<PAGE> 1
Registration No. 333-83509
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
--------
TELLABS, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 36-3831568
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
4951 INDIANA AVENUE
LISLE, ILLINOIS 60532-1698
(630) 378-8800
(Address and telephone number of Registrant's principal executive offices)
CAROL COGHLAN GAVIN
VICE PRESIDENT AND GENERAL COUNSEL
TELLABS, INC.
4951 INDIANA AVENUE
LISLE, ILLINOIS 60532-1698
(630) 378-8800
(Name, address and telephone number of agent for service)
--------
Copies to:
IMAD I. QASIM PHILIP P. ROSSETTI
SIDLEY & AUSTIN HALE AND DORR LLP
One First National Plaza 60 State Street
Chicago, Illinois 60603 Boston, MA 02109
-------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
promptly as practicable after this Registration Statement becomes effective and
the effective time of the proposed merger of Blackhawk Merger Corp., a wholly
owned subsidiary of the Registrant, with and into NetCore Systems, Inc., as
described herein.
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. [ ] ___________________________
----------
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
NETCORE SYSTEMS, INC.
187 Ballardvale Street
Wilmington, MA 01887
August 5, 1999
Dear Fellow Stockholder:
You are cordially invited to attend the special meeting of stockholders of
NetCore Systems, Inc., to be held on Friday, August 27, 1999, at 10:00 a.m. at
the offices of Hale and Dorr LLP, 60 State Street, 26th Floor, Boston,
Massachusetts 02109.
NetCore and Tellabs, Inc. entered into a merger agreement dated June 29,
1999. Under that agreement, a newly formed subsidiary of Tellabs would be merged
with and into NetCore, and NetCore would survive as a wholly-owned subsidiary of
Tellabs. Your Board of Directors is giving this proxy statement and prospectus
to you to solicit your proxy to vote for approval and adoption of the merger
agreement.
If we complete the merger, each share of NetCore common stock and NetCore
preferred stock that you own would be converted into shares of Tellabs common
stock, unless you exercise appraisal rights under Delaware law. We will
determine the number of shares of Tellabs common stock into which each share of
NetCore common stock and preferred stock will be converted immediately prior to
completion of the merger according to formulas specified in the merger agreement
and described in the attached materials. If the merger agreement is approved and
all other conditions described in the merger agreement have been met or, where
permissible, waived, the merger is expected to occur as soon as possible after
the special meeting. There is no public trading market for NetCore common stock
or NetCore preferred stock. Tellabs common stock is quoted on the Nasdaq Stock
Market under the symbol "TLAB."
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF NETCORE AND
ITS STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT NETCORE STOCKHOLDERS VOTE TO
APPROVE AND ADOPT THE MERGER AGREEMENT. YOUR BOARD OF DIRECTORS HAS RECEIVED THE
WRITTEN OPINION OF BANCBOSTON ROBERTSON STEPHENS THAT THE CONSIDERATION TO BE
RECEIVED BY NETCORE'S STOCKHOLDERS IN THE MERGER IS FAIR FROM A FINANCIAL POINT
OF VIEW TO SUCH HOLDERS.
The accompanying proxy statement and prospectus describes the terms and
conditions of the merger agreement and includes, as Annex A, a complete text of
the merger agreement. I urge you to read the enclosed materials carefully for a
complete description of the merger. Whether or not you plan to attend the
special meeting in person and regardless of the number of shares you own, please
complete, sign, date and return the enclosed proxy card as promptly as possible.
We look forward to seeing you at the special meeting.
Sincerely,
/s/ Ashraf M. Dahod
Ashraf M. Dahod
President and Chairman of the Board
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved the shares of Tellabs common stock to be
issued under this proxy statement and prospectus or determined if this proxy
statement and prospectus is accurate or adequate. Any representation to the
contrary is a criminal offense.
This proxy statement and prospectus is dated August 5, 1999 and is first being
mailed to NetCore stockholders on or about August 6, 1999.
<PAGE> 3
NETCORE SYSTEMS, INC.
187 BALLARDVALE STREET
WILMINGTON, MA 01887
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 27, 1999
TO THE STOCKHOLDERS OF NETCORE SYSTEMS, INC.:
A special meeting of stockholders of NetCore Systems, Inc. will be held on
Friday, August 27, 1999, at the offices of Hale and Dorr LLP, 60 State Street,
26th Floor, Boston, Massachusetts 02109, commencing at 10:00 a.m., for the
following purposes:
(1) To consider and vote on a proposal to approve and adopt the
Agreement and Plan of Merger dated as of June 29, 1999 between NetCore,
Tellabs, Inc., and Blackhawk Merger Corp., a wholly owned subsidiary of
Tellabs, a copy of which is attached as Annex A to the proxy statement and
prospectus accompanying this notice.
(2) To consider and transact such other business as may properly be
brought before the special meeting or any adjournment thereof.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY
DETERMINED THAT THE CONSIDERATION NETCORE STOCKHOLDERS WILL RECEIVE AS A RESULT
OF THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF NETCORE AND ITS
STOCKHOLDERS. THE NETCORE BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT. We urge you to read the accompanying proxy statement and
prospectus carefully for a description of the merger agreement.
Stockholders of NetCore beneficially holding, as of the record date, in the
aggregate approximately 65% of the outstanding shares of NetCore common stock,
100% of the outstanding shares of NetCore Series A preferred stock, 98% of the
outstanding shares of NetCore Series B preferred stock, 75% of the outstanding
shares of NetCore Series C preferred stock, and 73% of the NetCore Series D
preferred stock have agreed to vote all of their shares in favor of the approval
and adoption of the merger agreement. Consequently, approval and adoption of the
merger agreement by NetCore stockholders is assured.
Pursuant to the merger agreement, holders of NetCore common stock and
preferred stock are entitled to appraisal rights in connection with the merger,
in accordance with Delaware law.
The record date for determining the stockholders who will receive notice of
and be entitled to vote at the special meeting is August 5, 1999. You may
examine a list of the NetCore stockholders who are entitled to vote at the
special meeting during ordinary business hours at NetCore's principal offices
for the ten days prior to the special meeting.
By Order of the Board of Directors,
/s/ Ashraf M. Dahod
-----------------------------------
Ashraf M. Dahod
Secretary
Wilmington, Massachusetts
August 5, 1999
Whether or not you plan to attend the special meeting, please complete,
sign, date and return the enclosed proxy card promptly in the enclosed
postage-paid envelope. Stockholders who attend the special meeting may revoke
their proxies and vote in person if they desire. PLEASE DO NOT SEND YOUR STOCK
CERTIFICATES WITH YOUR PROXY CARDS AT THIS TIME. Do not send in your stock
certificates until you receive a letter of transmittal.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY ........................................................................ 1
The Companies .............................................................. 1
What You Will Receive in the Merger ........................................ 1
Escrow ..................................................................... 3
Treatment of Stock Options in the Merger ................................... 3
The Special Meeting ........................................................ 3
Voting Agreement ........................................................... 3
NetCore's Reasons for the Merger ........................................... 4
Interests of Certain Persons in the Merger ................................. 4
Regulatory Approvals .................................................... 4
Conditions to the Merger ................................................... 4
Termination of the Merger Agreement ........................................ 5
No Solicitation of Competing Transactions .................................. 5
Appraisal Rights ........................................................... 5
Material Federal Income Tax Consequences ................................... 6
Accounting Treatment ....................................................... 6
Forward-Looking Statements May Prove Inaccurate ............................ 6
SUMMARY SELECTED FINANCIAL DATA ..................................................... 7
Selected Historical Financial Data of NetCore .............................. 7
Selected Historical Financial Data of Tellabs .............................. 8
Comparative Per Share Data ................................................. 9
THE SPECIAL MEETING ................................................................. 11
General .................................................................... 11
Matters to Be Considered at the Special Meeting ............................ 11
Record Date ................................................................ 11
Quorum ..................................................................... 11
Required Vote .............................................................. 11
Proxies .................................................................... 12
Solicitation of Proxies .................................................... 12
THE MERGER .......................................................................... 13
Background of the Merger ................................................... 13
Reasons for the Merger; Recommendation of the NetCore
Board of Directors ...................................................... 14
Interests of Certain Persons in the Merger;
Conflicts of Interest ................................................... 16
Opinion of BancBoston Robertson Stephens ................................... 16
Form of the Merger ......................................................... 20
Merger Consideration ....................................................... 20
Escrow ..................................................................... 22
Procedures for Exchange of NetCore Common and Preferred
Stock Certificates ...................................................... 23
Material Federal Income Tax Consequences ................................... 23
Anticipated Accounting Treatment ........................................... 25
Certain Other Effects of the Merger ........................................ 25
Forward-Looking Statements May Prove
Inaccurate .............................................................. 25
TERMS OF THE MERGER AGREEMENT ....................................................... 27
The Merger ................................................................. 27
Structure of the Merger .................................................... 27
Conversion and Exchange of Securities ...................................... 27
Effective Time ............................................................. 28
Representations and Warranties ............................................. 28
Business of NetCore Pending the Merger and Other Agreements ................ 31
No Solicitation by NetCore ................................................. 32
Additional Agreements of Tellabs and NetCore ............................... 33
NetCore Stock Option Plan .................................................. 33
Directors' and Officers' Insurance and
Indemnification ......................................................... 33
Loans to NetCore ........................................................... 33
What Is Needed to Complete the Merger ...................................... 33
Termination of the Merger Agreement ........................................ 35
Waiver and Amendment of the Merger Agreement ............................... 35
VOTING AGREEMENTS ................................................................... 37
REGULATORY MATTERS .................................................................. 38
BUSINESS OF TELLABS ................................................................. 39
INFORMATION ABOUT NETCORE ........................................................... 40
Business of NetCore ........................................................ 40
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 40
Voting Securities and Principal Holders Thereof ............................ 42
Directors, Executive Officers, Promoters and Control Persons ............... 45
Executive Compensation ..................................................... 47
Certain Transactions ....................................................... 48
DESCRIPTION OF TELLABS'
CAPITAL STOCK .............................................................. 49
Capital Stock .............................................................. 49
Dividend Rights ............................................................ 49
Voting Rights .............................................................. 49
Change of Control .......................................................... 49
Liquidation Rights ......................................................... 51
Miscellaneous .............................................................. 51
COMPARISON OF RIGHTS OF NETCORE STOCKHOLDERS AND
TELLABS STOCKHOLDERS ....................................................... 52
Size and Classification of the Board of Directors .......................... 52
Removal of Directors ....................................................... 52
By-Law Amendments .......................................................... 52
Certificate of Incorporation Amendments .................................... 52
Action by Written Consent .................................................. 53
Transactions With Interested Stockholders .................................. 53
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS OF NETCORE .............................. 54
</TABLE>
-i-
<PAGE> 5
<TABLE>
<S> <C>
EXPERTS ............................................................................. 56
LEGAL OPINIONS ...................................................................... 56
WHERE YOU CAN FIND MORE INFORMATION ................................................. 56
NETCORE FINANCIAL STATEMENTS ........................................................ F-1
</TABLE>
Annex A Agreement and Plan of Merger
Annex B Opinion of BancBoston Robertson Stephens, Inc.
Annex C Voting Agreements
Annex D Indemnity Escrow Agreement
Annex E Section 262 of the Delaware General Corporation Law
-ii-
<PAGE> 6
SUMMARY
This Summary highlights selected information from this document and may not
contain all of the information that is important to you. To understand the
merger fully and for a more complete description of the legal terms of the
merger, you should read carefully this entire document and the documents to
which we have referred you. See "Where You Can Find More Information" (page 56).
We have included page references parenthetically to direct you to more complete
descriptions of the topics presented in this Summary.
In the merger, Blackhawk Merger Corp., a newly formed subsidiary of
Tellabs, will merge with and into NetCore. NetCore will be the surviving
corporation in the merger and will become a wholly owned subsidiary of Tellabs.
You will receive Tellabs common stock in exchange for your shares of NetCore
common stock and preferred stock.
The merger agreement is attached as Annex A to this document. We encourage
you to read the merger agreement, as it is the legal document that governs the
merger.
THE COMPANIES
NETCORE SYSTEMS, INC.
187 Ballardvale Street
Wilmington, MA 01887
(978) 694-1555
NetCore has developed high performance switching products for large
Internet Service Providers and multi-service telecommunications carriers.
NetCore's products classify, aggregate and direct customer traffic across
high-speed fiber optic links.
NetCore was incorporated in 1996. For further information concerning
NetCore, see "-- Selected Historical Financial Data of NetCore" and "INFORMATION
ABOUT NETCORE."
TELLABS, INC.
4951 Indiana Avenue
Lisle, IL 60532-1698
(630) 378-8800
Tellabs designs, manufactures, markets and services data, voice and video
transport and network access systems that are used worldwide by the providers of
communications services.
Tellabs was incorporated in Delaware in 1992 in connection with the
reincorporation of its predecessor from an Illinois to a Delaware corporation.
Tellabs' predecessor corporation began operations in 1975 and became a public
company in 1980. For further information concerning Tellabs, see "-- Selected
Historical Financial Data of Tellabs," "BUSINESS OF TELLABS," and " WHERE YOU
CAN FIND MORE INFORMATION."
BLACKHAWK MERGER CORP.
4951 Indiana Avenue
Lisle, IL 60532-1698
(630) 378-8800
Blackhawk Merger Corp. is a company formed by Tellabs on June 28, 1999
solely for use in the merger.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 20)
As a result of the merger, unless you exercise appraisal rights under
Delaware law, each share of NetCore common stock and preferred stock that you
own will be converted into the number of shares of Tellabs common stock
determined as follows:
- - For each share of NetCore common stock, a fraction of a share of Tellabs
common stock equal to:
(a) (1) $575,000,000 minus the sum of:
(i) the number of shares of NetCore Series B preferred stock
outstanding multiplied by $5; plus
(ii) the number of shares of NetCore Series C preferred stock
outstanding multiplied by $7; plus
(iii) the number of shares of NetCore Series D preferred stock
outstanding multiplied by $15.24.
divided by:
(2) the number of shares of NetCore common stock outstanding on a fully
diluted basis, assuming the exercise of all NetCore stock options and
the conversion of all shares of NetCore Series A preferred stock into
shares of NetCore common stock,
divided by:
(b) The "average Tellabs share price," which is the average of the last sale
price per share of Tellabs common stock on Nasdaq for the 15 trading days
immediately preceding the three trading days prior to the date on which the
merger occurs. The average Tellabs share price may not be less than $52.80
nor more than $79.20.
1
<PAGE> 7
- - For each share of NetCore Series A preferred stock, the fraction of a share of
Tellabs common stock you would receive in exchange for each share of NetCore
common stock resulting from the conversion of each share of Series A preferred
stock into NetCore common stock, at a conversion ratio of approximately 2.2
shares of NetCore common stock for each share of NetCore Series A preferred
stock.
- - For each share of NetCore Series B preferred stock, the fraction of a share of
Tellabs common stock equal to $5 divided by the average Tellabs share price.
- - For each share of NetCore Series C preferred stock, the fraction of a share of
Tellabs common stock equal to $7 divided by the average Tellabs share price.
- - For each share of NetCore Series D preferred stock, the fraction of a share of
Tellabs common stock equal to $15.24 divided by the average Tellabs share price.
- -----------------------------------------------------------------------
Example of Exchange Values:
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
If the You will The The
average receive You will Indemnity Indemnity
Tellabs this receive Agent will Agent will
share price many this receive receive
is $66 per shares amount of this many this much
share and of cash in shares of cash in
you own 100 Tellabs lieu of Tellabs lieu of
shares of Common fractional Common fraction
NetCore: Stock shares Stock of shares
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 82 $ 55.77 9 $ 6.60
- -----------------------------------------------------------------------
Series A
Preferred
Stock 181 $ 54.15 20 $ 13.20
- -----------------------------------------------------------------------
Series B
Preferred
Stock 6 $ 57.75 0 $ 46.20
- -----------------------------------------------------------------------
Series C
Preferred
Stock 9 $ 40.00 1 $ 0.00
- -----------------------------------------------------------------------
Series D
Preferred
Stock 20 $ 52.14 2 $ 19.80
- -----------------------------------------------------------------------
</TABLE>
Tellabs and NetCore expect that prior to the merger all of the holders of
NetCore preferred stock will convert all of their shares of NetCore preferred
stock into shares of NetCore common stock. This will have the effect of changing
the ratio at which shares of NetCore common stock would otherwise be converted
into shares of Tellabs common stock as a result of the merger. The table below
sets forth an example of the exchange of shares of NetCore common stock and
preferred stock into shares of Tellabs common stock as a result of the merger,
assuming an average Tellabs share price of $66 per share and assuming the
conversion of all shares of NetCore preferred stock into shares of NetCore
common stock prior to the merger:
- ----------------------------------------------------------------------
Example of Exchange Values:
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
If the You will The The
average receive You will Indemnity Indemnity
Tellabs this receive Agent will Agent will
share price many this receive receive
is $66 per shares amount of this many this much
share and of cash in shares of cash in
you own 100 Tellabs lieu of Tellabs lieu of
shares of Common fractional Common fraction
NetCore: Stock shares Stock of shares
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 39 $ 28.18 4 $ 19.80
- ----------------------------------------------------------------------
Series A
Preferred
Stock 86 $ 31.45 9 $ 39.60
- ----------------------------------------------------------------------
Series B
Preferred
Stock 39 $ 28.18 4 $ 19.80
- ----------------------------------------------------------------------
Series C
Preferred
Stock 39 $ 28.18 4 $ 19.80
- ----------------------------------------------------------------------
Series D
Preferred
Stock 39 $ 28.18 4 $ 19.80
- ----------------------------------------------------------------------
</TABLE>
The example above has been calculated on a fully-diluted basis, assuming
the exercise of all outstanding options and the conversion of all shares of
NetCore preferred stock into shares of NetCore common stock prior to the merger,
resulting in approximately 19,923,439 shares of NetCore common stock being
exchanged in the merger. If the total amount of NetCore stock to be exchanged as
a result of the merger is greater or lesser than 19,923,439, the exchange ratio
will be adjusted accordingly. However, the aggregate value of Tellabs common
stock issuable to holders of NetCore stock as a result of the merger will not
change.
The amounts listed in the previous tables are only examples, as the exact
value of the average Tellabs share price cannot be calculated at this time.
If the NetCore special meeting occurs prior to the end of the period during
which the "average Tellabs share price" is determined, the number of shares of
Tellabs common stock issuable for each share of NetCore common stock or
preferred stock may not be known at the time you vote on the merger. You may
call, toll-free, (877) 694-9528 for information concerning the estimated number
of shares of Tellabs common stock that will be issued in exchange for your
NetCore common stock or preferred stock.
2
<PAGE> 8
ESCROW (PAGE 22)
Under the merger agreement, NetCore has agreed to indemnify Tellabs and its
affiliates against losses due to NetCore's breach of its warranties, covenants
or obligations in the merger agreement. To meet this obligation, the parties
will establish an indemnity fund. Promptly after the merger Tellabs will cause
10% of the whole shares of Tellabs common stock issuable to NetCore stockholders
in connection with the merger to be deposited with Harris Trust and Savings
Bank, as indemnity agent. The indemnity fund will be governed by a separate
indemnity agreement, which is attached as Annex D.
The former NetCore stockholders whose shares of Tellabs common stock are
held in the fund will be represented by two stockholder representatives, who
will initially be Ashraf M. Dahod and William J. Stuart. The persons acting as
the stockholder representatives can be changed by NetCore prior to the merger or
by the holders of a majority in interest of the shares in the indemnity fund at
any time upon not less than ten days' prior written notice to Tellabs. The
indemnity fund and indemnification obligations will end one year after the
closing of the merger, except with respect to any pending or outstanding
indemnity claims. At that time, if no indemnity claim has been made, the shares
of Tellabs common stock plus cash in lieu of any fractional shares in the
indemnity fund will be released to former holders of NetCore stock (other than
those who exercised appraisal rights) in accordance with the indemnity
agreement.
TREATMENT OF STOCK OPTIONS IN THE MERGER (PAGE 33)
At the time of completion of the merger, each NetCore stock option issued
pursuant to NetCore's 1997 Stock Option Plan will become an option to purchase
shares of Tellabs common stock. The number of shares of Tellabs common stock
that will become subject to each new stock option will be the same as the number
of shares of Tellabs common stock into which the shares of NetCore common stock
subject to the existing stock option would have been converted had they been
outstanding at the time of completion of the merger. The per share exercise
price of each new stock option will be adjusted at the time of completion of the
merger so that the aggregate exercise price for all shares subject to the new
stock option does not change as a result of the merger.
THE SPECIAL MEETING (PAGE 11)
At the special meeting, the holders of NetCore common stock and preferred
stock will be asked to approve and adopt the merger agreement. The close of
business on August 5, 1999 is the record date for determining if you are
entitled to vote at the special meeting. At that date, there were 6,208,744
shares of NetCore common stock outstanding, 157,895 shares of NetCore Series A
preferred stock outstanding, 3,550,000 shares of NetCore Series B preferred
stock outstanding, 4,728,571 shares of NetCore Series C preferred stock
outstanding, and 4,016,099 shares of NetCore Series D preferred stock
outstanding. Each share is entitled to one vote at the special meeting.
The vote of a majority of the shares entitled to be cast of NetCore common
stock, and the vote of a majority of the shares entitled to be cast of each
series of NetCore preferred stock, voting as separate classes, is required to
approve and adopt the merger agreement. On the record date, directors and
executive officers of NetCore, and their affiliated entities, as a group
beneficially owned 11,984,821 shares of NetCore common stock, assuming the
conversion of all shares of NetCore preferred stock into shares of NetCore
common stock, or approximately 63.6% of the outstanding shares of NetCore common
stock on such date.
VOTING AGREEMENT (PAGE 37)
As a condition to Tellabs' willingness to enter into the merger agreement,
Tellabs entered into separate voting agreements with each of the directors of
NetCore and certain of its stockholders. These stockholders have agreed, without
any additional consideration being paid to them, to vote all of their shares in
favor of the merger. Stockholders owning, as of the record date, 4,059,898
shares of NetCore common stock, 157,895 shares of NetCore Series A preferred
stock, 3,475,000 shares of NetCore Series B preferred stock, 3,559,206 shares of
NetCore Series C preferred stock, and 2,923,810 shares of NetCore Series D
preferred stock, representing approximately 65%, 100%, 98%, 75% and 73% of the
shares of the respective classes then outstanding, have entered into such voting
agreements with Tellabs.
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE NETCORE STOCKHOLDERS IS
THEREFORE ASSURED. HOWEVER, BECAUSE THERE ARE OTHER CONDITIONS TO CLOSING THAT
HAVE NOT YET BEEN FULFILLED, CLOSING OF THE MERGER IS NOT ASSURED. ALSO, YOUR
VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
3
<PAGE> 9
NETCORE'S REASONS FOR THE MERGER (PAGE 14)
The NetCore Board of Directors unanimously approved the merger agreement
and the merger and recommends that you vote to approve and adopt the merger
agreement. The NetCore Board believes that the merger is in the best interests
of NetCore and its stockholders. In reaching its decision, the NetCore Board
considered a number of factors, including the following:
- - The merger should permit NetCore to utilize Tellabs' research and
development capabilities and resources in developing its products, and
should thereby enhance NetCore's ability to compete more effectively
against larger competitors.
- - NetCore's products and technology complement those of Tellabs. NetCore's
technology will be used to enhance the capabilities of existing and future
Tellabs products. Existing customers of Tellabs are some of the most likely
prospects for NetCore products.
- - The addition of Tellabs' sales and marketing resources, including its
geographically more expansive distribution channel, and its established
relationships with potential customers should increase NetCore's ability to
market and sell its products.
- - The consideration to be paid to NetCore stockholders in the merger will be
shares of Tellabs common stock. Tellabs common stock is publicly traded on
the Nasdaq National Market and is more readily marketable than shares of
NetCore stock, which are not publicly traded.
To review NetCore's reasons for the merger in greater detail, see "THE
MERGER--Reasons for the Merger; Recommendation of the NetCore Board of
Directors."
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 16)
In considering the recommendation of the NetCore Board regarding the
merger, you should be aware of the interests that executive officers and
directors of NetCore have in the merger that are different from your and their
interests as stockholders.
As of June 28, 1999, an aggregate of approximately 270,000 shares of
NetCore common stock were subject to options granted to executive officers and
directors of NetCore under NetCore's stock option plan. At the time of
completion of the merger, each stock option will become an option to purchase
shares of Tellabs common stock.
NetCore has entered into either or both a stock restriction agreement or a
stock option agreement with the following executive officers and directors:
Ashraf M. Dahod, Kwabena D. Akufo, Jane R. Brandt, John M. Shaw, Mark T.
Terenzoni, William J. Stuart and Hassan M. Ahmed. Under the terms of the stock
restriction agreements, any unvested shares of NetCore common stock held by
these individuals are subject to repurchase by NetCore in the event that the
individual's employment or directorship is terminated. Under the terms of the
stock option agreements, any unvested options are subject to forfeiture in the
event that the individual's employment is terminated. Upon the consummation of a
merger or an acquisition, including the consummation of the merger contemplated
by the merger agreement, each individual's vesting schedule for either
restricted stock or options to purchase NetCore common stock will be accelerated
by 18 months. These executive officers and director beneficially own an
aggregate of 4,056,052 shares of NetCore common stock and 107,500 options to
purchase shares of NetCore common stock which are exercisable within 60 days of
June 28, 1999.
The NetCore Board recognized all the interests described above and
concluded that these interests did not detract from the fairness of the merger
to the holders of NetCore common stock and preferred stock who are not executive
officers or directors of NetCore. Please refer to page 16 for more information
concerning the interests of NetCore's executive officers and directors. See "THE
MERGER -- Interests of Certain Persons in the Merger; Conflicts of Interest" and
"INFORMATION ABOUT NETCORE -- Executive Compensation."
REGULATORY APPROVALS (PAGE 38)
The Hart-Scott-Rodino Antitrust Improvements Act of 1976 prohibits NetCore
and Tellabs from completing the merger until NetCore and Tellabs have furnished
certain information and materials to the Antitrust Division of the Department of
Justice and the Federal Trade Commission (FTC) and the required waiting period
has ended. The waiting period may be extended by requests for additional
information. On July 27, 1999 Tellabs and NetCore each filed the required
notification and report forms with the FTC and the Antitrust Division.
CONDITIONS TO THE MERGER (PAGE 33)
Tellabs and NetCore will not complete the merger unless a number of
conditions are satisfied or waived by them. These include the following:
- the holders of a majority of the shares of NetCore common stock and
the holders of a majority of the shares of each series of NetCore
preferred stock, voting as separate classes, must vote to approve and
adopt the merger agreement;
4
<PAGE> 10
- the shares of Tellabs common stock to be issued in the merger and not
previously listed must be authorized for quotation on the Nasdaq
National Market;
- the waiting period applicable to the merger under the
Hart-Scott-Rodino Act must come to an end or be terminated;
- the relevant governmental authorities and other third parties must
approve the merger;
- there must be no law, injunction or order that prohibits the merger;
- NetCore, Tellabs and Blackhawk Merger Corp. must perform all of their
obligations under the merger agreement;
- with certain exceptions, Tellabs and NetCore must each certify to the
other that its representations and warranties contained in the merger
agreement are true and correct;
- Tellabs and NetCore must receive an opinion from tax counsel that,
among other things, the merger will qualify for U.S. federal income
tax purposes as a tax-free reorganization;
- Tellabs and NetCore must each receive a pooling letter from its
independent accountants that it is eligible to be a party to a
business combination accounted for as a pooling of interests and that,
in the case of Tellabs, the merger will qualify for pooling of
interests accounting;
- the indemnity agreement must be executed by the indemnity agent and
the stockholder representatives and delivered to Tellabs;
- Tellabs must receive a certificate from officers of NetCore as to
NetCore's then current capital structure;
- the holders of no shares of NetCore preferred stock and no more than
5% of the shares of NetCore common stock have exercised appraisal
rights; and
- other customary contractual conditions specified in the merger
agreement.
The party entitled to the benefit of some of these conditions may waive these
conditions. Neither Tellabs nor NetCore can make assurances that the conditions
will be satisfied or waived or that the merger will occur.
TERMINATION OF THE MERGER AGREEMENT (PAGE 35)
NetCore and Tellabs can agree at any time to terminate the merger agreement
without completing the merger, and the merger agreement may be terminated by
either company if any of the following occurs:
- either party materially breaches any of its representations,
warranties or obligations under the merger agreement and does not cure
such breach within 30 business days of receiving notice of it;
- the merger is not completed by December 15, 1999; or
- a court or other governmental authority permanently prohibits the
merger.
In addition, Tellabs may terminate the merger agreement if NetCore
stockholders do not approve the merger, if any other person or entity becomes
the beneficial owner of 25% or more of the shares of NetCore common stock, or if
the NetCore Board recommends in favor of a business combination other than the
merger with Tellabs or resolves to do so.
NO SOLICITATION OF COMPETING TRANSACTIONS (PAGE 32)
The merger agreement restricts NetCore's ability to solicit, encourage or
enter into any alternative acquisition transactions with third parties. NetCore
must promptly notify Tellabs if it receives offers or proposals for any such
alternative transactions.
APPRAISAL RIGHTS (PAGE 54)
IF YOU OBJECT TO THE MERGER, THE MERGER AGREEMENT PERMITS YOU TO SEEK
RELIEF AS A DISSENTING STOCKHOLDER UNDER DELAWARE LAW AND HAVE THE "FAIR VALUE"
OF YOUR SHARES OF NETCORE COMMON STOCK AND NETCORE PREFERRED STOCK DETERMINED BY
A COURT AND PAID TO YOU IN CASH.
If you are a NetCore stockholder and wish to dissent, you must deliver to
NetCore, prior to the taking of the vote on the merger at the special meeting, a
written demand for appraisal of your shares. A proxy or vote against the merger
is not sufficient to make this demand. You also must not vote in favor of the
merger agreement. To not vote in favor of the merger agreement, you can do any
of the following:
- vote "no" at the special meeting, either in person or by proxy;
5
<PAGE> 11
- abstain from voting;
- fail to vote; or
- revoke a duly executed proxy that contains a vote in favor of the
merger or contains voting instructions.
Beneficial owners of shares of NetCore common stock or NetCore preferred stock
whose shares are held of record by another person, such as a broker, bank or
nominee, and who wish to exercise their rights of appraisal, should instruct the
record holder to follow the appraisal procedures of Delaware law. The provisions
of Delaware law relating to the exercise of appraisal rights are complicated and
failure to strictly adhere to such provisions may terminate or waive your
appraisal rights. Therefore, if you exercise your appraisal rights to obtain an
appraisal of the fair value of your shares, you may wish to consult with a
qualified attorney.
A copy of Section 262 of the Delaware General Corporation Law, which governs
this process, is attached as Annex E to this proxy statement and prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 23)
It is a condition to the completion of the merger that NetCore and Tellabs
each receive an opinion of tax counsel. The opinion of tax counsel will conclude
that no gain or loss generally should be recognized by a NetCore stockholder for
federal income tax purposes on the exchange of shares of NetCore common stock
and preferred stock for shares of Tellabs common stock. Federal income tax may
be payable, however, on cash received by NetCore stockholders instead of
fractional shares, on cash received by NetCore stockholders asserting appraisal
rights, and on Tellabs shares that are distributed to Tellabs in satisfaction of
indemnification claims.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISOR TO UNDERSTAND FULLY THE TAX CONSEQUENCES OF THE MERGER TO YOU. SEE "THE
MERGER--MATERIAL FEDERAL INCOME TAX CONSEQUENCES." (PAGE 23)
ACCOUNTING TREATMENT (PAGE 25)
Tellabs expects to account for the merger as a pooling of interests.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 25)
Tellabs and NetCore have made forward-looking statements in this document
and in documents to which we have referred you. These statements are subject to
risks and uncertainties, and there can be no assurance that such statements will
prove to be correct. Forward-looking statements include assumptions as to how
Tellabs and NetCore may perform in the future. You will find many of these
statements in the following sections:
- "THE MERGER--Reasons for the Merger; Recommendation of the
NetCore Board of Directors." (page 14)
- "THE MERGER--Opinion of BancBoston Robertson Stephens." (page 16)
Also, when we use words like "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. For those statements,
Tellabs and NetCore claim the protection of the safe harbor for forward-looking
statements contained in the Private Securities Litigation Reform Act of 1995.
You should understand that some important factors, in addition to those
discussed elsewhere in this document and in the documents which we incorporate
by reference, could affect the future results of Tellabs and NetCore and could
cause those results to differ materially from those expressed in our
forward-looking statements. These factors include: materially adverse changes in
economic conditions and in the markets served by Tellabs and NetCore;
regulatory, legal, economic and other changes in the telecommunications industry
environment generally; and a significant delay in the expected completion of the
merger.
6
<PAGE> 12
SUMMARY SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF NETCORE
(Dollars in thousands, except per share data)
NetCore is providing the following financial information to help you in
your analysis of the financial aspects of the merger. The annual selected
historical financial data presented below have been derived from NetCore's
audited financial statements. The interim selected historical financial data
presented below have been derived from NetCore's unaudited financial statements.
As this information is only a summary, it should be read in conjunction with
NetCore's historical financial statements (and related notes). See "NETCORE
FINANCIAL STATEMENTS"
NetCore operates on a fiscal year ending on the 31st of December in each
year. NetCore was incorporated in October 1996, therefore information for fiscal
year 1996 is from October 15, 1996 through December 31, 1996 and there is no
financial information for any prior years.
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS ENDED
-------------------------------------- -----------------------
MARCH 29, MARCH 28,
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net Sales .................... -- -- -- -- --
Gross Profit ................. -- -- -- -- --
Loss before income
taxes ........................ $ (270) $ (3,882) $(11,029) $ (1,653) $ (2,444)
Net Loss ..................... $ (270) $ (3,882) $(11,029) $ (1,653) $ (2,444)
Net Loss attributable to
common stockholders .......... $ (293) $ (4,197) $(12,709) $ (1,896) $ (3,060)
Loss per share
attributable to common
stockholders ................. $ (.12) $ (1.56) $ (3.74) $ (.62) $ (.78)
Loss per share
attributable to common
stockholders, assuming
dilution ..................... $ (.12) $ (1.56) $ (3.74) $ (.62) $ (.78)
BALANCE SHEET DATA-- AT
PERIOD END
Stockholders' equity ......... $ 1,711 $ (2,440) $(15,111) $ (4,322) $(18,140)
(deficit)
Total Assets ................. $ 5,437 $ 10,732 $ 17,534 $ 9,364 $ 19,288
Net working capital .......... $ 5,135 $ 9,331 $ 14,423 $ 7,728 $ 14,041
Long-term debt ............... -- $ 237 $ 499 $ 450 $ 735
</TABLE>
7
<PAGE> 13
SELECTED HISTORICAL FINANCIAL DATA OF TELLABS
(Dollars in thousands, except per share data)
Tellabs is providing the following financial information to help you in
your analysis of the financial aspects of the merger. The annual selected
historical financial data presented below have been derived from Tellabs'
audited consolidated financial statements. The interim selected historical
financial data presented below have been derived from Tellabs' unaudited
consolidated financial statements. As this information is only a summary, it
should be read in conjunction with Tellabs's historical financial statements
(and related notes) contained in the annual reports and other information that
Tellabs has filed with the Securities and Exchange Commission (SEC), and are
incorporated by reference into this proxy statement and prospectus.
Tellabs operates on a 52-53 weeks fiscal year, ending on a Friday near
December 31.
<TABLE>
<CAPTION>
FISCAL YEARS THREE MONTHS ENDED
---------------------------------------------------------------- ------------------------
APRIL 3, APRIL 2,
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Net sales .................. $ 494,153 $ 635,229 $ 868,975 $1,203,546 $1,660,102 $ 327,502 $ 469,651
Gross profit ............... $ 270,003 $ 363,835 $ 519,243 $ 758,003 $1,081,238 $ 189,156 $ 275,641
Earnings before income ..... $ 97,824 $ 162,825 $ 175,282 $ 399,529 $ 590,115 $ 101,102 $ 153,657
taxes
Net earnings ............... $ 72,389 $ 115,606 $ 117,965 $ 263,689 $ 398,328 $ 68,244 $ 103,718
Earnings per share ......... $ 0.21 $ 0.33 $ 0.33 $ 0.73 $ 1.06 $ 0.19 $ 0.27
Earnings per share, ........ $ 0.20 $ 0.32 $ 0.32 $ 0.71 $ 1.04 $ 0.18 $ 0.26
assuming dilution
BALANCE SHEET DATA-- AT
PERIOD END
Stockholders' equity ....... $ 292,790 $ 433,233 $ 591,276 $ 933,109 $1,376,597 $1,033,050 $1,475,430
Total Assets ............... $ 390,067 $ 552,051 $ 743,823 $1,183,379 $1,627,591 $1,286,717 $1,713,743
Net working capital ........ $ 138,317 $ 267,806 $ 343,840 $ 637,114 $1,034,564 $ 726,789 $1,130,664
Long-term debt ............. $ 2,850 $ 2,850 $ 2,850 $ 2,850 $ 2,850 $ 2,850 $ 2,850
</TABLE>
Per share data have been restated to reflect two-for-one stock splits in
fiscal years 1995, 1996 and 1999.
8
<PAGE> 14
COMPARATIVE PER SHARE DATA
The following table presents historical and pro forma per-share data of
NetCore and Tellabs. The data presented below should be read in conjunction with
the historical financial statements of Tellabs, which are incorporated by
reference in this document, and of NetCore, which are provided under "NETCORE
FINANCIAL STATEMENTS" on page F-1. Earnings per share data are calculated using
the diluted weighted average of shares outstanding, while book value per share
is calculated using the outstanding shares at period end. Because the number of
shares of Tellabs common stock to be issued in the merger will not be known
until three business days prior to the completion of the merger, Tellabs pro
forma and NetCore equivalent per share data can only be estimated at this time.
Using the reference average Tellabs share price of $66 per share of Tellabs
common stock and assuming the exchange of 19,923,439 shares of NetCore common
stock in the merger (which assumes the exercise of all outstanding options to
purchase shares of NetCore common stock and the conversion of all shares of
NetCore preferred stock into shares of NetCore common stock prior to the
merger), 8,712,121 shares of Tellabs common stock will be issuable in the merger
resulting in a hypothetical exchange ratio of 0.43727 shares of Tellabs common
stock for each share of NetCore common stock in the merger. The Tellabs pro
forma combined per share data assume the conversion of all NetCore preferred
stock into NetCore common stock at the applicable conversion ratios and the
exchange of shares of NetCore common stock into shares of Tellabs common stock
in the merger at a hypothetical exchange ratio of 0.43727. The NetCore pro forma
equivalent per share data is calculated by multiplying the reference Tellabs pro
forma combined per share data by the hypothetical exchange ratio of 0.43727.
<TABLE>
<CAPTION>
FISCAL QUARTER(3) FISCAL YEAR(3)
----------------- -------------------------------
1999 1998 1997 1996
----------------- -------- -------- -------
<S> <C> <C> <C> <C>
TELLABS HISTORICAL(1):
Earnings per common share, assuming
dilution ............................... $ .26 $ 1.04 $ .71 $ .32
Dividends per common share, net ........ -- -- -- --
Book value per share ................... 3.77 3.54
NETCORE HISTORICAL:
Loss per common share, assuming
dilution ............................... (.78) (3.74) (1.56) (.12)
Dividends per common share, net ........ -- -- -- --
Book deficit per share ................. (2.96) (2.49)
TELLABS PRO FORMA COMBINED (2):
Earnings per common share, assuming
dilution ............................... .25 .99 .69 .32
Dividends per common share, net ........ -- -- -- --
Book value per share ................... 3.55 3.55
NETCORE PRO FORMA EQUIVALENT:
Earnings per common share, assuming
dilution ............................... .11 .43 .30 .14
Dividends per common share, net ........ -- -- -- --
Book value per share ................... 1.55 1.46
</TABLE>
- ----------
(1) Per share data of Tellabs have been restated to reflect a two-for-one stock
split effective May 17, 1999.
(2) The pro forma combined net earnings per share for the three months in the
period ended April 2, 1999 and for each of the years ended January 1, 1999,
January 2, 1998, and December 27, 1996, respectively, illustrates the
results as if the merger had occurred on the first day of each fiscal
period. The pro forma combined per share data have been included for
illustrative purposes only and do not reflect any cost savings and other
synergies anticipated by Tellabs' management as a result of the merger. The
pro forma combined per share data are not necessarily indicative of the
results of operations or financial position that would have occurred had
the merger been consummated at the dates indicated, nor are they
necessarily indicative of future results of operations or financial
position of the merged companies.
9
<PAGE> 15
(3) For Tellabs, information is for the three months ended April 2, 1999 and
the fiscal years ended January 1, 1999, January 2, 1998, and December 27,
1996. For NetCore, information is for the three months ended March 28,
1999, and the fiscal years ended December 31, 1998, December 31, 1997, and
December 31, 1996.
COMPARATIVE MARKET PRICE DATA
Tellabs. Tellabs common stock is traded on the Nasdaq National Market under
the symbol "TLAB." Tellabs has never paid cash dividends and has no plans to do
so in the future. The following table presents certain historical trading and
dividend declaration information for Tellabs common stock.
<TABLE>
<CAPTION>
TELLABS
COMMON STOCK (1)
-----------------------
HIGH LOW
---------- ----------
<S> <C> <C>
FISCAL YEAR 1999
Third Quarter (through August 4, 1999) ........... $ 74 $ 58 3/8
Second Quarter ................................... 70 5/8 45 13/16
First Quarter .................................... 50 9/16 32 3/8
FISCAL YEAR 1998
Fourth Quarter ................................... $ 36 11/32 $ 15 11/16
Third Quarter .................................... 46 9/16 18
Second Quarter ................................... 37 5/16 30 5/16
First Quarter .................................... 34 3/4 22 1/4
FISCAL YEAR 1997
Fourth Quarter ................................... $ 29 29/32 $ 21 5/16
Third Quarter .................................... 32 1/2 25 1/4
Second Quarter ................................... 29 5/16 16 1/2
First Quarter .................................... 23 1/16 16
</TABLE>
- ------------------------
(1) The per share amounts have been restated to reflect a two-for-one stock
split effective on May 17, 1999.
On June 29, 1999, the last trading day prior to the public announcement of
the merger agreement, the last sale price of Tellabs common stock, as reported
by Nasdaq, was $69 3/8. On August 4, 1999, the last trading date prior to the
date of this proxy statement and prospectus, the last sale price of Tellabs
common stock, as reported by Nasdaq, was $58 15/16.
THE MARKET PRICE OF TELLABS COMMON STOCK FLUCTUATES AND YOU ARE ADVISED TO
OBTAIN CURRENT MARKET QUOTATIONS FOR TELLABS COMMON STOCK.
NetCore. Because there is no established trading market for shares of any
class of NetCore stock, information with respect to market prices of NetCore
stock and the equivalent per share market prices of Tellabs common stock have
been omitted.
10
<PAGE> 16
THE SPECIAL MEETING
GENERAL
This proxy statement and prospectus is being furnished in connection with
the solicitation of proxies by the Board of Directors of NetCore Systems, Inc.
for use at the special meeting of holders of NetCore common stock and NetCore
preferred stock. This proxy statement and prospectus, the attached Notice of
Stockholders' Meeting and the enclosed form of proxy are first being mailed to
stockholders of NetCore on or about August 6, 1999.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the NetCore special meeting, holders of NetCore common stock and
preferred stock will be asked to consider and vote on a proposal to approve and
adopt the merger agreement.
AFTER CAREFUL CONSIDERATION, THE NETCORE BOARD HAS UNANIMOUSLY DETERMINED
THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF NETCORE AND ITS
STOCKHOLDERS. THE NETCORE BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT
AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF NETCORE COMMON STOCK AND PREFERRED
STOCK VOTE TO APPROVE AND ADOPT IT AT THE SPECIAL MEETING.
RECORD DATE
The NetCore Board has fixed the close of business on August 5, 1999 as the
record date for the determination of the stockholders entitled to notice of and
to vote at the special meeting. As of the close of business on the record date,
there were outstanding 6,208,744 shares of NetCore common stock, 157,895 shares
of Series A Preferred Stock, 3,550,000 shares of Series B Preferred Stock,
4,728,571 shares of Series C Preferred Stock and 4,016,099 shares of Series D
Preferred Stock. No other voting securities of NetCore are outstanding. Each
holder of NetCore common stock is entitled to one vote for each share of NetCore
common stock held as of the record date and each holder of NetCore preferred
stock is entitled to one vote for each share of NetCore preferred stock held as
of the record date, with the exception of the holders of Series A preferred
stock, who are entitled to approximately 2.2 votes for each share of Series A
preferred stock held as of the record date.
As of the record date, the directors and executive officers of NetCore
beneficially owned approximately 4,056,052 (approximately 65%) of the
outstanding shares of NetCore common stock, none of the outstanding shares of
NetCore Series A preferred stock, 3,475,000 (approximately 98%) of the
outstanding shares of NetCore Series B preferred stock, 1,844,920 (approximately
39%) of the outstanding shares of NetCore Series C preferred stock and 2,608,849
(approximately 65%) of the outstanding shares of NetCore Series D preferred
stock. All of the directors and officers of NetCore have signed voting
agreements, without any additional consideration being paid to them, by which
they have agreed to vote all of their shares of NetCore common stock and
preferred stock in favor of approving and adopting the merger agreement.
QUORUM
The presence at the special meeting, in person or by proxy, of the holders
of the majority of shares of NetCore common stock and each series of preferred
stock, determined as separate classes, entitled to vote constitutes a quorum for
the transaction of business at the special meeting. Abstentions will be
considered present at the special meeting for the purpose of determining the
presence of a quorum. If a quorum should not be present, the special meeting may
be adjourned from time to time until a quorum is obtained.
REQUIRED VOTE
Assuming a quorum is present, the affirmative vote of the holders of a
majority of the outstanding shares of NetCore common stock and the affirmative
vote of the holders of a majority of the outstanding shares of each series of
NetCore preferred stock, voting as separate classes, is required to approve and
adopt the merger agreement.
As a condition of Tellabs' willingness to enter into the merger agreement,
certain stockholders of NetCore have entered into voting agreements, each dated
June 29, 1999, with Tellabs. Under the voting agreements, these stockholders
11
<PAGE> 17
have agreed, without any additional consideration being paid to them, to vote
all of the shares of NetCore common stock and preferred stock held by them in
favor of approving and adopting the merger agreement. As of the record date,
these stockholders beneficially held 4,059,898 (approximately 65%) of the
outstanding shares of NetCore common stock, 157,895 (100%) of the outstanding
shares of NetCore Series A preferred stock, 3,475,000 (approximately 98%) of the
outstanding shares of NetCore Series B preferred stock, 3,559,206 (approximately
75%) of the outstanding shares of NetCore Series C preferred stock, and
2,923,810 (approximately 73%) of the outstanding shares of NetCore Series D
preferred stock.
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE NETCORE STOCKHOLDERS IS
THEREFORE ASSURED. HOWEVER, BECAUSE THERE ARE OTHER CONDITIONS TO CLOSING THAT
HAVE NOT YET BEEN FULFILLED, CLOSING OF THE MERGER IS NOT ASSURED. ALSO, YOUR
VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
PROXIES
This proxy statement and prospectus is accompanied by a form of proxy to be
used at the NetCore special meeting. NetCore stockholders are requested to
complete, sign and date the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to NetCore.
Shares of NetCore common stock and preferred stock represented by properly
executed proxies will, unless revoked, be voted in accordance with the
instructions indicated or, if no instructions are indicated, will be voted for
approval and adoption of the merger agreement and in the best judgment of the
individuals named in the proxy on any other matters which may properly come
before the special meeting.
You may revoke any proxy you have given at any time prior to its being
voted by filing a notice of revocation or a duly executed proxy bearing a later
date with the Secretary of NetCore. You may also revoke your proxy by attending
the special meeting and voting in person.
You may abstain from voting by properly marking the "ABSTAIN" box on the
proposal you wish to abstain from. Your abstention will be counted as present
for the purpose of determining the existence of a quorum. Abstentions will have
the same effect as a vote against the approval and adoption of the merger
agreement.
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the NetCore Board. NetCore
will bear the cost of the solicitation of proxies from its stockholders in the
enclosed form. Tellabs and NetCore will share equally all expenses related to
printing, filing and mailing this proxy statement and prospectus and all the SEC
and other regulatory filing fees incurred in connection with this proxy
statement and prospectus. See "THE MERGER AGREEMENT--Expenses." In addition to
soliciting proxies by mail, officers, directors and employees of NetCore,
without receiving additional compensation, may solicit proxies by telephone, in
person or by other means.
12
<PAGE> 18
THE MERGER
BACKGROUND OF THE MERGER
In March 1998, Mr. Harvey Scull, Vice President of Global Planning and
Business Development of Tellabs, and Mr. Ashraf Dahod, President and Chief
Executive Officer of NetCore, held an initial meeting to discuss opportunities
for the two companies to work together. Over the next eight months, through
November 1998, several meetings occurred between executives of the two
companies. Initial discussions involved plans for an OEM relationship and
evolved over time to technology licensing, joint development opportunities and a
potential minority investment by Tellabs in NetCore in conjunction with
NetCore's pending private placement financing.
In October 1998, while discussing the proposed OEM arrangement, executives
of Tellabs suggested to Mr. Dahod that it may be appropriate for Tellabs to
consider acquiring NetCore. Shortly thereafter, executives from Tellabs
commenced a due diligence review of NetCore. NetCore had begun the
above-mentioned private placement financing in August 1998 with the investment
banking firm of BancBoston Robertson Stephens, Inc. acting as placement agent to
assist NetCore in raising those funds and structuring the private placement.
NetCore asked BancBoston Robertson Stephens to assist NetCore in assessing the
merger opportunity and in the negotiations with Tellabs. Over the next month
there were several meetings between executives from both companies, often
including representatives of BancBoston Robertson Stephens. In late November
1998, executives from Tellabs and NetCore determined that the parties would not
be able to agree on a price for the transaction and terminated all discussions,
including the OEM and other business discussions.
There were no formal discussions again between Tellabs and NetCore until
the SuperComm telecommunications industry conference in Atlanta, Georgia on June
9, 1999 when executives of the two companies met in NetCore's trade show booth
and provided each other with information on the status of their products.
Participants in that discussion included: from Tellabs, Mr. Michael Birck,
President and Chief Executive Officer, Mr. Harvey Scull and Mr. Wayne
Partington, Manager of Business Development; and from NetCore, Mr. Ashraf Dahod,
Mr. William Stuart, Vice President and Chief Financial Officer, and Ms. Alice
Barber, Vice President of Finance. NetCore executives held similar discussions
with executives of other telecommunications equipment companies at the SuperComm
conference.
On June 17, 1999, the senior management of Tellabs held a strategic
planning meeting to review the results of meetings held with several
telecommunications equipment companies at the SuperComm conference a week
earlier and to make some key decisions regarding product strategy.
On June 17, 1999, NetCore held a regularly scheduled Board of Directors
meeting. One of the items of discussion at the NetCore Board meeting was
NetCore's forthcoming round of financing. The NetCore Board determined that
NetCore should accelerate its efforts to take advantage of the interest
displayed by several institutional investors to invest in NetCore. In the
evening of June 17, 1999, Mr. Dahod received a telephone call from Mr. Birck
regarding exploring the possibility of a merger between Tellabs and NetCore. Mr.
Birck asked Mr. Dahod to telephone the next day with a price range within which
NetCore's Board would consider an acquisition offer.
The NetCore Board of Directors held a telephonic meeting in the evening of
June 17 and in the morning of June 18, 1999. Mr. Dahod reviewed with the Board
his conversation with Mr. Birck. There followed a discussion of valuation
issues, led by Mr. Dahod and Mr. Stuart, of alternative strategies such as an
initial public offering, and of likely alternative merger partners and the
potential outcomes, including valuation, of pursuing discussions with
alternative merger partners. The Board also considered the risks and
uncertainties associated with alternative strategies, the time required to
pursue those alternatives, and the resulting management distraction. Mr. Dahod
and Mr. Stuart reviewed with the Board publicly available information concerning
Tellabs, including financial information and information regarding the
telecommunications equipment industry. The Board also considered recent activity
in the stock market for the initial public offerings of telecommunications
equipment providers, the valuations of those and other similar companies and the
valuations resulting from recent merger activity among companies in the
industry. Mr. Dahod and Mr. Stuart reviewed with the Board the compatibility of
the operations of NetCore and Tellabs, including potential benefits of combining
sales and marketing and product development efforts and the compatibility of the
two companies' cultures. A discussion among the members of the NetCore Board
ensued regarding the appropriate response to Mr. Birck's proposal.
The Board concluded that NetCore management could not afford the
distraction of extensive merger discussions, especially during the following few
months, a critical phase in the development and deployment of NetCore's
13
<PAGE> 19
first product. Thus, the Board determined that any discussions with a potential
merger partner required a general understanding of a valuation for NetCore which
would be representative of the current public market environment, recent merger
activity and the alternatives available to NetCore. The Board also determined
that any potential merger partner must agree to commit the resources necessary
to ensure that the time required to complete negotiations and due diligence
would not be prolonged and potentially a distraction to management and
detrimental to NetCore and its long term prospects as an independent concern.
The Board determined that discussions should proceed and instructed Mr. Dahod
that he should contact Mr. Birck and advise him that in consideration of these
issues the Board would be likely to consider favorably an offer to acquire
NetCore at a valuation of $575 million.
In the afternoon of June 18, 1999, Mr. Dahod telephoned Mr. Birck and
advised him of the Board's decision. Mr. Birck informed Mr. Dahod that he would
need to review the price with Tellabs' senior management and Board of Directors
and that he would respond to him the following Monday, June 21, 1999. On the
afternoon of June 21, 1999, Mr. Birck telephoned Mr. Dahod and informed him
that, subject to due diligence and negotiation of a definitive agreement,
Tellabs would agree to acquire NetCore at a valuation of $575 million.
On June 21, 1999, Tellabs provided NetCore with a draft term sheet
outlining the proposed terms of a merger between the two companies.
On June 23, 1999, Tellabs provided NetCore with a draft merger agreement.
Commencing on that date, representatives of Tellabs and NetCore began
negotiating the terms of the draft merger agreement and related agreements and
continued their due diligence reviews. Tellabs was able to avail itself of much
of the due diligence work which had been done by their representatives during
the discussions between the two companies several months earlier, as noted
above. Employees and management of Tellabs also met with employees and
management of NetCore on June 24, 1999 and had several discussions over the next
few days in the course of their respective due diligence reviews.
On June 28, 1999, a telephonic meeting of the NetCore Board was held during
which Mr. Stuart reviewed with the Board the status of negotiations.
Representatives of Hale and Dorr LLP, NetCore's counsel, reported on the
substantive completion of the merger agreement, a draft of which had been
previously provided to members of the NetCore Board, and the resolution of
remaining issues regarding the merger agreement and related agreements.
On June 29, 1999, following completion of final negotiations of the Merger
Agreement, the NetCore Board held a telephonic meeting during which Mr. Stuart
and representatives of Hale and Dorr LLP reviewed the merger agreement and
related agreements. Following a discussion, the NetCore Board unanimously
concluded that the merger was fair to and in the best interests of NetCore and
its stockholders, approved the merger agreement and the related agreements with
Tellabs and authorized management to execute the merger agreement and related
agreements and recommended the approval of the merger agreement by the holders
of NetCore common and preferred stock. Following the meeting of the NetCore
Board and a meeting of the Tellabs Board, each of NetCore, Tellabs and the
Blackhawk Merger Corp. executed and delivered the merger agreement. The
execution of the merger agreement was announced on the morning of June 30, 1999
by issuance of a joint press release by Tellabs and NetCore.
REASONS FOR THE MERGER; RECOMMENDATION OF THE NETCORE BOARD OF DIRECTORS
The NetCore Board has unanimously determined that the terms of the merger
agreement and the merger are fair to, and in the best interests of, NetCore and
the NetCore stockholders. Accordingly, the NetCore Board has unanimously
approved the merger agreement and unanimously recommends that the NetCore
stockholders vote for the approval and adoption of the merger agreement. Some
members of the NetCore Board of Directors may be deemed to have a conflict of
interest in recommending stockholder approval of the merger. See "-- Interests
of Certain Persons in the Merger; Conflicts of Interest."
The NetCore Board believes that the merger will be beneficial to NetCore
and that its stockholders should vote FOR the merger for the following reasons:
- The merger should permit NetCore to utilize Tellabs' research and
development capabilities and resources in developing its products, and
should thereby enhance NetCore's ability to compete more effectively
against larger competitors;
14
<PAGE> 20
- NetCore's products and technology complement those of Tellabs.
NetCore's technology will be used to enhance the capabilities of
existing and future Tellabs products. Existing customers of Tellabs
are some of the most likely prospects for NetCore products;
- The addition of Tellabs' sales and marketing resources, including its
geographically more expansive distribution channel, and its
established relationships with potential customers should increase
NetCore's ability to market and sell its products; and
- The consideration to be paid to NetCore stockholders in the merger
will be shares of Tellabs common stock. Tellabs common stock is
publicly traded on the Nasdaq National Market and is more readily
marketable than shares of NetCore stock, which are not publicly
traded.
In the course of its deliberations during meetings held on June 17, 18, 28
and 29, 1999, the NetCore Board reviewed with NetCore management and NetCore's
legal advisor additional factors that the NetCore Board deemed relevant to the
merger, including the following:
- the strategic importance to NetCore of the proposed merger;
- the consideration to be received by NetCore stockholders in the
merger;
- information concerning NetCore's and Tellabs' respective businesses,
prospects, strategic business plans, financial performance and
condition, results of operations, technology positions, management and
competitive positions;
- NetCore management's view as to the financial condition, results of
operations and business of NetCore before and after giving effect to
the merger;
- NetCore management's view as to the prospects of NetCore's continuing
as an independent company;
- NetCore management's view as to NetCore's ability to gain access to
the necessary capital to meet its strategic business goals in both the
near-term and long-term and the relative costs associated with
obtaining the capital;
- the risks and uncertainties of pursuing an initial public offering of
NetCore common stock;
- current financial conditions and historical market prices, volatility
and trading information with respect to Tellabs common stock;
- NetCore management's view as to the effect of the merger on the core
business of NetCore, including its research and development efforts,
potential synergy of Tellabs' technologies with NetCore's
technologies, the breadth of Tellabs' product offerings and sales and
marketing infrastructure;
- the impact of the merger on NetCore's employees and current and
prospective customers; and
- the compatibility of the management of NetCore and Tellabs.
During the course of its deliberations concerning the merger, the NetCore Board
also identified and considered a variety of potentially negative factors that
could materialize as a result of the merger, including the following:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be consummated and the
effect of the public announcement of the merger on NetCore's employees
and current and prospective customers;
- the risks associated with obtaining the necessary approvals required
to complete the merger; and
15
<PAGE> 21
- the effects of the diversion of management resources necessary to
respond to due diligence inquiries, the negotiation and consummation
of the merger, the preparation of this proxy statement and prospectus
and the integration of the two companies.
In view of the wide variety of factors considered by the NetCore Board, the
directors did not find it practical to, and did not, quantify or otherwise
assign relative weights to the specific factors discussed above.
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the Board of Directors of NetCore with
respect to the merger, stockholders of NetCore should be aware that certain
members of NetCore's management and Board have certain interests in the merger
in addition to the interests of the NetCore stockholders generally. In
connection with the Board of Directors' determination that the merger is fair to
the stockholders of NetCore, the NetCore Board was aware of these potential
conflicts and carefully considered conflict of interest issues relating to the
matters discussed below.
Edward Anderson is a current member of the NetCore Board and is also a
general partner of North Bridge Venture Partners, which beneficially owns
1,500,000 shares of Series B preferred stock, 702,063 shares of Series C
preferred stock and 265,057 shares of Series D preferred stock of NetCore.
Andrew Marcuvitz is a current member of the NetCore Board and is also a
general partner of Matrix Partners, which beneficially owns 1,975,000 shares of
Series B preferred stock, 1,142,857 shares of Series C preferred stock, and
375,288 shares of Series D preferred stock of NetCore.
Stephen Diamond is a current member of the NetCore Board and is also a
principal of DLJ Capital Corp., DLJ ESC II, L.P., Sprout Capital VIII, L.P., and
Sprout Venture Capital, L.P., which together beneficially own 1,968,504 shares
of Series D preferred stock.
NetCore has entered into either or both a stock restriction agreement or a
stock option agreement with the following executive officers and directors:
Ashraf M. Dahod, Kwabena D. Akufo, Jane R. Brandt, John M. Shaw, Mark T.
Terenzoni, William J. Stuart and Hassan M. Ahmed. Under the terms of the stock
restriction agreement, any unvested shares of NetCore common stock held by these
individuals are subject to repurchase by NetCore in the event that the
individual's employment or directorship is terminated. Under the stock option
agreements, any unvested shares are subject to forfeiture in the event the
individual's employment or directorship is terminated. Upon the consummation of
a merger or an acquisition, including the consummation of the merger
contemplated by the merger agreement, each individual's vesting schedule, for
either restricted stock or options to purchase common stock, will be accelerated
by 18 months. Options to purchase 75,000 shares of NetCore common stock held by
these executive officers will accelerate as a result of the merger. These
executive officers and director beneficially own an aggregate of 4,056,052
shares of NetCore common stock and 107,500 options to purchase common stock
exercisable within 60 days of June 28, 1999.
Employees and independent contractors who receive certain payments in the
nature of compensation by reason of the merger, including the value of the
acceleration of the vesting of options and restricted stock, may be subject to a
20% excise tax on the value of such payments in excess of a threshold amount
based upon the recipient's five-year average compensation from NetCore. In this
case, NetCore would not be entitled to a federal income tax deduction with
respect to such excess.
OPINION OF BANCBOSTON ROBERTSON STEPHENS
On July 11, 1999, BancBoston Robertson Stephens, Inc. delivered its written
opinion to the NetCore Board that, as of such date and based on and subject to
the assumptions made, matters considered and limitations on the review set forth
therein, $575 million in implied equity value (regardless of the trading price
of Tellabs Common Stock at any time) was fair to the NetCore Holders, taken as a
whole, from a financial point of view. As used here, the term "NetCore Holders"
means stockholders of NetCore other than Tellabs, Blackhawk, any of their
affiliates or any holders of NetCore common stock or preferred stock who are
officers or directors (or who have representatives serving as directors) of
NetCore. No limitations were imposed by the NetCore Board on BancBoston
Robertson Stephens with respect to the investigations made or procedures
followed by it in furnishing its opinion. The amount of the total consideration
to be received by NetCore stockholders as a result of the merger was determined
through negotiations between the managements of NetCore and Tellabs. BancBoston
Robertson Stephens was not involved in such negotiations, and it
16
<PAGE> 22
was not asked by, and did not recommend to, NetCore that any specific purchase
price constituted the appropriate consideration for the merger. BancBoston
Robertson Stephens was not requested to, and did not, solicit third parties
regarding alternatives to the merger.
The full text of the BancBoston Robertson Stephens Opinion, which sets
forth, among other things, assumptions made, matters considered and limitations
on the review undertaken, is attached to this proxy statement and prospectus as
Annex B. Stockholders of NetCore are urged to read the BancBoston Robertson
Stephens Opinion in its entirety. The BancBoston Robertson Stephens Opinion was
prepared at the request and for the use of the NetCore Board in its
consideration of the merger and does not constitute a recommendation to
stockholders of NetCore as to how they should vote upon or take any other action
with respect to the merger. The BancBoston Robertson Stephens Opinion is limited
to the fairness, from a financial point of view and as of the date thereof, to
the NetCore Holders, taken as a whole, of the $575 million in implied equity
value. The BancBoston Robertson Stephens Opinion does not address
- the value of any employee agreements or other arrangements entered
into in connection with the merger; or
- any tax or other consequences that might result from the merger.
BancBoston Robertson Stephens' opinion does not address the relative merits of
the merger and any other business strategies that the NetCore Board has
considered or may be considering or the decision of the NetCore Board to proceed
with the merger. BancBoston Robertson Stephens' opinion as to fairness, from a
financial point of view, of the $575 million in implied equity value does not
take into account the particular tax status or position of any stockholder of
NetCore. The summary of BancBoston Robertson Stephens' opinion set forth in this
proxy statement is a summary of the material provisions of BancBoston Robertson
Stephens' opinion and is qualified in its entirety by reference to the full text
of BancBoston Robertson Stephens' opinion attached hereto as Annex B.
In connection with the preparation of BancBoston Robertson Stephens'
opinion, BancBoston Robertson Stephens, among other things:
- reviewed certain internal financial statements and other financial and
operating data concerning NetCore, prepared by the management of
NetCore;
- reviewed certain financial forecasts and other forward looking
financial information prepared by the management of NetCore;
- held discussions with the management of NetCore concerning the
businesses, past and current operations, financial condition and
future prospects of NetCore;
- compared the financial performance of NetCore with that of certain
other publicly traded companies comparable with NetCore;
- compared the financial terms of the merger with the financial terms,
to the extent publicly available, of other transactions that
BancBoston Robertson Stephens deemed relevant;
- prepared a discounted cash flow analysis of NetCore; and
- made such other studies and inquiries, and reviewed such other data,
as BancBoston Robertson Stephens deemed relevant.
In connection with its review and analysis and in rendering the BancBoston
Robertson Stephens Opinion, BancBoston Robertson Stephens assumed and relied
upon the accuracy and completeness of all of the financial and other information
provided to it or publicly available and neither attempted independently to
verify nor assumed responsibility for verifying any of such information.
BancBoston Robertson Stephens relied upon the assurances of the management of
NetCore that they were not aware of any facts that would make such information
inaccurate or misleading. Furthermore, BancBoston Robertson Stephens did not
obtain or make, or assume any responsibility for obtaining or making, any
independent evaluation or appraisal of the properties or assets and liabilities
(contingent or otherwise) of NetCore, nor was BancBoston Robertson Stephens
furnished with any such evaluations or appraisals. With respect to the
historical financial and operating analyses and financial forecasts (and the
assumptions and bases therefor, including synergies related to the merger) for
NetCore which it reviewed, upon the advice of NetCore, BancBoston Robertson
Stephens assumed that such forecasts have been reasonably prepared in good faith
on the basis of reasonable assumptions and reflect the best currently available
estimates and judgments of NetCore as to the future financial condition and
performance of NetCore and that such forecasts will be realized in the amounts
and in the time periods currently estimated by the management of NetCore. In
this regard, BancBoston Robertson Stephens noted that NetCore faces
17
<PAGE> 23
exposure to the Year 2000 problem and is currently undergoing Year 2000
projects. BancBoston Robertson Stephens did not undertake any independent
analysis to evaluate the reliability or accuracy of the assumptions made by the
management of NetCore with respect to the potential effect that the Year 2000
problem might have on its forecast. Further, BancBoston Robertson Stephens
assumed that the historical financial statements of NetCore reviewed by it have
been prepared and fairly presented in accordance with generally accepted
accounting principles consistently applied. BancBoston Robertson Stephens
assumed that the merger will be consummated upon the terms set forth in the
merger agreement without material alteration. BancBoston Robertson Stephens
relied as to all legal matters relevant to rendering its opinion on the advice
of counsel.
BancBoston Robertson Stephens' opinion is necessarily based upon financial,
market, economic and other conditions that exist on, and the information made
available to BancBoston Robertson Stephens as of, the date of such opinion. It
should be understood that subsequent developments may affect the conclusion
expressed in BancBoston Robertson Stephens' opinion and that BancBoston
Robertson Stephens disclaims any undertaking or obligation to advise any person
of any change in any fact or matter affecting BancBoston Robertson Stephens'
opinion which may come or be brought to BancBoston Robertson Stephens' attention
after the date of such opinion.
The following paragraphs summarize the material analyses performed by
BancBoston Robertson Stephens in arriving at its opinion, but do not purport to
be a complete description of the analyses performed by BancBoston Robertson
Stephens. These summaries of analyses include information presented in tabular
format. In order to fully understand the analyses used by BancBoston Robertson
Stephens, the tables must be read together with the text of each summary. The
tables alone do not constitute a complete description of the analyses. All
analyses were based on publicly available information, including consensus
research analyst estimates and future operating results.
Comparable company analysis. BancBoston Robertson Stephens analyzed, among
other things, the market values plus net debt and trading multiples of the
following selected publicly traded companies in the communications equipment
industry:
- Cisco Systems
- Newbridge Networks
- Juniper Networks
- Ciena
- Vitesse
- MMC Networks
- PMC-Sierra
- Uniphase
- Applied Micro Circuits
- Tekelec
Multiples compared by BancBoston Robertson Stephens included market value
plus net debt to estimated net revenues for calendar 1999 and 2000. All
multiples were based on closing stock prices as of June 29, 1999. As set forth
in the following table, applying these multiples for these companies to
corresponding financial data for NetCore resulted in the following ranges of
implied equity value.
<TABLE>
<CAPTION>
Calendar Year Range of Implied Equity Values
------------- ------------------------------
<S> <C>
1999 Revenues $202 million - $264 million
2000 Revenues $347 million - $566 million
</TABLE>
BancBoston Robertson Stephens also analyzed these multiples and similar
trading multiples of NetCore and these companies for similar periods applying
acquisition premiums to the multiples ranging from 25% to 40%. As set forth in
the following table, applying these multiples, adjusted for acquisition
premiums, for these companies to corresponding financial data for NetCore
resulted in the following ranges of implied equity value.
<TABLE>
<CAPTION>
Calendar Year Range of Implied Equity Values
------------- ------------------------------
<S> <C>
1999 Revenues $253 million - $369 million
2000 Revenues $434 million - $793 million
</TABLE>
18
<PAGE> 24
Precedent transaction analysis. BancBoston Robertson Stephens analyzed the
aggregate value and implied transaction value multiples paid or proposed to be
paid in selected merger or acquisition transactions in the communications
equipment industry. BancBoston Robertson Stephens compared, among other things,
the aggregate value in these transactions as a multiple of the estimated next
twelve months revenues and number of employees. As set forth in the following
table, applying a range of multiples for these transactions to corresponding
data for NetCore resulted in the following ranges of implied equity value.
<TABLE>
<CAPTION>
Parameter Range of Implied Equity Values
--------- ------------------------------
<S> <C>
Next twelve months' revenues $187 million - $374 million
Employees $401 million - $673 million
</TABLE>
All multiples for the Comparable Companies, the Comparable Transactions and
the Selected Transactions were based on publicly available consensus research
analyst estimates available at the time of the announcement of such
transactions, without taking into account differing market and other conditions
during the period in which the Comparable Companies, the Comparable Transactions
and the Selected Transactions occurred. No company, transaction or business used
in the Comparable Company Analysis or the Precedent Transaction Analysis as a
comparison is identical to NetCore, Tellabs or the merger. Accordingly, an
analysis of the results of the foregoing is not entirely mathematical; rather it
involves complex considerations and judgments concerning differences in
financial and operating characteristics and other factors that could affect the
acquisition, public trading and other values of the Comparable Companies, the
Comparable Transactions or the business segment, company or transactions to
which they are being compared.
Discounted cash flow analysis. BancBoston Robertson Stephens performed a
discounted cash flow analysis of the unlevered (before interest expense)
after-tax cash flows of NetCore based on NetCore management estimates for the
fiscal years 1999 through 2004. In conducting its analysis, BancBoston Robertson
Stephens:
- discounted the estimated, unlevered after-tax cash flows through
December 31, 2004 using a range of discounts from 20% to 30%.
NetCore's unlevered after-tax cash flows were calculated as the
after-tax operating earnings of NetCore adjusted to add back non-cash
expenses and deduct uses of cash not reflected in the income
statement.
- added to the present value of the cash flows the terminal value of
NetCore in the fiscal year ending December 31, 2004, discounted back
at the same range of discount rates. The terminal value was computed
by multiplying NetCore's projected earnings before interest and taxes
in fiscal 2004 by terminal multiples ranging from 16x to 20x.
The discounted cash flow valuation resulted in an implied equity value range of
$411 million to $699 million.
While the foregoing summary describes the material analyses and factors
that BancBoston Robertson Stephens considered in rendering its opinion to the
NetCore Board, it is not a complete description of all analyses and factors
considered by BancBoston Robertson Stephens. The preparation of a fairness
opinion is a complex process that involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to partial analysis or summary description. In arriving
at its opinion, BancBoston Robertson Stephens did not attribute any particular
weight to any analysis or factor considered by it, but rather made qualitative
judgments as to the significance and relevance of each analysis and factor.
Accordingly, BancBoston Robertson Stephens believes that its analyses must be
considered as a whole and that selecting portions of its analyses and of the
factors considered by it, without considering all analyses and factors, could
create a misleading or incomplete view of the evaluation process underlying its
opinion. Several analytical methodologies were employed and no one method of
analysis should be regarded as critical to the overall conclusion reached by
BancBoston Robertson Stephens. Each analytical technique has inherent strengths
and weaknesses, and the nature of the available information may further affect
the value of particular techniques. The conclusion reached by BancBoston
Robertson Stephens is based on all analyses and factors taken as a whole and
also on application of BancBoston Robertson Stephens' own experience and
judgment. Such conclusion may involve significant elements of subjective
judgment and qualitative analysis. BancBoston Robertson Stephens therefore gives
no opinion as to the value or merit standing alone of any one or more parts of
the analysis it performed. In performing its analyses, BancBoston Robertson
Stephens made numerous assumptions with respect to industry performance, general
business and other conditions and matters many of which are beyond the control
of NetCore or BancBoston Robertson Stephens. Any
19
<PAGE> 25
estimates contained in these analyses are not necessarily indicative of actual
values or predicative of future results or values, which may be significantly
more or less favorable than those suggested by such analyses. Accordingly,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the prices at which such businesses actually may be sold in the
future, and such estimates are inherently subject to uncertainty.
NetCore engaged BancBoston Robertson Stephens pursuant to a letter
agreement dated June 29, 1999. The agreement provides that, for its services,
BancBoston Robertson Stephens is entitled to receive a fee equal to $600,000
upon delivery of its opinion. NetCore has also agreed to reimburse BancBoston
Robertson Stephens for its out-of-pocket expenses and to indemnify and hold
harmless BancBoston Robertson Stephens and its affiliates and any other person,
director, employee or agent of BancBoston Robertson Stephens or any of its
affiliates, or any person controlling BancBoston Robertson Stephens or its
affiliates, for certain losses, claims, damages, expenses and liabilities
relating to or arising out of services provided by BancBoston Robertson Stephens
as financial advisor to NetCore. The terms of the fee arrangement with
BancBoston Robertson Stephens, which NetCore and BancBoston Robertson Stephens
believe are customary in transactions of this nature, were negotiated at arm's
length between NetCore and BancBoston Robertson Stephens, and the NetCore Board
was aware of such fee arrangements. In the past, BancBoston Robertson Stephens
has provided investment banking services to NetCore for which it has been paid
fees, including acting as placement agent for the series D preferred stock
offering. Certain employees of BancBoston Robertson Stephens own capital stock
of NetCore, including certain employees of BancBoston Robertson Stephens who
have provided advisory services to NetCore in connection with the merger.
BancBoston Robertson Stephens was retained based on BancBoston Robertson
Stephens' experience as a financial advisor in connection with mergers and
acquisitions and in securities valuations generally, as well as BancBoston
Robertson Stephens' investment banking relationship and familiarity with
NetCore. BancBoston Robertson Stephens may, from time to time, trade in the
securities of Tellabs for its own account and for the account of its customers
and, accordingly, may at any time hold a long or short position in such
securities.
BancBoston Robertson Stephens is a nationally recognized investment banking
firm. As part of its investment banking business, BancBoston Robertson Stephens
is frequently engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, secondary
distributions of securities, private placements and other purposes.
FORM OF THE MERGER
If the holders of NetCore common stock and preferred stock approve and
adopt the merger agreement and all other conditions to the merger are satisfied
or waived, Blackhawk will be merged with and into NetCore. NetCore will be the
surviving corporation after the merger and will become a wholly-owned subsidiary
of Tellabs. Tellabs and NetCore anticipate that the merger will occur as
promptly as practicable after the special meeting, with the filing of a
Certificate of Merger with the Delaware Secretary of State.
MERGER CONSIDERATION
The merger agreement provides that, upon consummation of the merger, as
consideration for the merger, each share of NetCore common stock and preferred
stock (other than shares owned by NetCore or its wholly-owned subsidiaries or by
Tellabs, which will be canceled, or any shares for which appraisal rights have
been validly asserted) will be converted into shares of Tellabs common stock
according to the following formulas:
(a) For each share of NetCore common stock, a fraction of a share of
Tellabs common stock equal to
(i) $575,000,000 minus the Liquidation Preference (as defined below),
divided by:
The number of shares of NetCore common stock outstanding, on a
fully diluted basis, assuming the exercise of all outstanding
NetCore stock options and the conversion of all shares of NetCore
Series A preferred stock into shares of NetCore common stock
- The "Liquidation Preference" is calculated pursuant to the
following formula:
- the number of shares of NetCore Series B preferred
stock outstanding multiplied by $5; plus
- the number of shares of NetCore Series C preferred
stock outstanding multiplied by $7; plus
20
<PAGE> 26
- the number of shares of NetCore Series D preferred
stock outstanding multiplied by $15.24.
divided by:
(ii) the average Tellabs share price (as defined below).
- The "average Tellabs share price" will be the average of the
last sale price per share of Tellabs common stock, as
reported by Nasdaq, for the 15 trading days preceding the
three trading days prior to the date on which the merger
occurs. The merger agreement specifies that the average
Tellabs share price may not be less than $52.80 or exceed
$79.20.
(b) For each share of NetCore Series A preferred stock, the fraction of a
share of Tellabs common stock receivable in exchange for each share of
NetCore common stock resulting from the conversion of such share of
Series A preferred stock into NetCore common stock, at a conversion
ratio of approximately 2.2 shares of NetCore common stock for each
share of NetCore Series A preferred stock.
(c) For each share of NetCore Series B preferred stock, the fraction of a
share of Tellabs common stock equal to $5 divided by the average
Tellabs share price.
(d) For each share of NetCore Series C preferred stock, the fraction of a
share of Tellabs common stock equal to $7 divided by the average
Tellabs share price.
(e) For each share of NetCore Series D preferred stock, the fraction of a
share of Tellabs common stock equal to $15.24 divided by the average
Tellabs share price.
The merger consideration is generally intended to provide shares of Tellabs
common stock with an aggregate value of $575 million, based upon the average
Tellabs share price and the number of outstanding shares of NetCore common stock
and preferred stock to be exchanged in the merger. Therefore, a higher average
Tellabs share price would result in fewer shares of Tellabs common stock
constituting the merger consideration, and a lower average Tellabs share price
would result in more shares of Tellabs common stock constituting the merger
consideration. Furthermore, a greater number of shares of NetCore stock to be
exchanged in the merger will result in a lower exchange ratio and a lesser
number of shares of NetCore stock to be exchanged in the merger will result in a
greater exchange ratio.
For example, if the average Tellabs share price were equal to $66 per
share, the aggregate merger consideration would be equal to 8,712,121 shares of
Tellabs common stock. If the aggregate merger consideration is equal to
8,712,121 shares of Tellabs common stock and the total number of shares of
NetCore common stock to be exchanged in the merger is 19,923,439, assuming the
exercise of all outstanding NetCore options and the conversion of all shares of
NetCore preferred stock into shares of NetCore common stock prior to the merger,
then the exchange ratio will be 0.43727 shares of Tellabs common stock for each
share of NetCore common stock, plus cash in lieu of fractional shares. An
average Tellabs share price greater than $66 would result in fewer than
8,712,121 shares of Tellabs common stock constituting the aggregate merger
consideration and an average Tellabs share price less than $66 would result in
more than 8,712,121 shares of Tellabs common stock constituting the aggregate
merger consideration. If the aggregate number of shares of NetCore common stock
to be exchanged in the merger is greater than 19,923,439, the exchange ratio in
the merger will be less than 0.43727 shares of Tellabs common stock for each
share of NetCore common stock. If the aggregate number of shares of NetCore
common stock to be exchanged in the merger is less than 19,923,439, the exchange
ratio in the merger will be greater than 0.43727 shares of Tellabs common stock
for each share of NetCore common stock.
Tellabs and NetCore expect that the holders of NetCore preferred stock will
convert all of their shares of NetCore preferred stock into shares of NetCore
common stock prior to the merger.
The merger agreement provides that the period for determining the average
Tellabs share price will end before the trading day which is three days prior to
the merger closing date, and therefore the number of shares of Tellabs common
stock constituting the merger consideration will be fixed at that time. The
market price of Tellabs common stock is expected to fluctuate with the
performance of Tellabs and general market conditions during the three-day period
21
<PAGE> 27
between the end of the period for determining the average Tellabs share price
and the merger closing date. In addition, the average Tellabs sales price may
not be higher than the maximum or lower than the minimum amounts provided for in
the merger agreement. Thus, the last sale price of Tellabs common stock on the
closing date may be higher or lower than the average Tellabs share price.
If the special meeting occurs prior to the end of the period for
determining the average Tellabs share price, the precise number of shares of
Tellabs common stock constituting the merger consideration will not be known at
the time the vote on the approval and adoption of the merger agreement is held.
You may call, toll-free, (877) 694-9528 for information concerning the estimated
number of shares of Tellabs common stock that will be issued in exchange for
each share of NetCore stock.
If between the date of the merger agreement and the effective time of the
merger Tellabs changes the outstanding shares of Tellabs common stock 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 merger agreement provides that the merger consideration
paid to NetCore stockholders will be correspondingly adjusted to the extent
appropriate to reflect these changes. In lieu of fractional shares of Tellabs
common stock, Tellabs will pay to each holder who would otherwise be entitled to
receive a fractional share an amount in cash equal to the product of (i) the
last reported sale price per share of Tellabs common stock, as reported by
Nasdaq, on the date of the effective time of the merger, and (ii) the fractional
share interest to which such holder would otherwise be entitled.
ESCROW
Under the merger agreement, Tellabs and its affiliates will be indemnified
against losses and expenses incurred as a result of:
- any failure of NetCore to perform or comply with any covenant
contained in the merger agreement; and
- any inaccuracy of a representation or breach of a warranty of NetCore
contained in Article III of the merger agreement or in a certificate
of NetCore delivered pursuant to Article VI of the merger agreement.
With respect to inaccuracies of certain representations or breaches of
certain warranties of NetCore, NetCore will indemnify Tellabs and its
subsidiaries only in the event that the aggregate losses and expenses borne by
Tellabs and its subsidiaries with respect to such inaccuracies and breaches
exceeds $500,000 and only to the extent of such excess.
Indemnity Fund. Tellabs and its affiliates will be indemnified from an
indemnity fund. The indemnity fund will be governed by an indemnity agreement.
The indemnity agreement is attached to this proxy statement and prospectus
substantially in the form of Annex D. The stockholders will have no right of
contribution from NetCore with respect to any losses or expenses claimed by
Tellabs after the closing date. Nothing in the merger agreement limits the
liability of NetCore for any breach of any representation, warranty or covenant
if the merger is not consummated.
Upon the surrender of a properly executed certificate representing shares
of NetCore common stock or preferred stock to the exchange agent, 10% of the
number of whole shares of Tellabs common stock into which such shares of NetCore
common stock or preferred stock are convertible will be delivered to Harris
Trust and Savings Bank, or its successor, as the indemnity agent and will
comprise the indemnity fund. Any additional shares of Tellabs common stock
resulting from a stock split affecting the Tellabs common stock in the indemnity
fund will remain a part of the indemnity fund. All dividends or distributions,
other than stock splits, will be distributed to the NetCore stockholders in
accordance with the indemnity agreement. Under the indemnity agreement, the
stockholders may, under certain circumstances, sell the shares of Tellabs common
stock credited to them in the indemnity fund, but the proceeds of the sale must
be maintained in the indemnity fund until it expires.
Stockholder Representatives. The merger agreement establishes Ashraf M.
Dahod and William J. Stuart as the initial stockholder representatives. The
stockholder representatives are appointed to act as the agents of the
stockholders whose shares of Tellabs common stock are held in the indemnity fund
to take certain actions relating to the indemnity fund. The actions of the
stockholder representatives will be considered the binding actions of the
stockholders whose shares of Tellabs common stock are held in the indemnity
fund. The holders of a majority in interest of the shares of
22
<PAGE> 28
Tellabs common stock held in the indemnity fund may change the stockholder
representatives on ten days' prior written notice to Tellabs.
Maximum Payments and Remedies. Following the merger, the amount held in the
indemnity fund will provide the sole and exclusive remedy for any and all
damages Tellabs may suffer as the result of any breach of the merger agreement
or any claim of misrepresentation against NetCore in connection with the merger
agreement or the merger.
PROCEDURES FOR EXCHANGE OF NETCORE COMMON AND PREFERRED STOCK CERTIFICATES
Tellabs will authorize a commercial bank to act as exchange agent. As soon
as practicable after the effective time of the merger, Tellabs will deposit with
the exchange agent, into an exchange fund, for the benefit of holders of issued
and outstanding shares of NetCore common stock and preferred stock, certificates
representing the shares of Tellabs common stock issuable as a result of the
merger and cash required to make payments in lieu of fractional shares.
As soon as reasonably practicable after the effective time of the merger,
the exchange agent will mail a letter of transmittal, together with exchange
instructions, to the holders of record of NetCore common stock and preferred
stock. After receiving the letter of transmittal the NetCore stockholders will
be able to surrender their certificates to the exchange agent, and will receive
in exchange a certificate representing the number of whole shares of Tellabs
common stock (and cash in lieu of any fractional shares) to which they are
entitled, less any amounts distributed to the indemnity agent for deposit into
the indemnity fund. The letter of transmittal will be accompanied by
instructions specifying other details of the exchange. NETCORE STOCKHOLDERS
SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY RECEIVE A LETTER OF
TRANSMITTAL.
After the effective time of the merger and until surrendered, each
certificate representing shares of NetCore common stock or preferred stock will
represent only the right to receive upon surrender a certificate representing
shares of Tellabs common stock and cash in lieu of fractional shares. No
dividends or other distributions declared or made on Tellabs common stock with a
record date after the effective time will be paid to the holder of any
unsurrendered NetCore stock certificate and no cash payment in lieu of
fractional shares will be paid, until the holder of record surrenders his
NetCore stock certificate. Subject to the effect of applicable laws, after a
NetCore stockholder surrenders his NetCore stock certificate, he will be paid,
without interest, (i) at the time of surrender, the amount of any cash payable
in lieu of fractional shares of Tellabs common stock to which he is entitled and
the amount of dividends or other distributions with a record date after the
effective time of the merger previously paid with respect to whole shares of his
Tellabs common stock, and (ii) at the appropriate payment date, the amount of
dividends or other distributions with a record date after the effective time of
the merger but prior to surrender and with a payment date after surrender
payable with respect to whole shares of his Tellabs common stock.
Tellabs and the exchange agent are entitled to deduct and withhold from the
consideration otherwise payable such amounts as they are required to deduct and
withhold under the Internal Revenue Code of 1986 or any provision of state,
local or foreign tax law. Tellabs and NetCore will treat any amounts so withheld
as having been paid to the person in respect of whom such deduction and
withholding was made.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Generally
The following discussion summarizes the material United States federal
income tax consequences of the merger. The discussion that follows is based on
and subject to the Internal Revenue Code, Treasury Regulations under the
Internal Revenue Code, existing administrative interpretations and court
decisions as of the date of this proxy statement and prospectus, all of which
are subject to change (possibly with retroactive effect) and all of which are
subject to differing interpretation. The following discussion does not address
the effects of the merger under any state, local or foreign tax laws.
The tax treatment of a NetCore stockholder may vary depending upon the
stockholder's particular situation, and certain NetCore stockholders (including
insurance companies, tax exempt organizations, financial institutions,
broker-dealers, persons who do not hold NetCore stock as capital assets,
employees of NetCore, and individuals who hold NetCore stock as part of a
straddle or conversion transaction) may be subject to special rules not
discussed below. Each NetCore stockholder is urged to consult its tax advisor
with respect to the specific tax consequences of the merger,
23
<PAGE> 29
including the effect of United States federal, state and local, and foreign and
other tax rules, and the effect of possible changes in tax laws.
It is a condition to the obligation of Tellabs to effect the merger that
Tellabs receive an opinion from its counsel, Sidley & Austin, and it is a
condition to the obligation of NetCore to effect the merger that NetCore receive
an opinion from its counsel, Hale and Dorr LLP, in each case to the effect that
the merger constitutes a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code for federal income tax purposes, and in each case to
the following effect:
Tax Consequences to Tellabs, Blackhawk and NetCore. For federal income
tax purposes, no gain or loss will be recognized by Tellabs, Blackhawk or
NetCore as a result of the merger.
Tax Consequences to NetCore Stockholders. For federal income tax
purposes, (i) no gain or loss will be recognized by the stockholders of
NetCore upon the conversion of their shares of NetCore stock into shares of
Tellabs common stock pursuant to the merger, except with respect to cash,
if any, received in lieu of fractional shares of Tellabs common stock, (ii)
the aggregate tax basis of the shares of Tellabs common stock received in
exchange for shares of NetCore stock pursuant to the merger (including a
fractional share of Tellabs common stock for which cash is received) will
be the same as the aggregate tax basis of such shares of NetCore stock,
(iii) the holding period for shares of Tellabs common stock received in
exchange for shares of NetCore stock will include the holder's holding
period for such shares of NetCore stock, provided such shares of NetCore
stock were held as capital assets by the holder at the effective time of
the merger, and (iv) a stockholder of NetCore who receives cash in lieu of
a fractional share of Tellabs common stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in the
fractional share (determined under clause (ii) above) and the amount of
cash received.
The opinions described above may not apply to individuals who received
NetCore stock as compensation or to stockholders who, for United States federal
income tax purposes, are nonresident aliens, foreign corporations, foreign
partnerships, foreign trusts or foreign estates.
Moreover, the opinions described above will be based on certain
assumptions, and both Sidley & Austin and Hale and Dorr LLP will receive and
rely upon representations, unverified by counsel, contained in certificates of
Tellabs, NetCore and possibly others. The inaccuracy of any of those assumptions
or representations might jeopardize the validity of the opinions rendered. Those
opinions will neither bind the Internal Revenue Service nor preclude the
Internal Revenue Service from adopting positions contrary to those expressed
above, and no assurance can be given that contrary positions will not be
asserted successfully by the Internal Revenue Service or adopted by a court if
the issues are litigated. Neither Tellabs nor NetCore intends to obtain a ruling
from the Internal Revenue Service with respect to the tax consequences of the
merger.
Taxation of Escrowed Shares
Under the merger agreement, each NetCore stockholder (other than a
stockholder validly asserting appraisal rights) will receive outright, upon
surrender of its shares of NetCore stock, shares of Tellabs common stock equal
to approximately 90% of the number of whole shares of Tellabs common stock into
which the shares of NetCore stock surrendered by the stockholder are to be
converted (and cash received in lieu of fractional shares of Tellabs common
stock). The remaining 10% of the number of whole shares of Tellabs stock into
which the shares of NetCore stock are to be converted (and cash received in lieu
of a fractional share of Tellabs stock) will be placed in escrow as security for
indemnification obligations incurred by the NetCore stockholders pursuant to the
merger agreement. Each NetCore stockholder will be credited with the number of
shares (and the amount of cash) placed in escrow on its behalf. See "--Escrow."
Each NetCore stockholder will allocate its basis in its shares of NetCore
stock among all of the shares of Tellabs stock received by the stockholder as a
result of the merger, including both shares of Tellabs stock received outright
and shares of Tellabs stock placed in escrow on the stockholder's behalf.
A NetCore stockholder that elects to have the indemnity agent sell any of
the escrowed shares of Tellabs stock credited to that stockholder will recognize
gain or loss at the time of sale in an amount equal to the difference, if any,
between the stockholder's basis in the escrowed shares that are sold (determined
under clause (ii) under the heading
24
<PAGE> 30
"--Tax Consequences to NetCore Stockholders," above) and the amount realized
upon the sale, notwithstanding that the indemnity agent will retain the proceeds
of the sale.
The tax consequences to a NetCore stockholder are not clear where all or a
portion of such stockholder's escrowed shares are distributed to Tellabs in
satisfaction of indemnification claims. It is likely that the NetCore
stockholder will recognize gain or loss at the time of the distribution to
Tellabs in an amount equal to the difference, if any, between the stockholder's
basis in the escrowed shares that are distributed (determined under clause (ii)
under the heading "--Tax Consequences to NetCore Stockholders," above) and the
stated value of such shares (as set forth in the indemnity agreement).
In the event that some or all of the proceeds from the sale of escrowed
shares (plus, if applicable, additional amounts required to be contributed by a
stockholder as described under "-- Escrow"), or shares of escrowed stock, or
earnings on escrowed property, are distributed to Tellabs in satisfaction of an
indemnification claim, the amount of the indemnification claim satisfied by the
distribution will be allocated among, and added to the stockholder's basis in,
the stockholder's remaining shares of Tellabs stock.
Each NetCore stockholder will be subject to United States federal income
tax on all amounts earned on property held by the indemnity agent and credited
to that stockholder. Any dividends paid on the escrowed Tellabs stock will be
distributed currently to the NetCore stockholders, subject to limited
exceptions. Any other earnings with respect to property held in the escrow will
be retained by the indemnity agent and will remain subject to indemnification
claims, notwithstanding that the NetCore stockholders are subject to United
States federal income tax on these amounts.
No gain or loss will be recognized by a NetCore stockholder upon the
receipt of escrowed shares of Tellabs stock, sales proceeds with respect to the
escrowed shares or cash in lieu of a fractional share of Tellabs stock that are
distributed to the stockholder upon termination of the escrow arrangement.
WE INTEND THIS DISCUSSION TO PROVIDE ONLY A SUMMARY OF THE MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER. WE DO NOT INTEND THAT IT BE A COMPLETE
ANALYSIS OR DESCRIPTION OF ALL POTENTIAL FEDERAL INCOME TAX CONSEQUENCES OF THE
MERGER. IN ADDITION, AS NOTED ABOVE, WE DO NOT ADDRESS TAX CONSEQUENCES THAT MAY
VARY WITH, OR ARE CONTINGENT UPON, INDIVIDUAL CIRCUMSTANCES. WE STRONGLY URGE
YOU TO CONSULT YOUR TAX ADVISOR TO DETERMINE YOUR PARTICULAR UNITED STATES
FEDERAL, STATE, LOCAL OR FOREIGN INCOME OR OTHER TAX CONSEQUENCES RESULTING FROM
THE MERGER, IN LIGHT OF YOUR INDIVIDUAL CIRCUMSTANCES.
ANTICIPATED ACCOUNTING TREATMENT
The merger will be accounted for by Tellabs under the "pooling of interest"
method of accounting in accordance with generally accepted accounting
principles. Consummation of the merger is conditioned upon receipt at or prior
to the closing of the merger by Tellabs and NetCore of pooling letters from
their respective independent accountants, Ernst & Young LLP and Price Waterhouse
Coopers LLP, that each is eligible to be a party to a business combination
accounted for as a pooling of interests.
CERTAIN OTHER EFFECTS OF THE MERGER
After the merger, stockholders of NetCore will become stockholders of
Tellabs. Upon consummation of the merger, the rights of all former stockholders
of NetCore will be governed by the certificate of incorporation and bylaws of
Tellabs, in addition to the applicable provisions of Delaware law. For a
description of the differences between the rights of Tellabs and NetCore
stockholders, see "COMPARISON OF RIGHTS OF NETCORE STOCKHOLDERS AND TELLABS
STOCKHOLDERS."
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Tellabs and NetCore have made forward-looking statements, as such term is
used in the Private Securities Litigation Reform Act of 1995, in this document
and those documents to which we have referred you that are subject to risks and
uncertainties. Forward-looking statements include the information concerning
possible or assumed future results of operations of Tellabs and NetCore set
forth under "--Reasons for the Merger; Recommendation of the NetCore Board of
Directors," "--Fairness Opinion of BancBoston Robertson Stephens" and
"INFORMATION ABOUT NETCORE -- Management's Discussion and Analysis of Financial
Condition and Results of Operations" and those
25
<PAGE> 31
preceded by, followed by or that include the words "believes," "expects,"
"anticipates" or similar expressions. You should understand that the following
important factors, in addition to those discussed elsewhere in this document and
in the documents which are incorporated by reference, could affect the future
results of NetCore and Tellabs, and could cause those results to differ
materially from those expressed in the forward-looking statements of NetCore and
Tellabs: materially adverse changes in economic conditions and in the markets
served by NetCore and Tellabs; regulatory, legal, economic and other changes in
the telecommunications industry environment generally; and a significant delay
in the expected closing of the Merger.
26
<PAGE> 32
TERMS OF THE MERGER AGREEMENT
This section of the proxy statement and prospectus describes aspects of the
merger, including the material provisions of the merger agreement. The following
summary of the material terms and provisions of the merger agreement is
qualified in its entirety by reference to the merger agreement. The merger
agreement is attached as Annex A to this proxy statement and prospectus and is
incorporated herein by reference. You are encouraged to read the merger
agreement in its entirety for a fuller description of the merger. Capitalized
terms used but not defined herein shall have the meanings ascribed to them in
the merger agreement.
THE MERGER
The merger agreement provides that Blackhawk Merger Corp., a wholly-owned
subsidiary of Tellabs, will be merged with and into NetCore at the effective
time of the merger. Pursuant to the merger agreement, NetCore will be the
surviving corporation and will become a wholly-owned subsidiary of Tellabs. THE
NETCORE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND THE
MERGER.
STRUCTURE OF THE MERGER
According to the terms and conditions of the merger agreement and the
Delaware corporation laws, at the effective time of the merger, Blackhawk will
merge with and into NetCore. NetCore will continue to exist as the surviving
corporation under the laws of the state of Delaware. At the effective time of
the merger, Blackhawk will no longer exist as a separate corporation. At the
effective time of the merger, the fourth Article of the certificate of
incorporation of NetCore will be amended to authorize the issuance of a total of
1,000 shares of all classes of common stock, with a par value of $0.01 per
share. After such amendment, the certificate of incorporation of NetCore will
become the certificate of incorporation of the surviving corporation. The
by-laws of Blackhawk will become the by-laws of the surviving corporation at the
effective time of the merger.
CONVERSION AND EXCHANGE OF SECURITIES
At the effective time of the merger, each issued and outstanding share of
Blackhawk common stock will be converted into one share of common stock of the
surviving corporation.
At the effective time of the merger, each issued and outstanding share of
NetCore common stock and preferred stock (other than any shares owned by NetCore
or its wholly-owned subsidiaries or by Tellabs, which will be canceled, or any
shares for which appraisal rights have been validly exercised), will be
converted into shares of Tellabs common stock according to the formulas
described below.
(a) for each share of NetCore common stock, a fraction of a share of
Tellabs common stock equal to
(i) $575,000,000 minus the Liquidation Preference (as defined below),
divided by:
The number of shares of NetCore common stock outstanding, on a
fully diluted basis, assuming the exercise of all outstanding
NetCore stock options and the conversion of all shares of NetCore
Series A preferred stock into shares of NetCore common stock.
- The "Liquidation Preference" is calculated pursuant to the
following formula:
- the number of shares of NetCore Series B preferred
stock outstanding multiplied by $5; plus
- the number of shares of NetCore Series C preferred
stock outstanding multiplied by $7; plus
- the number of shares of NetCore Series D preferred
stock outstanding multiplied by $15.24.
divided by:
(ii) the average Tellabs share price (as defined below).
27
<PAGE> 33
- The "average Tellabs share price" will be the average
of the last sale price per share of Tellabs common
stock, as reported by Nasdaq, for the 15 trading days
preceding the three trading days prior to the date on
which the merger occurs. The merger agreement specifies
that the average Tellabs share price may not be less
than $52.80 or exceed $79.20.
(b) For each share of NetCore Series A preferred stock, the fraction of a
share of Tellabs common stock receivable in exchange for each share of
NetCore common stock resulting from the conversion of such share of
Series A preferred stock into NetCore common stock, at a conversion
ratio of approximately 2.2 shares of NetCore common stock for each
share of NetCore Series A preferred stock.
(c) For each share of NetCore Series B preferred stock, the fraction of a
share of Tellabs common stock equal to $5 divided by the average
Tellabs share price.
(d) For each share of NetCore Series C preferred stock, the fraction of a
share of Tellabs common stock equal to $7 divided by the average
Tellabs share price.
(e) For each share of NetCore Series D preferred stock, the fraction of a
share of Tellabs common stock equal to $15.24 divided by the average
Tellabs share price.
In the event of any reclassification, stock split or stock dividend with
respect to Tellabs common stock or any change or conversion of Tellabs common
stock into other securities (or if a record date with respect to any of the
foregoing should occur) prior to the effective time of the merger, appropriate
and proportionate adjustments, if any, will be made to the foregoing formulas.
In lieu of fractional shares of Tellabs common stock, Tellabs will pay to each
holder who would otherwise be entitled to receive a fractional share an amount
in cash equal to the product of (i) the last reported sale price per share of
Tellabs common stock, as reported by Nasdaq, on the date of the effective time
of the merger, and (ii) the fractional share interest to which such holder would
otherwise be entitled.
Tellabs and NetCore expect that the holders of NetCore preferred stock will
convert all of their shares of NetCore preferred stock into shares of NetCore
common stock prior to the merger.
EFFECTIVE TIME
The merger will occur after all of the conditions in Article VI of the
merger agreement have been fulfilled or, if permissible, waived. No later than
the second business day after the satisfaction or waiver of the conditions in
Article VI of the merger agreement, or such later date as Tellabs and NetCore
may agree, the parties will hold a scheduled closing. On the day the merger
occurs, a certificate of merger will be filed with the Secretary of State of the
State of Delaware. The effective time of the merger will be the date and time of
the filing, unless both Blackhawk and NetCore mutually agree to designate a
later date of effectiveness of the merger not more than 30 days after the date
the certificate of merger is filed, in which case the later date designated in
the certificate of merger will be the effective time.
Tellabs and NetCore each anticipate that, if the merger is approved at the
special meeting of NetCore stockholders, it will be consummated shortly
thereafter. However, a delay in obtaining governmental consents required prior
to consummation of the transactions contemplated in the merger agreement could
delay the merger. There can be no assurances as to if or when the governmental
consents will be obtained or that the merger will be consummated.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations of Tellabs, Blackhawk
and NetCore. Tellabs and Blackhawk have made representations and warranties to
NetCore regarding, among other things, the following:
- the due organization, valid existence and good standing of Tellabs and
Blackhawk;
- the capital structure of Tellabs;
- the authorization, execution, delivery and enforceability of the
merger agreement and other agreements contemplated by the merger
agreement and related matters;
28
<PAGE> 34
- the compliance of the merger agreement and related documents with (1)
Tellabs' certificate of incorporation and by-laws and the certificate
of incorporation and by-laws of Blackhawk, (2) any provision of
comparable organizational documents of any of Tellabs' other
subsidiaries, (3) certain material agreements applicable to Tellabs or
any of its subsidiaries, and (4) any rule or regulation applicable to
Tellabs or any of its subsidiaries;
- the required governmental filings;
- SEC documents and other reports filed since January 1, 1999, including
that such filings did not, at the time they were filed, contain
material misstatements or omissions;
- the absence of material undisclosed liabilities;
- the accuracy of information contained in the registration statement of
which this proxy statement and prospectus is a part, including the
absence of any untrue statement of material fact or omission of a
material fact such that the statement is not misleading;
- the absence of legal proceedings or governmental investigations
relating to the merger agreement and related documents;
- with certain exceptions, the absence of a material adverse change with
respect to Tellabs since April 2, 1999;
- with certain exceptions, the absence of a material revaluation by
Tellabs of its assets since April 2, 1999;
- the absence of any vote of the security holders of Tellabs being
required by law or Tellabs' certificate of incorporation;
- the lack of any knowledge as to actions that would jeopardize the
treatment of the merger as a pooling of interests for accounting
purposes;
- the lack of any knowledge as to actions that would jeopardize the
qualification of the merger as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- the absence of any broker's or finder's fee being paid, other than to
Deutsche Bank Securities, Inc.; and
- the formation and operations of Blackhawk.
NetCore has made representations and warranties to Tellabs and Blackhawk
regarding, among other things, the following:
- the due organization, valid existence and good standing of NetCore and
its subsidiaries;
- the capital structure of NetCore and its subsidiaries and the capital
stock of its subsidiaries;
- the authorization, execution, delivery and enforceability of the
merger agreement, and other agreements contemplated by the merger
agreement and related matters;
- the requisite power of the stockholder representatives and authority
to enter into the indemnity agreement and to fulfill its terms;
- the compliance of the merger agreement and related documents with (1)
NetCore's certificate of incorporation and by-laws, (2) any provision
of the comparable organizational documents of any subsidiary of
NetCore, (3) certain material agreements of NetCore and its
subsidiaries, (4) any rule or regulation applicable to NetCore or any
of its subsidiaries;
29
<PAGE> 35
- the required governmental filings;
- NetCore's financial statements, including that the financial
statements have been prepared in accordance with generally accepted
accounting principles and fairly present in all material respects the
financial position of NetCore and its subsidiaries;
- the absence of any declaration of any payment of dividends or
distributions to NetCore's stockholders or any purchase or redemption
of any of NetCore's capital stock or other equity interests;
- within the specified time period, the absence of any material adverse
changes, material losses, material changes in business, and material
undisclosed liabilities with respect to NetCore and its subsidiaries;
- the possession and validity of all required licenses and governmental
authorizations to use and operate NetCore's assets and to conduct
business substantially as currently conducted;
- the accuracy of information contained in the registration statement of
which this proxy statement and prospectus is a part, including the
absence of any untrue statement of material fact or omission of a
material fact such that the statement is not misleading;
- the filing and accuracy of NetCore's and its subsidiaries' tax
returns;
- the absence of any judgments or legal or administrative proceedings
outstanding or threatened against NetCore or any of its subsidiaries;
- the absence of changes in certain stock option and benefits plans as a
result of the merger;
- NetCore's employee benefit plans and related matters, including that
each such plan has been operated and administered in accordance with
applicable law;
- compliance with worker safety laws and environmental laws;
- the absence of any collective bargaining agreement or labor contract
and the absence of any unfair labor practice or material dispute with
employees;
- intellectual property and software, including the ownership of the
intellectual property and software, the absence of the breach of any
material provision of any intellectual property agreements and the
absence of disclosure of trade secrets in violation of any
non-disclosure or confidentiality agreement;
- the condition of the assets of NetCore and its subsidiaries;
- the real property owned by NetCore;
- real and personal property leases;
- title to assets;
- the absence of any contracts not disclosed by NetCore;
- the validity of the contracts to which NetCore is a party;
- insurance;
- the lack of knowledge as to any state takeover statutes or charter or
by-law provisions applicable to the merger, the merger agreement and
related matters;
- the vote of NetCore security holders required to adopt the merger
agreement;
30
<PAGE> 36
- the lack of any knowledge as to actions that would jeopardize the
treatment of the merger as a pooling of interests for accounting
purposes;
- the lack of any knowledge as to actions that would jeopardize the
qualification of the merger as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- the absence of any broker's or finder's fee, except as disclosed by
NetCore; and
- the "ultimate parent entity" status of NetCore for purposes of federal
antitrust law.
Tellabs and its affiliates may make a claim for indemnification for breach
of any of these representations and warranties until the end of one year after
the effective time of the merger.
NetCore's representations and warranties will survive until the end of one
year after the effective time of the merger. After the effective time of the
merger, a claim for a breach of a representation or warranty will be paid out of
the indemnity fund. A claim will only be paid with respect to amounts exceeding
$500,000 and then only to the extent of such excess, except with respect to
certain representations and warranties where such deductible is not applicable.
See "THE MERGER--Escrow"
BUSINESS OF NETCORE PENDING THE MERGER AND OTHER AGREEMENTS
Under the terms of the merger agreement, NetCore has agreed in all material
respects to carry on its business and the business of its subsidiaries in the
ordinary course as currently conducted. From the date of signing the merger
agreement until closing, unless Tellabs otherwise gives its written approval,
neither NetCore nor any of its subsidiaries may:
- declare, set aside or pay any dividend or other distribution with
respect to any of its capital stock;
- split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of its
capital stock;
- purchase, redeem or otherwise acquire, shares of capital stock of
NetCore or any rights, warrants or options to acquire any such shares;
- issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock or equity equivalents, except with respect
to certain existing stock options and preferred stock rights;
- amend its charter or bylaws;
- acquire or agree to acquire, by merger, consolidation or acquisition
of stock or assets, any business organization or any division of such
entity or any material amount of assets outside of the ordinary course
inconsistent with past practice;
- sell or otherwise dispose of its assets outside the ordinary course of
business inconsistent with past practice;
- incur any material indebtedness for borrowed money, guarantee any such
indebtedness or make any loans, advances or capital contributions,
other than those made in the ordinary course of business consistent
with past practice;
- alter its corporate structure or ownership;
- accelerate or delay collection of notes or accounts receivable or
payment of any material account payable or other liability beyond or
in advance of its due date or when it would be paid in the ordinary
course of business consistent with past practice;
31
<PAGE> 37
- enter into, adopt or amend any severance plan or agreement, stock
option plan or employment or consulting agreement, including certain
stock restriction agreements;
- increase the compensation payable to its directors, officers or
employees or grant any severance or termination pay to, or enter into
or amend any employment or severance agreement with any of its
directors, officers or other employees, except, in the case of
employees other than directors or officers, as may be consistent with
past practice in connection with annual compensation reviews;
- knowingly violate or fail to perform any obligation or duty imposed
upon it by any applicable material federal, state or local law, rule
or regulation;
- make any change to accounting policies or procedures, other than
actions required to be taken by generally accepted accounting
principles;
- prepare or file any tax return inconsistent with past practice;
- make any tax election or settle or compromise any material federal,
state, local or foreign income tax liability;
- with certain exceptions, enter into, amend or terminate (i) any
agreement or contract material to NetCore and its subsidiaries, taken
as a whole, (ii) any noncompetition agreement, (iii) agreements giving
certain rights to third parties, (iv) certain contracts with
suppliers, licensors and other third parties involving amounts in
excess of $1,000,000 or for a period in excess of 180 days, or (v) any
OEM contract;
- make or agree to make any new capital expenditure or expenditures
which, individually, is in excess of $500,000 or, in the aggregate,
are in excess of $2,000,000;
- waive or release any material right or claim, or pay, discharge or
satisfy any material claims, liabilities or obligations other than in
the ordinary course of business consistent with past practice;
- initiate, settle or compromise any litigation or arbitration
proceeding, other than to enforce the merger agreement; or
- authorize, recommend, propose or announce an intention to do any of
the foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
NO SOLICITATION BY NETCORE
Under the terms of the merger agreement, NetCore may not, nor may it permit
any of its subsidiaries or any officer, director, employee, financial advisor,
attorney or other advisor or representative of NetCore or its subsidiaries to:
- solicit, initiate or encourage the submission of, any takeover
proposal;
- enter into any agreement with respect to any takeover proposal; or
- participate in any discussions or negotiations regarding, or furnish
to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any takeover
proposal.
NetCore must promptly advise Tellabs of any takeover proposal or inquiries
with respect to any takeover proposal, and disclose the material terms of such
takeover proposal and the identity of the person making any such takeover
proposal. NetCore must also keep Tellabs informed of the status and details of
any takeover proposal or inquiry. "Takeover proposal" means any proposal or
offer, or any expression of interest, by any person or entity other than Tellabs
or Blackhawk relating to NetCore's willingness or ability to receive or discuss
a proposal or offer for a merger, consolidation or other business combination
involving NetCore or any of its subsidiaries or any proposal or offer to
acquire, directly or indirectly, a substantial portion of the voting securities
or assets of NetCore or its subsidiaries.
32
<PAGE> 38
ADDITIONAL AGREEMENTS OF TELLABS AND NETCORE
Under the terms of the merger agreement, Tellabs and NetCore have also
agreed to use their reasonable best efforts to take all actions necessary,
proper or advisable to consummate and make effective in the most expeditious
manner practicable, the merger and the other transactions contemplated by the
merger agreement.
Tellabs and NetCore have agreed to pay their respective costs and expenses
in connection with the merger, except that they agree to divide equally the
printing expenses and filing fees.
NETCORE STOCK OPTION PLAN
At the effective time of the merger, each NetCore stock option issued
pursuant to NetCore's 1997 Stock Option Plan outstanding immediately prior to
the effective time shall become and represent an option to purchase the number
of shares of Tellabs common stock determined by multiplying (i) the number of
shares of NetCore common stock subject to such stock option immediately prior to
the effective time by (ii) the exchange ratio, at an exercise price per share of
Tellabs common stock equal to the exercise price per share of NetCore common
stock immediately prior to the effective time divided by the exchange ratio. For
a description of the exchange ratio, see "-- Conversion and Exchange of
Securities."
DIRECTORS' AND OFFICERS' INSURANCE AND INDEMNIFICATION
For a period of six years after the effective time of the merger, Tellabs
must indemnify all past and present officers and directors of NetCore and its
subsidiaries to the same extent they were indemnified as of the date of the
merger agreement and must maintain in effect the current officers' and
directors' liability insurance maintained by NetCore covering acts or omissions
prior to the effective time.
LOANS TO NETCORE
Tellabs and NetCore have agreed to negotiate, as soon as practicable
following the date of the merger agreement, the terms of standard loan
agreements providing for loans from Tellabs to NetCore of up to $3,000,000 in
principal amount per month, for working capital purposes, commencing October 1,
1999, and ending no later than 70 days after the termination of the merger
agreement. Any such loans will bear interest at the rate of 11% per annum, and
will be due and payable on the earliest of 90 days following the termination of
the merger agreement, March 15, 2000, or the occurrence of any bankruptcy or
material default involving NetCore. Tellabs will not be obligated to lend
NetCore more than $12,000,000 in the aggregate.
WHAT IS NEEDED TO COMPLETE THE MERGER
Conditions Precedent to Each Party's Obligation to Effect the Merger. The
following conditions must be satisfied before the merger can become effective:
- the merger agreement must be approved by the requisite vote of
stockholders of NetCore;
- the common stock of Tellabs must have been authorized for quotation on
Nasdaq;
- the waiting period applicable to the merger under the
Hart-Scott-Rodino Act must have expired or been terminated;
- Tellabs and NetCore must have obtained all authorizations, consents,
orders, declarations or approvals of, or filings with, or terminations
or expirations of waiting periods imposed by any governmental entity,
which the failure to obtain, make or occur would have the effect of
making the merger or any of the transactions contemplated by the
merger agreement illegal or would have an adverse effect on Tellabs;
- the Form S-4 registration statement of which this proxy statement and
prospectus is a part must have become effective under the Securities
Act of 1933, and there must be no stop order or threat of
33
<PAGE> 39
proceedings by the Securities and Exchange Commission to suspend the
effectiveness of such registration statement; and
- no restraining order, injunction, or other order must have been
enacted or issued which has the effect of making the merger or any of
the transactions contemplated by the merger agreement illegal.
Conditions Precedent to the Obligations of NetCore. NetCore's obligations
to effect the merger depend upon the fulfillment, prior to or at the effective
time of the merger, of the following additional conditions:
- Tellabs and Blackhawk must have performed in all material respects
each of their agreements contained in the merger agreement;
- each of Tellabs' and Blackhawk's representations and warranties
contained in the merger agreement must be true and correct in all
material respects; and
- NetCore must have received a tax opinion of Hale and Dorr LLP, counsel
to NetCore, dated the effective time of the merger, to the effect that
the merger will constitute a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code and that no gain or loss
will be recognized by Tellabs, Blackhawk or NetCore or by the
stockholders of NetCore on the exchange of shares of NetCore common
stock and preferred stock for shares of Tellabs common stock.
Conditions Precedent to the Obligations of Tellabs and Blackhawk. Tellabs'
and Blackhawk's obligations to effect the merger depend upon the fulfillment,
prior to or at the effective time of the merger of the following additional
conditions:
- NetCore must have performed in all material respects each of its
agreements contained in the merger agreement;
- each of NetCore's representations and warranties contained in the
merger agreement must be true and correct in all material respects;
- Tellabs must have received a tax opinion of Sidley & Austin, counsel
to Tellabs, dated as of the effective time of the merger, to the
effect that the merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code and that no
gain or loss will be recognized by Tellabs, Blackhawk or NetCore or by
the stockholders of NetCore on the exchange of shares of NetCore
common stock and preferred stock for shares of Tellabs common stock;
- NetCore must have received the written opinion, dated as of the
effective time of the merger, of PricewaterhouseCoopers LLP that
NetCore is eligible to be a party to a business combination accounted
for as a pooling of interests in accordance with generally accepted
accounting principles;
- Tellabs must have received the written opinion, dated as of the
effective time of the merger, of Ernst & Young LLP that Tellabs is
eligible to be a party to a business combination accounted for as a
pooling of interests in accordance with generally accepted accounting
principles and that the merger will qualify for pooling of interests
accounting;
- NetCore must have obtained the required consents of non-governmental
entities for any of its or its subsidiaries' material agreements;
- no governmental entity must have instituted any suit relating to the
merger agreement and related documents;
- the indemnity agreement must have been duly executed and delivered to
Tellabs;
- NetCore must have delivered to Tellabs certain certificates as to its
capital structure signed by its Chief Executive Officer and Chief
Financial Officer;
34
<PAGE> 40
- the stock of those stockholders of NetCore validly exercising their
appraisal rights must not include any shares of NetCore preferred
stock and no more than five percent (5%) of the shares of NetCore
common stock outstanding immediately prior to the effective time of
the merger; and
- the merger agreement must have been approved by the requisite number
of holders of NetCore common stock and each series of NetCore
preferred stock.
Provided that NetCore has not breached or failed to perform any of its
obligations in the merger agreement and has not breached any of its warranties
or made any misrepresentations under the merger agreement or any certificates
delivered thereunder, the results of beta or other deployment testing of
NetCore's products or the failure of certain customers to have ordered or
accepted NetCore's products or services prior to the effective time of the
merger will not be a condition to Tellabs' obligation to effect the merger.
The fact that certain of NetCore's representations and warranties related
to its intellectual property and software contained in the merger agreement are
not true and correct as of the effective time of the merger will not relieve
Tellabs of its obligation to effect the merger unless: (i) NetCore had knowledge
as of the date of the merger agreement that such representations and warranties
were not true and correct; or (ii) NetCore or any of its subsidiaries or any of
their respective employees or agents engaged, at any time, in willful or
intentional acts or omissions resulting in such representations and warranties
not being true and correct.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time of the merger:
- by the mutual written consent of Tellabs and NetCore;
- by either Tellabs or NetCore if the other party has failed to comply
in any material respect with any of its covenants or agreements
contained in the merger agreement and has not cured such failure
within 30 business days of receiving notice of it;
- by either Tellabs or NetCore if the other party has materially
breached any of its representations or warranties which has the effect
of making such representation and warranty not true and correct in all
material respects and has not cured such breach within 30 business
days of receiving notice of it;
- by either Tellabs or NetCore if the merger has not been effected on or
prior to December 15, 1999;
- by either Tellabs or NetCore if any court or governmental entity has
issued an order restraining or otherwise prohibiting the transactions
contemplated by the merger agreement;
- by Tellabs if the stockholders of NetCore do not approve the merger
agreement;
- by Tellabs if any person (other than Tellabs or its affiliates)
becomes the beneficial owner of 25% or more of NetCore common stock;
or
- by Tellabs if the Board of Directors of NetCore has recommended to the
stockholders of NetCore any takeover proposal or has resolved to do
so.
In the event of termination of the merger agreement by either Tellabs or
NetCore, the merger agreement will become void and there will be no liability
under the merger agreement on the part of NetCore, Tellabs, or Blackhawk or
their respective officers, directors or stockholders, except that there may
still be liability if there is a willful breach of a representation or warranty
or the breach of any covenant.
WAIVER AND AMENDMENT OF THE MERGER AGREEMENT
The merger agreement may be amended by the parties to the agreement at any
time, but, after the stockholders of NetCore have approved any matters in
connection with the merger agreement, no amendment may be made which by law
requires further approval by such stockholders without such further approval.
35
<PAGE> 41
At any time prior to the effective time of the merger, Tellabs, NetCore,
and Blackhawk may, if signed in writing by all parties:
- extend the time for the performance of any of the obligations or other
acts;
- waive any inaccuracies in the representations and warranties contained
in the merger agreement or any related document; or
- waive compliance with any of the agreements or conditions contained in
the merger agreement which may be legally waived.
36
<PAGE> 42
VOTING AGREEMENTS
The following is a summary of certain provisions of the form of voting
agreement entered into between Tellabs and certain stockholders of NetCore, a
copy of which is attached to this proxy statement and prospectus as Annex C and
is incorporated by reference into this proxy statement and prospectus. This
summary is qualified in its entirety by reference to the voting agreement.
Stockholders of NetCore are urged to read the form of voting agreement in its
entirety.
Stockholders of NetCore, owning approximately 65% of the common stock, 100%
of the Series A preferred stock, 98% of the Series B preferred stock, 75% of the
Series C preferred stock, and 73% of the Series D preferred stock, have signed
voting agreements with Tellabs.
The voting agreements provide, among other things, that each stockholder
will:
- at the special meeting, or in any other circumstance upon which
approval of the merger or the merger agreement is sought, vote (or
cause to be voted) his shares of NetCore stock in favor of the merger,
the adoption of the merger agreement, the approval of its terms, and
each of the other transactions contemplated by the merger agreement;
- not (nor permit any affiliate, director, officer, employee or other
representative to) directly or indirectly (i) solicit, initiate or
knowingly encourage anyone to submit a takeover proposal (as defined
in the merger agreement) or (ii) participate in any discussions or
negotiations regarding, or furnish anyone with information with
respect to, or take any other action to facilitate any inquiries or
the making of, any takeover proposal; and
- cooperate with Tellabs to support and to consummate and make
effective, in the most expeditious manner practicable, the merger and
the other transactions contemplated by the merger agreement.
Any successor, assignee or transferee of the stockholder's shares of NetCore
stock will be bound by the terms of the voting agreement.
Termination. Each stockholder's obligations under the voting agreement will
terminate upon the earlier of the termination of the merger agreement or the
effective time of the merger. However, if the merger agreement is terminated by
Tellabs because of a failure of NetCore's stockholders to approve and adopt the
merger agreement, because another person becomes the beneficial owner of 25% or
more of the outstanding NetCore common stock, or because the NetCore Board
recommends a takeover proposal to the NetCore stockholders, then the obligations
of each stockholder under the voting agreement will terminate 180 days following
such termination of the merger agreement.
37
<PAGE> 43
REGULATORY MATTERS
Under the federal antitrust laws and the rules promulgated under those laws
by the Federal Trade Commission (FTC), Tellabs and NetCore may not consummate
the merger until they notify and give certain information to the FTC and the
Antitrust Division of the U.S. Department of Justice and specified waiting
periods have been terminated or have expired. NetCore and Tellabs each filed
notification and report forms under the antitrust laws with the FTC and the
Antitrust Division on July 27, 1999. At any time before or after consummation of
the merger, the Antitrust Division, the FTC, or a private person could seek
under the antitrust laws, among other things, to enjoin the consummation of the
merger or cause divestiture of substantial assets of NetCore or Tellabs.
Tellabs and NetCore are not aware of any material governmental or
regulatory approvals required to be obtained in order to consummate the merger,
other than compliance with the antitrust laws and applicable federal and state
securities and corporate laws.
38
<PAGE> 44
BUSINESS OF TELLABS
Tellabs designs, manufactures, markets and services data, voice and video
transport and network access systems that are used worldwide by the providers of
telecommunications services.
Products provided by Tellabs include digital cross-connect systems, managed
digital networks, network access and wireless system products. Digital
cross-connect systems include Tellabs' TITAN (a registered trademark of Tellabs
Operations, Inc.) 5500 and 5300 series of digital cross-connect systems. Managed
digital networks include Tellabs' MartisDXX (a Finnish trademark of Tellabs Oy)
integrated access and transport system, statistical multiplexers, packet
switches, and T1 multiplexers, and network management systems. Network access
products include digital signal processing products such as echo cancelers and
T-coders; special service products such as voice frequency products; and local
access products such as the CABLESPAN (a registered trademark of Tellabs
Operations, Inc.) system.
Tellabs' products are sold in both the domestic and international
marketplaces (under the Tellabs name and trademarks and under private labels)
through Tellabs' field sales force and selected distributors to a major customer
base. This base includes Regional Bell Operating Companies, independent
telephone companies, interexchange carriers, local telephone administrations,
local exchange carriers, original equipment manufacturers, cellular and other
wireless service companies, cable operators, alternate service providers, system
integrators, government agencies, and business end-users ranging from small
businesses to Fortune 500 companies.
Tellabs was incorporated in Delaware in 1992 in connection with the
reincorporation of its predecessor corporation from an Illinois corporation to a
Delaware corporation. Tellabs' predecessor corporation began operations in 1975
and became a public company in 1980.
Tellabs' principal executive offices are located at 4951 Indiana Avenue,
Lisle, Illinois 60532-1698 and its telephone number is (630) 378-8800. For
further information concerning Tellabs, see "SUMMARY -- Selected Consolidated
Financial Data of Tellabs" and "WHERE YOU CAN FIND MORE INFORMATION."
39
<PAGE> 45
INFORMATION ABOUT NETCORE
BUSINESS OF NETCORE
NetCore has developed high performance switching products for large
Internet Service Providers (ISPs) and multi-service telecommunications carriers.
NetCore's products classify, aggregate and direct customer traffic across
high-speed fiber optic links. NetCore's Everest Integrated Switch (patent and
trademark applications pending) combines the flexibility and feature richness of
Internet Protocol (IP) routers with the explicit resource allocation and
guaranteed performance of Asynchronous Transfer Mode (ATM) switches. This
integration of IP and ATM technology enables a multi-service Internet, which is
a high-speed network that supports voice, video, data and multimedia
applications. NetCore believes its Everest Switch is the first product to
simultaneously address the following key issues facing network service
providers: (i) expandability for rapid growth; (ii) intelligent Quality of
Service for business-class networking requirements; (iii) maintaining
compatibility with existing technologies; and (iv) cost reduction through
consolidation of separate network elements such as IP routers and ATM switches.
NetCore's Everest Switch was launched in March 1998, accompanied by an
extensive analyst and media tour and follow-on industry exhibitions and
conferences. Everest was honored as a Best-of-Show Finalist at Networld+Interop
and as an Editor's Choice Award by Communications News. Beta and lab trials of
Everest commenced in the fourth quarter of 1998 and continue through the first
two quarters of 1999.
Demand for data services such as remote network access, Internet access and
e-commerce has made data traffic the fastest growing segment of the carrier
market. Network access speeds are increasing dramatically across large business,
remote access and residential applications. This growth in the demand for data
services has exceeded the capabilities of the present telephony network, and
requires more flexible and cost-effective solutions. One such solution is
"packet switching," which is gaining acceptance due to the emergence of Internet
technologies.
ISPs and carriers alike are now constructing new-generation networks that
target the business communications market with virtual private network services
implemented over high-speed packet networks. CIMI Corporation, an industry
consultant, has estimated investments in these new-generation networks at
approximately $380 billion over the next ten years. To build such networks,
current ISP and carriers typically use a combination of IP routers and ATM
switches. NetCore believes that routing and switching technologies will account
for approximately $2.7 billion in sales to ISPs and carriers in 1999.
Headquartered in Wilmington, Massachusetts, NetCore was founded in October
1996 by Ashraf M. Dahod, Kwabena D. Akufo, Steven R. Dunstan and Kenneth E.
Virgile. The founders have worked as a team for more than 12 years. Before
founding NetCore, they helped found two other start-up companies, Sigma Network
Systems Inc. and Applitek Corporation, that are now part of Cabletron Systems
(Cabletron) and Nortel Networks Inc., respectively. Other members of the
management team have experience from Amdahl Corporation, A T & T Paradyne,
Cascade Communications Corporation, Cabletron, Newbridge Networks Corporation,
NYNEX Corporation, Shiva Corporation, Standard Microsystems Corporation, Sun
Microsystems Inc., Telco Systems and Wellfleet Communications.
As of June 30, 1999, the Company had 85 employees and 13 contract
engineers, which included a total of 75 engineers.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview. Since NetCore's inception, it has devoted substantially all of
its efforts to research and development, business and financial planning,
implementing strategic relationships and recruiting employees. Since its
inception, NetCore has incurred significant losses and as of March 28, 1999, had
an accumulated deficit of $20.3 million. As of August 4, 1999, NetCore has not
generated any revenue.
Three Months Ended March 28, 1999 Compared to Three Months Ended March 29,
1998. Research and development expenses for the three months ended March 28,
1999 amounted to $1.5 million which was 7% higher than the $1.4 million for the
three months ended March 29, 1998. Spending continued on development of the
Everest Integrated Switch. Research and development expenses represented 58.8%
and 79.4% of total operating expenses for the three months ended March 29, 1998,
and the three months ended March 28,1999, respectively. During the three months
ended March 28, 1999 $.5 million was included in fixed assets as beta units and
lab equipment from prototype
40
<PAGE> 46
expenses. Costs in the areas of research and development are expensed as
incurred. Costs associated with the development of computer software are
expensed prior to establishing technological feasibility.
Sales and marketing expense was $.7 million for the three months ended
March 28, 1999 as compared to $.2 million for the three months ended March 29,
1998. This represented a 249% increase. Sales and marketing expense represented
11.1% and 26.8% of total operating expenses for the three months ended March 29,
1998 and the three months ended March 28, 1999, respectively. This spending
increase represents the continued ramp-up of sales and marketing personnel and
increased spending for advertising and participation in industry trade shows.
Administration expense increased from $.2 million for the three months
ended March 29, 1998 to $.4 million for the three months ended March 28, 1999
which represents a 100% increase. This represented 9.4% and 14.4 % of total
operating expenses for the three months ended March 28,1999 and the three months
ended March 28,1999, respectively. The increase represents an increase in
spending on professional accounting services.
Net interest income and expense increased from the three months ended March
29, 1998 to the three months ended March 28, 1999, from $.12 million to $.15
million. The primary component for the increase was higher investments in the
three months ended March 28, 1999 due to completion of a preferred stock
financing in December 1998. Interest expense was related to borrowings under the
equipment line of credit with Silicon Valley Bank.
1998 Compared with 1997. Research and development expenses for 1998 were
$8.9 million, an increase of $5.6 million or 170% over 1997. Spending continued
on development of the Everest Integrated Switch. Research and development
expenses represented 81.3% and 78.7% of total operating expenses for 1997 and
1998, respectively. Research and development expenses consisted primarily of
salaries and related personnel costs, fees paid to consultants and outside
service providers, non-recurring engineering (NRE) charges and prototype costs
related to the design, development, testing and enhancement of NetCore's
software and system development. NetCore expenses its research and development
costs as they are incurred. Several components of NetCore's research and
development effort require significant expenditures, the timing of which can
cause significant quarterly variability in its expenses. The number of
prototypes required to build and test a complex product such as the Everest
Integrated Switch is large and the building and testing process occurs over a
short period of time. The increase in research and development expenses was due
primarily to a significant increase in personnel and related costs to support
the completion, bring-up, alpha test and beta test phases of the product
development and the NRE and prototype expenses necessary to complete the
product. Continued product development is essential to NetCore's future success
and NetCore expects that research and development expenses will increase in
absolute dollars in future periods.
Sales and marketing expenses were $1.5 million in 1998, an increase of $1.3
million or 617% from 1997 to 1998. Sales and marketing expenses represented 5.3%
and 13.7% of total operating expenses for 1997 and 1998, respectively. This
increase represents the ramp-up of sales and marketing personnel and increased
spending for advertising including industry trade shows.
General and administration totaled $.9 million in 1998, an increase of $.3
million or 57% over 1997. This expense represented 13.4% and 7.6 % of total
operating expenses for 1997 and 1998, respectively. The majority of the spending
for both years was attributed to salaries, wages, and legal and accounting fees.
Net interest income and expense increased from 1997 to 1998 from $.2
million to $.3 million. The primary component for the increase was higher
investments in 1998 due to completing a preferred stock financing in December
1997. Interest expense was related to borrowings under an equipment line of
credit with Silicon Valley Bank.
Liquidity and Capital Resources. During fiscal 1998, cash and marketable
securities increased by $6.0 million resulting in a year-end balance of $16.0
million compared with $10.0 million at the end of fiscal 1997. Cash of $9.9
million was used for operating activities. Cash was used for investing
activities and for the purchase of $1.2 million of capital expenditures, which
were principally related to new product development tools and improved
manufacturing and product testing capabilities. $17.1 million net cash was
provided by financing activities. $16.5 million represented the net proceeds
from the issuance of NetCore Series D preferred stock. $.5 million represented
the net proceeds provided by draws and payments under the equipment line of
credit with Silicon Valley Bank.
During the three months ended March 28, 1999 cash and marketable securities
decreased by $.1 million resulting in a period end balance of $15.9 million
compared with $8.3 million for March 29, 1998. Cash of $2.1 million
41
<PAGE> 47
was used for operating activities. Cash was used for investing activities and
for the purchase of $1.6 million of capital expenditures, which were principally
related to new product development tools and improved manufacturing and product
testing capabilities. $3.7 million net cash was provided by financing
activities. $3.25 million was net proceeds from the issuance of NetCore Series D
preferred stock on March 16, 1999. $.4 million was the net proceeds provided by
the net of the draws and payments of the equipment line of credit with Silicon
Valley Bank.
NetCore Systems maintains a $2 million equipment line of credit with
Silicon Valley Bank. Payment on the draws will end on April 15, 2002.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The tables below set forth, as of June 28, 1999, the stock ownership of the
directors, executive officers and principal stockholders of NetCore (including
all holders of greater than 5% of NetCore common stock). The share ownership and
percentage listed in the tables include any shares of NetCore common stock
subject to options currently exercisable or exercisable within sixty days from
the date of these tables held by the listed stockholders. The persons and
entities listed have, to NetCore's knowledge, sale, vote and investment power
with respect to all shares of NetCore stock shown as being beneficially owned by
them, except as may otherwise be described in the footnotes to the tables.
Beneficial ownership is determined in accordance with the rules and regulation
of the Securities and Exchange Commission.
<TABLE>
<CAPTION>
Series A Series B
Common Stock Preferred Stock Preferred Stock
-------------------------- --------------------------- --------------------------
Percentage Of Number Of Percentage
Number Of Percentage Number Of Outstanding Shares Of
Shares Outstanding Shares Series A Beneficially Outstanding
Beneficially Common Beneficially Preferred Owned Series B
Owned Stock (1) Owned Stock (2) Preferred Stock (3)
------------ ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL HOLDERS
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03867 -- -- 157,895 100.0% -- --
Matrix Partners (7) -- -- -- -- 1,975,000 55.6%
North Bridge Venture Partners -- -- -- -- 1,500,000 42.3%
Institutional Venture Partners (8)
3000 Sand Hill Road, Bldg. 2, Ste 290
Menlo Park, CA 94025 -- -- -- -- -- --
Worldview Technology Partners (9)
435 Tasso Street, Ste. 120
Palo Alto, CA 94301 -- -- -- -- -- --
Sprout Group (10) -- -- -- -- -- --
Mitsubishi International Corporation (11)
850 Hansen Way #100
Palo Alto, CA 94306 -- -- -- -- -- --
Utility Competitive Advantage Fund
Two Wisconsin Circle, Suite 620
Chevy Chase, MD 20815-7003 -- -- -- -- -- --
Ashraf M. Dahod 2,912,206 46.1% -- -- -- --
Kwabena D. Akufo 553,846 8.8% -- -- -- --
Steven R. Dunstan 553,846 8.8% -- -- -- --
Kenneth E. Virgile 553,846 8.8% -- -- -- --
</TABLE>
42
<PAGE> 48
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
OTHER DIRECTORS AND EXECUTIVE OFFICERS
Edward T. Anderson (12) -- -- -- -- 1,500,000 42.3%
c/o North Bridge Venture Partners
950 Winter Street suite 4600
Waltham, MA 02451
Andrew Marcuvitz (13) -- -- -- -- 1,975,000 55.6%
c/o Matrix Partners
1000 Winter Street Suite 4500
Waltham, MA 02451
Ashraf M. Dahod (14) 2,912,206 46.1% -- -- -- --
c/o NetCore Systems, Inc.
187 Ballardvale Street
Wilmington, MA 01887
Stephen M. Diamond (15) -- -- -- -- -- --
c/o Sprout Group
3000 Sand Hill Road, Bldg. 3,
Suite 170
Menlo Park, CA 94025-7114
Hassan M. Ahmed (16) 60,000 0.9% -- -- -- --
c/o Sonus Networks
5 Carlisle Road
Westford, MA 01886
Kwabena D. Akufo 553,846 8.8% -- -- -- --
Jane R. Brandt 275,000 4.4% -- -- -- --
John M. Shaw 175,000 2.8% -- -- -- --
Mark T. Terenzori (17) 117,500 1.9% -- -- -- --
William J. Stuart (18) 70,000 1.1% -- -- -- --
All executive officers and directors
as a group (10 persons) 4,163,552 67% -- -- 3,475,000 97.9%
</TABLE>
<TABLE>
<CAPTION>
Series C Series D All Stock
Preferred Stock Preferred Stock Preferred Stock
-------------------------- --------------------------- --------------------------
Percentage Of Percentage Of Number Of Percentage
Number Of Outstanding Number Of Outstanding Shares Outstanding
Shares Series C Shares Series D Beneficially As
Beneficially Preferred Beneficially Preferred Owned Converted
Owned Stock (5) Owned Stock (5) Preferred Stock (6)
------------ ----------- ------------ ------------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
PRINCIPAL HOLDERS
Cabletron Systems, Inc.
35 Industrial Way
Rochester, NH 03867 -- -- -- -- 346,925 1.8%
Matrix Partners (7) 1,142,857 24% 375,288 9.3% 3,493,145 18.4%
North Bridge Venture Partners 702,063 15% 265,057 6.6% 2,467,120 13.0%
Institutional Venture Partners (8)
3000 Sand Hill Road, Bldg. 2, Ste. 290
Menlo Park, CA 94025 1,714,286 36% 314,961 7.8% 2,029.247 10.7%
Worldview Technology Partners(9)
435 Tasso Street, Ste. 120
Palo Alto, CA 94301 1,142,857 24% 137,563 3.4% 1,280,420 6.8%
Sprout Group (10) -- -- 1,968,504 49.0% 1,968,504 10.4%
</TABLE>
43
<PAGE> 49
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Mitsubishi International Corporation (11)
850 Hansen Way #100
Palo Alto, CA 94306 -- -- 196,850 4.9% 196,850 1.0%
Utility Competitive Advantage Fund
Two Wisconsin Circle, Suite 620
Chevy Chase, MD 20815-7003 -- -- 590,552 14.7% 590,552 3.1%
Ashraf M. Dahod -- -- -- -- 2,912,206 15.4%
Kwabena D. Akufo -- -- -- -- 553,846 2.9%
Steven R. Dunstan -- -- -- -- 553,846 2.9%
Kenneth E. Virgile -- -- -- -- 553,846 2.9%
DIRECTORS AND EXECUTIVE OFFICERS
Edward T. Anderson (12)
c/o North Bridge Venture
Partners
950 Winter Street Suite 4600
Waltham, MA 02451 702,063 15% 265,057 6.6% 2,467,120 13.0%
Andrew Marcuvitz (13)
c/o Matrix Partners
1000 Winter Street Suite 4500
Waltham, MA 02451 1,142,857 24% 375,288 9.3% 3,493,145 18.4%
Ashraf M. Dahod (14)
c/o NetCore Systems, Inc.
187 Ballardvale Street
Wilmington, MA 01887 -- -- -- -- 2,912,206 15.4%
Stephen M. Diamond (15)
c/o Sprout Group
3000 Sand Hill Road, Bldg. 3, Suite 170
Menlo Park, CA 94025-7114 -- -- 1,968,504 49.0% 1,968,504 10.4%
Hassan M. Ahmed (16)
c/o Sonus Networks
5 Carlisle Road
Westford, MA 01886 -- -- -- -- 40,000 0.2%
Kwabena D. Akufo -- -- -- -- 553,846 2.9%
Jane R. Brandt -- -- -- -- 275,000 1.5%
John M. Shaw -- -- -- -- 175,000 .9%
Mark T. Terenzori (17) -- -- -- -- 100,000 .6%
William J. Stuart (18) -- -- -- -- 70,000 .3%
All executive officers and directors
as a group (10 persons) 1,844,920 39.0% 2,608,849 65.0% 12,082,321 64%
</TABLE>
- ---------------------
(1) Based on 6,208,744 shares outstanding as of June 30, 1999 and 107,500
shares subject to options exercisable within 60 days of the date of this
table.
(2) Based on 157,895 shares outstanding as of June 30, 1999.
44
<PAGE> 50
(3) Based on 3,550,000 shares outstanding as of June 30, 1999.
(4) Based on 4,728,571 shares outstanding as of June 30, 1999.
(5) Based on 4,016,099 shares outstanding as of June 30, 1999.
(6) Based on 18,850,399 shares outstanding as of June 30, 1999, which
represents all shares on an as converted basis.
(7) Includes shares held by Matrix Partners IV, L.P. and Matrix IV
Entrepreneurs Fund, L.P.
(8) Includes shares held by Institutional Venture Partners VII, L.P.,
Institutional Venture Management VII, L.P., IVP Founders Fund I, L.P. and
IVP Broadband Fund.
(9) Incudes shares held by Worldview Technology Partners I, L.P., Worldview
Technology International I, L.P. and Worldview Strategic Partners I, L.P.
(10) Includes shares held by DLJ Capital Corp., DLJ ESC II, L.P. Sprout Capital
VIII, L.P. and Sprout Venture Capital, L.P.
(11) Includes shares held by Mitsubishi International Corporation and MC Silicon
Valley, Inc.
(12) Mr. Anderson, a general partner of North Bridge Venture Partners is a
director of NetCore. Mr. Anderson does not own any shares of NetCore in his
individual capacity and disclaims beneficial ownership of the shares listed
except to the extent of his pecuniary interest therein.
(13) Mr. Marcuvitz, a general partner of Matrix Partners IV. L.P. and Matrix IV
Entrepreneurs Fund, L.P. is a director of NetCore. Mr. Marcuvitz does not
own any shares of NetCore in his individual capacity and disclaims
beneficial ownership of the shares listed except to the extent of his
pecuniary interest therein.
(14) Mr. Dahod is President and Chief Executive Officer of NetCore.
(15) Mr. Diamond, a general partner of DLJ Capital Corp., DLJ ESC II, L.P.
Sprout Capital VIII, L.P. and Sprout Venture Capital, L.P. is a director of
NetCore. Mr. Diamond does not own any shares of NetCore in his individual
capacity and disclaims beneficial ownership of the shares listed except to
the extent of his pecuniary interest therein.
(16) Mr. Ahmed is President and CEO of Sonus Networks and is a director of
NetCore. Includes options to purchase 20,000 shares of common stock
exercisable within 60 days of the date of this table.
(17) Includes 17,500 shares of stock subject to options exercisable within 60
days of the date of this table.
(18) Includes 70,000 shares of stock subject to options to purchase common stock
exercisable within 60 days of the date of this table, and 60,000 of which
become exercisable upon the consummation of the merger.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth certain information about the executive
officers and directors of NetCore, as well as certain other members of its
senior management, and their ages and positions as of June 30, 1999.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ashraf M. Dahod 48 Founder, President and Chairman of Board of
Directors
Kwabena D. Akufo 45 Founder and Vice President of Engineering
William J. Stuart 48 Chief Financial Officer
Jane R. Brandt 46 Vice President of Sales
John M. Shaw 43 Vice President of Marketing
Mark T. Terenzoni 36 Vice President of Manufacturing
Edward T. Anderson 50 Director
Andrew Marcuvitz 49 Director
Stephen M. Diamond 42 Director
Hassan M. Ahmed 41 Director
</TABLE>
Ashraf M. Dahod co-founded NetCore and has served as President and Chairman
of the Board of Directors since October 1996. From 1993 to 1996, Mr. Dahod
served as Vice President and General Manager of SMC Enterprise Networks, a
business unit of Standard Microsystems Corporation, which was sold to Cabletron
Systems, Inc. in 1996. In 1988, Mr. Dahod co-founded Sigma Network Systems, Inc.
and served as its President until the business was sold to Standard
Microsystems. In 1981, Mr. Dahod founded Applitek Corporation and, until 1987,
served as its President. Mr. Dahod holds an M.B.A. from Harvard University, an
M.S.E.M. from Northeastern University, an M.S.E.E. from Stanford University, a
B.S.E.E. from the University of Michigan, and a B.Sc. in Physics from the
University of Bombay.
Kwabena D. Akufo co-founded NetCore and has served as Vice President of
Engineering since October 1996. From 1993 to 1996, Mr. Akufo served as Director
of Engineering and Manufacturing Engineering at SMC Enterprise
45
<PAGE> 51
Networks. In 1988, Mr. Akufo co-founded Sigma Network Systems, Inc. and served
as its Vice President of Engineering and Manufacturing until the business was
sold to Standard Microsystems, where he served as Director until 1996 when it
was sold to Cabletron. From 1985 to 1987, Mr. Akufo was the Manager of Software
Engineering at Applitek. Mr. Akufo holds an M.S.C.S. from Rensselaer Polytechnic
Institute and a B.A.C.S. from Brandeis University.
William J. Stuart has served as Vice President and Chief Financial Officer
of NetCore since May 1999. From 1997 to 1999, Mr. Stuart served as Vice
President and Chief Financial Officer of Telco Systems, Inc. From 1992 to 1997,
Mr. Stuart served as Senior Vice President and Chief Financial Officer of
AccessLine Technologies, Inc. From 1989 to 1992, Mr. Stuart was Vice President
at AT&T Paradyne. Mr. Stuart holds an MBA from Northeastern University and a
B.A. from Boston College.
Jane R. Brandt has served as Vice President of Sales of NetCore since
August 1997. From 1992 to 1997, Ms. Brandt served as Vice President of Eastern
Region Sales at Cascade Communications Corporation. From 1987 to 1992, Ms.
Brandt served as Director of Communications Systems at Amdahl Corporation. Ms.
Brandt holds a B.A. in English from Boston College.
John M. Shaw has served as Vice President of Marketing of NetCore since
August 1997. From 1995 to 1997, Mr. Shaw served as Assistant Vice President of
Marketing at Newbridge Networks Corporation. From 1985 to 1995, Mr. Shaw was
employed by NYNEX Corporation where he served as Director of Product Management.
From 1992 to 1994, Mr. Shaw served as Treasurer and Trustee of Frame Relay
Forum. Mr. Shaw holds an M.B.A. from Boston University and a Bachelor of Music
from the University of New Hampshire.
Mark T. Terenzoni has served as Vice President of Manufacturing of NetCore
since July 1998. From 1992 to 1998, Mr. Terenzoni served as Senior Director of
Manufacturing at Shiva Corporation. From 1987 to 1992, Mr. Terenzoni served as
Principal Engineer at Sun Microsystems Inc. From 1985 to 1987, Mr. Terenzoni
served as Technical Lead at Eastman Kodak Co. Mr. Terenzoni holds a B.S.E.E.
from Wentworth Institute of Technology.
Edward T. Anderson has served as a Director of NetCore since December 1996.
Mr. Anderson has served as a General Partner of North Bridge Venture Partners
since inception. From 1985 until he joined North Bridge, Mr. Anderson served as
a General Partner of ABS Ventures, a venture capital affiliate of Alex. Brown &
Sons. From 1983 to 1984, Mr. Anderson served as Strategic Planning Consultant
for The Michael Allen Company. Mr. Anderson holds an M.B.A. from Columbia
University.
Andrew Marcuvitz has served as a Director of NetCore since December 1996.
Mr. Marcuvitz has served as a General Partner of Matrix Partners since 1990. Mr.
Marcuvitz founded Apollo Computer and served as its Vice President of Research
and Development from its formation until 1990. From 1977 to 1980, Mr. Marcuvitz
served as Principal Engineer of Prime Computer. Mr. Marcuvitz holds an Sc.B. in
Applied Mathematics from Brown University and is an M.S. and Ph.D. candidate in
Applied Mathematics at Harvard University.
Stephen M. Diamond has served as a Director of NetCore since December 1998.
Since April 1998, Diamond has served as a General Partner of the Sprout Group, a
venture capital affiliate of DLJ. From 1996 to 1998, Mr. Diamond served as Group
Vice President and Worldwide Director of Telecommunications for Dataquest, a
unit of Gartner Group, Inc. From 1995 to 1996, he served as Vice President of
Worldwide Marketing for Retrix. From 1991 to 1993, Mr. Diamond served as
Director of Product Planning, Group Director of Corporate Strategy and Vice
President of Corporate Marketing of Ungermann-Bass, Inc. Mr. Diamond holds an
A.B. from Boston College, a M.S. from Tufts University and a M.P.A from
Northeastern University.
Hassan M. Ahmed has served as a Director of NetCore since December 1998.
Mr. Ahmed has served as President of Sonus Networks since 1998. From 1997 to
1998, Mr. Ahmed served as Executive Vice President and General Manager of the
Core Systems Division of Ascend Communications. From 1995 to 1997, he served as
Chief Technology Officer of Cascade Communications, Inc. From 1993 to 1995, Mr.
Ahmed served as President and founder of WaveAccess, a high-speed wireless
network products company. Previously, he served as Product Engineering Manager
of Analog Devices and Director of VSLI Systems of Motorola Codex. Mr. Ahmed
holds a B.S.E.E. and M.S.A.E. from Carleton University and PhD in Electrical
Engineering from Stanford University.
46
<PAGE> 52
Each officer serves at the discretion of the NetCore Board of Directors and
holds office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. There are no family relationships among any
of the directors or executive officers of NetCore.
Directors do not currently receive any compensation for their services on
the NetCore Board of Directors, other than reimbursement for out-of-pocket
expenses.
EXECUTIVE COMPENSATION
The following table sets forth all compensation awarded, earned, or paid
for services rendered in all capacities to NetCore during each of 1997 and 1998
to (i) NetCore's Chief Executive Officer and (ii) each of the other executive
officers who received annual compensation in excess of $100,000. NetCore does
not grant stock appreciation rights and has no long-term compensation benefits
other than stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION(1) AWARDS
--------------------------- ------------
ALL OTHER
NAME AND SALARY RESTRICTED COMPENSATION
PRINCIPAL POSITION YEAR ($) BONUS ($) STOCK AWARDS ($)
------------------ ---- ------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ashraf M. Dahod 1998 $129,807 $ -- -- $ --
President and Chief Executive 1997 125,000 -- -- --
Officer
Kwabena D. Akufo 1998 124,615 -- -- --
Vice President of Engineering 1997 120,000 -- -- --
Jane R. Brandt 1998 124,620 30,000 -- --
Vice President of Worldwide 1997 32,711(2) 2,423 275,000 --
Sales
John M. Shaw 1998 109,038 20,000 -- 23,215(4)
Vice President of Marketing 1997 34,326(3) 2,308 -- 10,980(4)
</TABLE>
- ----------------------------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table does not include medical, group life or
other benefits which are available to all salaried employees of NetCore,
and certain perquisites and other benefits, securities or property which do
not exceed the lesser of $50,000 or 10% of the person's salary and bonus
shown in the table.
(2) Ms. Brandt joined NetCore in August 1997.
(3) Mr. Shaw joined NetCore in August 1997.
(4) Represents reimbursement for relocation expenses.
Stock Options and Fiscal Year End Option Values
None of the officers listed in the Summary Compensation Table holds any
options to purchase common stock.
47
<PAGE> 53
1997 Stock Option Plan
A total of 1,250,000 shares of NetCore common stock have been reserved for
issuance to employees, officers, directors, consultants and advisors upon
exercise of incentive and non-statutory options granted under NetCore's 1997
Stock Option Plan. As of June 30, 1999, no shares of common stock had been
issued upon exercise of options granted under the stock option plan, and options
to purchase 1,073,100 shares of NetCore common stock are currently outstanding.
Under the stock option plan, options may be granted to employees, officers,
directors, consultants and advisors. Only employees may receive "incentive stock
options," which are intended to qualify for certain tax treatment; nonemployees
receive "nonstatutory stock options," which do not qualify for such treatment.
The stock option plan is administered by NetCore's Board of Directors, which has
the authority to grant options and determine the exercise price and duration of
options granted. Options expire on the tenth anniversary of the date of grant,
unless earlier terminated. Options generally vest as to 20 percent of the
original number of shares on the first anniversary of the participant's
employment by NetCore and then quarterly thereafter in installments of five
percent. In the event of the acquisition of NetCore by a third party, whether by
merger, sale of assets, sale of securities or otherwise, (including the merger
involving Tellabs and Blackhawk) and the vesting schedule will be accelerated by
18 months. The Board of Directors may amend the Plan at any time. The stock
option plan will terminate on July 16, 2007, unless sooner terminated by the
Board of Directors.
Employment Agreement
NetCore has an Employment Agreement with Mr. Ashraf Dahod, Chief Executive
Officer of NetCore, which expires upon the termination of Mr. Dahod's employment
with NetCore. This agreement establishes a base salary, subject to increase by
the NetCore Board of Directors. Mr. Dahod's base salary is currently $160,000
per year.
CERTAIN TRANSACTIONS
NetCore has an agreement with NuLink, Inc. (US), which contracts with
Nu-Link (India) Pvt, Ltd., an India-based company jointly owned by Mr. Dahod,
President and Chairman of the Board of NetCore, and his wife Dr. Shamim Dahod,
to develop network management software for NetCore. Through June 30, 1999,
NetCore paid NuLink an aggregate of $334,129 under this agreement.
On October 16, 1996, NetCore issued an aggregate of 157,895 shares of
Series A preferred stock to Cabletron Systems, Inc. at a purchase price of
$12.67 per share.
On November 27, 1996, NetCore issued an aggregate of 3,550,000 shares of
Series B preferred stock at a purchase price of $1.00 per share to six
purchasers. Matrix Partners IV, LP purchased an aggregate of 1,876,250 these
shares, Matrix IV Entrepreneurs Fund, LP purchased an aggregate of 98,750 of
these shares and North Bridge Venture Partners LP purchased an aggregate of
1,500,000 of these shares.
On December 16, 1997, NetCore issued 4,728,571 shares of Series C preferred
stock to eleven purchasers at a purchase price of $1.75 per share. Matrix
Partners IV, LP purchased an aggregate of 1,085,714 of these shares, Matrix IV
Entrepreneurs Fund, LP purchased an aggregate of 57,143 of these shares, North
Bridge Venture Partners purchased an aggregate of 702,063 of these shares,
Institutional Venture Partners purchased an aggregate of 1,714,286 of these
shares and Worldview Technology Partners purchased an aggregate of 1,142,857 of
these shares.
On December 3, 1998 and March 16, 1999, NetCore issued an aggregate of
4,016,099 shares of Series D preferred stock to twenty-one purchasers at a
purchase price of $5.08 per share. Matrix Partners IV, LP purchased 356,424 of
these shares, Matrix IV Entrepreneurs Fund, LP purchased 18,746 of these shares,
North Bridge Venture Partners, LP purchased 265,057 of these shares,
Institutional Venture Partners purchased 314,916 of these shares, DLJ Capital
Corp. purchased 26,181 of these shares, DLJ ESC II, LP purchased 167,028 of
these shares, Sprout Capital VII, LP purchased 1,674,807 of these shares and
Sprout Venture Capital LP purchased 100,488 of these shares.
48
<PAGE> 54
DESCRIPTION OF TELLABS' CAPITAL STOCK
The following summary description of the capital stock of Tellabs does not
purport to be complete and is qualified in its entirety by the provisions of
Tellabs' certificate of incorporation and by-laws and by the applicable
provisions of Delaware corporate law. For information on how to obtain copies of
Tellabs' certificate of incorporation and by-laws, see "WHERE YOU CAN FIND MORE
INFORMATION."
CAPITAL STOCK
Under Tellabs' certificate of incorporation, the Tellabs Board has the
authority to issue a maximum of 500,000,000 shares of Tellabs common stock, par
value $.01 per share, and 5,000,000 shares of Tellabs preferred stock, par value
$.01 per share. As of July 2, 1999, there were issued or outstanding 392,275,349
shares of Tellabs common stock and no shares of Tellabs preferred stock.
According to the Tellabs certificate of incorporation, the Tellabs Board may
issue Tellabs preferred stock in one or more series and may determine the voting
powers (if any) and the designations, preferences and special rights and
qualifications of those series. Should Tellabs issue shares of preferred stock
the relative rights of Tellabs common stock would be affected, depending upon
the exact rights and powers the Tellabs Board confers on the preferred stock.
DIVIDEND RIGHTS
The Tellabs Board may declare dividends on Tellabs common stock or any
class of Tellabs preferred stock. Tellabs has never paid cash dividends and
currently has no plans to pay cash dividends in the near future. See "SUMMARY --
Market Prices."
VOTING RIGHTS
Each holder of Tellabs common stock is entitled to one vote for each share
held on any matter submitted to a vote of Tellabs stockholders, including the
election of directors. Tellabs stockholders do not have cumulative voting
rights. See "-- Change of Control" for information regarding Tellabs' classified
Board of directors. All elections and matters submitted to a vote of Tellabs
stockholders are decided by the affirmative vote of a majority of the shares
present (in person or by proxy) and entitled to vote, provided that a quorum is
present, except as otherwise required by Delaware corporate law or the Tellabs
certificate of incorporation. The Tellabs certificate of incorporation prohibits
the holders of Tellabs common stock to act by written consent.
Under Delaware law, a corporation's certificate of amendment may be amended
by the affirmative vote of a majority of its outstanding shares, unless the
certificate of incorporation specifies a higher percentage. Article Sixth of the
Tellabs certificate of incorporation provides that the provisions of Article
Fifth (relating to the vote required to amend the Tellabs by-laws) and Article
Sixth (relating to provisions regarding the election of members to the Tellabs
Board and meetings of stockholders) may not be repealed or amended without the
approval of at least 75% of the voting power of the then outstanding shares of
Tellabs common stock. Article Fifth of the Tellabs certificate of incorporation
allows the Tellabs Board to amend or repeal the Tellabs by-laws.
CHANGE OF CONTROL
The Delaware corporation statute, the Tellabs certificate of incorporation
and the Tellabs by-laws contain provisions that could discourage or make more
difficult a change of control of Tellabs.
Charter and By-law Provisions. Under the Tellabs by-laws, only the
President may call a special meeting of stockholders. A majority of the Tellabs
Board may request that the President call such a special meeting. Tellabs
stockholders are not entitled to request a special meeting.
Under the Tellabs by-laws, the Tellabs Board or a committee appointed by
the Tellabs Board nominates persons to be elected as directors. Generally, any
stockholder entitled to vote in the election of directors may also nominate
persons to be elected as directors. To do so, the Tellabs by-laws require that a
stockholder deliver written notice of his intent to make such a nomination, by
personal delivery or by mail, to Tellabs. If the nomination is to be made at an
annual meeting of stockholders, the stockholder's notice must be delivered at
least 120 days in advance of the date of the proxy statement sent in connection
with the previous year's annual meeting. If the nomination is to be made
49
<PAGE> 55
at a special meeting of stockholders, the stockholder's notice must be sent at
least 15 days before the mailing date of the proxy statement for such meeting.
Each notice must set forth:
- the name and address of the stockholder making the nomination and the
persons to be nominated;
- a representation that the stockholder is a holder of record of Tellabs
common stock entitled to vote at the meeting and that he intends to
appear at the meeting (in person or by proxy) to nominate the persons
specified;
- a description of all arrangements or understandings between the
stockholder and each nominee and any other persons (naming such person
or persons) pursuant to which the stockholder is to make the
nominations;
- all other information regarding each proposed nominee as required to
be included in a proxy statement filed pursuant to the proxy rules of
the Securities and Exchange Commission, had the nominee been nominated
by the Tellabs Board; and
- the consent of each nominee to serve as a director if elected.
The presiding officer at any stockholder meeting may refuse to acknowledge
the nomination of any person not made in compliance with these procedures.
Under the Tellabs by-laws, the Tellabs Board is currently fixed at eight
members. In addition, the Tellabs Board is divided into three classes, as nearly
equal in number as possible, serving staggered three-year terms. Thus, at each
annual meeting of stockholders, the directors elected succeed those in the class
whose terms then expire. The Tellabs Board fills any vacancies that occur on the
Tellabs Board. The directors elected to fill a vacancy will hold office for the
remainder of the term of the class to which they have been elected. Any increase
or decrease in the number of directorships is apportioned among the classes so
as to make all classes as nearly equal in number as possible. These staggered
terms for directors extend the time required to elect a majority of directors
from one to two years. It would be impossible, assuming no resignations or
removals of directors, for the stockholders of Tellabs to change a majority of
the directors of Tellabs at any annual meeting should they consider such a
change desirable, unless Article Sixth of the Tellabs certificate of
incorporation is amended by action of at least 75% of the voting power of the
then outstanding shares of voting stock of Tellabs. The stockholders of Tellabs
may remove directors only for cause, and only by the vote of at least 75% of the
then outstanding shares of voting stock of Tellabs.
The Tellabs certificate of incorporation provides that the Tellabs Board
may give due consideration to all relevant factors when evaluating any offer of
another person to:
- make a tender or exchange offer for any equity security of Tellabs,
- merge or consolidate Tellabs with another corporation, or
- purchase or otherwise acquire all or substantially all of the
properties and assets of Tellabs.
Among the relevant factors the Tellabs Board may consider are the social
and economic effects on the employees, customers, suppliers and other
constituencies of Tellabs and its subsidiaries and in the communities in which
Tellabs and its subsidiaries operate or are located.
Delaware General Corporation Law. As a Delaware corporation, Tellabs is
subject to the provisions of Section 203 of the Delaware corporation statute.
Generally, this statute prohibits a publicly held Delaware corporation from
engaging in a "business combination" (as defined in the statute) with an
"interested stockholder" (as defined in the statute) for a period of three years
after the date of the transaction in which the person became an interested
stockholder, unless
- prior to that date, the corporation's board of directors has approved
either the business combination or the transaction that resulted in
his becoming an interested stockholder,
- upon consummation of the transaction that resulted in his becoming an
interested stockholder, the interested stockholder owned at least 85%
of the voting stock of the corporation outstanding at the time the
transaction was commenced (excluding certain specified shares), or
- on or after the date he became an interested stockholder, the business
combination is approved by the corporation's board of directors and
authorized by the affirmative vote at an annual or special meeting,
and not by written consent, of at least 66 2/3% of the outstanding
voting stock of the corporation (excluding the stock owned by the
interested stockholder).
50
<PAGE> 56
The statute generally defines a "business combination" to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder. The statute generally defines an "interested
stockholder" as a person or entity, other than the corporation and any direct or
indirect wholly owned subsidiary of the corporation, who, together with its
affiliates and associates, owns (or within a three-year period did own) 15% or
more of a corporation's stock entitled to vote generally in the election of
directors. Section 203 expressly exempts from the requirements described above
any business combination by a corporation with an interested stockholder who
becomes an interested stockholder in a transaction approved by that
corporation's board of directors.
LIQUIDATION RIGHTS
Upon the liquidation, dissolution or winding up of the affairs of Tellabs,
the holders of Tellabs common stock are entitled to share ratably in all assets
of Tellabs available for distribution to such holders after the payment of all
debts and other liabilities, subject to the prior rights of the holders of any
outstanding series of Tellabs preferred stock.
PREEMPTION, SUBSCRIPTION, REDEMPTION AND CONVERSION
The holders of Tellabs common stock have no preemptive or subscription
rights to purchase additional securities issued by Tellabs nor any rights to
convert their Tellabs common stock into other securities of Tellabs or to have
their shares redeemed by Tellabs.
MISCELLANEOUS
The outstanding shares of Tellabs common stock are, and the shares of
Tellabs common stock to be delivered pursuant to the merger upon delivery will
be, duly authorized, validly issued, fully paid and nonassessable. The
outstanding shares of Tellabs common stock are, and the shares of Tellabs common
stock to be delivered pursuant to the merger upon notice of issuance will be,
listed on Nasdaq. Harris Trust and Savings Bank is the transfer agent and
registrar for Tellabs common stock.
51
<PAGE> 57
COMPARISON OF RIGHTS OF NETCORE STOCKHOLDERS
AND TELLABS STOCKHOLDERS
After consummation of the merger, the holders of NetCore common stock and
NetCore preferred stock who receive Tellabs common stock under the terms of the
merger agreement will become stockholders of Tellabs. Because NetCore and
Tellabs are both Delaware corporations, the rights of NetCore stockholders will
continue to be governed by the Delaware corporations statute. Additionally, the
rights of stockholders of NetCore are presently governed by the NetCore
certificate of incorporation and the NetCore by-laws. As stockholders of
Tellabs, their rights following the consummation of the merger will instead be
governed by the Tellabs certificate of incorporation and the Tellabs by-laws.
Certain differences between the rights of Tellabs stockholders and NetCore
stockholders, under their respective charters, are summarized below. This
summary does not purport to be complete, and is qualified in its entirety by
reference to the Tellabs certificate of incorporation and by-laws, the NetCore
certificate of incorporation and by-laws, and the Delaware corporation statute.
See "DESCRIPTION OF TELLABS CAPITAL STOCK."
SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS
Tellabs. Tellabs' certificate of incorporation and by-laws provide that its
Board of Directors be comprised of three classes, each class elected for a term
of three years each and a different class of directors standing for election
each year. Tellabs' by-laws provide that the number of directors shall be eight,
which number may be changed by amendment of the by-laws.
NetCore. NetCore's by-laws provide that the number of directors shall be
determined by resolution of the stockholders or the Board of Directors, but in
no event shall be less than one nor more than six. The number of directors may
be decreased either by the stockholders or by a majority of the directors then
in office, but only to eliminate vacancies existing by reason of the death,
resignation, removal or expiration of the term of one or more of the directors.
NetCore does not have a classified board of directors.
REMOVAL OF DIRECTORS
Tellabs. Tellabs' certificate of incorporation and by-laws provide that a
director may be removed only for cause and only by the affirmative vote of (1)
the holders of at least 75% of the voting power of the shares then entitled to
vote at an election of directors, voting together as a single class, or (2) by a
majority of the Board of Directors.
NetCore. NetCore's by-laws provide that a director may be removed with or
without cause by the holders of a majority of the shares then entitled to vote
at an election of directors.
BY-LAW AMENDMENTS
Tellabs. Tellabs' by-laws may be amended by the Board of Directors or by
the affirmative vote of the holders of 75% or more of the voting power of the
then outstanding shares of capital stock of Tellabs entitled to vote at an
election of directors.
NetCore. NetCore's by-laws may be amended by its Board of Directors or by
the affirmative vote of the holders of a majority of the shares of the capital
stock of the corporation entitled to vote.
CERTIFICATE OF INCORPORATION AMENDMENTS
Tellabs. Tellabs' certificate of incorporation may be amended by the
corporation or, for matters regarding the amendment of the by-laws or the Board
of Directors, by the affirmative vote of not less than 75% of the voting power
of the then outstanding shares of capital stock of Tellabs entitled to vote in
the election of directors.
NetCore. NetCore's certificate of incorporation may be amended by the
corporation, except that an affirmative vote of at least a majority of the
holders of the outstanding shares of preferred stock is required for changes
that may adversely affect the rights, preferences or special powers of preferred
stockholders.
52
<PAGE> 58
ACTION BY WRITTEN CONSENT
Tellabs. Tellabs' certificate of incorporation provides that any action by
the stockholders may only be taken at an annual or special meeting and may not
be taken by written consent.
NetCore. NetCore's by-laws provide that any action to be taken by the
stockholders may be taken by written consent.
TRANSACTIONS WITH INTERESTED STOCKHOLDERS
Tellabs. As a publicly held corporation, Tellabs is subject to Section 203
of the Delaware corporation statute. For more information on Section 203 of the
Delaware corporation statute see "DESCRIPTION OF TELLABS CAPITAL STOCK --
Delaware General Corporation Law."
NetCore. NetCore is not publicly held and accordingly is not subject to
Section 203 of the Delaware corporation statute.
53
<PAGE> 59
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS OF NETCORE
If the merger is consummated, a holder of record of NetCore stock on the
date of making a demand for appraisal, as described below, will be entitled to
have those shares appraised by the Delaware Court of Chancery under Section 262
of the Delaware corporation statute and to receive payment for the "fair value"
of those shares instead of the consideration provided for in the merger
agreement. In order to be eligible to receive this payment, however, a
stockholder must (1) continue to hold his shares through the time of the merger;
(2) strictly comply with the procedures discussed under Section 262; and (3) not
vote in favor of the merger. Shares of NetCore common stock and preferred stock
outstanding immediately prior to the effective time of the merger, with respect
to which appraisal shall have been properly demanded in accordance with Section
262, will not be converted into the right to receive shares of Tellabs common
stock in the merger at or after the effective time of the merger unless and
until the holder of such shares withdraws his demand for such appraisal or
becomes ineligible for such appraisal.
Holders of Tellabs common stock and holders of NetCore options outstanding
at the effective time of the merger are not entitled to appraisal rights in
connection with the merger.
This proxy statement and prospectus is being sent to all holders of record
of NetCore stock on the record date for the NetCore special meeting and
constitutes notice of the appraisal rights available to those holders under
Section 262. THE STATUTORY RIGHT OF APPRAISAL GRANTED BY SECTION 262 IS COMPLEX
AND REQUIRES STRICT COMPLIANCE WITH THE PROCEDURES IN SECTION 262. FAILURE TO
FOLLOW ANY OF THESE PROCEDURES MAY RESULT IN A TERMINATION OR WAIVER OF
DISSENTERS' RIGHTS UNDER SECTION 262. THE FOLLOWING IS A SUMMARY OF THE
PRINCIPAL PROVISIONS OF SECTION 262.
The following summary is not a complete statement of Section 262 of the
Delaware corporation statute, and is qualified in its entirety by reference to
Section 262 which is incorporated herein by reference, together with any
amendments to the laws that may be adopted after the date of this proxy
statement and prospectus. A copy of Section 262 is attached as Annex E to this
registration statement and prospectus.
A holder of NetCore stock who elects to exercise appraisal rights under
Section 262 must deliver a written demand for appraisal of his shares of NetCore
prior to the vote on the merger. The written demand must identify the
stockholder of record and state the stockholder's intention to demand appraisal
of his shares. Voting against approval of the merger, abstaining from voting or
failing to vote with respect to approval of the merger will not constitute a
demand for appraisal within the meaning of Section 262. All demands should be
delivered to: President, NetCore Systems, Inc., 187 Ballardvale Street,
Wilmington, MA 01887.
Only a holder of shares of NetCore stock on the date of making a written
demand for appraisal who continuously holds those shares through the time of the
merger is entitled to seek appraisal. Demand for appraisal must be executed by
or for the holder of record, fully and correctly, as that holder's name appears
on the holder's stock certificates representing shares of NetCore stock. If
NetCore stock is owned of record in a fiduciary capacity by a trustee, guardian
or custodian, the demand should be made in that capacity. If NetCore stock is
owned of record by more than one person, as in a joint tenancy or tenancy in
common, the demand should be made by or for all owners of record. An authorized
agent, including one or more joint owners, may execute the demand for appraisal
for a holder of record; that agent, however, must identify the record owner or
owners and expressly disclose in the demand that the agent is acting as agent
for the record owner or owners of the shares.
A record holder such as a broker who holds shares of NetCore stock as a
nominee for beneficial owners, some of whom desire to demand appraisal, must
exercise appraisal rights on behalf of those beneficial owners with respect to
the shares of NetCore stock held for those beneficial owners. In that case, the
written demand for appraisal should state the number of shares of NetCore stock
covered by it. Unless a demand for appraisal specifies a number of shares, the
demand will be presumed to cover all shares of NetCore stock held in the name of
the record owner.
BENEFICIAL OWNERS WHO ARE NOT RECORD OWNERS AND WHO INTEND TO EXERCISE
APPRAISAL RIGHTS SHOULD INSTRUCT THE RECORD OWNER TO COMPLY WITH THE STATUTORY
REQUIREMENTS WITH RESPECT TO THE EXERCISE OF APPRAISAL RIGHTS BEFORE THE DATE OF
THE NETCORE SPECIAL MEETING.
54
<PAGE> 60
Within 10 days after the merger, the surviving corporation in the merger is
required to send notice of the effectiveness of the merger to each stockholder
who prior to the time of the merger has complied with the requirements of
Section 262.
Within 120 days after the merger, the surviving corporation in the merger
or any stockholder who has complied with the requirement of Section 262 may file
a petition in the Delaware Court of Chancery demanding a determination of the
fair value of the shares of NetCore stock held by all stockholders seeking
appraisal. A dissenting stockholder must serve a copy of the petition on
NetCore, as the surviving corporation in the merger. If no petition is filed by
either Tellabs or any dissenting stockholder within the 120-day period, the
rights of all dissenting stockholders to appraisal will cease. Stockholders
seeking to exercise appraisal rights should not assume that the surviving
corporation will file a petition with respect to the appraisal of the fair value
of their shares or that the surviving corporation will initiate any negotiations
with respect to the fair value of those shares. The surviving corporation is
under no obligation to and has no present intention to take any action in this
regard. Accordingly, stockholders who wish to seek appraisal of their shares
should initiate all necessary action with respect to the perfection of their
appraisal rights within the time periods and in the manner prescribed in Section
262. FAILURE TO FILE THE PETITION ON A TIMELY BASIS WILL CAUSE THE STOCKHOLDER'S
RIGHT TO AN APPRAISAL TO CEASE.
Within 120 days after the time of the merger, any stockholder who has
complied with subsections (a) and (d) of Section 262 is entitled, upon written
request, to receive from the surviving corporation in the merger a statement
setting forth the total number of shares of NetCore stock not voted in favor of
the merger with respect to which demands for appraisal have been received and
the number of holders of those shares. The statement must be mailed within 10
days after Tellabs has received the written request or within 10 days after the
time for delivery of demands for appraisal under subsection (d) of Section 262
has expired, whichever is later.
If a petition for an appraisal is filed in a timely manner, at the hearing
on that petition the Delaware Court of Chancery will determine which
stockholders are entitled to appraisal rights and will appraise the shares of
NetCore stock owned by those stockholders. The court will determine the fair
value of those shares, exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest, to be paid, if any, upon the fair value. The Delaware Court of
Chancery may require the stockholders who have demanded appraisal rights for
their shares of NetCore stock and who hold certificates representing such shares
to submit such certificates to the Register in Chancery for notation thereon
during the pendency of any hearing. The Court of Chancery may dismiss the
proceedings as to any stockholder who fails to comply with any such directions.
Stockholders who consider seeking appraisal should consider that the fair
value of their shares under Section 262 could be more than, the same as, or less
than, the value of the consideration provided for in the merger agreement
without the exercise of appraisal rights. The Court of Chancery may determine
the cost of the appraisal proceeding and assess it against the parties as the
Court deems equitable. Upon application of a dissenting stockholder, the Court
may order that all or a portion of the expenses incurred by any dissenting
stockholder in connection with the appraisal proceeding (including, without
limitation, reasonable attorney's fees and the fees and expenses of experts) be
charged pro rata against the value of all shares of NetCore stock entitled to
appraisal. In the absence of a court determination or assessment, each party
bears its own expenses.
Any stockholder who has demanded appraisal in compliance with Section 262
will not, after the merger, be entitled to vote such stock for any purpose or
receive payment of dividends or other distributions, if any, on the NetCore
stock, except for dividends or distributions, if any, payable to stockholders of
record at a date prior to the merger.
A stockholder may withdraw a demand for appraisal and accept the Tellabs
common stock at any time within 60 days after the effective date of merger, or
thereafter may withdraw a demand for appraisal with the written approval of the
surviving corporation in the merger. If an appraisal proceeding is properly
instituted, it may not be dismissed as to any stockholder without the approval
of the Delaware Court of Chancery, and any such approval may be conditioned on
the Court of Chancery's deeming the terms to be just. If, after the merger, a
holder of NetCore stock who had demanded appraisal for his shares fails to
perfect or loses his right to appraisal, those shares will be treated under the
merger agreement as if they were converted into Tellabs common stock at the time
of the merger.
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE CORPORATION
STATUTE, ANY NETCORE STOCKHOLDER WHO IS CONSIDERING EXERCISING APPRAISAL RIGHTS
SHOULD CONSULT A LEGAL ADVISOR.
55
<PAGE> 61
EXPERTS
The consolidated financial statements and schedule of Tellabs for January
1, 1999 and January 2, 1998 and for each of the two years in the period ended
January 1, 1999, incorporated by reference in Tellabs' Annual Report on Form
10-K for the year ended January 1, 1999, which is referred to and made a part of
this registration statement of which this proxy statement and prospectus is a
part, were audited by Ernst & Young LLP, independent auditors, as set forth in
their reports and are incorporated by reference in this proxy statement and
prospectus in reliance upon reports given on the authority of such firm as
experts in accounting and auditing. The consolidated financial statements of
Tellabs incorporated by reference in the Annual Report on Form 10-K of Tellabs
for the period ended December 27, 1996 was audited by Grant Thornton LLP,
independent auditors, as stated in their report, which is incorporated by
reference into this proxy statement and prospectus, and has been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
The financial statements of NetCore included in this registration
statement, of which this proxy statement and prospectus is a part, are from the
report of PricewaterhouseCoopers LLP, independent certified public accountants
and are included in this proxy statement and prospectus in reliance upon said
firm as experts in accounting and auditing.
Representatives of Ernst & Young LLP and PricewaterhouseCoopers LLP, are
expected to be present at the NetCore special meeting, will have the opportunity
to make a statement if they desire to do so and will be available to respond to
appropriate questions.
LEGAL OPINIONS
The validly of the shares of Tellabs Common Stock being offered hereby is
being passed upon for Tellabs by James M. Sheehan, Assistant General Counsel of
Tellabs. Mr. Sheehan is a stockholder of Tellabs and holds options to purchase
shares of Tellabs common stock.
It is a condition to the consummation of the merger that Sidley & Austin,
counsel to Tellabs, and Hale and Dorr LLP, counsel to NetCore, each deliver
opinions concerning certain federal income tax consequences of the merger, dated
as of the effective time of the merger.
WHERE YOU CAN FIND MORE INFORMATION
Tellabs files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (SEC). NetCore is
not required to file annual, quarterly or other reports with the SEC. You may
read and copy any reports, statements or other information filed by Tellabs at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C
20549. Please call the SEC at 1-800-SEC-0330 for further information on the
operation of the Public Reference Room. Tellabs' SEC filings are also available
to the public from commercial document retrieval services. The website
maintained by the SEC is "http://www.sec.gov". You may also access Tellabs' SEC
filings through the website maintained by Tellabs, which is
"http://www.tellabs.com".
Tellabs has filed with the SEC a registration statement on Form S-4 to
register the Tellabs common stock to be issued pursuant to the merger agreement.
This proxy statement and prospectus is a part of that registration statement and
constitutes a prospectus of Tellabs in addition to being a proxy statement of
NetCore for the special meeting. As allowed by SEC rules, this proxy statement
and prospectus does not contain all the information you can find in the
registration statement and the exhibits to the registration statement.
The SEC allows Tellabs to "incorporate by reference" information into this
proxy statement and prospectus, which means that Tellabs can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
proxy statement and prospectus, except for any information superseded by
information in this proxy statement and prospectus. This proxy statement and
prospectus incorporates by reference the documents set forth below that Tellabs
has previously filed with the SEC. These documents contain important information
about Tellabs and its finances.
56
<PAGE> 62
<TABLE>
<CAPTION>
TELLABS SEC FILINGS
(FILE NO. 0-9692) PERIOD
- ------------------- ------
<S> <C>
Annual Report on Form 10-K Fiscal Year ended January 1, 1999
Report on Form 11-K Fiscal Year ending December 31, 1998
Quarterly Reports on Form 10-Q Fiscal Quarter ended April 2, 1999
Current Reports on Form 8-K Filed on July 7, 1999, April 29, 1999 and April 22, 1999
</TABLE>
We have enclosed copies of the Tellabs documents referred to above with
this proxy statement and prospectus. Tellabs also hereby incorporates by
reference all additional documents that Tellabs files with the SEC pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this
proxy statement and prospectus and the date of the special meeting.
If you are a stockholder of Tellabs, Tellabs may have sent you some of the
documents incorporated by reference, but you can obtain any of them through
Tellabs or the SEC. Documents incorporated by reference are available from
Tellabs without charge, excluding all exhibits unless such exhibits have been
specifically incorporated by reference in this proxy statement and prospectus.
Stockholders may obtain documents incorporated by reference in this proxy
statement and prospectus by requesting them in writing or by telephone from
Tellabs at the following address:
Tellabs, Inc.
Attention: Secretary
4951 Indiana Avenue
Lisle, Illinois 60532-1698
(630) 378-8800
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM TELLABS, PLEASE DO SO BY AUGUST
18, 1999 TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
The Board of Directors of NetCore does not intend to bring any other
matters, and does not know of any other matters to be brought, before the
special meeting.
THIS PROXY STATEMENT AND PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES, OR THE SOLICITATION OF A
PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM IT IS NOT LAWFUL TO
MAKE ANY SUCH OFFER OR SOLICITATION IN SUCH JURISDICTION. BY DELIVERING THIS
PROXY STATEMENT AND PROSPECTUS OR DISTRIBUTING ANY SECURITIES PURSUANT TO IT,
NEITHER TELLABS NOR NETCORE INTENDS TO CREATE ANY IMPLICATION THAT THERE HAVE
BEEN NO CHANGES IN THEIR RESPECTIVE AFFAIRS SINCE THE DATE OF THIS PROXY
STATEMENT AND PROSPECTUS OR THAT THE INFORMATION CONTAINED IN IT IS CORRECT AS
OF ANY SUBSEQUENT DATE.
YOU SHOULD RELY ON THE INFORMATION CONTAINED OR INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT AND PROSPECTUS. NEITHER TELLABS NOR NETCORE HAS
AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM WHAT IS
CONTAINED IN THIS PROXY STATEMENT AND PROSPECTUS. ALL INFORMATION CONTAINED IN
THIS PROXY STATEMENT AND PROSPECTUS WITH RESPECT TO NETCORE AND ITS SUBSIDIARIES
HAS BEEN PROVIDED BY NETCORE, AND ALL INFORMATION CONTAINED (OR INCORPORATED BY
REFERENCE) IN THIS PROXY STATEMENT AND PROSPECTUS WITH RESPECT TO TELLABS AND
ITS SUBSIDIARIES HAS BEEN PROVIDED BY TELLABS. NEITHER TELLABS NOR NETCORE
WARRANTS THE ACCURACY OF INFORMATION RELATING TO THE OTHER PARTY. THIS PROXY
STATEMENT AND PROSPECTUS IS DATED AUGUST 5, 1999.
57
<PAGE> 63
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO NETCORE FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accounts ....................................................... F-2
Balance Sheet as of December 31, 1998 and 1997 and March 28, 1999 (unaudited) ........ F-3
Statement of Operations for the quarters ended March 28, 1999 (unaudited) and
March 29, 1998 (unaudited), years ended December 31, 1998 and 1997 and the
periods from inception (October 15, 1996) through December 31, 1996 and 1998 ......... F-4
Statement of Redeemable Convertible Preferred Stock and Stockholders' Equity
(Deficit) for the period from inception (October 15, 1996) through December 31,
1998, the years ended December 31, 1997 and 1998 and the quarter ended March 28,
1999 (unaudited) ..................................................................... F-5
Statement of Cash Flows for the quarters ended March 28, 1999 (unaudited) and
March 29, 1998 (unaudited), years ended December 31, 1998 and 1997 and the
periods from inception (October 15, 1996) through December 31, 1996 and 1998 ......... F-6
Notes to Financial Statements ........................................................ F-7
</TABLE>
F-1
<PAGE> 64
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
NetCore Systems, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of redeemable convertible preferred stock and stockholders' equity
(deficit) and of cash flows present fairly, in all material respects, the
financial position of NetCore Systems, Inc. (a development stage enterprise) at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1998 and for each of
the periods from inception (October 15, 1996) through December 31, 1996 and 1998
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
April 29, 1999
F-2
<PAGE> 65
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS MARCH 28, DECEMBER 31,
------------ -----------------------------
1999 1998 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 4,231,859 $ 4,574,377 $ 9,311,138
Marketable securities 11,701,086 11,467,162 693,333
Prepaid expenses and other current assets 548,337 140,487 97,813
------------ ------------ ------------
Total current assets 16,481,282 16,182,026 10,102,284
Fixed assets, net 2,740,794 1,295,538 573,810
Other assets 66,150 56,000 56,000
------------ ------------ ------------
TOTAL ASSETS $ 19,288,226 $ 17,533,564 $ 10,732,094
============ ============ ============
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of notes payable $ 558,294 $ 391,627 $ 135,570
Accounts payable 1,188,878 869,848 313,297
Accrued employee compensation and benefits 504,145 447,839 167,178
Other accrued expenses 189,161 50,168 154,888
------------ ------------ ------------
Total current liabilities 2,440,478 1,759,482 770,933
Notes payable 734,517 499,090 237,249
------------ ------------ ------------
TOTAL LIABILITIES 3,174,995 2,258,572 1,008,182
------------ ------------ ------------
Redeemable convertible preferred stock:
Redeemable convertible preferred stock, S.001 par
value; 15,000,000 shares authorized:
Series B mandatorily redeemable convertible preferred
stock, 3,550,000 shares issued and outstanding at
March 28, 1999 (unaudited) and at December 31, 1998
and 1997, stated at redemption value plus accrued
dividends 4,251,693 4,168,325 3,859,560
Series C mandatorily redeemable convertible preferred
stock, 4,728,571 shares issued and outstanding at
March 28, 1999 (unaudited) and at December 31, 1998
and 1997, stated at redemption value plus accrued
dividends 9,147,708 8,968,341 8,304,019
Series D mandatorily redeemable convertible preferred
stock 4,016,099 issued and outstanding at March 28, 1999
(unaudited)-, 3,376,334 actual shares issued and outstanding
at December 31, 1998, stated at redemption value plus
accrued dividends 20,853,716 17,249,676
------------ ------------ ------------
Total redeemable convertible preferred stock 34,253,117 30,386,342 12,163,579
------------ ------------ ------------
Stockholders' equity (deficit):
Series A convertible preferred stock, 157,895 shares issued and
outstanding at March 28, 1999 (unaudited) and
at December 31, 1998 and 1997 158 158 158
Undesignated preferred stock, 3,187,200 shares authorized,
no shares issued or outstanding at December 31, 1998 and 1997 -- -- --
Common stock, $.001 par value, 25,000,000 shares authorized,
6,123,744 issued and outstanding at March 28, 1999 (unaudited),
6,076,244 and 5,877,538 and shares issued and outstanding at 6,124 6,076 5,877
December 31, 1998 and 1997, respectively
Additional paid-in capital 2,113,367 2,081,540 2,044,377
Deficit accumulated during the development stage (20,259,535) (17,199,124) (4,490,079)
------------ ------------ ------------
Total stockholder's deficit (18,139,886) (15,111,350) (2,439,667)
------------ ------------ ------------
Commitments (Note 10)
Total liabilities, redeemable convertible -- -- --
------------ ------------ ------------
preferred stock and stockholders' deficit $ 19,288,226 $ 17,533,564 $ 10,732,094
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-3
<PAGE> 66
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
YEAR ENDED (OCTOBER 15,1996)
QUARTER ENDED DECEMBER 31, THROUGH DECEMBER 31,
----------------------------- ----------------------------- -----------------------------
MARCH, 28, MARCH, 29,
------------ ------------
1999 1998 1998 1997 1996 1998
------------ ------------ ------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Costs and expenses
Research and development $ 1,538,633 $ 1,376,510 $ 8,891,517 $ 3,302,483 $ 172,486 $ 12,366,486
Marketing and sales 689,195 226,713 1,548,672 216,011 -- 1,764,683
General and administrative 370,047 166,636 855,256 544,932 117,135 1,517,323
------------ ------------ ------------ ------------ ------------ ------------
2,597,875 1,769,859 11,295,445 4,063,426 289,621 15,648,492
------------ ------------ ------------ ------------ ------------ ------------
Loss from operations (2,597,875) (1,769,859) (11,295,445) (4,063,426) (289,621) (15,648,492)
Interest income, net 154,233 116,709 266,384 181,562 19,985 467,931
------------ ------------ ------------ ------------ ------------ ------------
Net loss (2,443,642) (1,653,150) (11,029,061) (3,881,864) (269,636) (15,180,561)
Preferred stock
dividends and stock
issuance costs (616,769) (243,271) (1,679,984) (314,912) (23,667) (2,018,563)
------------ ------------ ------------ ------------ ------------ ------------
Net loss attributable to
common stockholders $ (3,060,411) $ (1,896,421) $(12,709,045) $ (4,196,776) $ (293,303) $(17,199,124)
------------ ------------ ------------ ------------ ------------ ------------
Basic and diluted net
loss per share attributable
to common stockholders $ (0.78) $ (0.62) $ (3.74) $ (1.56) $ (0.12) $ (5.78)
Shares used in computing
basic and diluted net
loss per share attributable
to common stockholders 3,943,835 3,072,533 3,393,953 2,687,966 2,347,443 2,974,787
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-4
<PAGE> 67
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
(DEFICIT) FOR THE PERIOD FROM INCEPTION (OCTOBER 15, 1996) THROUGH DECEMBER 31,
1996 AND THE YEARS ENDED DECEMBER 31, 1997 AND 1998 AND THE QUARTER ENDED MARCH
28, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MANDATORILY
REDEEMABLE
CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK COMMON STOCK
SHARES AMOUNT SHARES PAR VALUE SHARES PAR VALUE
------------ ------------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock 4,661,538 $ 4,661
Issuance of Series A convertible
preferred stock 157,895 $ 158
Issuance of Series B mandatorily
redeemable convertible
preferred stock 3,550,000 $ 3,550,000
Accrual of cumulative dividends 23,667
Net loss
------------ ------------- ---------- --------- --------- ----------
Balance at December 31, 1996 3,550,000 $ 3,573,667 157,895 $ 158 4,661,538 $ 4,661
Issuance of Series C mandatorily
redeemable convertible
preferred stock 4,728,571 8,275,000
Issuance of common stock 1,321,000 1,321
Common stock repurchases
and retirements (105,000) (105)
Accrual of cumulative dividends 314,912
Net loss
------------ ------------- ---------- --------- --------- ----------
Balance at December 31, 1997 8,278,571 $ 12,163,579 157,895 $ 158 5,877,538 $ 5,877
Issuance of Series D mandatorily
redeemable convertible
preferred stock, net of issuance
costs of $609,000 3,376,334 17,151,779
Issuance of common stock 374,500 375
Common stock repurchases and
retirements (175,794) (176)
Accrual of cumulative dividends 1,070,984
Net loss
------------ ------------- ---------- --------- --------- ----------
Balance at December 31, 1998 11,654,905 $ 30,386,342 157,895 $ 158 6,076,244 $ 6,076
============ ============= ========== ========= ========= ==========
Issuance of Series D mandatorily
redeemable convertible
preferred stock (unaudited) 639,765 3,250,006
Issuance of common stock
(unaudited) 85,000 85
Common stock repurchases and
retirements (unaudited) (37,500) (37)
Accrual of cumulative dividends
(unaudited) 616,769
Net loss (unaudited)
------------ ------------- ---------- --------- --------- ----------
Balance at March 29, 1999 (Unaudited) 12,294,670 $ 34,253,117 157,895 $ 158 6,123,744 $ 6,124
============ ============= ========== ========= ========= ==========
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE TOTAL
PAID-IN DEVELOPMENT STOCKHOLDERS'
CAPITAL STAGE (EQUITY (DEFICIT)
------------ ------------ ----------------
<S> <C> <C> <C>
Issuance of common stock $ 4,661
Issuance of Series A convertible
preferred stock $ 1,999,842 2,000,000
Issuance of Series B mandatorily
redeemable convertible
preferred stock
Accrual of cumulative dividends $ (23,667) (23,667)
Net loss (269,636) (269,636)
------------ ------------ ------------
Balance at December 31, 1996 $ 1,999,842 $ (293,303) $ 1,711,358
Issuance of Series C mandatorily
redeemable convertible
preferred stock
Issuance of common stock 46,680 48,001
Common stock repurchases
and retirements (2,145) (2,250)
Accrual of cumulative dividends (314,912) (314,912)
Net loss (3,881,864) (3,881,864)
------------ ------------ ------------
Balance at December 31, 1997 $ 2,044,377 $ (4,490,079) $ (2,439,667)
Issuance of Series D mandatorily
redeemable convertible
preferred stock, net of issuance
costs of $609,000 (609,000) (609,000)
Issuance of common stock 39,075 39,450
Common stock repurchases and
retirements (1,912) (2,088)
Accrual of cumulative dividends (1,070,984) (1,070,984)
Net loss (11,029,061) (11,029,061)
------------ ------------ ------------
Balance at December 31, 1998 $ 2,081,540 $(17,199,124) $(15,111,350)
============ ============ =============
Issuance of Series D mandatorily
redeemable convertible
preferred stock (unaudited)
Issuance of common stock
(unaudited) 33,665 33,750
Common stock repurchases and
retirements (unaudited) (1,838) (1,875)
Accrual of cumulative dividends
(unaudited) (616,769) (616,769)
Net loss (unaudited) (2,443,642) (2,443,642)
------------ ------------ ------------
Balance at March 29, 1999 (Unaudited) $ 2,113,367 $(20,259,535) $ (18,139,886)
============ ============ =============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-5
<PAGE> 68
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED
QUARTER ENDED DECEMBER 31,
------------------------------ ------------
MARCH 28,1999 MARCH 29,1998 1998
------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,443,642) $ (1,653,150) $(11,029,061)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 181,409 76,139 432,585
Changes in assets and liabilities:
Prepaid expenses and other current
assets (407,850) (41,823) (42,674)
Other assets (10,150) --
Accounts payable 319,030 (49,099) 556,551
Accrued employee compensation and
benefits 56,306 34,886 280,661
Accrued expenses 138,993 (50,423) (104,720)
------------ ------------ ------------
Net cash used in operating activities (2,165,904) (1,683,470) (9,906,658)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (1,626,665) (253,069) (1,154,313)
Purchase of marketable securities (6,833,924) (7,965,657) (27,223,740)
Proceeds from maturities of marketable
securities 6,600,000 2,520,000 16,449,911
------------ ------------ ------------
Net cash used in investing activities (1,860,589) (5,698,726) (11,928,142)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred
stock 3,250,006 -- 16,542,779
Proceeds from issuance of common stock 33,750 13,762 39,450
Proceeds from the issuance of notes
payable 500,000 370,415 768,170
Repurchase of common stock (1,875) -- (2,088)
Principal payments of notes payable (97,906) (33,894) (250,272)
------------ ------------ ------------
Net cash provided by financing activities 3,683,975 350,283 17,098,039
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents (342,518) (7,031,913) (4,736,761)
Cash and cash equivalents, beginning of period 4,574,377 9,311,138 9,311,138
------------ ------------ ------------
Cash and cash equivalents, end of period $ 4,231,859 $ 2,279,225 $ 4,574,377
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 25,193 $ 5,638 $ 65,990
============ ============ ============
<CAPTION>
PERIOD FROM INCEPTION
(OCTOBER 15 1996)
THROUGH DECEMBER 31,
----------------------------------------------
1997 1996 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (3,881,864) (269,636) $(15,180,561)
Adjustment to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 148,731 2,984 584,300
Changes in assets and liabilities:
Prepaid expenses and other current
assets (84,898) (12,915) (140,487)
Other assets (43,888) (12,112) (56,000)
Accounts payable 217,098 96,199 869,848
Accrued employee compensation and
benefits 167,178 -- 447,839
Accrued expenses 99,200 55,688 50,168
------------ ------------ ------------
Net cash used in operating activities (3,378,443) (139,792) (13,424,893)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets (584,971) (140,554) (1,879,838)
Purchase of marketable securities (5,949,627) -- (33,173,367)
Proceeds from maturities of marketable
securities 5,256,294 -- 21,706,205
------------ ------------ ------------
Net cash used in investing activities (1,278,304) (140,554) (13,347,000)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of preferred
stock 8,275,000 5,550,000 30,367,779
Proceeds from issuance of common stock 48,001 4,661 92,112
Proceeds from the issuance of notes
payable 406,711 -- 1,174,881
Repurchase of common stock (2,250) -- (4,338)
Principal payments of notes payable (33,892) -- (284,164)
------------ ------------ ------------
Net cash provided by financing activities 8,693,570 5,554,661 31,346,270
------------ ------------ ------------
Net (decrease) increase in cash and cash
equivalents 4,036,823 5,274,315 4,574,377
Cash and cash equivalents, beginning of period 5,274,315 -- --
------------ ------------ ------------
Cash and cash equivalents, end of period $ 9,311,138 $ 5,274,315 $ 4,574,377
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid for interest $ 19,000 $ -- $ 84,990
============ ============ ============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
F-6
<PAGE> 69
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BASIS OF PRESENTATION
NATURE OF THE BUSINESS
NetCore Systems, Inc. (the "Company"), a Delaware Corporation, was
incorporated on October 15, 1996. The Company is engaged in the
development and marketing of hardware and software equipment to be used
by telecommunication companies and internet service providers to move
and direct data traffic.
Since its inception, the Company has devoted substantially all of its
efforts to research and development, business and financial planning,
raising capital and recruiting new employees. Accordingly, the Company
is considered a development stage enterprise as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises."
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH, CASH EQUIVALENTS AND MARKETABLE SECURITIES
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The
Company invests excess cash primarily in fixed income securities with
maturities of less than one year. These investments are subject to
minimal credit and market risks. At December 31, 1998 and 1997, the
Company classified these securities as "available-for-sale", in
accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Available-for-sale securities are recorded at cost plus accrued
interest, which approximates fair market value. For the periods ended
December 31, 1998 and 1997, there were no significant realized gains or
losses on marketable securities.
RESEARCH AND DEVELOPMENT AND SOFTWARE DEVELOPMENT COSTS
Costs incurred in the research and development of the Company's
products are expensed as incurred. Costs associated with the
development of computer software are expensed prior to establishing
technological feasibility. Capitalization of software development
costs, if material, will begin upon the establishment of technological
feasibility as defined by SFAS No. 86, "Accounting for the Cost of
Computer Software to Be Sold, Leased, or Otherwise Marketed" and
continue until the product is released for sale. To date, the Company
has incurred no software development costs that are eligible for
capitalization.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Company's financial instruments, which
include cash and cash equivalents, marketable securities, notes payable
and redeemable preferred stock approximate their fair value at December
31, 1998 and 1997.
FIXED ASSETS
Fixed assets are stated at cost, less accumulated depreciation.
Depreciation is provided using the straight-line method over the
estimated useful lives of the related assets. Repair and maintenance
costs are expensed as incurred.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based awards to its employees using the
intrinsic value based method as prescribed in Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations and has adopted the provisions
of Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," through disclosure only (Note 7).
Stock-based awards to nonemployees are accounted for under the
provisions of SFAS No. 123.
NET LOSS PER SHARE
Net loss per share is computed in accordance with SFAS No. 128,
"Earnings Per Share." Basic net loss per share is computed by dividing
net loss attributable to common stockholders by the weighted average
number of
F-7
<PAGE> 70
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
shares of common stock outstanding, excluding shares of common stock
subject to repurchase. Diluted net loss per share does not differ from
basic net loss per share since potential common shares from conversion
of preferred stock and exercise of stock options and warrants are
anti-dilutive for all periods presented. Had the Company included
convertible preferred stock in the computation of weighted number of
common shares outstanding and assuming conversion of preferred stock
into common upon issuance, the number of shares used in computing
diluted net loss per share would be as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
YEAR ENDED (OCTOBER 15, 1996)
QUARTER ENDED DECEMBER 31 THROUGH DECEMBER 31,
MARCH 28, 1999 MARCH 29, 1998 1998 1997 1996 1998
<S> <C> <C> <C> <C> <C>
16,056,432 11,698,473 12,269,649 6,688,974 4,190,164 8,974,647
</TABLE>
COMPREHENSIVE INCOME
NetCore adopted SFAS No. 130, "Reporting Comprehensive Income,"
effective January 1, 1998. This statement requires a full set of
general purpose financial statements to be expanded to include the
reporting of "comprehensive income." Comprehensive income is comprised
of two components, net income and other comprehensive income. During
the years ended December 31, 1998 and 1997 and for each of the periods
from inception (October 15, 1996) through December 31, 1996 and 1998,
NetCore had no items qualifying as other comprehensive income;
accordingly, the adoption of SFAS No. 130 had no impact on NetCore's
financial statements.
SEGMENT REPORTING
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which supersedes SFAS No.
14, "Financial Reporting for Segments of a Business Enterprise." This
statement changes the way public business enterprises report segment
information, including financial and descriptive information about
their selected segment information in interim and annual financial
statements. Under SFAS No. 131, operating segments are defined as
revenue - producing components of the enterprise which are generally
used internally for evaluating segment performance. SFAS No. 131 is
effective for NetCore's fiscal year ended December 31, 1998 and had no
effect on NetCore's financial position or results of operations.
NetCore operates in one segment, which is developing and marketing of
hardware and software equipment to be used by telecommunication
companies and internet service providers. NetCore did not generate any
revenue since its inception (October 15, 1996). Substantially all of
NetCore's long-lived assets were located in the United States for all
periods presented.
UNAUDITED INTERIM FINANCIAL DATA
Effective January 1, 1998 the Company adopted a fiscal quarter end
date, changing from calendar quarter end to the Sunday nearest the end
of a calendar quarter. The interim financial data as of March 28, 1999
and for the quarter ended March 29, 1998 and March 28, 1999 have been
derived from unaudited financial statements of NetCore. Management
believes NetCore's unaudited financial statements have been prepared on
the same basis as the audited financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the financial position and results of
operations in such periods. Results for the quarter ended March 29,
1998 and March 28, 1999 have not been audited and are not necessarily
indicative of results to be expected for the full fiscal year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The new standard establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities
SFAS No. 133 is effective for fiscal quarters of fiscal years beginning
after June 15, 2000.
F-8
<PAGE> 71
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NetCore does not expect SFAS No. 133 to have a material effect on its
financial positions or results of operations.
ADVERTISING COSTS
Advertising costs are charged to operations as incurred. Advertising
costs were approximately $106,086, and $18,000 in the years ended
December 31, 1998 and 1997, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
3. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL LIFE MARCH 28, DECEMBER 31,
(YEARS) 1999 1998 1997
(UNAUDITED)
<S> <C> <C> <C> <C>
Software 3 $ 631,861 $ 420,498 $ 310,465
Computer equipment 3 2,836,161 1,420,859 398,875
Furniture and fixtures 5 38,481 38,481 16,185
----------- --------- ---------
3,506,503 1,879,838 725,525
Less - accumulated depreciation 765,709 584,300 151,715
----------- --------- ---------
$ 2,740,794 $ 1,295,538 $ 573,810
=========== =========== =========
</TABLE>
Depreciation and amortization expense for 1998, 1997 and 1996 was
$432,585, $148,731 and $2,984, respectively, and $181,409 (unaudited)
and $76,139 (unaudited) for the quarter ended March 28, 1999 and March
29, 1998, respectively.
4. BORROWINGS
In March 1997, the Company obtained a $1,000,000 line of credit for
equipment purchases ("Equipment Line"), which bears interest at the
bank's prime rate plus 1.0% (8.75% at December 31, 1998) and is secured
by all assets of the Company. The equipment line was made available to
the Company in two six-month draw periods, which may aggregate up to
$500,000 in each period. On September 19, 1997 and March 19, 1998,
borrowings under the draw periods were converted into three year term
loans payable in 36 monthly installments of principal in the amount of
$11,298 and $10,289, respectively, plus interest.
In April 1998, the Company obtained an additional $1,000,000 line of
credit for equipment purchases ("1998 Equipment Line"), which bears
interest at the bank's prime rate plus .5% (8.25% at December 31, 1998)
and is secured by all assets of the Company. The equipment line was
made available to the Company in two six-month draw periods, which may
aggregate up to $500,000 in each period. On October 15, 1998,
borrowings under the first draw period were converted into a three year
term loan payable in 36 monthly installments of principal in the amount
of $11,049, plus interest. The second draw period began on October 16,
1998 and ended on April 15, 1999.
Both equipment lines require the Company to satisfy certain financial
covenants. As of December 31, 1998, the Company was in compliance with
these covenants. As of December 31, 1998, total borrowings under the
F-9
<PAGE> 72
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
equipment lines were $890,717, of which $391,627 is included in current
portion of notes payable and $499,090 is included in long-term notes
payable.
5. PREFERRED STOCK
The preferred stock has the following characteristics:
CONVERSION RIGHTS
The Series A preferred stock is convertible, at the option of the
holder, into common stock of the Company based upon a formula which
currently would result in a 1-for-2.20 exchange. The Series A preferred
stock will automatically convert into common stock upon the closing of
an initial public offering, from which net proceeds equal or exceed
$10,000,000.
The Series B, Series C and Series D preferred stock are convertible, at
the option of the holder, into common stock of the Company based upon a
formula which currently would result in a 1-for-1 exchange. Series B
and Series C preferred stock will automatically convert into common
stock upon the closing of an initial public offering, from which net
proceeds equal or exceed $7,500,000 at a price per share equal to or
greater than $5.00 per share and $5.25 per share, respectively. Series
D preferred stock will automatically convert into common stock upon the
closing of an initial public offering, from which gross proceeds equal
or exceed $20,000,000 at a price per share equal to or greater than
$10.16 per share.
DIVIDEND RIGHTS
The holders of shares of preferred stock shall receive dividends, when
and if declared by the Board of Directors. In the event of a
declaration and payment of dividends on common stock, dividends on the
preferred stock (determined by the number of common shares into which
the preferred shares are convertible) are payable in an amount equal to
the per share amount of the dividend to common stockholders.
VOTING RIGHTS
Holders of the preferred stock are entitled to vote upon any matter
submitted to the common stockholders for a vote. Each share of
preferred stock shall have one vote for each full share of common stock
into which the respective share of preferred stock would be convertible
on the record date of the vote.
LIQUIDATION RIGHTS
In the event of any liquidation, dissolution or winding up of the
affairs of the Company, the holders of Series B, Series C and Series D
preferred stock are entitled to receive, prior and in preference to the
holders of Series A preferred stock and the holders of common stock, an
amount equal to $1.00 per share, $1.75 per share and $5.08 per share,
respectively, plus a compounded annual rate of return of 8%, and any
declared but unpaid dividends. After all such payments have been made,
the holders of the outstanding Series A preferred shares are entitled
to receive, prior to and in preference to the holders of common stock,
an amount equal to $12.66665 per share and any declared but unpaid
dividends.
REDEMPTION RIGHTS
Based upon the following schedule, each holder of shares of Series B,
Series C and Series D preferred stock shall have the right to cause the
Company to redeem the then outstanding Series B, Series C and Series D
preferred stock at a price currently equal to $1.00 per share, $1.75
per share and $5.08 per share, respectively, plus a compounded annual
rate of return of 8% and any declared but unpaid dividends.
As of December 31, 1998, the cumulative redemption amounts are as
follows:
F-10
<PAGE> 73
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CUMULATIVE
REDEMPTION
REDEMPTION DATE AMOUNT
<S> <C>
December 31, 2002 $ 13,503,915
December 31, 2003 $ 29,168,456
December 31, 2004 $ 47,252,898
</TABLE>
Cumulative and unpaid dividends on Series B, Series C and Series D
preferred stock have been charged to accumulated deficit and are
included in the carrying value of the Series B, Series C and Series D
preferred stock. The Series A preferred stock is not redeemable.
PROTECTION OF PREFERRED STOCK
The Company must first obtain approval of the majority of Series A,
Series B, Series C and Series D preferred stockholders to amend the
Articles of Incorporation of the Company if such amendment would
adversely affect any of the rights, preferences or privileges of shares
of Series A, Series B, Series C and Series D preferred stock.
6. COMMON STOCK
Each share of common stock entitles the holder to one vote on all
matters submitted to a vote of the Company's stockholders. Common
stockholders are entitled to receive dividends, if any, as may be
declared by the Board of Directors, subject to any preferential
dividend rights of the preferred stockholders.
At December 31, 1998, the Company has 12,265,300 shares of its common
stock reserved for issuance upon conversion of the preferred stock and
the issuance of common stock in connection with the Company's equity
incentive program (Note 7).
RESTRICTED STOCK AGREEMENTS
The Company has executed stock restriction agreements with certain
common stockholders. Pursuant to these agreements, the Company has an
option to purchase the unvested shares of common stock at the original
purchase price per share in the event of termination of the
stockholders employment by the Company. Certain shares subject to these
agreements vested 70% upon issuance and 1.67% quarterly thereafter
commencing on November 1, 1996 through February 1, 2001. Certain other
shares subject to these agreements vest 10% upon issuance and 5%
quarterly thereafter commencing on November 1, 1996 through February 1,
2001, while other shares subject to this agreement vest 20% upon the
first year anniversary of issuance and 5% quarterly thereafter
commencing on January 21, 1998 through September 23, 2003. At December
31, 1998, the aggregate number of unvested common shares is 1,824,640.
7. EQUITY INCENTIVE PROGRAM
During 1996, the stockholders approved an equity incentive program
which provides for the sale of the Company's common stock to employees
at the fair market value of the common stock on the date of grant. The
program is administered by the Board of Directors, who determines the
fair market value of the common stock at the date of grant and the
vesting period for the shares issued under the program. There are
1,508,000 shares reserved for issuance under the program. The shares
issued under the program are subject to repurchase, whereby the Company
may repurchase the unvested shares at their original purchase price
upon termination of the stockholders' employment by the Company. As of
December 31, 1998, 1,502,500 shares of common stock were issued under
the program.
F-11
<PAGE> 74
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
In July 1997, the Company adopted the 1997 Stock Option Plan (the
"Plan") which provides for the granting of both incentive stock options
and non-qualified stock options to employees and consultants of the
Company. The Board of Directors is responsible for administration of
the Plan. The Board determines the term of each option, the option
exercise price, the number of shares for which each option is
exercisable and the vesting period (generally ratably over five years).
Options granted under the Plan generally expire ten years from the date
of the grant. The Plan allows for the issuance of up to 1,250,000 stock
options to purchase shares of common stock to be issued prior to July
2007.
For the year ended December 31, 1998 and 1997, no compensation expense
has been recognized for options granted under the Plan. Had
compensation cost for these awards been determined based on the fair
value at the date of grant consistent with the method prescribed by
SFAS No. 123, the Company's net loss would not have been materially
different from the amount reported. However, because options vest over
several years and because additional option grants are expected to be
made in future years, the pro forma effects of applying the fair value
method may be material to reported net income or loss in future years.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
assumptions for grants in 1998 and 1997: no dividend yield, no
volatility, risk-free interest rate of 5.0% and 6.0%, respectively, and
expected option term of 5 years.
During 1998, the Company granted options in the amount of 80,000 to
nonemployees under the Plan. The estimated fair value of these options
at December 31, 1998 was not significant. In November 1997, the
Emerging Issues Task Force of the Financial Accounting Standards Board
finalized Issue No. 96-18 "Accounting for Equity Instruments That Are
Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services" ("EITF 96-18"). Under EITF 96-18, the
compensation expense that will ultimately be recognized for options
issued to nonemployees in 1998 will be measured at the vesting dates of
the underlying options. As these options vest over periods of one to
five years, the Company will be required to remeasure the fair value of
these options at each reporting period prior to vesting and then
finally at the vesting date of the option. Changes in the estimated
fair value of these options will be recognized as compensation expense
in the period of the change.
A summary of the status of the Company's option plan as of December 31,
1998, 1997 and 1996 changes during the year is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- --------------------- ------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES
<S> <C> <C> <C> <C> <C>
Outstanding at beginning of year 58,500 $ .06 -- -- --
Granted 396,000 .13 58,500 $ .06 --
Exercised -- -- -- -- --
Forfeited (2,000) .05 -- -- --
--------- -------- -------
Outstanding at end of year 452,500 $ .12 58,500 $ .06
--------- --------
Options exercisable at year-end 13,250 $ .06 -- --
--------- -------- -------
Weighted-average fair value
of options granted during the year $ .03 $ .01 $ --
--------- -------- -------
Options available for future grant 174,500 568,500
--------- -------- -------
</TABLE>
F-12
<PAGE> 75
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The following table summarizes information about stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
VESTED AND EXERCISABLE
WEIGHTED- ----------------------------------
AVERAGE WEIGHTED-
NUMBER REMAINING NUMBER OF AVERAGE
OF OPTIONS CONTRACTUAL OPTIONS EXERCISE
EXERCISE PRICE OUTSTANDING LIFE (YEARS) EXERCISABLE PRICE
-------------- ----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
$.05 46,500 8.61 11,250 $ 0.05
$.10 301,000 9.45 2,000 $ 0.10
$.15 82,500 9.81 -- --
$.50 22,500 9.96 -- --
-------- ------- --------- -------
452,500 9.45 13,250
-------- ------- --------- -------
</TABLE>
8. INCOME TAXES
The Company's net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998 1997
<S> <C> <C>
Net operating loss carryforwards $ 6,066,000 $ 1,531,000
Tax credit carryforwards 419,000 373,000
Other 157,000 67,000
----------- -----------
Net deferred tax asset 6,642,000 1,971,000
Deferred tax asset valuation allowance (6,642,000) (1,971,000)
----------- -----------
$ -- $ --
----------- -----------
</TABLE>
The Company has generated taxable losses from operations since
inception and, accordingly, has no taxable income available to offset
the carryback of net operating losses. Based upon the weight of all
available evidence, the Company has provided a full valuation allowance
for its deferred tax asset since, in the opinion of management,
realization of these future benefits is not sufficiently assured
(defined as a likelihood of slightly more than 50 percent).
At December 31, 1998, the Company had available federal net operating
loss carryforwards and research and development tax credit
carryforwards available to reduce future tax liabilities, of
$14,849,000 which expire at various dates through 2018. Under the
Internal Revenue Code, certain substantial changes in the Company's
ownership could result in an annual limitation on the amount of net
operating loss and research and development tax credit carryforwards
which could be utilized in future years.
9. 401(k) PLAN
In 1997 the Company established a defined contribution retirement
savings plan under Section 401(k) of the Internal Revenue Code. This
plan covers substantially all employees who meet minimum age and
service requirements and allows participants to defer a portion of
their annual compensation on a pre-tax basis. Company contributions to
the plan may be made at the discretion of the Board of Directors. There
have been no contributions made by the Company since inception of the
plan.
F-13
<PAGE> 76
NETCORE SYSTEMS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
10. COMMITMENTS
LEASES
The Company leases office space under two noncancelable operating
leases. The future minimum lease commitments under these leases are as
follows:
<TABLE>
<S> <C>
1999 $ 324,889
2000 32,658
---------
$ 357,547
=========
</TABLE>
Rent expense under noncancelable operating leases was approximately
$271,800, $114,000 and $8,000 for the periods ended December 31, 1998,
1997 and 1996, respectively.
11. SUBSEQUENT EVENTS
During March 1999, the Company issued 639,765 shares of Series D
preferred stock for total proceeds of approximately $3,250,000. This
sale and net proceeds have been reflected in the unaudited March 28,
1999 balance sheet and the related statements of cash flows and
redeemable convertible preferred stock and stockholders' equity
(deficit) for the quarter ended March 28, 1999.
F-14
<PAGE> 77
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
TELLABS, INC.,
BLACKHAWK MERGER CORP.
AND
NETCORE SYSTEMS, INC.
DATED AS OF JUNE 29, 1999*
- ------------------
* Reflects changes effected pursuant to an Amendment Agreement dated as of July
21, 1999.
<PAGE> 78
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE I
THE MERGER
<S> <C> <C>
Section 1.1 The Merger....................................................................................A-1
Section 1.2 Effective Time................................................................................A-2
Section 1.3 Effects of the Merger.........................................................................A-2
Section 1.4 Charter and Bylaws; Directors and Officers....................................................A-2
Section 1.5 Conversion of Securities......................................................................A-2
Section 1.6 Delivery of Certificates and Payment of Cash..................................................A-4
Section 1.7 Dividends; Transfer Taxes; Withholding........................................................A-4
Section 1.8 No Fractional Securities......................................................................A-5
Section 1.9 Abandoned Property............................................................................A-5
Section 1.10 No Further Ownership Rights in Company Common Stock...........................................A-5
Section 1.11 Closing of Company Transfer Books.............................................................A-5
Section 1.12 Lost Certificates.............................................................................A-5
Section 1.13 Further Assurances............................................................................A-6
Section 1.14 Closing.......................................................................................A-6
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 2.1 Organization, Standing and Power..............................................................A-6
Section 2.2 Capital Structure.............................................................................A-6
Section 2.3 Authority.....................................................................................A-6
Section 2.4 Consents and Approvals; No Violation..........................................................A-7
Section 2.5 SEC Documents and Other Reports...............................................................A-8
Section 2.6 Registration Statement and Proxy Statement....................................................A-8
Section 2.7 Actions and Proceedings.......................................................................A-8
Section 2.8 Operations and Obligations....................................................................A-9
Section 2.9 Required Vote of Parent Stockholders..........................................................A-9
Section 2.10 Pooling of Interests; Reorganization..........................................................A-9
Section 2.11 Brokers.......................................................................................A-9
Section 2.12 Operations of Sub.............................................................................A-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power..............................................................A-9
Section 3.2 Capital Structure.............................................................................A-9
Section 3.3 Authority....................................................................................A-11
Section 3.4 Consents and Approvals; No Violation.........................................................A-11
Section 3.5 Financial Statements.........................................................................A-12
Section 3.6 No Dividends; Absence of Certain Changes or Events...........................................A-12
Section 3.7 Governmental Permits.........................................................................A-14
Section 3.8 Registration Statement and Proxy Statement...................................................A-14
Section 3.9 Tax Matters..................................................................................A-14
Section 3.10 Actions and Proceedings......................................................................A-15
Section 3.11 Certain Agreements...........................................................................A-15
Section 3.12 ERISA........................................................................................A-16
</TABLE>
A-i
<PAGE> 79
<TABLE>
<S> <C> <C>
Section 3.13 Worker Safety and Environmental Laws.........................................................A-16
Section 3.14 Labor Matters................................................................................A-17
Section 3.15 Intellectual Property; Software..............................................................A-17
Section 3.16 Availability of Assets and Legality of Use...................................................A-19
Section 3.17 Real Property................................................................................A-19
Section 3.18 Real Property Leases.........................................................................A-19
Section 3.19 Personal Property Leases.....................................................................A-19
Section 3.20 Title to Assets..............................................................................A-20
Section 3.21 Contracts....................................................................................A-20
Section 3.22 Status of Contracts..........................................................................A-20
Section 3.23 Insurance....................................................................................A-21
Section 3.24 Takeover Statutes and Charter Provisions.....................................................A-21
Section 3.25 Required Vote of Company Stockholders........................................................A-21
Section 3.26 Pooling of Interests; Reorganization.........................................................A-21
Section 3.27 Brokers......................................................................................A-21
Section 3.28 Hart-Scott-Rodino............................................................................A-21
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger.......................................................A-21
Section 4.2 No Solicitation..............................................................................A-23
Section 4.3 Third Party Standstill Agreements............................................................A-24
Section 4.4 Pooling of Interests; Reorganization.........................................................A-24
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meeting..........................................................................A-24
Section 5.2 Preparation of the Registration Statement and the Proxy Statement............................A-24
Section 5.3 Access to Information........................................................................A-25
Section 5.4 Compliance with the Securities Act...........................................................A-25
Section 5.5 Fees and Expenses............................................................................A-25
Section 5.6 Company Stock Plan...........................................................................A-25
Section 5.7 Reasonable Best Efforts; Pooling of Interests................................................A-26
Section 5.8 Public Announcements.........................................................................A-26
Section 5.9 Real Estate Transfer and Gains Tax...........................................................A-27
Section 5.10 State Takeover Laws..........................................................................A-27
Section 5.11 Indemnification of Directors and Officers....................................................A-27
Section 5.12 Notification of Certain Matters..............................................................A-27
Section 5.13 Employee Benefit Plans.......................................................................A-27
Section 5.14 Stock Exchange Listing.......................................................................A-28
Section 5.15 Loans to Company.............................................................................A-28
Section 5.16 Interim Report...............................................................................A-28
Section 5.17 Tax Matters..................................................................................A-28
Section 5.18 Indemnity Agreement.........................................................................A-28
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger...................................A-28
Section 6.2 Conditions to Obligation of the Company to Effect the Merger.................................A-29
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger.............................A-30
Section 6.4 Customers and Products......................................................................A-31
Section 6.5 Intellectual Property and Software..........................................................A-32
</TABLE>
A-ii
<PAGE> 80
<TABLE>
<CAPTION>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
<S> <C> <C>
Section 7.1 Termination..................................................................................A-32
Section 7.2 Effect of Termination........................................................................A-33
Section 7.3 Amendment....................................................................................A-33
Section 7.4 Waiver.......................................................................................A-33
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnity Fund...............................................................................A-33
Section 8.2 Indemnification from Indemnity Fund..........................................................A-34
Section 8.3 Termination of Indemnity Fund................................................................A-34
Section 8.4 Notice and Determination of Claims...........................................................A-34
Section 8.5 Resolution of Conflicts; Arbitration.........................................................A-35
Section 8.6 Stockholder Representatives..................................................................A-36
Section 8.7 Actions of the Stockholder Representatives...................................................A-36
Section 8.8 Third-Party Claims...........................................................................A-36
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Representations and Warranties...................................................A-37
Section 9.2 Notices......................................................................................A-37
Section 9.3 Interpretation...............................................................................A-37
Section 9.4 Counterparts.................................................................................A-38
Section 9.5 Entire Agreement; No Third-Party Beneficiaries...............................................A-38
Section 9.6 Governing Law................................................................................A-38
Section 9.7 Assignment...................................................................................A-38
Section 9.8 Severability.................................................................................A-38
Section 9.9 Enforcement of this Agreement................................................................A-38
</TABLE>
A-iii
<PAGE> 81
TABLE OF DEFINED TERMS
Defined Term Section
- ------------ -------
Affiliate Section 3.16
Agreement Introduction
Audited Financial Statements Section 3.5
Average Closing Price Section 1.5(g)(iii)
Balance Sheet Section 3.5
Balance Sheet Date Section 3.5
Benefits Date Section 5.13
Blue Sky Laws Section 2.4
Certificates Section 1.6
Certificate of Merger Section 1.2
Claim Notice Section 8.4(a)
Claiming Party Section 8.4(a)
Closing Section 1.14
Code Recitals
Company Introduction
Company Affiliate Letter Section 5.4(a)
Company Agreements Section 3.22
Company Ancillary Agreements Section 3.3(a)
Company Business Personnel Section 3.14
Company Bylaws Section 3.2(a)
Company Charter Section 1.4
Company Common Stock Recitals
Company Group Section 3.9(e)
Company Letter Section 3.2(c)
Company Multiemployer Plan Section 3.12(c)
Company Permits Section 3.7
Company Plan Section 3.12(c)
Company Preferred Stock Recitals
Company Series A Preferred Stock Section 3.2(a)
Company Series B Preferred Stock Section 3.2(a)
Company Series C Preferred Stock Section 3.2(a)
Company Series D Preferred Stock Section 3.2(a)
Company Stockholders Section 1.6
Company Stock Options Section 3.2(a)
Company Stock Plan Section 3.2(a)
Company Value Section 1.5(g)(ii)
Confidentiality Agreement Section 5.3
Constituent Corporations Introduction
Copyrights Section 3.15(a)(iii)
DGCL Section 1.1
Dissenting Shares Section 1.5(e)
Domain Names Section 3.15(a)(iv)
Effective Time Section 1.2
Encumbrance Section 3.6(c)(vi)
Environmental Laws Section 3.13
ERISA Section 3.12
ERISA Affiliate Section 3.12(c)
Exchange Act Section 2.4
Exchange Agent Section 1.6
Exchange Ratio Section 1.5(g)(i)
A-iv
<PAGE> 82
Expense Section 8.1(c)
Financial Statements Section 3.5
GAAP Section 2.5
Gains Taxes Section 5.9
Governmental Entity Section 2.4
Indemnity Agent Section 8.1(a)
Indemnity Agreement Recitals
Indemnity Shares Section 1.6
Intellectual Property Section 3.15(a)
Joint Venture Section 3.2(d)
Knowledge of Parent Section 2.7
Knowledge of the Company Section 3.7
Leased Real Property Section 3.18
Liquidation Preference Amount Section 1.5(g)(iv)
Loss Section 8.1(c)
Material Adverse Change Section 2.4
Material Adverse Effect Section 2.4
Merger Recitals
Merger Consideration Section 1.5(f)
Nasdaq Section 1.5(g)(iii)
Objection Section 8.4(c)
Parent Introduction
Parent Affiliate Letter Section 5.4(b)
Parent Ancillary Agreements Section 2.3
Parent Bylaws Section 2.4
Parent Common Stock Recitals
Parent Group Members Section 8.1(c)
Parent Letter Section 2.4
Parent Preferred Stock Section 2.2
Parent SEC Documents Section 2.5
Parent Stock Plans Section 2.2
Patent Rights Section 3.15(a)(i)
Permitted Encumbrance Section 3.6(c)(vi)
Person Section 3.16
Proxy Statement Section 2.6
Remaining Shares Section 5.2(b)
Reference Price Section 1.5(g)(v)
Registration Statement Section 2.3
Rule 145 Affiliates Section 5.4(a)
Securities Act Section 2.3
Share Issuance Section 2.3
Software Section 3.15(b)
State Takeover Approvals Section 2.4
Stock Restriction Agreements Section 3.2(c)
Stockholder Meeting Section 5.1
Stockholder Representatives Section 8.6(a)
Sub Introduction
Subsidiary Section 2.2
Substitute Option Section 5.6(a)
Surviving Corporation Section 1.1
Takeover Proposal Section 4.2(a)
Taxes Section 3.9(e)
Tax Return Section 3.9(e)
Tax Sharing Arrangement Section 3.9(e)
Trade Secrets Section 3.15(a)(v)
A-v
<PAGE> 83
Trademarks Section 3.15(a)(ii)
Transmittal Letter Section 1.6
Unaudited Financial Statements Section 3.5
Voting Agreements Recitals
Worker Safety Laws Section 3.13
A-vi
<PAGE> 84
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 29, 1999 (this
"Agreement"), among Tellabs, Inc ., a Delaware corporation ("Parent"), Blackhawk
Merger Corp., a Delaware corporation and a direct wholly owned subsidiary of
Parent ("Sub"), and NetCore Systems, Inc., a Delaware corporation (the
"Company") (Sub and the Company being hereinafter collectively referred to as
the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the
Company have approved and declared advisable the merger of Sub and the Company
(the "Merger"), upon the terms and subject to the conditions set forth herein,
whereby each issued and outstanding share of common stock, $.001 par value, of
the Company ("Company Common Stock"), and each issued and outstanding share of
preferred stock, $.001 par value, of the Company ("Company Preferred Stock"),
not owned directly or indirectly by Parent or the Company, will be converted
into shares of Common Stock, $.01 par value, of Parent ("Parent Common Stock");
WHEREAS, the respective Boards of Directors of Parent and the Company
have determined that the Merger is in furtherance of and consistent with their
respective long-term business strategies and is in the best interest of their
respective stockholders;
WHEREAS, in order to induce Parent and Sub to enter into this
Agreement, concurrently herewith certain stockholders of the Company are
entering into agreements with Parent dated as of the date hereof (the "Voting
Agreements"), in the form of the attached Exhibit A, pursuant to which, among
other things, each such stockholder has agreed to vote in favor of this
Agreement and the Merger;
WHEREAS, in order to induce Parent and Sub to enter into this
Agreement, before the Closing Parent, the Indemnity Agent (as hereinafter
defined) and the Stockholder Representatives (as hereinafter defined) shall
enter into the Indemnity Escrow Agreement (the "Indemnity Agreement")
substantially in the form of the attached Exhibit B;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, it is intended that the Merger shall be recorded for
accounting purposes as a pooling of interests.
NOW, THEREFORE, in consideration of the premises, representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the Delaware General Corporation Law (the
"DGCL"), Sub shall be merged with and into the Company at the Effective Time (as
hereinafter defined). Following the Merger, the separate corporate existence of
Sub shall cease and the Company shall continue as the surviving corporation (the
"Surviving Corporation") and shall succeed to and assume all the rights and
obligations of Sub in accordance with the DGCL. Notwithstanding anything to the
contrary herein, at the election of Parent, any direct wholly owned Subsidiary
(as hereinafter defined) of Parent may be substituted for Sub as a Constituent
Corporation in the Merger; provided that such substituted corporation is a
Delaware corporation which is formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and has engaged in no other business
activities. In such event, the parties agree to execute an appropriate amendment
to this
<PAGE> 85
Agreement, in form and substance reasonably satisfactory to Parent and the
Company, in order to reflect such substitution.
Section 1.2 Effective Time. The Merger shall become effective when a
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is filed with the Secretary of State of the
State of Delaware; provided, however, that, upon mutual consent of the
Constituent Corporations, the Certificate of Merger may provide for a later date
of effectiveness of the Merger not more than 30 days after the date the
Certificate of Merger is filed. When used in this Agreement, the term "Effective
Time" shall mean the date and time at which the Certificate of Merger is
accepted for recording or such later time established by the Certificate of
Merger. The filing of the Certificate of Merger shall be made on the date of the
Closing (as hereinafter defined).
Section 1.3 Effects of the Merger. The Merger shall have the effects
set forth in Section 259 of the DGCL.
Section 1.4 Charter and Bylaws; Directors and Officers. (a) At the
Effective Time, the Certificate of Incorporation, as amended, of the Company
(the "Company Charter"), as in effect immediately prior to the Effective Time,
shall be amended so that Article Fourth reads in its entirety as follows: "The
total number of shares of all classes of capital stock which the Corporation
shall have authority to issue is 1,000 shares of Common Stock, $.01 par value
per share". As so amended, the Company Charter shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter changed or amended
as provided therein or by applicable law. At the Effective Time, the Bylaws of
Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter changed or amended as provided
therein or in the Certificate of Incorporation of the Surviving Corporation.
(b) The directors and officers of Sub at the Effective Time shall be
the directors and officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
Section 1.5 Conversion of Securities. As of the Effective Time, by
virtue of the Merger and without any action on the part of Sub, the Company or
the holders of any securities of the Constituent Corporations:
(a) Each issued and outstanding share of common stock, $.01 par value,
of Sub shall be converted into one validly issued, fully paid and nonassessable
share of common stock of the Surviving Corporation.
(b) All shares of Company Common Stock or Company Preferred Stock that
are held in the treasury of the Company or by any wholly owned Subsidiary of the
Company and any shares of Company Common Stock or Company Preferred Stock owned
by Parent shall be canceled and no capital stock of Parent or other
consideration shall be delivered in exchange therefor.
(c) Subject to the provisions of Section 1.8 hereof, (i) each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares (as hereinafter defined) and shares to be
canceled in accordance with Section 1.5(b)) shall be converted into such number
of validly issued, fully paid and nonassessable shares of Parent Common Stock as
shall equal the Exchange Ratio (as hereinafter defined) times 1 and (ii) each
share of Company Series A Preferred Stock shall be converted into such number of
validly issued, fully paid and nonassessable shares of Parent Common Stock as
shall equal the Exchange Ratio times the number of shares of Common Stock into
which such share of Company Series A Preferred Stock is convertible immediately
prior to the Effective Time. Such shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and each holder of a
certificate representing any such shares shall cease to have any rights with
respect thereto, except the right to receive: (i) subject to Section 1.6,
certificates representing the shares of Parent Common Stock into which such
shares are converted, (ii) dividends and other distributions in accordance with
Section 1.7, and (iii) any cash, without interest, in lieu of fractional shares
to be issued or paid in consideration therefor in accordance with Section 1.8.
(d) Subject to the provisions of Section 1.8 hereof, each share of
Company Preferred Stock (other than the Series A Preferred Stock) issued and
outstanding immediately prior to the Effective Time (other than Dissenting
A-2
<PAGE> 86
Shares and shares to be canceled in accordance with Section 1.5(b)) shall be
converted into such number of validly issued, fully paid and nonassessable
shares of Parent Common Stock as shall equal(i) in the case of each share of the
Company Series B Preferred Stock, the quotient, rounded down to the nearest
thousandth, of $5.00 divided by the Average Closing Price (as hereinafter
defined), (ii) in the case of each share of the Company Series C Preferred
Stock, the quotient, rounded down to the nearest thousandth, of $7.00 divided by
the Average Closing Price and (iii) in the case of each share of the Company
Series D Preferred Stock, the quotient, rounded down to the nearest thousandth,
of $15.24 divided by the Average Closing Price. Such shares when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and each holder of a certificate representing any such shares shall cease to
have any rights with respect thereto, except the right to receive: (i) subject
to Section 1.6, certificates representing the shares of Parent Common Stock into
which such shares are converted, (ii) dividends and other distributions in
accordance with Section 1.7, and (iii) any cash, without interest, in lieu of
fractional shares to be issued or paid in consideration therefor in accordance
with Section 1.8.
(e) Notwithstanding anything in this Agreement to the contrary, shares
of Company Common Stock or Company Preferred Stock issued and outstanding
immediately prior to the Effective Time which are held of record by stockholders
who shall not have voted such shares in favor of the Merger and who shall have
demanded properly in writing appraisal of such shares in accordance with Section
262 of the DGCL ("Dissenting Shares") shall not be converted into the right to
receive Parent Common Stock and cash as set forth in Section 1.5(c) or Section
1.5(d), as the case may be, but the holders thereof instead shall be entitled
to, and the Dissenting Shares shall only represent the right to receive, payment
of the fair value of such shares in accordance with the provisions of Section
262 of the DGCL; provided, however, that (i) if such a holder fails to demand
properly in writing from the Surviving Corporation the appraisal of his or its
shares in accordance with Section 262(d) of the DGCL or, after making such
demand, subsequently delivers an effective written withdrawal of such demand, or
fails to establish his or its entitlement to appraisal rights as provided in
Section 262 of the DGCL, if so required, or (ii) if a court shall determine that
such holder is not entitled to receive payment for his or its shares or such
holder shall otherwise lose his or its appraisal rights, then, in any such case,
each share of Company Common Stock or Company Preferred Stock, as the case may
be, held of record by such holder or holders shall automatically be converted
into and represent only the right to receive Parent Common Stock and cash as set
forth in Section 1.5(c) or Section 1.5(d), as the case may be, upon surrender of
the certificate or certificates representing such Dissenting Shares.
(f) In calculating the consideration payable under this Section 1.5,
Parent shall be entitled to rely on the representations and warranties contained
herein and the information supplied by the Company, and the Company hereby
agrees promptly to deliver all information requested by Parent so as to enable
Parent to make such calculations in a timely fashion prior to the Closing. If
such representations, warranties and information are not correct, Parent shall
have the right to adjust the Exchange Ratio accordingly and notwithstanding
anything else to the contrary contained in this Agreement, in no event shall the
aggregate merger consideration payable by Parent, Sub or the Surviving
Corporation to the holders of equity interests in the Company (including,
without limitation, holders of options) in connection with the Merger or the
transactions contemplated hereby exceed such consideration payable assuming such
representation, warranties and information are correct (such consideration as
calculated based on such assumption is referred to herein as the "Merger
Consideration").
(g) For purposes of this Agreement:
(i) "Exchange Ratio" shall mean the quotient, rounded down to the
nearest one hundred thousandth, of the Company Value divided by the Average
Closing Price;
(ii) "Company Value" shall mean the quotient, rounded down to
the nearest thousandth, of (A) $575,000,000 minus the Liquidation
Preference Amount (as hereinafter defined), divided by (B) the
number of shares of Company Common Stock outstanding immediately
prior to the Effective Time on a fully-diluted basis (assuming
the exercise of all Company Stock Options (as hereinafter
defined) and the conversion of all shares of the Company Series A
Preferred Stock to shares of the Company Common Stock);
(iii) "Average Closing Price" shall mean the average, rounded
down to the nearest cent, of the last reported sales price per
share of Parent Common Stock on The Nasdaq National Market
A-3
<PAGE> 87
("Nasdaq") for the fifteen trading days immediately preceding the
three trading days immediately preceding the date of the Closing,
provided, however, that in the event of any reclassification,
stock split or stock dividend with respect to Parent Common Stock
or any change or conversion of Parent Common Stock into other
securities (or if a record date with respect to any of the
foregoing should occur) during such fifteen trading days,
appropriate adjustments, if any, shall be made to the Average
Closing Price; provided, further, that the Average Closing Price
may not be less than eighty percent (80%) of the Reference Price
nor more than one-hundred twenty percent (120%) of the Reference
Price;
(iv) "Liquidation Preference Amount" shall mean an amount
equal to the sum of (a) the number of Company Series B Preferred
Stock outstanding immediately before the Effective Time
multiplied by $5.00 plus (b) the number of Company Series C
Preferred Stock outstanding immediately before the Effective Time
multiplied by $7.00 plus (c) the number of Company Series D
Preferred Stock outstanding immediately before the Effective Time
multiplied by $15.24; and
(v) "Reference Price" shall mean $66.
(h) In the event the Merger Consideration is not sufficient to deliver
to the holders of Company Common Stock (assuming the exercise of all Company
Stock Options) and the holders of Company Preferred Stock the consideration they
would be entitled to under Section 2 of Article FOURTH of the Company Charter,
then the payments contemplated by this Section 1.5 shall be adjusted so as to be
in accordance with the payments provided for in such Section 2. In doing so, it
shall be assumed that all Company Stock Options have been exercised and all
shares of Company Series A Preferred Stock have been converted to shares of
Company Common Stock.
Section 1.6 Delivery of Certificates and Payment of Cash. At or after
the Effective Time, each holder of record of a certificate or certificates
(collectively, the "Certificates") representing shares of Company Common Stock
or Company Preferred Stock issued and outstanding immediately prior to the
Effective Time (collectively, the "Company Stockholders"), may surrender such
Certificate or Certificates to Parent's designee as the exchange agent (the
"Exchange Agent"), together with a letter of transmittal in the form prepared by
Parent (which shall specify that delivery shall be effected, and risk of loss
and title to the Certificates shall pass, only upon actual delivery thereof to
the Exchange Agent and shall contain instructions for use in effecting the
surrender of such Certificates in exchange for the property described in the
next sentence) (the "Transmittal Letter"). Parent shall promptly deliver or
cause to be delivered upon surrender for cancellation to the Exchange Agent of
all Certificates held by any Company Stockholder, together with the Transmittal
Letter, duly executed, in exchange therefor (i) to such Company Stockholder, (x)
one or more certificates representing ninety percent (90%) of the aggregate
number of whole shares of Parent Common Stock into which the Company Common
Stock or the Company Preferred Stock represented by the Certificate or
Certificates so surrendered shall have been converted pursuant to Section 1.5(c)
or Section 1.5(d), as the case may be, and (y) cash in lieu of any fractional
share in accordance with Section 1.8 and certain dividends and other
distributions in accordance with Section 1.7; and (ii) in accordance with
Section 8.1, to the Indemnity Agent, for deposit in the Indemnity Fund (as
defined in the Indemnity Agreement), one or more certificates representing the
remaining ten percent (10%) of such number of whole shares of Parent Common
Stock (all such shares held by the Indemnity Agent being collectively referred
to as the "Indemnity Shares"), and any Certificate so surrendered shall
forthwith be canceled.
Section 1.7 Dividends; Transfer Taxes; Withholding. No dividends or
other distributions that are declared on or after the Effective Time on Parent
Common Stock, or are payable to the holders of record thereof on or after the
Effective Time, will be paid to any Person (as hereinafter defined) entitled by
reason of the Merger to receive a certificate representing Parent Common Stock
until such Person surrenders the related Certificate or Certificates, as
provided in Section 1.6, and no cash payment in lieu of fractional shares will
be paid to any such Person pursuant to Section 1.8 until such Person shall so
surrender the related Certificate or Certificates. Subject to the effect of
applicable law, there shall be paid to each record holder of a new certificate
representing such Parent Common Stock: (i) at the time of such surrender or as
promptly as practicable thereafter, ninety percent (90%) of the amount of any
dividends or other distributions theretofore paid with respect to the shares of
Parent Common Stock represented by such new certificate and having a record date
on or after the Effective Time and a payment date prior to such surrender; (ii)
at the appropriate payment date or as promptly as practicable thereafter, ninety
percent (90%) of the amount of any dividends or other distributions payable with
respect to such shares of Parent Common Stock and having a record date on or
after
A-4
<PAGE> 88
the Effective Time but prior to such surrender and a payment date on or
subsequent to such surrender; and (iii) at the time of such surrender or as
promptly as practicable thereafter, the amount of any cash payable with respect
to a fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 1.8. The remaining ten percent (10%) of the amount of
dividends or other distributions described in clauses (i) and (ii) of the
immediately preceding sentence, in each case relating to stock splits or other
similar events, shall be deposited by Parent with the Indemnity Agent and shall
be included in the Indemnity Fund in accordance with the Indemnity Agreement. In
no event shall the Person entitled to receive such dividends or other
distributions or cash in lieu of fractional shares be entitled to receive
interest on such dividends or other distributions or cash in lieu of fractional
shares. If any cash or certificate representing shares of Parent Common Stock is
to be paid to or issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it shall be a condition of such
exchange that the Certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the Person requesting such
exchange shall pay to Parent any transfer or other taxes required by reason of
the issuance of certificates for such shares of Parent Common Stock in a name
other than that of the registered holder of the Certificate surrendered, or
shall establish to the satisfaction of Parent that such tax has been paid or is
not applicable. Parent shall be entitled to deduct and withhold from the
consideration otherwise payable pursuant to this Agreement to any Person such
amounts as Parent is required to deduct and withhold with respect to the making
of such payment under the Code or under any provision of state, local or foreign
tax law. To the extent that amounts are so withheld by Parent, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the Person who otherwise would have received the payment in respect of which
such deduction and withholding was made by Parent.
Section 1.8 No Fractional Securities. No certificates or scrip
representing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates pursuant to this Article I, and no Parent
dividend or other distribution or stock split shall relate to any fractional
share, and no fractional share shall entitle the owner thereof to vote or to any
other rights of a security holder of Parent. In lieu of any such fractional
share, each holder of Company Common Stock or Company Preferred Stock who would
otherwise have been entitled to a fraction of a share of Parent Common Stock
upon surrender of Certificates for exchange pursuant to this Article I will be
paid an amount in cash (without interest), rounded down to the nearest cent,
determined by multiplying (i) the last reported sale price per share of Parent
Common Stock on Nasdaq on the date of the Effective Time (or, if the shares of
Parent Common Stock do not trade on Nasdaq on such date, the first date of
trading of shares of Parent Common Stock on Nasdaq after the Effective Time) by
(ii) the fractional interest to which such holder would otherwise be entitled.
Section 1.9 Abandoned Property. Neither Parent nor the Surviving
Corporation shall be liable to any former holder of Company Common Stock or
Company Preferred Stock for any shares of Parent Common Stock, cash and
dividends and distributions payable in accordance with this Article I which is
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
Section 1.10 No Further Ownership Rights in Company Common Stock. All
shares of Parent Common Stock issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to Section 1.8) shall be deemed to have been issued in full
satisfaction of all rights pertaining to the shares of Company Common Stock or
Company Preferred Stock represented by such Certificates.
Section 1.11 Closing of Company Transfer Books. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock or Company Preferred Stock shall thereafter be
made on the records of the Company. If, after the Effective Time, Certificates
are presented to the Surviving Corporation or Parent, such Certificates shall be
canceled and exchanged as provided in this Article I.
Section 1.12 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 Parent or the Exchange Agent, the posting by such Person of a bond,
in such amount as Parent or the Exchange Agent may direct as indemnity against
any claim that may be made against Parent, the Surviving Corporation or the
Exchange Agent with respect to such Certificate, Parent will issue or cause to
be issued in exchange for such lost, stolen or destroyed Certificate the shares
of Parent Common Stock, any cash in lieu of fractional shares of Parent Common
Stock to which the holders thereof are entitled pursuant to Section 1.8 and any
dividends or other distributions to which the holders thereof are entitled
pursuant to Section 1.7.
A-5
<PAGE> 89
Section 1.13 Further Assurances. If at any time after the Effective
Time the Surviving Corporation shall consider or be advised that any deeds,
bills of sale, assignments or assurances or any other acts or things are
necessary, desirable or proper (a) to vest, perfect or confirm, of record or
otherwise, in the Surviving Corporation its right, title or interest in, to or
under any of the rights, privileges, powers, franchises, properties or assets of
either of the Constituent Corporations, or (b) otherwise to carry out the
purposes of this Agreement, the Surviving Corporation and its proper officers
and directors or their designees shall be authorized to execute and deliver, in
the name and on behalf of either of the Constituent Corporations, all such
deeds, bills of sale, assignments and assurances and to do, in the name and on
behalf of either Constituent Corporation, all such other acts and things as may
be necessary, desirable or proper to vest, perfect or confirm the Surviving
Corporation's right, title or interest in, to or under any of the rights,
privileges, powers, franchises, properties or assets of such Constituent
Corporation and otherwise to carry out the purposes of this Agreement.
Section 1.14 Closing. The closing of the transactions contemplated by
this Agreement (the "Closing") and all actions specified in this Agreement to
occur at the Closing shall take place at the offices of Sidley & Austin, One
First National Plaza, Chicago, Illinois, at 10:00 a.m., local time, no later
than the second business day following the day on which the last of the
conditions set forth in Article VI shall have been fulfilled or waived (if
permissible) or at such other time and place as Parent and the Company shall
agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company as follows:
Section 2.1 Organization, Standing and Power. Each of Parent and Sub
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power and
authority to carry on its business as now being conducted.
Section 2.2 Capital Structure. As of the date hereof, the authorized
capital stock of Parent consists of 500,000,000 shares of Parent Common Stock
and 5,000,000 shares of preferred stock, $.01 par value (the "Parent Preferred
Stock"). At the close of business on June 4, 1999, (i) 392,156,296 shares of
Parent Common Stock were issued and outstanding, (ii) no shares of Parent Common
Stock were held in the treasury of Parent or by Subsidiaries of Parent, (iii) no
shares of Parent Preferred Stock were issued or outstanding, (iv) 21,117,985
shares of Parent Common Stock were reserved for issuance pursuant to outstanding
options, warrants or other rights to purchase or otherwise acquire shares of
Parent Common Stock under Parent's benefit plans or other arrangements or
pursuant to any plans or arrangements assumed by Parent in connection with any
acquisition, business combination or similar transaction (collectively, the
"Parent Stock Plans"), and (v) 158,478 stock appreciation rights granted
pursuant to the Parent Stock Plans were outstanding. As of the date of this
Agreement, except as set forth above and except for the issuance of shares of
Parent Common Stock pursuant to the Parent Stock Plans, no shares of capital
stock or other voting securities of Parent were issued, reserved for issuance or
outstanding. All of the shares of Parent Common Stock issuable upon conversion
of Company Common Stock and Company Preferred Stock at the Effective Time in
accordance with Section 1.5(c) or Section 1.5(d) of this Agreement, as the case
may be, will be, when so issued, duly authorized, validly issued, fully paid and
nonassessable and free of preemptive rights.
For purposes of this Agreement, "Subsidiary" means any corporation,
partnership, limited liability company, joint venture, trust, association or
other entity of which Parent or the Company, as the case may be (either alone or
through or together with any other Subsidiary), owns, directly or indirectly,
50% or more 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, partnership, limited liability company,
joint venture or other entity.
Section 2.3 Authority. The Boards of Directors of Parent and Sub have
declared the Merger advisable and fair to and in the best interest of Parent and
Sub, respectively, and their respective stockholders, and approved and adopted
this Agreement in accordance with the DGCL. The Board of Directors of Parent has
approved the issuance of Parent Common Stock in connection with the Merger (the
"Share Issuance") and has approved the other
A-6
<PAGE> 90
agreements to be entered into by it as contemplated hereby (such other
agreements, the "Parent Ancillary Agreements"). Parent has the requisite
corporate power and authority to enter into this Agreement and the Parent
Ancillary Agreements, to effect the Share Issuance, and to consummate the
transactions contemplated hereby and thereby. Sub has all corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by Parent and
Sub and the Parent Ancillary Agreements by Parent, and the consummation by
Parent and Sub of the transactions contemplated hereby and thereby, have been
duly authorized by all necessary corporate action on the part of Parent and Sub,
subject to the filing of appropriate Merger documents as required by the DGCL.
This Agreement and the consummation of the transactions contemplated hereby have
been approved by the sole stockholder of Sub. This Agreement has been duly
executed and delivered by Parent and Sub. The Parent Ancillary Agreements
executed as of the date hereof have been duly executed and delivered by Parent.
Assuming the valid authorization, execution and delivery by the other parties
thereto and the validity and binding effect hereof and thereof on the other
parties thereto, this Agreement constitutes the valid and binding obligation of
Parent and Sub enforceable against each of them in accordance with its terms,
and each of the Parent Ancillary Agreements, upon execution and delivery thereof
by Parent, will constitute the valid and binding obligation of Parent
enforceable against it in accordance with its terms, except to the extent as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by the effect of general principles of equity
(regardless of whether enforcement is considered in a proceeding in equity or at
law). The Share Issuance and the filing of a registration statement on Form S-4
with the SEC by Parent under the Securities Act of 1933, as amended (together
with the rules and regulations promulgated thereunder, the "Securities Act"),
for the purpose of registering shares of Parent Common Stock to be issued in the
Merger (together with any amendments or supplements thereto, whether prior to or
after the effective date thereof, the "Registration Statement") have been duly
authorized by Parent's Board of Directors.
Section 2.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
2.4 have been obtained and all filings and obligations described in this Section
2.4 have been made, except as set forth in Section 2.4 of the letter dated the
date hereof and delivered on the date hereof by Parent to the Company, which
letter relates to this Agreement and is designated therein as the Parent Letter
(the "Parent Letter"), the execution and delivery of this Agreement by Parent
and Sub, and the Parent Ancillary Agreements by Parent, do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give to
others a right of termination, cancellation or acceleration of any obligation or
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its Subsidiaries under, any provision of (i) the Parent Charter
or the Amended and Restated Bylaws of Parent (the "Parent Bylaws") or the
Certificate of Incorporation or Bylaws of Sub, (ii) any provision of the
comparable charter or organization documents of any of Parent's Subsidiaries,
(iii) any loan or credit agreement, note, bond, mortgage, indenture, guaranty,
permit, lease or other agreement, instrument, permit, concession, franchise or
license applicable to Parent or any of its Subsidiaries or any of their
respective properties or assets or (iv) any judgment, order, decree, injunction,
statute, law, ordinance, rule or regulation applicable to Parent or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (ii), (iii) or (iv), any such violations, defaults, rights,
liens, security interests, charges or encumbrances that, individually or in the
aggregate, would not have a Material Adverse Effect on Parent, materially impair
the ability of Parent or Sub to perform their respective obligations hereunder
or, in the case of Parent, under the Parent Ancillary Agreements, or prevent the
consummation of any of the transactions contemplated hereby or thereby. No
filing or registration with, or authorization, consent or approval of, any
domestic (federal and state), foreign or supranational court, commission,
governmental body, regulatory agency, authority or tribunal (a "Governmental
Entity") is required by or with respect to Parent or any of its Subsidiaries in
connection with the execution and delivery of this Agreement by Parent or Sub or
the Parent Ancillary Agreements by Parent or is necessary for the consummation
of the Merger and the other transactions contemplated by this Agreement or the
Parent Ancillary Agreements, except for (i) in connection, or in compliance,
with the Securities Act and the Securities Exchange Act of 1934, as amended
(together with the rules and regulations promulgated thereunder, the "Exchange
Act"), (ii) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware and appropriate documents with the relevant authorities
of other states in which the Company or any of its Subsidiaries is qualified to
do business, (iii) such filings, authorizations, orders and approvals as may be
required by state takeover laws (the "State Takeover Approvals"), (iv) such
filings as may be required in connection with the taxes described in Section
5.9, (v) applicable requirements, if any, of state securities or "blue sky" laws
("Blue Sky Laws") and Nasdaq,(vi) filings required by the HSR Act, (vii)
applicable requirements, if any, under foreign laws and (viii) such other
consents, orders,
A-7
<PAGE> 91
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not, individually or in the aggregate, have a Material
Adverse Effect on Parent, materially impair the ability of Parent or Sub to
perform its obligations hereunder or, in the case of Parent, under the Parent
Ancillary Agreements, or prevent the consummation of any of the transactions
contemplated hereby or thereby.
For purposes of this Agreement, "Material Adverse Change" or "Material
Adverse Effect" means, when used with respect to Parent or the Company, as the
case may be, any event, change or effect that individually or when taken
together with all other such events, changes or effects is or could reasonably
be expected (as far as can be foreseen at the time) to be materially adverse to
the business, prospects, assets, liabilities, financial condition or results of
operations of Parent and its Subsidiaries, taken as a whole, or the Company and
its Subsidiaries, taken as a whole, as the case may be.
Section 2.5 SEC Documents and Other Reports. Parent has filed all
required reports, schedules, forms, statements and other documents with the SEC
between January 1, 1999 and the date hereof (the "Parent SEC Documents"). As of
their respective dates, the Parent SEC Documents complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and, at the respective times they were filed, none of the Parent
SEC Documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The consolidated financial statements (including, in each case,
any notes thereto) of Parent included in the Parent SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles (except, in the case
of the unaudited statements, as permitted by Form 10-Q of the SEC) applied on a
consistent basis during the periods involved (except as may be indicated therein
or in the notes thereto) and fairly presented in all material respects the
consolidated financial position of Parent and its consolidated subsidiaries as
at the respective dates thereof and the consolidated results of their operations
and their consolidated cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments and to any
other adjustments described therein). Except as disclosed in the Parent SEC
Documents or as required by generally accepted accounting principles("GAAP"),
Parent has not, since January 1, 1999, made any change in the accounting
practices or policies applied in the preparation of financial statements
included in Parent SEC Documents. Except for liabilities (i) reflected in the
Parent SEC Documents, (ii) incurred in the ordinary course of business
consistent with past practices since April 2, 1999, (iii) incurred in connection
with this Agreement or the transactions contemplated hereby or in connection
with other acquisitions or business combinations involving Parent or any of its
Subsidiaries, or (iv) disclosed in the Parent Letter, neither the Parent nor any
of its Subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) of any nature which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect on the
Parent.
Section 2.6 Registration Statement and Proxy Statement. None of the
information to be supplied by Parent or Sub for inclusion or incorporation by
reference in the Registration Statement or the proxy statement/prospectus
included therein relating to the Stockholder Meeting (as hereinafter defined)
(together with any amendments or supplements thereto, the "Proxy Statement")
will (i) in the case of the Registration Statement, at the time it becomes
effective, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein not misleading or (ii) in the case of the Proxy Statement, at
the time of the mailing of the Proxy Statement and at the time of the
Stockholder Meeting, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. If at any time prior to the Stockholder Meeting any event
with respect to Parent, its officers and directors or any of its Subsidiaries
shall occur which is required to be described in the Proxy Statement or the
Registration Statement, such event shall be so described, and an appropriate
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the stockholders of the Company. The Registration Statement
will comply (with respect to Parent) as to form in all material respects with
the provisions of the Securities Act.
Section 2.7 Actions and Proceedings. As of the date hereof, there are
no actions, suits, labor disputes or other litigation, legal or administrative
proceedings or governmental investigations pending or, to the Knowledge of
Parent, threatened against or affecting Parent or any of its Subsidiaries or any
of its or their present or former officers, directors, employees, or, to the
Knowledge of Parent, consultants, agents or stockholders, as such, or any
A-8
<PAGE> 92
of its or their properties, assets or business relating to the transactions
contemplated by this Agreement and the Parent Ancillary Agreements. For purposes
of this Agreement, "Knowledge of Parent" means the actual knowledge of the
individuals identified in Section 2.7 of the Parent Letter.
Section 2.8 Operations and Obligations. Except as described in the
Parent SEC Documents and except in connection with matters publicly announced by
Parent, between April 2, 1999 and the date hereof, (i) except as a result of the
transactions contemplated by this Agreement or in connection with other
acquisitions or business combinations involving Parent or any of its
Subsidiaries, there has been no Material Adverse Change with respect to Parent;
and (ii) except as a result of the transactions contemplated by this Agreement
or in connection with other acquisitions or business combinations involving
Parent or any of its Subsidiaries, there has not been any material revaluation
by Parent of any of its assets including, without limitation, writing down the
value of capitalized software or inventory or writing off notes or accounts
receivable, in each of the foregoing cases which would have a Material Adverse
Effect.
Section 2.9 Required Vote of Parent Stockholders. No vote of the
security holders of Parent is required by law, the Parent Charter or the Parent
Bylaws or otherwise in order for Parent to consummate the Merger and the
transactions contemplated hereby.
Section 2.10 Pooling of Interests; Reorganization. To the Knowledge of
Parent, neither Parent nor any of its Subsidiaries has (i) taken any action or
failed to take any action which action or failure would jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes or (ii) taken
any action or failed to take any action which action or failure would jeopardize
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 2.11 Brokers. Other than Deutsche Bank Securities Inc., with
respect to which the fees due by Parent shall be paid by Parent, no broker,
investment banker or other Person is entitled to any broker's, finder's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent.
Section 2.12 Operations of Sub. Sub is a direct, wholly owned
subsidiary of Parent, was formed solely for the purpose of engaging in the
transactions contemplated hereby, has engaged in no other business activities
and has conducted its operations only as contemplated hereby.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Sub as follows:
Section 3.1 Organization, Standing and Power. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
carry on its business as now being conducted. Each Subsidiary of the Company is
duly organized, validly existing and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate (in the
case of a Subsidiary that is a corporation) or other power and authority to
carry on its business as now being conducted. The Company and each of its
Subsidiaries are duly qualified to do business, and are in good standing, in
each jurisdiction where the character of their properties owned or held under
lease or the nature of their activities makes such qualification necessary,
except where the failure to be so qualified or licensed and in good standing
would not have a Material Adverse Effect on the Company.
Section 3.2 Capital Structure. (a) The authorized capital stock of
the Company consists of 25,000,000 shares of Company Common Stock and 15,000,000
shares of Company Preferred Stock, of which 157,895 shares have been designated
as Series A Convertible Preferred Stock (the "Company Series A Preferred
Stock"), 3,550,000 shares have been designated as Series B Convertible Preferred
Stock (the "Company Series B Preferred Stock"), 4,728,571 shares have been
designated as Series C Convertible Preferred Stock (the "Company Series C
A-9
<PAGE> 93
Preferred Stock"), and 4,016,099 shares have been designated as Series D
Convertible Preferred Stock (the "Company Series D Preferred Stock"). At the
close of business on June 28, 1999, (i) 6,336,538 shares of Company Common
Stock, 157,895 shares of Company Series A Preferred Stock, 3,550,000 shares of
Company Series B Preferred Stock, 4,728,571 shares of Company Series C Preferred
Stock and 4,016,099 shares of Company Series D Preferred Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
free of preemptive rights, (ii) 147,794 shares of Company Common Stock, no
shares of Company Series A Preferred Stock, no shares of Company Series B
Preferred Stock, no shares of Company Series C Preferred Stock and no shares of
Company Series D Preferred Stock were held in the treasury of the Company or by
Subsidiaries of the Company and (iii) 1,073,100 shares of Company Common Stock
were reserved for issuance pursuant to outstanding options (the "Company Stock
Options") to purchase shares of Company Common Stock pursuant to the 1997 Stock
Option Plan (the "Company Stock Plan"). The Company Stock Plan is the only
benefit plan of the Company or its Subsidiaries under which any securities of
the Company or any of its Subsidiaries are issuable. Since June 28, 1999 except
as set forth above and except for the issuance of shares of Company Common Stock
upon the exercise of the Company Stock Options or upon the conversion of shares
of Company Preferred Stock, in each case, in accordance with the terms thereof,
no shares of capital stock or other voting securities of the Company were
issued, reserved for issuance or outstanding. Except as set forth in Section
3.2(a) of the Company Letter (as hereinafter defined), there will be no
acceleration in the vesting of the Company Stock Options as a result of the
execution of this Agreement or consummation of the transactions contemplated
hereby. Except as set forth in Section 3.2(a) of the Company Letter and except
for (i) the Company Stock Options and (ii) upon conversion of the outstanding
shares of Company Preferred Stock, there are no options, warrants, calls,
rights, puts or agreements to which the Company or any of its Subsidiaries is a
party or by which any of them is bound obligating the Company or any of its
Subsidiaries to issue, deliver, sell or redeem, or cause to be issued,
delivered, sold or redeemed, any additional shares of capital stock (or other
voting securities or equity equivalents) of the Company or any of its
Subsidiaries or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, put or agreement.
Except as set forth in Section 3.2(a) of the Company Letter, the Company is not
a party to, or otherwise have any Knowledge of the current existence of, any
stockholder agreement, voting trust agreement or any other similar contract,
agreement, arrangement, commitment, plan or understanding relating to the
voting, dividend, ownership or transfer rights of any shares of capital stock of
the Company. True and complete copies of the Company Charter, Bylaws of the
Company, as amended (the "Company Bylaws"), the Company Stock Plan, and the
agreements and other instruments referred to in Section 3.2(a) of the Company
Letter have been delivered to Parent.
(b) Each outstanding share of capital stock (or other voting security
or equity equivalent, as the case may be) of each Subsidiary of the Company is
duly authorized, validly issued, fully paid and nonassessable, and each such
share (or other voting security or equity equivalent, as the case may be) is
owned by the Company or another Subsidiary of the Company, free and clear of all
security interests, liens, claims, pledges, options, rights of first refusal,
agreements, limitations on voting rights, charges and other encumbrances of any
nature whatsoever. The Company does not have any outstanding bonds, debentures,
notes or other obligations the holders of which have the right to vote (or
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter.
(c) Section 3.2(c)(i) of the letter dated the date hereof and delivered
on the date hereof by the Company to Parent, which letter relates to this
Agreement and is designated the Company Letter (the "Company Letter") sets forth
the name and address of each holder of record of shares of capital stock of the
Company outstanding on the date hereof, together, in each case, with the number
of shares of Company Common Stock and the number of shares of each outstanding
series of Company Preferred Stock held by such holder. Section 3.2(c)(ii) of the
Company Letter sets forth each share of Company Common Stock issued pursuant to
a Stock Restriction Agreement, together with the grant date, the date on which
such share ceases to be subject to the terms and restrictions of such agreement
and the name and address of the record holder thereof. Section 3.2(c)(iii) of
the Company Letter also sets forth each option to purchase Company Common Stock
issued by the Company, together, in each case, with the number of shares
issuable upon exercise thereof, the grant date, the exercise price, the
expiration date and the name and address of the record owner thereof. Section
3.2(c) (iv) of the Company Letter sets forth the number of shares of Company
Common Stock issuable upon conversion of a share of each series of Company
Preferred Stock. True and complete copies of (i) the Company Stock Plan, (ii)
each Stock Restriction Agreement to which the Company is a party (the "Stock
Restriction Agreements"), and (iii) each instrument governing any Company Stock
Options has been delivered by the Company to Parent.
A-10
<PAGE> 94
(d) Section 3.2(d) of the Company Letter sets forth a list of all
Subsidiaries and Joint Ventures of the Company and the jurisdiction in which
such Subsidiary or Joint Venture is organized. Section 3.2(d) of the Company
Letter also sets forth the nature and extent of the ownership and voting
interests held by the Company in each such Joint Venture. The Company has no
obligation to make any capital contributions, or otherwise provide assets or
cash, to any Joint Venture. For purposes of this Agreement, "Joint Venture"
means, any corporation, limited liability company, partnership, joint venture,
trust, association or other entity which is not a Subsidiary of the Company, as
the case may be, and in which (a) the Company, directly or indirectly, owns or
controls any shares of any class of the outstanding voting securities or other
equity interests, or (b) the Company or one of its Subsidiaries is a general
partner.
Section 3.3 Authority. (a) The Board of Directors of the Company has
declared the Merger advisable and fair to and in the best interest of the
Company and its stockholders, approved and adopted this Agreement in accordance
with the DGCL, approved the Voting Agreements and approved the other agreements
to be entered into by it as contemplated hereby (such other agreements, the
"Company Ancillary Agreements"), resolved to recommend the approval and adoption
of this Agreement by the Company's stockholders and directed that this Agreement
be submitted to the Company's stockholders for approval and adoption. The
Company has the requisite corporate power and authority to enter into this
Agreement and the Company Ancillary Agreements, to consummate the transactions
contemplated by the Company Ancillary Agreements and, subject to approval by the
stockholders of the Company of this Agreement, to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and the Company Ancillary Agreements by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of the Company,
subject, in the case of this Agreement, to (x) approval of this Agreement by the
stockholders of the Company and (y) the filing of appropriate Merger documents
as required by the DGCL. This Agreement has been duly executed and delivered by
the Company. The Company Ancillary Agreements executed as of the date hereof
have each been duly executed and delivered by the Company and no other corporate
action on the part of the Company is necessary in connection therewith. Assuming
the valid authorization, execution and delivery by the other parties thereto and
the validity and binding effect hereof and thereof on the other parties thereto,
this Agreement constitutes the valid and binding obligation of the Company
enforceable against it in accordance with its terms and each of the Company
Ancillary Agreements upon execution and delivery thereof by the Company will
constitute the valid and binding obligation of the Company enforceable against
it in accordance with its terms, except to the extent as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors' rights generally and by the
effect of general principles of equity (regardless of whether enforcement is
considered in a proceeding in equity or at law).
(b) Upon the execution and delivery by the Stockholder Representatives
of the Indemnity Agreement, the Indemnity Agreement will constitute the valid
and binding obligation of the Company Stockholders and Stockholder
Representatives, enforceable against the Company Stockholders and Stockholder
Representatives, in accordance with its terms. The Stockholder Representatives
have the requisite power and authority to enter into the Indemnity Agreement and
to fulfill the terms thereof contemplated thereby.
Section 3.4 Consents and Approvals; No Violation. Assuming that all
consents, approvals, authorizations and other actions described in this Section
3.4 have been obtained and all filings and obligations described in this Section
3.4 have been made, except as set forth in Section 3.4 of the Company Letter,
the execution and delivery of this Agreement and the Company Ancillary
Agreements by the Company do not, and the consummation of the transactions
contemplated hereby and thereby and compliance with the provisions hereof and
thereof will not, result in any material violation of, or default (with or
without notice or lapse of time, or both) under, or give to others a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries under, any provision of (i) the Company
Charter or the Company Bylaws, (ii) any provision of the comparable charter or
organizational documents of any of the Company's Subsidiaries, (iii) any other
material note, instrument, agreement, mortgage, lease, license, franchise,
permit or other authorization, right, restriction or obligation to which the
Company or its Subsidiaries is bound, (iv) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets. No filing or
registration with, or authorization, consent or approval of, any Governmental
Entity is required by or with respect to the Company or any of its Subsidiaries
in connection with the execution and delivery of this Agreement or the Company
Ancillary Agreements by the Company or is necessary for the consummation of the
Merger and the other transactions
A-11
<PAGE> 95
contemplated by this Agreement or the Company Ancillary Agreements, except for
(i) the filing of the Certificate of Merger with the Secretary of State of the
State of Delaware and appropriate documents with the relevant authorities of
other states in which the Company or any of its Subsidiaries is qualified to do
business, (ii) such filings, authorizations, orders and approvals as may be
required by state takeover laws, (iii) such filings as may be required in
connection with the taxes described in Section 5.9, (iv) applicable
requirements, if any, of Blue Sky Laws, (v)filings required by the HSR Act and
(vi) applicable requirements, if any, under foreign laws.
Section 3.5 Financial Statements. Section 3.5 of the Company Letter
contains (i) the balance sheet (the "Balance Sheet") of the Company and its
subsidiaries as of December 31, 1998 (the "Balance Sheet Date") and the related
statement of income, stockholders' equity and cash flows for the year then
ended, together with the appropriate notes to such financial statements,
accompanied by the report thereon of PricewaterhouseCoopers LLP, independent
public accountants (the "Audited Financial Statements"), and (ii) the unaudited
balance sheet of the Company and its subsidiaries as of April 4, 1999 and the
related unaudited statement of income, stockholders' equity and cash flows for
the year then ended, together with the appropriate notes to such financial
statements (the "Unaudited Financial Statements" and together with the Audited
Financial Statements, the "Financial Statements"). Except as disclosed in the
notes thereto, the Financial Statements have been prepared in conformity with
GAAP consistently applied and fairly present in all material respects the
financial position of the Company and its subsidiaries at the dates of such
balance sheets and the results of its operations and cash flows for the
respective periods indicated (subject, in the case of the Unaudited Financial
Statements, to normal year end audit adjustments and to any other adjustments
described therein).
Section 3.6 No Dividends; Absence of Certain Changes or Events.
(a) The Company has never declared or made, or agreed to declare or
make, any payment of dividends or distributions to its stockholders (and no
record date with respect to any of the foregoing has occurred) or purchased or
redeemed, or agreed to purchase or redeem, any of its capital stock or other
equity interest.
(b) Except as set forth in Section 3.6(b) of the Company Letter:
(i) between the Balance Sheet Date and the date of this
Agreement there has been no Material Adverse Change with respect
to the Company; and
(ii) since the Balance Sheet Date, there has been no damage,
destruction, loss or claim, whether or not covered by insurance,
or condemnation or other taking adversely affecting any material
assets or business of the Company or any of its Subsidiaries.
(c) Except as set forth in Section 3.6(c) of the Company Letter, since
the Balance Sheet Date, the Company and its Subsidiaries have conducted their
respective businesses in all material respects only in the ordinary course and
in conformity with past practice. Without limiting the generality of the
foregoing, since the Balance Sheet Date, except as set forth in Section 3.6(c)
of the Company Letter, neither the Company nor any of its Subsidiaries has:
(i) issued, delivered or agreed (conditionally or
unconditionally) to issue or deliver, or granted any option,
warrant or other right to purchase, any of its capital stock or
other equity interest or any security convertible into its
capital stock or other equity interest;
(ii) issued, delivered or agreed (conditionally or
unconditionally) to issue or deliver any of its bonds, notes or
other debt securities;
(iii) paid any material obligation or liability (absolute or
contingent) other than current liabilities reflected on the
Balance Sheet and current liabilities incurred since the Balance
Sheet Date in the ordinary course of business consistent with
past practice;
(iv) undertaken or committed to undertake capital
expenditures exceeding $500,000 for any single project or related
series of projects or $2,000,000 in the aggregate;
A-12
<PAGE> 96
(v) made charitable donations in excess of $20,000 in the
aggregate;
(vi) sold, leased (as lessor), transferred or otherwise
disposed of (including any transfers from the Company or any of
its Subsidiaries to any of the stockholders of the Company or any
of their respective Affiliates (as hereinafter defined)), or
mortgaged or pledged, or imposed or suffered to be imposed any
lien, claim, charge, security interest, mortgage, pledge,
easement, conditional sale or other title retention agreement,
defect in title, covenant or other restriction of any kind (an
"Encumbrance"), on, any of the assets reflected on the Balance
Sheet or any assets acquired by the Company or any of its
Subsidiaries after the Balance Sheet Date, except for inventory
and minor amounts of personal property sold or otherwise disposed
of for fair value in the ordinary course of its business
consistent with past practice and except for (A) liens for taxes
and other governmental charges and assessments which are not yet
due and payable, (B) liens of landlords and liens of carriers,
warehousemen, mechanics and materialmen and other like liens
arising in the ordinary course of business for sums not yet due
and payable and (C) other liens or imperfections on property
which are not material in amount, do not interfere with, and are
not violated by the consummation of the transactions contemplated
by, this Agreement, and do not materially detract from the value
or marketability of, or materially impair the existing use of,
the property affected by such lien or imperfection (each, a
"Permitted Encumbrance");
(vii) canceled any debts owed to or claims held by the
Company or any of its Subsidiaries (including the settlement of
any claims or litigation) other than in the ordinary course of
its business consistent with past practice;
(viii) created, incurred or assumed, or agreed to create,
incur or assume, any indebtedness for borrowed money or entered
into, as lessee, any capitalized lease obligations (as defined in
Statement of Financial Accounting Standards No. 13);
(ix) accelerated or delayed collection of notes or accounts
receivable in advance of or beyond their regular due dates or the
dates when the same would have been collected in the ordinary
course of its business consistent with past practice;
(x) delayed or accelerated payment of any material account
payable or other liability beyond or in advance of its due date
or the date when such liability would have been paid in the
ordinary course of its business consistent with past practice;
(xi) instituted any increase in any compensation payable to
any employee, director or consultant of the Company or any of its
Subsidiaries or in any profit-sharing, bonus, incentive, deferred
compensation, insurance, pension, retirement, medical, hospital,
disability, welfare or other benefits made available to employees
of the Company or any of its Subsidiaries except, in case of
employees other than directors or officers, salary increases
consistent with the Company's past practice in connection with
annual or periodic compensation reviews;
(xii) made any tax election or settled or compromised any
material federal, state, local or foreign income tax liability;
(xiii) made any change in the accounting principles and
practices used by the Company from those applied in the
preparation of the Financial Statements; or
(xiv) entered into or become committed to enter into any
other material transaction except in the ordinary course of
business.
(d) Except as set forth in Section 3.6(d) of the Company Letter,
neither the Company nor any of its Subsidiaries is subject to any material
liability (including, without limitation, unasserted claims, whether known or
unknown), whether absolute, contingent, accrued or otherwise, which is not shown
or which is in excess of amounts shown or reserved for in the Balance Sheet,
other than liabilities of the same nature as those set forth in the Balance
A-13
<PAGE> 97
Sheet and the notes thereto and reasonably incurred in the ordinary course of
its business consistent with past practice after the Balance Sheet Date.
Section 3.7 Governmental Permits. Each of the Company and its
Subsidiaries owns, holds or possesses all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from Governmental
Entities which are necessary to entitle it to own or lease, operate and use its
assets and to carry on and conduct its business substantially as currently
conducted (herein collectively called "Company Permits"), except such Company
Permits, the failure to own, hold or possess which would not, individually or in
the aggregate, have a Material Adverse Effect on the Company. Complete and
correct copies of all of the Company Permits have been delivered by the Company
to Parent.
Each of the Company and its Subsidiaries has fulfilled and performed
its obligations under each of the material Company Permits, and each of the
Company Permits is valid, subsisting and in full force and effect and will
continue in full force and effect after the Effective Time, in each case without
(x) the occurrence of any breach, default or forfeiture of rights thereunder, or
(y) the consent, approval, or act of, or the making of any filing with, any
Governmental Entity, except, in each case, for any violations that, individually
or in the aggregate, would not have a Material Adverse Effect on the Company.
For purposes of this Agreement, "Knowledge of the Company" means the
actual knowledge of the individuals identified on Section 3.7 of the Company
Letter.
Section 3.8 Registration Statement and Proxy Statement. None of the
information to be supplied by the Company for inclusion in the Registration
Statement or the Proxy Statement will (i) in the case of the Registration
Statement, at the time it becomes effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading or (ii) in
the case of the Proxy Statement, at the time of the mailing of the Proxy
Statement or at the time of the Stockholder Meeting, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. If at any time
prior to the Stockholder Meeting any event with respect to the Company, its
officers and directors or any of its Subsidiaries shall occur which is required
at that time to be described in the Proxy Statement or the Registration
Statement, the Company shall deliver to Parent a description of such event in
order to permit Parent promptly to file an appropriate amendment or supplement
with the SEC and, as required by law, disseminate an appropriate amendment or
supplement to the stockholders of the Company. The Proxy Statement will comply
(with respect to the Company) as to form in all material respects with the
provisions of the DGCL.
Section 3.9 Tax Matters. (a) Except as set forth in Section 3.9(a) of
the Company Letter, (i) each of the Company, each Subsidiary of the Company and
each Company Group(as hereinafter defined) has timely filed all Tax Returns(as
hereinafter defined) required to have been filed;(ii) all such Tax Returns are
complete and accurate and disclose all Taxes required to be paid by the Company,
each Subsidiary of the Company and each Company Group for the periods covered
thereby and all Taxes shown to be due on such Tax Returns have been timely paid;
(iii) all Taxes (whether or not shown on any Tax Return) owed by the Company,
any Subsidiary of the Company or any Company Group have been timely paid; (iv)
none of the Company, any Subsidiary of the Company or any member of any Company
Group has waived or been requested to waive any statute of limitations in
respect of Taxes, which waiver or request is currently in effect; (v) there is
no action, suit, investigation, audit, claim or assessment pending or proposed
or threatened with respect to Taxes of the Company, any Subsidiary of the
Company or any Company Group and no basis exists therefor; (vi) all deficiencies
asserted or assessments made as a result of any examination of the Tax Returns
referred to in clause (i) have been paid in full; (vii) all Tax Sharing
Arrangements(as hereinafter defined) and Tax indemnity arrangements will
terminate prior to the Effective Time and neither the Company nor any Subsidiary
of the Company will have any liability thereunder on or after the Effective
Time; (viii) there are no liens for Taxes upon the assets of the Company or any
Subsidiary of the Company except liens relating to current Taxes not yet due;
and (ix) all Taxes which the Company, any Subsidiary of the Company or any
Company Group are required by law to withhold or to collect for payment have
been duly withheld and collected, and have been paid or accrued, reserved
against and entered on the books of the Company; and (x) the charges, accruals
and reserves in respect of Taxes on the Balance Sheet is adequate to provide for
all unpaid Taxes as of the Balance Sheet Date.
A-14
<PAGE> 98
(b) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code and no stock transfer Taxes, sales
Taxes, use Taxes, real estate transfer Taxes, or other similar Taxes will be
imposed on the transactions contemplated by this Agreement.
(c) Except as set forth in Section 3.9(c) of the Company Letter, as a
result of the transactions contemplated by this Agreement, none of the Company,
any Subsidiary of the Company, or Parent has made, or will be obligated to make,
a payment to an individual that would be an "excess parachute payment" to a
"disqualified individual" as those terms are defined in Section 280G of the
Code, without regard to whether such payment is reasonable compensation for
personal services performed or to be performed in the future.
(d) None of the Company, any predecessor of the Company or any
Subsidiary of the Company is (and none thereof has ever been), a member of (i)
any "affiliated group" (as defined in Section 1504(a) of the Code without regard
to the limitations contained in Section 1504(b) of the Code) or (ii) any other
group of corporations or entities which files or has filed Tax Returns on a
combined, consolidated or unitary basis.
(e) For purposes of this Agreement: (i) "Company Group" means any
"affiliated group" (as defined in Section 1504(a) of the Code without regard to
the limitations contained in Section 1504(b) of the Code) that, at any time on
or before the Effective Time, includes or has included the Company or any
Subsidiary of the Company, or any predecessor of the Company or any Subsidiary
of the Company (or another such predecessor), or any other group of corporations
which, at any time on or before the Effective Time, files or has filed Tax
Returns on a combined, consolidated or unitary basis with the Company or any
Subsidiary of the Company, or any predecessor of the Company or any Subsidiary
of the Company (or another such predecessor), (ii) "Taxes" means any federal,
state, local, foreign or provincial income, gross receipts, property, sales,
use, license, excise, franchise, employment, payroll, withholding, alternative
or added minimum, ad valorem, value-added, transfer or excise tax, or other tax,
custom, duty, governmental fee or other like assessment or charge of any kind
whatsoever, together with any interest or penalty imposed by any Governmental
Entity, (iii) "Tax Return" means any return, report or similar statement
(including the attached schedules) required to be filed with respect to any Tax,
including, without limitation, any information return, claim for refund, amended
return or declaration of estimated Tax, and (iv) "Tax Sharing Arrangement" means
any written or unwritten agreement or arrangement for the allocation or payment
of Tax liabilities or payment for Tax benefits with respect to a consolidated,
combined or unitary Tax Return which Tax Return includes the Company or any
Subsidiary of the Company.
Section 3.10 Actions and Proceedings. Except as set forth in Section
3.10 of the Company Letter, there are no outstanding orders, judgments,
injunctions, awards or decrees of any Governmental Entity against or involving
the Company or any of its Subsidiaries, or against or involving any of the
present or former directors, officers, or, to the Knowledge of the Company,
employees of the Company or any of its Subsidiaries, in each case in their
capacity as the Company's or its Subsidiary's directors, officers or employees,
or Nu-Link India, or any of the Company's or its Subsidiaries' properties,
assets or business or any Company Plan (as hereinafter defined). As of the date
hereof, except as set forth in Section 3.10 of the Company Letter, there are no
actions, suits or claims or legal, administrative or arbitration proceedings or
investigations pending or, to the Knowledge of the Company, threatened against
or involving the Company or any of its Subsidiaries or any of its or their
present or former directors, officers, or, to the Knowledge of the Company,
employees of the Company or any of its Subsidiaries, in each case in their
capacity as the Company's or its Subsidiary's directors, officers or employees,
or Nu-Link India, or any of the Company's or its Subsidiaries' properties,
assets or business or any Company Plan. As of the date hereof, there are no
actions, suits, labor disputes or other litigation, legal or administrative
proceedings or governmental investigations pending or, to the Knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of its or their present or former directors, officers, or, to the
Knowledge of the Company, employees of the Company or any of its Subsidiaries,
in each case in their capacity as the Company's or its Subsidiary's directors,
officers or employees, or Nu-Link India, or any of the Company's or its
Subsidiaries' properties, assets or business relating to the transactions
contemplated by this Agreement and the Company Ancillary Agreements. Between the
date hereof and the Effective Time there will not be any such matters that are
material to the Company.
Section 3.11 Certain Agreements. Except as set forth in Section 3.11
of the Company Letter, neither the Company nor any of its Subsidiaries is a
party to any oral or written agreement or plan, including any employment
agreement, severance agreement, stock option plan, stock appreciation rights
plan, restricted stock plan or
A-15
<PAGE> 99
stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. No holder of any option to purchase shares of
Company Common Stock, or shares of Company Common Stock granted in connection
with the performance of services for the Company or its Subsidiaries, is or will
be entitled to receive cash from the Company or any Subsidiary in lieu of or in
exchange for such option or shares.
Section 3.12 ERISA. (a) Each Company Plan(as hereinafter defined) is
listed in Section 3.12(a) of the Company Letter, true and complete copies of
which have heretofore been delivered or made available to Parent. Except as set
forth in Section 3.12(a) of the Company Letter, (i) each Company Plan complies
in all material respects with Title IV of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Code and all other applicable
statutes and governmental rules and regulations, and (ii) no "reportable event"
(within the meaning of Section 4043 of ERISA) has occurred with respect to any
Company Plan. Neither the Company nor any of its ERISA Affiliates (as
hereinafter defined) has withdrawn from any Company Plan or Company
Multiemployer Plan (as hereinafter defined) or instituted, or is currently
considering taking, any action to do so. No action has been taken, or is
currently being considered, to terminate any Company Plan subject to Title IV of
ERISA. No Company Plan, nor any trust created thereunder, has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA), whether
or not waived.
(b) Except as listed in Section 3.12(b) of the Company Letter, with
respect to the Company Plans, no event has occurred and, to the Knowledge of the
Company, there exists no condition or set of circumstances in connection with
which the Company or any ERISA Affiliate or Company Plan fiduciary could be
subject to any material liability under the terms of such Company Plans, ERISA,
the Code or any other applicable law, other than liabilities for benefits
payable in the normal course. All Company Plans that are intended to be
qualified under Section 401(a) of the Code have been determined by the IRS to be
so qualified, or a timely application for such determination is now pending, and
the Company is not aware of any reason why any such Company Plan is not so
qualified in operation. Neither the Company nor any of its ERISA Affiliates has
been notified by any Company Multiemployer Plan that such Company Multiemployer
Plan is currently in reorganization or insolvency under and within the meaning
of Section 4241 or 4245 of ERISA or that such Company Multiemployer Plan intends
to terminate or has been terminated under Section 4041A of ERISA. Except as
disclosed in Section 3.12(b) of the Company Letter, neither the Company nor any
of its ERISA Affiliates has any liability or obligation under any welfare plan
to provide benefits after termination of employment to any employee or dependent
other than as required by Section 4980B of the Code.
(c) As used herein, (i) "Company Plan" means a "pension plan" (as
defined in Section 3(2) of ERISA (other than a Company Multiemployer Plan)), a
"welfare plan" (as defined in Section 3(1) of ERISA), or any bonus, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, holiday pay, vacation, severance, death
benefit, sick leave, fringe benefit, insurance or other plan, arrangement or
understanding, in each case established or maintained by the Company or any of
its ERISA Affiliates or as to which the Company or any of its ERISA Affiliates
has contributed or otherwise may have any liability, (ii) "Company Multiemployer
Plan" means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA)
to which the Company or any of its ERISA Affiliates is or has been obligated to
contribute or otherwise may have any liability, and (iii) "ERISA Affiliate"
means any trade or business (whether or not incorporated) which is under common
control or would be considered a single employer with such Person pursuant to
Section 414(b), (c), (m) or (o) of the Code and the regulations promulgated
under those sections or pursuant to Section 4001(b) of ERISA and the regulations
promulgated thereunder.
(d) Section 3.12(d) of the Company Letter contains a list, and the
Company has heretofore provided to Parent a true and complete copy, of all (i)
severance, employment and consulting agreements with employees and consultants
of the Company and each of its ERISA Affiliates and (ii) severance programs and
policies of the Company and each of its ERISA Affiliates with or relating to its
employees.
Section 3.13 Worker Safety and Environmental Laws. The properties,
assets and past and present operations of the Company and its Subsidiaries have
been and are in all material respects in compliance with all applicable federal,
state, local and foreign laws, rules and regulations, orders, decrees,
judgments, permits and licenses relating to public and worker health and safety
(collectively, "Worker Safety Laws") and the protection and clean-up of
A-16
<PAGE> 100
the environment and activities or conditions related thereto, including, without
limitation, those relating to the generation, handling, disposal, transportation
or release of hazardous materials (collectively, "Environmental Laws").
Section 3.14 Labor Matters. Neither the Company nor any of its
Subsidiaries is a party to any collective bargaining agreement or labor
contract. Neither the Company nor any of its Subsidiaries has engaged in any
unfair labor practice with respect to any Persons employed by or otherwise
performing services primarily for the Company or any of its Subsidiaries (the
"Company Business Personnel"), and there is no unfair labor practice complaint
or grievance against the Company or any of its Subsidiaries by the National
Labor Relations Board or any comparable state agency pending or threatened in
writing with respect to the Company Business Personnel. There is no labor
strike, dispute, slowdown or stoppage pending or, to the Knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
which may interfere with the respective business activities of the Company or
any of its Subsidiaries.
Section 3.15 Intellectual Property; Software. (a) For purposes of this
Agreement, the term "Intellectual Property" means Patent Rights, Trademarks,
Copyrights, Domain Names, and Trade Secrets, as defined below, which are owned
by, licensed to, or used by the Company or any Subsidiary of the Company that
are material to the conduct of the Company's and such Subsidiary's business as
presently conducted:
(i) all United States and foreign patents, patent
applications, continuations, continuations-in-part, divisions,
reissues, patent disclosures, inventions (whether or not
patentable) or improvements thereto ("Patent Rights");
(ii) all United States, state and foreign trademarks, service
marks, logos, trade dress and trade names (including all assumed
or fictitious names under which the Company or any Subsidiary of
the Company is conducting its business or has within the previous
five years conducted its business), and any other
source-identifying designations or devices, including any
combinations and variations thereof, and associated goodwill,
whether registered or unregistered, and pending applications to
register the foregoing("Trademarks");
(iii) all United States and foreign copyrights, whether
registered or unregistered, and pending applications to register
the same ("Copyrights");
(iv) all Internet domain names and registrations thereof
("Domain Names"); and
(v) all confidential ideas, trade secrets, computer software,
including source code, know-how, works-in-progress, concepts,
methods, processes, inventions, invention disclosures, formulae,
reports, data, customer lists, mailing lists, business plans, or
other proprietary information ("Trade Secrets").
Section 3.15(a) of the Company Letter sets forth all material Patent
Rights, Trademarks, Copyrights and Domain Names that are included in the
Intellectual Property.
(b) For purposes of this Agreement, the term "Software" means computer
software programs and software systems, including, without limitation, all
databases, compilations, tool sets, compilers, higher level or proprietary
languages, related documentation and materials, whether in source code, object
code or human readable form, owned by, licensed to, or used by the Company and
any Subsidiary of the Company that are material to the conduct of the Company's
and such Subsidiary's business as presently conducted. Section 3.15(b) of the
Company Letter sets forth such Software.
(c) Section 3.15(c) of the Company Letter contains a list and
description of all material agreements, commitments, contracts, understandings,
licenses, sublicenses, assignments and indemnities which relate or pertain to
any Intellectual Property or Software, to which the Company or such Subsidiary
is a party, showing in each case the parties thereto.
(d) Except for the ISR Global Telecom, Inc. agreement as disclosed in
Section 3.15(c) of the Company Letter, either the Company or a Subsidiary of the
Company: (i) owns the entire right, title and interest in and
A-17
<PAGE> 101
to the Intellectual Property and Software, free and clear of any Encumbrance; or
(ii) has the perpetual, unrestricted and royalty-free right to use the same.
(e) Except as disclosed in Section 3.15(e) of the Company Letter,
neither the Company nor any Subsidiary of the Company is in breach of or is
aware of any allegation (communicated orally or in writing) that the Company or
any Subsidiary of the Company is in breach of any material provision of any
material agreement, commitment, contract, understanding, license, sublicense,
assignment or indemnity which relates to any of the Intellectual Property or
Software. The transactions contemplated by this Agreement and the Company
Ancillary Agreements shall have no adverse effect on the validity and
enforceability of any of the Intellectual Property, Software or materials
identified in Sections 3.15(a) and (b) of the Company Letter, and right, title
and interest thereto of the Company or any Subsidiary of the Company immediately
after the Effective Time shall be identical to that of the Company or such
Subsidiary immediately prior to the Effective Time.
(f) Section 3.15(a) of the Company Letter includes a complete list of
all issued patents, pending patent applications, trademark registrations,
pending trademark registration applications, registered copyrights and pending
copyright registration applications owned by the Company or any Subsidiary
(collectively, the "Registered Intellectual Property"). Except as disclosed in
Section 3.15(a) of the Company Letter: (i) the Registered Intellectual Property
has not been sold, assigned or transferred to a third party, or abandoned or
permitted to lapse, and is not the subject of any pending opposition
proceedings, office actions, pending cancellation proceedings, pending
interference proceedings, pending lawsuit naming the Company or any Subsidiary
as a party, or other pending challenges or proceedings of which the Company or
any Subsidiary has knowledge; and (ii) each of the Company and its Subsidiaries
has the sole and exclusive right to bring actions for infringement or
unauthorized use of the Intellectual Property and Software owned by the Company
and such Subsidiaries, and to the Knowledge of the Company, there is no basis
for any such action.
(g) Except as disclosed in Section 3.15(g) of the Company Letter, each
of the employees, agents, consultants, contractors or others who have
contributed to or participated in the discovery, creation or development of any
Intellectual Property on behalf of the Company or its Subsidiaries: (i) has
executed an assignment or an agreement to assign to the Company of all right,
title and interest in such Intellectual Property; (ii) is a party to a valid
"work-for-hire" agreement under which the Company or any Subsidiary is deemed to
be the original owner/author of all copyrightable subject matter included in
such Intellectual Property; or (iii) is otherwise deemed by operation of law to
have vested in the Company or any Subsidiary all right, title and interest in
such Intellectual Property by virtue of his employment relationship with the
Company or any such Subsidiary.
(h) Except as disclosed in Section 3.15(h) of the Company Letter, no
infringement of any copyright, trademark, service mark, trade name, patent,
patent right or trade secret of any third party has occurred or results in any
way, no claim of any such infringement has been made or asserted against the
Company or any Subsidiary of the Company, and neither the Company nor any
Subsidiary has had notice of, or Knowledge of any basis for such a claim, in
connection with the operations, products (including software, equipment,
machinery or other devices), processes, methods or activities of the business of
the Company or any Subsidiary of the Company as presently conducted.
(i) Except as disclosed in Section 3.15(i) of the Company Letter, no
infringement of any copyright, trademark, service mark, trade name, patent,
patent right or trade secret of any third party has occurred or results in any
way, no claim of any such infringement has been made or asserted against the
Company or any Subsidiary of the Company, and neither the Company nor any
Subsidiary has had notice of, or Knowledge of any basis for such a claim, in
connection with the operations, products (including software, equipment,
machinery or other devices), processes, methods or activities of the business of
the Company or any Subsidiary of the Company as hereafter conducted pursuant to
product road maps, existing as of the date hereof, for the Q3 and Q4 releases,
under the current method of development. "Q3" and "Q4" releases are defined in
the Everest road map summary entitled "Vision Road Map and Product Positioning
Document" presented in the due diligence meeting the week of June 21, 1999, but
excluding third party OEM XBOX and third-party management applications. For
purposes of this Section, "Release Q3" contains:
- VPN
- Traffic engineering
- PPP-ATM termination
A-18
<PAGE> 102
- RADIUS
- ATM channelized OC-12/DS3
For purposes of this Section, "Release Q4" contains:
- MPLS ATM LSR
- POS OC-48c/STM-16
- IP Multicast
- CORBA API
(j) Except as disclosed in Section 3.15(j) of the Company Letter,
neither the Company nor any Subsidiary of the Company, nor their respective
employees or agents, have taken any of the following actions such that a
material adverse affect on its rights in the Intellectual Property or Software
would result: disclosing or providing access to source code for the Software
except to employees of the Company or its Subsidiaries bound by confidentiality
obligations to the Company or its Subsidiaries, or to third party consultants
bound by confidentiality agreements; disclosing any Trade Secrets without an
appropriate non-disclosure agreement; providing access to the Software without
restrictions on use (including against copying, sale, transfer, decompilation,
disassembly or reverse-engineering); or embedding, incorporating or modifying
third-party software or other material without adequate permission.
(k) Except as disclosed in Section 3.15(k) of the Company Letter, the
Software is or will be Year 2000 compliant, in that such Software will not fail
to correctly process date fields and related logic or lose functionality due
solely to the change in century.
Section 3.16 Availability of Assets and Legality of Use. Except as set
forth in Section 3.16 of the Company Letter, the assets owned or leased by the
Company and its Subsidiaries constitute all the assets used in its business
(including, but not limited to, all books, records, computers and computer
programs and data processing systems) and are in good condition (subject to
normal wear and tear and immaterial impairments of value and damage) and
serviceable condition and are generally suitable for the uses for which
intended. There are no material services provided by any of the stockholders of
the Company or any of their Affiliates to the Company or any Subsidiary of the
Company utilizing either (i) assets not owned by the Company or its Subsidiaries
as of the Effective Time or (ii) Persons not employed by the Company or its
Subsidiaries. For purposes of this Agreement, "Affiliate" means, with respect to
any Person, any other Person which directly or indirectly controls, is
controlled by or is under common control with such Person. For purposes of this
Agreement, "Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust or unincorporated organization.
Section 3.17 Real Property. Neither the Company nor any Subsidiary
owns any real property or holds any option to acquire any real property.
Section 3.18 Real Property Leases. Section 3.18 of the Company Letter
sets forth a list and brief description of each lease or similar agreement under
which the Company or any Subsidiary of the Company is lessee of, or holds or
operates, any real property owned by any third Person (the "Leased Real
Property"). Except as set forth in Section 3.18 of the Company Letter each of
the Company and its Subsidiaries has the right to quiet enjoyment of all the
real property described in such Schedule of which it is the lessee for the full
term of each such lease or similar agreement (and any related renewal option)
relating thereto, and the leasehold or other interest of the Company or any
Subsidiary in such real property is not subject or subordinate to any
Encumbrance except for Permitted Encumbrances. Complete and correct copies of
each such lease or similar agreement has been delivered by the Company to
Parent.
Section 3.19 Personal Property Leases. Section 3.19 of the Company
Letter contains a brief description of each lease or other agreement or right,
whether written or oral, under which the Company or any Subsidiary of the
Company is lessee of, or holds or operates, any machinery, equipment, vehicle or
other tangible personal property owned by a third party, except for any such
lease, agreement or right that is terminable by the Company or any Subsidiary of
the Company without penalty or payment on notice of 30 days or less, or which
involves the payment by the Company or any Subsidiary of the Company of rentals
of less than $50,000 per year.
A-19
<PAGE> 103
Section 3.20 Title to Assets. Each of the Company and its Subsidiaries
has good title to all of its assets reflected on the Balance Sheet as being
owned by it and all of the assets thereafter acquired by it (except to the
extent that such assets have been disposed of after the Balance Sheet Date in
the ordinary course of business consistent with past practice), free and clear
of all Encumbrances, except for Permitted Encumbrances and except as set forth
in Section 3.20 of the Company Letter.
Section 3.21 Contracts. Except as set forth in Section 3.21 of the
Company Letter, neither the Company nor any Subsidiary of the Company is a party
to or bound by:
(i) any contract for the purchase, sale or lease of real
property;
(ii) any contract for the purchase of raw materials;
(iii) any contract for the sale of goods or services;
(iv) any contracts relating to the marketing, distribution or
manufacturing of products, services, processes or technology, or
any OEM contract.
(v) any contract for the purchase, licensing or development
of software to be used by the Company or any Subsidiary of the
Company;
(vi) any guarantee of the obligations or liabilities of
customers, suppliers, officers, directors, employees, Affiliates
of the Company or its Subsidiaries, or any other Persons;
(vii) any agreement which provides for, or relates to, the
incurrence by the Company or any Subsidiary of the Company of
debt for borrowed money or the extension of credit by the Company
or any Subsidiary of the Company to any other Person;
(viii) any agreement or understanding with a third party that
restricts the Company or any Subsidiary from carrying on its
business anywhere in the world;
(ix) any contract which provides for, or relates to, any
confidentiality arrangement entered into in connection with any
possible business combination involving the Company or any
non-competition arrangement with any Person, including any
current or former officer or employee of the Company or any
Subsidiary;
(x) any contract or group of related contracts for capital
expenditures in excess of $100,000 for any single project or
related series of projects;
(xi) any partnership, joint venture or other similar
arrangement or agreement involving a sharing of profits or
losses;
(xii) any contract which involves payments or receipts by the
Company or any Subsidiary of the Company of more than $100,000;
or
(xiii) any contract for any purpose (whether or not made in
the ordinary course of the business or otherwise not required to
be listed or described in Section 3.21 of the Company Letter)
which is material to the Company, any Subsidiary of the Company
or their respective businesses.
Section 3.22 Status of Contracts. Except as set forth in Section 3.22
of the Company Letter, each of the leases, contracts and other agreements listed
in Sections 3.12, 3.15, 3.18, 3.19 and 3.21 of the Company Letter (collectively,
the "Company Agreements") constitutes a valid and binding obligation of the
Company and, to the Knowledge of the Company, the other parties thereto, and is
in full force and effect and (except as set forth in Section 3.4 of the Company
Letter and except for those Company Agreements which by their terms will expire
prior to the Effective Time or are otherwise terminated prior to the Effective
Time in accordance with the provisions hereof) will continue in
A-20
<PAGE> 104
full force and effect after the Effective Time, in each case without breaching
the terms thereof or resulting in the forfeiture or impairment of any rights
thereunder and without the consent, approval or act of, or the making of any
filing with, any other party. Each of the Company and its Subsidiaries has
fulfilled and performed in all material respects its obligations under each of
the Company Agreements, and neither the Company nor any Subsidiary of the
Company is in, or alleged to be in, breach or default under, nor, to the
Knowledge of the Company, is there or is there alleged to be any basis for
termination of, any of the Company Agreements and, to the Knowledge of the
Company, no other party to any of the Company Agreements has breached or
defaulted thereunder, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of notice or both,
would constitute such a default or breach by the Company or any Subsidiary of
the Company, to the Knowledge of the Company, by any such other party. Complete
and correct copies of each of the Company Agreements have heretofore been
delivered to Parent.
Section 3.23 Insurance. Each of the Company and its Subsidiaries
maintain policies of fire and casualty, liability (general, products and other
liability), workers' compensation and other forms of insurance and bonds in such
amounts and against such risks and losses as are insured against by companies
engaged in the same or a similar business. Section 3.23 of the Company Letter
sets forth a list of insurance maintained, owned or held by the Company or any
Subsidiary as of the date hereof. The Company and its Subsidiaries shall keep or
cause such insurance or comparable insurance in full force and effect through
the Effective Time.
Section 3.24 Takeover Statutes and Charter Provisions. To the
Knowledge of the Company, no state takeover statutes or charter or bylaw
provisions are applicable to the Merger, this Agreement, the Voting Agreements,
the Parent Ancillary Agreements and the Company Ancillary Agreements, and the
transactions contemplated hereby and thereby.
Section 3.25 Required Vote of Company Stockholders. The affirmative
vote of the holders of a majority of the outstanding shares of Company Common
Stock and a majority of the outstanding shares of each series of the Company
Preferred Stock, voting as separate classes, is required to adopt this
Agreement. No other vote of the securityholders of the Company is required by
law, the Company Charter or the Company Bylaws or otherwise in order for the
Company to consummate the Merger and the transactions contemplated hereby and by
the Parent Ancillary Agreements and the Company Ancillary Agreements.
Section 3.26 Pooling of Interests; Reorganization. To the Knowledge of
the Company, neither it nor any of its Subsidiaries has (i) taken any action or
failed to take any action which action or failure would jeopardize the treatment
of the Merger as a pooling of interests for accounting purposes or (ii) taken
any action or failed to take any action which action or failure would jeopardize
the qualification of the Merger as a reorganization within the meaning of
Section 368(a) of the Code.
Section 3.27 Brokers. Except as set forth in Section 3.27 of the
Company Letter, no broker, investment banker or other Person is entitled to any
broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Any such fee or commission shall be paid by the
Company.
Section 3.28 Hart-Scott-Rodino. The Company is its own sole "ultimate
parent entity" (as defined in 16 C.F.R. ss. 801.1(a)(3) (1995)).
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger. Except as
expressly permitted by clauses (i) through (xvii) of this Section 4.1, during
the period from the date of this Agreement through the Effective Time, the
Company shall, and shall cause each of its Subsidiaries to, in all material
respects carry on its business in the ordinary course of its business as
currently conducted. Without limiting the generality of the foregoing, and
except as otherwise expressly contemplated by this Agreement, the Company shall
not, and shall not permit any of its Subsidiaries to, without the prior written
consent of Parent:
A-21
<PAGE> 105
(i) (A) declare, set aside or pay any dividends on, or make
any other actual, constructive or deemed distributions in respect
of, any of its capital stock, or otherwise make any payments to
its stockholders in their capacity as such, (B) split, combine or
reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock or (C) purchase,
redeem or otherwise acquire any shares of capital stock of the
Company or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities;
(ii) issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of its capital stock, any other voting
securities or equity equivalent or any securities convertible
into, or any rights, warrants or options to acquire any such
shares, voting securities, equity equivalent or convertible
securities, other than (A) the issuance of shares of Company
Common Stock pursuant to the Company Stock Options outstanding as
of the date of this Agreement, in each case, in accordance with
their current terms, (B) the issuance of shares of Company Common
Stock upon conversion of shares of Company Preferred Stock in
accordance with their current terms and (C) as set forth in
Section 4.1(ii) of the Company Letter;
(iii) amend its charter or bylaws or other comparable charter
or organizational documents;
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or
equity in, or by any other manner, any business or any
corporation, limited liability company, partnership, association
or other business organization or division thereof or otherwise
acquire or agree to acquire any assets, other than assets
acquired in the ordinary course of business consistent with past
practice and not material to the Company and its Subsidiaries
taken as a whole;
(v) sell, lease, license, mortgage, encumber or otherwise
dispose of any of its properties or assets, other than sales,
leases or licenses of products or services in the ordinary course
of business consistent with past practice;
(vi) incur any indebtedness for borrowed money, guarantee any
such indebtedness or make any loans, advances or capital
contributions to, or other investments in, any other Person,
other than indebtedness, loans, advances, capital contributions
and investments between the Company and any of its wholly owned
Subsidiaries or between any of such wholly owned Subsidiaries or
cash management activities carried on in the ordinary course of
business consistent with past practice and not material to the
Company and its Subsidiaries taken as a whole, and except for
advances to employees for travel and related business expenses
consistent with Company policies and past practices;
(vii) alter (through merger, liquidation, reorganization,
restructuring or in any other fashion) the corporate structure or
ownership of the Company or any Subsidiary;
(viii) enter into, adopt or amend any severance plan,
agreement or arrangement, Company Plan or employment or
consulting agreement, including, without limitation, the Stock
Restriction Agreements;
(ix) increase the compensation payable or to become payable
to its directors, officers or employees or grant any severance or
termination pay to, or enter into or amend any employment or
severance agreement with, any current or former director or
officer of the Company or any of its Subsidiaries, except, in
case of employees other than directors or officers, as may be
consistent with the Company's past practice in connection with
annual compensation reviews, or establish, adopt, enter into, or,
except as may be required to comply with applicable law, amend or
take action to enhance or, except as provided in Section 4.1(ix)
of the Company Letter, accelerate any rights or benefits under,
any labor, bonus, profit sharing, thrift, compensation, stock
option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan,
A-22
<PAGE> 106
agreement, trust, fund, policy or arrangement for the benefit of
any current or former director, officer or employee;
(x) knowingly violate or knowingly fail to perform any
obligation or duty imposed upon it or any Subsidiary by any
applicable material federal, state or local law, rule,
regulation, guideline or ordinance;
(xi) make any change to accounting policies or procedures
(other than actions required to be taken by GAAP);
(xii) prepare or file any Tax Return inconsistent with past
practice or, on any such Tax Return, take any position, make any
election, or adopt any method that is inconsistent with positions
taken, elections made or methods used in preparing or filing
similar Tax Returns in prior periods;
(xiii) make any tax election or settle or compromise any
material federal, state, local or foreign income tax liability;
(xiv) enter into, amend or terminate (a) any agreement or
contract material to the Company and its Subsidiaries, taken as a
whole, (b) any noncompetition agreement, other than
noncompetition agreements with employees for the benefit of the
Company, (c) any agreement pursuant to which any third party is
granted marketing, distribution or manufacturing rights or
license rights with respect to any Company product, services,
processes or technology, (d) (1) any agreement with a supplier,
(2) any agreement pursuant to which the Company is granted any
license rights, or (3) any agreement pursuant to which any third
party is granted any rights (other than marketing, distribution
or manufacturing rights or any licenses) with respect to any
Company product, services, processes or technology, in each case
covered by clauses (1), (2) or (3), involving an amount in excess
of $1,000,000 or for a period in excess of 180 days or (e) any
OEM contract; or make or agree to make any new capital
expenditure or expenditures which, individually, is in excess of
$500,000 or, in the aggregate, are in excess of $2,000,000;
(xv) waive or release any material right or claim, or pay,
discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted,
contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of liabilities
reflected or reserved against in the Balance Sheet or incurred in
the ordinary course of business consistent with past practice;
(xvi) initiate, settle or compromise any litigation or
arbitration proceeding (other than to enforce this Agreement); or
(xvii) authorize, recommend, propose or announce an intention
to do any of the foregoing, or enter into any contract,
agreement, commitment or arrangement to do any of the foregoing.
Section 4.2 No Solicitation. (a) The Company shall not, nor shall it
permit any of its Subsidiaries to, nor shall it authorize or permit any officer,
director or employee of or any financial advisor, attorney or other advisor or
representative of, the Company or any of its Subsidiaries to, (i) solicit,
initiate or encourage the submission of, any Takeover Proposal (as hereafter
defined), (ii) enter into any agreement with respect to any Takeover Proposal or
(iii) participate in any discussions or negotiations regarding, or furnish to
any Person any information with respect to, or take any other action to
facilitate any inquiries or the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal. For purposes of this
Agreement, "Takeover Proposal" means any proposal or offer, or any expression of
interest, by any Person other than Parent or Sub relating to the Company's
willingness or ability to receive or discuss a proposal or offer for a merger,
consolidation or other business combination involving the Company or any of its
Subsidiaries or any proposal or offer to acquire in any manner, directly or
indirectly, a substantial equity interest in, a substantial portion of the
voting securities of, or a substantial portion of the assets of the Company or
any of its Subsidiaries, other than the transactions contemplated by this
Agreement.
A-23
<PAGE> 107
(b) The Company shall advise Parent orally (within one business day)
and in writing (as promptly as practicable) of (i) any Takeover Proposal or any
inquiry with respect to or which could reasonably be expected to lead to any
Takeover Proposal, (ii) the material terms of such Takeover Proposal and (iii)
the identity of the Person making any such Takeover Proposal or inquiry. The
Company will keep Parent informed of the status and details of any such Takeover
Proposal or inquiry.
Section 4.3 Third Party Standstill Agreements. During the period from
the date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality agreement
relating to a Takeover Proposal or standstill agreement to which the Company or
any of its Subsidiaries is a party (other than any involving Parent). During
such period, the Company agrees to enforce, to the fullest extent permitted
under applicable law, the provisions of any such agreements, including, but not
limited to, seeking to obtain injunctions to prevent any breaches of such
agreements and seeking to enforce specifically the terms and provisions thereof
in any court of the United States or any state thereof having jurisdiction.
Section 4.4 Pooling of Interests; Reorganization. During the period
from the date of this Agreement through the Effective Time, unless the other
party shall otherwise agree in writing, none of Parent, the Company or any of
their respective Subsidiaries shall (a) knowingly take or fail to take any
action which action or failure would jeopardize the treatment of the Merger as a
pooling of interests for accounting purposes or (b) knowingly take or fail to
take any action which action or failure would jeopardize the qualification of
the Merger as a reorganization within the meaning of Section 368(a) of the Code.
Between the date of this Agreement and the Effective Time, Parent and the
Company each shall take, or cause to be taken, all actions reasonably necessary
in order for the Merger to be treated as a pooling of interests for accounting
purposes.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meeting. The Company will, as soon as
practicable following the date of this Agreement, duly call, give notice of,
convene and hold a meeting of stockholders (the "Stockholder Meeting") for the
purpose of considering the approval of this Agreement. The Company will, through
its Board of Directors, recommend to its stockholders approval of this Agreement
and shall use all reasonable efforts to solicit such approval by its
stockholders and such Board of Directors shall not withdraw or modify, or
propose to withdraw or modify in a manner adverse to Parent, such
recommendation; provided, however, that the Board of Directors may withdraw or
modify such recommendation if in the reasonable good faith judgment of such
Board of Directors, after considering the advice of outside corporate counsel of
the Company, the making of, or the failure to withdraw or modify, such
recommendation would violate the fiduciary duties of such Board of Directors to
the Company's stockholders under applicable law. The Company agrees to submit
this Agreement to its stockholders for approval whether or not the Board of
Directors of the Company determines at any time subsequent to the date hereof
that this Agreement is no longer advisable and recommends that the stockholders
of the Company reject it. The Company agrees to deliver to the holders of
Company Preferred Stock all notices required to be delivered to them in
connection with the Merger.
Section 5.2 Preparation of the Registration Statement and the Proxy
Statement. (a) Parent shall prepare and file with the SEC the Registration
Statement, in which the Proxy Statement will be included as a prospectus. Each
of Parent and the Company shall use its reasonable best efforts to have the
Registration Statement declared effective under the Securities Act as promptly
as practicable after such filing. As promptly as practicable after the
Registration Statement shall have become effective, the Company shall mail the
Proxy Statement to its stockholders. Parent shall also take any action
reasonably required to be taken under any applicable state securities laws in
connection with the issuance of Parent Common Stock in the Merger, and the
Company shall furnish all information concerning the Company and the holders of
Company Common Stock and the holders of Company Preferred Stock as may be
reasonably requested in connection with any such action.
(b) In the event any of the shares of Parent Common Stock to be issued
pursuant to Section 1.5(c) or Section 1.5(d) shall not be registered under the
Registration Statement (the "Remaining Shares"), then as soon as practicable
after the Effective Time and after Parent and the holders of the Remaining
Shares enter into a customary agreement relating to registration of such shares
for resale by such holders, Parent shall file with the SEC a registration
A-24
<PAGE> 108
statement on Form S-3 with respect to such resale. Parent shall use its
reasonable best efforts to cause such registration statement to become effective
as soon as practicable following such filing and shall not terminate such
registration until the earlier of the first anniversary of the Effective Time or
the date all Remaining Shares shall have been transferred by the initial holders
thereof. Parent may delay or suspend such effectiveness or filing if Parent
determines that the absence of such delay or suspension would be detrimental to
Parent; provided, that following such filing Parent shall use its reasonable
best efforts to cause such registration statement (i) to be effective for not
less than a total of 60 days, (ii) to be effective no later than the 91st day
following the Effective Time for no less than 30 consecutive days, and (iii) to
be effective for no less than 30 consecutive days no later than 240 days
following the Effective Time.
Section 5.3 Access to Information. The Company shall, and shall cause
each of its Subsidiaries to, afford to the accountants, counsel, financial
advisors and other representatives of Parent reasonable access to, and permit
them to make such inspections as they may reasonably require of, during normal
business hours during the period from the date of this Agreement through the
Effective Time, all of its employees, customers, properties, books, contracts,
commitments and records (including, without limitation, the work papers of
independent accountants, if available and subject to the consent of such
independent accountants) and, during such period, the Company shall, and shall
cause each of its Subsidiaries to, furnish promptly to Parent all information
concerning its business, properties and personnel as the other may reasonably
request. Parent shall afford to the accountants, counsel, financial advisors and
other representatives of the Company reasonable access to the executive officers
of Parent during normal business hours during the period from the date of this
Agreement through the Effective Time. No investigation pursuant to this Section
5.3 shall affect any representation or warranty in this Agreement of any party
hereto or any condition to the obligations of the parties hereto. All
information obtained pursuant to this Section 5.3 shall be kept confidential in
accordance with the Confidentiality Agreement, dated June 23, 1999 between
Parent and the Company (the "Confidentiality Agreement").
Section 5.4 Compliance with the Securities Act. (a) Section 5.4(a) of
the Company Letter contains a list identifying all Persons who, at the time of
the Stockholder Meeting, may be deemed to be "affiliates" of the Company as that
term is used in paragraphs (c) and (d) of Rule 145 under the Securities Act (the
"Rule 145 Affiliates"). The Company shall use its reasonable best efforts to
cause each Person who is identified in such list to execute and deliver to
Parent within 30 days of the date hereof a written agreement in substantially
the form of Exhibit C hereto (the "Company Affiliate Letter"). Prior to the
Effective Time, the Company shall amend and supplement Section 5.4(a) of the
Company Letter and use its reasonable best efforts to cause each additional
Person who is identified as a Rule 145 Affiliate of the Company to execute the
Company Affiliate Letter. Parent shall be entitled to place appropriate legends
on the certificates evidencing any Parent Common Stock to be received by
affiliates of the Company pursuant to this Agreement and to issue appropriate
stop transfer instructions to the transfer agent for the Parent Common Stock,
consistent with the terms of the Company Affiliate Letter.
(b) Section 5.4(b) of the Parent Letter contains a list identifying
those Persons who may be, at the time of the Stockholder Meeting, affiliates of
Parent under applicable SEC accounting releases with respect to pooling of
interests accounting treatment. Parent shall use its reasonable best efforts to
enter into a written agreement in substantially the form of Exhibit D hereto
(the "Parent Affiliate Letter") within 30 days of the date hereof with each of
such Persons identified in the foregoing list. Prior to the Effective Time,
Parent shall amend and supplement Section 5.4(b) of the Parent Letter and use
its reasonable best efforts to cause each additional Person who is identified
therein as an affiliate of Parent to execute the Parent Affiliate Letter.
Section 5.5 Fees and Expenses. Except as provided in this Section 5.5
and Section 5.9, whether or not the Merger is consummated, all costs and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby including, without limitation, the fees and disbursements of
counsel, financial advisors and accountants, shall be paid by the party
incurring such costs and expenses, provided that all printing expenses and all
filing fees (including, without limitation, filing fees under the Securities
Act) shall be divided equally between Parent and the Company.
Section 5.6 Company Stock Plan. (a) At the Effective Time, each
Company Stock Option which is outstanding immediately prior to the Effective
Time pursuant to the Company Stock Plan shall become and represent an option to
purchase the number of shares of Parent Common Stock (a "Substitute Option")
(decreased to the nearest full share) determined by multiplying (i) the number
of shares of Company Common Stock subject to such Company Stock Option
immediately prior to the Effective Time by (ii) the Exchange Ratio, at an
exercise price per
A-25
<PAGE> 109
share of Parent Common Stock (rounded up to the nearest tenth of a cent) equal
to the exercise price per share of Company Common Stock immediately prior to the
Effective Time divided by the Exchange Ratio. Parent shall pay cash to holders
of Company Stock Options in lieu of issuing fractional shares of Parent Common
Stock upon the exercise of Substitute Options for shares of Parent Common Stock,
unless in the judgment of Parent such payment would adversely affect the ability
to account for the Merger under the pooling of interests method. After the
Effective Time, except as provided above in this Section 5.6(a), each Substitute
Option shall be exercisable upon the same terms and conditions as were
applicable under the related Company Stock Option immediately prior to or at the
Effective Time. The Company shall take all necessary action to implement the
provisions of this Section 5.6. As soon as reasonably practicable, and in no
event later than twenty days after the Effective Time, Parent shall file a
registration statement on Form S-8 (or any successor or other appropriate form)
with respect to Parent Common Stock subject to such Substitute Options, or shall
cause such Substitute Options to be deemed to be issued pursuant to a Parent
Stock Plan for which shares of Parent Common Stock have been previously
registered pursuant to an appropriate registration form.
(b) Following the Effective Time, each share of Company Common Stock
(as converted into Parent Common Stock pursuant to this Agreement) subject to
the Stock Restriction Agreements shall continue to be subject to the terms and
restrictions thereof as in effect on the date hereof. The Company shall take all
necessary action to implement the provisions of this Section 5.6(b).
Section 5.7 Reasonable Best Efforts; Pooling of Interests. (a) Upon
the terms and subject to the conditions set forth in this Agreement, each of the
parties agrees to use reasonable best efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, and to assist and cooperate with the
other parties in doing, all things necessary, proper or advisable to consummate
and make effective, in the most expeditious manner practicable, the Merger and
the other transactions contemplated by this Agreement, including, but not
limited to: (i) the obtaining of all necessary actions or non-actions, waivers,
consents and approvals from all Governmental Entities and the making of all
necessary registrations and filings (including filings with Governmental
Entities) and the taking of all reasonable steps as may be necessary to obtain
an approval or waiver from, or to avoid an action or proceeding by, any
Governmental Entity (including those in connection with State Takeover
Approvals), (ii) the obtaining of all necessary consents, approvals or waivers
from third parties, (iii) the defending of any lawsuits or other legal
proceedings, whether judicial or administrative, challenging this Agreement or
the consummation of the transactions contemplated hereby, including seeking to
have any stay or temporary restraining order entered by any court or other
Governmental Entity vacated or reversed, (iv) the taking, together with their
respective accountants, of all actions reasonably necessary in order to obtain a
favorable determination (if required) from the SEC that the Merger may be
accounted for as a pooling of interests in accordance with GAAP and (v) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by this Agreement. No party to this Agreement shall
consent to any voluntary delay of the consummation of the Merger at the behest
of any Governmental Entity without the consent of the other parties to this
Agreement, which consent shall not be unreasonably withheld.
(b) Each party shall use all reasonable best efforts to not take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or result
in a breach of any covenant made by it in this Agreement.
(c) Notwithstanding anything to the contrary contained in this
Agreement, in connection with any filing or submission required or action to be
taken by either Parent or the Company to effect the Merger and to consummate the
other transactions contemplated hereby, the Company shall not, without Parent's
prior written consent, commit to any divestiture transaction, and neither Parent
nor any of its Affiliates shall be required to divest or hold separate or
otherwise take or commit to take any action that limits its freedom of action
with respect to, or its ability to retain, the Company or any of the businesses,
product lines or assets of Parent, the Company or any of their respective
Subsidiaries or that otherwise would have an adverse effect on Parent or the
Company.
Section 5.8 Public Announcements. Parent and the Company will not
issue any press release with respect to the transactions contemplated by this
Agreement or otherwise issue any written public statements with respect to such
transactions without prior consultation with the other party, except as may be
required by applicable law or by obligations pursuant to any listing agreement
with Nasdaq.
A-26
<PAGE> 110
Section 5.9 Real Estate Transfer and Gains Tax. Parent and the
Company agree that either the Company or the Surviving Corporation will pay any
state or local tax which is attributable to the transfer of the beneficial
ownership of the Company's or its Subsidiaries' real property, if any
(collectively, the "Gains Taxes"), and any penalties or interest with respect to
the Gains Taxes, payable in connection with the consummation of the Merger. The
Company and Parent agree to cooperate with the other in the filing of any
returns with respect to the Gains Taxes, including supplying in a timely manner
a complete list of all real property interests held by the Company and its
Subsidiaries and any information with respect to such property that is
reasonably necessary to complete such returns. The portion of the consideration
allocable to the real property of the Company and its Subsidiaries shall be
determined by Parent in its reasonable discretion.
Section 5.10 State Takeover Laws. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby or in
the Company Ancillary Agreements, Parent and the Company and their respective
Boards of Directors shall use their reasonable best efforts to grant such
approvals and take such actions as are necessary so that the transactions
contemplated hereby and thereby may be consummated as promptly as practicable on
the terms contemplated hereby and thereby and otherwise act to minimize the
effects of any such statute or regulation on the transactions contemplated
hereby and thereby.
Section 5.11 Indemnification of Directors and Officers. (a) For six
years from and after the Effective Time, Parent shall, and shall cause the
Surviving Corporation to, indemnify and hold harmless all past and present
officers and directors of the Company and of its Subsidiaries to the same extent
such Persons are indemnified as of the date of this Agreement by the Company
pursuant to the Company Charter and the Company Bylaws for acts or omissions
occurring at or prior to the Effective Time.
(b) For a period of six years after the Effective Time, Parent shall
cause to be maintained in effect the current officers' and directors' liability
insurance maintained by the Company, a summary of which has been provided to
Parent, with respect to the officers and directors (provided that Parent may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are substantially no less advantageous to
the officers and directors than such existing insurance) covering acts or
omissions prior to the Effective Time, and provided further, that in no event
shall Parent be required pursuant to this Section 5.11(b) to pay a premium for
coverage in any one year in excess of $11,000, but shall, in such event,
maintain all coverage that can be purchased for such amount.
(c) This Section 5.11 shall survive the closing of all the transactions
contemplated hereby, is intended to benefit the indemnified parties under
Section 5.11 and their respective heirs and personal representatives (each of
which shall be entitled to enforce this Section 5.11 against the Parent and the
Surviving Corporation, as the case may be, as a third-party beneficiary hereof).
Section 5.12 Notification of Certain Matters. Parent shall use its
reasonable best efforts to give prompt notice to the Company, and the Company
shall use its reasonable best efforts to give prompt notice to Parent, of: (i)
the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which it is aware and which would be reasonably likely to
cause (x) any representation or warranty contained in this Agreement to be
untrue or inaccurate in any material respect or (y) any covenant, condition or
agreement contained in this Agreement not to be complied with or satisfied in
all material respects, (ii) any failure of Parent or the Company, as the case
may be, to comply in a timely manner with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder. The Company shall
use its reasonable best efforts to give prompt notice to Parent of any change or
event which would be reasonably likely to have a Material Adverse Effect on the
Company. The delivery of any notice pursuant to this Section 5.12 shall not
limit or otherwise affect the remedies available hereunder to the party
receiving such notice.
Section 5.13 Employee Benefit Plans. As soon as practicable after the
Effective Time (the "Benefits Date"), Parent shall provide, or shall cause to be
provided, employee benefit plans, programs and arrangements to employees of the
Company that are substantially similar to those made generally available to
similarly situated employees of the Parent. From the Effective Time to the
Benefits Date (which the parties acknowledge may occur on different dates with
respect to different plans, programs or arrangements of the Company), Parent
shall provide,
A-27
<PAGE> 111
or cause to be provided, substantially the employee benefit plans, programs and
arrangements of the Company provided to employees of the Company as of the date
hereof.
Section 5.14 Stock Exchange Listing. Parent shall make reasonable
efforts to have authorized for quotation on Nasdaq, upon official notice of
issuance, the shares of Parent Common Stock to be issued in connection with the
Merger and upon exercise of the Substitute Options.
Section 5.15 Loans to Company. As soon as practicable following the
date hereof, Parent and the Company shall negotiate in good faith the terms of
standard loan agreements providing for the following: (i) commencing October 1,
1999, and ending no later than 70 days after the termination of the Merger
Agreement, Parent shall loan to the Company up to $3,000,000 in principal amount
per month to the extent needed for working capital,(ii) Parent shall not be
obligated to lend to the Company more than $12,000,000 in the aggregate, (iii)
any such loan shall bear interest at the rate of 11% per annum and shall be due
and payable on the earlier of (A) 90 days following the termination of the
Merger Agreement, (B) March 15, 2000, or (C) the occurrence of any bankruptcy or
material default involving the Company. In the event of any material breach by
the Company of this Agreement, Parent shall not have any obligation to make any
additional loans to the Company and all outstanding loans shall become payable
90 days following such breach.
Section 5.16 Interim Report. Parent shall publish results covering at
least 30 days of combined operations in the form of a filing with the SEC or
other public announcement no later than the later of (i) 30 days after the first
full fiscal month of such combined operations and (ii) 15 days after Parent
receives written notice from the Stockholder Representatives requesting it to
publish such results.
Section 5.17 Tax Matters. Parent represents that neither Parent nor
any corporation affiliated with Parent has any present plan or intention (i) to
liquidate the Company; ( ii) to merge the Company with or into another
corporation (except pursuant to the Merger); (iii) to sell or otherwise dispose
of any shares of Company stock, except for any transfer to a corporation
controlled by Parent in accordance with Treas. Reg. ss. 1.368-2(k)(2); or (iv)
to cause the Company or any corporation affiliated with the Company immediately
prior to the Effective Time to sell, distribute, transfer or otherwise dispose
of any of its assets or any assets acquired from Sub, except for any such
disposition in the ordinary course of its business or any transfer of assets to
a corporation controlled by the Company in accordance with Treas. Reg. ss.
1.368-2(k)(2). Assuming the correctness of paragraph 17 of the Company Tax
Certificate referred to elsewhere, following the Merger, Parent will cause the
Company to continue its "historic business" or to use a "significant portion" of
its "historic business assets" in a business, as each such term is used in
Treas. Reg. ss. 1.368-1(d).
Section 5.18 Indemnity Agreement. No later than immediately prior to
the Effective Time, the Company will cause the Stockholder Representatives to
execute and deliver the Indemnity Agreement to Parent and the Indemnity Agent,
with such changes thereto as may be requested by the Indemnity Agent that are
acceptable to Parent.
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) Stockholder Approval. This Agreement shall have been duly approved
by the requisite vote of stockholders of the Company in accordance with
applicable law.
(b) Quotation of Stock. The Parent Common Stock issuable in the Merger
shall have been authorized for quotation on Nasdaq, subject to official notice
of issuance.
(c) Certain Approvals. (i) The waiting period (and any extension
thereof) applicable to the consummation of the Merger under the HSR Act shall
have expired or been terminated.
A-28
<PAGE> 112
(ii) All authorizations, consents, orders, declarations or
approvals of, or filings with, or terminations or expirations of
waiting periods imposed by, any Governmental Entity, which the
failure to obtain, make or occur would have the effect of making
the Merger or any of the transactions contemplated hereby illegal
or would have, individually or in the aggregate, an adverse
effect on Parent (assuming the Merger had taken place), shall
have been obtained, shall have been made or shall have occurred.
(d) Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of 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 Company, threatened by the SEC.
All necessary state securities or blue sky authorizations (including State
Takeover Approvals) shall have been received.
(e) No Order. No court or other Governmental Entity having jurisdiction
over the Company or Parent, or any of their respective Subsidiaries, shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
the Merger or any of the transactions contemplated hereby illegal.
Section 6.2 Conditions to Obligation of the Company to Effect the
Merger. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. Each of
Parent and Sub shall have performed in all material respects each of its
agreements contained in this Agreement required to be performed on or prior to
the Effective Time, each of the representations and warranties of Parent and Sub
contained in this Agreement that is qualified by materiality shall be true and
correct on and as of the Effective Time as if made on and as of such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct in all
material respects as of such certain date), in each case except as contemplated
or permitted by this Agreement, and the Company shall have received a
certificate signed on behalf of Parent by its Chief Executive Officer and its
Chief Financial Officer to such effect.
(b) Tax Opinion. The Company shall have received an opinion of Hale and
Dorr LLP in form and substance reasonably satisfactory to the Company, dated the
Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are consistent
with the state of facts existing as of the Effective Time, for federal income
tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Sub and
Parent will each be a party to that reorganization within the
meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Parent, Sub or the
Company as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders
of the Company upon the conversion of their shares of Company
Common Stock or Company Preferred Stock into shares of Parent
Common Stock pursuant to the Merger, except with respect to cash,
if any, received in lieu of fractional shares of Parent Common
Stock;
(iv) the aggregate tax basis of the shares of Parent Common
Stock received in exchange for shares of Company Common Stock or
Company Preferred Stock pursuant to the Merger (including a
fractional share of Parent Common Stock for which cash is
received) will be the same as the aggregate tax basis of such
shares of Company Common Stock or Company Preferred Stock,
respectively;
A-29
<PAGE> 113
(v) the holding period for shares of Parent Common Stock
received in exchange for shares of Company Common Stock or
Company Preferred Stock pursuant to the Merger will include the
holder's holding period for such shares of Company Common Stock
or Company Preferred Stock, respectively, provided such shares of
Company Common Stock or Company Preferred Stock, respectively,
were held as capital assets by the holder at the Effective Time;
and
(vi) a stockholder of the Company who receives cash in lieu
of a fractional share of Parent Common Stock will recognize gain
or loss equal to the difference, if any, between such
stockholder's basis in the fractional share (determined under
clause (iv) above) and the amount of cash received.
In rendering such opinion, Hale and Dorr LLP may rely upon the representations
contained herein and may receive and rely upon representations from Parent, the
Company, and others, including representations from Parent substantially similar
to the representations in the Parent Tax Certificate attached to the Parent
Letter and representations from the Company substantially similar to the
representations in the Company Tax Certificate attached to the Company Letter.
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the
Merger. The obligations of Parent and Sub to effect the Merger shall be subject
to the fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) Performance of Obligations; Representations and Warranties. The
Company shall have performed in all material respects each of its agreements
contained in this Agreement required to be performed on or prior to the
Effective Time, each of the representations and warranties of the Company
contained in this Agreement that is qualified by materiality shall be true and
correct on and as of the Effective Time as if made on and as of such date (other
than representations and warranties which address matters only as of a certain
date which shall be true and correct as of such certain date) and each of the
representations and warranties that is not so qualified shall be true and
correct in all material respects on and as of the Effective Time as if made on
and as of such date (other than representations and warranties which address
matters only as of a certain date which shall be true and correct in all
material respects as of such certain date), in each case except as contemplated
or permitted by this Agreement, and Parent shall have received a certificate
signed on behalf of the Company by its Chief Executive Officer and its Chief
Financial Officer to such effect.
(b) Tax Opinion. Parent shall have received an opinion of Sidley &
Austin, in form and substance reasonably satisfactory to Parent, dated the
Effective Time, substantially to the effect that on the basis of facts,
representations and assumptions set forth in such opinion which are consistent
with the state of facts existing as of the Effective Time, for federal income
tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Sub and
Parent will each be a party to that reorganization within the
meaning of Section 368(b) of the Code;
(ii) no gain or loss will be recognized by Parent, Sub or the
Company as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders
of the Company upon the conversion of their shares of Company
Common Stock or Company Preferred Stock into shares of Parent
Common Stock pursuant to the Merger, except with respect to cash,
if any, received in lieu of fractional shares of Parent Common
Stock;
(iv) the aggregate tax basis of the shares of Parent Common
Stock received in exchange for shares of Company Common Stock or
Company Preferred Stock pursuant to the Merger (including a
fractional share of Parent Common Stock for which cash is
received) will be the same as the aggregate tax basis of such
shares of Company Common Stock or Company Preferred Stock,
respectively;
A-30
<PAGE> 114
(v) the holding period for shares of Parent Common Stock
received in exchange for shares of Company Common Stock or
Company Preferred Stock pursuant to the Merger will include the
holder's holding period for such shares of Company Common Stock
or Company Preferred Stock, respectively, provided such shares of
Company Common Stock or Company Preferred Stock, respectively,
were held as capital assets by the holder at the Effective Time;
and
(vi) a stockholder of the Company who receives cash in lieu
of a fractional share of Parent Common Stock will recognize gain
or loss equal to the difference, if any, between such
stockholder's basis in the fractional share (determined under
clause (iv) above) and the amount of cash received.
In rendering such opinion, Sidley & Austin may rely upon representations
contained herein and may receive and rely upon representations from Parent, the
Company, and others, including representations from Parent substantially similar
to the representations in the Parent Tax Certificate attached to the Parent
Letter and representations from the Company substantially similar to the
representations in the Company Tax Certificate attached to the Company Letter.
(c) Accounting. The Company shall have received the written opinion,
dated as of the Effective Time, of PricewaterhouseCoopers LLP that the Company
is eligible to be a party to a business combination accounted for as a pooling
of interests in accordance with GAAP and applicable published rules and
regulations of the SEC. Parent shall have received the written opinion, dated as
of the Effective Time, of Ernst & Young LLP that Parent is eligible to be a
party to a business combination accounted for as a pooling of interests in
accordance with GAAP and applicable published rules and regulations of the SEC,
and that the Merger will qualify for pooling of interests accounting. Each of
such written opinions will be in form and substance reasonably satisfactory to
the Parent.
(d) Consents. The Company shall have obtained the consent or approval
of each Person that is not a Governmental Entity whose consent or approval shall
be required in connection with the transactions contemplated hereby under any
material loan or credit agreement, note, mortgage, indenture, lease or other
agreement or instrument by which the Company or any of its Subsidiaries is
bound.
(e) No Litigation or Injunction. There shall not be instituted or
pending any suit, action or proceeding by any Governmental Entity relating to
this Agreement, any of the Company Ancillary Agreements or Parent Ancillary
Agreements or any of the transactions contemplated herein or therein. No action
or proceeding shall have been commenced seeking any temporary restraining order,
preliminary or permanent injunction or other order from any court of competent
jurisdiction or seeking any other legal restraint or prohibition preventing the
consummation of the Merger other than any of the foregoing which shall have been
dismissed with prejudice.
(f) Ancillary Agreements. The Indemnity Agreement shall have been
executed by the Stockholder Representatives and the Indemnity Agent and
delivered to Parent and shall be in full force and effect.
(g) Capital Structure Certificate. The Company shall have delivered a
certificate of its Chief Executive Officer and its Chief Financial Officer
setting forth all of the information that would have been required to have been
included in Section 3.2(c) of the Company Letter if the Agreement were dated as
of the Effective Time.
(h) Dissenting Stockholders. The Dissenting Shares shall include (i) no
shares of Company Preferred Stock and (ii) no more than five percent (5%) of the
shares of Company Common Stock outstanding immediately prior to the Effective
Time. Parent shall have received a certificate signed on behalf of the Company
by its Chief Executive Officer and its Chief Financial Officer to such effect.
(i) Stockholder Approval. This Agreement shall have been duly approved
by holders of a majority of the shares of the Company Common Stock, a majority
of the shares of the Company Series A Preferred Stock, a majority of the shares
of the Company Series B Preferred Stock, a majority of the shares of the Company
Series C Preferred Stock and a majority of the shares of the Company Series D
Preferred Stock, each acting as a separate class.
Section 6.4 Customers and Products. Provided that (i) there is no
breach or failure to perform by the Company of any of its agreements, convents
or obligations in this Agreement and (ii) there is no breach of any warranty or
inaccuracy of any representation of the Company contained in Article III or in
any certificate delivered by or
A-31
<PAGE> 115
on behalf of the Company pursuant to Article VI of this Agreement, the results
of beta or other deployment testing of products of the Company or the failure of
certain customers to order or accept products or services of the Company, in
each case between the date of this Agreement and the Effective Time, shall not
be a condition to Parent's obligation to effect the Merger.
Section 6.5 Intellectual Property and Software. Notwithstanding
Section 6.3(a), the fact that any of the representations and warranties
contained in Sections 3.15(i), (j) or (k) are not true and correct on and as of
the Effective Time shall not relieve the Parent of its obligation to effect the
Merger unless: (i) the Company had Knowledge as of the date hereof that any of
the representations and warranties contained in Sections 3.15(i), (j) or (k) are
not true and correct; or (ii) at any time the Company or any Subsidiary or any
of their respective employees or agents engaged in willful or intentional acts
or omissions resulting in the representations and warranties contained in
Sections 3.15(i), (j) or (k) not being true and correct.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval of the matters
presented in connection with the Merger by the stockholders of the Company or
Parent:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if the other party shall have
failed to comply in any material respect with any of its covenants or agreements
contained in this Agreement required to be complied with prior to the date of
such termination, which failure to comply has not been cured within thirty
business days following receipt by such other party of written notice from the
non-breaching party of such failure to comply;
(c) by either Parent or the Company if there has been (i) a material
breach by the other party (in the case of Parent, including any material breach
by Sub) of any representation or warranty that is not qualified as to
materiality which has the effect of making such representation or warranty not
true and correct in all material respects or (ii) a breach by the other party
(in the case of Parent, including any breach by Sub) of any representation or
warranty that is qualified as to materiality, in each case which breach has not
been cured within thirty business days following receipt by the breaching party
from the non-breaching party of written notice of the breach;
(d) by Parent or the Company if: (i) the Merger has not been effected
on or prior to the close of business on December 15, 1999; provided, however,
that the right to terminate this Agreement pursuant to this Section 7.1(d)(i)
shall not be available to any party whose failure to fulfill any of its
obligations contained in this Agreement has been the cause of, or resulted in,
the failure of the Merger to have occurred on or prior to the aforesaid date; or
(ii) any court or other Governmental Entity having jurisdiction over a party
hereto shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable;
(e) by Parent if the stockholders of the Company do not approve this
Agreement at the Stockholder Meeting or at any adjournment or postponement
thereof;
(f) by Parent if (i) any Person (other than Parent or its Affiliates)
acquires or becomes the beneficial owner of 25% or more of the outstanding
shares of Company Common Stock, or (ii) the Board of Directors of the Company
shall have recommended to the stockholders of the Company any Takeover Proposal
or shall have resolved to do so.
The right of any party hereto to terminate this Agreement pursuant to
this Section 7.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any Person
A-32
<PAGE> 116
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
Section 7.2 Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent, Sub or their respective officers, directors
or stockholders (except for the last sentence of Section 5.3 and the entirety of
Section 5.5, which shall survive the termination); provided, however, that
nothing contained in this Section 7.2 shall relieve any party hereto from any
liability for any willful breach of a representation or warranty contained in
this Agreement or the breach of any covenant contained in this Agreement.
Section 7.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after approval of the matters presented in connection with
the Merger by the stockholders of Parent and the Company, but, after any such
approval, no amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 7.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and/or (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be waived. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnity Fund. (a) Promptly after the Effective Time,
the Indemnity Shares shall be registered in the name of, and be deposited with,
Harris Trust and Savings Bank (or other institution selected by Parent with the
reasonable consent of the Company as Indemnity Fund and collateral agent (the
"Indemnity Agent"). Such deposit shall constitute the initial Indemnity Fund and
shall be governed by the terms set forth herein and in the Indemnity Agreement.
All dividends and distributions in respect of the Indemnity Shares, whether in
cash, additional Parent Common Stock or other property, received by the
Indemnity Agent shall be distributed currently to the Company Stockholders in
accordance with the Indemnity Agreement; provided, that stock dividends made to
effect stock splits or similar events shall be retained by the Indemnity Agent
as part of the Indemnity Fund. The Indemnity Fund shall be available to
indemnify, hold harmless and reimburse any Parent Group Member from any Loss or
Expense indemnifiable under this Article VIII and as provided in the Indemnity
Agreement.
(b) Nothing in this Agreement shall limit the liability of the Company
for any breach of any representation, warranty or covenant if this Agreement
shall be terminated, provided that resort to the Indemnity Fund shall be the
exclusive remedy of the Parent Group Members for any such breaches and
misrepresentations following the Effective Time other than for fraud.
(c) As used in this Agreement, (i) "Expense" means any and all expenses
incurred in connection with investigating, defending or asserting any claim,
action, suit or proceeding incident to any matter indemnified against hereunder
(including, without limitation, court filing fees, court costs, arbitration fees
or costs, witness fees and reasonable fees and disbursements of legal counsel,
expert witnesses, accountants and other professionals), (ii) "Loss" means any
and all losses, costs, obligations, liabilities, settlement payments, awards,
judgments, fines, penalties, damages, expenses, deficiencies or other charges
(in each case, net of insurance proceeds actually received by Parent with
respect to the applicable matters or occurrences), and (iii) "Parent Group
Members" means Parent and its Affiliates and their respective successors and
assigns, including, after the Effective Time, the Surviving Corporation.
A-33
<PAGE> 117
Section 8.2 Indemnification from Indemnity Fund. (a) Subject to
Section 8.1, from and after the Effective Time, each Parent Group Member shall
be indemnified, held harmless and reimbursed from the Indemnity Fund from and
against any and all Loss and Expense incurred by such Parent Group Member in
connection with or arising from:
(i) any breach or failure to perform by the Company of any of
its agreements, covenants or obligations in this Agreement; or
(ii) any breach of any warranty or the inaccuracy of any
representation of the Company contained in Article III or any
certificate delivered by or on behalf of the Company pursuant to
Article VI of this Agreement.
provided, however, that the Indemnity Fund shall be used to indemnify and hold
harmless hereunder with respect to the matters set forth in clause (ii) of this
Section 8.2(a) only in the event that the aggregate amount (without duplication)
of Loss and Expense borne by the Parent Group Members with respect thereto
exceeds $500,000 and then only to the extent of such excess. The deduction
contained in the foregoing proviso shall not apply to claims relating to
Sections 3.1, 3.2, 3.3, 3.9, 3.20, 3.29, and the Certificate delivered pursuant
to Section 6.3(g). Any payment pursuant to this Section 8.2 shall be made in the
form of a transfer from the Indemnity Fund to the applicable Parent Group
Member(s) pursuant to the Indemnity Agreement.
(b) The Company acknowledges that Parent and the Company have agreed
that Parent will acquire all of the outstanding capital stock of the Company on
a fully diluted basis in exchange for the Merger Consideration. The Company
further acknowledges that the information set forth in the certificate delivered
pursuant to Section 6.3(g) will be used as the basis for determining the
Exchange Ratio. In the event of any inaccuracy in the certificate delivered
pursuant to Section 6.3(g), Parent will be entitled (but not obligated) to
recalculate the Exchange Ratio and receive a sufficient number of shares of
Parent Common Stock from the Indemnity Fund in order that the total number of
shares of Parent Common Stock issued and outstanding by virtue of this Agreement
would be as would have resulted if such certificate had been true and correct in
all respects at the Effective Time.
(c) The indemnification provided for in this Article VIII shall
terminate one year after the Effective Time or earlier, in whole or in part, if
Parent determines that such earlier termination is required to comply with the
requirements for accounting for the Merger as a pooling of interests and gives
the Indemnity Agent and the Stockholder Representatives notice to such effect
(and no claims shall be made by any Parent Group Member under this Section 8.2
thereafter), except that such indemnification shall continue as to any Loss or
Expense in connection with which a Claim Notice is given in accordance with the
requirements of Section 8.4 on or prior to the date such indemnification
obligation would otherwise terminate in accordance with this Section 8.2, as to
which the indemnification obligation hereunder shall continue until the
liability to be satisfied from the Indemnity Fund shall have been determined
pursuant to this Article VIII, and all Parent Group Members shall have been
reimbursed out of the Indemnity Fund for such Loss or Expense in accordance with
the terms hereof.
Section 8.3 Termination of Indemnity Fund. Upon termination of the
indemnification obligations under this Article VIII and reimbursement of the
Parent Group Members of Losses and Expenses payable in respect thereof
hereunder, the Indemnity Fund shall terminate and shall be distributed in
accordance with the Indemnity Agreement after payment of any amounts therefrom
due to the Indemnity Agent.
Section 8.4 Notice and Determination of Claims.
(a) If any Parent Group Member wishes to make a claim for
indemnification to be satisfied from the Indemnity Fund, such Parent Group
Member (individually or collectively, the "Claiming Party") shall so notify the
Indemnity Agent in writing (the "Claim Notice") of the facts giving rise to such
claim for indemnification hereunder. The Claim Notice shall be accompanied by a
certificate of the Claiming Party attesting to the Claiming Party's
contemporaneous delivery of a duplicate copy of the Claim Notice to the
Stockholder Representatives (as hereinafter defined). Such Claim Notice shall
describe in reasonable detail (to the extent then known) the Loss or Expense and
the method of computation of such Loss or Expense and contain a reference to the
provisions of this Agreement in respect of which such Loss or Expense shall have
occurred. If the Claiming Party is not Parent, the Claim Notice must be
A-34
<PAGE> 118
accompanied by a certificate from Parent confirming that the Claiming Party is a
Parent Group Member. At the time of delivery of any Claim Notice to the
Indemnity Agent, a duplicate copy of such Claim Notice shall be delivered by the
Claiming Party to the Stockholder Representatives.
(b) Unless the Stockholder Representatives shall have delivered an
Objection in accordance with Section 8.4(c), the Indemnity Agent shall, on the
twentieth day (or such earlier day as the Stockholder Representatives shall
authorize in writing to the Indemnity Agent) after receipt of a Claim Notice
with respect to indemnification for a specified amount, deliver to Parent, for
its account or for the account of each Parent Group Member named in the Claim
Notice, such portion of the Indemnity Fund, valued in accordance with the
Indemnity Agreement, with a value equal to the specified amount.
(c) Until the twentieth day following delivery of a Claim Notice, the
Stockholder Representatives may deliver to the Indemnity Agent a written
objection (an "Objection") to the claim made in such Claim Notice. At the time
of delivery of any Objection to the Indemnity Agent, a duplicate copy of such
Objection shall be delivered to the Claiming Party.
(d) Upon receipt of an Objection properly made, the Indemnity Agent
shall (i) deliver to Parent, for its account or for the account of each Parent
Group Member named in the Claim Notice, such portion of the Indemnity Fund,
valued in accordance with the Indemnity Agreement, with a value equal to that
portion of the amount subject to the Claim Notice, if any, which is not disputed
by the Stockholder Representatives and (ii) shall designate and segregate out of
the Indemnity Fund a portion thereof, valued in accordance with the Indemnity
Agreement, with a value equal to the amount subject to the Claim Notice which is
disputed by the Stockholder Representatives. Thereafter, the Indemnity Agent
shall not dispose of such segregated portion of the Indemnity Fund until the
Indemnity Agent shall have received a certified copy of the final decision of
the arbitrators as contemplated by Section 8.5, or the Indemnity Agent shall
have received a copy of the written agreement between the Claiming Party and the
Stockholder Representatives resolving such dispute and setting forth the amount,
if any, which such Claiming Party is entitled to receive. The Indemnity Agent
will deliver to Parent, for its account or for the account of each Parent Group
Member entitled to payment, such portion of the Indemnity Fund, valued in
accordance with the Indemnity Agreement, with a value equal to the amount that
the Claiming Party is entitled to receive as set forth in the arbitration
decision after the expiration of ten (10) business days from the receipt of such
decision or, in the event that the amount to which the Claiming Party is
entitled is established pursuant to an agreement between the Claiming Party and
the Stockholder Representatives, promptly after the Indemnity Agent's receipt of
such agreement.
Section 8.5 Resolution of Conflicts; Arbitration.
(a) The Claiming Party shall deliver a written response to the
Stockholder Representatives in respect of any Objection properly delivered by
the Stockholder Representatives. If after twenty (20) days following delivery of
such response there remains a dispute as to any claims, the Stockholder
Representatives and the Claiming Party shall attempt in good faith for sixty
(60) days to agree upon the rights of the respective parties with respect to
each of such claims. If the Stockholder Representatives and the Claiming Party
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both and shall be furnished to the Indemnity Agent. The Indemnity
Agent shall be entitled to rely on any such memorandum and shall distribute the
Parent Common Stock or other property from the Indemnity Fund in accordance with
the terms thereof.
(b) If no such agreement can be reached after good faith negotiation,
either the Claiming Party or the Stockholder Representatives may, by written
notice to the other, demand arbitration of the matter unless the amount of the
Loss or Expense is at issue in pending litigation with a third party, in which
event arbitration shall not be commenced until such amount is ascertained or
both parties agree to arbitration; and in either such event the matter shall be
settled by arbitration conducted by three arbitrators. Within fifteen (15) days
after such written notice is sent, Parent and the Stockholder Representatives
shall each select one arbitrator, and the two arbitrators so selected shall
select a third arbitrator. The decision of the arbitrators as to the validity
and amount of any claim in the related Claim Notice shall be binding, and
conclusive, and notwithstanding anything in this Section 8.5, the Indemnity
Agent shall be entitled to act in accordance with such decision and make or
withhold payments out of the Indemnity Fund in accordance therewith.
A-35
<PAGE> 119
(c) Judgment upon any award rendered by the arbitrators may be entered
in any court having jurisdiction. Any such arbitration shall be held in Chicago,
Illinois under the commercial rules then in effect of the American Arbitration
Association. The non-prevailing Party to an arbitration shall pay its own
expenses, the fees of each arbitrator, the administrative fee of the American
Arbitration Association, and the expenses, including without limitation,
attorneys' fees and costs, reasonably incurred by the other party to the
arbitration.
Section 8.6 Stockholder Representatives. (a) The "Stockholder
Representatives" shall be Ashraf Dahod and William Stuart, who may be replaced
by the Company prior to the Effective Time. Each of the Stockholder
Representatives shall be constituted and appointed as agent for and on behalf of
the Company Stockholders to give and receive notices and communications, to
authorize delivery to Parent Group Members of the Parent Common Stock or other
property from the Indemnity Fund in satisfaction of claims by Parent Group
Members, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Stockholder
Representatives for the accomplishment of the foregoing. The Persons designated
to serve as the Stockholder Representatives may be changed by the holders of a
majority in interest of the Indemnity Fund from time to time upon not less than
10 days' prior written notice to Parent. No bond shall be required of the
Stockholder Representatives, and the Stockholder Representatives shall receive
no compensation for services. Any expenses incurred by the Stockholder
Representatives in connection with their services hereunder shall be reimbursed
from the Indemnity Fund upon presentation of appropriate expense documentation
as and to the extent provided in Section 6 of the Indemnity Agreement.
(b) The Stockholder Representatives shall not be liable to the Company
Stockholders for any act done or omitted hereunder or under the Indemnity
Agreement as Stockholder Representatives while acting in good faith and in the
exercise of reasonable judgment, and any act done or omitted pursuant to the
written advice of counsel shall be conclusive evidence of such good faith. The
Company Stockholders shall severally indemnify the Stockholders Representatives
and hold them harmless from and against any loss, liability or expense incurred
without gross negligence or bad faith on the part of the Stockholders
Representatives and arising out of or in connection with the acceptance and
administration of their duties hereunder.
(c) The Stockholder Representatives shall treat confidentially and not
disclose any nonpublic information from or about the Company to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).
Section 8.7 Actions of the Stockholder Representatives. A decision,
act, consent or instruction of the Stockholder Representatives shall constitute
a decision of all Company Stockholders for whom shares of Parent Common Stock
otherwise issuable to them are deposited in the Indemnity Fund and shall be
final, binding and conclusive upon each such Company Stockholder, and the
Indemnity Agent and Parent may rely upon any decision, act, consent or
instruction of the Stockholder Representatives as being the decision, act,
consent or instruction of each and every such Company Stockholder. The Indemnity
Agent and each Parent Group Member are hereby relieved from any liability to any
Person for any acts done by them in accordance with such decision, act, consent
or instruction of the Stockholder Representatives. For purposes of this
Agreement and the Indemnity Agreement any action by a majority of the then
Stockholder Representatives shall be deemed to be the action of and binding upon
all of the Stockholder Representatives.
Section 8.8 Third-Party Claims. In the event Parent becomes aware of
a third-party claim which Parent believes may result in a demand against the
Indemnity Fund, Parent shall notify the Stockholder Representatives of such
claim, and the Stockholder Representatives 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 Parent may not
effect the settlement of any such claims without the consent of the Stockholder
Representatives, which consent shall not be unreasonably withheld. In the event
that the Stockholders Representatives have consented to any such settlement, the
Stockholders Representatives shall have no power or authority to object under
Section 8.4 or any other provision of this Article VIII to the amount paid in
such settlement.
A-36
<PAGE> 120
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Representations and Warranties. The
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement (other than the Parent Tax Certificate and Company
Tax Certificate referred to elsewhere, which shall survive indefinitely) shall
terminate on the first anniversary of the Effective Time. Except as otherwise
provided herein, no claim shall be made for the breach of any representation or
warranty made in this Agreement or in any instrument delivered pursuant to this
Agreement after the date on which such representations and warranties terminate
as set forth in this Section.
Section 9.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given when delivered personally, one day
after being delivered to an overnight courier or on the business day received
(or the next business day if received after 5 p.m. local time or on a weekend or
day on which banks are closed) when sent via facsimile (with a confirmatory copy
sent by overnight courier) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to
Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532
Attention: General Counsel
Facsimile No.: 630/512-7293
with a copy to:
Sidley & Austin
One First National Plaza
Chicago, Illinois 60603
Attention: Thomas A. Cole
Imad I. Qasim
Facsimile No.: (312) 853-7036
(b) if to the Company, to
NetCore Systems, Inc.
187 Ballardvale Street
Wilmington, MA 01887
Attention: Ashraf M. Dahod
Facsimile No.: (978) 657-6555
with a copy to:
Hale and Dorr LLP
60 State Street
Boston, MA 02109
Attention: Mark G. Borden
Facsimile No.: (617) 526-5000
Section 9.3 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents, table of defined terms and
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the
A-37
<PAGE> 121
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation."
Section 9.4 Counterparts. This Agreement may be executed in
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, except as provided in the last sentence of Section 5.3, constitutes
the entire agreement and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof. This Agreement, except for the provisions of Section 5.11 (which are
expressly intended for the benefit of the directors and officers of the Company)
and of Section 5.9, is not intended to confer upon any Person other than the
parties hereto any rights or remedies hereunder.
Section 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 9.7 Assignment. Subject to Section 1.1, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or otherwise)
without the prior written consent of the other parties.
Section 9.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other terms, conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic and
legal substance of the transactions contemplated hereby are not affected in any
manner materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in a mutually acceptable
manner in order that the transactions contemplated by this Agreement may be
consummated as originally contemplated to the fullest extent possible.
Section 9.9 Enforcement of this Agreement. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific wording or
were otherwise breached. It is accordingly agreed that the parties hereto shall
be entitled to seek an injunction or injunctions to prevent breaches of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state having jurisdiction, such remedy being
in addition to any other remedy to which any party is entitled at law or in
equity.
A-38
<PAGE> 122
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
TELLABS, INC.
By: __________________________
Name:
Title:
BLACKHAWK MERGER CORP.
By: ___________________________
Name:
Title:
NETCORE SYSTEMS, INC.
By: ___________________________
Name:
Title:
A-39
<PAGE> 123
ANNEX B
[Letterhead of BancBoston Robertson Stephens, Inc.]
July 11, 1999
Board of Directors
NetCore Systems, Inc.
187 Ballardvale Street
Wilmington, MA 01887
Members of the Board:
We understand that NetCore Systems, Inc. (the "Company"), Tellabs, Inc.
("Acquiror") and Blackhawk Merger Corp. (a wholly owned subsidiary of Acquiror,
"Merger Sub") have entered into an Agreement and Plan of Merger dated as of June
29, 1999 (the "Agreement"), which provides, among other things, for the merger
(the "Merger") of Merger Sub with and into the Company. Upon consummation of the
Merger, the Company will become a wholly owned subsidiary of Acquiror. Under the
terms set forth in the Agreement, at the effective time of the Merger, (i) the
outstanding shares of Company capital stock, other than certain shares held by
stockholders who properly exercise dissenters' rights ("Dissenting Shares"), and
(ii) the outstanding options and warrants to purchase shares of Company capital
stock will become converted into the right to receive that number of shares of
common stock of Acquiror ("Acquiror Common Stock") equal to $575,000,000 divided
by the Average Closing Price (as defined in the Agreement), but in no event
greater than approximately 10.9 million shares or less than approximately 7.2
million shares (the "Merger Consideration"), as may be adjusted in accordance
with the Agreement. For the purposes of our opinion, the "Purchase Price" shall
mean $575,000,000 of implied equity value, regardless of the trading price of
Acquiror Common Stock at any time. The terms and conditions of the Merger are
set out more fully in the Agreement.
You have asked us whether, in our opinion, the Purchase Price is fair from a
financial point of view and as of the date hereof to the "Holders of Company
Capital Stock", taken as a whole. The "Holders of Company Capital Stock" shall
be defined as all holders of Company capital stock other than Acquiror, Merger
Sub, any affiliates of Acquiror or Merger Sub, holders of Dissenting Shares or
any holders of Company Common Stock who are officers or directors (or who have
representatives serving as directors) of the Company.
For purposes of this opinion we have, among other things:
(i) reviewed certain internal financial statements and other
financial and operating data concerning the Company, prepared
by the management of the Company;
(ii) reviewed certain financial forecasts and other forward looking
financial information prepared by the management of the
Company;
(iii) held discussions with the management of the Company concerning
the businesses, past and current operations, financial
condition and future prospects of the Company;
(iv) reviewed the financial terms and conditions set forth in the
Agreement;
(v) compared the financial performance of the Company with that of
certain other publicly traded companies comparable with the
Company;
(vi) compared the financial terms of the Merger with the financial
terms, to the extent publicly available, of other transactions
that we deemed relevant;
<PAGE> 124
Board of Directors
NetCore Systems, Inc.
July 11, 1999
Page 2
(vii) prepared a discounted cash flow analysis of the Company; and
(viii) made such other studies and inquiries, and reviewed such other
data, as we deemed relevant.
In our review and analysis, and in arriving at our opinion, we have assumed and
relied upon the accuracy and completeness of all of the financial and other
information provided to us (including information furnished to us orally or
otherwise discussed with us by management of the Company) or publicly available
and have neither attempted to verify, nor assumed responsibility for verifying,
any of such information. We have relied upon the assurances of management of the
Company that they are not aware of any facts that would make such information
inaccurate or misleading. Furthermore, we did not obtain or make, or assume any
responsibility for obtaining or making, any independent evaluation or appraisal
of the properties, assets or liabilities (contingent or otherwise) of the
Company, nor were we furnished with any such evaluation or appraisal. With
respect to the financial forecasts and projections (and the assumptions and
bases therefor) for the Company that we have reviewed, upon the advice of the
management of the Company, we have assumed that such forecasts and projections
have been reasonably prepared in good faith on the basis of reasonable
assumptions and reflect the best currently available estimates and judgments as
to the future financial condition and performance of the Company, and we have
further assumed that such projections and forecasts will be realized in the
amounts and in the time periods currently estimated. In this regard, we note
that the Company faces exposure to the Year 2000 problem. We have not undertaken
any independent analysis to evaluate the reliability or accuracy of the
assumptions made by the management of the Company with respect to the potential
effect that the Year 2000 problem might have on its forecasts. We have assumed
that the Merger will be consummated upon the terms set forth in the Agreement
without material alteration thereof, including, among other things, that the
Merger will be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. generally accepted accounting principles ("GAAP") and that
the Merger will be treated as a tax-free reorganization pursuant to the Internal
Revenue Code of 1986, as amended. In addition, we have assumed that the
historical financial statements of the Company reviewed by us have been prepared
and fairly presented in accordance with U.S. GAAP consistently applied. We have
also assumed that the Purchase Price will not be reduced as a result of
indemnification, escrow, purchase price adjustment or other provisions of the
Agreement. We have relied as to all legal matters relevant to rendering our
opinion on the advice of counsel.
This opinion is necessarily based upon market, economic and other conditions as
in effect on, and information made available to us as of, the date hereof. It
should be understood that subsequent developments may affect the conclusion
expressed in this opinion and that we disclaim any undertaking or obligation to
advise any person of any change in any matter affecting this opinion which may
come or be brought to our attention after the date of this opinion. Our opinion
is limited to the fairness, from a financial point of view and as to the date
hereof, to the Holders of Company Capital Stock, taken as a whole, of the
Purchase Price. We do not express any opinion as to (i) the value of any
employee agreement or other arrangement entered into in connection with the
Merger or (ii) any tax or other consequences that might result from the Merger.
Our opinion does not address the relative merits of the Merger and the other
business strategies that the Company's Board of Directors has considered or may
be considering, nor does it address the decision of the Company's Board of
Directors to proceed with the Merger.
We will receive a fee contingent upon the delivery of this opinion, and the
Company has agreed to indemnify us for certain liabilities that may arise out of
the rendering of this opinion. In the past, we have provided investment banking
services to NetCore for which we have been paid fees, including acting as
placement agent for the series D preferred stock offering. Certain employees of
BancBoston Robertson Stephens, Inc. ("BancBoston Robertson Stephens") own
capital stock of the Company, including certain employees of BancBoston
Robertson Stephens who have provided advisory services to the Company in
connection with the Merger. We may, from time to time, trade in the securities
of Acquiror for our own account and for the account of our customers and,
accordingly, may at any time hold a long or short position in such securities.
<PAGE> 125
Board of Directors
NetCore Systems, Inc.
July 11, 1999
Page 3
Our opinion expressed herein is provided for the information of the Board of
Directors of the Company in connection with its evaluation of the Merger. Our
opinion is not intended to be and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote, or take any
other action, with respect to the Merger. This opinion may not be summarized,
described or referred to or furnished to any party except with our express prior
written consent.
Based upon and subject to the foregoing considerations, it is our opinion that,
as of the date hereof, the Purchase Price is fair to the Holders of Company
Capital Stock, taken as a whole, from a financial point of view.
Very truly yours,
BancBoston Robertson Stephens Inc.
/s/ BancBoston Robertson Stephens, Inc.
<PAGE> 126
ANNEX C
FORM OF VOTING AGREEMENT
VOTING AGREEMENT, dated as of June 29, 1999 (this "Agreement"), by the
undersigned stockholder (the "Stockholder") of __________, a Delaware
corporation (the "Company"), for the benefit of Tellabs, Inc., a Delaware
corporation ("Parent").
RECITALS
WHEREAS, Parent, __________, a Delaware corporation and a direct wholly
owned subsidiary of Parent ("Sub"), and the Company are entering into an
Agreement and Plan of Merger, dated as of June 29, 1999 (the "Merger
Agreement"), whereby, upon the terms and subject to the conditions set forth in
the Merger Agreement, each issued and outstanding share of Common Stock, par
value $.001 per share, of the Company ("Company Common Stock"), and each issued
and outstanding share of Preferred Stock, par value $.001 per share, of the
Company ("Company Preferred Stock") not owned directly or indirectly by Parent
or the Company, will be converted into shares of Common Stock, par value $.01
per share, of Parent ("Parent Common Stock");
WHEREAS, the Stockholder owns of record and/or holds stock options to
acquire (whether or not vested) that number of shares of Company Common Stock
and Company Preferred Stock appearing on the signature page hereof (such shares
of Company Common Stock and Company Preferred Stock, together with any other
shares of capital stock of the Company acquired by such Stockholder after the
date hereof and during the term of this Agreement, being collectively referred
to herein as the "Subject Shares"); and
WHEREAS, as a condition to its willingness to enter into the Merger
Agreement, Parent has required that the Stockholder agree, and in order to
induce Parent to enter into the Merger Agreement the Stockholder has agreed, to
enter into this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants and agreements set forth herein, the Stockholder agrees as follows:
1. Covenants of Stockholder. Until the termination of the
Stockholder's obligations in accordance with Section 4, Stockholder agrees as
follows:
(a) At the Stockholder Meeting (or at any adjournment thereof) or in
any other circumstances upon which a vote, consent or other approval with
respect to the Merger or the Merger Agreement is sought, the Stockholder
shall vote (or cause to be voted) the Subject Shares in favor of the
Merger, the adoption of the Merger Agreement and the approval of the terms
thereof and each of the other transactions contemplated by the Merger
Agreement.
(b) [Intentionally omitted.]
(c) The Stockholder shall not, nor shall the Stockholder permit any
affiliate, director, officer, employee or other representative of the
Stockholder to, (i) directly or indirectly solicit, initiate or knowingly
encourage the submission of, any Takeover Proposal or (ii) directly or
indirectly participate in any discussions or negotiations regarding, or
furnish to any person any information with respect to, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes or may reasonably be expected to lead to, any Takeover
Proposal.
(d) The Stockholder shall cooperate with Parent to support and to
consummate and make effective, in the most expeditious manner practicable,
the Merger and the other transactions contemplated by the Merger Agreement.
C-1
<PAGE> 127
2. Representations and Warranties. The Stockholder represents and
warrants to Parent as follows:
(a) The Stockholder is the record and beneficial owner of, and has
good title to, the Subject Shares. The Stockholder does not own, of record
or beneficially, any shares of capital stock of the Company other than the
Subject Shares. The Stockholder has the sole right to vote, and the sole
power of disposition with respect to, the Subject Shares, and none of the
Subject Shares is subject to any voting trust, proxy or other agreement,
arrangement or restriction with respect to the voting or disposition of
such Subject Shares, except as contemplated by this Agreement.
(b) This Agreement has been duly executed and delivered by the
Stockholder. Assuming the due authorization, execution and delivery of this
Agreement by Parent, this Agreement constitutes the valid and binding
agreement of the Stockholder enforceable against the Stockholder in
accordance with its terms, except as may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other similar laws
of general application which may affect the enforcement of creditors'
rights generally and by general equitable principles. The execution and
delivery of this Agreement by the Stockholder does not and will not
conflict with any agreement, order or other instrument binding upon the
Stockholder, nor require the Stockholder to make or obtain any regulatory
filing or approval.
3. Affiliate Letter. The Stockholder agrees to execute and deliver on
a timely basis an Affiliate Letter in the form of Exhibit C to the Merger
Agreement, when and if requested by Parent.
4. Termination. The obligations of the Stockholder hereunder shall
terminate upon the earlier of the termination of the Merger Agreement pursuant
to Section 7.1 thereof or the Effective Time; provided that in the event the
Merger Agreement is terminated pursuant to Section 7.1(e) or 7.1(f) thereof, the
obligations of the Stockholder hereunder shall terminate 180 days following the
termination of the Merger Agreement. No such termination shall relieve the
Stockholder from any liability in connection with this Agreement incurred prior
to such termination.
5. Further Assurances. The Stockholder will, from time to time,
execute and deliver, or cause to be executed and delivered, such additional or
further consents, documents and other instruments as Parent may reasonably
request for the purpose of effectively carrying out the transactions
contemplated by this Agreement.
6. Successors, Assigns and Transferees Bound. Any successor, assignee
or transferee (including a successor, assignee or transferee as a result of the
death of the Stockholder, such as an executor or heir) shall be bound by the
terms hereof, and the Stockholder shall take any and all actions necessary to
obtain the written confirmation from such successor, assignee or transferee that
it is bound by the terms hereof.
7. Remedies. The Stockholder acknowledges that money damages would be
both incalculable and an insufficient remedy for any breach of this Agreement by
it, and that any such breach would cause Parent irreparable harm. Accordingly,
the Stockholder agrees that in the event of any breach or threatened breach of
this Agreement, Parent, in addition to any other remedies at law or in equity it
may have, shall be entitled, without the requirement of posting a bond or other
security, to seek equitable relief, including injunctive relief and specific
performance.
8. Severability. The invalidity or unenforceability of any provision
of this Agreement in any jurisdiction shall not affect the validity or
enforceability of any other provision of this Agreement in such jurisdiction, or
the validity or enforceability of any provision of this Agreement in any other
jurisdiction. If in the opinion of Parent's independent accountants, any
provision hereof would cause the Merger to be ineligible for "pooling of
interest" accounting treatment, it shall be deemed to be ineffective and
inapplicable.
9. Amendment. This Agreement may be amended only by means of a
written instrument executed and delivered by both the Stockholder and Parent.
C-2
<PAGE> 128
10. Governing Law. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
11. Capitalized Terms. Capitalized terms used in this Agreement that
are not defined herein shall have such meanings as set forth in the Merger
Agreement.
12. Counterparts. For the convenience of the parties, this Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
13. No limitation on Actions of the Stockholder as Director. In the
event the Stockholder is a director of the Company, notwithstanding anything to
the contrary in this Agreement, nothing in this Agreement is intended or shall
be construed to require the Stockholder to take or in any way limit any action
that the Stockholder may take to discharge the Stockholder's fiduciary duties as
a director of the Company.
___________________________
Name:
Number of shares of Company
Common Stock owned on the
date hereof: _____________
Number of shares of Company
Preferred Stock owned on the date hereof:
Series A: ________________
Series B: ________________
Series C: ________________
Series D: ________________
Accepted and Agreed to
as of the date set forth above:
Tellabs, Inc.
By:_______________
Name:
Title:
C-3
<PAGE> 129
ANNEX D
INDEMNITY ESCROW AGREEMENT
This INDEMNITY ESCROW AGREEMENT (the "Indemnity Agreement"),
is dated as of , 1999, among Tellabs, Inc., a Delaware corporation ("Parent"),
Ashraf Dahod and William Stuart (the "Stockholder Representatives"), and Harris
Trust and Savings Bank, an Illinois banking corporation, as indemnity and
escrow agent (the "Indemnity Agent").
W I T N E S S E T H:
WHEREAS, NetCore Systems, Inc., a Delaware corporation (the
"Company"), Blackhawk Merger Corp., a Delaware corporation ("Sub"), and Parent
are parties to that certain Agreement and Plan of Merger, dated as of June 29,
1999 (the "Merger Agreement"), pursuant to which Sub shall be merged with and
into the Company (the "Merger"), with the Company surviving as a wholly owned
subsidiary of Parent (as such, the "Surviving Corporation");
WHEREAS, under the Merger Agreement all Parent Group Members
(as defined in the Merger Agreement) shall be indemnified, held harmless and
reimbursed as provided in Article VIII of the Merger Agreement;
WHEREAS, to ensure that funds will be available to indemnify,
hold harmless and reimburse the Parent Group Members as required by Article VIII
of the Merger Agreement, Section 8.1 of the Merger Agreement provides that in
connection with the Merger, promptly after the Effective Time (as defined below)
10% of the aggregate number of whole shares of Parent Common Stock (as defined
below) into which the Company Common Stock (as defined in the Merger Agreement)
and the Company Preferred Stock (as defined in the Merger Agreement) are to be
converted into, in accordance with Article I of the Merger Agreement (such
shares being referred to herein as the "Indemnity Shares" and such indemnity
shares, together with any cash in lieu of fractional shares being referred to
herein as the "Indemnity Amount") shall be deposited with the Indemnity Agent in
an escrow account established pursuant to this Indemnity Agreement and held and
subsequently disbursed in accordance with the terms of this Indemnity Agreement
(such Indemnity Amount, together with such cash in lieu of fractional shares and
any dividends or other distributions received thereon being herein collectively
referred to as the "Indemnity Fund").
D-1
<PAGE> 130
WHEREAS, the Merger Agreement provides for the Stockholder
Representatives to act in accordance herewith in connection with this Indemnity
Agreement and the indemnification obligations contained in the Merger Agreement;
and
WHEREAS, the Indemnity Agent has agreed to hold the Indemnity
Fund pursuant to the terms of this Indemnity Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein contained, the parties hereto agree as follows:
1. Definitions.
Capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement. In addition the following terms
shall have the following meanings:
"Effective Time" means the date and time at which the
Certificate of Merger is accepted for recording or such later time
established by the Certificate of Merger.
"Average Closing Price" means $_____.
2. Deposit and Use of Indemnity Amount.
a. Promptly after the Effective Time, the Indemnity Amount shall
be deposited by Parent in escrow with the Indemnity Agent. The
Indemnity Agent shall establish a separate subaccount for each
Company Stockholder ("Subaccount") and credit to such
Subaccount the number of Indemnity Shares and cash in lieu of
fractional shares set forth opposite the name of such Company
Stockholder on Annex A hereto.
b. Immediately after receipt from Parent of the Indemnity Amount,
the Indemnity Agent shall confirm to the Parent and the
Stockholder Representatives such receipt in writing.
c. The Indemnity Agent agrees to hold, pay and disburse the
Indemnity Fund and to act as Indemnity Agent in accordance
with the terms, conditions and provisions of this Indemnity
Agreement.
d. All dividends and distributions in respect of the Indemnity
Shares, whether in cash, additional Parent Common Stock or
other property received by the Indemnity Agent shall be
distributed currently to the Company Stockholders; provided,
that stock dividends
D-2
<PAGE> 131
made to effect stock splits or similar events shall be
retained by the Indemnity Agent as part of the Indemnity Fund
and credited proportionately to the Subaccounts to which the
Indemnity Shares are credited. In the event the Indemnity
Shares are reclassified or otherwise changed into or exchanged
for other securities, property or cash pursuant to any merger,
consolidation, sale of assets and liquidation or other
transaction, the securities, cash or other property received
by the Indemnity Agent in respect of the Indemnity Shares
shall be retained by it as part of the Indemnity Fund,
credited proportionately to the Subaccounts to which the
Indemnity Shares are credited and, in the case of securities,
registered in the name of the Indemnity Agent or its nominee.
All cash, property, Parent Common Stock and other securities
received and retained by the Indemnity Agent as described in
this Subsection 2(d) are referred to herein as
"Distributions". The provisions of this Section 2 shall apply
to successive Distributions.
e. Each Company Stockholder shall have the right to vote all
Indemnity Shares credited to such Company Stockholder's
Subaccount. The Indemnity Agent will forward to each Company
Stockholder to whose Subaccount any Indemnity Shares are
credited all notices of stockholders' meetings, proxy
statements and reports to stockholders received by the
Indemnity Agent in respect thereof and will either (i) vote
the Indemnity Shares credited to such Company Stockholder's
Subaccount only in accordance with written instructions
received from such Company Stockholder, or (ii) forward to
such Company Stockholder a signed proxy enabling the Company
Stockholder to vote such Indemnity Shares. The Indemnity Agent
shall be reimbursed for the cost of such forwarding in
accordance with Section 8(d)
3. Release of Indemnity Shares for Sale.
a. Subject to Section 3(d), a Company Stockholder may deliver to
the Indemnity Agent and to Parent a written notice (a "Sale
Notice") directing the Indemnity Agent to deliver all or a
specified number of the Indemnity Shares (the "Sold Shares")
credited to such Company Stockholder's Subaccount to a broker
or dealer for purposes of sale, against receipt by the
Indemnity Agent of the proceeds of such sale, after deducting
the commissions and other charges of the broker or dealer
effecting such sale (the "Sale Proceeds"). The Sale
D-3
<PAGE> 132
Notice shall state: (i) that a specified number of Indemnity
Shares have been sold to or through the broker-dealer named
therein, (ii) the sale price per share and the aggregate Sale
Proceeds, and (iii) the date of payment for and delivery of
the Sold Shares, which shall not be less than five business
days after delivery of the Notice of Sale.
b. If the Sale Proceeds, after deducting the commissions and
other charges of the broker or dealer effecting such sale, as
set forth in the Sale Notice, are less than 100% of the
Current Market Value (as defined in Section 5(b)) of the Sold
Shares as of the date of sale, the Indemnity Agent shall not
deliver the Sold Shares unless it receives, in addition to the
Sale Proceeds, after deducting the commissions and other
charges of the broker or dealer effecting such sale, cash in
an amount equal to the excess of 100% of the Current Market
Value of the Sold Shares as of the date of sale over such Sale
Proceeds.
c. The Sale Proceeds and additional cash, if any, received by the
Indemnity Agent in respect of Sold Shares shall be retained in
the Indemnity Fund and credited to the Subaccount of the
selling Company Stockholder.
d. Sold Shares subject to transfer restrictions for securities
law purposes, in connection with the accounting for the Merger
as a pooling of interests, or under Company Restriction
Agreements, as indicated by a legend placed on the
certificates representing such Sold Shares, shall not be
transferred pursuant to this Section 3 except in accordance
with the Company Affiliate Letter or the Company Restriction
Agreement, as the case may be, executed by the Company
Stockholder requesting such sale.
4. Disposition of Indemnity Amount.
a. Each Parent Group Member shall be entitled to receive payment
directly from the Indemnity Agent out of the Indemnity Fund in
the amount which, at any time and from time to time, such
Parent Group Member is entitled to be indemnified, reimbursed
and held harmless from the Indemnity Fund as provided in
Article VIII of the Merger Agreement (including, without
limitation, Sections 8.4 and 8.5 thereof), the terms of which
are incorporated herein by reference and a copy of which is
attached hereto as Annex B.
D-4
<PAGE> 133
b. The Indemnity Agent shall not dispose of all or any portion of
the Indemnity Fund other than as provided in this Indemnity
Agreement.
5. Payment and Valuation.
a. Payments, deliveries or designations from the Indemnity Fund
made pursuant to any Claim Notice shall be made, on a
Subaccount by Subaccount basis, first from any cash, second
from any Permitted Investments, and third from any Indemnity
Shares. For purposes of such payment, delivery or designation,
Indemnity Shares and Permitted Investments shall be valued at
the Current Market Value of such Indemnity Shares and
Permitted Investments as determined in accordance with Section
5(b) hereof. To the extent that any payment, delivery or
designation is made pursuant to this Indemnity Agreement in
the form of securities, such payment, delivery or designation
shall be rounded to the nearest whole number of such
securities, and no fractional securities shall be paid,
delivered or designated.
b. The "Current Market Value" of shares of Parent Common Stock in
the Indemnity Fund as of any date shall be the Average Closing
Price. In the event of any reclassification, stock split or
stock divided with respect to Parent Common Stock or any
change or conversion of Parent Common Stock into other
securities, appropriate and proportionate adjustments, if any,
shall be made to the Current Market Value. The "Current Market
Value" of any other security, including any Permitted
Investment, in the Indemnity Fund shall be the average of the
closing prices of such security for each of the ten trading
days immediately preceding such date. The closing price of any
such security on any trading day shall be: (i) if such
security is listed on a national market securities exchange or
quoted in the NASDAQ National Market System, the last reported
sale price, or if no sale occurred on that day the mean
between the closing bid and asked prices, of such security on
such exchange (or the principal exchange if listed on more
than one) or in the NASDAQ National Market System, as the case
may be, (ii) if such security is not listed or quoted as
described in clause (i), the mean between the reported high
bid and low asked prices of such security on such date as
reported in the financial press or by the National Quotation
Bureau Incorporated, or (ii) if neither clause (i) nor clause
(ii) applies, the market value of
D-5
<PAGE> 134
such security on such day as determined in good faith by the
Board of Directors of Parent. Upon request of the Indemnity
Agent, the Parent shall deliver to it a notice setting forth
its good faith calculation of the Current Market Value of the
Sold Shares or the Indemnity Shares, which calculation shall
be binding on all parties.
c. Payments and deliveries pursuant to a Claim Notice shall be
charged to and withdrawn from each Subaccount in proportion to
the respective balances in each, unless the Indemnity Agent is
restrained, enjoined or stayed by law or court order from
withdrawing assets from a Subaccount, in which case the amount
which would have been drawn from such Subaccount shall be
allocated pro rata among and withdrawn from the remaining
Subaccounts as to which the Indemnity Agent is not so
restrained, enjoined or stayed.
6. Delivery of Indemnity Amount Upon Termination.
a. On the first anniversary of the Effective Time, or earlier, if
Parent so elects, in whole or in part, pursuant to Section
8.2(c) of the Merger Agreement in a written notice delivered
to the Indemnity Agent and the Stockholder Representatives
(the "Distribution Date"), the Indemnity Agent shall deliver
to the Exchange Agent (or, if the agreement appointing the
Exchange Agent shall then have terminated, to Parent) an
amount (the "Distribution Amount") equal to (A) the amount
remaining in the Indemnity Fund, less (B) any amount
designated as subject to a Claim pursuant to such Claim Notice
to the extent such Claim has not been resolved prior to such
date, and less (C) any amount previously designated in writing
by the Stockholder Representatives to the Indemnity Agent
(with a copy delivered to Parent) as amounts that should be
withheld to cover their expenses incurred in connection with
their activities hereunder (to the extent the Indemnity Agent
shall then have received written notice from the Stockholder
Representatives to such effect in accordance with Section
9(b)). Upon its receipt of such Distribution Amount, the
Exchange Agent or Parent, as the case may be, shall disburse
the Distribution Amount from each Subaccount to the Company
Stockholder for which such Subaccount was established. No
certificates or scrip representing fractional shares of Parent
Common Stock or any other security shall be issued upon the
disbursement of the Distribution
D-6
<PAGE> 135
Amount. In lieu of any such fractional share, each Company
Stockholder who would otherwise have been entitled to a
fraction of a share of Parent Common Stock or other security
upon disbursement of the Distribution Amount will be paid an
amount in cash (without interest), rounded to the nearest
cent, determined by multiplying (i) the Current Market Value
of such Parent Common Stock or such other securities (in the
case of such other securities, as of the Distribution Date) by
(ii) the fractional interest to which such holder would
otherwise be entitled.
b. Any amounts retained in escrow after the Distribution Date
shall be held by the Indemnity Agent and shall first be used
to indemnify the Parent Group Members, subject to the terms
and conditions of this Indemnity Agreement, and upon
resolution and payment out of the Indemnity Fund of all
pending Claims, any remaining amounts in escrow shall be
transferred to the Stockholder Representatives with respect to
out of pocket expenses incurred by them in connection with
their activities hereunder (to the extent the Indemnity Agent
shall then have received written notice from the Stockholder
Representatives to such effect in accordance with Section
9(b)), and any remaining shares shall be distributed to the
Exchange Agent (or, if the agreement appointing the Exchange
Agent shall then have terminated, to Parent), who shall
disburse such portion in the manner set forth in Section 6(a).
c. Upon distribution of the entire amount of the Indemnity Fund,
the Indemnity Agent shall give the Exchange Agent or Parent,
as the case may be, notice to such effect. Such notice shall
be given to the following address, or to such other address as
Parent may designate:
Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532
Attention: General Counsel
Upon such distribution, this Indemnity Agreement shall be
terminated.
d. At any time prior to final termination of this Indemnity
Agreement, the Indemnity Agent shall, if so instructed in a
writing signed by Parent and the Stockholder Representatives,
release from the Indemnity Fund to Parent or the Exchange
Agent, as directed, the
D-7
<PAGE> 136
portion of the Indemnity Fund specified in such
writing.
7. Permitted Investments; Interest.
The Indemnity Agent is hereby authorized and directed to hold the
Indemnity Fund in a segregated escrow account and to disburse such Indemnity
Fund only in accordance with the terms of this Indemnity Agreement. From the
date hereof until the date of disbursement of the Indemnity Fund pursuant to
Section 6 of this Indemnity Agreement, the Indemnity Agent is authorized and
directed to invest and reinvest the cash portion, if any, of the Indemnity Fund
in any of the following investments (each a "Permitted Investment") in each case
pursuant to joint instructions of the Parent and the Stockholder
Representatives: (i) readily marketable obligations maturing within six (6)
months after the date of acquisition thereof issued by the United States of
America or any agency or instrumentality thereof; (ii) readily marketable
obligations maturing within six (6) months after the date of acquisition thereof
issued by any state or municipality within the United States of America, or any
political subdivision, agency or instrumentality thereof, rated "A" or better by
either Standard & Poor's Corporation or Moody's Investors Service Inc.; (iii)
readily marketable commercial paper maturing within one hundred eighty (180)
days after the date of issuance thereof which has the highest credit rating of
either Standard & Poor's Corporation or Moody's Investors Service, Inc.; or (iv)
6 month certificates of deposit issued by any bank incorporated and doing
business pursuant to the laws of the United States of America or any state
thereof having combined capital and surplus of at least $500,000,000. In the
event the Indemnity Agent does not receive joint instructions from Parent and
the Stockholder Representatives to invest or reinvest the cash portion of the
Indemnity Fund, the Indemnity Agent agrees to invest and reinvest such funds in
Harris Insight Money Market Fund, or a successor or similar fund agreed to by
Parent and the Stockholder Representatives in writing, which invests in direct
obligations of, or obligations fully guaranteed as to principal and interest by
the United States Government and repurchase agreements with respect to such
securities. Permitted Investments and interest accruing on, and any profit
resulting from, such investments shall be added to, and become a part of, the
Indemnity Fund pursuant to this Indemnity Agreement and shall be allocated among
the Subaccounts of the Company Stockholders based on the Permitted Investments
credited to the Subaccount of each. For purposes of this Indemnity Agreement,
"interest" on the Indemnity Fund shall include all proceeds thereof and
investment earnings with respect thereto. All Permitted Investments shall be
registered in the name of the Indemnity
D-8
<PAGE> 137
Agent. The Indemnity Agent shall have full power and authority to sell any and
all Permitted Investments held by it under this Indemnity Agreement as necessary
to make disbursements under this Indemnity Agreement, and may use its Bond
Department to effect such sales. The Indemnity Agent, Parent, the Surviving
Corporation and the Stockholder Representatives shall not be responsible for any
unrealized profit or realized loss realized on such investments.
8. Liability and Compensation of Indemnity Agent.
a. The duties and obligations of the Indemnity Agent hereunder
shall be determined solely by the express provisions of this
Indemnity Agreement, and no implied duties or obligations
shall be read into this Indemnity Agreement against the
Indemnity Agent. The Indemnity Agent shall, in determining its
duties hereunder, be under no obligation to refer to any other
documents between or among the parties related in any way to
this Indemnity Agreement (except to the extent that this
Indemnity Agreement specifically refers to or incorporates by
reference provisions of any other document), it being
specifically understood that the following provisions are
accepted by all of the parties hereto. Parent shall indemnify
and hold the Indemnity Agent harmless from and against any and
all liability and expense which may arise out of any action
taken or omitted by the Indemnity Agent in accordance with
this Indemnity Agreement, except such liability and expense as
may result from the gross negligence or willful misconduct of
the Indemnity Agent. The reasonable costs and expenses of the
Indemnity Agent to enforce its indemnification rights under
this Section 8(a) shall also be paid by Parent. Parent shall
be entitled to be reimbursed out of the Indemnity Fund for
fifty percent (50%) of any amount that Parent is required to
pay to the Indemnity Agent pursuant to this Section 8(a),
payable in the manner set forth in Section 5 hereof. This
right to indemnification shall survive the termination of this
Indemnity Agreement and removal or resignation of the
Indemnity Agent. With respect to any claims or actions against
the Indemnity Agent which are indemnified by Parent under this
Section 8, Parent shall have the right to retain sole control
over the defense, settlement, investigation and preparation
related to such claims or actions; provided that (i) the
Indemnity Agent may employ its own counsel to defend such a
claim or action if it reasonably concludes, based on the
advice of counsel, that there
D-9
<PAGE> 138
are defenses available to it which are different from or
additional to those available to Parent and (ii) neither
Parent nor the Indemnity Agent shall settle or compromise any
such claim or action without the consent of the other, which
consent shall not be unreasonably withheld or delayed.
b. The Indemnity Agent shall not be liable to any person by
reason of any error of judgment or for any act done or step
taken or omitted by it, or for any mistake of fact or law or
anything which it may do or refrain from doing in connection
herewith unless caused by or arising out of its own gross
negligence or willful misconduct.
c. The Indemnity Agent shall be entitled to rely on, and shall be
protected in acting in reliance upon, any instructions or
directions furnished to it in writing signed by both Parent
and all the then Stockholder Representatives pursuant to any
provision of this Indemnity Agreement and shall be entitled to
treat as genuine, and as the document it purports to be, any
letter, paper or other document furnished to it by any Parent
Group Member or the Stockholder Representatives, and believed
by the Indemnity Agent to be genuine and to have been signed
and presented by the proper party or parties. In performing
its obligations hereunder, the Indemnity Agent may consult
with counsel to the Indemnity Agent and shall be entitled to
rely on, and shall be protected in acting in reliance upon,
the advice or opinion of such counsel.
d. The Indemnity Agent shall be entitled to its customary fee for
the performance of services by the Indemnity Agent hereunder
for each year or portion thereof that any portion of the
Indemnity Fund remains in escrow and shall be reimbursed for
reasonable costs and expenses incurred by it in connection
with the performance of such services (such fees, costs and
expenses are hereinafter referred to as the "Indemnity Agent's
Compensation"). The Indemnity Agent shall render statements to
Parent setting forth in detail the Indemnity Agent's
Compensation and the basis upon which the Indemnity Agent's
Compensation was computed. The Indemnity Agent's Compensation
shall be paid by Parent. To the extent Indemnity Agent's
Compensation is not paid by Parent, the foregoing shall be
paid from the Indemnity Fund after written notice from the
Indemnity Agent to Parent. Parent shall be entitled to be
D-10
<PAGE> 139
reimbursed out of the Indemnity Fund for fifty percent (50%)
of any amount that Parent is required to pay to the Indemnity
Agent pursuant to such reimbursement obligation, payable in
the manner set forth in Section 5 hereof.
e. The Indemnity Agent may resign at any time by giving sixty
(60) days written notice to Parent and the Stockholder
Representatives; provided that such resignation shall not be
effective unless and until a successor Indemnity Agent has
been appointed and accepts such position pursuant to the terms
of this Section 8. In such event, Parent and the Stockholder
Representatives shall appoint a successor Indemnity Agent or,
if Parent and the Stockholder Representatives are unable to
agree upon a successor Indemnity Agent within sixty (60) days
after such notice, the Indemnity Agent shall be entitled to
(i) appoint its own successor, provided that such successor is
a reputable national banking association or (ii) at the equal
expense of Parent and the Stockholder Representatives,
petition any court of competent jurisdiction for the
appointment of a successor Escrow Agent. Such appointment,
whether by Parent and the Stockholder Representatives, on the
one hand, or the Indemnity Agent, on the other hand, shall be
effective on the effective date of the aforesaid resignation
(the "Indemnity Transfer Date"). On the Indemnity Transfer
Date, all right title and interest to the Indemnity Fund,
including interest thereon, shall be transferred to the
successor Indemnity Agent and this Indemnity Agreement shall
be assigned by the Indemnity Agent to such successor Indemnity
Agent, and thereafter, the resigning Indemnity Agent shall be
released from any further obligations hereunder. The Indemnity
Agent shall continue to serve until its successor is
appointed, accepts the Indemnity Agreement and receives the
transferred Indemnity Fund.
f. The Indemnity Agent shall not have any right, claim or
interest in any portion of the Indemnity Fund except in its
capacity as Indemnity Agent hereunder.
g. It is understood and agreed that in the event any disagreement
among Parent and the Stockholder Representatives results in
adverse claims or demands being made in connection with the
Indemnity Fund, or in the event the Indemnity Agent in good
faith is in doubt as to what action it should take hereunder,
the
D-11
<PAGE> 140
Indemnity Agent shall retain the Indemnity Fund until the
Indemnity Agent shall have received (i) an enforceable final
order of a court of competent jurisdiction which is not
subject to further appeal directing delivery of the Indemnity
Fund or (ii) a written agreement executed by Parent and the
Stockholder Representatives directing delivery of the
Indemnity Fund, in which event Indemnity Agent shall disburse
the Indemnity Fund in accordance with such order or agreement.
Any court order referred to in clause (i) immediately above
shall be accompanied by a legal opinion of counsel for the
presenting party satisfactory to the Indemnity Agent to the
effect that said court order or judgment is final and
enforceable and is not subject to further appeal. The
Indemnity Agent shall act on such court order and legal
opinion without further question.
h. In no event shall the Indemnity Agent be liable in connection
with this Indemnity Agreement for any special, indirect or
consequential loss or damage of any kind whatsoever, even if
the Indemnity Agent has been previously advised of such loss
or damage.
9. Stockholder Representatives.
a. Pursuant to the Merger Agreement, the Stockholder
Representatives shall act as agents of the Company
Stockholders and are entitled to give and receive notices and
communications, to authorize delivery to the Parent Group
Members of the Parent Common Stock or other property from the
Indemnity Fund in satisfaction of claims by the Parent Group
Members, to object to such deliveries in accordance with the
terms of this Indemnity Agreement, to agree to, negotiate,
enter into settlements and compromises of, and demand
arbitration and comply with orders of courts and awards of
arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the
Stockholder Representatives for the accomplishment of the
foregoing. The persons designated to be Stockholders
Representatives may be changed in accordance with the
provisions set forth in the Merger Agreement.
b. At least five (5) days prior to the Distribution Date, the
Stockholder Representatives shall deliver notice to the
Indemnity Agent and Parent setting forth the amount of the
D-12
<PAGE> 141
reasonable expenses incurred by the Stockholder
Representatives in connection with their duties under the
Merger Agreement and hereunder (the "Stockholder
Representatives' Expenses"), which expenses shall be
reimbursed from the Indemnity Fund in accordance with the
provision of Section 6(b) hereof.
c. Neither Parent, any Parent Group Member nor the Indemnity
Agent shall be responsible or liable for any acts or omissions
of any Stockholder Representative in such Stockholder
Representative's capacity as such, and each of them may rely
on any action or writing of all the then Stockholder
Representatives as being binding on all Stockholder
Representatives for all purposes.
d. A decision, act, consent or instruction of the Stockholder
Representatives shall constitute a decision of all Company
Stockholders for whom shares of Parent Common Stock otherwise
issuable to them are deposited in the Indemnity Fund and shall
be final, binding and conclusive upon each such Company
Stockholder, and the Indemnity Agent and Parent may rely upon
any decision, act, consent or instruction of the Stockholder
Representatives as being the decision, act, consent or
instruction of each and every such Company Stockholder. The
Indemnity Agent and each Parent Group Member are hereby
relieved from any liability to any person for any acts done by
them in accordance with such decision, act, consent or
instruction of the Stockholder Representatives. For purposes
of this Indemnity Agreement any action by all of the then
Stockholder Representatives shall be deemed to be the action
of and binding upon all of the Stockholder Representatives.
D-13
<PAGE> 142
10. Taxes.
All dividends, distributions, interest and gains earned or
realized on the Indemnity Fund ("Earnings") and credited to a Subaccount shall
be accounted for by the Indemnity Agent separately from the Indemnity Fund and,
notwithstanding any provisions of this Agreement, shall be treated as having
been received by the Company Stockholders to whose Subaccount the Earnings are
credited for tax purposes. Annex A hereto sets forth a list of each Company
Stockholder's address and Taxpayer Identification Number. The Indemnity Agent
annually shall file information returns with the United States Internal Revenue
Service and payee statements with the Company Stockholders, documenting such
Earnings. The Company Stockholders shall provide to the Indemnity Agent all
forms and information necessary to complete such information returns and payee
statements. In the event the Indemnity Agent becomes liable for the payment of
taxes, including withholding taxes, relating to Earnings or any payment made
hereunder, the Indemnity Agent may deduct such taxes from the Indemnity Fund.
11. Representations and Warranties.
a. Each of Parent and the Indemnity Agent represents and warrants
to each of the other parties hereto that it is duly organized,
validly existing and in good standing under the laws of its
jurisdiction of formation; that it has the power and authority
to execute and deliver this Indemnity Agreement and to perform
its obligations hereunder; that the execution, delivery and
performance of this Indemnity Agreement by it has been duly
authorized and approved by all necessary action; that this
Indemnity Agreement constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its
terms; and that the execution, delivery and performance of
this Indemnity Agreement by it will not result in a breach of
or loss of rights under or constitute a default under or a
violation of any trust (constructive or other), agreement,
judgment, decree, order or other instrument to which it is a
party or it or its properties or assets may be bound.
b. Each Stockholder Representative represents to each of the
other parties hereto that he has the power and authority to
execute and deliver this Indemnity Agreement and to perform
his obligations hereunder; that this Indemnity Agreement
constitutes his legal, valid and binding obligation,
enforceable against him in accordance with its terms; and that
the execution,
D-14
<PAGE> 143
delivery and performance of this Indemnity Agreement by him
will not result in a breach of or loss of rights under or
constitute a default under or a violation of any trust
(constructive or other), agreement, judgment, decree, order or
other instrument to which he is a party or his properties or
assets may be bound.
12. Benefit; Successor and Assigns.
This Indemnity Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective successors and permitted
assigns but shall not be assignable by any party hereto without the written
consent of all of the other parties hereto; provided, however, that Parent may
assign its rights and delegate its obligations hereunder to any successor
corporation in the event of a merger, consolidation or transfer or sale of all
or substantially all of Parent's stock or assets and that the Indemnity Agent
may assign its rights hereunder to a successor Indemnity Agent appointed
hereunder. Except for the persons specified in the preceding sentence, this
Indemnity Agreement is not intended to confer on any person not a party hereto
any rights or remedies hereunder.
13. Termination.
a. This Indemnity Agreement may be terminated prior to the
Effective Time on the occurrence of either the following
events:
i. the mutual written agreement of each of the
parties hereto;
ii. the termination of the Merger Agreement.
b. Following the Effective Time, this Indemnity Agreement may
only be terminated following the delivery of all amounts held
in the Indemnity Fund and the delivery of notice by the
Indemnity Agent as contemplated by Section 6(c) hereof.
14. Notices.
All notices and other communications hereunder shall be in
writing and shall be deemed given when actually received and shall be given by a
nationally recognized overnight courier delivery service, certified first class
mail or by facsimile (with a confirmatory copy sent by overnight courier) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
D-15
<PAGE> 144
If to the Indemnity Agent:
Harris Trust and Savings Bank
311 West Monroe Street
Chicago, Illinois 60606
Attention: Escrow Division/Marianne Tinerella
Facsimile No.: (312) 461-3525
Telephone No.: (312) 461-2420
If to Parent or any Parent Group Member, to it at:
Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532
Attention: General Counsel
Facsimile No.: (630) 512-7293
Telephone No.: (630) 512-7193
With copy to:
Sidley & Austin
One First National Plaza
Chicago, IL 60603
Attention: Imad I. Qasim
Facsimile No.: (312) 853-7036
Telephone No.: (312) 853-7094
If to the Stockholder Representatives:
---------------------
---------------------
---------------------
Attention:
------------------------------
Facsimile No.: ( ) -
--- --- -----
Telephone No.: ( ) -
--- --- -----
With copy to:
---------------------
---------------------
---------------------
Attention:
------------------------------
Facsimile No.: ( ) -
--- --- -----
Telephone No.: ( ) -
--- --- -----
or such other address as the Indemnity Agent, Parent or the Stockholder
Representatives, as the case may be, shall designate in writing to the parties
hereto; provided that the Stockholder
D-16
<PAGE> 145
Representatives may not specify more than one address at any time.
15. Governing Law.
This Indemnity Agreement shall be governed by and construed in
accordance with the laws (as opposed to conflicts of law provisions) of the
State of Illinois.
16. Counterparts.
This Indemnity Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
17. Headings.
The section headings contained in this Indemnity Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Indemnity Agreement.
18. Partial Invalidity.
Wherever possible, each provision hereof shall be interpreted
in such manner as to be effective and valid under applicable law, but in case
any one or more of the provisions contained herein shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, such provision
shall be ineffective in the jurisdiction involved to the extent, but only to the
extent, of such invalidity, illegality or unenforceability without invalidating
the remainder of such invalid, illegal or unenforceable provision or provisions
or any other provisions hereof, unless such a construction would be
unreasonable.
19. Entire Agreement; Modification and Waiver.
This Indemnity Agreement and the Merger Agreement embody the
entire agreement and understanding among the parties hereto with respect to the
subject matter hereof and supersede any and all prior agreements and
understandings relating to the subject matter hereof. Notwithstanding the
preceding sentence, the parties hereto acknowledge that the Indemnity Agent is
not a party to nor is it bound by the Merger Agreement. No amendment,
modification or waiver of this Indemnity Agreement shall be binding or effective
for any purpose unless it is made in a writing signed by the party against whom
enforcement of such amendment, modification or waiver is sought. No course of
dealing between the parties to this Indemnity Agreement shall be
D-17
<PAGE> 146
deemed to affect or to modify, amend or discharge any provision or term of this
Indemnity Agreement. No delay by any party to or any beneficiary of this
Indemnity Agreement in the exercise of any of its rights or remedies shall
operate as a waiver thereof, and no single or partial exercise by any party to
or any beneficiary of this Indemnity Agreement of any such right or remedy shall
preclude any other or further exercise thereof. A waiver of any right or remedy
on any one occasion shall not be construed as a bar to or waiver of any such
right or remedy on any other occasion.
D-18
<PAGE> 147
IN WITNESS WHEREOF, the parties hereto have duly executed this
Indemnity Agreement as of the date first above written.
HARRIS TRUST AND SAVINGS BANK
By:
-----------------------------------------
Its:
----------------------------------------
TELLABS, INC.
By:
-----------------------------------------
Its:
----------------------------------------
---------------------------------------------
Ashraf Dahod,
as Stockholder Representative
---------------------------------------------
William Stuart,
as Stockholder Representative
D-19
<PAGE> 148
ANNEX A
<TABLE>
<CAPTION>
Stockholder Indemnity Shares
- ----------- ----------------
<S> <C>
Name
Address
Taxpayer Identification Number
</TABLE>
D-A-1
<PAGE> 149
ANNEX B
[Article VIII of Merger Agreement]
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnity Fund. (a) Promptly after the Effective
Time, the Indemnity Shares shall be registered in the name of, and be deposited
with, Harris Bank (or other institution selected by Parent with the reasonable
consent of the Company as Indemnity Fund and collateral agent (the "Indemnity
Agent"). Such deposit shall constitute the initial Indemnity Fund and shall be
governed by the terms set forth herein and in the Indemnity Agreement. All
dividends and distributions in respect of the Indemnity Shares, whether in cash,
additional Parent Common Stock or other property, received by the Indemnity
Agent shall be distributed currently to the Company Stockholders in accordance
with the Indemnity Agreement; provided, that stock dividends made to effect
stock splits or similar events shall be retained by the Indemnity Agent as part
of the Indemnity Fund. The Indemnity Fund shall be available to indemnify, hold
harmless and reimburse any Parent Group Member from any Loss or Expense
indemnifiable under this Article VIII and as provided in the Indemnity
Agreement.
(b) Nothing in this Agreement shall limit the liability of the
Company for any breach of any representation, warranty or covenant if this
Agreement shall be terminated, provided that resort to the Indemnity Fund shall
be the exclusive remedy of the Parent Group Members for any such breaches and
misrepresentations following the Effective Time other than for fraud.
(c) As used in this Agreement, (i) "Expense" means any and all
expenses incurred in connection with investigating, defending or asserting any
claim, action, suit or proceeding incident to any matter indemnified against
hereunder (including, without limitation, court filing fees, court costs,
arbitration fees or costs, witness fees and reasonable fees and disbursements of
legal counsel, expert witnesses, accountants and other professionals), (ii)
"Loss" means any and all losses, costs, obligations, liabilities, settlement
payments, awards, judgments, fines, penalties, damages, expenses, deficiencies
or other charges (in each case, net of insurance proceeds actually received by
Parent with respect to the applicable matters or occurrences), and (iii) "Parent
Group Members" means Parent and
D-B-1
<PAGE> 150
its Affiliates and their respective successors and assigns, including, after the
Effective Time, the Surviving Corporation.
Section 8.2 Indemnification from Indemnity Fund. (a) Subject
to Section 8.1, from and after the Effective Time, each Parent Group Member
shall be indemnified, held harmless and reimbursed from the Indemnity Fund from
and against any and all Loss and Expense incurred by such Parent Group Member in
connection with or arising from:
(i) any breach or failure to perform by the Company of any of
its agreements, covenants or obligations in this Agreement; or
(ii) any breach of any warranty or the inaccuracy of any
representation of the Company contained in Article III or any
certificate delivered by or on behalf of the Company pursuant to
Article VI of this Agreement.
provided, however, that the Indemnity Fund shall be used to indemnify and hold
harmless hereunder with respect to the matters set forth in clause (ii) of this
Section 8.2(a) only in the event, that the aggregate amount (without
duplication) of Loss and Expense borne by the Parent Group Members with respect
thereto exceeds $500,000 and then only to the extent of such excess. The
deduction contained in the foregoing proviso shall not apply to claims relating
to Sections 3.1, 3.2, 3.3, 3.9, 3.20, 3.29, and the Certificate delivered
pursuant to Section 6.3(g). Any payment pursuant to this Section 8.2 shall be
made in the form of a transfer from the Indemnity Fund to the applicable Parent
Group Member(s) pursuant to the Indemnity Agreement.
(b) The Company acknowledges that Parent and the Company have
agreed that Parent will acquire all of the outstanding capital stock of the
Company on a fully diluted basis in exchange for the Merger Consideration. The
Company further acknowledges that the information set forth in the certificate
delivered pursuant to Section 6.3(g) will be used as the basis for determining
the Exchange Ratio. In the event of any inaccuracy in the certificate delivered
pursuant to Section 6.3(g), Parent will be entitled (but not obligated) to
recalculate the Exchange Ratio and receive a sufficient number of shares of
Parent Common Stock from the Indemnity Fund in order that the total number of
shares of Parent Common Stock issued and outstanding by virtue of this Agreement
would be as would have resulted if such certificate had been true and correct in
all respects at the Effective Time.
D-B-2
<PAGE> 151
(c) The indemnification provided for in this Article VIII
shall terminate one year after the Effective Time or earlier, in whole or in
part, if Parent determines that such earlier termination is required to comply
with the requirements for accounting for the Merger as a pooling of interests
and gives the Indemnity Agent and the Stockholder Representatives notice to such
effect (and no claims shall be made by any Parent Group Member under this
Section 8.2 thereafter), except that such indemnification shall continue as to
any Loss or Expense in connection with which a Claim Notice is given in
accordance with the requirements of Section 8.4 on or prior to the date such
+indemnification obligation would otherwise terminate in accordance with this
Section 8.2, as to which the indemnification obligation hereunder shall continue
until the liability to be satisfied from the Indemnity Fund shall have been
determined pursuant to this Article VIII, and all Parent Group Members shall
have been reimbursed out of the Indemnity Fund for such Loss or Expense in
accordance with the terms hereof.
Section 8.3 Termination of Indemnity Fund. Upon termination of
the indemnification obligations under this Article VIII and reimbursement of the
Parent Group Members of Losses and Expenses payable in respect thereof
hereunder, the Indemnity Fund shall terminate and shall be distributed in
accordance with the Indemnity Agreement after payment of any amounts therefrom
due to the Indemnity Agent.
Section 8.4 Notice and Determination of Claims.
(a) If any Parent Group Member wishes to make a claim for
indemnification to be satisfied from the Indemnity Fund, such Parent Group
Member (individually or collectively, the "Claiming Party") shall so notify the
Indemnity Agent in writing (the "Claim Notice") of the facts giving rise to such
claim for indemnification hereunder. The Claim Notice shall be accompanied by a
certificate of the Claiming Party attesting to the Claiming Party's
contemporaneous delivery of a duplicate copy of the Claim Notice to the
Stockholder Representatives (as hereinafter defined). Such Claim Notice shall
describe in reasonable detail (to the extent then known) the Loss or Expense and
the method of computation of such Loss or Expense and contain a reference to the
provisions of this Agreement in respect of which such Loss or Expense shall have
occurred. If the Claiming Party is not Parent, the Claim Notice must be
accompanied by a certificate from Parent confirming that the Claiming Party is a
Parent Group Member. At the time of delivery of any Claim Notice to the
Indemnity Agent, a duplicate copy of such Claim Notice shall be
D-B-3
<PAGE> 152
delivered by the Claiming Party to the Stockholder Representatives.
(b) Unless the Stockholder Representatives shall have
delivered an Objection in accordance with Section 8.4(c), the Indemnity Agent
shall, on the twentieth day (or such earlier day as the Stockholder
Representatives shall authorize in writing to the Indemnity Agent) after receipt
of a Claim Notice with respect to indemnification for a specified amount,
deliver to Parent, for its account or for the account of each Parent Group
Member named in the Claim Notice, such portion of the Indemnity Fund, valued in
accordance with the Indemnity Agreement, with a value equal to the specified
amount.
(c) Until the twentieth day following delivery of a Claim
Notice, the Stockholder Representatives may deliver to the Indemnity Agent a
written objection (an "Objection") to the claim made in such Claim Notice. At
the time of delivery of any Objection to the Indemnity Agent, a duplicate copy
of such Objection shall be delivered to the Claiming Party.
(d) Upon receipt of an Objection properly made, the Indemnity
Agent shall (i) deliver to Parent, for its account or for the account of each
Parent Group Member named in the Claim Notice, such portion of the Indemnity
Fund, valued in accordance with the Indemnity Agreement, with a value equal to
that portion of the amount subject to the Claim Notice, if any, which is not
disputed by the Stockholder Representatives and (ii) shall designate and
segregate out of the Indemnity Fund a portion thereof, valued in accordance with
the Indemnity Agreement, with a value equal to the amount subject to the Claim
Notice which is disputed by the Stockholder Representatives. Thereafter, the
Indemnity Agent shall not dispose of such segregated portion of the Indemnity
Fund until the Indemnity Agent shall have received a certified copy of the final
decision of the arbitrators as contemplated by Section 8.5, or the Indemnity
Agent shall have received a copy of the written agreement between the Claiming
Party and the Stockholder Representatives resolving such dispute and setting
forth the amount, if any, which such Claiming Party is entitled to receive. The
Indemnity Agent will deliver to Parent, for its account or for the account of
each Parent Group Member entitled to payment, such portion of the Indemnity
Fund, valued in accordance with the Indemnity Agreement, with a value equal to
the amount that the Claiming Party is entitled to receive as set forth in the
arbitration decision after the expiration of ten (10) business days from the
receipt of such decision or, in the event that the amount to which the Claiming
Party is entitled is established pursuant to an agreement between
D-B-4
<PAGE> 153
the Claiming Party and the Stockholder Representatives, promptly after the
Indemnity Agent's receipt of such agreement.
Section 8.5 Resolution of Conflicts; Arbitration.
(a) The Claiming Party shall deliver a written response to the
Stockholder Representatives in respect of any Objection properly delivered by
the Stockholder Representatives. If after twenty (20) days following delivery of
such response there remains a dispute as to any claims, the Stockholder
Representatives and the Claiming Party shall attempt in good faith for sixty
(60) days to agree upon the rights of the respective parties with respect to
each of such claims. If the Stockholder Representatives and the Claiming Party
should so agree, a memorandum setting forth such agreement shall be prepared and
signed by both and shall be furnished to the Indemnity Agent. The Indemnity
Agent shall be entitled to rely on any such memorandum and shall distribute the
Parent Common Stock or other property from the Indemnity Fund in accordance with
the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, either the Claiming Party or the Stockholder Representatives may,
by written notice to the other, demand arbitration of the matter unless the
amount of the Loss or Expense is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration; and in either such event the
matter shall be settled by arbitration conducted by three arbitrators. Within
fifteen (15) days after such written notice is sent, Parent and the Stockholder
Representatives shall each select one arbitrator, and the two arbitrators so
selected shall select a third arbitrator. The decision of the arbitrators as to
the validity and amount of any claim in the related Claim Notice shall be
binding, and conclusive, and notwithstanding anything in this Section 8.5, the
Indemnity Agent shall be entitled to act in accordance with such decision and
make or withhold payments out of the Indemnity Fund in accordance therewith.
(c) Judgment upon any award rendered by the arbitrators may be
entered in any court having jurisdiction. Any such arbitration shall be held in
Chicago, Illinois under the commercial rules then in effect of the American
Arbitration Association. The non-prevailing Party to an arbitration shall pay
its own expenses, the fees of each arbitrator, the administrative fee of the
American Arbitration Association, and the expenses, including without
limitation, attorneys' fees and costs, reasonably incurred by the other party to
the arbitration.
D-B-5
<PAGE> 154
Section 8.6 Stockholder Representatives. (a) The "Stockholder
Representatives" shall be Ashraf Dahod and William Stuart, who may be replaced
by the Company prior to the Effective Time. Each of the Stockholder
Representatives shall be constituted and appointed as agent for and on behalf of
the Company Stockholders to give and receive notices and communications, to
authorize delivery to Parent Group Members of the Parent Common Stock or other
property from the Indemnity Fund in satisfaction of claims by Parent Group
Members, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary or appropriate in the judgment of the Stockholder
Representatives for the accomplishment of the foregoing. The Persons designated
to serve as the Stockholder Representatives may be changed by the holders of a
majority in interest of the Indemnity Fund from time to time upon not less than
10 days' prior written notice to Parent. No bond shall be required of the
Stockholder Representatives, and the Stockholder Representatives shall receive
no compensation for services. Any expenses incurred by the Stockholder
Representatives in connection with their services hereunder shall be reimbursed
from the Indemnity Fund upon presentation of appropriate expense documentation
as and to the extent provided in Section 6 of the Indemnity Agreement.
(b) The Stockholder Representatives shall not be liable to the
Company Stockholders for any act done or omitted hereunder or under the
Indemnity Agreement as Stockholder Representatives while acting in good faith
and in the exercise of reasonable judgment, and any act done or omitted pursuant
to the written advice of counsel shall be conclusive evidence of such good
faith. The Company Stockholders shall severally indemnify the Stockholders
Representatives and hold them harmless from and against any loss, liability or
expense incurred without gross negligence or bad faith on the part of the
Stockholders Representatives and arising out of or in connection with the
acceptance and administration of their duties hereunder.
(c) The Stockholder Representatives shall treat confidentially
and not disclose any nonpublic information from or about the Company to anyone
(except on a need to know basis to individuals who agree to treat such
information confidentially).
Section 8.7 Actions of the Stockholder Representatives. A
decision, act, consent or instruction of the Stockholder Representatives shall
constitute a decision of all Company Stockholders for whom shares of Parent
Common Stock
D-B-6
<PAGE> 155
otherwise issuable to them are deposited in the Indemnity Fund and shall be
final, binding and conclusive upon each such Company Stockholder, and the
Indemnity Agent and Parent may rely upon any decision, act, consent or
instruction of the Stockholder Representatives as being the decision, act,
consent or instruction of each and every such Company Stockholder. The Indemnity
Agent and each Parent Group Member are hereby relieved from any liability to any
Person for any acts done by them in accordance with such decision, act, consent
or instruction of the Stockholder Representatives. For purposes of this
Agreement and the Indemnity Agreement any action by a majority of the then
Stockholder Representatives shall be deemed to be the action of and binding upon
all of the Stockholder Representatives.
Section 8.8 Third-Party Claims. In the event Parent becomes
aware of a third-party claim which Parent believes may result in a demand
against the Indemnity Fund, Parent shall notify the Stockholder Representatives
of such claim, and the Stockholder Representatives 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
Parent may not effect the settlement of any such claims without the consent of
the Stockholder Representatives, which consent shall not be unreasonably
withheld. In the event that the Stockholders Representatives have consented to
any such settlement, the Stockholders Representatives shall have no power or
authority to object under Section 8.4 or any other provision of this Article
VIII to the amount paid in such settlement.
D-B-7
<PAGE> 156
ANNEX E
DELAWARE CODE ANNOTATED
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
ss.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 ss. 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 ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 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 ss. 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 ss.ss. 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
E-1
<PAGE> 157
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 ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
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
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 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
E-2
<PAGE> 158
corporation may fix, in advance, a record date that shall be not more than 10
days prior to the date the notice is given, provided, that if the notice is
given on or after the effective date of the merger or consolidation, the record
date shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw such stockholder's demand for appraisal and to accept the terms offered
upon the merger or consolidation. Within 120 days after the effective date of
the merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by 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
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
E-3
<PAGE> 159
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of such
stockholder's demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal proceeding
in the Court of Chancery shall be dismissed as to any stockholder without the
approval of the Court, and such approval may be conditioned upon such terms as
the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
E-4
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Tellabs by-laws require Tellabs to indemnify its current and former
officers and directors and those who serve or have served, at Tellabs' request,
as a director, officer, employee, fiduciary or agent of another enterprise from
expenses, liabilities and losses (including attorneys fees) actually and
reasonably incurred in connection with any action suit or proceeding in which
they or any of them are or are threatened to be made parties by reason of their
having acted in such capacity. This indemnification inures to the benefit of
such person's heirs, executors and administrators. However, in certain
circumstances, Tellabs is required to indemnify such persons for any action,
suit or proceeding that is initiated by them only if such action, suit or
proceeding is authorized by the Tellabs Board. The right to indemnification
under the Tellabs by-laws is a contract right and, subject to certain
conditions, includes the right to be paid by Tellabs the expenses incurred in
defending any such action, suit or proceeding in advance of its final
disposition. The Tellabs by-laws further provide that the indemnification and
payment of expenses incurred in the by-laws is not exclusive of any other rights
to which those seeking indemnification may be entitled.
Section 145 of the Delaware corporation statute authorizes
indemnification by Tellabs of directors and officers under the circumstances
provided in the provisions of the Tellabs by-laws described above, and requires
such indemnification for expenses actually and reasonably incurred to the extent
a director or officer is successful in the defense of any action, or any claim,
issue or matter therein.
Tellabs has purchased insurance which purports to insure Tellabs
against certain costs of indemnification which may be incurred by it pursuant to
the Tellabs by-laws and to insure the officers and directors of Tellabs, and of
its subsidiary companies, against certain liabilities incurred by them in the
discharge of their functions as such officers and directors, except for
liabilities resulting from their own malfeasance.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of Exhibits included as part of this
registration statement. Tellabs agrees to furnish supplementally a copy of any
omitted schedule to the Commission upon request. Items marked with an asterisk
are filed herewith. Items marked with a double asterisk were previously filed
with Tellabs' Registration Statement on Form S-4 (Registration No. 333-83509)
filed on July 22, 1999.
2.1 -- Agreement and Plan of Merger dated as of June 29, 1999 among
Tellabs, Inc., Blackhawk Merger Corp. and NetCore Systems,
Inc. (included as Annex A to the proxy statement and
prospectus).
2.2 -- Form of Voting Agreement dated as of June 29, 1999 between
Tellabs and certain stockholders of NetCore Systems, Inc.
(included as Annex C to the proxy statement and prospectus).
2.3 -- Form of Indemnity Escrow Agreement between Harris Trust and
Savings Bank and the Stockholder Representatives (included as
Annex D to the proxy statement and prospectus).
4.1 -- Restated Certificate of Incorporation of Tellabs, Inc.,
dated June 24, 1992, as amended through the date hereof is
hereby incorporated by reference to Exhibit No. 4.1 to
Tellabs' Registration Statement on Form S-4 filed on July 21,
1998.
4.2 -- Amended and Restated By-Laws of Tellabs, Inc., as amended
January 27, 1993, is hereby incorporated by reference to
Exhibit No. 3.2 to Tellabs' Annual Report on Form 10-K for the
year ended January 1, 1993.
4.3 -- The instruments defining the rights of holders of long-term
debt securities of Tellabs and its subsidiaries are omitted
pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Tellabs
hereby agrees to furnish copies of these instruments to the
SEC upon request.
**5.1 -- Opinion of James M. Sheehan, Assistant General Counsel of
Tellabs Operations, Inc., as to the legality of the securities
being registered.
*8.1 -- Opinion of Sidley & Austin, as to certain United States
federal income tax consequences of the merger.
II-1
<PAGE> 161
*8.2 -- Opinion of Hale and Dorr LLP, as to certain United States
federal income tax consequences of the merger.
*23.1 -- Consent of Ernst & Young LLP
*23.2 -- Consent of PricewaterhouseCoopers LLP
*23.3 -- Consent of Grant Thornton LLP
**23.4 -- Consent of James M. Sheehan (included in Exhibit 5.1 to this
Registration Statement).
*23.5 -- Consent of Sidley & Austin (included in Exhibit 8.1 to this
Registration Statement).
*23.6 -- Consent of Hale and Dorr LLP (included in Exhibit 8.2 to this
Registration Statement).
**24.1 -- Powers of Attorney
*99.1 -- Form of proxy card to be mailed to holders of NetCore common
stock and preferred stock.
(b) Not applicable.
(c) The opinion of BancBoston Robertson Stephens is included as Annex B to
the proxy statement and prospectus.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes: (1) to file, during any
period in which offers or sales are being made, a post-effective amendment to
this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933.
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar amount of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated offering range may be
reflected in the form of prospectus filed with the SEC pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no
more than a 20 percent change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the effective
registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) 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 the time shall be deemed to be the initial bona
fide offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder through
use of a prospectus which is a part of this registration statement, by any
person or party who is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus will contain the
information called for by the applicable registration form with respect to
reofferings by persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable form.
II-2
<PAGE> 162
(2) The registrant undertakes that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Securities Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the SEC 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 the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(e) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, 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.
(f) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE> 163
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the Registrant has duly caused this Pre-Effective Amendment No. 1. to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, August 5, 1999.
TELLABS, INC.
By: /s/ Michael J. Birck
-----------------------
Michael J. Birck
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Pre-Effective Amendment No. 1 to the Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>
/s/ Michael J. Birck President, Chief Executive Officer and Director August 5, 1999
- --------------------------------------- (Principal Executive Officer)
Michael J. Birck
* Executive Vice President and Director August 5, 1999
- --------------------------------------- (Principal Financial Officer)
Peter A. Guglielmi
* Vice President August 5, 1999
- --------------------------------------- (Principal Accounting Officer)
Robert E. Swininoga
* Director August 5, 1999
- ---------------------------------------
John D. Foulkes, Ph.D.
* Director August 5, 1999
- ---------------------------------------
Brian J. Jackman
* Director August 5, 1999
- ---------------------------------------
Frederick A. Krehbiel
* Director August 5, 1999
- ---------------------------------------
Stephanie Pace Marshall, Ph.D.
* Director August 5, 1999
- ---------------------------------------
William F. Souders
* Director August 5, 1999
- ---------------------------------------
Jan H. Suwinski
</TABLE>
* By: /s/ Michael J. Birck
---------------------------
Michael J. Birck
As Attorney-in-Fact
<PAGE> 164
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of June 29, 1999 among
Tellabs, Inc., Blackhawk Merger Corp. and NetCore Systems,
Inc. (included as Annex A to the proxy statement and
prospectus).
2.2 -- Form of Voting Agreement dated as of June 29, 1999 between
Tellabs and certain stockholders of NetCore Systems, Inc.
(included as Annex C to the proxy statement and prospectus).
2.3 -- Form of Indemnity Escrow Agreement between Harris Trust and
Savings Bank and the Stockholder Representatives (included as
Annex D to the proxy statement and prospectus).
4.1 -- Restated Certificate of Incorporation of Tellabs, Inc.,
dated June 24, 1992, as amended through the date hereof is
hereby incorporated by reference to Exhibit No. 4.1 to
Tellabs' Registration Statement on Form S-4 filed on July 21,
1998.
4.2 -- Amended and Restated By-Laws of Tellabs, Inc., as amended
January 27, 1993, is hereby incorporated by reference to
Exhibit No. 3.2 to Tellabs' Annual Report on Form 10-K for the
year ended January 1, 1993.
4.3 -- The instruments defining the rights of holders of long-term
debt securities of Tellabs and its subsidiaries are omitted
pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. Tellabs
hereby agrees to furnish copies of these instruments to the
SEC upon request.
**5.1 -- Opinion of James M. Sheehan, Assistant General Counsel of
Tellabs Operations, Inc., as to the legality of the securities
being registered.
*8.1 -- Opinion of Sidley & Austin, as to certain United States
federal income tax consequences of the merger.
*8.2 -- Opinion of Hale and Dorr LLP, as to certain United States
federal income tax consequences of the merger.
*23.1 -- Consent of Ernst & Young LLP
*23.2 -- Consent of PricewaterhouseCoopers LLP
*23.3 -- Consent of Grant Thornton LLP
**23.4 -- Consent of James M. Sheehan (included in Exhibit 5.1 to this
Registration Statement).
*23.5 -- Consent of Sidley & Austin (included in Exhibit 8.1 to this
Registration Statement).
*23.6 -- Consent of Hale and Dorr LLP (included in Exhibit 8.2 to this
Registration Statement).
**24.1 -- Powers of Attorney
*99.1 -- Form of proxy card to be mailed to holders of NetCore common
stock and preferred stock.
</TABLE>
<PAGE> 1
EXHIBIT 8.1
[SIDLEY & AUSTIN LETTERHEAD]
August 5, 1999
Tellabs, Inc.
4951 Indiana Avenue
Lisle, Illinois 60532-1698
Ladies and Gentlemen:
We refer to the Agreement and Plan of Merger (the "Agreement")
dated as of June 29, 1999 by and among NetCore Systems, Inc., a Delaware
corporation ("NetCore"), Tellabs, Inc., a Delaware corporation ("Tellabs"), and
Blackhawk Merger Corp., a Delaware corporation and a direct, wholly owned
subsidiary of Tellabs ("Blackhawk"), which provides for the merger (the
"Merger") of Blackhawk with and into NetCore, with NetCore as the surviving
corporation (the "Surviving Corporation"), and the stockholders of NetCore
becoming stockholders of Tellabs, all on the terms and conditions therein set
forth, the time at which the Merger becomes effective being hereinafter referred
to as the "Effective Time." Capitalized terms used but not defined herein have
the meanings specified in the Agreement.
As provided in the Agreement, at the Effective Time, by reason
of the Merger: (i) each issued and outstanding share of common stock, par value
$.001 per share, of NetCore ("NetCore Common Stock") and each issued and
outstanding share of preferred stock, $.001 par value per share, of NetCore
("NetCore Preferred Stock") (other than shares of NetCore Common Stock and
NetCore Preferred Stock to be canceled as described below and Dissenting Shares)
shall be converted solely into shares of validly issued, fully paid and
nonassessable shares of common stock, par value $.01 per share, of Tellabs
("Tellabs Common Stock"), with cash paid in lieu of fractional shares of Tellabs
Common Stock, and (ii) each share of NetCore Common Stock or NetCore Preferred
Stock that is owned by NetCore as treasury stock or by any of its wholly owned
Subsidiaries and each share of NetCore Common Stock or NetCore Preferred Stock
that is owned by Tellabs or by any of its wholly owned Subsidiaries shall be
canceled and no Tellabs Common Stock or other consideration shall be delivered
in exchange therefor. Approximately 10% of the number of shares of Tellabs
Common Stock into which the NetCore Common Stock and the NetCore Preferred Stock
will be converted pursuant to the Merger will be deposited in escrow to be held
pursuant to the terms of the Indemnity Agreement as security for indemnification
obligations of the NetCore stockholders that may arise pursuant to the
Agreement.
The Merger, the Agreement and the Indemnity Agreement are more
fully described in Tellabs's Registration Statement on Form S-4 (the
"Registration Statement") relating
<PAGE> 2
to the registration of shares of Tellabs Common Stock, which has been filed by
Tellabs with the Securities and Exchange Commission pursuant to the Securities
Act of 1933, as amended. The Registration Statement includes the Proxy
Statement/Prospectus (the "Prospectus") of NetCore.
In rendering the opinions expressed below, we have relied upon
the accuracy of the facts, information and representations and the completeness
of the covenants contained in the Agreement, the Indemnity Agreement, the
Registration Statement, the Prospectus and such other documents as we have
deemed relevant and necessary (including, without limitation, those described
above). Such opinions are conditioned, among other things, not only upon such
accuracy and completeness as of the date hereof, but also the continuing
accuracy and completeness thereof as of the Effective Time. Moreover, we have
assumed the absence of any change to any of such instruments between the date
thereof and the Effective Time.
We have assumed the authenticity of all documents submitted to
us as originals, the genuineness of all signatures, the legal capacity of all
natural persons and the conformity with original documents of all copies
submitted to us for our examination. We have further assumed that: (i) the
transactions related to the Merger or contemplated by the Agreement and the
Indemnity Agreement will be consummated (A) in accordance with the Agreement and
the Indemnity Agreement and (B) as described in the Prospectus; (ii) the Merger
will qualify as a statutory merger under the laws of the State of Delaware; and
(iii) as of the date hereof, and as of the Effective Time (as if made as of the
Effective Time), the written statements made by executives of Tellabs and
NetCore contained in the Tellabs Tax Certificate and NetCore Tax Certificate,
respectively, each dated on or about the date hereof, are and will be accurate
in all respects, and neither Tellabs nor NetCore will have provided written
notification prior to the Effective Time that a statement made in the Tellabs
Tax Certificate or NetCore Tax Certificate, respectively, is no longer accurate.
In rendering the opinions expressed below, we have considered
the applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), Regulations promulgated thereunder by the United States Treasury
Department (the "Regulations"), pertinent judicial authorities, rulings and
interpretations of the Internal Revenue Service and such other authorities as we
have considered relevant. It should be noted that the Code, the Regulations and
such judicial decisions, rulings, administrative interpretations and other
authorities are subject to change at any time and, in some circumstances, with
retroactive effect; and any such change could affect the opinions stated herein.
Furthermore, the opinions expressed below might not be applicable to NetCore
shareholders who or that, for United States federal income tax purposes, are
nonresident alien individuals, foreign corporations, foreign partnerships,
foreign trusts or foreign estates, or who acquired their NetCore Common Stock or
NetCore Preferred Stock pursuant to the exercise of employee stock options or
otherwise as compensation.
Based upon and subject to the foregoing, it is our opinion, as
counsel for Tellabs, that, for federal income tax purposes:
(i) the Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and NetCore, Tellabs and
Blackhawk will each be a party to that reorganization within the
meaning of Section 368(b) of the Code;
<PAGE> 3
(ii) no gain or loss will be recognized by NetCore, Tellabs or
Blackhawk as a result of the Merger;
(iii) no gain or loss will be recognized by the stockholders
of NetCore upon the conversion of their shares of NetCore Common Stock
or NetCore Preferred Stock into shares of Tellabs Common Stock pursuant
to the Merger, except with respect to cash, if any, received in lieu of
fractional shares of Tellabs Common Stock;
(iv) the aggregate tax basis of the shares of Tellabs Common
Stock received in exchange for shares of NetCore Common Stock or
NetCore Preferred Stock pursuant to the Merger (including a fractional
share of Tellabs Common Stock for which cash is paid) will be the same
as the aggregate tax basis of such shares of NetCore Common Stock or
NetCore Preferred Stock;
(v) the holding period for shares of Tellabs Common Stock
received in exchange for shares of NetCore Common Stock or NetCore
Preferred Stock pursuant to the Merger will include the holder's
holding period for such shares of NetCore Common Stock or NetCore
Preferred Stock, provided such shares of NetCore Common Stock or
NetCore Preferred Stock were held as capital assets by the holder at
the Effective Time; and
(vi) a stockholder of NetCore who receives cash in lieu of a
fractional share of Tellabs Common Stock will recognize gain or loss
equal to the difference, if any, between such stockholder's basis in
the fractional share (determined under clause (iv) above) and the
amount of cash received.
In addition, reference is made to the statements in the
Prospectus under the caption "THE MERGER -- Material Federal Income Tax
Consequences," which have been prepared or reviewed by us. It is our opinion
that the statements made under the caption "Material Federal Income Tax
Consequences," to the extent constituting a discussion of matters of federal
income tax law or legal conclusions with respect thereto, are true and correct
in all material respects.
Except as expressly set forth above, you have not requested,
and we do not herein express, any opinion concerning the tax consequences of, or
any other matters related to, the Merger.
We assume no obligation to update or supplement this letter to
reflect any facts or circumstances which may hereafter come to our attention
with respect to the opinions expressed above, including any changes in
applicable law which may hereafter occur.
<PAGE> 4
This opinion is provided to you only, and without our prior
consent, may not be relied upon, used, circulated, quoted or otherwise referred
to in any manner by any person, firm, governmental authority or entity
whatsoever other than reliance thereon by you. Notwithstanding the foregoing, we
hereby consent to the reference to Sidley & Austin in the Prospectus and to the
filing of this opinion as an exhibit to the Registration Statement.
Very truly yours,
/s/ Sidley & Austin
<PAGE> 1
EXHIBIT 8.2
[Hale and Dorr LLP Letterhead]
August 5, 1999
NetCore Systems, Inc.
187 Ballardvale Street
Wilmington, MA 01887
Re: Merger pursuant to Agreement and Plan of Merger among
Tellabs, Inc., Blackhawk Merger Corp., and NetCore Systems, Inc.
Ladies and Gentlemen:
This opinion is being delivered to you in connection with the filing of
a registration statement (the "Registration Statement") on Form S-4, which
includes the Joint Proxy Statement and Prospectus relating to the Agreement and
Plan of Merger dated as of June 29, 1999 (the "Merger Agreement"), by and among
Tellabs, Inc., a Delaware corporation ("Parent"), Blackhawk Merger Corp., a
Delaware corporation ("Sub"), and NetCore Systems, Inc., a Delaware corporation
(the "Company"). Pursuant to the Merger Agreement, Sub will merge with and into
the Company (the "Merger"). Except as otherwise provided, capitalized terms not
defined herein have the meanings set forth in the Merger Agreement and the
exhibits thereto or in the certificates delivered to Hale and Dorr LLP by Parent
and the Company containing certain representations of Parent and the Company
relevant to this opinion (the "Tax Certificates"). All section references,
unless otherwise indicated, are to the United States Internal Revenue Code of
1986, as amended (the "Code").
In our capacity as counsel to the Company in the Merger, and for
purposes of rendering this opinion, we have examined and relied upon the
Registration Statement, the Merger Agreement and the exhibits thereto, the Tax
Certificates, and such other documents as we considered relevant to our
analysis. In our examination of documents, we have assumed the authenticity of
original documents, the accuracy of copies, the genuineness of signatures, and
the legal capacity of signatories.
We have assumed that all parties to the Merger Agreement and to any
other documents examined by us have acted, and will act, in accordance with the
terms of such Merger Agreement and documents and that the Merger will be
consummated at the Effective Time pursuant to the terms and conditions set
<PAGE> 2
forth in the Merger Agreement without the waiver or modification of any such
terms and conditions. Furthermore, we have assumed that all representations
contained in the Merger Agreement, as well as those representations contained in
the Tax Certificates, are, and at the Effective Time will be, true and complete
in all material respects, and that any representation made in any of the
documents referred to herein "to the best of the knowledge and belief" (or
similar qualification) of any person or party is correct without such
qualification. We have also assumed that as to all matters for which a person or
entity has represented that such person or entity is not a party to, does not
have, or is not aware of, any plan, intention, understanding, or agreement,
there is no such plan, intention, understanding, or agreement. We have not
attempted to verify independently such representations, but in the course of our
representation, nothing has come to our attention that would cause us to
question the accuracy thereof.
The conclusions expressed herein represent our judgment as to the
proper treatment of certain aspects of the Merger under the income tax laws of
the United States based upon the Code, Treasury Regulations, case law, and
rulings and other pronouncements of the Internal Revenue Service (the "IRS") as
in effect on the date of this opinion. No assurances can be given that such laws
will not be amended or otherwise changed prior to the Effective Time, or at any
other time, or that such changes will not affect the conclusions expressed
herein. Nevertheless, we undertake no responsibility to advise you of any
developments after the Effective Time in the application or interpretation of
the income tax laws of the United States.
Our opinion represents our best judgment of how a court would decide if
presented with the issues addressed herein and is not binding upon either the
IRS or any court. Thus, no assurances can be given that a position taken in
reliance on our opinion will not be challenged by the IRS or rejected by a
court.
This opinion addresses only the specific United States federal income
tax consequences of the Merger set forth below, and does not address any other
federal, state, local, or foreign income, estate, gift, transfer, sales, use, or
other tax consequences that may result from the Merger or any other transaction
(including any transaction undertaken in connection with the Merger). We express
no opinion regarding the tax consequences of the Merger to certain shareholders
of the Company that are subject to special tax rules such as foreign persons,
banks and other financial institutions, tax-exempt entities, dealers and traders
in securities and insurance companies. We express no opinion regarding the tax
consequences of the Merger arising in connection with the ownership of options
or warrants for the Company stock.
On the basis of, and subject to, the foregoing, and in reliance upon
the representations and assumptions described above, we are of the following
opinion:
<PAGE> 3
1. The Merger will constitute a "reorganization" within the
meaning of Section 368(a) of the Code, and the Company, Sub
and Parent will each be a party to that reorganization within
the meaning of Section 368(b) of the Code;
2. No gain or loss will be recognized by Parent, Sub or the
Company as a result of the Merger;
3. No gain or loss will be recognized by the stockholders of the
Company upon the conversion of their shares of Company Common
Stock or Company Preferred Stock into shares of Parent Common
Stock pursuant to the Merger, except with respect to cash, if
any, received in lieu of fractional shares of Parent Common
Stock;
4. The aggregate tax basis of the shares of Parent Common Stock
received in exchange for shares of Company Common Stock or
Company Preferred Stock pursuant to the Merger (including a
fractional share of Parent Common Stock for which cash is
received) will be the same as the aggregate tax basis of such
shares of Company Common Stock or Company Preferred Stock, as
the case may be;
5. The holding period for shares of Parent Common Stock received
in exchange for shares of Company Common Stock or Company
Preferred Stock pursuant to the Merger will include the
holder's holding period for such shares of Company Common
Stock or Company Preferred Stock, as the case may be, provided
that such shares of Company Common Stock or Company Preferred
Stock, as the case may be, were held as capital assets by the
holder at the Effective Time; and
6. A stockholder of the Company who receives cash in lieu of a
fractional share of Parent Common Stock will recognize gain or
loss equal to the difference, if any, between such
stockholder's basis in the fractional share (determined under
paragraph 4 above) and the amount of cash received.
In addition, it is our opinion that the statements made in the
Registration Statement under the caption "THE MERGER - Material Federal Income
Tax Consequences," to the extent constituting a discussion of matters of federal
income tax law or legal conclusions with respect thereto, are true and correct
in
<PAGE> 4
all material respects.
No opinion is expressed as to any federal income tax consequence of the
Merger except as specifically set forth herein, and this opinion may not be
relied upon except with respect to the consequences specifically discussed
herein.
This opinion is intended solely for the purpose of inclusion as an
exhibit to the Registration Statement. It may not be relied upon for any other
purpose or by any other person or entity other than your stockholders on or
before the Effective Time, and may not be made available to any other person or
entity without our prior written consent. We hereby consent to the filing of
this opinion as an exhibit to the Registration Statement and further consent to
the use of our name in the Registration Statement in connection with references
to this opinion and the tax consequences of the Merger. In giving this consent,
however, we do not hereby admit that we are in the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ HALE AND DORR LLP
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the proxy
statement, prospectus and Pre-Effective Amendment No. 1 to the Registration
Statement (Form S-4) of Tellabs, Inc. for the registration of up to 10,890,152
shares of its common stock and to the incorporation by reference therein of our
reports dated January 20, 1999, with respect to the consolidated financial
statements and schedule of Tellabs, Inc., included and incorporated by reference
in its Annual Report (Form 10-K) for the year ended January 1, 1999, filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
August 4, 1999
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the proxy statement and prospectus constituting
part of the Pre-Effective Amendment No. 1 to the Registration Statement on Form
S-4 of Tellabs, Inc. of our report dated April 29, 1999 relating to the
financial statements and financial statement schedules of NetCore Systems, Inc.,
which appears in such Registration Statement. We also consent to the references
to us under the headings "Experts" in such Registration Statement.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 5, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated January 15, 1997, accompanying the consolidated
financial statements of Tellabs, Inc. and Subsidiaries as of December 27, 1996
and for the two years then ended incorporated by reference in this Pre-Effective
Amendment No. 1 to the Registration Statement on Form S-4. We consent to the use
of the aforementioned report, and to the use of our name as it appears under the
caption "Experts".
GRANT THORNTON LLP
Chicago, Illinois
August 5, 1999
<PAGE> 1
EXHIBIT 99.1
NETCORE SYSTEMS, INC.
FORM OF PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING TO BE HELD ON AUGUST 27, 1999
The undersigned stockholder(s) of NetCore Systems, Inc., a Delaware
corporation (the "Company"), hereby appoint(s) William J. Stuart and Ashraf M.
Dahod, and each of them, as proxies for the undersigned, with full power of
substitution, for and in the name, place and stead of the undersigned, to attend
the Special Meeting of Stockholders of the Company to be held at the offices of
Hale and Dorr LLP, 60 State Street, 26th Floor, Boston, Massachusetts 02109 on
Friday, August 27, 1999 at 10:00 a.m., local time, and any adjournment(s) or
postponement(s) thereof, and to cast on behalf of the undersigned the number of
votes the undersigned would be entitled to vote if personally present as set
forth herein and otherwise to represent the undersigned at the meeting with all
powers possessed by the undersigned if personally present at the meeting. The
undersigned acknowledges receipt of the Notice of the Special Meeting of
Stockholders and the accompanying Proxy Statement and Prospectus and releases
any proxy heretofore given with respect to such meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AS SET FORTH IN
PARAGRAPH 1 ON THE REVERSE SIDE.
