXTH: A copy of the Merger Agreement and Plan of Reorganization will be
furnished by the surviving corporation on request and without cost to any
stockholder of any constituent corporation.
2. This Certificate of Merger shall be effective on .
IN WITNESS WHEREOF, the undersigned has executed this Certificate of Merger
on .
REDBACK NETWORKS INC.
a Delaware corporation
By:
------------------------------------
Name:
----------------------------------
Its:
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Exhibit D-1
<PAGE> 275
EXHIBIT E
REDBACK NETWORKS INC.
OFFICER'S CERTIFICATE
Pursuant to Section 5.2(d) of the Merger Agreement and Plan of
Reorganization, dated as of November 28, 1999 (the "Merger Agreement";
capitalized terms used but not defined herein shall have the respective meanings
ascribed to them in the Merger Agreement), by and among Redback Networks Inc., a
Delaware corporation (the "ACQUIROR"), Siara Systems, Inc., a Delaware
corporation (the "TARGET"), and the Stockholder Agent, I, Dennis L. Barsema, in
my capacity as President and Chief Executive Officer of Acquiror and on behalf
of Acquiror, and not individually, DO HEREBY CERTIFY that:
1. I am the duly elected, qualified and acting President and Chief
Executive Officer of Acquiror.
2. Each of the representations and warranties made by Acquiror in Article 2
of the Merger Agreement, as modified by Acquiror Disclosure Schedule (other than
representations and warranties which by their express terms are made solely as
of a specified date earlier than the date of this Officer's Certificate) is true
and correct in all material respects on and as of the date hereof as though such
representation or warranty was made on and as of the date hereof; and each of
the representations and warranties made by Acquiror in the Merger Agreement as
of a specified date earlier than the date of this Officer's Certificate is true
and correct in all material respects on and as of such earlier date, as modified
by Acquiror Disclosure Schedule.
3. Acquiror has performed and complied in all material respects with each
agreement, covenant and obligation required by the Merger Agreement to be so
performed or complied with by Acquiror on or before the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
day of , .
By:
--------------------------------------
Dennis L. Barsema
President and Chief Executive
Officer
Redback Networks Inc.
***REDBACK NETWORKS INC. OFFICER'S CERTIFICATE***
Exhibit E-1
<PAGE> 276
EXHIBIT F
LEGAL OPINION OF COUNSEL TO REDBACK NETWORKS INC.
[SUBJECT TO STANDARD INTRODUCTORY LANGUAGE, INCLUDING QUALIFICATIONS,
LIMITATIONS, ETC. AND SUBJECT TO DISCLOSURES IN ACQUIROR'S DISCLOSURE SCHEDULE]
1. Redback Networks Inc. ("Acquiror") is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own its properties and to
conduct its business as presently conducted. The Company is qualified to do
business in .
2. Acquiror has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Merger Agreement and the Ancillary
Agreements to which it is a party (the "Transaction Documents"). The execution,
delivery and performance of Transaction Documents have been duly authorized by
all necessary corporate and shareholder action of Acquiror, and the Transaction
Documents have been duly executed and delivered by Acquiror. Each of the
Transaction Documents constitutes a legal, valid and binding obligation of
Acquiror, enforceable against Acquiror in accordance with its terms.
3. The authorized capitalization of the Company is as follows:
Common Stock. 80,000,000 shares of Common Stock, $0.0001 par value
(the "Common Stock") and 10,000,000 shares of Preferred Stock, none of
which, to our knowledge, are issued or outstanding.
4. The execution and delivery by Acquiror and the performance by Acquiror
of its obligations under the Transaction Documents do not (i) violate any
provision of any federal or Delaware law, rule or regulation applicable to
Acquiror; (ii) violate any provision of the Certificate of Incorporation or
Bylaws of Acquiror, or (iii) require any consents, approvals, permits, order or
authorizations of, or any qualifications, registrations, designations,
declarations or filings with, any federal or California state governmental
authority on the part of the Acquiror except (x) as contemplated by the
Agreement or (y) as have been obtained and are effective.
Exhibit F-1
<PAGE> 277
EXHIBIT G
SIARA SYSTEMS, INC.
OFFICER'S CERTIFICATE
Pursuant to Section 5.3(d) of the Merger Agreement and Plan of
Reorganization, dated as of November 28, 1999 (the "Merger Agreement";
capitalized terms used but not defined herein shall have the respective meanings
ascribed to them in the Merger Agreement), by and among Redback Networks Inc., a
Delaware corporation ("ACQUIROR"), Siara Systems, Inc., a Delaware corporation
(the "TARGET"), and the Stockholder Agent, I, Vivek Ragavan, in my capacity as
President and Chief Executive Officer of Target and on behalf of Target, and not
individually, DO HEREBY CERTIFY that:
1. I am the duly elected, qualified and acting President and Chief
Executive Officer of Target.
2. Each of the representations and warranties made by Target in Article 2
of the Merger Agreement, as modified by Target Disclosure Schedule (other than
representations and warranties which by their express terms are made solely as
of a specified date earlier than the date of this Officer's Certificate) is true
and correct in all material respects on and as of the date hereof as though such
representation or warranty was made on and as of the date hereof; and each of
the representations and warranties made by Target in the Merger Agreement as of
a specified date earlier than the date of this Officer's Certificate is true and
correct in all material respects on and as of such earlier date, as modified by
Target Disclosure Schedule.
3. Target has performed and complied in all material respects with each
agreement, covenant and obligation required by the Merger Agreement to be so
performed or complied with by Target on or before the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this Certificate as of the
day of , .
By:
------------------------------------
Vivek Ragavan
President and Chief Executive
Officer
Siara Systems, Inc.
Exhibit G-1
<PAGE> 278
EXHIBIT H
LEGAL OPINION OF COUNSEL TO SIARA SYSTEMS, INC.
[SUBJECT TO STANDARD INTRODUCTORY LANGUAGE, INCLUDING QUALIFICATIONS,
LIMITATIONS, ETC. AND SUBJECT TO DISCLOSURES IN TARGET'S DISCLOSURE SCHEDULE.]
1. Siara Systems, Inc. (the "Target") is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and has all requisite corporate power and authority to own its properties and to
conduct its business as presently conducted. The Target is qualified to do
business in .
2. The Target has the requisite corporate power and authority to execute,
deliver and perform its obligations under the Merger Agreement and the Ancillary
Agreements to which it is a party (the "Transaction Documents"). The execution,
delivery and performance of Transaction Documents by the Target have been duly
authorized by all necessary corporate and shareholder action of the Target, and
the Transaction Documents have been duly executed and delivered by the Target.
Each of the Transaction Documents constitutes a legal, valid and binding
obligation of the Target, enforceable against the Target in accordance with its
terms.
3. The authorized capitalization of the Target is as follows:
(a) Preferred Stock. shares of Preferred Stock,
par value (the "Preferred Stock"), of which
shares have been designated Series A Preferred Stock, of which, to our
knowledge, are issued and outstanding, of which
shares have been designated Series B Preferred Stock, of
which, to our knowledge, are issued and outstanding and of
which have been designated Series C Preferred Stock, none of which, to our
knowledge, are issued and outstanding prior to the Closing. Such
shares of outstanding Series A Preferred Stock and Series B
Preferred Stock have been duly authorized and validly issued,
nonassessable, and, to our knowledge, are fully paid.
(b) Common Stock. shares of Common Stock,
par value (the "Common Stock"), of which, to our knowledge,
have been duly authorized and validly issued, and, to our knowledge, are
fully paid and nonassessable.
(c) Right to Acquire Stock. To our knowledge, except for (i) the
conversion privileges of the Series A Preferred Stock and Series B
Preferred Stock, (ii) [rights of first refusal set forth in the Disclosure
Schedule], (iii) warrants to purchase shares of Common Stock,
and (iv) shares of Common Stock reserved for issuance to
employees, consultants, officers, or directors of the Target pursuant to
the Target Stock Plan, of which , to our knowledge, are
currently outstanding, there are, to our knowledge, no options, warrants,
conversion privileges or other rights (or agreements for any such rights)
outstanding to purchase or otherwise obtain from the Target any of the
Target's securities.
4. The execution, delivery and performance of the obligations of the Target
under the Transaction Documents, do not (i) to our knowledge, violate any
provision of any federal, Delaware corporate or California law, rule or
regulation applicable to the Target, (ii) violate any provision of the Target's
Restated Certificate of Incorporation or Bylaws, or (iii) require any consents,
approvals, permits, order or authorizations of, or any qualifications,
registrations, designations, declarations or filings with, any federal or
California state governmental authority on the part of the Target as of the
Closing except (i) as contemplated by the Agreement or (ii) as have been
obtained and are effective.
5. To our knowledge, there is no action, suit, proceeding or investigation
pending against the Target before any court or governmental agency.
Exhibit H-1
<PAGE> 279
APPENDIX B
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF REDBACK NETWORKS INC.,
A DELAWARE CORPORATION
The undersigned, Dennis L. Barsema and Craig M. Gentner, hereby certify
that:
ONE: They are the duly elected and acting President and Secretary,
respectively, of said corporation.
TWO: The name of the corporation is Redback Networks Inc. and that the
corporation was originally incorporated on August 30, 1996 pursuant to the
General Corporation Law of the State of Delaware.
THREE: Pursuant to Section 242 and Section 245 of the General Corporation
Law of the State of Delaware, Redback Networks Inc. has adopted this Amended and
Restated Certificate of Incorporation, restating, integrating and further
amending its Amended and Restated Certificate of Incorporation dated on or about
May 18, 1999, which Amended and Restated Certificate of Incorporation has been
duly proposed by the directors and adopted by the stockholders of this
corporation in accordance with the provisions of said Section 242 and Section
245.
FOUR: The Amended and Restated Certificate of Incorporation of said
corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Redback Networks Inc.
ARTICLE II
The address of the registered office of this corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, 19801, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares that this corporation is authorized to issue is Two Hundred Ten
million (210,000,000) shares. Two hundred million (200,000,000) shares shall be
Common Stock, par value $.0001 per share, and ten million (10,000,000) shares
shall be Preferred Stock, par value $.0001 per share.
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The Preferred Stock may be issued from time to time in one or more series,
without further stockholder approval. The Board of Directors is hereby
authorized, in the resolution or resolutions adopted by the Board of Directors
providing for the issuance of any wholly unissued series of Preferred Stock,
within the limitations and restrictions stated in this Amended and Restated
Certificate of Incorporation (the "Restated Certificate"), to fix or alter the
dividend rights, dividend rate, conversion rights, voting rights, rights and
terms of redemption (including sinking fund provisions), the redemption price or
prices, and the liquidation preferences of any wholly unissued series of
Preferred Stock, and the number of shares constituting any such series and the
designation thereof, or any of them, and to increase or decrease the number of
shares of any series subsequent to the issue of shares of that series, but not
below the number of shares of such series then outstanding. In case the number
of shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in furtherance
and not in limitation of the powers conferred by statute, the Board of Directors
is expressly authorized to make, repeal, alter, amend and rescind any or all of
the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from time to
time by a bylaw or amendment thereof duly adopted by the Board of Directors or
by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the Bylaws of
this corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Restated Certificate, any action
required or permitted to be taken by the stockholders of the Corporation must be
effected at an annual or special meeting of the stockholders of the Corporation,
and no action required to be taken or that may be taken at any annual or special
meeting of the stockholders of the Corporation may be taken by written consent.
ARTICLE IX
A director of this corporation shall, to the full extent permitted by the
Delaware General Corporation Law as it now exists or as it may hereafter be
amended, not be liable to this corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. Neither any amendment nor
repeal of this Article IX, nor the adoption of any provision of this Restated
Certificate of Incorporation inconsistent with this Article IX, shall eliminate
or reduce the effect of this Article IX in respect of any matter occurring, or
any cause of action, suit or claim that, but for this Article IX, would accrue
or arise, prior to such amendment, repeal or adoption of an inconsistent
provision.
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ARTICLE X
This corporation reserves the right to amend, alter, change or repeal any
provision contained in this Restated Certificate, in the manner now or hereafter
prescribed by statute, and all rights conferred upon stockholders herein are
granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, the Corporation is
authorized to provide indemnification of (and advancement of expenses to) agents
of the Corporation (and any other persons to which General Corporation Law
permits the Corporation to provide indemnification) through bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law,
subject only to limits created by applicable General Corporation Law (statutory
or non-statutory), with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing provisions of this
Article XI shall not adversely affect any right or protection of a director,
officer, agent, or other person existing at the time of, or increase the
liability of any director of the Corporation with respect to, any acts or
omissions of such director, officer or agent occurring prior to such amendment,
repeal or modification.
***
FIVE: That thereafter said amendment and restatement was duly adopted in
accordance with the provisions of Section 242 and Section 245 of the General
Corporation Law by obtaining the vote of the holders of the majority of the
outstanding stock of the corporation in favor of said amendment and restatement
in the manner set forth in the General Corporation Law.
IN WITNESS WHEREOF, the undersigned have executed this certificate on
, 2000.
------------------------------------------
Dennis L. Barsema, President
------------------------------------------
Craig M. Gentner, Corporate Secretary
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APPENDIX C
OPINION OF GOLDMAN, SACHS & CO.
PERSONAL AND CONFIDENTIAL
November 28, 1999
Board of Directors
Redback Networks Inc.
1310 Moffett Park Drive
Sunnyvale, CA 94089
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to Redback Networks Inc. ("Redback") of the issuance of up to 31,341,986
shares of Redback common stock, par value $0.0001 per share (the "Redback
Consideration"), to the holders of all of the issued and outstanding shares of
common stock of Siara Systems, Inc. ("Siara"), par value $0.001 per share (the
"Siara Common Shares"), and to the holders of all of the issued and outstanding
shares of Siara preferred stock, par value $0.001 per share (the "Siara
Preferred Shares," and together with the Siara Common Shares, the "Siara
Shares"), in exchange for all of the issued and outstanding Siara Shares,
pursuant to the Merger Agreement and Plan of Reorganization, dated as of
November 28, 1999, by and among Redback, Siara and, solely for purposes of
Article 6 thereof, Vivek Ragavan, as Stockholder Agent (the "Agreement").
Pursuant to the Agreement, Siara will be merged with and into Redback.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with Redback having acted as its financial advisor in connection with,
and having participated in certain of the negotiations leading to, the
Agreement. Goldman, Sachs & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of Redback for its own account and for the accounts of customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Registration Statement on Form S-1, including the Prospectus
therein dated May 17, 1999, relating to the initial public offering of the
Redback common stock, par value $0.0001 per share (the "Redback Shares"); the
report to stockholders on Form 8-K of Redback dated August 10, 1999 relating to
the stock split of Redback Shares; certain interim reports to stockholders and
Quarterly Reports on Form 10-Q of Redback; certain other communications from
Redback and Siara to their respective stockholders; certain audited financial
and other information for Siara; and certain internal financial analyses and
forecasts for Redback and Siara prepared by the managements of Redback and
Siara, including certain forecasts for the combined entity prepared on a pro
forma basis by the management of Redback, that reflect certain synergies
projected by the management of Redback to result from the transaction
contemplated by the Agreement (the "Pro Forma Forecasts"). We also have held
discussions with members of the senior managements of Redback and Siara
regarding their assessment of the strategic rationale for, and the potential
benefits of, the transaction contemplated by
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the Agreement and the past and current business operations, financial condition
and future prospects of their respective companies. In addition, we have
reviewed the reported price and trading activity for the Redback Shares, which
like many Internet related stocks has been and is likely to continue to be
subject to significant short term price and trading volatility, compared certain
stock market information for Redback, and certain financial information for
Redback and Siara with similar information for certain other companies the
securities of which are publicly traded, reviewed the financial terms of certain
recent business combinations in the Internet infrastructure and communications
technology industries specifically and in other industries generally and
performed such other studies and analyses as we considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In that regard, we have
assumed with your consent that the Pro Forma Forecasts have been reasonably
prepared on a basis reflecting the best currently available estimates and
judgments of the management of Redback, and that the Pro Forma Forecasts will be
realized in the amounts and time periods contemplated thereby. In addition, we
have not made an independent evaluation or appraisal of the assets and
liabilities of Redback or Siara or any of their subsidiaries and we have not
been furnished with any such evaluation or appraisal. Our advisory services and
the opinion expressed herein are provided for the information and assistance of
the Board of Directors of Redback in connection with its consideration of the
transaction contemplated by the Agreement and such opinion does not constitute a
recommendation as to how any stockholder of Redback should vote with respect to
such transaction.
Based upon and subject to the foregoing and based upon such other matters
as we consider relevant, it is our opinion that as of the date hereof the
Redback Consideration to be issued for the Siara Shares pursuant to the
Agreement is fair from a financial point of view to Redback.
Very truly yours,
--------------------------------------
(GOLDMAN, SACHS & CO.)
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APPENDIX D
DELAWARE GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
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 any thing 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
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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 such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder'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 stockholder's
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
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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 re resulting corporation shall send such a second notice
to all such holders on or within 10 days after such effective date;
provided, however, that is 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 charges in accordance with this
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 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 such stockholder's 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 such stockholder's 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
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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 market 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 resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder 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 Sate or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties at 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 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 such stockholder's
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 has 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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APPENDIX E
CHAPTER 13 OF THE CALIFORNIA CORPORATIONS CODE
DISSENTERS' RIGHTS
SECTION 1300.RIGHT TO REQUIRE PURCHASE -- "DISSENTING SHARES" AND "DISSENTING
SHAREHOLDER" DEFINED.
(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.
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SECTION 1301. DEMAND FOR PURCHASE.
(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 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. ENDORSEMENT OF SHARES.
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. AGREED PRICE -- TIME FOR 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
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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. DISSENTER'S ACTION TO ENFORCE PAYMENT.
(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
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.
SECTION 1305. APPRAISERS' REPORT -- PAYMENT -- COSTS.
(a) If the court appoints an appraiser or appraisers, they shall proceed
forthwith to determine the fair market value per share. Within the time fixed by
the court, the appraisers, or a majority of them, shall make and file a report
in the office of the clerk of the court. Thereupon, on the motion of any party,
the report shall be submitted to the court and considered on such evidence as
the court considers relevant. If the court finds the report reasonable, the
court may confirm it.
(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such further
time as may be allowed by the court or the report is not confirmed by the court,
the court shall determine the fair market value of the dissenting shares.
(c) Subject to the provisions of Section 1306, judgment shall be rendered
against the corporation for payment of an amount equal to the fair market value
of each dissenting share multiplied by the number of dissenting shares which any
dissenting shareholder who is a party, or who has intervened, is entitled to
require the corporation to purchase, with interest thereon at the legal rate
from the date on which judgment was entered.
(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for the
shares described in the judgment. Any party may appeal from the judgment.
(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal
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exceeds the price offered by the corporation, the corporation shall pay the
costs (including in the discretion of the court attorneys' fees, fees of expert
witnesses and interest at the legal rate on judgments from the date of
compliance with Sections 1300, 1301 and 1302 if the value awarded by the court
for the shares is more than 125 percent of the price offered by the corporation
under subdivision (a) of Section 1301).
SECTION 1306. DISSENTING SHAREHOLDER'S STATUS AS CREDITOR.
To the extent that the provisions of Chapter 5 prevent the payment to any
holders of dissenting shares of their fair market value, they shall become
creditors of the corporation for the amount thereof together with interest at
the legal rate on judgments until the date of payment, but subordinate to all
other creditors in any liquidation proceeding, such debt to be payable when
permissible under the provisions of Chapter 5.
SECTION 1307. DIVIDENDS PAID AS CREDIT AGAINST PAYMENT.
Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.
SECTION 1308. CONTINUING RIGHTS AND PRIVILEGES OF DISSENTING SHAREHOLDERS.
Except as expressly limited in this chapter, holders of dissenting shares
continue to have all the rights and privileges incident to their shares, until
the fair market value of their shares is agreed upon or determined. A dissenting
shareholder may not withdraw a demand for payment unless the corporation
consents thereto.
SECTION 1309. TERMINATION OF DISSENTING SHAREHOLDER STATUS.
Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to require
the corporation to purchase their shares upon the happening of any of the
following:
(a) The corporation abandons the reorganization. Upon abandonment of
the reorganization, the corporation shall pay on demand to any dissenting
shareholder who has initiated proceedings in good faith under this chapter
all necessary expenses incurred in such proceedings and reasonable
attorneys' fees.
(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the articles.
(c) The dissenting shareholder and the corporation do not agree upon
the status of the shares as dissenting shares or upon the purchase price of
the shares, and neither files a complaint or intervenes in a pending action
as provided in Section 1304, within six months after the date on which
notice of the approval by the outstanding shares or notice pursuant to
subdivision (i) of Section 1110 was mailed to the shareholder.
(d) The dissenting shareholder, with the consent of the corporation,
withdraws the shareholder's demand for purchase of the dissenting shares.
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SECTION 1310. SUSPENSION OF PROCEEDINGS FOR PAYMENT PENDING LITIGATION.
If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings under
Sections 1304 and 1305 shall be suspended until final determination of such
litigation.
SECTION 1311. EXEMPT SHARES.
This chapter, except Section 1312, does not apply to classes of shares
whose terms and provisions specifically set forth the amount to be paid in
respect to such shares in the event of a reorganization or merger.
SECTION 1312. ATTACKING VALIDITY OF REORGANIZATION OR MERGER.
(a) No shareholder of a corporation who has a right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set aside
or rescinded, except in an action to test whether the number of shares required
to authorize or approve the reorganization have been legally voted in favor
thereof; but any holder of shares of a class whose terms and provisions
specifically set forth the amount to be paid in respect to them in the event of
a reorganization or short-form merger is entitled to payment in accordance with
those terms and provisions or, if the principal terms of the reorganization are
approved pursuant to subdivision (b) of Section 1202, is entitled to payment in
accordance with the terms and provisions of the approved reorganization.
(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash for
such shareholder's shares pursuant to this chapter; but if the shareholder
institutes any action to attack the validity of the reorganization or short-form
merger or to have the reorganization or short-form merger set aside or
rescinded, the shareholder shall not thereafter have any right to demand payment
of cash for the shareholder's shares pursuant to this chapter. The court in any
action attacking the validity of the reorganization or short-form merger or to
have the reorganization or short-form merger set aside or rescinded shall not
restrain or enjoin the consummation of the transaction except upon 10 days'
prior notice to the corporation and upon a determination by the court that
clearly no other remedy will adequately protect the complaining shareholder or
the class of shareholders of which such shareholder is a member.
(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to shareholders of the controlled party,
and (2) a person who controls two or more parties to a reorganization shall have
the burden of proving that this transaction is just and reasonable as to the
shareholders of any party so controlled.
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APPENDIX F
ESCROW AGREEMENT
This Escrow Agreement is made as of this day of March, 2000, by and
among State Street Bank and Trust Company of California, N.A. ("Depositary
Agent"), Redback Networks Inc., a Delaware corporation ("Acquiror"), Siara
Systems, Inc., a Delaware corporation ("Target") and Vivek Ragavan as agent
("Stockholders' Agent") of the former stockholders of Target. Terms not
otherwise defined herein shall have the meaning set forth in the Merger
Agreement (as defined below).
WITNESSETH
WHEREAS, Acquiror and Target have entered into a Merger Agreement and Plan
of Reorganization (the "Merger Agreement"), dated as of November 28, 1999,
providing for the merger of Target with and into Acquiror (the "Merger"), an
executed copy of which is attached hereto as Annex A; and
WHEREAS, the Stockholders' Agent is agent for and on behalf of the former
stockholders of Target (individually a "Stockholder" and collectively the
"Stockholders") to undertake certain obligations specified in Article 6 of the
Merger Agreement; and
WHEREAS, Article 6 of the Merger Agreement provides for certain shares of
Acquiror Common Stock to be deposited in escrow, such escrow to be held by the
Depositary Agent; and
WHEREAS, the parties hereto desire to set forth further terms and
conditions consistent with those set forth in Article 6 of the Merger Agreement
relating to the operation of the Escrow Fund.
NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, and intending to be legally bound, hereby agree as
follows:
1. Escrow and Escrow Shares. As soon as practicable after the Effective
Time, a certificate representing [5% of merger consideration] shares of Acquiror
Common Stock (the "Escrow Shares"), without any act of any Target stockholder,
will be deposited in escrow with the Depositary Agent (plus a proportionate
share of any additional shares of Acquiror Common Stock as may be issued with
respect to the Escrow Amount upon any stock splits, stock dividends or
recapitalizations effected by Acquiror following the Effective Time), such
deposit to constitute the "Escrow Fund" to be governed by the terms set forth
herein. The Escrow Shares shall be registered in the name of the Stockholders'
Agent, as representative of the Stockholders. Each certificate representing
Escrow Shares shall be accompanied by three (3) stock powers, fully executed by
the Stockholders' Agent and bearing a medallion signature guarantee. The name,
address, taxpayer identification and percentage interest of each Stockholder in
the Escrow Fund are set forth in Annex B attached hereto.
2. Recourse to the Escrow Fund. The Escrow Fund shall be available to
compensate Acquiror and its officers, directors, employees or agents, for any
and all payments and disbursements made by Acquiror, its officers, directors,
employees or agents (including attorneys' fees and other expenses of litigation,
and amounts paid in settlement), directly or indirectly, as a result of all
Section 2.3 Losses (whether or not involving a Third Party Claim) incurred or
sustained by Acquiror, its officers, directors, employees or agents, directly or
indirectly. Other than for fraud, the provisions of Article 6 of the Merger
Agreement shall be the sole and exclusive remedy available to Acquiror and to
its officers, directors, employees and agents to obtain monetary recovery from
Target's stockholders with
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respect to any Section 2.3 Losses and there shall not be recourse for any other
Losses. Except for liability for fraud and the liability of a Target stockholder
for the loss of such stockholder's pro rata share of the Acquiror Common Stock
and other property included in the Escrow Fund in satisfaction of Section 2.3
Losses in accordance with Article 6 of the Merger Agreement, no Target
stockholders or any other Target securityholder or officer or director of Target
shall have any liability to Acquiror or to any of Acquiror's officers,
directors, stockholders, employees or agents for or in respect of any Losses or
other liability arising out of this Agreement.
3. Escrow Period; Distribution of Escrow Fund upon Termination of Escrow
Period. Subject to the following requirements, the Escrow Fund shall be in
existence immediately following the Effective Time (as set forth in a
certificate of Acquiror, delivered to the Depositary Agent) and shall terminate
at 5 p.m., Pacific Time, on , 2000 (the "Expiration Date") (the
period of time from the Effective Time through and including the Expiration Date
is referred to herein as the "Escrow Period"); and upon expiration of the Escrow
Period all shares of Acquiror Common Stock remaining in the Escrow Fund shall be
distributed as set forth in the last sentence of this Section 3; provided,
however, that the Escrow Period shall not terminate with respect to such amount
(or some portion thereof) that is set forth in a certificate of Acquiror
delivered to the Depositary Agent as being necessary in the reasonable judgment
of Acquiror, subject to the objection of the Stockholders' Agent and the
subsequent arbitration of the matter in the manner as provided in Section 7
hereof, to satisfy any unsatisfied claims for Section 2.3 Losses under this
Agreement concerning facts and circumstances existing prior to the termination
of such Escrow Period which claims are specified in any Officer's Certificate
delivered to the Depositary Agent prior to termination of such Escrow Period
("Contingent Claims"). As soon as all such Contingent Claims, if any, have been
resolved, any remaining portion of the Escrow Fund not required to satisfy such
Contingent Claims shall be distributed as set forth in the following sentence.
Upon expiration of the Escrow Period, or as to shares subject to Contingent
Claims, if any, resolution of the applicable Contingent Claims, deliveries of
certificates for shares of Acquiror Common Stock remaining in the Escrow Fund to
the Stockholders pursuant to this Section 3 shall be made ratably to the
Stockholders at their addresses and in proportion to their respective percentage
interests in the Escrow Fund set forth in Annex B and Acquiror shall use all
requisite commercially reasonable efforts to have such certificates delivered as
promptly as possible after such resolution.
4. Protection of Escrow Fund; Voting of Escrow Shares.
(a) The Depositary 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
Acquiror and shall hold and dispose of the Escrow Fund only in accordance
with the terms hereof.
(b) Any shares of Acquiror Common Stock or other Equity Equivalents
issued or distributed by Acquiror ("New Shares") in respect of Acquiror
Common Stock in the Escrow Fund which have not been released from the
Escrow Fund shall be added to the Escrow Fund. Unless and until the
Depositary Agent shall receive certificates representing New Shares, the
Depositary Agent may assume without inquiry that no such shares have been,
or are required to be, issued. New Shares issued in respect of shares of
Acquiror Common Stock which have been released from the Escrow Fund shall
not be added to the Escrow Fund but shall be distributed to the record
holders thereof. Cash dividends on Acquiror Common Stock shall not be added
to the Escrow Fund but shall be distributed to the record holders of the
Acquiror Common Stock on the record date set for any such dividend.
(c) The Stockholders' Agent, as the registered owner of the Escrow
Shares, may vote them. The Stockholders' Agent agrees that it will vote
such shares in accordance with the
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written directions of the beneficial owners of the shares. In the absence
of such directions, the Stockholders' Agent need not vote the shares. The
Stockholders' Agent need not furnish proxy information or other documents
provided to the Stockholders' Agent by the issuer of the shares to the
beneficial owners of the shares.
5. Claims Upon Escrow Fund.
(a) Upon receipt by the Depositary Agent at any time on or before the
Expiration Date of a certificate signed by any officer of Acquiror (an
"Officer's Certificate"): (A) stating that Acquiror has paid or properly
accrued or reasonably anticipates that it will become obligated to pay or
accrue a Section 2.3 Loss and (B) specifying in reasonable detail the
individual items of Section 2.3 Losses included in the amount so stated,
the date on which each such item was paid or properly accrued, the basis
for and facts giving rise to, such anticipated liability, and the nature of
the misrepresentation to which such item is related, the Depositary Agent
shall, subject to the provisions of Section 6 and 7 hereof, deliver to
Acquiror out of the Escrow Fund, as promptly as practicable, shares of
Acquiror Common Stock held in the Escrow Fund in an amount equal to such
Section 2.3 Losses. Where the basis for a claim upon the Escrow Fund by
Acquiror is that Acquiror reasonably anticipates that it will pay or accrue
a Section 2.3 Loss, no payment will be made from the Escrow Fund for such
Section 2.3 Loss unless and until such Section 2.3 Loss is actually paid or
accrued.
(b) For the purposes of determining the number of shares of Acquiror
Common Stock to be delivered to Acquiror out of the Escrow Fund pursuant to
this Agreement, the shares of Acquiror Common Stock shall be valued at the
Closing Price, as set forth in a certificate of Acquiror to be delivered to
the Depositary Agent promptly after closing, upon which certificate the
Depositary Agent may rely without inquiry.
6. Objections to Claims. At the time of delivery of any Officer's
Certificate to the Depositary Agent, a duplicate copy of such Officer's
Certificate shall be concurrently delivered to the Stockholders' Agent and for a
period of thirty (30) days after such delivery, the Depositary Agent shall make
no delivery to Acquiror of any Escrow Amounts pursuant to Section 5 hereof
unless the Depositary Agent shall have received written authorization from the
Stockholders' Agent to make such delivery. After the expiration of such thirty
(30) day period, the Depositary Agent shall make delivery of shares of Acquiror
Common Stock from the Escrow Fund in accordance with Section 5 hereof, provided
that no such payment or delivery may be made if the Stockholders' Agent shall
object in a written statement to the claim made in the Officer's Certificate,
and such statement shall have been received by the Depositary Agent prior to the
expiration of such thirty (30) day period.
7. Resolution of Conflicts; Arbitration.
(a) In case the Stockholders' Agent shall object in writing to any
claim or claims made in any Officer's Certificate, the Stockholders' Agent
and Acquiror shall attempt in good faith to agree upon the rights of the
respective parties with respect to each of such claims. If the
Stockholders' Agent and Acquiror should so agree, a memorandum setting
forth such agreement shall be prepared and signed by both parties and shall
be furnished to the Depositary Agent. The Depositary Agent shall be
entitled to rely on any such memorandum and distribute shares of Acquiror
Common Stock from the Escrow Fund in accordance with the terms thereof.
(b) If no such agreement can be reached after good faith negotiation,
or in any event, no such agreement has been reached within forty-five (45)
days after the delivery of the Officer's Certificate to the Stockholders'
Agent, then either Acquiror or the Stockholders' Agent may demand
arbitration of the dispute unless the amount of the damage or loss is at
issue in a pending Action or Proceeding involving a Third Party Claim, in
which event arbitration shall not
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be commenced until such amount is ascertained (provided Acquiror acts
diligently to resolve such Third-Party Claim and allows the Stockholders'
Agent to participate in the defense of such Third-Party Claim) or both
parties agree to arbitration; and in either event the matter shall be
settled by arbitration conducted by three (3) arbitrators, one (1) selected
by Acquiror and one (1) selected by the Stockholders' Agent, and the two
(2) arbitrators selected by Acquiror and the Stockholders' Agent shall
select a third arbitrator. The Arbitration shall be governed by the
Commercial Arbitration Rules of the American Arbitration Association. The
arbitrators shall set a limited time period and establish procedures
designed to reduce the cost and time for discovery of information relating
to any dispute while allowing the parties an opportunity, adequate as
determined in the sole judgment of the arbitrators, to discover relevant
information from the opposing parties about the subject matter of the
dispute. The arbitrators shall rule upon motions to compel, limit or allow
discovery as they shall deem appropriate given the nature and extent of the
disputed claim. The arbitrators shall also have the authority to impose
sanctions, including attorneys' fees and other costs incurred by the
parties, to the same extent as a court of law or equity, should the
arbitrators determine that discovery was sought without substantial
justification or that discovery was refused or objected to by a party
without substantial justification. The decision of a majority of the three
(3) arbitrators 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 6 hereof, the
Depositary Agent shall be entitled to act in accordance 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 regarding the dispute which shall set
forth the award, judgment, decree or order awarded by the arbitrators. Each
party agrees to confirm any such arbitration decision to the Depositary
Agent in order to facilitate any release of shares of Acquiror Common Stock
or other property from the Escrow Fund.
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having competent jurisdiction. Any such arbitration shall be
held in the county of Santa Clara, California under the commercial rules of
arbitration then in effect of the American Arbitration Association. For
purposes of this Section 7, in any arbitration hereunder in which any claim
or the amount thereof stated in the Officer's Certificate is at issue,
Acquiror shall be deemed to be the Non-Prevailing Party in the event that
the arbitrators award Acquiror less than the sum of one-half ( 1/2) of the
disputed amount of any Section 2.3 Losses plus any amounts not in dispute;
otherwise, the Stockholders as represented by the Stockholders' 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 each arbitrator, the
administrative costs of the arbitration and the expenses, including
reasonable attorneys' fees and costs, incurred by the other party to the
arbitration ("Arbitration Related Fees"), provided, however, that any
Arbitration Related Fees due from Target shall be delivered to Acquiror out
of the Escrow Fund, as promptly as practicable, in the form of shares of
Acquiror Common Stock held in the Escrow Fund in an amount equal to such
Arbitration Related Fees. For the purposes of determining the number of
shares of Acquiror Common Stock to be delivered to Acquiror out of the
Escrow Fund to cover any Arbitration Related Fees, the shares of Acquiror
Common Stock shall be valued in accordance with Section 5(b).
8. Stockholders' Agent of the Stockholders; Power of Attorney.
(a) Pursuant to the Merger Agreement Vivek Ragavan has been appointed
as agent and attorney-in-fact (the "Stockholders' Agent") for each
Stockholder (except such Stockholders, if any, as shall have perfected
their appraisal or dissenters' rights under the DGCL or California Code, if
applicable), for and on behalf of Stockholders, to give and receive notices
and communications, to authorize delivery to Acquiror of shares of Acquiror
Common Stock from
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the Escrow Fund in satisfaction of claims by Acquiror, to object to such
deliveries, 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 such claims, and to take all actions necessary
or appropriate in the judgment of the Stockholders' Agent for the
accomplishment of the foregoing and to participate in the defense of
Third-Party Claim. Such agency may be changed by the Stockholders from time
to time upon not less than thirty (30) days prior written notice to
Acquiror; provided, however, that the Stockholders' Agent may not be
removed unless holders of a two-thirds ( 2/3) interest in the Escrow Fund
agree to such removal and to the identity of the substituted Stockholders'
Agent. Any vacancy in the position of Stockholders' 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 Stockholders' Agent, and the Stockholders'
Agent shall not receive compensation for his services. Notices or
communications to or from the Stockholders' Agent shall constitute notice
to or from each of the Stockholders.
(b) The Stockholders' Agent shall not be liable for any act done or
omitted hereunder as Stockholders' Agent while acting in good faith, or
acting on the advice of counsel. The Stockholders' Agent shall have no
duty, obligation or responsibility to expend his personal funds in support
of his activities as Stockholders' Agent.
(c) The Stockholders' Agent shall have reasonable access to
information about Target and the reasonable assistance of Target's officers
and employees for purposes of performing its duties and exercising its
rights hereunder, provided that the Stockholders' Agent shall treat
confidentially and not disclose any nonpublic information from or about
Target to anyone (except on a need to know basis to individuals who agree
to treat such information confidentially).
(d) The Depositary Agent may assume without inquiry that none of the
Stockholders named in Annex B hereto has perfected such Stockholder's
appraisal or dissenters' rights under the DGCL or California Code and,
accordingly, that Annex B accurately sets forth the necessary information
about all Stockholders having beneficial interests in the Escrow Shares and
rights under this Agreement. If, at any time, any Stockholder prefects such
appraisal or dissenters' rights, Acquiror and the Stockholders' Agent shall
immediately inform the Depositary Agent of such fact and furnish to the
Depositary Agent a revised version of Annex B. Unless and until the
Depositary Agent shall receive such a revised version of Annex B, the
Depostary Agent may assume without inquiry that the most recent Annex B
that it has received is the most current one. In addition, unless and until
the Depositary Agent shall receive from the Stockholders' Agent or Acquiror
written notification of the appointment of a successor Stockholders' Agent,
the Stockholders' Agent may assume without inquiry that the Depositary
Agent of which it has most recent knowledge remains in that capacity.
9. Actions of the Stockholders' Agent. A decision, act, consent or
instruction of the Stockholders' Agent shall constitute a decision of all the
stockholders for whom a portion of the Escrow Amount otherwise issuable to them
in the Merger are deposited in the Escrow Fund and shall be final, binding and
conclusive upon each of such stockholders, and the Depositary Agent and Acquiror
may rely upon any such decision, act, consent or instruction of the
Stockholders' Agent as being the decision, act, consent or instruction of every
such stockholder of Target. The Depositary Agent and Acquiror 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 Stockholders'
Agent.
10. Third-Party Claims. In the event Acquiror becomes aware of a
third-party claim (a "Third Party Claim") which Acquiror reasonably expects may
result in a Section 2.3 Loss and a demand against the Escrow Fund, Acquiror
shall notify the Stockholders' Agent of such claim, and the Stockholders' Agent,
as representative for the Stockholders, shall be entitled, at their expense, to
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participate in any defense of such claim. Acquiror shall promptly defend any
such Third-Party Claim and shall have the right in its sole discretion to settle
any Third Party Claim; provided, however, that if Acquiror settles any Third
Party Claim without the Stockholders' Agent's consent (which consent shall not
be unreasonably withheld or delayed), Acquiror may not make a claim against the
Escrow Fund with respect to the amount of Losses incurred by Acquiror in such
settlement. In the event that the Stockholders' Agent has consented to any such
settlement in writing, the Stockholders' Agent shall have no power or authority
to object under any provision of Section 6 to the amount of any claim by
Acquiror against the Escrow Fund with respect to the amount of Losses incurred
by Acquiror in such settlement.
11. Depositary Agent's Duties.
(a) The Depositary 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 Depositary Agent may
receive after the date of this Agreement which are signed by an officer of
Acquiror and the Stockholders' Agent and are acceptable to the Depositary
Agent, and may rely and shall be protected in relying or refraining from
acting on any instrument reasonably believed to be genuine and to have been
signed or presented by the proper party or parties. The Depositary Agent
shall not be liable for any act done or omitted hereunder as Depositary
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. The Depositary Agent shall
not be liable for incidental, consequential or punitive damages.
(b) The Depositary Agent is hereby expressly authorized to comply with
and obey Orders of any court of law or Governmental or Regulatory
Authority, notwithstanding any notices, warnings or other communications
from any party or any other person to the contrary. In case the Depositary
Agent obeys or complies with any such Order, the Depositary 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 being subsequently
reversed, modified, annulled, set aside, vacated or found to have been
entered without jurisdiction or proper authority.
(c) The Depositary 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.
(d) The Depositary 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 Depositary Agent.
(e) In performing any duties under this Agreement, the Depositary
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
Depositary Agent. The Depositary 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
Depositary Agent shall in good faith believe to be genuine, nor will the
Depositary Agent be liable or responsible for forgeries, fraud,
impersonations or determining the scope of any representative authority. In
addition, the Depositary Agent may consult with legal counsel in connection
with the Depositary 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 Depositary 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.
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(f) 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 Depositary Agent will not be required to
determine the controversy or to take any action regarding it, except to
comply with any arbitration decision, order or award as provided in Section
7. The Depositary Agent may hold all documents and shares of Acquiror
Common Stock and may wait for settlement of any such controversy by final
appropriate legal proceedings or other means as, in the Depositary Agent's
discretion, the Depositary Agent may be required to wait for, despite what
may be set forth elsewhere in this Agreement. In such event, the Depositary
Agent will not be liable for any damages. Furthermore, the Depositary Agent
may at its option, file an action of interpleader requiring the parties to
answer and litigate any claims and rights among themselves. The Depositary
Agent is authorized to deposit with the clerk of the court all documents
and shares of Acquiror Common Stock held in escrow, except all costs,
expenses, charges and reasonable attorney fees incurred by the Depositary
Agent due to the interpleader action shall be paid by the parties (other
than the Stockholders' Agent) and the parties (other than the Stockholders'
Agent) jointly and severally agree to pay. Upon initiating such action, the
Depositary Agent shall be fully released and discharged of and from all
obligations and liability imposed by the terms of this Agreement.
(g) Acquiror and its successors and assigns agree jointly and
severally to indemnify and hold the Depositary Agent harmless against any
and all Losses incurred by the Depositary Agent in connection with the good
faith performance by the Depositary Agent of his or her duties under this
Agreement, including any litigation arising from this Agreement or
involving its subject matter.
(h) The Depositary Agent may resign at any time upon giving at least
30 days' written notice to the parties; provided, however, that no such
resignation shall become effective until the appointment of a successor
depositary agent which shall be accomplished as follows: the Acquiror and
the Stockholders' Agent shall use their commercially reasonable efforts to
mutually agree on a successor depositary agent within thirty (30) days
after receiving such notice. If the Acquiror and the Stockholders' Agent
fail to agree upon a successor depositary agent within such time, the
Depositary Agent shall have the right to apply to a court of competent
jurisdiction to appoint a successor depositary agent authorized to do
business in the State of California that is a bank or financial
institution. The successor Depositary 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 depositary agent as if originally named as escrow agent.
The Depositary Agent shall then be discharged from any further duties and
liability under this Agreement.
(i) All fees of the Depositary Agent for performance of its duties
hereunder shall be paid and expenses reimbursed by Acquiror. In the event
that the conditions of this Agreement are not promptly fulfilled, or if the
Depositary 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 Depositary Agent is made a party to, or
intervenes in, any Action or Proceeding pertaining to this escrow or its
subject matter, the Depositary 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 Action or
Proceeding. Acquiror agrees to pay these sums upon demand.
12. General.
(a) All notices and other communications hereunder shall be in writing
and shall be deemed given to a party if (i) delivered personally or by
commercial delivery service to such
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party, or (ii) after five business days from the date mailed by registered
or certified mail (return receipt requested) or (iii) one business day
after dispatch via facsimile (with confirmation of receipt) to such party
(with a copy to their respective counsel, designated below) at the
following address (or at such other address for a party as shall be
specified by like notice):
To Acquiror:
Redback Networks Inc.
1389 Moffett Park Drive
Sunnyvale, CA 94089
Attention: Craig Gentner
Telephone: 408-548-3500
Facsimile: 408-548-3599
With a copy to Acquiror's counsel:
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
155 Constitution Drive
Menlo Park, CA 94025
Attention: Renee F. Lanam
Telephone: 650-321-2400
Facsimile: 650-321-2800
To Stockholders' Agent:
Vivek Ragavan
Siara Systems, Inc.
1195 Borregas Avenue
Sunnyvale, CA 94089
Telephone: 408-548-9300
Facsimile: 408-541-0325
With a copy to Target's counsel:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Attention: Barry Kramer
Telephone: (650) 494-0600
Facsimile: (650) 494-1417
To the Depositary Agent:
State Street Bank and Trust Company
of California, N.A.
633 West 5th Street, 12th Floor
Los Angeles, CA 90071
Attention: Corporate Trust
Administration (Redback/Siara Escrow)
Telephone: (213) 362-7369
Facsimile: (213) 362-7357
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With a copy to Depositary Agent's counsel:
Shipman & Goodwin LLP
One American Row
Hartford, CT 06103-2819
Attention: Daniel P. Brown, Jr., Esq.
Telephone: (860) 251-5919
Facsimile: (860) 251-5999
or to such other address as any party may have furnished in writing to the other
parties in the manner provided above. Any notice addressed to the Depositary
Agent shall be effective only upon receipt. If any Officer's Certificate,
objection thereto or other notice or document of any kind is required to be
delivered to the Depositary Agent and any other person, the Depositary Agent may
assume without inquiry that such Officer's Certificate or other document was
received by such other person on the day on which it was received by the
Depositary Agent.
(b) The captions in this Agreement are for convenience only and shall
not be considered a part of or affect the construction or interpretation of
any provision of this Agreement.
(c) This Agreement may be executed in any number of counterparts, each
of which when so executed shall constitute an original copy hereof, but all
of which together shall constitute one agreement.
(d) No party may, without the prior express written consent of each
other party, assign this Agreement in whole or in part. This Agreement
shall be binding upon and inure to the benefit of the respective successors
and assigns of the parties hereto.
(e) This Agreement shall be governed by and construed in accordance
with the laws of the State of California as applied to contracts made and
to be performed entirely within the State of California. The parties to
this Agreement hereby agree to submit to personal jurisdiction in the State
of California.
13. Tax Reporting Matters. The Acquiror and the Stockholders' Agent on
behalf of the Stockholders agree to use diligent efforts to provide the
Depositary Agent with certified tax identification numbers for each of them by
furnishing appropriate Forms W-9 (or Forms W-8, in the case of non-U.S. persons)
and other forms and documents that the Depositary Agent may reasonably request
(collectively, "Tax Reporting Documentation") within 30 days after the date
hereof. The parties hereto understand that, if such Tax Reporting Documentation
is not so certified to the Depositary Agent, the Depositary Agent may be
required by the Internal Revenue Code, as it may be amended from time to time,
to withhold a portion of the Escrow Shares or any interest or other income
earned on the investment of monies or other property held by the Depositary
Agent pursuant to this Agreement.
14. Investments of Cash; Tax Reporting of Income. Cash received and
required to be held by the Depositary Agent, if any, shall be invested by the
Depositary Agent in the SSgA U. S. Treasury Money Market Fund and income earned
thereon shall be allocated for tax reporting and withholding purposes to the
Stockholders in accordance with their percentage interests in the Escrow Fund
set forth in Annex B.
15. Depositary Agent's dealing with Transfer Agent. The Depositary Agent is
not the transfer agent of the Escrow Shares. Acquiror shall deliver to the
Depositary Agent a certificate setting forth the name, address, telephone number
and fax number of such transfer agent and shall cause such transfer agent to
cooperate with the Depositary Agent in the performance of its duties under this
Agreement. When Escrow Shares are required to be delivered by the Depositary
Agent, the
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Depositary Agent shall be deemed to have completed such delivery when it has
delivered certificates representing the applicable Escrow Shares to the transfer
agent with instructions as to how Escrow Shares should be distributed.
16. Cash-in-Lieu Payments. The Depositary Agent need not distribute
fractional shares of Escrow Shares. In lieu of distributing such fractional
shares, the Depositary Agent shall deliver (or cause the transfer agent of the
Escrow Shares to deliver), with monies to be provided by Acquiror, cash-in-lieu
of such fractional interests valued in accordance with Section 5(b). Acquiror
will be deemed to have purchased Escrow Shares with respect to which it has
provided cash-in-lieu payments to the Depositary Agent.
IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first above written.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.
as Depositary Agent
By:
------------------------------------
Scott C. Emmons
Vice President
REDBACK NETWORKS INC.
By:
------------------------------------
Dennis L. Barsema
Chief Executive Officer and
President
SIARA SYSTEMS, INC.
By:
------------------------------------
Vivek Ragavan
Chief Executive Officer and
President
STOCKHOLDERS' AGENT
--------------------------------------
Vivek Ragavan
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102 of the Delaware General Corporation Law, or the DGCL, as
amended, allows a corporation to eliminate the personal liability of directors
of a corporation to the corporation or its stockholders for monetary damages for
a breach of fiduciary duty as a director, except where the knowingly violated a
law, authorized the payment of a dividend or approved a stock repurchase in
violation of Delaware corporate law or obtained an improper personal benefit.
Section 145 of the DGCL provides, among other things, that we may indemnify
any person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding (other than an
action by or in the right of Redback) by reason of the fact that the person is
or was a director, officer, agent or employee of Redback or is or was serving at
our request as a director, officer, agent, or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgment, fines and amounts paid in settlement
actually and reasonably incurred by the person in connection with the action,
suit or proceeding. The power to indemnify applies (a) if the person is
successful on the merits or otherwise in defense of any action, suit or
proceeding, or (b) if the person acted in good faith and in a manner he
reasonably believed to be in the best interest, or not opposed to the best
interest, of Redback, and with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful. The power to indemnify
applies to actions brought by or in the right of Redback as well, but only to
the extent of defense expenses (including attorneys' fees but excluding amounts
paid in settlement) actually and reasonably incurred and not to any satisfaction
of judgment or settlement of the claim itself, and with the further limitation
that in these actions no indemnification shall be made in the event of any
adjudication of negligence or misconduct in the performance of his duties to
Redback, unless the court believes that in light of all the circumstances
indemnification should apply.
Section 174 of the DGCL provides, among other things, that a director, who
willfully or negligently approves of an unlawful payment of dividends or an
unlawful stock purchase or redemption, may be held liable for these actions. A
director who was either absent when the unlawful actions were approved or
dissented at the time, may avoid liability by causing his or her dissent to
these actions to be entered in the books containing the minutes of the meetings
of the board of directors at the time the action occurred or immediately after
the absent director receives notice of the unlawful acts.
Redback's Amended and Restated Certificate of Incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to Redback or its
stockholders;
- for acts of omissions not in good faith that involve intentional
misconduct or a knowing violation of law;
- under Section 174 of the DGCL regarding unlawful dividends and stock
purchases; and
- for any transaction from which the director derived an improper personal
benefit.
These provisions are permitted under Delaware law. This provision in the
Certificate of Incorporation does not eliminate the directors' fiduciary duty,
and in appropriate circumstances equitable remedies such as injunctive or other
forms of non-monetary relief will remain available under Delaware law.
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The provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Redback's Amended and Restated Bylaws provide for mandatory indemnification
of its directors and permissible indemnification of officers and employees to
the maximum extent permitted by Delaware law.
Redback has entered into Indemnification Agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The Indemnification Agreements provide Redback's officers
and directors with further indemnification to the maximum extent permitted by
the DGCL.
Section 4.13 of the Merger Agreement and Plan of Reorganization, which is
attached as Exhibit 2.1 hereto, provides for indemnification of officers and
directors of Redback against certain liabilities. Redback has agreed that, from
and after the closing of the merger, it will fulfill all of Siara's obligations
to indemnify, defend or advance expenses to officers and directors, employees
and agents of Siara or its subsidiary Siara Research Canada, Inc. in respect of
acts or omissions occurring on or prior to the closing of the merger to the
extent provided under Siara's then effective certificate of incorporation or
bylaws, Siara Research Canada, Inc.'s charter documents or any indemnification
agreement in effect on the date of the merger agreement. Redback has also agreed
to indemnify, defend and advance expenses to officers and directors, of Siara
and Siara Research Canada, Inc. for matters arising prior to the merger to the
extent such persons would be entitled to this protection under Redback's
certificate of incorporation or bylaws or the charter documents of Siara
Research Canada, Inc.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Merger Agreement and Plan of Reorganization, dated as of
November 28, 1999 by and among Redback Networks Inc., Siara
Systems, Inc. and the Stockholder Agent (included as
Appendix A to the joint proxy statement/prospectus which
forms a part of this Registration Statement).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Form S-1 as
declared effective on May 18, 1999 (File No. 333-74479)).
3.2 Form of Redback's Proposed Amended and Restated Certificate
of Incorporation, to be filed upon the offering made
pursuant to this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Form S-1 as declared effective on May
18, 1999 (File No. 333-74479)).
4.1 Specimen common stock certificate (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
4.2 Investors' Rights Agreement dated as of July 2, 1998.
4.3 Form of Amendment No. 1 to Amended and Restated Investors'
Rights Agreement of the Registrant (included as Exhibit C to
Appendix A to the joint proxy statement/prospectus which
forms a part of this Registration Statement).
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian LLP regarding the validity of the securities being
registered.
8.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian LLP regarding certain federal income tax
consequences relating to the merger.+
8.2 Opinion of Fenwick & West LLP regarding certain federal
income tax consequences relating to the merger.+
</TABLE>
II-2
<PAGE> 305
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
9.1 Form of Irrevocable Proxy and Voting Agreement signed by
certain stockholders of Redback Networks Inc. (included as
Exhibit A to Appendix A to the joint proxy
statement/prospectus which forms a part of in this
Registration Statement).
9.2 Form of Irrevocable Proxy and Voting Agreement signed by
certain stockholders of Siara Systems, Inc. (included as
Exhibit B to Appendix A to the joint proxy
statement/prospectus which forms a part of in this
Registration Statement).
10.1 Employment Agreement between Redback Networks Inc. and Vivek
Ragavan.
10.2 Employment Agreement between Redback Networks Inc. and
William Kind.
10.3 Employment Agreement between Redback Networks Inc. and
Pankaj Patel.
10.4 Form of Indemnification Agreement between the Registrant and
each of its directors and officers (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
10.5 Sublease between Registrant and Infoseek Corporation, dated
January 12, 1998 (without exhibits) (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
10.6 First Amendment to Sublease between Redback and Infoseek
Corporation, dated January 15, 1999 (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
10.7 Redback Networks Inc. 1999 Stock Incentive Plan, as amended.
10.8 Redback Networks Inc. 1999 Directors' Option Plan, as
amended.
10.9 Redback Networks Inc. 1999 Employee Stock Purchase Plan, as
amended.
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accountants.
23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
23.4 Consent of Counsel. Reference is made to Exhibit 8.1.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
99.1 Form of Redback Networks Inc. Proxy Card.
99.2 Consent to Goldman, Sachs & Co.+
</TABLE>
- ------------------------
+ (to be filed by amendment)
(b) FINANCIAL STATEMENT SCHEDULES
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) 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), 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.
(2) that every prospectus (i) that is filed pursuant to paragraph (1)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Securities Act of 1933 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
II-3
<PAGE> 306
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.
(3) 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.
(4) 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.
(5) 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.
II-4
<PAGE> 307
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 Sunnyvale, State of
California, on this first day of February, 2000.
REDBACK NETWORKS INC.
By: /s/ DENNIS L. BARSEMA
------------------------------------
Dennis L. Barsema
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints jointly
and severally, Dennis L. Barsema and Craig M. Gentner, and each one of them, his
attorneys-in-fact, each with the power of substitution, for him in any and all
capacities, to sign any and all amendments to this Registration Statement
(including post effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitute or substitutes, may do or cause to be done
by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
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/ DENNIS L. BARSEMA President, Chief Executive February 1, 2000
- ------------------------------------------------ Officer (Principal Executive
Dennis L. Barsema Officer)
and Director
/s/ CRAIG M. GENTNER Vice President of Finance, Chief January 28, 2000
- ------------------------------------------------ Financial Officer (Principal
Craig M. Gentner Financial and Accounting
Officer) and Corporate Secretary
Director January , 2000
- ------------------------------------------------
James R. Flach
/s/ WILLIAM KURTZ Director January 28, 2000
- ------------------------------------------------
William Kurtz
/s/ PIERRE R. LAMOND Director January 29, 2000
- ------------------------------------------------
Pierre R. Lamond
/s/ DANIEL J. WARMENHOVEN Director January 29, 2000
- ------------------------------------------------
Daniel J. Warmenhoven
</TABLE>
II-5
<PAGE> 308
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Merger Agreement and Plan of Reorganization, dated as of
November 28, 1999 by and among Redback Networks Inc., Siara
Systems, Inc. and the Stockholder Agent (included as
Appendix A to the joint proxy statement/prospectus which
forms a part of this Registration Statement).
3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Form S-1 as
declared effective on May 18, 1999 (File No. 333-74479)).
3.2 Form of Redback's Proposed Amended and Restated Certificate
of Incorporation, to be filed upon the offering made
pursuant to this Registration Statement.
3.3 Amended and Restated Bylaws of the Registrant (incorporated
herein by reference to Form S-1 as declared effective on May
18, 1999 (File No. 333-74479)).
4.1 Specimen common stock certificate (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
4.2 Investors' Rights Agreement dated as of July 2, 1998.
4.3 Form of Amendment No. 1 to Amended and Restated Investors'
Rights Agreement of the Registrant (included as Exhibit C to
Appendix A to the joint proxy statement/prospectus which
forms a part of this Registration Statement).
5.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian LLP regarding the validity of the securities being
registered.
8.1 Opinion of Gunderson Dettmer Stough Villeneuve Franklin &
Hachigian LLP regarding certain federal income tax
consequences relating to the merger.+
8.2 Opinion of Fenwick & West LLP regarding certain federal
income tax consequences relating to the merger.+
9.1 Form of Irrevocable Proxy and Voting Agreement signed by
certain stockholders of Redback Networks Inc. (included as
Exhibit A to Appendix A to the joint proxy
statement/prospectus which forms a part of in this
Registration Statement).
9.2 Form of Irrevocable Proxy and Voting Agreement signed by
certain stockholders of Siara Systems, Inc. (included as
Exhibit B to Appendix A to the joint proxy
statement/prospectus which forms a part of in this
Registration Statement).
10.1 Employment Agreement between Redback Networks Inc. and Vivek
Ragavan.
10.2 Employment Agreement between Redback Networks Inc. and
William Kind.
10.3 Employment Agreement between Redback Networks Inc. and
Pankaj Patel.
10.4 Form of Indemnification Agreement between the Registrant and
each of its directors and officers (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
10.5 Sublease between Registrant and Infoseek Corporation, dated
January 12, 1998 (without exhibits) (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
10.6 First Amendment to Sublease between Redback and Infoseek
Corporation, dated January 15, 1999 (incorporated herein by
reference to Form S-1 as declared effective on May 18, 1999
(File No. 333-74479)).
10.7 Redback Networks Inc. 1999 Stock Incentive Plan, as amended.
10.8 Redback Networks Inc. 1999 Directors' Option Plan, as
amended.
10.9 Redback Networks Inc. 1999 Employee Stock Purchase Plan, as
amended.
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accountants.
23.3 Consent of Counsel. Reference is made to Exhibit 5.1.
23.4 Consent of Counsel. Reference is made to Exhibit 8.1.
24.1 Power of Attorney (included on signature page).
27.1 Financial Data Schedule.
99.1 Form of Redback Networks Inc. Proxy Card.
99.2 Consent of Goldman, Sachs & Co.+
</TABLE>
- ------------------------
+ (to be filed by amendment)
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF REDBACK NETWORKS INC.,
A DELAWARE CORPORATION
The undersigned, Dennis L. Barsema, hereby certifies that:
ONE: He is the duly elected and acting President of said
corporation.
TWO: The name of the corporation is Redback Networks Inc. and
that the corporation was originally incorporated on August 30, 1996 pursuant to
the General Corporation Law of the State of Delaware.
THREE: Pursuant to Section 242 and Section 245 of the General
Corporation Law of the State of Delaware, Redback Networks Inc. has adopted this
Amended and Restated Certificate of Incorporation, restating, integrating and
further amending its Amended and Restated Certificate of Incorporation dated on
or about September 11, 1998, as amended on March 24, 1999, which Amended and
Restated Certificate of Incorporation has been duly proposed by the directors
and adopted by the stockholders of this corporation (by written consent pursuant
to Section 228 of said General Corporate Law) in accordance with the provisions
of said Section 242 and Section 245.
FOUR: The Amended and Restated Certificate of Incorporation of
said corporation shall be amended and restated to read in full as follows:
ARTICLE I
The name of this corporation is Redback Networks Inc.
ARTICLE II
The address of the registered office of this corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, 19801, County of New Castle. The name of its registered agent at
such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares that this corporation is authorized to issue is two hundred and
ten million (210,000,000) shares. Two
<PAGE> 2
hundred million (200,000,000) shares shall be Common Stock, par value $.0001 per
share, and ten million (10,000,000) shares shall be Preferred Stock, par value
$.0001 per share.
The Preferred Stock may be issued from time to time in one or
more series, without further stockholder approval. The Board of Directors is
hereby authorized, in the resolution or resolutions adopted by the Board of
Directors providing for the issuance of any wholly unissued series of Preferred
Stock, within the limitations and restrictions stated in this Amended and
Restated Certificate of Incorporation (the "Restated Certificate"), to fix or
alter the dividend rights, dividend rate, conversion rights, voting rights,
rights and terms of redemption (including sinking fund provisions), the
redemption price or prices, and the liquidation preferences of any wholly
unissued series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them, and to increase or
decrease the number of shares of any series subsequent to the issue of shares of
that series, but not below the number of shares of such series then outstanding.
In case the number of shares of any series shall be so decreased, the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
ARTICLE V
Except as otherwise provided in this Restated Certificate, in
furtherance and not in limitation of the powers conferred by statute, the Board
of Directors is expressly authorized to make, repeal, alter, amend and rescind
any or all of the Bylaws of this corporation.
ARTICLE VI
The number of directors of this corporation shall be fixed from
time to time by a bylaw or amendment thereof duly adopted by the Board of
Directors or by the stockholders.
ARTICLE VII
Elections of directors need not be by written ballot unless the
Bylaws of this corporation shall so provide.
ARTICLE VIII
Except as otherwise provided in this Restated Certificate, any
action required or permitted to be taken by the stockholders of the Corporation
must be effected at an annual or special meeting of the stockholders of the
Corporation, and no action required to be taken or that may be taken at any
annual or special meeting of the stockholders of the Corporation may be taken by
written consent.
ARTICLE IX
A director of this corporation shall, to the full extent
permitted by the Delaware General Corporation Law as it now exists or as it may
hereafter be amended, not be liable to this
2
<PAGE> 3
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director. Neither any amendment nor repeal of this Article IX, nor the
adoption of any provision of this Restated Certificate of Incorporation
inconsistent with this Article IX, shall eliminate or reduce the effect of this
Article IX in respect of any matter occurring, or any cause of action, suit or
claim that, but for this Article IX, would accrue or arise, prior to such
amendment, repeal or adoption of an inconsistent provision.
ARTICLE X
This corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
ARTICLE XI
To the fullest extent permitted by applicable law, the
Corporation is authorized to provide indemnification of (and advancement of
expenses to) agents of the Corporation (and any other persons to which General
Corporation Law permits the Corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
General Corporation Law, subject only to limits created by applicable General
Corporation Law (statutory or non-statutory), with respect to actions for breach
of duty to the Corporation, its stockholders, and others.
Any amendment, repeal or modification of the foregoing
provisions of this Article XI shall not adversely affect any right or protection
of a director, officer, agent, or other person existing at the time of, or
increase the liability of any director of the Corporation with respect to, any
acts or omissions of such director, officer or agent occurring prior to such
amendment, repeal or modification.
* * *
FIVE: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law by obtaining the vote of the holders of the majority of
the outstanding stock of the corporation in favor of said amendment and
restatement in the manner set forth in Section 228 of the General Corporation
Law.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned has executed this
certificate on ________, 2000.
/s Dennis L. Barsema
---------------------------------
Dennis L. Barsema, President
<PAGE> 1
EXHIBIT 4.2
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
REDBACK NETWORKS INC.
JULY 2, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. Registration Rights ................................................... 1
1.1 Definitions .................................................. 1
1.2 Request for Registration ..................................... 2
1.3 Company Registration ......................................... 4
1.4 Obligations of the Company ................................... 4
1.5 Furnish Information .......................................... 5
1.6 Expenses of Demand Registration .............................. 5
1.7 Expenses of Company Registration ............................. 6
1.8 Underwriting Requirements .................................... 6
1.9 Delay of Registration ........................................ 7
1.10 Indemnification ............................................. 7
1.11 Reports Under Securities Exchange Act of 1934 ............... 9
1.12 Form S-3 Registration ....................................... 9
1.13 Assignment of Registration Rights ........................... 10
1.14 "Market Stand-Off" Agreement Rights ......................... 11
1.15 Termination of Registration Rights .......................... 11
2. Covenants of the Company .............................................. 12
2.1 Delivery of Financial Statements ............................. 12
2.2 Inspection ................................................... 12
2.3 Termination of Information and Inspection Covenants .......... 13
2.4 Right of First Offer ......................................... 13
2.5 Qualified Small Business Stock ................................ 14
3. Voting Provisions ..................................................... 14
3.1 Agreement to Vote ............................................ 14
3.2 Election of Director ......................................... 15
4. Miscellaneous ......................................................... 15
4.1 Successors and Assigns ....................................... 15
4.2 Governing Law ................................................ 15
4.3 Counterparts ................................................. 15
4.4 Titles and Subtitles ......................................... 15
4.5 Notices ...................................................... 15
4.6 Expenses ..................................................... 16
4.7 Termination of Prior Agreement ............................... 16
4.8 Amendments and Waivers ....................................... 16
4.9 Severability ................................................. 16
4.10 Aggregation of Stock ....................................... 16
4.11 Entire Agreement ............................................ 16
Schedule A Schedule of Investors
Schedule B Schedule of Management Holders
</TABLE>
i
<PAGE> 3
AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is made as of July 2, 1998, by and among RedBack Networks Inc., a
Delaware corporation (the "Company"), and the investors listed on Schedule A
hereto, each of which is herein referred to as an "Investor," and the founders
listed on Schedule B hereto, each of which is herein referred to as a "Founder."
RECITALS
WHEREAS, certain of the Investors (the "Existing Investors")
have heretofore purchased Series A, Series B and Series C Preferred Stock from
the Company and possess registration and other investor rights contained in that
certain Investors' Rights Agreement dated October 23, 1997 (the "Prior
Agreement");
WHEREAS, the Company and certain of the Investors (the "Series D
Investors") are parties to the Series D Preferred Stock Purchase Agreement dated
July 2, 1998 (the "Series D Agreement") between the Company and the Investors
listed on the Schedule of Investors attached thereto, pursuant to which the
Series D Investors are purchasing shares of Series D Preferred Stock of the
Company;
WHEREAS, in order to induce the Company to enter into the Series
D Agreement and to induce the Series D Investors to invest funds in the Company
pursuant to the Series D Agreement, the Existing Investors and the Company
desire to terminate the Prior Agreement and provide that this Agreement shall
govern the rights of the Investors to cause the Company to register shares of
Common Stock issuable to the Investors and certain other matters as set forth
herein;
WHEREAS, by executing this Agreement, the Existing Investors
agree to waive the right of first offer contained in the Prior Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1 Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-3" means such form under the Act as in
effect on the date hereof or any registration form under the Act subsequently
adopted by the SEC that permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the SEC.
<PAGE> 4
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in accordance
with Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act
of 1934, as amended.
(e) The terms "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock, (ii) the shares of Common Stock issued to the Founders;
provided, however, that such shares of Common Stock shall not be deemed
Registrable Securities and the aforementioned individuals shall not be deemed
Holders for the purposes of Sections 1.2, 1.12 and 4.8, and (iii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of the
shares referenced in (i) and (ii) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 Request for Registration.
(a) If the Company shall receive at any time after the earlier
of (i) July 2, 2003, or (ii) six (6) months after the effective date of the
first registration statement for a public offering of securities of the Company
(other than a registration statement relating either to the sale of securities
to employees of the Company pursuant to a stock option, stock purchase or
similar plan or a SEC Rule 145 transaction), a written request from the Holders
of a majority of the Registrable Securities then outstanding that the Company
file a registration statement under the Act covering the registration of at
least twenty-five percent (25%) of the Registrable Securities then outstanding
(or a lesser percent if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would exceed $7,500,000), then the
Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
2
<PAGE> 5
(ii) effect as soon as practicable, and in any event
within sixty (60) days of the receipt of such request, the registration under
the Act of all Registrable Securities that the Holders request to be registered,
subject to the limitations of subsection 1.2(b), within twenty (20) days of the
mailing of such notice by the Company in accordance with Section 4.5.
(b) If the Holders initiating the registration request
hereunder ("Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to subsection 1.2(a) and the
Company shall include such information in the written notice referred to in
subsection 1.2(a). The underwriter will be selected by the Company and shall be
reasonably acceptable to a majority in interest of the Initiating Holders. In
such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders; provided,
however, that the Company may not utilize this right more than once in any
twelve (12) month period.
(d) In addition, the Company shall not be obligated to effect,
or to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
3
<PAGE> 6
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If (but without any obligation to do
so) the Company proposes to register (including for this purpose a registration
effected by the Company for stockholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 4.5, the Company shall, subject to the provisions of
Section 1.8, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed.
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of all securities covered
by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably request
in order to facilitate the disposition of Registrable Securities owned by them.
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(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or blue sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.5 Furnish Information.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders
(provided such counsel
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shall be the same as counsel for the Company) shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the Company of such material
adverse change, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2.
1.7 Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of one counsel for the selling Holders
selected by them, but excluding underwriting discounts and commissions relating
to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by stockholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, that the underwriters determine in their sole discretion
will not jeopardize the success of the offering (any reduction in the securities
so included shall be first taken from the securities of selling stockholders who
are former employees of the Company; thereafter, any remaining reduction shall
be apportioned pro rata among the selling stockholders according to the total
amount of securities entitled to be included therein owned by each such selling
stockholder or in such other proportions as shall mutually be agreed to by such
selling stockholders) but in no event shall (i) the amount of securities of the
selling Holders included in the offering be reduced below twenty-five percent
(25%) of the total amount of securities included in such offering, unless such
offering is the initial public offering of the Company's securities, in which
case the selling stockholders may be excluded if the underwriters make the
determination described above and no other stockholder's securities are included
or (ii) notwithstanding (i) above, any shares being sold by a stockholder
exercising a demand registration right similar to that granted in Section 1.2 be
excluded from such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling
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stockholder that is a holder of Registrable Securities and that is a partnership
or corporation, the partners, retired partners and stockholders of such holder,
or the estates and family members of any such partners and retired partners and
any trusts for the benefit of any of the foregoing persons shall be deemed to be
a single "selling stockholder," and any pro-rata reduction with respect to such
"selling stockholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling stockholder," as defined in this sentence.
1.9 Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder, and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively, a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages
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or liabilities (joint or several) to which any of the foregoing persons may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b) in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder (which consent shall not be unreasonably withheld); provided that
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and, to the extent the
indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
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indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.10 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, at all times after the effective
date of the first registration statement filed by the Company for the offering
of its securities to the general public;
(b) take such action, including the voluntary registration of
its Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive
from any Holder or Holders a written request or requests that the Company effect
a registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
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(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this section 1.12: (1) if
Form S-3 is not available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1,000,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.12; provided, however, that the Company shall not utilize this right more than
once in any twelve (12) month period; (4) if the Company has, within the twelve
(12) month period preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to this Section 1.12; or (5)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.12, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company and including any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration. Registrations
effected pursuant to this Section 1.12 shall not be counted as demands for
registration or registrations effected pursuant to Sections 1.2 or 1.3,
respectively.
1.13 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities who, after such assignment or transfer, holds at
least 400,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations after the date hereof), provided: (a) the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the
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securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject to
the terms and conditions of this Agreement, including without limitation the
provisions of Section 1.14 below; and (c) such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Act. For the
purposes of determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
1.
1.14 "Market Stand-Off" Agreement Rights. Each Investor hereby
agrees that, during the period of duration specified by the Company and an
underwriter of Common Stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the Act,
it shall not, to the extent requested by the Company and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of the Company held by it at any time during such period except
Common Stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company that covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(c) such market stand-off time period shall not exceed one
hundred eighty (180) days.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
each Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.15 Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public or, as to any Holder, such earlier time at which all Registrable
Securities held by such Holder can be sold in any three (3) month period without
registration in compliance with Rule 144 of the Act.
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2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company shall deliver
to each Investor:
(a) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year of the Company, an income statement for
such fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such year, and a statement of cash flows for such year,
such year-end financial reports to be in reasonable detail, prepared in
accordance with generally accepted accounting principles ("gaap"), and audited
and certified by independent public accountants of nationally recognized
standing selected by the Company;
(b) so long as such Investor holds at least 400,000 shares of
Preferred Stock (either in the form of Preferred Stock or Common Stock issued
upon conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications after the date hereof), as soon as
practicable, but in any event within forty-five (45) days after the end of each
of the first three (3) quarters of each fiscal year of the Company, an unaudited
income statement and statement of cash flows for such fiscal quarter and an
unaudited balance sheet and a statement of stockholder's equity as of the end of
such fiscal quarter;
(c) so long as such Investor holds at least 400,000 shares of
Preferred Stock (either in the form of Preferred Stock or Common Stock issued
upon conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), within thirty (30) days of the end of each
month, an unaudited income statement and statement of cash flows and balance
sheet for and as of the end of such month, in reasonable detail;
(d) so long as such Investor holds at least 400,000 shares of
Preferred Stock (either in the form of Preferred Stock or Common Stock issued
upon conversion thereof, and as adjusted for subsequent stock splits,
recombinations or reclassifications), as soon as practicable, but in any event
thirty (30) days prior to the end of each fiscal year, a budget for the next
fiscal year, prepared on a monthly basis, including balance sheets and
statements of cash flows, for such months, and, as soon as prepared, any other
budgets or revised budgets prepared by the Company; and
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company certifying that such financials
were prepared in accordance with gaap consistently applied with prior practice
for earlier periods (with the exception of footnotes that may be required by
gaap) and fairly present the financial condition of the Company and its results
of operations for the period specified, subject to year-end audit adjustment.
2.2 Inspection. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall
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not be obligated pursuant to this Section 2.2 to provide access to any
information that it reasonably considers to be a trade secret or similar
confidential information.
2.3 Termination of Information and Inspection Covenants. The
covenants set forth in Section 2.1 and Section 2.2 shall terminate as to
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public is consummated or when the Company first becomes subject to
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
specified in this paragraph 2.4, the Company hereby grants to each Major
Investor (as hereinafter defined) a right of first offer with respect to future
sales by the Company of its Shares (as hereinafter defined). For purposes of
this Section 2.4, a Major Investor shall mean any Investor who holds at least
400,000 shares of Common Stock issued or issuable upon conversion of the Series
A, Series B, Series C or Series D Preferred Stock (subject to appropriate
adjustment for stock splits, stock dividends, combinations and other
recapitalizations after the date hereof). For purposes of this Section 2.4,
Investors include any general partners and affiliates of an Investor. An
Investor shall be entitled to apportion the right of first offer hereby granted
it among itself and its partners and affiliates in such proportions as it deems
appropriate. For the purposes of this Section 2.4, any entities affiliated with
Accel Partners, Sequoia Capital or Mayfield Fund may aggregate their share
holdings and may allocate such aggregated amounts among such entities as they
deem appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exercisable for, any shares of any class of its
capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Major Investor stating (i) its bona fide intention to offer
such Shares, (ii) the number of such Shares to be offered, and (iii) the price
and terms, if any, upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after giving of the Notice, the Major Investor may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series A, Series B, Series C and Series D Preferred Stock then held, by such
Major Investor bears to the total number of shares of Common Stock of the
Company then outstanding (assuming full conversion, exercise and exchange of all
convertible, exercisable or exchangeable securities).
(c) If all Shares referred to in the Notice which Major
Investors are entitled to obtain pursuant to subsection 2.4(b) are not elected
to be obtained as provided in subsection
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2.4(b) hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within sixty (60) days of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Major Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options
therefor) to employees or directors of or consultants to the Company for the
primary purpose of soliciting or retaining their services, (ii) to or after
consummation of a bona fide, firmly underwritten public offering of shares of
Common Stock, registered under the Act pursuant to a registration statement on
Form S-1 or SB-2, (iii) the issuance of securities pursuant to the conversion,
exercise or exchange of convertible, exercisable or exchangeable securities,
(iv) the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale or exchange of stock or otherwise, or (v) the issuance of stock,
warrants or other securities or rights to persons or entities with which the
Company has business relationships, provided such issuances are for other than
primarily equity financing purposes.
(e) The right of first offer set forth in this Section 2.4 may
not be assigned or transferred, except (i) to any transferee of 250,000 shares
or more of Registrable Securities (subject to appropriate adjustment for all
stock splits, dividends, subdivisions, combinations, recapitalizations and the
like), (ii) by each Investor to any wholly owned subsidiary or parent of, or to
any corporation or entity that is, within the meaning of the Acts controlling,
controlled by or under common control with, any such Investor and (iii) between
and among any of the Investors.
2.5 Qualified Small Business Stock. As of the Closing, (i) the
Company will not have made any purchases of its own stock during the one-year
period preceding the Closing which would cause the Series D Preferred Stock
issued pursuant to the Series D Agreement to fail to qualify as "qualified small
business stock" within the meaning of Section 1202 of the Internal Revenue Code
of 1986, as amended (the "Code"), by reason of Code Section 1202(c)(3)(B), and
(ii) the Company's aggregate gross assets, as defined by Code Section
1202(d)(2), at no time through the Closing exceeded or will exceed $50 million,
taking into account the assets of any corporation required to be aggregated with
the Company in accordance with Code Section 1202(d)(3). The Company will use
reasonable efforts to comply with the reporting and record keeping requirements
of Code Section 1202 and any regulations thereunder.
3. Voting Provisions.
3.1 Agreement to Vote. Each Investor, as a holder of the
Company's Preferred Stock (the "Preferred Stock"), hereby agrees on behalf of
itself and any transferee or
14
<PAGE> 17
assignee of any such shares of the Preferred Stock, to hold all of the shares of
Preferred Stock registered in its name (and any securities of the Company issued
with respect to, upon conversion of, or in exchange or substitution of the
Preferred Stock, and any other voting securities of the Company subsequently
acquired by such Investor) (hereinafter collectively referred to as the
"Investor Shares") subject to, and to vote the Investor Shares in accordance
with, the provisions of this Agreement. Each Common Holder, as a holder of
Common Stock of the Company, hereby agrees on behalf of himself or herself and
any transferee or assignee of any such shares of Common Stock, to hold all of
such shares of Common Stock and any other securities of the Company acquired by
him or her in the future (and any securities of the Company issued with respect
to, upon conversion of, or in exchange or substitution for such securities) (the
"Common Holder Shares") subject to, and to vote the Common Holder Shares in
accordance with, the provisions of this Agreement. Except as provided by this
Agreement, each Investor and Common Holder shall exercise the full rights of a
stockholder with respect to the Investor shares and Common Holder Shares.
3.2 Election of Director. The director elected to the Company's
Board of Directors pursuant to subsection 5(b)(iii) of Article IV of the Amended
and Restated Certificate (as defined in the Series D Agreement) shall have
relevant industry experience for the Company's business and shall receive the
affirmative votes of holders of a majority of the Preferred Stock and a majority
of the Common Stock.
4 Miscellaneous.
4.1 Successors and Assigns. Except as otherwise provided herein,
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
4.2 Governing Law. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California, except that Section 3 hereof shall be governed by the Delaware
General Corporation Law.
4.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
4.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon
15
<PAGE> 18
personal delivery to the party to be notified or upon deposit with the United
States Post Office, by registered or certified mail, postage prepaid and
addressed to the party to be notified at the address indicated for such party on
the signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties.
4.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
4.7 Termination of Prior Agreement. The Prior Agreement is
hereby terminated and of no further force and effect.
4.8 Amendments and Waivers. Any term of this Agreement, except
as provided in this section 4.8, may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and the holders of a majority of the Registrable Securities then
outstanding; provided, however, that in the event such amendment or waiver
adversely affects the rights and/or obligations of the Founders under this
Agreement in a different manner than the other Holders, such amendment or waiver
shall also require the written consent of a majority of the Common Stock held by
the Founders. Section 3.2 of this Agreement may not be amended without the
approval of the holders of a majority of the Preferred Stock and a majority of
the Common Stock. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.
4.9 Severability. If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
4.10 Aggregation of Stock. All shares of Registrable Securities
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
4.11 Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof.
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<PAGE> 19
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
REDBACK NETWORKS INC.
By:
-------------------------------------
Dennis L. Barsema, President
Address: 1389 Moffett Park Drive
Sunnyvale, CA 94089
Signature Page to Investors' Rights Agreement
<PAGE> 20
INVESTORS:
MAYFIELD VIII,
A CALIFORNIA LIMITED PARTNERSHIP
By: MAYFIELD VIII MANAGEMENT, L.L.C.
------------------------------------
A DELAWARE LIMITED LIABILITY
COMPANY, Its General Partner
By:
-------------------------------------
MAYFIELD ASSOCIATES FUND III,
A CALIFORNIA LIMITED PARTNERSHIP
By: MAYFIELD VIII MANAGEMENT, L.L.C.
A DELAWARE LIMITED LIABILITY
COMPANY, Its General Partner
By:
-------------------------------------
Address: 2800 Sand Hill Road
Menlo Park, California 94025
Signature Page to Investors' Rights Agreement
<PAGE> 21
SEQUOIA CAPITAL VII
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA TECHNOLOGY PARTNERS VII
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA 1995 LLC
SQP 1997
A CALIFORNIA LIMITED PARTNERSHIP
SEQUOIA 1997
A CALIFORNIA LIMITED PARTNERSHIP
By: SC VII-A Management, LLC
-------------------------------------
a California Limited Liability Company,
its General Partner
By:
-------------------------------------
----------------------------------------
Print Name
----------------------------------------
Title
Address: 3000 Sand Hill Road, Building 4,
Suite 280
Menlo Park, California 94025
Signature Page to Investors' Rights Agreement
<PAGE> 22
ACCEL V L.P.
By: Accel V Associates L.L.C.
-------------------------------------
Its General Partner
By:
------------------------------
Managing Member
ACCEL INTERNET/STRATEGIC
TECHNOLOGY FUND L.P.
By: Accel Internet/Strategic Technology
Fund
-----------------------------------
Associates L.L.C.
Its General Partner
By:
------------------------------
Managing Member
ACCEL KEIRETSU V L.P.
By: Accel Keiretsu V Associates L.L.C.
-------------------------------------
Its General Partner
By:
------------------------------
Managing Member
ACCEL INVESTORS '96 L.P.
By:
-------------------------------------
General Partner
ELLMORE C. PATTERSON PARTNERS
By:
-------------------------------------
General Partner
Address: 428 University Avenue
Palo Alto, California 94301
Signature Page to Investors' Rights Agreement
<PAGE> 23
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
By Lighthouse Management
Partners II, L.P.,
Its General Partner
By Lighthouse Capital Partners, Inc.,
Its General Partner
By:
-------------------------------------
Richard D. Stubblefield, Managing
Director
Address: 100 Drakes Landing Road, Suite 260
Greenbrae, California 94904-3121
MARSHALL SMITH
By:
-------------------------------------
Address: 26535 Weston Drive
Los Altos Hills, California 94022
JOANNE KNIGHT
By:
-------------------------------------
Address: 793 View Street
Mountain View, California 94041
Signature Page to Investors' Rights Agreement
<PAGE> 24
FOUNDERS:
----------------------------------------
Gaurav Garg
Signature Page to Investors' Rights Agreement
<PAGE> 25
G & H Partners
By:
-------------------------------------
Signature Page to Investors' Rights Agreement
<PAGE> 26
G & H Partners
By:
-------------------------------------
Signature Page to Investors' Rights Agreement
<PAGE> 27
SCHEDULE A
SCHEDULE OF INVESTORS
SEQUOIA CAPITAL VII
SEQUOIA TECHNOLOGY PARTNERS VII
SEQUOIA 1995 LLC
SQP 1997
SEQUOIA 1997
ACCEL V L.P.
ACCEL INTERNET/STRATEGIC TECHNOLOGY
FUND L.P.
ACCEL KEIRETSU V L.P.
ACCEL INVESTORS '96 L.P.
ELLMORE C. PATTERSON PARTNERS
MAYFIELD ASSOCIATES FUND III
MAYFIELD VIII
LIGHTHOUSE CAPITAL PARTNERS II, L.P.
MARSHALL SMITH
JOANNE KNIGHT
WILLIAM A. LANFRI
STANFORD UNIVERSITY
PIERRE R. AND CHRISTINE E. LAMOND TRUST
DAVID A. LAMOND TRUST
G&H PARTNERS
<PAGE> 28
F. TERRY EGER
JIM FLACH
SELINA LO
<PAGE> 29
SCHEDULE B
SCHEDULE OF MANAGEMENT HOLDERS
FOUNDER
Gaurav Garg
<PAGE> 1
EXHIBIT 5.1
___, 2000
Redback Networks Inc.
1389 Moffett Park Drive
Sunnyvale, California 94089
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-4 originally filed
by Redback Networks Inc. (the "Company") with the Securities and Exchange
Commission (the "Commission") on February , 1999, as thereafter amended or
supplemented (the "Registration Statement"), in connection with the registration
under the Securities Act of 1933, as amended, of up to 31,341,986 shares of the
Company's Common Stock (the "Shares"). As your counsel in connection with this
transaction, we have examined the proceedings taken and are familiar with the
proceedings proposed to be taken by you in connection with the issuance of the
Shares.
It is our opinion that, upon completion of the proceedings being taken or
contemplated by us, as your counsel, to be taken prior to the issuance of the
Shares and upon completion of the proceedings being taken in order to permit
such transactions to be carried out in accordance with the securities laws of
the various states where required, the Shares, when issued in the manner
described in the Registration Statement and in accordance with the resolutions
adopted by the Board of Directors of the Company, will be legally and validly
issued, fully paid and non-assessable.
We consent to the use of this opinion as an exhibit to said Registration
Statement, and further consent to the use of our name wherever appearing in
said Registration Statement, including the joint proxy statement/prospectus
constituting a part thereof, and in any amendment or supplement thereto.
Very truly yours,
GUNDERSON DETTMER STOUGH
VILLENEUVE FRANKLIN & HACHIGIAN, LLP
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of November 28, 1999, by and
between VIVEK RAGAVAN (the "Employee") and REDBACK NETWORKS INC., a Delaware
corporation (the "Company"). This Agreement shall be effective at the effective
time of the merger (the "Merger") contemplated by the Merger Agreement and Plan
of Reorganization dated November 28, 1999, by and among the Company, Siara
Systems, Inc., a Delaware corporation ("Siara Systems"), and the stockholder
agent described therein. This Agreement shall be null and void, and no parties
shall be deemed to have any rights hereunder, unless and until the Merger is
consummated.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION. The Company agrees to employ the Employee in
the position of President and Chief Operating Officer (the "Employment"). The
Employee shall report to the Company's Chief Executive Officer or to the
Company's Board of Directors, as the Company may determine. The Company shall
nominate, and shall use all reasonable efforts to permit the Employee to serve,
as a member of the Company's Board of Directors at all times after the Merger.
(b) OBLIGATIONS TO THE COMPANY. During his Employment, the
Employee shall devote his full business efforts and time to the Company. During
his Employment, without the prior written approval of the Company's Board of
Directors, the Employee shall not render services in any capacity to any other
person or entity and shall not act as a sole proprietor or partner of any other
person or entity or as a shareholder owning more than five percent of the stock
of any other corporation. The Employee shall comply with the Company's policies
and rules, as they may be in effect from time to time during his Employment.
(c) NO CONFLICTING OBLIGATIONS. The Employee represents
and warrants to the Company that he is under no obligations or commitments,
whether contractual or otherwise, that are inconsistent with his obligations
under this Agreement. The Employee represents and warrants that he will not use
or disclose, in connection with his employment by the Company, any trade secrets
or other proprietary information or intellectual property in which the Employee
or any other person has any right, title or interest and that his employment by
the Company as contemplated by this Agreement will not infringe or violate the
rights of any other person. The Employee represents and warrants to the Company
that he has returned all property and confidential information belonging to any
prior employer.
2. SALARY. The Company shall pay the Employee as compensation for
his services a base salary at a gross annual rate of not less than $325,000.
Such salary shall be payable in accordance with the Company's standard payroll
procedures.
3. VACATION AND EMPLOYEE BENEFITS. During his Employment, the
<PAGE> 2
Employee shall be eligible for paid vacations in accordance with the Company's
standard policy for similarly-situated employees, as it may be amended from time
to time. During his Employment, the Employee shall be eligible to participate in
the employee benefit plans maintained by the Company for similarly-situated
employees, subject in each case to the generally applicable terms and conditions
of the plan in question and to the determinations of any person or committee
administering such plan.
4. BUSINESS EXPENSES. During his Employment, the Employee shall
be authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.
5. TERM OF EMPLOYMENT.
(a) EMPLOYMENT AT WILL. Either party may terminate the
Employee's Employment at any time and for any reason (or no reason), and with or
without Cause, by giving the other party notice in writing. The Employee's
Employment with the Company shall be "at will," meaning that either the Employee
or the Company shall be entitled to terminate the Employee's employment at any
time and for any reason, with or without Cause. Any contrary representations
that may have been made to the Employee shall be superseded by this Agreement.
This Agreement shall constitute the full and complete agreement between the
Employee and the Company on the "at will" nature of the Employee's Employment,
which may only be changed in an express written agreement signed by the Employee
and a duly authorized officer of the Company.
(b) RIGHTS UPON TERMINATION OF EMPLOYMENT. Except as
expressly provided in Section 6, upon the termination of the Employee's
Employment pursuant to this Section 5, the Employee shall only be entitled to
the compensation, benefits and reimbursements described in Sections 2, 3 and 4
for the period preceding the effective date of the termination. The payments
under this Agreement shall fully discharge all responsibilities of the Company
to the Employee.
(c) TERMINATION OF AGREEMENT. This Agreement shall
terminate when all obligations of the parties hereunder have been satisfied. The
termination of this Agreement shall not limit or otherwise affect any of the
Employee's obligations under Sections 7 and 8.
6. TERMINATION BENEFITS.
(a) GENERAL RELEASE. Any other provision of this Agreement
notwithstanding, Subsection (b) below shall not apply unless the Employee (i)
has executed a general release (in a form prescribed by the Company) of all
known and unknown claims that he may then have against the Company or persons
affiliated with the Company and (ii) has agreed not to prosecute any legal
action or other proceeding based upon any of such claims.
2
<PAGE> 3
(b) VESTING OF EQUITY. All of the Employee's unvested
shares of the Company's stock shall become vested in full and all of his
unexercisable options to purchase shares of the Company's stock shall
immediately become exercisable in full if:
(i) The Company terminates the Employee's
Employment for any reason other than Cause or Permanent Disability;
(ii) The Employee resigns his Employment because
prior to October 1, 2000, he is required to serve in any position other
than (i) President and Chief Operating Officer of the Company or (ii)
Chief Executive Officer of the Company;
(iii) The Employee resigns his Employment because
on or after October 1, 2000, he is required to serve in any position
other than Chief Executive Officer of the Company (reporting only to the
Company's Board of Directors); or
(iv) The Employee resigns his Employment after the
Company has been subject to a Change in Control.
The foregoing provisions of this Subsection (b) notwithstanding, such
accelerated vesting or exercisability shall be reduced to 50% of the Employee's
then unvested shares or then unexercisable options if the Employee has been
appointed as the Company's Chief Executive Officer prior to October 1, 2000, and
after the appointment (A) the Company terminates the Employee's Employment, (B)
the Employee prior to a Change in Control resigns his Employment because he is
required to serve in any position other than Chief Executive Officer of the
Company or (C) the Employee resigns his Employment after the Company has been
subject to a Change in Control and he is offered a position comparable to that
of chief executive of a division (which represents the business of the Company
following the Change in Control) of the corporation or entity that acquires the
Company.
(c) DEFINITION OF "CAUSE." For all purposes under this
Agreement, "Cause" shall mean:
(i) Any breach of this Agreement, the Proprietary
Information and Inventions Agreement between the Employee and the
Company, or any other written agreement between the Employee and the
Company, if such breach causes material harm to the Company;
(ii) Any willful misconduct that causes material
harm to the Company, including (without limitation) repeated failure to
follow the directions of the person to whom the Employee reports;
(iii) Conviction of, or a plea of "guilty" or "no
contest" to, a felony under the laws of the United States or any state
thereof;
3
<PAGE> 4
(iv) Misappropriation of the assets of the Company
or other acts of fraud or embezzlement; or
(v) The abuse of alcohol or controlled substances
that has a detrimental effect upon the Employee's performance of his
duties under this Agreement.
(d) DEFINITION OF "CHANGE IN CONTROL." For all purposes
under this Agreement, "Change in Control" shall mean:
(i) The consummation of a merger or consolidation
of the Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other reorganization
50% or more of the voting power of the outstanding securities of each of
(A) the continuing or surviving entity and (B) any direct or indirect
parent corporation of such continuing or surviving entity;
(ii) The sale, transfer or other disposition of all
or substantially all of the Company's assets;
(iii) A change in the composition of the Company's
Board of Directors, as a result of which 50% or fewer of the incumbent
directors are directors who either (A) had been directors of the Company
on the date 24 months prior to the date of the event that may constitute
a Change in Control (the "original directors") or (B) were elected, or
nominated for election, to the Company's Board of Directors with the
affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election
or nomination and the directors whose election or nomination was
previously so approved; or
(iv) Any transaction as a result of which any
person is the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Company representing at least 50% of the total voting
power represented by the Company's then outstanding voting securities.
For purposes of this Paragraph (iv), the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of such Act but
shall exclude (A) a trustee or other fiduciary holding securities under
an employee benefit plan of the Company and (B) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common
stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such
4
<PAGE> 5
transaction.
(e) DEFINITION OF "PERMANENT DISABILITY." For all purposes
under this Agreement, "Permanent Disability" shall mean that the Employee, at
the time notice is given, has failed to perform his duties under this Agreement
for a period of not less than 90 consecutive days as the result of his
incapacity due to physical or mental injury, disability or illness.
7. NON-DISCLOSURE. This Agreement is contingent upon the
Employee's execution of the Company's form of Proprietary Information and
Inventions Agreement, a copy of which is attached hereto as EXHIBIT A.
8. NON-COMPETITION, NON-SOLICITATION AND SAVINGS CLAUSE.
(a) THE RESTRICTED PERIOD. This Section 8 shall apply only
during the period commencing at the effective time of the Merger and ending on
the earlier of (i) the date 12 months after the effective date of the
termination of the Employee's Employment for any reason; or (ii) the date 18
months after the effective time of the Merger (the "Restricted Period").
(b) NON-COMPETITION AND NON-SOLICITATION. In exchange for
the consideration stated herein and for the purchase of his shares of Siara
Systems stock by the Company, the Employee agrees that during the Restricted
Period he shall not:
(i) Directly or indirectly, individually or in
conjunction with others, engage in activities that compete with the
Company's Business or work for any entity engaged in a business that
competes with the Company's Business. The Employee in particular agrees
not to solicit, serve, contract with or otherwise engage any existing or
prospective customer, client or account of the Company in the area of
its Business. The Employee and the Company agree that the Company's
Business is global in scope.
(ii) Cause or attempt to cause any existing or
prospective customer, client or account of the Company in the area of
its Business to divert from, terminate, limit or in any manner modify,
or fail to enter into, any actual or potential business relationship
with the Company. The Employee and the Company agree that this provision
is reasonably enforced with reference to any geographic area in which
the Company's Business maintains any such relationship.
(iii) Directly or indirectly solicit, employ or
conspire with others to employ any of the Company's employees. The term
"employ" for purposes of this Paragraph (iii) means to enter into an
arrangement for services as a full-time or part-time employee,
independent contractor, agent or otherwise. The Employee and the Company
agree that this provision is reasonably enforced as to any geographic
area in which the Company conducts its Business.
5
<PAGE> 6
The Employee further agrees that during the Restricted Period he shall inform
any new employer, or any other person or entity with whom he enters into a
business relationship, of the existence of this Section 8 before accepting
employment or entering into such business relationship.
(c) DEFINITION OF "BUSINESS." For all purposes under this
Agreement, "Business" shall mean the networking market, including IP routing,
subscriber management systems, Sonet networking, ATM switching, IP Sec and VPN.
(d) SAVINGS CLAUSE. The Employee agrees that the scope and
terms of this Section 8 are reasonable and that it is the Employee's intent and
desire that this Section 8 be enforced to the fullest extent permissible under
the laws and public policies applied in the jurisdiction in which enforcement is
sought. If any particular provision of this Section 8 is adjudicated to be
invalid or unenforceable, the parties specifically authorize the tribunal making
such determination to edit the invalid or unenforceable provision to allow this
Section 8 to be valid and enforceable to the fullest extent allowed by law or
public policy.
9. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. This Agreement shall be binding
upon any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of
the Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) EMPLOYEE'S SUCCESSORS. This Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. MISCELLANEOUS PROVISIONS.
(a) NOTICE. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
(b) MODIFICATIONS AND WAIVERS. No provision of this
Agreement shall be modified, waived or discharged unless the modification,
waiver or discharge is agreed to in writing and signed by the Employee and by an
authorized officer of the Company (other than the Employee). No waiver by either
party of any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
6
<PAGE> 7
(c) WHOLE AGREEMENT. No other agreements, representations
or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. This
Agreement shall supersede the offer letter dated October 15, 1998, executed by
the Employee and Siara Systems.
(d) WITHHOLDING TAXES. All payments made under this
Agreement shall be subject to reduction to reflect taxes or other charges
required to be withheld by law.
(e) CHOICE OF LAW AND SEVERABILITY. This Agreement shall
be interpreted in accordance with the laws of the State of California (except
their provisions governing the choice of law). If any provision of this
Agreement becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction by reason of the scope, extent or duration of its coverage, then
such provision shall be deemed amended to the extent necessary to conform to
applicable law so as to be valid and enforceable or, if such provision cannot be
so amended without materially altering the intention of the parties, then such
provision shall be stricken and the remainder of this Agreement shall continue
in full force and effect. Should there ever occur any conflict between any
provision contained in this Agreement and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, then the latter shall prevail but the provision of this Agreement
affected thereby shall be curtailed and limited only to the extent necessary to
bring it into compliance with applicable law. All the other terms and provisions
of this Agreement shall continue in full force and effect without impairment or
limitation.
(f) ARBITRATION. Any controversy or claim arising out of
or relating to this Agreement or the breach thereof, or the Employee's
Employment or the termination thereof, with the exception of any controversy or
claim arising out of or relating to Section 8, shall be settled in Palo Alto,
California, by arbitration in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association. The
decision of the arbitrator shall be final and binding on the parties, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The parties hereby agree that the arbitrator shall
be empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and the Employee shall share equally all
fees and expenses of the arbitrator. Any controversy or claim arising out of or
relating to Section 8 shall be settled in the appropriate federal or state court
in the State of California. The Company and the Employee hereby consent to
personal jurisdiction of the state and federal courts located in the State of
California for any action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the parties are participants.
(g) NO ASSIGNMENT. This Agreement and all rights and
obligations of the Employee hereunder are personal to the Employee and may not
be transferred or assigned by the Employee at any time. The Company may assign
its rights under this Agreement to any entity that assumes the Company's
obligations hereunder in connection with any sale or transfer
7
<PAGE> 8
of all or a substantial portion of the Company's assets to such entity.
(h) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
VIVEK RAGAVAN
REDBACK NETWORKS INC.
By
Title:
8
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of November 28, 1999, by and
between WILLIAM KIND (the "Employee") and REDBACK NETWORKS INC., a Delaware
corporation (the "Company"). This Agreement shall be effective at the effective
time of the merger (the "Merger") contemplated by the Merger Agreement and Plan
of Reorganization dated November 28, 1999, by and among the Company, Siara
Systems, Inc., a Delaware corporation ("Siara Systems"), and the stockholder
agent described therein. This Agreement shall be null and void, and no parties
shall be deemed to have any rights hereunder, unless and until the Merger is
consummated.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION. The Company agrees to employ the Employee in
the position of Senior Vice President--Marketing or in such other position as
the Company subsequently may assign to the Employee (the "Employment"). The
Employee shall report to the Company's President and Chief Operating Officer or
to such other, more senior person as the Company subsequently may determine.
(b) OBLIGATIONS TO THE COMPANY. During his Employment, the
Employee shall devote his full business efforts and time to the Company. During
his Employment, without the prior written approval of the Company's Chief
Executive Officer, the Employee shall not render services in any capacity to any
other person or entity and shall not act as a sole proprietor or partner of any
other person or entity or as a shareholder owning more than five percent of the
stock of any other corporation. The Employee shall comply with the Company's
policies and rules, as they may be in effect from time to time during his
Employment.
(c) NO CONFLICTING OBLIGATIONS. The Employee represents
and warrants to the Company that he is under no obligations or commitments,
whether contractual or otherwise, that are inconsistent with his obligations
under this Agreement. The Employee represents and warrants that he will not use
or disclose, in connection with his employment by the Company, any trade secrets
or other proprietary information or intellectual property in which the Employee
or any other person has any right, title or interest and that his employment by
the Company as contemplated by this Agreement will not infringe or violate the
rights of any other person. The Employee represents and warrants to the Company
that he has returned all property and confidential information belonging to any
prior employer.
2. SALARY. The Company shall pay the Employee as compensation for
his services a base salary at a gross annual rate of not less than $250,000.
Such salary shall be payable in accordance with the Company's standard payroll
procedures.
3. VACATION AND EMPLOYEE BENEFITS. During his Employment, the
Employee shall be eligible for paid vacations in accordance with the Company's
standard policy
<PAGE> 2
for similarly-situated employees, as it may be amended from time to time. During
his Employment, the Employee shall be eligible to participate in the employee
benefit plans maintained by the Company for similarly-situated employees,
subject in each case to the generally applicable terms and conditions of the
plan in question and to the determinations of any person or committee
administering such plan.
4. BUSINESS EXPENSES. During his Employment, the Employee shall
be authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.
5. TERM OF EMPLOYMENT.
(a) EMPLOYMENT AT WILL. Either party may terminate the
Employee's Employment at any time and for any reason (or no reason), and with or
without Cause, by giving the other party notice in writing. The Employee's
Employment with the Company shall be "at will," meaning that either the Employee
or the Company shall be entitled to terminate the Employee's employment at any
time and for any reason, with or without Cause. Any contrary representations
that may have been made to the Employee shall be superseded by this Agreement.
This Agreement shall constitute the full and complete agreement between the
Employee and the Company on the "at will" nature of the Employee's Employment,
which may only be changed in an express written agreement signed by the Employee
and a duly authorized officer of the Company.
(b) RIGHTS UPON TERMINATION OF EMPLOYMENT. Except as
expressly provided in Section 6, upon the termination of the Employee's
Employment pursuant to this Section 5, the Employee shall only be entitled to
the compensation, benefits and reimbursements described in Sections 2, 3 and 4
for the period preceding the effective date of the termination. The payments
under this Agreement shall fully discharge all responsibilities of the Company
to the Employee.
(c) TERMINATION OF AGREEMENT. This Agreement shall
terminate when all obligations of the parties hereunder have been satisfied. The
termination of this Agreement shall not limit or otherwise affect any of the
Employee's obligations under Sections 7 and 8.
6. TERMINATION BENEFITS.
(a) GENERAL RELEASE. Any other provision of this Agreement
notwithstanding, Subsections (b) and (c) below shall not apply unless the
Employee (i) has executed a general release (in a form prescribed by the
Company) of all known and unknown claims that he may then have against the
Company or persons affiliated with the Company and (ii) has agreed not to
prosecute any legal action or other proceeding based upon any of such claims.
2
<PAGE> 3
(b) ACCELERATED VESTING OF EQUITY. The vested percentage
of the Employee's shares of the Company's stock and the exercisable percentage
of his options to purchase shares of the Company's stock shall be determined by
adding 12 months to the actual length of his service if:
(i) The Company terminates the Employee's
Employment for any reason other than Cause or Permanent Disability;
(ii) The Employee resigns his Employment because
prior to October 1, 2000, he is required to serve in any position other
than (i) Senior Vice President--Marketing of the Company; (ii) Chief
Operating Officer of the Company or (iii) a position comparable to Chief
Operating Officer following a Change in Control; or
(iii) The Employee resigns his Employment because
on or after October 1, 2000, he is required to serve in any position
other than Chief Operating Officer (or a comparable position following a
Change in Control) of the Company (reporting only to the Company's Chief
Executive Officer).
(c) SEVERANCE PAY. If Subsection (b) above applies, then
the Company shall also continue the Employee's base salary (at the rate in
effect at the time of the termination of his Employment) for a period of six
months following the termination of his Employment or, if earlier, until he
secures new employment at similar compensation.
(d) DEFINITION OF "CAUSE." For all purposes under this
Agreement, "Cause" shall mean:
(i) Any breach of this Agreement, the Proprietary
Information and Inventions Agreement between the Employee and the
Company, or any other written agreement between the Employee and the
Company, if such breach causes material harm to the Company;
(ii) Any willful misconduct that causes material
harm to the Company, including (without limitation) repeated failure to
follow the directions of the person to whom the Employee reports;
(iii) Conviction of, or a plea of "guilty" or "no
contest" to, a felony under the laws of the United States or any state
thereof;
(iv) Misappropriation of the assets of the Company
or other acts of fraud or embezzlement; or
(v) The abuse of alcohol or controlled substances
that has a detrimental effect upon the Employee's performance of his
duties under this Agreement.
3
<PAGE> 4
(e) DEFINITION OF "CHANGE IN CONTROL." For all purposes
under this Agreement, "Change in Control" shall mean:
(i) The consummation of a merger or consolidation
of the Company with or into another entity or any other corporate
reorganization, if persons who were not stockholders of the Company
immediately prior to such merger, consolidation or other reorganization
own immediately after such merger, consolidation or other reorganization
50% or more of the voting power of the outstanding securities of each of
(A) the continuing or surviving entity and (B) any direct or indirect
parent corporation of such continuing or surviving entity;
(ii) The sale, transfer or other disposition of all
or substantially all of the Company's assets;
(iii) A change in the composition of the Company's
Board of Directors, as a result of which 50% or fewer of the incumbent
directors are directors who either (A) had been directors of the Company
on the date 24 months prior to the date of the event that may constitute
a Change in Control (the "original directors") or (B) were elected, or
nominated for election, to the Company's Board of Directors with the
affirmative votes of at least a majority of the aggregate of the
original directors who were still in office at the time of the election
or nomination and the directors whose election or nomination was
previously so approved; or
(iv) Any transaction as a result of which any
person is the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of the Company representing at least 50% of the total voting
power represented by the Company's then outstanding voting securities.
For purposes of this Paragraph (iv), the term "person" shall have the
same meaning as when used in sections 13(d) and 14(d) of such Act but
shall exclude (A) a trustee or other fiduciary holding securities under
an employee benefit plan of the Company and (B) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common
stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
(f) DEFINITION OF "PERMANENT DISABILITY." For all purposes
under this Agreement, "Permanent Disability" shall mean that the Employee, at
the time notice is given, has failed to perform his duties under this Agreement
for a period of not less than 90 consecutive days as the result of his
incapacity due to physical or mental injury, disability or illness.
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<PAGE> 5
7. NON-DISCLOSURE. This Agreement is contingent upon the
Employee's execution of the Company's form of Proprietary Information and
Inventions Agreement, a copy of which is attached hereto as EXHIBIT A.
8. NON-COMPETITION, NON-SOLICITATION AND SAVINGS CLAUSE.
(a) THE RESTRICTED PERIOD. This Section 8 shall apply only
during the period commencing at the effective time of the Merger and ending on
the earlier of (i) the date 12 months after the effective date of the
termination of the Employee's Employment for any reason or (ii) the date 18
months after the effective time of the Merger (the "Restricted Period").
(b) NON-COMPETITION AND NON-SOLICITATION. In exchange for
the consideration stated herein and for the purchase of his shares of Siara
Systems stock by the Company, the Employee agrees that during the Restricted
Period he shall not:
(i) Directly or indirectly, individually or in
conjunction with others, engage in activities that compete with the
Company's Business or work for any entity engaged in a business that
competes with the Company's Business. The Employee in particular agrees
not to solicit, serve, contract with or otherwise engage any existing or
prospective customer, client or account of the Company in the area of
its Business. The Employee and the Company agree that the Company's
Business is global in scope.
(ii) Cause or attempt to cause any existing or
prospective customer, client or account of the Company in the area of
its Business to divert from, terminate, limit or in any manner modify,
or fail to enter into, any actual or potential business relationship
with the Company. The Employee and the Company agree that this provision
is reasonably enforced with reference to any geographic area in which
the Company's Business maintains any such relationship.
(iii) Directly or indirectly solicit, employ or
conspire with others to employ any of the Company's employees. The term
"employ" for purposes of this Paragraph (iii) means to enter into an
arrangement for services as a full-time or part-time employee,
independent contractor, agent or otherwise. The Employee and the Company
agree that this provision is reasonably enforced as to any geographic
area in which the Company conducts its Business.
The Employee further agrees that during the Restricted Period he shall inform
any new employer, or any other person or entity with whom he enters into a
business relationship, of the existence of this Section 8 before accepting
employment or entering into such business relationship.
(c) DEFINITION OF "BUSINESS." For all purposes under this
Agreement, "Business" shall mean the networking market, including IP routing,
subscriber management systems, Sonet networking, ATM switching, IP Sec and VPN.
5
<PAGE> 6
(d) SAVINGS CLAUSE. The Employee agrees that the scope and
terms of this Section 8 are reasonable and that it is the Employee's intent and
desire that this Section 8 be enforced to the fullest extent permissible under
the laws and public policies applied in the jurisdiction in which enforcement is
sought. If any particular provision of this Section 8 is adjudicated to be
invalid or unenforceable, the parties specifically authorize the tribunal making
such determination to edit the invalid or unenforceable provision to allow this
Section 8 to be valid and enforceable to the fullest extent allowed by law or
public policy.
9. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. This Agreement shall be binding
upon any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of
the Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) EMPLOYEE'S SUCCESSORS. This Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. MISCELLANEOUS PROVISIONS.
(a) NOTICE. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
(b) MODIFICATIONS AND WAIVERS. No provision of this
Agreement shall be modified, waived or discharged unless the modification,
waiver or discharge is agreed to in writing and signed by the Employee and by an
authorized officer of the Company (other than the Employee). No waiver by either
party of any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) WHOLE AGREEMENT. No other agreements, representations
or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. This
Agreement shall supersede the offer letter dated October 21, 1999, executed by
the Employee and Siara Systems.
6
<PAGE> 7
(d) WITHHOLDING TAXES. All payments made under this
Agreement shall be subject to reduction to reflect taxes or other charges
required to be withheld by law.
(e) CHOICE OF LAW AND SEVERABILITY. This Agreement shall
be interpreted in accordance with the laws of the State of California (except
their provisions governing the choice of law). If any provision of this
Agreement becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction by reason of the scope, extent or duration of its coverage, then
such provision shall be deemed amended to the extent necessary to conform to
applicable law so as to be valid and enforceable or, if such provision cannot be
so amended without materially altering the intention of the parties, then such
provision shall be stricken and the remainder of this Agreement shall continue
in full force and effect. Should there ever occur any conflict between any
provision contained in this Agreement and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, then the latter shall prevail but the provision of this Agreement
affected thereby shall be curtailed and limited only to the extent necessary to
bring it into compliance with applicable law. All the other terms and provisions
of this Agreement shall continue in full force and effect without impairment or
limitation.
(f) ARBITRATION. Any controversy or claim arising out of
or relating to this Agreement or the breach thereof, or the Employee's
Employment or the termination thereof, with the exception of any controversy or
claim arising out of or relating to Section 8, shall be settled in Palo Alto,
California, by arbitration in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association. The
decision of the arbitrator shall be final and binding on the parties, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The parties hereby agree that the arbitrator shall
be empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and the Employee shall share equally all
fees and expenses of the arbitrator. Any controversy or claim arising out of or
relating to Section 8 shall be settled in the appropriate federal or state court
in the State of California. The Company and the Employee hereby consent to
personal jurisdiction of the state and federal courts located in the State of
California for any action or proceeding arising from or relating to this
Agreement or relating to any arbitration in which the parties are participants.
(g) NO ASSIGNMENT. This Agreement and all rights and
obligations of the Employee hereunder are personal to the Employee and may not
be transferred or assigned by the Employee at any time. The Company may assign
its rights under this Agreement to any entity that assumes the Company's
obligations hereunder in connection with any sale or transfer of all or a
substantial portion of the Company's assets to such entity.
(h) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7
<PAGE> 8
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
-------------------------------
WILLIAM KIND
REDBACK NETWORKS INC.
By
------------------------------
Title:
--------------------------
8
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of November 28, 1999, by and
between PANKAJ PATEL (the "Employee") and REDBACK NETWORKS INC., a Delaware
corporation (the "Company"). This Agreement shall be effective at the effective
time of the merger (the "Merger") contemplated by the Merger Agreement and Plan
of Reorganization dated November 28, 1999, by and among the Company, Siara
Systems, Inc., a Delaware corporation ("Siara Systems"), and the stockholder
agent described therein. This Agreement shall be null and void, and no parties
shall be deemed to have any rights hereunder, unless and until the Merger is
consummated.
1. DUTIES AND SCOPE OF EMPLOYMENT.
(a) POSITION. The Company agrees to employ the Employee in
the position of Senior Vice President--Engineering or in such other position as
the Company subsequently may assign to the Employee (the "Employment"). The
Employee shall report to the Company's President and Chief Operating Officer or
to such other, more senior person as the Company subsequently may determine.
(b) OBLIGATIONS TO THE COMPANY. During his Employment, the
Employee shall devote his full business efforts and time to the Company. During
his Employment, without the prior written approval of the Company's Chief
Executive Officer, the Employee shall not render services in any capacity to any
other person or entity and shall not act as a sole proprietor or partner of any
other person or entity or as a shareholder owning more than five percent of the
stock of any other corporation. The Employee shall comply with the Company's
policies and rules, as they may be in effect from time to time during his
Employment.
(c) NO CONFLICTING OBLIGATIONS. The Employee represents
and warrants to the Company that he is under no obligations or commitments,
whether contractual or otherwise, that are inconsistent with his obligations
under this Agreement. The Employee represents and warrants that he will not use
or disclose, in connection with his employment by the Company, any trade secrets
or other proprietary information or intellectual property in which the Employee
or any other person has any right, title or interest and that his employment by
the Company as contemplated by this Agreement will not infringe or violate the
rights of any other person. The Employee represents and warrants to the Company
that he has returned all property and confidential information belonging to any
prior employer.
2. COMPENSATION.
(a) SALARY. The Company shall pay the Employee as
compensation for his services a base salary at a gross annual rate of not less
than $230,000. Such salary shall be payable in accordance with the Company's
standard payroll procedures.
<PAGE> 2
(b) ACCELERATED VESTING OF EQUITY. At the effective time
of the Merger, (i) the vested portion of shares of the Company's stock then held
by the Employee shall be increased by the shares that otherwise would have
vested during the 12-month period following the effective time of the Merger and
(ii) the exercisable portion of options to purchase shares of the Company's
stock then held by the Employee shall be increased by the options that otherwise
would have become exercisable during the 12-month period following the effective
time of the Merger. During the 12-month period following the effective time of
the Merger, no additional shares of the Company's stock held by the Employee at
the effective time of the Merger shall vest and no additional options to
purchase shares of the Company's stock held by the Employee at the effective
time of the Merger shall become exercisable. Thereafter, such shares shall vest
and such options shall become exercisable in accordance with the original terms
applicable to such shares and options.
3. VACATION AND EMPLOYEE BENEFITS. During his Employment, the
Employee shall be eligible for paid vacations in accordance with the Company's
standard policy for similarly-situated employees, as it may be amended from time
to time. During his Employment, the Employee shall be eligible to participate in
the employee benefit plans maintained by the Company for similarly-situated
employees, subject in each case to the generally applicable terms and conditions
of the plan in question and to the determinations of any person or committee
administering such plan.
4. BUSINESS EXPENSES. During his Employment, the Employee shall
be authorized to incur necessary and reasonable travel, entertainment and other
business expenses in connection with his duties hereunder. The Company shall
reimburse the Employee for such expenses upon presentation of an itemized
account and appropriate supporting documentation, all in accordance with the
Company's generally applicable policies.
5. TERM OF EMPLOYMENT.
(a) EMPLOYMENT AT WILL. Either party may terminate the
Employee's Employment at any time and for any reason (or no reason), and with or
without Cause, by giving the other party notice in writing. The Employee's
Employment with the Company shall be "at will," meaning that either the Employee
or the Company shall be entitled to terminate the Employee's employment at any
time and for any reason, with or without Cause. Any contrary representations
that may have been made to the Employee shall be superseded by this Agreement.
This Agreement shall constitute the full and complete agreement between the
Employee and the Company on the "at will" nature of the Employee's Employment,
which may only be changed in an express written agreement signed by the Employee
and a duly authorized officer of the Company.
(b) RIGHTS UPON TERMINATION OF EMPLOYMENT. Except as
expressly provided in Section 6, upon the termination of the Employee's
Employment pursuant to this Section 5, the Employee shall only be entitled to
the compensation, benefits and reimbursements described in Sections 2, 3 and 4
for the period preceding the effective date of the termination.
2
<PAGE> 3
The payments under this Agreement shall fully discharge all responsibilities of
the Company to the Employee.
(c) TERMINATION OF AGREEMENT. This Agreement shall
terminate when all obligations of the parties hereunder have been satisfied. The
termination of this Agreement shall not limit or otherwise affect any of the
Employee's obligations under Sections 7 and 8.
6. TERMINATION BENEFITS.
(a) GENERAL RELEASE. Any other provision of this Agreement
notwithstanding, Subsection (b) below shall not apply unless the Employee (i)
has executed a general release (in a form prescribed by the Company) of all
known and unknown claims that he may then have against the Company or persons
affiliated with the Company and (ii) has agreed not to prosecute any legal
action or other proceeding based upon any of such claims.
(b) ACCELERATED VESTING OF EQUITY. The vested percentage
of the Employee's shares of the Company's stock and the exercisable percentage
of his options to purchase shares of the Company's stock shall be determined by
adding 12 months to the actual length of his service if, prior to the date 18
months after the effective time of the Merger:
(i) The Company terminates the Employee's
Employment for any reason other than Cause or Permanent Disability; or
(ii) The Employee resigns his Employment because he
is required to serve in any position lower than Senior Vice President of
the Company.
If this Section 6(b) becomes applicable during the 12-month period following the
effective time of the Merger and Section 2(b) also applies to such shares or
options, then the vested percentage of such shares and the exercisable
percentage of such options shall be determined by adding 12 months to the
service that the Employee would have completed as of the date 12 months after
the effective time of the Merger.
(c) DEFINITION OF "CAUSE." For all purposes under this
Agreement, "Cause" shall mean:
(i) Any breach of this Agreement, the Proprietary
Information and Inventions Agreement between the Employee and the
Company, or any other written agreement between the Employee and the
Company, if such breach causes material harm to the Company;
(ii) Any willful misconduct that causes material
harm to the Company, including (without limitation) repeated failure to
follow the directions of the person to whom the Employee reports;
3
<PAGE> 4
(iii) Conviction of, or a plea of "guilty" or "no
contest" to, a felony under the laws of the United States or any state
thereof;
(iv) Misappropriation of the assets of the Company
or other acts of fraud or embezzlement; or
(v) The abuse of alcohol or controlled substances
that has a detrimental effect upon the Employee's performance of his
duties under this Agreement.
(d) DEFINITION OF "PERMANENT DISABILITY." For all purposes
under this Agreement, "Permanent Disability" shall mean that the Employee, at
the time notice is given, has failed to perform his duties under this Agreement
for a period of not less than 90 consecutive days as the result of his
incapacity due to physical or mental injury, disability or illness.
7. NON-DISCLOSURE. This Agreement is contingent upon the
Employee's execution of the Company's form of Proprietary Information and
Inventions Agreement, a copy of which is attached hereto as EXHIBIT A.
8. NON-COMPETITION, NON-SOLICITATION AND SAVINGS CLAUSE.
(a) THE RESTRICTED PERIOD. This Section 8 shall apply only
during the period commencing at the effective time of the Merger and ending on
the earlier of (i) the date 12 months after the effective date of the
termination of the Employee's Employment for any reason or (ii) the date 18
months after the effective time of the Merger (the "Restricted Period").
(b) NON-COMPETITION AND NON-SOLICITATION. In exchange for
the consideration stated herein and for the purchase of his shares of Siara
Systems stock by the Company, the Employee agrees that during the Restricted
Period he shall not:
(i) Directly or indirectly, individually or in
conjunction with others, engage in activities that compete with the
Company's Business or work for any entity engaged in a business that
competes with the Company's Business. The Employee in particular agrees
not to solicit, serve, contract with or otherwise engage any existing or
prospective customer, client or account of the Company in the area of
its Business. The Employee and the Company agree that the Company's
Business is global in scope.
(ii) Cause or attempt to cause any existing or
prospective customer, client or account of the Company in the area of
its Business to divert from, terminate, limit or in any manner modify,
or fail to enter into, any actual or potential business relationship
with the Company. The Employee and the Company agree that this provision
is reasonably enforced with reference to any geographic area in which
the Company's Business maintains any such relationship.
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<PAGE> 5
(iii) Directly or indirectly solicit, employ or
conspire with others to employ any of the Company's employees. The term
"employ" for purposes of this Paragraph (iii) means to enter into an
arrangement for services as a full-time or part-time employee,
independent contractor, agent or otherwise. The Employee and the Company
agree that this provision is reasonably enforced as to any geographic
area in which the Company conducts its Business.
The Employee further agrees that during the Restricted Period he shall inform
any new employer, or any other person or entity with whom he enters into a
business relationship, of the existence of this Section 8 before accepting
employment or entering into such business relationship.
(c) DEFINITION OF "BUSINESS." For all purposes under this
Agreement, "Business" shall mean the networking market, including IP routing,
subscriber management systems, Sonet networking, ATM switching, IP Sec and VPN.
(d) SAVINGS CLAUSE. The Employee agrees that the scope and
terms of this Section 8 are reasonable and that it is the Employee's intent and
desire that this Section 8 be enforced to the fullest extent permissible under
the laws and public policies applied in the jurisdiction in which enforcement is
sought. If any particular provision of this Section 8 is adjudicated to be
invalid or unenforceable, the parties specifically authorize the tribunal making
such determination to edit the invalid or unenforceable provision to allow this
Section 8 to be valid and enforceable to the fullest extent allowed by law or
public policy.
9. SUCCESSORS.
(a) COMPANY'S SUCCESSORS. This Agreement shall be binding
upon any successor (whether direct or indirect and whether by purchase, lease,
merger, consolidation, liquidation or otherwise) to all or substantially all of
the Company's business and/or assets. For all purposes under this Agreement, the
term "Company" shall include any successor to the Company's business and/or
assets which becomes bound by this Agreement.
(b) EMPLOYEE'S SUCCESSORS. This Agreement and all rights
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
10. MISCELLANEOUS PROVISIONS.
(a) NOTICE. Notices and all other communications
contemplated by this Agreement shall be in writing and shall be deemed to have
been duly given when personally delivered or when mailed by U.S. registered or
certified mail, return receipt requested and postage prepaid. In the case of the
Employee, mailed notices shall be addressed to him at the home address which he
most recently communicated to the Company in writing. In the case of the
Company, mailed notices shall be addressed to its corporate headquarters, and
all notices shall be directed to the attention of its Secretary.
5
<PAGE> 6
(b) MODIFICATIONS AND WAIVERS. No provision of this
Agreement shall be modified, waived or discharged unless the modification,
waiver or discharge is agreed to in writing and signed by the Employee and by an
authorized officer of the Company (other than the Employee). No waiver by either
party of any breach of, or of compliance with, any condition or provision of
this Agreement by the other party shall be considered a waiver of any other
condition or provision or of the same condition or provision at another time.
(c) WHOLE AGREEMENT. No other agreements, representations
or understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement have been made or entered into by
either party with respect to the subject matter hereof. This Agreement and the
Proprietary Information and Inventions Agreement contain the entire
understanding of the parties with respect to the subject matter hereof. This
Agreement shall supersede the offer letter dated September 16, 1999, executed by
the Employee and Siara Systems.
(d) WITHHOLDING TAXES. All payments made under this
Agreement shall be subject to reduction to reflect taxes or other charges
required to be withheld by law.
(e) CHOICE OF LAW AND SEVERABILITY. This Agreement shall
be interpreted in accordance with the laws of the State of California (except
their provisions governing the choice of law). If any provision of this
Agreement becomes or is deemed invalid, illegal or unenforceable in any
jurisdiction by reason of the scope, extent or duration of its coverage, then
such provision shall be deemed amended to the extent necessary to conform to
applicable law so as to be valid and enforceable or, if such provision cannot be
so amended without materially altering the intention of the parties, then such
provision shall be stricken and the remainder of this Agreement shall continue
in full force and effect. Should there ever occur any conflict between any
provision contained in this Agreement and any present or future statute, law,
ordinance or regulation contrary to which the parties have no legal right to
contract, then the latter shall prevail but the provision of this Agreement
affected thereby shall be curtailed and limited only to the extent necessary to
bring it into compliance with applicable law. All the other terms and provisions
of this Agreement shall continue in full force and effect without impairment or
limitation.
(f) ARBITRATION. Any controversy or claim arising out of
or relating to this Agreement or the breach thereof, or the Employee's
Employment or the termination thereof, with the exception of any controversy or
claim arising out of or relating to Section 8, shall be settled in Palo Alto,
California, by arbitration in accordance with the National Rules for the
Resolution of Employment Disputes of the American Arbitration Association. The
decision of the arbitrator shall be final and binding on the parties, and
judgment on the award rendered by the arbitrator may be entered in any court
having jurisdiction thereof. The parties hereby agree that the arbitrator shall
be empowered to enter an equitable decree mandating specific enforcement of the
terms of this Agreement. The Company and the Employee shall share equally all
fees and expenses of the arbitrator. Any controversy or claim arising out of or
relating to Section 8 shall be settled in the appropriate federal or state court
in the State of California. The Company and the Employee hereby consent to
personal jurisdiction of the state
6
<PAGE> 7
and federal courts located in the State of California for any action or
proceeding arising from or relating to this Agreement or relating to any
arbitration in which the parties are participants.
(g) NO ASSIGNMENT. This Agreement and all rights and
obligations of the Employee hereunder are personal to the Employee and may not
be transferred or assigned by the Employee at any time. The Company may assign
its rights under this Agreement to any entity that assumes the Company's
obligations hereunder in connection with any sale or transfer of all or a
substantial portion of the Company's assets to such entity.
(h) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties has executed this
Agreement, in the case of the Company by its duly authorized officer, as of the
day and year first above written.
-------------------------------
PANKAJ PATEL
REDBACK NETWORKS INC.
By
-----------------------------
Title:
--------------------------
7
<PAGE> 1
EXHIBIT 10.7
REDBACK NETWORKS INC.
1999 STOCK INCENTIVE PLAN
(AS AMENDED AND RESTATED EFFECTIVE ______ __, 2000)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1. INTRODUCTION.................................................................... 1
ARTICLE 2. ADMINISTRATION.................................................................. 1
2.1 Committee Composition.......................................................... 1
2.2 Committee Responsibilities..................................................... 1
2.3 Committee for Non-Officer Grants............................................... 2
ARTICLE 3. SHARES AVAILABLE FOR GRANTS..................................................... 2
3.1 Basic Limitation............................................................... 2
3.2 Annual Increase in Shares...................................................... 2
3.3 Additional Shares.............................................................. 2
ARTICLE 4. ELIGIBILITY..................................................................... 3
4.1 Nonstatutory Stock Options and Restricted Shares............................... 3
4.2 Incentive Stock Options........................................................ 3
ARTICLE 5. OPTIONS......................................................................... 3
5.1 Stock Option Agreement......................................................... 3
5.2 Number of Shares............................................................... 3
5.3 Exercise Price................................................................. 3
5.4 Exercisability and Term........................................................ 4
5.5 Effect of Change in Control.................................................... 4
5.6 Modification or Assumption of Options.......................................... 4
5.7 Buyout Provisions.............................................................. 4
5.8 Salary Reduction Option Grants................................................. 4
ARTICLE 6. PAYMENT FOR OPTION SHARES....................................................... 5
6.1 General Rule................................................................... 5
6.2 Surrender of Stock............................................................. 5
6.3 Exercise/Sale.................................................................. 5
6.4 Exercise/Pledge................................................................ 6
6.5 Promissory Note................................................................ 6
6.6 Other Forms of Payment......................................................... 6
ARTICLE 7. RESTRICTED SHARES............................................................... 6
7.1 Restricted Stock Agreement..................................................... 6
7.2 Payment for Awards............................................................. 6
7.3 Vesting Conditions............................................................. 6
7.4 Voting and Dividend Rights..................................................... 7
ARTICLE 8. PROTECTION AGAINST DILUTION..................................................... 7
8.1 Adjustments.................................................................... 7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
8.2 Dissolution or Liquidation..................................................... 7
8.3 Reorganizations................................................................ 7
ARTICLE 9. DEFERRAL OF DELIVERY OF SHARES.................................................. 8
ARTICLE 10. AWARDS UNDER OTHER PLANS....................................................... 8
ARTICLE 11. LIMITATION ON RIGHTS........................................................... 8
11.1 Retention Rights.............................................................. 8
11.2 Stockholders' Rights.......................................................... 8
11.3 Regulatory Requirements....................................................... 9
ARTICLE 12. WITHHOLDING TAXES.............................................................. 9
12.1 General....................................................................... 9
12.2 Share Withholding............................................................. 9
ARTICLE 13. LIMITATION ON PAYMENTS......................................................... 9
13.1 Scope of Limitation........................................................... 9
13.2 Basic Rule.................................................................... 10
13.3 Reduction of Payments......................................................... 10
13.4 Overpayments and Underpayments................................................ 10
13.5 Related Corporations.......................................................... 11
ARTICLE 14. FUTURE OF THE PLAN............................................................. 11
14.1 Term of the Plan.............................................................. 11
14.2 Amendment or Termination...................................................... 11
ARTICLE 15. DEFINITIONS.................................................................... 11
ARTICLE 16. EXECUTION...................................................................... 14
</TABLE>
ii
<PAGE> 4
REDBACK NETWORKS INC.
1999 STOCK INCENTIVE PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective as of the date of
the Company's initial public offering. The purpose of the Plan is to promote the
long-term success of the Company and the creation of stockholder value by (a)
encouraging Employees, Outside Directors and Consultants to focus on critical
long-range objectives, (b) encouraging the attraction and retention of
Employees, Outside Directors and Consultants with exceptional qualifications and
(c) linking Employees, Outside Directors and Consultants directly to stockholder
interests through increased stock ownership. The Plan seeks to achieve this
purpose by providing for Awards in the form of Restricted Shares or Options
(which may constitute incentive stock options or nonstatutory stock options).
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy:
(a) Such requirements as the Securities and Exchange Commission
may establish for administrators acting under plans intended to qualify
for exemption under Rule 16b-3 (or its successor) under the Exchange
Act; and
(b) Such requirements as the Internal Revenue Service may
establish for outside directors acting under plans intended to qualify
for exemption under section 162(m)(4)(C) of the Code.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall (a) select the
Employees, Outside Directors and Consultants who are to receive Awards under the
Plan, (b) determine the type, number, vesting requirements and other features
and conditions of such Awards, (c) interpret the Plan and (d) make all other
decisions relating to the operation of the Plan. The Committee may adopt such
rules or guidelines as it
<PAGE> 5
deems appropriate to implement the Plan. The Committee's determinations under
the Plan shall be final and binding on all persons.
2.3 COMMITTEE FOR NON-OFFICER GRANTS. The Board may also appoint a
secondary committee of the Board, which shall be composed of one or more
directors of the Company who need not satisfy the requirements of Section 2.1.
Such secondary committee may administer the Plan with respect to Employees and
Consultants who are not considered officers or directors of the Company under
section 16 of the Exchange Act, may grant Awards under the Plan to such
Employees and Consultants and may determine all features and conditions of such
Awards. Within the limitations of this Section 2.3, any reference in the Plan to
the Committee shall include such secondary committee.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Options and Restricted Shares awarded under the Plan shall not exceed (a)
8,000,000(1) plus (b) the aggregate number of Common Shares remaining available
for grants under the Predecessor Plan on the date of the Company's initial
public offering plus (c) the additional Common Shares described in Sections 3.2
and 3.3. No additional grants shall be made under the Predecessor Plan after the
date of the Company's initial public offering. The limitations of this Section
3.1 and Section 3.2 shall be subject to adjustment pursuant to Article 8.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing
with the year 2001, the aggregate number of Options and Restricted Shares that
may be awarded under the Plan shall automatically increase by a number equal to
the lesser of (a) five percent of the total number of Common Shares then
outstanding or (b) 5,000,000.(2)
3.3 ADDITIONAL SHARES. If Options granted under this Plan or the
Predecessor Plan are forfeited or terminate for any other reason before being
exercised, then the corresponding Common Shares shall again become available for
the grant of Options or Restricted Shares under this Plan. If Common Shares
issued upon the exercise of Options granted under this Plan or the Predecessor
Plan are forfeited, then such Common Shares shall again become available for the
grant of NSOs and Restricted Shares under this Plan. If Restricted Shares issued
under this Plan or the Predecessor Plan are forfeited, then the corresponding
Common Shares shall again become available for the grant of NSOs and Restricted
Shares under this Plan. The aggregate number of Common Shares that may be issued
- -----------------
(1) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999. Also reflects increase from 5,000,000 shares approved by
stockholders on ______ __, 2000.
(2) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999. Also reflects increase from 3,000,000 shares approved by
stockholders on ______ __, 2000.
2
<PAGE> 6
under the Plan upon the exercise of ISOs shall not be increased when Restricted
Shares or other Common Shares are forfeited.
ARTICLE 4. ELIGIBILITY.
4.1 NONSTATUTORY STOCK OPTIONS AND RESTRICTED SHARES. Only Employees,
Outside Directors and Consultants shall be eligible for the grant of NSOs and
Restricted Shares.
4.2 INCENTIVE STOCK OPTIONS. Only Employees who are common-law employees
of the Company, a Parent or a Subsidiary shall be eligible for the grant of
ISOs. In addition, an Employee who owns more than 10% of the total combined
voting power of all classes of outstanding stock of the Company or any of its
Parents or Subsidiaries shall not be eligible for the grant of an ISO unless the
requirements set forth in section 422(c)(6) of the Code are satisfied.
ARTICLE 5. OPTIONS.
5.1 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The
provisions of the various Stock Option Agreements entered into under the Plan
need not be identical. A Stock Option Agreement may provide that a new Option
will be granted automatically to the Optionee when he or she exercises a prior
Option and pays the Exercise Price in the form described in Section 6.2.
5.2 NUMBER OF SHARES. Each Stock Option Agreement shall specify the
number of Common Shares subject to the Option and shall provide for the
adjustment of such number in accordance with Article 8. Options granted to any
Optionee in a single fiscal year of the Company shall not cover more than two
million(3) Common Shares, except that Options granted to a new Employee in the
fiscal year of the Company in which his or her service as an Employee first
commences shall not cover more than four million(4) Common Shares. The
limitations set forth in the preceding sentence shall be subject to adjustment
in accordance with Article 8.
5.3 EXERCISE PRICE. Each Stock Option Agreement shall specify the
Exercise Price; provided that the Exercise Price under an ISO shall in no event
be less than 100% of the Fair Market Value of a Common Share on the date of
grant and the Exercise Price under an NSO shall in no event be less than 30% of
the Fair Market Value of a Common Share on the date of grant. In the case of an
NSO, a Stock Option Agreement may
- ------------------------
(3) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999.
(4) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999.
3
<PAGE> 7
specify an Exercise Price that varies in accordance with a predetermined formula
while the NSO is outstanding.
5.4 EXERCISABILITY AND TERM. Each Stock Option Agreement shall specify
the date or event when all or any installment of the Option is to become
exercisable. The Stock Option Agreement shall also specify the term of the
Option; provided that the term of an ISO shall in no event exceed 10 years from
the date of grant. A Stock Option Agreement may provide for accelerated
exercisability in the event of the Optionee's death, disability or retirement or
other events and may provide for expiration prior to the end of its term in the
event of the termination of the Optionee's service.
5.5 EFFECT OF CHANGE IN CONTROL. The Committee may determine, at the
time of granting an Option or thereafter, that such Option shall become
exercisable as to all or part of the Common Shares subject to such Option in the
event that a Change in Control occurs with respect to the Company, subject to
the following limitations:
(a) In the case of an ISO, the acceleration of exercisability
shall not occur without the Optionee's written consent.
(b) If the Company and the other party to the transaction
constituting a Change in Control agree that such transaction is to be
treated as a "pooling of interests" for financial reporting purposes,
and if such transaction in fact is so treated, then the acceleration of
exercisability shall not occur to the extent that the Company's
independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude
the use of "pooling of interests" accounting.
In addition, acceleration of exercisability may be required under Section 8.3.
5.6 MODIFICATION OR ASSUMPTION OF OPTIONS. Within the limitations of the
Plan, the Committee may modify, extend or assume outstanding options or may
accept the cancellation of outstanding options (whether granted by the Company
or by another issuer) in return for the grant of new options for the same or a
different number of shares and at the same or a different exercise price. The
foregoing notwithstanding, no modification of an Option shall, without the
consent of the Optionee, alter or impair his or her rights or obligations under
such Option.
5.7 BUYOUT PROVISIONS. The Committee may at any time (a) offer to buy
out for a payment in cash or cash equivalents an Option previously granted or
(b) authorize an Optionee to elect to cash out an Option previously granted, in
either case at such time and based upon such terms and conditions as the
Committee shall establish.
5.8 SALARY REDUCTION OPTION GRANTS. The Committee, at its sole
discretion, may offer one or more Employees, Outside Directors and Consultants
an opportunity to receive NSOs in consideration of a voluntary reduction in
their cash compensation from the Company, a Parent or a Subsidiary. The
4
<PAGE> 8
Committee shall determine the maximum and minimum amounts of the reduction that
an Employee, Outside Director or Consultant may elect. If an Employee, Outside
Director or Consultant designated by the Committee wishes to receive NSOs under
this Section 5.8, then he or she shall file a written and irrevocable election
with the Company prior to the close of a calendar year. Such election shall
specify the dollar amount by which the compensation of the Employee, Outside
Director or Consultant shall be reduced during the next following calendar year
(within the limitations prescribed by the Committee). On the first trading day
of the calendar year next following the receipt of an election by the Company,
the Employee, Outside Director or Consultant who filed such election shall
automatically receive an NSO. Such NSO shall cover a number of Common Shares
equal to (a) the amount of the compensation reduction elected by the Optionee
divided by (b) two-thirds of the Fair Market Value of one Common Share on the
date of grant. The Exercise Price of such NSO shall be equal to one-third of the
Fair Market Value of one Common Share on the date of grant. Such NSO shall
become exercisable in 12 equal monthly installments over the calendar year in
which the grant occurred, but no portion of such NSO shall become exercisable
after the Optionee's service has terminated for any reason. The term of such NSO
shall be 10 calendar years, commencing with the calendar year in which the grant
occurred (regardless of whether the Optionee's service has terminated). Except
as provided in this Section 5.8, the NSOs granted under this Section 5.8 shall
be subject to the provisions applicable to other NSOs granted under the Plan.
ARTICLE 6. PAYMENT FOR OPTION SHARES.
6.1 GENERAL RULE. The entire Exercise Price of Common Shares issued upon
exercise of Options shall be payable in cash or cash equivalents at the time
when such Common Shares are purchased, except as follows:
(a) In the case of an ISO granted under the Plan, payment shall
be made only pursuant to the express provisions of the applicable Stock
Option Agreement. The Stock Option Agreement may specify that payment
may be made in any form(s) described in this Article 6.
(b) In the case of an NSO, the Committee may at any time accept
payment in any form(s) described in this Article 6.
6.2 SURRENDER OF STOCK. To the extent that this Section 6.2 is
applicable, all or any part of the Exercise Price may be paid by surrendering,
or attesting to the ownership of, Common Shares that are already owned by the
Optionee. Such Common Shares shall be valued at their Fair Market Value on the
date when the new Common Shares are purchased under the Plan. The Optionee shall
not surrender, or attest to the ownership of, Common Shares in payment of the
Exercise Price if such action would cause the Company to recognize compensation
expense (or additional compensation expense) with respect to the Option for
financial reporting purposes.
6.3 EXERCISE/SALE. To the extent that this Section 6.3 is applicable,
all or any part of the Exercise Price and any withholding taxes may be
5
<PAGE> 9
paid by delivering (on a form prescribed by the Company) an irrevocable
direction to a securities broker approved by the Company to sell all or part of
the Common Shares being purchased under the Plan and to deliver all or part of
the sales proceeds to the Company.
6.4 EXERCISE/PLEDGE. To the extent that this Section 6.4 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) an irrevocable direction to
pledge all or part of the Common Shares being purchased under the Plan to a
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company.
6.5 PROMISSORY NOTE. To the extent that this Section 6.5 is applicable,
all or any part of the Exercise Price and any withholding taxes may be paid by
delivering (on a form prescribed by the Company) a full-recourse promissory
note. However, the par value of the Common Shares being purchased under the
Plan, if newly issued, shall be paid in cash or cash equivalents.
6.6 OTHER FORMS OF PAYMENT. To the extent that this Section 6.6 is
applicable, all or any part of the Exercise Price and any withholding taxes may
be paid in any other form that is consistent with applicable laws, regulations
and rules.
ARTICLE 7. RESTRICTED SHARES.
7.1 RESTRICTED STOCK AGREEMENT. Each grant of Restricted Shares under
the Plan shall be evidenced by a Restricted Stock Agreement between the
recipient and the Company. Such Restricted Shares shall be subject to all
applicable terms of the Plan and may be subject to any other terms that are not
inconsistent with the Plan. The provisions of the various Restricted Stock
Agreements entered into under the Plan need not be identical.
7.2 PAYMENT FOR AWARDS. Subject to the following sentence, Restricted
Shares may be sold or awarded under the Plan for such consideration as the
Committee may determine, including (without limitation) cash, cash equivalents,
full-recourse promissory notes, past services and future services. To the extent
that an Award consists of newly issued Restricted Shares, the consideration
shall consist exclusively of cash, cash equivalents or past services rendered to
the Company (or a Parent or Subsidiary) or, for the amount in excess of the par
value of such newly issued Restricted Shares, full-recourse promissory notes, as
the Committee may determine.
7.3 VESTING CONDITIONS. Each Award of Restricted Shares may or may not
be subject to vesting. Vesting shall occur, in full or in installments, upon
satisfaction of the conditions specified in the Restricted Stock Agreement. A
Restricted Stock Agreement may provide for accelerated vesting in the event of
the Participant's death, disability or retirement or other events. The Committee
may determine, at the time of
6
<PAGE> 10
granting Restricted Shares or thereafter, that all or part of such Restricted
Shares shall become vested in the event that a Change in Control occurs with
respect to the Company, except as provided in the next following sentence. If
the Company and the other party to the transaction constituting a Change in
Control agree that such transaction is to be treated as a "pooling of interests"
for financial reporting purposes, and if such transaction in fact is so treated,
then the acceleration of vesting shall not occur to the extent that the
Company's independent accountants and such other party's independent accountants
separately determine in good faith that such acceleration would preclude the use
of "pooling of interests" accounting.
7.4 VOTING AND DIVIDEND RIGHTS. The holders of Restricted Shares awarded
under the Plan shall have the same voting, dividend and other rights as the
Company's other stockholders. A Restricted Stock Agreement, however, may require
that the holders of Restricted Shares invest any cash dividends received in
additional Restricted Shares. Such additional Restricted Shares shall be subject
to the same conditions and restrictions as the Award with respect to which the
dividends were paid.
ARTICLE 8. PROTECTION AGAINST DILUTION.
8.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Options and Restricted Shares
available for future Awards under Article 3, (b) the limitations set forth in
Section 5.2, (c) the number of Common Shares covered by each outstanding Option
or (d) the Exercise Price under each outstanding Option. Except as provided in
this Article 8, a Participant shall have no rights by reason of any issue by the
Company of stock of any class or securities convertible into stock of any class,
any subdivision or consolidation of shares of stock of any class, the payment of
any stock dividend or any other increase or decrease in the number of shares of
stock of any class.
8.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised,
Options shall terminate immediately prior to the dissolution or liquidation of
the Company.
8.3 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Options and Restricted Shares shall
be subject to the agreement of merger or reorganization. Such agreement shall
provide for (a) the continuation of the outstanding Awards by the Company, if
the Company is a surviving corporation, (b) the assumption of the outstanding
Awards by the surviving corporation or its parent or subsidiary, (c) the
substitution by the surviving corporation or its parent or subsidiary of its own
awards for the outstanding Awards, (d) full exercisability or
7
<PAGE> 11
vesting and accelerated expiration of the outstanding Awards or (e) settlement
of the full value of the outstanding Awards in cash or cash equivalents followed
by cancellation of such Awards.
ARTICLE 9. DEFERRAL OF DELIVERY OF SHARES.
The Committee (in its sole discretion) may permit or require an
Optionee to have Common Shares that otherwise would be delivered to such
Optionee as a result of the exercise of an Option converted into amounts
credited to a deferred compensation account established for such Optionee by the
Committee as an entry on the Company's books. Such amounts shall be determined
by reference to the Fair Market Value of such Common Shares as of the date when
they otherwise would have been delivered to such Optionee. A deferred
compensation account established under this Article 9 may be credited with
interest or other forms of investment return, as determined by the Committee. An
Optionee for whom such an account is established shall have no rights other than
those of a general creditor of the Company. Such an account shall represent an
unfunded and unsecured obligation of the Company and shall be subject to the
terms and conditions of the applicable agreement between such Optionee and the
Company. If the conversion of Options is permitted or required, the Committee
(in its sole discretion) may establish rules, procedures and forms pertaining to
such conversion, including (without limitation) the settlement of deferred
compensation accounts established under this Article 9.
ARTICLE 10. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other plans or programs. Such
awards may be settled in the form of Common Shares issued under this Plan. Such
Common Shares shall be treated for all purposes under the Plan like Restricted
Shares and shall, when issued, reduce the number of Common Shares available
under Article 3.
ARTICLE 11. LIMITATION ON RIGHTS.
11.1 RETENTION RIGHTS. Neither the Plan nor any Award granted under the
Plan shall be deemed to give any individual a right to remain an Employee,
Outside Director or Consultant. The Company and its Parents, Subsidiaries and
Affiliates reserve the right to terminate the service of any Employee, Outside
Director or Consultant at any time, with or without cause, subject to applicable
laws, the Company's certificate of incorporation and by-laws and a written
employment agreement (if any).
11.2 STOCKHOLDERS' RIGHTS. A Participant shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Award prior to the time when a stock certificate for such
Common Shares is issued or, in the case of an Option, the time when he or
8
<PAGE> 12
she becomes entitled to receive such Common Shares by filing a notice of
exercise and paying the Exercise Price. No adjustment shall be made for cash
dividends or other rights for which the record date is prior to such time,
except as expressly provided in the Plan.
11.3 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue Common Shares under the
Plan shall be subject to all applicable laws, rules and regulations and such
approval by any regulatory body as may be required. The Company reserves the
right to restrict, in whole or in part, the delivery of Common Shares pursuant
to any Award prior to the satisfaction of all legal requirements relating to the
issuance of such Common Shares, to their registration, qualification or listing
or to an exemption from registration, qualification or listing.
ARTICLE 12. WITHHOLDING TAXES.
12.1 GENERAL. To the extent required by applicable federal, state, local
or foreign law, a Participant or his or her successor shall make arrangements
satisfactory to the Company for the satisfaction of any withholding tax
obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
12.2 SHARE WITHHOLDING. The Committee may permit a Participant to
satisfy all or part of his or her withholding or income tax obligations by
having the Company withhold all or a portion of any Common Shares that otherwise
would be issued to him or her or by surrendering all or a portion of any Common
Shares that he or she previously acquired. Such Common Shares shall be valued at
their Fair Market Value on the date when they are withheld or surrendered.
ARTICLE 13. LIMITATION ON PAYMENTS.
13.1 SCOPE OF LIMITATION. This Article 13 shall apply to an Award only
if:
(a) The independent auditors most recently selected by the Board
(the "Auditors") determine that the after-tax value of such Award to the
Participant, taking into account the effect of all federal, state and
local income taxes, employment taxes and excise taxes applicable to the
Participant (including the excise tax under section 4999 of the Code),
will be greater after the application of this Article 13 than it was
before the application of this Article 13; or
(b) The Committee, at the time of making an Award under the Plan
or at any time thereafter, specifies in writing that such Award shall be
9
<PAGE> 13
subject to this Article 13 (regardless of the after-tax value of such
Award to the Participant).
If this Article 13 applies to an Award, it shall supersede any contrary
provision of the Plan or of any Award granted under the Plan.
13.2 BASIC RULE. In the event that the Auditors determine that any
payment or transfer by the Company under the Plan to or for the benefit of a
Participant (a "Payment") would be nondeductible by the Company for federal
income tax purposes because of the provisions concerning "excess parachute
payments" in section 280G of the Code, then the aggregate present value of all
Payments shall be reduced (but not below zero) to the Reduced Amount. For
purposes of this Article 13, the "Reduced Amount" shall be the amount, expressed
as a present value, which maximizes the aggregate present value of the Payments
without causing any Payment to be nondeductible by the Company because of
section 280G of the Code.
13.3 REDUCTION OF PAYMENTS. If the Auditors determine that any Payment
would be nondeductible by the Company because of section 280G of the Code, then
the Company shall promptly give the Participant notice to that effect and a copy
of the detailed calculation thereof and of the Reduced Amount, and the
Participant may then elect, in his or her sole discretion, which and how much of
the Payments shall be eliminated or reduced (as long as after such election the
aggregate present value of the Payments equals the Reduced Amount) and shall
advise the Company in writing of his or her election within 10 days of receipt
of notice. If no such election is made by the Participant within such 10-day
period, then the Company may elect which and how much of the Payments shall be
eliminated or reduced (as long as after such election the aggregate present
value of the Payments equals the Reduced Amount) and shall notify the
Participant promptly of such election. For purposes of this Article 13, present
value shall be determined in accordance with section 280G(d)(4) of the Code. All
determinations made by the Auditors under this Article 13 shall be binding upon
the Company and the Participant and shall be made within 60 days of the date
when a Payment becomes payable or transferable. As promptly as practicable
following such determination and the elections hereunder, the Company shall pay
or transfer to or for the benefit of the Participant such amounts as are then
due to him or her under the Plan and shall promptly pay or transfer to or for
the benefit of the Participant in the future such amounts as become due to him
or her under the Plan.
13.4 OVERPAYMENTS AND UNDERPAYMENTS. As a result of uncertainty in the
application of section 280G of the Code at the time of an initial determination
by the Auditors hereunder, it is possible that Payments will have been made by
the Company which should not have been made (an "Overpayment") or that
additional Payments which will not have been made by the Company could have been
made (an "Underpayment"), consistent in each case with the calculation of the
Reduced Amount hereunder. In the event that the Auditors, based upon the
assertion of a deficiency by the Internal Revenue Service against the Company or
the Participant which the Auditors believe has a high probability of success,
determine that an Overpayment has been made, such Overpayment shall be treated
for all purposes as a loan to the Participant which he or she shall repay to the
Company, together with interest at the applicable federal rate provided in
10
<PAGE> 14
section 7872(f)(2) of the Code; provided, however, that no amount shall be
payable by the Participant to the Company if and to the extent that such payment
would not reduce the amount which is subject to taxation under section 4999 of
the Code. In the event that the Auditors determine that an Underpayment has
occurred, such Underpayment shall promptly be paid or transferred by the Company
to or for the benefit of the Participant, together with interest at the
applicable federal rate provided in section 7872(f)(2) of the Code.
13.5 RELATED CORPORATIONS. For purposes of this Article 13, the term
"Company" shall include affiliated corporations to the extent determined by the
Auditors in accordance with section 280G(d)(5) of the Code.
ARTICLE 14. FUTURE OF THE PLAN.
14.1 TERM OF THE PLAN. The Plan shall become effective on the date of
the Company's initial public offering. The Plan shall remain in effect until it
is terminated under Section 14.2, except that no ISOs shall be granted on or
after the 10th anniversary of the later of (a) the date when the Board adopted
the Plan or (b) the date when the Board adopted the most recent increase in the
number of Common Shares available under Article 3 which was approved by the
Company's stockholders.
14.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Awards shall be granted under the Plan
after the termination thereof. The termination of the Plan, or any amendment
thereof, shall not affect any Award previously granted under the Plan.
ARTICLE 15. DEFINITIONS.
15.1 "AFFILIATE" means any entity other than a Subsidiary, if the
Company and/or one or more Subsidiaries own not less than 50% of such entity.
15.2 "AWARD" means any award of an Option or a Restricted Share under
the Plan.
15.3 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
15.4 "CHANGE IN CONTROL" shall mean:
(a) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization, if
persons who were not stockholders of the Company immediately prior to
such merger,
11
<PAGE> 15
consolidation or other reorganization own immediately after such merger,
consolidation or other reorganization 50% or more of the voting power of
the outstanding securities of each of (i) the continuing or surviving
entity and (ii) any direct or indirect parent corporation of such
continuing or surviving entity;
(b) The sale, transfer or other disposition of all or
substantially all of the Company's assets;
(c) A change in the composition of the Board, as a result of
which 50% or fewer of the incumbent directors are directors who either
(i) had been directors of the Company on the date 24 months prior to the
date of the event that may constitute a Change in Control (the "original
directors") or (ii) were elected, or nominated for election, to the
Board with the affirmative votes of at least a majority of the aggregate
of the original directors who were still in office at the time of the
election or nomination and the directors whose election or nomination
was previously so approved; or
(d) Any transaction as a result of which any person is the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing at
least 50% of the total voting power represented by the Company's then
outstanding voting securities. For purposes of this Subsection (d), the
term "person" shall have the same meaning as when used in sections 13(d)
and 14(d) of the Exchange Act but shall exclude (i) a trustee or other
fiduciary holding securities under an employee benefit plan of the
Company or of a Parent or Subsidiary and (ii) a corporation owned
directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of the common
stock of the Company.
A transaction shall not constitute a Change in Control if its sole purpose is to
change the state of the Company's incorporation or to create a holding company
that will be owned in substantially the same proportions by the persons who held
the Company's securities immediately before such transaction.
15.5 "CODE" means the Internal Revenue Code of 1986, as amended.
15.6 "COMMITTEE" means a committee of the Board, as described in Article
2.
15.7 "COMMON SHARE" means one share of the common stock of the Company.
15.8 "COMPANY" means Redback Networks Inc., a Delaware corporation.
15.9 "CONSULTANT" means a consultant or adviser who provides bona fide
services to the Company, a Parent, a Subsidiary or an Affiliate as an
independent contractor. Service as a Consultant shall be considered employment
for all purposes of the Plan, except as provided in Section 4.2.
15.10 "EMPLOYEE" means a common-law employee of the Company, a Parent, a
Subsidiary or an Affiliate.
12
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15.11 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
15.12 "EXERCISE PRICE" means the amount for which one Common Share may
be purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.
15.13 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal. Such determination
shall be conclusive and binding on all persons.
15.14 "ISO" means an incentive stock option described in section 422(b)
of the Code.
15.15 "NSO" means a stock option not described in sections 422 or 423 of
the Code.
15.16 "OPTION" means an ISO or NSO granted under the Plan and entitling
the holder to purchase Common Shares.
15.17 "OPTIONEE" means an individual or estate who holds an Option.
15.18 "OUTSIDE DIRECTOR" shall mean a member of the Board who is not an
Employee. Service as an Outside Director shall be considered employment for all
purposes of the Plan, except as provided in Section 4.2.
15.19 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
15.20 "PARTICIPANT" means an individual or estate who holds an Award.
15.21 "PREDECESSOR PLAN" means the Redback Networks Inc. 1997 Stock
Plan.
15.22 "PLAN" means this Redback Networks Inc. 1999 Stock Incentive Plan,
as amended from time to time.
15.23 "RESTRICTED SHARE" means a Common Share awarded under the Plan.
15.24 "RESTRICTED STOCK AGREEMENT" means the agreement between the
Company and the recipient of a Restricted Share that contains the terms,
conditions and restrictions pertaining to such Restricted Share.
15.25 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
15.26 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined
13
<PAGE> 17
voting power of all classes of stock in one of the other corporations in such
chain. A corporation that attains the status of a Subsidiary on a date after the
adoption of the Plan shall be considered a Subsidiary commencing as of such
date.
ARTICLE 16. EXECUTION.
To record the amendment and restatement of the Plan by the Board on
______ __, 2000, the Company has caused its duly authorized officer to execute
this document in the name of the Company.
REDBACK NETWORKS INC.
By:
-------------------------
Title:
----------------------
14
<PAGE> 1
EXHIBIT 10.8
REDBACK NETWORKS INC.
1999 DIRECTORS' OPTION PLAN
(AS AMENDED AND RESTATED EFFECTIVE ________ __, 2000)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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Page
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ARTICLE 1. INTRODUCTION.....................................................................1
ARTICLE 2. ADMINISTRATION...................................................................1
2.1 Committee Composition...........................................................1
2.2 Committee Responsibilities......................................................1
ARTICLE 3. SHARES AVAILABLE FOR GRANTS......................................................1
3.1 Basic Limitation................................................................1
3.2 Annual Increase in Shares.......................................................2
3.3 Additional Shares...............................................................2
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS................................2
4.1 Eligibility.....................................................................2
4.2 Initial Grants..................................................................2
4.3 Annual Grants...................................................................2
4.4 Exercise Price..................................................................2
4.5 Exercisability and Term.........................................................3
4.6 Affiliates of Non-Employee Directors............................................3
4.7 Stock Option Agreement..........................................................3
ARTICLE 5. PAYMENT FOR OPTION SHARES........................................................3
5.1 Cash............................................................................3
5.2 Surrender of Stock..............................................................3
5.3 Exercise/Sale...................................................................3
5.4 Other Forms of Payment..........................................................3
ARTICLE 6. PROTECTION AGAINST DILUTION......................................................4
6.1 Adjustments.....................................................................4
6.2 Dissolution or Liquidation......................................................4
9.3 Reorganizations.................................................................4
ARTICLE 7. LIMITATION ON RIGHTS.............................................................4
7.1 Stockholders' Rights............................................................4
7.2 Regulatory Requirements.........................................................4
7.3 Withholding Taxes...............................................................5
ARTICLE 8. FUTURE OF THE PLAN...............................................................5
8.1 Term of the Plan................................................................5
8.2 Amendment or Termination........................................................5
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<TABLE>
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ARTICLE 9. DEFINITIONS......................................................................5
ARTICLE 10. EXECUTION.......................................................................7
</TABLE>
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<PAGE> 4
REDBACK NETWORKS INC.
1999 DIRECTORS' OPTION PLAN
ARTICLE 1. INTRODUCTION.
The Plan was adopted by the Board effective as of the date of
the Company's initial public offering. The purpose of the Plan is to promote the
long-term success of the Company and the creation of stockholder value by (a)
encouraging Non-Employee Directors to focus on critical long-range objectives,
(b) encouraging the attraction and retention of Non-Employee Directors with
exceptional qualifications and (c) linking Non-Employee Directors directly to
stockholder interests through increased stock ownership. The Plan seeks to
achieve this purpose by providing for automatic and non-discretionary grants of
Options to Non-Employee Directors.
The Plan shall be governed by, and construed in accordance with,
the laws of the State of Delaware (except their choice-of-law provisions).
ARTICLE 2. ADMINISTRATION.
2.1 COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of two or more directors of
the Company, who shall be appointed by the Board. In addition, the composition
of the Committee shall satisfy such requirements as the Securities and Exchange
Commission may establish for administrators acting under plans intended to
qualify for exemption under Rule 16b-3 (or its successor) under the Exchange
Act.
2.2 COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all decisions relating to the operation of the Plan. The Committee may
adopt such rules or guidelines as it deems appropriate to implement the Plan.
The Committee's determinations under the Plan shall be final and binding on all
persons.
ARTICLE 3. SHARES AVAILABLE FOR GRANTS.
3.1 BASIC LIMITATION. Common Shares issued pursuant to the Plan may be
authorized but unissued shares or treasury shares. The aggregate number of
Common Shares subject to Options granted under the Plan shall not exceed
<PAGE> 5
(a) 800,000(1) plus (b) the additional Common Shares described in Sections 3.2
and 3.3. The limitations of this Section 3.1 and Section 3.2 shall be subject to
adjustment pursuant to Article 6.
3.2 ANNUAL INCREASE IN SHARES. As of January 1 of each year, commencing
with the year 2001, the aggregate number of Common Shares available for the
grant of Options under the Plan shall automatically be increased by the number
necessary to cause the total number of Common Shares then available to be
restored to 800,000.
3.3 ADDITIONAL SHARES. If Options are forfeited or terminate for any
other reason before being exercised, then the Common Shares subject to such
Options shall again become available for the grant of Options under the Plan.
ARTICLE 4. AUTOMATIC OPTION GRANTS TO NON-EMPLOYEE DIRECTORS.
4.1 ELIGIBILITY. Only Non-Employee Directors shall be eligible for the
grant of Options under the Plan.
4.2 INITIAL GRANTS. Each Non-Employee Director who first becomes a
member of the Board after the date of the Company's initial public offering
shall receive a one-time grant of an Option covering 50,000(2) Common Shares
(subject to adjustment under Article 6) on the date when such Non-Employee
Director first joins the Board. Each Non-Employee Director who is a member of
the Board on the date of the Company's initial public offering, and who did not
previously receive an option to purchase Common Shares, shall receive a one-time
grant of an Option covering 50,000 Common Shares on the date of the Company's
initial public offering. A Non-Employee Director who previously was an Employee
shall not receive a grant under this Section 4.2.
4.3 ANNUAL GRANTS. Upon the conclusion of each regular annual meeting of
the Company's stockholders held in the year 2000 or thereafter, each
Non-Employee Director who will continue serving as a member of the Board
thereafter shall receive an Option covering 20,000(3) Common Shares (subject to
adjustment under Article 6), except that such Option shall not be granted in the
calendar year in which the same Non-Employee Director received the Option
described in Section 4.2. A Non-Employee Director who previously was an Employee
shall be eligible to receive grants under this Section 4.3.
4.4 EXERCISE PRICE. The Exercise Price under all Options granted to a
Non-Employee Director under this Article 4 shall be equal to 100% of
- --------
(1) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999. Also reflects increase from 400,000 shares approved by
stockholders on ______ __, 2000.
(2) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999.
(3) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999.
2
<PAGE> 6
the Fair Market Value of a Common Share on the date of grant, payable in one of
the forms described in Article 5.
4.5 EXERCISABILITY AND TERM. All or part of the Options granted to a
Non-Employee Director under this Article 4 may be exercised at any time prior to
expiration. The Common Shares acquired by exercising such Options shall be fully
vested. Such Options shall expire on the earlier of (a) the 10th anniversary of
the date of grant or (b) the date 12 months after the termination of such
Non-Employee Director's service for any reason.
4.6 AFFILIATES OF NON-EMPLOYEE DIRECTORS. The Committee may provide that
the Options that otherwise would be granted to a Non-Employee Director under
this Article 4 shall instead be granted to an affiliate of such Non-Employee
Director. Such affiliate shall then be deemed to be a Non-Employee Director for
purposes of the Plan, provided that the service-related vesting and termination
provisions pertaining to the Options shall be applied with regard to the service
of the Non-Employee Director.
4.7 STOCK OPTION AGREEMENT. Each grant of an Option under the Plan shall
be evidenced by a Stock Option Agreement between the Optionee and the Company.
Such Option shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan.
ARTICLE 5. PAYMENT FOR OPTION SHARES.
5.1 CASH. All or any part of the Exercise Price may be paid in cash or
cash equivalents.
5.2 SURRENDER OF STOCK. All or any part of the Exercise Price may be
paid by surrendering, or attesting to the ownership of, Common Shares that are
already owned by the Optionee. Such Common Shares shall be valued at their Fair
Market Value on the date when the new Common Shares are purchased under the
Plan. The Optionee shall not surrender, or attest to the ownership of, Common
Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with
respect to the Option for financial reporting purposes.
5.3 EXERCISE/SALE. All or any part of the Exercise Price and any
withholding taxes may be paid by delivering (on a form prescribed by the
Company) an irrevocable direction to a securities broker approved by the Company
to sell all or part of the Common Shares being purchased under the Plan and to
deliver all or part of the sales proceeds to the Company.
5.4 OTHER FORMS OF PAYMENT. At the sole discretion of the Committee, all
or any part of the Exercise Price and any withholding taxes may be paid in any
other form that is consistent with applicable laws, regulations and rules.
3
<PAGE> 7
ARTICLE 6. PROTECTION AGAINST DILUTION.
6.1 ADJUSTMENTS. In the event of a subdivision of the outstanding Common
Shares, a declaration of a dividend payable in Common Shares, a declaration of a
dividend payable in a form other than Common Shares in an amount that has a
material effect on the price of Common Shares, a combination or consolidation of
the outstanding Common Shares (by reclassification or otherwise) into a lesser
number of Common Shares, a recapitalization, a spin-off or a similar occurrence,
the Committee shall make such adjustments as it, in its sole discretion, deems
appropriate in one or more of (a) the number of Common Shares available for
future grants under Article 3, (b) the number of Options to be granted to
Non-Employee Directors under Article 4, (c) the number of Common Shares covered
by each outstanding Option or (d) the Exercise Price under each outstanding
Option. Except as provided in this Article 6, an Optionee shall have no rights
by reason of any issue by the Company of stock of any class or securities
convertible into stock of any class, any subdivision or consolidation of shares
of stock of any class, the payment of any stock dividend or any other increase
or decrease in the number of shares of stock of any class.
6.2 DISSOLUTION OR LIQUIDATION. To the extent not previously exercised,
Options shall terminate immediately prior to the dissolution or liquidation of
the Company.
6.3 REORGANIZATIONS. In the event that the Company is a party to a
merger or other reorganization, outstanding Options shall be subject to the
agreement of merger or reorganization. Such agreement shall provide for (a) the
continuation of the outstanding Options by the Company, if the Company is a
surviving corporation, (b) the assumption of the outstanding Options by the
surviving corporation or its parent or subsidiary, (c) the substitution by the
surviving corporation or its parent or subsidiary of its own options for the
outstanding Options, (d) accelerated expiration of the outstanding Options or
(e) settlement of the full value of the outstanding Options in cash or cash
equivalents followed by cancellation of such Options.
ARTICLE 7. LIMITATION ON RIGHTS.
7.1 STOCKHOLDERS' RIGHTS. A Optionee shall have no dividend rights,
voting rights or other rights as a stockholder with respect to any Common Shares
covered by his or her Option prior to the time when he or she becomes entitled
to receive such Common Shares by filing a notice of exercise and paying the
Exercise Price. No adjustment shall be made for cash dividends or other rights
for which the record date is prior to such time, except as expressly provided in
the Plan.
7.2 REGULATORY REQUIREMENTS. Any other provision of the Plan
notwithstanding, the obligation of the Company to issue
4
<PAGE> 8
Common Shares under the Plan shall be subject to all applicable laws, rules and
regulations and such approval by any regulatory body as may be required. The
Company reserves the right to restrict, in whole or in part, the delivery of
Common Shares pursuant to any Option prior to the satisfaction of all legal
requirements relating to the issuance of such Common Shares, to their
registration, qualification or listing or to an exemption from registration,
qualification or listing.
7.3 WITHHOLDING TAXES. To the extent required by applicable federal,
state, local or foreign law, an Optionee or his or her successor shall make
arrangements satisfactory to the Company for the satisfaction of any withholding
tax obligations that arise in connection with the Plan. The Company shall not be
required to issue any Common Shares or make any cash payment under the Plan
until such obligations are satisfied.
ARTICLE 8. FUTURE OF THE PLAN.
8.1 TERM OF THE PLAN. The Plan shall become effective on the date of the
Company's initial public offering. The Plan shall remain in effect until it is
terminated under Section 8.2.
8.2 AMENDMENT OR TERMINATION. The Board may, at any time and for any
reason, amend or terminate the Plan. An amendment of the Plan shall be subject
to the approval of the Company's stockholders only to the extent required by
applicable laws, regulations or rules. No Options shall be granted under the
Plan after the termination thereof. The termination of the Plan, or any
amendment thereof, shall not affect any Option previously granted under the
Plan.
ARTICLE 9. DEFINITIONS.
9.1 "BOARD" means the Company's Board of Directors, as constituted from
time to time.
9.2 "CODE" means the Internal Revenue Code of 1986, as amended.
9.3 "COMMITTEE" means a committee of the Board, as described in Article
2.
9.4 "COMMON SHARE" means one share of the common stock of the Company.
9.5 "COMPANY" means Redback Networks Inc., a Delaware corporation.
9.6 "EMPLOYEE" means a common-law employee of the Company, a Parent or a
Subsidiary.
9.7 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
5
<PAGE> 9
9.8 "EXERCISE PRICE" means the amount for which one Common Share may be
purchased upon exercise of such Option, as specified in the applicable Stock
Option Agreement.
9.9 "FAIR MARKET VALUE" means the market price of Common Shares,
determined by the Committee in good faith on such basis as it deems appropriate.
The Committee's determination of Fair Market Value by shall be based on the
prices reported in The Wall Street Journal whenever possible, except that the
Fair Market Value on the date of the Company's initial public offering shall be
equal to the price of Common Shares to the public in such offering. Such
determination shall be conclusive and binding on all persons.
9.10 "NON-EMPLOYEE DIRECTOR" means a member of the Board who is not an
Employee.
9.11 "OPTION" means an option granted under the Plan and entitling the
holder to purchase Common Shares. Options do not qualify as incentive stock
options described in section 422(b) of the Code.
9.12 "OPTIONEE" means an individual or estate who holds an Option.
9.13 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company, if each of the
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain. A corporation that attains the status of a Parent on
a date after the adoption of the Plan shall be considered a Parent commencing as
of such date.
9.14 "PLAN" means this Redback Networks Inc. 1999 Directors' Option
Plan, as amended from time to time.
9.15 "STOCK OPTION AGREEMENT" means the agreement between the Company
and an Optionee that contains the terms, conditions and restrictions pertaining
to his or her Option.
9.16 "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain. A corporation that attains
the status of a Subsidiary on a date after the adoption of the Plan shall be
considered a Subsidiary commencing as of such date.
6
<PAGE> 10
ARTICLE 10. EXECUTION.
To record the amendment and restatement of the Plan by the Board on
________ __, 2000, the Company has caused its duly authorized officer to execute
this document in the name of the Company.
REDBACK NETWORKS INC.
By:
---------------------------------
Title:
------------------------------
7
<PAGE> 1
EXHIBIT 10.9
REDBACK NETWORKS INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
(AS AMENDED AND RESTATED EFFECTIVE ______ __, 2000)
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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SECTION 1. PURPOSE OF THE PLAN ............................ 1
SECTION 2. ADMINISTRATION OF THE PLAN ..................... 1
(a) Committee Composition .......................... 1
(b) Committee Responsibilities ..................... 1
SECTION 3. ENROLLMENT AND PARTICIPATION ................... 1
(a) Offering Periods ............................... 1
(b) Accumulation Periods ........................... 1
(c) Enrollment ..................................... 1
(d) Duration of Participation ...................... 2
(e) Applicable Offering Period ..................... 2
SECTION 4. EMPLOYEE CONTRIBUTIONS ......................... 2
(a) Frequency of Payroll Deductions ................ 2
(b) Amount of Payroll Deductions ................... 3
(c) Changing Withholding Rate ...................... 3
(d) Discontinuing Payroll Deductions ............... 3
(e) Limit on Number of Elections ................... 3
SECTION 5. WITHDRAWAL FROM THE PLAN ....................... 3
(a) Withdrawal ..................................... 3
(b) Re-Enrollment After Withdrawal ................. 3
SECTION 6. CHANGE IN EMPLOYMENT STATUS .................... 3
(a) Termination of Employment ...................... 3
(b) Leave of Absence ............................... 4
(c) Death .......................................... 4
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES ........... 4
(a) Plan Accounts .................................. 4
(b) Purchase Price ................................. 4
(c) Number of Shares Purchased ..................... 4
(d) Available Shares Insufficient .................. 5
(e) Issuance of Stock .............................. 5
(f) Unused Cash Balances ........................... 5
(g) Stockholder Approval ........................... 5
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP ................. 5
(a) Five Percent Limit ............................. 5
(b) Dollar Limit ................................... 6
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SECTION 9. RIGHTS NOT TRANSFERABLE ........................ 6
SECTION 10. NO RIGHTS AS AN EMPLOYEE ....................... 7
SECTION 11. NO RIGHTS AS A STOCKHOLDER ..................... 7
SECTION 12. SECURITIES LAW REQUIREMENTS .................... 7
SECTION 13. STOCK OFFERED UNDER THE PLAN ................... 7
(a) Authorized Shares .............................. 7
(b) Anti-Dilution Adjustments ...................... 7
(c) Reorganizations ................................ 8
SECTION 14. AMENDMENT OR DISCONTINUANCE .................... 8
SECTION 15. DEFINITIONS .................................... 8
(a) Accumulation Period ............................ 8
(b) Board .......................................... 8
(c) Code ........................................... 8
(d) Committee ...................................... 8
(e) Company ........................................ 8
(f) Compensation ................................... 8
(g) Corporate Reorganization ....................... 9
(h) Eligible Employee .............................. 9
(i) Exchange Act ................................... 9
(j) Fair Market Value .............................. 9
(k) IPO ............................................ 9
(l) Offering Period ................................ 10
(m) Participant .................................... 10
(n) Participating Company .......................... 10
(o) Plan ........................................... 10
(p) Plan Account ................................... 10
(q) Purchase Price ................................. 10
(r) Stock .......................................... 10
(s) Subsidiary ..................................... 10
SECTION 15. EXECUTION ...................................... 10
</TABLE>
ii
<PAGE> 4
REDBACK NETWORKS INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE OF THE PLAN.
The Plan was adopted by the Board effective as of the date of the IPO.
The purpose of the Plan is to provide Eligible Employees with an opportunity to
increase their proprietary interest in the success of the Company by purchasing
Stock from the Company on favorable terms and to pay for such purchases through
payroll deductions. The Plan is intended to qualify under section 423 of the
Code.
SECTION 2. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE COMPOSITION. The Plan shall be administered by the
Committee. The Committee shall consist exclusively of one or more directors of
the Company, who shall be appointed by the Board.
(b) COMMITTEE RESPONSIBILITIES. The Committee shall interpret the Plan
and make all other policy decisions relating to the operation of the Plan. The
Committee may adopt such rules, guidelines and forms as it deems appropriate to
implement the Plan. The Committee's determinations under the Plan shall be final
and binding on all persons.
SECTION 3. ENROLLMENT AND PARTICIPATION.
(a) OFFERING PERIODS. While the Plan is in effect, two overlapping
Offering Periods shall commence in each calendar year. The Offering Periods
shall consist of the 24-month periods commencing on each May 1 and November 1,
except that the first Offering Period shall commence on the date of the IPO and
end on April 30, 2001.
(b) ACCUMULATION PERIODS. While the Plan is in effect, two Accumulation
Periods shall commence in each calendar year. The Accumulation Periods shall
consist of the six-month periods commencing on each May 1 and November 1, except
that the first Accumulation Period shall commence on the date of the IPO and end
on October 31, 1999.
(c) ENROLLMENT. Any individual who, on the day preceding the first day of
an Offering Period, qualifies as an Eligible Employee may elect to become a
Participant in the Plan for such Offering Period by executing the enrollment
form prescribed for this purpose by the Committee. The enrollment form shall be
filed with the Company at the prescribed location not later than five business
days prior to the commencement of such Offering Period.
(d) DURATION OF PARTICIPATION. Once enrolled in the Plan, a Participant
shall continue to participate in the Plan until he or she ceases to be an
Eligible Employee, withdraws from the Plan under Section 5(a) or reaches the end
of the Accumulation Period in which his or her employee contributions were
discontinued under Section 4(d) or 8(b). A Participant who
<PAGE> 5
discontinued employee contributions under Section 4(d) or withdrew from the Plan
under Section 5(a) may again become a Participant, if he or she then is an
Eligible Employee, by following the procedure described in Subsection (c) above.
A Participant whose employee contributions were discontinued automatically under
Section 8(b) shall automatically resume participation at the beginning of the
earliest Accumulation Period ending in the next calendar year, if he or she then
is an Eligible Employee.
(e) APPLICABLE OFFERING PERIOD. For purposes of calculating the Purchase
Price under Section 7(b), the applicable Offering Period shall be determined as
follows:
(i) Once a Participant is enrolled in the Plan for an Offering
Period, such Offering Period shall continue to apply to him or her until
the earliest of (A) the end of such Offering Period, (B) the end of his
or her participation under Subsection (d) above or (C) re-enrollment for
a subsequent Offering Period under Paragraph (ii) or (iii) below.
(ii) In the event that the Fair Market Value of Stock on the last
trading day before the commencement of the Offering Period for which the
Participant is enrolled is higher than on the last trading day before the
commencement of any subsequent Offering Period, the Participant shall
automatically be re-enrolled for such subsequent Offering Period.
(iii) Any other provision of the Plan notwithstanding, the Company
(at its sole discretion) may determine prior to the commencement of any
new Offering Period that all Participants shall be re-enrolled for such
new Offering Period.
(iv) When a Participant reaches the end of an Offering Period but
his or her participation is to continue, then such Participant shall
automatically be re-enrolled for the Offering Period that commences
immediately after the end of the prior Offering Period.
SECTION 4. EMPLOYEE CONTRIBUTIONS.
(a) FREQUENCY OF PAYROLL DEDUCTIONS. A Participant may purchase shares of
Stock under the Plan solely by means of payroll deductions. Payroll deductions,
as designated by the Participant pursuant to Subsection (b) below, shall occur
on each payday during participation in the Plan.
(b) AMOUNT OF PAYROLL DEDUCTIONS. An Eligible Employee shall designate on
the enrollment form the portion of his or her Compensation that he or she elects
to have withheld for the purchase of Stock. Such portion shall be a whole
percentage of the Eligible Employee's Compensation, but not less than 1% nor
more than 15%.
(c) CHANGING WITHHOLDING RATE. If a Participant wishes to change the rate
of payroll withholding, he or she may do so by filing a new enrollment form with
the Company at the prescribed location at any time. The new withholding rate
shall be effective as soon as
2
<PAGE> 6
reasonably practicable after such form has been received by the Company. The new
withholding rate shall be a whole percentage of the Eligible Employee's
Compensation, but not less than 1% nor more than 15%.
(d) DISCONTINUING PAYROLL DEDUCTIONS. If a Participant wishes to
discontinue employee contributions entirely, he or she may do so by filing a new
enrollment form with the Company at the prescribed location at any time. Payroll
withholding shall cease as soon as reasonably practicable after such form has
been received by the Company. (In addition, employee contributions may be
discontinued automatically pursuant to Section 8(b).) A Participant who has
discontinued employee contributions may resume such contributions by filing a
new enrollment form with the Company at the prescribed location. Payroll
withholding shall resume as soon as reasonably practicable after such form has
been received by the Company.
(e) LIMIT ON NUMBER OF ELECTIONS. No Participant shall make more than two
elections under Subsection (c) or (d) above during any Accumulation Period.
SECTION 5. WITHDRAWAL FROM THE PLAN.
(a) WITHDRAWAL. A Participant may elect to withdraw from the Plan by
filing the prescribed form with the Company at the prescribed location at any
time before the last day of an Accumulation Period. As soon as reasonably
practicable thereafter, payroll deductions shall cease and the entire amount
credited to the Participant's Plan Account shall be refunded to him or her in
cash, without interest. No partial withdrawals shall be permitted.
(b) RE-ENROLLMENT AFTER WITHDRAWAL. A former Participant who has
withdrawn from the Plan shall not be a Participant until he or she re-enrolls in
the Plan under Section 3(c). Re-enrollment may be effective only at the
commencement of an Offering Period.
SECTION 6. CHANGE IN EMPLOYMENT STATUS.
(a) TERMINATION OF EMPLOYMENT. Termination of employment as an Eligible
Employee for any reason, including death, shall be treated as an automatic
withdrawal from the Plan under Section 5(a). (A transfer from one Participating
Company to another shall not be treated as a termination of employment.)
(b) LEAVE OF ABSENCE. For purposes of the Plan, employment shall not be
deemed to terminate when the Participant goes on a military leave, a sick leave
or another bona fide leave of absence, if the leave was approved by the Company
in writing. Employment, however, shall be deemed to terminate 90 days after the
Participant goes on a leave, unless a contract or statute guarantees his or her
right to return to work. Employment shall be deemed to terminate in any event
when the approved leave ends, unless the Participant immediately returns to
work.
(c) DEATH. In the event of the Participant's death, the amount credited
to his or her Plan Account shall be paid to a beneficiary designated by him or
her for this purpose on the prescribed form or, if none, to the Participant's
estate. Such form shall be valid only if it was filed with the Company at the
prescribed location before the Participant's death.
3
<PAGE> 7
SECTION 7. PLAN ACCOUNTS AND PURCHASE OF SHARES.
(a) PLAN ACCOUNTS. The Company shall maintain a Plan Account on its books
in the name of each Participant. Whenever an amount is deducted from the
Participant's Compensation under the Plan, such amount shall be credited to the
Participant's Plan Account. Amounts credited to Plan Accounts shall not be trust
funds and may be commingled with the Company's general assets and applied to
general corporate purposes. No interest shall be credited to Plan Accounts.
(b) PURCHASE PRICE. The Purchase Price for each share of Stock purchased
at the close of an Accumulation Period shall be the lower of:
(i) 85% of the Fair Market Value of such share on the last trading
day in such Accumulation Period; or
(ii) 85% of the Fair Market Value of such share on the last
trading day before the commencement of the applicable Offering Period (as
determined under Section 3(e)) or, in the case of the first Offering
Period under the Plan, 85% of the price at which one share of Stock is
offered to the public in the IPO.
(c) NUMBER OF SHARES PURCHASED. As of the last day of each Accumulation
Period, each Participant shall be deemed to have elected to purchase the number
of shares of Stock calculated in accordance with this Subsection (c), unless the
Participant has previously elected to withdraw from the Plan in accordance with
Section 5(a). The amount then in the Participant's Plan Account shall be divided
by the Purchase Price, and the number of shares that results shall be purchased
from the Company with the funds in the Participant's Plan Account. The foregoing
notwithstanding, no Participant shall purchase more than 2,000(1) shares of
Stock with respect to any Accumulation Period nor more than the amounts of Stock
set forth in Sections 8(b) and 13(a). The Committee may determine with respect
to all Participants that any fractional share, as calculated under this
Subsection (c), shall be (i) rounded down to the next lower whole share or (ii)
credited as a fractional share.
(d) AVAILABLE SHARES INSUFFICIENT. In the event that the aggregate number
of shares that all Participants elect to purchase during an Accumulation Period
exceeds the maximum number of shares remaining available for issuance under
Section 13(a), then the number of shares to which each Participant is entitled
shall be determined by multiplying the number of shares available for issuance
by a fraction, the numerator of which is the number of shares that such
Participant has elected to purchase and the denominator of which is the number
of shares that all Participants have elected to purchase.
(e) ISSUANCE OF STOCK. Certificates representing the shares of Stock
purchased by a Participant under the Plan shall be issued to him or her as soon
as reasonably practicable after the close of the applicable Accumulation Period,
except that the Committee may determine that such shares shall be held for each
Participant's benefit by a broker designated by the Committee (unless the
Participant has elected that certificates be issued to him or her). Shares may
be
- ------------------------
(1) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999.
4
<PAGE> 8
registered in the name of the Participant or jointly in the name of the
Participant and his or her spouse as joint tenants with right of survivorship or
as community property.
(f) UNUSED CASH BALANCES. An amount remaining in the Participant's Plan
Account that represents the Purchase Price for any fractional share shall be
carried over in the Participant's Plan Account to the next Accumulation Period.
Any amount remaining in the Participant's Plan Account that represents the
Purchase Price for whole shares that could not be purchased by reason of
Subsection (c) above, Section 8(b) or Section 13(a) shall be refunded to the
Participant in cash, without interest.
(g) STOCKHOLDER APPROVAL. Any other provision of the Plan
notwithstanding, no shares of Stock shall be purchased under the Plan unless and
until the Company's stockholders have approved the adoption of the Plan.
SECTION 8. LIMITATIONS ON STOCK OWNERSHIP.
(a) FIVE PERCENT LIMIT. Any other provision of the Plan notwithstanding,
no Participant shall be granted a right to purchase Stock under the Plan if such
Participant, immediately after his or her election to purchase such Stock, would
own stock possessing more than 5% of the total combined voting power or value of
all classes of stock of the Company or any parent or Subsidiary of the Company.
For purposes of this Subsection (a), the following rules shall apply:
(i) Ownership of stock shall be determined after applying the
attribution rules of section 424(d) of the Code;
(ii) Each Participant shall be deemed to own any stock that he or
she has a right or option to purchase under this or any other plan; and
(iii) Each Participant shall be deemed to have the right to
purchase 2,000 shares of Stock under this Plan with respect to each
Accumulation Period.
(b) DOLLAR LIMIT. Any other provision of the Plan notwithstanding, no
Participant shall purchase Stock with a Fair Market Value in excess of the
following limit:
(i) In the case of Stock purchased during an Offering Period that
commenced in the current calendar year, the limit shall be equal to (A)
$25,000 minus (B) the Fair Market Value of the Stock that the Participant
previously purchased in the current calendar year (under this Plan and
all other employee stock purchase plans of the Company or any parent or
Subsidiary of the Company).
(ii) In the case of Stock purchased during an Offering Period that
commenced in the immediately preceding calendar year, the limit shall be
equal to (A) $50,000 minus (B) the Fair Market Value of the Stock that
the Participant previously purchased (under this Plan and all other
employee stock purchase
5
<PAGE> 9
plans of the Company or any parent or Subsidiary of the Company) in the
current calendar year and in the immediately preceding calendar year.
(iii) In the case of Stock purchased during an Offering Period
that commenced in the second preceding calendar year, the limit shall be
equal to (A) $75,000 minus (B) the Fair Market Value of the Stock that
the Participant previously purchased (under this Plan and all other
employee stock purchase plans of the Company or any parent or Subsidiary
of the Company) in the current calendar year and in the two preceding
calendar years.
For purposes of this Subsection (b), the Fair Market Value of Stock shall be
determined in each case as of the beginning of the Offering Period in which such
Stock is purchased. Employee stock purchase plans not described in section 423
of the Code shall be disregarded. If a Participant is precluded by this
Subsection (b) from purchasing additional Stock under the Plan, then his or her
employee contributions shall automatically be discontinued and shall resume at
the beginning of the earliest Accumulation Period ending in the next calendar
year (if he or she then is an Eligible Employee).
SECTION 9. RIGHTS NOT TRANSFERABLE.
The rights of any Participant under the Plan, or any Participant's
interest in any Stock or moneys to which he or she may be entitled under the
Plan, shall not be transferable by voluntary or involuntary assignment or by
operation of law, or in any other manner other than by beneficiary designation
or the laws of descent and distribution. If a Participant in any manner attempts
to transfer, assign or otherwise encumber his or her rights or interest under
the Plan, other than by beneficiary designation or the laws of descent and
distribution, then such act shall be treated as an election by the Participant
to withdraw from the Plan under Section 5(a).
SECTION 10. NO RIGHTS AS AN EMPLOYEE.
Nothing in the Plan or in any right granted under the Plan shall confer
upon the Participant any right to continue in the employ of a Participating
Company for any period of specific duration or interfere with or otherwise
restrict in any way the rights of the Participating Companies or of the
Participant, which rights are hereby expressly reserved by each, to terminate
his or her employment at any time and for any reason, with or without cause.
SECTION 11. NO RIGHTS AS A STOCKHOLDER.
A Participant shall have no rights as a stockholder with respect to any
shares of Stock that he or she may have a right to purchase under the Plan until
such shares have been purchased on the last day of the applicable Accumulation
Period.
SECTION 12. SECURITIES LAW REQUIREMENTS.
Shares of Stock shall not be issued under the Plan unless the issuance
and delivery of such shares comply with (or are exempt from) all applicable
requirements of law, including
6
<PAGE> 10
(without limitation) the Securities Act of 1933, as amended, the rules and
regulations promulgated thereunder, state securities laws and regulations, and
the regulations of any stock exchange or other securities market on which the
Company's securities may then be traded.
SECTION 13. STOCK OFFERED UNDER THE PLAN.
(a) AUTHORIZED SHARES. The number of shares of Stock available for
purchase under the Plan shall be 3,000,000(2) (subject to adjustment pursuant to
this Section 13). On May 1 of each year, commencing with May 1, 2000, the
aggregate number of shares of Stock available for purchase during the life of
the Plan shall automatically be increased by the number of shares necessary to
cause the number of shares then available for purchase to be restored to
3,000,000 (subject to adjustment pursuant to this Section 13).
(b) ANTI-DILUTION ADJUSTMENTS. The aggregate number of shares of Stock
offered under the Plan, the 2,000-share limitation described in Section 7(c) and
the price of shares that any Participant has elected to purchase shall be
adjusted proportionately by the Committee for any increase or decrease in the
number of outstanding shares of Stock resulting from a subdivision or
consolidation of shares or the payment of a stock dividend, any other increase
or decrease in such shares effected without receipt or payment of consideration
by the Company, the distribution of the shares of a Subsidiary to the Company's
stockholders or a similar event.
(c) REORGANIZATIONS. Any other provision of the Plan notwithstanding,
immediately prior to the effective time of a Corporate Reorganization, the
Offering Period and Accumulation Period then in progress shall terminate and
shares shall be purchased pursuant to Section 7, unless the Plan is continued or
assumed by the surviving corporation or its parent corporation. The Plan shall
in no event be construed to restrict in any way the Company's right to undertake
a dissolution, liquidation, merger, consolidation or other reorganization.
SECTION 14. AMENDMENT OR DISCONTINUANCE.
The Board shall have the right to amend, suspend or terminate the Plan at
any time and without notice. Except as provided in Section 13, any increase in
the aggregate number of shares of Stock to be issued under the Plan shall be
subject to approval by a vote of the stockholders of the Company. In addition,
any other amendment of the Plan shall be subject to approval by a vote of the
stockholders of the Company to the extent required by an applicable law or
regulation. The Plan shall terminate automatically 20 years after its adoption
by the Board, unless (a) the Plan is extended by the Board and (b) the extension
is approved within 12 months by a vote of the stockholders of the Company.
SECTION 15. DEFINITIONS.
(a) "ACCUMULATION PERIOD" means a six-month period during which
contributions may be made toward the purchase of Stock under the Plan, as
determined pursuant to Section 3(b).
- ------------------------
(2) Reflects two-for-one stock split applicable to stockholders of record on
August 5, 1999. Also reflects increase from 2,000,000 shares approved by
stockholders on ______ __, 2000.
7
<PAGE> 11
(b) "BOARD" means the Board of Directors of the Company, as constituted
from time to time.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of the Board, as described in Section
2.
(e) "COMPANY" means Redback Networks Inc., a Delaware corporation.
(f) "COMPENSATION" means (i) the total compensation paid in cash to a
Participant by a Participating Company, including salaries, wages, bonuses,
incentive compensation, commissions, overtime pay and shift premiums, plus (ii)
any pre-tax contributions made by the Participant under section 401(k) or 125 of
the Code. "Compensation" shall exclude all non-cash items, moving or relocation
allowances, cost-of-living equalization payments, car allowances, tuition
reimbursements, imputed income attributable to cars or life insurance, severance
pay, fringe benefits, contributions or benefits received under employee benefit
plans, income attributable to the exercise of stock options, and similar items.
The Committee shall determine whether a particular item is included in
Compensation.
(g) "CORPORATE REORGANIZATION" means:
(i) The consummation of a merger or consolidation of the Company
with or into another entity or any other corporate reorganization; or
(ii) The sale, transfer or other disposition of all or
substantially all of the Company's assets or the complete liquidation or
dissolution of the Company.
(h) "ELIGIBLE EMPLOYEE" means any employee of a Participating Company
whose customary employment is for more than five months per calendar year and
for more than 20 hours per week. The foregoing notwithstanding, an individual
shall not be considered an Eligible Employee if his or her participation in the
Plan is prohibited by the law of any country which has jurisdiction over him or
her or if he or she is subject to a collective bargaining agreement that does
not provide for participation in the Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(j) "FAIR MARKET VALUE" means the market price of Stock, determined by
the Committee as follows:
(i) If the Stock was traded on The Nasdaq National Market on the
date in question, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by The Nasdaq National
Market;
(ii) If the Stock was traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date;
or
8
<PAGE> 12
(iii) If none of the foregoing provisions is applicable, then the
Fair Market Value shall be determined by the Committee in good faith on
such basis as it deems appropriate.
Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in The Wall Street Journal or as reported
directly to the Company by Nasdaq or a stock exchange. Such determination shall
be conclusive and binding on all persons.
(k) "IPO" means the initial offering of Stock to the public pursuant to a
registration statement filed by the Company with the Securities and Exchange
Commission.
(l) "OFFERING PERIOD" means a 24-month period with respect to which the
right to purchase Stock may be granted under the Plan, as determined pursuant to
Section 3(a).
(m) "PARTICIPANT" means an Eligible Employee who elects to participate in
the Plan, as provided in Section 3(c).
(n) "PARTICIPATING COMPANY" means (i) the Company and (ii) each present
or future Subsidiary designated by the Committee as a Participating Company.
(o) "PLAN" means this Redback Networks Inc. 1999 Employee Stock Purchase
Plan, as it may be amended from time to time.
(p) "PLAN ACCOUNT" means the account established for each Participant
pursuant to Section 7(a).
(q) "PURCHASE PRICE" means the price at which Participants may purchase
Stock under the Plan, as determined pursuant to Section 7(b).
(r) "STOCK" means the Common Stock of the Company.
(s) "SUBSIDIARY" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
9
<PAGE> 13
SECTION 16. EXECUTION.
To record the amendment and restatement of the Plan by the Board on
______ __, 2000, the Company has caused its duly authorized officer to execute
this document in the name of the Company.
REDBACK NETWORKS INC.
By:
--------------------------------------
Title:
-----------------------------------
10
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Redback Networks Inc. of our report dated January 18, 2000 relating to the
financial statements of Redback Networks Inc., which appears in such
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
January 31, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-4 of
Redback Networks Inc. of our report dated January 25, 2000 relating to the
financial statements of Siara Systems, Inc., which appears in such Registration
Statement. We also consent to the reference to us under the heading "Experts" in
such Registration Statement.
PricewaterhouseCoopers LLP
San Jose, California
January 31, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 13,888
<SECURITIES> 43,072
<RECEIVABLES> 16,578
<ALLOWANCES> 1,149
<INVENTORY> 3,960
<CURRENT-ASSETS> 77,723
<PP&E> 13,621
<DEPRECIATION> 3,471
<TOTAL-ASSETS> 94,830
<CURRENT-LIABILITIES> 27,925
<BONDS> 0
0
0
<COMMON> 91,638
<OTHER-SE> (25,745)
<TOTAL-LIABILITY-AND-EQUITY> 94,830
<SALES> 64,274
<TOTAL-REVENUES> 64,274
<CGS> 18,665
<TOTAL-COSTS> 18,665
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,838
<INCOME-PRETAX> (7,919)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,919)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,919)
<EPS-BASIC> (.30)
<EPS-DILUTED> (.30)
</TABLE>
<PAGE> 1
TO VOTE BY MAIL, PLEASE DETACH THE PROXY CARD HERE
- --------------------------------------------------------------------------------
REDBACK NETWORKS INC.
SPECIAL MEETING OF STOCKHOLDERS, MARCH 8, 2000
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF REDBACK NETWORKS INC.
PROXY
- -----
THE UNDERSIGNED STOCKHOLDER OF REDBACK NETWORKS INC., A DELAWARE CORPORATION
("REDBACK"), HEREBY CONSTITUTES AND APPOINTS DENNIS L. BARSEMA AND CRAIG M.
GENTNER, AND EACH OF THEM, THE ATTORNEYS AND PROXIES OF THE UNDERSIGNED, EACH
WITH THE POWER OF SUBSTITUTION, TO ATTEND AND ACT FOR THE UNDERSIGNED AT THE
SPECIAL MEETING OF STOCKHOLDERS OF REDBACK TO BE HELD AT THE SHERATON HOTEL,
LOCATED AT 1100 NORTH MATHILDA AVENUE, SUNNYVALE, CALIFORNIA 94089, ON MARCH 8,
2000 AT 10:00 A.M., LOCAL TIME, AND AT ANY ADJOURNMENTS OR POSTPONEMENTS
THEREOF, AND IN CONNECTION THEREWITH TO VOTE AND REPRESENT ALL OF THE SHARES OF
COMMON STOCK OF REDBACK HELD OF RECORD BY THE UNDERSIGNED ON JANUARY 31, 1999,
AS DIRECTED ON THE REVERSE SIDE OF THIS PROXY.
Said attorneys and proxies, and each of them, shall have all the powers which
the undersigned would have if acting in person. The undersigned hereby revokes
any other proxy to vote at such meeting and hereby ratifies and confirms all
that said attorneys and proxies, and each of them, may lawfully do by virtue
hereof. Said proxies, without hereby limiting their general authority, are
specifically authorized to vote in accordance with their best judgment with
respect to all matters incident to the conduct of the meeting and all matters
presented at the meeting but which are not known to the Board of Directors at
the time of the solicitation of this proxy.
Each of the proxies named in this proxy present at the special meeting, either
in person or by substitute, shall have and exercise all the powers of said
proxies hereunder. This proxy will be voted in accordance with the choices
specified by the undersigned on this proxy. In their discretion, each of the
above-named proxies is authorized to vote upon such other business incident to
the conduct of the special meeting as may properly come before the special
meeting or any postponements or adjournments thereof. IF NO INSTRUCTIONS TO THE
CONTRARY ARE INDICATED HEREON, THIS PROXY WILL BE TREATED AS A GRANT OF
AUTHORITY TO VOTE FOR PROPOSAL NO. 1, NO. 2, NO. 3, NO. 4, AND NO. 5, AND ON ANY
OTHER MATTERS TO BE VOTED UPON.
----------------
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
----------------
<PAGE> 2
YOUR VOTE IS IMPORTANT!
YOU CAN VOTE IN ONE OF THREE WAYS:
OPTION 1: VOTE OVER THE INTERNET
1. Read the accompanying Joint Proxy Statement/Prospectus.
2. Have your 12-digit control number located on your voting ballot available.
3. Point your browser to http://www.cybervote.georgeson.com.
4. Follow the instructions. You will be given two choices:
o You can simply cast your vote; or
o You can cast your vote and register to receive all future shareholder
communications electronically, instead of in print. This means that the
annual report, proxy, and any other correspondence will be delivered to you
electronically via e-mail.
OPTION 2: VOTE BY TELEPHONE
1. Read the accompanying Joint Proxy Statement/Prospectus.
2. Have your 12-digit control number located on your voting ballot available.
3. Using a touch-tone phone, call, toll-free: 1-(877) 260-0388.
4. Follow the recorded instructions.
OR
OPTION 3: VOTE BY PAPER BALLOT
1. Read the accompanying Joint Proxy Statement/Prospectus.
2. Mark your vote on the enclosed paper ballot and return it in the envelope
provided.
Voting by Internet or telephone is fast, convenient and your vote is immediately
confirmed and tabulated. Using the Internet or the telephone, you can vote
anytime, 24 hours a day. More importantly, by choosing either option, you help
Redback reduce postage and proxy tabulation costs. Please do not return the
enclosed paper ballot if you are voting using the Internet or telephone.
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COMPANY NUMBER CONTROL NUMBER
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TO VOTE BY MAIL, PLEASE DETACH THE PROXY CARD HERE
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[X] PLEASE MARK VOTES AS IN
THIS EXAMPLE
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSALS 1, 2, 3, 4, AND 5.
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1. To approve and adopt a merger agreement dated FOR AGAINST ABSTAIN
November 28, 1999 between Redback and Siara Systems [ ] [ ] [ ]
Inc. ("Siara"), approve a merger that will cause
Siara to merge with and into Redback and approve the
issuance of 31,341,986 shares of Redback common stock
pursuant to the merger with Siara.
2. To amend Redback's certificate of incorporation to FOR AGAINST ABSTAIN
the authorized number of shares of Redback common [ ] [ ] [ ]
stock from 80,000,000 to 200,000,000.
3. To amend Redback's 1999 Stock Incentive Plan to FOR AGAINST ABSTAIN
increase the initial number of shares of Redback [ ] [ ] [ ]
common stock reserved for issuance under the plan
from 5,000,000 to 8,000,000 and to increase the
number of shares of Redback common stock by which
the share reserve will automatically increase on
an annual basis from lesser of 3,000,000 or 5% of
the total number of shares of Redback common stock
outstanding at the time of the increase to the
lesser of 3,000,000 or 5% of the total number of
shares of Redback common stock outstanding at the
time of the increase. If approved, this amendment
will take place only if the merger with Siara is
completed.
4. To amend Redback's 1999 Employee Stock Purchase Plan FOR AGAINST ABSTAIN
to increase the initial number of shares of Redback [ ] [ ] [ ]
common stock reserved for issuance under the plan
from 2,000,000 to 3,000,000 and to increase the
number of shares of Redback common stock to which
the reserve will automatically be restored on an
annual basis from 2,000,000 to 3,000,000. If approved,
this amendment will take place only if the merger with
Siara is completed.
5. To amend Redback's 1999 Directors' Option Plan to FOR AGAINST ABSTAIN
increase the initial number of shares of Redback [ ] [ ] [ ]
common stock reserved for issuance under the plan
from 400,000 to 800,000 and to increase the number
of shares of Redback common stock to which the
reserve will automatically be restored to an annual
basis from 400,000 to 800,000. If approved, this
amendment will take place only if the merger with
Siara is completed.
The undersigned acknowledges receipt of a copy of
the Notice of Special Meeting of Stockholders and
Joint Proxy Statement/Prospectus relating to the
special meeting.
DATE: , 2000
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(Signature of Stockholder)
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(Signature of Stockholder)
IMPORTANT: In signing this proxy please sign
exactly as your name(s) is (are) shown on the
share certificate to which the proxy applies. When
signing as an attorney, executor, administrator,
trustee or guardian, please give your full title
as such. If a corporation, please sign in full
corporate name by the President or other
authorized officer. If a partnership, please sign
in partnership name by an authorized person. EACH
JOINT TENANT MUST SIGN.
