<PAGE> 1
As filed with the Securities and Exchange Commission on November 5, 1997
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------------
DSC COMMUNICATIONS CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 54-1025763
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
-------------------------------
1000 COIT ROAD
PLANO, TEXAS 75075
(972) 519-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
-------------------------------
GEORGE B. BRUNT
DSC COMMUNICATIONS CORPORATION
1000 COIT ROAD
PLANO, TEXAS 75075
(972) 519-3000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
-------------------------------
With copies to:
Daniel W. Rabun G. William Speer
Baker & McKenzie Powell, Goldstein, Frazer & Murphy LLP
4500 Trammell Crow Center Sixteenth Floor
2001 Ross Avenue 191 Peachtree Street, N.E.
Dallas, Texas 75201 Atlanta, Georgia 30303
----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
----------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===============================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PERAGGREGATE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(2) FEE(2)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.01 per share . . . . . . . 1,515,098 Not Applicable $7,237,025 $2,194.00
- -------------------------------------------------------------------------------------------------------------------------------
Preferred Stock Purchase Rights(3) . . . . . . . . . 1,515,098 rights Not Applicable Not Applicable Not Applicable
===============================================================================================================================
</TABLE>
- ----------------
(1) The amount of Common Stock of the Registrant to be issued is based
upon an estimate of the number of outstanding shares of, and options
to purchase, the Common Stock of CELCORE, Inc. as of November 4, 1997.
(2) Pursuant to Rule 457(f)(2), the registration fee was computed on the
basis of the book value of the securities to be received by the
Registrant for which there is no established public trading market.
On September 30, 1997, the book value of such securities was
$7,237,025.
(3) In accordance with Rule 457(g), no additional registration fee is
required in respect of the Preferred Stock Purchase Rights.
-------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
[CELCORE LOGO]
CELCORE, INC.
3800 FOREST HILL - IRENE ROAD
MEMPHIS, TENNESSEE 38125
__________, 1997
To the Stockholders of CELCORE, INC.:
Enclosed are a Notice of Special Meeting of Stockholders, a
Prospectus/Proxy Statement and a Proxy for a Special Meeting of Stockholders
(the "Special Meeting") of CELCORE, INC. ("CELCORE") to be held on ________,
1997 at 10:00 a.m., central time, at 3800 Forest Hill - Irene Road, Memphis,
Tennessee 38125. At the Special Meeting you will be asked to consider and vote
on a proposal to approve and adopt (i) an Agreement and Plan of Merger (the
"Merger Agreement") pursuant to which a wholly-owned subsidiary of DSC
Communications Corporation ("DSC") will be merged with and into CELCORE (the
"Merger"), as a result of which CELCORE will become a wholly-owned subsidiary
of DSC and (ii) the payments under the Employment Agreements between DSC and
each of Thomas R. Berger, James M. Foley and Joseph J. Gonzalez, which are
being entered into in connection with the Merger. The approval of the payments
under the Employment Agreements is not a condition to the consummation of the
Merger. Additionally, the holders of CELCORE's Series A Convertible Preferred
Stock, par value $.10 per share ("Series A Preferred Stock"), Series B
Convertible Preferred Stock, par value $.10 per share ("Series B Preferred
Stock"), Series C Convertible Preferred Stock, par value $.10 per share
("Series C Preferred Stock"), and Series D Convertible Preferred Stock, par
value $.10 per share ("Series D Preferred Stock," together with the Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, the
"CELCORE Preferred Stock"), will be requested to waive their right to receive
cash or other property upon a liquidation of CELCORE as provided in CELCORE's
Certificate of Incorporation and in CELCORE's Certificate of Designation for
Series C Convertible Preferred Stock and Certificate of Designation for Series
D Convertible Preferred Stock (the "Liquidation Rights").
The terms of the Merger Agreement provide that each share of CELCORE's
common stock, par value $.10 per share ("CELCORE Common Stock"), and CELCORE
Preferred Stock outstanding immediately prior to the effective time of the
Merger (the "Effective Time") other than Dissenting Shares (as defined below)
will be converted into the right to receive a number of shares of DSC's common
stock, $.01 par value per share (the "DSC Common Stock"), based on the Exchange
Ratio (herein so called). The Exchange Ratio will depend on the Average Trading
Price (as defined below) of DSC Common Stock and will be equal to eight divided
by the average last sale price of DSC Common Stock on the ten consecutive
trading days immediately preceding the second trading day before the Special
Meeting (the "Average Trading Price"); provided that in the event the Average
Trading Price is $25.00 or less, then the Exchange Ratio will be .32. In
addition, each option to acquire CELCORE Common Stock, except for certain
options held by Messrs. Berger, Foley and Gonzalez, will be assumed by DSC and
will be converted into an option to acquire DSC Common Stock, based on the
Exchange Ratio. CELCORE stockholders will also receive the preferred stock
purchase rights (if any) attaching to such stock pursuant to that certain
Rights Agreement dated April 25, 1996 by and between DSC and Harris Trust and
Savings Bank, formerly KeyCorp Shareholder Services, Inc. Any resulting
fractional share interest will be paid in cash. Pursuant to the terms of the
Merger Agreement, an aggregate amount equal to 5.333% of the shares of DSC
Common Stock otherwise issuable to holders of CELCORE Common Stock and CELCORE
Preferred Stock by virtue of the Merger will be placed in two escrow funds
("Escrow Funds") with the initial 5% held as security for losses incurred by
DSC in the event CELCORE breaches certain covenants, representations and
warranties contained in the Merger Agreement and the remaining .333% held as
security for the costs and expenses incurred by Robert P. Goodman, as the
representative of CELCORE's stockholders, in performing his duties and
obligations under the escrow provisions of the Merger Agreement.
The closing price of the DSC Common Stock on November ___, 1997 was
$_______. If the Merger had been consummated as of that date, each share of
CELCORE Common Stock and CELCORE Preferred Stock would have been converted into
approximately __________ shares of DSC Common Stock and the aggregate dollar
value of all shares of DSC Common Stock to be issued in the Merger would have
been approximately $_______ million. The exact amount of DSC Common Stock that
you will be entitled to receive for your CELCORE shares and options - and the
dollar value of the DSC Common Stock - will depend on a number of factors,
including (i) the actual market value of DSC Common Stock and (ii) the amount
of claims (if any) against the Escrow Funds. The Merger will become effective
as soon as
<PAGE> 3
practicable after all necessary regulatory and stockholder approvals are
obtained and certain other conditions are satisfied by the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware.
Details of the matters to be considered at the Special Meeting are set
forth in the accompanying Prospectus/Proxy Statement which you should read
carefully. A complete list of stockholders entitled to vote at the Special
Meeting will be available for examination by any of CELCORE's stockholders at
CELCORE's office, for purposes pertaining to the Special Meeting, during normal
business hours for a period of ten days prior to the Special Meeting.
After careful consideration, the Board of Directors of CELCORE has
unanimously approved the Merger Agreement and the transactions contemplated
thereby and recommends that all stockholders vote for its approval. The Board
of Directors of CELCORE has received a written opinion from Donaldson, Lufkin &
Jenrette Securities Corporation, its financial advisor, dated as of October 29,
1997, that the consideration to be received by CELCORE's stockholders pursuant
to the Merger Agreement is fair to CELCORE's stockholders from a financial
point of view as of that date.
All stockholders are invited to attend the Special Meeting in person. The
affirmative vote of the holders of (i) a majority of all outstanding shares of
CELCORE Common Stock and Series A Convertible Preferred Stock, voting together
as a single class, and (ii) 60% of all outstanding shares of each of CELCORE's
Series B Convertible Preferred Stock, Series C Convertible Preferred Stock and
Series D Convertible Preferred Stock, each voting separately as a single class,
represented and entitled to vote at the Special Meeting or any adjournment
thereof will be necessary for approval and adoption of the Merger Agreement.
The payments under the Employment Agreements with Messrs. Berger, Foley and
Gonzalez are contingent upon the consummation of the Merger and the approval by
the affirmative vote of the holders of more than 75% of the outstanding shares
of CELCORE Common Stock and CELCORE Preferred Stock (excluding shares held by
Messrs. Berger, Foley and Gonzalez and certain of their related parties),
voting together as a single class, represented and entitled to vote at the
Special Meeting or any adjournment thereof. The approval of the payments under
the Employment Agreements is not a condition to the consummation of the Merger.
In addition, the approval of the waiver of the Liquidation Rights by the
holders of CELCORE Preferred Stock will require the affirmative vote of the
holders of 80% of the outstanding shares of CELCORE Preferred Stock, voting
together as a single class, represented and entitled to vote at the Special
Meeting or any adjournment thereof.
IN ORDER THAT YOUR SHARES MAY BE REPRESENTED AT THE SPECIAL MEETING, YOU
ARE URGED TO PROMPTLY COMPLETE, SIGN, DATE AND RETURN THE ACCOMPANYING PROXY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
If you attend the Special Meeting in person you may, if you wish, vote
personally on all matters brought before the Special Meeting even if you have
previously returned your Proxy.
Sincerely,
Robert P. Goodman
Chairman of the Board and Chief Executive
Officer
<PAGE> 4
[CELCORE LOGO]
3800 Forest Hill - Irene Road
Memphis, Tennessee 38125
Tel: (901) 624-4000
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON ________, 1997
A Special Meeting of Stockholders (the "Special Meeting") of CELCORE, INC.,
a Delaware corporation ("CELCORE"), will be held on _________, 1997 at 10:00
a.m., central time, at 3800 Forest Hill-Irene Road, Memphis, Tennessee 38125,
for the following purposes:
1. To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of October 29, 1997 (the "Merger
Agreement") among DSC Communications Corporation, a Delaware
corporation ("DSC"), CI Acquisition Company, a Delaware corporation
and a wholly-owned subsidiary of DSC ("Merger Subsidiary"), and
CELCORE, pursuant to which, among other things (a) Merger Subsidiary
would be merged with and into CELCORE, as a result of which CELCORE
would become a wholly-owned subsidiary of DSC, (b) each share of
CELCORE's common stock, par value $.10 per share ("CELCORE Common
Stock"), Series A Convertible Preferred Stock, par value $.10 per
share, Series B Convertible Preferred Stock, par value $.10 per share,
Series C Convertible Preferred Stock, par value $.10 per share, and
Series D Convertible Preferred Stock, par value $.10 per share
(collectively, "CELCORE Preferred Stock"), outstanding immediately
prior to the effective time of the Merger (the "Effective Time") other
than Dissenting Shares (as defined below) will be converted into the
right to receive a number of shares of DSC's common stock, $.01 par
value per share (the "DSC Common Stock"), based on the Exchange Ratio
(herein so called). The Exchange Ratio will depend on the Average
Trading Price (as defined below) of DSC Common Stock and will be equal
to eight divided by the average last sale price of DSC Common Stock on
the ten consecutive trading days immediately preceding the second
trading day before the Special Meeting (the "Average Trading Price")
as described in the accompanying Prospectus/Proxy Statement; provided,
however, if the Average Trading Price is $25.00 or less then the
Exchange Ratio will be .32, and (c) each option to acquire CELCORE
Common Stock, except for certain options held by Thomas R. Berger,
James M. Foley and Joseph J. Gonzalez, will be assumed by DSC and will
be converted into an option to acquire DSC Common Stock, based on the
Exchange Ratio. A copy of the Merger Agreement is attached to the
Prospectus/Proxy Statement as Appendix A.
2. To consider and vote upon a proposal to approve and adopt the payments
under the Employment Agreements between DSC and each of Messrs.
Berger, Foley and Gonzalez. The approval of the payments under the
Employment Agreements is not a condition to the consummation of the
Merger.
3. To consider and vote upon a proposal for the holders of CELCORE
Preferred Stock to waive any rights to receive cash or other property
upon a liquidation of CELCORE as provided in CELCORE's Certificate of
Incorporation and CELCORE's Certificate of Designation for Series C
Convertible Preferred Stock and Certificate of Designation for Series
D Convertible Preferred Stock.
4. To transact such other business as may properly come before the
Special Meeting or any adjournment(s) or postponement(s) thereof.
Stockholders of record of CELCORE Common Stock and CELCORE Preferred Stock
at the close of business on October 16, 1997 will be entitled to vote as set
forth in the accompanying Prospectus/Proxy Statement at the Special Meeting and
any adjournment thereof. Only holders of record of CELCORE Common Stock and
CELCORE Preferred Stock at the close of business on the record date are
entitled to notice of, and to vote at, the Special Meeting. A complete list of
stockholders entitled to vote at the Special Meeting will be available for
examination by any of CELCORE's stockholders at CELCORE's office, for purposes
pertaining to the Special Meeting, during normal business hours for a period of
ten days prior to the Special Meeting.
You are cordially invited and urged to attend the Special Meeting in
person. Whether or not you plan to attend, please complete, sign, date and
promptly return the enclosed Proxy in the enclosed self-addressed, stamped
envelope. A stockholder of CELCORE who has given a proxy may revoke such proxy
at any time prior to its exercise at the Special Meeting.
<PAGE> 5
THE BOARD OF DIRECTORS OF CELCORE HAS UNANIMOUSLY APPROVED AND ADOPTED THE
MERGER AGREEMENT AND THE PAYMENTS UNDER THE EMPLOYMENT AGREEMENTS WITH MESSRS.
BERGER, FOLEY AND GONZALEZ. THE BOARD OF DIRECTORS OF CELCORE RECOMMENDS THAT
YOU VOTE IN FAVOR OF EACH OF THE ABOVE PROPOSALS, INCLUDING THE PROPOSAL THAT
THE HOLDERS OF CELCORE PREFERRED STOCK WAIVE ANY LIQUIDATION RIGHTS PROVIDED IN
THE CERTIFICATE OF INCORPORATION AND CERTIFICATES OF DESIGNATIONS OF CELCORE.
IN ORDER TO ASSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN, DATE AND MAIL PROMPTLY THE ENCLOSED PROXY, WHICH IS BEING SOLICITED BY
THE BOARD OF DIRECTORS OF CELCORE, WHETHER OR NOT YOU PLAN TO ATTEND THE
SPECIAL MEETING. YOUR COOPERATION IS APPRECIATED.
By order of the Board of Directors,
CELCORE, INC.
Jay M. Rosen
Vice President, General Counsel and Secretary
Memphis, Tennessee
_________, 1997
<PAGE> 6
PROSPECTUS/PROXY STATEMENT
[DSC COMMUNICATIONS LOGO] [CELCORE LOGO]
DSC COMMUNICATIONS CORPORATION CELCORE, INC.
___________ SHARES SPECIAL MEETING OF STOCKHOLDERS
OF COMMON STOCK, TO BE HELD
PAR VALUE $.01 PER SHARE __________________, 1997
This Prospectus/Proxy Statement (the "Prospectus/Proxy Statement") is being
furnished to the stockholders of CELCORE, INC., a Delaware corporation
("CELCORE"), in connection with the solicitation of proxies by the Board of
Directors of CELCORE for use at a special meeting of stockholders of CELCORE to
be held on _______, 1997, and any adjournments or postponements thereof (the
"Special Meeting").
At the Special Meeting, all holders of shares of CELCORE Capital Stock (as
defined below) will consider and vote upon proposals to approve and adopt (i)
an Agreement and Plan of Merger, dated as of October 29, 1997 (the "Merger
Agreement"), among DSC Communications Corporation, a Delaware corporation
("DSC"), CI Acquisition Company, a Delaware corporation and a wholly-owned
subsidiary of DSC ("Merger Subsidiary"), and CELCORE, pursuant to which Merger
Subsidiary will merge with and into CELCORE (the "Merger"), (ii) the payments
under the employment agreements (the "Employee Agreements") between DSC and
each of Thomas R. Berger, James M. Foley and Joseph J. Gonzalez, and (iii) such
other business as may come before the Special Meeting. The approval of the
payments under the Employment Agreements is not a condition to the consummation
of the Merger. Additionally, at the Special Meeting the holders of CELCORE
Preferred Stock (as defined below) will be requested to waive any rights to
receive cash or other property upon a liquidation of CELCORE (the "Liquidation
Rights") as provided in CELCORE's Certificate of Incorporation and CELCORE's
Certificate of Designation for Series C Convertible Preferred Stock and
Certificate of Designation for Series D Convertible Preferred Stock
(collectively, "Certificates of Designations"). The waiver of such
Liquidation Rights by the holders of CELCORE Preferred Stock is a condition to
consummation of the Merger.
As a result of the Merger, CELCORE will become a wholly-owned subsidiary of
DSC and each share of CELCORE Capital Stock outstanding immediately prior to
the effective time of the Merger (the "Effective Time") other than Dissenting
Shares (as defined below) will be converted into the right to receive a number
of shares of DSC's common stock, $.01 par value per share (the "DSC Common
Stock"), based on the Exchange Ratio (herein so called). The Exchange Ratio
will depend on the Average Trading Price (as defined below) of DSC Common Stock
and will be equal to eight divided by the average last sale price of DSC Common
Stock on the ten consecutive trading days immediately preceding the second
trading day before the Special Meeting (the "Average Trading Price"); provided
that in the event the Average Trading Price is $25.00 or less then the Exchange
Ratio will be .32. Each option to acquire CELCORE Common Stock (as defined
below), including options held by Messrs. Berger, Foley and Gonzalez (the "BFG
Options") other than Canceled Options (as defined below) will be assumed by DSC
and will be converted into an option to acquire DSC Common Stock, based on the
Exchange Ratio. See "The Merger--Interests of Certain Persons; Possible
Conflicts of Interest." CELCORE stockholders will also receive the preferred
stock purchase rights ("Preferred Stock Purchase Rights") (if any) attaching to
such stock pursuant to that certain Rights Agreement dated April 25, 1996 by
and between DSC and Harris Trust and Savings Bank, formerly KeyCorp Shareholder
Services, Inc. (the "DSC Rights Agreement"). Any resulting fractional share
interest will be paid in cash. Pursuant to the terms of the Merger Agreement,
an aggregate amount equal to 5.333% of the shares of DSC Common Stock otherwise
issuable to holders of CELCORE Capital Stock by virtue of the Merger will be
placed into two escrow funds ("Escrow Funds") and with the initial 5% held as
security for losses incurred by DSC in the event CELCORE breaches certain
covenants, representations and warranties contained in the Merger Agreement and
the remaining .333% held as security for the costs and expenses incurred by
Robert P. Goodman, as representative of the CELCORE stockholders (the
"Representative"), in performing his duties and obligations under the escrow
provisions of the Merger Agreement. A copy of the Merger Agreement is attached
to this Prospectus/Proxy Statement as Appendix A and is incorporated herein by
reference. As used herein, "CELCORE Capital Stock" means all issued and
outstanding shares of Common Stock of CELCORE, par value $.10 per share
("CELCORE Common Stock"), and all issued and outstanding shares of Series A
Convertible Preferred Stock of CELCORE, par value $.10 per share ("Series A
Preferred Stock"), Series B Convertible Preferred Stock of CELCORE, par value
$.10 per share ("Series B Preferred Stock"), Series C Convertible Preferred
Stock of CELCORE, par value $.10 per share ("Series C Preferred Stock"), and
Series D Convertible Preferred Stock of CELCORE, par value $.10 per share
("Series D Preferred Stock," and together with the Series A Preferred Stock,
Series B Preferred Stock and Series C Preferred Stock, "CELCORE Preferred
Stock").
<PAGE> 7
The closing price of the DSC Common Stock on November ___, 1997 was
$______. If the Merger had been consummated as of that date, each share of
CELCORE Capital Stock would have been converted into approximately __________
shares of DSC Common Stock and the aggregate dollar value of all shares of DSC
Common Stock to be issued in the Merger would have been approximately $______
million. The exact amount of DSC Common Stock that CELCORE's stockholders will
be entitled to receive in exchange for their CELCORE shares and options - and
the dollar value of the DSC Common Stock - will depend on a number of factors,
including (i) the actual market value of DSC Common Stock and (ii) the amount
of claims (if any) against the Escrow Funds. The Merger will become effective
as soon as practicable after all necessary regulatory and stockholder approvals
are obtained and certain other conditions are satisfied by the filing of a
Certificate of Merger with the Secretary of State of the State of Delaware.
This Prospectus/Proxy Statement also constitutes the prospectus for the
offering of shares of DSC Common Stock to be issued in the Merger to the
holders of CELCORE Capital Stock. DSC has filed a Registration Statement on
Form S-4 (together with any amendments or supplements thereto, the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") of which this Prospectus/Proxy Statement is a part. All
information concerning CELCORE contained or incorporated by reference in this
Prospectus/Proxy Statement has been furnished by CELCORE, and all information
concerning DSC contained or incorporated by reference in this Prospectus/Proxy
Statement has been furnished by DSC.
SEE "RISK FACTORS" BEGINNING ON PAGE 21 FOR INFORMATION THAT SHOULD BE
CONSIDERED REGARDING THE SECURITIES OFFERED HEREBY.
This Prospectus/Proxy Statement and the accompanying proxy are first being
mailed to CELCORE stockholders on or about ________, 1997.
--------------------
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Prospectus/Proxy Statement is _________, 1997.
2
<PAGE> 8
AVAILABLE INFORMATION
DSC is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Commission. Reports, proxy statements
and other information filed by DSC may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW, Room
1024, Washington, D.C. 20549 and at the Commission's regional offices at 7
World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
materials may be obtained at prescribed rates upon request from the Public
Reference Section of the Commission at 450 Fifth Street, NW, Washington, D.C.
20549. In addition, such materials filed electronically by DSC with the
Commission are available at the Commission's World Wide Web Site at
http://www.sec.gov. DSC Common Stock is listed on the NASDAQ National Market,
and such reports, proxy statements and other information can also be inspected
at the offices of the NASDAQ National Market, Inc., Reports Section, 1735 K
Street, N.W., Washington, D.C. 20006.
DSC has filed with the Commission the Registration Statement under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
shares of DSC Common Stock to be issued pursuant to the Merger. This
Prospectus/Proxy Statement does not contain all the information set forth in
the Registration Statement and the Appendices thereto, certain parts of which
were omitted as permitted by the rules and regulations of the Commission. Such
additional information may be obtained from the Commission's principal office
in Washington, D.C.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
DSC hereby incorporates in this Prospectus/Proxy Statement by reference the
following documents which have been filed with the Commission pursuant to the
Exchange Act and made a part hereof:
(a) DSC's Annual Report on Form 10-K for the fiscal year ended December
31, 1996 ("DSC 1996 Form 10-K");
(b) DSC's Quarterly Report on Form 10-Q for the quarter ended March 31,
1997;
(c) DSC's Quarterly Report on Form 10-Q for the quarter ended June 30,
1997;
(d) DSC's Quarterly Report on Form 10-Q for the quarter ended September
30, 1997;
(e) DSC's Current Report on Form 8-K filed August 26, 1997;
(f) DSC's Current Report on Form 8-K filed November 3, 1997; and
(g) The description of the DSC Common Stock as contained in DSC's
Registration Statement on Form 8-A dated October 27, 1981, including
all amendments and reports filed for the purpose of updating such
descriptions; and the description of DSC's Preferred Stock Purchase
Rights as contained in DSC's Registration Statement on Form 8-A dated
May 13, 1996, including all amendments and reports filed for the
purpose of updating such descriptions.
All documents filed by DSC pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act subsequent to the date of this Prospectus/Proxy Statement and
prior to the date of the Special Meeting shall be deemed to be incorporated by
reference herein from the date of filing such documents. Any statement
contained herein or in a document incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Prospectus/Proxy Statement to the extent that a statement contained herein
(or in any subsequently filed document which also is or is deemed to be
incorporated by reference herein) modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus/Proxy
Statement.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
APPENDICES TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY
REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM, IN THE CASE
OF DOCUMENTS RELATING TO DSC, ATTN.: GENERAL COUNSEL, AT 1000 COIT ROAD, PLANO,
TEXAS 75075 , (972) 519-3000. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY _______, 1997.
3
<PAGE> 9
No person is authorized to give any information or to make any
representation not contained in this Prospectus/Proxy Statement or in the
documents incorporated herein by reference in connection with the solicitation
and the offering made hereby and, if given or made, such information or
representation should not be relied upon as having been authorized by DSC or
CELCORE. This Prospectus/Proxy Statement does not constitute an offer to sell,
or a solicitation of an offer to purchase, the securities offered by this
Prospectus/Proxy Statement, or the solicitation of a proxy from any person, in
any jurisdiction in which it is unlawful to make such offer, solicitation of an
offer or proxy solicitation. Neither the delivery of this Prospectus/Proxy
Statement nor any distribution of the securities made under this
Prospectus/Proxy Statement shall, under any circumstances, create an
implication that there has not been any change in the affairs of DSC or CELCORE
since the date of this Prospectus/Proxy Statement other than as set forth in
the documents incorporated herein by reference.
TRADEMARKS
DSC is a registered trademark of DSC. Celcore, GlobalSwitch, GlobalCell
and GlobalHub are trademarks of CELCORE. This Prospectus/Proxy Statement may
contain certain other trademarks.
FORWARD-LOOKING STATEMENTS
This Prospectus/Proxy Statement contains statements relating to future
results of DSC and CELCORE (including certain projections and business trends)
that are "forward-looking statements." Actual results may differ materially
from the results discussed in or implied by the forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act, which involves risks and uncertainties. Factors that might cause
such a difference include, but are not limited to, those set forth under "Risk
Factors" and detailed from time to time in the filings of DSC with the
Commission.
4
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TABLE OF CONTENTS
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AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
TRADEMARKS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Merger and Certain Provisions of the Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Description of Capital Stock and Comparison of Stockholders' Rights . . . . . . . . . . . . . . . . . . . . . . . 15
Market Price Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SELECTED HISTORICAL AND UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL DATA . . . . . . . . . . . . . . . . . . 17
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . 19
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA . . . . . . . . . . . . . . . . . . . . . . . . . . 20
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Potential Effects of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Customer Concentration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Product Obsolescence and Importance of New Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Timely and Adequate Supply of Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Quarterly Earnings Fluctuations and Liquidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
International Growth and Foreign Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Key Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Intellectual Property and Licensing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Volatility of DSC Stock Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Stock Escrow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Impact of Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Multi-year Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Certain Anti-Takeover Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Interests of Certain Persons; Possible Conflicts of Interests of Certain Persons in the Merger . . . . . . . . . . 24
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Purpose of the Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Voting of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Solicitation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Record Date; Shares Entitled to Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
CELCORE's Reasons for the Merger; Recommendation of CELCORE's Board of Directors . . . . . . . . . . . . . . . . . 27
Opinion of Financial Advisor to CELCORE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DSC's Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Terms of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Certain United States Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
NASDAQ National Market Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Interests of Certain Persons; Possible Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Restrictions on Resales by Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Loan by DSC to CELCORE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
CERTAIN PROVISIONS OF THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Exchange Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Escrow and Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Certain Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
No Solicitation of Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Conditions to the Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Transaction Fee; Expenses; Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Amendment and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Effect of the Merger on CELCORE Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
VOTING AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Voting and Proxy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Waiver of Appraisal Rights and Preferred Stock Liquidation Rights . . . . . . . . . . . . . . . . . . . . . . . . 46
No Voting Trusts and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Covenants and Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Registration of Merger Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Covenant Not-to-Compete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
INFORMATION CONCERNING DSC AND MERGER SUBSIDIARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
DSC Communications Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Merger Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
INFORMATION CONCERNING CELCORE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Sales and Marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Service and Support . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Research and Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Patents and Proprietary Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Manufacturing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . 52
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Recent Accounting Pronouncements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
COMPENSATION OF CELCORE'S EXECUTIVE OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
PRINCIPAL STOCKHOLDERS OF CELCORE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
DESCRIPTION OF CAPITAL STOCK AND COMPARISON OF STOCKHOLDERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 67
Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
CELCORE Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Special Meetings of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Classification of Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Anti-Takeover Provisions; Restrictions on Certain Business Combinations . . . . . . . . . . . . . . . . . . . . . 69
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
</TABLE>
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Limitation of Monetary Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Payment of Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Advance Notice Requirements for Stockholder Proposals and Nominations . . . . . . . . . . . . . . . . . . . . . . 71
Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Stockholders' Lists and Inspection of Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
PROPOSAL TO APPROVE THE PAYMENTS UNDER THE EMPLOYMENT AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Vote Required for Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
PROPOSAL TO APPROVE THE WAIVER OF LIQUIDATION RIGHTSBY HOLDERS OF CELCORE PREFERRED STOCK . . . . . . . . . . . . . . 76
Vote Required for Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
INDEX TO HISTORICAL FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
APPENDICES
Merger Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
Section 262 of the Delaware General Corporation Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
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SUMMARY
The following is a summary of certain information contained elsewhere or
incorporated by reference in this Prospectus/Proxy Statement. It does not
purport to be complete and is qualified in its entirety by the full text,
including the Appendices attached hereto. Certain capitalized terms used in
this Summary are defined elsewhere in this Prospectus/Proxy Statement or in the
Glossary. The information contained in this Prospectus/Proxy Statement with
respect to DSC and its affiliates has been provided by DSC, and the information
with respect to CELCORE and its affiliates has been provided by CELCORE.
RISK FACTORS
STOCKHOLDERS OF CELCORE SHOULD CAREFULLY EVALUATE CERTAIN RISK FACTORS
RELATING TO THE COMBINED COMPANY AFTER THE MERGER. SEE "RISK FACTORS."
THE COMPANIES
DSC. DSC designs, develops, manufactures and markets digital switching,
access, transport and network management system products for the worldwide
telecommunications marketplace. These products allow telecommunications service
providers to build and upgrade their networks to support a wide range of voice,
data and video services. DSC offers a comprehensive product line including
digital switching systems, intelligent network products, cellular switching
systems, digital loop carrier products, digital cross-connect products and
optical transmission systems and related advanced network management systems.
DSC develops such systems to meet U.S. and international telecommunications
standards and the specific requirements of the operating companies of the
Regional Holding Companies ("RHCs"), independent telephone companies,
long-distance carriers, private networks and companies operating public and
private communications networks in other countries.
DSC supplies products to a domestic and international customer base,
including local exchange telephone companies, long-distance carriers, cellular
telephone companies, international telephone companies, various Fortune 1000
companies and utility companies. Its domestic customers include the RHCs and
most major domestic independent telephone and long- distance companies,
including MCI Communications Corporation, U.S. Sprint Communications Company
L.P., GTE Communications Systems Corporation and WorldCom, Inc. DSC is also a
major manufacturer of high-capacity cellular switches for Motorola, Inc., a
leading supplier of wireless communication systems throughout the world.
International customers include DDI Corporation of Japan, Tele Danmark,
Deutsche Telekom in Germany, Cable & Wireless PLC and Mercury Communications,
Ltd. in the United Kingdom, British Telecommunications PLC, Telefonos de
Mexico, S.A. de C.V. and AAP Communications, Pty. Ltd. of Australia.
DSC was incorporated under the laws of the State of Delaware in 1976. DSC's
executive offices are located at 1000 Coit Road, Plano, Texas 75075. Its
telephone number is (972) 519-3000.
CELCORE. CELCORE designs, develops, assembles and installs wireless
telecommunication systems for cellular, PCS and wireless local loop
applications in low teledensity markets. CELCORE's "Target Markets" are rural
locations and areas in developing countries and emerging markets with low
teledensities and where wireline or traditional wireless infrastructure is not
readily available or economically feasible. CELCORE's systems utilize
proprietary switching software, distributed processing and open architectures
in combination with commercially available hardware to create scaleable and
modular systems which are designed to be easily adapted to any of the existing
air protocol standards. CELCORE's systems currently support the two most
widely deployed air protocol standards: AMPS, an analog air protocol standard,
and GSM, a digital air protocol standard. Through the use of object oriented
technology and modular hardware, CELCORE plans to support the other air
protocol standards in the future. CELCORE's focus is to provide
telecommunications solutions to operators in its Target Markets by emphasizing
low lifetime cost of ownership comprised of capital investment in
telecommunications infrastructure and ongoing operational costs.
As a result of the worldwide acceptance of the GSM air protocol standard,
CELCORE's business strategy is to concentrate its business activities on
products utilizing the GSM protocol standards. Beginning in 1995, CELCORE has
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concentrated its development efforts on the GSM system which it believes is the
most cost-effective and scaleable GSM system available. Currently, CELCORE has
shipped two GSM systems which are being field tested by its customers.
CELCORE currently markets its systems and products worldwide through its
direct sales force, sales agents, joint ventures and strategic relationships.
CELCORE has sought joint ventures and strategic relationships in order to
achieve quick and effective penetration of international markets, and compete
effectively against larger and more established competitors. Examples include
CELCORE's strategic relationships with United International Communications
Company Limited ("United International") and Cellarer Telecommunications
Consulting ("Cellarer"), a subsidiary of Millicom International Cellular S.A.
("Millicom"), and its joint venture agreement with India Telecom Industries
Limited ("ITI") to cooperatively market, install and provide after sale support
of its wireless systems in Southeast Asia, Russia, and India and its
surrounding countries. CELCORE's customers include operators such as AT&T
Wireless (U.S. and Latin America), Celumovil (Colombia), Millicom (Russia and
Bolivia), Southwestern Bell Mobile Systems (U.S.), Telecel International
(Africa) and Yorkville Telephone Cooperative (U.S.).
CELCORE was incorporated in Delaware in September 1992, and acted as the
general partner of Celcore L.P. until November 1994, when it succeeded to the
business of Celcore L.P. as a result of a reorganization. CELCORE's executive
offices are located at 3800 Forest Hill-Irene Road, Memphis, Tennessee 38125,
and its telephone number is (901) 624- 4000.
Merger Subsidiary. Merger Subsidiary was formed on October 6, 1997 by DSC
solely for the purpose of effecting the Merger. It has no material assets and
has not engaged in any activities except in connection with the Merger. Its
principal executive office is located at 1000 Coit Road, Plano, Texas 75075,
and its telephone number is (972) 519-3000.
THE SPECIAL MEETING
Time, Date and Place. The Special Meeting will be held on __________, 1997
at 10:00 a.m., central time, at 3800 Forest Hill-Irene Road, Memphis, Tennessee
38125.
Purpose of the Special Meeting. The purpose of the Special Meeting is to
consider and vote upon (i) a proposal to approve and adopt the Merger
Agreement, (ii) a proposal to approve the payments under the Employment
Agreements, (iii) a proposal for the holders of CELCORE Preferred Stock to
waive any Liquidation Rights as provided in CELCORE's Certificate of
Incorporation and Certificates of Designations and transact such other business
as may properly be brought before the Special Meeting or any adjournments or
postponements thereof. See "The Special Meeting--Purpose of the Special
Meeting."
Vote Required. The affirmative vote of the holders of (i) a majority of all
outstanding shares of CELCORE Common Stock and Series A Preferred Stock, voting
together as a single class, and (ii) 60% of all outstanding shares of each of
CELCORE's Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock, each voting separately as a single class, represented and
entitled to vote at the Special Meeting or any adjournment thereof will be
necessary for approval and adoption of the Merger Agreement. The payments under
the Employment Agreements with Messrs. Berger, Foley and Gonzalez are
contingent upon the consummation of the Merger and the approval by the
affirmative vote of the holders of more than 75% of the outstanding shares of
CELCORE Capital Stock (excluding shares held by Messrs. Berger, Foley and
Gonzalez and certain of their related parties), voting together as a single
class, represented and entitled to vote at the Special Meeting or any
adjournment thereof. The approval of the payments under the Employment
Agreements is not a condition to the consummation of the Merger. In addition,
the approval of the waiver of the Liquidation Rights by the holders of CELCORE
Preferred Stock will require the affirmative vote of the holders of 80% of the
outstanding shares of CELCORE Preferred Stock, voting together as a single
class, represented and entitled to vote at the Special Meeting or any
adjournment thereof. The Principal Stockholders (as defined below) have
entered into agreements with DSC whereby they have agreed to vote the Principal
Stockholder Shares (as defined below) and to execute written consents with
respect to such shares in favor of approval of the Merger Agreement, the
Merger, the payments under the Employment Agreements and any other matter which
could reasonably be expected to facilitate the Merger. Furthermore, each
Principal Stockholder who is a holder of CELCORE Preferred Stock has also
waived, and
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agreed to vote such shares and to execute written consents with respect to such
shares in favor of the approval of the waiver of, any Liquidation Rights of
such Principal Stockholder. Each Principal Stockholder has also agreed not to
take any actions to perfect any appraisal rights it may have under Section 262
of the Delaware General Corporation Law (the "DGCL"). In connection therewith,
the Principal Stockholders have granted irrevocable proxies to the Board of
Directors of DSC covering as of the Record Date (as defined below)
approximately 5,375,171 shares of CELCORE Common Stock, or 96% of the
outstanding CELCORE Common Stock, approximately 3,079,363 shares of Series A
Preferred Stock, or 68% of the outstanding Series A Preferred Stock,
approximately 2,807,485 shares of Series B Preferred Stock, or 93.6% of the
outstanding Series B Preferred Stock, approximately 2,080,801 shares of Series
C Preferred Stock, or 68.5% of the outstanding Series C Preferred Stock, and
approximately 2,004,227 shares of Series D Preferred Stock, or 100% of the
outstanding Series D Preferred Stock. Therefore, no additional votes from the
holders of CELCORE Capital Stock are necessary to approve the Merger Agreement
or the payments under the Employment Agreements. In addition, no additional
votes from the holders of CELCORE Preferred Stock are necessary to approve the
waiver of the Liquidation Rights. See "Voting Agreements."
Voting of Proxies. Shares of CELCORE Capital Stock represented by properly
executed proxies received at or prior to the Special Meeting, and which have
not thereafter been properly revoked as described below, will be voted in
accordance with the instructions indicated therein. If no instructions are
indicated, such proxies will be voted FOR approval and adoption of the Merger
Agreement, FOR approval of the payments under the Employment Agreements, FOR
approval of the waiver of the Liquidation Rights by the holders of CELCORE
Preferred Stock, and in the discretion of the proxy holder as to any other
matter that may properly come before the Special Meeting. See "The Special
Meeting--Voting of Proxies."
Revocability of Proxies. A CELCORE stockholder who has given a proxy may
revoke such proxy at any time prior to its exercise at the Special Meeting by
any manner permitted by law, including (i) giving written notice of revocation
by mail or facsimile to CELCORE prior to the Special Meeting, (ii) properly
submitting to CELCORE by mail or facsimile a duly executed proxy bearing a
later date, or (iii) voting in person at the Special Meeting. Submissions to
CELCORE should be made to Celcore, Inc., Attn: Corporate Secretary, at 3800
Forest Hill-Irene Road, Memphis, Tennessee 38125, facsimile number (901)
624-4100. See "The Special Meeting--Revocability of Proxies."
Record Date; Shares Entitled to Vote. The close of business on October 16,
1997 has been fixed as the record date (the "Record Date") for determining
holders of shares of CELCORE Capital Stock entitled to notice of and to vote at
the Special Meeting. As of the Record Date, (i) 5,592,250 shares of CELCORE
Common Stock were outstanding and held of record by 47 holders, (ii) 4,500,000
shares of Series A Preferred Stock were outstanding and held of record by 16
holders, (iii) 3,000,000 shares of Series B Preferred Stock were outstanding
and held of record by 33 holders, (iv) 3,038,046 shares of Series C Preferred
Stock were outstanding and held of record by 45 holders and (v) 2,004,227
shares of Series D Preferred Stock were outstanding and held of record by one
holder. Each stockholder of record of CELCORE Common Stock as of the close of
business on the Record Date is entitled at the Special Meeting to one vote for
each share of CELCORE Common Stock held. Each stockholder of record of CELCORE
Preferred Stock as of the close of business on the Record Date is entitled at
the Special Meeting to a number of votes equal to the number of whole shares of
CELCORE Common Stock into which such shares of CELCORE Preferred Stock could be
converted on the Record Date. As of the Record Date, each share of CELCORE
Preferred Stock was convertible into one share of CELCORE Common Stock. See
"The Special Meeting--Record Date; Shares Entitled to Vote."
Quorum. The presence, in person or by proxy, of the holders of a majority
of the outstanding shares of CELCORE Common Stock and CELCORE Preferred Stock
(with each series computed on an as converted basis) entitled to vote as a
class at the Special Meeting is necessary to constitute a quorum for the
transaction of business at the Special Meeting. See "The Special
Meeting--Quorum" and "Voting Agreements."
THE MERGER AND CERTAIN PROVISIONS OF THE MERGER AGREEMENT
General. If all stockholder approvals described in this Prospectus/Proxy
Statement are obtained and all other conditions to the Merger are satisfied (or
waived, if permissible), then at the Effective Time, Merger Subsidiary will be
merged with and into CELCORE, with CELCORE to be the surviving corporation (the
"Surviving Corporation") with
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the name DSC/Celcore, Inc. In the Merger, each share of CELCORE Capital Stock
outstanding immediately prior to the Effective Time (other than any shares held
by a holder who has not voted for the Merger and with respect to which
appraisal has been properly demanded ("Dissenting Shares") in accordance with
the applicable provisions of the DGCL) will be converted into the right to
receive that number of shares of DSC Common Stock equal to the Exchange Ratio
upon the surrender of the certificate representing such shares of CELCORE
Capital Stock including, with respect to each whole share of CELCORE Capital
Stock to be received, the right to receive one Preferred Stock Purchase Right,
and in any case, subject to the escrow provisions of the Merger Agreement. See
"Certain Provisions of the Merger Agreement--Exchange Procedures" and "--Escrow
and Indemnification." The Exchange Ratio will be equal to eight divided by the
Average Trading Price; provided that in the event the Average Trading Price is
$25.00 or less then the Exchange Ratio will be .32. In addition, all options
to purchase shares of CELCORE Common Stock ("CELCORE Options"), except for
certain BFG Options, outstanding under the Celcore, Inc. 1995 Stock Option Plan
(the "1995 Plan") and the Celcore, Inc.1996 Stock Incentive Plan (the "1996
Plan"), each as amended, will be assumed by DSC and will be converted into an
option to acquire DSC Common Stock, based on the Exchange Ratio. Any resulting
fractional share interest will be paid in cash. See "Certain Provisions of the
Merger Agreement--Effect of the Merger on CELCORE Options." See "The
Merger--Interests of Certain Persons; Possible Conflicts of Interest."
Escrow and Indemnification. At the Effective Time, an aggregate amount
equal to 5.333% of the shares (rounded to the nearest whole share) of DSC
Common Stock issuable to CELCORE's stockholders (other than holders of
Dissenting Shares) as a result of the Merger will be segregated and deducted
therefrom and deposited in two Escrow Funds with an institution designated by
DSC and reasonably acceptable to the Representative (the "Escrow Agent"). The
first escrow fund (the "DSC Escrow Fund") will be comprised of 5% of such
shares and will be held as collateral for the indemnification obligations of
the persons who were CELCORE stockholders (other than holders of Dissenting
Shares) or holders of CELCORE Options immediately prior to the Effective Time.
The second escrow fund (the "Representative Escrow Fund") will be comprised of
.333% of such shares and will be used to pay for certain costs and expenses
("Representative Expenses") incurred by the Representative in performing his
obligations under the escrow provisions of the Merger Agreement. Upon the
exercise of any CELCORE Option after the Effective Time but before the
Expiration Date (as defined below), 5% and .333% of the shares of DSC Common
Stock issued upon such exercise will be added to the DSC Escrow Fund and the
Representative Escrow Fund, respectively, upon such exercise. Each stockholder
of CELCORE and each individual who, prior to the Expiration Date, has exercised
CELCORE Options assumed by DSC, will have voting rights with respect to the
shares of DSC Common Stock contributed to the Escrow Funds by such party (and
on any voting securities added to the Escrow Funds in respect of such shares of
DSC Common Stock). The Escrow Funds will terminate at 5:00 p.m., Dallas, Texas
time, one year following the Closing Date (the "Expiration Date"). On the
Expiration Date, the shares comprising the Escrow Funds, less any payments
pursuant to the indemnification provisions of the Merger Agreement and
Representative Expenses, will be released from the Escrow Funds and distributed
to CELCORE's stockholders and, with respect to the DSC Escrow Fund, to those
individuals who have on or prior to the Expiration Date exercised CELCORE
Options assumed by DSC. BY APPROVING THE MERGER AGREEMENT, CELCORE'S
STOCKHOLDERS (OTHER THAN THE HOLDERS OF DISSENTING SHARES) WILL BE DEEMED TO
HAVE APPROVED THE ESTABLISHMENT OF THE ESCROW FUNDS AND CONSENTED TO THE
APPOINTMENT OF ROBERT P. GOODMAN TO ACT AS REPRESENTATIVE ON BEHALF OF
CELCORE'S STOCKHOLDERS UNDER THE MERGER AGREEMENT AND THE ESCROW AGREEMENTS
WITH THE ESCROW AGENT TO DELIVER SHARES HELD IN ESCROW TO DSC IN SATISFACTION
OF CERTAIN CLAIMS BROUGHT BY DSC, AND THE REPRESENTATIVE IN SATISFACTION OF THE
REPRESENTATIVE EXPENSES, TO OBJECT TO SUCH DELIVERIES, TO AGREE TO, TO
NEGOTIATE AND TO ENTER INTO SETTLEMENTS AND COMPROMISES WITH RESPECT TO SUCH
CLAIMS, AND TO TAKE CERTAIN OTHER ACTIONS ON BEHALF OF CELCORE'S STOCKHOLDERS,
ALL AS MORE FULLY DESCRIBED IN ARTICLE IX OF THE MERGER AGREEMENT. SEE ARTICLE
IX OF THE MERGER AGREEMENT FOR A MORE DETAILED EXPLANATION OF THE ESCROW FUNDS
AND RIGHTS WITH RESPECT THERETO AND "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT----ESCROW AND INDEMNIFICATION."
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Recommendation of the Board of Directors of CELCORE. CELCORE'S BOARD OF
DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE TERMS OF THE MERGER AGREEMENT AND
THE MERGER OFFER THE BEST VALUE REASONABLY AVAILABLE TO, AND ARE IN THE BEST
INTERESTS OF, CELCORE AND ITS STOCKHOLDERS. ACCORDINGLY, THE BOARD OF DIRECTORS
OF CELCORE HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE PAYMENTS UNDER
THE EMPLOYMENT AGREEMENTS AND RECOMMENDS THAT THE STOCKHOLDERS OF CELCORE VOTE
FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE PAYMENTS UNDER THE
EMPLOYMENT AGREEMENTS. ADDITIONALLY, THE BOARD OF DIRECTORS OF CELCORE
RECOMMENDS THAT THE HOLDERS OF CELCORE PREFERRED STOCK VOTE FOR APPROVAL OF THE
WAIVER OF THE LIQUIDATION RIGHTS. The recommendation of the Board of Directors
of CELCORE is based on a number of factors described in "The Merger--Background
of the Merger" and "--CELCORE's Reasons for the Merger; Recommendation of
CELCORE's Board of Directors."
Effective Time. The Effective Time will occur as soon as practicable after
the requisite approval of CELCORE's stockholders has been obtained and all
other conditions have been satisfied or waived, and in no event later than the
first business day after all conditions to the Merger have been satisfied or
waived, unless the parties agree otherwise, the filing of a Certificate of
Merger with the Secretary of State of the State of Delaware.
Fairness Opinion. On October 29, 1997, Donaldson, Lufkin & Jenrette
Securities Corporation ("DLJ"), financial advisor to CELCORE, delivered a
written opinion to the Board of Directors of CELCORE that, as of that date, the
consideration to be provided to CELCORE stockholders pursuant to the Merger
Agreement is fair to the holders of shares of CELCORE Capital Stock from a
financial point of view. The Board of Directors of CELCORE has not requested
that DLJ update its opinion. The full text of the written opinion of DLJ, which
sets forth the procedures followed and the factors considered by DLJ, is
attached as Appendix B to this Prospectus/Proxy Statement. HOLDERS OF SHARES OF
CELCORE CAPITAL STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN ITS
ENTIRETY. See "The Merger--Opinion of Financial Advisor to CELCORE."
Certain United States Federal Income Tax Consequences. The Merger is
intended to qualify, for federal income tax purposes, as a "tax-free
reorganization" so that generally no gain or loss would be recognized by
CELCORE stockholders who exchange their CELCORE Capital Stock solely for shares
of DSC Common Stock. Holders of shares of CELCORE Capital Stock who receive
cash in lieu of fractional shares generally will be treated as if the
fractional shares had been issued and subsequently redeemed by DSC. Unless the
redemption is found to be essentially equivalent to a dividend, each
stockholder of CELCORE will recognize gain or loss measured by the difference
between such stockholder's basis in the fractional share and the amount of cash
received. CELCORE has received the opinion of Powell, Goldstein, Frazer &
Murphy LLP, its counsel, and DSC has received the opinion of Baker & McKenzie,
its counsel (collectively, the"Tax Opinions"), that the Merger should
constitute a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), and that, generally,
the CELCORE stockholders should not recognize gain or loss on the exchange of
their CELCORE Capital Stock for the stock of DSC pursuant to the Merger.
Depending upon uncertain factual developments, it is possible that the Merger
might not be treated as a reorganization within the meaning of Section 368(a)
of the Code, as a result of which each holder of shares of CELCORE Capital
Stock would recognize gain or loss in the amount of the difference between the
fair market value of the shares of DSC Common Stock and any cash received in
lieu of fractional shares, and such holder's adjusted tax basis in CELCORE
Capital Stock exchanged therefor. In particular, tax-free "reorganization"
status is dependent, in part, on stockholders of CELCORE that receive a certain
percentage of the DSC Common Stock distributed in the reorganization not having
a present plan or intention to dispose of such stock. The conclusions in the
Tax Opinions were predicated on certain assumptions and representations
regarding the plans or intentions of certain stockholders of CELCORE, including
the Principal Stockholders. See "The Merger--Certain United States Federal
Income Tax Consequences."
Regulatory Approvals. DSC and CELCORE are aware of no government regulatory
approvals remaining to be obtained for consummation of the Merger, other than
compliance with notification requirements of environmental agencies, with
federal securities laws and with state securities or "Blue Sky" laws. The
Merger was subject to the premerger notification provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"). Filings were made under the HSR Act by DSC and CELCORE with the Federal
Trade Commission and the Department of Justice Antitrust Division. On
_________, 1997, early termination of the waiting period under the HSR Act was
granted, thus permitting the Merger to proceed pursuant to the HSR Act, subject
to stockholder approval and
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the other conditions described herein. DSC, CELCORE and Merger Subsidiary have
each agreed to use their best efforts to obtain any additional regulatory
approvals. See "The Merger--Regulatory Approvals."
Accounting Treatment. DSC intends to account for the Merger as a purchase
of CELCORE in accordance with generally accepted accounting principles
("GAAP"). See "The Merger--Accounting Treatment" and "DSC and CELCORE
Unaudited Pro Forma Combined Financial Statements."
NASDAQ Listing. An application has been filed to have the shares of DSC
Common Stock to be issued in connection with the Merger approved for quotation
on the NASDAQ National Market. Evidence that the shares of DSC Common Stock to
be issued in connection with the Merger have been approved for quotation on the
NASDAQ National Market immediately following the Effective Time is a condition
to consummation of the Merger. See "Certain Provisions of the Merger
Agreement--Conditions to the Consummation of the Merger."
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of CELCORE with respect to the Merger
Agreement and the transactions contemplated thereby, stockholders should be
aware that certain members of the management of CELCORE and of its Board of
Directors have certain interests in the Merger that differ from, and are in
addition to, the interests of stockholders of CELCORE. See "The
Merger--Interests of Certain Persons; Possible Conflicts of Interest" and
"--Management."
Management. After the Merger, the officers and directors of DSC will not
change. Pursuant to the Merger Agreement, upon the consummation of the Merger,
the officers and directors of Merger Subsidiary immediately prior to the
Effective Time will be the officers and directors of the Surviving Corporation.
See "The Merger--Management."
Procedures for Exchange of Certificates. Promptly after the Effective Time,
a letter of transmittal and instructions for surrendering stock certificates
will be mailed to each holder of CELCORE Capital Stock for use in exchanging
such holder's stock certificates for certificates evidencing shares of DSC
Common Stock and cash in lieu of fractional shares and any dividends or other
distributions to which such holder is entitled as a result of the Merger. See
"Certain Provisions of the Merger Agreement--Exchange Procedures."
Representations and Warranties. The Merger Agreement contains various
representations and warranties of DSC, Merger Subsidiary and CELCORE. See
"Certain Provisions of the Merger Agreement--Certain Representations and
Warranties."
Conduct of Business Pending the Merger; No Solicitations. The Merger
Agreement restricts the ability of CELCORE and DSC to take certain actions and
enter into certain transactions pending the Merger. See "Certain Provisions of
the Merger Agreement--Conduct of Business Pending the Merger" and "--No
Solicitation of Transactions."
Conditions to the Consummation of the Merger. The obligations of DSC,
Merger Subsidiary and CELCORE to consummate the Merger are subject to the
satisfaction of various conditions, including, among others: (i) the
effectiveness of the Registration Statement and the absence of any stop order
suspending the effectiveness thereof; (ii) approval of the Merger Agreement and
the transactions contemplated thereunder by the holders of the requisite number
of shares of CELCORE Capital Stock; (iii) the waiver of the Liquidation Rights
by the holders of CELCORE Preferred Stock; (iv) the absence of any proceeding
by any governmental authority challenging or seeking material damages in
connection with the Merger or otherwise seeking to restrain or prohibit the
consummation of the Merger; (v) the absence of any award, decision, decree,
determination, injunction, judgment, order, consent decree, ruling, subpoena,
writ or verdict entered, issued, made or rendered by any court, administrative
agency or other governmental authority or by any arbitrator (each, an "Order")
prohibiting consummation of the Merger or making the Merger illegal; (vi)
evidence from the NASDAQ National Market that the shares of DSC Common Stock to
be issued in the Merger have been approved for quotation on the NASDAQ National
Market; (vii) any applicable waiting period under the HSR Act relating to the
Merger will have expired or been terminated; and (viii) DSC and CELCORE will
have received from their respective counsel an opinion that the Merger
qualifies as a tax-free reorganization. See "Certain Provisions of the Merger
Agreement--Conditions to the Consummation of the Merger."
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Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time by (i) mutual consent of the Boards of Directors of each of
DSC, Merger Subsidiary, and CELCORE, (ii) by either DSC or CELCORE if, subject
to certain limitations: (A) the Effective Time has not occurred on or before
January 31, 1998; (B) there exists any Order which is final and nonappealable
preventing the consummation of the Merger; (C) the stockholders of CELCORE fail
to approve and adopt the Merger Agreement and the transactions contemplated
thereunder or if the holders of CELCORE Preferred Stock fail to waive their
Liquidation Rights; or (D) the other party has breached any representation,
warranty, covenant or agreement in the Merger Agreement or if any
representation or warranty of such other party is not true and correct in all
material respects, such that the related closing conditions would not be
satisfied (unless the breach is curable by the breaching party through the
exercise of its best efforts and it continues to exercise its best efforts to
cure the breach). In addition, DSC may terminate the Merger Agreement if (i)
the Board of Directors of CELCORE withdraws its recommendation to the holders
of CELCORE Capital Stock to approve the Merger; or (ii) the Board of Directors
of CELCORE resolves or recommends to the holders of CELCORE Capital Stock (A)
any merger, consolidation, share exchange, business combination or other
similar transaction (other than the Merger); (B) any sale, lease, exchange,
transfer or other disposition (other than a pledge or mortgage) of 25% or more
of the assets of CELCORE; or (C) a tender offer or exchange offer of 33 1/3% or
more of the shares of CELCORE Capital Stock. CELCORE may also terminate the
Merger Agreement if the Average Trading Price is less than $25.00 per share.
See "Certain Provisions of the Merger Agreement--Termination."
Transaction Fee; Expenses; Damages. In connection with the termination of
the Merger Agreement, upon the occurrence of certain events, CELCORE would be
required to pay to DSC a fee (the "Transaction Fee") of $5 million (less
reasonable out-of-pocket expenses and fees actually incurred by DSC related to
the Merger and previously paid). CELCORE would also be required to pay to DSC
its expenses (but not the Transaction Fee) up to $1 million under certain
circumstances, and one-half of its expenses up to $500,000 under other
circumstances. Subject to certain events, DSC would be required to pay to
CELCORE its expenses up to $500,000. See "Certain Provisions of the Merger
Agreement--Transaction Fee; Expenses; Damages."
Rights of Dissenting Stockholders. Holders of CELCORE Capital Stock who
object to the Merger may, under certain circumstances and by following
procedures prescribed by Section 262 of the DGCL, exercise appraisal rights and
receive cash for their shares of CELCORE Capital Stock in an amount equal to
the fair market value of CELCORE Capital Stock as determined pursuant to such
procedures. The failure of a dissenting stockholder of CELCORE to follow the
appropriate procedures will result in the termination or waiver of such rights.
In the event that a CELCORE stockholder who attempts to exercise appraisal
rights should fail to make a proper demand for payment or otherwise
relinquishes or loses such stockholder's status as a dissenting stockholder,
such CELCORE stockholder will be entitled to receive from DSC the same number
of shares of DSC Common Stock that such CELCORE stockholder would have received
in the Merger if such CELCORE stockholder had not attempted to exercise
appraisal rights. A copy of the full text of Section 262 of the DGCL is
attached to this Prospectus/Proxy Statement as Appendix C and is incorporated
herein by reference. See "Description of Capital Stock and Comparison of
Stockholders' Rights--Rights of Dissenting Stockholders" and Appendix C.
Treatment of Stock Options. Pursuant to the Merger Agreement, all CELCORE
Options outstanding under the 1995 Plan and the 1996 Plan, except for certain
BFG Options, will be assumed by DSC and will be converted into options to
acquire DSC Common Stock, based on the Exchange Ratio. See "The
Merger--Interests of Certain Persons; Possible Conflicts of Interest" and
"Certain Provisions of the Merger Agreement--Effect of the Merger on CELCORE
Options."
Affiliate Agreements. CELCORE has agreed to use its best efforts to cause
persons identified by CELCORE as "affiliates" (as that term is defined for
purposes of Rule 145 promulgated under the Securities Act) to enter into
agreements restricting sales, dispositions or other transactions reducing their
risk of investment in respect of the shares of CELCORE Capital Stock held by
them prior to the Merger and the shares of DSC Common Stock received by them in
the Merger, subject to a de minimis exception, so as to comply with the
requirements of applicable federal securities and tax laws. See "Certain
Provisions of the Merger Agreement--Conditions to the Consummation of the
Merger" and "The Merger--Restrictions on Resales by Affiliates."
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VOTING AGREEMENTS
Voting and Proxy; Waiver of Appraisal Rights and Preferred Stock Liquidation
Rights. In connection with the Merger Agreement, each of the directors and
executive officers of CELCORE, certain of their affiliates, certain other
significant stockholders of CELCORE and UCOM International Company Limited
(each, a "Principal Stockholder" and collectively, the "Principal
Stockholders") entered into a Voting Agreement (the "Voting Agreements") with
DSC. A copy of the form of the Voting Agreement is attached to this
Prospectus/Proxy Statement as Exhibit C to Appendix A. As of the Record Date,
the Principal Stockholders together held approximately 5,375,171 shares or
96.1% of the outstanding shares of CELCORE Common Stock, approximately
3,079,363 shares or 68.4% of the outstanding Series A Preferred Stock,
approximately 2,807,485 shares or 93.6% of the outstanding Series B Preferred
Stock, approximately 2,160,846 shares or 71.1% of the outstanding Series C
Preferred Stock, and approximately 2,004,227 shares or 100% of the outstanding
Series D Preferred Stock. Pursuant to the Voting Agreements, the Principal
Stockholders agreed to vote, and have granted an irrevocable proxy to allow DSC
to vote, the shares of CELCORE Capital Stock over which they have voting
control (the "Principal Stockholder Shares") in favor of the Merger, the Merger
Agreement, the payments under the Employment Agreements, and any other matter
that could reasonably be expected to facilitate the Merger. Pursuant to the
Voting Agreements, each Principal Stockholder who is a holder of CELCORE
Preferred Stock also waived, and agreed to vote such shares and to execute
written consents with respect to such shares in favor of the approval of the
waiver of, any Liquidation Rights of such Principal Stockholders.
Additionally, under the Voting Agreements, each Principal Stockholder agreed
not to take any action or actions to perfect any appraisal rights it may have
as a result of the Merger under Section 262 of the DGCL. See "Voting
Agreements--Voting and Proxy" and "--Waiver of Appraisal Rights and Preferred
Stock Liquidation Rights."
No Voting Trusts and Agreements. Pursuant to the Voting Agreements, each
Principal Stockholder agreed that it will not, and will not permit any entity
under its control to, subject any shares of CELCORE Capital Stock held by such
Principal Stockholder or such entity to a voting trust or any arrangement or
agreement with respect to the voting of such shares other than agreements
entered into with DSC or its affiliates. See "Voting Agreements--No Voting
Trusts and Agreements."
Covenants and Representations. Pursuant to the Voting Agreements, each
Principal Stockholder agreed that it has been advised that: (i) the offer, sale
and delivery of the DSC Common Stock to such Principal Stockholder pursuant to
the Merger may not be registered under the Securities Act, despite DSC's
obligations to use commercially reasonable efforts to effect such registration;
(ii) if the offer, sale and delivery of the DSC Common Stock to such Principal
Stockholder pursuant to the Merger has not been registered under the Securities
Act, then such shares may not be offered, sold, pledged, hypothecated or
otherwise transferred unless subsequently registered under the Securities Act
or an exemption from such registration is available; and (iii) even if such
sale and delivery to such Principal Stockholder of shares of DSC Common Stock
is registered under the Securities Act, to the extent such Principal
Stockholder is considered an affiliate of CELCORE at the time the Merger
Agreement is submitted for a vote of CELCORE's stockholders, any public
offering or sale by such Principal Stockholder of such person's shares of DSC
Common Stock will, under current law, require (a) the further registration
under the Securities Act of such shares, which DSC is obligated to use
commercially reasonable efforts to effect, (b) compliance with Rule 145 under
the Securities Act, or (c) the availability of another exemption from
registration under the Securities Act. See "Voting Agreements--Covenants and
Representations."
Registration of Merger Shares. Pursuant to the Voting Agreements, DSC
agreed to use all commercially reasonable efforts to effect on or before the
Effective Time the registration under the Securities Act, on an appropriate
form, of the shares of DSC Common Stock to be issued to the Principal
Stockholders pursuant to the Merger. In addition, the Voting Agreements
require DSC to use its best efforts to keep such registration statement
effective for the earlier of two years after the Effective Time or until all
shares of DSC Common Stock issued to such Principal Stockholder pursuant to the
Merger have been disposed of by such Principal Stockholder. See "Voting
Agreements--Registration of Merger Shares."
14
<PAGE> 20
No Solicitation. Pursuant to the Voting Agreements, each Principal
Stockholder agreed it will not, and will not permit any entity under such
Principal Stockholder's control to, (i) solicit proxies or become a participant
in a solicitation with respect to any proposal made in opposition to or
competition with consummation of the Merger and the Merger Agreement, any
merger, consolidation, share exchange, sale of securities or assets,
reorganization, recapitalization or other business combination involving
CELCORE and any other party (other than DSC and it affiliates), any liquidation
(including the Liquidation Rights provided for in the Certificate of
Incorporation and Certificates of Designations of CELCORE), or winding up of
CELCORE and any other matter that would, or could reasonably be expected to,
prohibit or discourage the Merger (each, an "Opposing Proposal"), or otherwise
encourage or assist any party in taking or planning any action that would
compete with, restrain or otherwise serve to interfere with or inhibit the
timely consummation of the Merger in accordance with the terms of the Merger
Agreement, (ii) initiate a vote of the Principal Stockholders or action by
consent of the stockholders of CELCORE or (iii) become a member of a "group"
(as defined in Section 13(d) of the Exchange Act) with respect to any voting
securities of CELCORE with respect to an Opposing Proposal. See "Voting
Agreements--No Solicitation."
Covenant Not-to-Compete. Robert P. Goodman, Chairman of the Board and Chief
Executive Officer of CELCORE, executed a covenant not-to-compete as part of
his Voting Agreement. Mr. Goodman agreed that until after the fifth
anniversary of the Closing Date, he will not be involved in developing,
marketing, manufacturing or selling GSM or AMPS mobile switching centers (a
"Prohibited Business") within certain geographic areas. Mr. Goodman also
agreed that until after the first anniversary of the Closing Date, he will not
make known to persons or corporations involved in a Prohibited Business the
customers of CELCORE; contact or take away or attempt to contact or take away
CELCORE customers for persons or corporations involved in a Prohibited
Business; or recruit or hire or attempt to recruit or hire CELCORE employees,
consultants or independent contractors. Mr. Goodman agreed that a breach or
violation of the covenant not-to-compete will entitle DSC to an injunction
restraining any further or continued breach or violation of the covenant
not-to- compete. None of the other Principal Stockholder's Voting Agreements
contain a covenant not-to-compete. See "Voting Agreements--Covenant
Not-to-Compete."
DESCRIPTION OF CAPITAL STOCK AND COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, stockholders of CELCORE will become
stockholders of DSC. Various differences exist between their rights as
stockholders of CELCORE and as stockholders of DSC. See "Description of
Capital Stock and Comparison of Stockholders' Rights."
MARKET PRICE INFORMATION
The following table sets forth, for the quarters indicated, the high and low
closing sale prices per share of DSC Common Stock. DSC Common Stock is listed
on the NASDAQ National Market under the symbol "DIGI." Neither CELCORE Common
Stock nor any CELCORE Preferred Stock is traded in an established public
market. Each of DSC's and CELCORE's fiscal year ends on December 31. On
October 28, 1997, the last full trading day preceding the execution of the
Merger Agreement, the last reported sale price per share of DSC Common Stock
was $25 3/16 per share. On November ___, 1997, the most recent practicable
date prior to the filing of the Registration Statement, the last sale price of
DSC Common Stock as reported on the NASDAQ National Market was $_____ per
share.
Because the market price of DSC Common Stock is subject to fluctuation, the
number of the shares of DSC Common Stock that holders of CELCORE Capital Stock
will receive in the Merger (and the market value of those DSC shares) may
increase or decrease prior to the Merger.
CELCORE STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE
DSC COMMON STOCK.
15
<PAGE> 21
<TABLE>
<CAPTION>
DSC
Common Stock
--------------------
HIGH LOW
---- ---
<S> <C> <C>
CALENDAR YEAR 1995
1st Quarter . . . . . . . . . . . . . . . . . . . . . . $39 $31 5/8
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . 46 1/2 31 3/4
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . 63 45 5/8
4th Quarter . . . . . . . . . . . . . . . . . . . . . . 58 3/4 31
CALENDAR YEAR 1996
1st Quarter . . . . . . . . . . . . . . . . . . . . . . 37 1/8 22 7/8
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . 35 1/4 24 3/8
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . 32 3/4 25 1/8
4th Quarter . . . . . . . . . . . . . . . . . . . . . . 23 1/8 12 7/8
CALENDAR YEAR 1997
1st Quarter . . . . . . . . . . . . . . . . . . . . . . 24 1/4 18
2nd Quarter . . . . . . . . . . . . . . . . . . . . . . 26 7/16 18 5/8
3rd Quarter . . . . . . . . . . . . . . . . . . . . . . 32 1/8 21 11/16
4th Quarter (through November ___, 1997) . . . . . . .
</TABLE>
16
<PAGE> 22
SELECTED HISTORICAL AND UNAUDITED COMBINED CONDENSED PRO FORMA FINANCIAL DATA
The following selected historical financial data for the periods indicated
have been derived from the consolidated financial statements of DSC. The
balance sheet data as of December 31, 1995 and 1996, and the statement of
operations data for each of the years in the three-year period ended December
31, 1996, have been derived from DSC's audited consolidated financial
statements for such years and should be read in conjunction with such
consolidated financial statements and the notes thereto that are incorporated
herein by reference. The balance sheet data as of December 31, 1992, 1993 and
1994, and the statement of operations data for the years ended December 31,
1992 and 1993, have been derived from DSC's audited consolidated financial
statements, which are not included in this Prospectus/Proxy Statement. The
selected historical financial data for the nine months ended September 30, 1996
and 1997 have been derived from unaudited condensed financial statements
incorporated herein by reference and reflect, in the opinion of management of
DSC, all adjustments necessary to present fairly DSC's financial position and
results of operations. Such adjustments are of a recurring nature unless
otherwise disclosed therein. Interim results are not necessarily indicative of
results which may be expected for any other period or the full fiscal year.
DSC COMMUNICATIONS CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
--------------------------------------------------------------- -------------------------
1992 1993 1994 1995 1996(1) 1996(1) 1997(2)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................ $ 536,319 $ 730,774 $ 1,003,125 $ 1,422,018 $ 1,380,891 $ 990,331 $ 1,130,374
Gross profit ........................ 202,776 317,969 490,392 685,899 455,144 304,942 468,957
Operating income (loss) ............. 42,431 110,176 213,999 279,418 (12,043) (42,821) 106,811
Net income (loss) ................... $ 11,594 $ 81,660 $ 162,626 $ 192,680 $ (7,555) $ (25,103) $ 86,433
=========== =========== =========== =========== =========== =========== ===========
Income (loss) per share (3) ......... $ 0.12 $ 0.77 $ 1.39 $ 1.63 $ (0.06) $ (0.22) $ 0.73
=========== =========== =========== =========== =========== =========== ===========
Average shares used in per share
computation (3) .................. 93,198 106,650 116,889 118,126 116,514 116,269 119,169
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, September 30,
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997(4)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and marketable securities ... $ 69,839 $ 313,808 $ 271,322 $ 569,264 $ 334,039 $ 420,457 $ 678,109
Working capital .................. 79,010 406,752 393,034 738,965 769,956 770,778 1,143,420
Property and equipment, net ...... 149,209 179,783 282,963 370,522 403,596 398,798 443,664
Total assets ..................... 547,669 900,417 1,268,536 1,865,275 1,925,655 1,922,619 2,406,156
Short-term and long-term debt .... 140,409 70,412 82,369 326,977 308,580 348,419 665,448
Shareholders' equity (5) ......... 202,627 617,800 851,100 1,124,079 1,147,636 1,117,389 1,244,262
</TABLE>
_____________
(1) For the nine months ended September 30, 1996 and the year ended December
31, 1996, DSC recorded non-cash special charges totaling $96.0 million
($82.5 million reduced gross profit and $13.5 million was charged to
operating costs and expenses) related primarily to a reduction in the
carrying value of certain assets for several of DSC's products.
(2) Net income for the nine-month period ended September 30, 1997 included
pre-tax gains of approximately $35.5 million (after-tax gain of $22.0
million, or $0.18 per share) from sales of stock received from a 1996
litigation settlement.
(3) In April 1994, the Board of Directors declared a two-for-one stock split,
effected in the form of a 100% stock dividend, for stockholders of record
on May 11, 1994. All per share amounts prior to 1994 have been restated
to retroactively reflect the stock split.
(4) Short-term and long-term debt included $400 million of 7% convertible
subordinated notes issued in August 1997. Net proceeds were invested in
cash equivalents and marketable securities.
(5) Since inception, DSC has not declared or paid a cash dividend.
17
<PAGE> 23
The following historical financial data for the periods indicated have
been derived from the financial statements of CELCORE. The balance sheet data
as of December 31, 1995 and 1996, and the statement of operations data for each
of the years in the three-year period ended December 31, 1996 have been derived
from CELCORE's audited financial statements for such years and are included
elsewhere in this Prospectus/Proxy Statement. CELCORE's historical balance
sheet data as of December 31, 1993 and 1994 and historical statement of
operations data for the period from March 19, 1993 (inception) through December
31, 1993 are derived from CELCORE's audited financial statements which are not
included in this Prospectus/Proxy Statement. CELCORE's financial information
should be read in conjunction with CELCORE's financial statements and notes
thereto included elsewhere herein. The selected financial data as of September
30, 1997 and for the nine months ended September 30, 1996 and 1997 have been
derived from unaudited financial statements included elsewhere herein and,
reflect, in the opinion of the management of CELCORE, all adjustments necessary
to present fairly CELCORE's financial position and results of operations. Such
adjustments are of a recurring nature unless otherwise disclosed therein.
Interim results are not necessarily indicative of results which may be expected
for any other period or the full fiscal year.
CELCORE, INC.
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended December 31, September 30,
------------------------------------------ -------------------
1993(1)(2) 1994(2) 1995 1996 1996 1997
---------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net revenues .............................................. $ 8 $ 2,166 $ 4,908 $ 3,680 $ 2,756 $ 9,485
Gross profit .............................................. 8 1,457 3,146 2,329 1,837 3,766
Operating loss ............................................ (285) (719) (4,509) (15,139) (10,370) (12,353)
Net loss .................................................. $ (281) $ (714) $ (4,273) $(14,631) $(10,028) $(12,378)
======== ======== ======== ======== ======== ========
Net loss per share(3) ..................................... N/A N/A $ (0.81) $ (2.69) $ (1.85) $ (2.26)
======== ======== ======== ========
Weighted average common shares outstanding(3) ............. N/A N/A 5,500 5,502 5,500 5,533
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, September 30,
----------------------------------------- -------------------
1993 1994 1995 1996 1996 1997
-------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ................................. $ 430 $ 2,315 $ 14,468 $ 12,056 $ 19,785 $ 619
Working capital ........................................... 98 2,271 16,558 15,304 21,244 1,100
Total assets .............................................. 576 3,313 20,910 22,827 27,287 17,972
Short-term and long-term debt ............................. -- -- -- 829 912 2,836
Convertible redeemable preferred stock .................... -- 3,163 23,189 39,293 39,146 39,439
Shareholders' equity (deficit)(4) ........................ 219 (507) (4,951) (19,768) (15,108) (32,202)
</TABLE>
__________________________
(1) Financial results are from March 19, 1993 (commencement of operations)
through December 31, 1993. From CELCORE's incorporation in September
1992 to March 19, 1993, CELCORE had no operations and accordingly,
financial information for this period is not presented.
(2) CELCORE was the general partner of Celcore L.P until November 1994, when
it succeeded to the business of Celcore L.P. as a result of a
reorganization. Accordingly, loss per share data is not presented for
1993 and 1994, as it would not be meaningful.
(3) Net loss per share is based upon the weighted average number of shares of
common stock outstanding for each period. Common equivalent shares do
not include common shares issuable upon conversion of CELCORE's preferred
stock or common shares issuable, net of the treasury stock effect, upon
the exercise of options as the effect of these common equivalent shares
are antidilutive. Net loss per share has been adjusted for the accretion
of the redeemable preferred stock.
(4) Since its inception, CELCORE has not declared or paid a cash dividend.
18
<PAGE> 24
DSC AND CELCORE
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected unaudited pro forma combined condensed statement
of operations data combines DSC's and CELCORE's historical consolidated results
of operations for the year ended December 31, 1996 and for the nine-month
period ended September 30, 1997, giving effect to the Merger as if it had
occurred at January 1, 1996. The following selected unaudited pro forma
combined condensed balance sheet data combines DSC's and CELCORE's historical
consolidated balance sheet data as of September 30, 1997, giving effect to the
Merger as if it had occurred as of September 30, 1997. The unaudited pro forma
combined condensed financial information is presented for informational
purposes only and may not be indicative of the financial position or results of
operations as they would have been if DSC and CELCORE had been a single entity
during the periods presented, nor is it necessarily indicative of the result of
operations which may occur in the future. Anticipated efficiencies from the
consolidation of DSC and CELCORE are not fully determinable and have been
excluded from the amounts included in the pro forma amounts presented below.
See "Unaudited Pro Forma Combined Financial Statements" and accompanying notes
thereto.
<TABLE>
<CAPTION>
YEAR NINE
ENDED MONTHS ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS DATA:
Revenues ............................................... $ 1,384,571 $ 1,139,859
Gross profit ........................................... 457,473 472,723
Operating income (loss) ................................ (30,307) 92,114
Net income (loss) ...................................... (25,311) 71,711
Income (loss) per share ................................ $ (0.21) $ 0.57
Weighted average common shares outstanding ............. 122,317 125,498
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30,
1997
-------------
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED
BALANCE SHEET DATA:
Cash and marketable securities .......................... $ 675,892
Working capital ......................................... 1,131,855
Property and equipment, net ............................. 448,681
Total assets ............................................ 2,449,796
Short-term and long-term debt ........................... 665,448
Shareholders' equity .................................... 1,267,338
</TABLE>
19
<PAGE> 25
COMPARATIVE HISTORICAL AND UNAUDITED
PRO FORMA PER SHARE DATA
The following table sets forth certain historical per share data of DSC and
CELCORE and combined per share data on an unaudited pro forma basis after
giving effect to the Merger based on the purchase method of accounting assuming
that .32 of a share of DSC Common Stock is issued in exchange for each share of
CELCORE Capital Stock. See "Certain Provisions of the Merger
Agreement--Conversion of Securities." This data should be read in conjunction
with the selected historical financial data and the historical financial
statements of DSC and CELCORE and the notes thereto that are either included
elsewhere herein or incorporated herein by reference. The selected pro forma
combined financial information of DSC and CELCORE is derived from the Unaudited
Pro Forma Combined Financial Statements and should be read in conjunction with
such pro forma statements and notes thereto included elsewhere herein. The pro
forma information is presented for illustrative purposes only and is not
necessarily indicative 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.
Since inception, neither DSC nor CELCORE has declared or paid a cash dividend.
Accordingly, no cash dividends declared per share data is presented below.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(UNAUDITED)
<S> <C> <C>
DSC Historical Per Common Share:
Net income (loss) ......................................... $(0.06) $ 0.73
Book value (1) ............................................ 9.79 10.55
CELCORE Historical Per Common Share:
Net loss .................................................. $(2.69) $(2.26)
Book value (2) ............................................ 1.08 0.40
Pro Forma Combined -- Per DSC Share (unaudited):
Net income (loss) ......................................... $(0.21) $ 0.57
Book value(1) ............................................. N/A 10.24
Equivalent Pro Forma Combined -- Per CELCORE Share
(unaudited):(3)
Net income (loss) ......................................... $(0.07) $ 0.18
Book value ................................................ N/A 3.28
</TABLE>
_______________
(1) DSC's historical book value per share is computed by dividing
shareholders' equity by the number of shares of common stock outstanding
at the end of each period. DSC pro forma book value per share is
computed by dividing pro forma shareholders' equity, including the
effect of pro forma adjustments, by the pro forma number of shares of DSC
Common Stock outstanding at the end of the period.
(2) The computation of CELCORE's historical book value per share includes the
carrying value of redeemable preferred stock and the assumed conversion
of all series of preferred stock on a one-for-one basis, based on the
requirement in the Merger Agreement that all common and preferred stock
shares will be exchanged based on a common exchange ratio.
(3) The unaudited equivalent CELCORE pro forma per share amounts are
calculated by multiplying the DSC combined pro forma per share amounts by
the assumed Exchange Ratio of .32.
20
<PAGE> 26
RISK FACTORS
CELCORE stockholders should carefully evaluate all of the information
contained and incorporated by reference in this Prospectus/Proxy Statement and,
in particular, the following:
POTENTIAL EFFECTS OF THE MERGER
DSC believes the Merger will improve DSC's long-term consolidated operating
performance. However, the success of the Merger will depend upon many factors,
including, the timely completion of the development of CELCORE's new GSM switch
product, acceptance of the product in selected international markets, and the
achievement of certain operating efficiencies. Failure to successfully achieve
any of these objectives, including a delay in attaining them, could adversely
effect DSC's financial results. Additionally, DSC expects that its
consolidated short term earnings will not be significantly affected as a result
of the Merger other than the effect resulting from the in-process research and
development write-off described herein. However, the issuance of DSC Common
Stock to CELCORE's stockholders in the Merger will be dilutive to DSC's
earnings. Accordingly, there can be no assurance that DSC's financial results
and earnings per share will not be negatively effected as a result of the
Merger. See "--Quarterly Earnings Fluctuations and Liquidity."
In addition, there can be no assurance that the combining of the two
companies' businesses, even if achieved in an efficient, effective manner, will
result in combined results of operations superior to what would have been
achieved by each company independently, or as to the period of time required to
achieve such result, if any. Accordingly, there can be no assurance that
stockholders of CELCORE would not achieve greater returns on investment if
CELCORE were to remain an independent company. See "The Merger--Background of
the Merger" and "--CELCORE's Reasons for the Merger; Recommendation of
CELCORE's Board of Director's."
CUSTOMER CONCENTRATION
DSC has a diversified customer base including long distance carriers, RHCs,
Motorola, Inc., international PTTs and other domestic and international
independent telephone companies. However, a large portion of DSC's revenue is
concentrated among several of DSC's larger customers. During 1996, revenue from
DSC's three largest customers in total accounted for approximately 39% of DSC's
consolidated revenue. Although DSC expects that these customer relationships
will continue to generate substantial revenue in the near term, there can be no
assurance that any of these customers will continue to purchase products, or
continue to purchase products at historical levels. Product orders generally
are subject to rescheduling and cancellation without penalty. A material
reduction in the purchases of DSC's products by any of DSC's significant
customers could have a material adverse effect on DSC.
PRODUCT OBSOLESCENCE AND IMPORTANCE OF NEW PRODUCTS
The industry in which DSC operates is characterized by rapidly changing
technological and market conditions, which may shorten product life cycles.
DSC's future competitive position and operating results depend upon successful
production and sales of its existing products, its ability to develop and
produce on a timely basis new products to meet existing and anticipated
industry demands, and its ability to reduce the costs of existing systems,
software and services. During the product development process, DSC is required
to make a substantial investment in research and development, capital and, at
times, inventory for products that often require extensive field testing and
evaluation prior to actual sales to its customers. Delays in product completion
and/or slower than expected market acceptance of certain products have
negatively impacted DSC's operating performance in the past and also, in
certain cases, resulted in adjustments to carrying values of assets, including
the majority of the non-cash special charge in the third quarter of 1996. In
addition, when DSC's products are eventually sold to customers, there can be no
assurance that such products will be profitable. DSC may be materially
adversely affected if it is unable to develop and produce on a timely basis new
products to meet existing and industry demands, if substantial delays in the
availability of new products occur, or if any of DSC's existing or new products
are not commercially successful and DSC is therefore required to adjust the
carrying value, or discontinue such product.
TIMELY AND ADEQUATE SUPPLY OF MATERIALS
DSC generally uses standard parts and components for its products and
believes that, in most cases, there are a number of alternative, qualified
vendors for most of those parts and components. DSC purchases certain custom
components and
21
<PAGE> 27
products from single suppliers. DSC believes that the manufacturers of the
particular custom components and products should be able to meet expected
future demands. Recent changes in silicon wafer and other electronic component
technologies have required DSC to evaluate the feasibility of "lifetime"
purchases of certain component materials. Such "lifetime" purchases may or may
not be sufficient to fulfill customer demand. Alternatively, DSC could be
required to find second sourcing of these component materials or modify
existing product designs. Although DSC has not experienced any material adverse
effects from the inability to obtain timely delivery of needed components, an
unanticipated interruption of DSC's ability to secure comparable components
could have a material adverse effect on DSC's revenues and profitability. In
addition, certain of DSC's products contain a number of subsystems or
components acquired from other manufacturers on an original equipment
manufacturer ("OEM") basis. These OEM products are often available only from a
limited number of manufacturers. In the event that an OEM product was no longer
available from a current OEM vendor, second sourcing would be required and
could delay customer deliveries which could have a material adverse effect on
DSC's revenues and profitability.
COMPETITION
DSC currently faces significant competition in its markets and expects that
the level of price and product competition will increase. In addition, as a
result of both the trend toward global expansion by foreign and domestic
competitors and technological and public policy changes, DSC anticipates that
new and different competitors will enter its markets. These competitors may
include entrants from the telecommunications, software and data networking
industries. DSC believes that it enjoys a strong competitive position due to
its large installed base, its strong relationship with key customers and its
technological leadership and new product development capabilities. However,
many of DSC's foreign and domestic competitors have more extensive engineering,
manufacturing, marketing, financial and personnel resources than those of DSC.
DSC's ability to compete is dependent upon several factors, including, but not
limited to, product features, innovation, quality, reliability, service,
support, price and the retention and attraction of qualified design and
development personnel.
QUARTERLY EARNINGS FLUCTUATIONS AND LIQUIDITY
DSC's operating results may fluctuate significantly from quarter to quarter
due to several factors. As is the case with other companies in the
telecommunications manufacturing industry, a large portion of customer purchase
orders are received and shipments occur in the latter part of most quarters. As
a result, revenue and earnings can fluctuate significantly from quarter to
quarter based on customer requirements and the timing of orders and shipments.
In addition, periodic operating results may be materially affected by shifts in
the mix of products delivered, including the amount of software content, the
impact of sales price changes, the timing of satisfactory completion of
development and testing of new products and product enhancements and
adjustments in the carrying value, or the discontinuation, of any of DSC's
products. See "--Product Obsolescence and Importance of New Products." DSC has
historically experienced a stronger demand for its products in the fourth
quarter and a lower demand for its products in the first quarter; however,
there is no assurance this will continue in the future. In addition, DSC
currently estimates that approximately $135.0 million of the purchase price
paid for CELCORE will be allocated to in-process research and development which
will be charged to expense in the period the Merger is consummated, currently
estimated to be the fourth quarter of 1997.
At September 30, 1997, DSC had outstanding short and long term debt of
approximately $665 million. Some of DSC's financing arrangements contain
various financial covenants and cross-default provisions. Due to the
acquisition of CELCORE and the related write off of in-process research and
development as discussed above and in the Notes to Unaudited Pro Forma
Condensed Combined Financial Statements, DSC, subsequent to the Merger, is
likely to be in technical default under certain of its financial covenants.
DSC management believes it will be able to reach an agreement with its lender
to amend such agreements. Because of the timing of the Merger, management will
not be able to obtain amendments to the agreements prior to the issuance of
this Prospectus/Proxy Statement. However, there can be no assurance that DSC
will be able to reduce such risk without a reduction in liquidity. A default
under any such agreements could have a material adverse impact on DSC.
INTERNATIONAL GROWTH AND FOREIGN EXCHANGE
The international marketplace has become an increasingly important source of
new business opportunities for DSC as potential growth rates of some
international markets are higher than those of the United States. However,
access to customers in international markets is often more difficult due to a
variety of factors including the established relationships between the national
service providers, some of which are currently or were formerly
government-owned or - controlled, and their traditional indigenous suppliers of
telecommunications equipment. There can be no assurance that DSC will
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be able to overcome these barriers. In addition, pursuit of customers in
international markets may require significant investments for an extended
period before returns on such investments, if any, are realized. DSC also has
manufacturing operations at several locations outside the United States. Such
business, investment and operating activities could be materially adversely
affected by economic and labor conditions, political instability, tax laws
(including U.S. taxes on foreign subsidiaries) and changes in the value of the
United States dollar versus the local currency in which products are sold. A
significant change in the value of the dollar against the currency of one or
more countries where DSC recognizes substantial revenue or earnings may
materially adversely affect DSC's operating results. DSC attempts to mitigate
this risk through the use of forward foreign exchange contracts where possible,
although there can be no assurances that such attempts will be successful.
KEY PERSONNEL
DSC is dependent upon the continued services and management experience of
certain of their senior management personnel. If DSC were to lose the services
of such senior management personnel, it could have a material adverse effect on
DSC.
INTELLECTUAL PROPERTY AND LICENSING
DSC's proprietary technology is a key component of the value of its products.
DSC has an established program to protect its proprietary information through
patent, trademark, copyright and trade secret procedures. DSC currently has
patents issued to it and numerous patent applications pending in the United
States and foreign countries. There is no guarantee that the pending
applications will mature into issued patents or that the patents issued will be
held valid or will provide competitive advantage to DSC in the respective
jurisdictions if challenged or circumvented. The laws of some foreign countries
do not extend the same level of protection for intellectual property as do the
laws of the United States. While DSC believes that the protection of its
intellectual property by patents, copyrights and trade secrets has value, it
also believes the continued innovative skills technological expertise and
management abilities of its employees underlies the success of DSC.
Because of the rapid rate of technological innovation in the
telecommunications industry, the high numbers of patents being applied for
internationally and delays in various patent offices, it is not possible to
anticipate whether each of DSC's products or any of their respective components
may be covered by a patent applied for or issued to a third party. From time
to time DSC receives notice from third parties regarding patent or other
intellectual property claims. If infringement is alleged, DSC believes that,
based upon industry practice, any necessary license or rights from a third
party may be obtained on terms that would not have a material adverse effect on
DSC's financial condition or its results of operations. Nevertheless, there can
be no assurance that the necessary licenses would be available on acceptable
terms, if at all, or that DSC would prevail in any challenge by a third party.
The inability to obtain certain licenses or other rights or to obtain such
licenses or rights on favorable terms, or litigation arising out of such other
parties' assertion, could have a material adverse effect on DSC's business,
operating results and financial condition.
VOLATILITY OF DSC STOCK PRICE
The market price of DSC Common Stock has been, and may continue to be,
volatile. Factors such as new product announcements by DSC or its competitors,
quarterly fluctuations in the operating results of DSC, its competitors and
other technology companies may have a significant impact on the market price of
the DSC Common Stock. In particular, if DSC were to report operating results
which did not meet the expectations of the research analysts, the market price
of DSC Common Stock could be materially adversely affected. From time to time,
the stock market has experienced extreme price and volume fluctuations, which
have particularly affected the market prices for many high technology companies
and which have often been unrelated to the operating performance of the
specific companies.
STOCK ESCROW
At the Effective Time, DSC will deposit into escrow, certificates
representing that number of shares equal to 5.333% of the shares of DSC Common
Stock to be issued to the holders of CELCORE Capital Stock (other than holders
of Dissenting Shares) in the Merger as security for the indemnification
obligations of CELCORE stockholders set forth in Article IX of the Merger
Agreement and the costs and expenses incurred by the Representative in
performing his duties under the escrow provisions of the Merger Agreement.
Subject to the foregoing indemnification obligations of CELCORE stockholders,
such shares will not be released from the Escrow Funds until the Expiration
Date and, therefore, will be subject to fluctuations in the market value of the
DSC Common Stock during the Escrow Period. To the extent
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such escrowed shares are used to satisfy the indemnification obligations of
CELCORE, the CELCORE stockholders may receive up to 5.333% fewer shares based
upon the Exchange Ratio than they would have otherwise received following the
Effective Time. Further, the CELCORE stockholders will be obligated to
indemnify the Representative for losses, liabilities or expense he may incur
without negligence or bad faith in connection with the acceptance or
administration of his duties as the Representative. See "Certain Provisions of
the Merger Agreement--Escrow and Indemnification."
IMPACT OF REGULATION
The telecommunications industry is subject to regulation in the United States
and other countries. Federal and state regulatory agencies, including the
Federal Communications Commission and the various state Public Utility
Commissions and Public Service Commissions, regulate most of DSC's domestic
customers. In addition, the RHCs are restricted by the terms of the Modified
Final Judgment which resulted from the court-ordered divestiture of the RHCs by
AT&T Corporation, and which prohibited the RHCs from manufacturing
telecommunications equipment and providing interexchange or long- distance
services. In early 1996, the Telecommunications Act of 1996 (the "1996
Legislation") was passed. The 1996 Legislation contains provisions that permit
the RHCs, subject to satisfying certain conditions, to manufacture
telecommunications equipment. One or more RHCs may decide to manufacture
telecommunications equipment, to design and provide telecommunications
software, or to form alliances with other manufacturers, any of which could
result in increased competition for DSC and reduce the RHCs' and other
customers' purchases from DSC. There can be no assurance that deregulation will
continue in the future or that future deregulation will not have a material
adverse effect on DSC.
MULTI-YEAR AGREEMENTS
As part of its ongoing operations, DSC periodically enters into agreements
with customers which have a duration of greater than one year. Certain of these
agreements have included requirements to develop new technologies, including
hardware and software, as well as requirements to provide installation of
infrastructure systems. Certain of these agreements also contain performance
criteria, which, if not satisfied, could subject DSC to substantial penalties,
damages or non-payment, or could result in termination of such agreements.
CERTAIN ANTI-TAKEOVER EFFECTS
DSC has adopted a stockholder rights plan, which may make an unsolicited
acquisition of DSC more difficult or expensive. See "Description of Capital
Stock and Comparison of Stockholders' Rights--Anti-Takeover Provisions;
Restrictions on Certain Business Combinations."
INTERESTS OF CERTAIN PERSONS; POSSIBLE CONFLICTS OF INTERESTS OF CERTAIN
PERSONS IN THE MERGER
Certain members of the management of CELCORE and the Board of Directors of
CELCORE have interests in the Merger that differ from, and are in addition to,
their interests as stockholders of CELCORE. In particular, 20% of the BFG
Options will vest immediately prior to the consummation of the Merger. The
directors and executive officers of CELCORE and certain of their affiliates are
also obligated to vote or direct the vote of all of the outstanding shares of
CELCORE Capital Stock over which they have voting control (and to execute
written consents with respect to such shares) in favor of the approval of the
Merger Agreement, the payments under the Employment Agreements and, to the
extent such directors, officers and affiliates are holders of CELCORE Preferred
Stock, the waiver of their Liquidation Rights under CELCORE's Certificate of
Incorporation and Certificates of Designations. See "The Merger--Interests of
Certain Persons; Possible Conflicts of Interest" and "Voting Agreements."
THE SPECIAL MEETING
GENERAL
This Prospectus/Proxy Statement is being furnished to stockholders of CELCORE
in connection with the solicitation of proxies by the Board of Directors of
CELCORE for use at the Special Meeting of stockholders to be held on _______,
1997 at 10:00 a.m., central time, at 3800 Forest Hill-Irene Road, Memphis,
Tennessee 38125, and at any adjournments or postponements thereof.
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This Prospectus/Proxy Statement also constitutes the Prospectus with respect
to the shares of DSC Common Stock issuable in connection with the Merger.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, holders of shares of CELCORE Capital Stock will
consider and vote upon a proposal to approve and adopt the Merger Agreement and
the payments under the Employment Agreements. Additionally, the holders of
CELCORE Preferred Stock will consider and vote upon a proposal to waive any
Liquidation Rights of the holders of CELCORE Preferred Stock. CELCORE's
stockholders will also transact such other business as may properly be brought
before the Special Meeting or any adjournments or postponements thereof. THE
BOARD OF DIRECTORS OF CELCORE HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND
THE PAYMENTS UNDER THE EMPLOYMENT AGREEMENTS AND RECOMMENDS THAT CELCORE'S
STOCKHOLDERS VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE
PAYMENTS UNDER THE EMPLOYMENT AGREEMENTS. THE BOARD OF DIRECTORS OF CELCORE
ALSO RECOMMENDS THAT THE HOLDERS OF CELCORE PREFERRED STOCK WAIVE THEIR
LIQUIDATION RIGHTS.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of CELCORE
Common Stock and the Series A Preferred Stock, voting together as a single
class, and the affirmative vote of 60% of all outstanding shares of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, voting
separately as single classes, represented and entitled to vote at the Special
Meeting or any adjournment thereof, is required to approve the Merger
Agreement. The payments under the Employment Agreements require approval by the
affirmative vote of the holders of more than 75% of the outstanding shares of
CELCORE Capital Stock (excluding shares held by Messrs. Berger, Foley and
Gonzalez and certain of their related parties), voting together as a single
class, represented and entitled to vote at the Special Meeting or any
adjournment thereof. The approval of the payments under the Employment
Agreements is not a condition to the consummation of the Merger. In addition,
the approval of the waiver of the Liquidation Rights by the holders of CELCORE
Preferred Stock will require the affirmative vote of the holders of 80% of the
outstanding shares of CELCORE Preferred Stock, voting together as a single
class, represented and entitled to vote at the Special Meeting or any
adjournment thereof. Abstentions (i.e., votes withheld by stockholders who are
present and entitled to vote) from voting on the Merger Agreement, the payments
under the Employment Agreements and the waiver of the Liquidation Rights of the
holders of CELCORE Preferred Stock will be included in the voting tally. As a
result, abstentions and failures to vote will have the same effect as votes
against the Merger Agreement, the payments under the Employment Agreements and
the waiver of the Liquidation Rights of the holders of CELCORE Preferred Stock
since they are not votes for approval. The Principal Stockholders have entered
into agreements with DSC whereby they have agreed to vote the Principal
Stockholder Shares and to execute written consents with respect to such shares
in favor of approval of the Merger Agreement, the payments under the Employment
Agreements and any matter which could reasonably be expected to facilitate the
Merger. Furthermore, each Principal Stockholder who is a holder of CELCORE
Preferred Stock has also waived, and agreed to vote such shares and to execute
written consents with respect to such shares in favor of the approval of the
waiver of, the Liquidation Rights as provided in CELCORE's Certificate of
Incorporation and Certificates of Designations. Each Principal Stockholder has
also agreed not to take any action to perfect any appraisal rights it may have
under Section 262 of the DGCL. Pursuant to the Voting Agreements, the
Principal Stockholders Shares (representing as of the Record Date approximately
96% of the outstanding shares of CELCORE Common Stock, 68% of the outstanding
shares of Series A Preferred Stock, 93.6% of the outstanding shares of Series B
Preferred Stock, 68.5% of the outstanding shares of Series C Preferred Stock
and 100% of the outstanding shares of Series D Preferred Stock) will be present
and vote at the Special Meeting in favor of the Merger Agreement, the payments
under the Employment Agreements and the waiver of the Liquidation Rights by the
holders of CELCORE Preferred Stock. Therefore, no additional votes from the
holders of CELCORE Capital Stock are necessary to approve the Merger Agreement
or the payments under the Employment Agreements. In addition, no additional
votes from the holders of CELCORE Preferred Stock are necessary to approve the
waiver of the Liquidation Rights. See "Voting Agreements," "Proposal to
Approve the Payments Under the Employment Agreements" and "Proposal to Approve
the Waiver of Liquidation Rights by Holders of CELCORE Preferred Stock."
VOTING OF PROXIES
Shares of CELCORE Common Stock and CELCORE Preferred Stock represented by
properly executed proxies received at or prior to the Special Meeting, and
which have not thereafter been properly revoked as described below, will be
voted in accordance with the instructions indicated therein. If no instructions
are indicated, such proxies will be voted FOR approval and adoption of the
Merger Agreement, FOR approval of the payments under the Employment
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Agreements, FOR approval of the waiver of Liquidation Rights by the holders of
CELCORE Preferred Stock, and in the discretion of the proxy holder as to any
other matter that may properly come before the Special Meeting.
REVOCABILITY OF PROXIES
A CELCORE stockholder who has given a proxy may revoke such proxy at any time
prior to its exercise at the Special Meeting by any manner permitted by law,
including (i) giving written notice of revocation by mail or facsimile to
CELCORE prior to the Special Meeting, (ii) properly submitting to CELCORE by
mail or facsimile a duly executed proxy bearing a later date, or (iii) voting
in person at the Special Meeting. Submissions to CELCORE should be made to
Celcore, Inc., Attn: Corporate Secretary, at 3800 Forest Hill - Irene Road,
Memphis, Tennessee 38125, facsimile number (901) 624-4100.
SOLICITATION OF PROXIES
Each of DSC and CELCORE agreed to pay its own expenses incurred in connection
with this Prospectus/Proxy Statement and the Special Meeting including without
limitation, the fees and disbursements of their respective counsel, accountants
and other representatives, except that DSC has agreed to pay any printing,
filing and other fees and expenses associated with this Prospectus/Proxy
Statement and the Special Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE
The close of business on October 16, 1997 has been fixed as the Record Date
for determining holders of CELCORE Capital Stock entitled to notice of and to
vote at the Special Meeting. As of the Record Date, (i) 5,592,250 shares of
CELCORE Common Stock were outstanding and held of record by 47 holders, (ii)
4,500,000 shares of Series A Preferred Stock were outstanding and held of
record by 16 holders, (iii) 3,000,000 shares of Series B Preferred Stock were
outstanding and held of record by 33 holders, (iv) 3,038,046 shares of Series C
Preferred Stock were outstanding and held of record by 45 holders and (v)
2,004,227 shares of Series D Preferred Stock were outstanding and held of
record by one holder. Each stockholder of record of CELCORE Common Stock as of
the close of business on the Record Date is entitled at the Special Meeting to
one vote for each share of CELCORE Common Stock held. Each stockholder of
record of CELCORE Preferred Stock as of the close of business on the Record
Date is entitled to a number of votes equal to the number of whole shares of
CELCORE Common Stock into which such shares of CELCORE Preferred Stock could be
converted on the Record Date. As of the Record Date, each share of CELCORE
Preferred Stock was convertible into one share of CELCORE Common Stock.
CELCORE Common Stock and CELCORE Preferred Stock are the only classes of
capital stock of CELCORE issued and outstanding.
QUORUM
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of CELCORE Common Stock and CELCORE Preferred Stock (with
each series computed on an as converted basis) entitled to vote at the Special
Meeting is necessary to constitute a quorum for the transaction of business at
the Special Meeting. Abstentions will be counted as present for purposes of
determining whether there is a quorum for the transaction of business.
THE MERGER
GENERAL
The Merger Agreement provides for a business combination between DSC and
CELCORE in which a wholly owned subsidiary of DSC would be merged with and into
CELCORE and the holders of CELCORE Capital Stock would be issued shares of DSC
Common Stock. In addition, all CELCORE Options outstanding under the 1995 Plan
and the 1996 Plan, except for certain BFG Options, will be assumed by DSC and
will be converted into an option to acquire DSC Common Stock. See "The
Merger--Interests of Certain Persons; Possible Conflicts of Interest." As a
result of the Merger, CELCORE would become a wholly owned subsidiary of DSC. A
copy of the Merger Agreement is attached to this Prospectus/Proxy Statement as
Appendix A and is incorporated herein by reference.
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BACKGROUND OF THE MERGER
Between March 1997 and June 1997, DLJ was engaged by CELCORE to assist
CELCORE in its consideration of an initial public offering and in connection
therewith, DLJ assisted CELCORE in the drafting of a draft S-1 registration
statement. As part of this process, DLJ conducted extensive due diligence,
reviewed projections and monitored CELCORE's progress related to its business
plan. CELCORE planned to file the S-1 in the latter half of 1997, after
completion of the preparation of CELCORE's June or September quarterly
financial statements.
On June 24, 1997, CELCORE, DLJ and DSC met in Memphis to discuss the possible
acquisition of CELCORE by DSC. These discussions were the result of an inquiry
made by DSC regarding one of CELCORE's products in the fall of 1996. After the
June 24th meeting, discussions between DSC and CELCORE were not resumed until
July 21, 1997, when Broadview Associates (financial advisor to DSC), DLJ and
CELCORE met in New York City. During this time, CELCORE and DLJ also had
preliminary discussions with several other potential buyers. Further
discussions between CELCORE and DSC were held by telephone on August 11, 1997
and on August 14, 1997 in Dallas. During the meeting, the parties agreed to
the general terms of the Merger Agreement, including the price to be paid by
DSC. These terms were outlined in a letter of intent dated September 17, 1997.
Between September 18, 1997 and October 29, 1997, DSC, CELCORE and DLJ, and
their respective legal counsels met in Dallas on several occasions and carried
on numerous telephone conferences in order to negotiate the definitive Merger
Agreement. During this period, due diligence was conducted by DSC and certain
ancillary documents and schedules were also prepared and finalized.
CELCORE'S REASONS FOR THE MERGER; RECOMMENDATION OF CELCORE'S BOARD OF
DIRECTORS
The Board of Directors of CELCORE has unanimously determined that the terms
of the Merger Agreement and the transactions contemplated thereby offer the
best opportunity to maximize stockholder value for the holders of CELCORE
Common Stock based on the stock value of the combined companies and are in the
best interests of CELCORE and its stockholders. Accordingly, the Board of
Directors of CELCORE has unanimously approved the Merger Agreement and the
payments under the Employment Agreements and recommends approval thereof by the
stockholders of CELCORE. The Board of Directors of CELCORE also recommends
approval of the waiver of Liquidation Rights by the holders of CELCORE
Preferred Stock. In reaching its determination, the Board of Directors of
CELCORE consulted with CELCORE management, as well as its legal counsel and its
financial advisors, and considered a number of factors, including, without
limitation, the following:
(i) an evaluation of the prospects of CELCORE on a stand-alone basis;
(ii) CELCORE's immediate and projected cash needs and the availability
from third parties of funding required for CELCORE to continue to
operate on a stand-alone basis;
(iii) DSC's ability to provide the financial and technical assistance
to support the completion of CELCORE's GSM system;
(iv) the historical market prices, volatility and trading information
with respect to DSC Common Stock, and the opportunity for future
liquidity for CELCORE's stockholders through their ownership of
DSC Common Stock, which is quoted on the NASDAQ National Market;
(v) the opportunity afforded CELCORE's stockholders to share in the
potential cost savings achieved through consolidation;
(vi) the balance sheet strength of the combined company relative to
CELCORE's stand-alone balance sheet;
(vii) the Exchange Ratio between DSC Common Stock and CELCORE Capital
Stock, which the Board of Directors of CELCORE believed would
result in enhanced value for CELCORE's stockholders;
(viii) the expected tax-free nature of the Merger;
(ix) the savings in the general and administrative as well as sales
and marketing expenses, which would enable CELCORE to utilize
DSC's infrastructure and therefore invest more in research and
development than it would otherwise be able to invest;
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(x) an evaluation of other strategic alternatives potentially
available to CELCORE, including an initial public offering and
other merger opportunities;
(xi) information concerning, and their knowledge of, CELCORE's and
DSC's respective business, prospects, historical financial
performances and conditions, operations, technologies,
management, competitive positions, products, customers and future
development plans;
(xii) the consideration to be received by CELCORE's stockholders in the
Merger and the market value of the shares of DSC Common Stock to
be issued in exchange for CELCORE Capital Stock and upon exercise
of outstanding CELCORE Options;
(xiii) the terms of the Merger Agreement;
(xiv) the compatibility of the management and businesses of CELCORE and
DSC, as well as the fact that certain members of CELCORE's senior
management would manage the operations relating to CELCORE's
products and business for the combined company;
(xv) the potential disruption of CELCORE's business that might result
from employee uncertainty and lack of focus following
announcement of the Merger and during the integration of the
operations of DSC and CELCORE;
(xvi) the possibility that the Merger might not be consummated, and the
effects of the public announcement of the Merger on CELCORE's
sales and operating results, its ability to attract and retain
key management, and marketing and technical personnel and the
progress of certain of its development projects;
(xvii) the possibility of management disruption associated with the
Merger and the risk that, despite the efforts of the combined
company, the combined company may not be able to retain key
technical, sales and management personnel of CELCORE;
(xviii) the risk that the benefits sought to be achieved by the Merger
will not be achieved; and
(xix) other risks described above under "Risk Factors."
Based on the opinion of DLJ to the effect that, from a financial point of
view, the consideration to be received by CELCORE's stockholders upon
consummation of the Merger is fair to such stockholders, and on the foregoing
matters and such other matters as were deemed relevant, the Board of Directors
of CELCORE unanimously approved the Merger as being in the best interests of
CELCORE's stockholders.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors of CELCORE is not intended to be exhaustive
but is believed to include the material factors the Board of Directors of
CELCORE considered. In addition, in reaching the determination to approve and
recommend the Merger, considering the wide variety of factors considered in
connection with its evaluation of the proposed Merger, the Board of Directors
of CELCORE did not find it practical to, and did not, quantify or otherwise
attempt to assign any relative or specific weights to the foregoing factors,
and individual CELCORE directors may have given different weights to different
factors.
THE BOARD OF DIRECTORS OF CELCORE UNANIMOUSLY RECOMMENDS THAT THE
STOCKHOLDERS OF CELCORE VOTE FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT,
THE PAYMENTS UNDER THE EMPLOYMENT AGREEMENTS AND, AS CONTEMPLATED THEREBY,
APPROVAL OF THE MERGER. ADDITIONALLY, THE BOARD OF DIRECTORS OF CELCORE
UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF CELCORE PREFERRED STOCK VOTE FOR THE
WAIVER OF THE LIQUIDATION RIGHTS AS PROVIDED IN CELCORE'S CERTIFICATE OF
INCORPORATION AND CERTIFICATES OF DESIGNATIONS.
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OPINION OF FINANCIAL ADVISOR TO CELCORE
In its role as financial advisor to CELCORE, DLJ was asked by CELCORE
to render an opinion to CELCORE's Board of Directors as to the fairness to
the holders of CELCORE Common Stock, from a financial point of view, of the
Exchange Ratio pursuant to the terms of the Merger Agreement.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS APPENDIX B. CELCORE
STOCKHOLDERS ARE URGED TO READ THE DLJ OPINION IN ITS ENTIRETY FOR
ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS
OF THE REVIEW BY DLJ.
DLJ delivered to CELCORE's Board of Directors on October 16, 1997, its
oral opinion to the effect that the Exchange Ratio was fair to the holders
of CELCORE Common Stock from a financial point of view, based on and
subject to the assumptions, factors and limitations set forth in its
written opinion and as described below. This opinion was subsequently
confirmed in a written opinion ("the DLJ Opinion") dated October 29, 1997
to CELCORE's Board of Directors to the effect that, as of October 29, 1997
and based upon and subject to, the assumptions, limitations and
qualifications set forth in such opinion, the Exchange Ratio was fair to
the holders of CELCORE Common Stock from a financial point of view.
The DLJ Opinion was prepared for CELCORE's Board of Directors and is
directed only to the fairness of the Exchange Ratio to holders of CELCORE
Common Stock from a financial point of view and does not constitute a
recommendation to any CELCORE stockholder as to how such stockholder should
vote at the Special Meeting.
The DLJ Opinion does not constitute an opinion as to the price at
which DSC Common Stock will actually trade at any time. The Exchange Ratio
was determined in arm's-length negotiations between CELCORE and DSC, in
which negotiations DLJ advised CELCORE. No restrictions or limitations
were imposed by CELCORE upon DLJ with respect to the investigations made or
the procedures followed by DLJ in rendering its opinion.
In arriving at its opinion, DLJ reviewed the Merger Agreement. DLJ
also has reviewed financial and other information that was furnished to it
by CELCORE, including information provided during discussions with
CELCORE's management. Included in the information provided during
discussions with management were certain financial projections of CELCORE
for the period beginning July 1, 1997 and ending December 31, 1998,
prepared by the management of CELCORE. In addition, DLJ compared certain
financial data of CELCORE with various other companies whose securities are
traded in public markets, reviewed prices and premiums paid in certain
other business combinations and conducted such other financial studies,
analyses and investigations as DLJ deemed appropriate for purposes of its
opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was
available to it that was provided to it by CELCORE or its representatives,
or that was otherwise reviewed. With respect to the financial projections
supplied to it, DLJ assumed that they have been reasonably prepared on the
basis reflecting the best currently available estimates and judgments of
the management of CELCORE as to the future operating and financial
performance of CELCORE. DLJ did not assume any responsibility for making
an independent evaluation of CELCORE's assets or liabilities or for making
any independent verification of any of the information that it reviewed.
The DLJ Opinion is necessarily based on economic, market, financial
and other conditions as they existed on, and on the information made
available to it as of, the date of its opinion. It should be understood
that, although subsequent developments may affect its opinion, DLJ does not
have any obligation to update, revise or reaffirm the DLJ Opinion.
Pursuant to the terms of an engagement letter dated June 16, 1997,
CELCORE agreed to pay DLJ a fee of approximately $ ____ million (including
$300,000 upon notification that DLJ was prepared to deliver the DLJ
Opinion). Our fee was based upon a calculation of 1.1% of the enterprise
value of the price paid for CELCORE by DSC. CELCORE also agreed to
reimburse DLJ promptly for all out-of-pocket expenses (including the
reasonable fees and out-of-pocket expenses of counsel) incurred by DLJ in
connection with its engagement, and to indemnify DLJ and certain related
persons against certain liabilities in connection with its engagement,
including liabilities under the federal securities laws. The terms of the
fee arrangement with DLJ, which DLJ and CELCORE believe are customary in
transactions of this nature, were negotiated at arm's length between
CELCORE and DLJ and CELCORE's Board of Directors was aware of such
arrangement, including the fact that a significant portion of the aggregate
fee payable to DLJ is contingent upon consummation of the Merger.
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The Board of Directors of CELCORE selected DLJ to render a fairness
opinion because DLJ is an internationally recognized investment banking
firm with substantial expertise in transactions similar to the Merger and
because it is familiar with CELCORE and its business. DLJ, as part of its
investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with the mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes.
DSC'S REASONS FOR THE MERGER
The Board of Directors of DSC unanimously approved the Merger Agreement on
October 27, 1997. The Board of Directors of DSC believes the consummation of
the Merger is in DSC's best interest. In arriving at its decision, DSC's
management reviewed with the Board of Directors a number of factors that
support the consideration to be paid by DSC.
Among the factors the Board of Directors of DSC considered were:
(i) information concerning DSC's and CELCORE's respective businesses,
historical financial performance, operations and products including
possible future product releases;
(ii) historic and anticipated growth rates for global wireless and mobile
communications markets;
(iii) the prospects for CELCORE's future GSM products;
(iv) DSC's strategy to capitalize on its existing international presence
and to expand its international revenue base through the sale of
CELCORE's products;
(v) DSC's opportunity to offer service providers a more comprehensive
product offering by combining CELCORE's products with other DSC
products;
(vi) a comparison of the financial terms of comparable merger and
acquisition transactions;
(vii) the compatibility of the management and businesses of DSC and
CELCORE; and
(viii) reports from DSC's management and legal advisors on specific terms of
the relevant agreements.
EFFECTIVE TIME
If the Merger Agreement is approved and adopted by the requisite vote of
CELCORE's stockholders and the other conditions to the Merger are satisfied or
waived (if permissible), the Effective Time will occur at the time a
Certificate of Merger is filed with the Secretary of State of the State of
Delaware or at such later time as the parties to the Merger Agreement agree to
in writing and specify in such Certificate of Merger. The Merger Agreement
provides that DSC and CELCORE will cause the Effective Time to occur as
promptly as practicable, but in no event later than the first business day
(unless such other date is agreed to in writing by the parties to the Merger
Agreement) following the satisfaction or, if permissible, waiver of all the
conditions set forth in the Merger Agreement. The Merger Agreement may be
terminated prior to the Effective Time by either DSC or CELCORE in certain
circumstances, whether before or after approval and adoption of the Merger
Agreement by the stockholders of CELCORE. See "Certain Provisions of the
Merger Agreement--Termination."
TERMS OF THE MERGER
If all required stockholder approvals are obtained and all other conditions
to the Merger are satisfied or waived, if permissible, then at the Effective
Time Merger Subsidiary will be merged with and into CELCORE, which will be the
Surviving Corporation with the name DSC/Celcore, Inc., and the Certificate of
Incorporation and Bylaws of CELCORE will be amended automatically to conform
with those of Merger Subsidiary. In the Merger, each share of CELCORE Capital
Stock outstanding immediately prior to the Effective Time (other than
Dissenting Shares) will be converted into a fraction of a share of DSC Common
Stock, based on the Exchange Ratio. The Exchange Ratio will depend on the
Average Trading Price and will be equal to eight divided by the Average Trading
Price; provided that in the event the Average Trading Price is $25.00 or less
then the Exchange Ratio will be .32. CELCORE's stockholders will also receive
the rights (if any) attaching to such stock pursuant to the DSC Rights
Agreement. In addition, each CELCORE Option outstanding under the 1995 Plan
and the 1996 Plan, except for certain BFG Options, will be assumed by DSC and
will
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be converted into an option to acquire DSC Common Stock, based on the Exchange
Ratio. Any resulting fractional share interest will be paid in cash. In
connection with the Merger, an aggregate amount equal to 5.333% of the shares
of DSC Common Stock otherwise issuable to holders of CELCORE Capital Stock by
virtue of the Merger will be placed into escrow and held as security for losses
incurred by DSC in the event of certain breaches by CELCORE of the covenants,
representations or warranties contained in the Merger Agreement and for the
costs and expenses incurred by the Representative in performing his obligations
under the escrow provisions of the Merger Agreement. The Merger is structured
as a tax-free reorganization to the extent CELCORE's stockholders receive
shares of DSC Common Stock. Depending upon uncertain factual developments, it
is possible that the Merger might not be treated as a reorganization within the
meaning of Section 368(a) of the Code, as a result of which each holder of
shares of CELCORE Capital Stock would recognize gain in the amount of the
difference between the fair market value of the shares of DSC Common Stock
and/or cash in lieu of fractional shares, and such holder's tax basis in
CELCORE Capital Stock exchanged therefor. See "The Merger--Certain United
States Federal Income Tax Consequences."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material United States federal
income tax consequences of the Merger and is not intended to be a complete
discussion of all potential tax effects that might be relevant to the Merger.
Such discussion deals only with a citizen or resident of the United States or a
domestic corporation (a "U.S. Holder"). This summary assumes that CELCORE
Capital Stock has been held as a capital asset. It may not be applicable to
certain classes of taxpayers, including, without limitation, insurance
companies, tax-exempt organizations, financial institutions, securities
dealers, broker-dealers, foreign persons, persons who hold CELCORE Capital
Stock as part of a conversion transaction, and persons who acquired CELCORE
Capital Stock pursuant to the exercise of employee stock options or rights or
otherwise as compensation. Moreover, the state, local, foreign, and estate tax
consequences to CELCORE stockholders of the Merger are not discussed.
This summary is based on laws, regulations, rulings, practice, and judicial
decisions in effect at the date of this Prospectus/Proxy Statement, on the
opinion of Baker & McKenzie, counsel to DSC, and on the opinion of Powell,
Goldstein, Frazer & Murphy LLP, counsel to CELCORE. However, legislative,
judicial, or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any
such changes or interpretations may or may not be retroactive and could affect
the tax consequences described herein to stockholders.
It is intended that the Merger qualify as a reorganization within the meaning
of Section 368(a) of the Code and that, for federal income tax purposes, no
gain or loss will be recognized by DSC or CELCORE as a result of the Merger.
DSC and CELCORE have received the "Tax Opinions" each dated as of the date of
this Prospectus/Proxy Statement, that the Merger should be treated as a
reorganization within the meaning of Section 368(a) of the Code and that
CELCORE and DSC will each be a party to the reorganization pursuant to Section
368(b) of the Code. Such an opinion is not binding on the Internal Revenue
Service ("IRS") or the courts, and, therefore, the delivery of the Tax Opinions
cannot assure that the IRS or the courts will treat the Merger as a
reorganization within the meaning of Section 368(a) of the Code. The Tax
Opinions are based, among other things, on assumptions relating to certain
facts and circumstances of, and the intentions of the parties to, the Merger,
which assumptions have been made with the consent of CELCORE and DSC.
The Tax Opinions rely, in part, on certain assumptions, representations and
warranties relating to the satisfaction of the "continuity of interest"
requirement for reorganization treatment. To satisfy the continuity of interest
requirement, CELCORE stockholders must not, pursuant to a plan or intent
existing at or prior to the Merger, dispose of or transfer so much of either
(i) their CELCORE Capital Stock in anticipation of the Merger or (ii) the DSC
Common Stock to be received in the Merger (collectively "Planned
Dispositions"), such that the CELCORE stockholders, as a group, would no longer
have a meaningful continuing equity interest in DSC after the Merger. Planned
Dispositions include, among other things, disposition of shares pursuant to the
exercise of appraisal rights. Although it is unsettled as to what constitutes
sufficient continuity of interest, 50% continuity should satisfy the
requirement. CELCORE has represented that CELCORE knows of no plan or
intention on the part of the CELCORE stockholders to engage in Planned
Dispositions that would reduce the holdings of DSC Common Stock by all CELCORE
stockholders to less than 50% of the total value of CELCORE Capital Stock as of
immediately prior to the Merger. The Tax Opinions are based on the assumption
that there is no plan or intention on the part of the CELCORE stockholders to
dispose of a number of shares of DSC Common Stock to be issued to such
stockholders in the Merger, sufficient to reduce the CELCORE stockholders
ownership of the DSC Common Stock to a number of shares having an aggregate
fair market value
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(determined as of the Effective Time) of less than 50% of the aggregate fair
market value (determined immediately prior to the Effective Time) of all
outstanding shares of CELCORE Capital Stock.
In the case of reorganizations that are subsidiary mergers, such as the
Merger, the surviving corporation must acquire "substantially all" the assets
of the acquired corporation. For advance letter ruling purposes the IRS will
rule that the "substantially all" requirement will be met if, at the time of
the merger, the surviving corporation holds at least 90 % of the fair market
value of the net assets and 70% of the fair market value of the gross assets of
the acquired corporation (taking into account certain pre-merger redemptions
and distributions and amounts used by the acquired corporation to pay
reorganization expenses and dissenting stockholders). Pursuant to the Merger
Agreement, CELCORE has represented that the IRS ruling standard set forth above
will be met. Accordingly, assuming the accuracy of this representation, the
"substantially all" requirement will be met.
The Tax Opinions provide, assuming the Merger is a reorganization within the
meaning of Section 368(a) of the Code, that (i) a U.S. Holder of CELCORE
Capital Stock who, pursuant to the Merger, exchanges such U.S. Holder's CELCORE
Capital Stock solely for DSC Common Stock will not recognize gain or loss on
the exchange, (ii) the holding period of DSC Common Stock received by each U.S.
Holder of CELCORE Capital Stock in the Merger will include the holding period
of CELCORE Capital Stock surrendered therefor, (iii) the tax basis of such DSC
Common Stock will equal the U.S. Holder's tax basis in CELCORE Capital Stock
exchanged in the Merger less the tax basis allocated to fractional share
interests, (iv) that a U.S. Holder of CELCORE Capital Stock who, pursuant to
the Merger, receives cash in lieu of a fractional share of DSC Common Stock
will recognize capital gain or loss equal to the difference between the amount
of cash received and the U.S. Holder's adjusted tax basis in the fractional
share of DSC Common Stock, (v) no gain or loss will be recognized by DSC,
Merger Subsidiary or CELCORE as a result of the Merger and (vi) the tax basis
of the shares of CELCORE Capital Stock received by DSC will, at the election of
DSC, equal either: (x) DSC's tax basis in its Merger Subsidiary stock
immediately prior to the Merger plus CELCORE's net tax basis of CELCORE's
assets and liabilities immediately prior to the Merger, or (y) the tax basis of
CELCORE Capital Stock in the hands of CELCORE's stockholders immediately prior
to the Merger. The gain or loss recognized by a U.S. Holder of CELCORE Capital
Stock who, pursuant to the Merger, receives cash in lieu of a fractional share
of DSC Common Stock, will be capital gain or loss, provided that such share of
CELCORE Capital Stock was held as a capital asset at the Effective Time.
Capital gains will be based at a lower rate if such share of CELCORE Capital
Stock has been held for more than one year. The capital gain rate may be
further reduced if the U.S. Holder's holding period in such share of CELCORE
Capital Stock is more than eighteen months.
The Merger is not contingent on the updating of the Tax Opinions as of the
Effective Time. Further, the accuracy of the assumptions counsel was directed
to make in rendering the Tax Opinions will not be known until after the
Effective Time. In the event that the 50% continuity representation described
above is not satisfied, it is possible that the Merger would not be treated as
a reorganization within the meaning of Section 368(a) of the Code.
Additionally, if the "substantially all" representations or assumption proves
to be inaccurate because, for example, CELCORE's payments to dissenters
constitute more than 10% of the fair market value of the net assets of CELCORE,
it is possible that the "substantially all" requirement will not be satisfied,
and if such requirement is not satisfied, the Merger would not be treated as a
reorganization. The Tax Opinions do not address the tax consequences to the
CELCORE stockholders in the event the Merger is not treated as a reorganization
within the meaning of Section 368(a) of the Code. Generally in such event,
each stockholder of CELCORE would recognize gain in the amount of the
difference between (i) the fair market value of the DSC Common Stock and the
amount of cash received in lieu of a fractional share of DSC Common Stock and
(ii) such holder's adjusted tax basis in CELCORE Capital Stock surrendered
therefor. Any such recognized gain generally would be characterized as capital
gain or loss. If the Merger is not considered a reorganization, the holding
period of DSC Common Stock received by each U.S. Holder of CELCORE Capital
Stock in the Merger would not include the holding period of CELCORE Capital
Stock surrendered therefor and the aggregate adjusted tax basis of such DSC
Common Stock would equal the fair market value of DSC Common Stock received.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A GENERAL SUMMARY OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND DOES NOT PURPORT TO BE A
COMPLETE ANALYSIS OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO A
DECISION WHETHER TO VOTE IN FAVOR OF APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE TAX CONSEQUENCES
THAT MAY BE RELEVANT TO A PARTICULAR CELCORE STOCKHOLDER SUBJECT TO SPECIAL
TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN SECURITIES,
BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED STATES PERSONS
AND STOCKHOLDERS WHO ACQUIRED THEIR SHARES OF CELCORE CAPITAL STOCK PURSUANT TO
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THE EXERCISE OF CELCORE OPTIONS OR OTHERWISE AS COMPENSATION, NOR DOES IT
ADDRESS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR
FOREIGN JURISDICTION. THE DISCUSSION IS BASED ON THE CODE, TREASURY REGULATIONS
THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE
HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. CELCORE STOCKHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE FEDERAL, STATE, LOCAL
AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
REGULATORY APPROVALS
DSC and CELCORE are aware of no governmental regulatory approvals still
required for consummation of the Merger, other than compliance with
notification requirements of environmental agencies, with federal securities
laws, and with state securities or "Blue Sky" laws. The Merger was subject to
the pre-merger notification provisions of the HSR Act. Filings were made under
the HSR Act by DSC and CELCORE with the Federal Trade Commission and the
Department of Justice Antitrust Division. On __________, 1997 early
termination of the waiting period under the HSR Act was granted, thus
permitting the Merger to proceed pursuant to the HSR Act, subject to
stockholder approval and the other conditions described herein.
Under the Merger Agreement, CELCORE, DSC and Merger Subsidiary have agreed to
use their best efforts to (i) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary, proper or advisable
under applicable law or required to be taken by any governmental authority or
otherwise to consummate and make effective the transactions contemplated by the
Merger Agreement as promptly as practicable, (ii) obtain from any governmental
authorities any consents or other governmental authorizations required to be
obtained or made by DSC or CELCORE or any of their subsidiaries in connection
with the authorization, execution and delivery of the Merger Agreement and the
consummation of the transactions contemplated thereunder, including without
limitation, the Merger, and (iii) as promptly as practicable, make all
necessary filings, and thereafter make any other required submissions, with
respect to the Merger Agreement and the Merger required under (a) the
Securities Act and the Exchange Act, and any other applicable federal or state
securities laws, (b) the rules and regulations of the NASDAQ National Market,
(c) the DGCL, (d) the HSR Act and any related governmental request thereunder,
and (e) any other applicable law. DSC and CELCORE have agreed to cooperate
with each other in connection with the making of all such filings, including
providing copies of all such documents to the non-filing party and its advisors
prior to filing and, if requested, accepting all reasonable additions,
deletions or changes suggested in connection therewith. CELCORE and DSC have
also agreed to use reasonable best efforts to furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable law (including all information
required to be included in this Prospectus/Proxy Statement and the Registration
Statement) in connection with the transactions contemplated by the Merger
Agreement.
ACCOUNTING TREATMENT
It is intended that DSC will account for the Merger as a purchase transaction
under GAAP. See "Unaudited Pro Forma Combined Financial Statements."
NASDAQ NATIONAL MARKET LISTING
An application has been filed to have the shares of DSC Common Stock to be
issued in connection with the Merger approved for quotation on the NASDAQ
National Market. Evidence from the NASDAQ National Market that the shares of
DSC Common Stock to be issued in connection with the Merger have been approved
for quotation on the NASDAQ National Market immediately following the Effective
Time is a condition to the consummation of the Merger. See "Certain Provisions
of the Merger Agreement--Conditions to the Consummation of the Merger."
INTERESTS OF CERTAIN PERSONS; POSSIBLE CONFLICTS OF INTEREST
Interests of Certain Persons in the Merger. In considering the
recommendation of the Board of Directors of CELCORE with respect to the Merger
Agreement and the transactions contemplated thereby, stockholders should be
aware that certain members of the management of CELCORE and of its Board of
Directors have certain interests in the Merger that are in addition to the
interests of the stockholders of CELCORE generally.
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Voting. As of October 30, 1997, directors and executive officers of CELCORE
and their affiliates may be deemed to be beneficial owners of approximately
66.85% of the outstanding shares of CELCORE Common Stock and 78.70% of the
outstanding shares of Series A Preferred Stock, 0.83% of the outstanding shares
of Series B Preferred Stock and 0.27% of the outstanding shares of Series C
Preferred Stock. See "Principal Stockholders of CELCORE." The directors and
executive officers of CELCORE and certain of their affiliates are obligated to
vote or direct the vote of all of the outstanding shares of CELCORE Capital
Stock over which they have voting control in favor of the approval and adoption
of the Merger Agreement, the payments under the Employment Agreements, and to
the extent they are holders of CELCORE Preferred Stock, the waiver of
Liquidation Rights under CELCORE's Certificate of Incorporation and
Certificates of Designations. Additionally, such directors and executive
officers of CELCORE and certain of their affiliates have agreed not to take any
action or actions to perfect any appraisal rights such Principal Stockholder
may have as a result of the Merger under Section 262 of the DGCL. See "Voting
Agreements--Voting and Proxy" and "--Waiver of Appraisal Rights and Preferred
Stock Liquidation Rights."
Covenant Not-to-Compete. Concurrently with the execution of the Merger
Agreement and as a condition of the willingness of DSC to enter into the Merger
Agreement, Robert P. Goodman, Chairman of the Board and Chief Executive Officer
of CELCORE, has executed a covenant not-to-compete under the terms of his
Voting Agreement. Mr. Goodman has agreed that until after the fifth
anniversary of the Closing Date, he will not be involved in a Prohibited
Business within certain geographic areas. Mr. Goodman has also agreed that
until after the first anniversary of the Closing Date, he will not make known
to persons or corporations involved in a Prohibited Business the customers of
CELCORE; contact or take away or attempt to contact or take away CELCORE
customers for persons or corporations involved in a Prohibited Business; or
recruit or hire or attempt to recruit or hire CELCORE employees, consultants or
independent contractors. Mr. Goodman has agreed that a breach or violation of
the covenant not-to-compete will entitle DSC to an injunction restraining any
further or continued breach or violation of the covenant not-to-compete. See
"Voting Agreements--Covenant Not-to-Compete."
Payments Under the Employment Agreements. In connection with the
consummation of the Merger, the stockholders of CELCORE will be asked to
approve all payments to each of Thomas R. Berger, James M. Foley and Joseph
Gonzalez under the terms of the Employment Agreements. DSC's obligation to
enter into the Employment Agreements is contingent upon the approval of such
payments to Messrs. Berger, Foley and Gonzalez under the Employment Agreements
by the affirmative vote of holders of more than 75% of the outstanding shares
of CELCORE Capital Stock (excluding shares held by Messrs. Berger, Foley and
Gonzalez and certain of their respective related parties), voting together as a
single class, represented and entitled to vote at the Special Meeting or any
adjournment thereof. The approval of the payments under the Employment
Agreements is not a condition to the consummation of the Merger. See "Proposal
to Approve the Payments Under the Employment Agreements." Messrs. Berger,
Foley and Gonzalez are executive officers of CELCORE. Each of the Employment
Agreements will be for a term of two years, and will provide annual
compensation and bonuses as follows: Mr. Berger, $226,550 and $350,000; Mr.
Foley, $151,225 and $150,000; and Mr. Gonzalez, $148,925 and $150,000. The
bonuses under the Employment Agreements will be payable in two installments,
the first of which is due on the Closing Date and the second of which is due on
the second anniversary of the Closing Date (the second such installment is
referred to as the "Retention Award"), as follows: Mr. Berger, $100,000 and
$250,000; Mr. Foley, $50,000 and $100,000; and Mr. Gonzalez, $50,000 and
$100,000. In the event Messrs. Berger's, Foley's or Gonzalez's employment is
terminated by DSC without Cause or by such person for Good Reason (as such
terms are defined in the Employment Agreements), (i) DSC will pay a lump sum
amount in cash equal to a pro-rata amount of the Retention Award, based on the
number of days elapsed from the Closing Date to the date of termination, (ii)
DSC will continue to pay to such persons base salary for a period of six
months, and (iii) such person will be entitled to six months of continued
coverage under the health and welfare benefit plans in which such person was
eligible to participate immediately prior to the date of termination on the
same basis as such benefits were made available immediately prior to the date
of termination. Pursuant to the Employment Agreements, DSC has also agreed to
provide each of Messrs. Berger, Foley and Gonzalez with options under DSC's
1993 Employee Stock Option and Securities Award Plan to purchase up to the
following number of shares of DSC Common Stock: Mr. Berger, 40,000 shares; Mr.
Foley, 20,000 shares; and Mr. Gonzalez, 20,000 shares. The Employment
Agreements further provide that Messrs. Berger, Foley and Gonzalez will be
eligible for performance-based bonus payments under DSC's Annual Incentive
Compensation Plan.
Proprietary Rights Agreements. In connection with the execution of the
Employment Agreements, certain of the officers and other employees of CELCORE,
including Messrs. Berger, Foley and Gonzalez, will enter into proprietary
rights agreements with DSC, which will contain a covenant not-to-compete. The
covenant not-to-compete restricts each person, for so long as such person is
employed by DSC and until the second anniversary of the termination of his
employment, from directly or indirectly, either as an employer, consultant,
agent, principal, partner, or in any other
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capacity, engaging or participating in any business that is in competition in
any manner whatsoever with the business of CELCORE, which involves the use of
technology reasonably similar to the Intellectual Property Assets (as defined
in the Merger Agreement) of CELCORE, or which involves any technologies which
are acquired by CELCORE, prior to the date of termination of employment or
which are derived from the Intellectual Property Assets as of the date of
termination of employment, within the United States or any country in which
CELCORE or DSC or any of their respective subsidiaries is conducting or
reasonably expects to conduct or expand its business. Additionally, the
covenant not-to-compete provides that so long as such person is employed by DSC
and until the second anniversary of the termination of his employment such
person will not perform work on technical development projects or programs that
are similar to the projects or programs that such person has worked on for DSC
or CELCORE during the past five years.
CELCORE Options. Certain officers and directors of CELCORE hold CELCORE
Options pursuant to the 1995 Plan and the 1996 Plan. Under the Merger
Agreement, these CELCORE Options will be assumed by DSC and will be converted
into options to acquire DSC Common Stock based on the Exchange Ratio following
the Effective Time. DSC has agreed to assume the obligations of CELCORE under
the 1995 Plan and the 1996 Plan. See "Certain Provisions of the Merger
Agreement--Effect of the Merger on CELCORE Options." CELCORE's option
agreements (the "Original Option Agreements") with Messrs. Berger, Foley and
Gonzalez under the 1995 Plan to acquire 500,000, 105,000 and 150,000 shares of
CELCORE Common Stock, respectively, contain provisions providing for the full
and immediate exercisability of the BFG Options evidenced by the Original
Option Agreements as a result of a Change in Control (as defined in the
Original Option Agreements). Immediately prior to the execution of the Merger
Agreement, 162,500, 22,500 and 37,500 shares of the CELCORE Common Stock were
vested. Following the execution of the Merger Agreement, the Original Option
Agreements with Messrs. Berger, Foley and Gonzalez were amended (as amended,
the "Amended Option Agreements"). Under the Amended Option Agreements, each of
Messrs. Berger, Foley and Gonzalez have agreed that the consummation of the
Merger would not give rise to a Change in Control. Notwithstanding the
foregoing, the Amended Option Agreements and the Employment Agreements provide
that a portion of the unvested amount of the BFG Options will become vested and
the remainder of such unvested portion will be canceled. These agreements
provide that 20% of the unvested amount of the BFG Options under the Original
Option Agreements will become immediately exercisable, which will represent
options to purchase the following shares of CELCORE Common Stock: Mr. Berger,
67,500 shares; Mr. Foley, 16,500 shares; and Mr. Gonzalez, 22,500 shares.
Consequently, as of the Effective Time, Messrs. Berger, Foley and Gonzalez will
hold vested BFG Options to purchase the following shares of CELCORE Common
Stock: Mr. Berger, 230,000 shares; Mr. Foley, 39,000 shares; and Mr.
Gonzalez, 60,000 shares. Additionally, pursuant to the Employment Agreements,
Messrs. Berger, Foley and Gonzalez will be deemed to have been granted at the
Effective Time an option (the "Retainage Option") to purchase that number of
shares of DSC Common Stock equal to the product of the shares of CELCORE Common
Stock covered by the Canceled Options multiplied by the Exchange Ratio. The
Retainage Option will, except as provided below, be subject to the same terms
and conditions as the Amended Option Agreement. The Retainage Option will be
granted at an exercise price equal to the reported last sale price of DSC
Common Stock on the NASDAQ National Market on the date of grant. On each of
the first and second anniversary date of the date of grant of the Retainage
Option, one-half of the shares of DSC Common Stock covered by the Retainage
Option will be exercisable. All other provisions of the Retainage Option will
be subject to the terms and conditions of the 1995 Plan. The Retainage Option
will be assumed by DSC and will be converted into options to acquire DSC Common
Stock based on the Exchange Ratio following the Effective Time. Pursuant to
the Employment Agreements, the remaining balance of the unvested amount of such
BFG Options outstanding immediately prior to the Effective Time will be
forfeited, terminated and canceled (the "Canceled Options"). Under the Amended
Option Agreements, if Messrs. Berger's, Foley's or Gonzalez's employment is
terminated by such person as a result of a Constructive Discharge (as defined
in the Amended Option Agreement), all of the shares of DSC Common Stock subject
to the options evidenced by the Amended Option Agreement will become
immediately exercisable on the date such person's employment is terminated, and
such options will terminate on the earlier of (i) one year after the date such
person's employment by DSC and its subsidiaries is terminated, or (ii) the date
on which such option expires by its terms. Under the Employment Agreements,
Messrs. Berger, Foley and Gonzalez have agreed that the terms of the Merger
Agreement and the Employment Agreement will not give rise to an event of
Constructive Discharge.
Promissory Notes. In consideration of the termination of the Canceled
Options, on the date of the Effective Time, DSC will execute and deliver to
each of Messrs. Berger, Foley and Gonzalez a promissory note (collectively, the
"Notes"). The principal balance of each Note shall be determined by (1) in
respect of each of the Canceled Options, calculating the product of (i) the
difference of (A) the Average Trading Price, minus (B) the quotient of the
exercise price of the Canceled Options of such individual, divided by the
Exchange Ratio, times (ii) the number of shares covered by the Canceled
Options, times (iii) the Exchange Ratio, and (2) aggregating the total of all
amounts computed for each of the Canceled Options in clause (1) above. The
principal balance of each Note will be payable in two equal installments on the
first and second anniversary of the Effective Time, each of which will be an
amount equal to one-half of the aggregate
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original principal balance of such Note. Payments of the principal amounts
will be made by delivery of that number of whole shares of DSC Common Stock
having an aggregate value (based on the reported last sale price of a share of
DSC Common Stock on the NASDAQ National Market as reported on the date
immediately preceding the date such principal installment is due) equal to the
principal installment due. No fractional share of DSC Common Stock will be
delivered thereunder, and, in lieu thereof, cash payments will be made in lieu
of any fractional shares. The principal balance of each Note will bear no
interest. The entire unpaid principal balance of the Note payable to Messrs.
Berger, Foley and Gonzalez, as the case may be, will immediately become due and
payable in the event such individual's employment with DSC and its subsidiaries
is terminated (i) for any reason other than "for cause," (ii) by reason of a
Constructive Discharge (as defined in the Amended Option Agreement), or (iii)
by reason of his death or disability. Notwithstanding the foregoing, if (i)
such individual's employment with DSC, or its subsidiaries, is terminated "for
cause" or (ii) such individual ceases to be employed by DSC and its
subsidiaries because he voluntarily terminates such employment (other than by
reason of a Constructive Discharge), then in each such case such individual
will be deemed to have forever released and fully discharged DSC of any
obligation whatsoever to pay such individual any remaining principal balance
due under his Note as of the date of termination of such individual's
employment.
DSC Special Celcore Incentive Plan. In connection with the Merger, DSC
adopted the DSC Special Celcore Incentive Plan ("Incentive Plan"), pursuant to
which certain key employees of CELCORE, including Messrs. Berger, Foley and
Gonzalez, will be granted as of the Effective Time options ("Incentive
Options") to purchase shares of DSC Common Stock and, subject to the attainment
of certain target revenues, awarded certain cash payments ("Cash Payments").
RESTRICTIONS ON RESALES BY AFFILIATES
DSC has registered the shares of DSC Common Stock and related Preferred Stock
Purchase Rights that the holders of CELCORE Capital Stock will be entitled to
receive upon consummation of the Merger under the Securities Act. Following
the Effective Time, CELCORE's stockholders who are not deemed to be
"affiliates" of CELCORE may freely sell the shares of DSC Common Stock they
receive in the Merger. Stockholders of CELCORE who are deemed to be
"affiliates" of CELCORE may resell the shares of DSC Common Stock received in
the Merger (i) in transactions in compliance with Rule 145 under the Securities
Act, (ii) pursuant to an effective registration statement under the Securities
Act, or (iii) pursuant to any other exemption from registration which may be
available to such stockholder. Such stockholders may not use this
Prospectus/Proxy Statement to effect resales of the shares of DSC Common Stock
they receive.
Rule 145, as currently in effect, imposes restrictions on the manner in which
such affiliates may make resales and also on the volume of resales that such
affiliates, and others with whom they may act in concert, may make in any
three- month period. The term "affiliates" is defined in the Securities Act to
include any person who, directly or indirectly, controls, is controlled by, or
is under common control with, CELCORE at the time the Merger is submitted to a
vote of the stockholders of CELCORE. DSC has been advised by CELCORE that
Robert P. Goodman, Thomas R. Berger, Joseph J. Gonzalez and Jay M. Rosen (each
a CELCORE executive officer), Robert M. Flanagan, G. Felda Hardymon and Robert
E. LaBlanc (each a director of CELCORE), and UCOM International Company
Limited (a Principal Stockholder) may be deemed "affiliates" of CELCORE for
purposes of the Securities Act. Pursuant to the Merger Agreement, CELCORE has
agreed to use its best efforts to cause (i) each of the officers and directors
of CELCORE to deliver an affiliates' agreement to DSC at least 30 days prior to
the Closing Date and (ii) any person who may be deemed to be an "affiliate" of
CELCORE (for purposes of the Securities Act) to deliver an affiliates'
agreement to DSC on or prior to the Effective Time. The affiliates' agreement
must be in substantially the form attached as Exhibit B to the Merger
Agreement.
Pursuant to the Voting Agreements, DSC has agreed to use all commercially
reasonable efforts to effect the registration under the Securities Act of the
transfer of certain shares of DSC Common Stock to be received by the Principal
Stockholders in exchange for the Principal Stockholders Shares and the resale
of shares of DSC Common Stock by the Principal Stockholders, subject to certain
restrictions. See "Voting Agreements--Registration of Merger Shares."
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MANAGEMENT
Pursuant to the Merger Agreement, upon the consummation of the Merger, the
officers and directors of Merger Subsidiary immediately prior to the Effective
Time will be the officers and directors of the Surviving Corporation, in each
case until their respective successors are duly elected or appointed and
qualified, or as otherwise provided in the Certificate of Incorporation and
Bylaws of the Surviving Corporation. The terms and responsibilities of each
officer and director of the Surviving Corporation will be as set forth in the
Certificate of Incorporation and Bylaws of the Surviving Corporation.
LOAN BY DSC TO CELCORE
In the fourth quarter of 1997, CELCORE and a subsidiary of DSC
entered into a revolving credit agreement under which CELCORE can borrow up to
$10,000,000 for working capital purposes. At October 31, 1997, $4,400,000 of
borrowings were outstanding under the revolving credit agreement. Borrowings
are unsecured, bear interest at 11.5% and mature on January 15, 1998.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a summary of the material provisions of the Merger Agreement
not summarized elsewhere in this Prospectus/Proxy Statement. Such summary is
qualified in its entirety by reference to the Merger Agreement. Stockholders of
CELCORE are urged to read the Merger Agreement in its entirety for a more
complete description of the Merger. The Merger Agreement is attached as
Appendix A to this Prospectus/Proxy Statement and is incorporated herein by
reference.
CONVERSION OF SECURITIES
At the Effective Time, each share of CELCORE Capital Stock issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares) will be converted into the right to receive that number of shares of
DSC Common Stock (including any Preferred Stock Purchase Rights or any other
purchase right issued in substitution thereof) equal to the Exchange Ratio.
The Exchange Ratio will be a fraction, the numerator of which is eight and the
denominator of which is the Average Trading Price; provided, however, in the
event the Average Trading Price is $25.00 or less then the Exchange Ratio will
be .32.
From and after the Effective Time, all shares of CELCORE Capital Stock (other
than Dissenting Shares) will no longer be outstanding and will automatically be
canceled and retired and will cease to exist, and each certificate previously
representing any such shares (other than Dissenting Shares) will thereafter
represent the right to receive, subject to the escrow provisions of the Merger
Agreement, a certificate representing the shares of DSC Common Stock into which
such CELCORE Capital Stock was converted in the Merger. Subject to the escrow
provisions of the Merger Agreement, certificates previously representing shares
of CELCORE Capital Stock (other than Dissenting Shares) will be exchanged for
certificates representing whole shares of DSC Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with the Merger Agreement, without interest. A cash payment will be made in
lieu of any fractional shares of DSC Common Stock. In any event, if between
the date of the Merger Agreement and the Effective Time, the outstanding shares
of DSC Common Stock, CELCORE Common Stock or CELCORE Preferred Stock will have
been changed into a different number of shares or a different class by reason
of any stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Exchange Ratio will be correspondingly
adjusted to reflect such event.
Any shares of CELCORE Capital Stock held in the treasury of CELCORE and any
shares of CELCORE Capital Stock owned by DSC or any direct or indirect wholly
owned subsidiary of DSC or CELCORE immediately prior to the Effective Time will
be canceled and extinguished without any conversion thereof and no payment will
be made with respect thereto. Each share of Common Stock of Merger Subsidiary
issued and outstanding immediately prior to the Effective Time will be
converted into and exchanged for one newly and validly issued, fully paid and
non-assessable share of common stock of the Surviving Corporation.
EXCHANGE PROCEDURES
The Merger Agreement provides that DSC will deposit with a bank or trust
company designated by DSC (the "Exchange Agent"), for the benefit of the
holders of CELCORE Capital Stock, for exchange in accordance with the Merger
Agreement, through the Exchange Agent, (i) certificates evidencing the number
of whole shares of DSC Common
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Stock issuable in exchange for CELCORE Capital Stock and (ii) cash in an amount
sufficient to permit payment of cash payable in lieu of fractional shares (such
certificates and cash, the "Exchange Fund"). Subject to the escrow provisions
of the Merger Agreement, the Exchange Agent will deliver the shares of DSC
Common Stock and cash contemplated to be issued out of the Exchange Fund.
Promptly after the Effective Time and subject to the escrow provisions of the
Merger Agreement, DSC will instruct the Exchange Agent to mail to each holder
of record of a certificate or certificates which immediately prior to the
Effective Time represented outstanding shares of CELCORE Capital Stock (the
"Certificates") (i) a letter of transmittal (which must be in customary form
and specify that delivery will be effected, and risk of loss and title to the
Certificates will pass, only upon proper delivery of the Certificates to the
Exchange Agent) and (ii) instructions for exchanging the Certificates for
certificates representing shares of DSC Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent together with such duly
executed letter of transmittal and such other documents as may be required
pursuant to such instructions, the holder of such Certificate will be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of DSC Common Stock which such holder has the right to receive in
respect of the shares of CELCORE Capital Stock formerly represented by such
Certificates, less a number of shares of DSC Common Stock constituting such
holder's proportionate interest of the shares held in escrow, together with
cash in lieu of fractional shares (rounded to the nearest whole share) of DSC
Common Stock and any dividends or other distributions to which such holder is
entitled. The surrendered Certificates will then be marked canceled. In
addition, the holder of such Certificate subsequently may receive shares of DSC
Common Stock pursuant to the escrow provisions of the Merger Agreement. See
"Certain Provisions of the Merger Agreement--Escrow and Indemnification." In
the event of a transfer of ownership of shares of CELCORE Capital Stock which
is not registered in the transfer records of CELCORE, a certificate
representing the proper number of shares of DSC Common Stock may be issued to a
transferee if the Certificates representing such shares of CELCORE Capital
Stock are presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered, each
Certificate will be deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the certificate representing
shares of DSC Common Stock, cash in lieu of any fractional shares of DSC Common
Stock and any dividends or other distributions to which such holder is entitled
pursuant to the terms of the Merger Agreement.
No dividends or other distributions declared or made after the Effective Time
with respect to DSC 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 DSC Common Stock evidenced thereby until the holder of such
Certificate surrenders such Certificate. Subject to the effect of applicable
laws, following surrender of any such Certificate, there will be paid to the
holder of such Certificate, in addition to the shares of DSC Common Stock to
which such holder is entitled to receive in exchange for CELCORE Capital Stock,
without interest, the amount of dividends or other distributions with a record
date after the Effective Time theretofore paid with respect to the whole shares
of DSC Common Stock evidenced by such Certificate. There will be paid to the
holder of the certificates representing whole shares of DSC Common Stock issued
in exchange therefor, without interest: (i) promptly, the amount of cash
payable with respect to a fractional share of DSC Common Stock to which such
holder is entitled and the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to such
whole shares of DSC Common Stock, subject to the escrow provisions of the
Merger Agreement and (ii) at the appropriate payment date, the amount of
dividends or other distributions, with a record date after the Effective Time
but prior to surrender and a payment date occurring after surrender, payable
with respect to such whole shares of DSC Common Stock, subject to the escrow
provisions of the Merger Agreement.
All shares of DSC Common Stock issued or paid upon conversion of the shares
of CELCORE Capital Stock in accordance with the terms of the Merger Agreement
(including any cash paid or other distributions) will be deemed to have been
issued or paid in full satisfaction of all rights pertaining to such shares of
CELCORE Capital Stock. No certificates or scrip evidencing fractional shares
of DSC Common Stock will be issued upon the surrender for exchange of
Certificates, but in lieu thereof each CELCORE stockholder who would otherwise
be entitled to receive a fraction of a share of DSC Common Stock, after
aggregating all shares of DSC Common Stock that such holder would be entitled
to receive in exchange for that holder's shares of CELCORE Capital Stock, will
receive an amount equal to the Average Trading Price multiplied by the fraction
of a share of DSC Common Stock to which such holder would otherwise be
entitled, without interest. Such payment in lieu of fractional shares will be
administered by the Exchange Agent pursuant to the exchange procedures of the
Merger Agreement.
Any portion of the Exchange Fund which remains undistributed to the holders
of CELCORE Capital Stock for one year after the Effective Time will be
delivered to DSC, upon demand, and any holders of CELCORE Capital Stock who
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have not theretofore complied with the exchange procedures will thereafter look
only to DSC for the shares of DSC Common Stock, any cash in lieu of fractional
shares of DSC Common Stock, and any dividends or other distributions with
respect to DSC Common Stock to which they are entitled pursuant to the
distribution provisions of the Merger Agreement. Neither DSC nor the Surviving
Corporation will be liable to any CELCORE stockholder for any shares of DSC
Common Stock or cash (or dividends or distributions with respect thereto)
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
At the Effective Time, the stock transfer books of CELCORE will be closed and
there will be no further registration of transfers of shares of CELCORE Capital
Stock thereafter on the records of CELCORE. On or after the Effective Time,
any Certificates presented to the Exchange Agent or DSC for any reason will be
converted into the shares of DSC Common Stock (subject to the escrow provisions
of the Merger Agreement), any cash in lieu of fractional shares of DSC Common
Stock and any dividends or other distributions to which they are entitled
pursuant to the terms of the Merger Agreement.
ESCROW AND INDEMNIFICATION
The Merger Agreement provides that, at the Effective Time, an aggregate
amount equal to 5.333% of the shares (rounded to the nearest whole share) of
DSC Common Stock issuable to CELCORE's stockholders (other than holders of
Dissenting Shares) pursuant to the Merger Agreement as a result of the Merger
will be segregated and deducted therefrom and deposited into two escrow funds
with a financial institution designated by DSC and reasonably acceptable to the
Representative (the "Escrow Agent"). The first escrow fund (the "DSC Escrow
Fund") will be comprised of 5% of the shares of DSC Common Stock issuable to
CELCORE stockholders as a result of the Merger (the "DSC Escrow Amount"), plus
a proportionate share of any additional shares that may be issued to CELCORE
stockholders in respect of such shares upon any stock split, stock dividend or
recapitalization effected by DSC after the Effective Time and prior to the
Expiration Date (as defined below). The second escrow fund (the
"Representative Escrow Fund") will be comprised of .333% of the shares of DSC
Common Stock issuable to CELCORE stockholders as a result of the Merger (the
"Representative Escrow Amount"), plus a proportionate share of any additional
shares that may be issued to CELCORE stockholders in respect of such shares
upon any stock split, stock dividend or recapitalization effected by DSC after
the Effective Time and prior to the Expiration Date. The DSC Escrow Fund and
the Representative Escrow Fund are sometimes collectively referred to as the
"Escrow Funds." Upon the exercise of any CELCORE Option between the Effective
Time and the Expiration Date (as defined below), 5% and .333% of the shares of
DSC Common Stock issued upon such exercise will be added and deposited to the
DSC Escrow Fund and the Representative Escrow Fund, respectively, upon such
exercise. Any CELCORE Option that remains unexercised as of the termination of
the Escrow Period (as defined below) will have the number of shares of DSC
Common Stock issuable upon the exercise of such option reduced in proportion to
any reduction in the number of shares of DSC Common Stock received by holders
of the CELCORE Options assumed by DSC which are exercised prior to the
Expiration Date as a result of any distribution made to DSC pursuant to the
escrow and indemnification provisions of the Merger Agreement.
The DSC Escrow Fund will be held as collateral for the indemnification
obligations of the persons who were CELCORE stockholders (other than holders of
Dissenting Shares) or holders of CELCORE Options immediately prior to the
Effective Time. The Representative Escrow Fund will be used to pay for the
costs and expenses, including reasonable attorneys' fees and expenses, and
expenses of investigation and defense ("Representative Expenses"), incurred by
the Representative in performing his obligations under the escrow provisions of
the Merger Agreement.
The Escrow Funds will be held in accordance with and subject to the escrow
and indemnification provisions of the Merger Agreement and the escrow agreement
with the Escrow Agent. All of CELCORE's representations, warranties, covenants
and agreements relating to the intellectual property assets of CELCORE, whether
contained in the Merger Agreement or in any instrument delivered pursuant to
the Merger Agreement, will survive the Merger and continue until 5:00 p.m.,
Dallas, Texas time, one year following the Closing Date (the "Expiration
Date"). None of CELCORE's other representations, warranties, covenants and
agreements will survive the Closing Date. Furthermore, none of DSC's
representations, warranties, covenants and agreements contained in the Merger
Agreement or in any instrument delivered pursuant to the Merger Agreement will
survive the Merger.
The DSC Escrow Fund will be the sole and exclusive remedy available to
compensate DSC and its affiliates for any claims, losses, liabilities, damages,
deficiencies, costs and expenses, including reasonable attorneys' fees and
expenses, and expenses of investigation and defense ("Losses"), incurred by
DSC, its officers, directors, or affiliates (including the Surviving
Corporation) directly as a result of any inaccuracy or breach of a
representation, warranty, covenant or agreement of CELCORE contained in the
Merger Agreement, or any instrument delivered pursuant to the Merger
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Agreement, relating to the intellectual property assets of CELCORE. In the
Merger Agreement, DSC agreed to act in good faith and in a commercially
reasonable manner to mitigate all Losses it may suffer. Upon receipt by the
Escrow Agent at any time on or before the last day of the Escrow Period of a
certificate signed by any officer of DSC stating that DSC has accrued or
reasonably anticipates that it will accrue Losses, and specifying the basis for
such Losses, the Escrow Agent will deliver to DSC out of the DSC Escrow Fund
shares of DSC Common Stock in an amount equal to such Losses. However, DSC
will not be entitled to make a claim for payment of Losses until DSC has
suffered Losses of $100,000 in the aggregate. Thereafter, DSC will be entitled
to indemnification for all Losses without regard to such $100,000 threshold.
The Escrow Agent will make no delivery to DSC of any shares in the DSC Escrow
Fund unless the Escrow Agent has received written authorization from the
Representative to make such delivery or if the Representative fails to object
after 30 days from the date notice was given. No delivery of DSC Common Stock
may be made if the Representative delivers a written objection to the claim to
the Escrow Agent. If DSC and the Representative are unable to agree upon the
rights of the respective parties with respect to a claim, either DSC or the
Representative may demand arbitration of the matter before a panel of three
arbitrators. The decision of a majority of the arbitrators as to the validity
and amount of any claim will be binding and conclusive upon the parties. For
the purposes of determining the number of shares of DSC Common Stock to be
delivered to DSC out of the DSC Escrow Fund pursuant to the indemnification
provisions of the Merger Agreement, the shares of DSC Common Stock will be
valued at the average of the reported last sale price of a share of DSC Common
Stock as reported by the NASDAQ National Market for the 10 consecutive trading
days ending immediately preceding the second trading day before the date such
determination is made. Upon receipt by the Escrow Agent at any time on or
before the last day of the Escrow Period, as appropriate, of a certificate
signed by the Representative stating that the Representative has paid or
properly accrued or reasonably anticipates that he will have to pay or accrue
Representative Expenses, the Escrow Agent will deliver to the Representative
out of the Representative Escrow Fund, as promptly as practicable, shares of
DSC Common Stock held in the Representative Escrow Fund in an amount equal to
such Representative Expenses. For the purposes of determining the number of
shares of DSC Common Stock to be delivered to Representative out of the
Representative Escrow Fund pursuant to the indemnification provisions of the
Merger Agreement, the shares of DSC Common Stock will be valued at the last
reported sale price of a share of DSC Common Stock as reported by the NASDAQ
National Market on the date such determination is made.
Subject to the following requirements, the Escrow Funds will be in existence
immediately following the Effective Time and will terminate at 5:00 p.m., Texas
time, on the Expiration Date (the "Escrow Period"). On the Expiration Date the
shares comprising the Escrow Funds less any payment under the indemnification
provision of the Merger Agreement ("Loss Amounts") and Representative Expenses
will be released from the Escrow Funds and distributed to the stockholders of
CELCORE and, with respect to the DSC Escrow Fund, to those individuals who have
on or prior to the Expiration Date exercised CELCORE Options assumed by DSC
(the "Escrow Release"). Notwithstanding the above, with respect to the DSC
Escrow Fund, the Escrow Release will not occur and the Escrow Period will not
terminate with respect to such amount (or some portion thereof) that is
necessary in the reasonable judgment of DSC, subject to the objection of the
Representative and the arbitration provisions of the Merger Agreement, to
satisfy any unsatisfied claims concerning facts and circumstances existing
prior to the contemplated date of the Escrow Release or the termination of the
Escrow Period. Additionally, with respect to the Representative Escrow Fund,
the Escrow Release will not occur and the Escrow Period will not terminate with
respect to such amount (or some portion thereof) that is necessary in the
reasonable judgment of the Representative to satisfy any unsatisfied claims
concerning facts and circumstances existing prior to the contemplated
termination of the Escrow Period. As soon as all such claims have been
resolved, the Escrow Agent will deliver to CELCORE's stockholders the portion
of the Escrow Funds not required to satisfy such claims. Deliveries of the DSC
Escrow Amount and the Representative Escrow Amount, as applicable, to the
CELCORE stockholders and holders of CELCORE Options will be made in proportion
to their respective original contributions to the Escrow Funds.
Any shares of DSC Common Stock or other equity securities issued or
distributed by DSC, including shares issued upon a stock split ("New Shares"),
in respect of DSC Common Stock in the Escrow Funds which have not been released
from the Escrow Funds will be added to the Escrow Funds and become a part
thereof. New Shares issued in respect of shares of DSC Common Stock which have
been released from the Escrow Funds will not be added to the Escrow Funds but
will be distributed to the record holders thereof. Cash dividends on DSC
Common Stock, if any, will not be added to the Escrow Funds but will be
distributed to the record holders thereof. Each stockholder of CELCORE and
each individual who, prior to the Expiration Date, has exercised CELCORE
Options assumed by DSC, will have voting rights with respect to the shares of
DSC Common Stock contributed to the Escrow Funds by such party (and on any
voting securities added to the Escrow Funds in respect of such shares of DSC
Common Stock).
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The Merger Agreement provides that the Representative will not be liable for
any act done or omitted hereunder as Representative while acting in good faith.
The Merger Agreement further provides that the CELCORE stockholders on whose
behalf the DSC Escrow Amount was contributed to the DSC Escrow Fund must
severally indemnify the Representative and hold the Representative harmless
against any loss, liability or expense incurred without negligence or bad faith
on the part of the Representative and arising out of or in connection with the
acceptance or administration of the Representative's duties thereunder,
including the reasonable fees and expenses of any legal counsel retained by the
Representative. A decision, act, consent or instruction of the Representative
relating to the DSC Escrow Fund shall constitute a decision of all CELCORE
stockholders (except such stockholders of CELCORE, if any, that have perfected
appraisal rights under the DGCL), and shall be final, binding and conclusive
upon each of such CELCORE stockholders, and the Escrow Agent and DSC may rely
upon any such decision, act, consent or instruction of the Representative as
being the decision, act, consent or instruction of each such CELCORE
stockholder. In the absence of bad faith, the Escrow Agent and DSC are
relieved from any liability to any person for any acts done by them in
accordance with such decision, act, consent or instruction of the
Representative.
BY APPROVING THE MERGER AGREEMENT, CELCORE'S STOCKHOLDERS (OTHER THAN HOLDERS
OF DISSENTING SHARES) WILL BE DEEMED TO HAVE CONSENTED TO THE ESTABLISHMENT OF
THE ESCROW FUNDS AND THE APPOINTMENT OF ROBERT P. GOODMAN TO ACT AS
REPRESENTATIVE ON BEHALF OF CELCORE'S STOCKHOLDERS UNDER THE MERGER AGREEMENT
AND THE ESCROW AGREEMENTS WITH THE ESCROW AGENT TO DELIVER SHARES HELD IN
ESCROW TO DSC IN SATISFACTION OF CERTAIN CLAIMS BROUGHT BY DSC, AND THE
REPRESENTATIVE IN SATISFACTION OF THE REPRESENTATIVE EXPENSES, TO OBJECT TO
SUCH DELIVERIES, TO AGREE TO, TO NEGOTIATE AND TO ENTER INTO SETTLEMENTS AND
COMPROMISES WITH RESPECT TO SUCH CLAIMS, AND TO TAKE CERTAIN OTHER ACTIONS ON
BEHALF OF CELCORE'S STOCKHOLDERS, ALL AS MORE FULLY DESCRIBED IN ARTICLE IX OF
THE MERGER AGREEMENT. SEE ARTICLE IX OF THE MERGER AGREEMENT FOR A MORE
DETAILED EXPLANATION OF THE ESCROW FUNDS AND RIGHTS WITH RESPECT THERETO.
CERTAIN REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties of DSC,
Merger Subsidiary and CELCORE relating to, among other things, the following
matters (which representations and warranties are subject, in certain cases, to
specified exceptions and generally apply only to facts and circumstances
existing as of the date of the Merger Agreement): (i) the due organization,
valid existence, good standing, power, and authority of, and necessary
governmental approvals secured by, and similar corporate matters with respect
to, each of DSC, CELCORE, Merger Subsidiary, and the subsidiaries of CELCORE
(the "Subsidiaries"); (ii) the delivery of, and absence of violation of, the
Certificate of Incorporation and Bylaws (collectively, "Organizational
Documents") of each of DSC, CELCORE, Merger Subsidiary, and the Subsidiaries;
(iii) the capital structure of each of DSC, CELCORE, Merger Subsidiary, and the
Subsidiaries; (iv) the power and authority of each of the parties to the Merger
Agreement to execute the Merger Agreement and to perform its obligations
thereunder, and its due authorization, execution, delivery, and validity; (v)
the absence of conflict with the Organizational Documents, with domestic or
foreign laws, rules, regulations, Orders, judgments, or decrees, and with
notes, bonds, indentures, mortgages, contracts, agreements, permits, leases,
licenses, franchises, and other instruments or obligations; (vi) the absence of
certain governmental consent, approval, authorization, permit, notification,
and filing requirements; (vii) the possession of all franchises, grants,
authorizations, licenses, permits, easements, variances, exceptions, consents,
certificates, approvals, and Orders of any governmental authority necessary to
carry on the business of CELCORE and the Subsidiaries; (viii) reports and other
documents filed by DSC with the Commission and the accuracy of the information
contained therein; (ix) the accuracy of the financial statements prepared by
CELCORE; (x) the absence of certain changes or events prior to the date of the
Merger Agreement having a material adverse effect on CELCORE, the Subsidiaries,
DSC, or Merger Subsidiary; (xi) the absence of certain pending or threatened
litigation against CELCORE or the Subsidiaries; (xii) the existence and content
of employee benefit plans, employment contracts, and severance agreements of
CELCORE and the Subsidiaries; (xiii) the absence of any collective bargaining
agreement or other labor union contract applicable to CELCORE or the
Subsidiaries; (xiv) the intellectual property rights used, employed, exploited,
or licensed by CELCORE or any Subsidiary; (xv) currency and completeness of tax
filings, payments, and accruals by CELCORE, and the Subsidiaries; (xvi) the
absence of actions by CELCORE or any Subsidiary preventing the Merger from
qualifying as a reorganization under Section 368(a) of the Code; (xvii) certain
environmental matters; (xviii) the absence of defects in any products of
CELCORE and the Subsidiaries; (xix) the engagement and opinion of DLJ; (xx) the
vote required by stockholders of CELCORE; (xxi) the absence of brokers',
finders', or investment bankers' fees incurred by CELCORE, the Subsidiaries,
DSC, and Merger Subsidiary; (xxii) the validity of CELCORE's and the
Subsidiaries' title and interest in
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properties and assets; (xxiii) the material contracts to which CELCORE or any
Subsidiary is a party; (xxiv) the absence of certain unlawful business
practices by CELCORE, the Subsidiaries, and their officers, directors, agents,
and employees; (xxv) real property leased by CELCORE and the Subsidiaries;
(xvi) insurance policies to which CELCORE or any Subsidiary has been a party,
named insured, or other beneficiary; (xvii) the recommendation of the Merger by
the Board of Directors of CELCORE; (xviii) contractual or other provisions
relating to "changes in control" or similar occurrences; (xix) absence of
payments and other benefits payable to officers, directors and employees as a
result of the Merger; and (xxx) compliance with state takeover statutes,
including Section 203 of the DGCL.
CONDUCT OF BUSINESS PENDING THE MERGER
CELCORE has agreed that, between the date of the Merger Agreement and the
Effective Time, except for certain transactions previously disclosed to DSC or
as contemplated by the Merger Agreement, unless DSC otherwise agrees in
writing, (i) the business of CELCORE will be conducted only in, and CELCORE
will not, and will cause the Subsidiaries not to take any action except in, the
ordinary course of business consistent with past practice and in accordance
with all applicable laws, (ii) CELCORE will use all reasonable efforts to
preserve substantially intact its business organization, to keep available the
services of the current officers, employees and consultants of CELCORE and to
preserve the current relationships of CELCORE with customers, suppliers and
other persons with which CELCORE has significant business relations, (iii)
CELCORE will not, and will not permit any Subsidiary to, engage in any
practice, take any action, or enter into any of a number of enumerated
transactions relating to changes or events having a material adverse effect on
CELCORE or the Subsidiaries, and (iv) CELCORE will keep in full force and
effect liability and other insurance and bonds comparable in amount and scope
of coverage to that currently maintained and described in a list previously
provided to DSC.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that CELCORE will not, directly or indirectly,
negotiate with any person other than DSC or Merger Subsidiary with respect to
the acquisition of CELCORE or the shares of CELCORE Capital Stock and it will
not, and will not permit any of its officers, directors, employees, agents or
representatives (including, without limitation, investment bankers, attorneys
and accountants) to (i) initiate contact with, (ii) make, solicit or encourage
any inquiries or proposals, (iii) enter into, or participate in, any
discussions or negotiations with, (iv) disclose, directly or indirectly, any
information not customarily disclosed concerning the business and properties of
CELCORE or any of the Subsidiaries to or (v) afford any access to any of
CELCORE's or any of the Subsidiaries' properties, books and records to any
person in connection with any possible proposal relating to (a) the disposition
of their respective businesses or substantially all or a significant portion of
their assets, (b) the acquisition of equity or debt securities of CELCORE or
any of the Subsidiaries, or (c) the merger, share exchange or business
combination, or similar acquisition transaction of or involving CELCORE or any
of the Subsidiaries with any person other than DSC or Merger Subsidiary.
CELCORE also agrees to cease and cause to be terminated any existing
solicitation, initiation, encouragement, activity, discussion or negotiation
with any parties conducted up to and including the date of the Merger Agreement
with respect to any of the foregoing. However, the Merger Agreement allows the
Board of Directors of CELCORE to furnish information concerning CELCORE
pursuant to a confidentiality agreement and participate in negotiations
regarding an unsolicited alternative proposal ("Superior Proposal") that
involves consideration to CELCORE's stockholders with a value that CELCORE's
Board of Directors reasonably believes, after receiving written advice from
DLJ, is superior to the consideration provided for in the Merger after taking
into account the liability in respect of the Transaction Fee (as defined below)
if, based on the written advice from outside counsel, CELCORE's Board of
Directors determines in good faith that it must do so in order to discharge its
fiduciary duties under the DGCL. CELCORE agrees to notify DSC promptly if any
request for information or any proposal or any inquiry is made and in any such
notice to DSC, to indicate in reasonable detail the identity of the person
making such request, proposal or inquiry and the terms and conditions of such
request, proposal. CELCORE also agrees that neither CELCORE's Board of
Directors nor any committee thereof will withdraw or modify, or propose to
withdraw or modify, in a manner adverse to DSC, the approval (including
CELCORE's Board of Directors or any committee's resolution thereof providing
for such approval) or recommendation by CELCORE's Board of Directors or
committee thereof of the Merger Agreement or the Merger. Additionally, CELCORE
agrees that neither the CELCORE's Board of Directors nor any committee thereof
will approve or recommend, or propose to approve or recommend any takeover
proposal of CELCORE, except in connection with a Superior Proposal and then
only at or after the termination of the Merger Agreement by DSC by reason of
the Board of Directors of CELCORE resolving or recommending to the holders of
CELCORE Capital Stock any Business Combination Transaction (as defined below).
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CONDITIONS TO THE CONSUMMATION OF THE MERGER
The Merger Agreement provides that the obligations of CELCORE, DSC and Merger
Subsidiary to consummate the Merger are subject to the satisfaction of
conditions, including: (i) the Registration Statement shall have been declared
effective by the Commission under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the Commission therefor and no proceedings for that purpose shall
have been initiated or, to the knowledge of DSC or CELCORE, threatened by the
Commission; (ii) the Merger Agreement and the transactions contemplated
thereunder must have been approved and adopted by the affirmative vote of the
stockholders of CELCORE in accordance with the DGCL, CELCORE's Certificate of
Incorporation and Bylaws and the rules of the National Association of
Securities Dealers, Inc. and the holders of CELCORE Preferred Stock must have
waived their Liquidation Rights provided for in CELCORE's Certificate of
Incorporation and Certificates of Designations; (iii) there must not be pending
any proceeding by any governmental authority challenging or seeking material
damages in connection with the Merger or the conversion of CELCORE Capital
Stock into DSC Common Stock or seeking to restrain or prohibit the consummation
of the Merger or the transactions contemplated thereunder or otherwise limiting
the right of DSC to own or operate all or any portion of the business or assets
of CELCORE at and after the Effective Time; (iv) no governmental authority may
have enacted, issued, promulgated, enforced or entered any Order which is in
effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger or the transactions contemplated
thereunder; (v) DSC and CELCORE must have received from the NASDAQ National
Market evidence that the shares of DSC Common Stock to be issued to the
stockholders of CELCORE in the Merger have been approved for quotation on the
NASDAQ National Market immediately following the Effective Time; (vi) any
applicable waiting period under the HSR Act relating to the Merger must have
expired or been terminated; (vii) receipt by DSC and CELCORE of written tax
opinions from their respective counsel to the effect that the Merger will
constitute a tax-free reorganization under the Code; and (viii) all other
consents and waivers required to be obtained and all filings or notices
required to be made by DSC, Merger Subsidiary and/or CELCORE prior to
consummation of the Merger (other than filing an appropriate Certificate of
Merger with the Secretary of State of the State of Delaware in accordance with
the DGCL) must have been obtained from and made with all required governmental
authorities. The approval of the payments under the Employment Agreement is
not a condition to the consummation of the Merger.
Under the Merger Agreement, the obligations of DSC and Merger Subsidiary to
consummate the Merger are subject to the satisfaction of certain further
conditions, including: (i) CELCORE must have performed and complied in all
material respects with all obligations and covenants required by the Merger
Agreement, delivered each document that must be delivered and each of the
representations and warranties of CELCORE contained in the Merger Agreement
must be true and correct in all material respects as of the Effective Time;
(ii) DSC must have received from each affiliate of CELCORE and any other person
who may be deemed to have become an affiliate of CELCORE (under Rule 145 of the
Securities Act) after the date of the Merger Agreement and on or prior to the
Effective Time a signed Affiliate Agreement (a form of which is attached to the
Merger Agreement as Exhibit B); (iii) since the date of the Merger Agreement,
no material adverse change in the financial condition, results of operations or
business of CELCORE and the Subsidiaries, taken as a whole, may have occurred,
and neither CELCORE nor any Subsidiary may have suffered any damage,
destruction or loss materially affecting the business or properties of CELCORE
and the Subsidiaries, taken as a whole; (iv) DSC must have received from
Powell, Goldstein, Frazer & Murphy LLP, counsel to CELCORE, a written opinion
dated as of the Closing Date covering the matters set forth on Exhibit F to
the Merger Agreement; (v) the holders of CELCORE Preferred Stock must have
waived any Liquidation Rights as provided in the Certificate of Incorporation
and Certificates of Designations of CELCORE; (vi) CELCORE shall have obtained
all material consents of each other person whose consent is required in
connection with the Merger; (vii) DSC shall have received from CELCORE "cold
comfort" letters of KPMG Peat Marwick LLP dated as of the Effective Time; and
(viii) the CELCORE Stockholders must approve the Merger and the transactions
contemplated thereby and, in the aggregate, not more than 10% of the
outstanding shares of CELCORE Capital Stock are subject to claims for appraisal
rights as provided for under the DGCL, or converted into cash as a result of
being fractional shares.
Under the Merger Agreement, the obligations of CELCORE to consummate the
Merger are subject to the satisfaction of the following further conditions: (i)
DSC and Merger Subsidiary must have performed and complied in all material
respects with all obligations and covenants required by the Merger Agreement
and each of the representations and warranties of DSC and Merger Subsidiary
contained in the Merger Agreement must be true and correct in all material
respects; (ii) since the date of the Merger Agreement, no material adverse
change in the financial condition, results of operations or business of DSC and
its subsidiaries, taken as a whole, may have occurred, and DSC and its
subsidiaries may not have suffered any damage, destruction or loss materially
affecting the business or properties of DSC and its subsidiaries, taken as a
whole; and (iii) CELCORE must have received from Baker & McKenzie, as counsel
to DSC, a written opinion dated as of the Closing Date covering the matters set
forth on Exhibit G to the Merger Agreement.
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TERMINATION
The Merger Agreement provides that it may be terminated and the Merger and
the other transactions contemplated by the Merger Agreement may be abandoned at
any time prior to the Effective Time, notwithstanding any requisite approval
and adoption of the Merger Agreement and the transactions contemplated thereby,
as follows: (i) by mutual written consent duly authorized by the Board of
Directors of CELCORE and the Boards of Directors of DSC and Merger Subsidiary;
(ii) by either DSC or CELCORE, if either the Effective Time has not occurred on
or before January 31, 1998, (provided, however, that the right to terminate the
Merger Agreement described in this clause (ii) will not be available to any
party whose failure to fulfill any obligation under the Merger Agreement has
been the cause of, or resulted in, the failure of the Effective Time to occur
on or before such date) or there is any Order which is final and nonappealable
preventing the consummation of the Merger, except if the party relying on such
Order has not complied with its obligations relating to obtaining any consents,
licenses, permits, waivers, approvals, authorizations, or Orders required to be
obtained from governmental authorities in connection with the Merger Agreement
(see "The Merger--Regulatory Approvals"); (iii) by either DSC or CELCORE, if
the stockholders of CELCORE fail to approve and adopt the Merger Agreement, the
Merger and the other transactions contemplated by the Merger Agreement at a
meeting duly convened therefor; (iv) by either DSC or CELCORE, if the holders
of CELCORE Preferred Stock fail to waive their Liquidation Rights; (v) by DSC,
upon a breach of any representation, warranty, covenant or agreement on the
part of CELCORE set forth in the Merger Agreement, or if any representation or
warranty of CELCORE is not true and correct in all material respects, in either
case such that the conditions to the consummation of the Merger would not be
satisfied, other than a breach that would not have a material adverse effect on
CELCORE (a "Terminating CELCORE Breach") (provided, however, that, if such
Terminating CELCORE Breach is curable by CELCORE through the exercise of its
best efforts and for so long as CELCORE continues to exercise such best
efforts, DSC may not terminate the Merger Agreement as provided in this clause
(v)); (vi) by CELCORE, upon breach of any representation, warranty, covenant or
agreement on the part of DSC set forth in the Merger Agreement, or if any
representation or warranty of DSC is not true and correct in all material
respects, in either case such that the conditions to the consummation of the
Merger would not be satisfied, other than a breach that would not have a
material adverse effect on DSC (a "Terminating DSC Breach") (provided, however,
that, if such Terminating DSC Breach is curable by DSC through the exercise of
its best efforts and for so long as DSC continues to exercise such best
efforts, CELCORE may not terminate the Merger Agreement as provided in this
clause (vi)); (vii) by DSC if the Board of Directors of CELCORE withdraws its
recommendation to the holders of CELCORE Capital Stock to approve the Merger;
(viii) by DSC, if the Board of Directors of CELCORE resolves or recommends to
the holders of CELCORE Capital Stock any transaction (a "Business Combination
Transaction") involving (A) any merger, consolidation, share exchange, business
combination or other similar transaction (other than the Merger); (B) any sale,
lease, exchange, transfer or other disposition (other than a pledge or
mortgage) of 25% or more of the assets of CELCORE and the Subsidiaries, taken
as a whole, in a single transaction or series of transactions; or (C) the
acquisition by a person or any "group" (as such term is defined under Section
13(d) of the Exchange Act) of beneficial ownership of 33 1/3% or more of the
shares of CELCORE Capital Stock, considered as a whole, whether by tender
offer, exchange offer or otherwise; and (ix) by CELCORE, if the Average Trading
Price is less than $25.00 per share.
TRANSACTION FEE; EXPENSES; DAMAGES
The Merger Agreement provides that CELCORE will pay DSC a Transaction Fee of
$5 million, less any of DSC's expenses previously paid, if the Merger Agreement
is terminated as described in clauses (iii) or (iv) of "Termination" above and
any Business Combination Transaction is thereafter consummated within 12 months
of such termination, or as described in clause (viii) of "Termination" above.
Under the Merger Agreement, DSC will be entitled to receive its expenses (but
not the Transaction Fee) up to $1 million in immediately available funds in the
event that the Merger Agreement is terminated by DSC as described in clause (v)
of "Termination" above and one-half of its expenses up to $500,000 in
immediately available funds if the Merger Agreement is terminated by DSC as
described in clauses (iii) or (iv) of "Termination" above. CELCORE will be
entitled to receive its expenses up to $500,000 in immediately available funds
if the Merger Agreement is terminated by CELCORE as described in clause (vi) of
"Termination" above.
The Merger Agreement provides that no termination of the Merger Agreement as
a result of the matters as described in clauses (v) or (vi) of "Termination"
above will prejudice the ability of a non-breaching party from seeking damages
from any other party for any breach of the Merger Agreement, including, without
limitation, attorneys' fees and the right to pursue any remedy at law or in
equity.
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The Merger Agreement provides that, notwithstanding the foregoing, if DSC is
required to file suit to seek the Transaction Fee or either DSC or CELCORE is
required to file suit to seek its expenses and such party ultimately succeeds
on the merits, such party shall be entitled to all costs and expenses incurred
in enforcing its rights.
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties thereto by action taken by
or on behalf of their respective Boards of Directors at any time prior to the
Effective Time. However, after the approval and adoption of the Merger
Agreement and the transactions contemplated thereby by the stockholders of
CELCORE, no amendment may be made which would violate the DGCL.
The Merger Agreement also provides that, at any time prior to the Effective
Time, any party thereto may (i) extend the time for the performance of any
obligation or other act of any other party thereto, (ii) waive any inaccuracy
in the representations and warranties contained therein or in any document
delivered pursuant thereto and (iii) waive compliance with any agreement or
condition contained therein.
EFFECT OF THE MERGER ON CELCORE OPTIONS
DSC has agreed that each CELCORE Option outstanding at the Effective Time,
except for certain BFG Options, whether or not exercisable, whether or not
vested, and whether or not performance-based, will remain outstanding following
the Effective Time. See "The Merger--Interests of Certain Persons; Possible
Conflicts of Interest." At the Effective Time, CELCORE Options, except for
certain BFG Options, will, by virtue of the Merger and without any further
action on the part of the holders thereof or CELCORE, be assumed by DSC. Each
CELCORE Option assumed by DSC (each a "Substitute Option") will be exercisable
upon the same terms and conditions as under the 1995 Plan and the 1996 Plan, as
applicable, and the applicable option agreement issued thereunder, except that
(i) each Substitute Option will be exercisable for, and represent the right to
acquire, that whole number of shares of DSC Common Stock (rounded up or down to
the nearest whole share) equal to the number of shares of CELCORE Common Stock
subject to such Substitute Option multiplied by the Exchange Ratio; (ii) the
option price per share of DSC Common Stock will be an amount equal to the
option price per share of CELCORE Common Stock subject to such Substitute
Option in effect immediately prior to the Effective Time divided by the
Exchange Ratio (the option price per share, as so determined, being rounded
upward to the nearest full cent); (iii) with respect to any Substitute Option
which is performance-based, the performance targets will be adjusted following
the Effective Time in the good faith judgment of the Board of Directors of DSC
to fairly reflect the impact, if any, of the transactions contemplated by the
Merger Agreement; and (iv) in the case of any Substitute Option that remains
unexercised as of the termination of the Escrow Period, the number of shares of
DSC Common Stock issuable upon the exercise of such Substitute Options will be
reduced in proportion to any reduction in the number of shares of DSC Common
Stock received by holders of the Substitute Options assumed by DSC which are
exercised prior to the Expiration Date as a result of any distribution made to
DSC pursuant to the escrow and indemnification provisions of the Merger
Agreement. No payment will be made for fractional interests of DSC Common
Stock represented by the Substitute Options.
Under the Merger Agreement, as soon as practicable after the Effective Time,
DSC will deliver to each holder of an outstanding CELCORE Option, except for
certain BFG Options, an appropriate notice setting forth such holder's rights
pursuant thereto, and such CELCORE Option will continue in effect on the same
terms and conditions (including any antidilution provisions, and subject to
adjustments required by the Merger Agreement after giving effect to the
Merger). DSC will comply with the terms of all such CELCORE Options and
ensure, to the extent required by, and subject to the provisions of, the 1995
Plan and the 1996 Plan that CELCORE Options, except for certain BFG Options,
which qualified as incentive stock options under Section 422 of the Code prior
to the Effective Time, continue to qualify as incentive stock options after the
Effective Time. Following the Effective Time, DSC has agreed to file a
registration statement on Form S-8 or another appropriate form with the
Commission for the shares of DSC Common Stock subject to CELCORE Options and to
use its best efforts to maintain the effectiveness of such registration
statement or registration statements for so long as Substitute Options remain
outstanding. See "The Merger--Interests of Certain Persons; Possible Conflicts
of Interest" for a discussion of certain options held by directors and
executive officers.
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VOTING AGREEMENTS
VOTING AND PROXY
DSC has entered into Voting Agreements with the Principal Stockholders, which
as of the Record Date together own approximately 5,375,171 shares of CELCORE
Common Stock, or 96.1% of the outstanding shares of CELCORE Common Stock,
approximately 3,079,363 shares of Series A Preferred Stock, or 68.4% of the
outstanding Series A Preferred Stock, approximately 2,807,485 shares of Series
B Preferred Stock, or 93.6% of the outstanding Series B Preferred Stock,
approximately 2,160,846 shares of Series C Preferred Stock, or 71.1% of the
outstanding Series C Preferred Stock, and approximately 2,004,227 shares of
Series D Preferred Stock, or 100% of the outstanding Series D Preferred Stock.
A copy of the form of the Voting Agreement is attached to this Prospectus/Proxy
Statement as Exhibit C to Appendix A. Pursuant to the terms of the Voting
Agreements, the Principal Stockholders have agreed to vote, and has granted an
irrevocable proxy to allow DSC to vote, the Principal Stockholders Shares in
favor of approval of the Merger, the payments under the Employment Agreements
and any matter that could reasonably be expected to facilitate the Merger.
Furthermore, each Principal Stockholder who is a holder of CELCORE Preferred
Stock has also agreed to vote, and have granted an irrevocable proxy to allow
DSC to vote, such shares and to execute written consents with respect to such
shares in favor of the approval of the waiver of any Liquidation Rights of such
Principal Stockholder as provided in CELCORE's Certificate of Incorporation and
Certificates of Designations. DSC and Merger Subsidiary intend that the
Principal Stockholders' Shares be so voted. Each Principal Stockholder has
agreed that it will not, and will not offer or agree to, sell, transfer,
pledge, exchange or otherwise dispose of or encumber any Principal Stockholder
Shares prior to the earlier of (i) the Effective Date, or (ii) the date the
Merger Agreement is terminated pursuant to the terms of the Merger Agreement.
WAIVER OF APPRAISAL RIGHTS AND PREFERRED STOCK LIQUIDATION RIGHTS
Pursuant to the Voting Agreements, the Principal Stockholders who are holders
of CELCORE Preferred Stock have waived any Liquidation Rights of such Principal
Stockholder. The Principal Stockholders additionally agreed not to take any
action or actions to perfect any appraisal rights the Principal Stockholders
may have as a result of the Merger under Section 262 of the DGCL.
NO VOTING TRUSTS AND AGREEMENTS
Pursuant to the Voting Agreements, each of the Principal Stockholders will
not, and will not permit any entity under such Principal Stockholder's control
to, deposit any shares of CELCORE Capital Stock held by the Principal
Stockholder or such entity in a voting trust or subject any shares of CELCORE
Capital Stock held by the Principal Stockholder or such entity to any
arrangement or agreement with respect to the voting of such shares of CELCORE
Capital Stock, other than agreements entered into with DSC or its affiliates.
COVENANTS AND REPRESENTATIONS
Pursuant to the Voting Agreements, each Principal Stockholder has agreed that
it has been advised that (i) the offer, sale and delivery of the DSC Common
Stock to such Principal Stockholder pursuant to the Merger may not be
registered under the Securities Act, despite DSC's obligations to use
commercially reasonable efforts to effect such registration; (ii) if the offer,
sale and delivery of the DSC Common Stock to such Principal Stockholder
pursuant to the Merger has not been registered under the Securities Act, then
such shares may not be offered, sold, pledged, hypothecated or otherwise
transferred unless subsequently registered under the Securities Act or an
exemption from such registration is available; and (iii) even if such sale and
delivery to such Principal Stockholder of shares of DSC Common Stock is
registered under the Securities Act, to the extent such Principal Stockholder
is considered an "affiliate" of CELCORE at the time the Merger Agreement is
submitted for a vote of the stockholders of CELCORE, any public offering or
sale by such Principal Stockholder of its shares of DSC Common Stock will,
under current law, require (a) the further registration under the Securities
Act of such shares, which DSC is obligated to use commercially reasonable
efforts to effect, (b) compliance with Rule 145 promulgated by the Commission
under the Securities Act, or (c) the availability of another exemption from
such registration under the Securities Act. Furthermore, each Principal
Stockholder also has agreed that it understands that stop transfer instructions
will be given to DSC's transfer agents with respect to the shares of DSC Common
Stock receivable by such Principal Stockholder and that a legend will be placed
on the certificates for such shares issued to such Principal Stockholder, to
the extent such Principal Stockholder is considered an "affiliate" of CELCORE
at the time the Merger Agreement is submitted for a vote of the stockholders of
CELCORE.
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REGISTRATION OF MERGER SHARES
Pursuant to the Voting Agreements, DSC has agreed to use all commercially
reasonable efforts to effect on or before the Effective Time the registration
under the Securities Act, on an applicable form, of the transfer of the shares
of DSC Common Stock to be issued to the Principal Stockholders in exchange for
the Principal Stockholders Shares pursuant to the Merger. In addition, the
Voting Agreements require DSC to use its best efforts to keep such registration
statement effective for the earlier of two years after the Effective Time or
until all shares of DSC Common Stock issued to such Principal Stockholder
pursuant to the Merger have been disposed of by such Principal Stockholder.
NO SOLICITATION
Pursuant to the Voting Agreements, each of the Principal Stockholders will
not, and will not permit any entity under such Principal Stockholder's control
to, (i) solicit proxies or become a participant in a "solicitation" (as such
term is defined in Rule 14a-11 under the Exchange Act), with respect to any
proposal made in opposition to or competition with consummation of the Merger
and the Merger Agreement, any merger, consolidation, share exchange, sale of
securities or assets, reorganization, recapitalization or other business
combination involving CELCORE and any other party (other than DSC and its
affiliates), any liquidation (including the Liquidation Rights provided for in
the Certificate of Incorporation and Certificates of Designations of CELCORE),
or winding up of CELCORE and any other matter that would, or could reasonably
be expected to, prohibit or discourage the Merger (each of the foregoing is
referred to as an "Opposing Proposal"), or otherwise encourage or assist any
party in taking or planning any action that would compete with, restrain or
otherwise serve to interfere with or inhibit the timely consummation of the
Merger in accordance with the terms of the Merger Agreement, (ii) initiate a
stockholders' vote or action by consent of the stockholders of CELCORE or (iii)
become a member of a "group" (as such term is used in Section 13(d) of the
Exchange Act) with respect to any voting securities of CELCORE with respect to
an Opposing Proposal.
COVENANT NOT-TO-COMPETE
Robert P. Goodman, Chairman of the Board and Chief Executive Officer of
CELCORE, has executed a covenant not-to- compete as part of his Voting
Agreement. Mr. Goodman has agreed that for a period commencing upon the
Closing Date and ending on the fifth anniversary thereof (unless extended
pursuant to the terms of the Voting Agreement) he will not, directly or
indirectly, either as an employer, consultant, agent, principal, partner,
stockholder, or in any other capacity, engage or participate in any business
that is involved in a Prohibited Business, within any state or country in which
CELCORE, DSC or DSC's subsidiaries is conducting or reasonably expects to
conduct or expend its business. Mr. Goodman has represented that the
enforcement of the covenant not-to-compete will not be unduly burdensome to him
and further represents and acknowledges that he is willing and able to compete
in other geographical areas not prohibited by the covenant not-to-compete.
Notwithstanding the foregoing, Mr. Goodman will not be prohibited from owning
up to 5% of the outstanding capital stock of any class of capital stock
registered under Section 12(b) or (g) of the Exchange Act. Mr. Goodman also
agrees he will not for a period commencing upon the Closing Date and ending
upon the first anniversary thereof, either directly or indirectly, (A) make
known to any person, firm or corporation involved in a Prohibited Business the
names and addresses of any of the customers of CELCORE or contacts of CELCORE
or any other information pertaining to such persons, (B) call on, solicit or
take away, or attempt to call on, solicit or take away any of the customers of
CELCORE on whom he called or with whom he became acquainted during his
association with CELCORE for any other person, firm or corporation involved in
a Prohibited Business or (C) recruit or hire or attempt to recruit or hire,
directly or by assisting others, any employee, consultant or independent
contractor of CELCORE. Mr. Goodman agreed that a breach or violation of the
covenant not-to-compete by him will entitle DSC to an injunction issued by any
court or arbitration panel of competent jurisdiction restraining any further or
continued breach or violation of the covenant not-to-compete. Such right to an
injunction will be cumulative and in addition to, and not in lieu of, any other
remedies to which DSC may show itself justly entitled. Furthermore, during any
period in which Mr. Goodman is in breach of the covenant not-to-compete, the
time period of the covenant not-to-compete will be extended for an amount of
time that Mr. Goodman is in breach thereof. None of the other Principal
Stockholder's Voting Agreements contain a covenant not-to-compete.
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INFORMATION CONCERNING DSC AND MERGER SUBSIDIARY
DSC COMMUNICATIONS CORPORATION
DSC designs, develops, manufactures and markets digital switching, access,
transport and network management system products for the worldwide
telecommunications marketplace. These products allow telecommunications service
providers to build and upgrade their networks to support a wide range of voice,
data and video services. DSC offers a comprehensive product line including
digital switching systems, intelligent network products, cellular switching
systems, digital loop carrier products, digital cross-connect products and
optical transmission systems and related advanced network management systems.
DSC develops such systems to meet U.S. and international telecommunications
standards and the specific requirements of the operating companies of the RHCs,
independent telephone companies, long-distance carriers, private networks and
companies operating public and private communications networks in other
countries.
DSC supplies products to a domestic and international customer base,
including local exchange telephone companies, long-distance carriers, cellular
telephone companies, international telephone companies, various Fortune 1000
companies and utility companies. Its domestic customers include the RHCs and
most major domestic independent telephone and long- distance companies,
including MCI Communications Corporation, U.S. Sprint Communications Company
L.P., GTE Communications Systems Corporation and WorldCom, Inc. DSC is also a
major manufacturer of high-capacity cellular switches for Motorola, Inc., a
leading supplier of wireless communication systems throughout the world.
International customers include DDI Corporation of Japan, Tele Danmark,
Deutsche Telekom in Germany, Cable & Wireless PLC and Mercury Communications,
Ltd. in the United Kingdom, British Telecommunications PLC, Telefonos de
Mexico, S.A. de C.V. and AAP Communications, Pty. Ltd. of Australia.
DSC was incorporated under the laws of the State of Delaware in 1976. DSC's
executive offices are located at 1000 Coit Road, Plano, Texas 75075. Its
telephone number is (972) 519-3000.
MERGER SUBSIDIARY
Merger Subsidiary was incorporated under the laws of the State of Delaware on
October 6, 1997 by DSC solely for the purpose of effecting the Merger. It has
no material assets and has not engaged in any activities except in connection
with the Merger. All of its outstanding capital stock is owned by DSC. Its
principal executive office is located at 1000 Coit Road, Plano, Texas 75075,
and its telephone number is (972) 519-3000.
INFORMATION CONCERNING CELCORE
BUSINESS
OVERVIEW
CELCORE designs, develops, assembles and installs wireless telecommunication
systems for cellular, PCS and wireless local loop applications in low
teledensity markets. CELCORE's "Target Markets" are rural locations and areas
in developing countries and emerging markets with low teledensities and where
wireline or traditional wireless infrastructure is not readily available or
economically feasible. CELCORE's systems utilize proprietary switching
software, distributed processing and open architectures in combination with
commercially available hardware to create scaleable and modular systems which
are designed to be easily adapted to any of the existing air protocol
standards. CELCORE's systems currently support the two most widely deployed
air protocol standards: AMPS, an analog air protocol standard, and GSM, a
digital air protocol standard. Through the use of object oriented technology
and modular hardware, CELCORE plans to support the other air protocol standards
in the future. CELCORE's focus is to provide telecommunications solutions to
operators in its Target Markets by emphasizing low lifetime cost of ownership
comprised of capital investment in telecommunications infrastructure and
ongoing operational costs.
As a result of the worldwide acceptance of the GSM air protocol standard,
CELCORE's business strategy is to concentrate its business activities on
products utilizing the GSM protocol standards. Beginning in 1995, CELCORE has
concentrated its development effort on the GSM system which it believes will be
the most cost-effective and scaleable GSM system available. Currently, CELCORE
has shipped two GSM systems which are being field tested by its customers.
With its experienced management team assembled from major global
telecommunications companies, CELCORE
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believes it has developed the products, focus, and processes to allow it to
serve system operators and to fill a significant void in the rapidly expanding
worldwide wireless telecommunication market.
PRODUCTS
CELCORE offers wireless telecommunications systems comprised of a combination
of discrete products. CELCORE also offers some of its products and systems on
a stand-alone basis. To date, CELCORE's revenues have been derived mostly from
the sale of its GlobalHub product and AMPS systems. In 1997, CELCORE has
increased its focus on the developing and marketing of its future GSM System.
Each of CELCORE's products and systems is described below:
GlobalSwitches. CELCORE's switches route calls, determine which Base Station
will handle each call and manage the call hand-off process between Base
Stations. The AMPS and GSM GlobalSwitches integrate the functions of the MSC,
HLR and BSC into a single hardware platform. Both versions of the GlobalSwitch
support features such as flexible and least cost call routing, in-band and
out-of-band signaling, intersystem networking and hand-off, collection of
billing information, and a full set of custom calling features such as
three-way calling and conferencing. All models of the GlobalSwitch utilize
standard Intel Pentium processors operating over standard buses and industrial
computer chassis. CELCORE provides a variety of GlobalSwitch configurations
based upon capacity and redundancy requirements. Currently, the GSM
GlobalSwitch contains all of the logic and circuitry necessary to directly
control radio Base Stations. CELCORE plans to offer a GSM GlobalSwitch that
interfaces with radio Base Stations on an "A interface" basis. In this
configuration, the GlobalSwitch acts as a low-cost switching system which can
be purchased by a system operator and used with existing GSM Base Stations
purchased from any major Base Station vendor. This "switch only" product is
also attractive to traditional infrastructure manufacturers who may be
interested in purchasing the low-cost "A interface" GSM GlobalSwitch for resale
in order to complement their product lines. One GSM GlobalSwitch can support
up to 20,000 subscribers. The AMPS GlobalSwitch is available in two different
capacity configurations. Both switches are available in redundant and
non-redundant configurations. The MSC-8 AMPS GlobalSwitch can support up to
3,000 subscribers and the MSC-24 AMPS GlobalSwitch can support up to 10,000
subscribers. These two model versions utilize the same hardware modules and
software and can be easily expanded in the field to meet growing subscriber
demand. Both the planned GSM and AMPS versions of the GlobalSwitch can be
configured in distributed networks to increase the overall system capacity to
more than 100,000 subscribers.
Network Management System. The NMS is a software application that allows for
the centralized management, configuration and monitoring of all of the
associated wireless infrastructure components, including multiple switches,
GlobalHubs and radio Base Stations. In both the GSM and AMPS versions, the NMS
allows for the gathering of billing data, interaction with external billing
applications, and the remote downloading of software to infrastructure
components, even while the system is processing user traffic. In the fully
integrated CELCORE GSM system, the NMS performs the OMC-S and OMC-R functions,
thus providing provisioning, monitoring and controlling functions for all
switching system and radio system components. Multiple NMS systems can be
connected to either a GSM or AMPS system and can be utilized to perform
different functions. For example, one NMS could be used to monitor alarms
while another collects billing data. The NMS's graphical user interface is
easy to use and is especially appealing to inexperienced system operators.
The GSM version of the NMS system utilizes a client/server architecture. The
server component operates under Windows NT within the GlobalSwitch itself and
is closely coupled to the various logical entities in the GlobalSwitch. The
server component constantly gathers and maintains operational data and
statistics from the other network components. System operators interact with
the server component contained in the GlobalSwitch through client components
that are JAVA-based and support an easy-to-use Windows-based graphical user
interface. All user help screens and on-line documentation is accessible
through the client portion of the system and are accessible through a web
browser that is simple to learn and use.
GlobalCell Base Stations. CELCORE's GlobalCell Base Stations provide the
radio link between CELCORE's GSM or AMPS systems and a subscriber's terminal
equipment. CELCORE currently offers two models of the GSM GlobalCell Base
Station with the smaller model supporting up to 15 traffic channels and the
larger model supporting up to 47 traffic channels. Both models of the GSM
GlobalCell Base Station are manufactured for CELCORE on an OEM basis by
Italtel. CELCORE currently offers two models of its AMPS GlobalCell Base
Stations supporting two to 47 traffic channels. They are manufactured for
CELCORE on an OEM basis by Allen Telecom and 3dbm.
GlobalHub. The GlobalHub is a product used in conjunction with CELCORE's
AMPS system that functions as a VLR and provides a gateway to the IS-41
network, allowing seamless roaming from one carrier to another. In fact, the
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GlobalHub has been commercially deployed with connections to virtually all
major manufacturers' AMPS systems, which is a distinguishing feature of the
GlobalHub product. In addition, the modularity and the well-layered software
architecture of the GlobalHub allow it to be adapted easily to other
applications. For example, the GlobalHub is sold as a stand- alone product to
provide call routing for wireless PBX systems and for cellular/cordless phones
manufactured by Motorola, OKI and Panasonic.
CUSTOMERS
CELCORE's customers include operators such as AT&T Wireless (U.S. and Latin
America), Celumovil (Colombia), Millicom (Russia and Bolivia), Southwestern
Bell Mobile Systems (U.S.), Telecel International (Africa) and Yorkville
Telephone Cooperative (U.S.). Examples of typical customers and applications
include: (i) Millicom International Cellular S.A. (which operates cellular
systems in 20 countries around the world), which currently employs CELCORE's
AMPS system in Smolensk, Russia with a population of 350,000; (ii) Telecel
International, Ltd., which utilizes CELCORE's AMPS system connected to the PSTN
via satellite in two towns in Madagascar with populations of 50,000 and
100,000, respectively; (iii) Yorkville Telephone Cooperative in rural
Tennessee, which uses CELCORE's AMPS system to serve approximately 9,000
subscribers over an area of approximately 1,500 square miles with a population
of approximately 96,000; and (iv) Celumovil, the largest cellular carrier in
Colombia, which uses CELCORE's AMPS systems in six rural areas of Colombia.
SALES AND MARKETING
CELCORE currently markets its systems and products worldwide through its
direct sales force, sales agents, joint ventures and strategic relationships.
CELCORE also intends to form OEM relationships with certain leading
telecommunications manufacturers. CELCORE's direct sales force is located in
the United States, Canada, China, India, Russia, Singapore, and South Africa.
As of September 30, 1997, CELCORE employed 11 salespersons. CELCORE also works
with sales agents in certain countries such as Brazil, Malaysia and Indonesia.
Both the direct sales personnel and independent sales agents generate sales,
and provide system support, customer service, and customer feedback for systems
development. In addition, the sales personnel and independent sales agents
receive support from CELCORE's marketing, system support and customer service
departments. As CELCORE's potential customer base expands, CELCORE intends to
further expand the number of its direct sales force personnel and its network
of independent sales agents.
SERVICE AND SUPPORT
CELCORE's operations department provides pre-sale, installation and post-sale
support to those who have purchased CELCORE's systems, and operators evaluating
CELCORE's products. The operations department also offers seven-day, 24- hour
toll-free telephone service to system operators. CELCORE provides extensive
documentation on its products to operators of CELCORE's systems, as well as
training courses which are offered either on-site or at CELCORE's facilities.
CELCORE personnel typically diagnose and solve system operators' problems over
the telephone but are available to travel on-site in order to diagnose and
correct any problems.
CELCORE offers a maintenance program for its products, which consists of
product enhancements, product updates and technical support. Maintenance is
provided without additional charge during the one-year warranty period offered
pursuant to CELCORE's standard form license agreement. System operators may
renew maintenance and support on an annual basis by paying the then-current
maintenance fee. System operators may also subscribe for maintenance and
product support over extended periods of time. Recurring post first year
maintenance charges are recognized ratably over the maintenance period.
RESEARCH AND DEVELOPMENT
To maintain and improve its competitive position, CELCORE's research and
development efforts will continue to focus primarily on the development of its
GSM system. CELCORE has developed a core competency in GSM technology through
the design and continued development of its GSM system. In addition, CELCORE
will continue to consider strategic opportunities and will invest in
complementary programs that will help achieve its goals in its Target Markets.
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While CELCORE is committed to maintaining its leading edge position in
scaleable equipment for the GSM market, it is also committed to supporting
other air protocol standards for its equipment. Accordingly, CELCORE intends
to migrate the GSM GlobalSwitch to support other air protocol standards by
developing a radio subsystem interface that utilizes the applicable open
standards. This will allow CELCORE's GlobalSwitch to interconnect with radio
Base Stations manufactured by a wide variety of manufacturers that support
other air protocol standards such as TDMA. The software and hardware
modularity of the GSM GlobalSwitch will permit re-use of the elemental software
and hardware components contained in the system as CELCORE migrates its GSM
GlobalSwitch to support other air protocol standards. CELCORE also remains
committed to its AMPS system. The AMPS air protocol standard remains dominant
in North America and Latin America where CELCORE believes that its equipment
has substantial market potential.
COMPETITION
The wireless telecommunications market is intensely competitive and
characterized by rapid technological change. CELCORE expects competition from
large and small system suppliers, including suppliers of used equipment.
Competitive large system suppliers include Alcatel, Ericsson, Lucent
Technologies, Motorola, NEC, Nokia, Northern Telecom and Siemens. Competitive
small system suppliers include Comsat RSI/Plexsys, Harris Wireless Access
Division, Phoenix Wireless, TeCore, and Telos Engineering. CELCORE believes
that the primary competitive factors in the market in which CELCORE's products
compete are cost-effectiveness of systems and products, uniqueness of system
capabilities, terms and conditions of vendor financing, responsiveness and
breadth of system or product offerings. While CELCORE believes it is in a
position to develop low-cost and reliable systems, most of CELCORE's current
and potential competitors have longer operating histories, larger installed
customer bases, substantially greater name recognition and significantly
greater financial, technical, manufacturing, marketing, sales, distribution and
other resources than CELCORE. CELCORE may also face competition in the future
from new market entrants offering other competing technologies. There can be
no assurance that CELCORE will be able to compete successfully against current
and future competitors or that competitive pressures faced by CELCORE will not
materially adversely affect its business, operating results and financial
condition. In addition, increased competitive pressures could lead to
intensified price-based competition, resulting in lower prices and lower
margins, which could materially adversely affect CELCORE's business, operating
results and financial condition.
PATENTS AND PROPRIETARY RIGHTS
CELCORE has received three patents in the United States that relate to using
small microsystems as seamless underlays to larger cellular systems (the
"Microsystem Patents"). Another patent relating to CELCORE's GSM systems is
pending. Related patent applications that cover the microsystem inventions
have also been filed in Brazil and Mexico and CELCORE is awaiting action on
these applications.
CELCORE also seeks to protect its intellectual property rights through
trademarks and copyrights and by safeguarding CELCORE's trade secrets through
confidentiality and nondisclosure agreements and other measures. Employees of
CELCORE engaged in system or product development are required to sign
agreements assigning to CELCORE all inventions or other work product developed
in connection with their employment. Nonetheless, there can be no assurance
that such measures will provide adequate protection for CELCORE's proprietary
rights and information, that such rights and information will not be
misappropriated, that disputes as to the ownership of intellectual property
will not arise, or that CELCORE's proprietary rights and information will not
otherwise become known or independently developed by competitors.
MANUFACTURING
CELCORE's manufacturing strategy is to use commercially available
microprocessors and other commercially available software and hardware systems
whenever possible. However, CELCORE does design certain key modules and
assemblies that result in cost or performance advantages. CELCORE does not
directly manufacture any of the components used in its systems or products. It
outsources the actual fabrication of its custom designed modules and chassis.
CELCORE does, however, perform final assembly, testing and integration of all
of the components manufactured by others to CELCORE's specifications. Each
system supplied to each customer is fully staged and tested in an operational
state in CELCORE's facilities in order to minimize operational issues during
field deployment.
Certain components included in CELCORE's products are obtained from a single
supplier or a limited group of suppliers. The disruption or termination of
these sources of supply could have an adverse effect on CELCORE's business,
operating results and financial condition. CELCORE believes that alternative
sources could be obtained and
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qualified to supply these components, if necessary. Nevertheless, any
inability to obtain adequate deliveries or any other circumstance that would
require CELCORE to seek alternative sources of supply or to manufacture such
components internally could delay CELCORE's ability to ship its products, which
could damage relationships with current and prospective customers and could
result in a material adverse effect on CELCORE's business, operating results
and financial condition.
EMPLOYEES
As of September 30, 1997, CELCORE employed 175 full-time employees and 24
contract employees. Of all full-time persons employed by CELCORE at such date,
25% hold advanced degrees and 75% hold undergraduate degrees. CELCORE's
employees are not covered by a collective bargaining agreement. CELCORE
considers its relationship with its employees to be good.
LEGAL PROCEEDINGS
CELCORE is a party to routine legal proceedings incidental to its business.
CELCORE does not believe the ultimate resolution of these legal proceedings
will have a material adverse effect on its financial position and results of
operations.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
CELCORE's "Selected Historical Financial Data" and CELCORE's Financial
Statements and Notes thereto included elsewhere in this Prospectus/Proxy
Statement.
OVERVIEW
CELCORE provides functional and scaleable analog and digital cellular
telecommunications equipment designed to meet the needs of rapidly growing
lower teledensity markets which are underserved by traditional equipment
suppliers. CELCORE's switches, Base Stations, GlobalHub product and network
management systems are designed to have the full functionality of traditional
wireless telecommunications systems but at a much lower cost due to their
scaleability, distributed processing architecture and ease of installation and
use.
Since its inception in March 1993, CELCORE's revenues have consisted
primarily of sales of AMPS systems and the GlobalHub product. CELCORE began
shipping AMPS systems through an OEM arrangement in 1994 and began shipping
AMPS systems directly to customers in the second half of 1995. CELCORE
experienced decreased revenue growth in 1996 primarily due to slower than
expected sales of its GlobalHub product resulting from slow market acceptance
of the cellular cordless service offered by cellular operators using CELCORE's
GlobalHub product, and the lack of a switching system which supported Base
Stations with a digital air protocol, such as GSM, to accommodate the worldwide
transition from analog to digital wireless service. Revenues increased
significantly in the first nine months of 1997 primarily due to the wider
acceptance of CELCORE's AMPS systems which resulted in the sale of several
large AMPS systems.
In 1995, CELCORE began development of its digital GSM system, which is
currently being shipped to customers for evaluation. CELCORE emphasized the
development of a GSM product because it is the leading digital wireless
telecommunications technology in the world, with approximately 200
telecommunication networks being built or operated in 110 countries. It is
expected that by the year 2000 the GSM air protocol standard and its variants,
DCS-1800 and PCS- 1900 will represent 50% of the cellular and PCS subscribers
in the world. Because of CELCORE's reliance on its GSM system for a
significant portion of future revenues, CELCORE's historical operating results
will not be comparable to, and should not be relied upon as an indication of,
future operation results. CELCORE's ability to derive future revenues from its
GSM system is subject to certain risks and uncertainties, including risks
associated with the successful completion of the development and market
acceptance of such systems.
CELCORE sells its products worldwide and anticipates a significant portion of
future revenues to come from customers outside the United States. To support
this growth, CELCORE maintains offices or works closely with agents or joint
venture partners in Brazil, China, India, Indonesia, Russia, Singapore and
Thailand. Further, many of CELCORE's customers may require financing to fund
purchases of CELCORE's systems or products. To date,
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CELCORE has provided only limited financial assistance to certain of its
customers in the form of extensions of CELCORE's customary payment terms.
Due to CELCORE's limited revenues and high operating expenses, CELCORE has
incurred operating losses in each year since its inception. If CELCORE's
revenues and profit margins do not increase to support the higher levels of
operating expenses or if CELCORE fails to fully develop and market its GSM
system and other digital systems, CELCORE's business, operating results and
financial condition will be materially adversely affected.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 Compared to Nine Months Ended September
30, 1997
Revenues. Revenues increased 239.3% from $2.8 million in the nine months
ended September 30, 1996 to $9.5 million in the nine months ended September 30,
1997. This increase in revenues was primarily attributable to greater unit
sales of AMPS systems to new and existing customers, resulting from broader
acceptance of these products. The increase in unit sales of AMPS systems was
partially offset by a decline in shipments of CELCORE's GlobalHub product,
which resulted from the slow market acceptance of the cellular cordless service
offered by cellular operators using the GlobalHub product.
For the nine months ended September 30, 1997, net revenues of approximately
$5.1 million were attributable to two customers located in South America.
Gross Profit. Gross profit margin decreased from 66.7% in the nine months
ended September 30, 1996 to 39.7% in the nine months ended September 30, 1997.
This decrease in gross profit margin was primarily due to sales of CELCORE's
lower margin AMPS systems as compared to sales of higher margin GlobalHub
product.
Research and Development. Research and development expenses increased 43.8%
from $4.8 million in the nine months ended September 30, 1996 to $6.9 million
in the nine months ended September 30, 1997. This increase was primarily
attributable to the increased number of engineering employees, prototype
expenses and consulting costs associated with the development of the new GSM
system and supporting current and future product development and enhancement.
Sales and Marketing. Sales and marketing expenses increased 55.2% from $2.9
million in the nine months ended September 30, 1996 to $4.5 million in the nine
months ended September 30, 1997. This increase was primarily attributable to
increased headcount, commissions, promotional costs and expenditures associated
with foreign sales offices opened in late 1996.
Other Income (expense), net. For the nine months ended September 30, 1996,
the other income, net was $342,000. For the nine months ended September 30,
1997, the balance was a net expense of ($24,000). This decrease was primarily
attributed to interest expense incurred on higher outstanding debt balances
during 1997 and lower interest income earned on lower average cash balances
during the nine months ended September 30, 1997.
Year Ended December 31, 1995 Compared to Year Ended December 31, 1996
Revenues. Revenues decreased 24.5% from $4.9 million in 1995 to $3.7 million
in 1996. This decrease was primarily due to a decrease in unit shipments of
CELCORE's GlobalHub product in 1996, which resulted from the slow market
acceptance of the cellular cordless service offered by cellular operators using
the GlobalHub product and the sale of a large AMPS system in 1995 for which
there was no comparable sale in 1996.
Gross Profit. Gross profit margin decreased from 64.1% in 1995 to 63.3% in
1996. This decrease in gross profit margin was primarily due to an increase in
the percentage of sales attributable to CELCORE's lower margin AMPS systems as
compared to sales of the higher margin GlobalHub product.
Research and Development. Research and development expenses increased 103.0%
from $3.3 million in 1995 to $6.7 million in 1996. This increase was primarily
attributable to increased headcount and expenses associated with the
enhancement of CELCORE's AMPS systems and GlobalHub product, as well as the
design of its new GSM system.
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Sales and Marketing. Sales and marketing expenses increased 100.0% from $2.1
million in 1995 to $4.2 million in 1996. This increase was primarily due to
the expansion of CELCORE's sales and marketing organization, including
international operations.
General and Administrative. General and administrative expenses increased
187.0% from $2.3 million in 1995 to $6.6 million in 1996. This increase was
primarily attributable to increases in headcount and related recruitment and
relocation expenses, higher travel costs, increased legal fees and provision
for bad debt.
Other Income, Net. Other income, net increased from $236,000 in 1995 to
$507,000 in 1996. This increase was due to higher interest income earned on
higher average cash balances in 1996.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1995
Revenues. Revenues increased 122.7% from $2.2 million in 1994 to $4.9
million in 1995. This increase was primarily attributable to the commencement
of direct shipments of the AMPS systems and GlobalHub product to customers in
various locations in the United States and abroad.
Gross Profit. Gross profit margin decreased from 67.3% in 1994 to 64.1% in
1995. This decrease was primarily attributable to the sale of non-recurring
high margin product and consulting revenues in 1994.
Research and Development. Research and development expenses increased 230.0%
from $1.0 million in 1994 to $3.3 million in 1995. This increase was primarily
attributable to increases in the number of engineering personnel, an increase
in engineering salaries and benefits, and spending on product design and
enhancements activities.
Sales and Marketing. Sales and marketing expenses increased 283.9% from
$547,000 in 1994 to $2.1 million in 1995. This increase was primarily
attributable to increased headcount, commissions, promotional activities and
travel expenses.
General and Administrative. General and administrative expenses increased
285.9% from $596,000 in 1994 to $2.3 million in 1995. This increase was
primarily due to increases in headcount, recruitment and relocation costs,
legal fees and facility expenses.
Other Income, Net. Other income, net increased from $5,000 in 1994 to
$236,000 in 1995. This increase was due to higher interest income earned on
higher average cash balances in 1995.
LIQUIDITY AND CAPITAL RESOURCES
Historically, CELCORE's cash flow from operations has been insufficient to
satisfy CELCORE's cash requirements. To date, CELCORE has financed its
operations and met its capital expenditure requirements through private sales
of equity securities and bank borrowings. Through September 30, 1997, CELCORE
had raised approximately $40.8 million from sales of equity securities in
private financings and net proceeds from bank borrowings of $2.8 million. At
September 30, 1997, CELCORE had $619,000 million in cash and cash equivalents.
Net cash used for operating activities was $1.0 million, $6.2 million, $15.2
million and $11.7 million in 1994, 1995, 1996 and the nine months ended
September 30, 1997, respectively. The net cash used for operating activities
during such periods was principally due to operating losses and increases in
inventory and accounts receivable.
Net cash used for investing activities was approximately $310,000, $1.5
million, $3.9 million and approximately $1.8 million in 1994, 1995, 1996 and
the nine months ended September 30, 1997, respectively. These expenditures
consisted primarily of purchases of furniture and equipment. CELCORE
anticipates that its capital needs will be approximately $300,000 for the
remainder of 1997, substantially all of which is expected to be used for
further purchases of furniture and equipment.
CELCORE's financing activities generated net cash of $3.2 million, $19.8
million, $16.7 million and $2.1 million, in 1994, 1995, 1996 and nine months
ended September 30, 1997, respectively, primarily from the sale of equity
securities and bank borrowings.
At September 30, 1997 CELCORE had outstanding borrowings of $450,000 under a
working capital line and approximately $2.4 million under a term loan. In
addition, CELCORE had utilized $375,000 of its working capital line
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to collateralize a stand-by letter of credit. All of the borrowings are
secured by substantially all of the assets of CELCORE. As of September 30,
1997, CELCORE was in default of certain financial covenants contained in the
term loan agreement and have not repaid the outstanding balance from the
working capital line which expired in August 1997. As a result, all
outstanding borrowings have been classified as current at September 30, 1997.
In the fourth quarter of 1997, CELCORE and a subsidiary of DSC entered into a
revolving credit agreement under which CELCORE can borrow up to $10.0 million
for working capital purposes. At October 31, 1997, $4.4 million is outstanding
under the revolving credit agreement. Borrowings are unsecured, bear interest
at 11.5% and mature on January 15, 1998.
In October 1997, CELCORE entered into the Merger Agreement with DSC. The
Merger, valued at approximately $167 million (including transaction costs) will
be consummated with the issuance of DSC Common Stock in exchange for all the
outstanding shares of CELCORE Capital Stock. DSC will assume substantially all
CELCORE Options. The Merger is subject to a number of items including
governmental approval and should be completed prior to the end of 1997.
Should the Merger be consummated, CELCORE's short-term and long-term cash
requirements would be funded by DSC. See "The Merger--Loan by DSC to CELCORE."
It is anticipated that DSC would advance CELCORE the necessary funds to repay
all outstanding borrowings with its bank. However, if the Merger is not
consummated, it would be necessary for CELCORE to find alternative financing,
which may include extending terms with its bank, a debt or equity offering or
other lending sources. There can be no assurance that CELCORE would be able to
raise the necessary funds to sustain future operations. If CELCORE is unable
to obtain additional funding on acceptable terms, its business, operating
results and financial condition would be materially adversely affected.
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share", ("FAS 128"). FAS 128 simplifies the standards for computing earnings
per share and is effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not permitted.
The adoption of FAS 128 is not expected to have a significant impact on
CELCORE's net income (loss) per share.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income",
("FAS 130") which establishes standards for reporting and display of
comprehensive income and its components. The required disclosures for FAS 130
will be included in the quarterly financial statements for the first quarter
of 1998.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information" which supersedes existing accounting
standards related to disclosure of operating segment information beginning in
1998. CELCORE has yet to determine the impact of this new standard on its
financial statement disclosures for the 1998 annual financial statements.
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MANAGEMENT
The executive officers and directors of CELCORE as of November 5, 1997 are as
follows:
EXECUTIVE OFFICERS AND DIRECTORS
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert P. Goodman . . . . . . . . . . 37 Chairman of the Board and Chief Executive Officer
Thomas R. Berger . . . . . . . . . . 52 President and Chief Operating Officer
Joseph J. Gonzalez . . . . . . . . . 53 Vice President, Chief Financial Officer and Treasurer
Jay M. Rosen . . . . . . . . . . . . 59 Vice President, General Counsel and Secretary
Robert M. Flanagan(1)(2) . . . . . . 67 Director
G. Felda Hardymon(2) . . . . . . . . 50 Director
Robert E. La Blanc(1) . . . . . . . . 63 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
All directors of CELCORE hold office until the next annual meeting of
stockholders or until their successors are duly elected and qualified. All
officers serve at the discretion of the Board of Directors.
Robert P. Goodman is a co-founder of CELCORE and has served as Chairman of
the Board and Chief Executive Officer of CELCORE since September 1992. From
November 1987 to April 1994, Mr. Goodman served as Chairman and Chief Executive
Officer of CruisePhone, Inc. ("CruisePhone"), a company he co-founded, which
provides telecommunications services to the maritime industry. From April
1994 to October 1996, Mr. Goodman served solely in the capacity as Chairman of
CruisePhone. From 1988 to 1991, Mr. Goodman served as Chief Executive Officer
and as a director of Boatphone Marketing, a management company for cellular
telecommunication companies in Caribbean countries that he co-founded along
with Cable & Wireless (W.I.) Ltd. From 1986 to 1989, Mr. Goodman served as
Vice President of Caribbean Cellular Telephone, a cellular telecommunications
company he co-founded that serves the British Virgin Islands. Mr. Goodman
received a Bachelor's degree from Brown University and a Masters of Business
Administration degree from the Columbia University Graduate School of Business.
Thomas R. Berger has served as President and Chief Operating Officer of
CELCORE since March 1995. From November 1993 until March 1995, Mr. Berger
served as Senior Vice President, Technology and Operations, of ARDIS, a
wholly-owned subsidiary of Motorola. From May 1990 until November 1993, Mr.
Berger was Vice President, Radio Network and Product Technology, of ARDIS.
From February 1973 until May 1990, Mr. Berger held a variety of positions at
Motorola, most recently within the Mobile Data Division as Director of the
Federal Express account, as Product Manager for Automatic Vehicle Location
Systems, and as National Sales Manager for Data Systems. Mr. Berger received a
Bachelor of Science degree from the University of Toledo and a Master's degree
in Electrical Engineering from Cleveland State University.
Joseph J. Gonzalez has served as Vice President and Chief Financial Officer
of CELCORE since January 1996 and as Treasurer of CELCORE since January 1997.
From January 1995 To December 1995, Mr. Gonzalez was a consultant to Global
Information Technologies, Inc. From 1987 to December 1994, Mr. Gonzalez held
various positions with Millicom International Cellular S.A. and its
predecessor, Millicom, Inc., including President of the U.S. subsidiary,
American Satellite Network, Inc., and Vice President Finance and Treasurer of
Millicom, Inc. Previously, he held various financial management positions with
MCI and the American Express Company. Mr. Gonzalez holds a Bachelor of
Business Administration degree in Accounting from Pace College and a Masters of
Business Administration degree from Baruch College of the City University of
New York.
Jay M. Rosen has served as Vice President, General Counsel and Secretary of
CELCORE since January 1997. Prior to that time Mr. Rosen was with GTE
Corporation for 28 years in various capacities, most recently as Vice President
and Associate General Counsel, and has a background in international and
transactional matters. He formerly was Vice President and General Counsel of
GTE Telecommunications Products and Services Group and was responsible for the
legal affairs of GTE Mobilnet, GTE Airfone, GTE Information Services and GTE
Government Systems. Mr. Rosen received his Bachelor of Arts degree from
Bowling Green State University. He received his Juris Doctor and LLM degrees
from the New York University School of Law.
56
<PAGE> 62
Robert M. Flanagan has served as a director of CELCORE since 1992. Since
November 1987, Mr. Flanagan has served as director and in various executive
positions, most recently as Chairman and Chief Executive Officer, of
CruisePhone, a company that he co-founded with Mr. Goodman. From December 1985
until October 1989, Mr. Flanagan served as Managing Director of Caribbean
Cellular Telephone, Ltd., which he also co-founded. From 1976 until 1984, Mr.
Flanagan served in a variety of executive positions with Western Union
Corporation, most recently as Chairman, President and Chief Executive Officer.
G. Felda Hardymon has served as a director of CELCORE since November 1994 as
a representative elected by the holders of the Series B Preferred Stock of
CELCORE, which will be converted to DSC Common Stock upon the consummation of
the Merger. Since 1981, Mr. Hardymon has been a partner of Bessemer Venture
Partners, a venture capital firm. Mr. Hardymon presently serves as a director
of Learmonth & Burchett Management Systems PLC, Mobile Systems International,
Inc., Airtech, Inc., and several privately held companies.
Robert E. La Blanc has served as a director of CELCORE since November 1994.
Mr. La Blanc has served as President of Robert E. La Blanc Associates, Inc., a
telecommunications consulting firm, since 1981. Prior to founding Robert E. La
Blanc Associates, Inc., Mr. La Blanc served as Vice Chairman of Continental
Telcom, a diversified telecommunications company. Prior to joining Continental
Telecom, Mr. La Blanc spent 10 years with the investment banking firm of
Salomon Brothers, where he was a general partner and founder of the firm's
telecommunications group. Mr. La Blanc also serves as a director of The
Tribune Company, a media and broadcasting company, Salient 3 Communications,
Inc., a telecommunications equipment manufacturer, Titan Corp., a defense
electronics company, Norwood Venture Corp., a venture capital firm, and Storage
Technology Corp., a computer equipment manufacturer. Mr. La Blanc serves as a
trustee and director of a number of funds in a family of Prudential mutual
funds.
COMPENSATION OF CELCORE'S EXECUTIVE OFFICERS
The following Summary Compensation Table sets forth certain information
concerning the annual and long-term compensation for services in all capacities
to CELCORE in the fiscal years ended December 31, 1996, December 31, 1995 and
December 31, 1994 of those persons who during such fiscal year (i) served as
CELCORE's chief executive officer or (ii) were the most highly-compensated
other executive officers (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------------------------
SECURITIES
OTHER UNDERLYING
NAME AND PRINCIPAL FISCAL ANNUAL OPTIONS/ ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION SARS COMPENSATION
------------------ ------ -------- -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Goodman, 1996 $115,885 $ 50,000 --- $1,500(1) $575(2)
Chairman and Chief 1995 90,923 5,000 --- 8,000 ---
Executive Officer 1994 9,462 --- $66,448(5) --- ---
Thomas R. Berger, 1996 190,516 31,780 144,441(3) 250,000(1) 506(2)
President and Chief 1995 138,346 35,000 --- 250,000 ---
Operating Officer 1994 --- --- --- --- ---
Joseph J. Gonzalez, 1996 118,616 24,938 67,344(4) 150,000(1) 93(2)
Vice President and 1995 --- --- --- --- ---
Chief Financial Officer 1994 --- --- --- --- ---
</TABLE>
- -----------------------------------------
(1) Represents options to purchase Common Stock.
(2) Represents matching contributions under CELCORE's 401(k) Plan.
(3) Represents relocation expenses paid to Mr. Berger in connection with his
move to the Memphis area.
(4) Represents relocation expenses paid to Mr. Gonzalez in connection with
his move to the Memphis area.
(5) Represents partnership distribution paid to Mr. Goodman from Celcore
L.P., the predecessor company to CELCORE.
STOCK OPTIONS
The following table sets forth certain information regarding CELCORE Options
granted to the Named Executive Officers for the purchase of CELCORE Common
Stock during the fiscal year ended December 31, 1996.
57
<PAGE> 63
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------ VALUE AT
NUMBER OF PERCENT OF TOTAL ASSUMED ANNUAL
SHARES OPTIONS RATES OF STOCK PRICE
UNDERLYING GRANTED PRICE APPRECIATION FOR
OPTION TO EMPLOYEES PER EXPIRATION OPTION TERM (2)
--------------------
NAMES GRANTS IN FISCAL YEAR SHARE DATE 5% 10%
- ----------------- ---------- --------------- ------ ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Goodman 1,500 0.1% $ 2.10 07/14/06 $ 1,981 $ 5,020
Thomas R. Berger 125,000 10.0% 2.10 09/14/06 165,085 418,357
100,000 8.0% 2.10 12/23/06 138,068 334,686
25,000 2.0% 2.10 06/05/06 33,017 83,671
Joseph J. Gonzalez 100,000 8.0% 2.10 01/07/06 132,068 334,686
50,000 4.0% 2.10 09/14/06 66,034 167,343
</TABLE>
____________________________________________________________
(1) All options were granted at an exercise price equal to the fair market
value of CELCORE Common Stock on the date of grant as determined by the
CELCORE Board of Directors.
(2) Potential gains are net of the exercise price but before taxes associated
with the exercise. The 5% and 10% assumed annual rates of compounded stock
appreciation are mandated by the rules of the Commission and do not
represent CELCORE's estimate or projection of the future CELCORE Common
Stock price. Actual gains, if any, on stock option exercises are dependent
on the future financial performance of CELCORE, overall market conditions
and the option holders' continued employment through the vesting period.
The following table sets forth the number and value of unexercised CELCORE
Options held by the Named Executive Officers as of December 31, 1996. None of
the Named Executive Officers has exercised any of the CELCORE Options granted
to them.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1996 DECEMBER 31, 1996(1)
---------------------- ---------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert P. Goodman 2,000 7,500 $ 13,900 $ 50,550
Thomas R. Berger 62,500 437,500 461,875 2,860,625
Joseph J. Gonzalez 0 150,000 --- 885,000
</TABLE>
- ---------------------------------
(1) There was no public trading market for CELCORE Common Stock at December
31, 1996. Accordingly, these values have been calculated based on a price
of $8.00 per share less the applicable exercise price. The valuation of
CELCORE Options in this table does not reflect any change in the value of
such options since such date as a consequence of the Merger.
58
<PAGE> 64
PRINCIPAL STOCKHOLDERS OF CELCORE
The following table sets forth certain information known to CELCORE
regarding the beneficial ownership of CELCORE as of October 30, 1997, by (i)
each person who is known by CELCORE to own beneficially more than 5% of any
class of the outstanding shares of CELCORE Capital Stock, (ii) each of
CELCORE's directors, (iii) each of CELCORE's Named Executive Officers, and (iv)
all directors and executive officers of CELCORE as a group.
<TABLE>
<CAPTION>
SHARES OF CELCORE SHARES OF CELCORE PREFERRED STOCK BENEFICIALLY
COMMON STOCK OWNED PRIOR TO MERGER(2)
BENEFICIALLY OWNED PRIOR ----------------------------------------------
TO MERGER(2) SERIES A PREFERRED STOCK
----------------------------------------------
PERCENT OF
BENEFICIAL OWNER NUMBER PERCENT NUMBER CLASS
- ---------------- ---------- ------- ----------------- ----------------------
<S> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Robert P. Goodman(1)(3) 5,538,864(4) 63.55% 3,116,364(4) 69.25%
UCOM International Company Limited(1)(5) 2,004,227 26.38 --- ---
Bessemer Venture Partners III L.P.(1)(6) 1,602,500 22.91 200,000 4.44
Charles River Partnership VII(1)(7) 1,166,667 17.26 --- ---
Williams Jones & Associates, Inc.(1)(8) 1,104,667(9) 16.49 --- ---
John Hatcher(1)(3) 934,000 16.70 --- ---
James Davis(1)(3) 934,000 16.70 --- ---
Tony Fletcher(1)(3) 934,000 16.70 --- ---
Amerindo Investment Advisors(1)(10) 500,000(11) 8.20 --- ---
Henry Goldberg(12) 492,545 8.14 454,545 10.10
21st Century Communications Partners L.P. (1)(13) 333,334(14) 5.62 --- ---
Amerindo Technology Growth Fund II(1)(10) 333,333 5.62 --- ---
Citicorp Trustee Ltd.(15) 330,000 5.57 --- ---
Strome Partners(1)(16) 250,000(17) 4.28 --- ---
T. Rowe Price New Age Media Fund, Inc.(1)(18) 250,000 4.28 --- ---
Dorothy Goodman(3) 227,273 3.91 227,273 5.05
21st Century Communications L.P.(1)(13) 226,010 3.88 --- ---
Vereins Und Westbank(19) 165,000 2.86 --- ---
DIRECTORS:
Robert M. Flanagan(1) 299,045(20) 5.11 254,545 5.66
Robert E. La Blanc(1) 174,973(21) 3.03 170,473 3.79
G. Felda Hardymon(1) 44,388 * --- ---
OTHER NAMED EXECUTIVE OFFICERS:
Thomas R. Berger 187,500(22) 3.24 --- ---
Joseph J. Gonzalez 37,500(23) * --- ---
Jay M. Rosen 22,500(24) * --- ---
All executive officers and directors as a group
(7 persons) 6,304,770(25) 66.85 3,541,382 78.70%
<CAPTION>
SHARES OF CELCORE PREFERRED STOCK BENEFICIALLY OWNED PRIOR TO MERGER(2)
----------------------------------------------------------------------------------
SERIES B PREFERRED STOCK SERIES C PREFERRED STOCK SERIES D PREFERRED STOCK
------------------------ ------------------------ ------------------------
PERCENT OF PERCENT OF PERCENT OF
BENEFICIAL OWNER NUMBER CLASS NUMBER CLASS NUMBER CLASS
- ---------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL STOCKHOLDERS:
Robert P. Goodman(1)(3) --- --- --- --- --- ---
UCOM International Company Limited(1)(5) --- --- --- --- 2,004,227 100%
Bessemer Venture Partners III L.P.(1)(6) 1,000,000 33.33% 200,000 5.13% --- ---
Charles River Partnership VII(1)(7) 1,000,000 33.33 166,667 5.49 --- ---
Williams Jones & Associates, Inc.(1)(8) 938,000(9) 31.27 166,667(9) 5.49 --- ---
John Hatcher(1)(3) --- --- --- --- --- ---
James Davis(1)(3) --- --- --- --- --- ---
Tony Fletcher(1)(3) --- --- --- --- --- ---
Amerindo Investment Advisors(1)(10) --- --- 500,000(11) 16.46 --- ---
Henry Goldberg(12) --- --- --- --- --- ---
21st Century Communications Partners L.P. (1)(13) --- --- 333,334(14) 10.97 --- ---
Amerindo Technology Growth Fund II(1)(10) --- --- 333,333 10.97 --- ---
Citicorp Trustee Ltd.(15) --- --- 330,000 13.66 --- ---
Strome Partners(1)(16) --- --- 250,000(17) 8.23 --- ---
T. Rowe Price New Age Media Fund, Inc.(1)(18) --- --- 250,000 8.23 --- ---
Dorothy Goodman(3) --- --- --- --- --- ---
21st Century Communications L.P.(1)(13) --- --- 226,010 7.44 --- ---
Vereins Und Westbank(19) --- --- 165,000 5.43 --- ---
DIRECTORS:
Robert M. Flanagan(1) --- --- --- --- --- ---
Robert E. La Blanc(1) --- --- --- --- --- ---
G. Felda Hardymon(1) 25,000 * 8,333 * --- ---
OTHER NAMED EXECUTIVE OFFICERS:
Thomas R. Berger --- --- --- --- --- ---
Joseph J. Gonzalez --- --- --- --- --- ---
Jay M. Rosen --- --- --- --- --- ---
All executive officers and directors as a group
(7 persons) 25,000 * 8,333 * --- ---
<CAPTION>
PERCENTAGE
OF ALL
CELCORE
BENEFICIAL OWNER CAPITAL STOCK
- ---------------- -------------
<S> <C>
PRINCIPAL STOCKHOLDERS:
Robert P. Goodman(1)(3) 30.53%
UCOM International Company Limited(1)(5) 11.05
Bessemer Venture Partners III L.P.(1)(6) 8.84
Charles River Partnership VII(1)(7) 6.43
Williams Jones & Associates, Inc.(1)(8) 6.09
John Hatcher(1)(3) 5.15
James Davis(1)(3) 5.15
Tony Fletcher(1)(3) 5.15
Amerindo Investment Advisors(1)(10) 2.76
Henry Goldberg(12) 2.72
21st Century Communications Partners L.P. (1)(13) 1.84
Amerindo Technology Growth Fund II(1)(10) 1.84
Citicorp Trustee Ltd.(15) 1.82
Strome Partners(1)(16) 1.38
T. Rowe Price New Age Media Fund, Inc.(1)(18) 1.38
Dorothy Goodman(3) 1.25
21st Century Communications L.P.(1)(13) 1.25
Vereins Und Westbank(20) *
DIRECTORS:
Robert M. Flanagan(1) 1.65
Robert E. La Blanc(1) *
G. Felda Hardymon(1) *
OTHER NAMED EXECUTIVE OFFICERS:
Thomas R. Berger 1.02
Joseph J. Gonzalez *
Jay M. Rosen *
All executive officers and directors as a group (7 persons) 34.27
</TABLE>
- ------------------
* Less than 1%.
(1) Each has signed a voting agreement with respect to all of its shares of
CELCORE Capital Stock. See "Voting Agreements."
(2) Under the rules of the Commission, a person is deemed to be a beneficial
owner of a security if such person has or shares the power to vote or
direct the voting of such security or the power to dispose of or direct
the disposition of such security. A person is also deemed to be a
beneficial owner of a security if that person has the right to acquire
beneficial ownership within 60 days. Accordingly, more than one person
may be deemed to be a beneficial owner of the same securities. Unless
otherwise indicated by footnote, the named individuals have sole voting
and investment power with respect to the shares of CELCORE Common Stock
beneficially owned. Includes CELCORE Common Stock and Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock as though converted into CELCORE Common Stock on a
1-for-1 basis as of October 30, 1997.
(3) The business address of Messrs. Goodman, Hatcher, Davis and Fletcher and
Dorothy Goodman is 3800 Forest Hill-Irene Rd., Memphis, Tennessee 38125.
(4) Includes 661,819 shares of Series A Preferred Stock (including 227,273
shares of Series A Preferred Stock held by Dorothy Goodman) and 2,500
shares of CELCORE Common Stock held by certain family members for which
Mr. Goodman possesses powers of attorney with respect to voting and
disposition, and 25,600 shares of CELCORE Common Stock held in trusts for
the benefit of Mr. Goodman's
59
<PAGE> 65
children. Mr. Goodman disclaims beneficial ownership of all of the
foregoing shares. Also includes 4,500 shares of CELCORE Common Stock
subject to options exercisable within 60 days of October 30, 1997.
(5) The business address of UCOM International Company Limited is 499 Moo 3
Benchachinda Building, 12th Floor, Tower 13, Vibhavadi Rangsit Road,
Chatuchak Bangkok, 10900.
(6) The business address of Bessemer Venture Partnership III L.P. ("Bessemer")
is 1025 Old Country Road, Suite 205, Westbury, New York, 11509. Includes
44,388 shares of CELCORE Common Stock which may be deemed to be
beneficially owned by Mr. Hardymon for which Bessemer possesses power of
attorney with respect to voting and disposition.
(7) The business address of Charles River Partnership VII is 10 Post Office
Square, Suite 1330, Boston, Massachusetts, 02109.
(8) The business address of Williams Jones & Associates, Inc. is 717 Fifth
Avenue, New York, NY 10022.
(9) Of the shares indicated above, 938,000 shares of Series B Preferred Stock
are held through the Celcor Fund and 166,667 shares of Series C Preferred
Stock are held through the Celcor Fund #2. Williams Jones & Associates,
Inc. acts as the discretionary manager of both of the foregoing funds.
(10) The business address of Amerindo Investment Advisors ("Amerindo") and
Amerindo Technology Growth Fund II is 399 Park Avenue, 18th Floor, New
York City, New York 10022.
(11) Of the shares indicated above, 333,333 shares of Series C Preferred Stock
are held by the Amerindo Technology Growth Fund II, 125,000 shares of
Series C Preferred Stock are held by the Litton Industries, Inc. Master
Trust and 41,667 shares of Series C Preferred Stock are held by Paul
Marcus. Amerindo is the investment advisor of Litton Industries, Inc.
Master Trust. The Amerindo Technology Growth Fund II is an affiliated
investment advisor of Amerindo.
(12) The business address of Mr. Goldberg is 1229 19th Street, N.W.,
Washington, D.C. 20036.
(13) The business address of 21st Century Communications Partners L.P. and
21st Century Communications L.P. is 767 Fifth Avenue, New York City, New
York 10153.
(14) Of the shares indicated above, 226,010 shares of Series C Preferred Stock
are held by 21st Century Communications L.P., 76,898 shares of Series C
Preferred Stock are held by 21st Century Communications TELP and 30,426
shares of Series C Preferred Stock are held by 21st Century Communications
Foreign L.P. Sandler Investment Partners L.P. is the general partner of
the foregoing funds.
(15) The business address of Citicorp Trustee Ltd. is 1410 N. Westshore Blvd.,
4th Floor, Tampa, Florida 33607.
(16) The business address of Strome Partners is 100 Wilshire Boulevard, 15th
Floor, Santa Monica, California 90401.
(17) Of the shares indicated above, Strome Partners L.P. and Strome Offshore
Ltd. each hold 125,000 shares of Series C Preferred Stock. Strome Suskind
Investment Management L.P. is the general partner of both funds.
(18) The business address of T. Rowe Price New Age Media Fund, Inc. is 100 East
Pratt Street, Baltimore, Maryland 31202.
(19) The business address of Vereins Und Westbank is Alter Wall 12, 20457
Hamburg, Germany.
(20) Includes 4,500 shares of CELCORE Common Stock subject to options
exercisable within 60 days of October 30, 1997 and 254,545 shares of
Series A Preferred Stock.
(21) Includes 4,500 shares of CELCORE Common Stock subject to options
exercisable within 60 days of October 30, 1997.
(22) Includes 187,500 shares of CELCORE Common Stock subject to options
exercisable within 60 days of October 30, 1997.
(23) Includes 37,500 shares of CELCORE Common Stock subject to options
exercisable within 60 days of October 30, 1997.
(24) Includes 22,500 shares of CELCORE Common Stock subject to options
exercisable within 60 days of October 30, 1997.
(25) Includes 261,000 shares of CELCORE Common Stock subject to options
exercisable within 60 days of October 30, 1997.
60
<PAGE> 66
DSC AND CELCORE
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined statements of operations combine
DSC's historical consolidated statements of operations and CELCORE's historical
results of operations for the nine-month period ended September 30, 1997 and
for the year ended December 31, 1996, giving effect to the Merger as if it had
occurred January 1, 1996. The unaudited pro forma combined balance sheet
combines DSC's historical consolidated balance sheet as of September 30, 1997
with CELCORE's historical balance sheet as of September 30, 1997, giving effect
to the Merger as if it had occurred on September 30, 1997. Of the total
purchase price, approximately $135 million represented the value of in-process
research and development. The excess of the purchase price of CELCORE
(exclusive of the amount allocated to in-process research and development) over
the net identifiable tangible and intangible assets and liabilities of CELCORE
is reported as Costs in Excess of Net Assets of Businesses Acquired, Net. The
carrying values of CELCORE's net assets are assumed to equal their fair values
for purposes of these unaudited pro forma financial statements, unless
indicated otherwise in the Notes to Unaudited Pro Forma Combined Financial
Statements. These values are subject to revision. However, management
believes that any resulting adjustments from purchase price allocation will not
have a material effect on the financial position or results of operations.
The historical financial information of DSC has been derived from the
unaudited consolidated financial statements for the nine-month period ended
September 30, 1997 and the audited consolidated financial statements for the
year ended December 31, 1996 which are incorporated by reference and should be
read in conjunction with such financial information and the notes thereto. The
historical financial information of CELCORE has been derived from the unaudited
financial statements for the nine-month period ended September 30, 1997 and the
audited financial statements for the year ended December 31, 1996 which are
included elsewhere herein and should be read in conjunction with such financial
information and the notes thereto.
The Unaudited Pro Forma Combined Balance Sheet and Unaudited Pro Forma
Combined Statements of Operations were prepared assuming the consummation of the
Merger, which is accounted for under the purchase method of accounting. The
unaudited pro forma adjustments are described in the accompanying notes. The
unaudited pro forma adjustments represent DSC's preliminary determination of
the necessary adjustments and are based upon certain assumptions DSC considers
reasonable under the circumstances. Final amounts may differ from those set
forth in the unaudited pro forma combined financial statements.
The unaudited pro forma financial information presented herein may not be
indicative of the results of operations as they would have been if DSC and
CELCORE had been a single entity during 1996 and the nine months ended
September 30, 1997, nor is it necessarily indicative of the results of
operations which may occur in the future. Anticipated efficiencies from the
consolidation of DSC and CELCORE are not fully determinable and have been
excluded from the amounts included in the pro forma amounts presented herein.
61
<PAGE> 67
DSC AND CELCORE
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED)
-----------------------------------------------------------
DSC CELCORE ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ........................................................... $ 1,130,374 $ 9,485 $ -- $ 1,139,859
Cost of revenue ................................................... 661,417 5,719 -- 667,136
----------- ----------- ----------- -----------
Gross profit ................................................. 468,957 3,766 -- 472,723
----------- ----------- ----------- -----------
Operating costs and expenses:
Research and product development ............................. 181,852 6,932 -- 188,784
Selling, general and administrative .......................... 172,585 9,187 -- 181,772
Other operating costs ........................................ 7,709 -- 2,344(e) 10,053
----------- ----------- ----------- -----------
Total operating costs and expenses ....................... 362,146 16,119 2,344 380,609
----------- ----------- ----------- -----------
Operating income (loss) ...................................... 106,811 (12,353) (2,344) 92,114
Interest income ................................................... 16,840 249 -- 17,089
Interest expense .................................................. (19,334) (173) -- (19,507)
Other income (expense), net ....................................... 34,014 (101) -- 33,913
----------- ----------- ----------- -----------
Income (loss) before income taxes ........................ 138,331 (12,378) (2,344) 123,609
Income taxes ...................................................... 51,898 -- -- 51,898
----------- ----------- ----------- -----------
Net income (loss) ........................................ $ 86,433 $ (12,378) $ (2,344) $ 71,711
=========== =========== =========== ===========
Income (loss) per share .................................. $ 0.73 $ (2.26) $ 0.57
=========== =========== ===========
Average shares used in per share computation ................. 119,169 5,533 125,498
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
62
<PAGE> 68
DSC AND CELCORE
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 (UNAUDITED)
-----------------------------------------------------------
DSC CELCORE ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue ............................................................. $ 1,380,891 $ 3,680 $ -- $ 1,384,571
Cost of revenue:
Special charges related to inventories and associated assets ... 82,500 -- -- 82,500
Other .......................................................... 843,247 1,351 -- 844,598
----------- ----------- ----------- -----------
925,747 1,351 -- 927,098
----------- ----------- ----------- -----------
Gross profit ................................................... 455,144 2,329 -- 457,473
----------- ----------- ----------- -----------
Operating costs and expenses:
Research and product development ............................... 210,091 6,700 -- 216,791
Selling, general and administrative ............................ 233,576 10,768 -- 244,344
Special charges for excess facilities and equipment ............ 13,500 -- -- 13,500
Other operating costs .......................................... 10,020 -- 3,125(e) 13,145
----------- ----------- ----------- -----------
Total operating costs and expenses ......................... 467,187 17,468 3,125 487,780
----------- ----------- ----------- -----------
Operating loss ................................................. (12,043) (15,139) (3,125) (30,307)
Interest income ..................................................... 24,146 605 -- 24,751
Interest expense .................................................... (26,355) (71) -- (26,426)
Other income (expense), net ......................................... 2,066 (26) -- 2,040
----------- ----------- ----------- -----------
Loss before income taxes ................................... (12,186) (14,631) (3,125) (29,942)
Income taxes ........................................................ (4,631) -- -- (4,631)
----------- ----------- ----------- -----------
Net loss ................................................... $ (7,555) $ (14,631) $ (3,125) $ (25,311)
=========== =========== =========== ===========
Loss per share ............................................. $ (0.06) $ (2.69) $ (0.21)
=========== =========== ===========
Average shares used in per share computation ................... 116,514 5,502 122,317
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
63
<PAGE> 69
DSC AND CELCORE
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 (UNAUDITED)
-----------------------------------------------------------
DSC CELCORE ADJUSTMENTS COMBINED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ......................... $ 409,341 $ 619 $ (2,836)(d) $ 407,124
Marketable securities ............................. 268,768 -- -- 268,768
Receivables ....................................... 406,174 4,769 -- 410,943
Inventories ....................................... 370,338 5,629 -- 375,967
Deferred income taxes ............................. 60,429 -- -- 60,429
Other current assets .............................. 72,911 818 -- 73,729
----------- ----------- ----------- -----------
Total current assets ...................... 1,587,961 11,835 (2,836) 1,596,960
----------- ----------- ----------- -----------
PROPERTY AND EQUIPMENT, NET ......................... 443,664 5,017 -- 448,681
LONG-TERM RECEIVABLES ............................... 46,321 639 -- 46,960
CAPITALIZED SOFTWARE DEVELOPMENT COSTS .............. 66,900 -- -- 66,900
COST IN EXCESS OF NET ASSETS OF
BUSINESSES ACQUIRED, NET .................. 141,906 -- 19,504 (b) 161,410
OTHER ASSETS ........................................ 119,404 481 9,000 (b) 128,885
----------- ----------- ----------- -----------
Total assets .............................. $ 2,406,156 $ 17,972 $ 25,668 $ 2,449,796
=========== =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Short-term debt ................................... $ 126 $ 450 $ (450)(d) $ 126
Accounts payable .................................. 116,911 4,841 -- 121,752
Accrued liabilities ............................... 264,449 3,058 12,665 (c) 280,172
Income taxes payable .............................. 30,558 -- -- 30,558
Current portion of long-term debt ................. 32,497 2,386 (2,386)(d) 32,497
----------- ----------- ----------- -----------
Total current liabilities ................. 444,541 10,735 9,829 465,105
----------- ----------- ----------- -----------
LONG-TERM DEBT ...................................... 632,825 -- -- 632,825
NONCURRENT LIABILITIES .............................. 84,528 -- -- 84,528
REDEEMABLE PREFERRED STOCK .......................... -- 39,439 (39,439)(a) --
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred stock ................................... -- 450 (450)(a) --
Common stock ...................................... 1,229 559 (501)(a) 1,287
Additional capital ................................ 748,330 -- 158,018 (a) 906,348
Unrealized gains on securities,
net of income taxes ....................... 265 -- -- 265
Accumulated translation adjustment ................ 930 -- -- 930
Retained earnings (deficit) ....................... 536,619 (33,211) (101,789)(a) 401,619
----------- ----------- ----------- -----------
1,287,373 (32,202) 55,278 1,310,449
Treasury stock ...................................... (43,111) -- -- (43,111)
----------- ----------- ----------- -----------
Total shareholders' equity (deficit) .............. 1,244,262 (32,202) 55,278 1,267,338
----------- ----------- ----------- -----------
Total liabilities and shareholders' equity .......... $ 2,406,156 $ 17,972 $ 25,668 $ 2,449,796
=========== =========== =========== ===========
</TABLE>
See the accompanying Notes to Unaudited Pro Forma Combined Financial Statements.
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NOTES TO UNAUDITED PRO FORMA
COMBINED FINANCIAL STATEMENTS
NOTE 1: BASIS OF PRESENTATION
The unaudited pro forma combined statements of operations for all periods
presented and the pro forma combined balance sheet at September 30, 1997 of DSC
and CELCORE have been prepared based upon the purchase method of accounting.
NOTE 2: PURCHASE PRICE OF CELCORE
The estimated purchase price of the Merger is approximately $167.2 million,
including transaction costs and other Merger related costs of approximately
$6.5 million. The preliminary purchase price includes the conversion of all of
the outstanding CELCORE Capital Stock into approximately 5.8 million shares of
DSC Common Stock at an estimated value of $145 million using an assumed
Exchange Ratio of .32 and the valuation of the CELCORE Options assumed by DSC
and the Notes of $15.7 million.
NOTE 3: PRO FORMA ADJUSTMENTS
Adjustments included in the unaudited pro forma combined financial statements
are as follows:
(a) Reflects the elimination of CELCORE Capital Stock, additional paid-in
capital and accumulated deficit and the projected issuance of 5.8 million
shares of DSC Common Stock using an assumed Exchange Ratio of .32. Also
reflects the write-off of in-process research and development, as
discussed in Note 4. This charge has been excluded from the unaudited
pro forma statements of operations as it was considered a non-recurring
charge.
(b) Reflects the remaining excess of the purchase price of CELCORE over its
net book value. See Note 4.
(c) Reflects DSC's estimate of transaction costs and other related Merger
costs.
(d) CELCORE and a Subsidiary of DSC entered into a revolving credit agreement
under which CELCORE can borrow up to $10 million for working capital
purposes. For purposes of calculating the pro forma adjustments, all of
CELCORE's short term borrowings were eliminated with a corresponding
reduction in cash and cash equivalents. The impact on net financing
costs was minimal.
(e) Reflects amortization expense for Acquired Technology and Costs in Excess
of Net Assets of Businesses Acquired, Net.
NOTE 4: IN-PROCESS RESEARCH AND DEVELOPMENT
A preliminary estimate of the intangible assets acquired aggregated
approximately $163.5 million. DSC received a preliminary appraisal of the
intangible assets which indicates that approximately $135 million of the
acquired intangible assets consists of in-process research and development.
Because there can be no assurance that DSC will be able to successfully
complete the development and integration of CELCORE's products or that the
acquired technology has any alternative future use, the acquired in-process
research and development will be charged to expense by DSC in the quarter in
which the Merger is consummated. The remaining intangible assets of $28.5
million were assigned to Acquired Technology and Costs in Excess of Net Assets
of Businesses Acquired, Net and will be amortized on a straight-line basis over
its estimated useful lives. Management believes that the unamortized balance
is recoverable through future operating results. These estimates could change
as the estimates of the fair value of assets acquired and liabilities assumed
are finalized and the appraisal of in-process research and development is
completed.
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NOTE 5: PRO FORMA NET INCOME (LOSS) PER SHARE
The pro forma combined net income (loss) per share is based on the combined
weighted average number of common and dilutive equivalent shares outstanding
of DSC and the 5.8 million shares of DSC Common Stock expected to be issued to
CELCORE shareholders upon the Merger using the assumed Exchange Ratio of .32.
This ratio is subject to change depending on the Average Trading Price. Common
equivalent shares are excluded from the computation when the effect is
antidilutive. The consolidated net income (loss) per share has been adjusted
to exclude the accretion on CELCORE Preferred Stock which will be exchanged for
DSC Common Stock in the Merger.
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DESCRIPTION OF CAPITAL STOCK AND COMPARISON OF STOCKHOLDERS' RIGHTS
Upon consummation of the Merger, stockholders of CELCORE will become
stockholders of DSC. The rights of former CELCORE stockholders will continue
to be governed by the DGCL and will be governed by the Certificate of
Incorporation and Bylaws, each as amended, of DSC (the "DSC Certificate" and
the "DSC Bylaws," respectively). The following is a summary of the material
differences between the DSC Certificate and the DSC Bylaws, on the one hand,
and the Certificate of Incorporation and Bylaws of CELCORE (the "CELCORE
Certificate" and the "CELCORE Bylaws," respectively), on the other hand, that
may affect the rights of CELCORE's stockholders who become holders of DSC
Common Stock. The following summary does not purport to be a complete
statement of the rights of holders of DSC Common Stock and CELCORE Capital
Stock, and is qualified in its entirety by reference to the DGCL, the DSC
Certificate and DSC Bylaws (each of which is incorporated by reference in this
Prospectus/Proxy Statement), and the CELCORE Certificate and CELCORE Bylaws.
CAPITAL STOCK
CELCORE. The authorized capital stock of CELCORE consists of 50,000,000
shares of CELCORE Common Stock and 14,000,000 shares of CELCORE Preferred
Stock, consisting of 4,500,000 shares of Series A Preferred Stock, 3,000,000
shares of Series B Preferred Stock, 4,000,000 shares of Series C Preferred
Stock and 2,500,000 shares of Series D Preferred Stock. The Board of Directors
of CELCORE is authorized, without further stockholder action, to issue shares
of CELCORE Preferred Stock in one or more series, and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
amounts payable upon liquidation and the number of shares constituting any
series or the designation of such series. The CELCORE Preferred Stock ranks
senior to CELCORE Common Stock with respect to rights to receive dividends and
to participate in distributions or payments in the event of any liquidation,
dissolution or winding up of CELCORE. See "--CELCORE Preferred Stock." Since
its inception in 1992, CELCORE has issued and sold, and there are outstanding,
4,500,000 shares of Series A Preferred Stock, 3,000,0000 shares of Series B
Preferred Stock, 3,038,046 shares of Series C Preferred Stock and 2,004,227
shares of Series D Preferred Stock. All shares of CELCORE Common Stock are
identical and have one vote per share.
DSC. The authorized capital stock of DSC consists of 500,000,000 shares of
DSC Common Stock and 5,000,000 shares of Preferred Stock (as defined in the DSC
Certificate), par value $1.00. No shares of Preferred Stock of DSC are
currently outstanding. All shares of DSC Common Stock have identical rights
and have one vote per share.
CELCORE PREFERRED STOCK
The outstanding series of CELCORE Preferred Stock have certain redemption
rights, dividend entitlements, liquidation preferences, and conversion options
which are not applicable to DSC Common Stock. As of the Effective Time,
holders of CELCORE Preferred Stock will no longer be entitled to certain rights
and privileges previously provided for in the CELCORE Certificate and CELCORE's
Certificates of Designations. Such rights include (i) a dividend preference,
(ii) a liquidation preference, (iii) certain redemption rights, (iv) certain
anti-dilution adjustments upon dilutive issuances of CELCORE Capital Stock, and
(v) with respect to the Series B Preferred Stock, the Series C Preferred Stock
and the Series D Preferred Stock, the right to vote as a separate class (with a
60% approval requirement) concerning certain corporate transactions. Certain
terms of the outstanding CELCORE Preferred Stock are summarized below.
Dividends. Holders of Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock are entitled to dividend preferences with respect to
any dividends, when, as, and if declared by the CELCORE Board, at annual rates
of (i) $0.16 per share with respect to shares of Series B Preferred Stock, (ii)
$0.48 per share with respect to Series C Preferred Stock and (iii) $0.64 per
share with respect to Series D Preferred Stock. All dividends are cumulative.
CELCORE may not pay cash dividends on CELCORE Common Stock or Series A
Preferred Stock while there are any declared but unpaid cash dividends on any
shares of Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock outstanding.
Liquidation. In the event of any liquidation, dissolution or winding up of
CELCORE (which, as defined in the CELCORE Certificate, would include the
Merger), holders of the Series B Preferred Stock, Series C Preferred Stock and
Series D Preferred Stock are entitled to receive, prior and in preference to
any distribution of any assets of CELCORE to the holders of CELCORE Common
Stock or Series A Preferred Stock, $2.00, $6.00 and $8.00 per share,
respectively, plus all accrued and unpaid dividends. After holders of Series B
Preferred Stock, Series C Preferred Stock and Series D Preferred Stock have
received the full amount of their liquidation preferences, the holders of
Series A
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Preferred Stock will be entitled to receive prior and in preference to any
distribution of any assets of CELCORE to the holders of CELCORE Common Stock,
$0.50 per share, plus all accrued and unpaid dividends. After the holders of
CELCORE Preferred Stock have received the full amount of their liquidation
preference, the holders of CELCORE Common Stock will be entitled to receive all
remaining assets of CELCORE available for distribution, pro rata, based on the
number of shares of CELCORE Common Stock held by each.
Conversion. Each share of CELCORE Preferred Stock is presently convertible
into one share of CELCORE Common Stock, subject to future adjustment based on
any future subdivisions, dividends or distributions, reclassifications and
diluting issues. The current conversion prices for the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock are $0.50, $2.00, $6.00 and $8.00 per share, respectively.
Voting Rights. In any case where the holders of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
are entitled to vote together as one class upon any matter submitted to the
stockholders for a vote: (i) each share of CELCORE Common Stock issued and
outstanding has one vote; and (ii) each holder of CELCORE Preferred Stock has a
number of votes equal to the number of full shares of CELCORE Common Stock into
which such CELCORE Preferred Stock is then convertible.
Certain Protective Provisions. In addition to any vote required by applicable
law or the CELCORE Certificate, and for so long as any shares of Series B
Preferred Stock, Series C Preferred Stock or Series D Preferred Stock remain
outstanding, no amendment of the CELCORE Certificate materially adversely
affecting the voting, dividend, liquidation, or conversion rights, preferences
or privileges, of any such series of CELCORE Preferred Stock shall be valid or
effective without the previous affirmative vote of the record holders of a
majority of such series of CELCORE Preferred Stock, voting separately as a
class. In addition to any other rights provided by law or agreement, so long
as any shares of Series B Preferred Stock, Series C Preferred Stock or Series D
Preferred Stock are outstanding, CELCORE may not without first obtaining the
affirmative vote or written consent of the holders of 60% of the outstanding
shares of each such series: (i) amend the CELCORE Certificate or the CELCORE
Bylaws to change the number of directors or to amend the provisions relating to
the election of directors; (ii) authorize or issue any additional class or
series of capital stock having liquidation, dividend or redemption preferences
greater than such series of CELCORE Preferred Stock; or (iii) engage in any
consolidation or merger of CELCORE with or into any other entity, or sell all,
or substantially all, of its assets.
Redemption. CELCORE must redeem one third of the outstanding shares of Series
B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock on
each of December 1, 2000, December 1, 2001 and December 1, 2002 at a price of
$2.00, $6.00 and $8.00 per share, respectively, subject to adjustment.
Election of Directors. Until consummation of an initial public offering of
CELCORE, the holders of the Series B Preferred Stock, voting separately as a
class, will be entitled to elect one director of CELCORE. The four remaining
directors will be elected by the holders of CELCORE Common Stock and CELCORE
Preferred Stock (other than the Series B Preferred Stock) voting together as a
single class.
SPECIAL MEETINGS OF STOCKHOLDERS
Under the DGCL, a special meeting of stockholders may be called by the board
of directors or by any other person authorized to do so in the certificate of
incorporation or the bylaws.
The CELCORE Bylaws contain provisions concerning special meetings consistent
with the provisions of the DGCL described above. The DSC Bylaws contain
provisions concerning special meetings consistent with the provisions of the
DGCL described above, and also empower the chairman of the board to call a
special meeting.
NUMBER OF DIRECTORS
Under the DGCL, the minimum number of directors is one. The DGCL permits the
board of directors alone to change the authorized number or the range of
directors by amendment to the bylaws, unless the directors are not authorized
in the certificate of incorporation to amend the bylaws or the number of
directors is fixed in the certificate of incorporation, in which cases a change
in the number of directors may be made only upon approval of such change by the
stockholders.
The CELCORE Bylaws provide that the number of directors shall be determined
from time to time by resolution of the stockholders or directors. The number
of persons constituting the Board of Directors of CELCORE has been fixed
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at five. The DSC Certificate and the DSC Bylaws also provide for a variable
number of directors between 7 and 15. The DSC Board of Directors currently
consists of seven members.
CLASSIFICATION OF BOARD
A classified board is one in which a certain number of the directors are
elected on a rotating basis each year. This method of electing directors makes
changes in the composition of the board of directors, and thus a potential
change in control of a corporation, a lengthier and more difficult process.
The DGCL permits, but does not require, a classified board of directors, with
staggered terms under which one-half or one-third of the directors are elected
for terms of two or three years, respectively.
CELCORE does not have a classified board of directors. The DSC Certificate
divides the DSC board of directors into three classes serving staggered
three-year terms with each class to consist as nearly as possible of one-third
of the directors; provided, that once elected, no director's term shall be
reduced.
REMOVAL OF DIRECTORS
Under the DGCL, a director of a corporation that does not have a classified
board of directors may be removed with or without cause with the approval of a
majority of the outstanding shares entitled to vote at an election of
directors, and a director of a corporation that has a classified board of
directors may be removed only for cause unless the corporation's certificate of
incorporation provides otherwise.
The CELCORE Bylaws provide that a director may be removed with or without
cause by CELCORE's stockholders and for cause by the board of directors. The
DSC Bylaws provide that a director may be removed only for cause by affirmative
vote of the holders of stock having more than 50% of the voting power of all
voting stock then outstanding.
ANTI-TAKEOVER PROVISIONS; RESTRICTIONS ON CERTAIN BUSINESS COMBINATIONS
CELCORE. CELCORE has elected to be subject to Section 203 of the DGCL
("Section 203"). Under Section 203, certain transactions and business
combinations between a corporation and an "interested stockholder" which owns
15% or more of the corporation's outstanding voting stock, are restricted for a
period of three years from the date the stockholder becomes an interested
stockholder. Generally, Section 203 prohibits significant business
transactions by CELCORE such as a merger with, disposition of assets to, or
receipt of disproportionate financial benefits by, any interested stockholder,
or any other transaction that would increase such interested stockholder's
proportionate ownership of any class or series of CELCORE's capital stock,
unless: (i) the transaction resulting in a person's becoming an interested
stockholder, or the business combination, has been approved by the Board of
Directors of CELCORE before the person becomes an interested stockholder; (ii)
the interested stockholder acquires 85% or more of the outstanding voting stock
of CELCORE in the same transaction that makes it an interested stockholder; or
(iii) on or after the date the person becomes an interested stockholder, the
business combination is approved by the Board of Directors of CELCORE or by the
holders of at least two-thirds of CELCORE's outstanding voting stock at an
annual or special meeting, excluding shares owned by the interested
stockholder.
DSC. On April 25, 1996, DSC's Board of Directors declared a dividend of one
Preferred Stock Purchase Right for each outstanding share of DSC Common Stock.
The dividend was payable on May 22, 1996 to the stockholders of record on that
date. Each Preferred Stock Purchase Right entitles the registered holder to
purchase from DSC one one-thousandth of a share of Series B Junior
Participating Preferred Stock, par value $1.00 per share of DSC at a price of
$175.00 per one one-thousandth of a share of Preferred Stock, subject to
adjustment. The Preferred Stock Purchase Rights set forth in the DSC Rights
Agreement are described on DSC's Registration Statement Form 8-A dated May 13,
1996, which is incorporated by reference in this Prospectus/Proxy Statement.
DSC has not elected to be subject to Section 203, but the DSC Certificate
provides that any merger or consolidation of DSC with or into any other
corporation, or any sale, lease, exchange or other disposition of all or
substantially all of the assets of DSC to another corporation, person or entity
requires the affirmative vote of the holders of at least three-fourths of the
outstanding shares of DSC capital stock if, as of the record date for the
determination of stockholders entitled to notice thereof and to vote thereon,
such other corporation, person or entity is the beneficial owner, directly or
indirectly, of 5% or more of the outstanding shares of DSC capital stock. A
corporation, person or other entity will be deemed to be the beneficial owner
of any shares of DSC capital stock (i) which it has the right to acquire
pursuant to any agreement, or upon exercise of conversion rights, warrants or
options, or otherwise, or (ii) which are beneficially owned, directly or
indirectly by any other corporation, person, or other entity (a) with which it
or its "affiliate" or "associate" (as referenced below) has any
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agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of capital stock of DSC or (b) which is its "affiliate" or
"associate" as those terms are defined in Rule 12b-2 of the Exchange Act. This
provision may not be amended or rescinded except by the affirmative vote of the
holders of at least three-fourths of the outstanding shares of DSC capital
stock.
INDEMNIFICATION
Section 145 of the DGCL ("Section 145") provides generally that a Delaware
corporation may indemnify its directors and officers against expenses,
judgments, fines and settlements actually and reasonably incurred by them in
connection with any civil, criminal, administrative, or investigative suit or
action except actions by or in the right of the corporation if, in connection
with the matters in issue, they acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, and in connection with any criminal suit or proceeding, if in
connection with the matters in issue, they had no reasonable cause to believe
their conduct was unlawful. Section 145 further provides that in connection
with the defense or settlement of any action by or in the right of the
corporation, a Delaware corporation may indemnify its directors and officers
against expenses actually and reasonably incurred by them if, in connection
with the matters in issue, they acted in good faith, in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification may be made with respect to any
claim, issue or matter as to which such person has been adjudged liable for
negligence or misconduct unless the Court of Chancery or the court in which
such action or suit is brought approves such indemnification. Section 145
further permits a Delaware corporation to grant its directors and officers
additional rights of indemnification through bylaw provisions and otherwise,
and to purchase indemnity insurance on behalf of its directors and officers.
CELCORE. Article Nine of the CELCORE Certificate and Article Eight of the
CELCORE Bylaws provide, in general, that CELCORE must indemnify its directors
and officers to the fullest extent permitted by the DGCL. Article Eight of
the CELCORE Bylaws further allows CELCORE to purchase and maintain insurance on
behalf of its directors, officers, employers or agents.
DSC. Article Eight of the DSC Bylaws provides, in general, that DSC must
indemnify its directors and officers to the fullest extent authorized by the
DGCL, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits DSC to provide
broader indemnification rights than said law permitted DSC to provide prior to
such amendment), against all expense, liability and loss reasonably incurred or
suffered by such person in connection therewith. Such right to indemnification
includes the right to have DSC pay the expenses incurred in defending any such
proceeding in advance of its final disposition, subject to the provisions of
the DGCL. The DSC Certificate and DSC Bylaws also authorize DSC to maintain
insurance and to grant similar indemnification rights to employees or agents of
DSC. The directors and officers of DSC are covered by insurance policies
indemnifying against certain liabilities, including certain liabilities arising
under the Securities Act, which might be incurred by them in such capacities.
DSC has purchased and currently has in force directors' and officers' liability
insurance policies which cover certain liabilities of directors and officers
arising out of claims based on certain acts or omissions by them in their
capacity as directors or officers. DSC has entered into indemnification
agreements with certain of its directors and executive officers. Each of these
agreements, among other things, contractually obligates DSC to, under certain
circumstances, indemnify the officer or director against certain expenses and
liabilities arising out of legal proceedings which may be brought against such
officer or director by reason of his status or service as a director or
officer. In addition, in a related trust agreement (the "Trust Agreement"),
DSC has provided $1 million to be held in trust by a third-party trustee to be
used to satisfy DSC's obligations pursuant to the indemnification agreements
which have been executed and any similar agreements which may be executed in
the future. The Trust Agreement further provides that DSC's Board of Directors
may, in its discretion, provide up to an additional $1 million to the trustee.
LIMITATION OF MONETARY LIABILITIES
CELCORE. The CELCORE Certificate provides that, to the fullest extent
permitted by the DGCL, no director shall be liable to CELCORE or its
stockholders for monetary damages for breach of fiduciary duty as a director.
By virtue of these provisions, a director of CELCORE is not personally liable
for monetary damages for a breach of such director's fiduciary duty except for
liability for (i) breach of the duty of loyalty to CELCORE or to its
stockholders, (ii) acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) dividends or stock
repurchases or redemptions that are unlawful under the DGCL, and (iv) any
transaction from which such director receives an improper personal benefit. In
addition, the CELCORE Certificate provides that if the DGCL is amended to
authorize the further elimination or limitation of the liability of a director,
then the liability of the directors will be eliminated or limited to the
fullest extent permitted by the DGCL, as amended.
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DSC. The DSC Certificate and DSC Bylaws provide that a director of DSC will
not be personally liable to DSC or its stockholders for monetary damages for
breach of fiduciary duty as a director, except, if required by the DGCL as
amended from time to time, for liability (i) for any breach of the director's
duty of loyalty to DSC or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions or (iv) for any transaction from
which the director derived an improper personal benefit. Neither the amendment
nor repeal of such provision will eliminate or reduce the effect of such
provision in respect of any matter occurring, or any cause of action, suit or
claim that, but for such provision, would accrue or arise prior to such
amendment or repeal.
PREEMPTIVE RIGHTS
Unless the certificate of incorporation provides otherwise, the stockholders
of a Delaware corporation do not have preemptive rights. Neither the DSC
Certificate nor the CELCORE Certificate provides for any preemptive rights.
PAYMENT OF DIVIDENDS
The holders of CELCORE Common Stock are entitled to receive ratably such
dividends, if any, as may be declared by the Board of Directors out of funds
legally available therefor. In the event of a voluntary or involuntary
liquidation, dissolution or winding up of CELCORE, the holders of CELCORE
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities and liquidation preferences of any outstanding shares of
CELCORE Preferred Stock. See "--CELCORE Preferred Stock." Neither DSC nor
CELCORE has paid any cash dividends on their respective capital stock since
their respective inceptions. Following the Merger, DSC intends to retain any
future earnings for use in its business and does not anticipate paying cash
dividends in the foreseeable future.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND NOMINATIONS
For proposals or director nominations that a DSC stockholder desires to
present at the annual meeting of stockholders, the DSC Bylaws require advance
notice by such DSC stockholder, delivered to DSC's Secretary between 70 and 90
days prior to the first anniversary of the preceding year's annual meeting,
except that, in the event that the date of the annual meeting is advanced by
more than 20 days or delayed by more than 70 days from such anniversary date,
notice by the stockholder must be delivered not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of the seventieth day prior to such annual meeting or the tenth day
following the day on which public announcement of the date of such meeting is
first made. Only a person who was nominated in accordance with the notice
procedures will be eligible to serve as a director of DSC, and the only
business that may be conducted at a meeting of stockholders is that which was
brought before the meeting in accordance with the notice procedures. The
chairman of the meeting will determine whether a nomination or any business
proposed to be brought before any meeting was made in accordance with the
notice procedures and, if any proposed nomination or business is not in
compliance with such procedures, to declare that such defective proposal or
nomination will be disregarded. The CELCORE Bylaws do not require advance
notice of proposals or director nominations intended to be presented by a
CELCORE stockholder at an annual meeting.
RIGHTS OF DISSENTING STOCKHOLDERS
Holders of record of shares of CELCORE Capital Stock who follow the
appropriate procedures will be entitled to appraisal rights under Section 262
of the DGCL ("Section 262") in connection with the Merger. The following
summary of the provisions of Section 262 is not intended to be a complete
statement of such provisions and is qualified in its entirety by reference to
the full text of Section 262, a copy of which is attached to this
Prospectus/Proxy Statement as Appendix C and incorporated herein by reference.
Under Section 262, record holders of CELCORE Capital Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares
appraised by the Delaware Court of Chancery (the "Court") and to receive
payment of the "fair value" of their shares as of the Effective Time, exclusive
of any element of value arising from the accomplishment or expectation of the
Merger, together with a fair rate of interest, as determined by the Court.
However, no holder of CELCORE Capital Stock who votes in favor of the Merger
will be entitled to exercise these rights.
Under Section 262, where a merger agreement is to be submitted for approval
and adoption at a meeting of stockholders, as in the case of the Special
Meeting, not less than 20 days prior to the meeting, CELCORE must notify each
of its stockholders of record at the close of business on the Record Date that
appraisal rights are available and
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include in each such notice a copy of Section 262. THIS PROSPECTUS/PROXY
STATEMENT IS BEING SENT BY PERSONAL DELIVERY OR BY MAIL TO ALL HOLDERS OF
RECORD OF SHARES OF CELCORE CAPITAL STOCK ON THE RECORD DATE AND CONSTITUTES
NOTICE OF THE APPRAISAL RIGHTS AVAILABLE TO SUCH HOLDERS UNDER SECTION 262.
Any stockholder who wishes to exercise appraisal rights should review the
following discussion and Appendix C carefully, because failure to timely and
properly comply with the procedures specified in Section 262 will result in the
loss of appraisal rights under the DGCL.
A stockholder of CELCORE electing to exercise appraisal rights must, prior to
the vote concerning the Merger at the Special Meeting, perfect his, her or its
appraisal rights by demanding in writing from CELCORE the appraisal of his, her
or its shares of CELCORE Capital Stock. A vote against the Merger will not
constitute a demand for appraisal. A stockholder electing to take such action
must do so by a separate written demand as provided in Section 262. A holder
who elects to exercise appraisal rights should mail or deliver his, her or its
written demand to CELCORE at Attn: Corporate Secretary, 3800 Forest Hill -
Irene Road, Memphis, Tennessee, 38125, so as to be received before the vote on
the approval and adoption of the Merger Agreement at the Special Meeting. The
demand should specify the holder's name and mailing address, the number of
shares of CELCORE Capital Stock owned and that such holder is demanding
appraisal of his, her or its shares. Only a holder of record of shares of
CELCORE Capital Stock (or his, her or its duly appointed representative) is
entitled to assert appraisal rights for the shares registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder
of record fully and correctly, as the holder's name appears on the stock
certificates.
Within ten days after the Effective Time of the Merger, CELCORE must provide
notice of the Effective Time of the Merger to all stockholders who have
complied with Section 262 and have not voted in favor of approval and adoption
of the Merger Agreement and approval of the Merger. Within 120 days after the
Effective Time of the Merger, any stockholder who has made a valid written
demand and who has not voted in favor of approval and adoption of the Merger
Agreement and approval of the Merger may (i) file a petition in the Court
demanding a determination of the value of shares of CELCORE Capital Stock, and
(ii) upon written request, receive from CELCORE a statement setting forth the
aggregate number of shares of CELCORE Capital Stock not voted in favor of
approval and adoption of the Merger Agreement and approval of the Merger and
with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. Such statement must be mailed
within ten days after the written request therefor has been received by
CELCORE.
If a petition for an appraisal is timely filed, at a hearing on such
petition, the Court is required to determine the holders of Dissenting Shares
entitled to appraisal rights and to determine the "fair value" of the
Dissenting Shares exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with a fair rate of
interest, if any, to be paid upon the value of the Dissenting Shares. In
determining such "fair value," the Court is required to take into account all
relevant factors, including the market value of CELCORE Capital Stock and the
net asset and earnings value of CELCORE, and in determining the fair value of
interest, the Court may consider the rate of interest which CELCORE would have
had to pay to borrow money during the pendency of the proceeding. Upon
application by a stockholder, the Court may also order that all or a portion of
the expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorneys' fees and the
fees and expenses of experts utilized in the appraisal proceeding, be charged
pro rata against the value of all the shares of CELCORE Capital Stock entitled
to appraisal.
Any holder of Dissenting Shares who has duly demanded an appraisal under
Section 262 will not, after the Effective Time of the Merger, be entitled to
vote the shares subject to such demand for any purpose or be entitled to the
payment of dividends or other distributions on such Dissenting Shares (except
dividends or other distributions payable to stockholders of record as of a date
prior to the Effective Time of the Merger).
If any holder of shares of CELCORE Capital Stock who demands appraisal under
Section 262 effectively withdraws or loses, his, her or its right to appraisal,
the shares of such holder will be converted into a right to receive that number
of shares of DSC Common Stock as is determined in accordance with the Merger
Agreement. A holder will effectively lose his, her or its right to appraisal if
he, she or it votes in favor of approval and adoption of the Merger Agreement
and approval of the Merger, or if no petition for appraisal is filed within 120
days after the Effective Time of the Merger, or if the holder delivers to
CELCORE a written withdrawal of such holder's demand for an appraisal and an
acceptance of the Merger, except that any such attempt to withdraw made more
than 60 days after the Effective Time of the Merger requires the written
approval of CELCORE or its successor. A holder of stock represented by
certificates may also lose his, her or its right to appraisal if he, she or it
fails to comply with the Court's direction to submit such certificates of stock
to the Register in Chancery for notation thereon of the pendency of the
appraisal proceedings.
72
<PAGE> 78
STOCKHOLDERS' LISTS AND INSPECTION OF BOOKS AND RECORDS
Both the DSC Bylaws and the CELCORE Bylaws provide that any stockholder may
examine such corporation's list of stockholders for a period of at least 10
days prior to any meeting of stockholders, if such examination is for any
purpose germane to the meeting. The list may also be inspected at the time and
place of the meeting by any stockholder who is present. Except as stated above
and as provided by applicable law, no stockholder of DSC or CELCORE has any
additional rights to inspect the corporation's books and records.
73
<PAGE> 79
PROPOSAL TO APPROVE THE PAYMENTS UNDER THE EMPLOYMENT AGREEMENTS
At the Special Meeting, the stockholders of CELCORE will be asked to approve
the payments to Thomas R. Berger, James M. Foley and Joseph J. Gonzalez under
the Employment Agreements between each of those individuals and DSC. The
effectiveness of the Employment Agreements is contingent upon the consummation
of the Merger and the approval of the payments thereunder by the affirmative
vote of the holders of more than 75% of the outstanding shares of CELCORE
Capital Stock (excluding shares held by Messrs. Berger, Foley and Gonzalez and
certain of their related parties), voting together as a single class,
represented and entitled to vote at the Special Meeting or any adjournment
thereof. The approval of the payments under the Employment Agreements is not a
condition to consummation of the Merger.
BACKGROUND
In connection with the Merger Agreement, DSC and each of Messrs. Berger,
Foley and Gonzalez agreed to enter into the Employment Agreements, which
provide annual compensation and bonuses as follows: Mr. Berger, $226,550 and
$350,000; Mr. Foley, $151,225 and $150,000; and Mr. Gonzalez, $148,925 and
$150,000. The bonuses under the Employment Agreements will be payable in two
installments, the first of which is due on the Closing Date (as defined in the
Merger Agreement) and the second of which is due on the second anniversary of
the Closing Date, as follows: Mr. Berger, $100,000 and $250,000; Mr. Foley,
$50,000 and $100,000; and Mr. Gonzalez, $50,000 and $100,000. Under the
Employment Agreements, Messrs. Berger, Foley and Gonzalez have agreed to
forfeit and terminate the Canceled Options representing that portion of the BFG
Options that has not vested immediately prior to the Effective Time pursuant to
the terms of their Amended Option Agreements. In consideration of the
termination of the Canceled Options, on the date of the Effective Time, DSC
will execute and deliver to each of Messrs. Berger, Foley and Gonzalez a
promissory note, the principal balance of which will be payable in two equal
installments on the first and second anniversary of the Effective Time by
delivery of shares of DSC Common Stock on each such date. The Employment
Agreements also provide each of Messrs. Berger, Foley and Gonzalez with options
to purchase shares of DSC Common Stock and the eligibility to receive
performance-based bonus payments. Additionally, DSC has agreed to assume the
obligations of CELCORE under the Amended Option Agreements with Messrs. Berger,
Foley and Gonzalez. Pursuant to the Amended Option Agreements, each of Messrs.
Berger, Foley and Gonzalez agreed that the consummation of the Merger would not
result in the full and immediate exercisability of all BFG Options; provided
that as of the Effective Time, 20% of such unvested BFG Options will be
immediately exercisable representing the following shares of CELCORE Common
Stock: Mr. Berger, 67,500 shares; Mr. Foley, 16,500 shares; and Mr. Gonzalez,
22,500 shares. See "The Merger--Interests of Certain Persons; Possible
Conflicts of Interest."
DSC and Messrs. Berger, Foley and Gonzalez have agreed that the payments
under the Employment Agreements will be contingent upon the approval of the
holders of more than 75% of the outstanding CELCORE Capital Stock (and, for
this purpose, the shares of CELCORE Common Stock held by Messrs. Berger, Foley
and Gonzalez and certain of their related parties are not counted as
outstanding), voting together as a single class, represented and entitled to
vote at the Special Meeting or any adjournment thereof. The approval of the
payments under the Employment Agreements is not a condition to the consummation
of the Merger. However, in the absence of such stockholder approval, certain
payments under the Employment Agreements made within one year of the Effective
Time might be considered as "parachute payments" under Section 280G of the
Code. To the extent such payments are considered "excess parachute payments,"
then under Section 4999 of the Code, Messrs. Berger, Foley and Gonzalez would
be obligated to pay a non-deductible excise tax of 20% on their respective
excess parachute payments and, under Section 280G of the Code, DSC would not be
able to deduct the amount of the excess parachute payments.
The term "excess parachute payment" is defined in Section 280G of the Code.
This definition is based upon the term "parachute payment" which (in the
absence of certain conditions) means any payment in the nature of compensation
to, among others, an officer of a corporation when such payment is contingent
upon (and would not be made except for) a change in the ownership or effective
control of such corporation. The amount of any excess parachute payment is
reduced by any portion of the payment that is established by clear and
convincing evidence as reasonable compensation for personal services actually
rendered by such person on, after or before the date of the change in ownership
or control. Any payment pursuant to an agreement (or an amendment of a
previous agreement) that is entered into within one year before a change in
ownership or control is presumed to be contingent on such change unless the
contrary is established by clear and convincing evidence. A "parachute
payment" exists if the aggregate present value of the parachute payments equals
or exceeds an amount equal to three times the recipient's average annual
compensation for the immediately preceding five years (the "Base Amount").
74
<PAGE> 80
Certain payments, such as certain severance payments, if any, and bonus
payments made to Messrs. Berger, Foley and Gonzalez pursuant to the Employment
Agreements and the value realized from BFG Options held by such persons, might
be considered to be "excess parachute payments" if such payments are later
determined to have been contingent upon (and would not be made except for) a
change in the ownership or effective control of such corporation and are not
considered reasonable compensation. Because the proposed regulations under
Section 280G of the Code are subject to varying interpretations, it is
difficult to determine the exact amounts under the Employment Agreements which
would constitute parachute payments. Additionally, legislative, judicial, or
administrative changes or interpretations may be forthcoming that could alter
or modify any current understandings as to what constitutes a parachute payment
pursuant to Section 280G of the Code and the proposed regulations thereunder.
Therefore, it is not possible at this time to determine with certainty what
payments under the Employment Agreements are parachute payments. Although
CELCORE believes that such payments are reasonable compensation for personal
services actually rendered by Messrs. Berger, Foley and Gonzalez, there can be
no assurance that the IRS or the courts will not treat all or a portion of such
other payments under the Employment Agreements as "parachute payments," within
the meaning of Section 280G of the Code.
Notwithstanding the foregoing, under Section 280G of the Code, a payment to
an officer of a corporation (such as Messrs. Berger, Foley and Gonzalez) will
not be considered a parachute payment if the following conditions are met:
(a) immediately before the change of control, no stock in the corporation was
readily tradeable on an established securities market or otherwise; and
(b) the payment is approved by persons who hold, immediately before the
change of control, more than 75% of the voting power of all outstanding stock
of such corporation after adequate disclosure to the stockholders of all
material facts concerning the payment. For purposes of this vote, the shares
of CELCORE Capital Stock owned by Messrs. Berger, Foley and Gonzalez and
certain of their respective related parties will not be counted as
outstanding.
There is no established trading market for the shares of CELCORE Capital
Stock. See "Summary--Market Price Information." As a result, the payments
under the Employment Agreements will not be considered parachute payments if
the stockholders of CELCORE approve the payments under the Employment
Agreements.
VOTE REQUIRED FOR APPROVAL
The affirmative vote of the holders of 75% of the outstanding shares of
CELCORE Capital Stock (other than shares held by Messrs. Berger, Foley and
Gonzalez and certain of their respective related parties), voting together as a
single class, represented and entitled to vote at the Special Meeting or any
adjournment thereof, is necessary to approve the payments under the Employment
Agreements. Pursuant to the Voting Agreements, each Principal Stockholder has
agreed to vote, and has granted an irrevocable proxy to allow DSC to vote, the
Principal Stockholder Shares in favor of the Employment Agreements. The
Principal Stockholders may be deemed to beneficially own approximately 85.0% of
the shares of CELCORE Capital Stock. Therefore, no additional votes from the
holders of CELCORE Capital Stock are necessary to approve the payments under
the Employment Agreements.
THE BOARD OF DIRECTORS OF CELCORE UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE IN FAVOR OF THE PROPOSAL TO APPROVE THE PAYMENTS UNDER THE EMPLOYMENT
AGREEMENTS.
75
<PAGE> 81
PROPOSAL TO APPROVE THE WAIVER OF LIQUIDATION RIGHTS
BY HOLDERS OF CELCORE PREFERRED STOCK
Proposal 3 seeks approval of the holders of CELCORE Preferred Stock to waive
any Liquidation Rights as provided in the Certificate of Incorporation and
Certificates of Designations of CELCORE. The waiver of such Liquidation Rights
by the holders of CELCORE Preferred Stock is a condition to consummation of the
Merger. As currently in force, the Certificate of Incorporation and
Certificates of Designations of CELCORE provide that in the event of any
voluntary or involuntary liquidation, dissolution or winding up of CELCORE, or
any merger or consolidation of CELCORE with any other corporation or entity or
the sale of all or substantially all of CELCORE's assets to any other person,
before any distribution or payment shall be made to or set apart for the
holders of CELCORE Common Stock, the holders of Series B Preferred Stock,
Series C Preferred Stock and Series D Preferred Stock shall be entitled to
receive from the assets of CELCORE $2.00, $6.00 and $8.00 per share,
respectively, in cash or other property, such amount to be appropriately
adjusted in the event of any stock dividend, stock split or combination, or
similar recapitalization, plus dividends accrued but undeclared thereon. After
holders of Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock have received the full amount of their liquidation preferences,
the holders of Series A Preferred Stock will be entitled to receive prior and
in preference to any distribution of any assets of CELCORE to the holders of
CELCORE Common Stock, $0.50 per share in cash or other property, such amount to
be appropriately adjusted in the event of any stock dividend, stock split or
combination, or similar recapitalization, plus all accrued and unpaid
dividends. The Certificate of Incorporation and Certificates of Designations
of CELCORE further provide, however, that with respect to any Liquidation
Rights to which a holder of CELCORE Preferred Stock would be entitled upon a
merger or consolidation of CELCORE with any other corporation or entity or the
sale of all or substantially all of CELCORE's assets to any other person, such
Liquidation Rights may be waived if the holders of 80% of the outstanding
shares of CELCORE Preferred Stock, voting together as a single class, agree to
such a waiver.
The approval of Proposal 3 is necessary in order for CELCORE to effectuate
the Merger. Pursuant to the terms of the Merger Agreement, each share of
CELCORE Preferred Stock outstanding at the Effective Time will be converted
into a fraction of a share of DSC Common Stock, based on the Exchange Ratio.
CELCORE stockholders will also receive the Preferred Stock Purchase Rights
attaching to such stock pursuant to the DSC Rights Agreement. Any resulting
fractional share interest will be paid in cash. Pursuant to the terms of the
Merger Agreement, an aggregate amount equal to 5.333% of the shares of DSC
Common Stock otherwise issuable to holders of CELCORE Capital Stock by virtue
of the Merger will be placed into the Escrow Funds. See "Certain Provisions of
the Merger Agreement--Conversion of Securities" and "--Escrow and
Indemnification."
VOTE REQUIRED FOR APPROVAL
The affirmative vote of 80% of the outstanding shares of CELCORE Preferred
Stock, voting together as a single class, represented and entitled to vote at
the Special Meeting or any adjournment thereof, is necessary to approve
Proposal 3. Pursuant to the Voting Agreements, each Principal Stockholder who
is a holder of CELCORE Preferred Stock has waived, and has agreed to vote and
has granted an irrevocable proxy to DSC to vote in favor of the waiver of, any
Liquidation Rights as provided in the Certificate of Incorporation and
Certificates of Designations of CELCORE. The Principal Stockholders may be
deemed to beneficially own approximately [84.63]% of the shares of CELCORE
Preferred Stock. Therefore, no additional votes from the holders of CELCORE
Preferred Stock are necessary to approve the waiver of the Liquidation Rights
as provided in the Certificate of Incorporation and Certificates of
Designations of CELCORE. THE APPROVAL OF PROPOSAL 3 BY THE HOLDERS OF CELCORE
PREFERRED STOCK IS A CONDITION TO CONSUMMATION OF THE MERGER. ANY FAILURE TO
OBTAIN THE REQUISITE APPROVAL FOR PROPOSAL 3 WILL LIKELY PREVENT THE
CONSUMMATION OF THE MERGER.
THE BOARD OF DIRECTORS OF CELCORE UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
CELCORE PREFERRED STOCK VOTE IN FAVOR OF THE PROPOSAL TO WAIVE ANY LIQUIDATION
RIGHTS THEY HAVE AS PROVIDED IN THE CERTIFICATE OF INCORPORATION AND
CERTIFICATES OF DESIGNATIONS OF CELCORE.
76
<PAGE> 82
LEGAL MATTERS
The legality of the shares of DSC Common Stock being offered hereby will be
passed upon for DSC by Baker & McKenzie, Dallas, Texas. The federal income tax
consequences in connection with the Merger will be passed upon for DSC by Baker
& McKenzie and for CELCORE by Powell, Goldstein, Frazer & Murphy LLP.
EXPERTS
The consolidated financial statements and schedule of DSC and its
subsidiaries incorporated by reference in DSC's Annual Report (Form 10-K) for
the year ended December 31, 1996, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon incorporated by
reference therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of CELCORE as of December 31, 1995 and 1996, and for
each of the years in the three-year period ended December 31, 1996, have been
included herein and in the registration statement in reliance upon the report
of KPMG Peat Marwick, LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
The fairness opinion of DLJ incorporated by reference in this
Prospectus/Proxy Statement has been so incorporated in reliance upon the
authority of DLJ as experts in investment banking.
77
<PAGE> 83
GLOSSARY OF TERMS
A Interface The standard interface between the MSC and the BSC in
a GSM system whose purpose is to pass connection
related messages and paging requests between the MSC
and BSC. It is the most common "division point"
between the "switching" portion (MSC) and the "radio"
portion (BSC) of a GSM system.
AMPS An acronym for Advanced Mobile Phone Service, an
analog cellular standard originally developed by Bell
Labs and in use throughout North and South America
and many other world markets.
Base Station The network element that consists of the radio
frequency transmitter/receiver assembly used to
generate and receive the RF signal to communicate
with mobile and portable cellular phones
(subscribers).
BSC An acronym for the Base Station Controller, a network
element that controls the Base Station resources
including assigning voice channels, managing call
hand-offs, and controlling the power output of the
Base Station transmitters. The division of
functionality between the BSC and the Base Stations
varies from one manufacturer to another.
CDMA An acronym for Code Division Multiple Access which is
a technique for organizing a radio channel. In this
context, it refers to the IS-95 standard air link
protocol. In this implementation, a single 1.25MHz
wideband carrier transmits a digital sequence that
contains coded information that can support
approximately 20 simultaneous voice conversations.
GSM An acronym for Global System for Mobile
Communications. The ETSI standard for digital
cellular telephone systems that operate in the 890 to
960 MHZ frequency range. Although originally
specified for use in Europe, the standard has now
been adopted globally by more than 100 countries.
HLR An acronym for Home Location Register which is a
database of subscribers that are registered with the
network and contains profile and billing information.
IS-41 An abbreviation for Interim Standard 41 which is an
ANSI standard officially entitled "Cellular Radio
Telecommunications Intersystem Operations." It
describes the procedures and message formats that are
sent between networks that are necessary to provide
cellular subscribers transparency of service when
roaming between different cellular systems.
JAVA An interpreted, platform independent, object oriented
language designed specifically for graphical
applications.
MoU An acronym for Memorandum of Understanding. In this
context, it refers to the GSM MoU which is an
organization of Operators, prospective operators, and
government regulatory bodies that meet regularly and
form cooperative agreements covering the commercial
and operational aspects of GSM. The GSM MoU was
formed in 1987.
MSC An acronym for Mobile service Switching Center which
is the network element responsible for setting up and
terminating mobile calls to other mobiles as well as
to the PSTN. It is often referred to as the
"switch".
NMS An acronym for Network Management System which is the
network component that is used to monitor and control
various network elements. Some systems also are used
to add, delete, and modify subscriber databases.
These functions are also referred to as an Operations
Maintenance Center (OMC) or OA&M (see below).
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<PAGE> 84
OA&M An acronym for Operations, Administration, and
Maintenance system which, as its name implies,
includes all of the facilities associated with
operating and controlling the entities within a
system. This function can be performed by one or
more Network Management Systems (NMS) or Operations
Maintenance Centers (OMC).
Object oriented A software development strategy that organizes
software as a collection of objects that contain both
data structure and behavior.
OMC-R An acronym for Operations Maintenance Center for
Radio subsystem which is the entity used to
configure, monitor, and control the radio system
components. In GSM systems, the OMC-R provides these
functions for the Base Station Controllers and the
Base Stations.
OMC-S An acronym for Operations Maintenance Center for
Switching subsystem which is the entity used to
configure, monitor, and control the switching system
components. In GSM systems, the OMC-S can provide
these functions for the MSC, HLR, VLR, AuC, and other
related components.
PCS An acronym for Personal Communications Systems which
is a broad conceptual term that is used to describe
advanced communications services for wireline and
wireless networks for both voice and data. In the
context of this document, it refers to digital
airlink protocol wireless systems typically operating
at either 1,800 or 1,900 MHZ.
PSTN An acronym for Public Switched Telephone Network
which is the ordinary dial-up telephone network with
its multitude of country specific variants.
Switch An abbreviation for a wireline or cellular telephone
exchange or switching center that is used to connect
calling and called parties.
TDMA An acronym for Time Division Multiple Access which is
a technique for organizing a radio channel. In this
context, it refers to the IS-136 standard air link
protocol. In this implementation, a single 30KHz
wideband carrier transmits a digital sequence that
contains coded information that supports three
simultaneous voice conversations.
VLR An acronym for Visitor Location Register which is a
database of subscribers that are registered within
the area of the network that is under its control.
It is, therefore, made up of "temporary" entries that
are obtained from queries to each subscriber's Home
Location Register.
Wireless Local Loop Refers to the use of a radio link to link fixed
location telephone subscribers to the wired Public
Switched Telephone Network. The radio link and
complexity of a Wireless Local Loop system can vary
from as simple as a "last mile" basic one channel
radio system that emulates a copper pair of telephone
lines to a highly complex, city wide network with
active antenna systems designed to accommodate
100,000 or more subscribers.
<PAGE> 85
CELCORE, INC.
INDEX TO HISTORICAL FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets as of December 31, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations for the Years Ended December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . F-4
Statements of Redeemable Preferred Stock, Shareholders' Equity (Deficit) and Partners' Capital
for the Years Ended December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Cash Flows for the Years Ended December 31, 1994, 1995 and 1996 . . . . . . . . . . . . . . . . . . . F-6
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Balance Sheet as of September 30, 1997 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-15
Statements of Operations for the Nine Months Ended September 30, 1996 and 1997 (unaudited) . . . . . . . . . . . . F-16
Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1997 (unaudited) . . . . . . . . . . . . F-17
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-18
</TABLE>
F-1
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Celcore, Inc.:
We have audited the accompanying balance sheets of Celcore, Inc., as of
December 31, 1995 and 1996, and the related statements of operations,
redeemable preferred stock, shareholders' equity (deficit) and partners'
capital and cash flows for each of the years in the three-year period ended
December 31, 1996. These financial statements are the responsibility of
Celcore's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Celcore, Inc. as of December
31, 1995 and 1996, and the results of its operations and its cash flows for
each of the years in the three-year period ended December 31, 1996, in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Memphis, Tennessee
February 10, 1997
F-2
<PAGE> 87
CELCORE, INC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1996
<TABLE>
<CAPTION>
ASSETS 1995 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 14,467,858 $ 12,056,065
Accounts receivable, less allowances of $100,000 and
$400,000 in 1995 and 1996, respectively (note 11)
3,388,943 1,765,249
Inventories (note 3) 1,157,862 3,766,222
Prepaid expenses and other current assets 138,166 457,574
------------ ------------
TOTAL CURRENT ASSETS 19,152,829 18,045,110
------------ ------------
Furniture and equipment (note 4) 1,993,243 5,444,866
Less accumulated depreciation and amortization (317,688) (1,150,331)
------------ ------------
NET FURNITURE AND EQUIPMENT 1,675,555 4,294,535
------------ ------------
Other assets 81,587 487,282
------------ ------------
$ 20,909,971 $ 22,826,927
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current installments of long-term debt (note 5) $ -- $ 331,667
Accounts payable 1,579,531 1,113,926
Accrued expenses and other liabilities 249,950 586,513
Accrued relocation and recruiting 310,511 345,753
Unearned revenue 454,338 362,758
------------ ------------
TOTAL CURRENT LIABILITIES 2,594,330 2,740,617
Long-term debt (note 5) -- 497,500
Other 77,730 64,187
------------ ------------
TOTAL LIABILITIES 2,672,060 3,302,304
------------ ------------
REDEEMABLE PREFERRED STOCK, cumulative and convertible,
$.10 par value, aggregate liquidation and redemption
value of $24,228,270 in 1995 and $40,262,086 in 1996
Shares authorized - 7,000,000 in 1995 and 9,500,000
in 1996; shares issued and outstanding - 6,038,045 in
1995 and 8,042,272 in 1996 (note 7) 23,188,966 39,292,597
COMMITMENTS AND CONTINGENCIES (NOTE 6)
SHAREHOLDERS' EQUITY (DEFICIT) (NOTES 8 AND 10):
Series A preferred stock, cumulative and convertible
$.10 par value, aggregate liquidation value of
$2,250,000. 4,500,000 shares authorized, issued
and outstanding 450,000 450,000
Common stock, $.10 par value; shares authorized -
50,000,000; shares issued and outstanding -
5,500,000 in 1995 and 5,507,500 in 1996 550,000 550,750
Accumulated deficit (5,951,055) (20,768,724)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (4,951,055) (19,767,974)
------------ ------------
$ 20,909,971 $ 22,826,927
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
F-3
<PAGE> 88
CELCORE, INC.
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net revenues (notes 11 and 12) $ 2,166,050 $ 4,907,855 $ 3,680,032
Cost of revenues 709,404 1,762,013 1,350,854
------------ ------------ ------------
Gross profit 1,456,646 3,145,842 2,329,178
------------ ------------ ------------
Operating expenses:
Research and development 1,033,315 3,261,607 6,700,300
Sales and marketing 546,974 2,104,720 4,207,391
General and administrative 595,571 2,288,190 6,560,377
------------ ------------ ------------
2,175,860 7,654,517 17,468,068
------------ ------------ ------------
Operating loss (719,214) (4,508,675) (15,138,890)
Other income, net (note 13) 5,098 235,576 507,451
------------ ------------ ------------
Net loss $ (714,116) $ (4,273,099) $(14,631,439)
============ ============ ============
Net loss per common share
(note 2) $ (0.81) $ (2.69)
============ ============
Weighted average common
shares outstanding 5,500,000 5,501,567
</TABLE>
See accompanying Notes to Financial Statements.
F-4
<PAGE> 89
CELCORE, INC.
STATEMENTS OF REDEEMABLE PREFERRED STOCK,
SHAREHOLDERS' EQUITY (DEFICIT) AND PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY (DEFICIT)
----------------------------------------------------------
REDEEMABLE PREFERRED ADDITIONAL
PREFERRED STOCK COMMON PAID-IN ACCUMULATED
STOCK SERIES A STOCK CAPITAL DEFICIT
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $ -- $ -- $ -- $ -- $ --
Net loss through November 13, 1994 -- -- -- -- --
Issuance of 4,500,000 shares of
Series A preferred stock -- 450,000 -- -- (691,647)
Issuance of 5,500,000 shares of
common stock -- -- 550,000 -- (552,440)
Sale of 1,625,000 shares of Series B
preferred stock 3,150,446 -- -- -- --
Accretion of redeemable preferred
stock 12,413 -- -- -- (12,413)
Net loss from inception of corporation
to December 31, 1994 -- -- -- -- (250,572)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1994 3,162,859 450,000 550,000 -- (1,507,072)
Sale of 1,375,000 shares of Series B
preferred stock 2,732,342 -- -- -- --
Sale of 3,038,046 shares of Series C
preferred stock 17,122,881 -- -- -- --
Accretion of redeemable preferred
stock 170,884 -- -- -- (170,884)
Net loss for the year ended
December 31, 1995 -- -- -- -- (4,273,099)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 23,188,966 450,000 550,000 -- (5,951,055)
Exercise of options for 7,500 shares
of common stock -- -- 750 7,125 --
Sale of 2,004,227 shares of Series D
preferred stock 15,910,276 -- -- -- --
Accretion of redeemable preferred
stock 193,355 -- -- (7,125) (186,230)
Net loss for the year ended
December 31, 1996 -- -- -- -- (14,631,439)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 $ 39,292,597 $ 450,000 $ 550,750 $ -- $(20,768,724)
============ ============ ============ ============ ============
<CAPTION>
PARTNERS' CAPITAL
(NOTE 1)
----------------------------
GENERAL LIMITED
PARTNER PARTNERS
------------ ------------
Balance at December 31, 1993 $ 2,195 $ 217,262
Net loss through November 13, 1994 (4,635) (458,909)
Issuance of 4,500,000 shares of
Series A preferred stock -- 241,647
Issuance of 5,500,000 shares of
common stock 2,440 --
Sale of 1,625,000 shares of Series B
preferred stock -- --
Accretion of redeemable preferred
stock -- --
Net loss from inception of corporation
to December 31, 1994 -- --
------------ ------------
Balance at December 31, 1994 -- --
Sale of 1,375,000 shares of Series B
preferred stock -- --
Sale of 3,038,045 shares of Series C
preferred stock -- --
Accretion of redeemable preferred
stock -- --
Net loss for the year ended
December 31, 1995 -- --
------------ ------------
Balance at December 31, 1995 -- --
Exercise of options for 7,500 shares
of common stock -- --
Sale of 2,004,227 shares of Series D
preferred stock -- --
Accretion of redeemable preferred
stock -- --
Net loss for the year ended
December 31, 1996 -- --
------------ ------------
Balance at December 31, 1996 $ -- $ --
============ ============
</TABLE>
See accompanying Notes to Financial Statements.
F-5
<PAGE> 90
CELCORE, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (714,116) $ (4,273,099) $(14,631,439)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 51,905 272,534 853,649
Loss on sale of equipment -- -- 26,812
Changes in operating assets and liabilities:
Accounts receivable (403,260) (2,985,683) 1,623,694
Inventories (166,262) (973,335) (2,608,360)
Prepaids and other assets (23,934) (112,955) (319,408)
Accounts payable 137,604 1,425,333 (465,605)
Accrued expenses and other liabilities 180,114 320,350 377,609
Unearned revenue (16,740) 151,078 (91,580)
------------ ------------ ------------
TOTAL ADJUSTMENTS (240,573) (1,902,678) (603,189)
------------ ------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (954,689) (6,175,777) (15,234,628)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment (269,258) (1,488,976) (3,510,578)
Proceeds from disposal of equipment -- -- 19,974
Purchase of treasury bill -- -- (414,532)
Other (41,029) -- --
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (310,287) (1,488,976) (3,905,136)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 3,150,446 19,855,223 15,918,151
Proceeds from issuance of long-term debt -- -- 995,000
Principal payments on long-term debt -- -- (165,833)
Other -- (37,635) (19,347)
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 3,150,446 19,817,588 16,727,971
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 1,885,470 12,152,835 (2,411,793)
Cash and cash equivalents at beginning of year 429,553 2,315,023 14,467,858
------------ ------------ ------------
Cash and cash equivalents at end of year $ 2,315,023 $ 14,467,858 $ 12,056,065
============ ============ ============
Supplemental disclosure:
Interest paid for 1996 was $71,066. Capital lease
obligations of $155,664 and $20,461 were incurred in 1995
and 1996, respectively
</TABLE>
See accompanying Notes to Financial Statements.
F-6
<PAGE> 91
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF THE BUSINESS
Celcore, Inc. (the "Company" or "Celcore"), a Delaware corporation,
was incorporated in September 1992, and acted as the general partner
of Celcore LP until November 1994, when it succeeded to the business
of Celcore LP as a result of a reorganization. The reorganization was
affected by the exchange of convertible preferred stock to the Class B
limited partners and common stock to the Class A limited partners and
the general partner. The Partnership was liquidated, and all of the
Partnership's assets were transferred to the Company and all of the
liabilities of the Partnership were assumed by the Company; such
assets and liabilities were recorded in the Company's financial
statements at the Partnership's carrying value.
The Company designs, assembles and installs cost-effective wireless
telecommunications systems for cellular, PCS and wireless local loop
applications in low teledensity markets. The Company's "Target
Markets" are rural locations and areas in developing countries with
low teledensities and where wireline or traditional wireless
infrastructure is not readily available or economically feasible.
Since inception of operations (March 1993), the Company has not
generated revenues sufficient to cover its operating expenses. The
activities of the Company continue to require significant amounts of
working capital to finance its operations. During 1994, 1995, and
1996, the Company raised additional capital of $3,150,446, $19,855,223
and $15,918,151, respectively, to support operations. The Company may
require additional cash infusions until such time as operations become
self-sustaining.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH EQUIVALENTS
Cash equivalents of approximately $14,200,000 and $11,259,000 at
December 31, 1995 and 1996, respectively, consisted of overnight
repurchase agreements, treasury bills and securities of federal
agencies with an initial term of less than 90 days. For purposes of
the statements of cash flows, the Company considers all highly liquid
debt instruments with original maturities of 90 days or less to be
cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or
market.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost. Furniture under capital
leases is stated at the present value of minimum lease payments.
Depreciation and amortization of furniture and equipment is calculated
on a straight- line basis over the estimated useful lives of the
respective assets which are principally 7 years for furniture, 5 years
for computer hardware, and 3 years for computer software.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying values of the Company's financial instruments recorded on
the accompanying balance sheets approximate fair value due to the
short-term nature of the financial instruments.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 121 (SFAS121), Accounting for the Impairment
of Long-Lived Assets and For Long-Lived Assets to be Disposed Of, on
January
F-7
<PAGE> 92
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
1, 1996. This Statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such
amounts are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount of fair value less costs
to sell. Adoption of this Statement did not have a material impact on
the Company's financial position, results of operations, or liquidity.
INCOME TAXES
The Company is subject to income taxes under the provisions of SFAS
109, Accounting for Income Taxes. Under the asset and liability
method of Statement 109, deferred tax assets and liabilities are
recognized for the estimated future tax consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are
expected to be recovered or settled. Under SFAS 109, the effect on
deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
In assessing the realizability of the deferred tax assets, management
considers whether it is more likely than not that the deferred tax
assets will be realized through the generation of future taxable
income.
REVENUE RECOGNITION
For contracts involving new technologies, revenues and profits or
parts thereof are deferred until technological feasibility is
established, the products are delivered and customer acceptance is
obtained. For other product sales, revenue is recognized at the time
of shipment. Revenue from system installation and training is
recognized as services are provided.
UNEARNED REVENUE
The Company received payments in 1994, 1995 and 1996 relating to sales
commitments to customers for future shipment of the Company's
products. These payments have been recorded as unearned revenue and
recognized as revenue in accordance with the Company's revenue
recognition policy.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
LOSS PER COMMON SHARE
The Company's net loss per share calculations are based upon the
weighted average number of shares of common stock outstanding for each
period. Common shares issuable upon conversion of the Company's
preferred stock or common equivalent shares issuable, using the
treasury stock method, upon the exercise of options to purchase common
stock have not been included as the effect on net loss per common
share would be antidilutive. Net loss per common share has been
adjusted for the accretion of the Company's preferred stock to its
redemption value, which accretion has been included in Shareholders'
deficit. The Company has not paid dividends to holders of the
Company's common or preferred stock since its inception.
The Company operated as a limited partnership during most of 1994;
therefore, net loss per common share during 1994 is not applicable.
F-8
<PAGE> 93
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
CONCENTRATIONS OF RISK
Financial instruments which potentially expose the Company to
concentrations of credit risk consist primarily of trade accounts
receivable. The Company sells its products and services throughout
the world to places such as Asia, Africa, Europe and South America.
The Company performs an ongoing credit evaluation of its customers'
financial condition and has established an allowance for
non-collection of accounts receivable based upon the collectibility of
all accounts receivable.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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.
STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted SFAS 123, Accounting for Stock-Based Compensation,
which permits entities to recognize as expense over the vesting period
the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS 123 also allows entities to continue to apply the
provisions of APB Opinion 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants
made in 1995 and future years as if the fair- value-based method
defined in SFAS 123 had been applied. The Company has elected to
continue to apply the provisions of APB Opinion 25 and provide the pro
forma disclosure provisions of SFAS 123.
(3) INVENTORIES
Inventories at December 31, 1995 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Raw materials $1,085,128 $ 517,709
Work in process 44,797 20,850
Finished goods 27,937 3,227,663
---------- ----------
$1,157,862 $3,766,222
========== ==========
</TABLE>
(4) FURNITURE AND EQUIPMENT
Furniture and equipment at December 31, 1995 and 1996 consisted of the
following:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Furniture $ 285,779 $ 372,116
Computer hardware 1,220,417 3,885,192
Computer software 487,047 1,187,558
---------- ----------
$1,993,243 $5,444,866
========== ==========
</TABLE>
(5) LONG-TERM DEBT
On August 27, 1996, the Company entered into a loan and security
agreement for a $3,000,000 working capital line of
F-9
<PAGE> 94
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
credit, a $3,000,000 export/import working capital line of credit and
a $1,000,000 equipment line of credit. The lines of credit are
secured by substantially all assets of the Company and bear interest
at a rate of prime plus 1% for the working capital line of credit and
prime plus 1-1/2% for the export/import working capital line of credit
and the equipment line of credit. At December 31, 1996, the lines of
credit had no outstanding balances.
Long-term debt at December 31, 1996 consisted of a note payable for
$829,167 due in monthly principal payments of $27,639 plus interest at
prime plus 1-1/2% (9.75% at December 31, 1996), with final payment due
June 1999; the note was secured by substantially all assets of the
Company.
The Company's loan agreements contain various debt covenants including
tangible net worth, certain financial ratios and restrictions on
dividends.
Aggregated maturities of long-term debt as of December 31, 1996 are as
follows: 1997, $331,667; 1998, $331,667 and 1999, $165,833.
(6) COMMITMENTS AND CONTINGENCIES
The Company has several noncancelable operating leases, primarily for
office space. Total rental expense for operating leases was $40,673,
$187,722 and $600,237 for the years ended December 31, 1994, 1995 and
1996, respectively.
Future minimum lease payments under noncancelable operating leases as
of December 31, 1996 are:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
<S> <C>
1997 $ 575,080
1998 575,385
1999 260,625
2000 45,393
----------
$1,456,483
==========
</TABLE>
(7) REDEEMABLE PREFERRED STOCK
SERIES B PREFERRED STOCK
The 3,000,000 issued shares of Series B preferred stock have a
liquidation value of $2.00 per share and are participating and voting.
Each share of Series B preferred stock is convertible into shares of
common stock at a conversion rate of one share of common stock for
each share of preferred stock. The Company shall redeem one-third of
the outstanding preferred shares on each of December 1, 2000, 2001 and
2002. The redemption price shall be $2.00 per share plus all declared
dividends (note to date) and accrued dividends up to the redemption
dates.
SERIES C PREFERRED STOCK
The 3,038,046 issued shares of Series C preferred stock have a
liquidation value of $6.00 per share and are participating and voting.
Each share of Series C preferred stock is convertible into shares of
common stock at a conversion rate of one share of common stock for
each share of preferred stock. The Company shall redeem one-third of
the outstanding preferred shares on each of December 1, 2000, 2001 and
2002. The redemption price shall be $6.00 per share plus all declared
dividends (none to date) and accrued dividends up to the redemption
dates.
F-10
<PAGE> 95
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
SERIES D PREFERRED STOCK
The 2,004,227 issued shares of Series D preferred stock have a
liquidation value of $8.00 per share and are participating and voting.
Each share of Series D preferred stock is convertible into shares of
common stock at a conversion rate of one share of common stock for
each share of preferred stock. The Company shall redeem one-third of
the outstanding preferred shares on each of December 1, 2000, 2001 and
2002. The redemption price shall be $8.00 per share plus all declared
dividends (none to date) and accrued dividends up to the redemption
dates.
The Company is recording accretion to increase the carrying value of
the redeemable preferred stock to the redemption value of $40,262,086
by December 1, 2002.
(8) SHAREHOLDERS' EQUITY
COMMON STOCK
Of the authorized but unissued shares as of December 31, 1996,
12,542,273 have been reserved for conversion rights of preferred
stockholders.
SERIES A PREFERRED STOCK
The 4,500,000 issued shares of Series A preferred stock have a
liquidation value of $0.50 per share and are participating and voting.
Each share of Series A preferred stock is convertible into shares of
common stock at a conversion rate of one share of common stock for
each share of preferred stock.
F-11
<PAGE> 96
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
(9) INCOME TAXES
The tax effect of temporary differences at December 31, 1995 and 1996
is presented below:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Net difference in capitalized start-up, organization
and patent expenses $ 42,000 $ 66,000
Cash deposits recognized in taxable income 173,000 138,000
Inventories, principally due to adjustment
for tax purposes 21,000 24,000
Accruals, principally for warranties and moving
expenses 156,000 157,000
Accounts receivable, principally for sales deductions 38,000 152,000
Federal and state loss carryforwards 1,444,000 7,041,000
----------- -----------
Total gross deferred tax assets 1,874,000 7,578,000
Less valuation allowance (1,808,000) (7,357,000)
----------- -----------
Net deferred tax assets 66,000 221,000
Deferred tax liabilities - furniture and equipment,
principally due to depreciation (66,000) (221,000)
----------- -----------
Net deferred tax assets $ -- $ --
=========== ===========
</TABLE>
The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the period in which those
temporary differences become deductible. Due to the historical net
operating losses, management cannot reliably predict when the deferred
assets can be realized. Consequently, a valuation allowance of
$195,000, $1,808,000 and $7,357,000 has been provided at December 31,
1994 , 1995 and 1996, respectively. At December 31, 1996, the Company
has net operating loss carryforwards for federal and state income tax
purposes of approximately $18,500,000 which are available to offset
future federal and state income, if any, through 2012.
(10) STOCK OPTIONS
The 1995 Stock Option Plan (the "1995 Plan") provides for the granting
of stock options to employees, directors or consultants to the
Company. Under the 1995 Plan, the Board of Directors is authorized to
issue up to 2,000,000 shares of common stock. The Board has the
authority to select the individuals to receive options and determine
the number of shares and terms of the options granted.
In December 1996, the 1995 Plan was frozen with the simultaneous
adoption of the 1996 Stock Incentive Plan (the "1996 Plan"). The 1996
Plan provides for the granting of awards of shares of common stock,
awards of derivative securities related to the value of common stock,
and certain cash awards to employees, directors, and consultants of
the Company. Awards under the 1996 Plan are determined by a committee
of no less than two members of the Board of Directors. The Board of
Directors has reserved 3,000,000 shares of Company common stock for
issuance pursuant to awards that may be made under the 1996 Plan, and
has adopted a policy that shares of common stock issuable pursuant to
options outstanding under the 1995 Plan will be deducted from the
number of shares of common stock issuable pursuant to options
outstanding under the 1996 Plan. The number of shares available under
the 1996 Plan will be redetermined each succeeding fiscal year to
equal the greater of 3,000,000 or 15% of the issued and outstanding
shares of common stock on a fully diluted basis. The term of
F-12
<PAGE> 97
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
the 1996 Plan is indefinite. Substantially all stock options under
both plans have 10 year terms and shall be exercisable as to 25% of
the shares covered by the options on the first, second, third and
fourth anniversary of the dates of the grant.
As of December 31, 1996, options for 848,250 shares were available to
be awarded under the 1996 Plan.
The per share weighted-average minimum value of the stock options
granted during 1995 and 1996 was $.027 and $.055, respectively, on the
date of grant using the minimum value method with the following
weighted-average assumptions: risk free interest rate of 7% and an
expected life of 2 years after vesting.
The Company applies APB Opinion No. 25 in accounting for the plans.
The exercise price of options at their respective grant dates is equal
to the estimated fair market value, and accordingly, no compensation
cost has been recognized for the stock options in the financial
statements. Had the Company determined compensation cost based on the
minimum value at the grant date for its stock options under SFAS 123,
the Company's net loss for the years ended December 31, 1995 and 1996
would have been increased to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
NET LOSS
------------------------------
1995 1996
------------ ------------
<S> <C> <C>
As reported $ (4,273,099) $(14,631,439)
Pro forma $ (4,335,326) $(14,872,257)
Pro forma per share $ (0.82) $ (2.74)
</TABLE>
In 1995 and 1996 the Board of Directors granted options to officers
and employees at various prices which were believed to approximate the
fair market value of the shares at the grant date. Activity with
respect to these options during the period indicated is as follows:
<TABLE>
<CAPTION>
WEIGHTED-AVERAGE
NUMBER OF SHARES EXERCISE PRICE
---------------- --------------
<S> <C> <C>
Balance at December 31, 1994 -- --
Granted 1,099,500 $ 1.02
Canceled (87,000) 1.05
---------- ----------
Balance at December 31, 1995 1,012,500 1.02
Granted 1,245,250 2.10
Exercised (7,500) 1.05
Canceled (106,000) 1.84
---------- ----------
Balance at December 31, 1996 2,144,250 $ 1.61
========== ==========
</TABLE>
At December 31, 1996, the range of exercise prices and weighted
average contractual life of outstanding options was $0.50 to $2.10 and
9 years.
At December 31, 1996, the number of options exercisable was 260,250
and the weighted average exercise price of those options was $1.00.
F-13
<PAGE> 98
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
(11) SIGNIFICANT CUSTOMERS
The Company's sales and trade accounts receivable are concentrated
among a small number of customers. For the year ended December 31,
1994, sales to two customers aggregated approximately 78% and 16%,
respectively, of total net revenues. For the year ended December 31,
1995, sales to two customers represented approximately 20% and 21%,
respectively, of total net revenues. For the year ended December 31,
1996, sales to five customers aggregated approximately $2,500,000
representing approximately 72% of the Company's total net revenues.
Sales to these customers ranged from 10% to 17% of total net revenues.
(12) GEOGRAPHIC INFORMATION
Net Revenues from product sales and services provided outside the
United States for the years ended December 31, 1995 and 1996 (none in
1994) were as follows:
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Asia $469,435 $ 21,583
Europe -- 580,202
Africa 530,035 387,576
-------- --------
$999,470 $989,361
======== ========
</TABLE>
(13) OTHER INCOME, NET
<TABLE>
<CAPTION>
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest Income $ 10,705 $ 255,381 $ 608,995
Interest Expense (5,607) (9,429) (71,066)
Other, net -- (10,376) (30,478)
--------- --------- ---------
$ 5,098 $ 235,576 $ 507,451
========= ========= =========
</TABLE>
F-14
<PAGE> 99
CELCORE, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 619,279
Accounts receivable, less allowances of $477,336 4,153,989
Finance receivables, current (note 2) 614,989
Inventories (note 3) 5,629,406
Prepaid expenses and other current assets 817,238
------------
TOTAL CURRENT ASSETS 11,834,901
------------
Furniture and equipment 7,192,574
Less accumulated depreciation and amortization (2,175,177)
------------
NET FURNITURE AND EQUIPMENT 5,017,397
------------
Finance receivables, long-term (note 2) 638,796
Other assets 481,274
------------
$ 17,972,368
============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term debt (note 4) $ 450,000
Current installments of long-term debt (note 4) 2,385,972
Accounts payable 4,840,740
Accrued expenses and other liabilities 2,316,945
Unearned revenue 741,686
------------
TOTAL CURRENT LIABILITIES 10,735,343
------------
REDEEMABLE PREFERRED STOCK, cumulative and convertible, $.10 par
value, aggregate liquidation and redemption value of $40,262,086
Authorized 9,500,000 shares; 8,042,272 shares issued and
outstanding 39,438,766
COMMITMENTS AND CONTINGENCIES (NOTE 8)
SHAREHOLDERS' EQUITY (DEFICIT):
Series A preferred stock, cumulative and convertible $.10 par value,
aggregate liquidation value of $2,250,000. 4,500,000 shares
authorized, issued and outstanding 450,000
Common stock, $.10 par value; 50,000,000 shares authorized; 5,591,250
shares issued and outstanding 559,125
Accumulated deficit (33,210,866)
------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (32,201,741)
------------
$ 17,972,368
============
</TABLE>
See accompanying Notes to Financial Statements.
F-15
<PAGE> 100
CELCORE, INC.
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Net revenues (notes 5 and 6) $ 2,755,992 $ 9,485,096
Cost of revenues 918,568 5,719,315
------------ ------------
Gross profit 1,837,424 3,765,781
------------ ------------
Operating expenses:
Research and development 4,764,698 6,931,944
Sales and marketing 2,882,354 4,518,004
General and administrative 4,560,438 4,669,148
------------ ------------
12,207,490 16,119,096
------------ ------------
Operating loss (10,370,066) (12,353,315)
Other income (expense), net 342,102 (24,320)
------------ ------------
Net loss $(10,027,964) $(12,377,635)
============ ============
Net loss per common share $ (1.85) $ (2.26)
============ ============
Weighted average common
shares outstanding 5,500,238 5,532,839
</TABLE>
See accompanying Notes to Financial Statements.
F-16
<PAGE> 101
CELCORE, INC.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,027,964) $(12,377,635)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 499,566 1,034,123
Loss on disposal of equipment 26,812 100,085
Changes in operating assets and liabilities:
Accounts receivable 1,812,584 (2,388,739)
Finance receivables -- (1,253,785)
Inventories (1,031,549) (1,863,183)
Prepaids and other assets (148,592) (375,023)
Accounts payable (728,601) 3,726,811
Accrued expenses and other liabilities 719,887 1,320,490
Unearned revenue (326,922) 378,929
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (9,204,779) (11,697,927)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of furniture and equipment (2,238,870) (1,847,795)
Proceeds from disposal of equipment 19,974 --
Purchase of treasury bill -- (2,507,908)
Proceeds from sale of treasury bill -- 2,520,000
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (2,218,896) (1,835,703)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 15,828,351 90,038
Increase in short-term debt -- 450,000
Proceeds from issuance of long-term debt 995,000 2,000,000
Principal payments on long-term debt (82,917) (443,194)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 16,740,434 2,096,844
------------ ------------
Net increase (decrease) in cash and cash equivalents 5,316,759 (11,436,786)
Cash and cash equivalents at beginning of period 14,467,858 12,056,065
------------ ------------
Cash and cash equivalents at end of period $ 19,784,617 $ 619,279
============ ============
Supplemental disclosure:
Interest paid for 1997 and 1996 was $162,733 and
$42,375, respectively. A capital lease obligation of
$20,740 was incurred in 1996.
</TABLE>
See accompanying Notes to Financial Statements.
F-17
<PAGE> 102
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
(1) DESCRIPTION OF THE BUSINESS
The accompanying unaudited financial statements reflect, in the
opinion of management, all adjustments necessary to present fairly the
Company's financial position, results of operations and cash flows.
Such adjustments are of a recurring nature unless otherwise disclosed
herein. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to rules and regulations promulgated by the Securities and Exchange
Commission. However, the Company believes that the disclosures
contained herein are adequate to make information presented not
misleading. Nine month financial results may not be indicative of
annual financial results.
These unaudited financial statements and notes should be read in
conjunction with the audited financial statements and accompanying
notes.
The Company designs, assembles and installs cost-effective wireless
telecommunications systems for cellular, PCS and wireless local loop
applications in low teledensity markets. The Company's "Target
Markets" are rural locations and areas in developing countries with
low teledensities and where wireline or traditional wireless
infrastructure is not readily available or economically feasible.
Since inception of operations (March 1993), the Company has not
generated revenues from operations sufficient to cover its operating
expenses. The activities of the Company continue to require
significant amounts of working capital to finance its operations. The
Company has not raised additional capital to support operations during
1997. The Company will require additional cash infusions until such
time as operations become self-sustaining.
(2) FINANCE RECEIVABLES
The Company began extending long-term credit in 1997 to certain of its
customers at interest rates commensurate with the credit and
prepayment risks involved. At September 30, 1997, total finance
receivables were $1,253,785. Aggregate maturities of finance
receivables for each twelve month period subsequent to September 30,
1997, are $614,989 and $638,796 in 1998 and 1999, respectively.
(3) INVENTORIES
Inventories at September 30, 1997 consisted of the following:
<TABLE>
<S> <C>
Raw materials $ 542,453
Finished goods 5,086,953
----------
$5,629,406
==========
</TABLE>
(4) LONG-TERM DEBT
As of September 30, 1997, the Company had outstanding borrowings of
$450,000 under a working capital line and had utilized $375,000 to
collateralize a standby letter of credit. Interest on the outstanding
borrowings are at prime plus 1 and 1/2%. Additionally, the Company
had outstanding borrowings of $2,385,972 under a term loan. This term
loan bears interest at prime plus 1 and 1/2%. All of the
F-18
<PAGE> 103
CELCORE, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
borrowings are secured by all of the assets of the Company. As of
September 30, 1997, the Company was in default of certain financial
covenants contained in the term loan agreement and has not repaid the
outstanding line of credit balance which expired in August 1997. As a
result, all outstanding borrowings have been classified as current at
September 30, 1997. (See note 7)
In the fourth quarter of 1997, the Company entered into a $10,000,000
revolving credit agreement with DSC Communications Corporation (DSC)
to fund working capital requirements. Borrowings under the Agreement
will be unsecured, bear interest at 11.5% per annum and will mature on
January 15, 1998. At October 31, 1997, the Company had borrowed
$4,400,000 under the revolving credit agreement. (See note 7)
(5) SIGNIFICANT CUSTOMERS
The Company's net revenues and trade accounts receivable are
concentrated among a small number of customers. For the nine months
ended September 30, 1997, sales to eight customers aggregated
$8,492,173 representing approximately 90% of the Company's total net
revenues. For the nine months ended September 30, 1996, sales to eight
customers aggregated $1,984,651 representing approximately 72% of the
Company's total net revenues.
For the nine months ended September 30, 1997, net revenues of
approximately $5.1 million were attributable to two customers located
in South America.
(6) RELATED PARTY TRANSACTION
During the third quarter of 1997, CELCORE recorded an approximate
$250,000 special sales allowance provision related to the expected
return of certain equipment with an original selling price of
approximately $764,000. The equipment was sold in 1997 to a customer
who is an affiliate of a 11.05% owner of the Company's Capital Stock.
(7) SUBSEQUENT EVENT
In October 1997, the Company entered into a merger agreement with DSC.
The merger, valued at approximately $167,000,000 (including
transaction costs), will be consummated with the issuance of DSC
common stock in exchange for all the outstanding common and preferred
shares of the Company. DSC will assume substantially all of the
Company's outstanding stock options. The merger is subject to a number
of items including governmental approval and should be completed prior
to the end of 1997.
Should the merger be consummated, the Company's short-term and
long-term cash requirements would be funded by DSC. It is anticipated
that DSC would advance the Company the necessary funds to repay all
outstanding borrowings with its bank. However, if the merger is not
consummated, it would be necessary for the Company to find alternative
financing, which may include extending terms with its bank, a debt or
equity offering or other lending sources. There can be no assurance
that the Company would be able to raise the necessary funds to sustain
future operations.
(8) COMMITMENTS AND CONTINGENCIES
The Company is a party to routine legal proceedings incidental to its
business. The Company does not believe the ultimate resolution of
these legal proceedings will have a material adverse effect on its
financial position and results of operations.
F-19
<PAGE> 104
APPENDIX A
AGREEMENT AND
PLAN OF MERGER
A-1
<PAGE> 105
================================================================================
AGREEMENT AND PLAN OF MERGER
Among
DSC COMMUNICATIONS CORPORATION,
CI ACQUISITION COMPANY
and
CELCORE, INC.
Dated October 29, 1997
================================================================================
<PAGE> 106
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Effective Time; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.03. Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.04. Certificate of Incorporation; Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.05. Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.02. Exchange of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 2.03. Stock Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.04. Stock Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 2.05. Escrow Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 2.06. Appraisal Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE TARGET
SECTION 3.01. Corporate Organization and Qualification; Subsidiaries . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.02. Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.03. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 3.04. Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.05. No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 3.06. Permits; Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.07. Financial Statements; Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.08. Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.09. Absence of Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.10. Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.11. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 3.12. Intellectual Property Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.14. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 3.15. Target Products; Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.16. Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.17. Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 107
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C>
SECTION 3.18. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.19. Tangible Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.20. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.21. Accounting and Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 3.22. Certain Business Practices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.23. Real Property and Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 3.24. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.25. Indemnification Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.26. Board Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.27. Change in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 3.28. Payments Resulting from Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB
SECTION 4.01. Corporate Organization and Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.02. Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.03. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 4.04. Authority Relative to This Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.05. No Conflict; Required Filings and Consents . . . . . . . . . . . . . . . . . . . . . . . . . 33
SECTION 4.06. Ownership of Parent Sub; No Prior Activities . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.07. Parent Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.08. Parent Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
SECTION 4.09. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 4.10. Subsequent Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
SECTION 4.11. Certain Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Target Pending the Merger . . . . . . . . . . . . . . . . . . . . 35
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 6.02. Target's Stockholder Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.03. Appropriate Action; Consents; Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.04. Access to Information; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
ii
<PAGE> 108
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C>
SECTION 6.05. No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
SECTION 6.06. Obligations of Parent Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.07. Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.08. Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.09. Further Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.10. Registration on Form S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.11. Tax-Free Reorganization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.12. Unaudited Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.13. Letters of Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.14. Update Disclosure; Breaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
SECTION 6.15. Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.16. Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 6.17. DSC Special Celcore Incentive Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party . . . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 7.02. Conditions to the Obligations of Parent and Parent Sub . . . . . . . . . . . . . . . . . . . 46
SECTION 7.03. Conditions to the Obligations of Target . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 8.02. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 8.03. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 8.04. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
ARTICLE IX
ESCROW AND INDEMNIFICATION
SECTION 9.01. Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 9.02. Parent Escrow Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 9.03. Representative Escrow Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
</TABLE>
iii
<PAGE> 109
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
------- ----
<S> <C>
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.02. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 10.04. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.05. Entire Agreement and Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.06. Target Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.07. Assignments, Successors, and No Third-Party Rights . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.08. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.09. Section Headings, Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 10.10. Time of Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.11. Incorporation of Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.12. Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.13. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.14. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.15. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
SECTION 10.16. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
EXHIBITS:
Exhibit A Certificate of Incorporation
Exhibit B Affiliate Agreement
Exhibit C Voting Agreement
Exhibit D Tax Opinion of Baker & McKenzie
Exhibit E Tax Opinion of Powell, Goldstein, Frazer & Murphy LLP
Exhibit F Opinion of Powell, Goldstein, Frazer & Murphy LLP
Exhibit G Opinion of Baker & McKenzie
Exhibit H DSC Special Celcore Incentive Plan
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This AGREEMENT AND PLAN OF MERGER, dated as of October 29, 1997 (this
"Agreement"), by and among DSC Communications Corporation, a Delaware
corporation ("Parent"), CI Acquisition Company, a Delaware corporation and a
direct, wholly owned subsidiary of Parent ("Parent Sub"), and Celcore, Inc., a
Delaware corporation (the "Target").
WHEREAS, Parent Sub, upon the terms and subject to the conditions of
this Agreement and in accordance with the Delaware General Corporation Law
("Delaware Law"), will merge with and into Target (the "Merger") and as a
result of the Merger, the separate corporate existence of Parent Sub shall
cease and Target shall continue as the surviving corporation of the Merger (the
"Surviving Corporation");
WHEREAS, the Board of Directors of Target (i) has determined that the
Merger is in the best interests of Target and its stockholders (the "Target
Stockholders") and unanimously approved and adopted this Agreement and the
transactions contemplated hereby (the "Transactions") and (ii) has unanimously
recommended approval and adoption of this Agreement and approval of the Merger
by, and directed that this Agreement and the Merger be submitted to a vote of,
the Target Stockholders;
WHEREAS, the Boards of Directors of Parent and Parent Sub have
determined that the Merger is in the best interests of Parent and Parent Sub
and their stockholders and have unanimously approved and adopted this Agreement
and the Transactions; and
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a tax-free reorganization under the provisions of
Section 368(a) of the United States Internal Revenue Code of 1986, as amended
(the "Code").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Parent Sub and Target hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement and in accordance with Delaware Law, at
the Effective Time (as defined below), Parent Sub shall be merged with and into
Target. As a result of the Merger, the outstanding shares of capital stock of
Parent Sub and Target shall be converted or canceled in the manner provided in
Article II of this Agreement, the separate corporate existence of Parent Sub
shall cease, and Target will be the surviving corporation in the Merger and
shall become a subsidiary of Parent. The name of the Surviving Corporation
shall be DSC/Celcore, Inc.
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SECTION 1.02. Effective Time; Closing. As promptly as practicable on
or before December 1, 1997, and in no event later than the first business day
following the satisfaction or, if permissible, waiver of the conditions set
forth in Article VII (or such other date as may be agreed in writing by each of
the parties hereto), the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware (the "Secretary") in such
form as is required by, and executed in accordance with the relevant provisions
of, Delaware Law. The term "Effective Time" means the date and time of the
filing of the Certificate of Merger with the Secretary (or such later time as
may be agreed in writing by each of the parties hereto and specified in the
Certificate of Merger). Immediately prior to the filing of the Certificate of
Merger, a closing (the "Closing") will be held at the Dallas, Texas offices of
Baker & McKenzie (the "Closing Date") (or such other place as the parties may
agree).
SECTION 1.03. Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the rights, privileges, powers and
franchises (of a public as well as of a private nature) of Target and Parent
Sub and all property (real, personal and mixed) of Target and Parent Sub and
all debts due to either Target or Parent Sub on any account, including
subscriptions to shares, and every other interest of or belonging to or due to
each of Target and Parent Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of each of Target and Parent Sub shall become the
debts, liabilities, obligations and duties of the Surviving Corporation and may
be enforced against the Surviving Corporation to the same extent as if such
debts, liabilities, obligations and duties had been incurred or contracted by
the Surviving Corporation. The title to any real estate or any interest
therein vested, by deed or otherwise, in Target or Parent Sub shall not revert
or in any way become impaired by reason of the Merger, and all rights of
creditors and all liens upon any property of Target or Parent Sub shall be
preserved unimpaired following the Merger.
SECTION 1.04. Certificate of Incorporation; Bylaws. (a) At the
Effective Time, the certificate of incorporation of Target, as in effect
immediately prior to the Effective Time, shall be amended as of the Effective
Time by operation of this Agreement and by virtue of the Merger without any
further action by the stockholders or directors of the Surviving Corporation to
read in its entirety as set forth in Exhibit A attached hereto.
(b) At the Effective Time, the bylaws of Parent Sub, as
in effect immediately prior to the Effective Time, shall be the bylaws of the
Surviving Corporation until thereafter amended as provided by Delaware Law, the
certificate of incorporation of the Surviving Corporation and such bylaws.
SECTION 1.05. Directors and Officers. The directors of Parent Sub
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the certificate
of incorporation and bylaws of the Surviving
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Corporation until a successor is elected or appointed and has qualified or
until the earliest of such director's death, resignation, removal or
disqualification, and the officers of Parent Sub immediately prior to the
Effective Time shall be the initial officers of the Surviving Corporation, in
each case until their respective successors are duly elected or appointed and
qualified, or as otherwise provided in the bylaws of the Surviving Corporation.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Parent Sub, Target
or the holders of any of the following securities:
(a) Each share of common stock, $0.10 par value per share
("Target Common Stock"), of Target issued and outstanding immediately prior to
the Effective Time (other than Dissenting Shares (as defined below)) shall be
converted into the right to receive that number of shares of common stock, par
value $0.01 per share (including any preferred stock purchase rights issuable
pursuant to the Rights Agreement, dated April 25, 1996 between Parent and
KeyCorp Shareholder Services, Inc. as rights agent, or any other purchase right
issued in substitution thereof, "Parent Common Stock"), of Parent equal to the
Exchange Ratio. The "Exchange Ratio" shall be a fraction, the numerator of
which is eight (8) and the denominator of which is the Average Trading Price of
the Parent Common Stock; provided, however, in the event the Average Trading
Price is twenty-five dollars ($25.00) or less then the Exchange Ratio shall be
.32. The term "Average Trading Price" shall mean the average of the reported
last sale prices of a share of Parent Common Stock on the NASDAQ National
Market ("Nasdaq") as reported by Nasdaq for the 10 consecutive trading days
ending immediately preceding the second trading day before the meeting of
Target Stockholders (as defined below) called for the purpose of voting on the
Merger.
(b) Each share of Series A Convertible Preferred Stock,
par value $0.10 per share ("Series A Preferred Stock"), Series B Convertible
Preferred Stock, par value $0.10 per share ("Series B Preferred Stock"), Series
C Convertible Preferred Stock, par value $0.10 per share ("Series C Preferred
Stock"), and Series D Convertible Preferred Stock, par value $0.10 per share
("Series D Preferred Stock"), of Target (collectively, the "Target Preferred
Stock") issued and outstanding immediately prior to the Effective Time (other
than Dissenting Shares) shall be converted into the right to receive that
number of shares of Parent Common Stock equal to the Exchange Ratio.
(c) From and after the Effective Time, all shares of
Target Common Stock and Target Preferred Stock (together referred to as the
"Target Stock") (other than Dissenting Shares) shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each certificate previously representing any such shares (other than
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Dissenting Shares) shall thereafter represent the right to receive, subject to
Section 2.02(h), a certificate representing the shares of Parent Common Stock
into which such Target Stock was converted in the Merger. Subject to Section
2.02(h), certificates previously representing shares of Target Stock (other
than Dissenting Shares) shall be exchanged for certificates representing whole
shares of Parent Common Stock issued in consideration therefor upon the
surrender of such certificates in accordance with the provisions of Section
2.02, without interest. All arithmetic calculations of conversions pursuant to
this Section 2.01 shall be made through the fourth decimal place (i.e., to the
closest ten-thousandth). No fractional share of Parent Common Stock shall be
issued, and, in lieu thereof, a cash payment shall be made pursuant to Section
2.02(e) hereof. In any event, if between the date of this Agreement and the
Effective Time, the outstanding shares of Parent Common Stock, Target Common
Stock or Target Preferred Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination
or exchange of shares.
(d) Any shares of Target Stock held in the treasury of
Target and any shares of Target Stock owned by Parent or any direct or indirect
wholly owned subsidiary of Parent or of Target immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof and no payment shall be made with respect thereto.
(e) Each share of common stock, par value $0.01 per
share, of Parent Sub ("Parent Sub Common Stock") issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one newly and validly issued, fully paid and non-assessable share of common
stock of the Surviving Corporation.
SECTION 2.02. Exchange of Certificates. (a) Exchange Agent. As of
or before the Effective Time, Parent shall deposit, or shall cause to be
deposited, with a bank or trust company organized under the laws of, and having
an office in, any state of the United States and designated by Parent (the
"Exchange Agent"), for the benefit of the holders of shares of Target Stock
and, for exchange through the Exchange Agent in accordance with this Article
II, (i) certificates representing the whole shares of Parent Common Stock
issuable pursuant to Section 2.01 in exchange for outstanding shares of Target
Stock and (ii) cash in an amount sufficient to permit payment of cash payable
in lieu of fractional shares pursuant to Section 2.02(e) (such certificates for
shares of Parent Common Stock, together with any dividends or distributions
with respect thereto, and cash, being hereinafter referred to as the "Exchange
Fund"). Subject to Section 2.02(h), the Exchange Agent shall, pursuant to
irrevocable instructions from Parent, deliver the Parent Common Stock and cash
contemplated to be issued pursuant to Section 2.01 out of the Exchange Fund.
(b) Exchange Procedures. Promptly after the Effective
Time and subject to Section 2.02(h), Parent shall instruct the Exchange Agent
to mail to each holder of record
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of a certificate or certificates which immediately prior to the Effective Time
represented outstanding shares of Target Stock (the "Certificates") (i) a
letter of transmittal (which shall be in customary form and specify that
delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates to the Exchange
Agent) and (ii) instructions for exchanging the Certificates for certificates
representing shares of Parent Common Stock. Upon surrender of a Certificate
for cancellation to the Exchange Agent together with such duly executed letter
of transmittal and such other documents as may be required pursuant to such
instructions, the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate representing that number of whole shares of
Parent Common Stock which such holder has the right to receive in respect of
the shares of Target Stock formerly represented by such Certificates, less a
number of shares of Parent Common Stock constituting such holder's
proportionate interest of the shares held in escrow pursuant to Section 2.02(h)
hereof, as set forth in Schedule 2.01, together with cash in lieu of fractional
shares (rounded to the nearest whole share) of Parent Common Stock to which
such holder is entitled pursuant to Section 2.02(e) and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.02(c).
The surrendered Certificates shall then be marked canceled. In addition, the
holder of such Certificate subsequently may receive shares of Parent Common
Stock and other property in accordance with the escrow provisions of Article
IX. In the event of a transfer of ownership of shares of Target Stock which is
not registered in the transfer records of Target, a certificate representing
the proper number of shares of Parent Common Stock may be issued to a
transferee if the Certificates representing such shares of Target Stock are
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this
Section 2.02, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the certificate
representing shares of Parent Common Stock, cash in lieu of any fractional
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.02(e) and any dividends or other distributions to which such holder
is entitled pursuant to Section 2.02(c).
(c) Distributions with Respect to Unexchanged Shares of
Parent Common Stock. No dividends or other distributions declared or made
after the Effective Time with respect to Parent Common Stock with a record date
after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Parent Common Stock evidenced thereby
until the holder of such Certificate shall surrender such Certificate. Subject
to the effect of applicable laws, following surrender of any such Certificate,
there shall be paid to the holder of such Certificate, in addition to the
shares of Parent Common Stock as provided in Section 2.02(b), without interest,
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to the whole shares of Parent
Common Stock evidenced by such Certificate. There shall be paid to the holder
of the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest: (i) promptly, the amount of cash payable
with respect to a fractional share of Parent Common Stock to which such holder
is entitled pursuant to Section 2.02(e) and the
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amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of Parent
Common Stock, subject to the escrow provisions of Article IX hereof, and (ii)
at the appropriate payment date, the amount of dividends or other
distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of Parent Common Stock, subject to the escrow provisions of
Article IX hereof.
(d) No Further Rights in Target Stock. All shares of
Parent Common Stock issued or paid upon conversion of the shares of Target
Stock in accordance with the terms hereof (including any cash paid or other
distributions pursuant to Sections 2.02(c) and (e)) shall be deemed to have
been issued or paid in full satisfaction of all rights pertaining to such
shares of Target Stock.
(e) No Fractional Shares. No certificates or scrip
evidencing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates, but in lieu thereof each Target
Stockholder who would otherwise be entitled to receive a fraction of a share of
Parent Common Stock, after aggregating all shares of Parent Common Stock which
such holder would be entitled to receive under Section 2.01, shall receive an
amount equal to the Average Trading Price multiplied by the fraction of a share
of Parent Common Stock to which such holder would otherwise be entitled,
without interest. Such payment in lieu of fractional shares shall be
administered by the Exchange Agent pursuant to the procedures set forth in
Section 2.02(b).
(f) Termination of Exchange Fund. Any portion of the
Exchange Fund which remains undistributed to the holders of Target Stock for
one year after the Effective Time shall be delivered to Parent, upon demand,
and, subject to Section 2.02(g), any holders of Target Stock who have not
theretofore complied with this Article II shall thereafter look only to Parent
for the shares of Parent Common Stock, any cash in lieu of fractional shares of
Parent Common Stock to which they are entitled pursuant to Section 2.02(e) and
any dividends or other distributions with respect to Parent Common Stock to
which they are entitled pursuant to Section 2.02(c).
(g) No Liability. Neither Parent nor the Surviving
Corporation shall be liable to any Target Stockholders for any shares of Parent
Common Stock or cash (or dividends or distributions with respect thereto)
delivered to a public official following termination of the Exchange Fund
pursuant to any applicable abandoned property, escheat or similar Law.
(h) Escrow. Notwithstanding the foregoing, at the
Effective Time, five percent (5%) of the shares (rounded to the nearest whole
share) of Parent Common Stock issuable pursuant to Section 2.01 hereof to
Target Stockholders (including holders of Target Options) as a result of the
Merger shall be segregated and deducted therefrom and established as an escrow
amount (the "Parent Escrow Amount"). In addition, at the Effective Time, three
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hundred and thirty-three one-thousandths percent (.333%) of the shares (rounded
to the nearest whole share) of Parent Common Stock issuable pursuant to Section
2.01 hereof to the Target Stockholders (including holders of Target Options) as
a result of the Merger shall be segregated and deducted therefrom and
established as an escrow amount (the "Representative Escrow Amount"). The
Parent Escrow Amount and the Representative Escrow Amount shall be held in
accordance with and subject to the provisions of Article IX of this Agreement.
The Parent Escrow Amount shall be held as collateral for the indemnification
obligations of the Persons who were holders of Target Stock and Target Options
immediately prior to the Effective Time under Article IX of this Agreement.
The Representative Escrow Amount shall be held for the purpose of paying
certain costs and expenses of the Representative (as defined below) in
performing his/her obligations under Article IX.
(i) Lost Certificates. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the Person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such Person of a bond in
such reasonable amount as the Surviving Corporation may direct as indemnity
against any claim that may be made against it with respect to such Certificate,
the Exchange Agent will issue in exchange for such lost, stolen or destroyed
Certificate the shares of Parent Common Stock (subject to Section 2.02(h)), and
unpaid dividends and distributions on shares of Parent Common Stock deliverable
in respect thereof pursuant to this Agreement.
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of Target shall be closed and there shall be no further
registration of transfers of shares of Target Stock thereafter on the records
of Target. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into the shares of
Parent Common Stock (subject to Section 2.02(h)), any cash in lieu of
fractional shares of Parent Common Stock to which they are entitled pursuant to
Section 2.02(e) and any dividends or other distributions to which they are
entitled pursuant to Section 2.02(c) in accordance with the terms of this
Agreement.
SECTION 2.04. Stock Options. (a) All options (the "Target Options")
under the Target's 1995 Stock Option Plan and 1996 Stock Incentive Plan
(together, the "Target Stock Option Plan"), outstanding at the Effective Time,
whether or not exercisable, whether or not vested, and whether or not
performance-based, shall remain outstanding following the Effective Time,
except that, in accordance with the amendments to the Target Options for
Messrs. Berger, Foley, Gonzalez and Rosen, each of which is dated January 30,
1997 under the Target Stock Option Plan, the Target Options for Messrs. Berger,
Foley, Gonzales and Rosen shall be fully exercisable immediately prior to the
Effective Time. At the Effective Time, the Target Options shall, by virtue of
the Merger and without any further action on the part of the holders thereof or
the Target, be assumed by Parent. From and after the Effective Time, all
references to the Target in the Target Stock Option Plan and the applicable
stock option agreements issued thereunder shall be deemed to refer to Parent,
which shall have assumed the Target Stock Option Plan as of the Effective Time
by virtue of this Agreement
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and without any further action. Each Target Option assumed by Parent (each a
"Substitute Option") shall be exercisable upon the same terms and conditions as
under the applicable Target Stock Option Plan and the applicable option
agreement issued thereunder, except that (i) each such Target Option shall be
exercisable for, and represent the right to acquire, that whole number of
shares of Parent Common Stock (rounded up or down to the nearest whole share)
equal to the number of shares of Target Common Stock subject to such Target
Option multiplied by the Exchange Ratio; (ii) the option price per share of
Parent Common Stock shall be an amount equal to the option price per share of
Target Common Stock subject to such Target Option in effect immediately prior
to the Effective Time divided by the Exchange Ratio (the option price per
share, as so determined, being rounded upward to the nearest full cent); and
(iii) with respect to any Target Option which is performance-based, the
performance targets shall be adjusted following the Effective Time in the good
faith judgment of the Board of Directors of Parent to fairly reflect the
impact, if any, of the Transactions; and (iv) in the case of any Substitute
Option that remains unexercised as of the termination of the Escrow Period (as
defined below), the number of shares of Parent Common Stock issuable upon the
exercise of such Substitute Options shall be reduced in proportion to any
reduction in the number of shares of Parent Common Stock received by holders of
the Substitute Options assumed by Parent which are exercised prior to the
Expiration Date as a result of any distribution made to Parent pursuant to
Article IX of this Agreement. No payment shall be made for fractional
interests of Parent Common Stock represented by the Substitute Options.
(b) As soon as practicable after the Effective Time,
Parent shall deliver to each holder of an outstanding Target Option an
appropriate notice setting forth such holder's rights pursuant thereto and such
Target Option shall continue in effect on the same terms and conditions
(including any antidilution provisions, and subject to the adjustments required
by this Section 2.04 after giving effect to the Merger). Parent shall comply
with the terms of all such Target Options and ensure, to the extent required
by, and subject to the provisions of, the Target Stock Option Plan that Target
Options which qualified as incentive stock options under Section 422 of the
Code (as defined below) prior to the Effective Time continue to qualify as
incentive stock options after the Effective Time. Parent shall take all
corporate action necessary to reserve for issuance a sufficient number of
shares of Parent Common Stock for delivery upon exercise of Substitute Options
pursuant to the terms set forth in this Section 2.04. Following the Effective
Time, the shares of Parent Common Stock subject to Target Options will be
covered by an effective registration statement on Form S-8 (or any successor
form) or another appropriate form with the Securities and Exchange Commission
("SEC") and Parent shall use its Best Efforts to maintain the effectiveness of
such registration statement or registration statements for so long as
Substitute Options remain outstanding.
SECTION 2.05. Escrow Approval. By adopting and approving this
Agreement, the Target Stockholders, except in respect of Dissenting Shares,
approve the Parent Escrow Agreement (as defined below) and the Representative
Escrow Agreement (as defined below), the appointment of the Escrow Agent to act
under the authority granted it under the Escrow Agreement and this Agreement
and the appointment of the Representative (as defined below)
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to act on behalf of the Target Stockholders under the terms of the Parent
Escrow Agreement and the Representative Escrow Agreement and this Agreement.
If the Representative ceases to be the Representative for any reason, he will
be replaced in accordance with the terms of the Parent Escrow Agreement.
SECTION 2.06. Appraisal Rights. Any issued and outstanding share of
Target Stock which has not been voted for the Merger and with respect to which
appraisal will have been properly demanded in accordance with Section 262 of
the Delaware Law ("Dissenting Shares") will not be converted into the right to
receive the consideration described in Section 2.01, and the holders thereof
will have only such rights as are provided in Section 262 of the Delaware Law,
unless and until the Target Stockholder withdraws such holder's demand for such
appraisal in accordance with the Delaware Law or otherwise loses such holder's
right to such appraisal. If a Target Stockholder withdraws such holder's
demand for appraisal or will otherwise lose the right to such appraisal, then,
as of the Effective Time or the occurrence of such event, whichever last
occurs, such holder's shares of Target Stock will cease to be Dissenting Shares
and will be converted into the consideration described in Section 2.01. Prior
to the Effective Time, Target will give Parent prompt notice of any written
demands for appraisal or withdrawals of demands for appraisal received by
Target and, except with the prior written consent of Parent, will not settle or
offer to settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE TARGET
Except as set forth in the disclosure schedule delivered by
Target and signed by Target, Parent and Parent Sub for identification prior to
the execution and delivery of this Agreement (the "Target Disclosure
Schedule"), which shall identify exceptions by specific section references, the
Target hereby represents and warrants to Parent and Parent Sub that:
SECTION 3.01. Corporate Organization and Qualification; Subsidiaries.
Each of Target and Celcore International, Inc. (Delaware), a Delaware
corporation, and Celcore International, Inc. (Mauritius), a Republic of
Mauritius corporation (the "Target Subsidiaries"), is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted. Each of Target and the Target Subsidiaries is
duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except for such failures to be so
qualified or licensed and in good standing that would not, individually or in
the aggregate, have a Material Adverse Effect. As used in this Agreement, the
term "Material Adverse Effect" means with respect to any Person, any change or
effect that is, or is reasonably likely to be, materially adverse to the
financial condition, business or results of operations of such Person and its
subsidiaries, taken as a
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whole. Other than the Target Subsidiaries, Target does not have any
subsidiaries. Neither Target nor either Target Subsidiary owns directly or
indirectly any voting equity or similar voting interest in, or any interest
convertible into or exchangeable or exercisable for, any voting equity or
similar voting interest in, any corporation, partnership, joint venture or
other business association or entity. Target is not, and has not been within
the two years immediately preceding the date hereof, a subsidiary or division
of another corporation, nor has Target within such time owned, directly or
indirectly, any shares of Parent Common Stock.
SECTION 3.02. Certificate of Incorporation and Bylaws. The Target
has heretofore furnished or made available to Parent a complete and correct
copy of its and the Target Subsidiaries' certificates of incorporation and
bylaws, each as amended to date. Neither the Target nor either of the Target
Subsidiaries is in violation of any provision of its certificate of
incorporation or bylaws.
SECTION 3.03. Capitalization. The authorized capital stock of the
Target consists of 50,000,000 shares of Target Common Stock and 14,000,000
shares of Target Preferred Stock, consisting of 4,500,000 shares of Series A
Preferred Stock, 3,000,000 shares of Series B Preferred Stock, 4,000,000 shares
of Series C Preferred Stock and 2,500,000 shares of Series D Preferred Stock.
As of the date of this Agreement, (a) 5,591,250 shares of Target Common Stock
and (b) 4,500,000, 3,000,000, 3,038,045.66 and 2,004,227 shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series
D Preferred Stock, respectively (a total of 12,542,273 shares of Target
Preferred Stock), were issued and outstanding, all of which are validly issued,
fully paid and nonassessable and not subject to preemptive rights, and (c)
2,460,250 shares of Target Common Stock are issuable pursuant to outstanding
Target Options. Each share of Target Preferred Stock is convertible into one
share of Target Common Stock. All of the issued and outstanding shares of
capital stock of the Target Subsidiaries are held by Target and are validly
issued, fully paid and nonassessable and not subject to preemptive rights. No
shares of capital stock of the Target have been acquired by the Target that are
subject to outstanding pledges by the Target to secure the future payment of
some or all of the purchase price for such shares. Other than the Target
Options, as of the date of this Agreement, there are no options, warrants or
other rights, agreements, arrangements or commitments of any character relating
to the issued or unissued capital stock of the Target obligating the Target to
issue or sell any shares of capital stock of, or other equity interests in, the
Target or the Target Subsidiaries. Between August 31, 1997 and the date of
this Agreement, no shares of Target Common Stock have been issued by the
Target, except pursuant to the exercise of the stock options, stock incentive
rights and warrants described above that were outstanding on August 31, 1997,
in each case in accordance with their respective terms. All shares of Target
Common Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid and nonassessable. Other
than as set forth in Target's certificate of incorporation (including the
Target Preferred Stock certificates of designation, each a "Certificate of
Designation"), there are no outstanding contractual obligations of the Target
to repurchase, redeem or otherwise acquire any shares of
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Target Stock. Target has not made any distributions to any Target Stockholders
or participated in or effected any issuance, exchange or retirement of shares
of Target Common Stock, or otherwise changed the equity interests of Target
Stockholders, in contemplation of effecting the Merger within the two years
immediately preceding the date hereof. Target has not reacquired during the
two years immediately preceding the date of this Agreement any shares of Target
Common Stock.
SECTION 3.04. Authority Relative to This Agreement. The Target has
all necessary corporate power and authority to execute and deliver this
Agreement and, with respect to the Merger, upon the approval and adoption of
the Merger by the Target Stockholders in accordance with this Agreement and
Delaware Law, to perform its obligations hereunder and to consummate the
Transactions. The execution and delivery of this Agreement by the Target and
the consummation by the Target of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate proceedings
on the part of the Target are necessary to authorize this Agreement or to
consummate the Transactions (other than, with respect to the Merger, the
approval and adoption of this Agreement by the Target Stockholders as described
in Section 3.17 and recordation of an appropriate Certificate of Merger with
the Secretary as required by Delaware Law). This Agreement has been duly and
validly executed and delivered by the Target and, assuming the due
authorization, execution and delivery of this Agreement by Parent and Parent
Sub, constitutes a legal, valid and binding obligation of the Target,
enforceable against the Target in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by the Target do not, and the
performance of this Agreement by the Target will not, subject to, (x) with
respect to the Merger, obtaining the requisite approval and adoption of the
Merger by the Target Stockholders in accordance with its certificate of
incorporation, this Agreement and Delaware Law, and (y) obtaining any necessary
Consents from third parties and permits from Governmental Authorities and
making the filings described in Section 3.05(b) and Section 3.05(b) of the
Target Disclosure Schedule, (i) conflict with or violate the certificate of
incorporation or bylaws of the Target or the Target Subsidiaries, (ii) conflict
with or violate any Law applicable to the Target or the Target Subsidiaries or
by which any property or asset of the Target or the Target Subsidiaries is
bound or affected, or (iii) except as specified in Section 3.20 of the Target
Disclosure Schedule, result in any Breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on
any property or asset of the Target or the Target Subsidiaries or require the
Consent of any third party pursuant to, any note, bond, mortgage, indenture,
Contract, license, permit, franchise or other instrument or obligation to which
the Target or the Target Subsidiaries is a party other than with respect to
breaches or defaults which would not constitute a Material Adverse Effect.
(b) The execution and delivery of this Agreement by the
Target do not, and the performance of this Agreement and the Transactions
contemplated hereby by the Target
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will not, require any Consent or permit of, or filing with or notification to,
any United States (federal, state or local) or foreign government, or
governmental, regulatory or administrative authority, agency or commission or
court of competent jurisdiction ("Governmental Authority"), except (i) for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), the Securities Act of 1933, as amended (the
"Securities Act"), state securities or "blue sky" laws ("Blue Sky Laws"), the
pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (the "HSR Act"), and filing and recordation of an appropriate
Certificate of Merger with the Secretary as required by Delaware Law or (ii) as
specified in Section 3.05(b) of the Target Disclosure Schedule.
SECTION 3.06. Permits; Compliance. Each of the Target and the Target
Subsidiaries is in possession of all Governmental Authorizations necessary for
each of the Target and the Target Subsidiaries to own, lease and operate its
properties or to carry on its business as it is now being conducted (the
"Target Permits") and, as of the date hereof, no suspension or cancellation of
any of the Target Permits is pending or, to the Knowledge of the Target,
Threatened, except in each case for such Governmental Authorizations, the
absence of which would not have a Material Adverse Effect. Neither the Target
nor the Target Subsidiaries is in conflict with, or in default or violation of,
(i) any Law applicable to it or by which any property or asset of it is bound
or affected, or (ii) any Target Permit, other than a conflict with, or default
or violation of, such Laws or Target Permits that would not have a Material
Adverse Effect on Target.
SECTION 3.07. Financial Statements; Books and Records. (a) Target
has delivered to Parent: (i) (A) audited balance sheets of the Target and
statements of stockholders' (deficit) equity as at December 31, 1994, 1995 and
1996; (B) audited statements of operations and statements of cash flows for the
years ended December 31, 1994, 1995, 1996; and (C) notes to such financial
statements (the "Notes") together with a report thereon of KPMG Peat Marwick
LLP, independent accountants; and (ii) (A) unaudited balance sheets of the
Target and statements of stockholders' (deficit) equity as at August 31, 1996
and 1997; and (B) unaudited statements of operations and statements of cash
flows for the eight months ended August 31, 1996 and 1997 and (c) Notes (such
financial statements referred to in clauses (i) and (ii) together referred to
as the "Financial Statements"). Such Financial Statements and Notes fairly
present the financial condition and the results of operations, changes in
stockholders' equity, and cash flow of the Target as at the respective dates of
and for the periods referred to in such Financial Statements, all in accordance
with GAAP, except that the unaudited financial statements referred to in clause
(ii) may be subject to normal year-end adjustments. The Financial Statements
reflect the consistent application of such accounting principles throughout the
periods involved. No financial statements of any Person other than the Target
are required by GAAP to be included in the Financial Statements of the Target.
(b) The books of account, minute books, stock record
books, and other records of the Target and each Target Subsidiary, all of which
have been made available to
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Parent, are complete and correct in all material respects and have been
maintained in accordance with sound business practices, including the
maintenance of an adequate system of internal controls. The minute books of
the Target and each Target Subsidiary contain accurate and complete records of
all meetings held of, and corporate action taken by, the stockholders, the
Boards of Directors, and committees of the Boards of Directors of the Target
and each Target Subsidiary, as appropriate, and no meeting of any such
stockholders, Board of Directors, or committee has been held for which minutes
have not been prepared and are not contained in such minute books. At the
Closing, all of those books and records will be in the possession of the
Target.
SECTION 3.08. Absence of Certain Changes or Events. Since August 31,
1997, each of the Target and the Target Subsidiaries has conducted business
only in the Ordinary Course of Business and, since August 31,1997, there has
not been (a) any event or events (whether or not covered by insurance),
individually or in the aggregate, having a Material Adverse Effect, (b) any
material change by the Target in its accounting methods, principles or
practices, (c) any entry by the Target or the Target Subsidiaries into any
Contract or transaction material to the Target or the Target Subsidiaries,
except in the Ordinary Course of Business, (d) any declaration, setting aside
or payment of any dividend or distribution in respect of any capital stock of
either the Target or the Target Subsidiaries, (e) any redemption, purchase or
other acquisition (including issuance or granting of any rights to acquire) of
any of their securities or (f) other than pursuant to the Target Plans and the
Target Other Benefit Obligations (as defined in Section 3.10 hereof), any
increase in or establishment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option, stock purchase
or other employee benefit plan, except in the Ordinary Course of Business.
SECTION 3.09. Absence of Litigation. Except as set forth in Section
3.09 of the Target Disclosure Schedule, there is no claim or Proceeding pending
or, to Target's Knowledge, Threatened against the Target or the Target
Subsidiaries, before any arbitrator or Governmental Authority, (a) to be
asserted or instituted against Target or the Target Subsidiaries, (b) which
directly relates to the Target, the Target Subsidiaries or any of their
properties, assets or business or to which the Target or Target Subsidiaries is
a party, including without limitation, the Intellectual Property Assets, (c)
that affects any Target Stockholders' Target Stock, (d) which seeks to and is
reasonably likely to significantly delay or prevent the consummation of the
Merger, or (e) which arises out of a warranty covering any of the Target
Products or Target or the Target Subsidiaries' other current or past goods or
services other than warranty claims in the Ordinary Course of Business.
Neither the Target or the Target Subsidiaries nor any property or asset of the
Target or the Target Subsidiaries is in violation of any Order against Target
or the Target Subsidiaries having, individually or in the aggregate, a Material
Adverse Effect.
SECTION 3.10. Employee Benefits. (a) As used in this Section 3.10,
the following terms have the meanings set forth below.
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"ERISA" shall mean the Employee Retirement Income Security Act of
1974, and regulations and rules issued pursuant to that Act, or any
successor Law.
"ERISA Affiliate" means any Person (including the Target Subsidiaries)
that, together with the Target, would be treated as a single employer
under Code Section 414.
"Multiemployer Plan" has the meaning given in ERISA Section 3(37)(A).
"Other Benefit Obligations" means all obligations, arrangements, or
customary practices, whether or not legally enforceable, to provide
benefits, other than salary, as compensation for services rendered, to
present or former directors, employees, or agents, other than
obligations, arrangements, and practices that are Plans. Other
Benefit Obligations include consulting agreements under which the
compensation paid does not depend upon the amount of service rendered,
sabbatical policies, severance payment policies, dependent care
assistance plans, cafeteria plans and fringe benefits within the
meaning of Code Section 132.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"Pension Plan" has the meaning given in ERISA Section 3(2)(A).
"Plan" has the meaning given in ERISA Section 3(3).
"Plan Sponsor" has the meaning given in ERISA Section 3(16)(B).
"Qualified Plan" means any Plan that meets or purports to meet the
requirements of Code Section 401(a).
"Target Other Benefit Obligation" means an Other Benefit Obligation
owed, adopted, or followed by the Target or an ERISA Affiliate.
"Target Plan" means all Plans of which the Target or an ERISA
Affiliate is or was a Plan Sponsor, or to which the Target or an ERISA
Affiliate otherwise contributes or has contributed, or in which the
Target or an ERISA Affiliate otherwise participates or has
participated. All references to Plans are to Target Plans unless the
context requires otherwise.
"Target VEBA" means a VEBA whose members include employees of the
Target or any ERISA Affiliate.
"Title IV Plans" means all Pension Plans that are subject to Title IV
of ERISA, 29 U.S.C. Section 1301 et seq., other than Multiemployer
Plans.
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"VEBA" means a voluntary employees' beneficiary association under Code
Section 501(c)(9).
"Welfare Plan" has the meaning given in ERISA Section 3(1).
(b) (i) Section 3.10(b)(i) of the Target Disclosure Schedule
contains a complete and accurate list of all Target Plans and Target Other
Benefit Obligations, and identifies as such all Target Plans that are Qualified
Plans.
(ii) Section 3.10(b)(ii) of the Target Disclosure
Schedule contains a complete and accurate list of (A) all
ERISA Affiliates and (B) all Plans of which any such ERISA
Affiliate is or was a Plan Sponsor, in which any such ERISA
Affiliate participates or has participated, or to which any
such ERISA Affiliate contributes or has contributed within the
three years preceding the date of this Agreement.
(c) Target has delivered to Parent:
(i) all documents that set forth the terms of
each Target Plan or Target Other Benefit Obligation and of any
related trust, including (A) all plan descriptions and summary
plan descriptions of Target Plans for which the Target is
required to prepare and distribute plan descriptions and
summary plan descriptions, and (B) all summaries and
descriptions furnished to participants and beneficiaries
regarding Target Plans and Target Other Benefit Obligations
for which a plan description or summary plan description is
not required;
(ii) all personnel, payroll, and employment
manuals and policies;
(iii) a written description of any Target Plan or
Target Other Benefit Obligation that is not otherwise in
writing;
(iv) all insurance policies purchased by or to
provide benefits under any Target Plan;
(v) all Contracts with third party
administrators, actuaries, investment managers, consultants,
and other independent contractors that relate to any Target
Plan or Target Other Benefit Obligation;
(vi) all reports submitted within the three years
preceding the date of this Agreement by third party
administrators, actuaries, investment managers, consultants,
or other independent contractors with respect to any Target
Plan or Target Other Benefit Obligation;
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(vii) the Form 5500 filed in each of the most
recent three plan years with respect to each Target Plan,
including all schedules thereto and the opinions of
independent accountants;
(viii) all notices that were given by the Internal
Revenue Service or the Department of Labor to the Target, any
ERISA Affiliate, or any Target Plan within the three years
preceding the date of this Agreement; and
(ix) with respect to Qualified Plans, the most
recent determination letter for each such Target Plan and the
most recent financial statement.
(d) In addition:
(i) The Target and each ERISA Affiliate has
performed all of their material obligations to provide
benefits under all Target Plans and Target Other Benefit
Obligations. The Target and each ERISA Affiliate has made
appropriate entries in its financial records and statements
for all obligations and liabilities under such Plans and
Obligations that have accrued but are not due.
(ii) No statement, either written or oral, has
been made by the Target or any ERISA Affiliate to any Person
with regard to any Plan or Other Benefit Obligation that was
not in accordance with the Plan or Other Benefit Obligation
and that could have a Material Adverse Effect to the Target,
any ERISA Affiliate or Parent.
(iii) The Target and each ERISA Affiliate, with
respect to all Target Plans and Target Other Benefit
Obligations, is, and each Target Plan and Target Other Benefit
Obligation is, in full compliance with ERISA, the Code, and
other applicable Laws including the provisions of such Laws
expressly mentioned in this Section 3.10, except where any
failures to comply alone or in the aggregate would not have a
Material Adverse Effect to the Target Plan or Target Other
Benefit Obligation (or any participant or beneficiaries
thereunder), the Target, any ERISA Affiliate or Parent. Any
bonding required with respect to any Target Plan in accordance
with applicable provisions of ERISA has been obtained and is
in full force and effect.
(A) No transaction prohibited by ERISA
Section 406 and no "prohibited transaction" under
Code Section 4975(c) has occurred with respect to any
Target Plan.
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(B) Neither the Target nor any ERISA
Affiliate has any known liability to the Internal
Revenue Service with respect to any Plan, including
any liability imposed by Chapter 43 of the Code.
(C) Neither the Target nor any ERISA
Affiliate has any known liability under ERISA Section
502.
(D) All filings required by ERISA and
the Code as to each Target Plan have been timely
filed, and all material notices and disclosures to
participants required by either ERISA or the Code
have been timely provided.
(E) All contributions and payments made
or accrued with respect to all Target Plans and
Target Other Benefit Obligations are deductible under
Code Section 162 or Section 404.
(iv) With respect to all Target Plans and Target
Other Benefit Obligations, all applicable contributions and
premium payments for all periods ending prior to the Closing
Date shall be or have been made or accrued prior to the
Closing Date in accordance with past practice. No Target Plan
has any unfunded liability. The financial records of each
funded Target Plan have been kept in accordance with GAAP.
(v) Since December 31, 1996, there has been no
establishment or amendment of any Target Plan or Target Other
Benefit Obligation.
(vi) To the Knowledge of the Target, no event has
occurred or circumstance exists that could result in a
material increase in premium costs of Target Plans and Target
Other Benefit Obligations that are insured, or a material
increase in benefit costs of such Plans and Obligations that
are self-insured.
(vii) Other than claims for benefits submitted by
participants or beneficiaries, no claim against, or Proceeding
involving, any Target Plan or Target Other Benefit Obligation
is pending or, to Target's or any ERISA Affiliate's Knowledge,
is Threatened.
(viii) Each Qualified Plan of the Target or any
ERISA Affiliate is qualified in form and operation under Code
Section 401(a); each trust for each such Plan is exempt from
federal income tax under Code Section 501(a). To Target's
Knowledge, no event has occurred or circumstance exists that
will or could give rise to disqualification or loss of
tax-exempt status of any such Plan or trust. Each Qualified
Plan of the Target or any ERISA Affiliate has
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received a favorable determination letter from the Internal
Revenue Service evidencing compliance with the relevant
provisions of the Tax Reform Act of 1986.
(ix) No Target Plan is subject to Title IV of
ERISA, and neither Target nor any ERISA Affiliate has any
liability with respect to any Title IV Plan.
(x) Neither the Target nor any ERISA Affiliate
has ever established, maintained, or contributed to or
otherwise participated in, or had an obligation to maintain,
contribute to, or otherwise participate in, any Multiemployer
Plan.
(xi) Neither the Target nor any ERISA Affiliate
has any liability (including current or potential withdrawal
liability) with respect to any Multiemployer Plan.
(xii) Neither the Target nor any ERISA Affiliate
has ever established, maintained or contributed to any VEBA,
and neither the Target nor any ERISA Affiliate has any
liability with respect to any VEBA.
(xiii) Except to the extent required under ERISA
Section 601 et seq. and Code Section 4980B, neither the Target
nor any ERISA Affiliate provides health or welfare benefits
for any retired or former employee or is obligated to provide
health or welfare benefits to any active employee following
such employee's retirement or other termination of service.
(xiv) The Target and each ERISA Affiliate has
complied in all material respects with the provisions of ERISA
Section 601 et seq. and Code Section 4980B and has also
complied in all material respects with the applicable
provisions of ERISA Section 701 et seq. and Subtitle K of the
Code.
(xv) No payment that is owed or may become due to
any Person will be non-deductible to the Target or subject to
tax under Code Section 280G or Section 4999; nor will the
Target be required to "gross up" or otherwise compensate any
such Person because of the imposition of any excise tax on a
payment to such Person.
(xvi) The consummation of the Transactions will not
result in the payment, vesting, or acceleration of any
benefit.
SECTION 3.11. Labor Matters. (a) Section 3.11 of the Target
Disclosure Schedule contains a complete and accurate list of the following
information for each employee or director of the Target or the Target
Subsidiaries, including each employee on leave of absence
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or layoff status: name; job title; current compensation paid or payable and any
change in compensation since December 31, 1996; vacation accrued; and service
credited for purposes of vesting and eligibility to participate under the
Target Plans and Target Other Benefit Obligations (as defined in Section 3.10
hereof).
(b) To Target's Knowledge, no officer or key employee of
the Target or the Target Subsidiaries is a party to, or is otherwise bound by,
any agreement or arrangement, including any confidentiality, noncompetition, or
proprietary rights agreement, between such officer or employee and any other
Person ("Proprietary Rights Agreement") that would materially and adversely
affect (i) the performance of his duties as an officer or employee of the
Target or the Target Subsidiaries, or (ii) the ability of Target or the Target
Subsidiaries to conduct their business, including any Proprietary Rights
Agreement with Target or the Target Subsidiaries by any such employee or
director. To the Target's Knowledge, no officer or other key employee of the
Target or the Target Subsidiaries intends to terminate his employment with the
Target or the Target Subsidiaries.
(c) Neither the Target nor the Target Subsidiaries has
been or is a party to any collective bargaining or other labor Contract. There
has not been, there is not presently pending or existing, and, to Target's
Knowledge, there is not Threatened, (a) any strike, slowdown, picketing, work
stoppage, or employee grievance process, (b) any Proceeding against either the
Target or the Target Subsidiaries relating to the alleged violation of any Law
pertaining to labor relations or employment matters, including any charge or
complaint filed by an employee or union with the National Labor Relations
Board, the Equal Employment Opportunity Commission, or any comparable
Governmental Authority, organizational activity, or other labor or employment
dispute against or affecting any of the Target or the Target Subsidiaries or
(c) any application for certification of a collective bargaining agent. There
is no lockout of any employees by the Target or the Target Subsidiaries, and no
such action is contemplated by the Target or the Target Subsidiaries. Each of
the Target and the Target Subsidiaries has complied in all respects with all
Laws relating to employment, equal employment opportunity, nondiscrimination,
immigration, wages, hours, benefits, collective bargaining, the payment of
social security and similar taxes, occupational safety and health, and plant
closing, except for any noncompliance alone or in the aggregate which would not
have a Material Adverse Effect on Target, the Target Subsidiaries or Parent.
SECTION 3.12. Intellectual Property Assets. (a) The term
"Intellectual Property Assets" includes:
(i) all business names, designs, trade names,
trademarks or service marks, and any applications and
registrations relating thereto, used or intended to be used by
the Target or the Target Subsidiaries in relation to its goods
or services, including, without limitation, all rights
associated with those names recited in Schedule 3.12(a)(i) of
the Target Disclosure Schedule (collectively, "Marks");
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(ii) all patents and patent applications on any
subject matter, which have been developed, designed, made,
conceived or reduced to practice jointly or individually by
any employee of, or any Person retained by, the Target or the
Target Subsidiaries, or which have been otherwise acquired by
the Target or the Target Subsidiaries within the scope of such
employment or retention, including, without limitation, those
patents and patent applications recited in Schedule
3.12(a)(ii) of the Target Disclosure Schedule (collectively,
"Patents");
(iii) all copyrights in both published and
unpublished works, which have been authored or placed in a
tangible medium either jointly or individually by any employee
of, or any Person retained by, the Target or the Target
Subsidiaries within the scope of such employment or retention,
or which have been otherwise acquired by the Target or the
Target Subsidiaries (collectively, "Copyrights");
(iv) all rights in mask works, which have been
developed, designed, made, conceived or reduced to practice
either jointly or individually by any employee of, or any
Person retained by, the Target or the Target Subsidiaries
within the scope of such employment or retention, or which
have been otherwise acquired by the Target or the Target
Subsidiaries (collectively, "Rights in Mask Works");
(v) all trade secrets, not commonly known or
available to the public which derive economic value, actual or
potential, from not being generally known to, or ascertainable
by proper means by, other Persons who can obtain economic
value from its disclosure or use, including confidential or
proprietary information, know-how, processes, methods,
research, technical information, data, improvements, ideas,
inventions, discoveries, techniques, developments, plans,
schematics, drawings, flowcharts, prints, specifications,
software programs, source and executable codes, development
and marketing plans, strategies, forecasts, customer
information, customer lists and the like, whether or not
commercial, experimental or patentable, which have been
developed, designed, made, conceived or reduced to practice
jointly or individually by any employee of, or Person retained
by, the Target or the Target Subsidiaries within the scope of
such employment or retention, or which have been otherwise
acquired by the Target or the Target Subsidiaries
(collectively, "Trade Secrets");
(vi) all goodwill associated with the Marks,
Patents, Copyrights, Rights in Mask Works and Trade Secrets,
all remedies and protections afforded under the laws of all
applicable jurisdictions against violations or infringements
thereof, as well as all rights of the Target or the Target
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Subsidiaries under any Contract relating to the Marks,
Patents, Copyrights, Rights in Mask Works and Trade Secrets;
and
(vii) all attorney work files owned by the Target
or the Target Subsidiaries relating to the foregoing.
(b) Agreements. Section 3.12(b) of the Target Disclosure
Schedule contains a complete and accurate list and summary description,
including any royalties paid or received by the Target or the Target
Subsidiaries, of all Contracts relating to the Intellectual Property Assets to
which the Target or the Target Subsidiaries is a party or by which the Target
or the Target Subsidiaries is bound, except for any license implied by the sale
of a product and perpetual, paid-up licenses for commonly available software
programs with a value of less than $5,000.00 under which the Target or the
Target Subsidiaries is the licensee. There are no outstanding or Threatened
disputes or disagreements with respect to any such Contract.
(c) Intellectual Property Assets Necessary for the
Target's Business
(i) The Intellectual Property Assets are all
those necessary for the operation of the Target's businesses
as they are currently conducted. The Target or one of the
Target's Subsidiaries is the owner of all right, title, and
interest in and to each of the Intellectual Property Assets,
free and clear of all liens, security interests, charges,
encumbrances, equities, and other than those Liens referred to
in Section 3.19 of the Target Disclosure Schedule hereof and
has the right to make, have made, develop, use, sell or
otherwise employ any technology or product of the Target
without payment to a third party and without a claim of
infringement or other challenge except as otherwise set forth
in Section 3.19 of the Target Disclosure Schedule.
(ii) All former and current employees of the
Target or the Target Subsidiaries, and any Person otherwise
retained by the Target or the Target Subsidiaries, on a
consulting or other non- employee basis, have executed written
Contracts with the Target or the Target Subsidiaries that
assign all rights to any inventions, improvements,
discoveries, or information relating to the Intellectual
Property Assets to the Target or one of the Target's
Subsidiaries. To Target's Knowledge, no employee of the
Target or the Target Subsidiaries has entered into any
Contract that restricts or limits in any way the scope or type
of work in which the employee may be engaged or that requires
the employee to transfer, assign or disclose information
concerning his work to anyone other than the Target or one of
the Target Subsidiaries.
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(d) Marks
(i) Section 3.12(a)(i) of the Target Disclosure
Schedule contains a complete and accurate list and summary
description of all Marks. The Target is the owner of all
right, title, and interest in and to each of the Marks, free
and clear of all liens, security interests, charges,
encumbrances, equities and other adverse claims.
(ii) All Marks that have been registered with the
United States Patent and Trademark Office are currently in
compliance with all Laws (including the timely
post-registration filing of affidavits of use and
incontestability and renewal applications), are valid and
enforceable, and are not subject to any maintenance fees or
actions falling due within ninety days after the Effective
Time.
(iii) No Mark has been or is now involved in any
opposition, invalidation, or cancellation, and no such action
is Threatened with the respect to any of the Marks.
(iv) There is no trademark or trademark
application of any third party that may or does interfere with
any of the Marks.
(v) No Mark is infringed or has been challenged
or Threatened in any way. None of the Marks used by the
Target or Target's Subsidiaries infringes or is alleged to
infringe any trade name, trademark or service mark of any
third party.
(vi) All products and materials containing a Mark
bear the proper federal registration notice where required by
Law.
(e) Patents
(i) Section 3.12(a)(ii) of the Target Disclosure
Schedule contains a complete and accurate list and summary
description of all Patents. The Target is the owner of all
right, title and interest in and to each of the Patents, free
and clear of all liens, security interests, charges,
encumbrances, entities, and other adverse claims.
(ii) All of the issued Patents are currently in
compliance with all Laws (including payment of filing,
examination and maintenance fees), are valid and enforceable,
and are not subject to any maintenance fees or actions falling
due within ninety days after the Effective Time.
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(iii) No Patent has been or is now involved in any
interference, reissue, reexamination or opposition proceeding.
There is no patent or patent application of any third party
that may or does interfere with any of the Patents.
(iv) No Patent is infringed, or has been
challenged or Threatened in any way. None of the products
manufactured or sold, nor any method or process used, by the
Target or Target's Subsidiaries infringes or is alleged to
infringe any patent or other proprietary right of any third
party.
(v) All products made, used, or sold under the
Patents have been marked with the proper patent notice.
(f) Copyrights
(i) Section 3.12(a)(iii) of the Target Disclosure
Schedule contains a complete and accurate list and summary
description of all Copyrights that have been registered. The
Target is the owner of all right, title, and interest in and
to each of the Copyrights, free and clear of all liens,
security interests, charges, encumbrances, equities, and other
adverse claims.
(ii) All the Copyrights that have been registered
are currently in compliance with all Laws, are valid and
enforceable, and are not subject to any maintenance fees or
taxes or actions falling due within ninety days after the
Effective Time.
(iii) No Copyright is infringed or has been
challenged or Threatened in any way. None of the subject
matter of any of the Copyrights infringes or is alleged to
infringe any copyright of any third party, or is a derivative
work based on the work of a third party.
(iv) All works encompassed by the Copyrights have
been marked with the proper copyright notice, if any, required
by Law.
(g) Trade Secrets
(i) With respect to each Trade Secret, the
written documentation relating to such Trade Secret is
accurate in all material respects.
(ii) The Target has taken all reasonable
precautions to protect the secrecy, confidentiality and value
of its Trade Secrets.
(iii) The Target has good title and an absolute
(but not necessarily exclusive) right to use the Trade
Secrets. The Trade Secrets have not been
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made public, and have not been used, divulged or appropriated
either for the benefit of any Person (other than the Target)
or to the detriment of the Target. No Trade Secret is subject
to any adverse claim or has been challenged or Threatened in
any way, or has been improperly obtained from a third party.
SECTION 3.13. Taxes. (a) The Target (including the Target
Subsidiaries) has (i) filed all federal, state, local and foreign tax returns
required to be filed by it prior to the date of this Agreement (taking into
account extensions), (ii) paid or accrued all taxes shown to be due on such
returns and paid all applicable ad valorem and value added taxes as are due and
(iii) paid or accrued all taxes for which a notice of assessment or collection
has been received (other than amounts being contested in good faith by
appropriate Proceedings), except in the case of clause (i), (ii) or (iii) for
any such filings, payments or accruals which would not, individually or in the
aggregate, have a Material Adverse Effect. Neither the Internal Revenue
Service nor any other taxing authority has asserted any claim for taxes, or to
the best Knowledge of the Target, is Threatening to assert any claims for
taxes; which claims, individually or in the aggregate, could have a Material
Adverse Effect. The Target has open years for federal tax returns only as set
forth in the Section 3.13(a) of the Target Disclosure Schedule. The Target has
withheld or collected and paid over to the appropriate Governmental Authorities
(or is properly holding for such payment) all taxes required by Law to be
withheld or collected, except for amounts which would not, individually or in
the aggregate, have a Material Adverse Effect. The Target has not made an
election under Section 341(f) of the Code. There are no liens for taxes upon
the assets of the Target.
(b) The Target has not taken or agreed to take any action
that would prevent the Merger from constituting a reorganization qualifying
under the provisions of Section 368(a) of the Code.
SECTION 3.14. Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i)
"Hazardous Substances" means (A) those substances defined in or regulated under
the following federal statutes and their state counterparts, as each may be
amended from time to time, and all regulations thereunder: the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Clean
Water Act, the Safe Drinking Water Act, the Atomic Energy Act, the Federal
Insecticide, Fungicide, and Rodenticide Act, the Toxic Substances Control Act
and the Clean Air Act; (B) petroleum and petroleum products, byproducts and
breakdown products including crude oil and any fractions thereof; (C) natural
gas, synthetic gas, and any mixtures thereof; (D) polychlorinated biphenyls;
and (E) any other chemicals, materials or substances defined or regulated as
toxic or hazardous or as a pollutant or contaminant or as a waste under any
applicable Environmental Law; and (ii) "Environmental Laws" means any Law, now
or hereafter in effect and as amended, and any judicial or administrative
interpretation thereof, including any judicial or administrative Order or
Consent, relating to pollution or protection of the environment, health, safety
or natural resources, including without limitation, those relating
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to (A) releases or threatened releases of Hazardous Substances or materials
containing Hazardous Substances or (B) the manufacture, handling, transport,
use, treatment, storage or disposal of Hazardous Substances or materials
containing Hazardous Substances.
(b) Except as would not individually or in the aggregate
result in or be likely to result in any damages in excess of $500,000: (i) to
Target's Knowledge, the Target is and has been in material compliance with all
applicable Environmental Laws; (ii) the Target has obtained all material
permits, approvals, identification numbers, licenses or other authorizations
required under any applicable Environmental Laws ("Environmental Permits") and
is and has been in material compliance with their requirements; (iii) there are
no underground or aboveground storage tanks or any surface impoundments, septic
tanks, pits, sumps or lagoons in which Hazardous Substances are being or have
been treated, stored or disposed of on any owned or leased real property or on
any real property formerly owned, leased or occupied by the Target; (iv) there
is, to Target's Knowledge, no asbestos or asbestos-containing material on any
owned or leased real property in violation of applicable Environmental Laws;
(v) to Target's Knowledge, the Target has not released, discharged or disposed
of Hazardous Substances on any owned or leased real property or on any real
property formerly owned, leased or occupied by the Target and none of such
property is contaminated with any Hazardous Substances; (vi) the Target is not
undertaking, and has not completed, any investigation or assessment or remedial
or response action relating to any such release, discharge or disposal of or
contamination with Hazardous Substances at any site, location or operation,
either voluntarily or pursuant to the Order of any Governmental Authority or
the requirements of any Environmental Law; and (vii) there are no past, pending
or, to Target's Knowledge, Threatened actions, suits, demands, demand letters,
claims, liens, notices of non-compliance or violation, notices of liability or
potential liability, investigations, Proceedings, consent orders or consent
agreements relating in any way to Environmental Laws, any Environmental Permits
or any Hazardous Substances ("Environmental Claims") against the Target or any
of its property, and to Target's Knowledge, there are no circumstances that can
reasonably be expected to form the basis of any such Environmental Claim,
including without limitation with respect to any off-site disposal location
presently or formerly used by the Target or any of its predecessors.
(c) The Target has provided Parent or Parent Sub with
copies of any environmental reports, studies or analyses in its possession or
under its control relating to owned or leased real property or the operations
of the Target.
SECTION 3.15. Target Products; Regulation. There have been no
written notices, citations or decisions by any Governmental Authority received
by Target or the Target Subsidiaries that any product produced, manufactured,
marketed or distributed at any time by the Target or the Target Subsidiaries
(the "Target Products") is defective or fails to meet any applicable standards
promulgated by any such Governmental Authority.
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SECTION 3.16. Opinion of Financial Advisor. The Target has received
the written opinion of Donaldson, Lufkin & Jenrette Securities Corporation
("Target Banker") on the date of this Agreement to the effect that the
consideration to be paid by Parent in the Merger is fair from a financial point
of view to the Target Stockholders as of the date thereof, and the Target will
promptly, after the date of this Agreement, deliver a copy of such opinion to
Parent. A copy of the Target Banker engagement letter, dated June 16, 1997,
has previously been delivered to Parent.
SECTION 3.17. Vote Required. The affirmative vote of a majority of
the then outstanding shares of Target Common Stock and the Series A Preferred
Stock voting together as a single class along with (i) an affirmative vote of
the holders of 60% of the shares of Series B Preferred Stock, (ii) an
affirmative vote of the holders of 60% of the shares of Series C Preferred
Stock, and (iii) an affirmative vote of the holders of 60% of the shares of
Series D Preferred Stock are the only votes of the holders of any class or
series of capital stock of the Target necessary to approve the Merger.
SECTION 3.18. Brokers. No broker, finder or investment banker (other
than Target Banker) is entitled to any brokerage, finder's or other fee or
commission in connection with the Transactions based upon arrangements made by
or on behalf of the Target. The Target has heretofore furnished to Parent a
correct copy of all agreements between the Target and Target Banker pursuant to
which such firm would be entitled to any payment relating to the Transactions.
SECTION 3.19. Tangible Property. The Target and the Target
Subsidiaries have good title to, or a valid leasehold interest in, the
properties and assets used by them or shown on the unaudited balance sheet
dated August 31, 1997 or acquired after the date thereof, with the exception of
such property and assets sold in the Ordinary Course of Business, and such
properties and assets are free and clear of any mortgage, pledge, lien,
encumbrance, charge, or other security interest ("Liens"), except Liens in
favor of lenders as reflected in the Financial Statements and statutory,
purchase money, workers compensation, landlord and similar Liens incurred in
the Ordinary Course of Business.
SECTION 3.20. Material Contracts. (a) Section 3.20(a) of the Target
Disclosure Schedule contains a complete and accurate list as of October 2,
1997, and the Target has delivered to the Parent true and complete copies of
the following outstanding Contracts, except where noted, to which Target or
either Target Subsidiary are currently a party or for which Target or either
Target Subsidiary are currently liable:
(i) each Contract that involves performance of
services or delivery of goods or materials by the Target or
either Target Subsidiary of an amount or value in excess of
$100,000;
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(ii) each Contract that involves performance of
services or delivery of goods or materials to the Target or
either Target Subsidiary of an amount or value in excess of
$100,000;
(iii) each Contract that was not entered into in
the Ordinary Course of Business and that involves expenditures
or receipts of the Target or either Target Subsidiary in
excess of $100,000;
(iv) each lease, rental or occupancy agreement,
license, installment and conditional sale agreement, and other
Contract affecting the ownership of, leasing of, title to, use
of, or any leasehold or other interest in, any real or
personal property (except personal property leases and
installment and conditional sales agreements having a value
per item or aggregate payments of less than $100,000 and with
terms of less than one year);
(v) each licensing agreement other than "shrink
wrap" or similar licenses of commercially available software
or other material Contract with respect to the Intellectual
Property Assets or any other Patents, Marks, Copyrights, or
other intellectual property, including agreements with current
or former employees, consultants, or contractors regarding the
appropriation or the non-disclosure of any of the Intellectual
Property Assets;
(vi) each collective bargaining agreement and
other Contract to or with any labor union or other employee
representative of a group of employees;
(vii) each joint venture, partnership, and other
Contract (however named) not otherwise described in this
Section involving a sharing of profits, losses, costs, or
liabilities by the Target or either Target Subsidiary with any
other Person;
(viii) each Contract containing covenants that in
any way purport to restrict the on-going business activity of
the Target or either Target Subsidiary or limit the freedom of
the Target or either Target Subsidiary to engage in any line
of business or to compete with any Person;
(ix) each Contract providing for payments to or by
any Person not affiliated with Target or either Target
Subsidiary based on sales, purchases, or profits, other than
direct payments for goods or services;
(x) each power of attorney given by Target or
either Target Subsidiary that is currently effective and
outstanding;
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(xi) each Contract entered into other than in the
Ordinary Course of Business that contains or provides for an
express undertaking by the Target or either Target Subsidiary
to be responsible for consequential Damages;
(xii) each Contract for capital expenditures in
excess of $100,000;
(xiii) each written warranty, guaranty, and or other
similar undertaking with respect to contractual performance
extended by the Target or either Target Subsidiary other than
in the Ordinary Course of Business;
(xiv) each Contract for sales, marketing and
support services provided by independent agents or other
Persons for the Target Products or other goods and services of
the Target or either Target Subsidiary of an amount or value
in excess or expected to be in excess of $100,000;
(xv) each Contract under which another Person is
appointed a distributor of the Target Products or other goods
and services of the Target or either Target Subsidiary or
under which the Target or either Target Subsidiary is
appointed a distributor of another Person's goods or services,
of an amount or value in excess of $100,000;
(xvi) each Contract relating to manufacturing of
proprietary components of the Target Products or other goods
of the Target or either Target Subsidiary of an amount or
value in excess of $100,000; and
(xvii) each amendment, supplement, and modification
(whether oral or written) in respect of any of the foregoing.
Section 3.20(a) of the Target Disclosure Schedule identifies
any such written Contracts and, in respect of oral Contracts,
sets forth reasonably complete details concerning any such
oral Contracts.
(b) Each Contract identified or required to be identified
in Section 3.20(a) of the Target Disclosure Schedule is, in all material
respects, in full force and effect and is valid and enforceable in accordance
with its terms, and to Target's Knowledge, no party is in default thereunder
and no event has occurred which, but for the passage of time or the giving of
notice or both, would constitute a default thereunder, except, in each case,
where the invalidity, default or breach would not, individually or in the
aggregate, have a Material Adverse Effect, and the Target has given to or
received from any other Person any notice or other communication (whether oral
or written) regarding any actual, alleged, possible, or potential violation or
breach of, or default under, any Contract, except in each case, where any
breach would not individually or in the aggregate have a Material Adverse
Effect.
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(c) There are no renegotiations of, attempts to
renegotiate, or outstanding rights to renegotiate any material amounts paid or
payable to the Target under current or completed Contracts with any Person and
no such Person has made written demand for such renegotiation.
(d) The Contracts relating to the sale, design,
manufacture, or provision of products or services by the Target or either
Target Subsidiary have been entered into in the Ordinary Course of Business
and, to Target's Knowledge, have been entered into without the commission of
any act alone or in concert with any other Person, or any consideration having
been paid or promised, that is or would be in violation of any Law.
SECTION 3.21. Accounting and Tax Matters.
(a) At least ninety percent (90%) of the fair market
value of the net assets and at least seventy percent (70%) of the fair market
value of the gross assets held by the Target immediately prior to the Merger
will be held by the Target at the Effective Time. For the purpose of
determining the percentage of the Target's net and gross assets held by the
Target at the Effective Time, the following assets will be treated as property
held by the Target immediately prior to but not at the Effective Time: (i)
assets disposed of by the Target prior to the Merger and in contemplation
thereof (including without limitation any asset disposed of by the Target,
other than in the Ordinary Course of Business, pursuant to a plan or intent
existing during the period ending at the Effective Time and beginning with the
commencement of negotiations (whether formal or informal) with Parent regarding
the Merger (the "Pre-Merger Period")), (ii) assets used by the Target to pay
expenses or liabilities incurred in connection with the Merger and (iii) assets
used to make distributions, redemptions or other payments in respect of the
Target Stock or rights to acquire such stock (including payments treated as
such for tax purposes but excluding regular, normal dividends) that are made in
contemplation of the Merger or related thereto.
(b) The Target has no Knowledge of, and believes that
there does not exist, any plan or intention on the part of the Target
Stockholders (a "Target Stockholder Plan") to engage in a sale, exchange,
transfer, distribution (including, without limitation, a distribution by a
partnership to its partners or by a corporation to its stockholders), pledge,
disposition or any other transaction which results in a reduction in the risk
of ownership or a direct or indirect disposition (a "Sale") of a number of
shares of Parent Common Stock to be issued to such stockholders in the Merger,
sufficient to reduce the Target Stockholders' ownership of Parent Common Stock
to a number of shares having an aggregate fair market value, as of the
Effective Time of the Merger, of less than fifty percent (50%) of the aggregate
fair market value, immediately prior to the Merger, of all outstanding shares
of Target Stock. For purposes of this paragraph, shares of Target Stock (i)
with respect to which a Target Stockholder receives consideration in the Merger
other than Parent Common Stock (including, without limitation, cash received in
lieu of fractional shares of Parent Common Stock) and/or (ii) shares of Target
Stock with respect to which a Sale occurs prior to and in contemplation
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of the Merger, shall be considered shares of outstanding Target Stock exchanged
for Parent Common Stock in the Merger and then disposed of pursuant to a Target
Stockholder Plan.
(c) The Target is not an investment company as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
(d) As of the Effective Time, the fair market value of
the assets of the Target will exceed the sum of its liabilities, plus the
amount of other liabilities, if any, to which its assets are subject.
(e) The Target is not under the jurisdiction of a court
in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
SECTION 3.22. Certain Business Practices. As of the date of this
Agreement, to the Knowledge of Target or any Target Subsidiary neither the
Target nor either Target Subsidiary nor any director, officer, agent or
employee of the Target or either Target Subsidiary and no party to any Contract
with Target or the Target Subsidiaries, has (i) used any funds for
contributions, gifts, entertainment or other expenses relating to political
activities that violate any Law, (ii) made any payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns that violate any Law or violated any provision of the Foreign
Corrupt Practices Act of 1977, as amended, or (iii) made any other payment that
violates any Law.
SECTION 3.23. Real Property and Leases. (a) Neither the Target nor
the Target Subsidiaries owns or has owned any real property.
(b) Section 3.23(b) of the Target Disclosure Schedule
lists and describes all real property leased or subleased to either the Target
or the Target Subsidiaries. With respect to each lease and sublease: (i) the
lease or sublease is legal, valid, binding, enforceable, and in full force and
effect in all material respects; (ii) to the Knowledge of Target, no party to
the lease or sublease is in material breach or default, and no event has
occurred which, with notice or lapse of time, would constitute a material
breach or default or permit termination, modification, or acceleration
thereunder; (iii) to the Knowledge of Target, no party to the lease or sublease
has repudiated any material provision thereof; (iv) there are no material
disputes, oral agreements, or forbearance programs in effect as to the lease or
sublease; (v) neither of the Target or the Target Subsidiaries has assigned,
transferred, conveyed, mortgaged, deeded in trust, or encumbered any interest
in the leasehold or subleasehold; and (vi) to Target's Knowledge, all
facilities leased or subleased thereunder have received all Governmental
Authorizations (including material licenses and permits) required in connection
with the operation thereof, and have been operated and maintained in all
material respects in accordance with all applicable Laws.
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SECTION 3.24. Insurance. All material assets and risks of the Target
are covered by valid and currently effective insurance policies in such types
and amounts as are consistent, to Target's Knowledge, with customary practices
and standards of companies engaged in businesses and operations similar to
those of the Target.
SECTION 3.25. Indemnification Claims. Section 3.25 of the Target
Disclosure Schedule sets forth a list of all Persons who are parties to
director, officer and/or employee indemnification agreements with Target or the
Target Subsidiaries (the "Indemnification Agreements"). Except as set forth in
Section 3.25 of the Target Disclosure Schedule, there are no outstanding claims
under any of the Indemnification Agreements or under any indemnification rights
granted pursuant to the certificate of incorporation or bylaws of Target or the
Target Subsidiaries (as currently in effect); and to Target's Knowledge, there
are no facts or circumstances that either now, or with the passage of time,
could reasonably be expected to provide a basis for a claim under any such
Indemnification Agreement or under any indemnification rights granted pursuant
to the certificate of incorporation or bylaws of Target or the Target
Subsidiaries.
SECTION 3.26. Board Recommendation. At a meeting duly called and
held in compliance with Delaware Law, the Board of Directors of the Target has
unanimously adopted a resolution (i) approving the Merger, based on a
determination that the Merger is fair to the holders of Target Stock and is in
the best interests of the Target Stockholders and (ii) approving and adopting
this Agreement and the Transactions contemplated hereby and thereby and
unanimously recommending approval and adoption of this Agreement and the
Transactions contemplated hereby and thereby by the stockholders of the Target.
SECTION 3.27. Change in Control. Except as set forth in Section 3.27
of the Target Disclosure Schedule, copies of which have been delivered to
Parent, neither the Target nor the Target Subsidiaries is a party to any
Contract which contains a "change in control," "potential change in control" or
similar provision and the consummation of the Transactions will not (either
alone or upon the occurrence of any additional acts or events) result in any
payment (whether of severance pay or otherwise) becoming due from the Target or
the Target Subsidiaries to any Person.
SECTION 3.28. Payments Resulting from Mergers. Except as set forth
in Section 3.28 of the Target Disclosure Schedule, copies of which have been
delivered to Parent, neither the consummation nor announcement of any of the
Transactions will result in any (i) material payment (whether of severance pay
or otherwise) becoming due from Target or the Target Subsidiaries to any
director, officer, employee or former employee thereof under (i) any
management, employment, deferred compensation, severance (including any
payment, right or benefit resulting from a change in control), bonus or other
contract for personal services with any officer, director or employee or any
plan, agreement or understanding similar to any of the foregoing, or any "rabbi
trust" or similar arrangement, or (ii) material benefit under any Plan being
established or becoming accelerated, vested or payable.
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SECTION 3.29. State Takeover Statutes. The Board of Directors of
Target has approved the terms of this Agreement and the Merger and the other
Transactions, and such approval is sufficient to render inapplicable to the
Merger and the other Transactions the provisions of Section 203 of the Delaware
Law. To Target's Knowledge, no other state takeover statute or similar statute
or regulation applies or purports to apply to the Merger or the other
Transactions and no provision of the certificate of incorporation, bylaws or
other governing instruments of Target (including the Certificates of
Designations) or either of the Target Subsidiaries would, directly or
indirectly, restrict or impair the ability of Parent to vote, or otherwise to
exercise the rights of a stockholder with respect to, shares of Target and the
Target Subsidiaries that may be acquired or controlled by Parent.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
AND PARENT SUB
Except as set forth in the disclosure schedule delivered by Parent and
Parent Sub to the Target and signed by the Target, Parent and Parent Sub for
identification prior to the execution and delivery of this Agreement (the
"Parent Disclosure Schedule"), which shall identify exceptions by specific
section references, Parent and Parent Sub hereby, jointly and severally,
represent and warrant to the Target that:
SECTION 4.01. Corporate Organization and Qualification. Each of
Parent and Parent Sub is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. Each of
Parent and Parent Sub is duly qualified or licensed as a foreign corporation to
do business, and is in good standing in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification or licensing necessary, except for such failures to be
so qualified or licensed and in good standing as would not, individually or in
the aggregate, have a Material Adverse Effect. Parent is not, and has not been
within the two years immediately preceding the date of this Agreement, a
subsidiary or division of another corporation, nor has Parent within such time
owned, directly or indirectly, any shares of Target Common Stock.
SECTION 4.02. Certificate of Incorporation and Bylaws. Parent has
heretofore furnished or made available to the Target a complete and correct
copy of the certificates of incorporation and bylaws of each of Parent and
Parent Sub, each as amended to date. Neither Parent nor Parent Sub is in
violation of any provision of its certificate of incorporation or bylaws.
SECTION 4.03. Capitalization. As of the date of this Agreement, the
authorized capital stock of Parent consists of 500,000,000 shares of Parent
Common Stock, $0.01 par
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value, and 5,000,000 shares of preferred stock, $1.00 par value ("Parent
Preferred Stock"). As of June 30, 1997, (a) 117,388,254 shares of Parent
Common Stock were issued and outstanding, all of which were validly issued,
fully paid and nonassessable, (b) 4,988,958 shares of Parent Common Stock were
held in the treasury of Parent, (c) 9,414,142 shares of Parent Common Stock
were reserved for future issuance pursuant to outstanding stock options or
stock incentive rights granted pursuant to Parent's stock option and restricted
stock plans, and (d) no shares of Parent Preferred Stock were outstanding. The
authorized capital stock of Parent Sub consists of 1,000 shares of Parent Sub
Common Stock, of which, as of the date of this Agreement, one (1) share is
issued and outstanding and 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 nonassessable and not subject to preemptive rights created by
statute, Parent's certificate of incorporation or bylaws or any agreement to
which Parent is a party or by which Parent is bound and will, when issued, be
registered under the Securities Act and the Exchange Act and registered or
exempt from registration under applicable Blue Sky Laws and authorized for
listing on Nasdaq.
SECTION 4.04. Authority Relative to This Agreement. Each of Parent
and Parent Sub has all necessary corporate power and authority to execute and
deliver this Agreement and, with respect to the Merger, to perform its
obligations hereunder and to consummate the Transactions. The execution and
delivery of this Agreement by Parent and Parent Sub and the consummation by
Parent and Parent Sub of the Transactions have been duly and validly authorized
by all necessary corporate action and no other corporate proceedings on the
part of Parent or Parent Sub are necessary to authorize this Agreement or to
consummate the Transactions (other than, with respect to the issuance of Parent
Common Stock pursuant to the Merger, approval of the application for listing of
such shares of Parent Common stock on Nasdaq, and with respect to the Merger,
the filing and recordation of the appropriate Certificate of Merger with the
Secretary as required by Delaware Law). This Agreement has been duly and
validly executed and delivered by Parent and Parent Sub and, assuming the due
authorization, execution and delivery of this Agreement by the Target,
constitutes a legal, valid and binding obligation of each of Parent and Parent
Sub enforceable against each of Parent and Parent Sub in accordance with its
terms.
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Parent and Parent Sub do not, and
the performance of this Agreement by Parent and Parent Sub will not, subject
to, obtaining the Consents and permits and making the filings described in
Section 4.05(b) and Section 4.05(b) of the Parent Disclosure Schedule, (i)
conflict with or violate the certificate of incorporation of either Parent or
Parent Sub, (ii) conflict with or violate any Law applicable to Parent or
Parent Sub or by which any property or asset of any of them is bound or
affected, or (iii) result in any Breach of or constitute a default (or an event
which 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 other encumbrance on
any property or asset of Parent or Parent Sub or require the Consent of any
third party pursuant to, any note, bond,
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mortgage, indenture, Contract, license, permit, franchise or other instrument
to which Parent or Parent Sub is a party or by which Parent or Parent Sub or
any property or asset of any of them is bound or affected, except for any such
conflicts, violations, breaches, defaults or other occurrences which would not,
individually or in the aggregate, have a Material Adverse Effect on Parent or
prevent Parent or Parent Sub from performing their respective obligations under
this Agreement and consummating the Transactions.
(b) The execution and delivery of this Agreement by
Parent and Parent Sub do not, and the performance of this Agreement by Parent
and Parent Sub will not, require any Consent or filing with or notification to,
any Governmental Authority, except (i) for applicable requirements, if any, of
the Exchange Act, the Securities Act, Blue Sky Laws, the HSR Act and filing and
recordation of an appropriate Certificate of Merger with the Secretary as
required by Delaware Law, (ii) as specified in Section 4.05(b) of the Parent
Disclosure Schedule, and (iii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not have a Material Adverse Effect on Parent and would not prevent or
delay consummation of the Transactions, or otherwise prevent Parent or Parent
Sub from performing their respective obligations under this Agreement.
SECTION 4.06. Ownership of Parent Sub; No Prior Activities. (a)
Parent Sub was formed solely for the purpose of engaging in the Transactions
contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except
for obligations or liabilities incurred in connection with its incorporation or
organization and the Transactions and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Parent Sub has not
and will not have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business activities
of any type or kind whatsoever or entered into any agreements or arrangements
with any Person.
SECTION 4.07. Parent Stock. Parent has not made any distributions to
any holder of Parent Stock or participated in or effected any issuance,
exchange or retirement of Parent Common Stock, or otherwise changed the equity
interest of holders of Parent Common Stock, in contemplation of effecting the
Merger within the two years immediately preceding the date hereof. Any shares
of Parent Common Stock that Parent has reacquired during the two years
immediately preceding the date hereof have been so reacquired only for purposes
other than "business combinations," as such term is defined in Accounting
Principals Board Opinion No. 16, as amended.
SECTION 4.08. Parent Documents. Parent has heretofore furnished
Target with a true and complete copy of each report, schedule, registration
statement and definitive proxy statement filed by it with the SEC since January
1, 1997 (as any such documents have since the time of their original filing
been amended, the "Parent Documents"), which are all the documents (other than
preliminary materials) that it was required to file with the SEC since
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that date. As of their respective dates, the Parent Documents did not contain
any untrue statements of a material fact or omit to state material facts
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. As of
their respective dates, the Parent Documents complied in all material respects
with applicable requirements of the Securities Act and the Exchange Act and the
rules and regulations promulgated under such statutes. The financial
statements contained in the Parent Documents, together within the notes
thereto, have been prepared in accordance with GAAP (except as may be indicated
in the notes thereto, or in the case of unaudited financial statements, as
permitted by Form 10-Q), and present fairly the financial condition of Parent
at said dates and the consolidated results of operations and cash flows of
Parent of the periods then ended.
SECTION 4.09. Legal Proceedings. Except as disclosed in the Parent
Documents, there is no material litigation, governmental investigation or other
Proceeding pending or, to Parent's Knowledge, Threatened against or relating to
Parent, its properties or business, or the Transactions contemplated by this
Agreement, that if adversely decided would have a Material Adverse Effect on
Parent.
SECTION 4.10. Subsequent Events. Except as disclosed in the
last-filed Parent Document, there have been no event or events which
individually or in the aggregate would have a Material Adverse Effect on
Parent.
SECTION 4.11. Certain Representations.
(a) Parent has not agreed, directly or indirectly, to
retire or reacquire all or part of the shares of Parent Common Stock.
(b) Parent does not intend or plan to dispose of, or
cause the Surviving Corporation to dispose of, a significant part of the assets
of the Surviving Corporation within two years after the Effective Time, other
than dispositions in the Ordinary Course of Business of the Surviving
Corporation and dispositions intended to eliminate duplicate facilities or
excess capacity.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Target Pending the Merger.
The Target covenants and agrees that, except as otherwise contemplated by this
Agreement, unless Parent shall otherwise agree in writing, between the date of
this Agreement and the Effective Time, (a) the business of the Target shall be
conducted only in, and the Target shall not, and shall cause the Target
Subsidiaries not to, take any action except in, the Ordinary Course of
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Business, (b) the Target shall use all reasonable efforts to preserve
substantially intact its business organization, to keep available the services
of the current officers, employees and consultants of the Target and to
preserve the current relationships of the Target with customers, suppliers and
other persons with which the Target has significant business relationships, (c)
Target shall keep in full force and effect liability and other insurance and
bonds comparable in amount and scope of coverage to that currently maintained
and described in Section 3.24 of the Target Disclosure Schedule, (d) Target
shall not and shall not permit the Target Subsidiaries to engage in any
practice, take any action, or enter into any transaction of the sort described
in Section 3.08 above or paragraph (e) below and Target shall not:
(i) amend or otherwise change its certificate of
incorporation or bylaws;
(ii) issue, sell, pledge, dispose of, grant,
encumber, or authorize the issuance, sale, pledge,
disposition, grant or encumbrance of, (A) any shares of
capital stock of the Target of any class, or any options,
warrants, convertible securities or other rights of any kind
to acquire any shares of such capital stock, or any other
ownership interest (including without limitation, any phantom
interest), of the Target (except for (i) the issuance of
shares of capital stock issuable pursuant to currently
outstanding Target Options and rights pursuant to Plans or
Other Benefit Obligations currently in effect on the date
hereof and described in Section 3.10 of the Target Disclosure
Schedule or (ii) the granting of Target Options pursuant to
offer letters for employment outstanding on the date hereof
for an aggregate of 65,500 shares of Target Stock), or (B) any
of the Target's assets, except for sales in the Ordinary
Course of Business;
(iii) declare, set aside, make or pay any dividend
or other distribution, payable in cash, stock, property or
otherwise, with respect to any of its capital stock;
(iv) reclassify, combine, split, divide or redeem,
purchase or otherwise acquire, directly or indirectly, any of
its capital stock;
(v) (A) acquire (including without limitation, by
merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, limited liability company,
partnership, joint venture, other business organization or any
division thereof or any assets, other than the acquisition of
assets in the Ordinary Course of Business, (B) incur any
indebtedness for borrowed money or issue any debt securities
or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any
Person, or make any loans or advances other than (I)
indebtedness owed to Parent or (II) advances to employees or
the Target Subsidiaries made in the Ordinary Course of
Business, (C) enter into any Contract material to the
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business, results of operations or financial condition of the
Target other than in the Ordinary Course of Business, (D)
authorize any capital expenditure, other than capital
expenditures set forth in Section 5.01(e)(v)(D) of the Target
Disclosure Schedule or (E) enter into or amend any Contract
with respect to any matter set forth in this subsection (v);
(vi) (A) increase the compensation payable or to
become payable to any director, officer or other employee, or
grant any bonus (except bonuses under existing Target Plans in
ordinary course of business consistent with past practices),
to, or grant any severance or termination pay to, or enter
into any employment or severance Contract with any director,
officer or other employee or enter into any collective
bargaining Contract, except in accordance with existing terms
of the current Target Plan consistent with past practices or
(B) establish, adopt, enter into or amend any Plan or Other
Benefit Obligation (as defined in Section 3.10) or trust or
fund for the benefit of any director, officer or class of
employees except as may be required by applicable Law;
(vii) settle or compromise any pending or
Threatened litigation which is material or which relates to
the Transactions contemplated hereby without the prior written
consent of Parent, which consent shall not be unreasonably
withheld;
(viii) grant or convey to any Person any rights,
including, but not limited to, by way of sale, license or
sub-license, in any of the Intellectual Property Assets;
(ix) enter into any Contract with any Person for
the sale, licensing, development, marketing, distribution,
manufacture or commercial exploitation of any of the Target
Products or the Intellectual Property Assets, except in
connection with the sale of Target Products made in the
Ordinary Course of Business;
(x) abandon, or fail to pay any maintenance fees,
or fail to renew any Intellectual Property Asset registration,
or application for any of the foregoing, or license agreement,
owned by the Target;.
(xi) (A) change any of its methods of accounting
in effect at December 31, 1996 or (B) make or rescind any
express or deemed election relating to taxes, settle or
compromise any claim relating to taxes, or change any of its
methods of reporting income or deductions for federal income
tax purposes from those employed in the preparation of the
federal income tax returns for the taxable year ending
December 31, 1996, except, in the case of (A) or (B), as may
be required by Law, the Internal Revenue Service or GAAP;
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(xii) take any action or fail to take any action
which to Target's Knowledge, would reasonably be expected to
have a Target Material Adverse Effect prior to or after the
Effective Time or would reasonably be expected to adversely
effect the ability of the Target prior to the Effective Time,
or Parent or any of its subsidiaries after the Effective Time,
to obtain consents of third parties or approvals of
Governmental Authorities required to consummate the
Transactions;
(xiii) exercise the right to cancel any of the
Target Options for Messrs. Berger, Foley, Gonzalez or Rosen or
any other employees of Target in exchange for cash as
described in Section 13(d) of the 1995 Stock Option Plan and
their stock option agreements with Target or take any action
to accelerate the time or times at which a Target Option may
be exercised in whole or in part; or
(xiv) agree in writing or otherwise to do any of
the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Registration Statement; Proxy Statement. (a) Parent
shall use its reasonable efforts to prepare and file with the SEC within
twenty-one (21) days of the date of this Agreement (after approval of Target
and its counsel, which approval shall not be unreasonably withheld) a
registration statement on Form S-4 (together with all amendments thereto, the
"Registration Statement") including therein a combined proxy statement to be
sent to the stockholders of Target (the "Proxy Statement") and Prospectus, in
connection with the registration under the Securities Act of the shares of
Parent Common Stock to be issued to the stockholders of Target pursuant to the
Merger. Parent and Target each shall use all reasonable efforts to cause the
Registration Statement to become effective as promptly as practicable, and,
prior to the effective date of the Registration Statement, Parent shall take
all or any action required under any applicable federal or state securities
laws in connection with the issuance of shares of Parent Common Stock pursuant
to the Merger. Each of Target and Parent shall pay its own expenses incurred
in connection with the Registration Statement, Proxy Statement and Target's
Stockholder Meeting including without limitation, the fees and disbursements of
their respective counsel, accountants and other representatives, except that
Parent shall pay any printing, filing and other fees and expenses incurred in
connection therewith. Target shall furnish all information concerning Target
as Parent may reasonably request in connection with such actions and the
preparation of the Registration Statement and Proxy Statement. As promptly as
practicable after the Registration Statement shall have become effective,
Target shall mail the Proxy Statement to the Target Stockholders. The Proxy
Statement shall include the unanimous recommendation of the Board of Directors
of Target in favor of the Merger.
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No amendment or supplement to the Registration Statement or
the Proxy Statement will be made by Parent or Target without the approval of
the other party, which shall not be unreasonably withheld. Parent and Target
each will advise the other, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the Parent Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Proxy Statement or the Registration Statement or comments
thereon and responses thereto or requests by the SEC for additional
information.
Parent shall promptly prepare and submit to Nasdaq a listing
application covering the shares of Parent Common Stock issuable in the Merger,
and shall use its reasonable Best Efforts to obtain, prior to the Effective
Time, approval for the listing of such Parent Common Stock on Nasdaq, subject
to official notice of issuance, and Target shall cooperate with Parent with
respect to such listing.
(b) Parent represents, warrants and agrees that the
information supplied by Parent for inclusion in the Registration Statement and
the Proxy Statement shall not, at (i) the time the Registration Statement is
declared effective, (ii) the time the Proxy Statement (or any amendment thereof
or supplement thereto) is first mailed to the Target Stockholders, (iii) the
time of Target's Stockholder Meeting, and (iv) the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state any material fact required to be stated therein, or necessary in order to
make the statements therein not false or misleading. If at any time prior to
the Effective Time any event or circumstance relating to Parent or Parent Sub,
or their respective officers or directors, should be discovered by Parent which
should be set forth in an amendment or a supplement to the Registration
Statement or Proxy Statement, Parent shall promptly inform Target.
Notwithstanding the foregoing, Parent and Parent Sub make no representation or
warranty with respect to any information supplied by Target or any of its
representatives which is contained in the Registration Statement or Proxy
Statement. All documents that Parent is responsible for filing with the SEC in
connection with the Transactions contemplated herein will comply as to form and
substance in all material aspects with the applicable requirements of the
Securities Act and the rules and regulations promulgated thereunder and the
Exchange Act and the rules and regulations promulgated thereunder.
(c) Target represents, warrants and agrees that the
information supplied by Target for inclusion in the Registration Statement and
the Proxy Statement shall not, at (i) the time the Registration Statement is
declared effective, (ii) the time the Proxy Statement (or any amendment thereof
or supplement thereto) is first mailed to the Target Stockholders, (iii) the
time of Target's Stockholder Meeting, and (iv) the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
is made, is false or misleading with respect to any material fact, or omit to
state any material fact required to be
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stated therein, or necessary in order to make the statements therein not false
or misleading. If at any time prior to the Effective Time any event or
circumstance relating to Target, or its officers or directors, should be
discovered by Target which should be set forth in an amendment or a supplement
to the Registration Statement or Proxy Statement, Target shall promptly inform
Parent. Notwithstanding the foregoing, Target makes no representation or
warranty with respect to any information supplied by Parent or Parent Sub or
any of their representatives in the Registration Statement or Proxy Statement.
(d) Target, Parent and Parent Sub each hereby (i)
consents to the use of its name and, on behalf of its subsidiaries and
affiliates, the names of such subsidiaries and affiliates and to the inclusion
of financial statements and business information relating to such party and its
subsidiaries and affiliates (in each case, to the extent required by applicable
securities laws) in the Registration Statement and the Proxy Statement, (ii)
agrees to use all reasonable efforts to obtain the written consent of any
Person retained by it which may be required to be named (as an expert or
otherwise) in the Registration Statement or the Proxy Statement, and (iii)
agrees to cooperate, and agrees to use all reasonable efforts to cause its
subsidiaries and affiliates to cooperate, with any legal counsel, investment
banker, accountant or other agent or representative retained by any of the
parties in connection with the preparation of any and all information required,
as determined after consultation with each party's counsel, to be disclosed by
applicable securities laws in the Registration Statement or the Proxy
Statement.
SECTION 6.02. Target's Stockholder Meeting. Target shall call and
hold a meeting of its stockholders (the "Target's Stockholder Meeting") as
promptly as practicable for the purpose of voting upon the approval of this
Agreement and the Merger, and Target shall use all commercially reasonable
efforts to hold Target's Stockholder Meeting as soon as practicable after the
date on which the Registration Statement becomes effective. Target shall use
all commercially reasonable efforts to solicit from the Target Stockholders
proxies in favor of the approval of this Agreement and the Merger and waivers
of liquidation rights by Target Stockholders holding Target Preferred Stock and
shall take all other actions reasonably necessary or advisable to secure the
vote or consent of Target Stockholders required by Delaware Law and the
Target's certificate of incorporation (including the Certificates of
Designations) to obtain such approvals (including unanimously recommending such
approval). Target shall request the holders of Target Preferred Stock also to
waive any liquidation rights provided for in Target's certificate of
incorporation (including the Certificates of Designations).
SECTION 6.03. Appropriate Action; Consents; Filings. (a) Target,
Parent and Parent Sub shall use their Best Efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or required to be taken by
any Governmental Authority or otherwise to consummate and make effective the
Transactions as promptly as practicable, (ii) obtain from any Governmental
Authorities any Consents or other Governmental Authorizations required to be
obtained or made by Parent or
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Target or any of their subsidiaries in connection with the authorization,
execution and delivery of this Agreement and the consummation of the
Transactions, including without limitation, the Merger, and (iii) as promptly
as practicable, make all necessary filings, and thereafter make any other
required submissions, with respect to this Agreement and the Merger required
under (A) the Securities Act and the Exchange Act, and any other applicable
federal or state securities Laws, (B) the rules and regulations of Nasdaq, (C)
Delaware Law, (D) the HSR Act and any related governmental request thereunder,
and (E) any other applicable Law; provided that Parent and Target shall
cooperate with each other in connection with the making of all such filings,
including providing copies of all such documents to the non-filing party and
its advisors prior to filing and, if requested, accepting all reasonable
additions, deletions or changes suggested in connection therewith. Target and
Parent shall use reasonable Best Efforts to furnish to each other all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable Law (including all information
required to be included in the Registration Statement and the Proxy Statement)
in connection with the Transactions contemplated by this Agreement.
(b) (i) Each of Parent and Target shall give (or shall
cause their respective subsidiaries to give) any notices to third parties, and
use, and cause their respective subsidiaries to use, their commercially
reasonable efforts to obtain any third party Consents (including those set
forth in Section 3.05), (A) necessary to consummate the Transactions, (B)
disclosed or required to be disclosed in Target Disclosure Schedule or the
Parent Disclosure Schedule or (C) required to prevent a Material Adverse Effect
from occurring prior to or after the Effective Time.
(ii) In the event that Parent or Target shall fail
to obtain any third party Consent described in subsection
(b)(i) above, it shall use its Best Efforts, and shall take
any such actions reasonably requested by the other party, to
minimize any adverse effect upon Target and Parent, their
respective subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result
after the Effective Time, from the failure to obtain such
Consent.
(c) From the date of this Agreement until the Effective
Time, each party shall promptly notify the other party of any pending, or to
the Knowledge of the first party, Threatened Proceeding by or before any
Governmental Authority or any other Person (i) challenging or seeking material
Damages in connection with the Merger or the conversion of Target Stock into
Parent Common Stock pursuant to the Merger or (ii) seeking to restrain or
prohibit the consummation of the Merger or otherwise limit the right of Parent
or Parent Sub to own or operate all or any portion of the businesses or assets
of Target, which in either case is reasonably likely to have a Material Adverse
Effect on Target prior to the Effective Time, or a Material Adverse Effect on
Parent or Parent Sub (including the Surviving Corporation) after the Effective
Time.
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SECTION 6.04. Access to Information; Confidentiality. Subject to the
Non-Disclosure Agreement dated October 21, 1996 between Parent and Target (the
"Non-Disclosure Agreement"), between the date of this Agreement and the Closing
Date, Target will (a) afford Parent and its representatives and prospective
lenders and their representatives full and free access to Target's personnel,
properties, Contracts, books and records, and other documents and data, (b)
furnish Parent and its advisors with copies of all such Contracts, books and
records, and other existing documents and data as Parent may reasonably
request, and (c) furnish Parent and its advisors with such additional
financial, operating and other data and information as Parent may reasonably
request.
SECTION 6.05. No Solicitation. (a) Target shall not, directly or
indirectly, negotiate with any Person other than Parent or Parent Sub with
respect to the acquisition of Target or the shares of Target Stock and it will
not, and will not permit any of its officers, directors, employees, agents or
representatives (including without limitation, investment bankers, attorneys
and accountants) ("Agents") to (i) initiate contact with, (ii) make, solicit or
encourage any inquiries or proposals, (iii) enter into, or participate in, any
discussions or negotiations with, (iv) disclose, directly or indirectly, any
information not customarily disclosed concerning the business and properties of
Target or the Target Subsidiaries to or (v) afford any access to any of
Target's or the Target Subsidiaries' properties, books and records to any
Person in connection with any possible proposal relating to (x) the disposition
of their respective businesses or substantially all or a significant portion of
their assets, (y) the acquisition of equity or debt securities of Target or the
Target Subsidiaries, or (z) the merger, share exchange or business combination,
or similar acquisition transaction of or involving Target or the Target
Subsidiaries (each of (x), (y) and (z), a "Takeover Proposal") with any Person
other than Parent or Parent Sub; provided, however, that if at any time prior
to the receipt of the votes of the Target Stockholders necessary to approve the
Merger pursuant to Section 6.02, the Board of Directors of Target determines in
good faith, based on the written advice of outside counsel, that it is
necessary to do so in order to comply with its fiduciary duties to the Target
Stockholders under Delaware Law, Target (and its Agents) may, in response to an
unsolicited Takeover Proposal (a "Superior Proposal") that involves
consideration to the Target Stockholders with a value that Target's Board of
Directors reasonably believes, after receiving written advice from Target
Banker, is superior to the consideration provided for in the Merger and after
taking into consideration the liability in respect of the Transaction Fee, and
subject to compliance with Section 6.05(b), furnish information with respect to
Target pursuant to a confidentiality agreement with terms substantially the
same as the terms of the Confidentiality Agreement to any Person making such
proposal and participate in negotiations regarding such proposal. Target shall
immediately cease and cause to be terminated any existing solicitation,
initiation, encouragement, activity, discussion or negotiation with any parties
conducted heretofore by Target with respect to any Takeover Proposal existing
on the date hereof. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the preceding sentence by Target,
the Target Subsidiaries or any Agent of Target or the Target Subsidiaries,
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whether or not such Person is purporting to act on behalf of Target or the
Target Subsidiaries or otherwise, shall be deemed to be a breach of this
Section 6.05(a) by Target.
(b) In addition to the obligations of Target set forth in
paragraph (a) of this Section 6.05, Target promptly shall advise Parent orally
and in writing of any request for information or of any Takeover Proposal or
any inquiry with respect to or which could reasonably be expected to lead to
any Takeover Proposal, the identity of the Person making any such request,
Takeover Proposal or inquiry and all the terms and conditions thereof. Target
will keep Parent fully informed of the status and details (including amendments
or proposed amendments) of any such request, Takeover Proposal or inquiry.
(c) Neither the Board of Directors of Target nor any
committee thereof shall (x) withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, the approval (including, without
limitation, either the Board of Directors' or any committee's resolution
thereof providing for such approval) or recommendation by such Board of
Directors or such committee of this Agreement or the Merger or (y) approve or
recommend, or propose to approve or recommend, any Takeover Proposal, except in
connection with a Superior Proposal and then only at or after the termination
of this Agreement pursuant to Section 8.01(f).
SECTION 6.06. Obligations of Parent Sub. Parent shall take all
action necessary to cause Parent Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and subject to conditions
set forth in this Agreement.
SECTION 6.07. Public Announcements. (a) Each of Parent and Target
shall consult with the other before issuing any press release or otherwise
making any public statements with respect to this Agreement or any Transaction
and shall not issue any such press release or make any such public statement
without the prior written consent of the other party, except as may be required
by Law or any listing agreement with the National Association of Securities
Dealers, Inc., and (b) prior to the Effective Time, Target will not issue any
other press release or otherwise make any public statements regarding its
business without the prior written consent of Parent, which consent shall not
be unreasonably withheld.
SECTION 6.08. Employee Matters. Parent shall be permitted, on and
after the date hereof, to offer to and endeavor to enter into employment
agreements at the Effective Time with the officers and employees of Target on
terms reasonably satisfactory to Parent.
SECTION 6.09. Further Action. At any time and from time to time,
each party to this Agreement agrees, subject to the terms and conditions of
this Agreement, to take such reasonable actions and to execute and deliver such
documents as may be necessary to effectuate the purposes of this Agreement at
the earliest practicable time.
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SECTION 6.10. Registration on Form S-8. Parent shall prepare and
file with the SEC, and shall use its Best Efforts to cause to become effective,
a registration statement on Form S-8 with respect to the shares of Parent
Common Stock issuable upon exercise of the Substitute Options.
SECTION 6.11. Tax-Free Reorganization. Parent and Target further
agree that each shall use its Best Efforts to cause the Merger to be treated as
a reorganization qualifying under the provisions of Section 368(a) of the Code.
SECTION 6.12. Unaudited Financial Information. Until the Effective
Time, Target will cause to be prepared (and furnish to Parent) as promptly as
possible on a monthly basis unaudited balance sheets, commencing with September
30, 1997, and the related unaudited statements of operations, statements of
stockholders' equity and statements of cash flows for the respective one-month
periods (such balance sheets, and related statements being collectively
referred to in this Agreement as the "Unaudited Monthly Statements"). The
Unaudited Monthly Statements will be prepared from the books and records of
Target and will fairly present, in all material respects, the financial
position of Target and the results of its operations and its cash flows as of
and for the respective time periods in accordance with internal Target
accounting methods and standards currently used.
SECTION 6.13. Letters of Accountants. Target shall use its Best
Efforts to cause to be delivered to Parent "cold comfort" letters of KPMG Peat
Marwick LLP, its independent public accountants, dated the date on which the
Registration Statement shall become effective and as of the Effective Time,
respectively, and addressed to Parent, in form and substance reasonably
satisfactory to Parent and reasonably customary in scope and substance for
letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement and Transactions
such as those contemplated by this Agreement.
SECTION 6.14. Update Disclosure; Breaches. From and after the date
of this Agreement until the Effective Time, each party hereto shall promptly
notify the other party hereto by written update to its Disclosure Schedule of
(i) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would, or would reasonably be likely to, cause any
condition to the obligations of any party to effect the Merger and the other
Transactions contemplated by this Agreement not to be satisfied, or (ii) the
failure of Target or Parent, as the case may be, to comply with or satisfy in
any material respect any covenant, condition or agreement to be complied with
or satisfied by it pursuant to this Agreement which would, or would reasonably
be likely to, result in any condition to the obligations of any party to effect
the Merger and the other Transactions contemplated by this Agreement not to be
satisfied. No disclosure by any party pursuant to this Section 6.14 will be
deemed to amend or supplement either the Target Disclosure Schedule or the
Parent Disclosure Schedule or prevent or cure any inaccuracy or Breach of
representation or warranty, or Breach of any covenant or obligation hereunder.
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SECTION 6.15. Affiliate Agreements. Target shall use its Best
Efforts to deliver or cause to be delivered to Parent an executed affiliate
agreement, substantially in the form of Exhibit B attached hereto (an
"Affiliate Agreement"), from (i), at least thirty (30) days prior to the
Closing Date, each of the officers and directors of Target specified in Section
6.15 of the Target Disclosure Schedule and (ii) any Person who may be deemed to
have become an affiliate of Target (under SEC Rule 145 of the Securities Act)
after the date of this Agreement and on or prior to the Effective Time as soon
as practicable after the date on which such Person attains such status (each, a
"Target Affiliate"). Parent shall be entitled to place appropriate legends on
the certificates evidencing any Parent Common Stock to be received by such
Target Affiliates pursuant to the terms of this Agreement, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Stock, consistent with the terms of the Affiliate Agreements.
SECTION 6.16. Voting Agreements. Target shall cause each director
and officer of Target to execute and deliver to Parent and, with respect to the
Target Stockholders listed on Section 6.16 of the Target Disclosure Schedule,
use its Best Efforts to deliver or cause to be delivered, by the date of this
Agreement, voting agreements and irrevocable proxies in the forms annexed
hereto as Exhibit C (the "Voting Agreements"), agreeing, among other things, to
vote in favor of the Merger.
SECTION 6.17. DSC Special Celcore Incentive Plan. As of the
Effective Time, Parent shall adopt the DSC Special Celcore Incentive Plan in
the form annexed hereto as Exhibit H.
ARTICLE VII
CONDITIONS PRECEDENT TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party. The
obligations of the Target, Parent and Parent Sub to consummate the Merger are
subject to the satisfaction of the following conditions:
(a) Effectiveness of Registration Statement. The
Registration Statement shall have been declared effective by the SEC under the
Securities Act. No stop order suspending the effectiveness of the Registration
Statement shall have been issued by the SEC and no Proceedings for that purpose
shall have been initiated or, to the Knowledge of Parent or the Target,
Threatened by the SEC. Parent shall have received all other federal or state
securities permits and other Governmental Authorizations necessary to issue
Parent Common Stock in exchange for Target Stock and to consummate the Merger.
(b) Stockholder Approval. This Agreement and the
Transactions contemplated hereby shall have been approved and adopted by the
affirmative vote of the Target Stockholders in accordance with Delaware Law and
the Target's certificate of
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incorporation (including the Certificates of Designations) and bylaws and the
rules of the NASD and the Target Stockholders holding Target Preferred Stock
shall have waived the liquidation rights provided for in the Target's
certificate of incorporation (including the Certificates of Designations).
(c) No Challenge. There shall not be pending any
Proceeding by any Governmental Authority (i) challenging or seeking material
Damages in connection with the Merger or the conversion of Target Stock into
Parent Common Stock or (ii) seeking to restrain or prohibit the consummation of
the Merger or the Transactions or otherwise limiting the right of Parent or its
subsidiaries to own or operate all or any portion of the business or assets of
the Target at and after the Effective Time.
(d) No Order. No Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any Order which is in effect
and which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger or the other Transactions contemplated herein.
(e) Quotation on Nasdaq. Parent and the Target shall
have received from Nasdaq evidence that the shares of Parent Common Stock to be
issued to the Target Stockholders in the Merger have been approved for
quotation on Nasdaq immediately following the Effective Time.
(f) HSR. Any applicable waiting period under the HSR Act
relating to the Merger shall have expired or been terminated.
(g) Other Approvals. All Consents and waivers required
to be obtained, which are set forth in Section 7.01(g) of the Target Disclosure
Schedule, and all filings or notices required to be made, by Parent, Parent
Sub and/or the Target prior to consummation of the Transactions (other than
filing an appropriate Certificate of Merger with the Secretary in accordance
with Delaware Law) shall have been obtained from and made with all required
Governmental Authorities.
(h) Tax Opinions. Parent and the Target shall have
received from Baker & McKenzie and Powell, Goldstein, Frazer & Murphy LLP
opinions to be filed with the SEC as exhibits to the Registration Statement, in
form and substance satisfactory to Parent and the Target, covering the
qualification of the Merger as a tax-free reorganization under the Code and
related tax matters as set forth in the forms of opinion attached hereto as
Exhibits D and E, respectively.
SECTION 7.02. Conditions to the Obligations of Parent and Parent Sub.
Each of Parent's and Parent Sub's obligations to consummate the Merger and to
take the other actions required to be taken by each of Parent and Parent Sub at
the Closing is subject to the
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satisfaction, at or prior to the Closing, of each of the following conditions
(any of which may be waived by Parent and Parent Sub, in whole or in part):
(a) Accuracy of Representations. Each of the
representations and warranties of Target contained in this Agreement, without
giving effect to any update to the Target Disclosure Schedule under Section
6.14, shall be true and correct in all material respects as of the date of this
Agreement and shall be true and correct in all material respects (except that
where any statement in a representation or warranty expressly includes a
standard of materiality, such statement shall be true and correct) as of the
Effective Time as though made as of the Effective Time, except that those
representations and warranties which address matters only as of a particular
date shall remain true and correct in all material respects (except that where
any statement in a representation or warranty expressly includes a standard of
materiality, such statement shall be true and correct) as of such date. Parent
shall have received a certificate of the Chief Executive Officer and Chief
Financial Officer of the Target to that effect.
(b) Target's Performance. All of the covenants and
obligations that Target is required to perform or to comply with pursuant to
this Agreement at or prior to the Effective Time (considered collectively), and
each of those covenants and obligations (considered individually), must have
been duly performed and complied in all material respects with and each
document required to be delivered must have been delivered.
(c) Consents. Target shall have obtained the Consent of
each other Person whose Consent shall be required in connection with the Merger
under all loan or credit arrangements, notes, mortgages, indentures, leases or
other Contracts to which Target is a party other than Consents which the
failure to obtain would not have a Material Adverse Effect on Target or Parent.
(d) Affiliate Agreements. Parent shall have received
from each Target Affiliate and any other Person who may be deemed to have
become an affiliate of the Target (under SEC Rule 145 of the Securities Act)
after the date of this Agreement and on or prior to the Effective Time a signed
Affiliate Agreement.
(e) Opinion of Counsel. Parent shall have received from
Powell, Goldstein, Frazer and Murphy LLP one or more opinions dated the Closing
Date, in form and substance reasonably satisfactory to Parent, covering the
matters set forth in the form of opinion attached hereto as Exhibit F.
(f) Accountant Letters. Parent shall have received from
the Target "cold comfort" letters of KPMG Peat Marwick LLP of the kind
contemplated by the Statement of Auditing Standards with respect to Letters to
Underwriters promulgated by the American Institute of Certified Public
Accountants (the "AICPA Statement") dated the date on which the Registration
Statement shall become effective and the Effective Time, respectively, and
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addressed to Parent, in form and substance satisfactory to Parent, in
connection with the procedures undertaken by them with respect to the Financial
Statements of the Target contained in the Registration Statement and the other
matters contemplated by the AICPA Statement and customarily included in comfort
letters relating to transactions similar to the Merger.
(g) Target Material Adverse Effect. After the date
hereof, there shall not have been a Target Material Adverse Effect, it being
understood that the matters described in the Target Disclosure Schedule as of
the date hereof (but not thereafter updated pursuant to Section 6.14 hereof)
shall not be deemed a Target Material Adverse Effect for purposes of this
Section. Parent shall have received a certificate of the Chief Executive
Officer and Chief Financial Officer of the Target to that effect.
(h) Dissenting Shareholders and Fractional Shares; Waiver
of Liquidation Rights. The Target Stockholders approve the Merger and the
Transactions contemplated hereby and shares of Target Stock representing, in
the aggregate, not more than ten percent (10%) of the outstanding shares of
Target Stock are (i) subject to claims for dissenter's rights as provided for
under Delaware Law, or (ii) converted into cash pursuant to Section 2.02(e)
as a result of being fractional shares. The Target Stockholders holding Target
Preferred Stock shall have waived any rights to receive cash or other property
upon a liquidation of the Target as provided in any of the Certificates of
Designations.
SECTION 7.03. Conditions to the Obligations of Target. Target's
obligation to consummate the Merger and to take the other actions required to
be taken by the Target at the Closing is subject to the satisfaction, at or
prior to the Closing, of each of the following conditions (any of which may be
waived by the Target, in whole or in part):
(a) Accuracy of Representations. Each of the
representations and warranties of Parent and Parent Sub contained in this
Agreement, without giving effect to any update to the Parent Disclosure
Schedule under Section 6.14, shall be true and correct in all material respects
(except that where any statement in a representation or warranty expressly
includes a statement of materiality, such statement shall be true and correct)
as of the date hereof and as of the Effective Time, as though made on and as of
the Effective Time, except that those representations and warranties which
address matters only as of a particular date shall remain true and correct in
all material respects (except that where any statement in a representation or
warranty expressly includes a standard of materiality, such statement shall be
true and correct) as of such date. Target shall have received a certificate of
an executive officer of each of Parent and Parent Sub, respectively, to that
effect.
(b) Parent's and Parent Sub's Performance. All of the
covenants and obligations that each of Parent and Parent Sub is required to
perform or to comply with pursuant to this Agreement at or prior to the Closing
(considered collectively), and each of
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these covenants and obligations (considered individually), must have been
performed and complied with in all material respects.
(c) Opinion of Counsel. Target shall have received from
Baker & McKenzie one or more opinions dated the Closing Date, in form and
substance reasonably satisfactory to Target, covering the matters set forth in
the form of opinion attached hereto as Exhibit G.
(d) Parent Material Adverse Effect. After the date
hereof, there shall not have been a Material Adverse Effect of Parent, it being
understood that the matters described in the Parent Disclosure Schedule as of
the date hereof (but not thereafter updated pursuant to Section 6.14 hereof)
shall not be deemed a Material Adverse Effect of Parent for purposes of this
Section. Target shall have received a certificate of an executive officer of
Parent to that effect.
ARTICLE VIII
TERMINATION
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger and the other Transactions may be abandoned at any time prior to the
Effective Time, notwithstanding any requisite approval and adoption of this
Agreement and the Transactions, as follows:
(a) by mutual written consent duly authorized by the
Boards of Directors of each of Parent, Parent Sub and Target;
(b) by either Parent or Target, if either (i) the
Effective Time shall not have occurred on or before January 31, 1998 (or such
later date as shall have been agreed to in writing by Parent and Target);
provided, however, that the right to terminate this Agreement under this
Section 8.01(b) shall not be available to any party whose failure to fulfill
any obligation under this Agreement has been the cause of, or resulted in, the
failure of the Effective Time to occur on or before such date; or (ii) there
shall be any Order which is final and nonappealable preventing the consummation
of the Merger, except if the party relying on such Order has not complied with
its obligations under Section 6.03(a);
(c) by either Parent or Target, if (i) the Target
Stockholders shall have failed to approve and adopt this Agreement, the Merger
and other Transactions at a meeting duly convened therefor, or (ii) the
condition precedent under Section 7.02(i) has not been fulfilled;
(d) by Parent, upon a Breach of any representation,
warranty, covenant or agreement on the part of Target set forth in this
Agreement, or if any representation or
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warranty of Target is not true and correct in all material respects (except
that where any statement in a representation or warranty expressly includes a
standard of materiality, such statement shall be true and correct), in either
case such that the conditions set forth in Sections 7.02(a) and (b) would not
be satisfied, other than a Breach that would not have a Material Adverse Effect
on Target (a "Terminating Target Breach"); provided, however, that, if such
Terminating Target Breach is curable by the Target through the exercise of its
Best Efforts and for so long as the Target continues to exercise such Best
Efforts, Parent may not terminate this Agreement under Section 8.01(d); or
(e) by Target, upon Breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent is not true and
correct in all material respects (except that where any statement in a
representation or warranty expressly includes a standard of materiality, such
statement shall be true and correct), in either case such that the conditions
set forth in Sections 7.03(a) and (b) would not be satisfied, other than a
Breach that would not have a Material Adverse Effect on Parent ("Terminating
Parent Breach"); provided, however, that, if such Terminating Parent Breach is
curable by Parent through the exercise of its Best Efforts and for so long as
Parent continues to exercise such Best Efforts, the Target may not terminate
this Agreement under this Section 8.01(e);
(f) by Parent, if the Board of Directors of Target shall
(i) withdraw its recommendation to the Target Stockholders to approve the
Merger, or (ii) have recommended to the Target Stockholders any Business
Combination Transaction (as defined below) or resolved to do so; or
(g) by Target, if the Average Trading Price is less than
$25.00 per share.
SECTION 8.02. Fees and Expenses. (a) Target shall pay Parent a fee
(an "Transaction Fee") of $5,000,000, less any Specified Expenses (as defined
below) previously paid, if this Agreement is terminated pursuant to (i) Section
8.01(c) and any Business Combination Transaction is thereafter consummated
within twelve (12) months of such termination or (ii) Section 8.01(f). As used
herein, the term "Business Combination Transaction" shall mean any of the
following involving Target: (A) any merger, consolidation, share exchange,
business combination or other similar transaction (other than the
Transactions); (B) any sale, lease, exchange, transfer or other disposition
(other than a pledge or mortgage) of 25% or more of the assets of Target and
the Target Subsidiaries, taken as a whole, in a single transaction or series of
transactions; or (C) the acquisition by a Person or any "group" (as such term
is defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) of beneficial ownership of 33 1/3% or more of the
shares of Target Stock, considered as a whole, whether by tender offer,
exchange offer or otherwise.
(b) Parent shall be entitled to receive its Specified
Expenses (but not the Transaction Fee) up to $1,000,000 in immediately
available funds in the event that this
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Agreement is terminated pursuant to Section 8.01(d) and one-half (1/2) of its
Specified Expenses up to $500,000 in immediately available funds in the event
the Agreement is terminated pursuant to Section 8.01(c). Target shall be
entitled to receive its Specified Expenses up to $500,000 in immediately
available funds in the event that this Agreement is terminated pursuant to
Section 8.01(e).
(c) In the event of termination of this Agreement and the
abandonment of the Merger pursuant to Section 8.01, all obligations of the
parties hereto shall terminate except the obligations of the parties pursuant
to this Section 8.02 and Sections 6.07, 10.01, 10.02, 10.03, 10.05, 10.08,
10.12, 10.13, 10.14 and 10.15 and pursuant to the Confidentiality Agreement.
No termination of this Agreement pursuant to Section 8.01(d) or 8.01(e) shall
prejudice the ability of a non-breaching party from seeking Damages to which
such party would otherwise be entitled from any other party for any breach of
this Agreement including without limitation, attorneys' fees and the right to
pursue any remedy at law or in equity. Notwithstanding the foregoing, if
Parent is required to file suit to seek the Transaction Fee or either Parent or
the Target is required to file suit to seek its Specified Expenses, and such
party ultimately succeeds on the merits, the party shall be entitled to all
cost and expenses, including attorneys' fees, which it has incurred in
enforcing its rights under this Section 8.02.
(d) As used herein, "Specified Expenses" means all
reasonable out-of-pocket expenses and fees actually incurred by a Person or on
its behalf in connection with the Transactions prior to the termination of this
Agreement (including without limitation, all reasonable fees and expenses of
counsel, financial advisors, banks or other entities providing financing to
such Person (including financing, commitment and other fees payable thereto),
accountants, environmental and other experts and consultants to such Person and
its affiliates, all SEC or HSR Act related filing fees, and all printing and
advertising expenses) and in connection with the negotiation, preparation,
execution, performance and termination of this Agreement, the structuring of
the Transactions, any agreements relating thereto and any filings to be made in
connection therewith. Specified Expenses shall not include compensation of
employees of Parent or Target.
SECTION 8.03. Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after the approval and adoption of this Agreement and the Transactions by the
Target Stockholders, no amendment may be made which would violate Delaware Law.
This Agreement may not be amended except by an instrument in writing signed by
the parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any agreement or
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condition contained herein. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby.
ARTICLE IX
ESCROW AND INDEMNIFICATION
SECTION 9.01. Survival of Representations and Warranties. All of
Target's representations, warranties, covenants and agreements contained in
this Agreement or in any instrument delivered pursuant to this Agreement
(including without limitation, the Target Disclosure Schedule) relating to the
Intellectual Property Assets of Target, including without limitation pursuant
to Sections 3.09, 3.12 and 3.20 shall survive the Merger and continue until
5:00 p.m., Dallas, Texas time, one year following the Closing Date, (the
"Expiration Date"). Except as provided in the immediately preceding sentence,
none of the Target's representations, warranties, covenants, and agreements
shall survive the Closing Date. None of Parent's representations, warranties,
covenants and agreements contained in this Agreement or in any instrument
delivered pursuant to this Agreement (including without limitation, the Parent
Disclosure Schedule) shall survive the Merger.
SECTION 9.02. Parent Escrow Arrangements.
(a) Parent Escrow Fund. At the Effective Time the Target
Stockholders (except Target Stockholders, in respect of Dissenting Shares) will
be deemed to have received and deposited with the Escrow Agent (as defined
below) that number of shares of Parent Common Stock that is equal to their
proportionate share of the Parent Escrow Amount (which shares shall not include
that portion of the Parent Escrow Amount which is allocated for contribution by
holders of Target Options assumed by Parent), plus a proportionate share of any
additional shares as may be issued to such Target Stockholders in respect of
such shares upon any stock split, stock dividend or recapitalization effected
by Parent after the Effective Time and prior to the Expiration Date, without
any act of any Target Stockholder. As soon as practicable after the Effective
Time, the Parent Escrow Amount, without any act of any Target Stockholder, will
be deposited with an institution designated by Parent and reasonably acceptable
to the Representative (as defined in Section 9.02(g) below)) as escrow agent
(the "Escrow Agent"). The Parent Escrow Amount, together with other shares
deposited in respect of Target Options assumed by Parent, plus a proportionate
share of any additional shares as may be issued to such Target Stockholders in
respect of such shares upon any stock split, stock dividend or recapitalization
effected by Parent after the Effective Time and prior to the Expiration Date,
shall constitute an escrow fund (the "Parent Escrow Fund") and shall be
governed by the terms set forth herein and in an escrow agreement to be agreed
upon by the parties and to be entered into by and among, Parent, the
Representative and the Escrow Agent (the "Parent Escrow Agreement"). The
portion of the Parent Escrow Amount contributed on behalf of each Target
Stockholder shall be in proportion to the aggregate number of shares of Parent
Common Stock which such holder would otherwise be entitled under Section 2.01,
plus
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the number of Target Options subject to adjustment under this Section 9.02 and
Section 2.04(a)(iv). Upon the exercise of any Target Option between the
Effective Time and the Expiration Date, five percent (5%) of the shares of
Parent Common Stock issued upon such exercise shall be added and deposited to
the Parent Escrow Fund upon such exercise, and at the expiration of the Escrow
Period (as defined in Section 9.02(b)), any Target Options not so exercised as
of the expiration of the Escrow Period shall be adjusted in accordance with
Section 2.04(a)(iv). The Parent Escrow Fund shall be the sole and exclusive
remedy available to compensate Parent and its affiliates for any claims,
losses, liabilities, damages, deficiencies, costs and expenses, including
reasonable attorneys' fees and expenses, and expenses of investigation and
defense (hereinafter individually a "Loss" and collectively "Losses"), incurred
by Parent, its officers, directors, or affiliates (including the Surviving
Corporation) directly as a result of any inaccuracy or Breach of a
representation, warranty, covenant or agreement of Target contained in this
Agreement (without regard to any update or modification of the Target
Disclosure Schedule following the date of this Agreement), or any instrument
delivered pursuant to this Agreement relating to the Intellectual Property
Assets of Target, including without limitation pursuant to Sections 3.09, 3.12
and 3.20. Parent shall act in good faith and in a commercially reasonable
manner to mitigate all Losses it may suffer. Parent may not receive any shares
from the Parent Escrow Fund (and no adjustment shall be made pursuant to
Section 2.04(a)(iv)) unless and until Officer's Certificates (as defined in
Section 9.02(d) below) identifying Losses have been delivered to the Escrow
Agent as provided in Section 9.02(e); in such case, Parent may recover from the
Parent Escrow Fund Losses to Parent (and adjustment may be made pursuant to
Section 2.04(a)(iv)).
(b) Escrow Period; Distribution upon Termination of
Escrow Period. Subject to the following requirements, the Parent Escrow Fund
shall be in existence immediately following the Effective Time and shall
terminate at 5:00 p.m., Texas time, on the Expiration Date (the "Escrow
Period"). On the Expiration Date any remaining shares comprising the Parent
Escrow Fund less any Loss shall be released from the Parent Escrow Fund and
distributed to the Target Stockholders and those individuals who have on or
prior to the Expiration Date exercised the Target Options assumed by Parent
(the "Escrow Release"). Notwithstanding the above, no Escrow Release shall
occur and the Escrow Period shall not terminate with respect to such amount
(or some portion thereof) that is necessary in the reasonable judgment of
Parent, subject to the objection of the Representative and the subsequent
arbitration of the matter in the manner provided in Section 9.02(f) hereof, to
satisfy any unsatisfied claims concerning facts and circumstances existing
prior to the contemplated date of the Escrow Release or the termination of the
Escrow Period, as the case may be, each as specified in an Officer's
Certificate delivered to the Escrow Agent prior to the contemplated date of an
Escrow Release or termination of the Escrow Period, as appropriate. As soon as
all such claims have been resolved, the Escrow Agent shall deliver to the
Target Stockholders the amount which is subject to an Escrow Release or at the
end of the Escrow Period, as appropriate the remaining portion of the Parent
Escrow Fund not required to satisfy such claims. Deliveries of Escrow Amounts
to the Target Stockholders and holders of Target
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Options pursuant to this Section 9.02(b) shall be made in proportion to their
respective original contributions to the Parent Escrow Fund.
(c) Protection of Parent Escrow Fund.
(i) Any shares of Parent Common Stock or other
equity securities issued or distributed by Parent (including
shares issued upon a stock split) ("New Shares") in respect of
Parent Common Stock in the Parent Escrow Fund which have not
been released from the Parent Escrow Fund shall be added to
the Parent Escrow Fund and become a part thereof. New Shares
issued in respect of shares of Parent Common Stock which have
been released from the Parent Escrow Fund shall not be added
to the Parent Escrow Fund but shall be distributed to the
record holders thereof. Cash dividends on Parent Common Stock
shall not be added to the Parent Escrow Fund and not
distributed to the record holders thereof.
(ii) Each Target Stockholder and each individual
who, prior to the Expiration Date, has exercised the Target
Options assumed by Parent shall have voting rights with
respect to the shares of Parent Common Stock contributed to
the Parent Escrow Fund by such party (and on any voting
securities added to the Parent Escrow Fund in respect of such
shares of Parent Common Stock).
(d) Claims Upon Parent Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time
on or before the last day of the Escrow Period, as
appropriate, of a certificate signed by any officer of Parent
(an "Officer's Certificate"): (A) stating that Parent has paid
or properly accrued or reasonably anticipates that it will
have to pay or accrue Losses, and (B) specifying in reasonable
detail the individual items of Loss included in the amount so
stated, the date each such item was paid or properly accrued,
or the basis for such anticipated liability, and the nature of
the misrepresentation, Breach of warranty or covenant to which
such item is related, the Escrow Agent shall, subject to the
provisions of Section 9.02(e) hereof, deliver to Parent out of
the Parent Escrow Fund, as promptly as practicable, shares of
Parent Common Stock held in the Parent Escrow Fund in an
amount equal to such Losses.
(ii) For the purposes of determining the number of
shares of Parent Common Stock to be delivered to Parent out of
the Parent Escrow Fund pursuant to Section 9.02(d)(i) hereof,
the shares of Parent Common Stock and the adjustment to the
number of Target Options issuable under Section 2.04(a)(iv)
shall be valued at the average of the reported last sale price
of a
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share of Parent Common Stock as reported by Nasdaq for the 10
consecutive trading days ending immediately preceding the
second trading day before the date such determination is made.
Parent and the Representative shall certify such value in a
certificate signed by both Parent and the Representative, and
shall deliver such certificate to the Escrow Agent.
(iii) Notwithstanding the foregoing, Parent shall
not be entitled to make a claim for payment of Losses under
this Section 9.02(d) until Parent has suffered Losses of
$100,000 in the aggregate and thereafter Parent shall be
entitled to indemnification for all Losses without regard to
such $100,000 threshold.
(e) Objections to Claims. At the time of delivery of any
Officer's Certificate to the Escrow Agent, a duplicate copy of such certificate
shall be delivered by Parent to the Representative and for a period of thirty
(30) days after such delivery, the Escrow Agent shall make no delivery to
Parent of any Escrow Amounts pursuant to Section 9.02(d) hereof unless the
Escrow Agent shall have received written authorization from the Representative
to make such delivery. After the expiration of such thirty (30) day period,
the Escrow Agent shall make delivery of shares of Parent Common Stock from the
Parent Escrow Fund in accordance with Section 9.02(d) hereof, provided that no
such payment or delivery may be made if the Representative shall object in a
written statement (the "Representative Agent Notice") to the claim made in the
Officer's Certificate, and such statement shall have been delivered to the
Escrow Agent, with a copy to Parent, prior to the expiration of such thirty
(30) day period.
(f) Resolution of Conflicts; Arbitration.
(i) In case the Representative shall so object in
writing to any claim or claims made in any Officer's
Certificate, the Representative and Parent shall attempt in
good faith to agree upon the rights of the respective parties
with respect to each of such claims. If the Representative
and Parent should so agree, a memorandum setting forth such
agreement shall be prepared and signed by both parties and
shall be furnished to the Escrow Agent. The Escrow Agent
shall be entitled to rely on any such memorandum and
distribute shares of Parent Common Stock from the Parent
Escrow Fund in accordance with the terms thereof.
(ii) If no such agreement is reached within thirty
(30) days following receipt by the Escrow Agent of the
Representative Agent Notice, either Parent or the
Representative may demand arbitration of the matter unless the
amount of the Loss is at issue in pending litigation with a
third party, in which event arbitration shall not be commenced
until such amount is ascertained or both parties agree to
arbitration; and in either such event the
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matter shall be settled by arbitration conducted by three
arbitrators. Parent and the Representative shall each select
one arbitrator, and the two arbitrators so selected shall
select a third arbitrator, each of which arbitrators shall be
independent and have at least ten years relevant experience.
The arbitrators shall set a limited time period and establish
procedures designed to reduce the cost and time for discovery
while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrators, to discover relevant
information from the opposing parties about the subject matter
of the dispute. The arbitrators shall rule upon motions to
compel or limit discovery and shall have the authority to
impose sanctions, including attorneys' fees and costs, to the
same extent as a court of competent law or equity, should the
arbitrators determine that discovery was sought without
substantial justification or that discovery was refused or
objected to without substantial justification. The decision
of a majority of the three arbitrators as to the validity and
amount of any claim in such Officer's Certificate shall be
binding and conclusive upon the parties to this Agreement, and
notwithstanding anything in Section 9.02(e) hereof, the Escrow
Agent shall be entitled to act in accordance with such
decision and make or withhold payments out of the Parent
Escrow Fund in accordance therewith. Such decision shall be
written and shall be supported by written findings of fact and
conclusions which shall set forth the award, judgment, decree
or order awarded by the arbitrators.
(iii) Judgment upon any award rendered by the
arbitrators may be entered in any court having jurisdiction.
Any such arbitration shall be held in New York, New York under
the American Arbitration Association rules then in effect.
The non-prevailing party to an arbitration shall pay its own
expenses, the fees of each arbitrator, the administrative
costs of the arbitration, and the expenses, including without
limitation, reasonable attorneys' fees and costs, incurred by
the other party to the arbitration.
(g) Representative of the Stockholders; Power of
Attorney.
(i) At the Effective Time, and without further
act of any party, Robert P. Goodman shall be appointed as
agent and attorney-in-fact (the "Representative") for each
Target Stockholder (except such Target Stockholders, if any,
as shall have perfected their appraisal rights under Delaware
Law), for and on behalf of Target Stockholders, to give and
receive notices and communications, to authorize delivery to
Parent of shares of Parent Common Stock from the Parent Escrow
Fund in satisfaction of claims by Parent, to object to such
deliveries, to agree to, negotiate, enter into settlements and
compromises of, and demand arbitration and comply with orders
of courts and awards of arbitrators with respect to such
claims, and to take all actions necessary or appropriate in
the judgment of Representative for the
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accomplishment of the foregoing. Such agency may be changed
by the Target Stockholders from time to time upon not less
than thirty (30) days prior written notice to Parent; provided
that the Representative may not be removed unless holders of
at least a majority in interest of the Parent Escrow Fund
agree to such removal and to the identity of the substituted
agent. Any vacancy in the position of Representative may be
filled by approval of the holders of a majority in interest of
the Parent Escrow Fund. No bond shall be required of the
Representative, and the Representative shall not receive
compensation for his or her services. Notices or
communications to or from the Representative relating to the
Parent Escrow Fund shall constitute notice to or from each of
the Target Stockholders.
(ii) The Representative shall not be liable for
any act done or omitted hereunder as Representative while
acting in good faith. The Target Stockholders on whose behalf
the Escrow Amount was contributed to the Parent Escrow Fund
shall severally indemnify the Representative and hold the
Representative harmless against any loss, liability or expense
incurred without negligence or bad faith on the part of the
Representative and arising out of or in connection with the
acceptance or administration of the Representative's duties
hereunder, including the reasonable fees and expenses of any
legal counsel retained by the Representative.
(h) Actions of the Representative. A decision, act,
consent or instruction of the Representative relating to the Parent Escrow Fund
shall constitute a decision of all Target Stockholders (except such Target
Stockholders if any, as shall have perfected appraisal rights under Delaware
Law), and shall be final, binding and conclusive upon each of such Target
Stockholders, and the Escrow Agent and Parent may rely upon any such decision,
act, consent or instruction of the Representative as being the decision, act,
consent or instruction of each such Target Stockholder. In the absence of bad
faith, the Escrow Agent and Parent are hereby relieved from any liability to
any person for any acts done by them in accordance with such decision, act,
consent or instruction of the Representative.
(i) Third-Party Claims. In the event Parent becomes
aware of a third-party claim which Parent believes may result in a demand
against the Parent Escrow Fund, Parent shall notify the Representative of such
claim, and the Representative, as representative for the Target Stockholders,
shall be entitled, at their expense, to participate in any defense of such
claim. Parent shall have the right in its sole discretion to settle any such
claim; provided, however, that except with the consent of the Representative,
no settlement of any such claim with third-party claimants shall alone be
determinative of the amount of any claim against the Parent Escrow Fund. In
the event that the Representative has consented to any such settlement and
acknowledged that the claim is a valid claim against the Parent Escrow Fund,
the Representative shall have no power or authority to object under any
provision of this Article
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IX to the amount of any claim by Parent against the Parent Escrow Fund with
respect to such settlement.
SECTION 9.03. Representative Escrow Arrangements.
(a) Representative Escrow Fund. At the Effective Time
the Target Stockholders (except Target Stockholders, in respect of Dissenting
Shares) will be deemed to have received and deposited with the Escrow Agent
that number of shares of Parent Common Stock that is equal to their
proportionate share of the Representative Escrow Amount, plus a proportionate
share of any additional shares as may be issued to such Target Stockholders in
respect of such shares upon any stock split, stock dividend or recapitalization
effected by Parent after the Effective Time and prior to the Expiration Date,
without any act of any Target Stockholder. As soon as practicable after the
Effective Time, the Representative Escrow Amount , without any act of any
Target Stockholder, will be deposited with the Escrow Agent. The
Representative Escrow Amount, plus a proportionate share of any additional
shares as may be issued to such Target Stockholders in respect of such shares
upon any stock split, stock dividend or recapitalization effected by Parent
after the Effective Time and prior to the Expiration Date, shall constitute an
escrow fund (the "Representative Escrow Fund") and shall be governed by the
terms set forth herein and in an escrow agreement to be agreed upon by the
parties and to be entered into by and between the Representative and the Escrow
Agent (the "Representative Escrow Agreement"). The portion of the
Representative Escrow Amount contributed on behalf of each Target Stockholder
shall be in proportion to the aggregate number of shares of Parent Common Stock
which such holder would otherwise be entitled under Section 2.01, plus the
number of Target Options subject to adjustment under this Section 9.03 and
Section 2.04(a)(iv). Upon the exercise of any Target Option between the
Effective Time and the Expiration Date, three hundred and thirty-three one-
thousandths percent (.333%) of the shares of Parent Common Stock issued upon
such exercise shall be added and deposited to the Representative Escrow Fund
upon such exercise, and at the expiration of the Escrow Period, any Target
Options not so exercised as of the expiration of the Escrow Period shall be
adjusted in accordance with Section 2.04(a)(iv). The Representative Escrow
Fund shall be used to pay for the costs and expenses, including reasonable
attorneys' fees and expenses, and expenses of investigation and defense
(hereinafter individually a "Representative Expense" and collectively
"Representative Expenses"), incurred by Representative in performing his or her
obligations under this Article IX.
(b) Representative Escrow Period; Distribution Upon
Termination of Representative Escrow Period. Subject to the following
requirements, the Representative Escrow Fund shall be in existence immediately
following the Effective Time and shall terminate at 5:00 p.m., Texas time, on
the Expiration Date (the "Representative Escrow Period"). On the Expiration
Date any remaining shares comprising the Representative Escrow Fund less any
additional Representative Expenses shall be released from the Representative
Escrow Fund and distributed to the Target Stockholders (the "Representative
Escrow Release"). Notwithstanding the above, no Representative Escrow Release
shall occur and the
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Representative Escrow Period shall not terminate with respect to such amount
(or some portion thereof) that is necessary in the reasonable judgment of
Representative to satisfy any unsatisfied claims concerning facts and
circumstances existing prior to the contemplated termination of the
Representative Escrow Period. As soon as all such claims have been resolved,
the Escrow Agent shall deliver to the Target Stockholders the amount which is
subject to a Representative Escrow Release and the remaining portion of the
Representative Escrow Fund not required to satisfy such claims. Deliveries of
Representative Escrow Amounts to the Target Stockholders pursuant to this
Section 9.03(b) shall be made in proportion to their respective original
contributions to the Representative Escrow Fund.
(c) Protection of Representative Escrow Fund.
(i) Any shares of Parent Common Stock or other
equity securities issued or distributed by Parent (including
shares issued upon a stock split) ("New Shares") in respect of
Parent Common Stock in the Representative Escrow Fund which
have not been released from the Representative Escrow Fund
shall be added to the Representative Escrow Fund and become a
part thereof. New Shares issued in respect of shares of
Parent Common Stock which have been released from the
Representative Escrow Fund shall not be added to the
Representative Escrow Fund but shall be distributed to the
record holders thereof. Cash dividends on Parent Common Stock
shall not be added to the Representative Escrow Fund and not
distributed to the record holders thereof.
(ii) Each Target Stockholder shall have voting
rights with respect to the shares of Parent Common Stock
contributed to the Representative Escrow Fund by such party
(and on any voting securities added to the Representative
Escrow Fund in respect of such shares of Parent Common Stock).
(d) Claims Upon Representative Escrow Fund.
(i) Upon receipt by the Escrow Agent at any time
on or before the last day of the Representative Escrow Period,
as appropriate, of a certificate signed by the Representative
stating that Representative has paid or properly accrued or
reasonably anticipates that it will have to pay or accrue
Representative Expenses, the Escrow Agent shall deliver to
Parent out of the Representative Escrow Fund, as promptly as
practicable, shares of Parent Common Stock held in the
Representative Escrow Fund in an amount equal to such
Representative Expenses.
(ii) For the purposes of determining the number of
shares of Parent Common Stock to be delivered to
Representative out of the Representative
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Escrow Fund pursuant to Section 9.03(d)(i) hereof, the shares
of Parent Common Stock shall be valued at the last reported
sale price of a share of Parent Common Stock as reported by
Nasdaq on the date such determination is made.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.01. Expenses. Except as set forth in Sections 6.01 and
8.02, each party to this Agreement will bear its respective costs and expenses
incurred in connection with the preparation, execution, and performance of this
Agreement and the Transactions, including all fees and expenses of agents,
representatives, counsel, and accountants. Parent will pay the HSR Act filing
fee. In the event of termination of this Agreement, the obligation of each
party to pay its own expenses will be subject to any rights of such party
arising from a Breach of this Agreement by another party.
SECTION 10.02. Confidentiality. In addition to the obligations set
forth in the Non-Disclosure Agreement between the date of this Agreement and
the Closing Date, Parent and the Target will maintain in confidence, and will
cause their respective directors, officers, employees, agents, and advisors to
maintain in confidence, any written, oral, or other information obtained in
confidence from another party or the Target in connection with this Agreement
or the Transactions, unless (a) such information is already known to such party
or to others not bound by a duty of confidentiality or such information becomes
publicly available through no fault of such party, (b) the use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the Transactions, or (c)
the furnishing or use of such information is required by Proceedings. If the
Transactions are not consummated, each party will return or destroy as much of
such written information as the other party may reasonably request.
SECTION 10.03. Notices. All notices, consents, waivers, and other
communications under this Agreement must be in writing and will be deemed to
have been duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by facsimile (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt requested, or
(c) when received by the addressee, if sent by a nationally recognized
overnight delivery service (receipt requested), in each case to the appropriate
addresses and facsimile numbers set forth below (or to such other addresses and
facsimile numbers as a party may designate by notice to the other parties):
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Target:
Celcore, Inc.
3800 Forest Hill-Irene Road
Memphis, Tennessee 38125
Attention: Robert P. Goodman
Facsimile No.: (901) 624-4118
with a copy to:
Powell, Goldstein, Frazer and Murphy, LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303-1740
Attention: G. William Speer
Facsimile No.: (404) 571-6999
Parent and Parent Sub:
DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
Attention: General Counsel
Facsimile No.: (972) 519-2321
with a copy to:
Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Daniel W. Rabun
Facsimile No.: (214) 978-3099
Representative:
Robert P. Goodman
1013 Cove Road
Mamaroneck, New York 10543
Facsimile No.: (914) 777-2639
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SECTION 10.04. Further Assurances. The parties agree (a) to furnish
upon request to each other such further information, (b) to execute and deliver
to each other such other documents, and (c) to do such other acts and things,
all as the other party may reasonably request for the purpose of carrying out
the intent of this Agreement and the documents referred to in this Agreement.
SECTION 10.05. Entire Agreement and Modification. This Agreement
supersedes all prior agreements between the parties with respect to its subject
matter and constitutes (along with the documents referred to in this Agreement)
a complete and exclusive statement of the terms of the agreement between the
parties with respect to its subject matter, but the Confidentiality Agreement
shall be deemed to be a part of this Agreement and is hereby incorporated by
reference.
SECTION 10.06. Target Disclosure Schedule.
(a) The disclosures in the Target Disclosure Schedule
relate only to the representations and warranties in the Section of the
Agreement to which they expressly relate and not to any other representation or
warranty in this Agreement.
(b) In the event of any inconsistency between the
statements in the body of this Agreement and those in the Target Disclosure
Schedule (other than an exception expressly set forth as such in the Target
Disclosure Schedule with respect to a specifically identified representation or
warranty), the statements in the body of this Agreement will control.
SECTION 10.07. Assignments, Successors, and No Third-Party Rights.
Neither party may assign any of its rights under this Agreement without the
prior consent of the other parties (whether by operation of Law or otherwise)
except that Parent may assign any of its rights under this Agreement to any
subsidiary of Parent. Subject to the preceding sentence, this Agreement will
apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties. Nothing expressed or referred
to in this Agreement will be construed to give any Person other than the
parties to this Agreement any legal or equitable right, remedy, or claim under
or with respect to this Agreement or any provision of this Agreement. This
Agreement and all of its provisions and conditions are for the sole and
exclusive benefit of the parties to this Agreement and their successors and
assigns.
SECTION 10.08. Severability. If any provision of this Agreement is
held invalid or unenforceable by any court of competent jurisdiction, the other
provisions of this Agreement will remain in full force and effect. Any
provision of this Agreement held invalid or unenforceable only in part or
degree will remain in full force and effect to the extent not held invalid or
unenforceable.
SECTION 10.09. Section Headings, Construction. The headings of
Sections in this Agreement are provided for convenience only and will not
affect its construction or
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interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
SECTION 10.10. Time of Essence. With regard to all dates and time
periods set forth or referred to in this Agreement, time is of the essence.
SECTION 10.11. Incorporation of Schedules. The Target Disclosure
Schedule and the Parent Disclosure Schedule referred to herein and signed for
identification by the parties hereto are hereby incorporated herein and made a
part hereof for all purposes as if fully set forth herein.
SECTION 10.12. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or equity.
SECTION 10.13. Waiver of Jury Trial. Each of Parent, the Target and
Parent Sub hereby irrevocably waives all right to trial by jury in any
Proceeding (whether based on contract, tort or otherwise) arising out of or
relating to this Agreement or the actions of Parent, the Target or Parent Sub
in the negotiation, administration, performance and enforcement thereof.
SECTION 10.14. Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware without
regard to the rules of conflicts of law thereof. All actions and proceedings
arising out of or relating to this Agreement shall be heard and determined in
any court sitting in the City of Wilmington, Delaware and each of the parties
consents to the jurisdiction of such courts in any such Proceeding and waives
any objection to venue laid therein.
SECTION 10.15. Certain Definitions. For purposes of this Agreement:
"Affiliate" of a specified person shall mean a person who, directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such specified person.
"Best Efforts" shall mean the efforts that a prudent Person desirous
of achieving a result would use in similar circumstances to ensure that such
result is achieved as expeditiously as possible but without the necessity of
making payments to third parties to procure consents, approvals or similar
requirements.
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"Breach" shall mean a "Breach" of a representation, warranty,
covenant, obligation, or other provision of this Agreement or any instrument
delivered pursuant to this Agreement if there is or has been any inaccuracy in
or breach of, or any failure to perform or comply with, such representation,
warranty, covenant, obligation, or other provision.
"business day" shall mean any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in New York, New York.
"Consent" shall mean any approval, consent, ratification, waiver, or
other authorization of third parties (excluding any Governmental
Authorization).
"Contract" shall mean any agreement, contract, lease, obligation,
commitment, arrangement, promise, or undertaking (whether written or oral and
whether express or implied) that is legally binding.
"control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise.
"GAAP" shall mean generally accepted United States accounting
principles.
"Governmental Authorization" shall mean any franchises, grants,
approval, license, permit, easements, variances, exceptions, certificates,
approvals, orders, waiver, or other authorization issued, granted, given, or
otherwise made available by or under the authority of any Governmental
Authority or pursuant to any Law.
"Knowledge:" an individual will be deemed to have "Knowledge" of a
particular fact or other matter if:
(a) such individual is actually aware of such fact or
other matter; or
(b) a prudent individual would be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
reasonable inquiries.
A Person (other than an individual) will be deemed to have "Knowledge"
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, key employee, partner,
executor, or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
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"Law" shall mean any federal, state, local, municipal, foreign,
international, multinational, or other administrative order, constitution, law,
ordinance, principle of common law, rule, regulation, judgment, decree,
statute, or treaty.
"Order" shall mean any award, decision, decree, determination,
injunction, judgment, order, consent decree, ruling, subpoena, writ or verdict
entered, issued, made, or rendered by any court, administrative agency, or
other Governmental Authority or by any arbitrator.
"Ordinary Course of Business:" an action taken by a Person will be
deemed to have been taken in the "Ordinary Course of Business" only if:
(a) such action is consistent with the past practices of
such Person and is taken in the ordinary course of the normal day-to-day
operations of such Person;
(b) such action is not required under law to be
authorized by the board of directors of such Person; and
(c) such action is similar in nature and magnitude to
actions customarily taken, without any authorization by the board of directors
(or by any Person or group of Persons exercising similar authority), in the
ordinary course of the normal day-to-day operations of other Persons that are
in the same line of business as such Person.
"Person" shall mean any individual, corporation (including any
non-profit corporation), general or limited partnership, limited liability
company, joint venture, estate, trust, association, organization, labor union,
or other entity or Governmental Authority.
"Proceeding" shall mean any action, arbitration, audit, hearing,
investigation, litigation, or suit (whether civil, criminal, administrative,
investigative, or informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental Authority or arbitrator.
"Subsidiary" or "subsidiaries" of any Person means any corporation,
limited liability company, partnership, joint venture or other legal entity of
which such Person (either alone or through or together with any other
subsidiary), owns or has rights to acquire, directly or indirectly, more than
50% of the stock or other equity interests the holders of which are generally
entitled to vote for the election of the board of directors or other governing
body of such corporation or other legal entity.
"Threatened:" a claim, Proceeding, dispute, action, or other matter
will be deemed to have been "Threatened" if any demand or statement has been
made (orally or in writing) or any notice has been given (orally or in
writing), or if any other event has occurred or any other circumstances exist,
that would lead a prudent Person to conclude that such a claim,
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Proceeding, dispute, action, or other matter is likely to be asserted,
commenced, taken, or otherwise pursued in the future.
SECTION 10.16. Counterparts. This Agreement may be executed in one
or more counterparts, each of which will be deemed to be an original copy of
this Agreement and all of which, when taken together, will be deemed to
constitute one and the same agreement.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
DSC COMMUNICATIONS CELCORE, INC.:
CORPORATION:
By: /s/ James L. Donald By: /s/ Robert P. Goodman
--------------------------------------- -------------------------------
James L. Donald, Chairman of the Board, Robert P. Goodman, Chairman of
President and Chief Executive Officer the Board and Chief Executive
Officer
CI ACQUISITION COMPANY:
By: /s/ James L. Donald
-----------------------------------------
James L. Donald, Chairman of the Board,
President and Chief Executive Officer
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DEFINED TERMS
<TABLE>
<S> <C>
Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Affiliate Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
AICPA Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Average Trading Price . . . . . . . . . . . . . . . . . . . . . . . . . 3
Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Blue Sky Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Breach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Business Combination Transaction . . . . . . . . . . . . . . . . . . . 50
business day . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Certificate of Designation . . . . . . . . . . . . . . . . . . . . . . 10
Certificate of Merger . . . . . . . . . . . . . . . . . . . . . . . . . 2
Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Copyrights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Delaware Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Environmental Claims . . . . . . . . . . . . . . . . . . . . . . . . . 25
Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Environmental Permits . . . . . . . . . . . . . . . . . . . . . . . . . 25
ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ERISA Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Escrow Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Escrow Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Escrow Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Exchange Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exchange Fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Expiration Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 12
GAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Governmental Authority . . . . . . . . . . . . . . . . . . . . . . . . 12
Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . 64
Hazardous Substances . . . . . . . . . . . . . . . . . . . . . . . . . 24
HSR Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Indemnification Agreements . . . . . . . . . . . . . . . . . . . . . . 31
Intellectual Property Assets . . . . . . . . . . . . . . . . . . . . . 19
Knowledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Material Adverse Effect . . . . . . . . . . . . . . . . . . . . . . . . 9
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Multiemployer Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Nasdaq . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
New Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Non-Disclosure Agreement . . . . . . . . . . . . . . . . . . . . . . . 42
Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . 54
Order . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Ordinary Course of Business . . . . . . . . . . . . . . . . . . . . . . 65
Other Benefit Obligations . . . . . . . . . . . . . . . . . . . . . . . 14
Parent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parent Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Parent Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . 32
Parent Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Parent Escrow Agreement . . . . . . . . . . . . . . . . . . . . . . . . 52
Parent Escrow Amount . . . . . . . . . . . . . . . . . . . . . . . . . 6
Parent Escrow Fund . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Parent Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 33
Parent Sub . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parent Sub Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 4
Patents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
PBGC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Pension Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Person . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Plan Sponsor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Pre-Merger Period . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Proprietary Rights Agreement . . . . . . . . . . . . . . . . . . . . . 19
Proxy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>
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<TABLE>
<S> <C>
Qualified Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . 38
Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Representative Agent Notice . . . . . . . . . . . . . . . . . . . . . . 55
Representative Escrow Agreement . . . . . . . . . . . . . . . . . . . . 58
Representative Escrow Amount . . . . . . . . . . . . . . . . . . . . . 7
Representative Escrow Fund . . . . . . . . . . . . . . . . . . . . . . 58
Representative Escrow Period . . . . . . . . . . . . . . . . . . . . . 58
Representative Escrow Release . . . . . . . . . . . . . . . . . . . . . 58
Representative Expense . . . . . . . . . . . . . . . . . . . . . . . . 58
Representative Expenses . . . . . . . . . . . . . . . . . . . . . . . . 58
Rights in Mask Works . . . . . . . . . . . . . . . . . . . . . . . . . 20
Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SEC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Securities Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Series A Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 3
Series B Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 3
Series C Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 3
Series D Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 3
Specified Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Substitute Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Superior Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Surviving Corporation . . . . . . . . . . . . . . . . . . . . . . . . . 1
Takeover Proposal . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Target . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Target Affiliate . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Target Banker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Target Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Target Disclosure Schedule . . . . . . . . . . . . . . . . . . . . . . 9
Target Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Target Other Benefit Obligation . . . . . . . . . . . . . . . . . . . . 14
Target Permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Target Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Target Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 3
Target Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Target Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Target Stock Option Plan . . . . . . . . . . . . . . . . . . . . . . . 7
Target Stockholder Plan . . . . . . . . . . . . . . . . . . . . . . . . 29
Target Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Target Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Target VEBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Target's Stockholder Meeting . . . . . . . . . . . . . . . . . . . . . 40
Terminating Parent Breach . . . . . . . . . . . . . . . . . . . . . . . 50
Terminating Target Breach . . . . . . . . . . . . . . . . . . . . . . . 50
Threatened . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Title IV Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Trade Secrets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Transaction Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Unaudited Monthly Statements . . . . . . . . . . . . . . . . . . . . . 44
VEBA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Voting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Welfare Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
69
<PAGE> 179
EXHIBIT A
CERTIFICATE OF INCORPORATION
OF
CI ACQUISITION COMPANY
ARTICLE I
The name of the corporation is CI Acquisition Company (the
"Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New
Castle County, Delaware 19801. The name of its registered agent at such
address is The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
The total number of shares of stock which the Corporation shall have
the authority to issue is one thousand (1,000) shares of Common Stock, par
value one cent ($.01) per share.
ARTICLE V
The powers of the incorporator are to terminate upon the filing of
this certificate of incorporation, and the name and mailing address of the
persons who are to serve as the board of directors until the first annual
meeting of the stockholders or until their successors are elected and qualified
are as follows:
<TABLE>
<CAPTION>
Names of Directors Mailing Address
------------------ ---------------
<S> <C>
James L. Donald DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
</TABLE>
A-1
<PAGE> 180
<TABLE>
<S> <C>
Gerald F. Montry DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
George Brunt DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
</TABLE>
ARTICLE VI
Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
ARTICLE VII
The Board of Directors of the Corporation is expressly authorized to
adopt, amend or repeal bylaws of the Corporation, but the stockholders may make
additional bylaws and may alter or repeal any bylaw whether adopted by them or
otherwise.
ARTICLE VIII
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under
the provisions of Section 291 of the General Corporation Law of the State of
Delaware or on the application of trustees in dissolution or of any receiver or
receivers appointed for the Corporation under the provisions of Section 279 of
the General Corporation Law of the State of Delaware, order a meeting of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all of the
creditors or class of creditors, and/or on all of the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
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<PAGE> 181
ARTICLE IX
A director of the Corporation or any director of a predecessor
corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) under Section 174 of the General Corporation Law of the State of
Delaware, as the same exists or hereafter may be amended, or (iv) for any
transaction from which the director derived an improper personal benefit. If
the General Corporation Law of the State of Delaware is amended after the date
of filing of this certificate of incorporation to authorize corporate action
further eliminating or limiting the personal liability of directors, then the
liability of a director of the Corporation, in addition to the limitation on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended General Corporation Law of the State of Delaware. Each
director and officer of this corporation and any predecessor corporation shall
be indemnified to the full extend permitted under Section 145 of the General
Corporation Law of the State of Delaware. Any repeal or modification of this
Article IX by the stockholders of the Corporation shall be prospective only,
and shall not adversely affect any limitation on the personal liability of a
director of the Corporation existing at the time of such repeal or
modification.
ARTICLE X
The name and mailing address of the incorporator is as follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Daniel W. Rabun Baker & McKenzie
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
</TABLE>
The undersigned incorporator under penalties of perjury hereby
acknowledges that the foregoing certificate of incorporation is his act and
deed and that the facts stated therein are true.
--------------------------------------
Daniel W. Rabun
A-3
<PAGE> 182
EXHIBIT B
AFFILIATE AGREEMENT
October ___, 1997
DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
Ladies and Gentlemen:
I understand that an Agreement and Plan of Merger dated as of October
29, 1997 (the "Merger Agreement") has been entered into by and among DSC
Communications Corporation, a Delaware corporation ("Parent"), CI Acquisition
Company, a Delaware corporation ("Parent Sub") and Celcore, Inc., a Delaware
corporation ("Target"), and that pursuant to the Merger Agreement, Parent Sub
will merge with and into Target, Target will become a wholly-owned subsidiary
of Parent, and the stockholders of Target will become stockholders of Parent
(the "Merger"). Capitalized terms used herein and not defined have the meaning
for them set forth in the Merger Agreement.
I also understand that in accordance with the Merger Agreement, the
shares of Target Stock owned by the undersigned at the Effective Time shall be
converted into shares of Parent Common Stock in the manner and in the amounts
described in the Merger Agreement.
In consideration of the mutual agreements, provisions and covenants
set forth in the Merger Agreement and hereinafter in this Affiliate Agreement,
the undersigned represents and agrees as follows:
1. Rule 145. The undersigned will not offer, sell, pledge,
transfer or otherwise dispose of any of the shares of Parent Common Stock
issued to the undersigned in the Merger unless at such time either: (i) such
transaction shall be permitted pursuant to the provisions of Rule 145
promulgated under the Securities Act; (ii) the undersigned shall have furnished
to Parent an opinion of counsel, satisfactory to Parent, to the effect that no
registration under the Securities Act would be required in connection with the
proposed offer, sale, pledge, transfer or other disposition; or (iii) a
registration statement under the Securities Act covering the proposed offer,
sale, pledge, transfer or other disposition shall be effective under the
Securities Act.
B-1
<PAGE> 183
2. Legends.
(a) The undersigned understands that all certificates
representing Parent Common Stock deliverable to the undersigned pursuant to the
Merger shall bear a legend substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED,
SOLD, PLEDGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE OTHER CONDITIONS SPECIFIED IN THE AFFILIATE
AGREEMENT DATED AS OF OCTOBER 29, 1997 BETWEEN THE HOLDER OF
THIS CERTIFICATE AND DSC COMMUNICATIONS CORPORATION ("PARENT"),
A COPY OF WHICH MAY BE INSPECTED BY THE HOLDER OF THE
CERTIFICATE AT THE OFFICES OF PARENT, 1000 COIT ROAD, PLANO,
TEXAS 75075 OR FURNISHED BY PARENT TO THE HOLDER OF THIS
CERTIFICATE UPON WRITTEN REQUEST AND WITHOUT CHARGE."
(b) The undersigned also understands that unless the
transfer by the undersigned of shares of Parent Common Stock has been
registered under the Securities Act or is a sale made in conformity with the
provisions of Rule 145, Parent reserves the right to put the following legend
on the certificate issue to my transferee:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
WERE ACQUIRED FROM A PERSON WHO RECEIVED SUCH SHARES IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, APPLIES. THE SHARES HAVE BEEN
ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE
WITH AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AS AMENDED."
B-2
<PAGE> 184
It is understood and agreed that the legends set forth in paragraphs
(a) and (b) above shall be removed by delivery of substitute certificates
without such legends if I, the undersigned, shall have delivered to Parent a
copy of a letter from the staff of the Securities and Exchange Commission, or
an opinion of counsel in form and substance reasonably satisfactory to Parent,
to the effect that such legends are not required for purposes of the Securities
Act.
Parent, in its discretion, may cause stop transfer orders to be placed
with its transfer agent with respect to the certificates for the shares of
Parent Common Stock which are required to bear the foregoing legends.
3. Miscellaneous.
(a) This Affiliate Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware
applicable to agreements to be performed wholly within such state (without
regard to its conflicts of law rules).
(b) This Affiliate Agreement shall be binding on my
successors and assigns, including my heirs, executors, administrators,
trustees, and personal representatives.
(c) I acknowledge, understand and agree that the
representations, warranties and covenants set forth above will be relied upon
by Parent and Target and their respective affiliates, legal counsel and
accountants, and that substantial losses and damages may be incurred by such
persons if any of such representations, warranties or covenants are inaccurate
or breached.
(d) If a court of competent jurisdiction determines that
any provision of this Affiliate Agreement is not enforceable or enforceable
only if limited in time, scope or otherwise, this Affiliate Agreement shall
continue in full force and effect with such provision stricken or so limited.
(e) This Affiliate Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same document.
(f) This Affiliate Agreement shall not be modified or
amended, or any right hereunder waived or any obligation excused, except by a
written instrument signed by both parties.
(g) I have carefully read this agreement and discussed
its requirements, to the extent I have believed necessary, with my counsel or
counsel for Target.
B-3
<PAGE> 185
Very truly yours,
------------------------------------
Signature
------------------------------------
Print Name
Accepted:
DSC COMMUNICATIONS CORPORATION
By:
---------------------------
Name:
-------------------------
Title:
------------------------
Dated: , 1997
------------------
B-4
<PAGE> 186
EXHIBIT C
VOTING AGREEMENT
This Voting Agreement ("Agreement") is made and entered into as of
October ___, 1997 by and between DSC Communications Corporation, a Delaware
corporation ("Parent"), and the undersigned director, executive officer, or
affiliate of Celcore, Inc., a Delaware corporation ("Target").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, CI
Acquisition Company, a Delaware corporation and a wholly-owned subsidiary of
Parent ("Parent Sub"), and Target have entered into an Agreement and Plan of
Merger dated as of October 29, 1997 (the "Merger Agreement"), providing for the
merger of Parent Sub with and into Target (the "Merger"), pursuant to which
Target will become a wholly-owned subsidiary of Parent.
B. Capitalized terms used herein and not defined have the meaning
for them set forth in the Merger Agreement.
C. The stockholder named on the signature page hereof (the
"Stockholder") is the beneficial holder of record of the number and class of
shares of the outstanding Target Stock, as is indicated on the final page of
this Agreement (the "Shares"). In connection with the Merger, Parent will
acquire the Stockholder's entire equity interest in Target and the Stockholder
will receive in exchange an equity interest in Parent. In consideration of and
in order to induce the execution of the Merger Agreement by Parent, the
Stockholder agrees not to sell or otherwise dispose of any shares of Target
Stock held by the Stockholder and to vote the Shares so as to facilitate
consummation of the Merger as more fully described below.
NOW, THEREFORE, in consideration of the mutual promises and the mutual
covenants and agreements contained herein, the parties agree as follows:
1. Agreement to Retain Shares. The Stockholder agrees not to
transfer, pledge, sell, exchange or offer to transfer or sell or otherwise
dispose of or encumber any of the Shares or to make any offer or agreement
relative thereto at any time prior to the Expiration Date. The "Expiration
Date" shall mean the earlier of (a) the date and time on which the Merger shall
become effective in accordance with the terms and provisions of the Merger
Agreement, or (b) the date on which the Merger Agreement shall be terminated
pursuant to the Merger Agreement.
2. Agreement to Vote Shares; Waiver of Liquidation Rights and
Appraisal Rights. At any meeting of the Target Stockholders called with
respect to any of the following, and at any adjournment thereof, and on every
action approved by written consent of the Target
C-1
<PAGE> 187
Stockholders with respect to any of the following, the Stockholder shall vote
the Shares in favor of approval of (i) the Merger Agreement and the Merger and
any matter that could reasonably be expected to facilitate the Merger, (ii) the
employment agreements for Messrs. Berger, Foley, and Gonzalez which are being
entered into with such individuals in connection with the Merger and (iii) the
waiver of any rights to receive cash or other property upon a liquidation of
Target as provided in the certificate of incorporation of Target or in any of
the Certificates of Designations in respect of any Target Preferred Stock. The
Stockholder, as the holder of voting stock of Target shall be present in person
or by proxy, at all meetings of Target Stockholders so that all Shares are
counted for the purposes of determining the presence of a quorum at such
meetings. This Agreement is intended to bind the Stockholder only with respect
to the specific matters set forth herein, and shall not prohibit the
Stockholder from action in accordance with his fiduciary duties as an officer
or director of Target. In respect of the Merger, the Stockholder hereby waives
any rights to receive cash or other property upon a liquidation of the Target
as provided in the certificate of incorporation of Target or any of the
Certificates of Designations in respect of any Target Preferred Stock owned by
such Stockholder. In addition, the Stockholder agrees not to take any action
or actions to perfect any appraisal rights the Stockholder may have as a result
of the Merger under Section 262 of the Delaware Law.
3. Irrevocable Proxy. Concurrently with the execution of this
Agreement, the Stockholder agrees to deliver to Parent a proxy in the form
attached hereto as Annex A (the "Proxy"), which shall be irrevocable to the
extent provided therein; provided that the Proxy shall be revoked upon
termination of this Agreement in accordance with its terms.
4. Additional Purchases. For purposes of this Agreement
(including without limitation, the recitals hereto), the term "Shares" shall
include any shares of Target capital stock (including Target Stock) that the
Stockholder purchases or as to which the Stockholder otherwise acquires voting
power after the execution of this Agreement and prior to the Expiration Date.
5. Representations, Warranties and Covenants of the Stockholder.
The Stockholder hereby represents, warrants and covenants to Parent the
following:
(a) Ownership of Shares. Except as specifically described
on Annex B to this Agreement (if any), the Stockholder (i) is the holder and
beneficial owner of the Shares, which at the date hereof and at all times until
the Expiration Date will be free and clear of any liens, claims, options,
charges or other encumbrances, (ii) does not beneficially own any shares of
Target Stock other than the Shares and (iii) has full power and authority to
make, enter into, deliver and carry out the terms of this Agreement and the
Proxy.
(b) No Voting Trusts and Agreements. The Stockholder will
not, and will not permit any entity under the Stockholder's control to, deposit
any shares of Target capital stock (including Target Stock) held by the
Stockholder or such entity in a voting trust or
C-2
<PAGE> 188
subject any shares of Target capital stock (including Target Stock) held by the
Stockholder or such entity to any arrangement or agreement with respect to the
voting of such shares of capital stock, other than agreements entered into with
Parent or its affiliates.
(c) No Proxy Solicitations. The Stockholder will not, and
will not permit any entity under the Stockholder's control to, (i) solicit
proxies or become a participant in a "solicitation" (as such term is defined in
Rule 14a-11 under the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), with respect to any proposal made in opposition to or
competition with consummation of the Merger and the Merger Agreement, any
merger, consolidation, share exchange, sale of securities or assets,
reorganization, recapitalization or other business combination involving Target
and any other party (other than Parent and its affiliates), any liquidation
(including the liquidation rights provided for in the Certificates of
Designations), or winding up of Target and any other matter that would, or
could reasonably be expected to, prohibit or discourage the Merger (each of the
foregoing is referred to as an "Opposing Proposal"), or otherwise encourage or
assist any party in taking or planning any action that would compete with,
restrain or otherwise serve to interfere with or inhibit the timely
consummation of the Merger in accordance with the terms of the Merger
Agreement, (ii) initiate a Stockholders' vote or action by consent of Target
Stockholders or (iii) become a member of a "group" (as such term is used in
Section 13(d) of the Exchange Act) with respect to any voting securities of
Target with respect to an Opposing Proposal.
6. Representations, Warranties and Covenants of Parent. Parent
represents, warrants and covenants to the Stockholder as follows:
(a) Due Authorization. This Agreement has been authorized
by all necessary corporate action on the part of Parent and has been duly
executed by a duly authorized officer of Parent.
(b) Validity; No Conflict. This Agreement constitutes the
legal, valid and binding obligation of Parent. Neither the execution of this
Agreement by Parent nor the consummation of the transactions contemplated
hereby will result in a breach or violation of the terms of any agreement by
which Parent is bound or of any decree, judgment, order, law or regulation now
in effect of any court or other governmental body applicable to Parent.
7. Registration of Merger Shares.
(a) Parent shall use all commercially reasonable efforts
on or before the Effective Time to effect the registration under the Securities
Act, on an appropriate form, of the shares of Parent Common Stock that will be
issued to the Stockholder pursuant to the Merger (the "Merger Shares") unless
Parent shall have provided to the Stockholder a no-action letter or opinion of
counsel reasonably acceptable to the Stockholder, concluding that the
Stockholder will not be restricted in any way in their ability absent such
registration to resell the Merger Shares. Parent shall be required to file
only one such registration statement and
C-3
<PAGE> 189
shall use its Best Efforts to keep such registration statement continuously
effective until such time as the Merger Shares have been disposed of by the
Target Stockholders but in no event for a period of longer than twenty-four
(24) months after the date of the Effective Time. For purposes of this Section
7, "Registration Statement" means the registration statement covering the
Merger Shares filed pursuant hereto, including, to the extent applicable, the
prospectus (the "Prospectus") included in any such registration statement, all
amendments and supplements to any such registration statement (including
post-effective amendments), all exhibits to any such registration statement and
all material incorporated by reference in any such registration statement.
(b) In connection with Parent's registration obligations
pursuant to Section 7(a) and, except as provided in Section 7(b)(i), Parent
shall use its Best Efforts to keep the Registration Statement continuously
effective at Parent's sole expense for the period of time provided in Section
7(a), to permit the sale of the Merger Shares pursuant to the Registration
Statement in accordance with the intended method or methods of distribution
thereof specified by the Stockholder, and shall:
(i) notify the Stockholder, promptly (A) when a
new Registration Statement, Prospectus or supplement thereto or
post-effective amendment has been filed, and, with respect to a new
Registration Statement or post-effective amendment when it has become
effective, (B) of any request by the SEC for amendments or supplements
to any Registration Statement or Prospectus or for additional
information, (C) of the issuance by the SEC of any comments with
respect to any filing and of any stop order suspending the
effectiveness of any Registration Statement or the initiation of any
proceedings for that purpose, (D) of the receipt by Parent of any
notification with respect to the suspension of the qualification of
the Merger Shares for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, (E) of the happening
of any event that makes any statement made in any Registration
Statement, Prospectus or any document incorporated therein by
reference untrue or that requires the making of any changes in any
Registration Statement, Prospectus or any document incorporated
therein by reference in order to make the statements therein not
misleading, and (F) of Parent's determination that a post-effective
amendment to a Registration Statement would be appropriate;
(ii) furnish to the Stockholder, without charge,
as many conformed copies of the Registration Statement and any
amendments thereto as may reasonably be requested by the Target
Stockholders;
(iii) deliver to the Stockholder, without charge,
as many copies of the Prospectus covering the Merger Shares and any
amendments or supplements thereto as the Stockholder may reasonably
request;
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<PAGE> 190
(iv) register, qualify, or obtain an exemption
therefrom, in connection with the registration or qualification or
exemption therefrom of the Merger Shares for offer and sale under the
securities or Blue Sky Laws of New York and, as the Stockholder
reasonably requests, any other jurisdictions within the United States
and do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Merger Shares
covered by the Registration Statement; provided, however, that Parent
shall not be required to qualify as a dealer in securities or as a
foreign corporation, or otherwise subject itself to taxation in
connection with such activities, or to execute a general consent to
service of process in any jurisdiction;
(v) otherwise use its Best Efforts to comply with
all applicable rules and regulations of the SEC relating to such
registration and the distribution of the securities being offered, and
make generally available to its securities holders earning statements
satisfying the provisions of Section 11(a) of the Securities Act no
later than 90 days after the end of any twelve (12) month period (or
120 days if such period is a fiscal year) beginning with the first
month of the first fiscal quarter commencing after the effective date
of such Registration Statement, which earning statements shall cover
such twelve (12) month periods;
(vi) in no event later than ten (10) business days
before filing any Registration Statement or Prospectus, or any
amendment or supplement (other than any amendment or supplement made
solely as a result of incorporation by reference of documents) thereof
(or, in the case of any Prospectus supplement or post-effective
amendment relating to a proposed shelf "draw-down," three (3) business
days before the filing thereof), furnish to the Stockholder copies of
all such documents proposed to be filed, which documents shall be
subject to the reasonable review of the Stockholder;
(vii) promptly after the filing of any document
that is to be incorporated by reference into a Registration Statement
or Prospectus, provide copies of such document to the Stockholder; and
(viii) use all commercially reasonable efforts to
take all actions necessary or advisable to effect such registration in
the manner contemplated by this Agreement.
(c) The Stockholder shall furnish to Parent such
information regarding the Stockholder and the plan of distribution of the
Merger Shares as Parent may from time to time reasonably request.
(d) The Stockholder agrees that upon receipt of any
notice from Parent of the happening of any event of the kind described in
Sections 7(b)(i)(B), 7(b)(i)(C), 7(b)(i)(D), 7(b)(i)(E) or 7(b)(i)(F), it shall
forthwith discontinue disposition of the Merger Shares pursuant
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to the Prospectus until (a) it is advised in writing by Parent that a new
Registration Statement covering the offer of the Merger Shares has become
effective under the Securities Act, (b) it receives copies of a supplemented or
amended Prospectus, or (c) until it is advised in writing by Parent that the
use of the Prospectus may be resumed. Parent shall promptly take all such
action as may be necessary or appropriate, including without limitation, the
filing of a new Registration Statement or an amendment to the then current
Registration Statement and/or the filing of an amended Prospectus, to limit the
duration of any discontinuance with respect to the disposition of the Merger
Shares pursuant to this Section 7(d).
(e) The Stockholder shall cooperate with Parent in all
reasonable respects in connection with the preparation and filing of the
Registration Statement,
(f) All expenses incident to Parent's performance of or
compliance with this Agreement, including without limitation all registration
and filing fees, fees and expenses for compliance with securities or Blue Sky
Laws (including fees and disbursements of Parent's counsel in connection with
blue sky qualifications or registrations (or the obtaining of exemptions
therefrom) of the Merger Shares), printing expenses (including expenses of
printing Prospectuses), messenger and delivery expenses, internal expenses
(including without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), fees and disbursements of its
counsel and its independent certified public accountants, fees and expenses of
any special experts retained by Parent in connection with any registration
hereunder, and fees and expenses of other persons retained by Parent, but
excluding fees and disbursements of counsel retained by the Stockholder, any
fees and expenses of any underwriters relating to the Merger Shares and
transfer taxes, if any, relating to the Merger Shares, shall be borne by
Parent.
(g) Parent shall indemnify and hold harmless the
Stockholder against all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and legal expenses) resulting from
any untrue or alleged untrue statement of a material fact contained in any
Registration Statement or any Prospectus, or any amendment or supplement
thereto, or any omission or alleged omission to state in any thereof a material
fact required to be stated therein or necessary to make the statements therein
not misleading, except in each case insofar as the same arises out of or is
based upon an untrue statement or alleged untrue statement of a material fact
or an omission or alleged omission to state a material fact in such
Registration Statement, Prospectus, amendment or supplement, as the case may
be, made or omitted, as the case may be, in reliance upon and in conformity
with information furnished to Parent or its affiliates by the Stockholder
expressly for use therein.
(h) The Stockholder with respect only to information
furnished by it to Parent or its affiliates expressly for use in any
Registration Statement, any Prospectus, or any amendment or supplement thereto
shall indemnify and hold harmless their officers, directors, employees,
representatives, agents and affiliates and each Person who controls (within the
meaning of the Securities Act) Parent, against all losses, claims, damages,
liabilities and
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expenses (including reasonable costs of investigation and legal expenses)
resulting from any untrue or alleged untrue statement of a material fact
contained in such Registration Statement, any Prospectus, or any amendment or
supplement thereto, or any omission or alleged omission to state in any thereof
a material fact required to be stated therein or necessary to make the
statements therein not misleading, as the same arises out of or is based upon
an untrue statement or alleged untrue statement of a material fact or an
omission or alleged omission to state a material fact in such Registration
Statement, Prospectus, amendment or supplement, as the case may be, made or
omitted, as the case may be, in reliance upon and in conformity with such
written information.
(i) Each party entitled to indemnification under this
Section 7 (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for
the Indemnifying Party, who will conduct the defense of such claim or
litigation, is approved by the Indemnified Party (whose approval will not be
unreasonably withheld or delayed); and provided, further, that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations except to the extent that its defense of
the claim or litigation involved is prejudiced by such failure. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential conflicts
of interest between the Indemnified Party and any other party represented by
such counsel in such proceeding. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
of any claim or litigation, and no Indemnified Party will consent to entry of
any judgment or settle any claim or litigation without the prior written
consent of the Indemnifying Party. Each Indemnified Party shall furnish such
information regarding himself or itself and the claim in question as the
Indemnifying Party may reasonably request and as shall be reasonably required
in connection with the defense of such claim and litigation resulting
therefrom.
(j) If for any reason the indemnification provided for in
this Section 7 from an Indemnifying Party is unavailable to an Indemnified
Party hereunder or insufficient to hold it harmless as contemplated by this
Section 7, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses in such proportion as is appropriate to reflect the relative fault of
an Indemnifying Party and Indemnified Party in connection with the actions that
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative fault of the
Indemnifying Party and Indemnified Party shall be determined by reference to,
among
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other things, whether any action in question, including any untrue or alleged
untrue statement of a material fact, has been made by, or relates to
information supplied by, an Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action. The amount paid or payable by a party as a
result of the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth in
Section 7(i), any legal or other fees or expenses reasonably incurred by such
party in connection with any investigation or proceeding. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 7(k) were determined by pro rata allocation or by any other method of
allocation that does not take account of the equitable considerations referred
to in the immediately preceding paragraph. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
8. Securities Act Covenants and Representations. Subject to
Parent's obligations under Section 7.1, the Stockholder hereby agrees and
represents to Parent as follows:
(a) The Stockholder has been advised that the offer, sale
and delivery of the Parent Common Stock to the Stockholder pursuant to the
Merger may not be registered under the Securities Act, despite Parent's
obligations to use commercially reasonable efforts to effect such registration.
The Stockholder has been advised that if the offer, sale and delivery of the
Parent Common Stock to the Stockholder pursuant to the Merger has not been
registered under the Securities Act, then the Merger Shares may not be offered,
sold, pledged, hypothecated or otherwise transferred unless subsequently
registered under the Securities Act or an exemption from such registration is
available. The Stockholder has also been advised that even if the sale and
delivery to the Stockholder of the Merger Shares is registered under the
Securities Act, to the extent the Stockholder is considered an "affiliate" of
Target at the time the Merger Agreement is submitted for a vote of the Target
Stockholders, any public offering or sale by the Stockholder of the Merger
Shares will, under current law, require either (i) the further registration
under the Securities Act of the Merger Shares, which Parent is obligated under
Section 7.1 to use commercially reasonable efforts to effect, (ii) compliance
with Rule 145 promulgated by the SEC under the Securities Act or (iii) the
availability of another exemption from such registration under the Securities
Act.
(b) The Stockholder has read this Agreement and the
Merger Agreement and has discussed their requirements and other applicable
limitations upon its ability to sell, transfer or otherwise dispose of the
Merger Shares, to the extent the Stockholder believed necessary, with its
counsel or counsel for Target.
(c) The Stockholder also understands that stop transfer
instructions will be given to Parent's transfer agents with respect to the
Merger Shares and that a legend will be placed on the certificates for the
Merger Shares issued to the Stockholder, to the extent the
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Stockholder is considered an "affiliate" of Target at the time the Merger
Agreement is submitted for a vote of the Target Stockholders.
9. Additional Documents. The Stockholder and Parent hereby
covenant and agree to execute and deliver any additional documents necessary or
desirable, in the reasonable opinion of Parent's legal counsel or the
Stockholder, as the case may be, to carry out the intent of this Agreement.
10. Consent and Waiver. The Stockholder hereby gives any consent
or waivers that are reasonably required for the consummation of the Merger
under the terms of any agreement to which the Stockholder is a party or
pursuant to any rights the Stockholder may have.
11. Miscellaneous.
(a) 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, 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.
(b) Binding Effect and Assignment. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of the parties hereto may be
assigned by any of the parties without the prior written consent of the other.
(c) Amendments and Modifications. This Agreement may not
be modified, amended, altered or supplemented except upon the execution and
delivery of a written agreement executed by the parties hereto.
(d) 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 the Stockholder set forth herein. Therefore, it is agreed that,
in addition to any other remedies that may be available to Parent upon such
violation, Parent shall have the right to enforce such covenants and agreements
by specific performance, injunctive relief or by any other means available to
it at law or in equity.
(e) Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and sufficient if delivered
in person, by commercial overnight courier service, by confirmed facsimile, or
sent by mail (registered or certified mail, postage prepaid, return receipt
requested) to the respective parties as follows:
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(i) if to Parent, to:
DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
Attention: General Counsel
Facsimile No.: (972) 519-2321
with a copy to:
4500 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Attention: Daniel W. Rabun
Facsimile No.: (214) 965-5902
Stockholder:
----------------------------------
----------------------------------
----------------------------------
Attention:
------------------------
Facsimile No.:
--------------------
with a copy to:
----------------------------------
----------------------------------
----------------------------------
Attention:
------------------------
Facsimile No.:
--------------------
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of change of address shall
only be effective upon receipt.
(f) Governing Law. This Agreement shall be governed by,
construed and enforced in accordance with the laws of the State of Delaware
without giving effect to principles of conflicts of law.
(g) Entire Agreement. This Agreement contains the entire
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understanding between the parties with
respect to such subject matter.
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(h) Counterparts. This Agreement may be executed in
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
(i) Effect of Headings. The section headings herein are
for convenience only and shall not affect the construction or interpretation of
this Agreement.
(j) Termination. Notwithstanding anything else in this
Agreement, this Agreement and the Proxy, and all obligations of the Stockholder
under either of them, shall automatically terminate as of the Expiration Date.
(k) Covenant Not-to-Compete. [ROBERT GOODMAN ONLY]
(i) Stockholder acknowledges that Parent is acquiring the
goodwill of the Target. Therefore, Stockholder agrees that for a
period commencing upon the Closing Date and ending upon the fifth
anniversary thereof, unless otherwise extended pursuant to the terms
hereof, Stockholder will not, directly or indirectly, either as an
employer, consultant, agent, principal, partner, stockholder, or in
any other capacity, engage or participate in any business that is
involved in the development, marketing, manufacturing or sale of GSM
or AMPS mobile switching centers (a "Prohibited Business"), within any
state or country in which the Target or Parent or its Subsidiaries is
conducting or reasonably expects to conduct or expend its business
(the "Covenant Not-to-Compete"). Stockholder represents to Parent
that the enforcement of the restriction contained in this Section
11(k) would not be unduly burdensome to Stockholder and that in order
to induce Parent to enter into this Agreement, Stockholder further
represents and acknowledges that Stockholder is willing and able to
compete in other geographical areas not prohibited by this Section
11(k). Notwithstanding the foregoing, Stockholder shall not be
prohibited from owning up to five percent (5%) of the outstanding
capital stock of any class of capital stock registered under Section
12 (b) or (g) of the Exchange Act.
(ii) Stockholder agrees that a breach or violation of the
Covenant Not-to-Compete by Stockholder shall entitle Parent, as a
matter of right, to an injunction issued by any court or arbitration
panel of competent jurisdiction, restraining any further or continued
breach or violation of this covenant. Such right to an injunction
shall be cumulative and in addition to, and not in lieu of, any other
remedies to which Parent may show itself justly entitled. Further,
during any period in which Stockholder is in breach of the Covenant
Not-to-Compete, the time period of the Covenant Not-to-Compete shall
be extended for an amount of time that Stockholder is in breach
hereof.
(iii) In addition to the restrictions set forth in
sub-paragraph (i) of this Section 11(k), Stockholder shall not for a
period commencing upon the Closing Date and ending upon the first
anniversary thereof, either directly or indirectly, (A) make
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known to any person, firm or corporation involved in a Prohibited
Business the names and addresses of any of the customers of the Target
or contacts of the Target or any other information pertaining to such
persons, (B) call on, solicit, or take away, or attempt to call on,
solicit or take away any of the customers of the Target on whom
Stockholder called or with whom Stockholder became acquainted during
Stockholder's association with the Target, for any other person, firm
or corporation involved in a Prohibited Business or (C) recruit or
hire or attempt to recruit or hire, directly or by assisting others,
any employee, consultant or independent contractor of the Target.
(iv) The representations and covenants contained in this
Section 11 on the part of Stockholder will be construed as ancillary
to and independent of any other provision of this Agreement, and the
existence of any proceeding of Stockholder against the Target or any
officer, director, or shareholder of Parent whether predicated on this
Agreement or otherwise, shall not constitute a defense to the
enforcement by Parent of the covenants of the Stockholder contained in
this Section 11.
(v) If Stockholder violates any covenant contained in
this Section 11 and Parent brings legal action for injunctive or other
relief, Parent shall not, as a result of the time involved in
obtaining the relief, be deprived of the benefit of the full period of
any such covenant. Accordingly, the covenants of Stockholder
contained in this Section 11 shall be deemed to have durations as
specified above, which periods shall commence upon the Closing Date
and shall be extended for the amount of time between the Closing Date
and the date of entry by a court of competent jurisdiction of a final
judgment enforcing the covenants of Stockholder in this Section 11.
(vi) The parties to this Agreement agree that the
limitations contained in this Section 11 with respect to geographic
area, duration and scope of activity are reasonable. However, if any
court shall determine that the geographic area, duration or scope of
activity of any restriction contained in this Section 11 is
unenforceable, it is the intention of the parties that such
restrictive covenant set forth herein shall not thereby be terminated
but shall be deemed amended to the extent required to render it valid
and enforceable.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the day and year first above written.
DSC COMMUNICATIONS CORPORATION
By:
------------------------------------
Its:
-----------------------------------
Stockholder
---------------------------------------
Printed Name:
--------------------------
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ANNEX A
IRREVOCABLE PROXY
The undersigned holder of shares of capital stock (the "Stockholder")
of Celcore, Inc., a Delaware corporation ("Target"), hereby irrevocably
appoints and constitutes the members of the Board of Directors of DSC
Communications Corporation, a Delaware corporation ("Parent"), and each of
them, (the "Proxyholders"), the agents and proxies of the undersigned, with
full power of substitution and resubstitution, to the full extent of the
undersigned's rights with respect to the shares of capital stock of Target
beneficially owned by the undersigned, which shares are listed below (the
"Shares"), and any and all other shares or securities issued or issuable in
respect thereof on or after the date hereof and prior to the date this proxy
terminates, to vote the Shares as follows:
If within five (5) business days after the commencement by Target of
the solicitation of Stockholder written consents for the adoption and approval
of the Merger Agreement (as such term is defined below), the Stockholder shall
not have executed and delivered to Target a duly and validly signed and dated
consent adopting and approving the Merger Agreement, and upon written notice to
Target with a copy to Target's counsel and prior to termination of this proxy,
the Proxyholder is empowered to exercise all voting and other rights (including
without limitation, the power to execute and deliver written consents with
respect to the Shares) of the undersigned at every annual, special or adjourned
meeting of Target Stockholders, and in every written consent in lieu of such a
meeting, or otherwise,
In favor of approval of the (i) Merger (as defined in the Voting
Agreement dated October ___, 1997 between the Stockholder and Parent (the
"Voting Agreement")) and that certain Agreement and Plan of Merger (the "Merger
Agreement") dated as of October 29, 1997 by and among Parent, CI Acquisition
Company, a Delaware corporation and a wholly-owned subsidiary of Parent
("Parent Sub"), and Target, and any matter that could reasonably be expected to
facilitate the Merger, (ii) employment agreements for Messrs. Berger, Foley,
and Gonzalez which are being entered into with such individuals in connection
with the Merger and (iii) the waiver of the right of the undersigned to receive
cash or other property upon a liquidation of Target as provided in the
certificate of incorporation of Target or in any of the Certificates of
Designations in respect of any Target Preferred Stock.
The Proxyholder may not exercise this proxy on any other matter. The
undersigned Stockholder may vote the Shares on all such other matters.
The proxy granted by the Stockholder to the Proxyholder hereby is
granted as of the date of this Agreement in order to secure the obligations of
the Stockholders set forth in Section 2 of the Voting Agreement, and is
irrevocable and coupled with an interest in such obligations and in the
interests in Target to be purchased and sold pursuant the Merger
Annex A - Page 1
<PAGE> 200
Agreement. This proxy will terminate upon the termination of the Voting
Agreement in accordance with its terms.
Upon the execution hereof, all prior proxies given by the undersigned
with respect to the Shares and any and all other shares or securities issued or
issuable in respect thereof on or after the date hereof are hereby revoked and
no subsequent proxies will be given until such time as this proxy shall be
terminated in accordance with its terms.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned. The undersigned Stockholder
authorizes the Proxyholder to file this proxy and any substitution with the
Secretary of Target and with any Inspector of Elections at any meeting of the
Target Stockholders.
This proxy is irrevocable and shall survive the insolvency,
incapacity, death or liquidation of the undersigned.
Dated: , 1997
--------------------------
Signature of Stockholder:
-------------------------
Print name of Stockholder:
-------------------------
Shares beneficially owned:
shares of Target Common Stock
---------
shares of Target Series A Preferred Stock
---------
shares of Target Series B Preferred Stock
---------
shares of Target Series C Preferred Stock
---------
shares of Target Series D Preferred Stock
---------
Annex A - Page 2
<PAGE> 201
EXHIBIT D
TAX OPINION OF BAKER & MCKENZIE
[BAKER & MCKENZIE LETTERHEAD]
_____________, 1997
DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
Gentlemen:
We have acted as counsel to DSC Communications Corporation, a Delaware
corporation ("Parent"), in connection with the execution and delivery of the
Agreement and Plan of Merger (the "Agreement"), dated as of October 29, 1997,
among Parent, CI Acquisition Company, a Delaware corporation and a direct,
wholly-owned subsidiary of Parent ("Parent Sub"), and Celcore, Inc., a
Delaware corporation (the "Target"), providing for the merger of Parent Sub
with and into the Target (the "Merger"). This opinion letter is being
furnished to you, pursuant to Section 7.01(i) of the Agreement. Unless
otherwise defined herein or the context hereof otherwise requires, each term
used herein with its initial letter capitalized has the meaning given to such
term in the Agreement.
In preparing our opinion, we have reviewed and relied upon, the Agreement, the
representations and warranties made by Parent, Parent Sub and Target in the
Agreement, and other documents as we have deemed necessary.
In addition, in preparing our opinion we have assumed that (i) the Merger will
be effected in accordance with the terms of the Agreement, (ii) the
representations made by Target, Parent and Parent Sub are true and accurate in
all material respects, and (iii) there will be no change in any of the facts
material to this opinion between the date of this opinion and the Effective
Time. We have not made any independent investigation of any of the facts
material to this opinion, other than as described above.
Furthermore, we have assumed that there is no plan or intention on the part of
Target Stockholders to dispose of a number of shares of Parent Common Stock to
be issued to such stockholders in the Merger, sufficient to reduce the Target's
Stockholders' ownership of Parent Common Stock to a number of shares having an
aggregate fair market value, as of the
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Effective Time of the Merger, of less than fifty percent (50%) of the aggregate
fair market value, immediately prior to the Merger, of all outstanding shares
of Target Common Stock and Target Preferred Stock.
Our opinion is based on the Code, the currently applicable Treasury Regulations
promulgated under the Code, published administrative positions of the Internal
Revenue Service ("IRS") and judicial decisions. Such authorities are all
subject to change, either prospectively or retroactively. No assurances can be
provided as to the effect of any such changes upon the opinion given herein.
Our opinion represents our best legal judgment as to the United States federal
income tax consequences of the Merger; it is not, however, binding on the IRS
or the courts.
Based upon and subject to the foregoing, we are of the opinion that the Merger
will, under current law, constitute a tax-free reorganization under Section
368(a)(1)(A) of the Code by reason of the application of Section 368(a)(2)(E)
of the Code, and under Section 368(a)(1)(B) of the Code. Parent, Parent Sub
and Target will each be a party to the reorganization within the meaning of
Section 368(b) of the Code. As a tax-free reorganization, the Merger will have
the following federal income tax consequences for the Target stockholders,
Target, Parent and Parent Sub:
1. No gain or loss will be recognized by the holders of
shares of Target Common Stock or Target Preferred Stock (collectively,
the "Target Stock") as a result of the exchange of such shares of
Target Stock for shares of Parent Common Stock pursuant to the Merger,
except that holders of Target Stock who receive cash proceeds in lieu
of fractional shares of Parent Common Stock will recognize gain or
loss equal to the difference, if any, between such proceeds and the
tax basis of the shares of Target Stock allocated to their fractional
share interests, and such gain or loss, if any, will be capital gain
or loss if their fractional interests are held as capital assets at
the time of their sale. Code Section 354(a). Capital gain or loss
will be long-term capital gain or loss if the fractional interests
exchanged are held for more than one year. Code Section 1222.
2. The tax basis of the shares of Parent Common Stock
received by each Target Stockholder will equal the tax basis of such
Target Stockholder's shares of Target Stock exchanged in the Merger
less the tax basis allocated to fractional share interests. Code
Section 358(a).
3. The holding period for the shares of Parent Common
Stock received by each Target Stockholder will include the holding
period for the shares of Target Stock of such Target Stockholder
exchanged in the Merger. Code Section 1223(1).
4. Parent will not recognize gain or loss as a result of
the Merger. Code Section 1032.
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<PAGE> 203
5. Target will not recognize gain or loss as a result of
the Merger.
6. Parent Sub will not recognize gain or loss as a
result of the Merger. Code Section 361(a).
7. The tax basis of the shares of Target Stock received
by Parent will, at the election of Parent, equal either: (i) Parent's
tax basis in its Parent Sub stock immediately prior to the Merger plus
Target's net tax basis of Target's assets and liabilities immediately
prior to the Merger, or (ii) the tax basis of the Target Stock in the
hands of Target's stockholders immediately prior to the Merger. Code
Section 362(b) and Treasury Regulation Section 1.358-6(c)(2)(ii).
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether federal, state, local or foreign, of the Merger or of any
transactions related to the Merger. This opinion is being furnished only to
you in connection with the Merger solely for your benefit in connection
therewith and may not be used or relied upon for any other purpose and may not
be circulated, quoted or otherwise referred to for any other purpose without
our express written consent, except that we consent to the filing of this
opinion as an Exhibit to the Registration Statement.
Very truly yours,
BAKER & MCKENZIE
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<PAGE> 204
EXHIBIT E
TAX OPINION OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
[POWELL, GOLDSTEIN, FRAZER & MURPHY LLP]
_____________, 1997
Celcore, Inc.
3800 Forest Hill-Irene Road
Memphis, Tennessee 38125
Gentlemen:
We have acted as counsel to Celcore, Inc., a Delaware corporation (the
"Target"), in connection with the execution and delivery of the Agreement and
Plan of Merger (the "Agreement"), dated as of October 29, 1997, among DSC
Communications Corporation, a Delaware corporation ("Parent"), CI Acquisition
Company, a Delaware corporation and a direct, wholly-owned subsidiary of
Parent ("Parent Sub"), and, providing for the merger of Parent Sub with and
into the Target (the "Merger"). This opinion letter is being furnished to you,
pursuant to Section 7.01(i) of the Agreement. Unless otherwise defined herein
or the context hereof otherwise requires, each term used herein with its
initial letter capitalized has the meaning given to such term in the Agreement.
In preparing our opinion, we have reviewed and relied upon, the Agreement, the
representations and warranties made by Parent, Parent Sub and Target in the
Agreement, and other documents as we have deemed necessary.
In addition, in preparing our opinion we have assumed that (i) the Merger will
be effected in accordance with the terms of the Agreement, (ii) the
representations made by Target, Parent and Parent Sub are true and accurate in
all material respects, and (iii) there will be no change in any of the facts
material to this opinion between the date of this opinion and the Effective
Time. We have not made any independent investigation of any of the facts
material to this opinion, other than as described above.
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<PAGE> 205
Furthermore, we have assumed that there is no plan or intention on the part of
Target Stockholders to dispose of a number of shares of Parent Common Stock to
be issued to such stockholders in the Merger, sufficient to reduce the Target's
Stockholders' ownership of Parent Common Stock to a number of shares having an
aggregate fair market value, as of the Effective Time of the Merger, of less
than fifty percent (50%) of the aggregate fair market value, immediately prior
to the Merger, of all outstanding shares of Target Common Stock and Target
Preferred Stock.
Our opinion is based on the Code, the currently applicable Treasury Regulations
promulgated under the Code, published administrative positions of the Internal
Revenue Service ("IRS") and judicial decisions. Such authorities are all
subject to change, either prospectively or retroactively. No assurances can be
provided as to the effect of any such changes upon the opinion given herein.
Our opinion represents our best legal judgment as to the United States federal
income tax consequences of the Merger; it is not, however, binding on the IRS
or the courts.
Based upon and subject to the foregoing, we are of the opinion that the Merger
will, under current law, constitute a tax-free reorganization under Section
368(a)(1)(A) of the Code by reason of the application of Section 368(a)(2)(E)
of the Code, and under Section 368(a)(1)(B) of the Code. Parent, Parent Sub
and Target will each be a party to the reorganization within the meaning of
Section 368(b) of the Code. As a tax-free reorganization, the Merger will have
the following federal income tax consequences for Target Stockholders, Target,
Parent and Parent Sub:
1. No gain or loss will be recognized by the holders of
shares of Target Common Stock or Target Preferred Stock (collectively,
the "Target Stock") as a result of the exchange of such shares of
Target Stock for shares of Parent Common Stock pursuant to the Merger,
except that holders of Target Stock who receive cash proceeds in lieu
of fractional shares of Parent Common Stock will recognize gain or
loss equal to the difference, if any, between such proceeds and the
tax basis of the shares of Target Stock allocated to their fractional
share interests, and such gain or loss, if any, will be capital gain
or loss if their fractional interests are held as capital assets at
the time of their sale. Code Section 354(a). Capital gain or loss
will be long-term capital gain or loss if the fractional interests
exchanged are held for more than one year. Code Section 1222.
2. The tax basis of the shares of Parent Common Stock
received by each Target Stockholder will equal the tax basis of such
Target Stockholder's shares of Target Stock exchanged in the Merger
less the tax basis allocated to fractional share interests. Code
Section 358(a).
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3. The holding period for the shares of Parent Common
Stock received by each Target Stockholder will include the holding
period for the shares of Target Stock of such Target Stockholder
exchanged in the Merger. Code Section 1223(1).
4. Parent will not recognize gain or loss as a result of
the Merger. Code Section 1032.
5. Target will not recognize gain or loss as a result of
the Merger.
6. Parent Sub will not recognize gain or loss as a
result of the Merger. Code Section 361(a).
7. The tax basis of the shares of Target Stock received
by Parent will, at the election of Parent, equal either: (i) Parent's
tax basis in its Parent Sub stock immediately prior to the Merger plus
Target's net tax basis of Target's assets and liabilities immediately
prior to the Merger, or (ii) the tax basis of the Target Stock in the
hands of Target's stockholders immediately prior to the Merger. Code
Section 362(b) and Treasury Regulation Section 1.358-6(c)(2)(ii).
Except as set forth above, we express no opinion as to the tax consequences to
any party, whether federal, state, local or foreign, of the Merger or of any
transactions related to the Merger. This opinion is being furnished only to
you in connection with the Merger solely for your benefit in connection
therewith and may not be used or relied upon for any other purpose and may not
be circulated, quoted or otherwise referred to for any other purpose without
our express written consent, except that we consent to the filing of this
opinion as an Exhibit to the Registration Statement.
Very truly yours,
POWELL, GOLDSTEIN, FRAZER
& MURPHY LLP
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EXHIBIT F
TARGET COUNSEL OPINION LETTER
[TARGET COUNSEL LETTERHEAD]
______________, 1997
DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
Gentlemen:
We have acted as counsel to Celcore, Inc., a Delaware corporation (the
"Target"), in connection with the execution and delivery of the Agreement and
Plan of Merger (the "Agreement"), dated as of October 29, 1997, among DSC
Communications Corporation, a Delaware corporation ("Parent"), CI Acquisition
Company, a Delaware corporation and a direct, wholly-owned subsidiary of
Parent ("Parent Sub"), and Target providing for the merger of Parent Sub with
and into Target (the "Merger"). This opinion letter is being furnished to you
pursuant to Section 7.02 of the Agreement. Unless otherwise defined herein or
the context hereof otherwise requires, each term used herein with its initial
letter capitalized has the meaning given to such term in the Agreement.
We have examined and are familiar with originals or copies, certified or
otherwise authenticated to our satisfaction, of such documents and records of
Target and each Target Subsidiary, and such statutes, regulations and
instruments as we have deemed necessary or advisable for the purposes of this
opinion letter, including, without limitation, (i) the Agreement, (ii) the
Certificate of Merger dated as of _____________, 1997 between Target and Parent
Sub and (iii) the certificate of incorporation and bylaws of Target.
As to certain facts material to our opinions herein, we have assumed the
accuracy of the representations of Target in the Agreement and of one or more
officers of Target. In addition, we have assumed that all signatures on all
documents presented to us are genuine, that all documents submitted to us as
originals are accurate and complete, that all documents submitted to us as
copies are true and complete copies of the originals thereof, that all
information submitted to us was accurate and complete, and that all persons
executing and delivering originals or copies of documents examined by us were
competent to execute and deliver such documents. We have also assumed the due
authorization, execution and delivery
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by the Parent and Parent Sub of the Agreement and the Certificate of Merger and
that the Agreement and the Certificate of Merger constitute legal, valid and
binding obligations of the Parent and Parent Sub enforceable against each of
them in accordance with their terms.
Based upon the foregoing and subject to the qualifications and limitations set
forth below, we are of the opinion that:
1. Target is duly incorporated, validly existing and in good
standing under the Laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as it is now being conducted. Target
is duly qualified or licensed as a foreign corporation to do business, and is
in good standing in each jurisdiction where the character of the properties
owned, leased or operated by it or the nature of its business makes such
qualification or licensing necessary, except where the failure to be qualified
or licensed would not have a Material Adverse Effect.
2. Target has all necessary corporate power and authority to
execute and deliver the Agreement and to perform its obligations thereunder and
to consummate the Merger and the Transactions. The execution and delivery of
the Agreement by Target and the consummation by Target of the Transactions have
been duly and validly authorized by all necessary corporate action and no other
corporate proceedings on the part of Target are necessary to authorize the
Agreement or to consummate the Merger and the Transactions (other than the
recordation of an appropriate Certificate of Merger with the Secretary as
required by Delaware Law).
3. The Agreement has been duly and validly executed and delivered
by Target and constitutes a legal, valid and binding obligation of Target,
enforceable against Target in accordance with its terms, except as may be (i)
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium, or other Laws affecting enforcement of creditors' rights generally,
and (ii) subject to general principles of equity, regardless of whether
enforcement is considered in a Proceeding at law or in equity.
4. The execution and delivery of the Agreement by Target do not,
and the performance of the Agreement by Target and the consummation of the
Merger and the Transactions will not, (i) conflict with or violate the
certificate of incorporation or bylaws of Target, (ii) conflict with or violate
Delaware Law or the laws of the United States of America, or (iii) to the best
of our knowledge, result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on
any property or asset of Target or the Target Subsidiaries or require the
Consent of any third party pursuant to, any note, bond, mortgage, indenture,
Contract, license, permit, franchise or other instrument or obligation to which
Target or the Target Subsidiaries is a party or by which Target or the Target
Subsidiaries or any property or asset of Target or the Target Subsidiaries is
bound or affected.
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5. The execution and delivery of the Agreement by Target do not,
and the performance of the Agreement and the Merger and the Transactions
contemplated thereby by Target will not, require any Consent or permit of, or
filing with or notification to, any federal or Delaware Governmental Authority,
except the filing and recordation of an appropriate Certificate of Merger with
the Secretary as required by Delaware Law.
6. Upon the issuance of a Certificate of Merger by the Secretary,
the Merger will become effective in accordance with the Agreement and the
Delaware Law, and each issued and outstanding share of Target Stock (other than
Dissenting Shares) will be converted into the consideration provided in Section
2.01 of the Agreement.
7. To the best of our knowledge, except as set forth in the
Target Disclosure Schedule, no Proceedings are pending or Threatened against
Target or the Target Subsidiaries seeking to prevent or delay the Merger or the
Transactions contemplated by the Agreement or challenging any of the terms or
provisions of the Agreement or seeking material damages in connection
therewith.
8. Immediately prior to the Merger, the authorized capital stock
of Target and each of the Target Subsidiaries is as set forth in Section 3.03
of the Agreement. Each share of Target Preferred Stock is convertible into one
share of Target Common Stock. All of the issued and outstanding shares of
capital stock of the Target Subsidiaries are held by Target and are validly
issued, fully paid and nonassessable and, to the best of our knowledge, not
subject to preemptive rights, except as identified in this Opinion. To the
best of our knowledge, no shares of capital stock of the Target have been
acquired by the Target that are subject to outstanding pledges by the Target to
secure the future payment of some or all of the purchase price for such shares.
To the best of our knowledge, other than the Target Options, as of the date of
this Agreement, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Target obligating the Target to issue or sell any shares
of capital stock of, or other equity interests in, the Target or the Target
Subsidiaries. To the best of our knowledge, other than as set forth in
Target's certificate of incorporation (including the Target Certificate of
Designations), there are no outstanding contractual obligations of the Target
to repurchase, redeem or otherwise acquire any shares of Target Stock.
9. The Board of Directors of Target has approved the terms of the
Agreement and the Merger and the other Transactions, and such approval is
sufficient to render inapplicable to the Merger and the other Transactions the
provisions of Section 203 of the Delaware Law.
We have participated in conferences with officers and other representatives of
Parent, Parent Sub and Target, and representatives of the independent auditors
for Target and Parent, at which the contents of the Registration Statement on
Form S-4 (File No. 333-___________) declared effective by the SEC on
____________, 1997 (the "Registration Statement"), the Proxy
Statement/Prospectus dated _____________, 1997 included in the Registration
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Statement (the "Proxy Statement") and related matters were discussed. We are
not passing upon, do not assume any responsibility for and have not, and shall
not be deemed to have, independently verified the accuracy, completeness, or
fairness of the statements contained in the Registration Statement and the
Proxy Statement; however, on the basis of our participation in the preparation
of the Proxy Statement and the Registration Statement and our participation in
discussions relating to the contents thereof, no facts have come to our
attention which lead us to believe that the information with respect to Target
and the Target Subsidiaries contained in the Registration Statement or the
Proxy Statement (except for the financial information, financial statements,
financial schedules and other financial or statistical data contained therein,
as to which we express no opinion), on the date such Registration Statement
became effective under the Securities Act, on the date such Proxy Statement was
first mailed to Target Stockholders, on the date of the Target's Stockholder
Meeting convened to consider the Merger, or on the date hereof, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
The preceding opinions and "negative assurance" statements are subject to the
following qualifications and limitations:
A. In connection with statements herein qualified by "to our
knowledge" or as to matters that have "come to our attention," our examination
has been limited to discussions with the officers and other representatives of
Target and each Target Subsidiary by, and those statements refer only to what
is in the actual knowledge of, attorneys of this Firm who have been involved in
the representation of Target and the Target Subsidiaries in connection with the
Merger and the Transactions described in the Agreement, and we have made no
independent investigations as to the accuracy or completeness of any of the
representations, warranties, data or other information, written or oral, made
or furnished by Parent or Parent Sub to us or to you.
B. The opinions and statements expressed herein are limited to
the matters specifically addressed, and no opinion or statement is implied or
may be inferred beyond the matters so specifically addressed.
C. With respect to the opinion expressed in Paragraph 7, we have
not conducted any search of any indexes, dockets or other records of any court
or other Governmental Authority.
D. The opinions and statements expressed herein are rendered as
of the time immediately preceding the Effective Time, and we hereby disclaim
any obligation to advise you of, or to supplement any of our opinions or
statements because of, any changes in fact or Law which might affect any of
those opinions or statements.
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E. We are licensed to practice law only in the State of Georgia
and are therefore unable to render an opinion regarding the laws of any
jurisdiction other than the State of Georgia. Accordingly, for purposes of this
opinion we have assumed that the laws of the State of Georgia and Delaware or
any other jurisdiction that is the subject of this opinion are the same.
Notwithstanding the foregoing, we are able to render an opinion with respect to
any matter covered by this opinion that is governed or controlled by Delaware
Law and accordingly our opinion is not subject to the foregoing limitation to
the extent it relates to Delaware Law.
F. This opinion letter is solely for your benefit in connection
with the Merger and the Transactions described in the Agreement and may not be
relied upon, quoted or otherwise used by any other person or entity or for any
other purpose without our express written consent.
Very truly yours,
POWELL, GOLDSTEIN, FRAZER
& MURPHY LLP
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EXHIBIT G
PARENT COUNSEL OPINION LETTER
[PARENT COUNSEL LETTERHEAD]
_______________, 1997
Celcore, Inc.
3800 Forest Hill-Irene Road
Memphis, Tennessee 38125
Gentlemen:
We have acted as counsel to DSC Communications Corporation, a Delaware
corporation ("Parent"), and CI Acquisition Company, a Delaware corporation and
a direct, wholly-owned subsidiary of Parent ("Parent Sub"), in connection with
the execution and delivery of the Agreement and Plan of Merger (the
"Agreement"), dated as of October 29, 1997, among Parent, Parent Sub and
Celcore, Inc., a Delaware corporation (the "Target"), providing for the merger
of Parent Sub with and into Target (the "Merger"). This opinion letter is
being furnished to you pursuant to Section 7.03 of the Agreement. Unless
otherwise defined herein or the context hereof otherwise requires, each term
used herein with its initial letter capitalized has the meaning given to such
term in the Agreement.
We have examined and are familiar with originals or copies, certified or
otherwise authenticated to our satisfaction, of such documents and records of
Parent and Parent Sub, and such statutes, regulations and instruments as we
have deemed necessary or advisable for the purposes of this opinion letter,
including without limitation, (i) the Agreement, (ii) the Certificate of Merger
dated as of _____________, 1997 between Target and Parent Sub and (iii) the
certificates of incorporation and bylaws of Parent and Parent Sub.
As to certain facts material to our opinions herein, we have assumed the
accuracy of the representations of Parent and Parent Sub in the Agreement and
of one or more officers of Parent or Parent Sub. In addition, we have assumed
that all signatures on all documents presented to us are genuine, that all
documents submitted to us as originals are accurate and
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complete, that all documents submitted to us as copies are true and complete
copies of the originals thereof, that all information submitted to us was
accurate and complete, and that all persons executing and delivering originals
or copies of documents examined by us were competent to execute and deliver
such documents. We have also assumed the due authorization, execution and
delivery by Target of the Agreement and the Certificate of Merger and that the
Agreement and the Certificate of Merger constitute legal, valid and binding
obligations of Target enforceable against Target in accordance with their
terms.
Based upon the foregoing and subject to the qualifications and limitations set
forth below, we are of the opinion that:
1. Each of Parent and Parent Sub is duly incorporated, validly
existing and in good standing under the Laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as it is now being
conducted. Each of Parent and Parent Sub is duly qualified or licensed as a
foreign corporation to do business, and is in good standing in each
jurisdiction where the character of the properties owned, leased or operated by
it or the nature of its business makes such qualification or licensing
necessary, except where the failure to be qualified or licensed would not have
a Material Adverse Effect.
2. Each of Parent and Parent Sub has all necessary corporate
power and authority to execute and deliver the Agreement and to perform its
obligations thereunder and to consummate the Merger and the Transactions. The
execution and delivery of the Agreement by Parent and Parent Sub and the
consummation by Parent and Parent Sub of the Transactions have been duly and
validly authorized by all necessary corporate action and no other corporate
proceedings on the part of Parent or Parent Sub are necessary to authorize the
Agreement or to consummate the Merger and the Transactions (other than the
recordation of an appropriate Certificate of Merger with the Secretary as
required by Delaware Law).
3. The Agreement has been duly and validly executed and delivered
by Parent and Parent Sub and constitutes a legal, valid and binding obligation
of each of Parent and Parent Sub, enforceable against each of Parent and Parent
Sub in accordance with its terms, except as may be (i) limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, or other Laws
affecting enforcement of creditors' rights generally, and (ii) subject to
general principles of equity, regardless of whether enforcement is considered
in a Proceeding at law or in equity.
4. The execution and delivery of the Agreement by Parent and
Parent Sub do not, and the performance of the Agreement by Parent and Parent
Sub and the consummation of the Merger and the Transactions will not, (i)
conflict with or violate the certificate of incorporation or bylaws of either
Parent or Parent Sub, (ii) conflict with or violate Delaware Law or the laws of
the United States of America, or (iii) to the best of our knowledge, result in
any breach of or constitute a default (or an event which with notice or lapse
of time or both would become
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a default) under, or give to others any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or other
encumbrance on any property or asset of Parent or Parent Sub or require the
Consent of any third party pursuant to, any note, bond, mortgage, indenture,
Contract, license, permit, franchise or other instrument or obligation to which
Parent or Parent Sub is a party or by which Parent or Parent Sub or any
property or asset of Parent or Parent Sub is bound or affected.
5. The execution and delivery of the Agreement by Parent and
Parent Sub do not, and the performance of the Agreement and the Merger and the
Transactions contemplated thereby by Parent and Parent Sub will not, require
any Consent or permit of, or filing with or notification to, any federal or
Delaware Governmental Authority, except the filing and recordation of an
appropriate Certificate of Merger with the Secretary as required by Delaware
Law.
6. Upon the issuance of a Certificate of Merger by the Secretary,
the Merger will become effective in accordance with the Agreement and the
Delaware Law, and each issued and outstanding share of Target Stock (other than
Dissenting Shares) will be converted into the consideration provided in Section
2.01 of the Agreement.
7. To the best of our knowledge, except as set forth in the
Parent Disclosure Schedule, no Proceedings are pending or Threatened against
Parent or Parent Sub seeking to prevent or delay the Merger or the Transactions
contemplated by the Agreement or challenging any of the terms or provisions of
the Agreement or seeking material damages in connection therewith.
We have participated in conferences with officers and other representatives of
Parent, Parent Sub and Target, and representatives of the independent auditors
for Target and Parent, at which the contents of the Registration Statement on
Form S-4 (File No. 333-_______) declared effective by the SEC on ___________,
1997 (the "Registration Statement"), the Proxy Statement/Prospectus dated
____________, 1997 included in the Registration Statement (the "Proxy
Statement") and related matters were discussed. We are not passing upon, do
not assume any responsibility for and have not, and shall not be deemed to
have, independently verified the accuracy, completeness, or fairness of the
statements contained in the Registration Statement and the Proxy Statement;
however, on the basis of our participation in the preparation of the Proxy
Statement and the Registration Statement and our participation in discussions
relating to the contents thereof, no facts have come to our attention which
lead us to believe that the information with respect to Parent and Parent Sub
contained in the Registration Statement or the Proxy Statement (except for the
financial information, financial statements, financial schedules and other
financial or statistical data contained therein, as to which we express no
opinion), on the date such Registration Statement became effective under the
Securities Act, on the date such Proxy Statement was first mailed to Target
Stockholders, on the date of the Target's Stockholder Meeting convened to
consider the Merger, or on the
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date hereof, contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
The preceding opinions and "negative assurance" statements are subject to the
following qualifications and limitations:
A. In connection with statements herein qualified by "to our
knowledge" or as to matters that have "come to our attention," our examination
has been limited to discussions with the officers and other representatives of
Parent and Parent Sub by, and those statements refer only to what is in the
actual knowledge of, attorneys in the Dallas, Chicago and Washington D.C.
offices of this Firm who have been involved in the representation of Parent and
Parent Sub in connection with the Merger and the Transactions described in the
Agreement, and we have made no independent investigations as to the accuracy or
completeness of any of the representations, warranties, data or other
information, written or oral, made or furnished by Target or the Target
Subsidiaries to us or to you.
B. The opinions and statements expressed herein are limited to
the matters specifically addressed, and no opinion or statement is implied or
may be inferred beyond the matters so specifically addressed.
C. With respect to the opinion expressed in Paragraph 7, we have
not conducted any search of any indexes, dockets or other records of any court
or other Governmental Authority.
D. The opinions and statements expressed herein are rendered as
of the time immediately preceding the Effective Time, and we hereby disclaim
any obligation to advise you of, or to supplement any of our opinions or
statements because of, any changes in fact or Law which might affect any of
those opinions or statements.
E. We are licensed to practice law only in the State of Texas and
are therefore unable to render an opinion regarding the laws of any
jurisdiction other than the State of Texas. Accordingly, for purposes of this
opinion we have assumed that the laws of the State of Texas and Delaware or any
other jurisdiction that is the subject of this opinion are the same.
Notwithstanding the foregoing, we are able to render an opinion with respect to
any matter covered by this opinion that is governed or controlled by Delaware
Law and accordingly our opinion is not subject to the foregoing limitation to
the extent it relates to Delaware Law.
F. This opinion letter is solely for your benefit in connection
with the Merger and the Transactions described in the Agreement and may not be
relied upon, quoted or otherwise used by any other person or entity or for any
other purpose without our express written consent.
Very truly yours,
BAKER & MCKENZIE
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EXHIBIT H
DSC COMMUNICATIONS CORPORATION
DSC SPECIAL CELCORE INCENTIVE PLAN
Scope and Purpose of Plan
This DSC Special Celcore Incentive Plan (the "Plan") provides for the
granting of:
(a) Options (hereinafter defined) to certain employees of DSC
Communications Corporation, a Delaware corporation (the
"Corporation"), or its Affiliates (as hereinafter defined) who
are Eligible Individuals (as hereinafter defined), and
(b) The right to cash payments (the "Cash Payments") to certain
employees of the Corporation or its Affiliates who are
Eligible Individuals.
This Plan is being implemented pursuant to the terms of the Agreement and Plan
of Merger (the "Merger Agreement"), dated as of October 29, 1997 by and among
the Corporation, CI Acquisition Company, a Delaware corporation and a direct,
wholly owned subsidiary of the Corporation, and CELCORE, INC., a Delaware
corporation ("Celcore").
SECTION 1. DEFINITIONS.
"ACT" shall mean the Securities Exchange Act of 1934, as
amended.
"AFFILIATES" shall mean all persons and business entities,
whether corporations, partnerships, joint ventures or otherwise, which now or
hereafter control, or are owned or controlled, directly or indirectly, by the
Corporation, or are under common control with the Corporation.
"AGGREGATE OPTION AMOUNT" shall mean (i) with respect to the
Fiscal Year ending December 31, 1998, an amount equal to $800,000 divided by
the Closing Sales Price, (ii) with respect to the Fiscal Year ending December
31, 1999, an amount equal to $1,450,000 divided by the Closing Sales Price, and
(iii) with respect to each Fiscal Year ending December 31, 2000 and December
31, 2001, an amount equal to the difference of (A) $2,250,000 minus (B) the
then aggregate of the Annual Option Vesting Amount for each of the Fiscal Years
prior to the Fiscal Year in question.
"AGGREGATE OPTION SHARES" shall have the meaning set forth in
Section 2.1 hereof.
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"AGGREGATE PAYMENT AMOUNT" shall mean (i) with respect to the
Fiscal Year ending December 31, 1998, an amount equal to $800,000, and (ii)
with respect to the Fiscal Year ending December 31, 1999, an amount equal to
$1,450,000.
"AGREEMENT" shall mean the written agreement between the
Corporation and an Eligible Individual in the form attached as Exhibit A hereto
evidencing the Option and Cash Payment granted by the Corporation.
"ANNUAL OPTION VESTING AMOUNT" shall have the meaning set
forth in Section 6.2(a) hereof.
"ANNUAL PAYMENT AWARD" shall have the meaning set forth in
Section 2.2 hereof.
"APPLICABLE PERCENTAGE" shall mean with respect to a Fiscal
Year, the sum of (i) sixty percent (60%), plus (ii) the product of (A) two (2),
times (B) the difference of the Attained Percentage with respect to such Fiscal
Year, minus eighty percent (80%); provided, however, in the event the
Applicable Percentage for that Fiscal Year is less than zero, the Applicable
Percentage for such Fiscal Year shall be deemed to be zero.
"ATTAINED PERCENTAGE" shall mean with respect to a Fiscal
Year, the percentage when expressed as a fraction has as its numerator the
Celcore Revenues with respect to that Fiscal Year and has as its denominator
the Target Revenue with respect to that Fiscal Year; provided that in no event
shall the Attained Percentage exceed one hundred twenty-five percent (125%).
"BOARD OF DIRECTORS" shall mean the board of directors of the
Corporation.
"CASH PAYMENT" shall have the meaning set forth in the
recitals hereof.
"CAUSE" means conduct that amounts to (i) fraud or dishonesty
against the Corporation or its Affiliates, (ii) Eligible Individual's willful
misconduct, repeated refusal to follow the reasonable directions of the board
of directors of the Corporation or its Affiliates, or knowing violation of law
in the course of performance of the duties of Eligible Individual's service
with the Corporation or its Affiliates, (iii) repeated absences from work
without a reasonable excuse, (iv) repeated intoxication with alcohol or drugs
while on the Corporation or Affiliates' premises during regular business hours,
(v) a conviction or plea of guilty or nolo contendere to a felony or a crime
involving dishonesty, (vi) a breach or violation of the terms of any agreement
to which an Eligible Individual and the Corporation or its Affiliates are
party, including, without limitation, any agreement providing for the
protection of the confidential information or the proprietary rights of the
Corporation or its Affiliates or any agreement involving non-competition
obligations of the Eligible Individual, or (vii) the violation of the sexual
harassment policy of the Corporation or any of its Affiliates or the
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determination that such Eligible Individual has engaged in any misconduct of a
sexual nature that unreasonably interferes with an individual's work
performance or creates an intimidating, hostile or offensive working
environment at the Corporation or any of its Affiliates; provided, however,
notwithstanding the foregoing, in respect of Messrs. Berger, Gonzalez and
Foley, the term "Cause" shall have the meaning provided in their respective
Employment Agreements dated October 29, 1997.
"CELCORE REVENUES" shall mean the revenues, if any, of the
Corporation and its Affiliates recognized by the Corporation under its revenue
recognition policy and attributable to the line of products currently being
developed or marketed by Celcore as of the Effective Time. For purposes of
this Plan, "Celcore Revenues" and "revenues" (i) shall be reduced by all
discounts or rebates, and Federal, state, county, city and local taxes and any
charges for shipping, duty or insurance, relating to the products and related
services referred to above and (ii) shall include revenues derived from
services associated with such products, including engineering, installation,
repair, service and training.
"CLOSING SALES PRICE" shall mean the reported last sale prices
of a share of Stock on the NASDAQ National Market as reported on the date of
the Effective Time.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMMITTEE" shall mean the committee appointed pursuant to
Section 3 hereof by the Board of Directors to administer this Plan.
"EFFECTIVE TIME" shall have the meaning provided in the Merger
Agreement.
"ELIGIBLE INDIVIDUALS" shall mean the employees of the
Corporation or its Affiliates participating in the Plan.
"FISCAL YEAR" shall mean the twelve months beginning on
January 1 of any year and ending on December 31 of the same year, except that
the first Fiscal Year shall begin on January 1, 1998 and shall end on December
31, 1998.
"OPTION" shall mean any stock option which is granted by the
Committee to an Eligible Individual under the Plan.
"PERCENTAGE PARTICIPATION" of an Eligible Individual with
respect to the Annual Payment Award and/or the Annual Option Vesting Amount, as
the case may be, for any Fiscal Year shall be the percentage opposite such
Eligible Individual's name as set forth on Schedule I hereto.
"PERMANENT AND TOTAL DISABILITY" has the same meaning as
provided in the long-term disability plan or policy maintained or, if
applicable, most recently maintained, by
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the Corporation or, if applicable, any Affiliate of the Corporation for the
Eligible Individual. If no long-term disability plan or policy was ever
maintained on behalf of the Eligible Individual Permanent and Total Disability
shall mean that condition described in Code Section 22(e)(3), as amended from
time to time. In the event of a dispute, the determination of Permanent and
Total Disability shall be made by the Board of Directors and shall be supported
by advice of a physician competent in the area to which such Permanent and
Total Disability relates. The scope of this definition shall automatically be
reduced or expanded to the extent that section 22(e)(3) of the Code is amended
to reduce or expand the scope of the definition of Permanent and Total
Disability thereunder.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"STOCK" shall mean the Corporation's authorized $0.01 par
value common stock together with any other securities with respect to which
Options granted hereunder may become exercisable (including any preferred stock
purchase rights issuable pursuant to the Rights Agreement, dated April 25, 1996
between the Corporation and Harris Trust and Savings Bank (formerly KeyCorp
Shareholder Services, Inc.) as rights agent, or any other purchase right issued
in substitution thereof).
"TARGET REVENUE" shall mean an amount equal to (i) $60,000,000
with respect to the Fiscal Year ending December 31, 1998, (ii) $110,000,000
with respect to the Fiscal Year ending December 31, 1999, (iii) $215,000,000
with respect to Fiscal Year ending December 31, 2000 and (iv) $300,000,000 with
respect to Fiscal Year ending December 31, 2001.
"TERMINATION OF SERVICE" means the termination of the service
relationship, whether employment or otherwise, between an Eligible Individual
and the Corporation and its Affiliates, regardless of the fact that severance
or similar payments are made to the Eligible Individual for any reason,
including, but not by way of limitation, a termination by resignation,
discharge, death, Permanent and Total Disability or retirement. The Committee
shall, in its absolute discretion, determine the effect of all matters and
questions relating to Termination of Service, including, but not by way of
limitation, the question of whether a leave of absence constitutes a
Termination of Service, or whether a Termination of Services is for Cause.
SECTION 2. MAXIMUM NUMBER OF SHARES SUBJECT TO AND AMOUNT OF CASH
PAYMENTS AVAILABLE UNDER THE PLAN.
2.1 DESCRIPTION OF STOCK AND MAXIMUM SHARES ALLOCATED. The Stock
which Options granted hereunder give an Eligible Individual the right to
purchase may be unissued or reacquired shares of Stock, as the Board of
Directors may, in its sole and absolute discretion, from time to time
determine. Subject to the adjustments provided for in Section 6.9 hereof, the
aggregate number of shares of Stock available for issuance pursuant to the
exercise of all Options granted hereunder shall be $3,375,000 divided by the
Closing Sales Price (the "Aggregate Option Shares"). The Options granted to
each Eligible Individual
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pursuant to this Plan shall vest in accordance with the provisions of paragraph
(a) of Section 6.2 hereof.
2.2 MAXIMUM AMOUNT OF CASH PAYMENTS. The aggregate amount of
funds available for Cash Payments to all Eligible Individuals pursuant to the
Plan shall be $3,375,000. The aggregate amount of Cash Payments (the "Annual
Payment Award") to be made to Eligible Individuals with respect to a Fiscal
Year shall be an amount equal to the product of (i) the Aggregate Payment
Amount with respect to such Fiscal Year, times (ii) the Applicable Percentage
with respect to such Fiscal Year. Notwithstanding anything contained herein to
the contrary, no Cash Payment shall be made in a Fiscal Year under this Plan if
the Attained Percentage for that Fiscal Year is less than eighty percent (80%).
With respect to a Fiscal Year, any portion of the Aggregate Payment Amount
attributable to such Fiscal Year which shall not have been delivered as Cash
Payments pursuant to this Plan with respect to such Fiscal Year shall cease to
be available for Cash Payments under this Plan.
SECTION 3. ADMINISTRATION OF THIS PLAN.
3.1 COMMITTEE. The Plan shall be administered by the Committee.
The Committee shall consist of such number of directors of the Corporation as
shall be determined by the Board of Directors, and may be constituted by all
members of the Board of Directors.
3.2 DURATION, REMOVAL, ETC. The members of the Committee shall
serve at the pleasure of the Board of Directors, which shall have the power, at
any time and from time to time, to remove members from the Committee or to add
members thereto. Vacancies on the Committee, however caused, shall be filled
by action of the Board of Directors.
3.3 MEETINGS AND ACTIONS OF COMMITTEE. The Committee shall elect
one of its members as its Chairman and shall hold its meetings at such times
and places as it may determine. All decisions and determinations of the
Committee shall be made by the majority vote or decision of all of its members
present at a meeting; provided, however, that any decision or determination
reduced to writing and signed by all of the members of the Committee shall be
as fully effective as if it had been made at a meeting duly called and held.
The Committee may make any rules and regulations for the conduct of its
business that are not inconsistent with the provisions hereof and with the
by-laws of the Corporation as it may deem advisable.
3.4 COMMITTEE'S POWERS. Subject to the express provisions hereof,
the Committee shall have the authority, in its sole and absolute discretion
exercised in good faith, (a) to adopt, amend, and rescind administrative and
interpretive rules and regulations relating to this Plan; (b) to determine the
Celcore Revenues for purposes of determining the vesting of the Options and the
award of Cash Payments; (c) to determine the circumstances of any termination
of employment of an Eligible Individual for purposes of applying the provisions
of Section 6.8 hereof and the effect of approved leaves of absence; (d) to
construe the respective Agreements
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and this Plan; (e) to make all other determinations and perform all other acts
necessary or advisable for administering this Plan, including the delegation of
such ministerial acts and responsibilities as the Committee deems appropriate;
and (f) to correct any defect or supply any omission or reconcile any
inconsistency in this Plan or in any Agreement in the manner and to the extent
it shall deem expedient to carry it into effect, provided that no such
correction, addition, reconciliation or other amendment to this Plan shall
adversely affect the rights of any Eligible Individual.
SECTION 4. ELIGIBILITY AND PARTICIPATION.
Options and Cash Payments shall be granted hereunder as of the
Effective Time to all persons who are Eligible Individuals and only to persons
who are Eligible Individuals, subject to the provisions of Section 6.8 hereof.
In addition, no person shall be considered an Eligible Individual and entitled
to any of the rights under the Plan unless such person has executed and
delivered to the Corporation the Employee Patent, Copyright, and Proprietary
Information Agreement, attached hereto as Exhibit B.
SECTION 5. GRANT OF OPTIONS AND CERTAIN TERMS OF THE AGREEMENTS.
Each Option and Cash Payment granted hereunder shall be evidenced by
an Agreement, dated as of the Effective Time, executed by the Corporation and
the Eligible Individual to whom the Option and Cash Payment is granted. The
Effective Time shall be deemed to be the date on which the Option covered by an
Agreement is granted, even though the Agreement may not be executed until a
later time.
SECTION 6. TERMS AND CONDITIONS OF OPTIONS AND CASH PAYMENTS.
All Options and Cash Payments granted hereunder shall comply with, be
deemed to include, and be subject to the following terms and conditions:
6.1 NUMBER OF SHARES. Each Agreement shall provide for the grant
of Options to an Eligible Individual to purchase a number of shares of Stock,
subject to the adjustments provided for in Section 6.9 hereof, equal to the
product of (a) the Aggregate Option Shares and (b) the Percentage Participation
allocated to such Eligible Individual.
6.2 VESTING OF OPTIONS.
(a) Subject to the provisions of Section 6.8 hereof, the Options
granted to an Eligible Individual shall be eligible for vesting at the end of
each of the Fiscal Years of the Corporation ending December 31, 1998 to
December 31, 2001 as provided in this Section 6.2(a). The number of Options
that shall vest (the "Annual Option Vesting Amount") at the end of the Fiscal
Years of the Corporation ending December 31, 1998 through December 31, 2001
shall equal the product of (i) the Aggregate Option Amount with respect to such
Fiscal
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Year times (ii) the Applicable Percentage with respect to such Fiscal Year.
Notwithstanding anything contained herein to the contrary, the Annual Option
Vesting Amount shall be zero in any Fiscal Year in which the Attained
Percentage for that Fiscal Year is less than eighty percent (80%). The number
of Options granted to an Eligible Individual that shall vest with respect to
each Fiscal Year of the Corporation ending December 31, 1998 through December
31, 2001 shall be an amount equal to the Percentage Participation of such
Eligible Individual with respect to that Fiscal Year times the Annual Option
Vesting Amount, if any, for that Fiscal Year. If the number of Options that
would vest according to the immediately preceding sentence exceeds the number
of Options granted to an Eligible Individual which have not yet vested, then
only those Options that have not yet vested shall vest according to this
Section 6.2(a). All Options that have not vested with respect to the Fiscal
Years ending December 31, 1998 through December 31, 2001 in accordance with
this Section 6.2(a) shall vest on December 31, 2002.
(b) An Eligible Individual may not purchase the shares of Stock
subject to an Option until such time as that portion of the Option has vested
pursuant to this Section 6.2. Notwithstanding any other provision of this
Plan, including the provisions of Section 6.8 hereof, no Option shall be
exercisable after the fifth anniversary of the vesting date of such Option.
6.3 EXERCISE PRICE OF OPTIONS. The exercise price per share of
Stock subject to an Option shall be the Closing Sales Price.
6.4 CASH PAYMENTS. Each Agreement shall provide for the grant of
the right to Cash Payments to an Eligible Individual with respect to each
Fiscal Year of the Corporation ending December 31, 1998 and December 31, 1999
in an amount equal to the Percentage Participation of such Eligible Individual
with respect to that Fiscal Year times the Annual Payment Award, if any, for
that Fiscal Year. Each Cash Payment under this Section 6.4 shall be deemed
payable as of December 31 in respect of each Fiscal Year and the delivery of
any Cash Payment with respect to a Fiscal Year shall be made by the Corporation
not later than 75 days after the end of such Fiscal Year. The Corporation may,
in its discretion, withhold from the amount of any Cash Payment delivered to an
Eligible Individual the portion thereof that it deems necessary to satisfy its
obligation to withhold Federal, state or local income or other taxes incurred
by reason of such Cash Payment.
6.5 DETERMINATION OF CELCORE REVENUES. For purposes of
determining the Annual Option Vesting Amount with respect to a Fiscal Year and
the Annual Payment Award with respect to a Fiscal Year, within 60 days after
the end of each Fiscal Year of the Corporation (i) from December 31, 1998 to
December 31, 2001 with respect to the Annual Option Vesting Amount and (ii)
December 31, 1998 and December 31, 1999 with respect to the Annual Payment
Award, the Corporation shall furnish the Committee with such financial
information as it shall require in order to determine the Celcore Revenues with
respect to that Fiscal Year, and the Committee shall make such determination in
good faith as soon as possible after the
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receipt of such information, which determination shall be final and binding on
all Eligible Individuals. Within 75 days after the end of each Fiscal Year of
the Corporation ending December 31, 1998 to December 31, 2001, the Committee
shall notify each Eligible Individual with respect to whom an Option is
eligible for vesting for that Fiscal Year of the determination of the Celcore
Revenues for that Fiscal Year and the number of shares of Stock subject to such
Eligible Individual's Option which has vested with respect to that Fiscal Year,
together with delivery of the Cash Payment, if any, with respect to that Fiscal
Year.
6.6 MEDIUM AND TIME OF PAYMENT, METHOD OF EXERCISE, AND
WITHHOLDING TAXES. The exercise price of an Option shall be payable upon the
exercise of the Option in cash or by check payable to the order of the
Corporation. Exercise of an Option shall not be effective until the
Corporation has received written notice of exercise. Such notice must specify
the number of whole shares of Stock to be purchased and be accompanied by
payment in full of the aggregate exercise price of the number of shares
purchased. The Corporation shall not in any case be required to sell, issue,
or deliver a fractional share with respect to any Option.
The Committee may, in its discretion, require an Eligible Individual
to pay to the Corporation at the time of exercise of an Option or portion
thereof the amount that the Corporation deems necessary to satisfy its
obligation to withhold Federal, state or local income or other taxes incurred
by reason of the exercise.
6.7 TERM, TIME OF EXERCISE, AND TRANSFERABILITY OF OPTIONS. In
addition to such other terms and conditions as may be included in a particular
Agreement granting an Option, during the term of an Option such Option shall be
exercisable during an Eligible Individual's lifetime only by him or by his
guardian or legal representative. An Option shall not be transferable other
than by will or the laws of descent and distribution. No Option shall be
deemed to satisfy the provisions of Section 422A of the Code. As soon as
reasonably practicable after the Corporation receives written notice that the
Eligible Individual has elected to exercise all or a portion of an Option which
has vested pursuant to the Plan, such notice to be accompanied by payment in
full of the aggregate Option price of the number of shares purchased, the
Corporation shall issue and deliver a certificate representing the shares
acquired in consequence of the exercise and any other amounts payable in
consequence of such exercise.
Nothing herein or in any Option granted hereunder shall require the
Corporation to issue any shares upon exercise of any Option if such issuance
would, in the opinion of counsel for the Corporation, constitute a violation of
the Securities Act or any similar or superseding statute or statutes, any
applicable blue sky or state securities laws or any other applicable statute or
regulation, as then in effect. The Corporation shall file or cause to be filed
with the Securities and Exchange Commission at least twenty days prior to the
date of the notification to Eligible Individuals of that portion of the Options
which has vested with respect to the Fiscal Year ended December 31, 1998, a
Registration Statement on Form S-8 registering under
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the Securities Act the Stock issuable upon exercise of the Options, and shall
keep such Registration Statement effective for so long as Options remain
outstanding and exercisable under this Plan or, if shorter, so long as such
Form S-8, or any successor form, remains available to the Corporation for
registration of such Stock. At the time of any exercise of an Option, in the
event such Registration Statement on Form S-8 or successor form is not
effective, the Corporation may, as a condition precedent to the exercise of
such Option, require from the Eligible Individual exercising such Option (or in
the event of his death, his legal representatives, heirs, legatees, or
distributees) such written representations, if any, concerning his intentions
with regard to the retention or disposition of the shares being acquired by
exercise of such Option and such written covenants and agreements, if any, as
to the manner of disposal of such shares as, in the opinion of counsel to the
Corporation, may be necessary to ensure that any disposition by such Eligible
Individual (or in the event of his death, his legal representatives, heirs,
legatees, or distributees), will not involve a violation of the Securities Act
or any similar or superseding statute or statutes, or any other applicable
state or federal statute or regulation, as then in effect.
6.8 TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY.
(a) If an Eligible Individual ceases to be employed by at least
one of the employers in the group of employers consisting of the Corporation
and its Affiliates because the Eligible Individual voluntarily terminates
employment with such group of employers, (i) the portion, if any, of an Option
that has not yet vested under the terms of the Plan, on the date of the
Eligible Individual's Termination of Service shall terminate as of such date,
(ii) the Eligible Individual shall have the right for thirty (30) days after
such Termination of Service to exercise the portion, if any, of the Option
which has vested pursuant to the Plan as of the date of the Eligible
Individual's Termination of Service, and thereafter such Option shall terminate
and cease to be exercisable, (iii) the portion of any Option which has vested
with respect to a Fiscal Year ending prior to the date of the Eligible
Individual's Termination of Service but with respect to which the Committee has
not yet determined the amount which has vested at the date of such termination
may be exercised by the Eligible Individual within thirty (30) days after (A)
the date of receipt by the Eligible Individual of the portion of any Cash
Payment which has vested with respect to such Fiscal Year, or (B) if no Cash
Payment is made with respect to such Fiscal Year, the date of receipt by the
Eligible Individual of a notice from the Committee pursuant to Section 6.5
hereof of the number of shares of Stock subject to such Eligible Individual's
Option which has vested with respect to that Fiscal Year, and thereafter such
portion shall terminate and cease to be exercisable, and (iv) the portion of
any Cash Payment granted to the Eligible Individual which is payable with
respect to a Fiscal Year ending prior to the date of the Eligible Individual's
Termination of Service shall be paid to such Eligible Individual at the time
provided for in this Plan, and no other Cash Payment shall be required to be
paid by the Corporation in connection with this Plan. Notwithstanding the
foregoing, if an Eligible Individual ceases to be employed during the Fiscal
Year because the Eligible Individual voluntarily terminates employment as
provided in this Section 6.8(a), no
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Cash Payment for such Fiscal Year shall be payable to the Eligible Individual
and no Options shall vest in respect of such Fiscal Year.
(b) If an Eligible Individual ceases to be employed by at least
one of the employers in the group of employers consisting of the Corporation
and its Affiliates because any of such entities terminates the Eligible
Individual's employment for Cause, (i) the portion, if any, of an Option that
remains unexercised, including that portion, if any, that has vested under the
terms of the Plan, on the date of the Eligible Individual's Termination of
Service, shall terminate and cease to be exercisable as of such date, and (ii)
the right of such Eligible Individual to any Cash Payment which has not been
paid prior to the date of the Eligible Individual's Termination of Service
shall be terminated.
(c) If an Eligible Individual ceases to be employed by at least
one of the employers in the group of employers consisting of the Corporation
and its Affiliates because one or more of such entities terminates the
employment of the Eligible Individual but not for Cause, (i) subject to
Section 6.8(f) below, the portion, if any, of an Option that has not yet vested
under the terms of the Plan, on the date of the Eligible Individual's
Termination of Service shall terminate as of such date, (ii) subject to Section
6.8(f) below, such Eligible Individual shall be entitled to exercise the Option
to the extent that such Eligible Individual was entitled to exercise it on such
date, but only until the earlier of the date (A) the Option held by such
Eligible Individual expires, or (B) six (6) months after the date of the
Termination of Services of such Eligible Individual, and (iii) subject to
Section 6.8(f) below, such Eligible Individual shall receive a Cash Payment
pursuant to Section 2.2 hereof.
(d) Notwithstanding the provisions of Sections 6.8(a), (b) and (c)
above, if an Eligible Individual ceases to be employed by at least one of the
employers in the group of employers consisting of the Corporation and its
Affiliates by reason of Permanent and Total Disability, (i) subject to Section
6.8(f) below, the portion, if any, of an Option that has not yet vested under
the terms of the Plan on the date of the Eligible Individual's Termination of
Service due to such Permanent and Total Disability shall terminate as of such
date, (ii) subject to Section 6.8(f) below, notwithstanding such Termination of
Service, such Eligible Individual may exercise an Option in whole or in part to
the extent such Option was exercisable on the date of Termination of Service of
such Eligible Individual due to such Permanent and Total Disability, but only
until the earlier of the date (A) the Option held by the Eligible Individual
expires, or (B) twelve (12) months from the date of Termination of Service of
such Eligible Individual due to such Permanent and Total Disability, and (ii)
subject to Section 6.8(f) below, such Eligible Individual shall be eligible to
receive a Cash Payment pursuant to Section 2.2 hereof.
(e) Upon the death of an Eligible Individual, (i) any Option held
by an Eligible Individual shall terminate and be of no further effect;
provided, however, notwithstanding the provisions of Sections 6.8(a), (b) and
(c) above and subject to Section 6.8(f) below, if an Eligible Individual dies
while in the employ of the Corporation or an Affiliate, such legal
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representatives, heirs, legatees, or distributees shall have the right to
exercise such Options in accordance with this Plan and such Eligible
Individual's Agreement to the extent such Options had vested at the time of
such Eligible Individual's death, but only until the earlier of the date (A)
the Option held by the Eligible Individual expires, or (B) twelve (12) months
from the date of the Eligible Individual's death, and (ii) subject to Section
6.8(f) below, the Eligible Individual's legal representatives, heirs, legatees,
or distributees shall be eligible to receive a Cash Payment pursuant to
Section 2.2 hereof.
(f) Unless otherwise determined by the Committee or required by
applicable law, in the event during the Fiscal Year an Eligible Individual
ceases to be employed by at least one of the employers in the group of
employers consisting of the Corporation and its Affiliates because one or more
of such entities terminates the employment of such Eligible Individual but not
for Cause, or by reason of death or Permanent and Total Disability of such
Eligible Individual that occurs:
(i) if such Eligible Individual is otherwise entitled to
receive a Cash Payment under Section 2.2 hereof for such Fiscal Year
but for the fact the Eligible Individual is no longer employed, the
Eligible Individual (or the Eligible Individual's legal representative
or beneficiary) shall receive a Cash Payment equal to the product of
(i) the Cash Payment he/she would have received for such entire Fiscal
Year, multiplied by (ii) a fraction, the numerator of which is the
number of days during such Fiscal Year in which the Eligible
Individual was an employee of the Corporation or its Affiliates, and
the denominator of which is the number of days in such Fiscal Year;
and
(ii) if an Option would otherwise vest under Section 6.2
hereof, the Annual Option Vesting Amount allocable to such Eligible
Individual based on his Percentage Participation shall be adjusted
such that the number of Options granted to such Eligible Individual
that shall vest with respect to such Fiscal Year shall be equal to the
product of (i) the Annual Option Vesting Amount that would have been
allocable to such Eligible Individual for such entire Fiscal Year,
multiplied by (ii) a fraction, the numerator of which is the number of
days during such Fiscal Year in which the Eligible Individual was an
employee of the Corporation or its Affiliates, and the denominator of
which is the number of days in such Fiscal Year.
6.9 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, MERGER, ETC.
Notwithstanding any other provision hereof, in the event of any change in the
number of outstanding shares of Stock effected without receipt of consideration
therefor by the Corporation, by reason of a stock dividend, or split,
combination, exchange of shares of other recapitalization, merger, or
otherwise, in which the Corporation is the surviving corporation, the aggregate
number and class of the reserved shares, the number and class of shares subject
to each outstanding Option and the exercise price of each outstanding Option
shall be automatically adjusted to accurately and equitably reflect the effect
thereon of such change,
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provided that any fractional share resulting from such adjustment may be
eliminated, and provided further that the exercise price of an Option shall not
be less than $.01 per share. In the event of a dispute concerning such
adjustment, the decision of the Committee made in good faith shall be
conclusive. Neither this Plan nor any Agreement shall affect the right of the
Corporation or any Affiliate thereof to reclassify, recapitalize or otherwise
change its capital or debt structure or to merge, consolidate, convey any or
all of its assets, dissolve, liquidate, wind up, or otherwise reorganize.
In the event of (a) a dissolution or liquidation of the Corporation,
(b) a merger or consolidation (other than a merger effecting a reincorporation
of the Corporation in another state or other jurisdiction or any other merger
or a consolidation in which the stockholders of the surviving corporation and
their proportionate interests therein immediately after the merger or
consolidation are substantially identical to the stockholders of the
Corporation and their proportionate interests therein immediately prior to the
merger or consolidation) in which the Corporation is not the surviving
corporation (or survives only as a subsidiary of another corporation in a
transaction in which the stockholders of the parent of the Corporation and
their proportionate interests therein immediately after the transaction are not
substantially identical to the stockholders of the Corporation and their
proportionate interests therein immediately prior to the transaction; provided
that the Board of Directors may at any time prior to such merger or
consolidation provide by resolution that the foregoing provisions of this
parenthetical shall not apply if a majority of the board of directors of such
parent immediately after the transaction consists of individuals who
constituted a majority of the Board of Directors immediately prior to the
transaction), or (c) a transaction in which any person becomes the owner of 50%
or more of the total combined voting power of all classes of stock of the
Corporation (provided that the Board of Directors may at any time prior to such
transaction provide by resolution that this Subparagraph (c) shall not apply if
such acquiring person is a corporation and a majority of the board of directors
of such corporation immediately after the transaction consists of individuals
who constituted a majority of the Board of Directors immediately prior to the
acquisition of such 50% or more total combined voting power), every Option then
outstanding shall terminate, but the holders of each such then outstanding
Option shall, in any event, have the right, immediately prior to such
dissolution, liquidation, merger, consolidation, or transaction, to exercise
such Options, to the extent not theretofore exercised, without regard to the
vesting provisions of Section 6.2 hereof if (and only if) such Options have not
at that time expired or been terminated pursuant to Section 6.8 hereof. Such
acceleration of exercisability shall not apply to a given Option if any
surviving or acquiring corporation agrees to assume such Option in connection
with the merger, consolidation, or transaction, in which event such Options
will continue to be subject to the vesting provisions of Section 6.2 hereof.
6.10 RIGHTS AS A STOCKHOLDER. An Eligible Individual shall have no
right as a stockholder with respect to any shares covered by his Option until a
certificate representing such shares is issued to him. No adjustment shall be
made for dividends (ordinary or extraordinary, whether in cash or other
property) or distributions or other rights for which the
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record date is prior to the date such certificate is issued, except as provided
in Section 6.9 hereof.
6.11 FURNISH INFORMATION. Each Eligible Individual shall furnish
to the Corporation all information requested by the Corporation to enable it to
comply with any reporting or other requirement imposed upon the Corporation by
or under any applicable statute or regulation.
6.12 OBLIGATION TO EXERCISE. The granting of an Option hereunder
shall impose no obligation upon the Eligible Individual to exercise the same or
any part thereof.
SECTION 7. GENERAL.
7.1 APPLICATION OF FUNDS; ISSUANCE OF SHARES. The proceeds
received by the Corporation from the sale of shares pursuant to Options shall
be used for general corporate purposes. When issued upon exercise of Options
in accordance with the terms of this Plan, all shares of Stock will be duly
authorized, validly issued, fully paid and nonassessable.
7.2 RIGHT OF THE CORPORATION AND AFFILIATES TO TERMINATE
EMPLOYMENT. Nothing contained in this Plan, or in any Agreement, shall confer
upon any Eligible Individual the right to continue in the employ of the
Corporation or any Affiliate, or interfere in any way with the rights of the
Corporation or any Affiliate to terminate or modify in any way the terms,
including but not limited to the compensation and responsibilities, of the
Eligible Individual's employment at any time. Nothing contained herein shall
be deemed to require any action on the part of the Committee or the Board of
Directors of the Corporation or any Affiliate in connection with the
termination of employment of an Eligible Individual.
7.3 NO LIABILITY FOR GOOD FAITH DETERMINATIONS. Neither the
members of the Board of Directors nor any member of the Committee shall be
liable for any act, omission, or determination taken or made in good faith with
respect to this Plan or any Option or right to Cash Payment granted under it,
and members of the Board of Directors and the Committee shall be entitled to
indemnification and reimbursement by the Corporation in respect of any claim,
loss, damage, or expense (including attorneys' fees, the costs of settling any
suit, provided such settlement is approved by independent legal counsel
selected by the Corporation, and amounts paid in satisfaction of a judgment,
except a judgment based on a finding of bad faith) arising therefrom to the
full extent permitted by law and under any directors and officers liability or
similar insurance coverage that may from time to time be in effect.
7.4 OTHER BENEFITS. Participation in the Plan shall not preclude
the Eligible Individual from eligibility in any other stock option plan of the
Corporation or any Affiliate or any old age benefit, insurance, pension, profit
sharing retirement, bonus, or other extra
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compensation plans which the Corporation or any Affiliate has adopted, or may,
at any time, adopt for the benefit of its employees.
7.5 EXECUTION OF RECEIPTS AND RELEASES. Any payment of cash or
any issuance or transfer of shares of Stock to the Eligible Individual, or to
his legal representatives, heir, legatee, or distributee, in accordance with
the provisions hereof, shall, to the extent thereof, be in full satisfaction of
all claims of such persons with respect to such payment, issuance or transfer
hereunder. The Committee may require any Eligible Individual, legal
representative, heir, legatee, or distributee, as a condition precedent to such
payment, to execute a release and receipt therefor in such form as it shall
determine.
7.6 NO GUARANTEE OF INTERESTS. Neither the Committee nor the
Corporation guarantees the Stock of the Corporation from loss or depreciation.
7.7 SEVERABILITY. If any provision of this Plan is held to be
illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions hereof, but such provision shall be fully
severable and this Plan shall be construed and enforced as if the illegal or
invalid provision had never been included herein.
7.8 NOTICES. Whenever any notice is required or permitted
hereunder, such notice must be in writing and personally delivered or sent by
mail. Any notice required or permitted to be delivered hereunder shall be
deemed to be delivered on the date on which it is personally delivered, or,
whether actually received or not on the third business day after it is
deposited in the United States mail, certified or registered, postage prepaid,
addressed to the person who is to receive it at the address which such person
has theretofore specified by written notice delivered in accordance herewith.
The Corporation or an Eligible Individual may change, at any time and from time
to time, by written notice to the other, the address which it or he/she had
previously specified for receiving notices. Until changed in accordance
herewith, the Corporation and each Eligible Individual shall specify as his
address for receiving notices, the address set forth in the Agreement
pertaining to the Option or Cash Payment to which such notice relates.
7.9 WAIVER OF NOTICE. Any person entitled to notice hereunder may
waive such notice.
7.10 HEADLINES. The title and headings of Sections are included
for convenience of reference only and are not to be considered in construction
of the provisions hereof.
7.11 GOVERNING LAW. All questions arising with respect to the
provisions of the Plan and each Agreement shall be determined by application of
the laws of the State of Texas except to the extent Texas law is preempted by
federal law. The obligation of the Corporation to sell and deliver Stock
hereunder is subject to applicable laws and to the approval of any
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<PAGE> 230
governmental authority required in connection with the authorization, issuance,
sale, or delivery of such Stock.
7.12 WORD USAGE. Words used in the masculine shall apply to ,the
feminine where applicable, and wherever the context of this Plan dictates, the
plural shall be read as the singular and the singular as the plural.
7.13 FISCAL YEAR. Nothing contained in this Plan or any Agreement
shall be deemed to restrict or prohibit the Corporation from changing its
Fiscal Year, provided that in the event the Corporation changes its Fiscal Year
appropriate adjustments shall be made with respect to the vesting schedule for
the Options and the Cash Payments to avoid any impairment of benefits hereunder
caused by such change in Fiscal Year.
7.14 OTHER AGREEMENTS. Notwithstanding any provision in the
Plan to the contrary, the right of an Eligible Individual to receive, or obtain
the benefits after the receipt of, Cash Payments and Options pursuant to the
Plan is subject to the rights and remedies of the Corporation pursuant to the
Employee Patent, Copyright, and Proprietary Information Agreement with such
Eligible Individual.
H-15
<PAGE> 231
IN WITNESS WHEREOF, DSC Communications Corporation, acting by and
through its officers hereunto duly authorized has executed this instrument,
this ____ day of _________________, 1997.
DSC COMMUNICATIONS CORPORATION
By:
------------------------------
Name:
------------------------------
Title:
------------------------------
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APPENDIX B
FAIRNESS OPINION
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October 29, 1997
Board of Directors
Celcore, Inc.
8001 Centerview Parkway
Suite 201
Memphis, TN 38018
Dear Sirs:
You have requested our opinion as to the fairness from a financial
point of view to the holders of $0.10 par value common stock ("Company Common
Stock") of Celcore, Inc. (the "Company") of the Exchange Ratio (as defined
below) pursuant to the terms of the Agreement and Plan of Merger, dated as of
October 29, 1997 (the "Agreement"), by and among DSC Communications Corporation
("Purchaser"), CI Acquisition Company ("Merger Sub"), a wholly-owned subsidiary
of Purchaser, and the Company, pursuant to which Merger Sub will be merged (the
"Merger") with and into the Company.
Pursuant to the Agreement, each share of Company Common Stock shall be
converted, subject to certain exceptions, into the right to receive that number
of shares of common stock, par value $0.01 per share, of Purchaser equal to:
(i) a fraction, the numerator of which is eight (8) and the denominator of
which is the Average Trading Price (as defined below) of Purchaser Common
Stock; or (ii) in the event the Average Trading Price is twenty-five dollars
($25.00) or less, 0.32 (such number determined pursuant to clauses (i) and
(ii), the "Exchange Ratio"). The term Average Trading Price means the average
reported last sales price of a share of Purchaser Common Stock on the NASDAQ
National Market ("NASDAQ") as reported by NASDAQ for the 10 consecutive trading
days ending immediately preceding the second day before the meeting of
Celcore's stockholders called for the purpose of voting on the Merger.
In arriving at our opinion, we have reviewed the Agreement. We also
have reviewed financial and other information that was publicly available or
furnished to us by the Company including information provided during
discussions with management. Included in the information provided during
discussions with management was certain financial projections of the Company
for the period beginning July 1, 1997 and ending December 31, 1998 prepared by
the management of the Company. In addition, we have compared certain financial
data of the Company with various other companies whose securities are traded in
public markets, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion. We were
not requested to, nor did we, solicit the interest of any other party in
acquiring the Company.
In rendering our opinion, we have relied upon and assumed the accuracy
and completeness of all of the financial and other information that was
available to us from public sources, that was provided to us by the Company or
its representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation of the Company's assets or
liabilities or for making any independent verification of any of the
information reviewed by us. We have relied as to certain legal matters on
advice of counsel to the Company.
Our opinion is necessarily based on economic, market, financial and
other conditions as they exist on, and on the information made available to us
as of, the date of this letter. It should be understood that, although
subsequent developments may affect this opinion, we do not have any obligation
to update, revise or reaffirm this opinion. We are expressing no opinion
herein as to the price at which Purchaser Common Stock will actually trade at
any time. Our opinion does not address the relative merits of the Merger and
any other business strategies being considered by the Company's Board of
Directors, nor does it address the Board's
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<PAGE> 234
Board of Directors
Celcore, Inc.
October 29, 1997
Page 3
decision to proceed with the Merger. Our opinion does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and securities in connection with mergers, acquisitions,
underwritings, sales and distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
DLJ has performed investment banking and other services for the Company in the
past including review of financing alternatives in 1997.
Based upon the foregoing and such other factors as we deem relevant,
we are of the opinion that the Exchange Ratio is fair to the holders of Company
Common Stock from a financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: /s/Erik M. Jensen
-----------------------------------
Erik M. Jensen
Senior Vice President
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<PAGE> 235
APPENDIX C
SECTION 262
DELAWARE GENERAL CORPORATION LAW APPRAISAL RIGHTS
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Section 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds
shares of stock on the date of the making of a demand pursuant to subsection
(d) of this section with respect to such shares, who continuously holds such
shares through the effective date of the merger or consolidation, who has
otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of the stockholder's shares of stock under
the circumstances described in subsections (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by
those words and also membership or membership interest of a member of a
nonstock corporation; and the words "depository receipt" mean a receipt or
other instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any
class or series of stock of a constituent corporation in a merger or
consolidation to be effected pursuant to Section 251 (other than a merger
effected pursuant to Section 251(g) of this title), Section 252, Section
254, Section 257, Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by more
than 2,000 holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation surviving a
merger if the merger did not require for its approval the vote of the
stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class or
series of stock of a constituent corporation if the holders thereof are
required by the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for such
stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this paragraph;
or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under Section 253 of this title is not
owned by the parent corporation immediately prior to the merger, appraisal
rights shall be available for the shares of the subsidiary Delaware
corporation.
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(c) Any corporation may provide in its certificate of
incorporation that appraisal rights under this section shall be available for
the shares of any class or series of its stock as a result of an amendment to
its certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to the
meeting, shall notify each of its stockholders who was such on the record date
for such meeting with respect to shares for which appraisal rights are
available pursuant to subsection (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder electing
to demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to
Section 228 or Section 253 of this title, each constituent corporation,
either before the effective date of the merger or consolidation or within ten
days thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective date
of the merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice may,
and, if given on or after the effective date of the merger or consolidation,
shall, also notify such stockholders of the effective date of the merger or
consolidation. Any stockholder entitled to appraisal rights may, within 20 days
after the date of mailing of such notice, demand in writing from the surviving
or resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify stockholders
of the effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective date of
the merger or consolidation notifying each of the holders of any class or
series of stock of such constituent corporation that are entitled to appraisal
rights of the effective date of the merger or consolidation or (ii) the
surviving or resulting corporation shall send such a second notice to all such
holders on or within 10 days after such effective date; provided, however, that
if such second notice is sent more than 20 days following the sending of the
first notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record date
is fixed and the notice is given prior to the effective date, the record date
shall be the close of business on the day next preceding the day on which the
notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10
days after his written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service
of a copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If the
petition shall be filed by the surviving or resulting corporation, the petition
shall be accompanied by such a duly verified list. The Register in Chancery, if
so ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal,
the Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to be
paid upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court may,
in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on the
list filed by the surviving or resulting corporation pursuant to subsection (f)
of this section and who has submitted his certificates of stock to the Register
in Chancery, if such is required, may participate fully in all proceedings
until it is finally determined that he is not entitled to appraisal rights
under this section.
(i) The Court shall direct the payment of the fair value of the
shares, together with interest, if any, by the surviving or resulting
corporation to the stockholders entitled thereto. Interest may be simple or
compound, as the Court may direct. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of
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Chancery may be enforced, whether such surviving or resulting corporation be a
corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or
consolidation, no stockholder who has demanded his appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for any
purpose or to receive payment of dividends or other distributions on the stock
(except dividends or other distributions payable to stockholders of record at a
date which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal of
his demand for an appraisal and an acceptance of the merger or consolidation,
either within 60 days after the effective date of the merger or consolidation
as provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the
Court of Chancery shall be dismissed as to any stockholder without the approval
of the Court, and such approval may be conditioned upon such terms as the Court
deems just.
(l) The shares of the surviving or resulting corporation to which
the shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
DSC's bylaws require that directors and officers be indemnified to the
maximum extent permitted by law. DSC's Restated Certificate of Incorporation
includes a provision eliminating, to the fullest extent permitted by the DGCL,
director liability for monetary damages for breaches of fiduciary duty.
Section 145 of the DGCL provides that a director or officer of a
corporation (i) shall be indemnified by the corporation for all expenses of
litigation or other legal proceedings brought against such person by reason of
the fact that such person is or was a director or an officer of the corporation
when he is successful on the merits, (ii) may be indemnified by the corporation
for the expenses, judgments, fines, and amounts paid in settlement of such
litigation (other than a derivative suit) even if he is not successful on the
merits if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the corporation (and, in the case of
a criminal proceeding, had no reason to believe his conduct was unlawful), and
(iii) may be indemnified by the corporation for expenses of a derivative suit
(a suit by a stockholder alleging a breach by a director or officer of a duty
owed to the corporation), even if he is not successful on the merits, if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation, provided that no such
indemnification may be made in accordance with this clause (iii) if the
director or officer is adjudged liable to the corporation, unless a court
determines that, despite such adjudication but in view of all circumstances, he
is fairly and reasonably entitled to indemnification of such expenses. The
indemnification described in clauses (ii) and (iii) above shall be made only
upon order by a court or a determination by (a) a majority of directors who are
not parties to such action, (b) a majority vote of a committee consisting of
such disinterested directors, (c) independent legal counsel in a written
opinion if no such disinterested directors exist, or if such disinterested
directors so direct, or (d) the stockholders, that indemnification is proper
because the applicable standard of conduct is met. Expenses incurred by a
director or officer in defending an action may be advanced by the corporation
prior to the final disposition of such action upon receipt of an undertaking by
such director or officer to repay such expenses if it is ultimately determined
that he is not entitled to be indemnified in connection with the proceeding to
which the expenses relate.
DSC has purchased and currently has in force directors' and officers'
liability insurance policies which cover certain liabilities of directors and
officers arising out of claims based on certain acts or omissions by them in
their capacity as directors or officers. DSC has entered into indemnification
agreements with certain of its directors and executive officers. Each of these
agreements, among other things, contractually obligates DSC to, under certain
circumstances, indemnify the officer or director against certain expenses and
liabilities arising out of legal proceedings which may be brought against such
officer or director by reason of his status or service as a director or
officer. In addition, in a related trust agreement (the "Trust Agreement"),
DSC has provided $1 million to be held in trust by a third-party trustee to be
used to satisfy DSC's obligations pursuant to the indemnification agreements
which have been executed and any similar agreements which may be executed in
the future. The Trust Agreement further provides that DSC's Board of Directors
may, in its discretion, provide up to an additional $1 million to the trustee.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
*2.1 Agreement and Plan of Merger dated as of October 29, 1997 by and among DSC Communications Corporation, CI
Acquisition Company and Celcore, Inc. (incorporated by reference to Appendix A to the Prospectus/Proxy
Statement included as part of this Registration Statement)
*3.1 Restated Certificate of Incorporation of DSC dated November 3, 1997
</TABLE>
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<PAGE> 241
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
4.1 Indenture, dated August 12, 1997, between the Company and The Bank of New York, as Trustee (incorporated
by reference to Exhibit No. 4.1 to the Company's Current Report on Form 8-K, Commission File No. 0-10018)
4.2 Registration Rights Agreement, dated as of August 12, 1997, among the Company, Goldman, Sachs & Co. and
NationsBanc Capital Markets, Inc. (incorporated by reference to Exhibit No. 4.2 to the Company's Current
Report on Form 8-K, Commission File No. 0-10018)
*4.3 Restated Certificate of Incorporation of DSC dated November 3, 1997 (included in Exhibit 3.1)
4.4 Amended and Restated Bylaws of DSC (incorporated by reference to Exhibit 3.4 to Registrant's Annual
Report of Form 10-K for the year ended December 31, 1996)
4.5 Rights Agreement, dated April 25, 1996 between DSC and KeyCorp Shareholder Services, Inc. as rights agent
(incorporated by reference to Exhibit No. 4 to DSC's Current Report on Form 8-K, Commission File No. 0-
010018, dated May 9, 1996)
4.6 Form of Note (included in Exhibit 4.1)
*4.7 Form of Voting Agreement (included in Exhibit 2.1)
*5.1 Opinion of Baker & McKenzie
*8.1 Form of tax opinion of Powell, Goldstein, Frazer & Murphy LLP (included in Exhibit 2.1)
*8.2 Form of tax opinion of Baker & McKenzie (included in Exhibit 2.1)
*23.1 Consent of Ernst & Young LLP
*23.2 Consent of KPMG Peat Marwick LLP
*23.3 Consent of Donaldson, Lufkin & Jenrette Securities Corporation
*23.5 Consent of Powell, Goldstein, Frazer & Murphy LLP (included in Exhibit 8.1)
*23.6 Consent of Baker & McKenzie (included in Exhibits 5.1 and 8.2)
*24.1 Power of Attorney (included on signature page)
*99.1 Proxy Card
*99.2 Fairness Opinion of Donaldson, Lufkin & Jenrette Securities Corporation (incorporated by reference to
Appendix B to the Prospectus/Proxy Statement included as part of this Registration Statement)
</TABLE>
- -------------------------
* Filed herewith
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(i) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Registrant's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 that
is incorporated by reference in the Registration Statement shall be deemed to
be a new Registration Statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(ii) That prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this Registration
Statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form
with respect to reofferings by persons who may be deemed underwriters, in
addition to the information called for by the other items of the applicable
form.
(iii) That every prospectus (a) that is filed pursuant to paragraph (ii)
immediately preceding, or (b) that purports to meet the requirements of section
10(a)(3) of the Securities Act of 1933 and is used in connection with an
offering of securities subject to Rule 415, will be filed as a part of an
amendment to the Registration Statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement
II-2
<PAGE> 242
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(iv) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the Registration Statement through the date of responding to the
request.
(v) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it
became effective.
(vi) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of DSC pursuant to the foregoing provisions, or otherwise, DSC has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by DSC of expenses incurred or paid by a director, officer or
controlling person of DSC in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, DSC will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
II-3
<PAGE> 243
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Plano, State of Texas, on November 5, 1997.
DSC COMMUNICATIONS CORPORATION
By: /s/ James L. Donald
------------------------------------------
Name: JAMES L. DONALD
Title: Chairman of the Board, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Each person whose signature appears
below hereby authorizes and appoints James L. Donald and Gerald F. Montry, and
each of them, either one of whom may act without joinder of the other, as his
attorney-in-fact to sign on his behalf individually and in the capacity stated
below all amendments and post-effective amendments to this Registration
Statement as that attorney-in-fact may deem necessary or appropriate.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ James L. Donald Chairman of the Board, President November 5, 1997
------------------------------------------------- and Chief Executive Officer
JAMES L. DONALD (Principal Executive Officer)
/s/ Gerald F. Montry Senior Vice President, Chief November 5, 1997
------------------------------------------------- Financial Officer, and Director
GERALD F. MONTRY (Principal Financial Officer)
/s/ Kenneth R. Vines Vice President, Finance November 5, 1997
------------------------------------------------- (Principal Accounting Officer)
KENNETH R. VINES
/s/ Raymond J. Dempsey Director November 5, 1997
-------------------------------------------------
RAYMOND J. DEMPSEY
/s/ Sir John Fairclough Director November 5, 1997
-------------------------------------------------
SIR JOHN FAIRCLOUGH
/s/ James L. Fischer Director November 5, 1997
-------------------------------------------------
JAMES L. FISCHER
/s/ Robert S. Folsom Director November 5, 1997
-------------------------------------------------
ROBERT S. FOLSOM
</TABLE>
II-4
<PAGE> 244
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William O. Hunt Director November 5, 1997
-------------------------------------------------
WILLIAM O. HUNT
/s/ Morton L. Topfer Director November 5, 1997
-------------------------------------------------
MORTON L. TOPFER
</TABLE>
II-5
<PAGE> 245
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
*2.1 Agreement and Plan of Merger dated as of October 29, 1997 by and among DSC Communications Corporation, CI
Acquisition Company and Celcore, Inc. (incorporated by reference to Appendix A to the Prospectus/Proxy
Statement included as part of this Registration Statement)
*3.1 Restated Certificate of Incorporation of DSC dated November 3, 1997
4.1 Indenture, dated August 12, 1997, between the Company and The Bank of New York, as Trustee (incorporated
by reference to Exhibit No. 4.1 to the Company's Current Report on Form 8-K, Commission File No. 0-10018)
4.2 Registration Rights Agreement, dated as of August 12, 1997, among the Company, Goldman, Sachs & Co. and
NationsBanc Capital Markets, Inc. (incorporated by reference to Exhibit No. 4.2 to the Company's Current
Report on Form 8-K, Commission File No. 0-10018)
*4.3 Restated Certificate of Incorporation of DSC dated November 3, 1997 (included in Exhibit 3.1)
4.4 Amended and Restated Bylaws of DSC (incorporated by reference to Exhibit 3.4 to Registrant's Annual
Report of Form 10-K for the year ended December 31, 1996)
4.5 Rights Agreement, dated April 25, 1996 between DSC and KeyCorp Shareholder Services, Inc. as rights agent
(incorporated by reference to Exhibit No. 4 to DSC's Current Report on Form 8-K, Commission File No. 0-
010018, dated May 9, 1996)
4.6 Form of Note (included in Exhibit 4.1)
*4.7 Form of Voting Agreement (included in Exhibit 2.1)
*5.1 Opinion of Baker & McKenzie
*8.1 Form of tax opinion of Powell, Goldstein, Frazer & Murphy LLP (included in Exhibit 2.1)
*8.2 Form of tax opinion of Baker & McKenzie (included in Exhibit 2.1)
*23.1 Consent of Ernst & Young LLP
*23.2 Consent of KPMG Peat Marwick LLP
*23.3 Consent of Donaldson, Lufkin & Jenrette Securities Corporation
*23.5 Consent of Powell, Goldstein, Frazer & Murphy LLP (included in Exhibit 8.1)
*23.6 Consent of Baker & McKenzie (included in Exhibits 5.1 and 8.2)
*24.1 Power of Attorney (included on signature page)
*99.1 Proxy Card
*99.2 Fairness Opinion of Donaldson, Lufkin & Jenrette Securities Corporation (incorporated by reference to
Appendix B to the Prospectus/Proxy Statement included as part of this Registration Statement)
</TABLE>
II-6
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
DSC COMMUNICATIONS CORPORATION
(Originally Incorporated as Digital Switch Corporation on September 20, 1976)
DSC COMMUNICATIONS CORPORATION, a corporation duly organized and
existing under the General Corporation Laws of the State of Delaware, does
hereby certify that the following Restated Certificate of Incorporation was
duly adopted by the Board of Directors of the corporation on October 27, 1997
in accordance with the provisions of Section 245 of the General Corporation
Laws of the State of Delaware. This Restated Certificate of Incorporation only
restates and integrates and does not further amend the provisions of this
corporation's Certificate of Incorporation as theretofore amended or
supplemented and there is no discrepancy between the Certificate of
Incorporation and this Restated Certificate of Incorporation.
FIRST: The name of the corporation is DSC COMMUNICATIONS CORPORATION.
SECOND: The address of the registered office of the corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle County, Delaware, 19801. The name of the registered agent of the
corporation at such address is The Corporation Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: The total number of shares of all classes of stock which the
corporation shall have the authority to issue shall be as set forth in
subsections (a) and (b) below.
(a) The total number of shares of Common Stock which the
corporation shall have the authority to issue shall be five hundred
million (500,000,000) shares of the par value of $.01 each.
(b) The total number of shares of Preferred Stock which
the corporation shall have authority to issue shall be five million
(5,000,000) shares of the par value of $1.00 each. The Preferred
Stock may be issued from time to time in one or more series with such
distinctive series designations as may be stated in the resolution or
resolutions providing for the issue of such stock as from time to time
authorized by the Board of Directors. The resolution or resolutions
providing for the issue of shares of a particular series shall fix,
subject to applicable laws and provisions of this Restated Certificate
of Incorporation, the designation, rights, preferences and limitations
of the shares of each such series. The authority of the Board of
Directors with respect to each series shall include, but not be
limited to, determination of the following:
(i) the number of shares constituting such
series, including authority to increase or decrease
such number, and the distinctive designation of such
series;
(ii) the rate of dividends payable on shares of
such series, the dates on which such dividends shall
be paid, and the date or dates from which such
dividends shall be cumulative;
(iii) the voting power, if any, for such series and
the terms and conditions under which such voting
power may be exercised;
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<PAGE> 2
(iv) the right, if any, of the corporation to
redeem shares of such series and the terms and
conditions of such redemption;
(v) the obligation, if any, of the corporation to
retire shares of such series pursuant to a retirement
or sinking fund or funds of a similar nature or
otherwise and the terms and conditions of such
obligation;
(vi) the terms and conditions, if any, upon which
shares of such series shall be convertible into or
exchangeable for shares of stock of any other class
or classes or shares of stock of a subsidiary or
subsidiaries of the corporation or other property,
including the price or prices or the rate or rates of
conversion or exchange and the terms of adjustment,
if any;
(vii) the amount which the holders of the shares of
such series shall be entitled to receive in case of a
voluntary or involuntary liquidation, dissolution or
winding up of the corporation;
(viii) the relative seniority, parity or junior rank
of such series as to dividends or assets with respect
to any other class or series of stock then or
thereafter issued; and
(ix) any other rights, preferences or limitation
of the shares of such series;
so far as not inconsistent with the provisions of this
Restated Certificate of Incorporation, and to the full extent
now or hereafter permitted by the laws of Delaware. All
shares of Preferred Stock shall be of equal rank, except in
respect of the particulars that may be fixed by the Board of
Directors as hereinabove in this paragraph provided, and all
shares of each series shall be identical in all respects
except as to the dates from which dividends thereon shall be
cumulative.
FIFTH: The business and affairs of the corporation shall be managed
and controlled by a Board of Directors consisting of not more than fifteen nor
less than seven members. Within such limits, the number of directors
constituting the Board of Directors may be increased or decreased at any time
by resolution passed by a majority of the directors holding office at such
time; provided, however, that no decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director. The directors shall be classified with respect to the time during
which they shall severally hold office by dividing them into three classes, as
nearly equal in number as possible, with each class including not less than two
directors. In instances where the total number of directors constituting the
whole Board of Directors is a number other than an integral multiple of three,
the number of directors in each class shall be determined by the Board of
Directors. All directors of the corporation shall hold office for the term
which elected and until their respective successors shall be elected and
qualified or until their earlier resignation or removal. At the meeting of the
stockholders of the corporation held for the election of the first such
classified board, the directors of the first class (designated as Class I)
shall be elected for a term expiring at the annual meeting of stockholders one
year thereafter, the directors of the second class (designated as Class II) for
a term expiring at the annual meeting of stockholders two years thereafter and
the directors of the third class (designated as Class III) for a term expiring
at the annual meeting of stockholders three years thereafter and, in each
instance, until their respective successors shall be elected and qualified or
until their earlier resignation or removal. At each annual meeting of
stockholders held after such classification and election, the successors to the
class of directors whose terms shall expire that year shall be elected to hold
office for a term of three years and until their respective successors shall be
elected and qualified or until their earlier resignation or removal, so that
the term of office of one class of directors shall expire at the annual meeting
of stockholders each year. Notwithstanding the foregoing, whenever the holders
of any one or more class or series of Preferred Stock issued by the corporation
shall have the right, voting separately by class or series, to elect directors
at an annual or special meeting of stockholders, the election, term of office,
filing of vacancies and other features of such directorships shall be governed
by the term of this Restated Certificate of Incorporation applicable thereto,
and such directors so elected shall not be divided into classes pursuant to
this Article FIFTH unless expressly provided by such terms.
2
<PAGE> 3
In the event of newly created directorships resulting from an increase
in the number of directors or any vacancies in the Board of Directors,
including vacancies occurring in the Board of Directors by reason of removal of
directors, a majority of the remaining members of the board, although less than
a quorum, may elect directors to fill such newly created directorships or
vacancies, and directors so chosen shall hold office until the next election of
the class for which such directors shall have been chosen and until their
respective successors shall be elected and qualified or until their earlier
resignation or removal.
None of the directors need be a stockholder of the corporation or a
resident of the State of Delaware. Each Director must have obtained the age of
majority.
SIXTH: Any merger or consolidation of the corporation with or into
any other corporation, or any sale, lease, exchange or other disposition of all
or substantially all of the assets of the corporation to or with any other
corporation, person or other entity, shall require the affirmative vote of the
holders of at least three-fourths of the outstanding shares of capital stock of
the corporation issued and outstanding and entitled to vote if, as of the
record date for the determination of stockholders entitled to notice thereof
and to vote thereon, such other corporation, person or entity is the beneficial
owner, directly or indirectly, of five percent (5%) or more of the outstanding
shares of capital stock of the corporation issued and outstanding and entitled
to vote.
For purposes of this Article SIXTH, a corporation, person or other
entity shall be deemed to be the beneficial owner of any shares of capital
stock of the corporation (i) which it has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, or (ii) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (i) of this
paragraph above), by any other corporation, person, or other entity (a) with
which it or its "affiliate" or "associate" (as referenced below) has any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of capital stock of the corporation or (b) which is its
"affiliate" or "associate" as those terms are defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934. For
purposes of this Article SIXTH, the outstanding shares of capital stock of the
corporation shall include shares deemed owned through the application of
clauses (i) and (ii) of this paragraph but shall not include any other shares
which may be issuable pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise.
The Board of Directors of the corporation shall have the power and
duty to determine for the purposes of this Article SIXTH, on the basis of
information then known to it, whether (a) any corporation, person, or other
entity beneficially owns, directly or indirectly, five percent (5%) or more of
the outstanding shares of capital stock of the corporation entitled to vote and
(b) any sale, lease, exchange or other disposition of part of the assets of the
corporation involves substantially all of the assets of the corporation. Any
such determination by the Board shall be conclusive and binding for all
purposes of this Article SIXTH.
This Article SIXTH may not be amended or rescinded except by the
affirmative vote of the holders of at least three-fourths of the outstanding
shares of capital stock of the corporation issued and outstanding and entitled
to vote, at any regular or special meeting of the stockholders if notice of the
proposed alteration or amendment be contained in the notice of the meeting.
SEVENTH: In furtherance and not in limitation of the powers conferred
by the laws of the State of Delaware, the Board of Directors is expressly
authorized to adopt, amend or repeal the bylaws.
EIGHTH: The corporation reserves the right to amend and repeal any
provision contained in this Restated Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and, in matters pertaining
thereto, consistent with the provisions of Article SIXTH hereof. All rights
herein conferred are granted subject to this reservation.
NINTH: A Director of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent such exemption from liability or
3
<PAGE> 4
limitation thereof is not permitted under the Delaware General Corporation Law
as the same exists or may hereafter be amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of this corporation shall not adversely affect any right or
protection of a Director of the corporation existing at the time of such repeal
or modification.
IN WITNESS WHEREOF, DSC COMMUNICATIONS CORPORATION has caused this
Restated Certificate of Incorporation to be signed and attested by its duly
authorized officers, this 27th day of October, 1997.
DSC COMMUNICATIONS CORPORATION
By: /s/ Gerald F. Montry
---------------------------------------
Gerald F. Montry, Senior Vice President
and Chief Financial Officer
Attest:
/s/ George B. Brunt
- --------------------------------
George B. Brunt, Vice President,
Secretary and General Counsel
4
<PAGE> 1
EXHIBIT 5.1
November ___, 1997
Board of Directors
DSC Communications Corporation
1000 Coit Road
Plano, Texas 75075
Gentlemen:
We are acting as counsel to DSC Communications Corporation, a Delaware
corporation ("DSC"), in connection with its registration statement on Form S-4
(the "Registration Statement") filed with the Securities and Exchange
Commission (No. 333-_________) relating to _______ shares of DSC's common
stock, $.01 par value per share, including the preferred stock purchase rights
attaching to such stock pursuant to that certain Rights Agreement dated April
25, 1996 by and between DSC and Harris Trust and Savings Bank, formerly KeyCorp
Shareholder Services, Inc. ("Common Stock"), all of which shares (the "Shares")
are to be issued in exchange for all outstanding capital stock of Celcore, Inc.
("CELCORE") pursuant to the Agreement and Plan of Merger dated as of October
29, 1997, by and among DSC, CELCORE and CI Acquisition Company (the "Merger
Agreement"). This opinion letter is furnished to you at your request to enable
you to fulfill the requirements of Item 601(b)(5) of Regulation S-K, 17 C.F.R.
Section 229.601(b)(5), in connection with the Registration Statement.
In reaching the opinion set forth below, this firm has examined such
corporate records, documents and instruments of DSC and such certificates of
public officials, have received such representations from officers of DSC, and
have reviewed such questions of law as in our judgment are necessary, relevant
or appropriate to enable us to render the opinion expressed below.
We have not, except as specifically identified above, made any
independent review or investigation of factual or other matters, including the
organization, existence, good standing, assets, business or affairs of DSC. In
our examination of the aforesaid documents, we have assumed the genuineness of
all signatures, the legal capacity of natural persons, the authenticity,
accuracy and completeness of all documents submitted to us, and the conformity
with the original documents of all documents submitted to us as certified,
telecopies, facsimiles, photostatic or reproduced copies. This opinion letter
is given, and all statements herein are made, in the context of the foregoing.
This opinion letter is based as to matters of law solely on the
General Corporation Law of the State of Delaware. We express no opinion herein
as to any other laws, statutes, regulations or ordinances.
Based upon such examination and review and upon representations made
to us by officers of DSC, we are of the opinion that upon issuance and delivery
of the Shares in accordance with the terms and conditions of the Merger
Agreement, and upon receipt by DSC of the full consideration for the Shares as
determined pursuant to the Merger Agreement, the Shares will be legally issued,
fully paid and nonassessable shares of Common Stock of DSC.
We assume no obligation to advise you of any changes in the foregoing
subsequent to the delivery of this opinion letter. This opinion letter has
been prepared solely for your use in connection with the filing of the
Registration Statement on the date of this opinion letter and should not be
quoted in whole or in part or otherwise be referred to, nor filed with or
furnished to any governmental agency or other person or entity, without the
prior written consent of this firm.
1
<PAGE> 2
We hereby consent to the filing of this opinion letter as Exhibit 5.1
to the Registration Statement and to the reference to this firm under the
caption "Legal Matters" in the joint proxy statement/prospectus constituting a
part of the Registration Statement. In giving this consent, we do not thereby
admit that we are an "expert" within the meaning of the Securities Act of 1993,
as amended.
Very truly yours,
BAKER & MCKENZIE
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in
the Registration Statement (Form S-4) of DSC Communications Corporation ("DSC")
and related Prospectus/Proxy Statement for the registration of shares of DSC's
common stock and to the incorporation by reference therein of our report dated
January 23, 1997, with respect to the consolidated financial statements and
schedule of DSC incorporated by reference or included in its Annual Report
(Form 10-K) for the year ended December 31, 1996, filed with the Securities and
Exchange Commission.
/s/ ERNST & YOUNG LLP
Dallas, Texas
November 3, 1997
1
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Celcore, Inc.:
We consent to the use of our report included herein and to reference to our
firm under the heading "Experts" in the Prospectus/Proxy Statement constituting
part of this Registration Statement on Form S-4 of DSC Communications
Corporation.
/s/ KPMG Peat Marwick LLP
Memphis, Tennessee
October 31, 1997
1
<PAGE> 1
EXHIBIT 23.3
CONSENT OF DONALDSON, LUFKIN & JENRETTE
We hereby consent to the reference to our firm under the caption
"Experts" and to the use of our opinion, dated October 29, 1997, in the
Registration Statement of DSC Communications Corporation ("DSC") on Form S-4 to
be filed with the Securities and Exchange Commission on or about November 5,
1997, with respect to the fairness of the consideration to be received by the
holders of CELCORE, Inc.'s ("CELCORE") capital stock in the proposed merger of
DSC, CI Acquisition Company and CELCORE pursuant to the Agreement and Plan of
Merger dated October 29, 1997.
DONALDSON, LUFKIN & JENRETTE
/s/ ERIK M. JENSEN
- ----------------------------
November 4, 1997
1
<PAGE> 1
EXHIBIT 99.1
REVOCABLE PROXY
THIS PROXY IS BEING SOLICITED ON BEHALF OF
THE BOARD OF
DIRECTORS OF CELCORE, INC.
The undersigned stockholder of CELCORE, INC., a Delaware corporation
(the "Company"), hereby appoint(s) ____________________ and __________________,
and each of them, each with full power of substitution and resubstitution,
proxies and attorneys-in-fact of the undersigned, with all of the powers that
the undersigned would possess if personally present, to attend and act for the
undersigned at the Special Meeting of Stockholders (the "Special Meeting") of
the Company to be held on __________, 1997 at 10:00 a.m., Central time, at 3800
Forest Hill-Irene Road, Memphis, Tennessee 38125 and any and all adjournments
and postponements thereof, and (without limiting the generality of the
foregoing) in connection therewith to vote and represent all of the shares of
common stock, if any, and preferred stock, if any, of the Company that the
undersigned would be entitled to vote.
Said proxies and attorneys, and each of them, shall have all of the
powers that the undersigned would have if voting in person. The undersigned
hereby revokes any other proxies to vote at such meeting and hereby ratifies
and confirms all that said proxies and attorneys, and each of them, may
lawfully do by virtue hereof. SAID PROXIES, WITHOUT HEREBY LIMITING THEIR
SEVERAL AUTHORITY, ARE SPECIFICALLY AUTHORIZED TO VOTE IN ACCORDANCE WITH THEIR
BEST JUDGMENT WITH RESPECT TO ALL MATTERS INCIDENT TO THE CONDUCT OF THE
SPECIAL MEETING AND ALL MATTERS PRESENTED AT THE MEETING BUT WHICH ARE NOT
KNOWN TO THE BOARD OF DIRECTORS OF THE COMPANY AT THE TIME OF THE SOLICITATION
OF THIS PROXY.
(Continued and to be signed on reverse side)
1
<PAGE> 2
THE BOARD OF DIRECTORS OF THE COMPANY RECOMMENDS A VOTE FOR THE
FOLLOWING PROPOSALS:
HOLDERS OF COMMON STOCK AND PREFERRED STOCK:
1. Proposal to approve and adopt the Agreement and Plan of Merger, dated
as of October 29, 1997, among DSC Communications Corporation, CI
Acquisition Company and the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Proposal to approve and adopt the payments under the Employment
Agreements between DSC and each of Thomas R. Berger, James M. Foley
and Joseph J. Gonzalez.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
HOLDERS OF PREFERRED STOCK:
3. Proposal to approve the waiver of any rights to receive cash or other
property upon a liquidation of the Company as provided in the
Company's Certificate of Incorporation and the Company's Certificate
of Designation for Series C Convertible Preferred Stock and
Certificate of Designation for Series D Convertible Preferred Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
Each of the above named proxies present at the Special Meeting, either
in person or by substitute, shall have and exercise all the powers of
said proxies hereunder.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AT THE SPECIAL MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF IN ACCORDANCE WITH THE INSTRUCTIONS SET
FORTH ABOVE OR, IN THE EVENT NO INSTRUCTIONS ARE SET FORTH, THIS PROXY WILL BE
VOTED FOR EACH PROPOSAL.
The undersigned acknowledges receipt of a copy of the Notice of
Special Meeting of Stockholders and Prospectus/Proxy Statement (with all
Appendices and annexes) dated __________ __, 1997 relating to the Special
Meeting.
Date
----------------------------- ---------------------------------------------
Signature
Date
----------------------------- ---------------------------------------------
Signature
IMPORTANT: Please date this Proxy and sign
exactly as your name appears above. If shares
are held by joint tenants, both should sign.
When signing as attorney, executor,
administrator, trustee or guardian, please
give title as such. If a corporation, please
sign in full corporate name by the president
or other authorized officer. If a partnership,
please sign in partnership name by an
authorized person.
