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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
AIRONET WIRELESS COMMUNICATIONS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(I) and 0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement no.:
- --------------------------------------------------------------------------------
(3) Filing Party:
- --------------------------------------------------------------------------------
(4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
AIRONET LOGO
Dear Aironet Stockholders:
I am pleased to forward the enclosed proxy statement/prospectus regarding
an opportunity for Aironet to merge with Cisco Systems, Inc. The merger will
result in a combined company that offers a single comprehensive solution for
local area wireless networking. We believe the merger offers significant value
to our stockholders.
If the merger with Cisco is approved, each share of your Aironet common
stock will be exchanged for 0.63734 of a share of Cisco common stock. Cisco
common stock is traded on the Nasdaq National Market under the trading symbol
"CSCO," and on February 4, 2000, Cisco common stock closed at $121.13 per share.
Before we can merge, those holding at least 75% of Aironet's outstanding
common stock must vote to approve the merger agreement and merger. The merger
proposal will be voted on at a special meeting of the Aironet stockholders on
Tuesday, March 14, 2000 at 10:00 a.m. Eastern Time, at the Hilton Akron West,
3180 West Market Street, Akron, Ohio. Only those who hold shares of our common
stock at the close of business on February 4, 2000 will be entitled to vote at
the special meeting.
Your board of directors has carefully studied the terms and conditions of
the merger and unanimously agrees that the terms are fair to, and in the best
interests of, our stockholders. Your board of directors has unanimously approved
the merger agreement and merger and recommends that you vote to approve the
merger agreement and merger.
This proxy statement/prospectus provides you with detailed information
concerning Cisco and the merger. Please give all of the information in the proxy
statement/prospectus your careful attention. IN PARTICULAR, YOU SHOULD CAREFULLY
CONSIDER THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON PAGE
12.
YOUR VOTE IS VERY IMPORTANT. To approve the merger agreement, you MUST VOTE
FOR the proposal by following the instructions stated on the enclosed proxy
card. If you attend the special meeting, you may vote in person if you wish,
even though you have previously returned your proxy.
Whether or not you plan to attend the special meeting, PLEASE MARK, SIGN,
DATE AND PROMPTLY RETURN YOUR PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
If you do not vote at all, it will, in effect, count as a vote against the
proposal. We urge you to VOTE FOR THIS PROPOSAL, a necessary step in the merger
of Aironet and Cisco.
On behalf of the Aironet board, I thank you for your support and urge you
to VOTE FOR APPROVAL of the merger of Aironet Wireless Communications, Inc. and
Cisco Systems, Inc.
Sincerely,
Roger Murphy Signature
Roger J. Murphy, Jr.
President and Chief Executive Officer
Aironet Wireless Communications, Inc. address
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE SHARES OF CISCO COMMON STOCK TO BE
ISSUED IN THE MERGER OR DETERMINED IF THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE.
This proxy statement/prospectus is dated February 7, 2000, and was first
mailed to Aironet stockholders on February 9, 2000.
<PAGE> 3
AIRONET WIRELESS COMMUNICATIONS, INC.
3875 EMBASSY PARKWAY
AKRON, OH 44333
(330) 664-7900
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD MARCH 14, 2000
To the Stockholders of Aironet Wireless Communications, Inc.:
We will hold a special meeting of stockholders of Aironet Wireless
Communications, Inc. at 10:00 a.m. Eastern Time, on Tuesday, March 14, 2000 at
the Hilton Akron West, 3180 West Market Street, Akron, Ohio, for the following
purposes:
1. To consider and vote on a proposal to approve the agreement and plan of
merger and reorganization by and among Cisco Systems, Inc., Osprey Acquisition
Corporation and Aironet Wireless Communications, Inc. Under the agreement and
plan of merger and reorganization, each outstanding share of Aironet common
stock will be converted into the right to receive 0.63734 of a share of Cisco
common stock. In addition, each outstanding option to purchase a share of
Aironet common stock will be assumed by Cisco and converted into an option to
purchase that number of whole shares of Cisco common stock according to the same
formula as the outstanding shares of Aironet common stock are converted to Cisco
common stock, rounded down to the nearest whole number of shares of Cisco common
stock, with the exercise price adjusted accordingly.
2. To grant the board of directors of Aironet discretionary authority to
adjourn the special meeting in order to solicit additional votes for approval of
the merger agreement.
3. To transact such other business as may properly come before the special
meeting.
We describe these items of business more fully in the proxy
statement/prospectus attached to this notice.
Only stockholders of record of Aironet common stock at the close of
business on February 4, 2000 are entitled to notice of, and will be entitled to
vote at, the special meeting or any adjournment or postponement. Approval of the
merger agreement will require the affirmative vote of the holders of Aironet
common stock representing at least 75% of the outstanding shares of Aironet
common stock entitled to vote at the special meeting.
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE SPECIAL MEETING, YOU ARE
URGED TO COMPLETE, DATE AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE
POSTAGE-PAID ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL
MEETING IN PERSON. You may revoke your proxy in the manner described in the
accompanying proxy statement/prospectus at any time before it has been voted at
the special meeting. Any stockholders attending the special meeting may vote in
person even if the stockholder has returned a proxy.
By Order of the Board of Directors
J Faeges Signature
JAY R. FAEGES
Secretary
Akron, Ohio
February 7, 2000
<PAGE> 4
QUESTIONS AND ANSWERS ABOUT THE AIRONET/CISCO MERGER
Q: WHAT WILL I RECEIVE IN THE MERGER?
A: If the merger is completed, you will receive 0.63734 of a share of Cisco
common stock for each share of Aironet common stock you own. Cisco will not
issue fractional shares of common stock. You will receive cash based on the
market price of Cisco common stock instead of any fractional share. Cisco
common stock is traded on the Nasdaq National Market under the trading symbol
"CSCO," and on February 4, 2000, Cisco common stock closed at $121.13 per
share. Because the exchange ratio is fixed at 0.63734 but the market price of
Cisco common stock is subject to fluctuation, the market value of the shares
of Cisco common stock that you will receive in the merger may increase or
decrease prior to and following the merger. We urge you to obtain current
market quotations for Cisco common stock and Aironet common stock.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: We hope to complete the merger by the end of March 2000. Because the merger
is subject to governmental approvals, however, we cannot predict the exact
timing.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. After we complete the merger, Cisco will send instructions to you
explaining how to exchange your shares of Aironet common stock for the
appropriate number of shares of Cisco common stock.
Q: HOW DO I VOTE?
A: Mail your signed proxy card in the enclosed return envelope as soon as
possible so that your shares may be represented at the special meeting. If
your shares are held in "street name" by your broker, your broker will vote
your shares only if you provide instructions on how to vote. You should
follow the directions provided by your broker regarding how to instruct your
broker to vote your shares. Without instructions, your shares will not be
voted at the special meeting and it will have the same effect as voting
against approval of the merger agreement.
Q: HOW CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY?
A: You may change your vote by delivering a signed notice of revocation or a
subsequently dated, signed proxy card to Aironet's corporate secretary before
the stockholder meeting, or by attending the stockholder meeting and voting
in person.
Q: WHOM CAN I CALL WITH QUESTIONS?
A: If you have any questions about the merger, please call Aironet Investor
Relations at (330) 664-7900.
<PAGE> 5
Aironet Logo LOGO
Proxy Statement Prospectus
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS................... 1
MARKET PRICE AND DIVIDEND INFORMATION....................... 10
RISK FACTORS................................................ 12
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 14
THE SPECIAL MEETING......................................... 15
Proxy Statement/Prospectus................................ 15
Date, Time and Place of the Special Meeting............... 15
Matters to be Considered at the Special Meeting........... 15
Record Date and Shares Entitled to Vote................... 15
Voting of Proxies......................................... 15
Vote Required............................................. 16
Quorum; Abstentions and Broker Non-Votes.................. 16
Solicitation of Proxies and Expenses...................... 16
No Appraisal Rights....................................... 17
Board Recommendation...................................... 17
THE MERGER AND RELATED TRANSACTIONS......................... 18
Background of the Merger.................................. 18
Reasons for the Merger.................................... 19
Recommendation of Aironet's Board of Directors............ 22
Opinion of Aironet's Financial Advisor.................... 22
Completion and Effectiveness of the Merger................ 26
Structure of the Merger and Conversion of Aironet Common
Stock.................................................. 26
Exchange of Aironet Stock Certificates for Cisco Stock
Certificates........................................... 26
Treatment of Aironet Stock Option and Stock Incentive
Plans.................................................. 27
Other Provisions of The Merger Agreement.................. 27
Related Agreements........................................ 34
Operations Following the Merger........................... 37
Indemnification and Insurance............................. 37
Interests of Aironet Directors, Officers and Affiliates in
the Merger............................................. 38
Antitrust Approval........................................ 39
Federal Income Tax Considerations......................... 39
Accounting Treatment...................................... 41
No Dissenters' or Appraisal Rights........................ 41
Restrictions on Sale of Shares by Affiliates of Aironet
and Cisco.............................................. 41
SELECTED FINANCIAL DATA OF AIRONET.......................... 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AIRONET...................... 43
BUSINESS OF AIRONET......................................... 51
PRINCIPAL STOCKHOLDERS OF AIRONET........................... 61
COMPARISON OF RIGHTS OF STOCKHOLDERS OF AIRONET AND CISCO... 64
Director Nominations and Stockholder Proposals............ 64
Amendment to Governing Documents.......................... 64
</TABLE>
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<TABLE>
<CAPTION>
PAGE
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<S> <C>
Appraisal Rights.......................................... 66
Derivative Action......................................... 66
Stockholder Consent in Lieu of Meeting.................... 67
Fiduciary Duties of Directors............................. 67
Indemnification........................................... 67
Director Liability........................................ 68
Anti-Takeover Provisions and Interested Stockholder
Transactions........................................... 69
Advance Notice of Record Date............................. 70
Inspection of Books and Records........................... 70
Size of the Board of Directors............................ 71
Removal of Directors...................................... 71
Transactions Involving Directors.......................... 71
Filling Vacancies on the Board of Directors............... 72
EXPERTS..................................................... 72
LEGAL MATTERS............................................... 72
WHERE YOU CAN FIND MORE INFORMATION......................... 73
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 74
INDEX TO AIRONET CONSOLIDATED FINANCIAL STATEMENTS.......... F-1
APPENDICES:
Appendix A -- Agreement and Plan of Merger and
Reorganization............................................ A-1
Appendix B -- Stock Option Agreement........................ B-1
Appendix C -- Form of Stockholder Agreement................. C-1
Appendix D -- Opinion of Dain Rauscher Wessels.............. D-1
</TABLE>
ii
<PAGE> 7
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. You should carefully read this entire proxy
statement/prospectus, including the appendices, and the other documents we refer
to for a more complete understanding of the merger. In addition, we incorporate
by reference important business and financial information about Cisco into this
proxy statement/prospectus. You may obtain the information incorporated by
reference into this proxy statement/prospectus without charge by following the
instructions in the section entitled "Where You Can Find More Information" on
page 73 of this proxy statement/prospectus.
THE COMPANIES
AIRONET WIRELESS COMMUNICATIONS, INC.
3875 Embassy Parkway
Akron, Ohio 44333
www.aironet.com
(330) 664-7900
Aironet is a leading provider of high speed, standards-based wireless local
area networking solutions. Its products are designed to provide wireless
connections to local area computer networks and Internet access to personal
computer users within a building or campus environment. Aironet's products
utilize radio frequency and data communication technologies to wirelessly
connect users to data networks ranging in size and complexity from corporate
computer networks to home networks. In a business setting, Aironet's wireless
local area network solutions are used as extensions to existing networks,
enabling personal computer users to maintain a wireless network connection
anywhere throughout a building or around a campus. Aironet's flagship products,
the 4800 Turbo DS series, are the first commercially available wireless local
area network products to comply with the high speed 802.11b industry standard
and operate at speeds of 11 Mbps in the unlicensed 2.4 GHz radio frequency band.
The 4800 Turbo DS series provides bandwidth sufficient for data-intensive
applications and high speed Internet access, as well as emerging streaming video
and voice over computer network applications.
Aironet offers comprehensive solutions to its customers based on both
Direct Sequence and Frequency Hopping spread spectrum radio technologies. As a
result, it is able to offer its customers the wireless local area network
solution best suited to their specific environment and needs. Aironet's broad
product portfolio includes PC Cards, network interface cards, access points,
bridges and network management software. As a major contributor to, and
proponent of the Institute of Electrical and Electronic Engineers 802.11
industry standard for wireless local area networks, Aironet has designed its
primary products to interoperate with other standards-based products. Aironet's
802.11 based products operate in the unlicensed 2.4 GHz radio frequency band and
support major network operating systems, standard software and hardware
interfaces and network protocols. As a result, Aironet's products can be
interfaced easily into existing network and Internet infrastructures.
Aironet markets its products in the United States and abroad through an
indirect sales and marketing organization consisting primarily of distributors,
resellers and original equipment manufacturers. Aironet's U.S. distributors
include Savoir Technology Group, Inc., Ingram Micro Inc. and Tech Data
Corporation.
1
<PAGE> 8
CISCO SYSTEMS, INC.
170 West Tasman Drive
San Jose, California 95134
(408) 526-4000
Cisco Systems, Inc. is the worldwide leader in networking for the Internet.
Cisco hardware, software and service offerings are used to create Internet
solutions so that individuals, companies, and countries have seamless access to
information -- regardless of differences in time and place. Cisco solutions
provide competitive advantage to our customers through more efficient and timely
exchange of information, which in turn leads to cost savings, process
efficiencies, and closer relationships with their customers, prospects, business
partners, suppliers, and employees. These solutions form the networking
foundation for companies, universities, utilities, and government agencies
worldwide.
The company was founded in 1984 by a small group of computer scientists
from Stanford University seeking an easier way to connect different types of
computer systems. Cisco Systems shipped its first product in 1986. Since then,
Cisco has grown into a multinational corporation with more than 20,000 employees
in more than 200 offices in 55 countries.
STRUCTURE OF THE MERGER AND CONVERSION OF AIRONET STOCK (SEE PAGE 26)
Aironet and Cisco have entered into a merger agreement that provides for
the merger of Aironet and a newly formed subsidiary of Cisco. Following the
merger, Aironet will continue its operations as a wholly-owned subsidiary of
Cisco. Stockholders of Aironet will become stockholders of Cisco following the
merger. Each share of Aironet common stock, together with the corresponding
right to purchase Aironet's common stock pursuant to the Rights Agreement dated
June 25, 1999 between Aironet and Harris Trust and Savings Bank, will be
exchanged for 0.63734 of a share of Cisco common stock. A corresponding right to
purchase shares of Cisco Series A Junior Participating Preferred Stock, no par
value, pursuant to the Cisco Rights Agreement dated as of June 30, 1998 between
Cisco and Bank Boston, N.A. will accompany each share of Cisco common stock. We
urge you to read the merger agreement, which is attached as Appendix A to this
proxy statement/prospectus, carefully and in its entirety.
VOTE REQUIRED FOR STOCKHOLDER APPROVAL (SEE PAGE 16)
The holders of at least 75% of the outstanding shares of Aironet common
stock must approve the merger. Cisco stockholders are not required to approve
the merger agreement and will not vote on the merger.
You are entitled to cast one vote per share of Aironet common stock you
owned as of February 4, 2000, the record date.
RECOMMENDATION OF AIRONET'S BOARD OF DIRECTORS (SEE PAGES 17 AND 22)
After careful consideration, Aironet's board of directors has unanimously
approved the merger agreement and determined that the merger is advisable and in
the best interest of Aironet and its stockholders and recommends that Aironet
stockholders vote for approval of the merger agreement.
OPINION OF AIRONET'S FINANCIAL ADVISOR (SEE PAGE 22)
Dain Rauscher Wessels, Aironet's financial advisor, delivered an opinion to
the Aironet board of directors that, as of the date of the opinion and based on
the procedures followed, factors considered and assumptions made by Dain
Rauscher Wessels, and subject to the limitations set forth in the opinion, the
consideration to be received by Aironet's stockholders pursuant to the merger
agreement was fair to the stockholders from a financial point of view. The
complete opinion of Dain Rauscher Wessels is attached as Appendix D. We urge you
to read it in its entirety.
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<PAGE> 9
CONDITIONS TO COMPLETION OF THE MERGER (SEE PAGE 31)
Cisco's and Aironet's respective obligations to complete the merger are
subject to the prior satisfaction or waiver of a number of conditions. If either
Cisco or Aironet waives any conditions, Aironet will consider the facts and
circumstances at that time and make a determination as to whether a
resolicitation of proxies from Aironet stockholders is appropriate. The
following conditions, among others, must be satisfied or waived before the
completion of the merger:
- the merger agreement must be approved by Aironet stockholders;
- no law, statute, rule, regulation or order which makes consummation of
the merger illegal may be enacted or issued;
- the applicable waiting periods under United States antitrust laws must
expire or be terminated;
- no injunction or order preventing the completion of the merger or
restricting Cisco's operation of Aironet after the merger may be in
effect;
- our respective representations and warranties in the merger agreement
must be true and correct;
- we must comply with our respective agreements in the merger agreement;
- we must each receive an opinion of our respective tax counsel to the
effect that the merger will qualify as a tax-free reorganization;
- selected employees of Aironet must have entered into employment and
non-competition agreements with Cisco; and
- the shares of Cisco common stock to be issued to Aironet stockholders in
the merger must be approved for trading on the Nasdaq National Market.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 32)
The merger agreement may be terminated before the completion of the merger
by our mutual consent or by either Cisco or Aironet if:
- the conditions to completion of the merger would not be satisfied because
of either a breach of an agreement in the merger agreement by the other
or a breach of a representation or warranty of the other in the merger
agreement, either of which is not cured within ten business days of
receipt of written notice of such breach;
- the merger is not completed, without the fault of the terminating party,
by March 31, 2000;
- a final court order prohibiting the merger is issued and is not
appealable; or
- the Aironet stockholders do not approve the merger agreement at the
special meeting.
Furthermore, the merger agreement may be terminated by Cisco if the Aironet
board of directors takes any of the following actions:
- withdraws or modifies its recommendation that Aironet stockholders adopt
the merger agreement in a manner adverse to Cisco, or resolves to do so;
- fails to comply with the nonsolicitation provisions contained in the
merger agreement, which provisions are summarized below and discussed in
detail on page 31;
- fails to call the special meeting by March 15, 2000; or
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<PAGE> 10
- with respect to an extraordinary transaction of the nature specified in
the merger agreement such as a merger or a sale of significant assets,
involving Aironet and a party other than Cisco, within ten business days,
if the Aironet board of directors does not reconfirm its approval and
recommendation of the merger agreement and does not reject the other
extraordinary transaction.
PAYMENT OF TERMINATION FEE (SEE PAGE 33)
Aironet has agreed to pay Cisco a termination fee of $25.0 million and
reimburse Cisco for its out-of-pocket expenses if the merger agreement is
terminated under circumstances which are described on page 33 under the heading
"Payment of Fees and Expenses."
NO OTHER TAKEOVER NEGOTIATIONS INVOLVING AIRONET (SEE PAGE 30)
Until the merger is completed or the merger agreement is terminated,
Aironet has agreed not to directly or indirectly take any of the following
actions:
- solicit, initiate, encourage or agree to any takeover proposal; or
- engage in negotiations with, or disclose any nonpublic information
relating to Aironet or any of its subsidiaries to, or afford access to
the properties, books or records of Aironet or any of its subsidiaries
to, any person that has advised Aironet that it may be considering
making, or that has made, a takeover proposal.
Aironet's board of directors is not prohibited from taking and disclosing
to the Aironet stockholders a position with respect to a tender offer pursuant
to Rules 14d-9 and 14e-2 promulgated under the Securities Exchange Act of 1934.
Additionally, the Aironet board of directors is not prohibited from providing a
copy of the non-solicitation provision of the merger agreement to any third
party.
Aironet has agreed to provide Cisco with detailed information about any
takeover proposal it receives.
Aironet may engage in any of these otherwise prohibited acts, other than
solicitation, initiation or encouragement of any takeover proposal, if:
- Aironet's board of directors believes in good faith that a particular
proposal concerning an extraordinary transaction of the nature specified
in the merger agreement, such as a merger or a sale of significant assets
will result in a transaction more favorable than the merger to the
Aironet stockholders from a financial point of view; and
- Aironet's board of directors determines in good faith after advice from
outside legal counsel that the failure to engage in the prohibited
negotiations or discussions or provide non-public information is
inconsistent with the fiduciary duties of the board of directors under
applicable law.
A takeover proposal is:
- any offer or proposal for a merger or other business combination
involving Aironet; or
- the acquisition of 15% or more of the outstanding shares of capital stock
of Aironet or any of its subsidiaries; or
- the sale or transfer of any significant portion of the assets of Aironet
or any of its subsidiaries, other than the merger.
4
<PAGE> 11
AIRONET HAS ENTERED INTO A STOCK OPTION AGREEMENT THAT MAY DISCOURAGE THIRD
PARTIES THAT MAY BE INTERESTED IN ACQUIRING A STAKE IN AIRONET (SEE PAGE 35)
Aironet entered into a stock option agreement with Cisco that granted Cisco
the option to buy up to 2,826,375 shares of Aironet common stock, which
represented approximately 19.9% of the shares of Aironet common stock
outstanding on November 8, 1999, or approximately 16.6% after issuance of the
shares of Aironet common stock subject to the option. The exercise price of the
option is $48.00 per share.
Cisco required Aironet to grant the option as a prerequisite to entering
into the merger agreement. The option may discourage third parties who are
interested in acquiring a significant stake in Aironet and is intended by Cisco
to increase the likelihood that the merger will be completed.
The option is not currently exercisable and Cisco may only exercise the
option if the merger agreement is terminated under circumstances in which the
termination fee is payable or prior to an extraordinary transaction of the
nature specified in the merger agreement which obligates Aironet to pay the
termination fee. Otherwise, the option will terminate and may not be exercised
by Cisco.
We urge you to read the stock option agreement attached as Appendix B in
its entirety.
STOCKHOLDERS HOLDING 47.9% OF AIRONET'S COMMON STOCK HAVE ENTERED INTO
STOCKHOLDER AGREEMENTS REQUIRING THEM TO VOTE IN FAVOR OF THE MERGER (SEE PAGE
34)
In connection with the execution of the merger agreement, each of the
following Aironet stockholders entered into a stockholder agreement with Cisco:
Roger J. Murphy, Jr., Aironet's chief executive officer; Telxon Corporation and
its subsidiary Retail Technologies Group, Inc., Aironet's largest stockholder;
Telantis Venture Partners V, Inc. The Hood/Meyerson Foundation; and Axiom
Venture Partners II Limited Partnership. The stockholder agreement requires
these Aironet stockholders to vote all shares of Aironet common stock
beneficially owned by them in favor of approval of the merger agreement. The
stockholder agreements also restrict their ability to transfer their shares of
Aironet common stock. The stockholder agreements also required the stockholders
to deliver an irrevocable proxy to Cisco. The irrevocable proxy enables Cisco to
vote the stockholders' shares to approve the merger. These Aironet stockholders
were not paid additional consideration in connection with the stockholder
agreements.
The Aironet stockholders who entered into the stockholder agreements
collectively held approximately 47.9% of the outstanding Aironet common stock as
of the date of this proxy statement/prospectus.
We urge you to read the form of stockholder agreement attached as Appendix
C in its entirety.
INTERESTS OF AIRONET'S DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER (SEE
PAGE 38)
When considering the recommendation of the Aironet board of directors, you
should be aware that some Aironet directors and officers have interests in the
merger that are different from, or are in addition to, yours. As a result,
Aironet's directors and officers may be more likely to vote to approve the
merger than Aironet stockholders generally. These interests include the
following:
- As of December 31, 1999, directors and executive officers of Aironet and
their affiliates beneficially owned approximately 32.5% of the
outstanding shares of Aironet common stock.
- As of the date of this proxy statement/prospectus, the non-employee
directors of Aironet beneficially owned stock options to purchase an
aggregate of 130,000 shares of Aironet common stock, 75,000 of which were
unvested. If the merger is completed, all of the unvested options
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<PAGE> 12
having a weighted-average exercise price of $10.50 per share will accelerate and
become fully vested and exercisable.
- Roger J. Murphy, Jr. will be paid a bonus of $1.0 million, net of all
taxes, contingent upon completion of the merger.
- Several employees and executive officers, including Roger J. Murphy, Jr.,
Donald I. Sloan, Ronald B. Willis and Harvey A. Ikeman, as a condition to
closing of the merger, are required to enter into employment and
non-competition agreements with Cisco that will become effective upon
completion of the merger. These executive officers previously entered
into change in control agreements with Aironet, which provided them with
severance payment if their employment was terminated within two years of
a change in control. These executive officers are required to agree, as a
condition to closing of the merger, to waive their rights to severance
under their change in control agreements with Aironet, and their change
in control agreements will be superceded by their employment agreements
with Cisco.
- Cisco has agreed, for the next four years, to indemnify each present and
former Aironet officer and director against liabilities arising out of
the fact that such person is or was a director or officer.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (SEE PAGE 39)
We have structured the merger so that, in general, Aironet stockholders
will not recognize gain or loss for United States federal income tax purposes in
the merger, except for taxes payable because of cash received by Aironet
stockholders instead of fractional shares. It is a condition to the merger that
we receive legal opinions to the effect that the merger constitutes a
reorganization within the meaning of the Internal Revenue Code.
ANTITRUST APPROVAL REQUIRED TO COMPLETE THE MERGER (SEE PAGE 39)
The merger is subject to United States antitrust laws. We have made the
required filings with the United States Department of Justice and the Federal
Trade Commission. However, we are not permitted to complete the merger until the
applicable waiting period has expired or terminated. The applicable waiting
period expired at 5:00 p.m. on December 23, 1999. The Department of Justice or
the Federal Trade Commission, as well as a state or private person, may
challenge the merger at any time before its completion.
In addition, Cisco and Aironet may need to obtain approval for the merger
in foreign jurisdictions depending upon the extent that Aironet conducts
business in these jurisdictions and the statutory requirements of each of these
jurisdictions.
RESTRICTIONS ON THE ABILITY TO SELL CISCO STOCK (SEE PAGE 41)
All shares of Cisco common stock received by you in connection with the
merger will be freely transferable unless you are considered an "affiliate" of
either Aironet or Cisco for purposes of the Securities Act of 1933. Shares of
Cisco common stock held by these affiliates may only be sold pursuant to a
registration statement or exemption under the Securities Act.
YOU DO NOT HAVE DISSENTERS' OR APPRAISAL RIGHTS (SEE PAGE 41)
Under Delaware law, you are not entitled to dissenters' or appraisal rights
in the merger.
6
<PAGE> 13
SUMMARY FINANCIAL DATA
The following tables show financial results actually achieved by each of
Cisco and Aironet.
Cisco's summary financial data as of and for the fiscal years ended July
30, 1995, July 28, 1996, July 26, 1997, July 25, 1998, and July 31, 1999 has
been derived from its consolidated financial statements incorporated herein by
reference. Cisco's historical figures as of and for the three months ended
October 24, 1998 and October 30, 1999 have been derived from, and should be read
in conjunction with, Cisco's consolidated financial statements and the notes
thereto that are incorporated herein by reference. The results of operations for
the interim period presented are unaudited and are not necessarily indicative of
the results to be expected for any other interim period or for the fiscal year
as a whole. However, in the opinion of Cisco's management, the interim financial
data presented reflects all adjustments, consisting only of normal recurring
adjustments, necessary for the fair presentation of the results of operations
for all periods presented.
Aironet's summary financial data as of and for the fiscal years ended March
31, 1995, 1996, 1997, 1998 and 1999 has been derived from its consolidated
financial statements and related notes thereto. Aironet's historical figures as
of and for the six months ended September 30, 1998 and 1999 have been derived
from, and should be read in conjunction with, Aironet's unaudited financial
statements that have been prepared on the same basis as its audited financial
statements. In the opinion of Aironet's management, the financial data presented
reflects all adjustments, consisting only of normal recurring accruals,
necessary for a fair presentation of the financial data for the periods
presented. The financial data for the interim periods are not necessarily
indicative of results that may be expected for any other interim period or for
the year as a whole.
The Cisco financial data reflects:
- three-for-two stock splits effected in September 1998 and December 1997;
and
- two-for-one stock splits effected in February 1996 and June 1999.
Cisco's fiscal year is the 52- or 53-week period ending on the last
Saturday in July. Therefore, for example, a reference to Cisco's "fiscal 1999"
or similar terms means the 53-week year ended July 31, 1999, and a reference to
Cisco's "fiscal 1998" means the 52-week year ended July 25, 1998. Aironet's
fiscal year ends as of March 31. Therefore, for example, a reference to
Aironet's "fiscal 1999," "fiscal year 1999" or similar terms means the fiscal
year ended March 31, 1999.
When reviewing the following tables, you should note that Cisco's financial
data is presented in millions (except per share data), while Aironet's financial
data is presented in thousands (except per share data).
7
<PAGE> 14
SUMMARY FINANCIAL DATA, CONT.
CISCO:
<TABLE>
<CAPTION>
THREE
FISCAL YEAR ENDED MONTHS ENDED
---------------------------------------------------- -------------------
JULY 30, JULY 28, JULY 26, JULY 25, JULY 31, OCT. 24, OCT. 30,
1995 1996 1997 1998 1999 1998(1) 1999(1)
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $2,232 $4,101 $6,452 $ 8,489 $12,170 $2,598 $3,914
Net income................................... $ 452 $ 915 $1,049 $ 1,340 $ 2,035 $ 509 $ 420
Net income per common share -- basic......... $ 0.17 $ 0.32 $ 0.35 $ 0.43 $ 0.62 $ 0.16 $ 0.12
Net income per common share -- diluted....... $ 0.16 $ 0.30 $ 0.33 $ 0.41 $ 0.58 $ 0.15 $ 0.12
Shares used in per-share
calculation -- basic....................... 2,739 2,879 3,000 3,135 3,291 3,228 3,377
Shares used in per-share
calculation -- diluted..................... 2,869 3,004 3,140 3,308 3,498 3,419 3,602
</TABLE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR ENDED
---------------------------------------------------- AS OF
JULY 30, JULY 28, JULY 26, JULY 25, JULY 31, OCT. 30,
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Total assets......................................... $1,997 $3,639 $5,498 $9,023 $14,846 $17,495
</TABLE>
- ------------------------
(1) Cisco acquired Cerent Corporation and WebLine Communications Corporation in
November 1999. These acquisitions were accounted for as poolings of
interests. The Cisco financial data reflects the effects of these
acquisitions as if Cerent and WebLine were wholly owned subsidiaries of
Cisco since inception. See Note 3 to the Consolidated Financial Statements
in Cisco's quarterly report on Form 10-Q/A for the three months ended
October 30, 1999.
<TABLE>
<CAPTION>
SHARES USED IN
PER-SHARE
CALCULATION
NET NET ----------------- TOTAL
SALES INCOME BASIC DILUTED ASSETS
------ ------- ------ -------- -------
AS OF AND FOR THE PERIOD ENDED: (IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Historical, October 30, 1999................................ $3,877 $438 3,301 3,500 $17,407
Cerent/WebLine............................................ 37 (18) 76 102 88
------ ---- ------ ------ -------
Restated, October 30, 1999.................................. $3,914 $420 3,377 3,602 $17,495
====== ==== ====== ====== =======
Historical, October 24, 1999................................ $2,597 $512 3,179 3,351
Cerent/WebLine............................................ 1 (3) 49 68
------ ---- ------ ------
Restated, October 24, 1998.................................. $2,598 $509 3,228 3,419
====== ==== ====== ======
</TABLE>
AIRONET:
<TABLE>
<CAPTION>
SIX
MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPT. 30,
----------------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales............................... $33,176 $44,323 $61,328 $45,134 $45,253 $19,456 $27,377
Net income.............................. $(1,580) $(2,383) $ 889 $ 2,501 $(1,077) $ (146) $ 1,423
Net income per common share -- basic.... $ (0.20) $ (0.29) $ 0.11 $ 0.31 $ (0.12) $ (0.02) $ 0.13
Net income per common
share -- diluted...................... $ (0.20) $ (0.29) $ 0.11 $ 0.30 $ (0.12) $ (0.02) $ 0.12
Shares used in per-share
calculation -- basic.................. 8,085 8,085 8,085 8,123 9,325 9,277 10,838
Shares used in per-share
calculation -- diluted................ 8,085 8,085 8,085 8,319 9,325 9,277 12,051
</TABLE>
<TABLE>
<CAPTION>
AS OF FISCAL YEAR ENDED MARCH 31, AS OF
----------------------------------------------- SEPT. 30,
1995 1996 1997 1998 1999 1999
------- ------- ------- ------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Total assets..................................... $30,106 $25,824 $19,201 $23,633 $27,198 $71,294
</TABLE>
8
<PAGE> 15
COMPARATIVE PER SHARE DATA
In the following tables, we provide you with certain historical per share
data and combined per share data on an unaudited pro forma basis after giving
effect to the merger assuming that 0.63734 shares of Cisco common stock are
issued in exchange for each share of Aironet common stock. This data should be
read along with the summary financial data and the historical financial
statements of Aironet set forth herein, and the historical financial statements
of Cisco and the notes thereto that are incorporated herein by reference. The
pro forma information is presented for illustrative purposes only. You should
not rely on the pro forma financial information as an indication of the combined
financial position or results of operations of future periods or the results
that actually would have been realized had the entities been a single entity
during the periods presented.
<TABLE>
<CAPTION>
HISTORICAL AIRONET EQUIVALENT
--------------- PRO FORMA PRO FORMA
CISCO AIRONET COMBINED(1) COMBINED(1)(2)
----- ------- ----------- ------------------
<S> <C> <C> <C> <C>
DILUTED NET INCOME (LOSS) PER SHARE(1):
Cisco and Aironet:
Three Months Ended October 30,
1999............................... $0.12 $0.07 $0.12 $0.08
Fiscal Year Ended July 31, 1999...... 0.58 (0.07) 0.58 0.37
Aironet:
Six Months Ended September 30,
1999............................... $0.12
Fiscal Year Ended March 31, 1999..... (0.12)
BOOK VALUE PER SHARE AT(1)(3):
Cisco and Aironet:
July 31, 1999........................ $3.49 $1.58 $3.49 $2.22
October 30, 1999..................... 4.08 4.27 4.09 2.61
Aironet:
September 30, 1999................... $4.27
March 31, 1999....................... 1.53
</TABLE>
- ---------------
(1) The pro forma combined information per Cisco share combines financial
information of Cisco for the fiscal year ended July 31, 1999 and the three
months ended October 30, 1999 with the financial information of Aironet for
the twelve months ended June 30, 1999 and the three months ended September
30, 1999, respectively.
(2) The unaudited Aironet equivalent pro forma per share amounts are calculated
by multiplying the Cisco combined pro forma per share amounts by the
exchange ratio.
(3) Historical book value per share is computed by dividing stockholders' equity
by the number of shares of common stock outstanding at the end of each
period presented. Pro forma book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common stock
outstanding at the end of each period presented.
9
<PAGE> 16
MARKET PRICE AND DIVIDEND INFORMATION
CISCO MARKET PRICE DATA
Cisco's common stock is traded on the Nasdaq National Market under the
symbol "CSCO." The following table shows the range of high and low closing sales
prices reported on the Nasdaq National Market for Cisco common stock for the
periods indicated, adjusted to reflect the three-for-two stock splits effected
in September 1998 and December 1997 and the two-for-one stock splits effective
in February 1996 and June 1999.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
CISCO'S FISCAL 1997
First Quarter..................................... $ 14.89 $ 11.11
Second Quarter.................................... 16.64 12.81
Third Quarter..................................... 15.50 10.31
Fourth Quarter.................................... 17.86 10.33
CISCO'S FISCAL 1998
First Quarter..................................... 18.74 15.50
Second Quarter.................................... 20.10 16.19
Third Quarter..................................... 24.63 18.87
Fourth Quarter.................................... 34.40 23.48
CISCO'S FISCAL 1999
First Quarter..................................... 34.65 21.94
Second Quarter.................................... 53.34 30.37
Third Quarter..................................... 59.37 47.56
Fourth Quarter.................................... 67.06 52.18
CISCO'S FISCAL 2000
First Quarter..................................... 74.00 58.75
Second Quarter.................................... 115.25 70.00
Third Quarter (through February 4, 2000).......... 121.13 109.50
</TABLE>
AIRONET MARKET PRICE DATA
Aironet's common stock commenced trading on the Nasdaq National Market on
July 30, 1999 under the symbol "AIRO." The following table shows the range of
high and low closing prices reported on the Nasdaq National Market for Aironet
common stock for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
AIRONET'S FISCAL 2000
Second Quarter (commencing July 30, 1999)........... $22.38 $ 9.81
Third Quarter....................................... 66.78 20.19
Fourth Quarter (through February 4, 2000)........... 75.94 62.25
</TABLE>
DIVIDEND INFORMATION
In March 1997, when Aironet was a wholly-owned subsidiary of Telxon
Corporation, it declared a one-time dividend to Telxon of $1.1 million, which
was paid in April 1997. Other than the 1997 Telxon dividend, neither Cisco nor
Aironet have ever paid any cash dividends on its stock, and both anticipate that
they will continue to retain any earnings for the foreseeable future for use in
the operation of their respective businesses.
10
<PAGE> 17
RECENT CLOSING PRICES
As of November 8, 1999, the last trading day before announcement of the
proposed merger, the closing prices per share of Cisco common stock and Aironet
common stock on the Nasdaq National Market were $75.31 and $42.25, respectively.
On February 4, 2000, the latest practicable trading day before the printing of
this proxy statement/prospectus, the closing prices per share of Cisco common
stock and Aironet common stock on the Nasdaq National Market were $121.13 and
$75.94, respectively. The equivalent per share prices for Aironet common stock
based on the Cisco common stock prices multiplied by the exchange ratio of
0.63734 were $48.00 as of November 8, 1999 and $77.20 as of February 4, 2000.
Because the exchange ratio is fixed at 0.63734 but the market price of
Cisco common stock is subject to fluctuation, the market value of the shares of
Cisco common stock that holders of Aironet common stock will receive in the
merger may increase or decrease prior to and following the merger. WE URGE YOU
TO OBTAIN CURRENT MARKET QUOTATIONS FOR CISCO COMMON STOCK AND AIRONET COMMON
STOCK. NO ASSURANCE CAN BE GIVEN AS TO THE FUTURE PRICES OR MARKETS FOR CISCO
COMMON STOCK OR AIRONET COMMON STOCK.
NUMBER OF AIRONET STOCKHOLDERS
As of February 4, 2000, there were approximately 8,522 beneficial owners of
Aironet common stock.
11
<PAGE> 18
RISK FACTORS
By voting in favor of the merger, you will be choosing to invest in Cisco
common stock. An investment in Cisco common stock involves a high degree of
risk. In addition to the other information contained in or incorporated by
reference into this proxy statement/prospectus, you should carefully consider
the following risk factors in deciding whether to vote for the merger.
RISKS RELATED TO THE MERGER
YOU WILL RECEIVE 0.63734 OF A SHARE OF CISCO COMMON STOCK FOR EACH SHARE OF
AIRONET COMMON STOCK OWNED DESPITE CHANGES IN MARKET VALUE OF AIRONET COMMON
STOCK OR CISCO COMMON STOCK.
Upon completion of the merger, each share of Aironet common stock will be
exchanged for 0.63734 of a share of Cisco common stock. There will be no
adjustment for changes in the market price of either Aironet common stock or
Cisco common stock, and Aironet and Cisco are not permitted to abandon the
merger or resolicit the vote of its stockholders solely because of changes in
the market price of Cisco common stock. Accordingly, the specific dollar value
of Cisco common stock to be received by you upon completion of the merger will
depend on the market value of Cisco common stock at the time of completion of
the merger. The share price of Cisco common stock is by nature subject to the
general price fluctuations in the market for publicly traded equity securities
and has experienced significant volatility. No prediction can be made as to the
market price of Cisco common stock at the completion of the merger or as to the
market price of Cisco common stock after the completion of the merger.
ALTHOUGH CISCO AND AIRONET EXPECT THAT THE MERGER WILL RESULT IN BENEFITS, THOSE
BENEFITS MAY NOT BE REALIZED.
Cisco and Aironet entered into the merger agreement with the expectation
that the merger will result in benefits, including the ability to:
- enable Cisco to offer wireless local area networks with its end-to-end
converged networks;
- complement Cisco's Enterprise and Small/Medium Business wireline
networking solutions with wireless mobility;
- strengthen Cisco's abilities to be an end-to-end, integrated solution
provider addressing broader networking requirements of its customers;
- enhance Cisco's capabilities immediately in wireless, standards-based,
high speed wireless local area network products; and
- leverage Cisco's and Aironet's customer and channel overlap.
Achieving the benefits of the merger will depend in part on the integration
of the technology, operations and personnel of the two companies in a timely and
efficient manner so as to minimize the risk that the merger will result in the
loss of customers or key employees or the continued diversion of the attention
of management.
In addition, synergies from the merger may not materialize. Aironet's
product line consists of wireless local area network products. Integrating
Aironet's product sales into Cisco's business model will involve risks that may
jeopardize the success of the merged company. The Aironet technology and
products address a new market for Cisco, namely the wireless networking market.
Cisco has little experience selling into the wireless networking marketplace.
For merger-related synergies to be realized,
12
<PAGE> 19
Cisco will have to learn to satisfy the needs of wireless networking customers
in a timely and efficient manner. Aironet's 4800 Turbo DS series products and
related products are new products for Cisco. In order for the merger to be
successful, Cisco and Aironet will have to integrate successfully the new
product with other Cisco products and platforms. This integration will involve
considerable technology and execution risk and may or may not be successful. We
cannot assure you that Cisco and Aironet will be successfully integrated or that
any of the anticipated benefits will be realized, and failure to do so could
have a material adverse effect on Cisco's business, financial condition and
operating results.
AIRONET OFFICERS AND DIRECTORS HAVE CONFLICTS OF INTEREST THAT MAY INFLUENCE
THEM TO SUPPORT OR APPROVE THE MERGER.
The directors and officers of Aironet participate in arrangements and have
continuing indemnification against liabilities that provide them with interests
in the merger that are different from, or are in addition to, yours.
Several employees and executive officers, including Roger J. Murphy, Jr.,
Donald I. Sloan, Ronald B. Willis and Harvey A. Ikeman, as a condition to
closing the merger, are required to enter into employment and non-competition
agreements with Cisco that will become effective upon completion of the merger.
These executive officers previously entered into change in control agreements
with Aironet, which provided them with severance payment if their employment was
terminated within two years of a change in control. These executive officers are
required to agree, as a condition to closing of the merger, to waive their
rights to severance under their change in control agreements with Aironet, and
their change in control agreements will be superceded by their employment
agreements with Cisco. Please see summary of the terms of their employment
agreements in the section of this Proxy Statement entitled "Employment and
Non-Competition Agreements" under "Related Agreements."
Furthermore, Cisco has agreed, for the next four years, to indemnify each
present and former Aironet director and officer against liabilities arising out
of the fact that such person is or was a director or officer.
As a result, these directors and officers could be more likely to vote to
approve the merger agreement than if they did not hold these interests. Aironet
stockholders should consider whether these interests may have influenced these
directors and officers to support or recommend the merger.
FAILURE TO COMPLETE THE MERGER COULD NEGATIVELY IMPACT AIRONET'S STOCK PRICE AND
FUTURE BUSINESS AND OPERATIONS.
If the merger is not completed for any reason, Aironet may be subject to a
number of material risks, including the following:
- Aironet may be required to pay Cisco a termination fee of $25.0 million;
- the option granted to Cisco by Aironet may become exercisable;
- the price of Aironet common stock may decline to the extent that the
current market price of Aironet common stock reflects a market assumption
that the merger will be completed; and
- costs related to the merger, such as legal, accounting and financial
advisor fees, must be paid even if the merger is not completed.
In addition, Aironet customers may, in response to the announcement of the
merger, delay or defer purchasing decisions. Any delay or deferral in purchasing
decisions by Aironet customers could have a material adverse effect on Aironet's
business, regardless of whether or not the merger is ultimately completed.
Similarly, current and prospective Aironet employees may experience uncertainty
about their
13
<PAGE> 20
future role with Cisco until Cisco's strategies with regard to Aironet are
announced or executed. This may adversely affect Aironet's ability to attract
and retain key management, sales, marketing and technical personnel.
Further, if the merger is terminated and Aironet's board of directors
determines to seek another merger or business combination, there can be no
assurance that it will be able to find a partner willing to pay an equivalent or
more attractive price than that which would be paid in the merger. In addition,
while the merger agreement is in effect and subject to certain limited
exceptions described on page 30 of this proxy statement/prospectus, Aironet is
prohibited from soliciting, initiating or encouraging or entering into certain
extraordinary transactions, such as a merger, sale of assets or other business
combination, with any party other than Cisco.
RISKS RELATED TO CISCO
In addition to the risks discussed above, Cisco is subject to its own
specific risks relating to its business model, strategies, markets and legal and
regulatory environment. For a detailed discussion of these risks, please see the
risk factors included in Cisco's reports filed with the Commission under the
Securities Exchange Act of 1934, which reports are incorporated by reference
into this proxy statement/ prospectus.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus and the documents incorporated by reference
into this proxy statement/prospectus contain forward-looking statements within
the "safe harbor" provisions of the Private Securities Litigation Reform Act of
1995 with respect to Cisco's and Aironet's financial condition, results of
operations and business, and on the expected impact of the merger on Cisco'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 risks and uncertainties that could
cause actual results to differ materially from the results contemplated by the
forward-looking statements. In evaluating the merger, you should carefully
consider the discussion of risks and uncertainties in the section entitled "Risk
Factors" on page 12 of this proxy statement/prospectus.
14
<PAGE> 21
THE SPECIAL MEETING
PROXY STATEMENT/PROSPECTUS
This proxy statement/prospectus is furnished in connection with the
solicitation of proxies from the holders of Aironet common stock by the Aironet
board of directors for use at a special meeting of Aironet stockholders.
This proxy statement/prospectus is first being furnished to stockholders of
Aironet on or about February 9, 2000.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting will be held on Tuesday, March 14, 2000 at 10:00 a.m.,
Eastern Time, at the Hilton Akron West, 3180 West Market Street, Akron, Ohio.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting and any adjournment or postponement of the special
meeting, stockholders of Aironet will be asked to consider and vote upon
proposals:
- to approve the merger agreement; and
- to grant the Aironet board of directors discretionary authority to
adjourn the special meeting to solicit additional votes for approval of
the merger agreement.
RECORD DATE AND SHARES ENTITLED TO VOTE
Aironet's board of directors has fixed the close of business on February 4,
2000, as the record date for determination of Aironet stockholders entitled to
notice of, and to vote at, the special meeting. As of the close of business on
February 4, 2000, there were 14,384,314 shares of Aironet common stock
outstanding and entitled to vote, held by approximately 8,522 beneficial owners.
Each Aironet stockholder is entitled to one vote for each share of Aironet
common stock held as of the record date.
VOTING OF PROXIES
You are requested to complete, date and sign the accompanying proxy and
promptly return it in the accompanying envelope or otherwise mail it to Aironet.
If your shares are held in "street name" by your broker, your broker will vote
your shares only if you provide instructions on how to vote. Your broker will
provide you directions regarding how to instruct your broker to vote your
shares. All properly executed proxies received by Aironet prior to the vote at
the special meeting, and that are not revoked, will be voted in accordance with
the instructions indicated on the proxies. If no direction is made, your proxy
will be voted to approve the merger agreement. Aironet's board of directors does
not presently intend to bring any other business before the special meeting and,
so far as is known to Aironet's board of directors, no other matters are to be
brought before the special meeting. As to any business that may properly come
before the special meeting, however, it is intended that proxies, in the form
enclosed, will be voted in respect thereof in accordance with the judgment of
the persons voting the proxies. You may revoke your proxy at any time prior to
its use by delivering to the Secretary of Aironet a signed notice of revocation
or a subsequently dated, signed proxy, or by attending the special meeting and
voting in person. Attendance at the special meeting does not in itself
constitute the revocation of a proxy.
15
<PAGE> 22
VOTE REQUIRED
Delaware Corporation Law requires the Aironet stockholders to approve the
merger. Aironet's certificate of incorporation requires the affirmative vote of
the holders of at least 75% of the shares of Aironet common stock outstanding
and entitled to vote at the special meeting to approve the merger. Selected
stockholders of Aironet have entered into a stockholder agreement and have
delivered irrevocable proxies obligating them to vote in favor of the merger
agreement and the merger. As of the date of this proxy statement/prospectus,
these stockholders, constituting Telxon Corporation and its subsidiary, Retail
Technologies Group, Inc., Roger J. Murphy, Jr., Telantis Venture Partners V,
Inc., The Hood/Meyerson Foundation and Axiom Venture Partners II Limited
Partnership, as a group beneficially owned 6,896,039 shares (exclusive of any
shares issuable upon the exercise of options or warrants) of Aironet common
stock (constituting approximately 48.5% of the shares of Aironet common stock
outstanding as of the record date). As of the record date and the date of this
proxy statement/prospectus, Cisco owns no shares of Aironet common stock.
QUORUM; ABSTENTIONS AND BROKER NON-VOTES
The required quorum for the transaction of business at the special meeting
is one-third of the shares of Aironet common stock issued and outstanding on the
record date. If a quorum is not present in person or represented by proxy, it is
expected that the special meeting will be adjourned or postponed to solicit
additional proxies. Because approval of the merger agreement and the
consummation of the merger requires the affirmative vote of at least 75% of the
outstanding shares of Aironet common stock entitled to vote, abstentions and
broker non-votes will have the same effect as votes against the merger agreement
and the consummation of the merger. In addition, the failure of an Aironet
stockholder to return a proxy will have the effect of a vote against the
approval of the merger agreement. The actions proposed in this proxy
statement/prospectus are not matters that can be voted on by brokers holding
shares for beneficial owners without the owners' specific instructions.
Accordingly, you are urged to return the enclosed proxy card marked to indicate
your vote. Abstentions and broker non-votes each will be included in determining
the number of shares present and voting at the meeting for the purpose of
determining the presence of a quorum.
Notwithstanding the requirements for approval of the merger, you are also
being requested to grant the Aironet board of directors discretionary authority
to adjourn the special meeting (or any postponement or adjournment) in order to
solicit additional votes for approval of the merger. If a sufficient number of
votes in favor of the merger have not been received, in person or by proxy, by
the special meeting date, the board of directors nonetheless would have
discretionary authority to adjourn the meeting to solicit additional votes in
favor of the merger if a sufficient number of stockholders have voted to confer
this authority. The vote required to grant this discretionary authority is a
majority of the shares represented, in person or by proxy, at a special meeting
at which a quorum for the transaction of business is present. Abstentions and
broker non-votes each will be included in determining the number of shares
present and voting at the meeting for the purpose of determining the presence of
a quorum.
SOLICITATION OF PROXIES AND EXPENSES
Cisco and Aironet will share the cost of solicitation of proxies from you
by Innisfree M&A Incorporated, estimated to be $12,500 plus reasonable
out-of-pocket expenses. In addition to solicitation by mail, the directors,
officers and employees of Aironet may solicit proxies from stockholders by
telephone, facsimile or in person. Following the original mailing of the proxies
and other soliciting materials, Aironet will request brokers, custodians,
nominees and other record holders to forward copies of the proxy and other
soliciting materials to persons for whom they hold shares of Aironet common
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<PAGE> 23
stock and to request authority for the exercise of proxies. In these cases,
Aironet, upon the request of the record holders, will reimburse the record
holders for their reasonable expenses. As discussed above, the Aironet board
also may have discretionary authority to solicit additional proxies if a
sufficient vote to approve the merger is not present, in person or by proxy, at
the special meeting, or any postponement or adjournment.
NO APPRAISAL RIGHTS
You are not entitled to exercise dissenter's or appraisal rights as a
result of the merger or to demand payment for your shares under Delaware law.
BOARD RECOMMENDATION
THE AIRONET BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AND
RECOMMENDS THAT AIRONET STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER.
THE MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING ARE OF GREAT IMPORTANCE
TO THE STOCKHOLDERS OF AIRONET. ACCORDINGLY, YOU ARE URGED TO READ AND CAREFULLY
CONSIDER THE INFORMATION PRESENTED IN THIS PROXY STATEMENT/PROSPECTUS, AND TO
COMPLETE, DATE, SIGN AND PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
STOCKHOLDERS SHOULD NOT SEND ANY STOCK CERTIFICATES WITH THEIR PROXY CARDS.
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<PAGE> 24
THE MERGER AND RELATED TRANSACTIONS
This section of the proxy statement/prospectus describes material aspects
of the proposed merger, including the merger agreement and the stock option
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 and
the other documents we refer to carefully for a more complete understanding of
the merger.
The following discussion of the background of the merger and the parties'
reasons for the merger and the potential benefits that could result from the
merger contains forward-looking statements which involve risks and
uncertainties. Readers are cautioned not to place undue reliance on these
forward-looking statements. The actual results of Cisco could differ materially
from those anticipated in these forward-looking statements as a result of
certain factors, including those set forth under "Risk Factors" and in the
documents incorporated by reference in this proxy statement/prospectus.
BACKGROUND OF THE MERGER
On September 7, 1999, acting upon a suggestion from a mutual customer,
Aironet, represented by Roger J. Murphy, Jr., President and CEO, and other
officers of Aironet, met at Cisco with Mario Mazzola, Senior Vice President,
Enterprise Line of Business, and other officers of Cisco. At the meeting,
Aironet presented to Cisco an overview of Aironet's products, technology and
markets and discussed the possibility of a strategic relationship between the
two companies.
On October 12, 1999, representatives of Cisco and Aironet held a telephonic
conference to discuss further Aironet's products, technology, markets and
business strategy and to discuss further a strategic relationship between the
two companies. Subsequent to this meeting, Cisco requested a meeting at Aironet.
At the October 19, 1999 meeting of the Aironet board of directors, Mr.
Murphy discussed with the Aironet board members his meetings with Cisco and
Cisco's plans to visit Aironet.
On October 20, 1999, Cisco representatives led by Charles Giancarlo,
Cisco's Senior Vice President Small and Medium Business, met at Aironet with Mr.
Murphy and other Aironet officers and with select Aironet engineers. At the
meeting, the Aironet representatives presented to Cisco an overview of Aironet's
products, technology and business strategy and discussed the possibility of a
business combination of Aironet with Cisco.
On October 27, 1999, Mr. Giancarlo of Cisco telephoned Mr. Murphy of
Aironet to propose a strategic business combination between the companies. Later
that day, Ammar Hanafi, Director Business Development of Cisco telephoned Mr.
Murphy to discuss the proposed business combination with Aironet, whereby Cisco
would acquire all the outstanding shares of Aironet common stock in a stock-
for-stock merger to be treated as a purchase for accounting purposes under
United States generally accepted accounting principles.
On October 29, 1999, Cisco and Aironet entered into a limited duration
exclusivity agreement to permit due diligence and the negotiation of a
definitive merger agreement, and Aironet retained Dain Rauscher Wessels as its
financial advisor.
On the evening of October 31, 1999, the Aironet board of directors met by
teleconference to discuss the potential business combination with Cisco.
Following discussion and review, Aironet's board of directors authorized
management to continue its discussions regarding the proposed strategic
combination and ratified the exclusivity agreement with Cisco, the retention of
Dain Rauscher Wessels
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<PAGE> 25
as Aironet's financial advisor and all other prior actions taken by management
in connection with the proposed transaction.
On November 1, 1999, Cisco representatives led by Messrs. Giancarlo and
Hanafi met with representatives of Aironet for financial, business, technical
and manufacturing due diligence.
During the period between November 3, 1999 and November 8, 1999, management
of Cisco and Aironet, together with their respective legal counsel and Aironet's
financial advisor, held extensive negotiations regarding the terms and
conditions of the definitive agreements relating to the proposed transaction.
On the evening of November 3, 1999, the Aironet board of directors held a
special meeting. Aironet's management and legal and financial advisors discussed
the proposed transaction with the Aironet board of directors and responded to
questions from the Aironet board of directors. After careful consideration, the
Aironet board of directors determined that management of Aironet should continue
to pursue discussions regarding the proposed business combination with Cisco.
On the afternoon of November 6, 1999, the Aironet board of directors held a
special meeting. Aironet's management, with Aironet's legal and financial
advisors, updated the Aironet board of directors as to the status of the
negotiations. The Aironet board of directors authorized and instructed senior
management to continue negotiation of a definitive merger agreement with Cisco.
On the evening of November 7, 1999, the Aironet board of directors held a
special meeting. Aironet's legal advisors made an extensive presentation on the
terms of the proposed transaction and the board of directors' duties with
respect to approval of the transaction.
On the evening of November 8, 1999, the Aironet board of directors held a
special meeting. Aironet's board of directors, with its legal and financial
advisors, discussed the final terms of the proposed merger. Dain Rauscher
Wessels reviewed its financial analysis of the proposed transaction, answered
questions posed by the Aironet board of directors and delivered its opinion
that, as of such date and based upon the procedures followed, factors considered
and assumptions made by Dain Rauscher Wessels and subject to the limitations set
forth in its opinion, the consideration to be received in the transaction by
Aironet stockholders was fair to such holders from a financial point of view. At
the conclusion of these discussions and presentation, the Aironet board of
directors unanimously voted to approve the merger agreement and related
transaction documents.
As of November 8, 1999, Aironet and Cisco entered into the merger agreement
and all related agreements were entered into by Cisco and the parties thereto.
On November 9, 1999, Cisco, in collaboration with Aironet, issued a press
release announcing the proposed business combination.
REASONS FOR THE MERGER
Cisco's Reasons for the Merger
Cisco's board of directors has identified several potential benefits of the
merger that it believes will contribute to the success of the combined company.
These potential benefits include the ability to:
- enable Cisco to offer wireless local area networks with its end-to-end
converged networks;
- complement Cisco's Enterprise and Small/Medium Business wireline
networking solutions with wireless mobility;
- strengthen Cisco's abilities to be an end-to-end, integrated solution
provider addressing broader networking requirements of its customers;
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<PAGE> 26
- enhance Cisco's capabilities immediately in wireless, standards-based,
high speed wireless local area network products; and
- leverage Cisco's and Aironet's customer and channel overlap.
For the strategic reasons set forth above, the Cisco board of directors
determined that the merger agreement and the merger were in the best interests
of Cisco and its stockholders and that Cisco should proceed with the merger
agreement and the merger.
Aironet's Reasons for the Merger
The Aironet board of directors has unanimously approved the merger
agreement and recommends that the holders of shares of Aironet common stock vote
FOR the approval of the merger agreement.
The Aironet board of directors' decision to approve the merger agreement
was based primarily on factors resulting from the rapid expansion of the
wireless networking industry in recent years. In particular, the board of
directors noted the opportunities in the enterprise and home markets for
wireless networking created by the rapid proliferation of mobile computing and
the Internet, as well as recent adoption of wireless networking standards. The
board of directors concluded that a strategic combination with a large company
which is well established in the networking market and with which Aironet
products and technology would be synergistic and would provide Aironet with
expanded business opportunities was in the best interest of Aironet
stockholders.
The Aironet board of directors believes that increasing competition in the
expanding wireless networking market would make it more difficult for Aironet to
succeed as a relatively small independent company. Despite Aironet's success to
date, the board of directors believes that it would be increasingly important
for Aironet to grow and gain critical mass in order to compete against larger
companies with substantially greater resources and broader, more integrated
product offerings. In order to enhance its competitive position, Aironet's
management considered a number of alternatives, including growth through the
acquisition of strategic technologies that could extend Aironet's product
offerings and expansion of its distribution network, or merger with a larger
company.
The Aironet board of directors identified a number of benefits for
Aironet's stockholders, employees and customers that could result from the
merger. These potential benefits include:
- synergies and compatibility of Aironet and Cisco, based on their
complementary technologies, business philosophies and strategies, which
the Aironet board of directors believes is important for the successful
integration of the companies;
- the ability to dedicate greater resources to both current and emerging
product development efforts and to fund the future growth of Aironet's
business;
- the merger consideration to be received by Aironet stockholders which
represented a premium of approximately:
8.4% over the market price as of the date of the merger agreement;
24.3% over the market price as of one week prior to the date of the
merger agreement; and
75.1% over the market price as of one month prior to the date of the
merger agreement;
- the opportunity for Aironet stockholders to participate in the potential
for growth of the combined company after the merger;
- the tax-free aspects of the merger to the Aironet stockholders;
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<PAGE> 27
- opportunities for Aironet, as part of the combined company, to compete
more effectively in the increasingly competitive and rapidly changing
wireless networking industry;
- the ability of Aironet to leverage Cisco's extensive distribution network
and expertise, particularly internationally, and to use Cisco's presence
in major markets to increase the sales of its products and to further
expand Aironet's own distribution base;
- the consideration to be received by Aironet stockholders under the terms
of the merger agreement was fair to the stockholders from a financial
point of view based upon the opinion of Dain Rauscher Wessels dated as of
November 8, 1999;
- greater liquidity to Aironet stockholders offered by Cisco's common stock
relative to Aironet's common stock;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Aironet and Cisco
common stock; and
- the social and economic effects on the employees, customers, suppliers
and other constituents of Aironet and its subsidiaries and on the
communities in which Aironet and its subsidiaries operate or are located.
The Aironet board of directors also identified and considered a number of
potentially negative factors in its deliberations concerning the merger,
including:
- the risk that the potential benefits sought in the merger might not be
realized fully or within the time frame contemplated, if at all;
- the possibility that the merger would not be consummated and the effect
of the public announcement of the merger on Aironet's sales and operating
results and Aironet's ability to attract and retain key management,
sales, marketing and technical personnel;
- the risk that, despite the efforts of Aironet and Cisco, key technical,
marketing and management personnel might choose not to remain employed by
Cisco after the merger;
- the substantial charges to be incurred, primarily in the quarter in which
the merger is consummated, including costs of integrating the business
and transaction expenses arising from the merger; and
- the other risks associated with Cisco's business and the merger described
under "Risk Factors."
The Aironet board of directors believes that the potential benefits of the
merger outweigh these risks.
The foregoing discussion of the information and factors considered by the
Aironet board of directors is not intended to be exhaustive but is believed to
include all material factors considered by the Aironet board of directors. In
view of the variety of factors considered in connection with its evaluation of
the merger, the Aironet board of directors did not find it practicable to and
did not quantify or otherwise assign relative weight to the specific factors
considered in reaching its determination. In addition, individual members of the
Aironet board of directors may have given different weight to different factors.
In light of the size and diversity of the marketplace and the competitive
positions of both Cisco and Aironet, the Aironet board of directors has
concluded that the merger represents the best current and long-term strategy for
Aironet.
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RECOMMENDATION OF AIRONET'S BOARD OF DIRECTORS
FOR THE REASONS DISCUSSED ABOVE, THE AIRONET BOARD OF DIRECTORS HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT AIRONET
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
In considering the recommendation of the Aironet board of directors with
respect to the merger agreement, you should be aware that some of the directors
and officers of Aironet have interests in the merger that are different from, or
are in addition to, the interests of Aironet stockholders generally. Please see
the section entitled "Interests of Aironet Directors, Officers and Affiliates in
the Merger" on page 38 of this proxy statement/prospectus.
OPINION OF AIRONET'S FINANCIAL ADVISOR
On October 29, 1999, Aironet retained Dain Rauscher Wessels, a division of
Dain Rauscher Incorporated, to furnish an opinion as to the fairness to
Aironet's stockholders, from a financial point of view, of the consideration
that Aironet's stockholders would receive in the merger.
On November 8, 1999, Dain Rauscher Wessels delivered its opinion to
Aironet's board of directors. The opinion stated that the consideration to be
received by Aironet's stockholders under the merger agreement was fair from a
financial point of view as of the date of the opinion, based on the procedures
followed, factors considered and assumptions made by Dain Rauscher Wessels, and
subject to certain other limitations, all as set forth in the opinion. A copy of
the opinion is attached as Appendix D to this proxy statement/prospectus. This
summary of the opinion is qualified by reference to the full text of the
opinion. We urge you to read the opinion in its entirety.
The opinion of Dain Rauscher Wessels applies only to the fairness, from a
financial point of view, of the consideration to be received by Aironet
stockholders under the terms of the merger agreement. The opinion is not a
recommendation to Aironet stockholders to vote in favor of any matter presented
in this proxy statement/prospectus. Aironet stockholders should note that the
opinion expressed by Dain Rauscher Wessels was provided to the Aironet board of
directors solely for its evaluation of the merger. The opinion was not prepared
on behalf of, and was not intended to confer rights or remedies upon, Cisco,
Aironet, any Aironet or Cisco stockholder, or any other person other than the
Aironet board. The Aironet board did not limit the scope of the investigation
that Dain Rauscher Wessels conducted in the course of rendering its opinion.
In providing its opinion, Dain Rauscher Wessels assumed and relied upon the
accuracy and completeness of the financial, legal, tax, operating and other
information provided by Aironet and Cisco (including without limitation the
financial statements and related notes of Aironet and Cisco) and certain other
publicly available information. Dain Rauscher Wessels did not independently
verify this information. Additionally, Dain Rauscher Wessels was not asked to,
and did not, consider the possible effects of any litigation, other legal claims
or any other contingent matters on its analysis. Dain Rauscher Wessels did not
independently evaluate or appraise any of the assets or liabilities of Aironet
or Cisco, and was not furnished with any evaluations or appraisals. Dain
Rauscher Wessels' opinion is based on conditions existing and information
available to Dain Rauscher Wessels on the date of the opinion. Events occurring
after the date of the opinion may materially affect the assumptions used in
preparing the opinion.
In reviewing the merger and arriving at its opinion, Dain Rauscher Wessels:
- reviewed and analyzed the financial terms of the merger agreement;
- reviewed and analyzed certain publicly available financial data and other
data relating to Aironet and Cisco;
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<PAGE> 29
- reviewed and analyzed relevant historical operating data relating to
Aironet and Cisco that was available to Dain Rauscher Wessels through
published sources and the internal records of Aironet and Cisco;
- conducted discussions with members of Aironet's senior management
regarding Aironet's business prospects and financial outlook;
- conducted discussions with members of Cisco's senior management regarding
Cisco's business and prospects;
- reviewed the reported prices and trading activity for Cisco common stock
and Aironet common stock;
- compared the financial performance of Cisco and Aironet and the prices of
Cisco common stock and Aironet common stock with that of other comparable
publicly traded companies and their securities; and
- reviewed the financial terms, to the extent publicly available, of
comparable merger transactions.
In arriving at its opinion, Dain Rauscher Wessels conducted other analyses
and examinations and considered other financial, economic and market criteria
that it deemed necessary.
The following summarizes the financial analyses that Dain Rauscher Wessels
performed in delivering its opinion and the information presented to Aironet's
board of directors:
Comparable Company Analysis
Dain Rauscher Wessels analyzed Aironet's operating performance relative to
a group of publicly traded companies that Dain Rauscher Wessels believed to be
comparable to Aironet. In its analysis, Dain Rauscher Wessels compared the value
to be received by the Aironet stockholders in the merger, expressed as a
multiple of selected operating data, to the stock prices of the comparable
companies expressed as a multiple of the same operating results. The comparable
publicly traded companies selected were:
Andrew Corporation
Corsair Communications
Digital Microwave
MDSI Mobile Data Solutions
Netro Corporation
P-Com, Inc.
Proxim Corporation
Symbol Technologies, Inc.
Although Dain Rauscher Wessels considered these companies to be comparable
to Aironet for the analysis, none of the other companies possess characteristics
identical to those of Aironet.
In its comparable company analysis, Dain Rauscher Wessels used an implied
value of $44.44 per share of Aironet common stock. This implied value was based
on the closing price of Cisco's common stock on November 5, 1999 and an assumed
exchange ratio on that date which is lower than the exchange ratio provided in
the merger agreement. Using this implied value and market prices and other
information regarding the comparable companies as of the same date, Dain
Rauscher Wessels calculated the valuation multiples in the table below. These
multiples compare the value to be received by Aironet stockholders in the merger
to the median of the multiples of operating results realized by the
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<PAGE> 30
stockholders of the comparable companies. Multiples of future earnings were
based on publicly available projected earnings estimates.
<TABLE>
<CAPTION>
1999 2000
------ ------
<S> <C> <C>
Aironet price/earnings ratio................................ 634.9x 185.2x
Comparable companies' median price/earnings ratio........... 33.8x 27.9x
Aironet market capitalization/revenues ratio................ 12.6x 10.1x
Comparable companies, median market capitalization/revenues
ratio..................................................... 3.0x 2.7x
</TABLE>
As indicated in the table, Aironet stockholders would receive greater value
in the merger, in terms of a higher multiple of operating results, than the
value being realized by stockholders of the comparable companies.
Comparable Transactions
Dain Rauscher Wessels compared multiples of selected financial data and
other financial data relating to the merger to multiples paid in, and other
financial data from, 19 selected mergers of publicly traded communications
companies since 1996.
The comparable transactions were selected primarily on the aggregate
transaction value of the business acquired and the target companies' involvement
in the communications industry. None of the target companies involved in these
transactions had a business that was directly comparable to Aironet.
The tables below indicate that the ratio of merger value to revenues and
the premium of merger value over market price achieved by Aironet stockholders
would be comparable to those realized in the comparable transactions.
COMPARISON OF MERGER VALUE/REVENUES
<TABLE>
<CAPTION>
COMPARABLE
TRANSACTION
RANGE MEDIAN/AIRONET
------------- --------------
<S> <C> <C>
Comparable merger value/latest 12 month revenues........... 1.0x to 39.7x 8.8x
Aironet merger value/latest 12 month revenues.............. -- 12.9x
Comparable merger value/next calendar year revenues........ 1.1x to 17.6x 5.6x
Aironet merger value/next calendar year revenues........... -- 10.1x
</TABLE>
COMPARISON OF PREMIUM OF MERGER VALUE PER SHARE
OVER MARKET PRICE OF THE TARGET COMPANY'S STOCK
<TABLE>
<CAPTION>
ONE MONTH PRIOR TO ONE WEEK PRIOR TO ONE DAY PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
------------------------ ----------------------- ----------------------
RANGE MEDIAN RANGE MEDIAN RANGE MEDIAN
--------------- ------ -------------- ------ ------------- ------
<S> <C> <C> <C> <C> <C> <C>
Comparable
transactions........ -9.2% to 136.6% 43.6% -6.7% to 72.1% 42.3% 1.2% to 70.1% 29.9%
</TABLE>
<TABLE>
<CAPTION>
ONE MONTH PRIOR TO ONE WEEK PRIOR TO ONE DAY PRIOR TO
ANNOUNCEMENT ANNOUNCEMENT ANNOUNCEMENT
------------------------ ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Aironet transaction... 75.1% 24.3% 8.4%
</TABLE>
Discounted Cash Flow Analysis
Dain Rauscher Wessels estimated present values of Aironet using a
discounted cash flow analysis. This analysis was based upon financial data and
estimates provided by Aironet's management. Dain Rauscher Wessels calculated
present values of projected operating cash flows after net changes to working
capital over the period between December 31, 2000 and December 31, 2004.
Terminal values for the analysis were determined by applying multiples ranging
from 25.0x to 35.0x to Aironet's
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<PAGE> 31
estimated net earnings per share for 2004. Aironet's cash flow streams and
terminal values were discounted to present value using discount rates ranging
from 17.0% to 22.0%, chosen to reflect different assumptions regarding Aironet's
cost of capital. Based on this discounted cash flow analysis, Aironet common
stock had an implied equity value of between $23.07 and $36.38 per share. Based
upon the closing price of Cisco common stock on November 5, 1999 and the prior
exchange ratio, the value to be received by Aironet stockholders in the merger
was $44.44 per share.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Considering
selected portions of the analyses or the summary set forth above, without
considering the analysis and all of the underlying factors considered as a
whole, could create an incomplete or misleading view of the processes underlying
Dain Rauscher Wessels' opinion. In arriving at its fairness opinion, Dain
Rauscher Wessels considered the results of all of the analyses it performed. In
view of the wide variety of factors considered in its evaluation of the fairness
of the merger consideration, Dain Rauscher Wessels did not find it practicable
to assign relative weights to the factors considered in reaching its opinion. No
company or transaction used in the above analyses as a comparison is identical
to Aironet or Cisco or the proposed merger. Dain Rauscher Wessels' analyses were
prepared solely for purposes of providing its opinion to Aironet's board of
directors as to the fairness of the merger consideration to Aironet
stockholders. Dain Rauscher Wessels' analyses do not purport to be appraisals or
necessarily reflect the prices at which businesses 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 or assumed by such analyses. As described above, Dain
Rauscher Wessels' opinion and presentation to the Aironet board was one of the
many factors taken into consideration by the Aironet board in making its
determination to approve the merger agreement.
Dain Rauscher Wessels is a nationally recognized investment banking firm
and it is regularly engaged in the valuation of businesses and securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations of corporations. Dain Rauscher Wessels is familiar with Aironet,
having acted as a managing underwriter of its initial public offering in 1999.
Aironet selected Dain Rauscher Wessels to render the fairness opinion based upon
Dain Rauscher Wessels' familiarity with Aironet, its knowledge of the
communications industry and its experience in mergers and acquisitions and in
securities valuation.
In the ordinary course of its business, Dain Rauscher Wessels acts as a
market maker and broker in the publicly traded securities of Aironet and Cisco
and receives customary compensation for these activities. Dain Rauscher Wessels
also provides research coverage of Aironet and Cisco securities. In the ordinary
course of its business, Dain Rauscher Wessels actively trades for its own
account and for the accounts of its customers in the publicly traded securities
of Aironet and Cisco. Accordingly, Dain Rauscher Wessels may at any time hold a
long or short position in those securities. On occasion, these positions may be
material in size relative to the volume of trading activity.
Aironet engaged Dain Rauscher Wessels pursuant to an engagement letter
dated October 29, 1999. Under the terms of the engagement letter, Aironet will
pay Dain Rauscher Wessels an opinion fee of $500,000 at the closing of the
merger. Aironet has also agreed to pay Dain Rauscher Wessels a transaction fee,
estimated to be approximately $5.0 million contingent upon the closing of the
merger. The opinion fee will be credited against this transaction fee. Aironet
has also agreed to reimburse Dain Rauscher Wessels for its reasonable
out-of-pocket expenses and to indemnify Dain Rauscher Wessels against certain
liabilities relating to, or arising out of services performed by, Dain Rauscher
Wessels in connection with the merger. Dain Rauscher Wessels and Aironet
negotiated the terms of the engagement letter at arms' length, and each believes
that the terms of the letter are customary for transactions of this
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<PAGE> 32
nature. Aironet's board of directors was aware of the fee arrangements contained
in the engagement letter at the time it approved the merger.
COMPLETION AND EFFECTIVENESS OF THE MERGER
The merger will be completed when all of the conditions to completion of
the merger are satisfied or waived, including adoption of the merger agreement
by the Aironet stockholders. The merger will become effective upon the filing of
a certificate of merger with the State of Delaware.
We are working towards completing the merger as quickly as possible. We
hope to complete the merger by the end of March 2000. Because the merger is
subject to government approvals, we cannot predict the exact timing.
STRUCTURE OF THE MERGER AND CONVERSION OF AIRONET COMMON STOCK
In accordance with the merger agreement and Delaware law, Osprey
Acquisition Corporation, a newly-formed, wholly-owned subsidiary of Cisco, will
be merged with and into Aironet. As a result of the merger, the separate
corporate existence of Osprey Acquisition Corporation will cease and Aironet
will survive the merger as a wholly-owned subsidiary of Cisco.
Upon completion of the merger, each outstanding share of Aironet common
stock, other than shares held by Cisco and its subsidiaries, together with the
corresponding right to purchase Aironet common stock, pursuant to the Rights
Agreement dated June 25, 1999 between Aironet and Harris Trust and Savings Bank,
will be canceled and converted into the right to receive 0.63734 shares of Cisco
common stock. A corresponding right to purchase shares of Cisco Series A Junior
Participating Preferred Stock, no par value, pursuant to the Cisco Rights
Agreement dated as of June 10, 1998 between Cisco and Bank Boston, N.A. will
accompany each share of Cisco common stock. The number of shares of Cisco common
stock issuable in the merger will be proportionately adjusted for any additional
future stock split, stock dividend or similar event with respect to Aironet
common stock or Cisco common stock effected between the date of the merger
agreement and the completion of the merger. In addition, the exchange ratio will
be adjusted if Aironet increases the number of shares of its outstanding common
stock, other than shares issued upon the exercise of outstanding options and
warrants, after November 8, 1999.
No fractional shares of Cisco common stock will be issued in connection
with the merger. In lieu of a fraction of a share of Cisco common stock, you
will receive an amount of cash equal to the product of the fraction multiplied
by the average closing price for a share of Cisco common stock on the Nasdaq
National Market for the last ten trading days ending on the last full trading
day prior to the merger.
EXCHANGE OF AIRONET STOCK CERTIFICATES FOR CISCO STOCK CERTIFICATES
When the merger is completed, the exchange agent will mail to you a letter
of transmittal and instructions for use in surrendering your Aironet stock
certificates in exchange for Cisco stock certificates. When you deliver your
Aironet stock certificates to the exchange agent along with a properly executed
letter of transmittal and any other required documents, your Aironet stock
certificates will be canceled and you will receive Cisco stock certificates
representing the number of full shares of Cisco common stock to which you are
entitled under the merger agreement (and cash in lieu of fractional shares).
YOU SHOULD NOT SUBMIT YOUR STOCK CERTIFICATES FOR
EXCHANGE UNTIL YOU HAVE RECEIVED THE LETTER OF TRANSMITTAL AND
INSTRUCTIONS REFERRED TO ABOVE.
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You are not entitled to receive any dividends or other distributions on
Cisco common stock with a record date after the merger is completed until you
have surrendered your Aironet stock certificates in exchange for Cisco stock
certificates.
If there is any dividend or other distribution on Cisco common stock with a
record date after the merger and a payment date prior to the date you surrender
your Aironet stock certificates in exchange for Cisco stock certificates, you
will receive it with respect to the whole shares of Cisco common stock issued to
you promptly after your Aironet stock certificates are surrendered. If there is
any dividend or other distribution on Cisco common stock with a record date
after the merger and a payment date after the date you surrender your Aironet
stock certificates in exchange for Cisco stock certificates, you will receive it
with respect to the whole shares of Cisco common stock issued to you promptly
after the payment date.
Cisco will only issue a Cisco stock certificate or a check in lieu of a
fractional share in a name other than the name in which a surrendered Aironet
stock certificate is registered if you 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.
TREATMENT OF AIRONET STOCK OPTION AND STOCK INCENTIVE PLANS
At the effective time of the merger, each outstanding option to purchase
shares of Aironet common stock issued under Aironet's 1999 Stock Option Plan for
Non-Employee Directors, Amended and Restated 1996 Stock Option Plan, and 1999
Ominbus Stock Incentive Plan will be assumed by Cisco regardless of whether the
options are vested or unvested. Each Aironet stock option, which will be assumed
by Cisco, will continue to have the same terms, and be subject to the same
conditions, that were applicable to the option immediately prior to the
effective time, except that:
- each Aironet stock option will be exercisable for shares of Cisco common
stock;
- the number of shares of Cisco common stock issuable upon exercise of any
given Aironet option will be determined by multiplying 0.63734 by the
number of shares of Aironet common stock underlying the option, rounded
down to the nearest whole number; and
- the per share exercise price of any given option will be determined by
dividing the exercise price of the option immediately prior to the
effective time by 0.63734, rounded up to the nearest whole cent.
Cisco has agreed to file a registration statement on Form S-8 covering
shares of Cisco common stock issuable upon the exercise of outstanding Aironet
options granted to individuals for which a registration statement on From S-8 is
available. Cisco also has agreed to file a registration statement on Form S-3
covering shares of Cisco common stock issuable pursuant to outstanding warrants
granted to entities or individuals (including entities controlled by Aironet
directors which are not eligible for registration on Form S-8) and to keep this
registration statement on Form S-3 available for one year.
OTHER PROVISIONS OF THE MERGER AGREEMENT
Representations and Warranties
We each made a number of representations and warranties in the merger
agreement regarding authority to enter into the merger agreement, and to
consummate the other transactions contemplated by the merger agreement and with
regard to aspects of our business, financial condition, structure and other
facts pertinent to the merger.
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The representations given by Aironet cover the following topics as they
relate to Aironet and its subsidiaries:
- Aironet's organization, qualification to do business and power;
- Aironet's capitalization;
- authorization of the merger and the transaction agreements by Aironet;
- Aironet's filings and reports with the Securities and Exchange
Commission;
- Aironet's financial statements;
- changes in Aironet's business since June 30, 1999;
- no undisclosed liabilities;
- litigation involving Aironet;
- no restrictions on Aironet's business;
- the possession of and compliance with permits required to conduct
Aironet's business;
- Aironet's title to the properties it owns and leases;
- intellectual property used and owned by Aironet;
- environmental laws that apply to Aironet;
- Aironet's taxes;
- Aironet's employee benefit plans;
- the effect of the merger on obligations of Aironet;
- matters relating to Aironet's employees;
- Aironet's transactions with interested parties;
- Aironet's insurance;
- Aironet's compliance with applicable laws;
- Aironet's minute books;
- Aironet's financial advisors;
- information supplied by Aironet in this proxy statement/prospectus and
the related registration statement of Cisco;
- the vote required of the Aironet stockholders to approve the merger;
- authorization and recommendation of the merger by the Aironet board of
directors;
- the inapplicability of state anti-takeover statutes to the merger;
- Aironet's compliance with export control laws;
- the effect of the Year 2000 on Aironet's business and products; and
- the treatment of the merger as a tax-free reorganization.
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The representations given by Cisco and Osprey Acquisition Corporation cover
the following topics as they relate to Cisco, Osprey Acquisition Corporation and
their respective subsidiaries:
- organization, qualification to do business and power of Cisco and Osprey
Acquisition Corporation;
- capitalization of Cisco and Osprey Acquisition Corporation;
- authorization of the merger by Cisco and Osprey Acquisition Corporation;
- Cisco's filings and reports with the Securities and Exchange Commission;
- Cisco's financial statements;
- no undisclosed liabilities;
- litigation involving Cisco;
- information supplied by Cisco and Osprey Acquisition Corporation in this
proxy statement/prospectus and the related registration statement of
Cisco; and
- authorization by Cisco's board of directors.
This is only a summary. You are urged to carefully read the articles in the
merger agreement entitled "Representations and Warranties of Company" and
"Representations and Warranties of Parent and Merger Sub."
Aironet's Conduct of Business Before Completion of the Merger
Aironet agreed that until the completion of the merger or unless Cisco
consents in writing, Aironet and its subsidiaries will pay its taxes and will
operate its businesses in the same manner as past practices and in good faith
with the goal of:
- preserving its assets and current business organizations;
- keeping available the services of its current officers and employees; and
- maintaining its material contracts and preserving its relationships with:
- customers;
- suppliers;
- distributors;
- licensors; and
- licensees and others having business dealings with them.
Aironet also agreed to promptly notify Cisco of any event which would harm
Aironet's or its subsidiaries' business or of any occurrence not in the usual
course of business. Aironet also agreed that until the completion of the merger
or unless Cisco consents in writing, Aironet and its subsidiaries will conduct
their business in compliance with specific restrictions relating to the
following:
- modification of Aironet's certificate of incorporation or bylaws;
- the issuance of dividends or other distributions;
- the modification of any stock options;
- the execution or modification of material contracts;
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- the issuance and redemption of securities, except for limited grants of
stock options under Aironet's stock option plans;
- the transfer of Aironet's intellectual property;
- the granting of exclusive rights to its products or technology;
- the disposition of any properties or assets that are material to
Aironet's business other than in the ordinary course of business;
- the incurrence of indebtedness other than in the ordinary course of
business;
- entrance into operating leases over a specified amount;
- the payment of obligations over a specified amount and other than in the
ordinary course of business;
- capital expenditures over a specified amount and other than in the
ordinary course of business;
- insurance;
- the waiver or termination of any right of value to Aironet;
- employees and employee benefits;
- severance arrangements;
- commencement of any lawsuit;
- the acquisition of assets or other entities;
- tax elections and liabilities other than in the ordinary course of
business;
- notices;
- the revaluation of Aironet's assets other than in the ordinary course of
business;
- accounting policies and procedures; and
- Aironet's Year 2000 compliance plan.
This is only a summary. You are urged to carefully read the article in the
merger agreement entitled "Conduct Prior to the Effective Time."
No Solicitation of Transactions
Until the merger is completed or the merger agreement is terminated,
Aironet has agreed not to directly or indirectly take any of the following
actions:
- solicit, initiate, encourage or agree to any takeover proposal; or
- engage in negotiations with, or disclose any nonpublic information
relating to Aironet or any of its subsidiaries to, or afford access to
the properties, books or records of Aironet or any of its subsidiaries
to, any person that has advised Aironet that it may be considering
making, or that has made, a takeover proposal.
The Aironet board of directors is not prohibited from taking and disclosing
to Aironet's stockholders a position with respect to a tender offer pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act. Additionally, the
Aironet board of directors is not prohibited from providing a copy of the
non-solicitation provision of the merger agreement to any third party.
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Aironet has agreed to provide Cisco with detailed information about any
takeover proposal it receives. However, Aironet may engage in any of these
otherwise prohibited acts, other than solicitation, initiation or encouragement
of any takeover proposal, if:
- the Aironet board of directors believes in good faith that a particular
proposal concerning an extraordinary transaction of the nature specified
in the merger agreement, such as a merger or a sale of significant assets
will result in a transaction more favorable than the merger to the
Aironet stockholders from a financial point of view; and
- the Aironet board of directors determines in good faith after advice from
outside legal counsel that the failure to engage in the prohibited
negotiations or discussions or provide non-public information is
inconsistent with the fiduciary duties of the board under applicable law.
A takeover proposal is:
- any offer or proposal for a merger or other business combination
involving Aironet;
- the acquisition of 15% or more of the outstanding shares of capital stock
of Aironet or any of its subsidiaries; or
- the sale or transfer of any significant portion of the assets of Aironet
or any of its subsidiaries, other than the merger.
Conditions to the Merger
Our respective 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 conditions before completion of
the merger:
- the merger agreement must be approved by the holders of at least 75% of
the outstanding shares of Aironet common stock;
- Cisco's registration statement registering the shares to be exchanged in
the merger must be declared effective by the Securities and Exchange
Commission;
- no law, regulation or order must be enacted or issued which has the
effect of making the merger illegal or otherwise prohibiting completion
of the merger;
- Cisco and Aironet shall have received the opinion of their respective tax
counsels that the merger will qualify as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code;
- the applicable waiting period under United States antitrust laws must
expire or be terminated; and
- the application with the Nasdaq National Market for the listing of the
shares of Cisco common stock to be issued in the merger must be filed.
Aironet'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:
- Cisco's and Osprey Acquisition Corporation's representations and
warranties must be true and correct when made and as of the closing of
the merger;
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- Cisco and Osprey Acquisition Corporation shall have complied in all
material respects with all covenants, obligations and conditions of the
merger agreement required to be performed and complied with by them; and
- Aironet shall have been provided with a certificate executed on behalf of
Cisco that all representations are true and correct and that all
obligations have been fulfilled.
Termination of the Merger Agreement
At any time prior to the completion of the merger, the merger agreement may
be terminated:
- by mutual written consent of Cisco and Aironet.
- by either Cisco or Aironet, if:
- without fault of the terminating party, the closing shall not have
occurred on or before March 31, 2000. (The final date was extended to
March 31, 2000 due to the failure of the registration statement relating
to the issuance of Cisco shares in the merger to be declared effective
in time to permit this closing to occur by February 29, 2000, the
original termination date.);
- any permanent injunction or other order of a court or other competent
authority preventing the consummation of the merger shall have become
final and nonappealable; or
- if any required approval of the Aironet stockholders shall not have been
obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment
thereof.
- by Cisco, if:
- Aironet shall have breached any of its representations, warranties or
obligations and the breach shall not have been cured within 10 business
days of receipt by Aironet of written notice of the breach;
- the Aironet board of directors shall have withdrawn or modified its
recommendation of the merger agreement or the merger in a manner adverse
to Cisco or shall have resolved to do any of the foregoing;
- Aironet shall have solicited, initiated, encouraged or agreed to any
takeover proposal or engaged in any negotiations with, or disclosed any
nonpublic information relating to Aironet or any of its subsidiaries, or
afforded access to the properties, books or records of Aironet to any
person that has advised Aironet that it may be considering making, or
that has made, a takeover proposal;
- the Aironet board of directors shall have recommended, endorsed,
accepted or agreed to a takeover proposal or has resolved to do so;
- for any reason Aironet fails to call the special meeting by February 15,
2000 or March 15, 2000 if this proxy statement/prospectus shall not be
declared effective by February 15, 2000 under circumstances in which it
can be reasonably expected that the final date will be extended because
this proxy statement/prospectus shall not be declared effective or the
applicable waiting period under the Hart-Scott-Rodino Act shall not be
terminated or expired; or
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- if a trigger event (as defined in the merger agreement) or takeover
proposal (as defined in the merger agreement) shall have occurred and
the board of directors of Aironet in connection therewith, does not
within 10 business days of such occurrence:
- reconfirm its approval and recommendation of the merger agreement and
the transactions contemplated thereby; and
- reject such takeover proposal or trigger event.
- by Aironet, if Cisco shall breach any of its representations, warranties
or obligations and this breach shall not have been cured within 10
business days following receipt by Cisco of written notice of the
breach.
Payment of Fees and Expenses
Whether or not the merger is consummated, all costs and expenses incurred
in connection with the merger agreement and the merger will be paid by the party
incurring the expense except that expenses incurred in connection with printing
the proxy statement/prospectus, registration and filing fees incurred in
connection with the proxy statement/prospectus and the listing of additional
shares and fees, costs and expenses, associated with compliance with applicable
state securities laws in connection with the merger shall be shared equally.
In the event that the merger agreement is terminated because:
- a trigger event or takeover proposal shall have occurred and the board of
directors of Aironet does not within 10 business days of occurrence
reconfirm its approval and recommendation of the merger agreement and the
transactions contemplated thereby, and reject the takeover proposal or
trigger event;
- Aironet through its, or otherwise by its, officers, directors or advisors
or any person authorized by those persons, solicits, initiates,
encourages or agrees to a takeover proposal or engages in any
negotiations with, or discloses any nonpublic information relating to
Aironet or any of its subsidiaries, or affords access to the properties,
books or records of Aironet to any person that has advised Aironet that
it may be considering making, or that it has made, a takeover proposal in
violation of the non-solicitation provisions contained in the merger
agreement;
- the Aironet board of directors shall have recommended, endorsed, accepted
or agreed to a takeover proposal or shall have resolved to do so and at
the time of the action there shall not exist circumstances giving rise to
a material adverse effect on Cisco;
- the Aironet board of directors shall have withdrawn or modified its
recommendation of the merger agreement or the merger in a manner adverse
to Cisco or shall have resolved to do any of the foregoing and prior to
this withdraw or modification a trigger event or takeover proposal that
had not been rejected by Aironet or withdrawn shall have occurred and at
the time of that action there does not exist circumstances giving rise to
a material adverse effect on Cisco;
- any required approval of the stockholders of Aironet shall not have been
obtained by reason of the failure to obtain the required vote upon a vote
held at a duly held meeting of stockholders and prior to the meeting
there was a takeover proposal which was not rejected by Aironet and prior
to this event a trigger event or takeover proposal that had not been
rejected by Aironet or withdrawn shall have occurred and at the time of
that action there does not exist circumstances giving rise to a material
adverse effect on Cisco;
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- Aironet has breached its representations, warranties or obligations under
the reorganization agreement, Aironet has failed to timely call its
stockholders' meeting or the merger shall not have been timely
consummated and prior to such event a trigger event or takeover proposal
that has not been rejected by Aironet or withdrawn shall have occurred;
then Aironet will pay Cisco the termination fee of $25.0 million. In addition,
Aironet has agreed that under certain circumstances it shall pay Cisco's
out-of-pocket costs and expenses upon termination of the merger agreement and in
the event any takeover proposal or trigger event is consummated within six or 12
months (depending on the persons making such takeover proposal or trigger event)
of the later of the termination of the merger agreement or payment of Cisco's
fees and expenses, Aironet will pay the additional sum of $25.0 million less any
expenses previously paid by Aironet to Cisco.
Extension, Waiver and Amendment of the Merger Agreement
We may amend the merger agreement before completion of the merger. However,
after the Aironet stockholders adopt the merger agreement, no change will be
made:
- to the number of shares of Cisco common stock for which Aironet common
stock will be converted;
- to any term of the certificate of incorporation of Aironet to be effected
by the merger; or
- to any of the terms and conditions of the merger agreement if the change
would harm the holders of Cisco common stock or Osprey Acquisition
Corporation common stock.
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
Stockholder Agreements
In connection with the merger, Roger J. Murphy, Jr., Telxon Corporation and
its subsidiary, Retail Technologies Group, Inc., Telantis Venture Partners V,
Inc., the Hood/Meyerson Foundation and Axiom Venture Partners II Limited
Partnership have entered into a stockholder agreement with Cisco. The terms of
the stockholder agreement provide:
- that the stockholders will not transfer or sell any shares of Aironet
common stock beneficially owned by them, or any new shares of Aironet
stock they may acquire, at any time prior to the earlier of the effective
time of the merger and the termination of the merger agreement (unless
the person to whom the shares are sold agrees to be bound by the
stockholder agreement); and
- that the stockholders will vote all shares of Aironet common stock
beneficially owned by them in favor of the approval of the merger
agreement.
The stockholder agreement also required the stockholders to deliver an
irrevocable proxy to Cisco. The irrevocable proxy enables Cisco to vote the
stockholders' shares to approve the merger. As of the date of this proxy
statement/prospectus, the Aironet stockholders who entered into the stockholder
agreement collectively held approximately 6,896,039 shares of Aironet common
stock which represented approximately 47.9% of the outstanding Aironet common
stock. None of the stockholders who are parties to the stockholder agreement was
paid additional consideration in connection with the stockholder agreement.
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Employment and Non-Competition Agreements
Several employees and executive officers, including Roger J. Murphy, Jr.,
Donald I. Sloan, Ronald B. Willis and Harvey A. Ikeman, as a condition to
closing of the merger, are required to enter into employment and non-competition
agreements with Cisco that will become effective upon completion of the merger.
These executive officers previously entered into change in control agreements
with Aironet, which provided them with severance payment if their employment was
terminated within two years of a change in control. These executive officers are
required to agree, as a condition to closing of the merger, to waive their
rights to severance under their change in control agreements with Aironet. Their
change in control agreements will be superceded by their employment agreements
with Cisco. The agreement requires the employees to remain with Cisco for a
period of two years from the closing of the merger unless Cisco terminates them
earlier. If the employee's employment is terminated without cause prior to the
two year period, then Cisco will continue to pay the employee's base salary for
a certain period as a severance payment up to one year from the date of
termination. If the employment is terminated for cause prior to the two year
period, then the employee will be paid all salary and benefits through the date
of termination of employment, but nothing else.
For purposes of these severance benefits, "without cause" shall mean the
individual's termination for any reason other than: (A) failure to perform the
duties of his or her position after receipt of a written warning, (B)
misconduct, (C) conviction of a crime other than a traffic offense, (D) any act
of fraud against, or the misappropriation of property belonging to Cisco, or (E)
material breach of the employment agreement or any confidentiality or
proprietary information agreement with Cisco.
The employment and non-competition agreements require that the employee
will not (A) participate or engage in the design, development, manufacture,
production, marketing, sale or servicing of any product, or the provision of any
service, that directly relates to the business of Cisco or (B) permit the
employee's name to be used in connection with a business which is competitive or
substantially similar to the business of Cisco, in each case for a certain
period after the merger.
Cisco has also agreed that, after the merger, Cisco will indemnify each
officer and director of Aironet serving as such on the date of the merger
agreement as provided in the Delaware General Corporation Law, the Aironet
amended and restated certificate of incorporation and the Aironet second amended
and restated bylaws, and existing indemnification agreements between Aironet and
such officers and directors. Please also see the section entitled
"Indemnification and Insurance" on page 37 of this proxy statement/prospectus.
Stock Option Agreement
Cisco required Aironet to enter into a stock option agreement as a
prerequisite to entering into the merger agreement. The stock option agreement
grants Cisco the option to buy up to 2,826,375 shares of Aironet common stock,
constituting approximately 19.9% of the outstanding shares of Aironet common
stock as of November 8, 1999, at an exercise price, payable in cash, of $48.00
per share.
The option is intended to increase the likelihood that the merger will be
completed. Consequently, aspects of the stock option agreement may have the
effect of discouraging persons who might now or at any time be interested in
acquiring all or a significant interest in Aironet or its assets before
completion of the merger.
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The stock option agreement is exercisable by Cisco, in whole or in part, at
any time or from time to time after the occurrence of an event which would
permit termination of the merger agreement and require payment to Cisco of the
$25.0 million termination fee or immediately prior to an extraordinary
transaction of the nature specified in the merger agreement which obligates
Aironet to pay the termination fee. The Cisco option will terminate upon the
earlier of:
- the effective time of the merger;
- the termination of the merger agreement pursuant to its terms, other than
a termination in connection with which Cisco is entitled to the payment
of the termination fee or expense reimbursement;
- 180 days following any termination of the merger agreement in connection
with which Cisco is entitled to the payment of the $25.0 million
termination fee; or
- if at the expiration of such 180-day period, the Cisco option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall
have been removed or shall have become final and not subject to appeal.
The Cisco option may not, however, be exercised if Cisco is in material
breach of any of its representations, warranties, covenants or agreements
contained in the stock option agreement or in the merger agreement.
Under the terms of the stock option agreement, at any time during which the
Cisco option is exercisable, or the repurchase period, Cisco has the right to
require Aironet, or any successor entity thereof, to repurchase from Cisco all
or any part of the Cisco option, to the extent not previously exercised (the
Cisco Put) and Aironet has the right to require Cisco, or any successor entity
thereof, to sell to Aironet all or any part of the Cisco option, to the extent
not previously exercised (the Aironet Call), at the price set forth in
subparagraph (a) below. At any time during which the Cisco option is
exercisable, Cisco has the right to require Aironet, or any successor entity
thereof, to repurchase from Cisco (the Cisco Put) and Aironet has the right to
require Cisco, or any successor entity thereof, to sell to Aironet all or any
part of the Cisco option, to the extent not previously exercised (the Aironet
Call), all or any part of the Aironet shares purchased by Cisco pursuant to the
Cisco option at the price set forth in subparagraph (b) below:
(a) The difference between the "market/tender offer price" for shares
of Aironet common stock as of the date either party gives notice of its
intent to exercise its rights, which is defined as the higher of:
- the price per share offered as of the notice date pursuant to any tender
or exchange offer or other takeover proposal, as defined in the merger
agreement, which was made prior to the notice date and not terminated or
withdrawn as of the notice date of the exercise of the Cisco Put or the
Aironet Call, as the case may be, or the tender price; or
- the average of the closing prices of shares of Aironet common stock on
the Nasdaq National Market for the ten trading days immediately preceding
the notice date of the exercise of the Cisco Put or the Aironet Call, as
the case may be, and $48.00, multiplied by the number of Aironet shares
purchasable pursuant to the stock option agreement, or portion thereof
with respect to which either party can exercise this right under the
stock option agreement, but only if the market/tender offer price exceeds
$48.00.
(b) The exercise price paid by Cisco for the Aironet shares acquired
pursuant to the stock option agreement plus the difference between the
market/tender offer price and $48.00, but only if
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the market/tender offer price exceeds $48.00, multiplied by the number of
Aironet shares purchased by Cisco pursuant to the stock option agreement.
Notwithstanding (a) and (b) above, in no event shall the proceeds payable
to Cisco as a result of the Cisco Put or the Aironet Call exceed the sum of (x)
$35.0 million, plus (y) $48.00 multiplied by the number of Aironet shares
purchased by Cisco pursuant to the stock option agreement minus (z) any amount
paid to Cisco by Aironet as a termination fee pursuant to the merger agreement.
Subsequent to the termination of the merger agreement, Cisco may, by
written notice, request that Aironet register under the Securities Act all or
any part of the shares of Aironet common stock acquired pursuant to the stock
option agreement. Aironet shall use its best efforts to register the unpurchased
registrable shares; provided, however, (A) Cisco shall not be entitled to more
than an aggregate of two effective registration statements and (B) Aironet will
not be required to file any registration statement for a certain period of time
when:
- Aironet is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at that time
and, after consultation with legal counsel to Aironet, Aironet determined
that the information would have to be disclosed if a registration
statement were filed at that time;
- Aironet is required under the Securities Act to include audited financial
statements for any period in the registration statement and such
financial statements are not then available for inclusion in the
registration statement; or
- Aironet determines, in its reasonable judgment, that the registration
would interfere with any financing, acquisition or other material
transaction involving Aironet or any of its affiliates.
OPERATIONS FOLLOWING THE MERGER
Following the merger, Aironet will continue its operations as a
wholly-owned subsidiary of Cisco. Upon consummation of the merger, the members
of Aironet's board of directors will be John T. Chambers and Larry R. Carter.
The membership of the Cisco board of directors will remain unchanged as a result
of the merger. The stockholders of Aironet will become stockholders of Cisco,
and their rights as stockholders will be governed by Cisco's articles of
incorporation and bylaws and the laws of the State of California.
INDEMNIFICATION AND INSURANCE
The merger agreement provides that Cisco will, after the completion of the
merger, indemnify, defend and hold harmless the present and former officers and
directors of Aironet in respect of acts or omissions occurring on or prior to
the completion of the merger, in each case to the fullest extent the corporation
is permitted under Delaware law, the Aironet amended restated certificate of
incorporation or the Aironet second amended and restated bylaws or any
indemnification agreement to which Aironet is a party, in each case as in effect
on November 8, 1999.
The merger agreement also provides that, for four years after the
completion of the merger, Cisco will either:
- at all times maintain at least $50.0 million in cash, marketable
securities and unrestricted lines of credit to be available to indemnify
the present and former officers, directors, employees and agents of
Aironet against specified liabilities; or
- have Aironet maintain for the benefit of Aironet's current directors and
officers and other persons covered by Aironet's current directors' and
officers' liability insurance with respect to all matters
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occurring on or prior to the completion of the merger, directors and officers
liability insurance on terms substantially equivalent to the Aironet directors'
and officers' liability insurance policy in effect on the date of the merger
agreement.
INTERESTS OF AIRONET DIRECTORS, OFFICERS AND AFFILIATES IN THE MERGER
In considering the recommendation of the Aironet board of directors, you
should be aware that certain directors and officers of Aironet have interests in
the merger which are different from, or in addition to, yours. The Aironet board
of directors was aware of these potential conflicts and considered them. These
interests include the following:
- As of December 31, 1999, directors and executive officers of Aironet and
their affiliates beneficially owned approximately 32.5% of the
outstanding shares of Aironet common stock. Please see "Principal
Stockholders of Aironet" for more information.
- Roger J. Murphy, Jr. will be paid a bonus of $1.0 million, net of all
taxes, contingent upon completion of the merger.
- As of the date of this proxy statement/prospectus, the non-employee
directors of Aironet beneficially owned stock options to purchase an
aggregate of 130,000 shares of Aironet common stock, 75,000 of which were
unvested. Upon completion of the merger, the 75,000 unvested stock
options held by the following non-employee directors will accelerate and
become fully vested and exercisable as shown below:
<TABLE>
<CAPTION>
# OF AIRONET OPTION
NAME EXERCISE PRICE SHARES ACCELERATING
---- -------------- -------------------
<S> <C> <C>
James H. Furneaux............... $10.50 25,000
Samuel F. McKay................. 10.50 25,000
John W. Paxton, Sr.............. 10.50 25,000
</TABLE>
The acceleration of the vesting of options upon the merger or upon
termination without cause following the merger, together with any other
payment contingent upon or made in connection with the merger may result
in "excess parachute payments" as defined in Section 280G of the Internal
Revenue Code. Excess parachute payments are not deductible in accordance
with Section 280G. As a result, Cisco will not be entitled to a tax
deduction for the amounts determined to be excess parachute payments. The
amount of the lost deduction will depend on the value of the shares at
the time of the merger, the number of option shares being accelerated,
the portion of Roger Murphy's $1.0 million bonus deemed to be an "excess
parachute payment" plus the amount of any payments deemed to be made in
connection with the merger.
- Several employees and executive officers, including Roger J. Murphy, Jr.,
Donald I. Sloan, Ronald B. Willis and Harvey A. Ikeman, as a condition to
closing of the merger, are required to enter into employment and
non-competition agreements with Cisco that will become effective upon
completion of the merger. These executive officers previously entered
into change in control agreements with Aironet, which provided them with
severance payment if their employment was terminated within two years of
a change in control. These executive officers are required to agree, as a
condition to closing of the merger, to waive their rights to severance
under their change in control agreements with Aironet, and their change
in control agreements will be superceded by their employment agreements
with Cisco. Please see summary of the terms of
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<PAGE> 45
their employment agreements in the section of this proxy
statement/prospectus entitled "Employment and Non-Competition Agreements"
under "The Merger and Related Transactions -- Related Agreements."
- The merger agreement provides that Cisco will indemnify, from and after
the effective time, and will cause Aironet to indemnify the present and
former officers, directors and employees and agents of Aironet in respect
of acts or omissions occurring on or prior to the effective time, in each
case to the fullest extent the corporation is permitted under Delaware
law, the Aironet amended restated certificate of incorporation or the
Aironet second amended and restated bylaws or any indemnification
agreement to which Aironet is a party, in each case as in effect on the
date of the merger agreement. Please see the section above entitled
"Indemnification and Insurance."
ANTITRUST APPROVAL
The merger is subject to the requirements of the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 which prevents some 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 certain waiting periods end or expire. The applicable waiting periods
expired at 5:00 p.m. on December 23, 1999. The requirements of Hart-Scott-Rodino
will be satisfied if the merger is completed within one year from the
termination of the waiting period.
However, 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 as it deems necessary or desirable in the public interest, or 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,
notwithstanding that the applicable waiting period expired or ended, any state
could take action under the antitrust laws as it deems necessary or desirable in
the public interest. There can be no assurance that a challenge to the merger
will not be made or that, if a challenge is made, we will prevail.
In addition, Cisco and Aironet may need to obtain approval for the merger
in foreign jurisdictions depending upon the extent that Aironet conducts
business in these jurisdictions and the statutory requirements of each of these
jurisdictions.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material federal income tax
considerations relevant to the exchange of shares of Aironet common stock for
Cisco common stock pursuant to the merger that are generally applicable to
holders of Aironet common stock. This discussion is based on currently existing
provisions of the Internal Revenue Code, existing and proposed treasury
regulations thereunder and current administrative rulings and court decisions,
all of which are subject to change. Any change, which may or may not be
retroactive, could alter the tax consequences to Aironet stockholders as
described herein.
Aironet stockholders should be aware that this discussion does not deal
with all federal income tax considerations that may be relevant to particular
Aironet stockholders in light of their particular circumstances, such as
stockholders who are dealers in securities, who are subject to the alternative
minimum tax provisions of the Internal Revenue Code, who are foreign persons,
who do not hold their Aironet common stock as capital assets or who acquired
their shares in connection with stock option or
39
<PAGE> 46
stock purchase plans or in other compensatory transactions. In addition, the
following discussion does not address the tax consequences of the merger under
foreign, state or local tax laws, the tax consequences of transactions
effectuated prior or subsequent to, or concurrently with, the merger (whether or
not any such transactions are undertaken in connection with the merger),
including without limitation any transaction in which shares of Aironet common
stock are acquired or shares of Cisco common stock are disposed of, the tax
consequences of the assumption by Cisco of the outstanding Aironet stock options
or the tax consequences of the receipt of rights to acquire Cisco common stock.
Accordingly, AIRONET STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS
TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABLE
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES.
The merger is intended to constitute a reorganization within the meaning of
the Internal Revenue Code. If the merger does qualify as a reorganization, then,
subject to the limitations and qualifications referred to herein, the merger
will generally result in the following federal income tax consequences to the
Aironet stockholders:
- No gain or loss will be recognized by holders of Aironet common stock
solely upon their receipt of Cisco common stock in exchange for Aironet
common stock in the merger (except to the extent of cash received in lieu
of a fractional share of Cisco common stock).
- The aggregate tax basis of the Cisco common stock received by Aironet
stockholders in the merger (reduced by any tax basis attributable to
fractional shares deemed to be disposed of) will be the same as the
aggregate tax basis of the Aironet common stock surrendered in exchange
therefor.
- The holding period of the Cisco common stock received by each Aironet
stockholder in the merger will include the period for which the Aironet
common stock surrendered in exchange therefor was considered to be held,
provided that the Aironet common stock so surrendered is held as a
capital asset at the time of the merger.
- Cash payments received by holders of Aironet common stock in lieu of a
fractional share will be treated as if the fractional share of Cisco
common stock had been issued in the merger and then redeemed by Cisco. An
Aironet stockholder receiving cash payments will recognize gain or loss,
upon payment, measured by the difference, if any, between the amount of
cash received and the basis in the fractional share.
The parties are not requesting and will not request a ruling from the
Internal Revenue Service as to the tax consequences of the merger. The
consummation of the merger is conditioned on the receipt by Cisco of an opinion
from Brobeck, Phleger & Harrison LLP and the receipt by Aironet of opinions from
Goodman Weiss Miller LLP and Day, Berry & Howard LLP to the effect that the
merger will constitute a reorganization within the meaning of the Internal
Revenue Code.
Aironet stockholders should be aware that the tax opinions do not bind the
Internal Revenue Service and the Internal Revenue Service is therefore not
precluded from successfully asserting a contrary opinion. The tax opinions will
be subject to certain assumptions and qualifications, including the truth and
accuracy of certain representations made by Cisco, Aironet and Osprey
Acquisition Corporation.
A successful Internal Revenue Service challenge to the reorganization
status of the merger would result in Aironet stockholders recognizing taxable
gain or loss with respect to each share of common stock of Aironet surrendered
equal to the difference between the stockholder's basis in the share and the
fair market value, as of the merger, of the Cisco common stock received in
exchange therefor. In this
40
<PAGE> 47
event, a stockholder's aggregate basis in the Cisco common stock so received
would equal its fair market value, and the stockholder's capital gains holding
period for such stock would begin the day after the merger.
ACCOUNTING TREATMENT
The merger will be accounted for as a "purchase" for financial accounting
purposes in accordance with generally accepted accounting principles. The
purchase price will be allocated based on the fair values of the assets acquired
and the liabilities assumed. Any excess of the purchase price over the amounts
so allocated will be allocated to goodwill.
NO DISSENTERS' OR APPRAISAL RIGHTS
You are not entitled to exercise dissenter's or appraisal rights as a
result of the merger or to demand payment for your shares under Delaware law.
RESTRICTIONS ON SALE OF SHARES BY AFFILIATES OF AIRONET AND CISCO
The shares of Cisco common stock to be issued in connection with the merger
will be registered under the Securities Act of 1933 and will be freely
transferable under the Securities Act, except for shares of Cisco common stock
issued to any person who is deemed to be an affiliate of either of us at the
time of the special meeting. Persons who may be deemed to be affiliates include
individuals or entities that control, are controlled by, or are under common
control of either of us and may include some of our officers and directors, as
well as our principal stockholders. Affiliates may not sell their shares of
Cisco common stock acquired in connection with the merger except pursuant to:
- an effective registration statement under the Securities Act covering the
resale of those shares;
- an exemption under paragraph (d) of Rule 145 under the Securities Act; or
- another applicable exemption under the Securities Act.
Cisco's registration statement on Form S-4, of which this proxy
statement/prospectus forms a part, does not cover the resale of shares of Cisco
common stock to be received by affiliates in the merger.
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<PAGE> 48
SELECTED FINANCIAL DATA OF AIRONET
The following table highlights selected financial information of Aironet
but does not necessarily include all of the financial information that is
important to you. You should also read "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Aironet's consolidated
financial statements and the notes to those statements, all of which appear
later in this proxy statement/prospectus. Aironet derives the data for the
annual periods presented from Aironet's consolidated financial statements
audited by PricewaterhouseCoopers LLP. Aironet's historical results are not
necessarily indicative of Aironet's operating results to be expected in the
future.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPT. 30,
----------------------------------------------- -----------------
1995 1996 1997 1998 1999 1998 1999
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Non-affiliates..................... $ 2,637 $ 5,456 $14,484 $20,249 $28,303 $11,211 $19,763
Affiliate product.................. 30,539 38,867 46,844 19,104 9,529 3,904 4,724
Affiliate royalty.................. -- -- -- 5,781 7,421 4,341 2,890
------- ------- ------- ------- ------- ------- -------
Total revenues................... 33,176 44,323 61,328 45,134 45,253 19,456 27,377
------- ------- ------- ------- ------- ------- -------
Cost of revenues:
Non-affiliate...................... 1,960 2,957 8,388 11,714 18,594 7,449 11,097
Affiliates......................... 21,639 30,945 37,073 14,587 7,784 3,286 3,570
------- ------- ------- ------- ------- ------- -------
Total cost of revenues........... 23,599 33,902 45,461 26,301 26,378 10,735 14,667
------- ------- ------- ------- ------- ------- -------
Gross profit:
Non-affiliate...................... 677 2,499 6,096 8,535 9,709 3,762 8,666
Affiliate product.................. 8,900 7,922 9,771 4,517 1,745 618 1,154
Affiliate royalty.................. -- -- -- 5,781 7,421 4,341 2,890
------- ------- ------- ------- ------- ------- -------
Total gross profit............... 9,577 10,421 15,867 18,833 18,875 8,721 12,710
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing................ 990 1,358 3,084 4,470 6,654 2,756 4,791
Research and development........... 4,897 5,982 5,311 5,683 6,582 3,151 3,516
General and administrative......... 1,850 2,444 3,547 3,304 5,486 1,998 1,848
Goodwill amortization.............. 866 866 866 866 866 432 432
------- ------- ------- ------- ------- ------- -------
Total operating expenses......... 8,603 10,650 12,808 14,323 19,588 8,337 10,587
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations........ 974 (229) 3,059 4,510 (713) 384 2,123
Interest expense (income), net....... (26) (42) 130 46 (27) (10) (389)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes.... 1,000 (187) 2,929 4,464 (686) 394 2,512
Provisions for income taxes.......... 2,580 2,196 2,040 1,963 391 540 1,089
------- ------- ------- ------- ------- ------- -------
Net income (loss).................. $(1,580) $(2,383) $ 889 $ 2,501 $(1,077) $ (146) $ 1,423
------- ------- ------- ------- ------- ------- -------
Net income (loss) per common share:
Basic.............................. $ (0.20) $ (0.29) $ 0.11 $ 0.31 $ (0.12) $ (0.02) $ 0.13
======= ======= ======= ======= ======= ======= =======
Diluted............................ $ (0.20) $ (0.29) $ 0.11 $ 0.30 $ (0.12) $ (0.02) $ 0.12
======= ======= ======= ======= ======= ======= =======
Weighted average shares used in
calculating net income (loss) per
share:
Basic.............................. 8,085 8,085 8,085 8,123 9,325 9,277 10,838
Diluted............................ 8,085 8,085 8,085 8,319 9,325 9,277 12,051
</TABLE>
The following table presents Aironet's summary consolidated balance sheet.
<TABLE>
<CAPTION>
AS OF MARCH 31,
--------------------------------------------------- AS OF SEPT. 30,
1995 1996 1997 1998 1999 1999
------- ------- ------- ------- ------- ---------------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents........... $ 620 $ 198 $ 1,609 $ 2,864 $ 6,137 $48,008
Working capital (deficit)........... 802 (2,233) (2,951) 4,321 10,512 54,224
Total assets........................ 30,106 25,824 19,201 23,633 27,198 71,294
Total long-term liabilities......... -- 119 71 -- 2,500 --
Total stockholders' equity.......... 11,004 8,620 5,102 11,598 14,597 60,603
</TABLE>
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<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF AIRONET
The following discussion contains forward-looking statements, including
discussions of trends in Aironet's business, strategy, liquidity and capital
expenditures, the terms and conditions under which components will be acquired,
its ability to obtain credit and service debt, competitive pressures in the
wireless local area networking industry, changing interest rates, Year 2000
readiness and regulatory matters and general economic conditions. Aironet's
actual results may differ materially from those suggested by the forward-looking
statements for various reasons. The following discussion and analysis should be
read in conjunction with the consolidated financial statements and accompanying
notes appearing later in this prospectus.
RESULTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE MONTHS
AND SIX MONTHS ENDED SEPTEMBER 30, 1998
Revenues
Total Revenues. Total revenues increased 50% from $10.0 million in the
three months ended September 30, 1998 to $15.0 million in the three months ended
September 30, 1999, and increased 41% from $19.5 million in the six months ended
September 30, 1998 to $27.4 million in the six months ended September 30, 1999.
These increases resulted primarily from increased sales of high speed (11Mbps)
and IEEE 802.11 products to Aironet's non-affiliate customers.
During the three months ended September 30, 1999, Aironet derived 21% of
its total revenues from sales to customers outside the United States, compared
to 23% of its total revenues in the three months ended September 30, 1998.
International revenues grew 33% from $2.3 million in the three months ended
September 30, 1998 to $3.1 million in the three months ended September 30, 1999.
During the six months ended September 30, 1999, Aironet derived 24% of its total
revenues from sales to customers outside the United States, compared to 22% of
its total revenues in the six months ended September 30, 1998. International
revenues grew 54% from $4.3 million in the six months ended September 30, 1998
to $6.7 million in the six months ended September 30, 1999.
These increases were due primarily to increased sales of high speed and
IEEE 802.11 based products. Aironet's foreign sales are made in U.S. dollars,
and therefore the adoption of the Euro as an European currency should not have a
direct impact on its foreign exchange.
Non-affiliate. Non-affiliate revenues grew 104% from $5.0 million in the
three months ended September 30, 1998 to $10.3 million in the three months ended
September 30, 1999, and 76% from $11.2 million in the six months ended September
30, 1999 to $19.8 million for the six months ended September 30, 1999. Increased
non-affiliate revenues resulted from the continued success of Aironet's new high
speed (11Mbps) 4800 Turbo DS in-building wireless LAN product line and the BR500
building-to-building product line. As a percentage of total revenues,
non-affiliate revenues increased from 51% in the three months ended September
30, 1998 to 69% in the three months ended September 30, 1999 and from 58% to 72%
in the comparable six month periods. This increase was the result of higher
non-affiliate sales and lower revenues from Aironet's affiliate.
Affiliate. Affiliate revenues are derived from Telxon Corporation and
consist of product and royalty revenues. As a percentage of total revenues,
affiliate revenues decreased from 76% in fiscal year 1997 to 55% in fiscal year
1998 and 37% in fiscal year 1999. Affiliate revenues as a percentage of total
revenues were 31% during the three months ended September 30, 1999 compared to
49% for the three months ended September 30, 1998 and 24% for the three months
ended June 30, 1999. For the comparable six-
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<PAGE> 50
month periods, the percentage declined from 42% to 28%. This continued decrease
was due in large part to a significant increase in product sales to
non-affiliate customers and reflects the market acceptance of Aironet's newer,
high speed and standards-compliant products and growth of its customer base.
This decrease was also due in part to a decrease in affiliate royalty revenue,
offset in part by an increase in affiliate product revenue.
Affiliate Product. Product revenues from Telxon increased 31% from $2.5
million in the three months ended September 30, 1998 to $3.2 million in the
three months ended September 30, 1999 and increased 21% from $11.2 million to
$19.8 million for the comparable six month periods. This increase was primarily
due to increased sales to Telxon of IEEE 802.11-based product lines: 4800 Turbo
DS series, 4500 series and 3500 series.
Affiliate Royalty. Royalty revenues from Telxon decreased 41% from $2.5
million in the three months ended September 30, 1998 to $1.4 million in the
three months ended September 30, 1999 and decreased 33% from $4.3 million to
$2.9 million for the comparable six month period. In the fiscal quarter ended
March 31, 1999, the License, Rights and Supply Agreement with Telxon was amended
to provide for a decreasing fixed royalty, instead of a per unit royalty. The
fixed royalty permits Aironet to recognize affiliate royalty income on a
straight-line basis and resulted in lower royalty revenue in the three month and
six-month periods ended September 30, 1999 compared to the three months and six
months ended September 30, 1998.
Gross Profit
Total Gross Profit. Gross profit is derived by subtracting the cost of
revenues from revenues. The cost of revenues consists of expenses to purchase
fabricated components and subassemblies manufactured to meet Aironet's design
specifications, salaries and employee benefits for personnel to inspect,
assemble, configure and test products and to manage operations and related
overheads. Aironet's total gross profit increased 55% from $4.4 million in the
three months ended September 30, 1998 to $6.8 million in the three months ended
September 30, 1999, and increased 46% from $8.7 million for the six month period
ended September 30, 1998 to $12.7 million for the six month period ended
September 30, 1999.
Non-affiliate. Non-affiliate gross profit as a percentage of revenue
increased to 44% in the three months ended September 30, 1999 from 30% in the
three months ended September 30, 1998. For the six months ended September 30,
1999, non-affiliate gross profit percentage was 44% as compared to 34% for the
six months ended September 30, 1998. These increases resulted primarily from the
success of Aironet's new high speed BR500 building-to-building product lines and
the 4800 Turbo DS in-building wireless LAN product line as well as cost
reductions on its other 802.11 compliant products.
Affiliate Product. Affiliate gross profit as a percentage of revenue
increased to 25% in the three months ended September 30, 1999 from 16% in the
three months ended September 30, 1998. For the six months ended September 30,
1999, non-affiliate gross profit percentage was 24% as compared to 16% for the
six months ended September 30, 1998. This was primarily due to changes in
product mix.
Affiliate Royalty. Each dollar of royalty revenues results in an equivalent
gross profit because there is a de minimus cost of revenues associated with
royalties. Royalty gross profit decreased 41% from $2.5 million in the three
months ended September 30, 1998 to $1.4 million in the three months ended
September 30, 1999 and decreased 33% from $4.3 million in the six months ended
September 30, 1998 to $2.9 million for the six months ended September 30, 1999.
In the fiscal quarter ended March 31, 1999, the License, Rights and Supply
Agreement with Telxon was amended to recognize royalty income on a straight-line
basis instead of a per unit basis. This resulted in lower royalty gross profit
in the
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<PAGE> 51
three-month and six-month periods ended September 30, 1999 compared to the
three-month and six-month periods ended September 30, 1998.
Operating Expenses
Sales and Marketing. Aironet's sales and marketing expenses consist
primarily of sales and marketing salaries, sales commissions, bad debt
allowance, product advertising and promotion, travel and facility occupancy
costs. Aironet's sales and marketing expenses increased 91% from $1.3 million in
the three months ended September 30, 1998 to $2.4 million in the three months
ended September 30, 1999, and increased 74% from $2.8 million in the six months
ended September 30, 1998 to $4.8 million in the six months ended September 30,
1999. This increase was primarily due to increases in headcount and associated
expenses along with increased emphasis on its value-added reseller program. As a
percentage of total revenues, sales and marketing expenses increased from 13% in
the three months ended September 30, 1998 to 16% in the three months ended
September 30, 1999 and increased from 14% in the six months ended September 30,
1998 to 18% for the six months ended September 30, 1999. Aironet expects that
sales and marketing expenses will increase in absolute dollars as it expands its
branding program and further develops its sales channels, but will vary from
quarter to quarter due to timing of trade shows, advertising programs and
product launches during the year.
Research and Development. Aironet's research and development expenses
consist primarily of salaries and employee benefits to Aironet's technical
employees who develop its products, as well as costs for prototype development,
operating supplies, depreciation of equipment and amortization of software
utilized in research and development efforts. Research and development expenses
increased 15% from $1.5 million in the three months ended September 30, 1998 to
$1.8 million in the three months ended September 30, 1999 and increased 12% from
$3.2 million in the six months ended September 30, 1998 to $3.5 million for the
six months ended September 30, 1999. This increase resulted primarily from
increases in engineering headcount. As a percentage of total revenues, research
and development expenses decreased from 15% in the three months ended September
30, 1998 to 12% in the three months ended September 30, 1999 and from 16% for
the six months ended September 30, 1998 to 13% for the six months ended
September 30, 1999. Aironet expects that research and development expenses will
increase in absolute dollars as it expands its offering of high speed networking
solutions.
General and Administrative. Aironet's general and administrative expenses
consist primarily of administrative salaries and wages, employee benefits and
incentives, legal, audit and occupancy expenses. Aironet's general and
administrative expenses increased 19% from $0.9 million in the three months
ended September 30, 1998 to $1.1 million in the three months ended September 30,
1999. Approximately half of the increase over the prior year related to
incremental expenses related to being a public company in the current year along
with increases in headcount. Aironet's general and administrative expenses
decreased 8% from $2.0 million for the six month period ended September 30, 1998
to $1.8 million for the six month period ended September 30, 1999. Included in
the six month period ended September 30, 1998 is $0.8 million of non-cash
compensation expense while there is only $0.2 million of non-cash compensation
expense included in the six month period ending September 30, 1999. After
consideration of this impact, general and administrative expenses increased $0.4
million. Approximately half of this increase is due to new hires while the rest
is due to required insurance expense and other expenses related to being a
public company in the current year.
Provision for Income Taxes
Aironet's effective income tax rate of 137% exceeded the statutory rate for
the three months ended September 30, 1998 primarily due to various permanent
items such as goodwill, state taxes, foreign rate
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<PAGE> 52
differential, and non-deductible compensation expense resulting from the
exercise of specific stock options paid for by a note to Aironet in February
1998. Aironet's effective income tax rate for the three months ended September
30, 1999 was 41% which exceeded the statutory rate primarily due to various
permanent items such as goodwill, state taxes, and the foreign rate
differential.
FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
Revenues
Non-affiliate. Non-affiliate revenues grew 40% from $20.2 million in fiscal
year 1998 to $28.3 million in fiscal year 1999. Gains in non-affiliate revenues
resulted from an increase in unit shipments to customers of Aironet's new IEEE
802.11 compliant products and not price increases on those or older, legacy
products. International revenues grew 97% from $6.8 million in fiscal year 1998
to $13.4 million in fiscal year 1999, due primarily to a $5.5 million sale made
to Aironet's Japanese distributor in connection with a large OEM contract. As a
percentage of total revenues, non-affiliate revenues increased from 45% in
fiscal year 1998 to 63% in fiscal year 1999 as a result of lower revenues from
Telxon and higher non-affiliate sales.
Affiliate Product. Product revenues attributable to Telxon decreased 50%
from $19.1 million in fiscal year 1998 to $9.5 million in fiscal year 1999. In
the fiscal quarter ended September 1997, Telxon began to pay Aironet royalties
for the right to manufacture and sell legacy products. As a result, in fiscal
year 1999, 62% of the total unit demand was recognized as royalty revenues and
not as product sales. This resulted in a decrease in Aironet's total product
revenues for that period.
Affiliate Royalty. Telxon royalty payments grew 28% from $5.8 million in
fiscal year 1998 to $7.4 million in fiscal year 1999, due primarily to the
payment of royalties for 12 months in fiscal year 1999 and eight months in
fiscal year 1998.
Total Revenues. Total revenues increased less than 1%, from $45.1 million
in fiscal year 1998 to $45.3 million in fiscal year 1999.
Gross Profit
Non-affiliate. Non-affiliate gross profit of $9.7 million increased 14%
from the $8.5 million reported in fiscal year 1998. In the fiscal quarter ended
March 31, 1998, Aironet began to ship new generation IEEE 802.11 compliant
products to customers. During this start-up period, Aironet incurred increased
costs primarily in supplier start-up fees and rework charges totaling $0.4
million. This added cost, together with lower margin sales to three large volume
customers which reduced gross profit by $1.2 million and other expenses, offset
gains in gross profit resulting from increased unit shipments. As a result,
Aironet's gross margin from non-affiliates decreased from 42% in fiscal year
1998 to 34% in fiscal year 1999.
Affiliate Product. Gross profit from shipments of products to Telxon
decreased 62% from $4.5 million in fiscal year 1998 to $1.7 million in fiscal
year 1999. This decrease resulted from Aironet's agreement with Telxon, under
which Telxon began to pay Aironet royalties for the right to manufacture its
legacy products and ceased purchasing those products from Aironet. This change
and Telxon's purchases of Aironet's new generation IEEE 802.11 compliant
products with associated higher start-up costs, reduced Aironet's gross margin
from Telxon sales from 24% in fiscal year 1998 to 18% in fiscal year 1999.
Affiliate Royalty. Royalty gross profit grew 30% from $5.7 million in
fiscal year 1998 to $7.4 million in fiscal year 1999, due to the increase of
Telxon's licensed production of products
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<PAGE> 53
previously purchased from Aironet. The expenses relating to technology transfer
and training were expensed as incurred.
Total Gross Profit. Aironet's total gross profit did not change
significantly from $18.8 million in fiscal year 1998 to $18.9 million in fiscal
year 1999. Its gross margin was 42% in both fiscal year 1998 and fiscal year
1999.
Operating Expenses
Sales and Marketing. Aironet's sales and marketing expenses increased 49%
from $4.5 million in fiscal year 1998 to $6.7 million in fiscal year 1999. This
increase resulted primarily from a $0.5 million addition to sales and marketing,
management and staff, $0.5 million in higher commissions commensurate with
higher sales to resellers and $0.7 million in expanded promotional programs.
This increase was partially offset by a $0.3 million reduction in expenditures
for outside services and a $0.1 million reduction in operating supplies. As a
percentage of total revenues, sales and marketing expenses increased from 10% in
fiscal year 1998 to 15% in fiscal year 1999.
Research and Development. Aironet's research and development expenses
increased 16% from $5.7 million in fiscal year 1998 to $6.6 million in fiscal
year 1999. This increase resulted primarily from $0.7 million in additions to
engineering personnel and related expenses supporting an expanded new product
development program, as well as a $0.3 million increase in prototype development
and a $0.2 million increase in occupancy costs. This increase was offset by a
$0.3 million decrease in outside services. As a percentage of total revenues,
research and development expenses increased from 13% in fiscal year 1998 to 15%
in fiscal year 1999.
General and Administrative. Aironet's general and administrative expenses
increased 67% from $3.3 million in fiscal year 1998 to $5.5 million in fiscal
year 1999. This increase primarily resulted from $1.1 million in non-cash
compensation expense relating to a loan provided to an officer to exercise stock
options and $1.9 million in non-cash compensation expense relating to a March
1999 amendment to the vesting provisions of Aironet's 1996 Stock Option Plan.
This increase was partially offset by $0.3 million in cost reductions relating
to the consolidation of Aironet's Canadian operations and administrative
functions to its Akron, Ohio facilities and reduction in facility occupancy and
support costs. Aironet relocated the manufacture of selected PC Card adapters
and assembled printed circuit boards from a contract manufacturer in Canada to a
contract manufacturer with facilities located in Asia. Aironet began to order
components from the Asian factory in the first quarter of fiscal year 2000, and
from that time the majority of its orders have been with the Asian factory.
Aironet may not use inventory held by the Canadian contract manufacturer, and
costs associated with that inventory were charged as a period cost, and resulted
in an increase of $65,000 in its obsolescence reserve. Aironet has incurred
nominal start up charges for tooling and travel in connection with ramping up
orders in Asia.
Provision For Income Taxes
Aironet's effective income tax rate exceeded the statutory rate in fiscal
year 1998 primarily because amortization of goodwill incurred in the acquisition
of its Canadian subsidiary Aironet Canada Limited is non-deductible, a portion
of its income paid to Aironet Canada Limited under an inter-company license
agreement is subject to a higher Canadian tax rate and compensation expense
resulting from the exercise of specific stock options paid for by a note to
Aironet in February 1998, is non-deductible. Aironet's tax rate was negatively
impacted in fiscal year 1999 by the tax impact of its non-deductible stock
compensation expense of $1.1 million along with its non-deductible goodwill,
$0.9 million.
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FISCAL YEAR ENDED MARCH 31, 1998 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1997
Revenues
Non-affiliate. Non-affiliate revenues grew 39% from $14.5 million in fiscal
year 1997 to $20.2 million in fiscal year 1998. Gains in non-affiliate revenues
resulted from increases in unit shipments to existing and new customers. As a
percentage of total revenues, non-affiliate revenues increased from 24% in
fiscal year 1997 to 45% in fiscal year 1998 as a result of lower revenues from
Telxon and higher non-affiliate sales.
Affiliate Product. Product revenues attributable to Telxon decreased 59%
from $46.8 million in fiscal year 1997 to $19.1 million in fiscal year 1998.
This resulted from Aironet's licensing agreement with Telxon.
Affiliate Royalty. Telxon royalty revenues totaled $5.8 million in fiscal
year 1998, while none were earned in fiscal year 1997, a period prior to
Aironet's licensing agreement.
Total Revenues. Aironet's total revenues decreased 26%, from $61.3 million
in fiscal year 1997 to $45.1 million in fiscal year 1998.
Gross Profit
Non-affiliate. Non-affiliate gross profit increased 40% from $6.1 million
in fiscal year 1997 to $8.5 million in fiscal year 1998 due to increased unit
shipments to non-affiliate customers. Aironet's non-affiliate gross margin
remained constant at 42% of non-affiliate revenues.
Affiliate Product. Gross profit from shipments of products to Telxon
decreased 54% from $9.8 million in fiscal year 1997 to $4.5 million in fiscal
year 1998, as a result of Aironet's licensing agreement with Telxon. Aironet's
gross margin from Telxon sales increased from 21% in fiscal year 1997 to 24% in
fiscal year 1998 due primarily to changes in product mix.
Affiliate Royalty. Affiliate royalty gross profit totaled $5.8 million, as
compared to no royalty gross profit in fiscal year 1997.
Total Gross Profit. Aironet's total gross profit increased 18% from $15.9
million in fiscal year 1997 to $18.8 million in fiscal year 1998. Its total
gross margin increased from 26% in fiscal year 1997 to 42% in fiscal year 1998.
Operating Expenses
Sales and Marketing. Aironet's sales and marketing expenses increased 45%
from $3.1 million in fiscal year 1997 to $4.5 million in fiscal year 1998. This
increase primarily resulted from an increase in sales and marketing hiring,
salaries and wages and relocation expenses of $0.8 million, an increase in
outside services of $0.5 million, and an increase in advertising of $0.1
million, as Aironet grew its sales organization to support expanding sales to
non-affiliates. This increase was partially offset by a $0.1 million reduction
in expenditures for public relations services, a $0.1 million reduction in
collateral materials and a $0.1 million reduction in bad debt allowance and
commissions.
Research and Development. Aironet's research and development expenses
increased 7% from $5.3 million in fiscal year 1997 to $5.7 million in fiscal
year 1998. This increase primarily related to increases in prototype development
expenses of $0.1 million and added equipment rental of $0.1 million, engineering
salaries and related expenses of $0.2 million and depreciation of equipment and
amortization of software utilized in research and development efforts of $0.2
million. This increase was partially offset by a $0.1 million reduction in
Aironet's spending on parts and supplies utilized in its product development
programs.
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General and Administrative. Aironet's general and administrative expenses
decreased 7% from $3.5 million in fiscal year 1997 to $3.3 million in fiscal
year 1998. This decrease primarily resulted from a $0.3 million decrease in
general and administrative salaries and wages and a $0.2 million decrease in
outside services, as Aironet completed the consolidation of its Canadian
operations and administrative functions at its Akron, Ohio facilities. This
decrease was partially offset by a $0.3 million increase in facility related
occupancy expenses in Akron. In December 1996, Aironet's executive management
adopted the Canadian restructuring plan. The purpose of the restructuring was to
consolidate its operations in the Akron, Ohio area. This consolidation has
improved its control over manufacturing and operations. The plan identified 48
specific employees to be terminated, consisting of seven general and
administrative employees, two engineering employees and 39 manufacturing
employees. All of these employees were terminated with the exception of one
manufacturing employee who was transferred to Aironet's facility in the United
States. Actual termination dates varied from May 1997 to September 1997. Aironet
took a $500,000 restructuring charge in fiscal 1997, of which $415,000 was
severance and $85,000 was rent, which was estimated to cover the period
subsequent to closing. Of the $500,000 restructuring charge, $150,000 was
charged to general and administrative expenses, $50,000 to engineering and
$300,000 to manufacturing. Aironet has actually paid $391,000 from June 1997
through October 1997, and $20,000 is owed to one employee but will not be paid
until instructed otherwise by Revenue Canada which is in a dispute with the
employee. All rent obligations were settled by February 1998 for payments
aggregating $65,000. The restructuring was substantially complete in the first
quarter of fiscal year 1998.
Provision for Income Taxes
Aironet's effective income tax rate was 44% for the fiscal year ended March
31, 1998, compared to 70% for the fiscal year ended March 31, 1997. This
decrease in effective rate was primarily the result of a $1.1 million
intra-company dividend from its Canadian subsidiaries in the fiscal year ended
March 31, 1997, which increased its tax provision by $0.4 million due to
Canadian tax withholdings. Also contributing to the decrease was the relocation
of its Canadian operations to Akron, Ohio in the fiscal year ended March 31,
1998, with a resulting shift in taxable income from Canada to the United States,
with its lower corporate tax rate.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, Aironet's deposits were approximately $47.5
million, which represents approximately $44.0 million from its aggregate net
proceeds from its recent initial public offering and approximately $3.5 million
from cash on hand. Aironet believes that the proceeds of the offering, cash and
cash equivalents balances generated from operations and its existing line of
credit will be sufficient to meet its operating and capital expenditure
requirements for at least the next 12 months. To the extent necessary, Aironet
may also satisfy capital needs through bank borrowings and capital leases if
these sources are available on satisfactory terms. Aironet may also from time to
time consider the acquisition of complementary technologies, although it has no
present commitments or agreements with respect to any specific acquisitions. Any
specific acquisitions could be of a size that would require Aironet to raise
additional funds through the issuance of additional equity or debt securities.
There can be no assurance that these funds, if required, would be available on
terms acceptable to Aironet, if at all.
As of December 31, 1999, Aironet had no outstanding debt.
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YEAR 2000 DISCLOSURE
Prior to January 1, 2000, there was a great deal of concern regarding the
ability of computers to adequately recognize 21st century dates for 20th century
dates due to two-digit date fields used by many systems. Most reports to date,
however, are that computer systems are functioning normally and the compliance
and remediation work accomplished leading up to Year 2000 was effective to
prevent any problems.
Aironet has not experienced any Year 2000 issues through the date of this
proxy statement/ prospectus. Other than the costs of Aironet's assessment and
correction efforts prior to January 1, 2000, Aironet has not incurred any
additional costs related to Year 2000 issues. However, computer experts have
warned that there may still be residual consequences of the change in centuries.
Any problems that may arise in the future from Year 2000 issues could result in
a decease in sales of Aironet's products, an increase in allocation of resources
to address Year 2000 problems of Aironet's customers without additional revenue
commensurate with such dedication of resources or an increase in litigation
costs relating to losses suffered by Aironet's customers due to any Year 2000
problems.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Aironet is exposed to the impact of interest rate changes and, to a lesser
extent, foreign currency fluctuations. Aironet is experiencing increases in its
sales into foreign markets of products manufactured in the United States.
Foreign currency fluctuations could effect the price competitiveness and margins
of foreign sales. Aironet has not entered into interest rate or foreign currency
transactions for speculative purposes or otherwise. Aironet's foreign currency
exposures were immaterial at September 30, 1999.
Aironet's exposure to interest rate changes also results from investment of
funds in excess of current operating requirements. It invests its funds in
short-term, interest-bearing, investment grade securities. Its interest income
is sensitive to changes in the general level of U.S. interest rates. Due to the
nature of Aironet's short-term investments, it has concluded that there is no
material market risk exposure. Therefore, no quantitative tabular disclosures
are required.
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BUSINESS OF AIRONET
OVERVIEW
Aironet designs, develops and markets high speed, standards-based wireless
local area networking solutions. Aironet's products utilize advanced radio
frequency and data communication technologies to connect users to computer
networks ranging in size and complexity from enterprise-wide LANs to home
networks. Each of its product families is designed around its Microcellular
Architecture, a distributed wireless network designed to support the unique
requirements of mobile computing. Its wireless LAN solutions are used as
extensions to existing enterprise networks, enabling personal computer users to
maintain a wireless network connection anywhere throughout a building or around
a campus. In addition, its LAN adapters can be configured as peer-to-peer
wireless networks for providing shared access to files, peripherals and the
Internet in small office/home office environments.
Aironet offers comprehensive wireless LAN solutions to its customers
through a broad product portfolio, including PC Cards, PCI and ISA network
interface cards, access points, and network management and driver software. As a
major contributor to, and proponent of the IEEE 802.11 industry standard for
wireless LANs, Aironet has designed its primary products to interoperate with
other standards-based products. Its IEEE 802.11 based products operate in the
unlicensed 2.4 GHz radio frequency band and use either its Direct Sequence or
Frequency Hopping spread spectrum radio technology. As a result, Aironet is able
to offer its customers the wireless LAN solution best suited to their specific
environment and applications.
In December 1998, Aironet introduced and began shipping its high speed
wireless LAN solution, the 4800 Turbo DS series, featuring a maximum data rate
of 11 Mbps. This product line provides bandwidth sufficient for data-intensive
applications and high speed Internet access, as well as emerging applications
such as streaming video and Voice-over-IP. The 4800 Turbo DS series utilizes 2.4
GHz Direct Sequence spread spectrum radio technology and is designed to comply
with the proposed IEEE 802.11b High Rate Direct Sequence extension to the
industry's IEEE 802.11 wireless LAN standard.
Aironet also develops and markets point-to-point and point-to-multipoint
bridge products for fixed wireless networking between buildings. Transmitting
data at rates up to 11 Mbps over line-of-site distances measured in miles, its
wireless bridge products provide users with a cost effective alternative to
leased wirelines for high speed network and Internet access. Aironet's wireless
bridges utilize Direct Sequence spread spectrum radio technology and operate in
the unlicensed 2.4 GHz radio frequency band.
Aironet sells its wireless LAN and bridge products in domestic and
international markets through an indirect channel of distributors, resellers and
OEMs.
NETWORK CONFIGURATIONS
Aironet's wireless LANs provide the functionality of wired LANs and can be
implemented as stand alone, peer-to-peer networks or as extensions to existing
wired enterprise networks. Its wireless LAN products allow users to install or
re-deploy PCs, handheld devices and peripherals anywhere in-building or on a
campus.
The simplest wireless LAN configuration is a peer-to-peer network in which
PCs, peripherals and communication devices communicate with each other through
wireless client adapters. Aironet's client adapters include PC Cards for
portable computers such as notebooks and hand held computers and ISA or PCI
network interface cards for desktop and server PCs. These flexible peer-to-peer
networks require little administration and accommodate a variety of temporary or
full-time workgroup configurations.
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Aironet's peer-to-peer wireless LANs can support many applications in the small
office/home office environment, such as multiple users sharing files, printers
and Internet access.
A more complex configuration is the wireless extension of an existing wired
enterprise network. In this type of configuration, physical connections to wired
Ethernet or Token Ring networks are provided by access points, which function as
links between the wired and wireless networks. These configurations provide
users wireless access to the network through client adapters which communicate
with access points. Any wireless client adapter within range of an access point
can communicate with any other wireless client adapter or any of the resources
available on the enterprise network.
Each access point provides a wireless coverage area called a microcell. In
an enterprise networking environment, wireless installations may have multiple
access points installed throughout the premises to provide continuous coverage
so that the entire facility is wirelessly enabled. When multiple Aironet access
points are used in the same system, mobile clients may "roam" freely throughout
the wireless RF coverage area with access points transparently managing the
hand-offs between microcells.
IEEE 802.11 WIRELESS LAN STANDARD
Aironet believes that the IEEE 802.11 wireless LAN standard is a
significant driver in the development of the wireless networking market. The
IEEE 802.11 standard was ratified in June 1997 and was the first internationally
recognized standard for wireless LANs. This standard specifies a single media
access control protocol and two types of 2.4 GHz spread spectrum radios, Direct
Sequence and Frequency Hopping, operating at data rates of 1 or 2 Mbps.
Similar to the IEEE 802.3 or Ethernet standard and IEEE 802.5 or Token Ring
standard, the IEEE 802.11 wireless LAN standard provides a framework for
interoperability and quality, enabling customers to mix equipment from different
vendors in a single wireless network. Aironet believes that widespread
acceptance of industry standards leads to broader market penetration through
improved ease of use, reduced market risk and lower product costs.
The IEEE 802.11 wireless LAN organization is now working on higher speed
extensions to the IEEE 802.11 standard. The new High Rate Direct Sequence
standard, IEEE 802.11b specifies data rates of 5.5 and 11 Mbps, in addition to
the originally specified 1 and 2 Mbps, and operation in the unlicensed 2.4 GHz
band using a Direct Sequence spread spectrum radio. In December 1998, Aironet
began shipping its 4800 Turbo DS series, which is designed to comply with the
proposed IEEE 802.11b standard and features an 11 Mbps data rate.
AIRONET TECHNOLOGY
Aironet Microcellular Architecture
Each of Aironet's product families is designed around its Microcellular
Architecture, a distributed wireless network designed to support the unique
requirements of mobile computing, including value added features and services
that operate in conjunction with the IEEE 802.11 standard. This architecture
defines how wireless client adapters and access points interact to deliver
continuous network connections to mobile users and transparently integrates the
wireless LAN into existing enterprise networks.
Aironet's Microcellular Architecture includes several important
capabilities that support a complex enterprise network infrastructure,
including:
- Roaming. Aironet's patented access point hands-off protocol enables
mobile clients to remain seamlessly and reliably connected to the network
as they move freely within a building or around a campus.
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- Power Management. Aironet's wireless PC Card client adapters are designed
specifically for battery-powered portable computers and allow a wireless
client to operate in a low-power mode to conserve battery life, while
maintaining a continuous connection to the network.
- Load Balancing. Aironet's wireless client adapters include an algorithm
to identify the access point with the least load and to distribute
network bandwidth across multiple overlapping access points, thereby
optimizing network performance.
- Wireless Repeater. Aironet's access points can be configured to
communicate wirelessly with other access points, further extending the
radio frequency coverage of the wireless network.
- Scalability. Multiple access points can be deployed to operate
simultaneously in overlapping coverage areas thereby increasing aggregate
network capacity.
- Wireless Bridging. Aironet's building-to-building bridges can be
configured to operate as access points and wireless repeaters. This makes
it possible to connect remote sites into a single wireless network,
enabling a user to roam between buildings in a campus environment.
- Fault Tolerance. Aironet's access points provide a redundant wireless
backbone by automatically identifying malfunctioning network links,
removing faulty links from the system and re-routing traffic to properly
functioning links.
MAC Chip Technology
Aironet's proprietary MAC chip is a custom Reduced Instruction Set
Computer, or a custom RISC protocol processor, that is optimized for high speed
wireless packet communications. This MAC chip controls the IEEE 802.11 protocol,
Aironet's spread spectrum radios and its host bus interfaces. It has separate
hardware contexts to support the real time processing of prioritized tasks
within the protocol. Aironet's MAC chip architecture provides a faster interrupt
response time than a traditional microprocessor controller and is optimized for
the real time requirements of a wireless MAC protocol. The MAC chip architecture
enables changes that would normally require hardware implementation to be
handled in firmware. In addition, this architecture allows the MAC chip to run
at lower clock rates, improving power efficiency. By controlling the solution at
this level, Aironet has the ability to implement value-added features in its
wireless client adapters. In addition, the power and programability of its MAC
chip enables it to integrate a high level of functionality in the client adapter
resulting in higher throughput, greater driver efficiency and improved overall
performance.
Spread Spectrum Radio Technology
Aironet designs both Frequency Hopping and Direct Sequence spread spectrum
products. In March 1998, Aironet received FCC approval for 11 Mbps Direct
Sequence products operating in the unlicensed 2.4 GHz band. In February 1999,
Aironet was the first to receive FCC approval for 11 Mbps products using
complementary code keying modulation, the modulation technique in the IEEE
802.11b High Rate Direct Sequence extension to the IEEE 802.11 standard.
Aironet spread spectrum technology implements and meets or exceeds
interference rejection, receiver sensitivity and noise tolerance specifications
of the IEEE 802.11 standard. That ensures improved range and robust wireless
operation for its products in today's increasingly RF populated environment.
Aironet designs its products for worldwide use and has radio testing and
qualification expertise that has resulted in timely radio approvals in over 60
countries around the world.
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Wireless Networking Software
Access Point Software. Aironet has developed extensive software for its
access points. This software includes network bridging, routing and management
functions based on the TCP/IP protocol stack. Aironet's access points include an
HTTP server that allows a network manager to upgrade firmware and manage access
points using a standard web browser.
Network Device Drivers. Aironet develops its network driver interface
specification, open datalink interface and packet driver software for a majority
of network protocols and operating systems. Operating system support includes
Microsoft Windows 95/98/NT, and Windows CE, DOS, Novell NetWare, Macintosh O/S,
Linux and other Unix variants. Aironet has designed driver extensions that
improve the performance of wireless adapters in a Windows environment, and that
support its site survey, configuration and diagnostic utilities.
PRODUCTS
Aironet offers comprehensive wireless LAN solutions to its customers
through a broad product portfolio including PC Cards, PCI and ISA network
interface cards, access points and network management and driver software.
Access Points
Aironet's access points act as intelligent links between wired and wireless
networks and manage the wireless client traffic in their coverage area. Access
points simultaneously support multiple clients and provide wireless coverage
with a typical indoor range of 125 to 350 feet, depending on the environment and
application. Access points allow wireless clients to appear to be the same as
wired clients to everyone on the network.
Access points use a store and forward technique to enable wireless clients
to maintain a continuous network connection as they roam from one access point
coverage area to another, while they are in a power saving mode and if they
temporarily move outside the coverage area. Aironet's patented access point
hands-off protocol enables mobile clients to remain seamlessly and reliably
connected to the network as they move freely around a building or a campus. Its
access points store network traffic for clients when they are unreachable, such
as when a portable computer is in power saving mode or temporarily outside the
coverage area. In addition, access points can be configured to act as wireless
repeaters, further extending the RF coverage area. Aironet's access points also
make it possible to connect remote wireless bridged sites into a single,
seamless network, allowing clients to roam between buildings in a campus
environment.
Aironet's access points support industry standards and are designed to be
easily integrated into existing networks. In addition to supporting the IEEE
802.11 standard, the access points support standard network protocols such as
TCP/IP, including dynamic host configuration protocol, for automatic IP address
acquisition and SNMP, for managing access points with existing enterprise
network management tools, such as Hewlett Packard OpenView. For more
comprehensive management, the access points include an HTTP server that allows a
network manager to upgrade firmware, configure access points, or monitor the
wireless LAN infrastructure using standard web browsers. To reduce downtime, the
access points can provide fault tolerance through a redundant wireless backbone
which automatically identifies and re-routes traffic in the event of a hardware
failure.
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Wireless LAN Adapters
Aironet offers a comprehensive portfolio of plug-and-play wireless LAN
adapters which are designed to be easily integrated into most PC platforms and
use standard hardware and software interfaces. Aironet's wireless client
adapters include PC Cards (Type II) for portable and notebook computers, ISA and
PCI network interface cards for desktop and server PCs and external client
adapters supporting Ethernet or serial connections. Aironet offers a full suite
of device drivers for industry standard computing environments such as Windows
95/98/NT, Windows CE, Novell Netware, SCO Unix and Linux.
IEEE 802.11 Wireless LAN Product Lines
Aironet offers three comprehensive product series designed to comply with
the IEEE 802.11 standard and operate in the unlicensed 2.4 GHz radio frequency
band.
<TABLE>
<CAPTION>
4800 TURBO DS SERIES 4500 SERIES 3500 SERIES
-------------------- ----------------------- -----------------------
<S> <C> <C> <C>
SPREAD SPECTRUM TYPE: Direct Sequence Direct Sequence Frequency Hopping
DATA RATES: 1, 2, 5.5 and 11 1 and 2 Mbps 1 and 2 Mbps
Mbps
INDOOR RANGES: 125' - 350' 250' - 350' 150' - 250'
ACCESS POINTS: Ethernet Ethernet and Token Ring Ethernet and Token Ring
CLIENT ADAPTER CARDS: PC Card, PCI and ISA PC Card, PCI and ISA PC Card, PCI and ISA
INTRODUCTION DATE: December 1998 June 1998 October 1997
</TABLE>
4800 Turbo DS Series. In December 1998, Aironet first introduced and
shipped high speed 11 Mbps wireless LAN products based on 2.4 GHz Direct
Sequence spread spectrum radio technology. The 4800 Turbo DS series fully
complies with the IEEE 802.11 standard performing at data rates of 1 and 2 Mbps,
and is designed to conform to the proposed IEEE 802.11b High Rate Direct
Sequence extension to the IEEE 802.11 standard performing at data rates of 5.5
and 11 Mbps. The 4800 Turbo DS series includes an Ethernet access point
(AP4800-E) and a family of client adapters: PC Cards (PC4800 & LM4800), PCI card
(PCI4800), ISA card (ISA4800), Universal Client adapter (UC4800) and MultiClient
adapter (MC4800).
4500 Series. In June 1998, Aironet introduced the 4500 series product that
operates at 1 and 2 Mbps and complies with the Direct Sequence specification of
the IEEE 802.11 standard. The 4500 series includes Ethernet and Token Ring
access points (AP4500-E & AP4500-T) and a family of client adapters: PC Cards
(PC4500 & LM4500), PCI card (PCI4500), ISA card (ISA4500), Universal Client
adapter (UC4500) and MultiClient adapter (MC4500).
3500 Series. In October 1997, Aironet introduced the 3500 series that
operates at 1 and 2 Mbps and complies with the Frequency Hopping specification
of the IEEE 802.11 standard. The 3500 series includes Ethernet and Token Ring
access points (AP3500-E & AP3500-T) and a family of client adapters: PC Cards
(PC3500 & LM3500), PCI card (PCI3500), ISA card (ISA3500), Universal Client
adapter (UC3500) and MultiClient adapter (MC3500).
Wireless Bridge Products
Aironet's wireless point-to-point or point-to-multipoint bridges connect
networks between locations, enabling separate networks to operate as a single
network. Bridges provide broadband connectivity at data rates up to 11 Mbps over
line-of-sight distances measured in miles -- up to 15 miles at 11 Mbps and 25
miles at 2 Mbps. Wireless bridges utilize Direct Sequence spread spectrum radio
technology, operate in the unlicensed 2.4 GHz band.
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Aironet's bridges provide a cost effective and flexible alternative to
direct cabled connections or dedicated telephone company lines. With throughput
up to the equivalent of five concurrent T1 lines, wireless bridges achieve high
speed network connectivity at a fraction of the cost of a dedicated T1 line.
Wireless bridges are designed to interconnect networks in different buildings
and are well suited for campus settings. Internet Service Provider customers use
wireless bridges to offer cost effective, high speed Internet access to homes
and businesses.
SALES AND MARKETING
Aironet sells its wireless LAN and bridge products in domestic and
international markets through an indirect channel of distributors, resellers and
OEMs. Aironet's U.S. distributors include Savoir Technology Group, Inc, Ingram
Micro Inc. and Tech Data Corporation.
Aironet actively promotes end user demand for its products through a
variety of marketing programs, including trade advertising, participation in
trade shows, cooperative funding for promotional activities and public
relations. Aironet also provides reseller development and product training
programs to support its channel. It has a field sales organization and an inside
sales function that support the sales efforts of its resellers and assists in
responding to end user inquiries.
Aironet also sells its products to OEM customers for integration into their
wireless computing devices including handheld, pen-based and other portable
computers, as well as point-of-sale and other computing platforms. Aironet's
field sales persons and support engineers sell its wireless LAN products to
OEMS.
Internationally, Aironet sells its products through distributors and
resellers. International sales comprised 15% of its total revenue in fiscal year
1998 and 30% in fiscal year 1999.
CUSTOMERS
In fiscal year 1998, Telxon Corporation accounted for 55% of Aironet's
total revenues and was its only customer that accounted for more than 10% of its
total revenues. In fiscal year 1999, Telxon accounted for 37% of Aironet's total
revenues and two other customers each accounted for more than 10% of Aironet's
total revenues. Jepico, a Japanese distributor, represented 14% and Savoir
Technology Group, Inc., a U.S. distributor, represented 14% of Aironet's total
revenues. Aironet's four largest non-affiliate customers represented
approximately 60% of its non-affiliate revenues, or 38% of total revenues, for
fiscal year 1999. The loss of Telxon as a customer, or any substantial reduction
in orders by Telxon, including reductions resulting in the event of a negative
outcome of issues related to one or more of Telxon's pending stockholder
litigation and pending SEC investigation, would materially and adversely affect
Aironet's operating results.
RESEARCH AND DEVELOPMENT
Aironet has invested in new product development, major enhancements to its
existing products and cost reduction of products and manufacturing through
product engineering. A significant portion of its research and development
efforts have been focused on the development of IEEE 802.11 compliant wireless
LAN products, and development of its 4800 Turbo DS series of products which
conform with the IEEE 802.11b standard for high speed wireless networks.
Aironet directs research and development efforts to develop and/or enhance:
- high performance 2.4 GHz Direct Sequence and Frequency Hopping spread
spectrum radios;
- proprietary ASICs, including our MAC processor and RF modem chips;
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- wireless packet communication protocols; and
- network management and device driver software.
Research and development expenses were $5.3 million in fiscal year 1997,
$5.7 million in fiscal year 1998, and $6.6 million in fiscal year 1999.
MANUFACTURING AND SUPPLIERS
Aironet outsources manufacturing of its PC Card adapters and assembled
printed circuit boards to contract manufacturers. In order to reduce product
costs, the manufacture of selected PC Card adapters and assembled printed
circuit boards was moved to a contract manufacturer with facilities located in
Asia. Final assembly, configuration, test, quality assurance, packaging and
shipping are performed at its assembly facility in Akron, Ohio.
Aironet's products incorporate critical components which it acquires from
single sources. Its proprietary MAC chip is manufactured exclusively for it by
Atmel Corporation. The MAC chip controls the implementation of the IEEE 802.11
protocol between the RF media and both the user's computer and the network.
M/A-COM and Raytheon Company supply Aironet with microwave communications power
amplifiers. Hewlett-Packard Company supplies Aironet with up/down converter and
IF modulator/ demodulator chips. Intersil Corporation supplies Aironet with
baseband and IQ modulator/demodulator chips. Sawtek, Inc. supplies Aironet with
surface acoustic wave components. Although Aironet has been informed by some of
these suppliers that they have redundant manufacturing facilities, there is no
assurance that they will be able to manufacture or provide these components in a
timely way. Should any supply disruption occur, Aironet may not be able to
develop an alternative source for these components.
Aironet has experienced limited delays and shortages in the supply of other
less critical components in the past and could experience delays and shortages
in the future. Aironet generally does not maintain an inventory of components
and does not have long-term supply contracts with its suppliers. If suppliers
are unable to deliver or ration components to Aironet, it could experience
interruptions and delays in manufacturing and sales which could result in
cancellation of orders for products or the need to modify products. This may
cause substantial delays in its product shipments, increased manufacturing costs
and increased product prices. Further, Aironet may not be able to develop
alternative sources for these components in a timely way, if at all, and may not
be able to modify its products to accommodate alternative components. These
factors could damage its relationships with current and prospective customers
lasting longer than any underlying shortage or discontinuance. Any of these
risks, if realized, could materially and adversely affect Aironet's business,
operating results and financial condition.
COMPETITION
Within the wireless networking industry, business is intensely competitive
and is characterized by rapid technological change, frequent new product
development and evolving industry standards. Aironet believes that the principal
competitive factors in this market include:
- expertise and familiarity with 2.4 GHz spread spectrum technology,
wireless data communication protocols and LAN technology;
- product performance, features, functionality and reliability;
- price/performance characteristics;
- timeliness of new product introductions;
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- adoption of emerging industry standards;
- customer service and support;
- size and scope of distribution network; and
- brand name.
While Aironet believes that its products are competitive with respect to
these factors, there can be no assurance that it will be able to successfully
compete as to these or other factors or that competitive pressures it faces will
not materially and adversely affect its business and operating results. Aironet
also cannot assure you that these factors will not change and, if so, whether it
will be able to successfully compete.
Currently, within the wireless networking industry Aironet's primary
competitors are Lucent Technologies, Proxim, and BreezeCom. It also experiences
competition from a number of smaller companies who provide wireless data
communication products and may encounter future competition from other
companies, both that have and have not announced their intentions to offer
competitive products and solutions. In addition, Aironet could encounter future
competition from companies that offer products that replace network adapters or
alternative wireless data communication solutions, or from larger computer and
networking equipment companies. It also faces competition from its OEM customers
who have, or could acquire, their own wireless data communications research and
development capabilities.
Many of Aironet's current and potential competitors have significantly
greater financial, marketing, technical and other resources than it does and, as
a result, may be able to respond more quickly to new or emerging technologies or
standards and to changes in customer requirements, or to devote greater
resources to the development, promotion and sale of products, or to deliver
competitive products at a lower end user price. Current and potential
competitors have established or may establish cooperative relationships among
themselves or with third parties to increase the ability of their products to
address the needs of its existing and prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition is likely to
result in price reductions, reduced operating margins and loss of market share,
any of which could have a material adverse effect on Aironet's business and
operating results.
GOVERNMENT REGULATION
United States. In the United States, Aironet's products are subject to FCC
regulations. Aironet's products have been certified for unlicensed operation in
the 2.4 - 2.4835 GHz and 920 - 928 MHz Industrial, Scientific and Medical radio
frequency bands. Its products comply with Part 15 of the current FCC
regulations. For products which meet specific technical requirements, Part 15
permits license-free operation of radio devices in the 902 - 928 MHz and
2.4 - 2.4835 GHz radio frequency bands. The Part 15 regulations are designed to
minimize the probability of interference among users of those frequency bands.
These frequencies are also used by other devices which have priority over users
of Aironet's products including:
- devices which produce heat rather than for communication and which comply
with FCC Part 18 regulations;
- United States government operated devices, such as naval radar;
- automatic vehicle monitoring devices operated under FCC Part 90
regulations; and
- amateur radio devices operated under FCC Part 97.
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In the event of interference between a primary user in those bands and a
user of Aironet's products, the primary user can require a user of Aironet's
products to curtail transmissions that create interference. Although Aironet has
received no reports that its products have caused interference with primary
users in the Industrial, Scientific and Medical bands, it cannot assure you that
it will not have problems in the future and, if it does, these could cause
material adverse effects on its business and results of operations.
Foreign Regulation. In foreign countries Aironet's products are also
regulated by government agencies under their local rules and regulations.
Aironet has obtained certifications or approval for unlicensed use of its
products in over 60 foreign countries, including those which rely on or
reference certification requirements of regulatory bodies such as the FCC and
the European Telecommunications Standards Institute. Aironet's products
(including when they are designed into an OEM product) must be certified or
otherwise qualified for use in each country where they will be sold. Aironet
cannot assure you that it will be able to comply with the regulations of any
particular country.
INTELLECTUAL PROPERTY
Aironet relies on a combination of patents, copyrights, trademarks, trade
secrets and non-disclosure agreements to protect its proprietary rights. It
generally executes confidentiality and non-disclosure agreements with its
employees and with key vendors and suppliers. These efforts allow it to rely
upon the knowledge and experience of management and technical personnel and its
ability to market its existing products and to develop new products. The
departure of any of its management and technical personnel, the breach of their
confidentiality and non-disclosure obligations or the failure to achieve
intellectual property objectives may have a material adverse effect on Aironet's
business, financial condition and results of operations.
Currently, Aironet has 11 United States patents issued and 14 United States
and 10 foreign patent applications pending. Its wholly owned Canadian subsidiary
has five United States patents issued, including the patent which relates to the
roaming feature of its microcellular technology, and 12 foreign issued patents
and one foreign patent application pending. There can be no assurance that any
new patents will be issued, that Aironet will continue to develop proprietary
products or technologies that are patentable, that any issued patent will
provide it with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have a material adverse effect
on Aironet's business and operating results.
Aironet's ability to compete successfully and achieve future revenue growth
will depend, in part, on its ability to protect its proprietary technology and
operate without infringing upon the rights of others. There can be no assurance
that these measures will successfully protect its intellectual property or that
its intellectual or proprietary technology will not otherwise become known or be
independently developed by competitors. In addition, the laws of various
countries in which Aironet's products are or may be sold may not protect its
products and intellectual property rights to the same extent as the laws of the
United States. Aironet's inability to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
financial condition and results of operations. As the number of patents,
copyrights and other intellectual property rights in the wireless network
industry increases, and as the coverage of these rights and the functionality of
the products in the market further overlap, wireless network companies may
increasingly become subject to infringement claims. In the future, Aironet may
be notified that it is infringing patent or other intellectual property rights
of others. Although there are no pending or threatened intellectual property
lawsuits against Aironet, it may become the subject of litigation or
infringement claims in the future. Any of these potential claims could result in
substantial costs and diversion of resources and could have a material adverse
effect on Aironet's business, results of operations and financial condition.
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EMPLOYEES
As of September 30, 1999, Aironet had 127 full-time employees and 13
temporary employees, including 51 in research and development, 34 in sales,
marketing and customer support, 28 in manufacturing and service and 14 in
finance and administration. None of its employees are represented by a union.
Aironet believes that its relations with employees are good.
PROPERTIES
Aironet leases space in two separate buildings in Akron, Ohio. Its
principal administrative, sales, marketing and engineering facilities occupy
approximately 34,000 square feet under a sublease from Telxon that expires
February 28, 2001. Aironet may terminate the sublease simultaneously with a
termination by Telxon of the lease for Aironet's assembly and service
facilities. The assembly and service facilities occupy approximately 33,000
square feet under a lease from Telxon that expires February 28, 2001. Telxon has
the right to terminate the lease on 12 months written notice. Aironet believes
that our current facilities will be adequate to meet its needs for the
foreseeable future.
LEGAL PROCEEDINGS
Aironet is not aware of any material legal proceedings to which it is a
party and which would have a material adverse effect on its business, financial
condition or results of operations.
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PRINCIPAL STOCKHOLDERS OF AIRONET
The following table sets forth selected ownership information with respect
to the beneficial ownership of Aironet's common stock as of December 31, 1999
for:
- each of the executive officers of Aironet;
- each director of Aironet;
- all directors and executive officers of Aironet as a group; and
- each person who is known by Aironet to own beneficially more than 5% of
the common stock.
Unless otherwise indicated, each person or entity named in the table has
sole voting power and investment power or shares this power with his or her
spouse with respect to all shares of capital stock listed as owned by that
person or entity. Ownership of less than 1% is designated in the table by an
asterisk.
The number of shares beneficially owned by each stockholder is determined
under rules issued by the Securities and Exchange Commission. The information is
not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares as to which the individual
or entity has sole or shared voting power or investment power and any shares as
to which the individual or entity has the right to acquire beneficial ownership
within 60 days after December 31, 1999 through the exercise of any stock option
or other right.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER NUMBER PERCENTAGE
------------------------ --------- ----------
<S> <C> <C>
Executive Officers and Directors:
Roger J. Murphy, Jr...................................... 314,000 2.2%
Richard G. Holmes........................................ 33,334 *
Donald I. Sloan.......................................... 108,334 *
Ronald B. Willis......................................... 33,334 *
Harvey A. Ikeman......................................... 83,334 *
James H. Furneaux........................................ 155,000 1.1
Samuel F. McKay.......................................... 1,114,284 7.3
John W. Paxton, Sr....................................... 4,994,262 26.0
All executive officers and directors as a group (8
persons)............................................... 6,835,882 32.5
Other 5% Stockholders:
Retail Technologies Group, Inc........................... 4,994,262 26.0
Telxon Corporation....................................... 4,994,262 26.0
Telantis Venture Partners V, Inc......................... 840,826 5.6
Robert F. Meyerson....................................... 904,826 6.0
Axiom Venture Partners II Limited Partnership............ 1,114,284 7.3
Furneaux & Company, LLC.................................. 155,000 1.1
</TABLE>
Executive Officers and Directors. Additional information regarding the
beneficial ownership of shares held by our executive officers and directors is
contained below. The address for each executive officer and director, other than
Messrs. Furneaux, McKay and Paxton, is 3875 Embassy Parkway, Akron, Ohio 44333.
- Roger J. Murphy, Jr. These shares include 200,000 shares of common stock
and options to purchase 100,000 shares of common stock which may be
exercised within the next 60 days. Also includes 5,000 shares of common
stock owned by Mr. Murphy's spouse and 9,000 shares of
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common stock owned by Mr. Murphy's minor children, as to all of which Mr.
Murphy disclaims beneficial ownership.
- Richard G. Holmes These shares include options to purchase 33,334 shares
of common stock which may be exercised within the next 60 days.
- Donald L. Sloan. These shares include options to purchase 108,334 shares
of common stock which may be exercised within the next 60 days.
- Ronald B. Willis. These shares include options to purchase 33,334 shares
of common stock which may be exercised within the next 60 days.
- Harvey A. Ikeman. These shares include options to purchase 83,334 shares
of common stock which may be exercised within the next 60 days.
- James H. Furneaux. These shares include warrants to purchase 100,000
shares of common stock and options to purchase 55,000 shares of common
stock, all of which may be exercised within the next 60 days and are
owned by Furneaux & Company, LLC. Mr. Furneaux is the managing member of
Furneaux & Company and has sole voting and dispositive power over
Furneaux & Company's shares of Aironet. Mr. Furneaux's address is 100
Main Street, Concord, Massachusetts 01742.
- Samuel F. McKay. These shares include 857,142 shares of common stock and
warrants to purchase 257,142 shares of common stock which may be
exercised within the next 60 days and are owned by Axiom Venture Partners
II Limited Partnership. Mr. McKay is a general partner of Axiom and has
sole voting and dispositive power over Axiom's shares of Aironet. Mr.
McKay's address is Cityplace II, 17th Floor, 185 Asylum Street, Hartford,
Connecticut 06103.
- John W. Paxton, Sr.. These shares include 4,994,262 shares owned by
Retail Technologies Group, Inc., a wholly-owned subsidiary of Telxon
Corporation. Mr. Paxton is the Chairman of the board of directors and
chief executive officer of Telxon and has shared voting and dispositive
power over Retail Technologies Group's shares of Aironet. Mr. Paxton's
address is 3330 West Market Street, Akron, Ohio 44333.
Other 5% Stockholders. Information regarding the beneficial owners of 5% or
more of our stock is set forth below.
- Retail Technologies Group, Inc. The address for Retail Technologies
Group, Inc., a wholly-owned subsidiary of Telxon Corporation, is 3330
West Market Street, Akron, Ohio 44333.
- Telxon Corporation. Telxon Corporation owns 100% of the outstanding
shares of Retail Technologies, Inc. The address for Telxon Corporation is
3330 West Market Street, Akron, Ohio 44333.
- Telantis Venture Partners V, Inc. These shares include 804,635 shares of
common stock and warrants to purchase 36,191 shares of common stock which
may be exercised within the next 60 days. 252,328 of the 804,635 shares
and the warrants have been pledged to Telxon as collateral for a loan,
the proceeds of which were used to purchase the shares and warrants. The
address for Telantis Venture Partners is 791 Wye Road, Akron, Ohio 44333.
- Robert F. Meyerson. These shares include 804,635 shares of common stock
and warrants to purchase 36,191 shares of common stock which may be
exercised within the next 60 days, all of which are owned by Telantis
Venture Partners V, Inc. Mr. Meyerson is the 100% owner of Telantis. Also
includes 21,000 shares of common stock owned by Mr. Meyerson's minor
grandchildren and 3,000 shares of common stock owned by Mr. Meyerson's
adult grandchild, as to all of which Mr. Meyerson disclaims beneficial
ownership. Also includes 40,000 shares owned
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by The Hood/Meyerson Foundation. Mr. Meyerson's address is 791 Wye Road,
Akron, Ohio 44333.
- Axiom Venture Partners II Limited Partnership. These shares include
857,142 shares of common stock and warrants to purchase 257,142 shares of
common stock which may be exercised within the next 60 days. The address
for Axiom is Cityplace II, 17th Floor, 185 Asylum Street, Hartford,
Connecticut 06103.
- Furneaux & Company, LLC. These shares include warrants to purchase
100,000 shares of common stock and options to purchase 55,000 shares of
common stock, all of which may be exercised within the next 60 days. The
address for Furneaux & Company is 100 Main Street, Concord,
Massachusetts, 01742.
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COMPARISON OF RIGHTS OF STOCKHOLDERS
OF AIRONET AND CISCO
The following discussion of certain similarities and material differences
between the rights of Cisco shareholders and the rights of Aironet stockholders
under the respective articles/certificate of incorporation and bylaws is only a
summary of certain provisions and does not purport to be a complete description
of the similarities and differences, and is qualified in its entirety by
reference to the California law and the Delaware law, the common law thereunder
and the full text of the articles/certificate of incorporation and bylaws of
each of Cisco and Aironet.
This section of the proxy statement/prospectus describes certain
differences between the rights of holders of Aironet common stock and Cisco
common 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 Aironet and being a shareholder of Cisco. When
reading this description, please note that Delaware law refers to holders of
common stock as stockholders while California law uses the term shareholder. The
two terms mean the same thing in practice and for all practical purposes may be
used interchangeably; however, we generally have used the term "stockholder"
when referring to holders of Aironet common stock or to Delaware law and
"shareholder" when referring to holders of Cisco common stock or to California
law.
As a stockholder of Aironet, your rights are governed by Aironet's amended
and restated certificate of incorporation, as currently in effect, and Aironet's
second amended and restated bylaws. After completion of the merger, you will
become a shareholder of Cisco. As a Cisco shareholder, your rights will be
governed by Cisco's articles of incorporation and Cisco's bylaws. In addition,
Cisco is incorporated in California while Aironet is incorporated in Delaware.
Although the rights and privileges of stockholders of a Delaware corporation are
in many instances comparable to those of shareholders of a California
corporation, there are also differences.
DIRECTOR NOMINATIONS AND STOCKHOLDER PROPOSALS
The Aironet bylaws provide that Aironet stockholders may nominate directors
for elections at an annual or special meeting or bring proposals at an annual or
special meeting if they provide Aironet with written notice that complies with
the time and content requirements of the Aironet bylaws and other regulatory
requirements. For notice of stockholder nominations to be timely, the notice
must be received by Aironet's Secretary not later than the close of business on
the 90th calendar day, nor earlier than the close of business on the 120th
calendar day, prior to the first anniversary of the date of the preceding year's
proxy statement in connection with the last annual meeting.
The Cisco bylaws provide that shareholders may propose business to be
brought before a meeting of shareholders or nominate directors only if they
provide notice to Cisco no later than 60 days prior to such meeting.
AMENDMENT TO GOVERNING DOCUMENTS
Delaware law requires a vote of the corporation's board of directors
followed by the affirmative vote of a majority of the outstanding stock of each
class entitled to vote for any amendment to the certificate of incorporation,
unless a greater level of approval is required by the certificate of
incorporation. Further, Delaware law states that if an amendment would increase
or decrease the aggregate number of authorized shares of such class, increase or
decrease the par value of shares of such class or alter or change the powers,
preferences or special rights of a particular class or series of stock so as to
affect them adversely, the class or series shall be given the power to vote as a
class
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notwithstanding the absence of any specifically enumerated power in the
certificate of incorporation. Delaware law also states that the power to adopt,
amend or repeal the bylaws of a corporation shall be vested in the stockholders
entitled to vote, provided that the corporation in its certificate of
incorporation may confer such power on the board of directors in addition to the
stockholders. Aironet's certificate of incorporation provides that the
affirmative vote of the holders of at least 80% of the outstanding shares,
voting together as a single class, is required to amend provisions of Aironet's
certificate of incorporation relating to:
- stockholder action without a meeting;
- the calling of special meetings;
- the number, election and term of directors;
- the filling of vacancies; and
- the removal of directors.
Aironet's certificate of incorporation further provides that only the board
or the affirmative vote of the holders of at least 80% of the outstanding
shares, voting together as a single class, may amend provisions of the Aironet
bylaws relating to:
- stockholder action without a meeting;
- the calling of special meetings;
- the number, election and term of directors;
- the filling of vacancies; and
- the removal of directors.
Unless otherwise specified in a California corporation's articles of
incorporation, an amendment to the articles of incorporation requires the
approval of the corporation's board of directors and the affirmative vote of a
majority of the outstanding shares entitled to vote thereon, either before or
after the board approval, although certain minor amendments may be adopted by
the board alone such as amendments causing stock splits (including an increase
in the authorized number of shares in proportion thereto) and amendments
changing names and addresses given in the articles. The Cisco articles of
incorporation do not require a greater level of approval for an amendment
thereto. Under California law, the holders of the outstanding shares of a class
of stock are entitled to vote as a class if a proposed amendment to the articles
of incorporation would:
- increase or decrease the aggregate number of authorized shares of such
class;
- effect an exchange, reclassification or cancellation of all or part of
the shares of such class, other than a stock split;
- effect an exchange, or create a right of exchange, of all or part of the
shares of another class into the shares of such class;
- change the rights, preferences, privileges or restrictions of the shares
of such class;
- create a new class of shares having rights, preferences or privileges
prior to the shares of such class, or increase the rights, preferences or
privileges or the number of authorized shares having rights, preference
or privileges prior to the shares of such class;
- in the case of preferred shares, divide the shares of any class into
series having different rights, preferences, privileges or restrictions
or authorize the board of directors to do so; or
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- cancel or otherwise affect dividends on the shares of such class which
have accrued but have not been paid.
Under California law, a corporation's bylaws may be adopted, amended or
repealed either by the board of directors or the shareholders of the
corporation. The Cisco bylaws provide that the Cisco bylaws may be adopted,
amended or repealed either by the vote of the holders of a majority of the
outstanding shares entitled to vote or by the board of directors; provided,
however, that the Cisco board of directors may not amend the Cisco bylaws in
order to change the authorized number of directors (except to alter the
authorized number of directors within the existing range of a minimum of eight
and a maximum of 15 directors).
APPRAISAL RIGHTS
Under Delaware law, holders of shares of any class or series, who neither
vote in favor of the merger or consolidation nor consent thereto in writing,
have the right, in certain circumstances, to dissent from a merger or
consolidation by demanding payment in cash for their shares equal to the fair
value (excluding any appreciation or depreciation as a consequence or in
expectation of the transaction) of such shares, as determined by agreement with
the corporation or by an independent appraiser appointed by a court in an action
timely brought by the corporation or the dissenters. Delaware law grants
dissenters' appraisal rights only in the case of mergers or consolidations and
not in the case of a sale or transfer of assets or a purchase of assets for
stock regardless of the number of shares being issued. Further, no appraisal
rights are available for shares of any class or series listed on a national
securities exchange or designated as a national market system security on the
Nasdaq National Market or held of record by more than 2,000 stockholders, unless
the agreement of merger or consolidation converts such shares into anything
other than (a) stock of the surviving corporation; (b) stock of another
corporation which is either listed on a national securities exchange or
designated as a national market system security on the Nasdaq National Market or
held of record by more than 2,000 stockholders; (c) cash in lieu of fractional
shares; or (d) some combination of the above. In addition, dissenters' rights
are not available for any shares of the surviving corporation if the merger did
not require the vote of the stockholders of the surviving corporation. See "The
Merger and Related Transactions -- No Dissenters' or Appraisal Rights."
Under California law, if the approval of the outstanding shares of the
corporation is required for a merger or reorganization, each shareholder
entitled to vote on the transaction, and who did not vote in favor of the
reorganization, may require the corporation to purchase for cash at their fair
market value the shares owned by such shareholder. No appraisal rights are
available for shares listed on any national securities exchange certified by the
Commissioner of Corporations or listed on the list of OTC margin stocks issued
by the Board of Governors of the Federal Reserve Systems, unless (a) there
exists with respect to such shares any restriction on transfer imposed by the
corporation or by any law or regulation or (b) if demands for payment are filed
with respect to 5% or more of the outstanding shares of that class.
DERIVATIVE ACTION
Derivative actions may be brought in Delaware by a stockholder on behalf
of, and for the benefit of, the corporation. Delaware law provides that a
stockholder must aver in the complaint that he or she was a stockholder of the
corporation at the time of the transaction of which he or she complains. A
stockholder may not sue derivatively unless he first makes demand on the
corporation that it bring suit and such demand has been refused, unless it is
shown that such demand would have been futile.
California law provides that a shareholder bringing a derivative action on
behalf of the corporation need not have been a shareholder at the time of the
transaction in question, provided that certain tests are met concerning the
fairness of allowing the action to go forward. The shareholder must make his or
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her demands on the board before filing suit. The California law also provides
that the corporation or the defendant in a derivative suit may make a motion to
the court for an order requiring the plaintiff shareholder to furnish a security
bond.
STOCKHOLDER CONSENT IN LIEU OF MEETING
Under Delaware law and California law, unless otherwise provided in the
certificate or articles of incorporation, any action required to be taken or
which may be taken at an annual or special meeting of stockholders may be taken
without a meeting if a consent in writing is signed by the holders of
outstanding stock having at least the minimum number of votes required to
authorize such action. If consent is sought for less than all shareholders
entitled to vote, notice as required under the California law shall be given.
The Aironet certificate of incorporation prohibits stockholder action without a
duly called annual or special meeting of the stockholders. The Cisco articles of
incorporation provide that directors may not be elected by written consent
except by unanimous written consent of all shares entitled to vote for the
election of directors.
FIDUCIARY DUTIES OF DIRECTORS
Directors of corporations incorporated or organized under Delaware law and
California law have fiduciary obligations to the corporation and its
stockholders. Pursuant to these fiduciary obligations, the directors must act in
accordance with the so-called duties of "due care" and "loyalty." Under Delaware
law, the duty of care requires that the directors act in an informed and
deliberative manner and to inform themselves, prior to making a business
decision, of all material information reasonably available to them. The duty of
loyalty may be summarized as the duty to act in good faith, not out of
self-interest and in a manner that the directors reasonably believe to be in the
best interests of the corporation. Under California law, the duty of loyalty
requires directors to perform their duties in good faith in a manner that the
directors reasonably believe to be in the best interests of the corporation and
its shareholders. The duty of care requires that the directors act with such
care, including reasonable inquiry, as an ordinarily prudent person in a like
position would exercise under similar circumstances.
INDEMNIFICATION
Delaware law generally permits a corporation to indemnify its directors and
officers against expenses, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with a third-party action, other
than a derivative action, and against expenses actually and reasonably incurred
in the defense or settlement of a derivative action, provided that there is a
determination that the individual acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of the corporation. Such
determination shall be made, in the case of an individual who is a director or
officer at the time of such determination:
- by a majority of the disinterested directors, even though less than a
quorum;
- by a committee of such directors designated by a majority vote of such
directors, even though less than a quorum;
- by independent legal counsel, regardless of whether a quorum of
disinterested directors exists; or
- by a majority vote of the stockholders, at a meeting at which a quorum is
present.
Without court approval, however, no indemnification may be made in respect
of any derivative action in which such individual is adjudged liable to the
corporation.
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Delaware law requires indemnification of directors and officers for
expenses relating to a successful defense on the merits or otherwise of a
derivative or third-party action.
Delaware law permits a corporation to advance expenses relating to the
defense of any proceeding to directors and officers contingent upon such
individuals' commitment to repay any advances unless it is determined ultimately
that such individuals are entitled to be indemnified.
Under Delaware law, the rights to indemnification and advancement of
expenses provided in the law are non-exclusive, in that, subject to public
policy issues, indemnification and advancement of expenses beyond that provided
by statute may be provided by by-law, agreement, vote of stockholders,
disinterested directors or otherwise.
The Aironet certificate of incorporation and bylaws provide that the
corporation may eliminate the personal liability of the Aironet directors for
monetary damages resulting from breaches of their fiduciary duty to the extent
permitted by the Delaware General Corporation Law and indemnify the Aironet
directors and officers to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law, including circumstances in which
indemnification is otherwise discretionary.
Under California law, (a) a corporation has the power to indemnify present
and former directors, officers, employees and agents against expenses,
judgments, fines, settlements and other amounts (other than in connection with
actions by or in the right of the corporation) if that person acted in good
faith and in a manner the person reasonably believed to be in the best interests
of the corporation and, in the case of a criminal proceeding, had no reasonable
cause to believe the conduct of the person was unlawful, and (b) a corporation
has the power to indemnify, with certain exceptions, any person who is a party
to any action by or in the right of the corporation, against expenses actually
and reasonably incurred by that person in connection with the defense or
settlement of the action if the person acted in good faith and in a manner the
person believed to be in the best interests of the corporation and its
shareholders.
The indemnification authorized by California law is not exclusive, and a
corporation may grant its directors, officers, employees or other agents certain
additional rights to indemnification. The Cisco articles of incorporation and
the Cisco bylaws provide for the indemnification of its agents (as defined under
the California law) to the fullest extent permissible under California law,
which may be in excess of the indemnification expressly permitted by Section 317
of the California Corporations Code, subject to the limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.
Delaware law and California law allow for the advance payment of an
indemnitee's expenses prior to the final disposition of an action, provided that
the indemnitee undertakes to repay any such amount advanced if it is later
determined that the indemnitee is not entitled to indemnification with regard to
the action for which the expenses were advanced.
DIRECTOR LIABILITY
Delaware law and California law each provide that the charter documents of
the corporation may include provisions which limit or eliminate the liability of
directors to the corporation or its stockholders, provided such liability does
not arise from certain proscribed conduct, including, in the case of Delaware
law, for any breach of the director's duty of loyalty to the corporation or its
stockholders acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, the payment of unlawful dividends or
expenditure of funds for unlawful stock purchases or redemptions or transactions
from which such director derived an improper personal benefit, or, in the case
of California law, intentional misconduct or knowing and culpable violation of
law, acts
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<PAGE> 75
or omissions that a director believes to be contrary to the best interests of
the corporation or its shareholders or that involve the absence of good faith on
the part of the director, the receipt of an improper personal benefit, acts or
omissions that show reckless disregard for the director's duty to the
corporation or its shareholders, where the director in the ordinary course of
performing a director's duties should be aware of a risk of serious injury to
the corporation or its shareholders, acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation and its shareholders, interested transactions between
the corporation and a director in which a director has a material financial
interest and liability for improper distributions, loans or guarantees. The
Aironet certificate of incorporation contains a provision limiting the liability
of its directors except as required by Delaware law. The Cisco articles of
incorporation contain a provision limiting the liability of its directors to the
fullest extent provided by California law.
ANTI-TAKEOVER PROVISIONS AND INTERESTED STOCKHOLDER TRANSACTIONS
The Aironet bylaws provide that a special meeting of the stockholders may
be called by the chairman of the board, the board of directors or the president.
The Cisco bylaws provide that in addition to the board of directors, the
chairman of the board and the president, one or more shareholders holding not
less than 10% of the voting power of the corporation may call a special meeting
of the shareholders.
Delaware law prohibits, in certain circumstances, a "business combination"
between the corporation and an "interested stockholder" within three years of
the stockholder becoming an "interested stockholder." An "interested
stockholder" is a holder who, directly or indirectly, controls 15% or more of
the outstanding voting stock or is an affiliate of the corporation and was the
owner of 15% or more of the outstanding voting stock at any time within the
prior three year period. A "business combination" includes a merger or
consolidation, a sale or other disposition of assets having an aggregate market
value equal to 10% or more of the consolidated assets of the corporation or the
aggregate market value of the outstanding stock of the corporation and certain
transactions that would increase the interested stockholder's proportionate
share ownership in the corporation. This provision does not apply where:
- either the business combination or the transaction which resulted in the
stockholder becoming an interested stockholder is approved by the
corporation's board of directors prior to the date the interested
stockholder acquired such 15% interest;
- upon the consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the outstanding voting stock of the
corporation excluding for the purposes of determining the number of
shares outstanding shares held by persons who are directors and also
officers and by employee stock plans in which participants do not have
the right to determine confidentially whether shares held subject to the
plan will be tendered;
- the business combination is approved by a majority of the board of
directors and the affirmative vote of two-thirds of the outstanding votes
entitled to be cast by disinterested stockholders at an annual or special
meeting;
- the corporation does not have a class of voting stock that is listed on a
national securities exchange, authorized for quotation on an inter-dealer
quotation system of a registered national securities association, or held
of record by more than 2,000 stockholders unless any of the foregoing
results from action taken, directly or indirectly, by an interested
stockholder or from a transaction in which a person becomes an interested
stockholder;
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<PAGE> 76
- the stockholder acquires a 15% interest inadvertently and divests itself
of such ownership and would not have been a 15% stockholder in the
preceding three years but for the inadvertent acquisition of ownership;
- the stockholder acquired the 15% interest when these restrictions did not
apply; or
- the corporation has opted out of this provision.
Aironet has not opted out of this provision.
In addition, the Aironet certificate of incorporation provides that a
business combination with an "interested person" must be approved by the
affirmative vote of not less than 75% of the outstanding voting stock held by
stockholders other than the "interested person." An "interested person" is a
holder who, among other things, beneficially owns 5% or more of the Aironet
outstanding voting stock.
Under California law, there is no comparable provision. However, California
law does provide that, except where the fairness of the terms and conditions of
the transaction has been approved by the California Commissioner of Corporations
and except in a "short-form" merger (the merger of a parent corporation with a
subsidiary in which the parent owns at least 90% of the outstanding shares of
each class of the subsidiary's stock), if the surviving corporation or its
parent corporation owns, directly or indirectly, shares of the target
corporation representing more than 50% of the voting power of the target
corporation prior to the merger, the nonredeemable common stock of a target
corporation may be converted only into nonredeemable common stock of the
surviving corporation or its parent corporation, unless all of the shareholders
of the class consent. The effect of this provision is to prohibit a cash-out
merger of minority shareholders, except where the majority shareholders already
own 90% or more of the voting power of the target corporation and could,
therefore, effect a short-form merger to accomplish such a cash-out of minority
shareholders.
ADVANCE NOTICE OF RECORD DATE
Delaware law requires that stockholders be provided prior written notice no
more than 60 days nor less than 10 days prior to the record date for determining
the rights to vote at the meeting of stockholders. Delaware law further states
that stockholders be provided prior written notice no more than 60 days prior to
the record date to determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action. Finally, Delaware law
provides that due notice of the time, place and purpose of the meeting to
approve a merger agreement be mailed at least 30 days prior to the date of the
meeting.
California law requires that shareholders be provided prior written notice
no more than 60 days nor less than 10 days prior to the record date for
determining the shareholders entitled to notice of any meeting or to vote or
entitled to receive payment of any dividend or other distribution or allotment
of any rights or entitled to exercise any rights in respect of any other lawful
action.
INSPECTION OF BOOKS AND RECORDS
Delaware and California law allow any stockholder to inspect the accounting
books and records and minutes of proceedings of the stockholders and the board
and to inspect the stockholders' list at any reasonable time during usual
business hours, for a purpose reasonably related to such holder's interests as a
stockholder. Additionally, California law provides for an absolute right to
inspect and copy the corporation's shareholders list by a shareholder or
shareholders holding at least 5% in the aggregate of the corporation's
outstanding voting shares, or any shareholder or shareholders holding 1% or more
of such shares who have filed a Schedule 14A with the Commission.
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<PAGE> 77
SIZE OF THE BOARD OF DIRECTORS
Delaware law states that the board of directors shall consist of one or
more members with the number of directors to be fixed as provided in the bylaws
of the corporation, unless the certificate of incorporation fixes the number of
directors, in which case a change in the number of directors shall be made only
by amendment of the certificate. Aironet's board of directors may consist of not
more than nine nor less than three, and currently consists of four directors.
The number of directors on Aironet's board may be increased or decreased by a
majority vote of the Aironet directors then sitting.
Under California law, as provided in the articles of incorporation or
bylaws, the number of directors may be specific or may be not less than a stated
minimum nor more than a stated maximum, with the exact number to be fixed by the
board or the shareholders. The minimum number cannot be less than three. A bylaw
changing or fixing a number of directors may only be adopted by approval of a
majority of the outstanding shares. The Cisco bylaws provide that the authorized
number of directors of the corporation shall be not less than eight nor more
than 15, the exact number of directors to be fixed from time to time within such
range by duly adopted resolutions of the board of directors or shareholders.
REMOVAL OF DIRECTORS
Delaware law states that any director or the entire board of directors may
be removed, with or without cause, by the holders of a majority of the shares
then entitled to vote at an election of directors. Aironet's certificate of
incorporation provides that Aironet directors may be removed at any annual or
special stockholders' meeting but only for cause and only by the affirmative
vote of the holders of at least 80% of the outstanding shares of capital stock
of Aironet entitled to vote generally in the election of directors, voting
together as a single class.
California law provides that the board of directors may declare vacant the
office of a director who has been declared of unsound mind by an order of court
or convicted of a felony. Further, any director or the entire board of directors
may be removed, with or without cause, with the approval of a majority of the
outstanding shares entitled to vote thereon; however, no director may be removed
(unless the entire board is removed) if the number of shares voted against the
removal would be sufficient to elect the director under cumulative voting.
Shareholders holding at least 10% of the outstanding shares in any class may sue
in superior county court to remove from office any officer or director for
fraud, dishonest acts or gross abuse of authority or discretion.
TRANSACTIONS INVOLVING DIRECTORS
Both Delaware law and California law state that any contract or transaction
between a corporation and any of its directors, or a second corporation in which
a director has a material financial interest is not void or voidable if the
material facts as to the transaction and as to the director's interest are fully
disclosed and a majority of the disinterested shareholders represented and
voting at a duly held meeting approve or ratify the transaction in good faith.
California law provides that such a contract or transaction also is not void or
voidable if either (a) after full disclosure the transaction is approved by the
board or a committee (excluding the vote of interested directors) in good faith
and the transaction is just and reasonable to the corporation, or (b) the person
asserting the validity of the contract or transaction sustains the burden of
proving that the contract or transaction was just and reasonable as to the
corporation at the time it was authorized, approved or ratified. Delaware law is
similar except that, with respect to clause (a), there is no need for the
transaction to be shown to be just and reasonable and, with respect to clause
(b), the transaction must be shown to be fair instead of just and reasonable.
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<PAGE> 78
FILLING VACANCIES ON THE BOARD OF DIRECTORS
Delaware law provides that, unless otherwise provided in the certificate of
incorporation or bylaws, vacancies may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Further, if, at the time of filling any vacancy, the directors then in office
shall constitute less than a majority of the whole board, the Court of Chancery
may, upon application of any stockholder or stockholders holding at least 10% of
the total number of the shares at the time outstanding having the right to vote
for such directors, summarily order any election to be held to fill any such
vacancies or newly created directorships, or to replace the directors chosen by
the directors then in office.
Aironet's bylaws provide that vacancies may be filled by a majority of the
directors then in office, although less than a quorum. Any director elected by
the board of directors to fill a vacancy or newly created directorship shall
hold office for the remainder of the full term of the class of directors in
which such directorship is part, and until such director's successor is elected
and qualified.
Under California law, any vacancy on the board of directors other than one
created by removal of a director may be filled by the board of directors, unless
otherwise provided in the articles or bylaws. If the number of directors is less
than a quorum, a vacancy may be filled by the unanimous written consent of the
directors then in office, by the affirmative vote of a majority of the directors
at a meeting held pursuant to notice or waivers of notice or by a sole remaining
director. A vacancy created by removal of director can only be filled by the
shareholders unless board approval is authorized by a corporation's articles of
incorporation or by a bylaw approved by the corporation's shareholders. The
Cisco bylaws authorize the Board to fill a vacancy created by the removal of a
director.
EXPERTS
The consolidated financial statements of Cisco Systems, Inc. incorporated
in this proxy statement/prospectus by reference to the Annual Report on Form
10-K/A for the year ended July 31, 1999 and supplementary consolidated financial
statements as of July 31, 1999 and July 25, 1998 and for each of the three years
in the period ended July 31, 1999 incorporated in this proxy
statement/prospectus by reference to the Current Report on Form 8-K/A dated
February 3, 2000, have been so incorporated in reliance on the reports of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing.
The financial statements of Aironet Wireless Communications, Inc. as of
March 31, 1999 and 1998 and for each of the three years in the period ended
March 31, 1999 included in this 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 accounting and
auditing.
PricewaterhouseCoopers LLP ("PWC"), Cisco's independent accountants, has
notified Cisco that PWC is engaged in discussions with the Securities and
Exchange Commission following an internal review by PWC, pursuant to an
administrative settlement with the Commission, of PWC's compliance with auditor
independence guidelines. PWC has advised Cisco that Cisco is one of the
companies affected by such discussions. Cisco is not involved in the discussions
between the Commission and PWC and cannot predict the result of those
discussions.
LEGAL MATTERS
The validity of the shares of Cisco common stock offered by this proxy
statement/prospectus and the federal income tax consequences in connection with
the merger will be passed upon for Cisco by Brobeck, Phleger & Harrison LLP,
Palo Alto, California. Certain legal matters with respect to federal income tax
consequences in connection with the merger will be passed upon for Aironet by
Goodman Weiss Miller LLP, Cleveland, Ohio and Day, Berry & Howard LLP, Hartford,
Connecticut. Individual attorneys of Goodman Weiss Miller LLP in the aggregate
own 13,500 shares of Aironet's common stock. Mr. Jay R. Faeges, an attorney at
Goodman Weiss Miller LLP, is the secretary of Aironet.
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WHERE YOU CAN FIND MORE INFORMATION
Aironet and Cisco file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information we file at
the Securities and Exchange Commission's public reference rooms in Washington,
D.C., New York, New York and Chicago, Illinois. Please call the Securities and
Exchange Commission at 1-800-SEC-0330 for further information on the public
reference rooms. Our Securities and Exchange Commission filings are also
available to the public from commercial document retrieval services and at the
Internet Website maintained by the Securities and Exchange Commission at
http://www.sec.gov.
Cisco filed a Registration Statement on Form S-4 to register with the
Securities and Exchange Commission Cisco common stock to be issued to Aironet
stockholders in the merger. This proxy statement/prospectus is a part of that
registration statement and constitutes the prospectus of Cisco as well as being
a proxy statement of Aironet for the Aironet special meeting.
Cisco has supplied all the information contained in this proxy
statement/prospectus relating to Cisco and Aironet has supplied all such
information relating to Aironet. As allowed by Securities and Exchange
Commission rules, this proxy statement/prospectus does not contain all of the
information relating to Cisco and Aironet you can find in the registration
statement or the exhibits to the registration statement.
Some of the important business and financial information relating to Cisco
and Aironet that you may want to consider in deciding how to vote is not
included in this proxy statement/prospectus, but rather is "incorporated by
reference" to documents that have been previously filed by Cisco and Aironet
with the Securities and Exchange Commission. The information incorporated by
reference is deemed to be a part of this proxy statement/prospectus, except for
any information superseded by information contained directly in this proxy
statement/prospectus.
If you are an Aironet stockholder, you can obtain any of the documents
incorporated by reference through Cisco, Aironet or the Securities and Exchange
Commission. Documents incorporated by reference are available from Cisco or
Aironet without charge, excluding all exhibits. You may obtain documents
incorporated by reference in this proxy statement/prospectus by requesting them
orally or in writing to the following addresses or by telephone:
<TABLE>
<S> <C>
Cisco Systems, Inc. Aironet Wireless Communications,
Investor Relations Office Inc.
170 West Tasman Drive Investor Relations
San Jose, CA 95134 3875 Embassy Parkway
(408) 526-4000 Akron, OH 44333
(330) 664-7900
</TABLE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE MERGER. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THE PROXY STATEMENT/PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE HEREOF, AND NEITHER THE MAILING OF THIS PROXY
STATEMENT/PROSPECTUS TO AIRONET STOCKHOLDERS NOR THE ISSUANCE OF CISCO COMMON
STOCK IN THE MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
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<PAGE> 80
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
Cisco files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any document Cisco files
at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. Cisco's SEC filings are also available
to the public from Cisco's Web site at http://www.cisco.com or at the SEC's Web
site at http://www.sec.gov.
The SEC allows Cisco to "incorporate by reference" the information Cisco
files with the SEC, which means that Cisco can disclose important information to
you by referring you to those documents. The information incorporated by
reference is considered to be part of this proxy statement/prospectus, and later
information filed with the SEC will update and supersede this information. Cisco
incorporates by reference the documents listed below and any future filings made
with the SEC under Section 13a, 13(c), 14, or 15(d) of the Securities and
Exchange Act of 1934 until this merger is completed:
1. Cisco's Annual Report on Form 10-K for the fiscal year ended July
31, 1999, initially filed September 28, 1999 and as amended by the Form
10-K/A filed February 3, 2000, including certain information in Cisco's
Definitive Proxy Statement in connection with Cisco's 1999 Annual Meeting
of Shareholders and certain information in Cisco's Annual Report to
Shareholders for the fiscal year ended July 31, 1999;
2. Cisco's Quarterly Report on Form 10-Q for the fiscal quarter ended
October 30, 1999, initially filed December 14, 1999 and as amended by the
Form 10-Q/A filed February 3, 2000;
3. Cisco's Current Reports on Form 8-K filed on each of November 4,
1999, November 17, 1999, December 15, 1999, and December 22, 1999, and its
Current Report on Form 8-K initially filed December 15, 1999, as amended by
the Form 8-K/A filed February 3, 2000;
4. The description of Cisco's common stock contained in Cisco's
Registration Statement on Form 8-A filed January 8, 1990, including any
amendment or report filed for the purpose of updating such description; and
5. The description of Cisco's Preferred Stock Purchase Rights,
contained in its registration statement of Form 8-A filed on June 11, 1998,
including any amendments or reports filed for the purpose of updating such
description.
You may request a copy of Cisco's filings, at no cost, by writing or
telephoning Cisco at the following address:
Larry R. Carter
Senior Vice President, Chief Financial Officer
and Secretary
Cisco Systems, Inc.
255 West Tasman Drive
San Jose, CA 95134
408-526-4000
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<PAGE> 81
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of March 31, 1998 and 1999... F-3
Consolidated Statements of Operations for the years ended
March 31, 1997, 1998 and 1999............................. F-4
Consolidated Statements of Changes in Stockholders' Equity
for the years ended March 31, 1997, 1998 and 1999......... F-5
Consolidated Statements of Cash Flows for the years ended
March 31, 1997, 1998 and 1999............................. F-6
Notes to the Consolidated Financial Statements.............. F-7
Consolidated Balance Sheets as of September 30, 1999
(Unaudited) and March 31, 1999............................ F-25
Consolidated Statements of Operations (Unaudited) for the
Three and Six Months Ended September 30, 1999 and 1998.... F-26
Consolidated Statements of Cash Flows (Unaudited) for the
Six Months Ended September 30, 1999 and 1998.............. F-27
Notes to the Consolidated Financial Statements
(Unaudited)............................................... F-28
</TABLE>
F-1
<PAGE> 82
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
OF AIRONET WIRELESS COMMUNICATIONS, INC.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows present fairly, in all material respects, the financial position
of Aironet Wireless Communications, Inc. and Subsidiaries (the "Company") as of
March 31, 1998 and 1999 and the results of their operations and their cash flows
for each of the three years in the period ended March 31, 1999, in conformity
with generally accepted accounting principles. 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 generally accepted auditing
standards 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
Cleveland, Ohio
May 25, 1999
F-2
<PAGE> 83
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................. $ 2,864,072 $ 6,136,570
Accounts receivable, trade, net of allowance for
doubtful accounts of $187,038 and $371,632,
respectively......................................... 4,838,523 4,242,036
Accounts receivable, other............................. 99,639 243,183
Receivable from sales of common stock.................. 1,499,998 --
Receivable from affiliate.............................. 1,500,210 3,608,581
Inventories............................................ 4,020,254 4,625,519
Deferred tax asset..................................... -- 733,203
Prepaid expenses and other............................. 240,925 403,975
Income taxes receivable................................ 1,292,520 619,780
----------- -----------
Total current assets.............................. 16,356,141 20,612,847
Property and equipment, net................................. 2,655,502 2,380,603
Deferred tax asset.......................................... 299,821 882,462
Intangible assets, net...................................... 4,252,134 3,191,043
Other long-term assets...................................... 69,595 131,376
----------- -----------
Total assets...................................... $23,633,193 $27,198,331
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 4,775,022 $ 4,618,367
Payable to affiliate................................... 4,940,710 2,085,287
Income taxes payable................................... -- 30,000
Deferred tax liability................................. 93,190 10,126
Accrued liabilities.................................... 2,226,495 3,357,308
----------- -----------
Total current liabilities......................... 12,035,417 10,101,088
Line of credit.............................................. -- 2,500,000
----------- -----------
Total liabilities................................. 12,035,417 12,601,088
Commitments and contingencies (Note 9)...................... -- --
Stockholders' equity:
Common stock, $.01 par value per share; 15,000,000
shares authorized; 9,339,126, and 9,567,181 shares
issued and outstanding, respectively................. 93,391 95,672
Additional paid-in capital............................. 15,026,661 19,101,179
Accumulated deficit.................................... (3,522,276) (4,599,608)
----------- -----------
Total stockholders' equity........................ 11,597,776 14,597,243
----------- -----------
Total liabilities and stockholders' equity........ $23,633,193 $27,198,331
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 84
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Non-affiliate..................................... $14,483,661 $20,249,057 $28,302,884
Affiliate product................................. 46,844,236 19,104,094 9,529,366
Affiliate royalty................................. -- 5,781,244 7,420,575
----------- ----------- -----------
Total revenues............................ 61,327,897 45,134,395 45,252,825
----------- ----------- -----------
Cost of revenues:
Non-affiliate..................................... 8,388,104 11,714,129 18,594,065
Affiliate......................................... 37,073,058 14,586,967 7,784,343
----------- ----------- -----------
Total cost of revenues.................... 45,461,162 26,301,096 26,378,408
----------- ----------- -----------
Gross profit:
Non-affiliate..................................... 6,095,557 8,534,928 9,708,819
Affiliate product................................. 9,771,178 4,517,127 1,745,023
Affiliate royalty................................. -- 5,781,244 7,420,575
----------- ----------- -----------
Total gross profit........................ 15,866,735 18,833,299 18,874,417
----------- ----------- -----------
Operating expenses:
Sales and marketing............................... 3,083,188 4,469,832 6,654,127
Research and development.......................... 5,311,421 5,683,086 6,581,767
General and administrative........................ 3,547,827 3,304,738 5,485,976
Goodwill amortization............................. 865,680 865,680 865,680
----------- ----------- -----------
Total operating expenses.................. 12,808,116 14,323,336 19,587,550
----------- ----------- -----------
Income (loss) from operations....................... 3,058,619 4,509,963 (713,133)
Interest expense (income), net...................... 130,435 45,815 (26,783)
----------- ----------- -----------
Income (loss) before income taxes................... 2,928,184 4,464,148 (686,350)
Provision for income taxes.......................... 2,039,567 1,963,503 390,982
----------- ----------- -----------
Net income (loss)................................. $ 888,617 $ 2,500,645 $(1,077,332)
=========== =========== ===========
Net income (loss) per common share:
Basic............................................. $ 0.11 $ 0.31 $ (0.12)
=========== =========== ===========
Diluted........................................... $ 0.11 $ 0.30 $ (0.12)
=========== =========== ===========
Weighted average shares used in calculating net
income (loss) per common share:
Basic............................................. 8,085,000 8,122,882 9,324,825
=========== =========== ===========
Diluted........................................... 8,085,000 8,319,063 9,324,825
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 85
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNTS CAPITAL DEFICIT EQUITY
--------- ------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1996
(retroactively restated for 1996 stock
split and reverse stock split -- Note
10).................................... 8,085,000 $80,850 $15,451,170 $(6,911,538) $ 8,620,482
Distribution to affiliate (Note
10)............................... -- -- (1,100,000) -- (1,100,000)
Distribution to affiliate (Note
10)............................... -- -- (3,307,103) -- (3,307,103)
Net income........................... -- -- -- 888,617 888,617
--------- ------- ----------- ----------- -----------
Balance at March 31, 1997.............. 8,085,000 80,850 11,044,067 (6,022,921) 5,101,996
--------- ------- ----------- ----------- -----------
Stock issuance (Note 10)............. 984,126 9,841 2,806,027 -- 2,815,868
Stock options exercised (Note 10).... 270,000 2,700 499,500 -- 502,200
Stock option compensation expense
(Note 10)......................... -- -- 404,444 -- 404,444
Capital contribution from affiliate
(Note 10)......................... -- -- 644,623 -- 644,623
Note receivable from stockholder
(Note 10)......................... -- -- (372,000) -- (372,000)
Net income........................... -- -- -- 2,500,645 2,500,645
--------- ------- ----------- ----------- -----------
Balance at March 31, 1998.............. 9,339,126 93,391 15,026,661 (3,522,276) 11,597,776
--------- ------- ----------- ----------- -----------
Stock issuance (Note 10)............. 222,222 2,222 775,555 -- 777,777
Stock options exercised.............. 5,833 59 14,331 -- 14,390
Stock option compensation expense
(Note 10)......................... -- -- 3,004,492 -- 3,004,492
Capital contribution from affiliate
(Note 10)......................... -- -- 280,140 -- 280,140
Net loss............................. -- -- -- (1,077,332) (1,077,332)
--------- ------- ----------- ----------- -----------
Balance at March 31, 1999.............. 9,567,181 $95,672 $19,101,179 $(4,599,608) $14,597,243
========= ======= =========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 86
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED MARCH 31,
-----------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ 888,617 $ 2,500,645 $(1,077,332)
----------- ----------- -----------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation.................................... 1,031,377 1,238,348 1,306,716
Amortization.................................... 987,720 1,037,224 1,137,201
Provision for doubtful accounts................. 222,436 154,231 307,960
Provision for inventory obsolescence............ 1,024,167 (47,615) 389,430
Deferred income taxes........................... (16,543) 38,391 (1,398,908)
Loss on disposal of equipment................... -- 60,050 --
Stock compensation expense...................... -- 404,444 3,004,492
Changes in other assets and liabilities:
Accounts receivable, trade.................... (1,890,472) (2,068,370) 288,527
Accounts receivable, other.................... 69,790 511,516 (143,544)
Receivable from affiliate..................... 3,363,067 (55,858) (2,030,594)
Inventories................................... 2,484,804 358,897 (994,695)
Prepaid expenses and other assets............. (364,109) (134,684) (163,050)
Income taxes receivable....................... -- (1,292,520) 672,740
Other long-term assets........................ -- 13,088 64,225
Accounts payable.............................. 2,193,078 (1,164,040) (156,655)
Payable to affiliate.......................... -- -- 1,072,907
Income taxes payable.......................... 934,475 (1,705,213) 30,000
Accrued liabilities........................... 1,477,886 231,452 1,412,022
----------- ----------- -----------
Total adjustments.......................... 11,517,676 (2,420,659) 4,798,774
----------- ----------- -----------
Net cash provided by operating
activities............................... 12,406,293 79,986 3,721,442
----------- ----------- -----------
Cash flows from investing activities:
Capital expenditures............................... (1,409,717) (1,433,281) (1,031,817)
Purchases of intangible assets..................... (547,858) (244,266) (76,110)
----------- ----------- -----------
Net cash used in investing activities...... (1,957,575) (1,677,547) (1,107,927)
----------- ----------- -----------
Cash flows from financing activities:
Payable to affiliate............................... (8,971,280) 2,295,059 (3,648,190)
Borrowings under line of credit.................... -- -- 2,500,000
Net proceeds from sales of stock................... -- 1,597,079 1,918,789
Stock options exercised............................ -- 130,200 14,390
Distribution to affiliate.......................... -- (1,100,000) --
Other.............................................. (67,106) (69,234) (126,006)
----------- ----------- -----------
Net cash provided by (used in) financing
activities............................... (9,038,386) 2,853,104 658,983
----------- ----------- -----------
Net increase in cash and cash equivalents............ 1,410,332 1,255,543 3,272,498
Cash and cash equivalents at beginning of year....... 198,197 1,608,529 2,864,072
----------- ----------- -----------
Cash and cash equivalents at end of year............. $ 1,608,529 $ 2,864,072 $ 6,136,570
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 87
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS
Aironet Wireless Communications, Inc. (the "Company") was incorporated in
1993. The Company's operations were formed from one subsidiary and two units of
the Company's parent, Telxon Corporation ("Telxon"): Telesystems SLW Inc.
("Telesystems") -- a designer and manufacturer of wireless spread spectrum LAN
radios; Telxon's Radio and Wireless Network Engineering Group -- designers of
advanced spread spectrum technology radios and network software; and Telxon's RF
Software Engineering Group -- advanced software designers of universal wireless
connectivity systems for integration into other computer manufacturer's
networks. As of March 31, 1999, Telxon owned approximately 76 percent of the
Company's outstanding common stock. The Company designs, develops and markets
high speed, standards-based wireless local area networking ("LAN") solutions.
The Company's products utilize advanced radio frequency and data communication
technologies to connect users to computer networks ranging in size and
complexity from enterprise-wide LANs to home networks. The Company markets its
products directly to Telxon and to non-affiliates in North America, Europe and
Asia through a network of value added resellers ("VARs"), distributors, original
equipment manufacturers ("OEMs"), and to a lesser extent directly to end users.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the operations of the Company
and its wholly-owned subsidiaries Aironet Canada, Inc. ("ACI"), Aironet Canada
Limited ("ACL") and Aironet Europe S.A. All significant intercompany
transactions have been eliminated in consolidation.
FOREIGN CURRENCY MANAGEMENT
The U.S. dollar is the functional currency for all of the Company's
consolidated operations. For these operations, all gains and losses from
currency transactions are included in income currently in accordance with
Statement of Financial Accounting Standards No. 52, "Foreign Currency
Translation."
COMPREHENSIVE INCOME
The Company has no items of comprehensive income.
STATEMENT OF CASH FLOWS INFORMATION
The Company considers all highly liquid investments which are both readily
convertible to cash and have a maturity of three months or less when purchased
to be cash equivalents.
F-7
<PAGE> 88
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
Supplemental disclosures of cash flow information for the years ended March
31 is as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Cash paid during the year for:
Interest............................................. $ 231,507 $ 113,448 $ 130,329
========== ========== ==========
Taxes................................................ $1,398,760 $4,923,512 $1,374,693
========== ========== ==========
Noncash financing activities:
Distribution to affiliate............................ $1,100,000 $ -- $ --
Distribution to affiliate............................ 3,307,103 -- --
Capital contributions to affiliate................... -- 644,623 280,140
Receivable from sales of common stock................ -- 1,499,998 77,777
Accrued expenses related to sales of common stock.... -- 281,209 --
Note receivable from stockholder..................... -- 372,000 --
</TABLE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments consist of cash and cash equivalents, notes
receivable, line of credit and in fiscal years 1997 and 1998 payable to
affiliate. The carrying amounts reported in the consolidated balance sheets for
these items approximate their fair values.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
INCOME TAXES
The Company uses the liability method of accounting for income taxes.
Deferred tax assets and liabilities are determined based on differences between
financial reporting and tax bases of assets and liabilities and are measured
using enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The effect on deferred taxes of a change in tax rates is
recognized in the period that includes the enactment date.
The Company was included in the consolidated tax filings of Telxon through
March 31, 1998 and calculated its current and deferred income taxes as if it had
filed separate tax returns. Amounts due or receivable subsequently determined
for current income taxes related to that period were indemnified by Telxon as of
March 31, 1998 and therefore recorded as contributed capital or dividends.
Effective April 1, 1998, due to a reduction of Telxon's ownership in the
Company, the Company is no longer included in the consolidated tax filings of
Telxon (Notes 8 and 10).
PROPERTY AND EQUIPMENT
Property and equipment is recorded at historical cost and depreciated over
the estimated useful lives of the assets using the straight-line method for
financial reporting purposes. The ranges of the estimated useful lives are:
machinery and equipment, two to five years; furniture and office equipment, ten
years; customer service equipment and tooling, three years; and leasehold
improvements, over the shorter of the useful life of the asset or the life of
the lease. Gains and losses from the sale or retirement of property and
equipment are included in income.
F-8
<PAGE> 89
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
INTANGIBLE ASSETS, NET
The excess of the purchase cost over the fair value of net assets acquired
in an acquisition (goodwill) is included in intangible assets, net in the
accompanying consolidated balance sheets. Goodwill is amortized on a
straight-line basis over ten years.
Software costs are capitalized and amortized in accordance with Statement
of Financial Accounting Standards No. 86, "Accounting for the Cost of Computer
Software to Be Sold, Leased, or Otherwise Marketed." Product and software
license agreements are capitalized and amortized over the shorter of the license
period or estimated useful life. Purchased computer software is capitalized and
amortized using the straight-line method, over the expected useful life of the
software, generally from three to five years. All other assets included in
intangible assets, net are recorded at cost and are amortized on a straight-line
basis over their expected useful lives.
Research and development costs are expensed as incurred and include costs
associated with new product development and costs to significantly improve
existing products.
The Company periodically reviews intangible and other long-lived assets to
assess recoverability. Impairments, if any, are recognized in results of
operations if events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable.
WARRANTY OBLIGATIONS
The Company provides various product warranties. The estimated obligation
to repair products or to replace components thereof is reviewed each accounting
period, based on experience trends and current cost per claim information, and
adjusted as necessary.
REVENUE RECOGNITION
The Company recognizes revenues from product sales to VARs, OEMs and end
users at the time of shipment, provided that there are no significant
obligations related to the product delivered, no collection uncertainties and
objective evidence exists to support the fair value of all elements included in
the respective agreements. The Company recognizes revenues from product sales to
distributors at the time of shipment except that during the year ended March 31,
1999, the Company granted certain distributors limited rights of return and
price protection on unsold products. Until such time as adequate historical
information is available, revenues in an amount equal to the gross profit on
shipments with the right of return, are not recognized until the right of return
has lapsed. A reserve for price protection is established at the time the
Company makes a decision to reduce prices. Revenues from customer service
contracts are recognized ratably over the maintenance contract period or as the
services are performed. Revenues through February 28, 1999 related to a royalty
arrangement with Telxon were recognized when the respective units of product
were shipped, invoiced or transferred to Telxon's customers. Commencing March 1,
1999, revenues related to the royalty arrangement with Telxon, as amended, are
recognized as a contractual amount per month (Note 13).
RESTRUCTURING CHARGE
In December 1996, the Company's executive management adopted the Canadian
restructuring plan. The purpose of the restructuring was to consolidate the
Company's operations in the Akron, Ohio area.
F-9
<PAGE> 90
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
The plan identified 48 specific employees to be terminated, consisting of 7
general and administrative employees, 2 engineering employees and 39
manufacturing employees. All employees were terminated with the exception of 1
manufacturing employee who was transferred to the United States. Actual
termination dates varied from May 1997 to September 1997. The Company recorded a
$500,000 restructuring charge in fiscal year 1997, of which $415,000 was
severance and $85,000 was rent, which was estimated to cover the period
subsequent to closing. Of the $500,000 restructuring charge, $150,000 was
charged to general and administrative expenses, $50,000 to engineering and
$300,000 to manufacturing. The Company actually paid $391,000 from June 1997
through October 1997, and $20,000 is owed to one employee but will not be paid
until instructed otherwise by Revenue Canada which is in a dispute with the
employee. All rent obligations were settled by February 1998 for payments
aggregating $65,000. The restructuring was substantially complete in the first
quarter of fiscal year 1998.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation awards to employees
pursuant to Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees", and its related interpretations which prescribe the use of
the intrinsic value based method. Accordingly, compensation expense is
recognized if, at the measurement date, the grant price is less than the market
value. Compensation expense, if any, is recognized in a manner consistent with
the methodology prescribed by Financial Accounting Standards Board
Interpretation No. 28, "Accounting for Stock Appreciation Rights and Other
Variable Stock Options or Award Plans."
The Company accounts for stock-based compensation awards to non-employees
pursuant to Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock Based Compensation" and has adopted the disclosure only
provisions of SFAS No. 123 for its employee stock-based compensation awards.
SFAS No. 123 prescribes a fair value basis of accounting for stock options at
the measurement date. Compensation expense for non-employee stock options is
recognized on a straight-line basis.
NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is based on the weighted average
number of common shares outstanding during the period. Diluted net income (loss)
per common share is based on the weighted average number of common shares
outstanding during the period plus, if dilutive, the incremental number of
common shares issuable on a pro forma basis upon the exercise of employee and
non-employee stock options and stock purchase warrants, assuming the proceeds
are used to repurchase outstanding shares at the average market price during the
year. A reconciliation of the denominators of the basic and diluted per share
computations is provided below:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
Common shares:
Weighted average shares outstanding -- basic.... 8,085,000 8,122,882 9,324,825
Additional shares potentially issuable for stock
options and stock purchase warrants.......... -- 196,181 --
--------- --------- ---------
Weighted average shares outstanding --diluted... 8,085,000 8,319,063 9,324,825
========= ========= =========
</TABLE>
F-10
<PAGE> 91
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, (CONTINUED)
For the years ended March 31, 1997 and 1998, 1,257,000 and 895,237,
respectively, of stock options and stock purchase warrants were not included in
the diluted per share computations due to not being "in the money." For the year
ended March 31, 1999, additional shares potentially issuable for stock options
and stock purchase warrants would have been 495,621, but for the net loss
recorded. The computations of net income (loss) per common share for all periods
presented do not include the effects of any dilutive incremental common shares
related to stock options granted or common stock warrants issued with exercise
rights that are contingent, so long as the contingency is not resolved (Note
10).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CONTINGENCIES
Contingencies are recorded as expenses when events giving rise to such
items are probable and the amounts are estimable in accordance with the
requirements of Statement of Financial Accounting Standards No. 5, "Accounting
for Contingencies."
RECLASSIFICATIONS
The Company has made certain reclassifications in the fiscal year 1999
consolidated financial statements to conform presentation.
NOTE 3 -- INVENTORIES
Inventories as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Purchased components........................................ $3,048,654 $3,723,325
Work-in-process............................................. 202,989 290,180
Finished goods.............................................. 768,611 612,014
---------- ----------
$4,020,254 $4,625,519
========== ==========
</TABLE>
F-11
<PAGE> 92
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 4 -- PROPERTY AND EQUIPMENT
Property and equipment, net as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Machinery and equipment................................... $ 4,672,896 $ 5,562,736
Tooling................................................... 330,446 351,835
Furniture and office equipment............................ 181,265 234,763
Leasehold improvements.................................... 199,078 199,078
----------- -----------
5,383,685 6,348,412
Less: Accumulated depreciation............................ (2,728,183) (3,967,809)
----------- -----------
$ 2,655,502 $ 2,380,603
=========== ===========
</TABLE>
Depreciation expense for the years ended March 31, 1997, 1998 and 1999
amounted to $1,031,377, $1,238,348 and $1,306,716, respectively.
NOTE 5 -- INTANGIBLE ASSETS, NET
Intangible assets, net as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Goodwill, net of accumulated amortization of $5,194,057 and
$6,059,737.................................................. $3,462,632 $2,596,952
Product and software license agreements, net of accumulated
amortization of $321,565 and $576,732..................... 722,953 509,263
Other....................................................... 66,549 84,828
---------- ----------
$4,252,134 $3,191,043
========== ==========
</TABLE>
Amortization expense for the years ended March 31 was as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ---------- ----------
<S> <C> <C> <C>
Goodwill........................................ $865,680 $ 865,680 $ 865,680
Product and software license agreements......... 76,309 150,102 255,167
Other........................................... 45,731 21,442 16,354
-------- ---------- ----------
$987,720 $1,037,224 $1,137,201
======== ========== ==========
</TABLE>
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities as of March 31 consisted of the following:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Accrued payroll and other employee compensation............. $ 907,892 $1,192,155
Accrued commissions......................................... 195,179 479,388
Other....................................................... 1,123,424 1,685,765
---------- ----------
$2,226,495 $3,357,308
========== ==========
</TABLE>
F-12
<PAGE> 93
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 7 -- BANK DEBT
During July 1998, the Company entered into a revolving credit agreement
with a bank that provides for borrowings up to $5.0 million, which expires July
1, 2000. Borrowings under the revolving credit agreement are limited to 80% of
the balance of eligible accounts receivable and 50% of the balance of eligible
inventories and cash on deposit with the bank. The revolving credit agreement
carries a quarterly facility fee and a commitment fee on the unused amount of
the agreement. Borrowings under the agreement bear interest at either the bank's
prime rate (7.75% at March 31, 1999) or LIBOR plus 2% (6.94% at March 31, 1999).
The weighted average interest rate on borrowings outstanding for the year ended
March 31, 1999 was 7.47%. The agreement contains certain covenants including
prohibiting the Company from paying dividends. If Telxon had reduced its
ownership in the Company below 50%, the note would have become due at the
discretion of the bank (Note 16). At March 31, 1999, $2.5 million was available
under this agreement.
NOTE 8 -- INCOME TAXES
Components of income (loss) before income taxes for the years ended March
31 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
U.S.......................................... $(2,864,462) $ 4,827,461 $ (818,270)
Foreign...................................... 5,792,646 (363,313) 131,920
----------- ----------- -----------
$ 2,928,184 $ 4,464,148 $ (686,350)
=========== =========== ===========
</TABLE>
Components of the provision for income taxes by taxing jurisdiction for the
years ended March 31 were as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Currently payable:
U.S........................................ $ -- $ 1,590,649 $ 1,322,151
Foreign.................................... 2,056,110 334,463 467,739
Deferred:
U.S........................................ -- 144,670 (1,409,034)
Foreign.................................... (16,543) (106,279) 10,126
----------- ----------- -----------
Provision for income taxes................... $ 2,039,567 $ 1,963,503 $ 390,982
=========== =========== ===========
</TABLE>
F-13
<PAGE> 94
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 8 -- INCOME TAXES, (CONTINUED)
The reconciliations between the reported total income tax provision and the
amount computed by multiplying income (loss) before income taxes by the U.S.
federal statutory tax rate for the years ended March 31 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------------------- ----------------- ------------------
AMOUNT % AMOUNT % AMOUNT %
----------- ------ ---------- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
U.S. federal statutory tax
rate............................ $ 1,024,864 35.0% $1,562,452 35.0% $ (240,223) 35.0%
Foreign tax rate differential... 515,361 17.6 55,372 1.2 121,200 (17.7)
Net operating loss benefit...... (3,731,195) (127.4) -- -- -- --
Taxation of foreign dividends
(net of foreign tax
credits)...................... 4,381,418 149.7 -- -- -- --
Goodwill amortization........... 302,988 10.3 302,988 6.8 302,988 (44.1)
Stock option compensation
expense....................... -- -- 113,666 2.5 377,188 (54.9)
Research and development
credits....................... (650,057) (22.2) -- -- (199,000) 28.5
Other........................... 196,188 6.7 (70,975) (1.5) 28,829 (3.8)
----------- ------ ---------- ---- ---------- -----
Effective income tax rate....... $ 2,039,567 69.7% $1,963,503 44.0% $ 390,982 (57.0)%
=========== ====== ========== ==== ========== =====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of March 31 are presented
below:
<TABLE>
<CAPTION>
1998 1999
----------- ----------
<S> <C> <C>
Deferred tax assets:
Stock option compensation expense........................ $ -- $ 737,006
Depreciation............................................. 205,288 202,722
Reserves................................................. -- 393,993
AMT credit carryforwards................................. 240,215 191,482
Foreign tax and general business credits carryforwards... 4,373,962 636,000
State and local net operating loss carryforwards......... 125,520 --
Valuation allowance, foreign tax and general business
credits carryforwards................................. (4,373,962) (636,000)
Valuation allowance, state and local net operating loss
carryforwards......................................... (125,520) --
Other.................................................... -- 168,084
----------- ----------
Total deferred tax assets........................ 445,503 1,693,287
----------- ----------
Deferred tax liabilities:
Reserves................................................. (93,190) --
Amortization............................................. (145,682) (87,748)
----------- ----------
Total deferred tax liabilities................... (238,872) (87,748)
----------- ----------
Net deferred tax asset..................................... $ 206,631 $1,605,539
=========== ==========
Current asset (liability),net.............................. $ (93,190) $ 723,077
=========== ==========
Long-term asset............................................ $ 299,821 $ 882,462
=========== ==========
</TABLE>
F-14
<PAGE> 95
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 8 -- INCOME TAXES, (CONTINUED)
On April 1, 1998, due to the reduction of Telxon's ownership in the Company
and the resulting change in tax status of the Company, AMT credit carryforwards
were increased by $145,235 and foreign tax and general business credits
carryforwards were reduced by $3,606,266. At such time that these carryforwards
are realized by the Company, Telxon will be entitled to the cash benefit under
the terms of the March 31, 1998 indemnification agreement (Notes 2 and 10). In
addition, ACL has claims for Canadian research and development credits for the
year ended March 31, 1999 in the amounts of approximately $100,000. If these
claims are subsequently accepted, the benefit will be recognized in the years
allowed. However, per Canadian tax law there will be a corresponding increase in
the subsequent year's taxable income for the amount of the claim recognized.
ACL recorded a benefit of $650,000 during fiscal year 1997 for Canadian
research and development credits claimed during fiscal 1994, 1995 and 1996. The
Company's foreign tax credits expire March 31, 2002 and its AMT credit
carryforwards have an indefinite carry forward period.
NOTE 9 -- COMMITMENTS AND CONTINGENCIES
In the normal course of its operations, the Company is subject to
performance under contracts, and has various legal actions and certain
contingencies pending. However, in management's opinion, any such outstanding
matters have been reflected in the consolidated financial statements, are
covered by insurance or would not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.
As of March 31, 1999, the Company had a Demand Revolving Promissory Note
(the "Note") with Telxon under which the Company would have been required to pay
Telxon, on demand, the lesser of $50 million or amounts due under intercompany
advances, plus interest at the London Interbank Offer Rate at the beginning of
the fiscal year (6.34% at April 1, 1997). There were no amounts due to Telxon
related to the Note at March 31, 1999. The Note, along with similar notes from
other principal subsidiaries of Telxon, was used as collateral for Telxon's $100
million unsecured credit agreement. Telxon's credit agreement expires March 8,
2001 (Note 16).
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS
Effective June 20, 1996, the Company authorized a one hundred ten thousand
for one share common stock split, increasing the number of $.01 par value shares
of common stock issued and outstanding to 11,000,000 shares.
Effective September 5, 1996, the Company authorized an eight thousand
eighty-five for eleven thousand share reverse common stock split, reducing the
number of $.01 par value shares of common stock issued and outstanding to
8,085,000. The 1996 number of shares outstanding have been retroactively
restated for this reverse stock split.
On March 26, 1997, the Board of Directors authorized a $1,100,000 capital
distribution to Telxon. The authorization of the capital distribution in fiscal
year 1997. The cash distribution was paid April 15, 1997.
On March 31, 1997, the Company returned its nonvoting Class A shares in a
Telxon subsidiary to that subsidiary which was accounted for on a historical
cost basis and resulted in a decrease to paid-in capital of $3,307,103.
On March 31, 1998, the Company issued 984,126 shares of common stock and
warrants to purchase 295,237 shares of common stock for $3,444,444. The Company
recorded $628,576 in related
F-15
<PAGE> 96
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
transaction costs resulting in net cash received of $2,815,868. Cash proceeds of
$1,499,998 were not received by the Company until April 1998. In addition, the
Company incurred as part of the transaction costs a fee for advisory services of
$125,000 along with the issuance of 100,000 warrants to purchase common stock,
to a board member of the Company. The $125,000 has been accounted for as a
reduction of the proceeds received from these transactions. The terms of all the
warrants issued contain an exercise price of $3.50 and entitle the warrant
holder to exercise the warrants at the earlier of a qualified initial public
offering, the entire sale of the Company, or a change of control or spin-off, as
defined. The warrants expire on March 31, 2001. No value was assigned to the
warrants by the Company at the dates of issuance.
On March 31, 1998, the date of the stock issuance, the Company entered into
a tax indemnification agreement with Telxon. This agreement entitles Telxon to
all income tax refunds (as defined in the agreement) which relate to the period
prior to the stock issuance and obligates Telxon for all taxes payable (as
defined in the agreement) prior to the stock issuance. As a result $280,140 of
taxes payable for the year ended March 31, 1999, were recorded as additional
paid-in capital. In addition, in fiscal 1998 Telxon elected to forgive the
Company's net payable of $644,623 owed to Telxon related to taxes which has been
reflected as an additional capital contribution.
During the year ended March 31, 1999, the Company issued 222,222 additional
shares of common stock and warrants to purchase 66,667 shares of common stock
for $3.50 per share or aggregate proceeds of $777,777 of which $77,777 was not
paid until April 1999. The warrants issued are subject to the same terms as
previously issued warrants.
In July 1996, the Company established the Aironet Wireless Communications,
Inc. 1996 Stock Option Plan which was amended and restated on March 30, 1998
("1996 Amended Plan"). The 1996 Amended Plan provides for the granting of
options to key employees of the Company and to certain employees of Telxon and
outside directors. The total number of shares for which the Company may grant
options under the 1996 Amended Plan cannot exceed 2,150,500. Options are awarded
at a price not less than the fair market value on the date the option is
granted. Options granted prior to March 30, 1998 have a term of ten years and
generally vest one-third on the date granted and one-third on each of the two
successive anniversary dates therefrom. Options granted on or after March 30,
1998 have the same terms except an option can only be exercised after the
earlier of a change in control or an initial public offering, as defined in the
1996 Amended Plan and vest one-third twelve months after the date of grant and
one-third on each of the two successive anniversary dates therefrom. Options
granted to non-employees have been accounted for pursuant to EITF Issue No.
96-18 "Accounting for Equity Instruments that are Issued to Other than Employees
for Acquiring, or in Conjunction with Selling Goods or Services." The non cash
compensation expense related to non-employees was determined using the
Black-Scholes option pricing model utilizing average assumptions of a dividend
yield of 0%, expected volatility of 51.57%, risk free interest rate of 5.14% and
an expected life of two years.
Effective March 31, 1999, the Company's Board of Directors and Stockholders
approved an additional amendment to the 1996 Amended Plan that permits vested
options granted under the 1996 Amended Plan to be exercised at any time after
the earlier of an initial public offering, a change in control, as defined, or
March 31, 2001. In addition, the Company's Board of Directors accelerated the
vesting of certain options held by persons not employed by the Company. These
options were granted on March 30, 1998, at an exercise price of $3.50 in
accordance with the terms of the 1996 Amended Plan and were granted to employees
of Telxon that contributed or were to contribute to the success and
F-16
<PAGE> 97
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
growth of the Company. As a result of this amendment to the 1996 Amended Plan
and immediate vesting of certain outstanding options on March 31, 1999, the
Company recorded non cash compensation expense related to employees of $932,539
and non cash compensation expense related to non-employees of $366,992.
On February 16, 1999, the Company's Board of Directors had approved,
subject to stockholder approval (which was determined to be perfunctory), the to
be adopted Aironet Wireless Communications, Inc. 1999 Omnibus Stock Incentive
Plan (the "1999 Plan") and granted options to acquire 400,000 options under such
plan. The 1999 Plan provides for the granting of options, stock appreciation
rights ("SARs"), restricted stock and performance units, as defined, to certain
officers and other key employees of the Company. The total number of shares the
Company may grant under the 1999 Plan cannot exceed 1,765,817. Options granted
under the 1999 Plan have a ten-year term and must have an exercise price equal
to or greater than the fair market value of the Company's common stock on the
date of grant. Options granted generally vest over a three-year period on the
first three anniversary dates after the date of grant. The Company's Board of
Directors formally adopted and approved the 1999 Plan on April 12, 1999, and the
Company's Stockholders formally adopted and approved the 1999 Plan on May 7,
1999.
The following is a summary of the Company's warrants to purchase common
stock that are outstanding as of March 31, 1999:
<TABLE>
<CAPTION>
WARRANT DATE NUMBER OF SHARES EXERCISE PRICE
------------ ---------------- --------------
<S> <C> <C>
March 1998............................................. 395,237 $3.50
April 1998............................................. 17,143 3.50
May 1998............................................... 42,857 3.50
December 1998.......................................... 6,667 3.50
</TABLE>
The following is a summary of the activity in the Company's 1996 Amended
Plan and 1999 Plan during fiscal years 1997, 1998 and 1999:
<TABLE>
<CAPTION>
1996 AMENDED PLAN 1999 PLAN
STOCK OPTIONS STOCK OPTIONS
-------------------------- ------------------------
WEIGHTED WEIGHTED
AVERAGE PRICE AVERAGE PRICE
SHARES PER SHARE SHARES PER SHARE
--------- ------------- ------- -------------
<S> <C> <C> <C> <C>
March 31, 1996.............................. 384,000 $1.86 -- $ --
Granted................................... 1,040,500 1.86 -- --
Exercised................................. -- -- -- --
Returned to pool due to employee
terminations........................... (167,500) 1.86 -- --
--------- ----- ------- -----
March 31, 1997.............................. 1,257,000 1.86 -- --
Granted................................... 500,000 3.50 -- --
Exercised................................. (270,000) 1.86 -- --
Returned to pool due to employee
terminations........................... (6,500) 1.86 -- --
--------- ----- ------- -----
March 31, 1998.............................. 1,480,500 2.41 -- --
Granted................................... 105,000 3.50 400,000 9.00
Exercised................................. (5,833) 3.50 -- --
Returned to pool due to employee
terminations........................... (36,667) 3.09 -- --
--------- ----- ------- -----
March 31, 1999.............................. 1,543,000 2.47 400,000 9.00
========= ===== ======= =====
</TABLE>
F-17
<PAGE> 98
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
At March 31, 1999, there were options outstanding under the 1996 Amended
Plan and 1999 Plan to purchase 1,543,000 and 400,000 shares of common stock,
respectively, of which 784,012 and 0 are currently exercisable at a weighted
average price per share of $1.86 and $9.00, respectively.
In February 1998, an employee of the Company exercised 200,000 options with
a grant price and fair value of $1.86. At the date of grant the Company provided
the employee a non-recourse loan of $372,000 which was applied to payment of the
exercise price of the options. The terms of the note did not extend the original
option period. The note bears non-recourse interest at 6% per annum on amounts
outstanding through maturity, October 31, 2002, and at a prime rate plus 4% per
annum thereafter until paid. All unpaid principal and all accrued interest is
due in full on October 31, 2002. The 200,000 shares issued (or approved
replacement collateral of equal value at the employee's discretion)
collateralize the note. Any amounts paid on the note shall be applied first to
accrued but unpaid interest and then to unpaid principal. The employee may at
any time prepay the note without premium or penalty in amounts of at least
$25,000. Pursuant to Emerging Issues Task Force ("EITF") Issue No. 85-1,
"Classifying Notes Received for Capital Stock" the note has been recorded as a
reduction of additional paid-in capital rather than as an asset. In addition,
pursuant to EITF No. 95-16, "Accounting for Stock Compensation Arrangements with
Employee Loan Features Under APB Opinion No. 25," the options have been
accounted for as variable plan options from the note issuance date until the
note is settled or otherwise amended resulting in a $324,760 non cash charge
recorded in March 1998 and a non cash charge of $1,077,680 recorded for the year
ended March 31, 1999 (Note 16).
Compensation expense related to all options granted to employees for the
years ended March 31, 1997, 1998 and 1999 was $0, $324,760 and $2,010,219,
respectively. Compensation expense related to all options granted to Telxon
employees and outside directors, for the years ended March 31, 1997, 1998 and
1999, was $0, $79,684 and $994,273, respectively.
For SFAS No. 123 purposes, the fair value of each option granted under the
1996 Amended Plan and 1999 Plan are estimated as of the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for stock options granted in fiscal years 1997, 1998 and 1999,
respectively: dividend yield of 0%, expected volatility of 56.22%, 56.00% and
51.57%, risk-free interest rates of 6.74%, 5.72% and 5.14%, and an expected life
of five years. The weighted average fair value on the date of grant for options
granted during fiscal years 1997, 1998 and 1999 were $1.86, $3.50 and $7.86,
respectively.
If the Company had elected to recognize the compensation cost of its 1996
Amended Plan and 1999 Plan based on the fair value of all awards under the plans
in accordance with SFAS No. 123, fiscal years 1997, 1998 and 1999 pro forma net
income (loss) and pro forma net income (loss) per common share would have been
as follows:
<TABLE>
<CAPTION>
1997 1998 1999
-------- ---------- -----------
<S> <C> <C> <C> <C>
Net income (loss): As reported........... $888,617 $2,500,645 $(1,077,332)
Pro forma............. 680,440 2,212,447 (344,368)
Net income (loss) per common share:
Basic: As reported........... $ 0.11 $ 0.31 $ (0.12)
Pro forma............. 0.08 0.27 (0.04)
Diluted: As reported........... $ 0.11 $ 0.30 $ (0.12)
Pro forma............. 0.08 0.27 (0.04)
</TABLE>
F-18
<PAGE> 99
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 10 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS, (CONTINUED)
In March 1999, the Company decided to file a registration statement to
register shares of its common stock with the Securities and Exchange Commission
for an initial public offering (the "Offering"). Effective with the Offering,
the Company's outstanding warrants and certain of the Company's vested options
will become exercisable. Also, the 1998 License, Rights and Supply Agreement, as
amended, between Telxon and the Company stipulates that the percentages related
to change in control provisions of that agreement be reduced effective with the
Offering and that Telxon be permitted to purchase specific products from the
Company under the terms of the agreement for up to 4 years from the effective
date of the Offering. In the event the Company has a change in control, Telxon's
royalties terminate following certain events. Prior to the Offering, a change in
control would only occur if more than 50% of the Company's common stock was
acquired by a party other than Telxon or the Company's private investors gained
the right to designate a majority of the Company's board. After the Offering a
change in control occurs if 20% of the Company's common stock is acquired or a
majority of the Company's directors have not been presented for election by the
Company's then existing board. The Offering does not constitute a change in
control event, and therefore, royalties payable by Telxon will not cease as a
result of the offering.
NOTE 11 -- LEASES
The Company leases office and manufacturing facilities and certain
equipment under noncancellable operating leases. Future minimum lease payments
for long-term noncancellable operating leases for fiscal years ending March 31
are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 787,633
2001........................................................ 330,084
2002........................................................ 762
----------
$1,118,479
==========
</TABLE>
Rent expense for fiscal 1997, 1998 and 1999 amounted to $508,912, $786,380
and $813,221, respectively. Rent expense in fiscal years 1998 and 1999 included
$110,000 and $412,758, respectively, related to leases with Telxon for the
Company's manufacturing and office facilities.
NOTE 12 -- BUSINESS SEGMENT
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information". The
provisions of this statement require disclosure of financial and descriptive
information about an enterprise's operating segments in annual and interim
financial reports issued to stockholders. The statement defines an operating
segment as a component of an enterprise that engages in business activities that
generate revenue and incur expense, whose operating results are reviewed by the
chief operating decision maker in the determination of resource allocations and
performance, and for which discrete financial information is available. The
Company adopted the provisions of this statement in fiscal 1999.
F-19
<PAGE> 100
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 12 -- BUSINESS SEGMENT, (CONTINUED)
Management has determined that the Company consists of a single operating
segment, therefore, the disclosure requirements of SFAS No. 131 consist only of
revenues based on location of customer and long-lived assets by geographic
location for the years ended March 31 as follows:
<TABLE>
<CAPTION>
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
United States............................. $58,511,315 $38,351,412 $31,826,941
Japan..................................... 229,608 1,675,328 6,809,069
All other countries....................... 2,586,974 5,107,655 6,616,815
----------- ----------- -----------
Total............................. $61,327,897 $45,134,395 $45,252,825
=========== =========== ===========
Long-lived assets, net:
United States............................. $ 3,226,149 $ 2,924,780
Japan..................................... -- --
All other countries....................... 3,751,082 2,652,236
----------- -----------
Total............................. $ 6,977,231 $ 5,577,016
=========== ===========
</TABLE>
Telxon (Note 13) represented 76%, 55% and 37%, respectively, of the
Company's total revenues for the years ended March 31, 1997, 1998 and 1999. The
Company had two other customers that represented 0%, 3% and 28%, respectively,
of total revenues for the years ended March 31, 1997, 1998 and 1999.
The Company provides credit in the normal course of business. The Company
performs ongoing credit evaluations of its customers and establishes appropriate
allowances for doubtful accounts based upon factors surrounding the credit risk
of specific customers, historical trends and other information.
NOTE 13 -- TRANSACTIONS WITH AFFILIATE
The Company supplies Telxon with its radio and wireless LAN products for
inclusion in Telxon's products and for resale as discrete products.
Approximately 76%, 55%, and 37%, respectively, of the Company's consolidated net
product revenues for each of the years ended March 31, 1997, 1998 and 1999 were
derived from Telxon.
Amounts receivable for the sale of such products to Telxon have been
recorded as receivable from affiliate in the accompanying consolidated balance
sheets. Through March 31, 1998, Telxon supported the operations of the Company's
domestic engineering and general and administrative functions through cash
funding of working capital needs. Telxon's advances to the Company have been
included in payable to affiliate in the accompanying consolidated balance sheets
(Note 9).
Effective March 1, 1999, the Company and Telxon amended the existing
License, Rights and Supply Agreement (the "Amended Agreement"), without payment
and without the right of waiver or amendment pursuant to a mutual written
agreement, in which the Company has granted Telxon certain rights and licenses
to accommodate changes in respective business plans. The Amended Agreement
eliminates the previous per unit royalty arrangement and substitutes a fixed
monthly royalty payment of $541,667 for the period March 1, 1999 to March 31,
2000, $416,667 for the period April 1, 2000 to March 31, 2001 and $333,333,
thereafter. The Amended Agreement also enables Telxon the choice of converting
to a per unit royalty on April 1, 2001 or thereafter. Revenue of $481,667 per
month related
F-20
<PAGE> 101
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 13 -- TRANSACTIONS WITH AFFILIATE, (CONTINUED)
to the Amended Agreement will be recognized by the Company during the period
March 1, 1999 through March 31, 2001 and $333,333 per month thereafter, subject
to conversion to a per unit basis by Telxon.
NOTE 14 -- ALLOCATIONS OF COSTS AND EXPENSES
Pursuant to an agreement for services, Telxon provides the Company with
administrative services such as human resource and benefits services, tax
planning and return preparation, payroll processing, computer system services
and legal services. These services are invoiced to the Company monthly at fixed
amounts that were in part based on the Company's direct domestic operating
expenses in relation to the direct domestic operating expenses of Telxon. In
addition, costs associated with Telxon's and the Company's self-insurance health
plan are allocated to the Company based on a ratio of the Company's number of
domestic employees to Telxon's number of domestic employees. The costs to the
Company were $549,836, $723,950 and $756,938 for the years ended March 31, 1997,
1998 and 1999, respectively. Included in these amounts are self-insured health
costs of $185,873, $359,987 and $448,973 for the years ended March 31, 1997,
1998 and 1999, respectively. In addition, direct costs associated with the
Company's property and equipment and directors and officers insurance program
coverages and the Company's life, dental, disability and savings and retirement
plans are paid by Telxon and subsequently reimbursed by the Company. Management
believes these allocations are reasonable, however, while reasonable, they may
not necessarily be indicative of the costs that would have been incurred by the
Company had it performed these functions itself or received services as a
stand-alone entity.
Also, as discussed in Note 9 to the consolidated financial statements, the
Company incurred interest expense to Telxon of $231,507 and $113,448 for the
years ended March 31, 1997 and 1998, respectively, based on the unadjusted
balance of the net payable to affiliate at the end of each month at the one year
LIBOR rate at the beginning of the year (6.34% at April 1, 1997), and, as
discussed in Note 11 to the consolidated financial statements, incurred rent
expense of $110,000 and $412,758 to Telxon for the years ended March 31, 1998
and 1999, respectively.
NOTE 15 -- RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standard Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards of
disclosure and financial statement display for reporting total comprehensive
income and its individual components. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The adoption of SFAS No. 130 in fiscal 1999
did not have a material impact on the Company's financial reporting.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" was issued. SFAS No. 131 supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," and requires
companies to report financial and descriptive information about their reportable
operating segments. The financial information is required to be reported on the
same basis that is used internally for evaluating segment performance and
deciding how to allocate resources to segments. This statement is effective for
periods beginning after December 15, 1997, with interim information required for
the year following adoption. SFAS No. 131 had no impact on the Company's
consolidated financial position, results of operations or cash flows and the
required disclosures have been included in Note 12 to the consolidated financial
statements.
F-21
<PAGE> 102
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 15 -- RECENTLY ISSUED ACCOUNTING STANDARDS, (CONTINUED)
In October 1997, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") 97-2 "Software Revenue
Recognition," which is effective for transactions entered into in fiscal years
beginning after December 15, 1997. SOP 97-2 revises certain standards for the
recognition of software revenue and did not have a material effect on the
Company's financial results. The effect of SOP 97-2 on the future operating
results of the Company is dependent on the nature and terms of the individual
software licensing agreements entered into in fiscal year 2000 and thereafter,
if any.
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which is effective
for fiscal years beginning after December 15, 1998. SOP 98-1 requires the
capitalization of certain expenditures for software that is purchased or
internally developed for use in the business. Company management believes that
the prospective implementation of SOP 98-1 in fiscal year 2000 is likely to
result in some additional capitalization of software expenditures in the future.
However, the amount of such additional capitalized software expenditures cannot
be determined at this time.
In April 1998, the AICPA issued SOP 98-5, "Reporting on the Costs of
Start-up Activities." The SOP provides guidance on financial reporting of costs
of start-up activities. SOP 98-5 requires such costs to be expensed instead of
being capitalized and amortized. SOP 98-5 is effective for fiscal years
beginning after December 15, 1998. The Company believes the implementation of
SOP 98-5 in fiscal year 2000 will not have a material impact on its financial
results.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" was issued. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. The
Company will adopt SFAS No. 133 in fiscal year 2000 and does not expect the
impact of adoption to be material.
NOTE 16 -- EVENTS SUBSEQUENT TO MARCH 31, 1999
STOCK-BASED COMPENSATION
In April 1999, the Board of Directors terminated the 1996 Amended Plan. The
termination eliminates the Company's ability to grant further options under the
1996 Amended Plan but does not affect options outstanding under the 1996 Plan at
termination.
The Company's Board of Directors adopted and approved the Aironet Wireless
Communications, Inc. 1999 Stock Option Plan for Non-Employee Directors (the
"1999 Non-Employee Directors Plan") on April 27, 1999. The Company's
Stockholders adopted and approved the 1999 Non-Employee Directors Plan on May
13, 1999. The 1999 Non-Employee Director Plan entitles each non-employee
Director who is sitting on the Company's Board of Directors on the first day
that the Company's common stock commences trading on NASDAQ subsequent to the
Offering (Note 10), to purchase 25,000 shares of the Company's common stock with
an exercise price equal to the initial public offering price per share. These
grants will be accounted for pursuant to APB Opinion No. 25. In addition, each
non-employee Director who continues to serve on the Company's Board will
automatically be granted options to purchase 5,000 shares of the Company's
common stock on each anniversary of his or her
F-22
<PAGE> 103
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 16 -- EVENTS SUBSEQUENT TO MARCH 31, 1999, (CONTINUED)
election or re-election to the Board. The Board of Directors also retains the
right to grant additional options to non-employee Director at its sole
discretion. Options granted under the 1999 Non-Employee Directors Plan have a
ten-year term and must have an exercise price equal to or greater than the fair
market value of the Company's common stock on the date of grant. Options granted
immediately following the Offering vest ratably over a three-year period while
the options granted on the individual Director's anniversary dates vest three
years after they are granted.
On May 25, 1999, a committee of the Board of Directors approved a grant of
100,000 stock options with an exercise price of $9.00 per share to an officer of
the Company under the terms of the 1999 Plan. In addition, the Board of
Directors approved a grant of 25,000 stock options with an exercise price of
$9.00 per share to a director of the Company for advisory services related to
the Offering under the terms of the 1999 Non-Employee Directors Plan. The
Company intends to account for the grant of 100,000 stock options pursuant to
APB Opinion No. 25 with no compensation expense expected and the grant of 25,000
stock options pursuant to SFAS No. 123 with the resulting charge being reflected
as a reduction of the Offering proceeds.
STOCK PURCHASE PLAN
The Company's Board of Directors approved the Aironet Wireless
Communications, Inc. 1999 Employee Stock Purchase Plan (the "1999 Stock Purchase
Plan") on April 12, 1999. The Company's Stockholders approved the 1999 Stock
Purchase Plan on May 7, 1999. The terms of the 1999 Stock Purchase Plan provide
the opportunity for eligible employees to purchase unrestricted common shares of
the Company, subjected to annual limitations, at a price per share equal to 85%
of the closing price (as defined in the agreement) of the Company's stock. The
total number of shares of common stock that may be purchased under the 1999
Stock Purchase Plan is 500,000 shares.
STOCKHOLDER RIGHTS AGREEMENT
On April 12, 1999, the Board of Directors adopted and approved a
stockholder "Rights Plan" and the Board declared a dividend of one common stock
purchase right on each share of common stock outstanding prior to the
effectiveness of the plan; thereafter, shares are issued pursuant to the plan
with a purchase right. The Rights Plan is designed to deter abusive market
manipulation or unfair takeover tactics and to prevent an acquirer from gaining
control of the Company without offering a fair price to all stockholders. Each
purchase right, when exercisable, entitles the registered holder to purchase one
share of common stock at a price of $125 per share, subject to adjustment. The
purchase rights become exercisable in the event the Company is a party to
certain merger or business combination transactions, as defined, or in the event
an "acquiring person," as defined, becomes a beneficial owner of 15% or more of
the Company's outstanding common stock. In these circumstances, each holder of a
share right (other than the acquiring person) will have the right to receive
shares of the acquiring company or the Company, as appropriate, having a market
value of two times the exercise price of the purchase right. The rights expire
ten years from the effective date of the plan unless earlier redeemed by the
Company. The rights can be redeemed at a price of $.001 per right.
F-23
<PAGE> 104
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, (CONTINUED)
NOTE 16 -- EVENTS SUBSEQUENT TO MARCH 31, 1999, (CONTINUED)
AUTHORIZED CAPITAL STOCK
On April 12, 1999, the Company's Board of Directors approved and adopted an
amended and restated certificate of incorporation which increased the number of
authorized common shares of the Company from 15,000,000 shares to 60,000,000. In
addition, the amended and restated certificate authorized 500,000 shares of
undesignated preferred stock with a par value of $.01 per share.
NOTES PAYABLE AND RECEIVABLE
In April 1999, the Company's revolving credit agreement discussed in Note 7
to the consolidated financial statements was amended to eliminate the
requirement that Telxon's ownership of the Company must be at least 50%. In
April 1999, the Company amended its note receivable agreement discussed in Note
10 to the consolidated financial statements to eliminate the prepayment option
provision. In addition, in May 1999, the note with Telxon discussed in Note 9 to
the consolidated financial statements was cancelled.
F-24
<PAGE> 105
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 MARCH 31,
(UNAUDITED) 1999
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $48,008 $ 6,137
Accounts receivable, trade, net........................... 5,375 4,242
Accounts receivable, other................................ 680 243
Receivable from affiliate................................. 4,051 3,609
Inventories............................................... 5,039 4,625
Deferred tax asset........................................ 802 733
Prepaid expenses and other................................ 678 404
Income taxes receivable................................... 282 620
------- -------
Total current assets.............................. 64,915 20,613
Property and equipment, net................................. 2,717 2,381
Deferred tax asset.......................................... 932 882
Intangible assets, net...................................... 2,725 3,191
Other long-term assets...................................... 5 131
------- -------
Total assets...................................... $71,294 $27,198
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 4,838 $ 4,618
Payable to affiliate...................................... 1,015 2,085
Income taxes payable...................................... 239 30
Deferred tax liability.................................... -- 10
Accrued liabilities....................................... 4,599 3,358
------- -------
Total current liabilities......................... 10,691 10,101
Line of credit............................................ -- 2,500
------- -------
Total liabilities................................. 10,691 12,601
Stockholders' equity:
Common stock, $.01 par value per share; 60,500,000 shares
authorized; 14,203,544 shares issued and outstanding... 142 96
Additional paid-in capital................................ 63,638 19,101
Accumulated deficit....................................... (3,177) (4,600)
------- -------
Total stockholders' equity........................ 60,603 14,597
------- -------
Total liabilities and stockholders' equity........ $71,294 $27,198
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-25
<PAGE> 106
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1999 1998 1999 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues:
Non-affiliate........................................ $10,298 $ 5,049 $19,763 $11,211
Affiliate product.................................. 3,231 2,470 4,724 3,904
Affiliate royalty.................................. 1,445 2,460 2,890 4,341
------- ------- ------- -------
Total revenues............................. 14,974 9,979 27,377 19,456
------- ------- ------- -------
Cost of revenues:
Non-affiliate...................................... 5,800 3,541 11,097 7,449
Affiliate.......................................... 2,420 2,072 3,570 3,286
------- ------- ------- -------
Total cost of revenues..................... 8,220 5,613 14,667 10,735
------- ------- ------- -------
Gross profit:
Non-affiliate...................................... 4,498 1,508 8,666 3,762
Affiliate product.................................. 811 398 1,154 618
Affiliate royalty.................................. 1,445 2,460 2,890 4,341
------- ------- ------- -------
Total gross profit......................... 6,754 4,366 12,710 8,721
------- ------- ------- -------
Operating expenses:
Sales and marketing................................ 2,432 1,274 4,791 2,756
Research and development........................... 1,758 1,527 3,516 3,151
General and administrative......................... 1,067 898 1,848 1,998
Goodwill amortization.............................. 216 216 432 432
------- ------- ------- -------
Total operating expenses................... 5,473 3,915 10,587 8,337
------- ------- ------- -------
Income from operations............................... 1,281 451 2,123 384
Interest (income), net............................... (372) -- (389) (10)
------- ------- ------- -------
Income before income taxes........................... 1,653 451 2,512 394
Provision for income taxes........................... 675 618 1,089 540
------- ------- ------- -------
Net income (loss).................................... $ 978 $ (167) $ 1,423 $ (146)
======= ======= ======= =======
Net income (loss) per common share:
Basic.............................................. $ 0.08 $ (0.02) $ 0.13 $ (0.02)
------- ------- ------- -------
Diluted............................................ $ 0.07 $ (0.02) $ 0.12 $ (0.02)
------- ------- ------- -------
Weighted average shares used in calculating net
income (loss) per common share:
Basic.............................................. 12,303 9,339 10,838 9,277
------- ------- ------- -------
Diluted............................................ 13,480 9,339 12,051 9,277
------- ------- ------- -------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-26
<PAGE> 107
AIRONET WIRELESS COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
------------------
1999 1998
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 1,423 $ (146)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation........................................... 606 653
Amortization........................................... 561 577
Provision for doubtful accounts........................ 163 156
Provision for inventory obsolescence................... 655 96
Deferred income taxes.................................. (129) (109)
Stock compensation expense............................. 224 780
Changes in other assets and liabilities:
Accounts receivable, trade........................... (1,296) 882
Accounts receivable, other........................... (437) (2,259)
Receivable from affiliate......................... (442) (1,534)
Inventories....................................... (1,069) (633)
Prepaid expenses and other assets................. (274) (89)
Income taxes receivable........................... 338 --
Other long-term assets............................ (12) (46)
Accounts payable.................................. 220 575
Payable to affiliate.............................. (1,260) 121
Income taxes payable.............................. 209 650
Accrued liabilities............................... 1,241 680
------- -------
Total adjustments................................. (702) 500
------- -------
Net cash provided by operating activities......... 721 354
Cash flows from investing activities:
Capital expenditures...................................... (942) (563)
Purchases of intangible assets............................ (95) --
------- -------
Net cash used in investing activities............. (1,037) (563)
------- -------
Cash flows from financing activities:
Payable to affiliate...................................... -- (3,648)
Net proceeds from sales of stock.......................... 45,664 1,918
Line of credit............................................ (2,500) 2,500
Options exercised......................................... 202 --
Deferred offering costs................................... (1,179) --
------- -------
Net cash provided by financing activities......... 42,187 770
------- -------
Net (decrease) increase in cash and cash equivalents........ 41,871 561
Cash and cash equivalents at beginning of period............ 6,137 2,864
------- -------
Cash and cash equivalents at end of period.................. $48,008 $ 3,425
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-27
<PAGE> 108
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The financial information herein includes the accounts of Aironet Wireless
Communications, Inc. and its subsidiaries (the "Company"). The accompanying
unaudited consolidated financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all financial information and disclosures
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, these unaudited consolidated financial
statements reflect all adjustments (consisting solely of normal recurring
adjustments) necessary for a fair presentation of the consolidated statement of
financial position as of September 30, 1999 and the related statements of
operations and cash flows for the three-month and six-month periods ended
September 30, 1999 and 1998. The results of operations for interim periods are
not necessarily indicative of the results to be expected for the full year. For
further information refer to the Consolidated Financial Statements and the Notes
thereto included in the Company's Registration Statement on Form S-1, as amended
(Registration No. 333-78507), filed with the Securities and Exchange Commission
on May 14, 1999 and which became effective on July 29, 1999 (the "Registration
Statement") and Form 10-Q filed September 10, 1999.
The Company has no items of other comprehensive income.
NOTE 2 -- INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1999 1999
------------- ---------
(IN THOUSANDS)
<S> <C> <C>
Purchased components................................... $3,915 $3,723
Work-in-process........................................ 401 290
Finished goods......................................... 723 612
------ ------
$5,039 $4,625
====== ======
</TABLE>
NOTE 3 -- NET INCOME PER COMMON SHARE
Basic net income per common share is based on the weighted average number
of common shares outstanding during the period. Diluted net income per common
share is based on the weighted average number of common shares outstanding
during the period plus, if dilutive, the incremental number of common shares
issuable on a pro forma basis upon the exercise of employee and non-employee
stock options and stock purchase warrants, assuming the proceeds are used to
repurchase outstanding shares at the average market price during the quarter. A
reconciliation of the denominators of the basic and diluted per share
computations is provided below:
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------- --------------
1999 1998 1999 1998
------ ----- ------ -----
<S> <C> <C> <C> <C>
Weighted average common shares outstanding -- basic... 12,303 9,339 10,838 9,277
Additional shares potentially issuable for stock
options and stock purchase warrants................... 1,177 -- 1,213 --
------ ----- ------ -----
Weighted average common shares
outstanding -- diluted.............................. 13,480 9,339 12,051 9,277
====== ===== ====== =====
</TABLE>
F-28
<PAGE> 109
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
For the three months ended September 30, 1999 and 1998, 0 and 1,032,737
respectively, of stock options and stock purchase warrants were not included in
the diluted per share computations due to not being "in the money." For the six
months ended September 30, 1999 and 1998, 0 and 1,032,737 respectively, of stock
options and stock purchase warrants were not included in the diluted per share
computations due to not being "in the money." The computations of net income per
common share for all periods presented do not include the effects of any
dilutive incremental common shares related to stock options granted or common
stock warrants issued with exercise rights that are contingent, so long as the
contingency is not resolved.
NOTE 4 -- STOCKHOLDERS' EQUITY AND STOCK WARRANTS AND OPTIONS
STOCKHOLDER RIGHTS AGREEMENT
On April 12, 1999, the Board of Directors adopted and approved a
stockholder "Rights Plan" and the Board declared a dividend of one common stock
purchase right on each share of common stock outstanding prior to the
effectiveness of the plan; thereafter, shares are issued pursuant to the plan
with a purchase right. The Company's Stockholders approved the Rights Plan on
May 7, 1999. The Rights Plan is designed to deter abusive market manipulation or
unfair takeover tactics and to prevent an acquirer from gaining control of the
Company without offering a fair price to all stockholders. Each purchase right,
when exercisable, entitles the registered holder to purchase one share of common
stock at a price of $125 per share, subject to adjustment. The purchase rights
become exercisable in the event the Company is a party to certain merger or
business combination transactions, as defined, or in the event an "acquiring
person," as defined, becomes a beneficial owner of 15% or more of the Company's
outstanding common stock. In these circumstances, each holder of a share right
(other than the acquiring person) will have the right to receive shares of the
acquiring company or the Company, as appropriate, having a market value of two
times the exercise price of the purchase right. The rights expire ten years from
the effective date of the plan unless earlier redeemed by the Company. The
rights can be redeemed at a price of $.001 per right.
CAPITAL STOCK
On August 27, 1999, the Company's underwriters exercised their option to
purchase an additional 846,800 shares to cover over-allotments sold by the
underwriters in our Initial Public Offering ("Offering"), of which 564,562
shares were sold by the Company and 282,238 shares were sold by Telxon, as a
selling stockholder. The closing of this transaction took place on September 1,
1999 with proceeds to the Company of $5,775,469.26.
NOTE 5 -- SUBSEQUENT EVENTS
Effective October 19, 1999, Aironet's Board of Directors entered into
Change of Control agreements with five of its executives. Pursuant to these
agreements, should an executive be terminated without cause or resigns with good
cause within two years of a change of control, that executive will receive
severance pay equivalent to one or two times the executive's prior years' annual
compensation and receive benefit plan coverage for a period of up to two years
from change in control.
Effective October 29, 1999, the Compensation Committee of Aironet's Board
of Directors adopted the First Amendment to the Aironet Wireless Communications,
Inc, 1999 Employee Stock Purchase Plan. The amendment changes the commencement
of the initial payment period from the first day of the
F-29
<PAGE> 110
AIRONET WIRELESS COMMUNICATIONS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
first month following our initial public offering to the first pay day in
November 1999 and makes a technical change relating to foreign subsidiaries.
Pursuant to an Agreement and Plan of Merger and Reorganization dated as of
November 8, 1999 (the "Merger Agreement") by and among Cisco Systems, Inc.
("Cisco"), Aironet and Osprey Acquisition Corporation, a wholly-owned subsidiary
of Cisco ("Merger Sub"), Merger Sub will merge (the "Merger") with and into
Aironet, with the separate corporate existence of Merger Sub ceasing and Aironet
continuing as the surviving corporation and a wholly-owned subsidiary of Cisco.
At the effective time of the Merger (the "Effective Time"), each share of
Aironet's common stock issued and outstanding immediately prior to the Effective
Time will be converted automatically into the right to receive 0.63734 shares of
Cisco's common stock, and the Aironet stock will be deregistered and delisted.
The value of the transaction based on the trading price of Cisco's common stock
on the date of the Merger Agreement is approximately $799 million.
The consummation of the Merger is subject to various conditions precedent,
including (i) approval of the Merger Agreement by the stockholders of Aironet
and (ii) expiration or early termination of the waiting period required under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
Aironet has granted Cisco an option to acquire 2,826,375 shares of its
common stock, at an exercise price of $48 per share, exercisable upon the
occurrence of certain events and has agreed to pay Cisco a fee of $25 million if
the Merger is not consummated and certain events have occurred. In addition,
certain stockholders of Aironet have agreed to vote in favor of the approval of
the Merger Agreement.
In connection with the Merger Agreement, Aironet's Board of Directors
adopted Amendment No. 1 to the Stockholder Rights Agreement dated November 8,
1999. The amendment assures that the purchase rights associated with Aironet's
common stock do not become exercisable as a result of Aironet entering into the
Merger Agreement, consummating the Merger or in the event that Telxon
Corporation transfers its shares of Aironet to a wholly owned subsidiary of
Telxon prior to the Merger. In addition, the Company entered into an Agreement
with Telxon and Cisco dated as of November 8, 1999, pursuant to which certain of
Telxon's agreements with Aironet terminate at the Effective Time of the Merger
and certain other agreements will come into force.
Also in connection with the Merger, Aironet's Board of Directors took
action not to accelerate outstanding options other than those granted under the
1999 Stock Option Plan for Non-Employee Directors and not to cash out any
outstanding options which will be assumed by Cisco. Aironet's employee benefit
plans will not be assumed by Cisco, rather after the Merger eligible employees
will be able to participate in Cisco's benefit plans.
On October 18, 1999, Aironet's Board of Directors granted options under the
1999 Omnibus Stock Incentive Plan to purchase 105,000 shares of the Company's
common stock.
F-30
<PAGE> 111
APPENDIX A
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
CISCO SYSTEMS, INC.,
OSPREY ACQUISITION CORPORATION
AND
AIRONET WIRELESS COMMUNICATIONS, INC.
NOVEMBER 8, 1999
A-1
<PAGE> 112
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER....................................... A-5
1.1 The Merger............................................ A-5
1.2 Closing; Effective Time.......................... A-6
1.3 Effect of the Merger............................. A-6
1.4 Certificate of Incorporation; Bylaws............. A-6
1.5 Directors and Officers........................... A-6
1.6 Effect on Capital Stock.......................... A-6
1.7 Surrender of Certificates........................ A-7
1.8 No Further Ownership Rights in Company Common
Stock................................................. A-9
1.9 Lost, Stolen or Destroyed Certificates........... A-9
1.10 Tax Consequences................................. A-9
1.11 Withholding Rights............................... A-9
1.12 Taking of Necessary Action; Further Action....... A-9
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY....... A-9
2.1 Organization, Standing and Power................. A-10
2.2 Capital Structure................................ A-10
2.3 Authority........................................ A-11
2.4 SEC Documents; Financial Statements.............. A-12
2.5 Absence of Certain Changes....................... A-13
2.6 Absence of Undisclosed Liabilities............... A-13
2.7 Litigation....................................... A-13
2.8 Restrictions on Business Activities.............. A-13
2.9 Governmental Authorization....................... A-14
2.10 Title to Property................................ A-14
2.11 Intellectual Property............................ A-14
2.12 Environmental Matters............................ A-16
2.13 Taxes............................................ A-16
2.14 Employee Benefit Plans........................... A-17
2.15 Certain Agreements Affected by the Merger........ A-19
2.16 Employee Matters................................. A-20
2.17 Interested Party Transactions.................... A-20
2.18 Insurance........................................ A-20
2.19 Compliance With Laws............................. A-21
2.20 Minute Books..................................... A-21
2.21 Complete Copies of Materials..................... A-21
2.22 Brokers' and Finders' Fees....................... A-21
2.23 Registration Statement; Proxy
Statement/Prospectus.................................. A-21
2.24 Opinion of Financial Advisor..................... A-21
2.25 Vote Required.................................... A-22
2.26 Board Approval................................... A-22
2.27 Stockholder Agreement; Irrevocable Proxies....... A-22
2.28 Section 203 of the DGCL Not Applicable........... A-22
2.29 Inventory........................................ A-22
2.30 Accounts Receivable.............................. A-22
2.31 Customers and Suppliers.......................... A-22
2.32 Rights Plan...................................... A-23
2.33 Export Control Laws.............................. A-23
</TABLE>
A-2
<PAGE> 113
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
2.34 Year 2000............................................. A-23
2.35 Representations Complete......................... A-23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB................................................ A-24
3.1 Organization, Standing and Power................. A-24
3.2 Capital Structure................................ A-24
3.3 Authority........................................ A-24
3.4 SEC Documents; Financial Statements.............. A-25
3.5 Absence of Undisclosed Liabilities............... A-25
3.6 Litigation....................................... A-26
3.7 Broker's and Finders' Fees....................... A-26
3.8 Registration Statement; Proxy
Statement/Prospectus.................................. A-26
3.9 Board Approval................................... A-26
3.10 Representations Complete......................... A-26
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME............. A-27
4.1 Conduct of Business of Company................... A-27
4.2 Restrictions on Conduct of Business of Company... A-27
4.3 No Solicitation.................................. A-29
ARTICLE V ADDITIONAL AGREEMENTS............................ A-30
5.1 Proxy Statement/Prospectus; Registration
Statement............................................. A-30
5.2 Meeting of Stockholders.......................... A-31
5.3 Access to Information............................ A-31
5.4 Confidentiality.................................. A-32
5.5 Public Disclosure................................ A-32
5.6 Consents; Cooperation............................ A-32
5.7 Legal Requirements............................... A-33
5.8 Blue Sky Laws.................................... A-33
5.9 Employee Benefit Plans........................... A-33
5.10 Forms S-3 and S-8................................ A-34
5.11 Option Agreement................................. A-35
5.12 Listing of Additional Shares..................... A-35
5.13 Nasdaq Quotation................................. A-35
5.14 Employees........................................ A-35
5.15 Amendment of Stock Option Plan................... A-35
5.16 Company Rights Agreement......................... A-35
5.17 Indemnification.................................. A-35
5.18 Tax Treatment.................................... A-36
5.19 Stockholder Litigation........................... A-36
5.20 Best Efforts and Further Assurances.............. A-36
ARTICLE VI CONDITIONS TO THE MERGER........................ A-37
6.1 Conditions to Obligations of Each Party to Effect
the Merger............................................ A-37
6.2 Additional Conditions to Obligations of
Company............................................... A-37
6.3 Additional Conditions to the Obligations of
Parent and Merger Sub................................. A-38
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER.............. A-39
7.1 Termination...................................... A-39
7.2 Effect of Termination............................ A-40
7.3 Expenses and Termination Fees.................... A-40
</TABLE>
A-3
<PAGE> 114
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
7.4 Amendment............................................. A-42
7.5 Extension; Waiver................................ A-42
ARTICLE VIII GENERAL PROVISIONS............................ A-42
8.1 Non-Survival at Effective Time................... A-42
8.2 Notices.......................................... A-43
8.3 Interpretation................................... A-44
8.4 Counterparts..................................... A-44
8.5 Entire Agreement; Nonassignability; Parties in
Interest.............................................. A-44
8.6 Severability..................................... A-44
8.7 Remedies Cumulative.............................. A-44
8.8 Governing Law.................................... A-44
8.9 Rules of Construction............................ A-45
</TABLE>
SCHEDULES
COMPANY DISCLOSURE SCHEDULE
<TABLE>
<S> <C> <C>
Schedule 2.0 -- Revenue Levels
Schedule 2.10 -- Company Real Property
Schedule 2.11 -- Company Intellectual Property
Schedule 2.13 -- Tax Sharing and Allocation Agreements and Other Tax Matters
Schedule 2.14 -- Company Employee Plans
Schedule 2.27 -- Signatories to Stockholder Agreement
Schedule 5.9(a) -- Outstanding Options
Schedule 5.9(d) -- Disqualified Persons
Schedule 5.10(a) -- S-8 Eligible Optionees
Schedule 5.10(b) -- S-3 Eligible Optionees
Schedule 5.14 -- List of Employees
</TABLE>
PARENT DISCLOSURE SCHEDULE
EXHIBITS
<TABLE>
<S> <C> <C>
Exhibit A -- Option Agreement
Exhibit B -- Stockholder Agreement
Exhibit C -- Certificate of Merger
Exhibit D -- Employment and Non-Competition Agreement
Exhibit E -- FIRPTA Notice
</TABLE>
A-4
<PAGE> 115
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of November 8, 1999, by and among Cisco Systems, Inc.,
a California corporation ("Parent"), Osprey Acquisition Corporation, a Delaware
corporation ("Merger Sub") and wholly owned subsidiary of Parent, and Aironet
Wireless Communications, Inc., a Delaware corporation ("Company").
RECITALS:
A. The Boards of Directors of Company, Parent and Merger Sub believe it is
in the best interests of their respective companies and the stockholders of
their respective companies that Company and Merger Sub combine into a single
company through the statutory merger of Merger Sub with and into Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Company Common Stock, $0.01 par value ("Company Common Stock"), shall be
converted into shares of Parent Common Stock, $0.001 par value ("Parent Common
Stock"), at the rate set forth herein.
C. Company, Parent and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Code.
E. Concurrently with the execution of this Agreement and as an inducement
to Parent and Merger Sub to enter into this Agreement, (a) Company and Parent
have entered into a stock option agreement dated the date hereof in the form
attached hereto as Exhibit A (the "Option Agreement") providing for the purchase
by Parent of newly-issued shares of Company's Common Stock, and (b) certain
stockholders of Company have on the date hereof entered into a stockholder
agreement in the form attached hereto as Exhibit B (the "Stockholder Agreement")
to, among other things, vote the shares of Company's Common Stock owned by such
persons to approve the Merger and against any competing proposals.
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants and representations set
forth herein, and for other good and valuable consideration, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger attached hereto as Exhibit C (the "Certificate of Merger") and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease and Company shall continue as the surviving
corporation. Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation."
A-5
<PAGE> 116
1.2 Closing; Effective Time. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI hereof
or at such other time as the parties hereto agree (the "Closing Date"). The
Closing shall take place at the offices of Brobeck, Phleger & Harrison LLP, Two
Embarcadero Place, 2200 Geng Road, Palo Alto, CA 94303, or at such other
location as the parties hereto agree. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing the
Certificate of Merger with the Secretary of State of the State of Delaware, in
accordance with the relevant provisions of Delaware Law (the time of such filing
being the "Effective Time").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of Merger Sub,
as in effect immediately prior to the Effective Time, shall be the Certificate
of Incorporation of the Surviving Corporation until thereafter amended as
provided by Delaware Law and such Certificate of Incorporation; provided,
however, that immediately after the Effective Time the Certificate of
Incorporation of the Surviving Corporation shall be amended so as to read in its
entirety like the Certificate of Incorporation of Merger Sub with Article I of
the Certificate of Incorporation amended to read as follows: "The name of the
corporation is Aironet Wireless Communications, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended; provided, however, that immediately after the Effective Time
the Bylaws of the Surviving Corporation shall be amended so as to read in their
entirety like the Bylaws of Merger Sub.
1.5 Directors and Officers. At the Effective Time, the directors of the
Surviving Corporation shall be those persons who were the directors of Merger
Sub. The officers of the Surviving Corporation shall be the initial officers of
Merger Sub, until their respective successors are duly elected or appointed and
qualified.
1.6 Effect on Capital Stock. By virtue of the Merger and without any
action on the part of Merger Sub, Company or the holders of any of the following
securities:
(a) Conversion of Company Common Stock. At the Effective Time, each
share of Company Common Stock issued and outstanding immediately prior to
the Effective Time together with the corresponding Right (as defined in the
Rights Agreement dated as of June 25, 1999 (the "Company Rights Agreement")
between Company and Harris Savings Bank (other than any shares of Company
Common Stock to be canceled pursuant to Section 1.6(b)) will be canceled
and extinguished and be converted automatically into the right to receive
0.63734 shares of Parent Common Stock (the "Exchange Ratio"). All
references in this Agreement to Parent Common Stock to be issued pursuant
to the Merger shall be deemed to include the corresponding rights ("Parent
Rights") to purchase shares of Parent Series A Junior Participating
Preferred Stock, no par value, pursuant to the Parent Rights Agreement
dated as of June 10, 1998 between Parent and Bank Boston, N.A., except
where the context otherwise requires.
(b) Cancellation of Company Common Stock Owned by Parent or
Company. At the Effective Time, all shares of Company Common Stock that are
owned by Company as treasury stock and
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each share of Company Common Stock owned by Parent or any direct or
indirect wholly owned subsidiary of Parent or of Company immediately prior
to the Effective Time shall be canceled and extinguished without any
conversion thereof.
(c) Company Stock Option Plans. At the Effective Time, the Company's
1999 Stock Option Plan for Non-Employee Directors, Amended and Restated
1996 Stock Option Plan, as amended (including all prior versions thereof),
and 1999 Omnibus Stock Incentive Plan (collectively, the "Company Stock
Option Plans") and all options to purchase Company Common Stock then
outstanding under the Company Stock Option Plans shall be assumed by Parent
in accordance with Section 5.9.
(d) Capital Stock of Merger Sub. At the Effective Time, each share of
common stock, $0.001 par value, of Merger Sub ("Merger Sub Common Stock")
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock of the Surviving Corporation, and the
Surviving Corporation shall be a wholly-owned subsidiary of Parent. Each
stock certificate of Merger Sub evidencing ownership of any such shares
shall continue to evidence ownership of such shares of capital stock of the
Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock),
reorganization, recapitalization or other like change with respect to
Parent Common Stock or Company Common Stock occurring after the date hereof
and prior to the Effective Time and of any increase in the number of shares
of Company Common Stock outstanding after the date hereof (treating as
outstanding as of the date hereof, up to 461,904 shares of Common Stock
issuable upon exercise of outstanding warrants, up to 1,972,533 shares of
Common Stock issuable upon exercise of outstanding options and up to 75,000
shares of Common Stock issuable upon exercise of options issued between the
date hereof and the Effective Date) relative to such number as derived from
Section 2.2 hereof, so as to provide holders of Company Common Stock and
Parent the same economic effect as contemplated by this Agreement prior to
such stock split, reverse split, stock dividend, reorganization,
recapitalization, like change or increase.
(f) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of shares of Company Common
Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common
Stock to be received by such holder) shall receive from Parent an amount of
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing price of a share of Parent
Common Stock as quoted on the NASDAQ National Market for the ten (10)
trading days ending on the last full trading day prior to the Effective
Time.
1.7 Surrender of Certificates.
(a) Exchange Agent. Parent's transfer agent shall act as exchange agent
(the "Exchange Agent") in the Merger.
(b) Parent to Provide Common Stock and Cash. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such reasonable procedures as Parent may
adopt, (i) the shares of Parent Common Stock issuable pursuant to Section 1.6(a)
in exchange for shares of Company Common Stock outstanding immediately prior to
the Effective Time (provided that delivery of any shares that are subject to
vesting or other restrictions shall
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be in book entry form until such vesting or other restrictions lapse) and (ii)
cash in an amount sufficient to permit payment of cash in lieu of fractional
shares pursuant to Section 1.6(f).
(c) Exchange Procedures. Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each holder of record of a certificate
or certificates (the "Certificates") which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock, whose shares were
converted into the right to receive shares of Parent Common Stock (and cash in
lieu of fractional shares) pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Certificates shall pass, only upon receipt of the Certificates by the
Exchange Agent, and shall be in such form and have such other provisions as
Parent may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates (or book entries in
the case of shares that are subject to vesting or other restrictions)
representing shares of Parent Common Stock (and cash in lieu of fractional
shares). Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate (or book entry in the case of
shares that are subject to vesting or other restrictions) representing the
number of whole shares of Parent Common Stock and payment in lieu of fractional
shares which such holder has the right to receive pursuant to Section 1.6, and
the Certificate so surrendered shall forthwith be canceled. Until so
surrendered, each outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from and after the
Effective Time, for all corporate purposes, other than the payment of dividends,
to evidence the ownership of the number of full shares of Parent Common Stock
into which such shares of Company Common Stock shall have been so converted and
the right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 1.6.
(d) Distributions With Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock with a record date after the
Effective Time will be paid to the holder of any unsurrendered Certificate with
respect to the shares of Parent Common Stock represented thereby until the
holder of record of such Certificate shall surrender such Certificate. Subject
to applicable law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest, at the time
of such surrender, the amount of any such dividends or other distributions with
a record date after the Effective Time theretofore payable (but for the
provisions of this Section 1.7(d)) with respect to such shares of Parent Common
Stock.
(e) Transfers of Ownership. If any certificate for shares of Parent Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this Section
1.7, none of the Exchange Agent, the Surviving Corporation, Parent or any party
hereto shall be liable to any person for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
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1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (including any cash paid in
lieu of fractional shares) shall be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common Stock,
and there shall be no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common 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 I.
1.9 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common Stock
(and cash in lieu of fractional shares) as may be required pursuant to Section
1.6; provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged to
have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11 Withholding Rights. Parent and the Surviving Corporation shall be
entitled to deduct and withhold from the number of shares of Parent Common Stock
otherwise deliverable under this Agreement, and from any other payments made
pursuant to this Agreement, such amounts as Parent and the Surviving Corporation
are required to deduct and withhold with respect to such delivery and payment
under the Code or any provision of state, local, provincial or foreign tax law.
To the extent that amounts are so withheld, such withheld amounts shall be
treated for all purposes of this Agreement as having been delivered and paid to
the holder of shares of Company Common Stock in respect of which such deduction
and withholding was made by Parent and the Surviving Corporation.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub are fully authorized in the name of their respective corporations
or otherwise to take, and will take, all such lawful and necessary action, so
long as such action is not inconsistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
In this Agreement, any reference to any event, change, condition or effect
being "material" with respect to any person means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such person and its subsidiaries, taken
as a whole. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any person means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such person and
its subsidiaries, taken as a whole, provided, however, that a "Material Adverse
Effect" with respect to Company shall not include the following (collectively,
"Non-Controllable Events"): (i) general changes in the telecommunications
industry or
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economic conditions that affect Company and its subsidiaries, taken as a whole,
substantially proportionately relative to the Parent and its subsidiaries, taken
as a whole or (ii) a decline in the revenues or earnings of Company following
the date of this Agreement which is attributable to a delay of, reduction in or
cancellation or change in the purchase orders by customers of Company arising as
a result of the execution or announcement of this Agreement (provided that
revenues do not decline below the levels set forth in Schedule 2.0). A decline
of revenues below such levels shall be deemed to be a Material Adverse Effect on
Company.
In this Agreement, any reference to a party's "knowledge" means such
party's actual knowledge after reasonable inquiry of officers, directors and
other employees of such party charged with senior administrative or operational
responsibility for such matters.
Except as disclosed in that section of the document of even date herewith
delivered by Company to Parent prior to the execution and delivery of this
Agreement (the "Company Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Company Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Company represents and warrants
to Parent and Merger Sub as follows:
2.1 Organization, Standing and Power. Each of Company and its subsidiaries
is a corporation duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization. Each of Company and its subsidiaries
has the corporate power to own its properties and to carry on its business as
now being conducted and as presently proposed to be conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified and in good standing would have a Material
Adverse Effect on Company. Company has delivered to Parent a true and correct
copy of the Amended and Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), and Second Amended and Restated Bylaws, as
amended, or other charter documents, as applicable, of Company and each of its
subsidiaries, each as amended to date. Neither Company nor any of its
subsidiaries is in violation of any of the provisions of its respective charters
or bylaws. Company is the owner of all outstanding shares of capital stock of
each of its subsidiaries and all such shares are duly authorized, validly
issued, fully paid and nonassessable. All of the outstanding shares of capital
stock of each such subsidiary are owned by Company free and clear of all liens,
charges, claims or encumbrances or rights of others. There are no outstanding
subscriptions, options, warrants, puts, calls, rights, exchangeable or
convertible securities or other commitments or agreements of any character
relating to the issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating Company or any such subsidiary to issue,
transfer, sell, purchase, redeem or otherwise acquire any such securities.
Except as disclosed in the Company SEC Documents (as defined in Section 2.4),
Company does not directly or indirectly own any equity or similar interest in,
or any interest convertible or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or other
business association or entity.
2.2 Capital Structure. The authorized capital stock of Company consists of
60,000,000 shares of Common Stock, $0.01 par value, and 500,000 shares of
Preferred Stock, $0.01 par value, of which there were issued and outstanding as
of the close of business on November 3, 1999, 14,202,910 shares of Common Stock
and no shares of Preferred Stock. There are no other outstanding shares of
capital stock or voting securities and no outstanding commitments to issue any
shares of capital stock or voting securities after November 3, 1999 other than
pursuant to the Option Agreement, the exercise of options outstanding as of such
date under the Company Stock Option Plans or pursuant to the Company Employee
Stock Purchase Plan (the "Company ESPP"). All outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and non-assessable
and are free of any liens or
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encumbrances other than any liens or encumbrances created by or imposed upon the
holders thereof, and are not subject to preemptive rights or rights of first
refusal created by statute, the Certificate of Incorporation or Bylaws of
Company or any agreement to which Company is a party or by which it is bound. As
of the close of business on November 3, 1999, Company has reserved (i) 4,238,817
shares of Common Stock for issuance to employees, consultants and directors
pursuant to the Company Stock Option Plans, of which 349,301 shares have been
issued pursuant to option exercises or direct stock purchases, 1,972,533 shares
are subject to outstanding, unexercised options, no shares are subject to
outstanding stock purchase rights, and 1,346,983 shares are available for
issuance thereunder and (ii) 500,000 shares of Common Stock for issuance to
employees pursuant to the Company ESPP, of which no shares have been issued.
Since November 3, 1999, Company has not (i) issued or granted additional options
under the Company Stock Option Plans, or (ii) accepted enrollments in the
Company ESPP. Except for (i) the rights created pursuant to this Agreement, the
Option Agreement, the Company Stock Option Plans, the Company Rights Agreement
and the Company ESPP and (ii) the Company's rights to repurchase any unvested
shares under the Company Stock Option Plans, there are no other options,
warrants, calls, rights, commitments or agreements of any character to which
Company is a party or by which it is bound obligating Company to issue, deliver,
sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased
or redeemed, any shares of capital stock of Company or obligating Company to
grant, extend, accelerate the vesting of, change the price of, or otherwise
amend or enter into any such option, warrant, call, right, commitment or
agreement. There are no contracts, commitments or agreements relating to voting,
purchase or sale of Company's capital stock (i) between or among Company and any
of its stockholders and (ii) to the best of Company's knowledge, between or
among any of Company's stockholders. The terms of the Company Stock Option Plans
permit the assumption or substitution of options to purchase Parent Common Stock
as provided in this Agreement, without the consent or approval of the holders of
such securities, stockholders, or otherwise. The current "Purchase Period" (as
defined in the Company ESPP) commenced under the Company ESPP on November 12,
1999, and will end on the earlier of the day immediately prior to the Effective
Time and December 31, 1999, and except for the purchase rights granted on such
commencement date to participants in the current Purchase Period, there are no
other purchase rights or options outstanding under the Company ESPP. True and
complete copies of all agreements and instruments relating to or issued under
the Company Stock Option Plans or Company ESPP have been made available to
Parent and such agreements and instruments have not been amended, modified or
supplemented, and there are no agreements to amend, modify or supplement such
agreements or instruments in any case from the form made available to Parent.
The shares of Company Common Stock issued under the Amended and Restated 1996
Stock Option Plan, as amended and under all prior versions thereof, have not
been registered under the Securities Act and were issued in transactions which
qualified for exemptions under, either Section 4(2) of, or Rule 701 under, the
Securities Act for stock issuances under compensatory benefit plans.
2.3 Authority. Company has all requisite corporate power and authority to
enter into this Agreement and the Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Option Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of Company, subject only to the approval of the
Merger by Company's stockholders as contemplated by Section 6.1(a). Each of this
Agreement and the Option Agreement has been duly executed and delivered by
Company and constitutes the valid and binding obligation of Company enforceable
against Company in accordance with its terms, except as enforceability may be
limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity. The execution and delivery
of this Agreement and the Option Agreement by Company does not, and the
consummation of the transactions contemplated hereby will not, conflict
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with, or result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any provision of
the Certificate of Incorporation or Bylaws of Company or any of its
subsidiaries, as amended, or (ii) any material mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Company or any of its subsidiaries or any of their properties or
assets. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Company or any of its subsidiaries in connection
with the execution and delivery of this Agreement, the Option Agreement, or the
consummation of the transactions contemplated hereby and thereby, except for (i)
the filing of the Certificate of Merger as provided in Section 1.2; (ii) the
filing with the Securities and Exchange Commission (the "SEC") and the National
Association of Securities Dealers, Inc. (the "NASD") of the Proxy Statement (as
defined in Section 2.23) relating to the Company Stockholders Meeting (as
defined in Section 2.23); (iii) such consents, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable state securities laws and the securities laws of any foreign country;
(iv) such filings as may be required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR"); (v) the filing of a Form S-4
Registration Statement with the SEC in accordance with the Securities Act of
1933, as amended; (vi) the filing of a Current Report on Form 8-K with the SEC;
and (vii) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Company and would not prevent, or materially alter or delay any of the
transactions contemplated by this Agreement or the Option Agreement.
2.4 SEC Documents; Financial Statements. Company has made available to
Parent a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b) of the
Securities Act of 1933, as amended (the "Securities Act")), definitive proxy
statement and other filings made with the SEC by Company since May 1, 1999, and,
prior to the Effective Time, Company will have furnished Parent with true and
complete copies of any additional documents filed with the SEC by Company prior
to the Effective Time (collectively, the "Company SEC Documents"). In addition,
Company has made available to Parent all exhibits to the Company SEC Documents
filed prior to the date hereof, and will promptly make available to Parent all
exhibits to any additional Company SEC Documents filed prior to the Effective
Time. All documents required to be filed as exhibits to the Company SEC
Documents have been so filed, and all material contracts so filed as exhibits
are in full force and effect, except those which have expired in accordance with
their terms, and neither Company nor any of its subsidiaries is in material
default thereunder. As of their respective filing dates, the Company SEC
Documents complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act, and none of the Company SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed Company SEC Document. The financial statements
of Company, including the notes thereto, included in the Company SEC Documents
(the "Company Financial Statements") were complete and correct in all material
respects as of their respective dates, complied as to form in all material
respects with applicable accounting requirements and with the published rules
and regulations of the SEC with respect thereto as of their respective dates,
and have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied on a basis consistent throughout the
periods indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The Company
Financial Statements fairly present the consolidated
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financial condition and operating results of Company and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). There has been
no change in Company accounting policies since June 30, 1999, except as
described in the notes to the Company Financial Statements.
2.5 Absence of Certain Changes. Since June 30, 1999 (the "Company Balance
Sheet Date"), Company has conducted its business in the ordinary course
consistent with past practice and there has not occurred: (i) any change, event
or condition (whether or not covered by insurance) that has resulted in, or
might reasonably be expected to result in, a Material Adverse Effect to Company;
(ii) any acquisition, sale or transfer of any material asset of Company or any
of its subsidiaries other than in the ordinary course of business and consistent
with past practice; (iii) any change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by
Company or any revaluation by Company of any of its or any of its subsidiaries'
assets; (iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Company, or any direct or indirect
redemption, purchase or other acquisition by Company of any of its shares of
capital stock; (v) any material contract entered into by Company or any of its
subsidiaries, other than in the ordinary course of business and as provided to
Parent, or any material amendment or termination of, or default under, any
material contract to which Company or any of its subsidiaries is a party or by
which it is bound; (vi) any amendment or change to the Certificate of
Incorporation or Bylaws or, except as contemplated by Section 2.32 hereof,
Rights Agreement of Company; or (vii) any increase in or modification of the
compensation or benefits payable, or to become payable, by Company to any of its
directors or employees, other than pursuant to scheduled annual performance
reviews, provided that any resulting modifications are in the ordinary course of
business and consistent with Company's past practices. Company has not agreed
since June 30, 1999 to do any of the things described in the preceding clauses
(i) through (vii) and is not currently involved in any negotiations to do any of
the things described in the preceding clauses (i) through (vii) (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.6 Absence of Undisclosed Liabilities. Company has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for in the
Balance Sheet included in Company's Quarterly Report on Form 10-Q for the period
ended June 30, 1999 (the "Company Balance Sheet"), (ii) those incurred in the
ordinary course of business and not required to be set forth in the Company's
Balance Sheet under GAAP, (iii) those incurred in the ordinary course of
business since the Company Balance Sheet Date and not reasonably likely to have
a Material Adverse Effect on Company; and (iv) those incurred in connection with
the execution of this Agreement.
2.7 Litigation. There is no private or governmental action, suit,
proceeding, claim, arbitration or investigation pending before any agency, court
or tribunal, foreign or domestic, or, to the knowledge of Company or any of its
subsidiaries, threatened against Company or any of its subsidiaries or any of
their respective properties or any of their respective officers or directors (in
their capacities as such) that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Company. There is no
judgment, decree or order against Company or any of its subsidiaries, or, to the
knowledge of Company and its subsidiaries, any of their respective directors or
officers (in their capacities as such), that would prevent, enjoin, alter or
materially delay any of the transactions contemplated by this Agreement, or that
would reasonably be expected to have a Material Adverse Effect on Company.
2.8 Restrictions on Business Activities. There is no agreement, judgment,
injunction, order or decree binding upon Company or any of its subsidiaries
which has or reasonably would be expected to
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have the effect of prohibiting or materially impairing any business practice of
Company or any of its subsidiaries, any acquisition of property by Company or
any of its subsidiaries or the conduct of business by Company or any of its
subsidiaries.
2.9 Governmental Authorization. Company and each of its subsidiaries have
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Company or any of its subsidiaries currently operates or holds
any interest in any of its properties or (ii) that is required for the operation
of Company's or any of its subsidiaries' business or the holding of any such
interest ((i) and (ii) herein collectively called "Company Authorizations"), and
all of such Company Authorizations are in full force and effect, except where
the failure to obtain or have any of such Company Authorizations would not
reasonably be expected to have a Material Adverse Effect on Company.
2.10 Title to Property. Company and its subsidiaries have good and valid
title to all of their respective properties, interests in properties and assets,
real and personal, reflected in the Company Balance Sheet or acquired after the
Company Balance Sheet Date (except properties, interests in properties and
assets sold or otherwise disposed of since the Company Balance Sheet Date in the
ordinary course of business), or in the case of leased properties and assets,
valid leasehold interests in, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the lien of 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, (iii) liens
securing debt which is reflected on the Company Balance Sheet, and (iv) liens
that in the aggregate would not have a Material Adverse Effect on Company. The
plants, property and equipment of Company and its subsidiaries that are used in
the operations of their businesses are in good operating condition and repair,
except when the failure to do so would not have a Material Adverse Effect. All
properties used in the operations of Company and its subsidiaries are reflected
in the Company Balance Sheet to the extent generally accepted accounting
principles require the same to be reflected. Schedule 2.10 identifies each
parcel of real property owned or leased by Company or any of its subsidiaries.
No lease relating to a foreign parcel contains any extraordinary payment
obligation.
2.11 Intellectual Property.
(a) Company and its subsidiaries own, or are licensed or otherwise possess
legally enforceable and unencumbered rights to use all patents, trademarks,
trade names, service marks, domain names, database rights, copyrights, and any
applications therefor, maskworks, net lists, schematics, technology, know-how,
trade secrets, inventory, ideas, algorithms, processes, computer software
programs or applications (in both source code, except in circumstances where
Company only possesses a license to the object code form, and object code form),
and tangible or intangible proprietary information or material ("Intellectual
Property") that are used in the business of Company and its subsidiaries.
Company owns and possesses source code for all software owned by Company and
owns or has valid licenses and possesses source code for all products owned,
distributed and presently supported by Company. Company has not (i) licensed any
of its Intellectual Property in source code form to any party or (ii) entered
into any exclusive agreements relating to its Intellectual Property. No
royalties or other continuing payment obligations are due in respect of Third
Party Intellectual Property Rights.
(b) Schedule 2.11 lists (i) all patents and patent applications and all
registered trademarks, trade names and service marks, registered copyrights, and
maskworks included in the Intellectual Property, including the jurisdictions in
which each such Intellectual Property right has been issued or registered or in
which any application for such issuance and registration has been filed, (ii)
all licenses, sublicenses and other agreements as to which Company is a party
and pursuant to which any person is authorized to
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use any Intellectual Property (except for non-material licenses entered into by
Company in the ordinary course of business), and (iii) all licenses, sublicenses
and other agreements as to which Company is a party and pursuant to which
Company is authorized to use any third party patents, trademarks or copyrights,
including software ("Third Party Intellectual Property Rights") which are
incorporated in, are, or form a part of any Company product, other than
commercially available, off-the-shelf software.
(c) There is no unauthorized use, disclosure, infringement or
misappropriation of any Intellectual Property rights of Company or any of its
subsidiaries, or any Intellectual Property right of any third party to the
extent licensed by or through Company or any of its subsidiaries, by any third
party, including any employee or former employee of Company or any of its
subsidiaries. Neither Company nor any of its subsidiaries has entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
purchase orders, license agreements and distribution and other customer
agreements arising in the ordinary course of business.
(d) Company is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under this
Agreement, in breach of any license, sublicense or other agreement relating to
the Intellectual Property or Third Party Intellectual Property Rights.
(e) All patents, trademarks, service marks and copyrights held by Company
are valid and subsisting. Company (i) has not been sued in any suit, action or
proceeding (or received any notice or, to Company's knowledge, threat) which
involves a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right of any
third party and (ii) has not brought any action, suit or proceeding for
infringement of Intellectual Property or breach of any license or agreement
involving Intellectual Property against any third party. The manufacture,
marketing, licensing or sale of Company's products does not infringe any patent,
trademark, service mark, copyright, trade secret or other proprietary right of
any third party.
(f) Company has secured valid written assignments from all consultants and
employees who contributed to the creation or development of Intellectual
Property of the rights to such contributions that Company does not already own
by operation of law.
(g) Company has taken all reasonably necessary steps to protect and
preserve the confidentiality of all Intellectual Property not otherwise
protected by patents or patent applications or copyright ("Confidential
Information"). All use, disclosure or appropriation of Confidential Information
owned by Company by or to a third party has been pursuant to the terms of a
written agreement between Company and such third party. All use, disclosure or
appropriation of Confidential Information not owned by Company has been pursuant
to the terms of a written agreement between Company and the owner of such
Confidential Information, or is otherwise lawful.
(h) There are no actions that must be taken by Company or any subsidiary
within sixty (60) days of the Closing Date that, if not taken, will result in
the loss of any Intellectual Property, including the payment of any
registration, maintenance or renewal fees or the filing of any responses to the
U.S. Patent and Trademark Office actions, documents, applications or
certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Intellectual Property.
(i) Company has not received any opinion of counsel that any third party
patents apply to the Company's products.
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2.12 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and orders that
are intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to,
or list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public.
(ii) "Hazardous Materials" shall mean any toxic or hazardous
substance, material or waste or any pollutant or contaminant, or infectious
or radioactive substance or material, including without limitation, those
substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws.
(iii) "Property" shall mean all real property leased or owned by
Company or its subsidiaries either currently or in the past.
(iv) "Facilities" shall mean all buildings and improvements on the
Property of Company or its subsidiaries.
(b) Company represents and warrants that, except in all cases as, in the
aggregate, would not have a Material Adverse Effect on Company, as follows: (i)
no methylene chloride or asbestos is contained in or has been used at or
released from the Facilities; (ii) all Hazardous Materials and wastes have been
disposed of in accordance with all Environmental and Safety Laws; (iii) Company
and its subsidiaries have received no notice (verbal or written) of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (iv) no notices, administrative actions or suits
are pending or, to Company's knowledge, threatened relating to a violation of
any Environmental and Safety Laws; (v) to Company's knowledge, neither Company
nor its subsidiaries are a potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),
or state analog statute, arising out of events occurring prior to the Closing
Date; (vi) there have not been in the past, and are not now, any Hazardous
Materials on, under or migrating to or from the Facilities or Property; (vii)
there have not been in the past, and are not now, any underground tanks or
underground improvements at, on or under the Property including without
limitation, treatment or storage tanks, sumps, or water, gas or oil wells;
(viii) there are no polychlorinated biphenyls (PCBs) deposited, stored, disposed
of or located on the Property or Facilities or any equipment on the Property
containing PCBs at levels in excess of 50 parts per million; (ix) there is no
formaldehyde on the Property or in the Facilities, nor any insulating material
containing urea formaldehyde in the Facilities; (x) the Facilities and Company's
and its subsidiaries uses and activities therein have at all times complied with
all Environmental and Safety Laws; and (xi) Company and its subsidiaries have
all the permits and licenses required to be issued and are in full compliance
with the terms and conditions of those permits.
2.13 Taxes. Company and each of its subsidiaries, and any consolidated,
combined, unitary or aggregate group for Tax (as defined below) purposes of
which Company or any of its subsidiaries is or has been a member, have properly
completed and timely filed all Tax Returns required to be filed by them and have
paid all Taxes shown thereon to be due. Company has provided adequate accruals
in accordance with GAAP in the Company Balance Sheet for any Taxes of the
Company and its subsidiaries that have not been paid with respect to periods
through June 30, 1999. The Company has no material liability for unpaid Taxes
accruing after June 30, 1999 other than Taxes arising in the ordinary course of
its business subsequent to June 30, 1999. There is (i) no material claim for
Taxes that
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is a lien against the property of Company or any of its subsidiaries or is being
asserted against Company or any of its subsidiaries other than liens for Taxes
not yet due and payable; (ii) no audit of any Tax Return of Company or any of
its subsidiaries that is being conducted by a Tax authority; (iii) no extension
of the statute of limitations on the assessment of any Taxes that has been
granted by Company or any of its subsidiaries and that is currently in effect;
and (iv) no agreement, contract or arrangement to which Company or any of its
subsidiaries is a party that may result in the payment of any amount that would
not be deductible by reason of Sections 280G, 162 or 404 of the Code. Neither
Company nor any of its subsidiaries has been or will 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. Neither Company nor any of its
subsidiaries has filed or will file any consent to have the provisions of
paragraph 341(f)(2) of the Code (or comparable provisions of any state Tax laws)
apply to Company or any of its subsidiaries. All Tax sharing or Tax allocation
agreements to which Company or any of its subsidiaries is a party are listed on
Schedule 2.13 together with any liability of Company or its subsidiaries to
another party under any such agreement which is either currently owing or which
would result from assertions currently being made by Tax Authorities from audits
or proceedings in progress. Neither Company nor any of its subsidiaries has
filed any disclosures under Section 6662 or comparable provisions of state,
local or foreign law to prevent the imposition of penalties with respect to any
Tax reporting position taken on any Tax Return. Except as set forth on Schedule
2.13, neither Company nor any of its subsidiaries has ever been a member of a
consolidated, combined or unitary group of which Company was not the ultimate
parent corporation. Company and each of its subsidiaries have in their
possession receipts for any Taxes paid to foreign Tax authorities. For purposes
of this Agreement, the following terms have the following meanings: "Tax" (and,
with correlative meaning, "Taxes" and "Taxable") means (i) any net income,
alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, 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; and
(iii) any liability for the payment of any amounts of the type described in (i)
or (ii) as a result of being a transferee of or successor to any person or as a
result of any express or implied obligation to indemnify any other person,
including pursuant to any Tax sharing or Tax allocation agreement. As used
herein, "Tax Return" shall mean any return, statement, report or form
(including, without limitation estimated Tax returns and reports, withholding
Tax returns and reports and information reports and returns) required to be
filed with respect to Taxes. Neither Company nor any of its subsidiaries has
ever been a United States real property holding corporation within the meaning
of Section 897 of the Code.
2.14 Employee Benefit Plans.
(a) Schedule 2.14 lists, with respect to Company, any subsidiary of Company
and any trade or business (whether or not incorporated) which is treated as a
single employer with Company (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, (i) all material employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA")); (ii) each loan to a non-officer employee in
excess of $50,000, loans to officers and directors and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental retirement,
severance, sabbatical, medical, dental, vision care, disability, employee
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relocation, cafeteria benefit (Code section 125) or dependent care (Code Section
129), life insurance or accident insurance plans, programs or arrangements;
(iii) all bonus, pension, profit sharing, savings, deferred compensation or
incentive plans, programs or arrangements; (iv) other fringe or employee benefit
plans, programs or arrangements that apply to senior management of Company and
that do not generally apply to all employees; and (v) any current or former
employment or executive compensation or severance agreements, written or
otherwise, as to which unsatisfied obligations of Company of greater than
$50,000 remain for the benefit of, or relating to, any present or former
employee, consultant or director of Company (together, the "Company Employee
Plans").
(b) Company has furnished to Parent a copy of each of the Company Employee
Plans and related plan documents (including trust documents, insurance policies
or contracts, employee booklets, summary plan descriptions and other authorizing
documents, and any material employee communications relating thereto) and has,
with respect to each Company Employee Plan which is subject to ERISA reporting
requirements, provided copies of the Form 5500 reports filed for the last three
plan years. Any Company Employee Plan intended to be qualified under Section
401(a) of the Code has either obtained from the Internal Revenue Service a
favorable determination letter as to its qualified status under the Code,
including all amendments to the Code effected by the Tax Reform Act of 1986 and
subsequent legislation other than the Uruguay Round Agreements Act of 1994, the
Uniformed Services Employment and Reemployment Rights Act of 1994, the Small
Business Job Protection Act of 1996, and the Taxpayer Relief Act of 1997, or has
applied to the Internal Revenue Service for such a determination letter prior to
the expiration of the requisite period under applicable Treasury Regulations or
Internal Revenue Service pronouncements in which to apply for such determination
letter and to make any amendments necessary to obtain a favorable determination.
Company has also furnished Parent with the most recent Internal Revenue Service
determination letter issued with respect to each such Company Employee Plan, and
nothing has occurred since the issuance of each such letter which would
reasonably be expected to cause the loss of the tax-qualified status of any
Company Employee Plan subject to Code Section 401(a). Company has also furnished
Parent with all registration statements and prospectuses prepared in connection
with each Company Employee Plan.
(c)(i) None of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, except as required by
applicable law; (ii) there has been no "prohibited transaction," as such term is
defined in Section 406 of ERISA and Section 4975 of the Code, with respect to
any Company Employee Plan, which would reasonably be expected to have, in the
aggregate, a Material Adverse Effect on Company; (iii) each Company Employee
Plan has been administered in accordance with its terms and in compliance with
the requirements prescribed by any and all statutes, rules and regulations
(including ERISA and the Code), except as would not have, in the aggregate, a
Material Adverse Effect on Company, and Company and each subsidiary or ERISA
Affiliate have performed in all material respects all obligations required to be
performed by them under, are not in default in any material respect under or
violation of, and have no knowledge of any material default or violation by any
other party to, any of the Company Employee Plans; (iv) neither Company nor any
subsidiary or ERISA Affiliate is subject to any material liability or material
penalty under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Company Employee Plans; (v) all material contributions
required to be made by Company or any subsidiary or ERISA Affiliate to any
Company Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Company Employee
Plan for the current plan years; (vi) with respect to each Company Employee
Plan, no "reportable event" within the meaning of Section 4043 of ERISA
(excluding any such event for which the thirty (30) day notice requirement has
been waived under the regulations to Section 4043 of ERISA) nor any event
described in Section 4062, 4063 or 4041 or ERISA has occurred; (vii) no Company
Employee Plan is covered by, and neither Company nor any
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subsidiary or ERISA Affiliate has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Code; and (viii) each Company
Employee Plan can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without liability to Parent (other
than for benefits accrued through the date of termination and ordinary
administrative expenses typically incurred in a termination event). With respect
to each Company Employee Plan subject to ERISA as either an employee pension
plan within the meaning of Section 3(2) of ERISA or an employee welfare benefit
plan within the meaning of Section 3(1) of ERISA, Company has prepared in good
faith and timely filed all requisite governmental reports (which were true and
correct as of the date filed) and has properly and timely filed and distributed
or posted all notices and reports to employees required to be filed, distributed
or posted with respect to each such Company Employee Plan, except where the
failure to do so would not have a Material Adverse Effect. No suit,
administrative proceeding, action or other litigation has been brought, or to
the knowledge of Company is threatened, against or with respect to any such
Company Employee Plan, including any audit or inquiry by the IRS or United
States Department of Labor. No payment or benefit which will or may be made by
Company to any employee will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
(d) With respect to each Company Employee Plan, Company and each of its
United States subsidiaries have complied except to the extent that such failure
to comply would not, individually or in the aggregate, have a Material Adverse
Effect on Company, with (i) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of 1985
("COBRA") and the regulations (including proposed regulations) thereunder, (ii)
the applicable requirements of the Family Medical and Leave Act of 1993 and the
regulations thereunder, and (iii) the applicable requirements of the Health
Insurance Portability and Accountability Act of 1996 and the regulations
(including proposed regulations) thereunder.
(e) The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service provider of
Company, any Company subsidiary or any other ERISA Affiliate to severance
benefits or any other payment, except as expressly provided in this Agreement,
or (ii) accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or service provider.
(f) There has been no amendment to, written interpretation or announcement
(whether or not written) by Company, any Company subsidiary or other ERISA
Affiliate relating to, or change in participation or coverage under, any Company
Employee Plan which would materially increase the expense of maintaining such
Plan above the level of expense incurred with respect to that Plan for the most
recent fiscal year included in Company's financial statements.
(g) Company does not currently maintain, sponsor, participate in or
contribute to, nor has it ever maintained, established, sponsored, participated
in, or contributed to, any pension plan (within the meaning of Section 3(2) of
ERISA) which is subject to Part 3 of Subtitle B of Title I of ERISA, Title IV of
ERISA or Section 412 of the Code.
(h) Neither Company nor any Company subsidiary or other ERISA Affiliate is
a party to, or has made any contribution to or otherwise incurred any obligation
under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
2.15 Certain Agreements Affected by the Merger. Neither the execution and
delivery of this Agreement nor the consummation of the transaction contemplated
hereby will (i) result in any payment (including, without limitation, severance,
unemployment compensation, golden parachute, bonus or otherwise) becoming due to
any director or employee of Company or any of its subsidiaries,
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(ii) materially increase any benefits otherwise payable by Company or (iii)
result in the acceleration of the time of payment or vesting of any such
benefits.
2.16 Employee Matters. Company and each of its subsidiaries are in
compliance in all respects with all currently applicable laws and regulations
respecting employment, discrimination in employment, terms and conditions of
employment, wages, hours and occupational safety and health and employment
practices, and is not engaged in any unfair labor practice, except where the
failure to be in compliance or the engagement in such unfair labor practices
would not have a Material Adverse Effect on Company. Company has in all material
respects withheld all amounts required by law or by agreement to be withheld
from the wages, salaries, and other payments to employees; and is not liable for
any material arrears of wages or any material taxes or any material penalty for
failure to comply with any of the foregoing. Company is not liable for any
material payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There are no pending claims against Company or any of its
subsidiaries for any material amounts under any workers compensation plan or
policy or for long term disability. Neither Company nor any of its subsidiaries
has any obligations under COBRA with respect to any former employees or
qualifying beneficiaries thereunder, except for obligations that are not
material in amount. There are no controversies pending or, to the knowledge of
Company or any of its subsidiaries, threatened, between Company or any of its
subsidiaries and any of their respective employees, which controversies have or
would reasonably be expected to result in an action, suit, proceeding, claim,
arbitration or investigation before any agency, court or tribunal, foreign or
domestic. Neither Company nor any of its subsidiaries is a party to any
collective bargaining agreement or other labor union contract nor does Company
nor any of its subsidiaries know of any activities or proceedings of any labor
union to organize any such employees. To Company's knowledge, no employees of
Company or any of its subsidiaries are in violation of any term of any
employment contract, patent disclosure agreement, noncompetition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by Company because of the nature of the business
conducted or presently proposed to be conducted by Company or any of its
subsidiaries or to the use of trade secrets or proprietary information of
others. No employees of Company or any of its subsidiaries have given notice to
Company, nor is Company otherwise aware, that any such employee intends to
terminate his or her employment with Company or any subsidiary.
2.17 Interested Party Transactions. Except as disclosed in the Company SEC
Documents, neither Company nor any of its subsidiaries is indebted to any
director or officer of Company or any of its subsidiaries (except for amounts
due as normal salaries and bonuses and in reimbursement of ordinary expenses),
and no such person is indebted to Company or any of its subsidiaries, and there
are no other transactions of the type required to be disclosed pursuant to Items
402 and 404 of Regulation S-K under the Securities Act and the Exchange Act.
2.18 Insurance. Company and each of its subsidiaries have policies of
insurance and bonds of the type and in amounts customarily carried by persons
conducting businesses or owning assets similar to those of Company and its
subsidiaries. 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 Company and its subsidiaries are
otherwise in compliance in all material respects with the terms of such policies
and bonds. Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
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2.19 Compliance With Laws. Each of Company and its subsidiaries has
complied with, are not in violation of, and have not received any notices of
violation with respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply as
would not be reasonably expected to have a Material Adverse Effect on Company.
2.20 Minute Books. The minute books of Company and its subsidiaries made
available to Parent contain a complete and accurate summary of all meetings of
directors and stockholders or actions by written consent since the time of
incorporation of Company and the respective subsidiaries through the date of
this Agreement, and reflect all transactions referred to in such minutes
accurately in all material respects.
2.21 Complete Copies of Materials. Company has delivered or made available
true and complete copies of each document that has been requested by Parent or
its counsel in connection with their legal and accounting review of Company and
its subsidiaries.
2.22 Brokers' and Finders' Fees. Except for payment obligations to Dain
Rauscher Wessels set forth in an engagement letter, a copy of which has been
provided to Parent, Company has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agents' commissions
or investment bankers' fees or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.23 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Company 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 Parent Common Stock to be issued in the Merger will be registered with
the SEC (the "Registration Statement") shall not at the time the 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 Company for inclusion in the
proxy statement/prospectus to be sent to the stockholders of Company in
connection with the meeting of Company's stockholders to consider the Merger
(the "Company Stockholders Meeting") (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 Company's stockholders, at the
time of the Company 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 Company Stockholders Meeting which has become
false or misleading. If at any time prior to the Effective Time any event or
information should be discovered by Company which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy Statement,
Company shall promptly inform Parent and Merger Sub. Notwithstanding the
foregoing, Company makes no representation, warranty or covenant with respect to
any information supplied by Parent or Merger Sub or any other third party which
is contained in any of the foregoing documents.
2.24 Opinion of Financial Advisor. Company has been advised in writing by
its financial advisor, Dain Rauscher Wessels, that in such advisor's opinion, as
of the date hereof, the consideration to be received by the stockholders of
Company is fair, from a financial point of view, to the stockholders of Company.
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2.25 Vote Required. The affirmative vote of the holders of at least
seventy-five percent (75%) of the shares of Company Common Stock outstanding on
the record date set for the Company Stockholders Meeting is the only vote of the
holders of any of Company's capital stock necessary to approve this Agreement
and the transactions contemplated hereby.
2.26 Board Approval. The Board of Directors of Company has (i) approved
this Agreement and the Merger, (ii) determined that the Merger is advisable and
in the best interests of the stockholders of Company and is on terms that are
fair to such stockholders and (iii) recommended that the stockholders of Company
approve this Agreement and consummation of the Merger.
2.27 Stockholder Agreement; Irrevocable Proxies. All of the persons listed
on Schedule 2.27 have agreed in writing to vote for approval of the Merger
pursuant to a Stockholder Agreement, and pursuant to an Irrevocable Proxy
attached thereto as Exhibit A.
2.28 Section 203 of the DGCL Not Applicable. The Board of Directors of
Company has taken all actions so that the restrictions contained in Section 203
of the Delaware Law applicable to a "business combination" (as defined in
Section 203) will not apply to the execution, delivery or performance of this
Agreement or the Option Agreement or the consummation of the Merger or the other
transactions contemplated by this Agreement or by the Option Agreement. No other
state takeover statute is applicable to the Merger, the Merger Agreement, the
Option Agreement or the transactions contemplated hereby and thereby.
2.29 Inventory. The inventories of Company disclosed in the Company SEC
Documents as of June 30, 1999 and in any subsequently filed Company SEC
Documents are stated consistently with the audited financial statements of
Company and consist of items of a quantity usable or salable in the ordinary
course of business. Since June 30, 1999, Company has continued to replenish
inventories in a normal and customary manner consistent with past practices.
Company has not received written or oral notice that it will experience in the
foreseeable future any difficulty in obtaining, in the desired quantity and
quality and at a reasonable price and upon reasonable terms and conditions, the
raw materials, supplies or component products required for the manufacture,
assembly or production of its products. The values at which inventories are
carried reflect the inventory valuation policy of Company, which is consistent
with its past practice and in accordance with GAAP applied on a consistent
basis. Since June 30, 1999 due provision was made on the books of Company in the
ordinary course of business consistent with past practices to provide for all
slow-moving, obsolete, or unusable inventories to their estimated useful or
scrap values and such inventory reserves are adequate to provide for such slow-
moving, obsolete or unusable inventory and inventory shrinkage. As of June 30,
1999, Company had inventory of approximately $500,000 in the distribution
channel and had commitments to purchase inventory (other than purchases of
supplies in the ordinary course) in an amount of approximately $1,600,000.
2.30 Accounts Receivable. The accounts receivable disclosed in the Company
SEC Documents as of June 30, 1999, and, with respect to accounts receivable
created since such date, disclosed in any subsequently filed Company SEC
Documents, or as accrued on the books of Company in the ordinary course of
business consistent with past practices in accordance with GAAP since the last
filed Company SEC Documents, represent and will represent bona fide claims
against debtors for sales and other charges, are not subject to discount except
for normal cash and immaterial trade discount. The amount carried for doubtful
accounts and allowances disclosed in each of such Company SEC Document or
accrued on such books is sufficient to provide for any losses that may be
sustained on realization of the receivables.
2.31 Customers and Suppliers. None of Company's customers which
individually accounted for more than 5% of Company's gross revenues during the
12-month period preceding the date hereof has
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terminated any agreement with Company. As of the date hereof, no material
supplier of Company has indicated that it will stop, or decrease the rate of,
supplying materials, products or services to Company. Company has not knowingly
breached, so as to provide a benefit to Company that was not intended by the
parties, any agreement with, or engaged in any fraudulent conduct with respect
to, any customer or supplier of Company.
2.32 Rights Plan. Company has amended the Company Rights Agreement on
terms satisfactory to Parent to make the Rights inapplicable to the Merger
Agreement, the Option Agreement and all of the transactions contemplated hereby
or thereby; provided that the Rights shall remain applicable to all acquisitions
of capital stock of Company other than pursuant to this Agreement or the Option
Agreement or any of the transactions contemplated hereby or thereby. After such
amendment, Company will not thereafter amend the Rights Agreement so as to make
the Rights applicable to the Merger or so as to make the Rights inapplicable to
any acquisition of capital stock of Company other than pursuant to this
Agreement or the Option Agreement or any of the transactions contemplated hereby
or thereby.
2.33 Export Control Laws. Company has conducted its export transactions in
accordance with applicable provisions of United States export control laws and
regulations, including but not limited to the Export Administration Act and
implementing Export Administration Regulations, except for such violations which
would not have a Material Adverse Effect on Company. Without limiting the
foregoing, Company represents and warrants that:
(a) Company has obtained all export licenses and other approvals
required for its exports of products, software and technologies from the
United States;
(b) Company is in compliance with the terms of all applicable export
licenses or other approvals;
(c) There are no pending or threatened claims against Company with
respect to such export licenses or other approvals;
(d) There are no actions, conditions or circumstances pertaining to
Company's export transactions that may give rise to any future claims; and
(e) No consents or approvals for the transfer of export licenses to
Parent are required, or such consents and approvals can be obtained
expeditiously without material cost.
2.34 Year 2000. Company's current products and services are "Year 2000
Compliant," where "Year 2000 Compliant" means that such products and services
have been designed and tested so that, when used in accordance with their
associated documentation, they are capable of accurately processing, providing
and/or receiving (i) date-related data from, into and between the Twentieth
(20th) and Twenty-First (21st) centuries, or (ii) date-related data in
connection with any valid date in the Twentieth (20th) and Twenty-First (21st)
centuries; provided that all other products and services used in combination in
any way with Company's current products and services properly exchange
date-related data with them. The information technology systems and
non-information technology systems used by Company in its internal operations
will function properly beyond 1999. Neither Company nor any of its subsidiaries
has made any representations or warranties relating to the ability of any
product or service of Company or its subsidiaries to be Year 2000 Compliant.
Company has made inquiries to its key third-party vendors and providers as to
the status of their Year 2000 efforts, and has not uncovered any problems that
would aversely affect the operation of the products or that could disrupt or
harm the day-to-day functioning of the business or operations of Company.
2.35 Representations Complete. None of the representations or warranties
made by Company herein or in any Schedule hereto, including the Company
Disclosure Schedule, or certificate furnished
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by Company pursuant to this Agreement, or the Company SEC Documents, when all
such documents are read together in their entirety, contains or will contain at
the Effective Time any untrue statement of a material fact, or omits or will
omit at the Effective Time to state any material fact necessary in order to make
the statements contained herein or therein, in the light of the circumstances
under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in that section of the document of even date herewith
delivered by Parent to Company prior to the execution and delivery of this
Agreement (the "Parent Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Parent Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Parent represents and warrants
to Company as follows:
3.1 Organization, Standing and Power. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of organization. Each of Parent and Merger Sub has the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on Parent.
Neither Parent nor Merger Sub is in violation of any of the provisions of its
Articles of Incorporation or Bylaws or equivalent organizational documents.
3.2 Capital Structure. The authorized capital stock of Parent consists of
5,400,000,000 shares of Common Stock, $0.001 par value, and 5,000,000 shares of
Preferred Stock, no par value, of which there were issued and outstanding as of
the close of business on October 21, 1999, 3,294,811,181 shares of Common Stock
and no shares of Preferred Stock. The Board of Directors of Parent has
authorized, subject to shareholder approval, an increase in the authorized
shares of Common Stock to 10,000,000,000. The authorized capital stock of Merger
Sub consists of 1,000 shares of Common Stock, $0.001 par value, all of which are
issued and outstanding and are held by Parent. The shares of Parent Common Stock
to be issued pursuant to the Merger will be duly authorized, validly issued,
fully paid, and non-assessable, free of any liens or encumbrances imposed by
Parent or Merger Sub.
3.3 Authority. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Parent and Merger Sub. This
Agreement has been duly executed and delivered by Parent and Merger Sub and
constitutes the valid and binding obligations of Parent and Merger Sub. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of a benefit under (i) any provision of the Articles of
Incorporation or Bylaws of Parent or any of its subsidiaries, as amended, or
(ii) any material mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
subsidiaries or their properties or assets, except where such conflict,
violation, default, termination, cancellation or acceleration with respect to
the foregoing provisions of (ii) would not have had and would not reasonably be
expected to have a Material Adverse Effect on Parent. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
Governmental Entity, is
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required by or with respect to Parent or any of its subsidiaries in connection
with the execution and delivery of this Agreement by Parent and Merger Sub or
the consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided in
Section 1.2; (ii) the filing with the SEC and NASD of the Registration
Statement; (iii) the filing of a Form 8-K with the SEC and NASD within 15 days
after the Closing Date; (iv) any filings as may be required under applicable
state securities laws and the securities laws of any foreign country; (v) such
filings as may be required under HSR; (vi) the filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect to
the shares of Parent Common Stock issuable upon conversion of the Company Common
Stock in the Merger and upon exercise of the options under the Company Stock
Option Plans assumed by Parent; (vii) the filing of a registration statement on
Form S-8 with the SEC, or other applicable form covering the shares of Parent
Common Stock issuable pursuant to outstanding options under the Company Stock
Option Plans assumed by Parent; and (viii) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or made, would not
have a Material Adverse Effect on Parent and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement.
3.4 SEC Documents; Financial Statements. Parent has made available to
Company each statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act), definitive proxy
statement, and other filings filed with the SEC by Parent since July 31, 1999,
and, prior to the Effective Time, Parent will have furnished or made available
to Company true and complete copies of any additional documents filed with the
SEC by Parent prior to the Effective Time (collectively, the "Parent SEC
Documents"). In addition, Parent has made available to Company all exhibits to
the Parent SEC Documents filed prior to the date hereof, and will promptly make
available to Company all exhibits to any additional Parent SEC Documents filed
prior to the Effective Time. All documents required to be filed as exhibits to
the Company SEC Documents have been so filed, and all material contracts so
filed as exhibits are in full force and effect, except those which have expired
in accordance with their terms, and neither Parent nor any of its subsidiaries
is in default thereunder. As of their respective filing dates, the Parent SEC
Documents complied in all material respects with the requirements of the
Exchange Act and the Securities Act, and none of the Parent SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a subsequently filed Parent SEC Document. The
financial statements of Parent, including the notes thereto, included in the
Parent SEC Documents (the "Parent Financial Statements") were complete and
correct in all material respects as of their respective dates, complied as to
form in all material respects with applicable accounting requirements and with
the published rules and regulations of the SEC with respect thereto as of their
respective dates, and have been prepared in accordance with GAAP applied on a
basis consistent throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by Form 10-Q
of the SEC). The Parent Financial Statements fairly present the consolidated
financial condition and operating results of Parent and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments).
3.5 Absence of Undisclosed Liabilities. Parent has no material obligations
or liabilities of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or adequately provided for in the Balance Sheet or in
the related Notes to Consolidated Financial Statements included in Parent's
Annual Report on Form 10-K for the year ended July 31, 1999 (the "Parent Balance
Sheet"), (ii) those disclosed in Parent SEC documents filed subsequent to such
Annual Report on Form 10-K for
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the year ended July 31, 1999, (iii) those incurred in the ordinary course of
business and not required to be set forth in the Parent Balance Sheet under
GAAP, and (iv) those incurred in the ordinary course of business since the
Parent Balance Sheet Date and consistent with past practice.
3.6 Litigation. There is no litigation pending against Parent or any of
its subsidiaries or, to the knowledge of Parent, threatened against Parent or
any of its subsidiaries that would prevent, enjoin, alter or materially delay
any of the transactions contemplated by this Agreement, or that would have a
Material Adverse Effect on the ability of Parent to consummate the transactions
contemplated by this Agreement. There is no judgment, decree or order against
Parent or any of its subsidiaries, or, to the knowledge of Parent, any of their
respective directors or officers (in their capacities as such), that would
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement, or that would have a Material Adverse Effect on the ability
of Parent to consummate the transactions contemplated by this Agreement.
3.7 Broker's and Finders' Fees. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.8 Registration Statement; Proxy Statement/Prospectus. The information
supplied by Parent and Merger Sub for inclusion in the Registration Statement
shall not, at the time the 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 necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The information supplied by Parent for inclusion
in the Proxy Statement shall not, on the date the Proxy Statement is first
mailed to Company's stockholders, at the time of the Company 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 therein, in light of the
circumstances under which it is 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 Company
Stockholders Meeting which has become false or misleading. If at any time prior
to the Effective Time any event or information should be discovered by Parent or
Merger Sub which should be set forth in an amendment to the Registration
Statement or a supplement to the Proxy Statement, Parent or Merger Sub will
promptly inform Company. Notwithstanding the foregoing, Parent and Merger Sub
make no representation, warranty or covenant with respect to any information
supplied by Company or any third party which is contained in any of the
foregoing documents.
3.9 Board Approval. The Boards of Directors of Parent and Merger Sub have
(i) approved this Agreement and the Merger, (ii) determined that the Merger is
advisable and in the best interests of their respective stockholders and is on
terms that are fair to such stockholders and (iii) recommended that the
stockholder of Merger Sub approve this Agreement and the consummation of the
Merger.
3.10 Representations Complete. None of the representations or warranties
made by Parent or Merger Sub herein or in any Schedule hereto, including the
Parent Disclosure Schedule, or certificate furnished by Parent or Merger Sub
pursuant to this Agreement, or the Parent SEC Documents, when all such documents
are read together in their entirety, contains or will contain at the Effective
Time any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
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ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, Company agrees (except to the extent expressly
contemplated by this Agreement or as consented to in writing by Parent), to
carry on its and its subsidiaries' business in the ordinary course in
substantially the same manner as heretofore conducted, to pay and to cause its
subsidiaries to pay debts and Taxes when due subject to good faith disputes over
such debts or taxes, to pay or perform other obligations when due, and to use
all reasonable efforts consistent with past practice and policies to preserve
intact its and its subsidiaries' present business organizations, use its
reasonable best efforts consistent with past practice to keep available the
services of its and its subsidiaries' present officers and key employees and use
its reasonable best efforts consistent with past practice to preserve its and
its subsidiaries' relationships with customers, suppliers, distributors,
licensors, licensees, and others having business dealings with it or its
subsidiaries, to the end that its and its subsidiaries' goodwill and ongoing
businesses shall be unimpaired at the Effective Time. Company agrees to promptly
notify Parent of any material event or occurrence not in the ordinary course of
its or its subsidiaries' business, and of any event which would have a Material
Adverse Effect on Company.
4.2 Restrictions on Conduct of Business of Company. During the period from
the date of this Agreement and continuing until the earlier of the termination
of this Agreement or the Effective Time, except as expressly contemplated by
this Agreement, Company shall not do, cause or permit any of the following, or
allow, cause or permit any of its subsidiaries to do, cause or permit any of the
following, without the prior written consent of Parent:
(a) Charter Documents. Cause or permit any amendments to its
Certificate of Incorporation, Bylaws or the Company Rights Agreement;
(b) Dividends; Changes in Capital Stock. Declare or pay any dividends
on or make any other distributions (whether in cash, stock or property) in
respect of any 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, or repurchase or otherwise acquire, directly or indirectly,
any shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of
shares in connection with any termination of service to it or its
subsidiaries;
(c) Stock Option Plans, Etc. Take any action to accelerate, amend or
change the period of exercisability or vesting of options or other rights
granted under its stock plans (except for the action required pursuant to
Section 5.15) or authorize cash payments in exchange for any options or
other rights granted under any of such plans.
(d) Material Contracts. Except as set forth on Schedule 4.2, enter
into any contract or commitment, or violate, amend or otherwise modify or
waive any of the terms of any of its contracts, other than (i) in the
ordinary course of business consistent with past practice and in no event
shall such contract, commitment, amendment, modification or waiver (other
than those relating to sales of products or purchases of supplies in the
ordinary course) involve the payment by Company or its subsidiaries in
excess of $300,000 and (ii) amendments to warrants to acquire Company
Common Stock outstanding on the date hereof, which amendments are
acceptable to Parent, in order to permit cashless exercise;
(e) Issuance of Securities. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities
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convertible into, or subscriptions, rights, warrants or options to acquire,
or other agreements or commitments of any character obligating it to issue
any such shares or other convertible securities, other than the issuance of
shares of its Common Stock pursuant to the exercise of stock options,
warrants or other rights therefor outstanding as of the date of this
Agreement; provided, however, that Company may, in the ordinary course of
business consistent with past practice, grant options for the purchase of
Company Common Stock under the Company Stock Option Plans (not to exceed an
aggregate of 75,000 options to purchase shares of Company Common Stock and
provided that all of such options are assumable by Parent and that none of
such options provide for acceleration of vesting upon the Merger);
provided, however, that Company may file on Form S-8 a registration
statement covering its Amended and Restated 1996 Stock Option Plan, as
amended;
(f) Intellectual Property. Transfer or license to any person or entity
any rights to its Intellectual Property other than the license of
non-exclusive rights to its Intellectual Property in the ordinary course of
business consistent with past practice;
(g) Exclusive Rights. Except as set forth on Schedule 4.2, enter into
or amend any agreements pursuant to which any other party is granted
exclusive marketing or other exclusive rights of any type or scope with
respect to any of its products or technology;
(h) Dispositions. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past
practice;
(i) Indebtedness. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
(j) Leases. Enter into any operating lease in excess of $100,000;
(k) Payment of Obligations. Pay, discharge or satisfy in an amount in
excess of $100,000 in any one case, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the
payment, discharge or satisfaction of liabilities reflected or reserved
against in the Company Financial Statements;
(l) Capital Expenditures. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of business
and consistent with past practice that do not exceed $100,000 individually
or $500,000 in the aggregate;
(m) Insurance. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
(n) Termination or Waiver. Terminate or waive any right of substantial
value;
(o) Employee Benefit Plans; New Hires; Pay Increases. Adopt or amend
any employee benefit or stock purchase or option plan or hire any new
director level or officer level employee, pay any special bonus or special
remuneration to any employee or director, or increase the salaries or wage
rates of its employees other than pursuant to scheduled annual performance
reviews, provided that any resulting modifications are in the ordinary
course of business and consistent with Company's past practices and
provided that the Company may enter into employment agreements with two
employees as described in Schedule 2.1 of the Company Disclosure Schedules
in the form provided in writing to Parent, provided that the options
granted pursuant to such agreements are granted at the fair market value of
Company Common Stock at the time of grant.
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(p) Severance Arrangements. Grant any severance or termination pay (i)
to any director or officer, except the payment of a bonus to Company's
Chief Executive Officer as described in Schedule 2.5 of the Company
Disclosure Schedule, or (ii) to any other employee except payments made
pursuant to standard written agreements outstanding on the date hereof;
(q) Lawsuits. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where it in good faith determines
that failure to commence suit would result in the material impairment of a
valuable aspect of its business, provided that it consults with Parent
prior to the filing of such a suit, or (iii) for a breach of this
Agreement;
(r) Acquisitions. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its and its subsidiaries' business,
taken as a whole, or acquire or agree to acquire any equity securities of
any corporation, partnership, association or business organization;
(s) Taxes. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or any
amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes, excluding any actions (other than
amendments or modifications), including any payment required to be made,
pursuant to that certain Tax Indemnification Agreement dated March 31, 1998
between Company and Telxon Corporation;
(t) Notices. Company shall give all notices and other information
required by applicable law to be given to the employees of Company, any
collective bargaining unit representing any group of employees of Company,
and any applicable government authority under the WARN Act, the National
Labor Relations Act, the Internal Revenue Code, the Consolidated Omnibus
Budget Reconciliation Act, and other applicable law in connection with the
transactions provided for in this Agreement;
(u) Revaluation. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
(v) Accounting Policies and Procedures. Make any change to its
accounting methods, principles, policies, procedures or practices, except
as may be required by GAAP, Regulation S-X promulgated by the SEC or
applicable statutory accounting principles;
(w) Year 2000 Compliance. Fail to carry forward in all material
respects Company's Year 2000 assessment and compliance programs, as made
available to Parent by Company; or
(x) Other. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.2(a) through (w) above, or any action which
would make any of its representations or warranties contained in this
Agreement untrue or incorrect or prevent it from performing or cause it not
to perform its covenants hereunder.
4.3 No Solicitation. Company and its subsidiaries and the officers,
directors, employees or other agents of Company and its subsidiaries
(collectively, "Company Representatives") will not, directly or indirectly, (i)
take any action to solicit, initiate or encourage or agree to any Takeover
Proposal (as defined in Section 7.3(f)) or (ii) subject to the terms of the
immediately following sentence, engage in
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negotiations with, or disclose any nonpublic information relating to Company or
any of it subsidiaries to, or afford access to the properties, books or records
of Company or any of its subsidiaries to, any person that has advised Company
that it may be considering making, or that has made, a Takeover Proposal;
provided, nothing herein shall prohibit Company's Board of Directors from
complying with Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the immediately preceding sentence, if an unsolicited written
Takeover Proposal shall be received by the Board of Directors of Company, then,
to the extent the Board of Directors of Company believes in good faith (after
written advice from its financial advisor) that such Takeover Proposal would, if
consummated, result in a transaction more favorable to Company's stockholders
from a financial point of view than the transaction contemplated by this
Agreement (any such more favorable Takeover Proposal being referred to in this
Agreement as a "Superior Proposal") and the Board of Directors of Company
determines in good faith after advice from outside legal counsel that it is
necessary for the Board of Directors of Company to comply with its fiduciary
duties to stockholders under applicable law, Company Representatives may furnish
in connection therewith information to the party making such Superior Proposal
and, subject to the provisions hereof, engage in negotiations with such party,
and such actions shall not be considered a breach of this Section 4.3 or any
other provisions of this Agreement; provided that in each such event Company
notifies Parent of such determination by the Company Board of Directors and
provides Parent with a true and complete copy of the Superior Proposal received
from such third party, and provides (or has provided) Parent with all documents
containing or referring to non-public information of Company that are supplied
to such third party; provided, however, that Company provides such non-public
information pursuant to a non-disclosure agreement at least as restrictive on
such third party as the Confidentiality Agreement is on Parent (as defined in
Section 5.4); and provided further that Company shall not, and shall not permit
any of its officers, directors, employees or other representatives to agree to
or endorse any Takeover Proposal or withdraw its recommendation of the Merger
unless Company has provided Parent at least five (5) days prior notice thereof.
Company will promptly (and in any event within 24 hours) notify Parent after
receipt of any Takeover Proposal or any notice that any person is considering
making a Takeover Proposal or any request for non-public information relating to
Company or any of its subsidiaries or for access to the properties, books or
records of Company or any of its subsidiaries by any person that has advised
Company that it may be considering making, or that has made, a Takeover
Proposal, or whose efforts to formulate a Takeover Proposal would be assisted
thereby (such notice to include the identity of such person or persons), and
will keep Parent fully informed of the status and details of any such Takeover
Proposal notice, request or correspondence or communications related thereto,
and shall provide Parent with a true and complete copy of such Takeover Proposal
notice or any amendment thereto, if it is in writing, or a complete written
summary thereof, if it is not in writing. Company shall immediately cease and
cause to be terminated all existing discussions or negotiations with any persons
conducted heretofore with respect to a Takeover Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement. As promptly as
practicable after the execution of this Agreement, Company and Parent shall
prepare, and Company shall file with the SEC, preliminary proxy materials
relating to the approval of the Merger and the transactions contemplated hereby
by the stockholders of Company. As promptly as practicable following receipt of
SEC comments thereon, Company shall file with the SEC definitive proxy materials
and Parent shall file with the SEC a Registration Statement on Form S-4 (or such
other or successor form as shall be appropriate), in each case which complies in
form with applicable SEC requirements and shall use all reasonable efforts to
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cause the Registration Statement to become effective as soon thereafter as
practicable. Company and Parent will notify each other promptly of the receipt
of any comments from the SEC or its staff and of any request by the SEC or its
staff or any other government officials for amendments or supplements to the
Proxy Statement or any other filing or for additional information and will
supply each other with copies of all correspondence between such party or any of
its representatives, on the one hand, and the SEC, or its staff or any other
government officials, on the other hand, with respect to the Proxy Statement or
other filing. Whenever any event occurs that is required to be set forth in an
amendment or supplement to the Proxy Statement or any other filing, Company
shall promptly inform Parent of such occurrence and cooperate in filing with the
SEC or its staff or any other government officials, and/or mailing to
shareholders of Company, such amendment or supplement. The Proxy Statement shall
include the recommendation of the Board of Directors of Company in favor of the
Merger Agreement and the Merger.
5.2 Meeting of Stockholders. Company shall promptly after the date hereof
take all action necessary in accordance with Delaware Law and its Certificate of
Incorporation and Bylaws to convene the Company Stockholders Meeting within 45
days of the Registration Statement being declared effective by the SEC. Company
shall consult with Parent regarding the date of the Company Stockholders Meeting
and use all reasonable efforts and shall not postpone or adjourn (other than for
the absence of a quorum) the Company Stockholders Meeting, subject to Section
5.1, without the consent of Parent. Company shall use its reasonable best
efforts to solicit from stockholders of Company proxies in favor of the Merger
and shall take all other action necessary or advisable to secure the vote or
consent of stockholders required to effect the Merger.
5.3 Access to Information.
(a) Company shall afford Parent and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of Company's and its subsidiaries'
properties, books, contracts, commitments and records, and (ii) all other
information concerning the business, properties and personnel of Company and its
subsidiaries as Parent may reasonably request. Company agrees to provide to
Parent and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request.
(b) Subject to compliance with applicable law, from the date hereof until
the Effective Time, each of Parent and Company shall confer on a regular and
frequent basis with one or more representatives of the other party to report
operational matters of materiality and the general status of ongoing operations.
(c) No information or knowledge obtained in any investigation pursuant to
this Section 5.3 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties to
consummate the Merger.
(d) Company shall provide Parent and its accountants, counsel and other
representatives reasonable access, during normal business hours during the
period prior to the Effective Time, to all of Company's and subsidiaries Tax
Returns and other records and workpapers relating to Taxes, and shall also
provide the following information upon the request of Parent or its
subsidiaries: (i) a schedule of the types of Tax Returns being filed by Company
and each of its subsidiaries in each taxing jurisdiction, (ii) a schedule of the
year of the commencement of the filing of each such type of Tax Return, (iii) a
schedule of all closed years with respect to each such type of Tax Return filed
in each jurisdiction, (iv) a schedule of all material Tax elections filed in
each jurisdiction by Company and each of its subsidiaries, (v) a schedule of any
deferred intercompany gain with respect to transactions to which Company or any
of its subsidiaries has been a party, and (vi) receipts for any Taxes paid to
foreign Tax authorities.
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5.4 Confidentiality. The parties acknowledge that each of Parent and
Company have previously executed a non-disclosure agreement, which agreement
shall continue in full force and effect in accordance with its terms.
5.5 Public Disclosure. Unless otherwise permitted by this Agreement,
Parent and Company shall consult with each other before issuing any press
release or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law or by obligations
pursuant to any listing agreement with any national securities exchange or with
the NASD, in which case the party proposing to issue such press release or make
such public statement or disclosure shall use commercially reasonable efforts to
consult with the other party before issuing such press release or making such
public statement or disclosure.
5.6 Consents; Cooperation.
(a) Each of Parent and Company shall promptly apply for or otherwise seek,
and use its reasonable best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, including
those required under HSR. Company shall use its reasonable best efforts to
obtain all necessary consents, waivers and approvals under any of its material
contracts in connection with the Merger for the assignment thereof or otherwise.
The parties hereto will consult and cooperate with one another, and consider in
good faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and proposals
made or submitted by or on behalf of any party hereto in connection with
proceedings under or relating to HSR or any other federal or state antitrust or
fair trade law.
(b) Each of Parent and Company shall use its reasonable best efforts to
resolve such objections, if any, as may be asserted by any Governmental Entity
with respect to the transactions contemplated by this Agreement under HSR, the
Sherman Act, as amended, the Clayton Act, as amended, the Federal Trade
Commission Act, as amended, and any other Federal, state or foreign statutes,
rules, regulations, orders or decrees that are designed to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade (collectively, "Antitrust Laws"). In connection therewith, if any
administrative or judicial action or proceeding is instituted (or threatened to
be instituted) challenging any transaction contemplated by this Agreement as
violative of any Antitrust Law, each of Parent and Company shall cooperate and
use its reasonable best efforts vigorously to contest and resist any such action
or proceeding and to have vacated, lifted, reversed, or overturned any decree,
judgment, injunction or other order, whether temporary, preliminary or permanent
(each, an "Order"), that is in effect and that prohibits, prevents, or restricts
consummation of the Merger or any such other transactions, unless by mutual
agreement Parent and Company decide that litigation is not in their respective
best interests. Notwithstanding the provisions of the immediately preceding
sentence, it is expressly understood and agreed that neither Parent nor Company
shall have any obligation to litigate or contest any administrative or judicial
action or proceeding or any Order beyond the Final Date (as defined in Section
7.1(b)). Each of Parent and Company shall use its reasonable best efforts to
take such action as may be required to cause the expiration of the notice
periods under the HSR or other Antitrust Laws with respect to such transactions
as promptly as possible after the execution of this Agreement. Parent and
Company also agree to take any and all of the following actions to the extent
necessary to obtain the approval of any Governmental Entity with jurisdiction
over the enforcement of any applicable laws regarding the transactions
contemplated hereby: entering into negotiations; providing information required
by law or governmental regulation; and substantially complying with any second
request for
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information pursuant to the Antitrust Laws. Notwithstanding anything to the
contrary in this Section 5.6, neither Parent nor Company nor any of their
respective subsidiaries shall be required to take any action that would
reasonably be expected to substantially impair the overall benefits expected, as
of the date hereof, to be realized from the consummation of the transactions
contemplated hereby.
(c) Notwithstanding anything to the contrary in Section 5.6(a) or (b), (i)
neither Parent nor any of it subsidiaries shall be required to divest any of
their respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that would reasonably be
expected to have a Material Adverse Effect on Parent or of Parent combined with
the Surviving Corporation after the Effective Time or (ii) neither Company nor
its subsidiaries shall be required to divest any of their respective businesses,
product lines or assets, or to take or agree to take any other action or agree
to any limitation that would reasonably be expected to have a Material Adverse
Effect on Company.
5.7 Legal Requirements. Each of Parent, Merger Sub and Company will, and
will cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be imposed on
them with respect to the consummation of the transactions contemplated by this
Agreement and will promptly cooperate with and furnish information to any party
hereto necessary in connection with any such requirements imposed upon such
other party in connection with the consummation of the transactions contemplated
by this Agreement and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any consent,
approval, order or authorization of, or any registration, declaration or filing
with, any Governmental Entity or other person, required to be obtained or made
in connection with the taking of any action contemplated by this Agreement.
5.8 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock in connection with the
Merger. Company shall use its reasonable best efforts to assist Parent as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable in connection with the issuance of Parent Common Stock in
connection with the Merger.
5.9 Employee Benefit Plans.
(a) At the Effective Time, the Company Stock Option Plans and each
outstanding option to purchase shares of Company Common Stock under the Company
Stock Option Plans, whether vested or unvested, will be assumed by Parent.
Company represents and warrants to Parent that Schedule 5.9(a) hereto sets forth
a true and complete list as of the date hereof of all holders of outstanding
options under the Company Stock Option Plans, including the number of shares of
Company capital stock subject to each such option, the exercise or vesting
schedule, the exercise price per share and the term of each such option. On the
Closing Date, Company shall deliver to Parent an updated Schedule 5.9(a) hereto
current as of such date. Each such option so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the Company Stock Option Plans and the applicable stock
option agreements, immediately prior to the Effective Time, except that (i) such
option will be exercisable for that number of whole shares of Parent Common
Stock equal to the product of the number of shares of Company Common Stock that
were issuable upon exercise of such option immediately prior to the Effective
Time multiplied by the Exchange Ratio and rounded down to the nearest whole
number of shares of Parent Common Stock, and (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such assumed
option will be equal to the quotient determined by dividing the exercise price
per share of Company Common Stock at which such option was exercisable
immediately prior to the Effective Time by the Exchange Ratio, rounded up to the
nearest whole cent. At or prior to the Closing, Company shall take all actions
required to prevent the cancellation, termination or the accelerated vesting of
such options upon the
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closing of the Merger or the transactions contemplated hereby, and to allow such
options at the Effective Time to be converted into options to purchase Parent
Common Stock as described above, without requiring the consent of the optionees;
provided, however that vesting of outstanding options to purchase 100,000 shares
granted to non-employee directors may accelerate at the Effective Time. Company
has not granted any options under the Company Stock Option Plans intended to
qualify as "incentive stock options" as defined in Section 422 of the Code.
Within 30 business days after the Effective Time, Parent will issue to each
person who, immediately prior to the Effective Time was a holder of an
outstanding option under the Company Stock Option Plans a document in form and
substance reasonably satisfactory to Company evidencing the foregoing assumption
of such option by Parent.
(b) All outstanding rights of Company which it may hold immediately prior
to the Effective Time to repurchase unvested shares of Company Common Stock (the
"Repurchase Options") shall continue in effect following the Merger and shall
thereafter continue to be exercisable by Parent upon the same terms and
conditions in effect immediately prior to the Effective Time, except that the
shares purchasable pursuant to the Repurchase Options and the purchase price per
shall be adjusted to reflect the Exchange Ratio.
(c) Outstanding purchase rights under the Company ESPP shall be exercised
upon the earlier of (i) the next scheduled purchase date under the Company ESPP
or (ii) immediately prior to the Effective Time, and each participant in the
Company ESPP shall accordingly be issued shares of Company Common Stock at that
time which shall be converted into shares of Parent Common Stock in the Merger.
Company shall cause the Company ESPP to terminate with such exercise date, and
no purchase rights shall be subsequently granted or exercised under the Company
ESPP. Company employees who meet the eligibility requirements for participation
in the Parent Employee Stock Purchase Plan shall be eligible to begin payroll
deductions under that plan as of the start date of the first offering period
thereunder beginning after the Effective Time. (d) Within five (5) business days
following the date of this Agreement, Company shall set forth on Schedule 5.9(d)
a list of all persons who Company reasonably believes are, with respect to
Company and as of the date of this Agreement, "disqualified individuals" (within
the meaning of Section 280G of the Code and the regulations promulgated
thereunder). For this purpose, Company shall assume that the fair market value
of Company Common Stock is $41.00 per share. Within a reasonable period of time
after the last business day of each month after the date of this Agreement
(other than November, 1999) and on or about the date five business days prior to
the expected Closing Date, Company shall revise Schedule 5.9(d) to reflect the
most recently available closing price of Company Common Stock as of the last
business day of such month and to reflect any additional information which
Company reasonably believes would impact the determination of persons who are,
with respect to Company and as of the each such date, "disqualified individuals"
(within the meaning of Section 280G of the Code and the regulations promulgated
thereunder).
5.10 Forms S-3 and S-8. Parent agrees to file, no later than 30 business
days after the Closing (provided that Parent has received within 10 business
days after the Closing all option documentation it requires relating to the
outstanding options), (i) a registration statement on Form S-8 under the
Securities Act covering the shares of Parent Common Stock issuable pursuant to
outstanding options granted to individuals for which a Form S-8 registration
statement is available and listed on Schedule 5.10(a) hereto and (ii) a
registration statement on Form S-3 under the Securities Act covering the shares
of Parent Common Stock issuable pursuant to outstanding options granted to
entities or to individuals for which a Form S-8 registration statement is not
available, which Form S-3 shall remain current for one year from the Effective
Time, under the Company Stock Option Plans assumed by Parent or otherwise issued
in compensatory transactions to entities or to individuals not currently
providing
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services to Company as employees or consultants and listed on Schedule 5.10(b).
Company shall cooperate with and assist Parent in the preparation of such
registration statements.
5.11 Option Agreement. Company agrees to fully perform its obligations
under the Option Agreement.
5.12 Listing of Additional Shares. Prior to the Effective Time, Parent
shall file with the Nasdaq National Market a Notification Form for Listing of
Additional Shares with respect to the shares referred to in Section 6.1(f).
5.13 Nasdaq Quotation. Company and Parent agree to continue the quotation
of Company Common Stock and Parent Common Stock, respectively, on the Nasdaq
National Market during the term of the Agreement so that appraisal rights will
not be available to stockholders of Company under Section 262 of the Delaware
Law.
5.14 Employees. Company shall use its reasonable best efforts to cause
each of the individuals set forth on Schedule 5.14 to deliver to Parent an
executed Employment Agreement in the form of Exhibit D.
5.15 Action Under Stock Option Plan. The Board of Directors of Company
shall take all action necessary to prevent the cancellation, termination or
accelerated vesting of options under the Company Stock Option Plans (other than
the 100,000 shares granted to non-employee directors) upon the closing of the
Merger and to allow such options to be assumed by Parent as described in Section
5.9.
5.16 Company Rights Agreement. Company hereby agrees that it has taken and
will continue to take all necessary action to ensure that none of the
transactions contemplated by this Agreement, the Option Agreement or the
Stockholder Agreement will cause (i) Parent or any of its affiliates or
associates to become an Acquiring Person (as defined in the Company Rights
Agreement) for purposes of the Company Rights Agreement, or (ii) otherwise
affect in any way the Rights under the Company Rights Agreement, including by
causing such Rights to separate from the underlying shares or by giving such
holders the right to acquire securities of any party hereto.
5.17 Indemnification.
(a) After the Effective Time, Parent will cause the Surviving Corporation
to fulfill and honor in all respects the obligations of Company pursuant to the
indemnification provisions of Company's Certificate of Incorporation and Bylaws
or any indemnification agreement with Company officers and directors to which
Company is a party, in each case in effect on the date hereof; provided that
such indemnification shall be subject to any limitation imposed from time to
time under applicable law. Without limitation of the foregoing, in the event any
person so indemnified (an "Indemnified Party") is or becomes involved in any
capacity in any action, proceeding or investigation in connection with any
matter relating to this Agreement or the transactions contemplated hereby
occurring on or prior to the Effective Time, Parent shall, or shall cause the
Surviving Corporation to, pay as incurred such Indemnified Party's reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith to the fullest extent permitted by
the Delaware Law upon receipt of any undertaking contemplated by Section 145(e)
of the Delaware Law. Any Indemnified Party wishing to claim indemnification
under this Section 5.17, upon learning of any such claim, action, suit,
proceeding or investigation, shall promptly notify Parent and the Surviving
Corporation, and shall deliver to Parent and the Surviving Corporation the
undertaking contemplated by Section 145(e) of the Delaware Law.
(b) For four years after the Effective Time, Parent will either (i) at all
times maintain at least $50,000,000 in cash, marketable securities or
unrestricted lines of credit (or any combination thereof) to be available to
indemnify the Indemnified Parties in accordance with Section 5.17(a) above or
(ii) cause
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the Surviving Corporation to provide officers' and directors' liability
insurance in respect of acts or omissions occurring on or prior to the Effective
Time covering each such person currently covered by Company's officers' and
directors' liability insurance policy on terms substantially similar to those of
such policy in effect on the date hereof, provided that in satisfying its
obligation under this Section, Parent shall not be obligated to cause the
Surviving Corporation to pay premiums in excess of 150% of the amount per annum
Company paid in its last full fiscal year, which amount has been disclosed to
Parent, and if the Surviving Corporation is unable to obtain the insurance
required by this Section 5.17, it shall obtain as much comparable insurance as
possible for an annual premium equal to such maximum amount.
(c) To the extent there is any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) against an
Indemnified Party that arises out of or pertains to any action or omission in
his or her capacity as director, officer, employee, fiduciary or agent of
Company occurring prior to the Effective Time, or arises out of or pertains to
the transactions contemplated by this Agreement for a period of four years after
the Effective Time (whether arising before or after the Effective Time), in each
case for which such Indemnified Party is indemnified under this Section 5.17,
such Indemnified Party shall be entitled to be represented by counsel, which
counsel shall be counsel of Parent (provided that if use of counsel of Parent
would be expected under applicable standards of professional conduct to give
rise to a conflict between the position of the Indemnified Person and of Parent,
the Indemnified Party shall be entitled instead to be represented by counsel
selected by the Indemnified Party and reasonably acceptable to Parent) and
following the Effective Time the Surviving Corporation and Parent shall pay the
reasonable fees and expenses of such counsel, promptly after statements therefor
are received and the Surviving Corporation and Parent will cooperate in the
defense of any such matter; provided, however, that neither the Surviving
Corporation nor Parent shall be liable for any settlement effected without its
written consent (which consent shall not be unreasonably withheld); and
provided, further, that, in the event that any claim or claims for
indemnification are asserted or made within such four year period, all rights to
indemnification in respect to any such claim or claims shall continue until the
disposition of any and all such claims. The Indemnified Parties as a group may
retain only one law firm (in addition to local counsel) to represent them with
respect to any single action unless there is, under applicable standards of
professional conduct, a conflict on any significant issue between the position
of any two or more Indemnified Parties.
(d) The provisions of this Section 5.17 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party, his or her heirs and
representatives.
5.18 Tax Treatment. The parties each intend that the Merger will qualify
as a reorganization within the meaning of Section 368(a) of the Code and shall
use best efforts to cause the Merger to so qualify.
5.19 Stockholder Litigation. Unless and until Company has withdrawn its
recommendation of the Merger, Company shall give Parent the opportunity to
participate at its own expense in the defense of any stockholder litigation
against Company and/or its directors relating to the transactions contemplated
by this Agreement and the Option Agreement.
5.20 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform such
other acts and things as may be necessary or desirable for effecting completely
the consummation of this Agreement and the transactions contemplated hereby.
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ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the requisite vote of the stockholders of
Company under Delaware Law.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Proxy Statement, shall have been initiated or threatened
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 hereto.
(c) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal or regulatory restraint or
prohibition preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by an administrative agency or commission
or other governmental authority or instrumentality, domestic or foreign,
seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or deemed applicable to the Merger, which makes the consummation of the
Merger illegal. In the event an injunction or other order shall have been
issued, each party agrees to use its reasonable best efforts to have such
injunction or other order lifted.
(d) Governmental Approvals. Parent, Company and Merger Sub and their
respective subsidiaries shall have timely obtained from each Governmental
Entity all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several
transactions contemplated hereby, including such approvals, waivers and
consents as may be required under the Securities Act, under state Blue Sky
laws, and under HSR.
(e) Tax Opinion. Parent and Company shall have received substantially
similar written opinions of Brobeck, Phleger and Harrison LLP and Day,
Berry & Howard LLP, respectively, in form and substance reasonably
satisfactory to them, dated on or about the date of Closing to the effect
that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code, and such opinions shall not have been
withdrawn. In rendering such opinions, counsel shall be entitled to rely
upon, among other things, reasonable assumptions as well as representations
of Parent, Merger Sub and Company. In addition, Parent and Company shall
have received from such respective firms such tax opinions as may be
required by the SEC in connection with the filing of the Registration
Statement.
(f) Listing of Additional Shares. The filing with the Nasdaq National
Market of a Notification Form for Listing of Additional Shares with respect
to the shares of Parent Common Stock issuable upon conversion of the
Company Common Stock in the Merger and upon exercise of the options under
the Company Stock Option Plans assumed by Parent shall have been made.
6.2 Additional Conditions to Obligations of Company. The obligations of
Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the
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satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by Company:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Parent and Merger Sub in this Agreement shall be true and
correct in all material respects (except for such representations and
warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true in all
respects) both when made and on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
Parent and Merger Sub shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by them as of the Effective
Time.
(b) Certificate of Parent. Company shall have been provided with a
certificate executed on behalf of Parent by an authorized officer
certifying that the condition set forth in Section 6.2(a) shall have been
fulfilled.
6.3 Additional Conditions to the Obligations of Parent and Merger Sub. The
obligations of Parent and Merger Sub to consummate and effect this Agreement and
the transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Parent:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Company in this Agreement shall be true and correct in
all material respects (except for such representations and warranties that
are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true in all
respects) both when made and on and as of the Effective Time as though such
representations and warranties were made on and as of such time and (ii)
Company shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be
performed and complied with by it as of the Effective Time.
(b) Certificate of Company. Parent shall have been provided with a
certificate executed on behalf of Company by its President and Chief
Financial Officer certifying that the condition set forth in Section 6.3(a)
shall have been fulfilled.
(c) Third Party Consents. Parent shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons
whose consent or approval shall be required in connection with the Merger
under any material contract of Company or any of its subsidiaries or
otherwise, except where failure to obtain such consent would not have a
Material Adverse Effect on Company.
(d) Injunctions or Restraints on Conduct of Business. No temporary
restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent's conduct or operation
of the business of Company and its subsidiaries, following the Merger shall
be in effect, nor shall any proceeding brought by an administrative agency
or commission or other Governmental Entity, domestic or foreign, seeking
the foregoing be pending.
(e) No Material Adverse Changes. There shall not have occurred any
Material Adverse Effect on Company, or any change that has a Material
Adverse Effect on Company (other than Non-Controllable Events).
(f) FIRPTA Certificate. Company shall, prior to the Closing Date,
provide Parent with a properly executed FIRPTA Notification Letter,
substantially in the form of Exhibit E attached hereto, which states that
shares of capital stock of Company do not constitute "United States real
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property interests" under Section 897(c) of the Code, for purposes of
satisfying Parent's obligations under Treasury Regulation Section
1.1445-2(c)(3). In addition, simultaneously with delivery of such
Notification Letter, Company shall have provided to Parent, as agent for
Company, a form of notice to the Internal Revenue Service in accordance
with the requirements of Treasury Regulation Section 1.897-2(h)(2) and
substantially in the form of Exhibit E attached hereto along with written
authorization for Parent to deliver such notice form to the Internal
Revenue Service on behalf of Company upon the Closing of the Merger.
(g) Employment and Non-Competition Agreements. The employees of
Company set forth on Schedule 5.14 shall have accepted employment with
Parent and shall have entered into an Employment and Non-Competition
Agreement in the form attached hereto as Exhibit D.
(h) Action Under Stock Option Plans. The Board of Directors of Company
shall have taken all action necessary to prevent the cancellation,
termination or accelerated vesting of options under the Company Stock
Option Plans (other than the 100,000 options granted to non-employee
directors) upon the closing of the Merger and to allow such options to be
assumed by Parent as described in Section 5.9.
(i) Warrants. All outstanding warrants to acquire Company capital
stock shall have been exercised in accordance with their terms.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. At any time prior to the Effective Time, whether before
or after approval of the matters presented in connection with the Merger by the
stockholders of Company, this Agreement may be terminated:
(a) by mutual consent of Parent and Company;
(b) by either Parent or Company, if, without fault of the terminating
party, the Closing shall not have occurred on or before February 29, 2000
or such later date as may be agreed upon in writing by the parties hereto
(the "Final Date"); provided, however, that the Final Date shall be
extended to March 31, 2000 in the event that if the only reason the Closing
shall not have occurred by February 29, 2000 is the failure of the
conditions set forth in Section 6.1(b) and/or Section 6.1(d) (although such
extension shall not occur if the failure of such conditions has been caused
or resulted from one party's action or failure to act constituting a breach
of this Agreement and the other party does not consent to such extension);
and provided further that the right to terminate this Agreement under this
Section 7.1(b) shall not be available to any party whose action or failure
to act has been the cause of or resulted in the failure of the Merger to
occur on or before such date and such action or failure to act constitutes
a breach of this Agreement;
(c) by Parent, if (i) Company shall breach any of its representations,
warranties or obligations hereunder to an extent that would cause the
condition set forth in Section 6.3(a) not to be satisfied and such breach
shall not have been cured within ten (10) business days of receipt by
Company of written notice of such breach (and Parent shall not have
willfully breached any of its covenants hereunder, which breach is not
cured), (ii) the Board of Directors of Company shall have withdrawn or
modified its recommendation of this Agreement or the Merger in a manner
adverse to Parent or shall have resolved to do any of the foregoing, (iii)
Company shall have failed to comply with Section 4.3, (iv) the Board of
Directors of Company shall have recommended, endorsed, accepted or agreed
to a Takeover Proposal or shall have resolved to do so, or (v) for any
reason
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Company fails to call and hold the Company Stockholders Meeting by February
15, 2000 or in the event the condition set forth in Section 6.1(b) shall
not have been satisfied by February 15, 2000 under circumstances in which
it can be reasonably expected that the Final Date will be extended pursuant
to the proviso set forth in Section 7.1(b), March 15, 2000;
(d) by Company, if Parent shall breach any of its representations,
warranties or obligations hereunder to an extent that would cause the
condition set forth in Section 6.2(a) not to be satisfied and such breach
shall not have been cured within ten (10) business days following receipt
by Parent of written notice of such breach (and Company shall not have
willfully breached any of its covenants hereunder, which breach is not
cured);
(e) by Parent if a Trigger Event (as defined in Section 7.3(e)) or
Takeover Proposal shall have occurred and the Board of Directors of Company
in connection therewith, does not within ten (10) business days of such
occurrence (i) reconfirm its approval and recommendation of this Agreement
and the transactions contemplated hereby, and (ii) reject such Takeover
Proposal or Trigger Event (in the case of a Trigger Event involving a
tender or exchange offer); or
(f) by either Parent or Company if (i) any permanent injunction or
other order of a court or other competent authority preventing the
consummation of the Merger shall have become final and nonappealable or
(ii) any required approval of the stockholders of Company shall not have
been obtained by reason of the failure to obtain the required vote upon a
vote held at a duly held meeting of stockholders or at any adjournment
thereof (provided that the right to terminate this Agreement under this
subsection (ii) shall not be available to Company where the failure to
obtain such stockholder approval shall have been caused by the action or
failure to act of Company and such action or failure constitutes a breach
by Company of this Agreement).
7.2 Effect of Termination. In the event of termination of this Agreement
as provided in Section 7.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub or Company
or their respective officers, directors, stockholders or affiliates, except to
the extent that such termination results from the breach by a party hereto of
any of its representations, warranties or covenants set forth in this Agreement;
provided that, the provisions of Section 5.4 (Confidentiality), Section 7.3
(Expenses and Termination Fees), this Section 7.2 and Article VIII shall remain
in full force and effect and survive any termination of this Agreement.
7.3 Expenses and Termination Fees.
(a) Subject to subsections (b), (c), (d) and (e) of this Section 7.3,
whether or not the Merger is consummated, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby
(including, without limitation, the fees and expenses of its advisers,
accountants and legal counsel) shall be paid by the party incurring such
expense, except that expenses incurred in connection with printing the Proxy
Materials and the Registration Statement, registration and filing fees incurred
in connection with the Registration Statement, the Proxy Materials and the
listing of additional shares pursuant to Section 6.1(f) and fees, costs and
expenses associated with compliance with applicable state securities laws in
connection with the Merger shall be shared equally by Company and Parent.
(b) In the event that (i) Parent shall terminate this Agreement pursuant to
Section 7.1(e); (ii) Parent shall terminate this Agreement pursuant to Section
7.1(c)(iii) as a result of the failure by Company, its stockholders who are
parties to the Stockholder Agreements, and each of their respective directors,
officers, employees, affiliates and controlling persons, or any person
authorized by such persons, to comply with the requirements of Section 4.3;
(iii) Parent shall terminate this Agreement pursuant to Section 7.1(c)(iv); (iv)
Parent (or in the case of Section 7.1(f)(ii), Company) shall terminate this
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Agreement pursuant to Section 7.1(c)(ii) or 7.1(f)(ii) and, prior to such
withdrawal, modification or stockholder rejection, there shall have been (A) a
Trigger Event with respect to Company or (B) a Takeover Proposal with respect to
Company which at the time of such withdrawal, modification or stockholder
rejection shall not have been rejected by Company; or (v) Parent (or in the case
of Section 7.1(b), Company) shall terminate this Agreement pursuant to Section
7.1(b), 7.1(c)(i) or 7.1(c)(v) due in whole or in part to any failure by Company
to use its reasonable best efforts to perform and comply with all agreements and
conditions required by this Agreement to be performed or complied with by
Company prior to or on the Closing Date or any failure by Company's affiliates
to take any actions required to be taken hereby, and prior thereto there shall
have been (A) a Trigger Event with respect to Company or (B) a Takeover Proposal
with respect to Company which shall not have been rejected by Company, then
Company shall promptly reimburse Parent for all of the out-of-pocket costs and
expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel), and, in addition to
any other remedies Parent may have, Company shall promptly pay to Parent the sum
of $25,000,000.
(c) In the event that (i) Parent shall terminate this Agreement pursuant to
Section 7.1(c)(i) or 7.1(c)(v) under circumstances not described in Section
7.3(b)(v); or (ii) Parent shall terminate this Agreement pursuant to Section
7.1(c)(ii) or 7.1(f)(ii) (under circumstances not described in Section
7.3(b)(iv)), Company shall promptly reimburse Parent for all of the
out-of-pocket costs and expenses incurred by Parent in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel); and, in the event (A) any Takeover Proposal or Trigger Event is,
within twelve months of the later of (x) such termination of this Agreement and
(y) the payment of the above described expenses, consummated (as defined in
Section 7.3(g)) by or with any person (or any affiliate of any person) that made
a Takeover Proposal prior to termination of this Agreement or that caused a
Trigger Event prior to such termination, or (B) any other Takeover Proposal or
Trigger Event not described in clause (A) is consummated (as defined in Section
7.3(g)) within six months of the later of (x) such termination of this Agreement
and (y) the payment of the above-described expenses, Company shall promptly pay
to Parent the additional sum of $25,000,000 (less any amounts paid by Company to
Parent under Section 7.3(b)).
(d) In the event that Company shall terminate this Agreement pursuant to
Section 7.1(d) Parent shall promptly reimburse Company for all of the
out-of-pocket costs and expenses incurred by Company in connection with this
Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisors, accountants and legal
counsel).
(e) As used herein, a "Trigger Event" shall occur if any Person (as that
term is defined in Section 13(d) of the Exchange Act and the regulations
promulgated thereunder) acquires securities representing 15% or more, or
commences a tender or exchange offer, open market purchase program or other
publicly announced initiative following the successful consummation of which the
offeror and its affiliate would beneficially own securities representing 15% or
more, of the voting power of Company; provided, however, a Trigger Event shall
not be deemed to include the acquisition by any Person of securities
representing 15% or more of Company if such Person has acquired such securities
not with the purpose nor with the effect of changing or influencing the control
of Company, nor in connection with or as a participant in any transaction having
such purpose or effect, including without limitation not in connection with such
Person (i) making any public announcement with respect to the voting of such
shares at any meeting to consider any merger, consolidation, sale of substantial
assets or other business combination or extraordinary transaction involving
Company; (ii) making, or in any way participating in, any "solicitation" of
"proxies" (as such terms are defined or used in Regulation 14A under the
Exchange Act) to vote any voting securities of Company (including, without
limitation, any such
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solicitation subject to Rule 14a-11 under the Exchange Act) or seeking to advise
or influence any Person with respect to the voting of any voting securities of
Company, directly or indirectly, relating to a merger or other business
combination involving Company or the sale or transfer of a significant portion
of assets (excluding the sale or disposition of assets in the ordinary course of
business) of Company; (iii) forming, joining or in any way participating in any
"group" within the meaning of Section 13(d)(3) of the Exchange Act with respect
to any voting securities of Company, directly or indirectly, relating to a
merger or other business combination involving Company or the sale or transfer
of a significant portion of assets (excluding the sale or disposition of assets
in the ordinary course of business) of Company; or (iv) otherwise acting, alone
or in concert with others, to seek control of Company or to seek to control or
influence the management or policies of Company.
(f) For purposes of this Agreement, "Takeover Proposal" means any offer or
proposal for, or any indication of interest in, a merger or other business
combination involving Company or any of its subsidiaries or the acquisition of
15% or more of the outstanding shares of capital stock of Company, or a
significant portion of the assets of, Company or any of its subsidiaries, other
than the transactions contemplated by this Agreement.
(g) For purposes of Section 7.3(c) above, (A) "consummation" of a Takeover
Proposal shall occur on the date a written agreement is entered into with
respect to a merger or other business combination involving Company or the
acquisition of 15% or more of the outstanding shares of capital stock of
Company, or sale or transfer of any material assets (excluding the sale or
disposition of assets in the ordinary course of business) of Company or any of
its subsidiaries and (B) "consummation" of a Trigger Event shall occur on the
date any Person (other than any shareholder which currently owns 15% or more of
the outstanding shares of capital stock of Company provided such shareholder
does not increase its ownership) or any of its affiliates or associates would
beneficially own securities representing 15% or more of the voting power of
Company, following a tender or exchange offer.
7.4 Amendment. The boards of directors of the parties hereto may cause
this Agreement to be amended at any time by execution of an instrument in
writing signed on behalf of each of the parties hereto; provided that an
amendment made subsequent to adoption of the Agreement by the stockholders of
Company or Merger Sub shall not (i) alter or change the amount or kind of
consideration to be received on conversion of the Company Common Stock, (ii)
alter or change any term of the Certificate of Incorporation of the Surviving
Corporation to be effected by the Merger, or (iii) alter or change any of the
terms and conditions of the Agreement if such alteration or change would
materially adversely affect the holders of Company Common Stock or Merger Sub
Common Stock.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival at Effective Time. The representations, warranties and
agreements set forth in this Agreement shall terminate at the Effective Time,
except that the agreements set forth in Article I, Section 5.4
(Confidentiality), 5.10 (Forms S-3 and S-8), 5.17 (Indemnification), 5.20 (Best
Efforts and
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Further Assurances), 7.3 (Expenses and Termination Fees), 7.4 (Amendment), and
this Article VIII shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a party as shall be
specified by like notice):
(a) if to Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134
Attention: Senior Vice President, Legal and Government Affairs
Facsimile No.: (408) 526-5926
Telephone No.: (408) 526-8252
with a copy to:
Brobeck, Phleger & Harrison LLP
2200 Geng Road
Two Embarcadero Place
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
(b) if to Company, to:
Aironet Wireless Communications, Inc.
3875 Embassy Parkway
Akron, OH 44333
Attention: President
Facsimile No.: (330) 664-7922
Telephone No.: (330) 664-7900
with a copy to:
Day, Berry & Howard LLP
City Place I
Hartford, CT 06103
Attention: Frank Marco, Esq.
Facsimile No.: (860) 275-0343
Telephone No.: (860) 275-0100
and to
Goodman Weiss Miller LLP
100 Erieview Plaza
27th Floor
Cleveland, OH 44114
Attention: Robert Goodman, Esq. and Jay R. Faeges, Esq.
Facsimile No.: (216) 363-5835
Telephone No.: (216) 696-3366
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8.3 Interpretation. When a reference is made in this Agreement to Exhibits
or Schedules, such reference shall be to an Exhibit or Schedule to this
Agreement unless otherwise indicated. The words "include," "includes" and
"including" when used herein shall be deemed in each case to be followed by the
words "without limitation." The phrase "made available" in this Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. The phrases "the
date of this Agreement", "the date hereof", and terms of similar import, unless
the context otherwise requires, shall be deemed to refer to November 8, 1999.
The table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Nonassignability; Parties in Interest. This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Company Disclosure Schedule and the Parent Disclosure
Schedule (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, 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; (b) are not intended to confer upon any
other person any rights or remedies hereunder, except as set forth in Sections
1.6(a) - (c) and (f), 1.7 - 1.9, 5.9, 5.10, 5.12 and 5.17; and (c) shall not be
assigned by operation of law or otherwise except as otherwise specifically
provided.
8.6 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Remedies Cumulative. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws that might otherwise govern under applicable principles
of conflicts of law. Each of the parties hereto irrevocably consents to the
exclusive jurisdiction of any court located within the State of Delaware in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served upon them in any
manner authorized by the laws of the State of Delaware for such persons and
waives and covenants not to assert or plead any objection which they might
otherwise have to such jurisdiction and such process.
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8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution of this
Agreement and, therefore, waive the application of any law, regulation, holding
or rule of construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such agreement or
document.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, Company, Parent and Merger Sub have caused this
Agreement and Plan of Merger and Reorganization to be executed and delivered by
their respective officers thereunto duly authorized, all as of the date first
written above.
AIRONET WIRELESS COMMUNICATIONS, INC.
By: /s/ Roger Murphy
--------------------------------------
Name: Roger Murphy
--------------------------------------
Title: President and Chief Executive
Officer
--------------------------------------
CISCO SYSTEMS, INC.
By: /s/ Larry R. Carter
--------------------------------------
Name: Larry R. Carter
--------------------------------------
Title: Senior Vice President, Finance
and
-----------------------------------
Administrative, Chief Financial
Officer
-----------------------------------
and Secretary
--------------------------------------
OSPREY ACQUISITION CORPORATION
By: /s/ Larry R. Carter
--------------------------------------
Name: Larry R. Carter
--------------------------------------
Title: Senior Vice President, Chief
Financial
-----------------------------------
Officer and Secretary
--------------------------------------
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER AND REORGANIZATION]
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APPENDIX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT (the "Agreement"), dated as of November 8, 1999, by
and between Cisco Systems, Inc., a California corporation ("Parent"), and
Aironet Wireless Communications, Inc., a Delaware corporation ("Company").
WHEREAS, concurrently with the execution and delivery of this Agreement,
Company, Parent and Osprey Acquisition Corporation, a Delaware corporation
("Merger Sub"), are entering into an Agreement and Plan of Merger and
Reorganization, dated as of the date hereof (the "Reorganization Agreement"),
which provides that, among other things, upon the terms and subject to the
conditions thereof, Merger Sub will be merged with and into Company (the
"Merger"), with Company continuing as the surviving corporation; and
WHEREAS, as a condition and inducement to Parent's willingness to enter
into the Reorganization Agreement, Parent has required that Company agree, and
Company has so agreed, to grant to Parent an option with respect to certain
shares of Company's common stock on the terms and subject to the conditions set
forth herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Reorganization Agreement,
the parties hereto agree as follows:
1. Grant of Option. Company hereby grants Parent an irrevocable option
(the "Company Option") to purchase up to 2,826,375 shares (the "Company
Shares") of common stock, par value $.01 per share, of Company (the
"Company Common Stock") in the manner set forth below at a price (the
"Exercise Price") of $48.00 per Company Share, payable in cash. Capitalized
terms used herein but not defined herein shall have the meanings set forth
in the Reorganization Agreement.
2. Exercise of Option. The Company Option may be exercised by Parent,
in whole or in part at any time or from time to time after the occurrence
of any of the events described in Section 7.3(b) of the Reorganization
Agreement or if a Takeover Proposal or Trigger Event is consummated which
obligates Company to pay Parent the Termination Fee pursuant to Section
7.3(b) or (c) of the Reorganization Agreement. In the event Parent wishes
to exercise the Company Option, Parent shall deliver to Company a written
notice (an "Exercise Notice") specifying the total number of Company Shares
it wishes to purchase. Each closing of a purchase of Company Shares (a
"Closing") shall occur at a place, on a date and at a time designated by
Parent in an Exercise Notice delivered at least two business days prior to
the date of the Closing. The Company Option shall terminate upon the
earlier of: (i) the Effective Time; (ii) the termination of the
Reorganization Agreement pursuant to Section 7.1 thereof (other than a
termination in connection with which Parent is entitled to any payments as
specified in Sections 7.3(b) or (c) thereof); (iii) 180 days following any
termination of the Reorganization Agreement in connection with which Parent
is entitled to a payment as specified in Section 7.3(b) thereof (or if, at
the expiration of such 180 day period, the Company Option cannot be
exercised by reason of any applicable judgment, decree, order, law or
regulation, ten business days after such impediment to exercise shall have
been removed or shall have become final and not subject to appeal); or (iv)
12 months following any termination of the Reorganization Agreement in
connection with which Parent is entitled to a payment as specified in
Section 7.3(c) thereof (or if, at the expiration of such 12 month period,
the Company Option cannot be exercised by reason of any applicable
judgment, decree, order, law or regulation, ten business days after such
impediment to exercise shall have been removed or shall have become final
and not subject to appeal). Notwithstanding the foregoing, the Company
Option may not be exercised if Parent is in material breach of any of its
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representations, warranties, covenants or agreements contained in this
Agreement or in the Reorganization Agreement.
3. Conditions to Closing. The obligation of Company to issue the
Company Shares to Parent hereunder is subject to the conditions that (i)
all waiting periods, if any, under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations
promulgated thereunder ("HSR Act"), applicable to the issuance of the
Company Shares hereunder shall have expired or have been terminated; (ii)
all consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any Federal, state or local administrative
agency or commission or other Federal, state or local governmental
authority or instrumentality, if any, required in connection with the
issuance of the Company Shares hereunder shall have been obtained or made,
as the case may be; and (iii) no preliminary or permanent injunction or
other order by any court of competent jurisdiction prohibiting or otherwise
restraining such issuance shall be in effect.
4. Closing. At any Closing, (a) Company will deliver to Parent a
single certificate in definitive form representing the number of Company
Shares designated by Parent in its Exercise Notice, such certificate to be
registered in the name of Parent and to bear the legend set forth in
Section 10, and (b) Parent will deliver to Company the aggregate price for
the Company Shares so designated and being purchased by wire transfer of
immediately available funds or certified check or bank check. At any
Closing at which Parent is exercising the Company Option in part, Parent
shall present and surrender this Agreement to Company, and Company shall
deliver to Parent an executed new agreement with the same terms as this
Agreement evidencing the right to purchase the balance of the shares of
Company Common Stock purchasable hereunder.
5. Representations and Warranties of Company. Company represents and
warrants to Parent that (a) Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder; (b) the execution and
delivery of this Agreement by Company and the consummation by Company of
the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Company and no other corporate
proceedings on the part of Company are necessary to authorize this
Agreement or any of the transactions contemplated hereby; (c) this
Agreement has been duly executed and delivered by Company and constitutes a
valid and binding obligation of Company, and, assuming this Agreement
constitutes a valid and binding obligation of Parent, enforceable against
Company in accordance with its terms, except as enforceability may be
limited by bankruptcy and other laws affecting the rights and remedies of
creditors generally and general principles of equity; (d) Company has taken
all necessary corporate action to authorize and reserve for issuance and to
permit it to issue, upon exercise of the Company Option, and at all times
from the date hereof through the expiration of the Company Option will have
reserved, that number of unissued Company Shares that are subject to the
Company Option, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully
paid and nonassessable; (e) upon delivery of the Company Shares to Parent
upon the exercise of the Company Option, Parent will acquire the Company
Shares free and clear of all claims, liens, charges, encumbrances and
security interests of any nature whatsoever; (f) except as may be required
under the Securities Act of 1933, as amended (the "Securities Act"), the
execution and delivery of this Agreement by Company does not, and the
performance of this Agreement by Company will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a benefit under, or the
creation of a lien, pledge, security interest or
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other encumbrance on assets pursuant to (any such conflict, violation,
default, right of termination, cancellation or acceleration, loss or
creation, a "Violation"), (A) any provision of the Certificate of
Incorporation, as amended, or By-laws, as amended, or the Rights Agreement,
as amended, of Company or (B) any provisions of any material mortgage,
indenture, lease, contract or other agreement, instrument, permit,
concession, franchise, or license or (C) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to Company or its
properties or assets, which Violation, in the case of each of clauses (B)
and (C), would have a Material Adverse Effect on Company; and (g) except as
described in Section 2.3 of the Reorganization Agreement, the execution and
delivery of this Agreement by Company does not, and the performance of this
Agreement by Company will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any governmental or
regulatory authority, other than applicable filings with and payment of
fees to the Nasdaq National Market with respect to the inclusion for
quotation thereon of the additional shares of Company Common Stock which
may be purchased hereunder.
6. Representations and Warranties of Parent. Parent represents and
warrants to Company that (a) Parent is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder; (b) the execution and
delivery of this Agreement by Parent and the consummation by Parent of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and no other corporate proceedings
on the part of Parent are necessary to authorize this Agreement or any of
the transactions contemplated hereby; (c) this Agreement has been duly
executed and delivered by Parent and constitutes a valid and binding
obligation of Parent, enforceable against Parent in accordance with its
terms, except as enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally and general
principles of equity; (d) except as described in Section 3.3 of the
Reorganization Agreement, the execution and delivery of this Agreement by
Parent does not, and the performance of this Agreement by Parent will not,
result in any Violation pursuant to, (A) any provision of the Articles of
Incorporation or By-laws of Parent, (B) any provisions of any material
mortgage, indenture, lease, contract or other agreement, instrument,
permit, concession, franchise, or license or (C) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or
its properties or assets, which Violation, in the case of each of clauses
(B) and (C), would have a Material Adverse Effect on Parent; (e) except as
described in Section 3.3 of the Reorganization Agreement and Section 3(i)
of this Agreement, and except as may be required under the Securities Act
and the Securities Exchange Act of 1934, as amended, the execution and
delivery of this Agreement by Parent does not, and the performance of this
Agreement by Parent will not, require any consent, approval, authorization
or permit of, or filing with or notification to, any governmental or
regulatory authority; and (f) any Company Shares acquired upon exercise of
the Company Option will not be, and the Company Option is not being,
acquired by Parent with a view to the public distribution thereof.
7. Put and Call.
(a) Exercise. At any time during which the Company Option is exercisable
pursuant to Section 2 (the "Repurchase Period"), upon demand by Parent, Parent
shall have the right to sell to Company (or any successor entity thereof), and
Company (or such successor entity) shall be obligated to repurchase from Parent
(the "Put"), and upon demand by Company, Company (or any successor entity
thereof) shall have the right to purchase from Parent and Parent shall be
obligated to sell to Company (or any successor entity) (the "Call"), all or any
portion of the Company Option, to the extent not previously
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exercised, at the price set forth in subparagraph (i) below, or all or any
portion of the Company Shares purchased by Parent pursuant thereto, at a price
set forth in subparagraph (ii) below:
(i) The difference between the "Market/Tender Offer Price" for shares
of Company Common Stock as of the date (the "Notice Date") notice of
exercise of the Put or Call, as the case may be, is given to the other
party (defined as the higher of (A) the price per share offered as of the
Notice Date pursuant to any tender or exchange offer or other Takeover
Proposal (as defined in the Reorganization Agreement) which was made prior
to the Notice Date and not terminated or withdrawn as of the Notice Date
(the "Tender Price") or (B) the average of the closing prices of shares of
Company Common Stock on the Nasdaq National Market for the ten trading days
immediately preceding the Notice Date (the "Market Price")), and the
Exercise Price, multiplied by the number of Company Shares purchasable
pursuant to the Company Option (or portion thereof with respect to which
Parent is exercising its rights under this Section 7), but only if the
Market/ Tender Offer Price is greater than the Exercise Price.
(ii) The Exercise Price paid by Parent for the Company Shares acquired
pursuant to the Company Option plus the difference between the
Market/Tender Offer Price and the Exercise Price, but only if the
Market/Tender Offer Price is greater than the Exercise Price, multiplied by
the number of Company Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii) above, in no event
shall the proceeds payable to Parent pursuant to this Section 7 exceed the
sum of (x) $35,000,000 plus (y) the Exercise Price multiplied by the number
of Company Shares purchased minus (z) any amount paid to Parent by Company
pursuant to Section 7.3(b) or Section 7.3(c) of the Reorganization
Agreement.
(b) For purposes of Section 7(a), the Tender Price shall be the highest
price per share offered pursuant to a tender or exchange offer or other Takeover
Proposal during the Repurchase Period.
(c) Payment and Redelivery of Company Option or Shares. In the event Parent
or Company exercises its rights under this Section 7, Company shall, within ten
business days of the Notice Date, pay the required amount to Parent in
immediately available funds and Parent shall surrender to Company the Company
Option or the certificates evidencing the Company Shares purchased by Parent
pursuant thereto, and Parent shall warrant that it owns such shares and that
such shares are then free and clear of all liens, claims, charges and
encumbrances of any kind or nature whatsoever.
8. Registration Rights.
(a) Following any exercise of the Company Option, Parent may by written
notice (the "Registration Notice") to Company request Company to register under
the Securities Act all or any part of the shares of Company Common Stock
acquired pursuant to this Agreement (the "Restricted Shares") beneficially owned
by Parent (the "Registrable Securities") pursuant to a bona fide firm commitment
underwritten public offering in which Parent and the underwriters shall effect
as wide a distribution of such Registrable Securities as is reasonably
practicable and shall use their best efforts to prevent any Person (including
any Group) and its affiliates from purchasing through such offering Restricted
Shares representing more than 1% of the outstanding shares of Common Stock of
Company on a fully diluted basis (a "Permitted Offering"); provided, further,
that any such Registration Notice must relate to a number of shares equal to at
least 2% of the outstanding shares of Company Common Stock and that any rights
to require registrations hereunder shall terminate with respect to any shares
that may be sold pursuant to Rule 144(k) under the Securities Act. The
Registration Notice shall include a certificate executed by Parent and its
proposed managing underwriter, which underwriter shall be an investment banking
firm of nationally recognized standing (the "Manager"), stating that (i) they
have a good faith intention to commence promptly a Permitted Offering and (ii)
the Manager in good faith believes that,
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based on the then prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price equal to at least 80% of the Fair
Market Value of such shares. For purposes of this Section 8, the term "Fair
Market Value" shall mean the per share average of the closing sale prices of
Company's Common Stock on the Nasdaq National Market for the ten trading days
immediately preceding the date of the Registration Notice.
(b) Company shall use its reasonable best efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities; provided, however, that (i) Parent shall not be entitled
to more than an aggregate of two effective registration statements hereunder and
(ii) Company will not be required to file any such registration statement during
any period of time (not to exceed 40 days after such request in the case of
clause (A) below or 90 days in the case of clauses (B) and (C) below) when (A)
Company is in possession of material non-public information which it reasonably
believes (i) would be detrimental to be disclosed at such time and, (ii) after
consultation with counsel to Company, such information would have to be
disclosed if a registration statement were filed at that time; (B) Company is
required under the Securities Act to include audited financial statements for
any period in such registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) Company
determines, in its reasonable judgment, that such registration would interfere
with any financing, acquisition or other material transaction involving Company
or any of its affiliates. If consummation of the sale of any Registrable
Securities pursuant to a registration hereunder does not occur within 120 days
after the filing with the SEC of the initial registration statement, the
provisions of this Section 8 shall again be applicable to any proposed
registration; provided, however, that Parent shall not be entitled to request
more than two registrations pursuant to this Section 8. Company shall use its
reasonable best efforts to cause any Registrable Securities registered pursuant
to this Section 8 to be qualified for sale under the securities or Blue Sky laws
of such jurisdictions as Parent may reasonably request and shall continue such
registration or qualification in effect in such jurisdiction; provided, however,
that Company shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 8 are subject to the
condition that Parent shall provide Company with such information with respect
to Parent's Registrable Securities, the plans for the distribution thereof, and
such other information with respect to Parent as, in the reasonable judgment of
counsel for Company, is necessary to enable Company to include in such
registration statement all material facts required to be disclosed with respect
to a registration thereunder.
(d) If Company's securities of the same type as the Registrable Securities
are then authorized for quotation or trading or listing on the New York Stock
Exchange, Nasdaq National Market System, or any other securities exchange or
automated quotations system, Company, upon the request of Parent, shall promptly
file an application, if required, to authorize for quotation, trading or listing
the shares of Registrable Securities on such exchange or system and will use its
reasonable efforts to obtain approval, if required, of such quotation, trading
or listing as soon as practicable.
(e) A registration effected under this Section 8 shall be effected at
Company's expense, except for underwriting discounts and commissions and the
fees and the expenses of counsel to Parent, and Company shall provide to the
underwriters such documentation (including certificates, opinions of counsel and
"comfort" letters from auditors) as are customary in connection with
underwritten public offerings as such underwriters may reasonably require. In
connection with any such registration, the parties agree (i) to indemnify each
other and the underwriters in the customary manner and (ii) to enter into an
underwriting agreement in form and substance customary to transactions of this
type with the Manager and the other underwriters participating in such offering.
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9. Adjustment Upon Changes in Capitalization.
(a) In the event of any change in Company Common Stock by reason of stock
dividends, splitups, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, the type and number of shares or
securities subject to the Company Option, and the purchase price per share
provided in Section 1, shall be adjusted appropriately, and proper provision
shall be made in the agreements governing such transaction so that Parent shall
receive, upon exercise of the Company Option, the number and class of shares or
other securities or property that Parent would have received in respect of the
Company Common Stock if the Company Option had been exercised immediately prior
to such event or the record date therefor, as applicable.
(b) In the event that Company shall enter in an agreement: (i) to
consolidate with or merge into any person, other than Parent or one of its
Subsidiaries, and Company shall not be the continuing or surviving corporation
of such consolidation or merger; (ii) to permit any person, other than Parent or
one of its Subsidiaries, to merge into Company and Company shall be the
continuing or surviving corporation, but, in connection with such merger, the
then-outstanding shares of Company Common Stock shall be changed into or
exchanged for stock or other securities of Company or any other person or cash
or any other property or the outstanding shares of Company Common Stock
immediately prior to such merger shall after such merger represent less than 50%
of the outstanding shares and share equivalents of the merged company; or (iii)
to sell or otherwise transfer all or substantially all of its assets to any
person, other than Parent or one of its Subsidiaries, then, and in each such
case, the agreement governing such transaction shall make proper provisions so
that upon the consummation of any such transaction and upon the terms and
conditions set forth herein, Parent shall receive for each Company Share with
respect to which the Company Option has not been exercised an amount of
consideration in the form of and equal to the per share amount of consideration
that would be received by the holder of one share of Company Common Stock less
the Exercise Price (and, in the event of an election or similar arrangement with
respect to the type of consideration to be received by the holders of Company
Common Stock, subject to the foregoing, proper provision shall be made so that
the holder of the Company Option would have the same election or similar rights
as would the holder of the number of shares of Company Common Stock for which
the Company Option is then exercisable).
10. Restrictive Legends. Each certificate representing shares of Company
Common Stock issued to Parent hereunder shall include a legend in substantially
the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED
AS OF NOVEMBER 8, 1999, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
11. Binding Effect; No Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. Except as expressly provided for in this Agreement, neither
this agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the other
party. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever by reason of
this Agreement. Any Restricted Shares sold by Parent in compliance with the
provisions of Section 8 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement, unless and
until Parent shall repurchase or otherwise become the
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beneficial owner of such shares, and any transferee of such shares shall not be
entitled to the rights of Parent. Certificates representing shares sold in a
registered public offering pursuant to Section 8 shall not be required to bear
the legend set forth in Section 10.
12. Specific Performance. The parties recognize and agree that if for any
reason any of the provisions of this Agreement are not performed in accordance
with their specific terms or are otherwise breached, immediate and irreparable
harm or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that, in addition to other remedies, the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action should be brought in equity to enforce the provisions of this Agreement,
neither party will allege, and each party hereby waives the defense, that there
is adequate remedy at law.
13. Entire Agreement. This Agreement and the Reorganization Agreement
(including the Company Disclosure Schedule and the Parent Disclosure Schedule
relating thereto) constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof.
14. Further Assurance. Each party will execute and deliver all such further
documents and instruments and take all such further action as may be necessary
in order to consummate the transactions contemplated hereby.
15. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of the other
provisions of this Agreement, which shall remain in full force and effect. In
the event any court or other competent authority holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith the execution and delivery of an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision. Each party agrees
that, should any court or other competent authority hold any provision of this
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith, or not take any action required
herein, the other party shall not be entitled to specific performance of such
provision or part hereof or to any other remedy, including but not limited to
money damages, for breach hereof or of any other provision of this Agreement or
part hereof as the result of such holding or order.
16. Notices. Any notice or communication required or permitted hereunder
shall be in writing and either delivered personally, telegraphed or telecopied
or sent by certified or registered mail, postage prepaid, and shall be deemed to
be given, dated and received when so delivered personally, telegraphed or
telecopied or, if mailed, five business days after the date of mailing to the
following address or
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telecopy number, or to such other address or addresses as such person may
subsequently designate by notice given hereunder.
(a) if to Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Senior Vice President, Legal and Government Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
(b) if to Company, to:
Aironet Wireless Communications, Inc.
3875 Embassy Parkway
Akron, OH 44333
Facsimile No.: (303) 664-7922
Telephone No.: (330) 664-7900
with a copy to:
Day, Berry & Howard LLP
City Place I
Hartford, CT 06103
Attention: Frank Marco, Esq.
Facsimile No.: (860) 275-0343
Telephone No.: (860) 275-0100
and
Goodman Weiss Miller LLP
100 ErieView Plaza
27th Floor
Cleveland, OH 44114
Attention: Robert Goodman, Esq. and Jay R. Faeges, Esq.
Facsimile No.: (216) 363-5835
Telephone No.: (216) 696-3366
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such State without regard to any applicable
conflicts of law rules.
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18. Descriptive Headings. The descriptive headings herein are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
20. Expenses. Except as otherwise expressly provided herein or in the
Reorganization Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. Amendments; Waiver. This Agreement may be amended by the parties hereto
and the terms and conditions hereof may be waived only by an instrument in
writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
CISCO SYSTEMS, INC.
By: /s/ Larry R. Carter
------------------------------------
Name: Larry R. Carter
Title: Senior Vice President,
Finance and Administration,
Chief Financial Officer and
Secretary
AIRONET WIRELESS COMMUNICATIONS, INC.
By: /s/ Roger Murphy
------------------------------------
Name: Roger Murphy
Title: President and Chief
Executive Officer
[SIGNATURE PAGE TO STOCK OPTION AGREEMENT]
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APPENDIX C
FORM OF
STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (the "Agreement") is made and entered into as of
November 8, 1999, between Cisco Systems, Inc., a California corporation
("Parent"), Osprey Acquisition Corporation, a Delaware corporation and
wholly-owned subsidiary of Parent ("Merger Sub"), and the undersigned
stockholder ("Stockholder") of Aironet Wireless Communications, Inc., a
corporation existing under the laws of Delaware ("Company").
RECITALS:
WHEREAS, pursuant to an Agreement and Plan of Merger and Reorganization
dated as of November 8, 1999, by and between Parent, Merger Sub and Company
(such agreement as it may be amended or restated is hereinafter referred to as
the "Reorganization Agreement"), the parties agreed that on the signing of the
Reorganization Agreement, Parent, Merger Sub and Stockholder would execute and
deliver a Stockholder Agreement containing the terms and conditions set forth in
an Exhibit to the Reorganization Agreement together with such other terms and
conditions as may be agreed to by the parties to the Reorganization Agreement
acting reasonably;
WHEREAS, Parent has agreed to acquire the outstanding securities of Company
pursuant to a statutory merger of Merger Sub with and into Company (the
"Merger") effected in part through the conversion of each outstanding share of
capital stock of Company (the "Company Capital Stock"), into shares of common
stock of Parent (the "Parent Shares") at the rate set forth in the
Reorganization Agreement (the "Transaction");
WHEREAS, in order to induce Parent to enter into the Transaction, Company
has agreed to use its best efforts to solicit the proxy of certain stockholders
of Company on behalf of Parent, and to cause certain stockholders of Company to
execute and deliver Stockholder Agreements to Parent;
WHEREAS, Stockholder is the registered and beneficial owner of such number
of shares of the outstanding Company Capital Stock as is indicated on the
signature page of this Agreement (the "Shares"); and
WHEREAS, in order to induce Parent to enter into the Transaction, certain
stockholders of Company have agreed not to transfer or otherwise dispose of any
of the Shares, or any other shares of Company Capital Stock acquired by such
stockholder hereafter and prior to the Expiration Date (as defined in Section
1.1 below), and have agreed to vote the Shares and any other such shares of
Company Capital Stock so as to facilitate consummation of the Transaction.
NOW, THEREFORE, the parties agree as follows:
1. Share Ownership and Agreement to Retain Shares.
1.1 Transfer and Encumbrance.
(a) Stockholder is the beneficial owner of that number of Shares of
Company Capital Stock set forth on the signature page hereto and, except as
otherwise set forth on the signature page hereto, has held such Company Capital
Stock at all times since the date set forth on such signature page. The Shares
constitute the Stockholder's entire interest in the outstanding Company Capital
Stock. No other person or entity not a signatory to this Agreement has a
beneficial interest in or a right to acquire the
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Shares or any portion of the Shares. The Shares are and will be at all times up
until the Expiration Date free and clear of any liens, claims, options, charges
or other encumbrances.
(b) Stockholder agrees not to transfer (except as may be specifically
required by court order or by operation of law), sell, exchange, pledge or
otherwise dispose of or encumber the Shares or any New Shares (as defined
below), or to make any offer or agreement relating thereto, at any time prior to
the Expiration Date. As used herein, the term "Expiration Date" shall mean the
earlier to occur of (i) the Effective Time (as defined in the Reorganization
Agreement) of the Transaction, and (ii) the termination of the Reorganization
Agreement.
1.2 New Shares. Stockholder agrees that any shares of Company Capital
Stock that Stockholder purchases or with respect to which Stockholder otherwise
acquires beneficial ownership after the date of this Agreement and prior to the
Expiration Date ("New Shares") shall be subject to the terms and conditions of
this Agreement to the same extent as if they constituted Shares.
2. Agreement to Vote Shares. Prior to the Expiration Date, at every meeting
of the stockholders of Company called with respect to any of the following, and
at every adjournment thereof, and on every action or approval by written
resolution of the stockholders of Company with respect to any of the following,
Stockholder shall vote the Shares and any New Shares (i) in favor of approval of
the Transaction and any matter that could reasonably be expected to facilitate
the Transaction and (ii) against any proposal for any recapitalization, merger,
sale of assets or other business combination (other than the Transaction)
between Company and any person or entity other than Parent and Merger Sub.
3. Irrevocable Proxy. Stockholder is hereby delivering to Parent a duly
executed proxy in the form attached hereto as Exhibit A (the "Proxy") with
respect to each meeting of stockholders of Company, such Proxy to cover the
total number of Shares and New Shares in respect of which Stockholder is
entitled to vote at any such meeting. Upon the execution of this Agreement by
the Stockholder, the Stockholder hereby revokes any and all prior proxies given
by the Stockholder with respect to the Shares and agrees not to grant any
subsequent proxies with respect to the Shares or any New Shares until after the
Expiration Date.
4. Representations, Warranties and Covenants of Stockholder. Stockholder
hereby represents, warrants and covenants to Parent as follows:
(a) Until the Expiration Date, the Stockholder will not (and will use
such Stockholder's reasonable best efforts to cause Company, its
affiliates, officers, directors and employees and any investment banker,
attorney, accountant or other agent retained by such Stockholder or them,
not to): (i) initiate or solicit, directly or indirectly, any proposal,
plan of offer to acquire all or any substantial part of the business or
properties or Company Capital Stock, whether by merger, purchase of assets,
tender offer or otherwise, or to liquidate Company or otherwise distribute
to the Stockholders of Company all or any substantial part of the business,
properties or Company Capital Stock (each, an "Acquisition Proposal"); (ii)
initiate, directly or indirectly, any contact with any person in an effort
to or with a view towards soliciting any Acquisition Proposal; (iii)
furnish information concerning Company's business, properties or assets to
any corporation, partnership, person or other entity or group (other than
Parent or Merger Sub, or any associate, agent or representative of Parent
or Merger Sub), under any circumstances that would reasonably be expected
to relate to an actual or potential Acquisition Proposal; or (iv) negotiate
or enter into discussions or an agreement, directly or indirectly, with any
entity or group with respect of any potential Acquisition Proposal provided
that, in the case of clauses (iii) and (iv), the foregoing shall not
prevent Stockholder, in Stockholder's capacity as a director or officer (as
the case may be) of Company, from taking any actions permitted under
Section 4.3 of the Reorganization Agreement. In
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the event the Stockholder shall receive or become aware of any Acquisition
Proposal subsequent to the date hereof, such Stockholder shall promptly
inform Parent as to any such matter and the details thereof to the extent
possible without breaching any other agreement to which such Stockholder is
a party or violating its fiduciary duties.
(b) Stockholder is competent to execute and deliver this Stockholder
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. This Stockholder Agreement has been duly
and validly executed and delivered by Stockholder and, assuming the due
authorization, execution and delivery by Parent, constitutes a legal, valid
and binding obligation of Stockholder, enforceable against Stockholder in
accordance with its terms except that (i) the enforceability thereof may be
subject to applicable bankruptcy, insolvency or other similar laws, now or
hereinafter in effect affecting creditors' rights generally and (ii) the
availability of the remedy of specific performance or injunctive or other
forms of equitable relief may be subject to equitable defenses and would be
subject to the discretion of the court before which any proceeding therefor
may be brought.
(c) The execution and delivery of this Stockholder Agreement by
Stockholder does not, and the performance of this Stockholder Agreement by
Stockholder shall not result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration
or cancellation of, or result in the creation of a lien or encumbrance, on
any of the Shares or New Shares pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Stockholder is a party or by which
Stockholder or the Shares or New Shares are or will be bound or affected.
5. Additional Documents. Stockholder hereby covenants and agrees to execute
and deliver any additional documents necessary or desirable, in the reasonable
opinion of Parent, to carry out the purpose and intent of this Agreement.
6. Consent and Waiver. Stockholder hereby gives any consents or waivers
that are reasonably required for the consummation of the Transaction under the
terms of any agreement to which Stockholder is a party or pursuant to any rights
Stockholder may have.
7. Termination. This Agreement and the Proxy delivered in connection
herewith shall terminate and shall have no further force or effect as of the
Expiration Date.
8. Confidentiality. Stockholder agrees (i) to hold any information
regarding this Agreement and the Transaction in strict confidence, and (ii) not
to divulge any such information to any third person, until such time as the
Transaction has been publicly disclosed by Parent.
9. Miscellaneous.
9.1 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
9.2 Binding Effect and Assignment. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without the prior written consent of the other. This Agreement is
binding upon Stockholder in Stockholder's
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capacity as a stockholder of Company (and not in Stockholder's capacity as a
director or officer, as the case may be, of Company) and only with respect to
the specific matters set forth herein.
9.3 Amendment and Modification. This Agreement may not be modified,
amended, altered or supplemented except by the execution and delivery of a
written agreement executed by the parties hereto.
9.4 Specific Performance; Injunctive Relief. The parties hereto
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Stockholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent or Merger Sub upon any such
violation, Parent and Merger Sub shall have the right to enforce such covenants
and agreements by specific performance, injunctive relief or by any other means
available to Parent or Merger Sub at law or in equity and the Stockholder hereby
waives any and all defenses which could exist in its favor in connection with
such enforcement and waives any requirement for the security or posting of any
bond in connection with such enforcement.
9.5 Notices. All notices, requests, demands or other communications
that are required or may be given pursuant to the terms of this Stockholder
Agreement shall be in writing and shall be deemed to have been duly given if
delivered by hand or mailed by registered or certified mail, postage prepaid, as
follows:
(a) If to the Stockholder, at the address set forth below the
Stockholder's signature at the end hereof.
(b) if to Parent or Merger Sub, to:
Cisco Systems, Inc.
170 West Tasman Drive
San Jose, CA 95134-1706
Attention: Senior Vice President,
Legal and Government Affairs
Facsimile No.: (408) 526-5925
Telephone No.: (408) 526-8252
with a copy to:
Brobeck, Phleger & Harrison LLP
Two Embarcadero Place
2200 Geng Road
Palo Alto, CA 94303
Attention: Therese A. Mrozek, Esq.
Facsimile No.: (650) 496-2885
Telephone No.: (650) 424-0160
(c) if to Company, to:
Aironet Wireless Communications, Inc.
3875 Embassy Parkway
Akron, OH 44333
Attention: Roger J. Murphy
Facsimile No.: (330) 664-7922
Telephone No.: (330) 664-7900
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with a copy to:
Day, Berry & Howard LLP
City Place I
Hartford, CT 06103
Attention: Frank Marco, Esq.
Facsimile No.: (860) 275-0343
Telephone No.: (860) 275-0100
and
Goodman Weiss Miller LLP
100 Erieview Plaza
27th Floor
Cleveland, OH 44114
Attention: Robert Goodman, Esq, and Jay R. Faeges, Esq.
Facsimile No.: (216) 363-5835
Telephone No.: (216) 696-3366
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
9.6 Governing Law. This Agreement shall be governed by, construed and
enforced in accordance with the laws of the State of Delaware.
9.7 Entire Agreement. This Agreement and the Proxy contain the entire
understanding of the parties in respect of the subject matter hereof, and
supersede all prior negotiations and understandings between the parties with
respect to such subject matter.
9.8 Counterpart. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
9.9 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this Agreement.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the parties have caused this Stockholder Agreement to
be executed as of the date first above written.
<TABLE>
<S> <C>
CISCO SYSTEMS, INC. STOCKHOLDER
By: -----------------------------------------------------
(Signature)
- -----------------------------------------------------
-----------------------------------------------------
Name: (Print Name)
- ----------------------------------------------------- -----------------------------------------------------
(Print Address)
Title:
-----------------------------------------------------
- ----------------------------------------------------- (Print Address)
OSPREY ACQUISITION CORPORATION -----------------------------------------------------
(Print Telephone Number)
By:
-----------------------------------------------------
- ----------------------------------------------------- (Social Security or Tax I.D. Number)
Name:
- -----------------------------------------------------
Title:
- -----------------------------------------------------
</TABLE>
Total Number of Shares of Company Capital Stock owned on the date hereof:
Common Stock:
- ------------------------------
[SIGNATURE PAGE TO STOCKHOLDER AGREEMENT]
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EXHIBIT A
IRREVOCABLE PROXY
TO VOTE STOCK OF
AIRONET WIRELESS COMMUNICATIONS, INC.
The undersigned stockholder of Aironet Wireless Communications, Inc., a
Delaware corporation ("Company"), hereby irrevocably (to the full extent
permitted by the Delaware General Corporation Law) appoints the members of the
Board of Directors of Cisco Systems, Inc., a California corporation ("Parent"),
and each of them, or any other designee of Parent, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, to vote and exercise all voting and related rights (to the full
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Company that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Company
issued or issuable in respect thereof on or after the date hereof (collectively,
the "Shares") in accordance with the terms of this Irrevocable Proxy. The Shares
beneficially owned by the undersigned stockholder of Company as of the date of
this Irrevocable Proxy are listed on the final page of this Irrevocable Proxy.
Upon the undersigned's execution of this Irrevocable Proxy, any and all prior
proxies given by the undersigned with respect to any Shares are hereby revoked
and the undersigned agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Irrevocable Proxy is irrevocable (to the extent provided in the
Delaware Corporations Code), is coupled with an interest, including, but not
limited to, that certain Stockholder Agreement dated as of even date herewith by
and among Parent, Osprey Acquisition Corporation and the undersigned, and is
granted in consideration of Parent entering into that certain Agreement and Plan
of Merger and Reorganization between Company, Parent and Merger Sub (the
"Reorganization Agreement"), which agreement provides for the merger of Merger
Sub with and into Company (the "Merger"). As used herein, the term "Expiration
Date" shall mean the earlier to occur of (i) such date and time as the Merger
shall become effective in accordance with the terms and provisions of the
Reorganization Agreement, and (ii) the date of termination of the Reorganization
Agreement. This Irrevocable Proxy shall terminate on the Expiration Date.
The attorneys and proxies named above, and each of them are hereby
authorized and empowered by the undersigned, at any time prior to the Expiration
Date, to act as the undersigned's attorney and proxy to vote the Shares, and to
exercise all voting and other rights of the undersigned with respect to the
Shares (including, without limitation, the power to execute and deliver written
consents pursuant to the Delaware Corporations Code), at every annual, special
or adjourned meeting of the stockholders of Company and in every written consent
in lieu of such meeting as follows:
[X] In favor of approval of the Merger and the Reorganization Agreement,
in favor of any matter that could reasonably be expected to facilitate
the Merger and against any proposal for any recapitalization, merger,
sale of assets or other business combination relating to the Company
(other than the Merger) and against any other action or agreement that
would result in a breach of any covenant, representation or warranty
or any other obligation or agreement of Company under an acquisition
agreement in respect of the Merger or which would result in any of the
conditions to the completion of the Merger not being fulfilled.
The attorneys and proxies named above may not exercise this Irrevocable
Proxy on any other matter except as provided above. The undersigned stockholder
may vote the Shares on all other matters.
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All authority herein conferred shall survive the death or incapacity of the
undersigned and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
[SIGNATURE PAGE FOLLOWS.]
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This Irrevocable Proxy is coupled with an interest as aforesaid and is
irrevocable.
Dated: November 8, 1999
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(Signature of Stockholder)
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(Print Name of Stockholder)
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Shares beneficially owned:
------------------------------------------------------
shares of Company Common Stock
[SIGNATURE PAGE TO IRREVOCABLE PROXY]
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APPENDIX D
OPINION OF DAIN RAUSCHER WESSELS
November 8, 1999
The Board of Directors
Aironet Wireless Communications, Inc.
3875 Embassy Parkway
Akron, OH 44333
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Aironet Wireless Communications, Inc., a
Delaware corporation (the "Company"), of the consideration to be received by the
stockholders pursuant to the terms of the proposed Agreement and Plan of Merger
and Reorganization (the "Agreement") dated as of November 8, 1999, by and among
Cisco Systems, Inc., a California corporation (the "Acquiror"), Osprey
Acquisition Corp., a Delaware corporation and wholly owned subsidiary of the
Acquiror ("Merger Sub"), and the Company. Capitalized terms used herein shall
have the meanings used in the Agreement unless otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock, $.01 par
value per share, of the Company is proposed to be converted into and represent
the right to receive .63734 shares (the "Exchange Ratio") of the Acquiror's
common stock, $.001 par value (the "Acquiror Shares"). The transaction is
intended to qualify as a reorganization under the provisions of Sections
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code and to be accounted
for as a purchase for financial accounting purposes. The terms and conditions of
the Merger and the Exchange Ratio are set forth more fully in the Agreement.
Dain Rauscher Wessels, a division of Dain Rauscher Incorporated ("Dain
Rauscher Wessels"), as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, corporate restructurings, negotiated underwritings,
secondary distributions of listed and unlisted securities, private placements
and valuations for corporate and other purposes.
We are acting as financial advisor to the Company in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement. In
the ordinary course of business, Dain Rauscher Wessels acts as a market maker
and broker in the publicly traded securities of the Company and the Acquiror and
receives customary compensation in connection therewith, and also provides
research coverage for the Company and the Acquiror for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities.
In connection with our review of the Merger, and in arriving at our
opinion, we have: (i) reviewed and analyzed the financial terms of the
Agreement; (ii) reviewed and analyzed certain publicly available financial and
other data with respect to the Company and Acquiror and certain other historical
relevant operating data relating to the Company and Acquiror made available to
us from published sources and from the internal records of the Company and
Acquiror; (iii) conducted discussions with members of the senior management of
the Company with respect to the business prospects and financial outlook of the
Company; (iv) conducted discussions with members of the senior management of the
Acquiror with
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respect to the business prospects and financial outlook of the Acquiror; (v)
reviewed the reported prices and trading activity for the Company's Common Stock
and the Acquiror's Common Stock; (vi) compared the financial performance of the
Company and the Acquiror and the prices of the Company's Common Stock and the
Acquiror's Common Stock with that of certain other comparable publicly-traded
companies and their securities; and (vii) reviewed the financial terms, to the
extent publicly available, of certain comparable merger transactions. In
addition, we have conducted such other analyses and examinations and considered
such other financial, economic and market criteria as we have deemed necessary
in arriving at our opinion.
With respect to the data and discussions relating to the business prospects
and financial outlook of the Company, upon advice of the Company we have assumed
that such data has been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of the Company as
to the future financial performance of the Company and that the Company will
perform substantially in accordance with such financial data and estimates. We
express no opinion as to such financial data and estimates or the assumptions on
which they were based.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by the Company and the Acquiror (including without limitation the
financial statements and related notes thereto of the Company and Acquiror), and
have not assumed responsibility for independently verifying and have not
independently verified such information. We have not assumed any responsibility
to perform, and have not performed, an independent evaluation or appraisal of
any of the respective assets or liabilities of the Company or the Acquiror, and
we have not been furnished with any such valuations or appraisals. In addition,
we have not assumed any obligation to conduct, and have not conducted, any
physical inspection of the property or facilities of the Company or the
Acquiror. Additionally, we have not been asked and did not consider the possible
effects of any litigation, other legal claims or any other contingent matters.
We have not solicited, nor were we asked to solicit, third party acquisition
interest in the Company. Further, we have assumed that the Merger will be
accounted for by the Acquiror as a purchase transaction under generally accepted
accounting principles and will qualify as a reorganization for U.S. federal
income tax purposes.
Our opinion speaks only as of the date hereof, is based on the conditions
as they exist and information which we have been supplied as of the date hereof,
and is without regard to any market, economic, financial, legal or other
circumstances or event of any kind or nature which may exist or occur after such
date. Our advisory services and the opinion expressed herein are provided for
the information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote with respect to such
transaction. Further, our opinion does not address the merits of the underlying
decision by the Company to engage in such transaction.
We are not expressing any opinion herein as to the prices at which the
Acquiror Shares will trade following the announcement or consummation of the
Merger.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion that, as of the date hereof, the consideration to be received by the
holders of the Company's Common Stock pursuant to the Agreement is fair, from a
financial point of view, to the holders of the Company's Common Stock.
Very truly yours,
DAIN RAUSCHER WESSELS,
a division of Dain Rauscher Incorporated
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AIRONET WIRELESS COMMUNICATIONS, INC.
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Aironet Wireless Communications, Inc., a
Delaware corporation ("Aironet"), revokes all previous proxies, hereby
acknowledges receipt of the Notice of Special Meeting of Stockholders and the
related Proxy Statement/Prospectus, each dated February 7, 2000, and hereby
appoints Roger J. Murphy, Jr. and Richard G. Holmes, and each of them, proxies
and attorneys-in-fact, with full power to each of substitution, on behalf of and
in the name of the undersigned, to vote as designated on the reverse side, all
shares of common stock of Aironet that the undersigned is entitled to vote at
the Special Meeting of Stockholders of Aironet to be held on March 14, 2000
at 10:00 a.m. local time, at the Hilton Akron West, 3180 West Market Street,
Akron, Ohio, and at any adjournment or
postponement thereof.
In their discretion, the proxies are authorized to vote upon such other
matters as may properly come before the special meeting or any adjournment of
the meeting.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY
THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY
PROPOSAL, THIS PROXY WILL BE VOTED FOR THE PROPOSAL. ATTENDANCE OF THE
UNDERSIGNED AT THE SPECIAL MEETING OR AT ANY ADJOURNMENT OR POSTPONEMENT OF THE
SPECIAL MEETING WILL NOT BE DEEMED TO REVOKE THIS PROXY UNLESS THE UNDERSIGNED
SHALL REVOKE THIS PROXY IN WRITING.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
AIRONET WIRELESS COMMUNICATIONS, INC.
[X] PLEASE MARK VOTE IN OVAL USING DARK INK ONLY.
THE AIRONET BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSALS:
1. To approve and adopt the Agreement and Plan of Merger and Reorganization,
dated as of November 8, 1999 (the "Merger Agreement"), by and among Cisco
Systems, Inc., Aironet Wireless Communications, Inc., and Osprey
Acquisition Corporation, a wholly-owned subsidiary of Cisco Systems, Inc.,
and to approve the merger (the "Merger") of Osprey Acquisition Corporation
with and into Aironet Wireless Communications, Inc. pursuant to the Merger
Agreement.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
2. To grant the Board of Directors of Aironet Wireless Communications, Inc.
discretionary authority to adjourn or postpone the Special Meeting in
order to solicit additional votes for approval of the Merger Agreement and
the Merger.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE AT BOTTOM LEFT [ ]
Please sign exactly as your name appears on your
stock certificate. When shares are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee,
guardian or corporate officer or partner, please
give full name as such. If a corporation, please
sign in corporate name by president or other
authorized officer. If a partner, please sign in
partnership name by authorized person.
Signature: Date:
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Signature: Date:
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YOUR VOTE IS IMPORTANT.
PLEASE VOTE, SIGN, AND RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
