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Registration No. 333-95135
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
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TELLABS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 3661 36-3831568
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) (Identification No.)
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)
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Copies to:
IMAD I. QASIM EDWIN M. MARTIN, JR.
SIDLEY & AUSTIN PIPER MARBURY RUDNICK & WOLFE LLP
Bank One Plaza 1200 19th Street, NW
10 South Dearborn Street Washington, D.C. 20036
Chicago, Illinois 60603
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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 Oriole Merger Corp., a wholly owned
subsidiary of the Registrant, with and into SALIX Technologies, 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. [ ] ___________________________
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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.
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SALIX TECHNOLOGIES, INC.
904 Wind River Lane #101
Gaithersburg, MD 20878
February 7, 2000
Dear Fellow Stockholder:
You are cordially invited to attend the special meeting of stockholders
of SALIX Technologies, Inc., to be held on Monday, February 28, 2000, at
10:00 a.m. at the Gaithersburg Washingtonian Marriott, 9751 Washingtonian
Boulevard, Gaithersburg, Maryland 20878.
SALIX and Tellabs, Inc. entered into a merger agreement dated as of
December 21, 1999. Under that agreement, a newly formed subsidiary of Tellabs
will be merged with and into SALIX, and SALIX will 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 SALIX common stock and SALIX
preferred stock that you own will 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
SALIX 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 SALIX common stock or
SALIX 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 SALIX AND ITS
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT SALIX STOCKHOLDERS VOTE TO APPROVE
AND ADOPT THE MERGER AGREEMENT.
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/ Daniel Simpkins
Daniel Simpkins
President, CEO 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 February 7, 2000 and is first
being mailed to SALIX stockholders on or about February 8, 2000.
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SALIX TECHNOLOGIES, INC.
904 WIND RIVER LANE #101
GAITHERSBURG, MD 20878
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 2000
TO THE STOCKHOLDERS OF SALIX TECHNOLOGIES, INC.:
A special meeting of stockholders of SALIX Technologies, Inc. will be
held on Monday, February 28, 2000, at the Gaithersburg Washingtonian Marriott,
9751 Washingtonian Boulevard, Gaithersburg, Maryland 20878, 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 December 21, 1999 among
SALIX, Tellabs, Inc., and Oriole 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 MERGER IS FAIR TO AND IN THE BEST INTERESTS OF SALIX AND ITS
STOCKHOLDERS. THE SALIX 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 SALIX beneficially holding, as of the record date, in
the aggregate approximately 80% of the outstanding shares of SALIX common stock
and 100% of the outstanding shares of SALIX Series A 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 SALIX
stockholders is assured.
Pursuant to the merger agreement, holders of SALIX 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 February 4, 2000.
You may examine a list of the SALIX stockholders who are entitled to vote at the
special meeting during ordinary business hours at SALIX's principal offices for
the ten days prior to the special meeting.
By Order of the Board of Directors,
/s/ Suzanne L. Rotbert
Suzanne L. Rotbert
Secretary
Gaithersburg, Maryland
February 7, 2000
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.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY..................................................1
The Companies.......................................1
What You Will Receive in the Merger.................1
Escrow..............................................2
Treatment of Stock Options in the Merger............2
The Special Meeting.................................2
Voting Agreements...................................3
SALIX's Reasons for the Merger......................3
Interests of Certain Persons in the Merger..........3
Regulatory Approvals................................4
Conditions to the Merger............................4
Termination of the Merger Agreement.................4
No Solicitation of Competing Transactions...........5
Appraisal Rights....................................5
Material Federal Income Tax Consequences............5
Accounting Treatment................................6
Forward-Looking Statements May Prove Inaccurate.....6
SUMMARY SELECTED FINANCIAL DATA..........................7
Selected Historical Financial Data of SALIX.........7
Selected Historical Financial Data of Tellabs.......8
Comparative Per Share Data..........................9
Comparative Market Price Data......................10
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
SALIX's Reasons for the Merger; Recommendation
of the SALIX Board of Directors .................14
Interests of Certain Persons in the Merger;
Conflicts of Interest ...........................16
Form of the Merger.................................16
Merger Consideration...............................16
Escrow.............................................17
Procedures for Exchange of SALIX Common
and Preferred Stock Certificates ................18
Material Federal Income Tax Consequences...........18
Anticipated Accounting Treatment...................21
Federal Securities Law Consequences................21
Certain Other Effects of the Merger................21
Forward-Looking Statements May Prove Inaccurate....21
THE MERGER AGREEMENT....................................22
The Merger.........................................22
Structure of the Merger............................22
Conversion and Exchange of Securities..............22
Effective Time.....................................22
Representations and Warranties.....................22
Business of SALIX Pending the Merger and Other
Agreements ......................................25
No Solicitation by SALIX...........................27
Additional Agreements of Tellabs and SALIX.........27
Fees and Expenses..................................27
SALIX Stock Option Plan............................27
Employee Benefit Plans.............................28
Directors' and Officers' Insurance and
Indemnification .................................28
Loans to SALIX.....................................28
What Is Needed to Complete the Merger..............28
Termination of the Merger Agreement................31
Waiver and Amendment of the Merger Agreement.......31
VOTING AGREEMENTS.......................................33
REGULATORY MATTERS......................................34
BUSINESS OF TELLABS.....................................35
INFORMATION ABOUT SALIX.................................36
Business of SALIX..................................36
Management's Discussion and Analysis of
Financial Condition and Results of Operations ...36
Voting Securities and Principal Holders Thereof....38
DESCRIPTION OF TELLABS' CAPITAL STOCK...................41
Capital Stock......................................41
Dividend Rights....................................41
Voting Rights......................................41
Change of Control..................................41
Liquidation Rights.................................43
Preemption, Subscription, Redemption and
Conversion ......................................43
Miscellaneous......................................43
COMPARISON OF RIGHTS OF SALIX STOCKHOLDERS
AND TELLABS STOCKHOLDERS ..........................44
Size and Classification of the Board of Directors..44
Removal of Directors...............................44
By-Law Amendments..................................44
</TABLE>
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<TABLE>
<S> <C>
Certificate of Incorporation Amendments............44
Action by Written Consent..........................45
Transactions With Interested Stockholders..........45
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS OF SALIX....46
EXPERTS.................................................48
LEGAL OPINIONS..........................................48
WHERE YOU CAN FIND MORE INFORMATION.....................48
SALIX FINANCIAL STATEMENTS.............................F-1
Annex A Agreement and Plan of Merger
Annex B Form of Voting Agreement
Annex C Indemnity Escrow Agreement
Annex D Section 262 of the Delaware General Corporation Law
</TABLE>
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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 48).
We have included page references parenthetically to direct you to more complete
descriptions of the topics presented in this Summary.
In the merger, Oriole Merger Corp., a newly formed subsidiary of Tellabs,
will merge with and into SALIX. SALIX 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 SALIX 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
SALIX TECHNOLOGIES, INC.
904 Wind River Lane #101
Gaithersburg, MD 20878
(301) 417-0017
SALIX is a provider of high-capacity networking solutions that enable
telecommunications service providers to offer next-generation voice, fax and
Virtual Private Network services. SALIX's core competencies in optical carrier,
digital switching and high-performance processing positions SALIX to deliver
innovative solutions for the telecommunications industry.
SALIX, which is headquartered in Gaithersburg, Maryland, was founded in 1990.
For further information concerning SALIX, see "-- Selected Historical Financial
Data of SALIX" and "INFORMATION ABOUT SALIX."
TELLABS, INC.
4951 Indiana Avenue
Lisle, IL 60532-1698
(630) 378-8800
Tellabs designs, manufactures, markets and services data, voice and video
transport, switching/routing 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."
ORIOLE MERGER CORP.
4951 Indiana Avenue
Lisle, IL 60532-1698
(630) 378-8800
Oriole Merger Corp. is a company formed by Tellabs on August 9, 1999 solely
for use in the merger.
WHAT YOU WILL RECEIVE IN THE MERGER (PAGE 16)
As a result of the merger, unless you exercise appraisal rights under
Delaware law, each share of SALIX common stock and preferred stock that you own
will be converted into the number of shares of Tellabs common stock determined
in accordance with the merger agreement. Tellabs and SALIX expect that prior to
the merger all of the holders of SALIX preferred stock will convert all of their
shares of SALIX preferred stock into shares of SALIX common stock. Thus, holders
of SALIX common stock and preferred stock should expect to receive approximately
0.381 shares of Tellabs common stock for each share of SALIX common or preferred
stock held.
In calculating the consideration payable to you, Tellabs will be entitled
to rely on certain representations made by SALIX. If these representations prove
inaccurate, Tellabs will have the right to adjust the ratio at which shares of
SALIX common and preferred stock are to be converted in the merger.
Notwithstanding anything else to the contrary, in no event will Tellabs be
required to issue more than 4,688,965 shares of Tellabs common stock, which
represents an aggregate value of approximately $300,000,000, based on an assumed
Tellabs share price of $63.98.
The table below sets forth an example of the exchange of shares of SALIX
common stock and preferred stock into shares of Tellabs common stock as a result
of the merger:
1
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<TABLE>
<CAPTION>
- --------------------------------------------------------
Example of Exchange Values:
- --------------------------------------------------------
<S> <C> <C> <C> <C>
If you own You will You will The The
100 shares receive receive Indemnity Indemnity
of SALIX: this many this Agent Agent will
shares of amount will receive
Tellabs of cash receive this much
Common in lieu this many cash in
Stock of shares of lieu of
fractional Tellabs fractional
shares Common shares
Stock
- --------------------------------------------------------
Common 34 $18.55 3 $51.82
Stock
- --------------------------------------------------------
Series A 34 $18.55 3 $51.82
Preferred
Stock
- --------------------------------------------------------
</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
SALIX preferred stock into shares of SALIX common stock prior to the merger,
resulting in approximately 12,304,626 shares of SALIX common stock being
exchanged in the merger. If the total amount of SALIX stock outstanding as of
the merger is greater or lesser than 12,304,626, on a fully-diluted basis, the
exchange ratio will be adjusted accordingly. However, the aggregate value of
Tellabs common stock issuable to holders of SALIX stock as a result of the
merger will not change.
The cash in lieu of fractional share amounts listed in the previous table
are only examples, as these numbers will be based on the per share Tellabs
closing price on the date on which the merger occurs.
ESCROW (PAGE 17)
Under the merger agreement, Tellabs and its affiliates will be indemnified
against any losses that may arise in the event of a breach by SALIX 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 and
10% of the cash to be paid in lieu of fractional shares issuable to SALIX
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 C.
The former SALIX stockholders whose shares of Tellabs common stock are held
in the fund will be represented by three stockholder representatives, who will
initially be Daniel Simpkins, Peter Barris and Patrick Kerins. The persons
acting as the stockholder representatives can be changed by SALIX 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 and the indemnity agent. 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 SALIX stock (other than those who exercised appraisal rights) in
accordance with the indemnity agreement.
TREATMENT OF STOCK OPTIONS IN THE MERGER (PAGE 27)
At the time of completion of the merger, each SALIX stock option issued
pursuant to SALIX's Omnibus Stock 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 SALIX 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 SALIX common stock and preferred
stock will be asked to approve and adopt the merger agreement. The close of
business on February 4, 2000 is the record date for determining if you are
entitled to vote at the special meeting. At that date, there were 4,908,225
shares of SALIX common stock outstanding and 5,023,626 shares of SALIX Series A
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 SALIX common
stock and the vote of 60% of the shares entitled to be cast of SALIX Series A
preferred stock, voting as a separate class, are required to approve and adopt
the merger agreement. On the record date, directors and executive officers of
SALIX, and their affiliated entities, as a group beneficially owned 4,022,550
shares of SALIX common stock, or approximately 82% of the outstanding shares of
SALIX common stock on that date, and 5,023,626 shares of SALIX Series A
preferred stock, or approximately 100% of the outstanding shares of SALIX Series
A preferred stock on that date.
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VOTING AGREEMENTS (PAGE 33)
As a condition to Tellabs' willingness to enter into the merger agreement,
Tellabs has entered into separate voting agreements with certain of SALIX's
stockholders, including stockholders who are also directors or officers of
SALIX. 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, 3,928,800 shares of SALIX common
stock and 5,023,626 shares of SALIX Series A preferred stock, representing
approximately 80%, and 100%, 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 SALIX 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.
SALIX'S REASONS FOR THE MERGER (PAGE 14)
The SALIX Board unanimously approved the merger agreement and the merger
and recommends that you vote to approve and adopt the merger agreement. The
SALIX Board believes that the merger is fair to and in the best interests of
SALIX and its stockholders. In reaching its decision, the SALIX Board considered
a number of factors, including the following:
- - the consideration to be received by SALIX's stockholders has a market
value significantly in excess of the current book value of SALIX's
assets and represents a substantial per share premium over the book
value per share of SALIX's outstanding common and preferred stock;
- - the shares of Tellabs common stock that SALIX's stockholders will
receive in the merger are publicly traded and are therefore
considerably more liquid than shares of SALIX's common and preferred
stock;
- - because Tellabs' financial and other resources are far greater than
those of SALIX, a merger with Tellabs would greatly enhance SALIX's
ability to compete with larger, better-financed competitors;
- - the merger should allow SALIX to take advantage of Tellabs' expertise
in manufacturing and its extensive customer service resources;
- - the merger should allow SALIX to significantly improve its position in
the markets in which it competes, by providing SALIX access to the
marketing channels and resources, larger client base and industry
contacts, and management expertise developed by Tellabs over the years;
and
- - because SALIX's technology is complementary with technology developed
and acquired by Tellabs, significant research and development,
marketing and other synergies should result from the combination of the
two companies.
To review SALIX's reasons for the merger in greater detail, see "THE MERGER
- -- SALIX's Reasons for the Merger; Recommendation of the SALIX Board of
Directors."
INTERESTS OF CERTAIN PERSONS IN THE MERGER (PAGE 16)
In considering the recommendation of the SALIX Board regarding the merger,
you should be aware of the interests that executive officers and directors of
SALIX have in the merger that are different from your and their interests as
stockholders.
Patrick Kerins and Peter Barris, current members of the SALIX Board, are
general partners of Grotech Capital Group and New Enterprise Associates,
respectively, affiliates of which are principal holders of SALIX's Series A
preferred stock. In addition, affiliates of Grotech and New Enterprise
Associates have provided loans to SALIX, in the aggregate principal amount of
$6,500,000, that, pursuant to a letter agreement dated December 21, 1999, will
not be repaid until after the completion of the merger.
Certain members of the SALIX management team hold unvested SALIX stock
options that will vest immediately upon completion of the merger. Members of
SALIX's management team, along with other employees of SALIX, will receive
options to acquire shares of Tellabs common stock under new or existing Tellabs
stock option plans after the completion of the merger.
SALIX's employment agreements with Daniel Simpkins, the President and Chief
Executive Officer of SALIX and Greg Schupp, the Vice President, Operations, have
provisions that obligate SALIX to provide them with
3
<PAGE> 9
certain benefits and termination compensation if they are terminated other than
for cause or resign from their positions following a significant reduction in
duties.
The SALIX Board recognized all the interests described above and concluded
that these interests did not detract from the fairness of the merger to the
SALIX stockholders who are not executive officers or directors of SALIX. Please
refer to page 16 for more information concerning the interests of SALIX's
executive officers and directors. See "THE MERGER -- Interests of Certain
Persons in the Merger; Conflicts of Interest."
REGULATORY APPROVALS (PAGE 34)
Tellabs and SALIX are not aware of any material governmental or regulatory
approvals required to be obtained in order to consummate the merger, other than
compliance with applicable federal and state securities and corporate laws.
CONDITIONS TO THE MERGER (PAGE 28)
Tellabs and SALIX 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 SALIX common stock and the
holders of 60% of the shares of SALIX Series A preferred stock, voting
as a separate class, must vote to approve and adopt the merger
agreement;
- 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 relevant governmental authorities and other third parties must
approve the merger;
- there must be no law, injunction or order that prohibits the merger;
- SALIX, Tellabs and Oriole Merger Corp. must perform all of their
obligations under the merger agreement;
- with certain exceptions, Tellabs and SALIX must each certify to the
other that its representations and warranties contained in the merger
agreement are true and correct;
- Tellabs and SALIX must each receive an opinion from its tax counsel
that, among other things, the merger will qualify for U.S. federal
income tax purposes as a tax-free reorganization;
- Tellabs and SALIX must each receive a pooling letter from its
independent auditors 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 SALIX as to SALIX's
then current capital structure;
- no holders of shares of SALIX preferred stock and no more than 5% of
the holders of shares of SALIX common stock must have exercised
appraisal rights;
- not more than 20 days before the closing date, SALIX must deliver to
Tellabs a statement certifying that it is not and has not been a United
States real property holding corporation under the Internal Revenue
Code of 1986. SALIX must also deliver on the closing date a
notification to the Internal Revenue Service of the delivery of the
aforementioned statement; and
- other customary contractual conditions specified in the merger
agreement must be satisfied.
The party entitled to the benefit of some of these conditions may waive these
conditions. Neither Tellabs nor SALIX can make assurances that the conditions
will be satisfied or waived or that the merger will occur.
TERMINATION OF THE MERGER AGREEMENT (PAGE 31)
SALIX 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;
4
<PAGE> 10
- the merger is not completed by April 15, 2000, except that if the
registration statement of which this proxy statement and prospectus is
a part does not become effective by this date, then the date will be
extended to May 15, 2000; or
- a court or other governmental authority permanently prohibits the
merger.
In addition, Tellabs may terminate the merger agreement if any of the
following occurs:
- SALIX stockholders do not approve the merger;
- the SALIX Board fails to recommend or modifies or withdraws its
recommendation in favor of the merger or its declaration that the
merger is fair to and in the best interest of SALIX's stockholders;
- if any other person or entity becomes the beneficial owner of 20% or
more of the shares of SALIX common stock;
- if the SALIX Board recommends in favor of a business combination other
than the merger with Tellabs or resolves to do so; or
- a tender offer or exchange offer for 20% or more of the shares of SALIX
capital stock is commenced and the SALIX Board fails to recommend
against acceptance of such offer by the SALIX stockholders.
If Tellabs terminates the merger agreement for any of these reasons, SALIX has
agreed to pay a termination fee of $9,000,000 to Tellabs promptly following the
termination. See "THE MERGER AGREEMENT -- Fees and Expenses." (page 27)
NO SOLICITATION OF COMPETING TRANSACTIONS (PAGE 27)
The merger agreement restricts SALIX's ability to solicit, encourage or
enter into any alternative acquisition transactions with third parties. SALIX
must promptly notify Tellabs if it receives offers or proposals for any such
alternative transactions.
APPRAISAL RIGHTS (PAGE 46)
IF YOU OBJECT TO THE MERGER, DELAWARE LAW PERMITS YOU TO SEEK RELIEF AS A
DISSENTING STOCKHOLDER AND HAVE THE "FAIR VALUE" OF YOUR SHARES OF SALIX COMMON
STOCK AND SALIX PREFERRED STOCK DETERMINED BY A COURT AND PAID TO YOU IN CASH.
If you are a SALIX stockholder and wish to dissent, you must deliver to
SALIX, 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;
- abstain from voting;
- fail to vote; or
- revoke a duly executed proxy that contains a vote in favor of the
merger or contains no voting instructions.
Beneficial owners of shares of SALIX common stock or SALIX Series A 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 decide to 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 D to this proxy statement and prospectus.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (PAGE 18)
It is a condition to complete the merger that SALIX and Tellabs each
receive an opinion of tax counsel. The opinion of tax counsel will conclude that
the merger will constitute a reorganization under the Internal Revenue Code of
1986 and that Tellabs, SALIX, and Oriole Merger Corp. will each be a party to
that reorganization.
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 18)
5
<PAGE> 11
ACCOUNTING TREATMENT (PAGE 21)
Tellabs expects to account for the merger as a pooling of interests.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 21)
Tellabs and SALIX 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 we cannot assure you that such statements will
prove to be correct. Forward-looking statements include assumptions as to how
Tellabs and SALIX 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 SALIX Board
of Directors." (page 14)
- "INFORMATION ABOUT SALIX-- Management's Discussion and Analysis of
Financial Condition and Results of Operation." (page 36)
Also, when we use words like "believes," "expects," "anticipates" or similar
expressions, we are making forward-looking statements. For those statements,
Tellabs and SALIX 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 SALIX 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 SALIX; 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 SALIX
(Dollars in thousands, except per share data)
SALIX 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 for fiscal years 1999, 1998 and 1997
have been derived from SALIX's audited financial statements. The interim
selected historical financial data and the annual selected historical financial
data for fiscal years 1995 and 1996 presented below have been derived from
SALIX's unaudited financial statements. As this information is only a summary,
it should be read in conjunction with SALIX's historical financial statements
(and related notes). See "SALIX FINANCIAL STATEMENTS."
SALIX operates on a fiscal year ending on the 30th of June in each
year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FISCAL YEARS SEPTEMBER 30,
--------------------------------------------------------------- ------------------------
1995 1996 1997 1998 1999 1998 1999
--------- --------- --------- ---------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net Sales............. $975 $1,397 $2,010 $3,682 $1,867 $384 $853
Gross Profit ......... $435 $683 $1,008 $1,985 $734 $212 $249
Income (Loss) before
income taxes.......... $84 $125 $32 $399 $(7,297) $(882) $(4,376)
Net income (loss)..... $70 $94 $9 $237 $(7,136) $(822) $(4,401)
Net income (loss)
attributable to
common stockholders... $70 $94 $9 $237 $(7,289) $(860) $(4,439)
Income (loss) per
share attributable to
common stockholders... $0.013 $0.018 $0.002 $0.055 $(1.669) (0.20) $(0.93)
Income (loss) per
share attributable to
common stockholders,
assuming dilution..... $0.013 $0.018 $0.002 $0.043 $(1.669) (0.20) $(0.93)
BALANCE SHEET DATA --
AT PERIOD END
Stockholders' equity
(deficit)............. $114 $208 $87 $324 $(6,424) $(536) $(9,970)
Total assets.......... $306 $377 $577 $1,143 $3,063 $8,003 $4,277
Net working capital
(deficit)............. $61 $119 $62 $210 $1,208 $7,335 $(2,373)
Long-term debt........ $43 $40 $54 $48 $12 $39 $9
</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' 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 week fiscal year, ending on a Friday near
December 31.
<TABLE>
<CAPTION>
FISCAL YEARS NINE MONTHS ENDED
-------------------------------------------------------------- ----------------------------
OCTOBER 2, OCTOBER 1,
1994 1995 1996 1997 1998 1998 1999
------------ --------- --------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Net sales............ $524,669 $679,058 $923,406 $1,277,241 $1,704,210 $1,182,877 $1,604,556
Gross profit......... $280,822 $375,491 $532,409 $759,358 $999,244 $687,647 $955,710
Earnings before
income taxes......... $104,213 $175,475 $190,264 $416,827 $584,757 $405,704 $540,826
Net earnings......... $76,190 $123,196 $127,547 $275,302 $396,120 $275,103 $370,466
Earnings per share... $0.21 $0.33 $0.33 $0.71 $1.00 $0.70 $0.93
Earnings per share,
assuming dilution.... $0.20 $0.32 $0.33 $0.69 $0.98 $0.68 $0.90
BALANCE SHEET DATA --
AT PERIOD END
Stockholders'
equity............... $303,181 $453,681 $628,487 $991,867 $1,397,613 $1,235,836 $1,821,110
Total assets......... $407,345 $580,667 $786,271 $1,248,942 $1,645,125 $1,446,006 $2,107,498
Net working capital.. $148,011 $283,799 $374,604 $684,801 $1,048,984 $903,891 $1,347,804
Long-term debt....... $4,850 $3,850 $2,850 $3,087 $3,349 $3,243 $3,319
</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
SALIX 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 SALIX, which are provided under "SALIX
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. Using the reference
average Tellabs closing price of $63.98 per share of Tellabs common stock and
assuming the exchange of 12,304,626 shares of SALIX common stock in the merger
(which assumes the exercise of all outstanding options and warrants to purchase
shares of SALIX common stock and the conversion of all shares of SALIX preferred
stock into shares of SALIX common stock prior to the merger), 4,688,965 shares
of Tellabs common stock will be issuable in the merger resulting in an exchange
ratio of 0.381 shares of Tellabs common stock for each share of SALIX common
stock in the merger. The Tellabs pro forma combined per share data assume the
conversion of all SALIX preferred stock into SALIX common stock at the
applicable conversion ratios and the exchange of shares of SALIX common stock
into shares of Tellabs common stock in the merger at an exchange ratio of 0.381.
The SALIX 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 0.381.
<TABLE>
<CAPTION>
FISCAL
FISCAL YEAR(3) QUARTER(3)
--------------------------------------------------------------- -------------
1999 1998 1997 1996
-------------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
TELLABS HISTORICAL(1):
Earnings per common share, assuming
dilution......................... -- $ .98 $ .69 $ .33 $ .90
Dividends per common share, net.. -- -- -- -- --
Book value per share............. -- $3.52 $2.53 $1.63 $ 4.53
SALIX HISTORICAL(1):
Earnings (loss) per common share,
assuming dilution................ $(1.67) $ .04 $.002 -- $ (.93)
Dividends per common share, net.. -- -- -- -- --
Book value (deficit) per share... $(1.39) $ .08 $ .02 -- $(2.06)
TELLABS PRO FORMA COMBINED (2):
Earnings per common share, assuming
dilution......................... -- $ .97 $ .69 $ .32 $ .87
Dividends per common share, net.. -- -- -- -- --
Book value per share............. -- $3.47 $2.52 $1.62 $ 4.45
SALIX PRO FORMA EQUIVALENT:
Earnings per common share, assuming
dilution......................... -- $ .37 $ .26 $ .12 $ .33
Dividends per common share, net.. -- -- -- -- --
Book value per share............. -- $1.32 $ .96 $ .62 $ 1.70
</TABLE>
- --------------------
(1) For Tellabs, information is for the nine months ended October 1,
1999 and the fiscal years ended January 1, 1999, January 2, 1998,
and December 27, 1996. For SALIX, information is for the three
months ended September 30, 1999, and the fiscal years ended June
30, 1999, June 30, 1998, and June 30, 1997.
(2) The pro forma combined net earnings per share for the nine months
in the period ended October 1, 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. SALIX's
statements of operations have been made to conform to a calendar
year presentation in order to present the pro forma combined
earnings per common share, assuming dilution, for the nine month
period ended September 30, 1999 and for each of the
9
<PAGE> 15
years ended December 31, 1998, 1997, and 1996, respectively. 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.
(3) Per share data of Tellabs have been restated to reflect a
two-for-one stock split effective May 17, 1999. Per share data of
SALIX have been restated to reflect a five-for-one stock split in
October 1997 and a three-for-two stock split in July 1998.
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 2000
First Quarter (through February 4, 2000)........ $ 75 1/2 $ 53 3/16
FISCAL YEAR 1999
Fourth Quarter.................................. $ 77 1/4 $ 53
Third Quarter................................... 74 54
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
</TABLE>
- ------------------------
(1) The per share amounts have been restated to reflect a two-for-one stock
split effective on May 17, 1999.
On December 20, 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 $64 1/8. On February 4, 2000, 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
$59 3/4.
THE MARKET PRICE OF TELLABS COMMON STOCK FLUCTUATES AND YOU
ARE ADVISED TO OBTAIN CURRENT MARKET QUOTATIONS FOR TELLABS COMMON STOCK.
SALIX. Because there is no established trading market for
shares of any class of SALIX stock, information with respect to market
prices of SALIX 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 SALIX
Technologies, Inc. for use at the special meeting of holders of SALIX common
stock and SALIX preferred stock. This proxy statement and prospectus, the
attached Notice of Special Meeting of Stockholders and the enclosed form of
proxy are first being mailed to stockholders of SALIX on or about February 8,
2000.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the SALIX special meeting, holders of SALIX common stock and
preferred stock will be asked to consider and vote on a proposal to approve and
adopt the merger and the merger agreement.
AFTER CAREFUL CONSIDERATION, THE SALIX BOARD HAS UNANIMOUSLY DETERMINED
THAT THE MERGER IS FAIR TO AND IN THE BEST INTERESTS OF SALIX AND ITS
STOCKHOLDERS. THE SALIX BOARD HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF SALIX COMMON STOCK AND
PREFERRED STOCK VOTE TO APPROVE AND ADOPT IT AT THE SPECIAL MEETING.
RECORD DATE
The SALIX Board has fixed the close of business on February 4, 2000 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 4,908,225 shares of SALIX common stock, and
5,023,626 shares of Series A preferred stock. No other voting securities of
SALIX are outstanding. Each holder of SALIX common stock is entitled to one vote
for each share of SALIX common stock held as of the record date and each holder
of SALIX Series A preferred stock is entitled to one vote for each share of
SALIX Series A preferred stock held as of the record date.
As of the record date, the directors and executive officers of SALIX
beneficially owned approximately 4,022,550 (approximately 82%) of the
outstanding shares of SALIX common stock, and approximately 5,023,626
(approximately 100%) of the outstanding shares of SALIX Series A preferred
stock. Certain SALIX stockholders, including each of the directors and the
President and Chief Executive Officer of SALIX have signed voting agreements,
without any additional consideration being paid to them, by which they have
agreed to vote all of their shares of SALIX 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 SALIX common stock and SALIX Series A
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 SALIX common stock and the affirmative
vote of the holders of 60% of the outstanding shares of SALIX Series A preferred
stock, voting as a separate class, are required to approve and adopt the merger
agreement.
As a condition of Tellabs' willingness to enter into the merger
agreement, certain stockholders of SALIX, including stockholders who are also
directors or executive officers of SALIX, have entered into voting agreements
with Tellabs, each dated as of December 21, 1999. Under the voting agreements,
these stockholders have agreed, without any additional consideration being paid
to them, to vote all of the shares of SALIX 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 3,928,800
11
<PAGE> 17
(approximately 80%) of the outstanding shares of SALIX common stock, and
5,023,626 (approximately 100%) of the outstanding shares of SALIX Series A
preferred stock.
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT BY THE SALIX 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.
PROXIES
This proxy statement and prospectus is accompanied by a form of proxy
to be used at the SALIX special meeting. SALIX stockholders are requested to
complete, sign and date the accompanying proxy and promptly return it in the
enclosed envelope or otherwise mail it to SALIX.
Shares of SALIX 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 SALIX. 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 from which you wish to abstain. 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 SALIX Board. SALIX
will bear the cost of the solicitation of proxies from its stockholders. Tellabs
and SALIX will share equally all expenses related to printing, filing and
mailing this proxy statement and prospectus and all the Securities and Exchange
Commission and other regulatory filing fees incurred in connection with this
proxy statement and prospectus. See "THE MERGER AGREEMENT -- Fees and Expenses."
In addition to soliciting proxies by mail, officers, directors and employees of
SALIX, 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 1999, SALIX initiated contact with Tellabs in order to obtain
information about the possible integration of certain SALIX technology with
certain Tellabs technology. In April 1999, the companies signed a mutual
non-disclosure agreement and held several meetings to determine if such an
integration was economically feasible. In late April 1999, SALIX and Tellabs
determined that the two parties were unable to agree on terms for such
integration and discussions were terminated between the two parties.
There were no formal discussions again between Tellabs and SALIX until
the SuperComm telecommunications industry conference in Atlanta, Georgia on June
9, 1999 when Mr. Harvey Scull, Vice President of Global Strategy and Business
Development of Tellabs, and Mr. Lawrence Beerman, Marketing Manager, Network
Enhancing Technologies Solutions of Tellabs, met with Mr. Daniel Simpkins,
President and Chief Executive Officer of SALIX, to discuss opportunities for the
two companies to work together. Mr. Scull wanted to obtain additional technical
information about SALIX's products and the parties agreed to participate in a
telephone conference call the following week.
On June 16, 1999, Tellabs and SALIX held a telephone conference call to
discuss the additional technical information requested by Mr. Scull.
Participants in that conference call included: from Tellabs, Mr. Harvey Scull,
Mr. Richard Younce, PhD, Director of Engineering, Network Enhancing Technologies
Solutions, and Mr. Lawrence Beerman; from SALIX, Mr. Daniel Simpkins, and Mr.
Carl Symborski, Vice President, Engineering. During the discussion, Tellabs
received additional information about SALIX's products.
On June 17, 1999, SALIX held a regularly scheduled Board of Directors
meeting. One of the items of discussion was SALIX's forthcoming round of
financing. Mr. Simpkins informed the Board that negotiations with the second
round venture capital investors were almost complete and he expected to close
the second round of financing within two weeks. The Board advised Mr. Simpkins
to continue moving forward with the second round of financing.
On June 21, 1999, Mr. Simpkins received a telephone call from Mr.
Beerman. Mr. Beerman indicated that Tellabs was interested in exploring the
possibility of a merger between Tellabs and SALIX. Mr. Simpkins informed him
that SALIX was in the process of finalizing its second round of venture
financing and any merger discussions would need to proceed quickly. The parties
agreed to meet at SALIX to review SALIX's overall business plan.
On June 28, 1999, executives from Tellabs visited SALIX's facility in
Gaithersburg, Maryland to review SALIX's overall business plan. Participants in
that meeting included: from Tellabs, Mr. Harvey Scull, Mr. Richard Younce, Mr.
David Wells, Corporate Strategist, Global Strategic Planning, and Ms. Anita
Marsh, Senior Staff Engineer, Adaptive Network Solutions Division; from SALIX,
Mr. Daniel Simpkins, Mr. Carl Symborski, Mr. Peter Jackson, Vice President,
Finance, Mr. Terry Wolters, Vice President, Sales, and Mr. Kenneth McInerney,
Director, Product Management. The parties discussed SALIX's overall business
plan and viewed a demonstration of a prototype SALIX product.
In the evening of June 29, 1999, Mr. Simpkins received a fax letter
from Mr. Michael Birck, President and Chief Executive Officer of Tellabs. The
letter outlined a non-binding merger offer at a valuation of $280 million,
subject to the completion of due diligence by Tellabs and the negotiation of a
definitive agreement. Mr. Simpkins contacted a majority of the SALIX Board
members by telephone and they concluded that it would be appropriate to continue
the due diligence process with Tellabs to determine whether an acceptable
agreement could be reached between the parties.
During July 1999, there were several due diligence meetings between
executives from both companies. Additionally, Mr. Simpkins continued to
negotiate the terms of the merger with Mr. Birck and Mr. Brian Jackman,
Executive Vice President of Tellabs. On July 19, 1999 counsel to Tellabs
delivered a draft merger agreement to SALIX. On July 23, 1999, Mr. Birck sent a
letter to Mr. Simpkins raising the total valuation of the merger to $300
million. Between July 22, 1999 and August 6, 1999, legal counsel for Tellabs and
SALIX had numerous discussions regarding the terms of the merger
13
<PAGE> 19
agreement and exchanged multiple drafts and rounds of comments regarding this
document. Representatives of Tellabs and SALIX and their respective legal
counsel met on August 2 and 3 to address a number of open issues regarding the
merger agreement.
On August 6, 1999, SALIX held a regularly scheduled Board of Directors
meeting. The principal item of discussion was the status of the merger
negotiations between Tellabs and SALIX. Mr. Simpkins provided the Board with a
status report concerning the merger negotiations with Tellabs. There followed a
discussion of valuation issues and a review of alternative strategies such as
accepting a second round of venture financing, a merger with an alternative
merger partner, or an initial public offering. The Board also considered the
risks and uncertainties associated with each alternative strategy. The Board
reviewed 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. The Board reviewed the
compatibility of the operations of SALIX and Tellabs, including potential
benefits of combining sales and marketing, product development efforts and
customer support functions. The Board concluded the meeting by authorizing Mr.
Simpkins to complete negotiations with Tellabs so that the Board could evaluate
the final offer.
On August 9, 1999, SALIX's independent public accountants identified
potential issues in connection with the accounting treatment that would be
afforded in a merger between SALIX and Tellabs. From August 9, 1999 through
September 14, 1999, SALIX and Tellabs, with the assistance of their respective
accountants and legal advisers, discussed a resolution of these issues. In
mid-September 1999, SALIX sought guidance from the staff of the Securities and
Exchange Commission in connection with the potential accounting issues and
representatives of SALIX and its independent public accountants discussed these
issues with members of the SEC staff. After receiving guidance from the SEC
staff in late September 1999, Mr. Simpkins and SALIX's legal counsel continued
to negotiate the terms of the merger with Mr. Birck, Mr. Jackman and Tellabs'
legal counsel.
On November 17, 1999, the Board of Directors of SALIX met to discuss
the approval of the merger agreement and related documents. Representatives of
legal counsel to SALIX were in attendance and briefed the Board of Directors on
the principal terms and conditions of the merger, the resolution of the
accounting issues, as well as their legal duties and responsibilities in the
context of the merger. The Board also reviewed the issues discussed at the
August 6, 1999 Board meeting. After thorough discussion, the Board of SALIX
unanimously determined that a merger with Tellabs was fair to and in the best
interest of the stockholders of SALIX, approved the terms of the merger and
directed the officers of SALIX to move forward to finalize the merger agreement
and related documents.
Between November 17 and December 21, 1999 representatives of SALIX and
Tellabs met to negotiate and finalize the merger agreement and related
documents.
On December 21, 1999, the Board of Directors of SALIX, acting by
written consent, approved the final terms of the merger agreement and related
documents and unanimously resolved to recommend that SALIX's stockholders vote
to adopt the Merger Agreement and authorized the officers of SALIX to execute
the final merger agreement and related documents.
SALIX'S REASONS FOR THE MERGER; RECOMMENDATION OF THE SALIX BOARD OF DIRECTORS
The SALIX Board believes the merger will be beneficial to SALIX and in
the best interests of the stockholders and that its stockholders should vote FOR
the merger for the following reasons:
- the consideration to be received by SALIX's stockholders has a
market value significantly in excess of the current book value
of SALIX's assets and represents a substantial per share
premium over the book value per share of SALIX's outstanding
common and preferred stock;
- the shares of Tellabs common stock that SALIX's stockholders
will receive in the merger are publicly traded and are
therefore considerably more liquid than shares of SALIX's
common and preferred stock;
- because Tellabs' financial and other resources are far greater
than those of SALIX, a merger with Tellabs would greatly
enhance SALIX's ability to compete with larger,
better-financed competitors;
14
<PAGE> 20
- the merger should allow SALIX to take advantage of Tellabs'
expertise in manufacturing and its extensive customer service
resources;
- the merger should allow SALIX to significantly improve its
position in the markets in which it competes by providing
SALIX access to the marketing channels and resources, larger
client base and industry contacts and management expertise
developed by Tellabs over the years; and
- because SALIX's technology is complementary with technology
developed and acquired by Tellabs, significant research and
development, marketing and other synergies should result from
the combination of the two companies.
In the course of its deliberations concerning the merger, the SALIX
Board reviewed with SALIX management and SALIX's legal advisors additional
factors that the SALIX Board deemed relevant to the merger, including the
following:
- the SALIX Board's review of and familiarity with the business
and prospects of SALIX, including SALIX's prospects if it were
to continue operating as an independent company;
- the strategic and financial alternatives available to SALIX,
as well as the attractiveness of a merger with Tellabs, the
strategic fit between SALIX and Tellabs, and the potential
risks of and uncertainties surrounding possible future
financings, including an initial public offering;
- potential synergies that could be achieved as a result of
combining the operations of SALIX and Tellabs;
- a review of the historical operating results and current
financial condition of SALIX and Tellabs and the projected
operating results of the two companies, individually and in
combination;
- the amount and type of consideration to be received by SALIX's
stockholders in the merger, including the opportunity for
SALIX's stockholders, through the exchange of their shares of
SALIX stock for shares of Tellabs common stock, to obtain a
financial stake in a more diverse, larger and publicly-traded
company; and
- the expectation that the merger would be accounted for as a
pooling of interests for accounting purposes and would be
accomplished on essentially a tax-free basis for federal
income tax purposes.
During the course of its deliberations concerning the merger, the SALIX
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 SALIX's
employees and current and prospective customers;
- the risks associated with obtaining the necessary approvals
required to complete the merger; and
- 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 variety of factors considered, the SALIX Board did not
find it practical to and did not make a specific assessment of or otherwise
assign relative weights to the specific facts, matters and information
considered. THE SALIX BOARD UNANIMOUSLY APPROVED AND ADOPTED THE MERGER
AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO ADOPT THE MERGER AGREEMENT
AND APPROVE THE MERGER.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
In considering the recommendation of the SALIX Board with respect to
the merger, stockholders of SALIX should be aware that certain members of the
SALIX Board and SALIX's management have certain interests in the merger in
addition to their interests as stockholders of SALIX. The SALIX Board was aware
of these possible conflicts of interest and carefully considered them in
reaching its determination that the merger was fair to the stockholders of
SALIX.
Patrick Kerins is a current member of the SALIX Board and is also a
general partner of Grotech Capital Group, affiliates of which are principal
holders of SALIX's Series A preferred stock. Peter Barris is a current member of
the SALIX Board and is also a general partner of New Enterprise Associates, an
affiliate of which is a principal holder of SALIX's Series A Preferred Stock. In
addition, affiliates of Grotech and New Enterprise Associates have provided
certain loans to SALIX in the aggregate principal amount of $6,500,000. The
loans are repayable upon demand and have an interest rate of prime plus 2.5%.
Pursuant to a letter agreement dated December 21, 1999, these loans will not be
repaid until after the completion of the merger or the termination of the merger
agreement.
The current officers and directors of SALIX will be indemnified by
Tellabs with respect to acts or omissions of these persons occurring at or prior
to the completion of the merger, to the same extent as these persons presently
are indemnified under SALIX's charter documents.
Certain members of the SALIX management team hold unvested SALIX stock
options that will vest immediately upon completion of the merger. Additionally,
members of SALIX's management team, along with other employees of SALIX will
receive retention shares and/or options to acquire shares of Tellabs common
stock under new or existing Tellabs stock option and restricted stock plans
after the completion of the merger.
SALIX has an employment agreement with Daniel Simpkins, the President
and Chief Executive Officer of SALIX. If Mr. Simpkins is terminated other than
for cause or resigns from his positions with SALIX following a significant
reduction in his duties or authority or a reduction in his total compensation,
then SALIX is obligated to provide certain benefits and termination compensation
to Mr. Simpkins. SALIX also has an employment agreement with Greg Schupp, Vice
President, Operations. If Mr. Schupp is terminated other than for cause or
resigns from his position with SALIX following a significant reduction in his
duties or a forced relocation, then SALIX is obligated to provide certain
benefits and termination compensation to Mr. Schupp.
FORM OF THE MERGER
If the holders of SALIX common stock and preferred stock approve and
adopt the merger agreement and all other conditions to the merger are satisfied
or waived, Oriole Merger Corp. will be merged with and into SALIX. SALIX will be
the surviving corporation after the merger and will become a wholly owned
subsidiary of Tellabs. Tellabs and SALIX 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 SALIX common stock and preferred
stock (other than shares owned by SALIX 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 formulas set forth in the merger agreement. Tellabs and SALIX
expect that the holders of SALIX preferred stock will convert all of their
shares of SALIX preferred stock into shares of SALIX common stock prior to the
merger. This will result in an exchange ratio of 0.381 shares of Tellabs common
stock for each share of SALIX common stock, assuming 12,304,626 shares of SALIX
common stock outstanding as of the merger.
The merger consideration is generally intended to provide shares of
Tellabs common stock with an aggregate value of $300,000,000.00, based upon the
number of outstanding shares of SALIX common stock and preferred stock as of the
merger, on a fully-diluted basis. Therefore, a greater number of shares of SALIX
stock outstanding as of the merger will result in a lower exchange ratio and a
lesser number of shares of SALIX stock outstanding as of the merger will result
in a greater exchange ratio.
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For example, if the aggregate number of shares of SALIX common stock
outstanding as of the merger is greater than 12,304,626, on a fully-diluted
basis, the exchange ratio in the merger will be less than 0.381 shares of
Tellabs common stock for each share of SALIX common stock. If the aggregate
number of shares of SALIX common stock outstanding as of the merger is less than
12,304,626, on a fully-diluted basis, the exchange ratio in the merger will be
greater than 0.381 shares of Tellabs common stock for each share of SALIX common
stock.
In calculating the consideration payable to you, Tellabs will be
entitled to rely on certain representations made by SALIX. If these
representations prove inaccurate, Tellabs will have the right to adjust the
ratio at which shares of SALIX common stock are to be converted in the merger.
Notwithstanding anything else to the contrary, in no event will Tellabs be
required to issue shares in connection with the merger having an aggregate value
greater than $300,000,000, based on an assumed Tellabs per share price of
$63.98.
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 SALIX 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 SALIX to perform or comply with any covenant
contained in the merger agreement; and
- any inaccuracy of a representation or breach of a warranty of
SALIX contained in Article III of the merger agreement or in a
certificate of SALIX delivered to Tellabs pursuant to Article
VI of the merger agreement.
With respect to inaccuracies of certain representations or breaches of
certain warranties of SALIX, Tellabs and its affiliates will be indemnified only
in the event that the aggregate losses and expenses borne by Tellabs and its
affiliates with respect to such inaccuracies and breaches exceeds $250,000 and
only to the extent of such excess, except with respect to certain
representations and warranties for which the deductible is not applicable.
Indemnity Fund. Tellabs and its affiliates will be indemnified from an
indemnity fund. The indemnity fund will be governed by an indemnity agreement
and Harris Trust and Savings Bank will act as indemnity agent. The indemnity
agreement is attached to this proxy statement and prospectus substantially in
the form of Annex C. The indemnity fund and indemnity 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 SALIX stock (other than
those who exercised appraisal rights) in accordance with the indemnity
agreement. The stockholders will have no right of contribution from SALIX with
respect to any losses or expenses claimed by Tellabs after the closing date.
Nothing in the merger agreement limits the liability of SALIX 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 SALIX common stock or preferred stock to the exchange agent, 10% of
the number of whole shares of Tellabs common stock and 10% of the cash in lieu
of fractional shares into which such shares of SALIX common stock or preferred
stock are convertible will be delivered to 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 or similar dividends) will be distributed to stockholders whose shares are
held in the indemnity fund by the indemnity agent 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 Daniel
Simpkins, Peter Barris and Patrick Kerins as the initial stockholder
representatives. The stockholder representatives are appointed to act as the
agents of the stockholders
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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 Tellabs common stock held in the indemnity
fund may change the stockholder representatives upon ten days' prior written
notice to Tellabs and the indemnity agent.
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 SALIX in connection with the merger
agreement or the merger.
PROCEDURES FOR EXCHANGE OF SALIX 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 SALIX 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 SALIX common stock and
preferred stock. After receiving the letter of transmittal the SALIX
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. SALIX 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 SALIX 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 and no payment in lieu of fractional shares
will be paid to the holder of any unsurrendered SALIX stock certificate until
the holder of record surrenders his SALIX stock certificate. Subject to the
effect of applicable laws, after a SALIX stockholder surrenders his SALIX 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 SALIX 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 SALIX stockholder may vary depending upon the
stockholder's particular situation, and certain SALIX stockholders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, persons who do not hold SALIX stock as capital assets, employees
of SALIX, and individuals who hold SALIX stock as part
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of a straddle or conversion transaction) may be subject to special rules not
discussed below. Each SALIX stockholder is urged to consult its tax advisor with
respect to the specific tax consequences of the merger, 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 SALIX to effect the merger that SALIX receive an
opinion from its counsel, Piper Marbury Rudnick & Wolfe 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
that Tellabs, Oriole Merger Corp. and SALIX will each be a party to that
reorganization within the meaning of Section 368(b) of the Internal Revenue
Code. Based on those conclusions, the federal income tax consequences of the
merger will be as follows:
Tax Consequences to Tellabs, Oriole Merger Corp. and SALIX.
For federal income tax purposes, no gain or loss will be recognized by
Tellabs, Oriole Merger Corp. or SALIX as a result of the merger.
Tax Consequences to SALIX Stockholders. For federal income tax
purposes, (i) no gain or loss will be recognized by the stockholders of
SALIX upon the conversion of their shares of SALIX 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 SALIX 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 SALIX stock, (iii) the holding period for shares of Tellabs
common stock received in exchange for shares of SALIX stock will
include the holder's holding period for such shares of SALIX stock,
provided such shares of SALIX stock were held as capital assets by the
holder at the effective time of the merger, and (iv) a stockholder of
SALIX 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 tax basis in the fractional share
(determined under clause (ii) above) and the amount of cash received.
The consequences of the merger described above may not apply to
individuals who received SALIX stock as compensation or to SALIX 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 Piper Marbury Rudnick & Wolfe LLP will
receive and rely upon representations, unverified by counsel, contained in
certificates of Tellabs, SALIX and possibly others. The inaccuracy of any of
those assumptions or representations might jeopardize the validity of the
opinions rendered. Moreover, under the terms of the merger agreement, Tellabs is
not contractually precluded from taking action, or causing SALIX to take action
(after the merger) which would cause certain of those assumptions or
representations not to be true, or from otherwise taking action that could
adversely affect the status of the merger as a reorganization. Accordingly, no
assurance can be given that the merger will in fact be a reorganization or that
SALIX stockholders will not recognize gain with respect to the receipt of shares
of Tellabs stock in the merger should Tellabs, in fact, take such action.
The opinions of counsel 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 SALIX 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 SALIX stockholder (other than a
stockholder validly asserting appraisal rights) will receive outright, upon
surrender of its shares of SALIX stock, shares of Tellabs common stock equal to
90% of the number of whole shares of Tellabs common stock into which the shares
of SALIX stock surrendered by the stockholder are to be converted (and 90% of
cash received in lieu of a fractional share of Tellabs stock). The remaining 10%
of the number of whole shares of Tellabs stock into which the shares of SALIX
stock are to be converted (and 10% of cash received in lieu of a fractional
share of Tellabs stock) will be placed in escrow as security for indemnification
obligations incurred by the SALIX stockholders pursuant to the merger agreement.
Each SALIX stockholder will be credited with the number of shares (and the
amount of cash) placed in escrow on its behalf. See "--Escrow."
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For federal income tax purposes, shares of Tellabs common stock (and
cash received in lieu of a fractional share of Tellabs stock) that are placed in
escrow will be deemed to have been received by the SALIX stockholders at the
effective time of the merger.
Each SALIX stockholder will allocate its tax basis in its shares of
SALIX stock among all of the shares of Tellabs stock received by the stockholder
as a result of the merger (including a fractional share of Tellabs common stock
for which cash is received), including both shares of Tellabs stock received
outright and shares of Tellabs stock placed in escrow on the stockholder's
behalf.
A SALIX 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 tax basis in the escrowed shares that are sold
(determined under clause (ii) under the heading "--Tax Consequences to SALIX
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 SALIX 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, under the Internal
Revenue Service's view, the SALIX stockholders 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 tax basis in the escrowed shares that are
distributed (determined under clause (ii) under the heading "--Tax Consequences
to SALIX Stockholders," above) and the stated value of such shares (as set forth
in the indemnity agreement). It is possible, however, that under an alternative
theory the escrowed shares distributed to Tellabs in satisfaction of
indemnification claims will be treated as an adjustment to the consideration
paid. Under this theory, SALIX stockholders would not recognize gain or loss as
a result of such distribution; instead, each SALIX stockholder's tax basis in
its remaining shares of Tellabs common stock (including a fractional share for
which cash was received) would be adjusted so that the aggregate tax basis in
such remaining shares would be equal to its tax basis in the shares of SALIX
stock surrendered in the merger. SALIX stockholders should consult their own tax
advisors with respect to this issue.
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 tax basis
in, the stockholder's remaining shares of Tellabs stock.
Each SALIX 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 SALIX 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 SALIX stockholders are subject to United States federal
income tax on these amounts.
No gain or loss will be recognized by a SALIX stockholder upon the
receipt from the indemnity agent 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.
Dissenting SALIX Stockholders
A SALIX stockholder who receives cash upon valid exercise of
dissenters' rights generally will recognize gain or loss, if any, equal to the
difference between the amount of cash received and its tax basis in the shares
of SALIX stock. It is possible, however, under certain circumstances for such a
SALIX stockholder to recognize ordinary income equal to the amount of cash
received.
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
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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 SALIX of pooling letters from their
respective independent auditors, Ernst & Young LLP and Arthur Andersen LLP, that
each is eligible to be a party to a business combination accounted for as a
pooling of interests.
FEDERAL SECURITIES LAW CONSEQUENCES
SALIX stockholders who are not affiliates of SALIX before the merger
will receive freely transferable shares of Tellabs common stock in the merger.
However, shares of Tellabs common stock received by persons who are affiliates
of SALIX before the merger may be resold by them only in transactions permitted
by the resale provisions of Rule 145 under the Securities Act, or Rule 144 under
the Securities Act in the case of those persons who become affiliates of Tellabs
after the merger, or as otherwise permitted by the Securities Act.
CERTAIN OTHER EFFECTS OF THE MERGER
After the merger, stockholders of SALIX will become stockholders of
Tellabs. Upon consummation of the merger, the rights of all former stockholders
of SALIX 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 SALIX
stockholders, see "COMPARISON OF RIGHTS OF SALIX STOCKHOLDERS AND TELLABS
STOCKHOLDERS."
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Tellabs and SALIX 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 SALIX set forth
under "-- Reasons for the Merger; Recommendation of the SALIX Board of
Directors," and "INFORMATION ABOUT SALIX -- Management's Discussion and Analysis
of Financial Condition and Results of Operations" and those 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 SALIX
and Tellabs, and could cause those results to differ materially from those
expressed in the forward-looking statements of SALIX and Tellabs: materially
adverse changes in economic conditions and in the markets served by SALIX 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.
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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.
THE MERGER
The merger agreement provides that Oriole Merger Corp., a wholly owned
subsidiary of Tellabs, will be merged with and into SALIX at the effective time
of the merger. Pursuant to the merger agreement, SALIX will be the surviving
corporation and will become a wholly owned subsidiary of Tellabs. THE SALIX
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, Oriole will
merge with and into SALIX. SALIX will continue to exist as the surviving
corporation under the laws of the State of Delaware. At the effective time of
the merger, Oriole will no longer exist as a separate corporation. At the
effective time of the merger, the fourth Article of the restated certificate of
incorporation of SALIX 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 restated certificate of incorporation of SALIX
will become the certificate of incorporation of the surviving corporation. The
by-laws of Oriole 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 Oriole 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 SALIX common stock and preferred stock (other than any shares owned by SALIX
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 exchange ratio
described under "THE MERGER -- Merger Consideration."
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 SALIX 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 Oriole and SALIX 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 SALIX each anticipate that, if the merger is approved at
the special meeting of SALIX stockholders, it will be consummated shortly
thereafter. However, if any of the conditions required to be met prior to
consummation of the merger have not been so met, the closing may be delayed.
There can be no assurances as to if or when the conditions required to
consummate the merger will be met or that the merger will be consummated.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains various representations of Tellabs,
Oriole and SALIX. Tellabs and Oriole have made representations and warranties to
SALIX regarding, among other things, the following:
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- the due organization, valid existence and good standing of
Tellabs and Oriole;
- 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;
- 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 Oriole, (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 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;
- 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 by Tellabs 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;
- the formation and operations of Oriole;
- the absence of certain material undisclosed liabilities;
- with certain exceptions, the absence of a material adverse
change with respect to Tellabs since October 2, 1999; and
- with certain exceptions, the absence of a material revaluation
by Tellabs of its assets since October 2, 1999.
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SALIX has made representations and warranties to Tellabs and Oriole regarding,
among other things, the following:
- the due organization, valid existence and good standing of
SALIX;
- the capital structure of SALIX;
- the absence of any subsidiaries of SALIX;
- the authorization, execution, delivery and enforceability of
the merger agreement and other agreements contemplated by the
merger agreement and related matters;
- the requisite power and authority of the stockholder
representatives to enter into the indemnity agreement and to
fulfill its terms;
- the compliance of the merger agreement and related documents
with (1) SALIX's restated certificate of incorporation and
amended and restated by-laws, (2) certain material agreements
of SALIX, and (3) any rule or regulation applicable to SALIX;
- the required governmental filings;
- SALIX'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 SALIX;
- the absence of any declaration of any payment of dividends or
distributions to SALIX's stockholders or any purchase or
redemption of any of SALIX's capital stock or other equity
interests;
- between June 30, 1999 and the date of the merger agreement,
the absence of any material adverse changes, material losses,
material changes in business, and material undisclosed
liabilities with respect to SALIX;
- the possession and validity of all required licenses and
governmental authorizations to use and operate SALIX'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 SALIX's tax returns;
- the absence of any judgments or legal or administrative
proceedings outstanding or threatened against SALIX;
- the absence of changes in certain stock option and benefits
plans as a result of the merger;
- SALIX'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
agreement and the absence of disclosure of trade secrets in
violation of any non-disclosure or confidentiality agreement;
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- the condition and availability of the assets of SALIX;
- the absence of real property owned by SALIX;
- real and personal property leases;
- title to assets;
- the absence of any contracts not disclosed by SALIX;
- the validity of the contracts to which SALIX is a party;
- maintenance of and compliance with insurance policies;
- 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 SALIX security holders required to adopt the
merger agreement;
- the lack of any knowledge as to actions by SALIX 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 SALIX; and
- the "ultimate parent entity" status of SALIX and the absence
of annual net sales or total assets of SALIX in excess of $10
million 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. 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
$250,000 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 SALIX PENDING THE MERGER AND OTHER AGREEMENTS
Under the terms of the merger agreement, SALIX has agreed in all
material respects to carry on its business in the ordinary course as currently
conducted, to keep its current business organization in tact, to keep available
the services of its current officers and employees, and to preserve its
relationships with customers and suppliers such that SALIX's goodwill and
ongoing business will be unimpaired at the merger. From the date of signing the
merger agreement until closing, unless Tellabs otherwise gives its written
approval, SALIX may not:
- 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 SALIX 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 and certain issuances of stock to newly hired
employees related to the SALIX Omnibus Stock Plan;
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- 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 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 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;
- 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, with
certain exceptions, including, in the case of employees other
than directors or officers, as may be in the ordinary course
of business 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 SALIX, (ii) any
noncompetition agreement, (iii) agreements giving certain
rights to third parties, or (iv) any OEM contract;
- make or agree to make any new capital expenditure, other than
certain specified capital expenditures;
- 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; 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.
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NO SOLICITATION BY SALIX
Under the terms of the merger agreement, SALIX may not, nor may it
permit any officer, director, employee, financial advisor, attorney or other
advisor or representative of SALIX 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.
SALIX 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. SALIX 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 Oriole Merger Corp. relating to SALIX's willingness or ability
to receive or discuss a proposal or offer for a merger, consolidation or other
business combination involving SALIX or any proposal or offer to acquire,
directly or indirectly, a substantial portion of the voting securities or assets
of SALIX.
ADDITIONAL AGREEMENTS OF TELLABS AND SALIX
Under the terms of the merger agreement, Tellabs and SALIX 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.
FEES AND EXPENSES
Under the merger agreement, each party is responsible for its own costs
and expenses incurred in connection with the transactions contemplated by the
merger agreement. However, if the merger agreement is terminated by Tellabs
because:
- the stockholders of SALIX do not approve the merger agreement;
- the SALIX Board has not recommended or has qualified, modified
or withdrawn its recommendation of the merger or declaration
that the merger is advisable to and in the best interests of
SALIX and its stockholders, or has resolved to do so;
- a person (other than Tellabs or its affiliates) has become the
beneficial owner of 20% or more of SALIX common stock;
- the SALIX Board has recommended to the stockholders of SALIX
any takeover proposal or has resolved to do so; or
- a person commences a tender offer or exchange offer for 20% or
more of SALIX's outstanding capital stock and the SALIX Board
fails to recommend against the acceptance of such tender offer
or exchange offer by its stockholders;
then SALIX has agreed to pay a termination fee of $9,000,000 to Tellabs promptly
following the termination of the merger agreement.
SALIX STOCK OPTION PLAN
At the effective time of the merger, each SALIX stock option
outstanding immediately prior to the effective time issued pursuant to SALIX's
Omnibus Stock Plan shall become and represent an option to purchase the number
of shares of
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Tellabs common stock determined by multiplying (i) the number of shares of SALIX
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 SALIX common stock
immediately prior to the effective time divided by the exchange ratio. For a
description of the exchange ratio, see "THE MERGER -- Merger Consideration."
EMPLOYEE BENEFIT PLANS
Tellabs has agreed that, subject to certain exceptions, as soon as
practicable after the merger, it will provide employee benefit plans to SALIX
employees substantially similar to those generally available to
similarly-situated Tellabs employees. Until then, Tellabs has agreed to provide
substantially the same employee benefit plans to SALIX employees as were
provided by SALIX as of the date of the merger agreement.
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 SALIX to
the same extent they were indemnified under the SALIX restated certificate of
incorporation and amended and restated by-laws as of the date of the merger
agreement.
LOANS TO SALIX
Tellabs and SALIX 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 SALIX of up to $1,000,000 in
principal amount per month, for working capital purposes, commencing February 1,
2000, and ending no later than 70 days after the termination of the merger
agreement. Any such loans will bear interest at the rate of 11.5% per annum, and
will be due and payable on the earliest of 90 days following the termination of
the merger agreement, June 30, 2000, or the occurrence of any bankruptcy or
material default involving SALIX. Tellabs will not be obligated to lend SALIX
more than $3,000,000 in the aggregate. Tellabs has separately agreed to loan
additional funds to SALIX under substantially the same terms for working capital
purposes. It is currently expected that such additional funds will not exceed
$3,800,000 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 SALIX;
- the shares of Tellabs common stock issuable in the merger must
have been authorized for quotation on Nasdaq;
- Tellabs and SALIX 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 a material adverse effect on
Tellabs or SALIX;
- 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; and
- 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 proceedings by the Securities and Exchange
Commission to suspend the effectiveness of such registration
statement.
Conditions Precedent to the Obligations of SALIX. SALIX'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:
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- Tellabs and Oriole must have performed in all material
respects each of their agreements contained in the merger
agreement;
- each of Tellabs' and Oriole's representations and warranties
contained in the merger agreement must be true and correct in
all material respects; and
- SALIX must have received a tax opinion of Piper Marbury
Rudnick & Wolfe LLP, counsel to SALIX, 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.
Conditions Precedent to the Obligations of Tellabs and Oriole. Tellabs'
and Oriole'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:
- SALIX must have performed in all material respects each of its
agreements contained in the merger agreement;
- each of SALIX'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;
- SALIX must have received the written letter, dated as of the
effective time of the merger, of Arthur Andersen LLP stating
that SALIX 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 letter, dated as of the
effective time of the merger, of Ernst & Young LLP stating
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 if consummated in accordance with the terms of the
merger agreement;
- SALIX must have obtained the required consents of
non-governmental entities for any of its 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;
- SALIX must have delivered to Tellabs certain certificates as
to its capital structure signed by its Chief Executive Officer
and Director of Finance;
- the stock of those stockholders of SALIX validly exercising
their appraisal rights must not include any shares of SALIX
preferred stock and no more than five percent (5%) of the
shares of SALIX common stock outstanding immediately prior to
the effective time of the merger;
- the merger agreement must have been approved by the requisite
number of holders of SALIX common stock and SALIX Series A
preferred stock; and
- SALIX must have delivered, no more than 20 days prior to the
merger, a statement certifying that it is not and has not been
a United States real property holding corporation for purposes
of Sections 897 and 1445 of the Internal Revenue Code and
SALIX must also have delivered on the closing date the
notification to
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the Internal Revenue Service of the delivery of the
aforementioned statement, signed by a responsible corporate
officer.
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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 SALIX;
- by either Tellabs or SALIX 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 SALIX 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 SALIX if the merger has not been effected
on or prior to April 15, 2000, except that if the registration
statement of which this proxy statement and prospectus is a
part does not become effective by such date, then such date
will be extended to May 15, 2000;
- by either Tellabs or SALIX 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 SALIX do not approve the
merger agreement;
- by Tellabs if the SALIX Board has not recommended or has
qualified, modified or withdrawn its recommendation of the
merger or declaration that the merger is advisable to and in
the best interests of SALIX and its stockholders, or has
resolved to do so;
- by Tellabs if any person (other than Tellabs or its
affiliates) becomes the beneficial owner of 20% or more of
SALIX common stock;
- by Tellabs if the SALIX Board has recommended to the
stockholders of SALIX any takeover proposal, or has resolved
to do so; or
- by Tellabs if a person commences a tender offer or exchange
offer for 20% or more of SALIX's outstanding capital stock and
the SALIX Board fails to recommend against the acceptance of
such tender offer or exchange offer by its stockholders.
In the event of termination of the merger agreement by either Tellabs
or SALIX, the merger agreement will become void and there will be no liability
under the merger agreement on the part of SALIX, Tellabs or Oriole 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. In addition, if the merger is terminated by Tellabs
under certain circumstances, the merger agreement obligates SALIX to pay a
termination fee of $9,000,000 to Tellabs. See " -- Fees and Expenses."
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 SALIX 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.
At any time prior to the effective time of the merger, Tellabs, SALIX,
and Oriole may, if signed in writing by all parties:
- extend the time for the performance of any of the obligations
or other acts;
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- 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.
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VOTING AGREEMENTS
The following is a summary of certain provisions of the form of voting
agreement entered into between Tellabs and certain stockholders of SALIX, a copy
of which is attached to this proxy statement and prospectus as Annex B 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 SALIX are urged to read the form of voting agreement in its entirety.
Stockholders of SALIX owning approximately 80% of the common stock and
100% of the Series A 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 SALIX 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 SALIX 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 SALIX's stockholders to approve and adopt the
merger agreement, because another person becomes the beneficial owner of 20% or
more of the outstanding SALIX common stock, because the SALIX Board recommends a
takeover proposal to the SALIX stockholders, or because another person initiates
an offer for 20% or more of the outstanding SALIX capital stock, then the
obligations of each stockholder under the voting agreement will terminate 180
days following such termination of the merger agreement.
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REGULATORY MATTERS
Tellabs and SALIX are not aware of any material governmental or
regulatory approvals required to be obtained in order to consummate the merger,
other than compliance with applicable federal and state securities and corporate
laws.
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BUSINESS OF TELLABS
Tellabs designs, manufactures, markets and services data, voice and
video transport, switching/routing and network access systems. Tellabs' products
are used worldwide by the providers of communications services.
Tellabs provides products that address the service transport, service
delivery and service enhancement needs of existing and emerging wireline and
wireless carriers.
Service transport solutions include Tellabs' TITAN(R) series of digital
cross-connect systems and the FOCUS(TM) family of synchronous digital hierarchy
transport solutions.
Service delivery solutions, which comprise multiservice switching and
managed access, include the AN2100(R) Gateway Exchange System, the Everest(TM)
9500 Integrated Switch, the CABLESPAN(R) 2300 Universal Telephony Distribution
System, the FOCUS family of synchronous digital hierarchy access solutions, and
the MartisDXX(R) Managed Access and Transport System.
Service quality enhancement solutions include the Verity(TM) series of
echo cancellers and voice quality enhancement solutions and element management
systems.
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. Customers include
the former Regional Bell Operating Companies, independent telephone companies,
interexchange carriers, local telephone administrations, competitive 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."
Tellabs, the Tellabs logo, TITAN, AN2100 and CABLESPAN are registered
trademarks of Tellabs Operations, Inc. in the United States and/or in other
countries. AN2100 Gateway Exchange, FOCUS, and Verity are trademarks of Tellabs
Operations, Inc. in the United States and/or in other countries. MartisDXX,
Martis and DXX are registered trademarks of Tellabs Oy in Finland and/or in
other countries. Everest is a trademark of NetCore Systems, Inc., a wholly owned
subsidiary of Tellabs.
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INFORMATION ABOUT SALIX
BUSINESS OF SALIX
SALIX is a provider of high-capacity networking solutions that enable
telecommunications service providers to offer next-generation voice, fax and
Virtual Private Network services. SALIX's core competencies in optical carrier,
digital switching and high-performance processing positions SALIX to deliver
innovative solutions for the telecommunications industry.
After establishing SALIX as a services and consulting company supplying
innovative telecommunications design and engineering services for major public
companies and the United States government, SALIX embarked in 1995 on the
development of a unique carrier-class network switching platform.
SALIX believes that the ETX5000, SALIX's flagship product, is the first
purpose-built carrier-class switch platform designed to deliver next-generation
telephony services while protecting existing investments in legacy public
switched telephone network technologies. SALIX believes that the ETX5000
delivers to carriers the scalability and the seamless connectivity required to
extend next generation telecommunications services to the over one billion
customers on the publicly switched telephone network today. The ETX5000 allows
service providers to offer customers toll-quality voice services over Packet
Data Networks, as well as fax and Virtual Private Network services.
SALIX, which is headquartered in Gaithersburg, Maryland, was founded in
1990 by its current President, CEO and Chairman, Daniel Simpkins. Mr. Simpkins
has developed considerable expertise in the telecommunications business both at
SALIX and during his years working with other technology companies. Other
members of SALIX's management team have worked as employees of, among others,
Lucent Technologies, AT&T, Hughes Network Systems, and Pulsecom.
SALIX's employee base has grown substantially over the past year and,
as of November 30, 1999, SALIX had approximately 70 employees and consultants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview. From inception in 1990 through the fiscal year ended June 30,
1998, SALIX's business activities principally consisted of providing engineering
consulting services to third parties. Since the completion of a preferred stock
sale in July 1998, SALIX has devoted substantially all of its efforts to product
research and development, business and financial planning, implementing
strategic relationships and recruiting employees.
Quarter Ended September 30, 1999 Compared to Quarter Ended September
30, 1998. Revenues increased 122% to $0.9 million in the quarter ended September
30, 1999 from $0.4 million in the quarter ended September 30, 1998. The increase
resulted primarily from an increase in performance activity on a large contract.
Direct expenses increased 252% to $0.6 million in the quarter ended
September 30, 1999 from $0.2 million in the quarter ended September 30, 1998.
The total direct expenses as a percentage of revenues increased to 71% in the
quarter ended September 30, 1999 from 45% in the quarter ended September 30,
1998. The increase was attributable to a change in focus away from consulting
services activities, which resulted in lower margins on the remaining contracts.
Engineering and development expense was $2.6 million for the quarter
ended September 30, 1999, as compared to $0.5 million for the quarter ended
September 30, 1998. This represented a 407% increase. Engineering and
development expense represented 304% and 133% of revenues for the quarters ended
September 30, 1999 and September 30, 1998, respectively. The increase in
engineering and development expense was due primarily to a significant increase
in personnel and related costs, increased payments to outside service providers
and increased non-recurring engineering (NRE) charges and prototype costs
related to the design, development, testing and enhancement of the ETX 5000.
Sales and marketing expense was $1.0 million for the quarter ended
September 30, 1999 as compared to $0.4 million for the quarter ended September
30, 1998. This represented a 186% increase. Sales and marketing expense
represented 122% and 94% of revenues for the quarters ended September 30, 1999
and September 30, 1998, respectively. The increase in sales and marketing
expense was due primarily to a significant increase in amortization of deferred
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<PAGE> 42
compensation, increased personnel and related costs, increased spending for
advertising and promotion and increased participation in industry trade shows.
General and administrative expense was $1.0 million for the quarter
ended September 30, 1999 as compared to $0.2 million for the quarter ended
September 30, 1998. This represented a 352% increase. General and administrative
expense represented 117% and 57% of revenues for the quarters ended September
30, 1999 and September 30, 1998, respectively. The increase in general and
administrative expense was due primarily to a significant increase in
amortization of deferred compensation, increased personnel and related costs and
increased payments for legal and accounting services.
Net other expense was $0.0 million for the quarter ended September 30,
1999 while net other income was $0.1 million for the quarter ended September 30,
1998. This change was primarily attributable to the completion of a preferred
stock sale in July 1998. Investment of excess cash balances from the stock sale
significantly increased interest income in the quarter ended September 30, 1998.
In the quarter ended September 30, 1999, average cash balances were lower
resulting in reduced interest income.
No provision for income taxes was required in either period since the
Company incurred losses in both quarters.
Year Ended June 30, 1999 (FY 1999) Compared to Year Ended June 30, 1998
(FY 1998). Revenues decreased 49% to $1.9 million in FY 1999 from $3.7 million
in FY 1998. The decrease resulted primarily from a decrease in consulting
services activities as SALIX focused additional resources on the development of
the ETX 5000.
Direct expenses decreased 33% to $1.1 million in FY 1999 from $1.7
million in FY 1998. The total direct expenses as a percentage of revenues
increased to 61% in FY 1999 from 46% in FY 1998. The increase was attributable
to a change in focus away from consulting services activities, which resulted in
lower margins on the remaining contracts.
Engineering and development expense was $4.1 million for FY 1999, as
compared to $0.8 million for FY 1998. This represented a 438% increase.
Engineering and development expense represented 219% and 21% of revenues for FY
1999 and FY 1998, respectively. The increase in engineering and development
expense was due primarily to a significant increase in personnel and related
costs, increased payments to outside service providers and increased
non-recurring engineering (NRE) charges and prototype costs related to the
design, development, testing and enhancement of the ETX 5000.
Sales and marketing expense was $2.3 million for FY 1999 as compared to
$0.2 million for FY 1998. This represented an 862% increase. Sales and marketing
expense represented 122% and 6% of revenues for FY 1999 and FY 1998,
respectively. The increase in sales and marketing expense was due primarily to a
significant increase in personnel and related costs, increased spending for
advertising and promotion and increased participation in industry trade shows.
General and administrative expense was $1.7 million for FY 1999 as
compared to $0.6 million for FY 1998. This represented a 182% increase. General
and administrative expense represented 89% and 16% of revenues for FY 1999 and
FY 1998, respectively. The increase in general and administrative expense was
due primarily to a significant increase in personnel and related costs and
increased payments for legal and accounting services.
Net other income was $0.2 million in FY 1999 while net other expenses
were $0.0 million in FY 1998. This change was primarily attributable to the
completion of a preferred stock sale in July 1998. A portion of the stock sale
proceeds was used to repay existing notes payable and eliminate the related
interest expense. In addition, short-term investment of excess cash balances
from the stock sale significantly increased interest income in FY 1999.
The provision for income taxes was $0.0 million for FY 1999 as compared
to $0.1 million for FY 1998. This represented an 80% decrease. The FY 1999
provision consisted of a valuation allowance to reduce the net deferred tax
asset to zero. The provision for income taxes as a percentage of net income
before tax was 38% in FY 1998.
Year Ended June 30, 1998 (FY 1998) Compared to Year Ended June 30, 1997
(FY 1997). Revenues increased 83% to $3.7 million in FY 1998 from $2.0 million
in FY 1997. The increase resulted primarily from an increase in consulting
services activities as SALIX continued to expand and obtain additional
contracts.
Direct expenses increased 69% to $1.7 million in FY 1998 from $1.0
million in FY 1997. The total direct expenses as a percentage of revenues
decreased to 46% in FY 1998 from 50% in FY 1997. The increase in total expense
was due to the
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<PAGE> 43
increased volume of related revenues partly offset by higher overall margins on
the FY 1998 contracts, which resulted in a lower percentage of revenues ratio.
Engineering and development expense was $0.8 million for FY 1998, as
compared to $0.6 million for FY 1997. This represented a 37% increase.
Engineering and development expense represented 21% and 28% of revenues for FY
1998 and FY 1997, respectively. The increase in engineering and development
expense was due primarily to an increase in personnel and related costs.
Sales and marketing expense was $0.2 million for FY 1998 as compared to
$0.1 million for FY 1997. This represented a 66% increase. Sales and marketing
expense represented 6% and 7% of revenues for FY 1998 and FY 1997, respectively.
The increase in sales and marketing expense was due primarily to a significant
increase in personnel and related costs in the fourth quarter of FY 1998.
General and administrative expense was $0.6 million for FY 1998 as
compared to $0.3 million for FY 1997. This represented a 112% increase. General
and administrative expense represented 16% and 14% of revenues for FY 1998 and
FY 1997, respectively. The increase in general and administrative expense was
due primarily to a significant increase in personnel and related costs.
Net other expense was $0.0 million in FY 1998 as compared to $0.0
million in FY 1997. This represented a 24% decrease. This change was primarily
attributable to a reduction in interest expense.
The provision for income taxes was $0.1 million for FY 1998 as compared
to $0.0 million for FY 1997. This change was primarily attributable to increased
profitability in FY 1998.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The table below sets forth, as of February 4, 2000, the stock ownership
of the directors, executive officers and principal stockholders of SALIX
(including all holders of greater than 5% of SALIX common stock). The share
ownership and percentages listed in the table include any shares of SALIX common
stock held by the listed stockholders that are subject to options currently
exercisable or exercisable within sixty days from the date of these tables. The
persons and entities listed have, to SALIX's knowledge, sale, voting and
investment power with respect to all shares of SALIX 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>
Common Stock Series A Preferred Stock All Stock
------------------------------ ------------------------------- ----------------
Number of Percentage Number of Percentage
Shares Outstanding Shares Outstanding
Beneficially Common Beneficially Preferred Percentage Total
Owned Stock(1) Owned Stock(2) Shares(3)
------------ ----------- ------------ ----------- ----------------
<S> <C> <C> <C> <C> <C>
PRINCIPAL HOLDERS
New Enterprise Associates (4)
11911 Freedom Drive
One Fountain Square
Reston, VA 20190 -- -- 2,511,813 50.0% 23.2%
Grotech Partners (5)
9690 Deerco Road
Suite 800
Timonium, MD 21093 -- -- 2,511,813 50.0% 23.2%
Cottonwood LLC
c/o Miller, Miller and Canby
200-B Monroe Street
Rockville, MD 20850 3,000,000 61.1% -- -- 27.7%
</TABLE>
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<PAGE> 44
<TABLE>
<S> <C> <C> <C> <C> <C>
DIRECTORS AND
EXECUTIVE OFFICERS
Daniel Simpkins (6) 3,988,800 80.3% -- -- 36.8%
Peter Barris (7) -- -- 2,511,813 50.0% 23.2%
Patrick Kerins (8) -- -- 2,511,813 50.0% 23.2%
Peter S. Jackson(9) 112,500 2.3% -- -- 1.0%
Carl W. Symborski(10) 217,500 4.3% -- -- 2.0%
Lewis E. Bobbitt(11) 210,000 4.1% -- -- 1.9%
Terrence Wolters(12) 200,000 3.9% -- -- 1.8%
Gregory Schupp(13) 125,000 2.5% -- -- 1.2%
Gary H. Davison(14) 37,500 0.8% -- -- *
Ronald W. Torrence(15) 22,500 0.5% -- -- *
All executive officers and
directors as a group
(10 persons) 4,913,800 84.4% 5,023,626 100% 91.6%
</TABLE>
- --------------------------------
* Less than 1%.
(1) Based on 4,908,225 shares of common stock outstanding as of February 4,
2000 plus shares subject to options that are currently exercisable or
exercisable within 60 days of the date of the table with respect to the
stockholder in question.
(2) Based on 5,023,626 shares of Series A preferred stock outstanding as of
February 4, 2000.
(3) Based on outstanding shares of SALIX common stock and Series A preferred
stock, on an as converted basis, as of February 4, 2000 and shares that may
be acquired upon the exercise of stock options exercisable within 60 days
of the date of this table with respect to the listed persons.
(4) Includes 2,461,577 shares held by New Enterprise Associates VII, L.P.,
47,906 shares held by New Enterprise Associates President's Fund and 3,140
shares held by NEA Ventures 1998, L.P.
(5) Includes 1,255,907 shares held by Grotech Partners IV, L.P. and 1,255,906
shares held by Grotech Partners V. L.P.
(6) Includes 3,000,000 shares held by Cottonwood LLC. Mr. Simpkins has voting
and dispositive power with respect to the shares held by Cottonwood LLC.
Also includes 60,000 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table. The address of
Mr. Simpkins is c/o SALIX Technologies, Inc., 904 Wind River Lane, Suite
101, Gaithersburg, MD 20878.
(7) Peter Barris, a general partner of New Enterprise Associates, is a director
of SALIX. Mr. Barris does not own any shares of SALIX in his individual
capacity and disclaims beneficial ownership of the shares listed, except to
the extent of his pecuniary interest therein.
(8) Patrick Kerins, a general partner of Grotech, is a director of SALIX. Mr.
Kerins does not own any shares of SALIX in his individual capacity and
disclaims beneficial ownership of the shares listed, except to the extent
of his pecuniary interest therein.
(9) Includes 78,750 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table.
(10) Includes 180,000 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table.
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<PAGE> 45
(11) Consists of 210,000 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table.
(12) Consists of 200,000 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table.
(13) Consists of 125,000 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table.
(14) Consists of 37,500 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table.
(15) Consists of 22,500 shares that may be acquired upon the exercise of stock
options exercisable within 60 days of the date of the table.
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<PAGE> 46
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 December 31, 1999, there were issued or outstanding
404,265,187 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
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<PAGE> 47
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 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
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<PAGE> 48
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).
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.
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<PAGE> 49
COMPARISON OF RIGHTS OF SALIX STOCKHOLDERS
AND TELLABS STOCKHOLDERS
After consummation of the merger, the holders of SALIX common stock and
SALIX preferred stock who receive Tellabs common stock under the terms of the
merger agreement will become stockholders of Tellabs. Because SALIX and Tellabs
are both Delaware corporations, the rights of SALIX stockholders will continue
to be governed by the Delaware corporations statute. Additionally, the rights of
stockholders of SALIX are presently governed by the SALIX restated certificate
of incorporation and the SALIX amended and restated 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 SALIX
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 amended and restated
by-laws, the SALIX restated certificate of incorporation and amended and
restated 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.
SALIX. The restated certificate of incorporation of SALIX provides that
the SALIX Board will be comprised of five members. The holders of SALIX Series A
preferred stock and of SALIX common stock each are entitled to separately elect
two of these members. The remaining director is elected by the holders of SALIX
Series A preferred stock and SALIX common stock, voting jointly as a single
class.
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.
SALIX. The amended and restated by-laws of SALIX provide that the SALIX
Board or any of its members may be removed with or without cause. Neither the
SALIX amended and restated by-laws nor the SALIX restated certificate of
incorporation establish the vote required to effect any such removal. Under the
Delaware corporate statute, a vote of the majority of shares of the class of
stockholders that elected a director is required to remove such director.
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.
SALIX. The SALIX Board may alter, amend or repeal the SALIX amended and
restated by-laws, subject to certain limitations prohibiting changes that would
adversely affect the rights of the holders of SALIX Series A preferred stock.
The SALIX amended and restated by-laws also permit amendment and repeal by
action of the stockholders. The affirmative vote of the holders of at least 60%
of the outstanding shares of SALIX Series A preferred stock is required for any
changes that would adversely affect the rights, powers or privileges of holders
of such shares.
CERTIFICATE OF INCORPORATION AMENDMENTS
Tellabs. Tellabs' certificate of incorporation may be amended by the
Tellabs Board 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.
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<PAGE> 50
SALIX. Any provision of the SALIX restated certificate of incorporation
may be amended, altered, changed or repealed by the SALIX Board, except that the
affirmative vote of the holders of at least 60% of the outstanding shares of
SALIX Series A preferred stock is required for any changes that would adversely
affect the rights, powers or privileges of the holders of such shares.
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.
SALIX. The SALIX amended and restated by-laws provide that any action
that may be taken by the stockholders of the company at a stockholder meeting
may be taken by written consent in lieu of a meeting.
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."
SALIX. SALIX is not publicly held and accordingly is not subject to
Section 203 of the Delaware corporation statute.
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<PAGE> 51
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS OF SALIX
If the merger is consummated, a holder of record of SALIX 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 SALIX 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 SALIX 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 SALIX stock on the record date for the SALIX 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 D to this
proxy statement and prospectus.
A holder of SALIX stock who elects to exercise appraisal rights under
Section 262 must deliver a written demand for appraisal of his shares of SALIX
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, SALIX Technologies, Inc., 904 Wind River Lane #101,
Gaithersburg, MD 20878.
Only a holder of shares of SALIX 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 SALIX stock. If SALIX
stock is owned of record in a fiduciary capacity by a trustee, guardian or
custodian, the demand should be made in that capacity. If SALIX 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 SALIX 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 SALIX stock held for those beneficial owners. In that case, the
written demand for appraisal should state the number of shares of SALIX stock
covered by it. Unless a demand for appraisal specifies a number of shares, the
demand will be presumed to cover all shares of SALIX 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 SALIX SPECIAL MEETING.
46
<PAGE> 52
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 SALIX stock held by all stockholders seeking
appraisal. A dissenting stockholder must serve a copy of the petition on SALIX,
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 SALIX 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
SALIX 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 SALIX 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 SALIX 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 SALIX
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 SALIX 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.
47
<PAGE> 53
IN VIEW OF THE COMPLEXITY OF THESE PROVISIONS OF THE DELAWARE
CORPORATION STATUTE, ANY SALIX STOCKHOLDER WHO IS CONSIDERING EXERCISING
APPRAISAL RIGHTS SHOULD CONSULT A LEGAL ADVISOR.
EXPERTS
The consolidated financial statements of Tellabs for January 1, 1999
and January 2, 1998 and for each of the two years in the period ended January 1,
1999, included in Tellabs' Current Report on Form 8-K dated November 10, 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 report and are incorporated by
reference in this proxy statement and prospectus in reliance upon the report
given on the authority of such firm as experts in accounting and auditing. The
consolidated financial statements of Tellabs included in Tellabs' Current Report
on Form 8-K dated November 10, 1999 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 SALIX included in this registration
statement, of which this proxy statement and prospectus is a part, are from the
report of Arthur Andersen 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 Arthur Andersen LLP are expected to be present at
the SALIX 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 Piper Marbury Rudnick & Wolfe LLP, counsel to
SALIX, 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). SALIX
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
SALIX 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.
48
<PAGE> 54
TELLABS SEC FILINGS
- -------------------
(FILE NO. 0-9692) PERIOD
- ----------------- ------
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 Quarters ended April 2, 1999,
July 2, 1999 and October 1, 1999
Current Reports on Form 8-K Filed on April 22, 1999, April 29,
1999, July 7, 1999, August 18, 1999,
November 12, 1999, November 16, 1999,
and December 16, 1999
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
FEBRUARY 18, 2000 TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
The Board of Directors of SALIX 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 SALIX 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 SOLELY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT AND PROSPECTUS. NEITHER TELLABS NOR SALIX 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 SALIX AND ITS SUBSIDIARIES
HAS BEEN PROVIDED BY SALIX, 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 SALIX
WARRANTS THE ACCURACY OF INFORMATION RELATING TO THE OTHER PARTY. THIS PROXY
STATEMENT AND PROSPECTUS IS DATED FEBRUARY 7, 2000.
49
<PAGE> 55
SALIX TECHNOLOGIES, INC.
INDEX TO SALIX FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Condensed Balance Sheets as of September 30, 1999 and June 30, 1999.............................................F-2
Condensed Statements of Operations for the Three Months Ended September 30, 1999 and 1998 (Unaudited)...........F-3
Condensed Statements of Cash Flows For the Three Months Ended September 30, 1999 and 1998 (Unaudited)...........F-4
Notes to Unaudited Condensed Financial Statements...............................................................F-5
Report of Independent Public Accountants........................................................................F-8
Balance Sheets as of June 30, 1999 and 1998.....................................................................F-9
Statements of Operations for the Years Ended June 30, 1999, 1998, and 1997.....................................F-10
Statements of Shareholders' (Deficit) Equity for the Years Ended June 30, 1999, 1998, and 1997.................F-11
Statements of Cash Flows for the Years Ended June 30, 1999, 1998 and 1997......................................F-12
Notes to Financial Statements as of June 30, 1999, 1998 and 1997...............................................F-13
</TABLE>
F-1
<PAGE> 56
SALIX TECHNOLOGIES, INC.
CONDENSED BALANCE SHEETS
AS OF SEPTEMBER 30, 1999 AND JUNE 30, 1999
<TABLE>
<CAPTION>
ASSETS
September 30, June 30,
1999 1999
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 3,050,935 $ 1,324,716
Accounts receivable-
U.S. Government 433,374 706,825
Unbilled and other 40,361 326,447
Prepaid expenses and other 149,376 172,015
------------ ------------
Total current assets 3,674,046 2,530,003
------------ ------------
PROPERTY AND EQUIPMENT, net 546,266 476,079
Deposits and other assets 57,153 57,153
------------ ------------
Total assets $ 4,277,465 $ 3,063,235
============ ============
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 690,689 $ 598,294
Accrued expenses 1,340,580 707,136
Notes payable 4,000,000 -
Current portion of capital lease obligation 15,601 16,346
------------ ------------
Total current liabilities 6,046,870 1,321,776
------------ ------------
CAPITAL LEASE OBLIGATION, net of current portion 8,842 11,957
------------ ------------
Total liabilities 6,055,712 1,333,733
------------ ------------
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.01 par value; preference in
liquidation; 5,250,000 shares authorized; 5,023,626 issued and outstanding as of
September 30, 1999 and June 30, 1999, respectively 8,192,151 8,153,721
SHAREHOLDERS' DEFICIT:
Common stock, par value $.01 per share; 17,250,000 shares authorized; 4,847,963
and 4,626,900 shares issued and outstanding as of September 30, 1999 and
June 30, 1999, respectively 48,480 46,269
Additional paid-in capital 7,552,588 7,476,308
Notes receivable (189,500) (137,500)
Deferred compensation (5,830,106) (6,696,722)
Retained deficit (11,551,860) (7,112,574)
------------ ------------
Total shareholders' deficit (9,970,398) (6,424,219)
------------ ------------
Total liabilities and shareholders' deficit $ 4,277,465 $ 3,063,235
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed balance sheets.
F-2
<PAGE> 57
SALIX TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUES $ 852,980 $ 384,188
DIRECT EXPENSES 603,953 171,756
----------- -----------
GROSS MARGIN 249,027 212,432
OPERATING EXPENSES:
Engineering and development 2,590,579 510,906
Sales and marketing 1,037,040 362,452
General and administrative expenses 997,562 220,648
----------- -----------
Total operating expenses 4,625,181 1,094,006
----------- -----------
LOSS FROM OPERATIONS (4,376,154) (881,574)
INTEREST INCOME (EXPENSE), net (24,702) 59,823
----------- -----------
Net loss (4,400,856) (821,751)
ACCRETION ON PREFERRED STOCK (38,430) (38,430)
----------- -----------
Net loss attributable to common shareholders $(4,439,286) $ (860,181)
=========== ===========
BASIC NET LOSS PER SHARE $ (0.93) $ (.20)
=========== ===========
DILUTED NET LOSS PER SHARE $ (0.93) $ (.20)
=========== ===========
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING 4,771,725 4,275,000
=========== ===========
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 4,771,725 4,275,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed financial statements.
F-3
<PAGE> 58
SALIX TECHNOLOGIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(4,400,856) $ (821,751)
Adjustments to reconcile net loss to net cash provided by operating
activities-
Depreciation and amortization 69,708 17,173
Expense on stock and options issued to non-employees 866,616 -
Changes in operating assets and liabilities-
Accounts receivable 559,537 439,289
Prepaid expenses and other 22,639 (62,275)
Deposits and other - 8,466
Estimated costs in excess of billings - 15,948
Accounts payable 92,395 133,674
Accrued expenses 632,444 (111,982)
Income taxes payable - (176,973)
----------- -----------
Net cash used in operating activities (2,156,517) (558,431)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (139,893) (33,823)
Issuance of note receivable (52,000) -
----------- -----------
Net cash used in investing activities (191,893) (33,823)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (3,861) (3,805)
Repayment of notes payable - (183,971)
Borrowings under notes payable 4,000,000 -
Proceeds from issuance of preferred stock - 8,000,000
Proceeds from exercise of stock options 78,490 -
----------- -----------
Net cash provided by financing activities 4,074,629 7,812,224
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,726,219 7,219,970
CASH AND CASH EQUIVALENTS, beginning of period 1,324,716 283,859
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 3,050,935 $ 7,503,829
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 36,323 $ 3,356
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment acquired under capital lease $ - $ 25,134
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited
condensed financial statements.
F-4
<PAGE> 59
SALIX TECHNOLOGIES, INC.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND RISK FACTORS:
SALIX Technologies, Inc. (the "Company") was incorporated as a Delaware
corporation in 1990. The Company designs and manufactures local area and wide
area networking products, including hardware and software and provides systems
integration and product compliance services to its customers. The Company's
customers include U.S. government agencies and Fortune 100 companies located in
the United States.
The Company's operations are subject to certain risks and uncertainties
including, among others, the development of the next generation of the Company's
products, the success of the Company's product marketing and product
distribution strategies; actual and potential competition by entities with
greater financial resources, experience and market presence than the Company;
rapid technological changes; the need to retain key personnel and protect
intellectual property; and the availability of additional capital financing on
terms acceptable to the Company.
2. CASH AND CASH EQUIVALENTS:
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
3. NEW ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." The Company adopted SFAS No. 130 and
SFAS No. 131 during 1999. The adoption of these new pronouncements did not have
a material impact on the Company's results of operations, financial position or
cash flows.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," requires the presentation of basic and
diluted earnings per share. The Company adopted SFAS No. 128 during fiscal 1999
and has restated all previously presented earnings per share data. Basic net
income (loss) per share is computed by dividing income (loss) attributable to
common stockholders by the weighted-average number of common shares outstanding
for the period. The diluted net income (loss) per share data is computed using
the weighted-average number of common shares outstanding plus the dilutive
effect of common stock equivalents (stock options and preferred stock), unless
the common stock equivalents are antidilutive. All common stock equivalents have
been excluded from the calculation of diluted loss per share because they are
antidilutive.
F-5
<PAGE> 60
4. NOTES PAYABLE:
<TABLE>
<CAPTION>
SEPTEMBER 30, JUNE 30,
1999 1999
------------- --------
<S> <C> <C>
Note payable to preferred stockholder due on demand, monthly payments for
interest only at prime plus 2.5%, secured by assets of the Company. $2,000,000 $--
Note payable to preferred stockholder due on demand, monthly payments for
interest only at prime plus 2.5%, secured by assets of the Company. 2,000,000 --
---------- ---
$4,000,000 $--
========== ===
</TABLE>
5. PREFERRED STOCK:
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On July 10, 1998, the shareholders amended the Company's articles of
incorporation to authorize the issuance of a total number of 22,500,000 shares
of stock consisting of two classes: 17,250,000 shares of common stock at $.01
par value and 5,250,000 shares of preferred stock at $.01 par value.
On the same date, the Company issued 5,023,626 shares of Series A Redeemable
Convertible Preferred Stock ("preferred stock" or "Series A") at a price of
approximately $1.59 per share, resulting in net proceeds of approximately
$8,000,000. The preferred stock has liquidation preferences over the common
stock equal to a minimum of the original purchase price subject to adjustment
for certain dilutive events. The holders of the preferred stock are entitled to
receive non-cumulative dividends of $.24 per share when and if declared by the
Board of Directors. Dividends on preferred stock are in preference to any
declaration or payment of any dividends payable on the common stock. No
dividends have been declared.
At any time after five years following the preferred stock issuance, the Company
may be required to redeem at the option of the holder, the outstanding preferred
shares at a redemption price equal to 110 percent of the Series A stated value.
The Company records periodic accretion under the effective interest method for
the excess of the redemption value over the stated value.
The Series A shares have voting rights entitling Series A holders to the number
of votes per share equal to the number of shares of common stock into which each
share of Series A is convertible. The Series A shares are convertible at any
time at the option of the holder, or automatically upon the consummation of an
underwritten public offering at a selling price per share of common stock equal
to or exceeding $7.96 per share and where aggregate proceeds were not less than
$25,000,000. The conversion price is subject to adjustment for certain dilutive
events.
SHAREHOLDER AND INVESTOR AGREEMENTS
In connection with the Company's issuance of preferred stock on July 10, 1998,
all shareholders of the Company entered into a Shareholder Agreement and
Investor Agreement (the "Agreements"). The Agreements govern all transactions of
the Company's common stock including but not limited to limitations on the sale,
assignment, transfer, mortgage, or other encumbrances. Among other provisions,
the Agreement specifies shareholders' rights of first refusal on offers to
purchase common stock or future issuance of equity or debt securities. The
Agreements also specify voting procedures for the election of individuals to the
Company's Board of Directors.
F-6
<PAGE> 61
6. SUBSEQUENT EVENTS:
ACQUISITION
On December 21, 1999, the Company signed a definitive merger agreement with
Tellabs, Inc. ("Tellabs") whereby the Company will be acquired by Tellabs.
ADDITIONAL FINANCING
On December 1, 1999, an additional $2.5 million, $1.25 million from two
preferred stockholders, was borrowed under the same terms of the existing notes.
F-7
<PAGE> 62
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
SALIX Technologies, Inc.:
We have audited the accompanying balance sheets of SALIX Technologies, Inc. (a
Delaware Corporation), as of June 30, 1999 and 1998, and the related statements
of operations, shareholders' (deficit) equity, and cash flows for the three
years ended June 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of SALIX Technologies, Inc., as of
June 30, 1999 and 1998, and the results of its operations and its cash flows for
the three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles.
Arthur Andersen LLP
Vienna, Virginia
September 1, 1999
F-8
<PAGE> 63
SALIX TECHNOLOGIES, INC.
BALANCE SHEETS
AS OF JUNE 30, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,324,716 $ 283,859
Accounts receivable-
U.S. government 706,825 529,919
Unbilled and other 326,447 118,520
Estimated costs incurred on government contracts in excess of billings -- 15,948
Prepaid expenses and other 172,015 32,303
----------- -----------
Total current assets 2,530,003 980,549
----------- -----------
PROPERTY AND EQUIPMENT, net 476,079 94,898
OTHER ASSETS:
Deferred tax asset -- 28,933
Deposits and other 57,153 38,467
----------- -----------
Total other assets 57,153 67,400
----------- -----------
Total assets $ 3,063,235 $ 1,142,847
=========== ===========
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $ 598,294 $ 186,907
Accrued expenses 707,136 263,056
Income taxes payable -- 167,057
Current portion of capital lease obligation 16,346 6,746
Current portion of notes payable -- 147,072
----------- -----------
Total current liabilities 1,321,776 770,838
----------- -----------
LONG-TERM LIABILITIES:
Capital lease obligation, net of current portion 11,957 11,294
Notes payable -- 36,899
----------- -----------
Total long-term liabilities 11,957 48,193
----------- -----------
Total liabilities 1,333,733 819,031
----------- -----------
COMMITMENTS AND CONTINGENCIES
SERIES A REDEEMABLE CONVERTIBLE PREFERRED STOCK, $.01 par value; preference in
liquidation; 5,250,000 shares authorized; 5,023,626 issued and outstanding as
of June 30, 1999 8,153,721 --
SHAREHOLDERS' (DEFICIT) EQUITY:
Common stock, par value $.01 per share; 17,250,000 shares authorized;
4,626,900 and 6,153,000 shares issued as of June 30, 1999 and 1998,
respectively, 4,626,900 and 4,275,000 shares outstanding as of June 30,
1999 and 1998, respectively 46,269 61,530
Additional paid-in capital 7,476,308 218,046
Deferred compensation (6,696,722) --
Notes receivable (137,500) --
Retained (deficit) earnings (7,112,574) 176,740
Less- 1,878,000 shares of treasury stock, at cost -- (132,500)
----------- -----------
Total shareholders' (deficit) equity (6,424,219) 323,816
----------- -----------
Total liabilities and shareholders' (deficit) equity $ 3,063,235 $ 1,142,847
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-9
<PAGE> 64
SALIX TECHNOLOGIES, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
REVENUES $ 1,867,156 $ 3,682,383 $ 2,009,959
DIRECT EXPENSES 1,133,304 1,697,249 1,001,899
----------- ----------- -----------
GROSS MARGIN 733,852 1,985,134 1,008,060
OPERATING EXPENSES:
Engineering and development 4,085,044 759,612 554,137
Sales and marketing 2,284,919 237,537 143,470
General and administrative expenses 1,660,746 588,884 278,387
----------- ----------- -----------
Total operating expenses 8,030,709 1,586,033 975,994
----------- ----------- -----------
(LOSS) INCOME FROM OPERATIONS (7,296,857) 399,101 32,066
OTHER INCOME (EXPENSE):
Interest income (expense), net 197,354 (16,052) (19,082)
----------- ----------- -----------
Other expenses (7,157) (690) (2,955)
----------- ----------- -----------
Total other income (expense) 190,197 (16,742) (22,037)
----------- ----------- -----------
Net (loss) income before income taxes (7,106,660) 382,359 10,029
INCOME TAX PROVISION (28,933) (145,441) (1,067)
----------- ----------- -----------
Net (loss) income (7,135,593) 236,918 8,962
ACCRETION ON PREFERRED STOCK (153,721) -- --
----------- ----------- -----------
Net (loss) income attributable to common shareholders $(7,289,314) $ 236,918 $ 8,962
=========== =========== ===========
BASIC NET (LOSS) INCOME PER SHARE $ (1.669) $ 0.055 $ 0.002
=========== =========== ===========
DILUTED NET (LOSS) INCOME PER SHARE $ (1.669) $ 0.043 $ 0.002
=========== =========== ===========
BASIC WEIGHTED-AVERAGE SHARES OUTSTANDING 4,368,209 4,275,000 4,743,690
=========== =========== ===========
DILUTED WEIGHTED-AVERAGE SHARES OUTSTANDING 4,368,209 5,500,121 5,033,997
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE> 65
SALIX TECHNOLOGIES, INC.
STATEMENTS OF SHAREHOLDERS' (DEFICIT) EQUITY
FOR THE YEARS ENDED JUNE 30, 1999, 1998, AND 1997
<TABLE>
<CAPTION>
SERIES A REDEEMABLE SHAREHOLDERS' (DEFICIT) EQUITY
CONVERTIBLE ---------------------------------------
PREFERRED STOCK COMMON STOCK ADDITIONAL
----------------------- ------------------------ PAID-IN
SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1996 -- $ -- 6,153,000 $ 61,530 $ 218,046
Purchase of treasury stock -- -- -- -- --
Net income -- -- -- -- --
--------- ----------- --------- ----------- -----------
BALANCE, June 30, 1997 -- -- 6,153,000 61,530 218,046
Net income -- -- -- -- --
--------- ----------- --------- ----------- -----------
BALANCE, June 30, 1998 -- -- 6,153,000 61,530 218,046
Issuance of preferred stock 5,023,626 8,000,000 -- -- --
Issuance of common stock -- -- 166,800 1,668 206,765
Exercise of stock options -- -- 185,100 1,851 23,311
Accretion on preferred stock -- 153,721 -- -- --
Cancellation of treasury stock -- -- (1,878,000) (18,780) (113,720)
Compensation on stock options granted -- -- -- -- 7,141,906
Amortization of deferred compensation -- -- -- -- --
Net loss -- -- -- -- --
--------- ----------- --------- ----------- -----------
BALANCE, June 30, 1999 5,023,626 $ 8,153,721 4,626,900 $ 46,269 $ 7,476,308
========= =========== ========= =========== ===========
<CAPTION>
SHAREHOLDERS' (DEFICIT) EQUITY
-----------------------------------------------------------------------
RETAINED
DEFERRED NOTES TREASURY (DEFICIT)
COMPENSATION RECEIVABLE STOCK EARNINGS TOTAL
------------ ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, July 1, 1996 $ -- $ -- $ (2,500) $ (69,140) $ 207,936
Purchase of treasury stock -- -- (130,000) -- (130,000)
Net income -- -- -- 8,962 8,962
----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1997 -- -- (132,500) (60,178) 86,898
Net income -- -- -- 236,918 236,918
----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1998 -- -- (132,500) 176,740 323,816
Issuance of preferred stock -- -- -- -- --
Issuance of common stock -- (137,500) -- -- 70,933
Exercise of stock options -- -- -- -- 25,162
Accretion on preferred stock -- -- -- (153,721) (153,721)
Cancellation of treasury stock -- -- 132,500 -- --
Compensation on stock options granted (7,073,281) -- -- -- 68,625
Amortization of deferred compensation 376,559 -- -- -- 376,559
Net loss -- -- -- (7,135,593) (7,135,593)
----------- ----------- ----------- ----------- -----------
BALANCE, June 30, 1999 $(6,696,722) $ (137,500) $ -- $(7,112,574) $(6,424,219)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE> 66
SALIX TECHNOLOGIES, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(7,135,593) $ 236,918 $ 8,962
Adjustments to reconcile net income to net cash provided by operating
activities-
Depreciation and amortization 210,908 73,888 70,429
(Gain) loss on sale of property and equipment (8,603) 1,227 --
Expense on stock and options 445,184 -- --
Changes in operating assets and liabilities-
Accounts receivable (384,833) (378,002) (128,772)
Prepaid expenses and other (139,712) (15,984) 13,170
Deferred tax asset 28,933 (26,078) (7,562)
Deposits and other (18,686) (34,809) (2,855)
Estimated costs in excess of billings 15,948 (10,701) 4,918
Accounts payable 411,387 47,079 93,935
Accrued expenses 444,080 127,427 84,550
Income taxes payable (167,057) 162,221 3,697
----------- ----------- -----------
Net cash (used in) provided by operating activities (6,298,044) 183,186 140,472
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (558,551) (78,996) (40,250)
Issuance of note receivable (137,500) -- --
Proceeds from the sale of property and equipment 200 1,619 --
----------- ----------- -----------
Net cash used in investing activities (695,851) (77,377) (40,250)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on capital lease obligations (14,872) (10,970) (22,541)
Repayments of notes payable (183,971) (17,203) (5,638)
Borrowings under notes payable -- -- 166,945
Proceeds from issuance of preferred stock 8,000,000 -- --
Proceeds from issuance of common stock 208,433 -- --
Proceeds from exercise of stock options 25,162 -- --
Payments to acquire treasury stock -- -- (130,000)
----------- ----------- -----------
Net cash (used in) provided by financing activities 8,034,752 (28,173) 8,766
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1,040,857 77,636 108,988
CASH AND CASH EQUIVALENTS, beginning of year 283,859 206,223 97,235
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 1,324,716 $ 283,859 $ 206,223
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for-
Interest $ 7,267 $ 24,409 $ 23,432
Income taxes $ 176,973 $ 5,027 $ 225
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Equipment acquired under capital lease $ 25,134 $ 20,392 $ --
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE> 67
SALIX TECHNOLOGIES, INC.
NOTES TO FINANCIAL STATEMENTS
AS OF JUNE 30, 1999, 1998 AND 1997
1. NATURE OF OPERATIONS AND RISK FACTORS:
SALIX Technologies, Inc. (the "Company") was incorporated as a Delaware
corporation in 1990. The Company designs and manufactures local area and wide
area networking products, including hardware and software and provides systems
integration and product compliance services to its customers. The Company's
customers include U.S. government agencies and Fortune 100 companies located in
the United States.
The Company's operations are subject to certain risks and uncertainties
including, among others, the development of the next generation of the Company's
products, the success of the Company's product marketing and product
distribution strategies; actual and potential competition by entities with
greater financial resources, experience and market presence than the Company;
rapid technological changes; the need to retain key personnel and protect
intellectual property; and the availability of additional capital financing on
terms acceptable to the Company.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
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.
REVENUE RECOGNITION
Revenues include services rendered on cost-plus-fixed fee contracts with the
U.S. Government. Revenues from cost-plus-fixed fee contracts are recognized to
the extent of costs incurred plus a proportionate amount of fee earned.
Contracts with the U.S. Government are subject to audit by cognizant government
audit agencies and they may be subject to other risks inherent in government
contracts, such as termination for the convenience of the government.
Revenues related to commercial contracts consist of sales of finished products
developed specifically for an end user. Production of products is not initiated
until binding agreements are made between the Company and the commercial entity.
Revenue is recognized upon delivery of the product.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. As of June 30, 1998,
the Company had certificates of deposit for $33,498, which were pledged as
collateral and required to be maintained under the line of credit agreement with
the bank.
F-13
<PAGE> 68
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The cost of property and equipment is
depreciated over the estimated useful lives of the related assets, typically
three to seven years. Depreciation of property and equipment is provided using
an accelerated method.
Property and equipment consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Laboratory equipment $ 479,657 $ 86,984 $ 43,112
Furniture and other equipment 157,770 37,414 39,342
Computers 117,072 114,601 82,244
Software 70,480 48,954 33,810
Equipment held under capital leases 69,068 43,934 64,623
Leasehold improvements 18,459 -- --
--------- --------- ---------
Subtotal 912,506 331,887 263,131
Less- Accumulated depreciation (436,427) (236,989) (190,886)
--------- --------- ---------
Total $ 476,079 $ 94,898 $ 72,245
========= ========= =========
</TABLE>
ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Accrued compensation and benefits $494,095 $258,786
Accrued professional fees 200,000 --
Other accrued expenses 13,041 4,270
-------- --------
Accrued expenses $707,136 $263,056
======== ========
</TABLE>
INCOME TAXES
Deferred taxes are provided utilizing the liability method as prescribed by
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes," whereby deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards, and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amount of assets
and liabilities and their tax basis. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
RESEARCH AND DEVELOPMENT COSTS
The Company accounts for software development costs in accordance with SFAS No.
86, "Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed." Costs incurred prior to establishment of technological
feasibility are expensed as incurred and reflected as engineering and
development costs in the accompanying statements of operations.
F-14
<PAGE> 69
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents
and accounts receivable. The Company's cash is deposited with major financial
institutions. As of June 30, 1999, 1998 and 1997, approximately $1,200,000,
$148,000 and $70,000, respectively, in cash deposits was in excess of federally
insured limits. The Company routinely assesses the financial strength of these
financial institutions.
The Company currently has contracts to do business with the federal government
and several telecommunication technology companies within the United States.
Receivables arising from these contracts are not collateralized. Credit risk is
affected by conditions or occurrences within the economy and the
telecommunication industry. The Company maintains an allowance for uncollectible
accounts. Factors utilized by management in determining the adequacy of the
allowance include the present and prospective financial condition of the debtor
and the age of the accounts receivable.
The following table summarizes the revenues and accounts receivable from
customers in excess of 10 percent of total revenues and accounts receivable:
<TABLE>
<CAPTION>
ACCOUNTS
REVENUE FOR THE YEAR RECEIVABLE AS OF
ENDED JUNE 30 JUNE 30
-------------------------- ------------------
1999 1998 1997 1999 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Customer A 99% 91% 96% 99% 82%
Customer B * * * * 18%
</TABLE>
*Represents less than 10 percent of total.
FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
disclosures of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate the
value. SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from these disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the Company.
The carrying amounts reported in the balance sheet approximate the fair value
for cash and cash equivalents, accounts receivable, accounts payable and notes
payable.
EARNINGS PER SHARE
SFAS No. 128, "Earnings Per Share," requires the presentation of basic and
diluted earnings per share. The company adopted SFAS No. 128 during fiscal 1999
and has restated all previously presented earnings per share data. Basic net
income (loss) per share is computed by dividing income (loss) attributable to
common stockholders by the weighted-average number of common shares outstanding
for the period. The diluted net income (loss) per share data is computed using
the weighted-average number of common shares outstanding plus the dilutive
effect of common stock equivalents (stock options and preferred stock), unless
the common stock equivalents are antidilutive. Stock options represent the only
difference between basic and diluted earnings per share for the years ended June
30, 1998 and 1997. All common stock equivalents have been excluded from the
calculation of diluted loss per share in 1999 because they are antidilutive.
F-15
<PAGE> 70
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," and SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." The Company adopted SFAS No. 130 and
SFAS No. 131 during 1999. The adoption of these new pronouncements did not have
a material impact on the Company's results of operations, financial position or
cash flows.
3. LINE OF CREDIT:
In April 1998, the Company negotiated a revolving line of credit agreement with
a lending institution for an amount equal to the lesser of $225,000 or 80
percent of eligible accounts receivable. The line of credit, which matured in
April 1999, is collateralized by the Company's assets and personally guaranteed
by the president of the Company. The line of credit agreement requires a monthly
interest payment at a per annum rate of prime plus 2 1/4 percent. As of June 30,
1998, no amounts were outstanding under the line of credit agreement. During
fiscal 1999, the Company terminated this agreement in connection with its
preferred stock issuance.
4. LONG-TERM DEBT:
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
Note payable, bank, due on demand, monthly payments for interest only at
prime plus 2.75%, secured by a deed of trust on the residence of the
Company's president, a certificate of deposit and assignment of a life
insurance policy on the life of the Company's president. $ -- $ 130,000
Note payable, bank, due May 2001, monthly installments of $1,863,
interest at prime plus 2.75%, secured by miscellaneous office and
laboratory equipment, a deed of trust on the residence of the Company's
president and personally guaranteed by the president. -- 53,971
--------- ---------
-- 183,971
Less- Current maturities included in current liabilities -- (147,072)
--------- ---------
$ -- $ 36,899
========= =========
</TABLE>
During 1999, the Company used the proceeds from its preferred stock issuance to
repay this debt.
5. PREFERRED STOCK:
REDEEMABLE CONVERTIBLE PREFERRED STOCK
On July 10, 1998, the shareholders amended the Company's certificate of
incorporation to authorize the issuance of a total number of 22,500,000 shares
of stock consisting of two classes: 17,250,000 shares of common stock at $.01
par value and 5,250,000 shares of preferred stock at $.01 par value.
On the same date, the Company issued 5,023,626 shares of Series A Redeemable
Convertible Preferred Stock ("preferred stock" or "Series A") at a price of
approximately $1.59 per share, resulting in net proceeds of approximately
$8,000,000. The preferred stock has liquidation preferences over the common
stock equal to a minimum of the original purchase price subject to adjustment
for certain dilutive events. The holders of the preferred stock are entitled to
receive non-cumulative dividends of $.24 per share when and if declared by the
F-16
<PAGE> 71
Board of Directors. Dividends on preferred stock are in preference to any
declaration or payment of any dividends payable on the common stock. No
dividends have been declared. At any time after five years following the
preferred stock issuance, the Company may be required to redeem at the option of
the holder, the outstanding preferred shares at a redemption price equal to 110
percent of the Series A stated value. The Company records periodic accretion
under the effective interest method for the excess of the redemption value over
the stated value.
The Series A shares have voting rights entitling Series A holders to the number
of votes per share equal to the number of shares of common stock into which each
share of Series A is convertible. The Series A shares are convertible at any
time at the option of the holder, or automatically upon the consummation of an
underwritten public offering at a selling price per share of common stock equal
to or exceeding $7.96 per share and where aggregate proceeds were not less than
$25,000,000. The conversion price is subject to adjustment for certain dilutive
events.
SHAREHOLDER AND INVESTOR AGREEMENTS
In connection with the Company's issuance of preferred stock on July 10, 1998,
all shareholders of the Company entered into a Shareholder Agreement and
Investor Agreement (the "Agreements"). The Agreements govern all transactions of
the Company's common stock including but not limited to limitations on the sale,
assignment, transfer, mortgage, or other encumbrances. Among other provisions,
the Agreement specifies shareholders' rights of first refusal on offers to
purchase common stock or future issuance of equity or debt securities. The
Agreements also specify voting procedures for the election of individuals to the
Company's Board of Directors.
6. SHAREHOLDERS' EQUITY:
STOCK SPLIT
In October 1997, the shareholders approved an increase in the number of
authorized common shares from 1,000,000 to 5,000,000. Concurrently, the Board of
Directors declared a 5-for-1 common stock split to be reflected through a stock
dividend. In July 1998, the shareholders approved an increase in the number of
authorized common shares from 5,000,000 to 17,250,000. Concurrently, the Board
of Directors declared a 3-for-2 common stock split to be reflected through a
stock dividend. All share and per-share amounts have been restated in these
notes and the accompanying financial statements to reflect these stock splits.
7. EMPLOYEE BENEFIT PLANS:
1994 STOCK OPTION PLAN
The Company's 1994 Stock Option Plan (the "1994 Plan") authorizes the issuance
of an aggregate of 500,000 shares of common stock pursuant to the exercise of
stock options. The 1994 Plan provides for incentive stock option grants to
employees only. The 1994 Plan is administered by the Board of Directors, which
has sole discretion and authority, consistent with the provisions of the 1994
Plan, to determine which eligible participants will receive options, the time
when the options will be granted, the terms of the options granted, and the
number of shares that will be subject to the options granted under the 1994
Plan. Optionees may not sell, exchange or otherwise transfer the common stock
acquired through the exercise of options without first offering the common stock
to the Company.
The exercise price of options must not be less than 100 percent of the fair
market value of the common stock on the date the option is granted (110 percent
of the fair market value of such common stock with respect to any optionee who
immediately before any option is granted, directly or indirectly, possesses more
than 10 percent of the total combined voting power of all classes of stock of
the Company ("10% Owners")). The Board of Directors
F-17
<PAGE> 72
has the authority to determine the time or times at which options granted under
the 1994 Plan become exercisable (typically two years); provided that such
options expire no later than 10 years from the date of grant (five years with
respect to 10% Owners). Unless terminated sooner by the Board of Directors, the
1994 Plan terminates in August 2004 or the date on which all shares available
for issuance shall have been issued pursuant to the exercise or cancellation of
options granted under the 1994 Plan. In August 1998, all holders of options
granted under the 1994 Plan elected to have their options governed by the terms
and conditions of the Company's Omnibus Stock Plan. Consequently, the Board of
Directors terminated the 1994 Plan.
1996 STOCK OPTION PLAN
The Company's 1996 Stock Option Plan (the "1996 Plan") authorizes the issuance
of an aggregate of 1,000,000 shares of common stock pursuant to the exercise of
stock options. The 1996 Plan provides for incentive stock option grants to
employees only. The 1996 Plan is administered by the Board of Directors, which
has sole discretion and authority, consistent with the provisions of the 1996
Plan, to determine which eligible participants will receive options, the time
when the options will be granted, the terms of the options granted, and the
number of shares that will be subject to the options granted under the 1996
Plan. Optionees may not sell, exchange or otherwise transfer the common stock
acquired through the exercise of options without first offering the common stock
to the Company.
The exercise price of options must not be less than 100 percent of the fair
market value of the common stock on the date the option is granted (110 percent
of the fair market value of such common stock with respect to any optionee who
immediately before any option is granted, directly or indirectly, possesses more
than 10 percent of the total combined voting power of all classes of stock of
the Company ("10% Owners")). The Board of Directors has the authority to
determine the time or times at which options granted under the 1996 Plan become
exercisable (typically ratably over five years); provided that such options
expire no later than 10 years from the date of grant (five years with respect to
10% Owners). Unless terminated sooner by the Board of Directors, the 1996 Plan
terminates in June 2006 or the date on which all shares available for issuance
shall have been issued pursuant to the exercise or cancellation of option
granted under the 1996 Plan. In August 1998, all holders of options granted
under the 1996 Plan elected to have their options governed by the terms and
conditions of the Company's Omnibus Stock Plan. Consequently, the Board of
Directors terminated the 1996 Plan.
1998 OMNIBUS STOCK PLAN
The Company's 1998 Omnibus Stock Plan (the "Omnibus Plan") authorizes the
issuance of an aggregate of up to 3,260,439 shares of common stock with respect
to certain "Awards" made under the Omnibus Plan. The Omnibus Plan provides for
option grants to employees, officers, directors, and consultants of the Company
or any affiliate of the Company. Awards under the Omnibus Plan may take the form
of grants of stock options, stock appreciation rights, restricted or
unrestricted stock, phantom stock, performance awards, or any combination
thereof. The Omnibus Plan is administered by the Board of Directors, or by such
committee or committees as may be appointed by the Board of Directors from time
to time (the "Administrator"). The Administrator has sole power of authority,
consistent with the provisions of the Omnibus Plan, to determine which eligible
participants will receive Awards, the form of the Awards and the number of
shares of common stock covered by each Award, to impose terms, limits,
restrictions, and conditions upon Awards, to modify, amend, extend, or renew
Awards (with the consent of the awardee), to accelerate or change the exercise
timing of Awards or to waive any restrictions or conditions to an Award and to
establish objectives and conditions for earning Awards.
For any option intended to qualify as an incentive stock option, the exercise
price must not be less than the fair market value of the common stock on the
date the option is granted. Awards shall vest in accordance with the terms of
each individual grant. Awards dependent upon the passage of time will fully vest
no earlier than one year and no later than five years after the date of grant.
Awards dependent upon the occurrence of specified events or milestones shall
fully vest no later than five years after the date of grant. Unvested Awards
shall immediately become vested, as defined in the Omnibus Plan agreement, upon
an initial public offering, a
F-18
<PAGE> 73
dissolution or liquidation of the Company, or a merger or consolidation in which
the Company is not the surviving entity with specified minimum proceeds. Unless
terminated sooner by the Board, the Omnibus Plan will terminate in January 2008
or the date on which all shares available for issuance shall have been issued
pursuant to the exercise or cancellation of Awards under the Omnibus Plan.
The Company records expense related to stock options based on the difference
between the fair market value of the stock at the date of award and the exercise
price, if any, over the vesting period. Options granted to nonemployees are
recorded as compensation expense based on the value of the option granted.
The following table summarizes the activity of the Company's stock option plans
for the three years ended June 30, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
RANGE OF AVERAGE
NUMBER OF EXERCISE EXERCISE
OPTIONS PRICES PRICE
----------- ----------- -----------
<S> <C> <C> <C>
Balance, July 1, 1996 679,687 $.02 - $.05 $ .03
----------- ----------- -----------
Granted 447,188 .05 .05
Exercised -- -- --
Canceled/forfeited -- -- --
----------- ----------- -----------
Balance, June 30, 1997 1,126,875 .02 - .05 .04
----------- ----------- -----------
Granted 951,750 .05 - .67 .49
Exercised -- -- --
Canceled/forfeited (39,375) .05 .05
----------- ----------- -----------
Balance, June 30, 1998 2,039,250 .02 - .67 .25
----------- ----------- -----------
Granted 1,093,375 1.25 1.25
Exercised (185,100) .02 - 1.25 .14
Canceled/forfeited (436,875) .02 - 1.25 .39
----------- ----------- -----------
Balance, June 30, 1999 2,510,650 $.02 - 1.25 $ .55
=========== =========== ===========
</TABLE>
The weighted-average grant-date fair value of options granted during the year
ended June 30, 1999, 1998 and 1997, was $4.36, $.12 and $.01, respectively.
Options to purchase 1,136,288 shares of the Company's common stock were vested
and exercisable at June 30, 1999, at a weighted-average per share exercise price
of $.22. The weighted-average remaining contractual life of options outstanding
at June 30, 1999, was 7.54 years.
The Company adopted the disclosure requirements of SFAS No. 123, "Accounting for
Stock-Based Compensation," effective for the Company's June 30, 1997 financial
statements. The Company applies APB Opinion No. 25, "Accounting for Stock Issued
to Employees," and related Interpretations in accounting for its Plan.
Accordingly, compensation costs of approximately $3.5 million have been
recognized for its stock plan based on the intrinsic value of the stock options
at the date of grant (i.e., the difference between the exercise price and the
fair value of the Company's common stock). The deferred compensation will be
recognized over the vesting period of the related options. For the years ended
June 30, 1999 and 1998, the Company recognized compensation expense of
approximately $23,000 and $0, respectively.
F-19
<PAGE> 74
Had compensation cost for the Company's stock-based compensation plan been
determined based on the fair value at the grant dates for awards under the Plan
made in fiscal year 1998 consistent with the method of SFAS No. 123, the
Company's net income would have been decreased to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- --------- --------
<S> <C> <C> <C>
Net (loss) income attributable to common shareholders:
As reported $ (7,289,314) $ 236,918 $ 8,962
Pro forma (7,348,146) 171,698 (657)
Basic (loss) income per share:
As reported $ (1.669) $ 0.055 $ 0.002
Pro forma $ (1.682) $ 0.040 $ 0.002
Diluted (loss) income per share:
As reported $ (1.669) $ 0.043 $ 0.002
Pro forma $ (1.682) $ 0.031 $ 0.002
</TABLE>
The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model. The following assumptions were used for the
grants during the three fiscal years ended June 30, 1999, 1998 and 1997; no
dividend yield, expected volatility of zero, risk-free interest rate of 5.7 -
6.0, 5.7 and 6.2 percent, respectively, and expected lives of 5 years.
From July 1, 1999 to September 1, 1999, the Company granted to new employees
options to purchase 97,470 shares of common stock.
STOCK AND OPTIONS ISSUED TO NON-EMPLOYEES
In March 1999, the Company issued 110,000 shares of common stock to
non-employees in connection with services rendered in exchange for $137,500 in
promissory notes. The promissory notes are secured by the shares purchased, bear
no interest and are due on October 1, 2003. The promissory notes have been
reflected as a component of shareholders' equity in the accompanying financial
statements.
The Company has also issued 56,800 shares of restricted common stock and options
to purchase 40,000 shares of common stock at $1.25 per share to non-employees in
connection with services rendered. The weighted-average grant-date fair value of
the restricted common stock is $.28. These shares and options vest over varying
periods although vesting is accelerated in the event the Company is merged with
or acquired by, sells substantially all of it product rights to, conveys voting
control to, or otherwise conveys the substantial majority of its ongoing
business activities to, another company. Expense has been recognized on these
agreements in accordance with EITF 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"), whereby the value of the shares and
expense is ultimately measured when the services have been completed or when the
shares become fully vested. In accordance with EITF 96-18, the Company has
estimated the expense of the equity instruments issued to non-employees based
upon the fair value of the Company's common stock at June 30, 1999. Deferred
compensation costs of approximately $3.5 million have been recognized and will
be expensed over the vesting periods. For the years ended June 30, 1999 and
1998, the Company recognized compensation expense of approximately $350,000 and
$0, respectively.
F-20
<PAGE> 75
RETIREMENT PLAN
The Company maintains an Internal Revenue Code Section 401(k) retirement plan
covering all full time employees. The plan provides for matching contributions
at the Company's discretion. There was no contribution to the plan for the years
ended June 30, 1999, 1998 and 1997.
8. INCOME TAXES:
At June 30, 1999, the Company had net operating loss carryforwards ("NOLs") of
approximately $6,670,000 that expire beginning in 2014. The realization of the
benefits of the NOLs is dependent on sufficient taxable income in future fiscal
years. Lack of further earnings, a change in the ownership, or the application
of the alternative minimum tax rules could adversely affect the Company's
ability to utilize the NOLs.
At June 30, 1999, 1998 and 1997, the components of the provision for income
taxes consist of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Current provision:
Federal $ -- $ (140,893) $ (3,618)
State -- (30,626) (1,689)
Deferred benefit:
Federal 2,250,063 21,425 2,891
State 489,097 4,653 1,349
Valuation allowance (2,768,093) -- --
----------- ----------- -----------
$ (28,933) $ (145,441) $ (1,067)
=========== =========== ===========
</TABLE>
The effective income tax rate is reconciled to the Federal statutory rate as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate 34.0% 34.0% 21.0%
Income taxes at Federal Statutory rate
$(2,416,264) $ 130,000 $ 2,106
Increase (decrease) in taxes:
Resulting from-
State income taxes, net of Federal
income tax benefit (328,328) 17,664 401
Valuation allowance 2,768,093 -- --
Other 5,432 (2,223) (1,440)
----------- ----------- -----------
Income tax provision $ 28,933 $ 145,441 $ 1,067
=========== =========== ===========
Effective tax rate 0.0% 38.0% 10.6%
=========== =========== ===========
</TABLE>
F-21
<PAGE> 76
At June 30, 1999, 1998 and 1997, the components of the net current deferred tax
asset are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Depreciation $ 33,212 $ 10,577 $ 2,383
Accrued employee benefit costs 35,147 12,197 1,571
Unbilled contracts 123,534 6,159 (1,099)
Net operating loss carryforwards 2,576,200 -- --
Valuation allowance (2,768,093) -- --
----------- ----------- -----------
$ -- $ 28,933 $ 2,855
=========== =========== ===========
</TABLE>
9. COMMITMENTS AND CONTINGENCIES:
LEASES
The Company leases computer and laboratory equipment under various capital
leases. The Company is also leasing office space under a five-year operating
lease that expires in April 2003 and a seven-month operating lease that expires
in January 2000. Minimum future lease payments under capital and operating
leases as of June 30, 1999, for the remaining life of the leases are:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
JUNE 30 LEASES LEASES
----------- -------- ---------
<S> <C> <C>
2000 $19,356 $157,241
2001 14,080 102,933
2002 838 96,702
2003 -- 80,700
2004 -- --
Thereafter -- --
------- --------
34,274 $437,576
Less- Amounts representing interest (5,971) ========
Less- Current portion (16,346)
-------
Long-term portion $11,957
=======
</TABLE>
10. SUBSEQUENT EVENT:
On September 1, 1999, the Company obtained $4,000,000 in additional financing
from two of its investors. The two notes payable for $2,000,000 each accrue
interest at prime plus 2 1/2 percent and are due upon demand by the holder. The
notes are collateralized by the assets of the Company.
F-22
<PAGE> 77
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
TELLABS, INC.,
ORIOLE MERGER CORP.
AND
SALIX TECHNOLOGIES, INC.
DATED AS OF DECEMBER 21, 1999
<PAGE> 78
AGREEMENT AND PLAN OF MERGER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE I
THE MERGER
Section 1.1 The Merger....................................................................................A-2
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-3
Section 1.6 Delivery of Certificates and Payment of Cash..................................................A-5
Section 1.7 Dividends; Transfer Taxes; Withholding........................................................A-5
Section 1.8 No Fractional Securities......................................................................A-6
Section 1.9 Abandoned Property............................................................................A-7
Section 1.10 No Further Ownership Rights in Company Common Stock...........................................A-7
Section 1.11 Closing of Company Transfer Books.............................................................A-7
Section 1.12 Lost Certificates.............................................................................A-7
Section 1.13 Further Assurances............................................................................A-7
Section 1.14 Closing.......................................................................................A-8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Section 2.1 Organization, Standing and Power..............................................................A-8
Section 2.2 Capital Structure.............................................................................A-8
Section 2.3 Authority.....................................................................................A-9
Section 2.4 Consents and Approvals; No Violation..........................................................A-9
Section 2.5 SEC Documents and Other Reports..............................................................A-11
Section 2.6 Registration Statement and Proxy Statement...................................................A-11
Section 2.7 Actions and Proceedings......................................................................A-12
Section 2.8 Required Vote of Parent Stockholders.........................................................A-12
Section 2.9 Pooling of Interests; Reorganization.........................................................A-12
Section 2.10 Brokers......................................................................................A-12
Section 2.11 Operations of Sub............................................................................A-12
Section 2.12 Absence of Undisclosed Liabilities...........................................................A-12
Section 2.13 Operations and Obligations...................................................................A-12
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1 Organization, Standing and Power.............................................................A-13
</TABLE>
A-i
<PAGE> 79
<TABLE>
<S> <C> <C>
Section 3.2 Capital Structure............................................................................A-13
Section 3.3 Authority....................................................................................A-15
Section 3.4 Consents and Approvals; No Violation.........................................................A-15
Section 3.5 Financial Statements.........................................................................A-16
Section 3.6 No Dividends; Absence of Certain Changes or Events...........................................A-17
Section 3.7 Governmental Permits.........................................................................A-19
Section 3.8 Registration Statement and Proxy Statement...................................................A-19
Section 3.9 Tax Matters..................................................................................A-20
Section 3.10 Actions and Proceedings......................................................................A-21
Section 3.11 Certain Agreements...........................................................................A-21
Section 3.12 ERISA........................................................................................A-22
Section 3.13 Worker Safety and Environmental Laws.........................................................A-23
Section 3.14 Labor Matters................................................................................A-23
Section 3.15 Intellectual Property; Software..............................................................A-23
Section 3.16 Availability of Assets and Legality of Use...................................................A-26
Section 3.17 Real Property................................................................................A-26
Section 3.18 Real Property Leases.........................................................................A-26
Section 3.19 Personal Property Leases.....................................................................A-26
Section 3.20 Title to Assets..............................................................................A-26
Section 3.21 Contracts....................................................................................A-26
Section 3.22 Status of Contracts..........................................................................A-27
Section 3.23 Insurance....................................................................................A-28
Section 3.24 Takeover Statutes and Charter Provisions.....................................................A-28
Section 3.25 Required Vote of Company Stockholders........................................................A-28
Section 3.26 Pooling of Interests; Reorganization.........................................................A-28
Section 3.27 Brokers......................................................................................A-29
Section 3.28 Hart-Scott-Rodino............................................................................A-29
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 Conduct of Business Pending the Merger.......................................................A-29
Section 4.2 No Solicitation..............................................................................A-32
Section 4.3 Third-Party Standstill Agreements............................................................A-32
Section 4.4 Pooling of Interests; Reorganization.........................................................A-32
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 Stockholder Meeting..........................................................................A-33
Section 5.2 Preparation of the Registration Statement and the Proxy Statement............................A-33
Section 5.3 Access to Information........................................................................A-33
Section 5.4 Compliance with the Securities Act...........................................................A-34
Section 5.5 Fees and Expenses............................................................................A-34
Section 5.6 Company Stock Plan...........................................................................A-34
</TABLE>
A-ii
<PAGE> 80
<TABLE>
<S> <C> <C>
Section 5.7 Reasonable Best Efforts; Pooling of Interests................................................A-35
Section 5.8 Public Announcements.........................................................................A-36
Section 5.9 Real Estate Transfer and Gains Tax...........................................................A-36
Section 5.10 State Takeover Laws..........................................................................A-36
Section 5.11 Indemnification of Directors and Officers....................................................A-36
Section 5.12 Notification of Certain Matters..............................................................A-36
Section 5.13 Stock Exchange Listing.......................................................................A-37
Section 5.14. Indemnity Agreement..........................................................................A-37
Section 5.15 Loans to Company.............................................................................A-37
ARTICLE VI
CONDITIONS PRECEDENT TO THE MERGER
Section 6.1 Conditions to Each Party's Obligation to Effect the Merger...................................A-38
Section 6.2 Conditions to Obligation of the Company to Effect the Merger.................................A-38
Section 6.3 Conditions to Obligations of Parent and Sub to Effect the Merger.............................A-39
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 Termination..................................................................................A-41
Section 7.2 Effect of Termination........................................................................A-43
Section 7.3 Amendment....................................................................................A-43
Section 7.4 Waiver.......................................................................................A-43
ARTICLE VIII
INDEMNIFICATION
Section 8.1 Indemnity Fund...............................................................................A-43
Section 8.2 Indemnification from Indemnity Fund..........................................................A-44
Section 8.3 Termination of Indemnity Fund................................................................A-45
Section 8.4 Notice and Determination of Claims...........................................................A-45
Section 8.5 Resolution of Conflicts; Arbitration.........................................................A-46
Section 8.6 Stockholder Representatives..................................................................A-47
Section 8.7 Actions of the Stockholder Representatives...................................................A-48
Section 8.8 Third-Party Claims...........................................................................A-48
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Survival of Representations and Warranties...................................................A-48
Section 9.2 Notices......................................................................................A-48
Section 9.3 Interpretation...............................................................................A-49
Section 9.4 Counterparts.................................................................................A-50
Section 9.5 Entire Agreement; No Third-Party Beneficiaries...............................................A-50
</TABLE>
A-iii
<PAGE> 81
<TABLE>
<S> <C> <C>
Section 9.6 Governing Law................................................................................A-50
Section 9.7 Assignment...................................................................................A-50
Section 9.8 Severability.................................................................................A-50
Section 9.9 Enforcement of this Agreement................................................................A-50
</TABLE>
A-iv
<PAGE> 82
EXHIBITS
Exhibit A Form of Voting Agreement
Exhibit B Form of Indemnity Escrow Agreement
Exhibit C Form of Company Affiliate Letter
Exhibit D Form of Parent Affiliate Letter
Exhibit E Form of FIRPTA Statement
Exhibit F Form of FIRPTA Notification
A-v
<PAGE> 83
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 5.16(a)
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 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 Stockholders Section 1.6
Company Stockholder Agreements Section 3.2(a)
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)(vii)
A-vi
<PAGE> 84
Environmental Laws Section 3.13
ERISA Section 3.12(a)
ERISA Affiliate Section 3.12(c)
Exchange Act Section 2.4
Exchange Agent Section 1.6
Exchange Ratio Section 1.5(g)(i)
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
Individual Option Agreement Section 3.2(a)
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
Parent Successor Plan Section 5.16(b)
Parent Transactions Section 2.2
Past IP Section 3.15(a)
Patent Rights Section 3.15(a)(i)
Permitted Encumbrance Section 3.6(c)(vii)
Person Section 3.16
Proxy Statement Section 2.6
A-vii
<PAGE> 85
Registered Intellectual Property Section 3.15(e)
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(a)(vi)
State Takeover Approvals Section 2.4
Stockholder Meeting Section 5.1
Stockholder Representatives Section 8.6(a)
Sub Introduction
Subsidiary Section 2.2
Substitute Option Section 5.6
Surviving Corporation Section 1.1
Takeover Proposal Section 4.2(a)
Taxes Section 3.9(e)
Tax Return Section 3.9(e)
Termination Fee Section 5.5(b)
Trademarks Section 3.15(a)(ii)
Trade Secrets Section 3.15(a)(v)
Transmittal Letter Section 1.6
Unaudited Financial Statements Section 3.5
Voting Agreements Recitals
Worker Safety Laws Section 3.13
A-viii
<PAGE> 86
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of December 21, 1999 (this
"Agreement"), among Tellabs, Inc., a Delaware corporation ("Parent"), Oriole
Merger Corp., a Delaware corporation and a direct wholly owned subsidiary of
Parent ("Sub"), and Salix Technologies, 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, $.01 par value, of
the Company ("Company Common Stock"), and each issued and outstanding share of
preferred stock, $.01 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 and 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:
<PAGE> 87
ARTICLE I
THE MERGER
Section 1.1 The Merger. Upon the terms and subject to the conditions
set forth in this Agreement, 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 since its inception has engaged in no other business activities. In such
event, the parties agree to execute an appropriate amendment to this 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 Restated 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.
A-2
<PAGE> 88
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, 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 product of the Exchange Ratio (as hereinafter defined)
multiplied by one. 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 the
Company Series A Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than Dissenting 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 to the greater of:
(i) the quotient, rounded down to the nearest thousandth, of $1.592475
divided by the Average Closing Price (as hereinafter defined);
(ii) the lesser of the quotient, rounded down to the nearest
thousandth, of (x) $1.592475 plus the Participation Amount (as defined in
Section B.3. of Article Fourth of the Company Charter), divided by the
Average Closing Price, or (y) the product of three multiplied by $1.592475
and then divided by the Average Closing Price; or
(iii) the product of the Exchange Ratio multiplied by one,
representing the amount allocable per share had all shares of Company
Series A Preferred Stock been converted immediately before the Effective
Time.
A-3
<PAGE> 89
(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 and perfected 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
in Section 3.2 and the certificate delivered pursuant to Section 6.3(h). If such
representations, warranties and certificate 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 the number of shares of Parent Common
Stock having an aggregate value of $300,000,000 based on the Average Closing
Price ("Merger Consideration").
(g) For purposes of this Agreement:
(i) "Exchange Ratio" shall mean the quotient, rounded down to the
nearest 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) $300,000,000 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);
(iii) "Average Closing Price" shall mean $63.98, the average, rounded
down to the nearest cent, of the last reported sales price per share of
Parent
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Common Stock on The Nasdaq National Market ("Nasdaq") for the ten trading
days immediately preceding the date of this Agreement; and
(iv) "Liquidation Preference Amount" shall mean an amount equal to (a)
the number of shares of Parent Common Stock to be issued pursuant to
Section 1.5(d) times the Average Closing Price.
(h) 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) prior to the Effective Time, appropriate and
proportionate adjustments, if any, shall be made to the Exchange Ratio, and all
references to the Exchange Ratio in this Agreement shall be deemed to be to the
Exchange Ratio as so adjusted.
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) ninety percent (90%) of the cash
in lieu of any fractional share in accordance with Section 1.8, and one hundred
percent (100%) of certain dividends and other distributions in accordance with
Section 1.7; and (ii) in accordance with Section 8.1, to the Indemnity Agent (as
hereinafter defined), for deposit in the Indemnity Fund (as defined in the
Indemnity Agreement), (x) 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 (y) ten percent (10%) of the cash in lieu of any
fractional share in accordance with Section 1.8, and one hundred percent (100%)
of certain dividends and other distributions in accordance with Section 1.7, 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
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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, one hundred percent (100%)
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, one hundred percent (100%) 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 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; provided,
that to the extent such dividends or other distributions relate to stock splits
or other similar events, one hundred percent (100%) of such dividends or
distributions with respect to the Indemnity Shares 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, (x) 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 ninety percent (90%) of an amount in cash (without interest),
rounded down to the nearest cent, determined by multiplying (i) the last
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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 of a share
of Parent Common Stock to which such holder would otherwise be entitled, and (y)
the remaining ten percent (10%), rounded down to the nearest cent, will be paid
to the Indemnity Agent for deposit in the Indemnity Fund.
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 (i) the
shares of Parent Common Stock, (ii) any cash in lieu of fractional shares of
Parent Common Stock to which the holders thereof are entitled pursuant to
Section 1.8 and (iii) any dividends or other distributions to which the holders
thereof are entitled pursuant to Section 1.7.
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
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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, Bank
One Plaza, 10 South Dearborn Street, 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 and to consummate the
transactions provided for in this Agreement.
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 November 5, 1999, (i) 403,257,607 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) 19,833,458
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"), (v) 38,378 stock appreciation rights granted pursuant to
the Parent Stock Plans were outstanding, and (vi) no shares of Parent Common
Stock were reserved for issuance in connection with acquisitions, mergers or
other business combinations involving Parent or its subsidiaries (the "Parent
Transactions"). 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.
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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 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
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(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,
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
or delay 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) applicable
requirements, if any, under foreign laws and (vii) such other consents, orders,
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 or delay the ability of Parent or
Sub to perform its obligations hereunder or, in the case of Parent, under the
Parent Ancillary Agreements, 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 to be materially adverse to the business, prospects,
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assets, liabilities, financial condition or results of operations of Parent and
its Subsidiaries, taken as a whole, or the Company, as the case may be.
Section 2.5 SEC Documents and Other Reports. Parent has filed all
required 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 the Parent SEC Documents.
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 by Parent with the SEC and, as
required by law, disseminated to the stockholders of the Company. The
Registration Statement will comply (with respect to Parent and Sub) as to form
in all material respects with the provisions of the Securities Act.
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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 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 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 2.9 Pooling of Interests; Reorganization. To the Knowledge of
Parent, neither Parent nor any of its Subsidiaries has (i) taken or agreed to
take any action or failed to take any action which action or failure to act
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. The letter of
representation to be provided by Parent to Ernst & Young, LLP in connection with
the pooling letter to be delivered by Ernst & Young, LLP under Section 6.3(c)
will be correct in all material respects.
Section 2.10 Brokers. 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 2.11 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.
Section 2.12 Absence of Undisclosed Liabilities. Except for
liabilities (i) reflected in the Parent SEC Documents, (ii) incurred in the
ordinary course of business consistent with past practice since October 1, 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 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 have a Material
Adverse Effect on Parent.
Section 2.13 Operations and Obligations. Except as described in the
Parent SEC Documents and except in connection with matters publicly announced by
Parent, between October 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
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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.
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 and to consummate the transactions
provided for in this Agreement. The Company is duly qualified to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its 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 17,250,000 shares of Company Common Stock and 5,250,000
shares of Company Preferred Stock, all of which have been designated as Company
Series A Convertible Preferred Stock (the "Company Series A Preferred Stock").
At the close of business on December 14, 1999, (i) 4,854,963 shares of Company
Common Stock, and 5,023,626 shares of Company Series A Preferred Stock were
issued and outstanding, all of which were validly issued, fully paid and
nonassessable and free of preemptive rights and of which 166,800 shares of
Company Common Stock were issued pursuant to four restricted stock purchase
agreements to which the Company is a party (the "RSPAs"), (ii) no shares of
Company Common Stock and no shares of Company Series A Preferred Stock were held
in the treasury of the Company or by Subsidiaries of the Company and (iii)
2,491,657 shares of Company Common Stock were reserved for issuance pursuant to
outstanding options to purchase shares of Company Common Stock pursuant to the
Company's Omnibus Stock Plan (the "Company Stock Plan"), and 11,250 shares of
Company Common Stock were reserved for issuance pursuant to that certain option
agreement dated as of January 1, 1998, between Gene Carlock and the Company (the
"Individual Option Agreement") (all of such options being referred to herein
collectively as the "Company Stock Options"). All Company Stock Options, the
Individual Option Agreement and all shares of Company Common Stock issuable upon
the exercise of such options are free and clear of any preemptive rights. The
Company Stock Plan and the Individual Option Agreement are the only benefit
plans of the Company under which any securities of the Company are issuable.
Since December 14, 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
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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 upon conversion of the
outstanding shares of Company Preferred Stock, there are no options, warrants,
calls, rights, puts or agreements to which the Company is a party or by which
any of them is bound obligating the Company 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 obligating the Company 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, and does not otherwise have
any Knowledge of the current existence of, any stockholder agreement, voting
trust agreement or any other contract, agreement, arrangement, commitment, plan
or understanding relating to the voting, dividend, ownership or transfer rights
(including any restricting transfers) of any shares of capital stock of the
Company (collectively, the "Company Stockholder Agreements"). True and complete
copies of the Company Charter and Bylaws of the Company, as amended (the
"Company Bylaws"), and all Company Stockholder Agreements have been delivered to
Parent. True and complete copies of the Company Stock Plan, the Individual
Option Agreement and the RSPAs are attached to Section 3.2(a) of the Company
Letter.
(b) 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 Company
Series A Preferred Stock held by such holder. Section 3.2(c)(ii) 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)(iii) of the
Company Letter sets forth each RSPA, together, in each case, with the number of
shares issued thereunder and the name and address of the 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 Company Series A Preferred
Stock. True and complete copies of the Individual Option Agreement, the Company
Stock Plan and each instrument governing or granting any Company Stock Options
have been delivered by the Company to Parent.
(d) The Company has never had any Subsidiaries or Joint Ventures. 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
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controls any shares of any class of the outstanding voting securities or other
equity interests, or (b) the Company 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. The parties acknowledge that
the representations in this Section 3.3(b) are being made by the Company and not
by the stockholders.
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
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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 material properties or assets of
the Company under, any provision of (i) the Company Charter or the Company
Bylaws, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
guaranty, lease or other agreement, instrument, permit, concession, franchise or
license applicable to the Company or any of its properties or assets, or (iii)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets. Except as set
forth in Section 3.4 of the Company Letter, no filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by or
with respect to the Company 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
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 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, and (v) 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 as of June
30, 1999 (the "Balance Sheet Date") and the related statement of operations,
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 Arthur Andersen LLP, independent public accountants (the "Audited
Financial Statements"), and (ii) the unaudited balance sheet of the Company as
of September 30, 1999 and the related unaudited statement of operations,
stockholders' equity and cash flows for the quarter 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 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 any adjustments described therein and customary
year-end adjustments which will not in the aggregate be material).
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Section 3.6 No Dividends; Absence of Certain Changes or Events.
(a) Except as set forth in Section 3.6(a) of the Company Letter, 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) Since the Balance Sheet Date there has been:
(i) no Material Adverse Change with respect to the Company; and
(ii) 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.
(c) Except as set forth in Section 3.6(c) of the Company Letter, since
the Balance Sheet Date, the Company has conducted its business in all material
respects only in the ordinary course and in conformity with past practice.
Without limiting the generality of the foregoing, except as set forth in Section
3.6(c) of the Company Letter, since the Balance Sheet Date, the Company has not:
(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) except in the ordinary course of business consistent with past
practice, made or permitted any material amendment or termination of any
Company Agreement;
(v) undertaken or committed to undertake capital expenditures
exceeding $50,000 for any single project or related series of projects or
$150,000 in the aggregate;
(vi) made charitable donations in excess of $10,000 in the aggregate;
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(vii) sold, leased (as lessor), transferred or otherwise disposed of
(including any transfers from the Company 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 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");
(viii) canceled any debts owed to or claims held by the Company
(including the settlement of any claims or litigation) other than in the
ordinary course of its business consistent with past practice;
(ix) 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);
(x) 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;
(xi) delayed or accelerated payment of any 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;
(xii) instituted any increase in any compensation payable to any
employee, director or consultant of the Company 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 except, in the case of employees other than
directors or officers, salary increases in connection with annual or
periodic compensation reviews in the ordinary course of business consistent
with the Company's past practice;
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(xiii) made any tax election or settled or compromised any material
federal, state, local or foreign income tax liability;
(xiv) prepared or filed any Tax Return inconsistent with past practice
or, on any such Tax Return, took any position, made any election, or
adopted any method that is inconsistent with positions taken, elections
made or methods used in preparing or filing similar Tax Returns in prior
periods;
(xv) made any change in the accounting principles and practices used
by the Company from those applied in the preparation of the Financial
Statements; or
(xvi) entered into or become committed to enter into any other
material transaction except in the ordinary course of business consistent
with past practice.
(d) Except as set forth in Section 3.6(d) of the Company Letter, the
Company is not 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 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. Except as set forth in Section 3.7
of the Company Letter, the Company owns, holds or possesses all material
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"). Complete and correct copies of all of the material Company
Permits have been delivered or made available by the Company to Parent.
The Company has fulfilled and performed its obligations under each of
the material Company Permits, and each of the material 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.
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
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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) the Company has timely filed (taking into account
extensions properly obtained) 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 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
have been timely paid, shown as a liability or reserved on the Unaudited
Financial Statements or, with respect to periods after the date thereof, have
been accrued on the books of the Company in accordance with past practice; (iv)
the Company has not 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; (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
indemnity arrangements (in each case to which the Company is or becomes a party)
will terminate prior to the Effective Time and the Company will have no
liability thereunder on or after the Effective Time; (viii) there are no liens
for Taxes upon the assets of the Company except liens relating to current Taxes
not yet due; (ix) all Taxes which the Company is 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
included in the Unaudited Financial Statements are adequate to provide for all
unpaid Taxes as of the Balance Sheet Date.
(b) No transaction contemplated by this Agreement is subject to
withholding under Section 1445 of the Code.
(c) Except as set forth in Section 3.9(c) of the Company Letter, as a
result of the transactions contemplated by this Agreement, but excluding the
effect of any agreements between Parent and any employee of the Company, neither
the Company nor 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.
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(d) None of the Company or any predecessor 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. The Company is not, and has not been, a "United States real property
holding corporation" for purposes of Sections 897 and 1445 of the Code.
(e) For purposes of this Agreement: (i) "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, and (ii) "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.
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 against or involving any of the present or former directors,
officers, employees, or, to the Knowledge of the Company, consultants, agents or
stockholders of the Company, as such, or any of its or their properties, assets
or business or any Company Plan (as hereinafter defined). 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 present or former directors, officers, employees, or, to the
Knowledge of the Company, consultants, agents or stockholders, as such, or any
of its or their 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 present or former officers, directors, employees, or, to the
Knowledge of the Company, consultants, agents or stockholders, as such, or any
of its or their properties, assets or business relating to the transactions
contemplated by this Agreement and the Company Ancillary Agreements.
Section 3.11 Certain Agreements. Except as set forth in Section 3.11
of the Company Letter, the Company is not 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
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, is or will be entitled to
receive cash from the Company in lieu of or in exchange for such option or
shares.
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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 by the Company 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 the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), the Code and all other applicable
statutes and governmental rules and regulations. Neither the Company nor any of
its ERISA Affiliates (as hereinafter defined) has ever maintained a Company Plan
subject to Section 412 of the Code, Section 302 of ERISA or Title IV of ERISA.
At no time has the Company or any of its ERISA Affiliates been obligated to
contribute to a Company Multiemployer Plan (as hereinafter defined).
(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. Except as set forth in Section 3.12(b) of the
Company Letter, all Company Plans that are intended to be qualified under
Section 401(a) of the Code have received determination, opinion or notification
letters from the Internal Revenue Service to the effect that such Company Plans
are 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. 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 delivered or made available to Parent a true and complete
copy, of all (i) severance, employment and consulting agreements with employees
and consultants of the
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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 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 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. The Company is not a party to any
collective bargaining agreement or labor contract. Except as disclosed in
Section 3.14 of the Company Letter, the Company has not engaged in any unfair
labor practice with respect to any Persons employed by or otherwise performing
services primarily for the Company (the "Company Business Personnel"), and there
is no unfair labor practice complaint or grievance against the Company 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 which may interfere
with the respective business activities of the Company.
Section 3.15 Intellectual Property; Software. (a) For purposes of this
Agreement, the term "Intellectual Property" means the intellectual property
owned by, licensed to, or used by the Company that relates to the Company's
business, including without limitation:
(i) all United States and foreign patents, patent applications,
continuations, continuations-in-part, divisions, reissues, patent
disclosures, inventions (whether or not patentable) and improvements
thereto ("Patent Rights");
(ii) all United States, state and foreign trademarks, service marks,
logos, trade dress and trade names (including without limitation all
assumed or fictitious names under which 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 without
limitation 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");
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(v) all confidential ideas, trade secrets, computer software,
including without limitation 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"); and
(vi) all 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 ("Software").
provided, however, that "Intellectual Property" shall not include any
intellectual property that meets both of the following conditions ("Past IP"):
(1) such intellectual property is no longer used or otherwise relied upon in any
way by the Company; and (2) Company does not have any material outstanding
obligation or liability of any kind to any third party with respect to such
intellectual property.
(b) Section 3.15(b) of the Company Letter contains a list of all
material agreements, commitments, contracts, understandings, licenses,
sublicenses, assignments and indemnities, which govern the Company's rights or
obligations with respect to any Intellectual Property, showing in each case the
parties thereto. Correct and complete copies of all written items identified in
Section 3.15(b) of the Company Letter have been delivered or made available by
the Company to Parent.
(c) Except as disclosed in Section 3.15(c) of the Company Letter, the
Company either: (i) owns the entire right, title and interest in and to the
Intellectual Property, free and clear of any Encumbrance; or (ii) has the
perpetual, unrestricted and royalty-free right to use the same, free and clear
of any Encumbrance.
(d) (i) The Company is not in breach of and is not aware of any
allegation (communicated orally or in writing) that the Company is in breach of
any provision of any material agreement, commitment, contract, understanding,
license, sublicense, assignment or indemnity which relates to any Intellectual
Property or any other intellectual property of any third party; (ii) neither the
Company nor any of its employees or agents has through any act or omission
impaired or otherwise materially adversely affected the Company's rights in any
of the Intellectual Property; (iii) nothing with respect to the Intellectual
Property, the Past IP and materials identified in Section 3.15(b) of the Company
Letter, nor any agreement, commitment, contract, understanding, license,
sublicense, assignment or indemnity which relates to any other intellectual
property of any third party, shall restrict the Company's right, power and
authority to execute and deliver this Agreement and the Company Ancillary
Agreements, to consummate the transactions contemplated hereby and thereby, and
to comply with or fulfill the terms, conditions or provisions hereof or thereof;
and (iv) 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, and right, title and
interest thereto of the Company immediately after the Effective Time shall be
identical to that of the Company immediately prior to the Effective Time.
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(e) Section 3.15(e) of the Company Letter includes a complete list of
all registered Intellectual Property and applications to register Intellectual
Property, which are owned in whole or in part by the Company (collectively, the
"Registered Intellectual Property"). Correct and complete copies of all
Registered Intellectual Property have been delivered or made available by the
Company to Parent, along with any correspondence or filings related to the
foregoing applications to register Intellectual Property. Except as disclosed by
Section 3.15(e) of the Company Letter, all Registered Intellectual Property: (i)
is wholly owned by the Company; and (ii) is either pending or in force, and in
good standing to the knowledge of the Company, and without challenge of any
kind.
(f) Except as disclosed in Section 3.15(f) of the Company Letter: (i)
the Intellectual Property owned by the Company is, to the knowledge of the
Company, valid and enforceable; and (ii) the Company has the sole and exclusive
right to bring actions for infringement or unauthorized use of the Intellectual
Property owned by the Company, and to the Knowledge of the Company, there is no
basis for any such action.
(g) 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: (i) has
assigned to the Company, or is under a valid obligation to assign to the
Company, all right, title and interest in such Intellectual Property; (ii) is a
party to a valid "work-made-for-hire" agreement under which the Company is
deemed to be the original owner/author of all copyrightable subject matter
included in such Intellectual Property; (iii) otherwise has by operation of law
vested in the Company all right, title and interest in such Intellectual
Property by virtue of his employment relationship with the Company; or (iv) has
granted to the Company a license or other legally enforceable right granting the
Company perpetual, unrestricted and royalty-free rights to use such Intellectual
Property.
(h) (i) The Company (including any predecessors-in-interest thereof)
has not infringed any copyright, mask work right, trademark, service mark, trade
name, patent, patent right, trade secret, or any other proprietary right which
would result in a material obligation or liability of any kind to any third
party, nor does any such infringement result in any way from the operations,
products (including without limitation software, equipment, machinery or other
devices, and the manufacture, sale or use thereof), processes, methods or
activities of the business of the Company; and (ii) no claim of any such
infringement has been noticed to or otherwise asserted against the Company
(communicated orally or in writing), and the Company has no Knowledge of any
basis for such a claim.
(i) Except as disclosed in Section 3.15(i) of the Company Letter: (i)
the Company has used and will continue to use all reasonable efforts to ensure
that the Software developed by or for the Company, or which is otherwise
material to the Company or its products, operates in accordance with
specifications; and (ii) the Software developed by or for the Company, or which
is otherwise material to the Company's products, is Year 2000 compliant, in that
such Software will not fail to correctly process date fields and related logic,
or otherwise lose functionality, due solely to the change in century.
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Section 3.16 Availability of Assets and Legality of Use. Except as
disclosed in Section 3.16 of the Company Letter, the assets owned or leased by
the Company 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 utilizing either (i) assets not owned by the Company
as of the Effective Time or (ii) Persons not employed by the Company. 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. The Company does not own any real property
or hold 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 is lessee of, or holds or operates, any real property owned by
any third Person (the "Leased Real Property"). The Company has the right to
quiet enjoyment of all the real property described in such Section 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 in such real property is not subject or subordinate to any
Encumbrance except for Permitted Encumbrances. Complete and correct copies of
all such leases or similar agreements have been delivered or made available 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 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 without penalty or payment on notice of 30 days or
less, or which involves the payment by the Company of rentals of less than
$50,000 per year.
Section 3.20 Title to Assets. Except as set forth in Section 3.20 of
the Company Letter, the Company 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.
Section 3.21 Contracts. Except as set forth in Section 3.21 of the
Company Letter, the Company is not a party to or bound by:
(i) any contract for the purchase, sale or lease of real property;
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(ii) any contract for the purchase of goods or raw materials requiring
one or more payments by the Company in excess of $60,000 individually or in
the aggregate;
(iii) any contract for the sale of goods or services after August 1,
1994;
(iv) any contracts relating to the marketing, distribution or
manufacturing of products, services, processes or technology, or any OEM
contract after August 1, 1994 involving in excess of $25,000;
(v) any contract for the purchase, licensing or development of
software to be used by the Company, other than contracts for the purchase
or licensing of shrink-wrap, off-the-shelf software;
(vi) any guarantee of the obligations or liabilities of customers,
suppliers, officers, directors, employees, Affiliates of the Company, or
any other Persons;
(vii) any agreement which provides for, or relates to, the incurrence
by the Company of debt for borrowed money or the extension of credit by the
Company to any other Person;
(viii) any agreement or understanding with a third party that
restricts the Company from carrying on its business anywhere in the world;
(ix) any contract which provides for, or relates to, any
confidentiality arrangement or any non-competition arrangement with any
Person, including any current or former officer or employee of the Company;
(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
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 or its business.
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
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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 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. The
Company has fulfilled and performed in all material respects its obligations
under each of the Company Agreements, and the Company is not in, nor, to the
Knowledge of the Company, 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, 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 or made available by the
Company to Parent.
Section 3.23 Insurance. The Company maintains 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 similarly situated companies
engaged in the same or a substantially similar business. Section 3.23 of the
Company Letter sets forth a list of insurance maintained, owned or held by the
Company. The Company shall keep or cause such insurance or comparable insurance
to be kept in full force and effect through the Effective Time. The Company has
complied with each such insurance policies and has not failed to give any notice
or to present any claim thereunder in a due and timely manner.
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 (i) a majority of the outstanding shares of Company
Common Stock, and (ii) 60% of the outstanding shares of Company Series A
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, the Company has not (i) taken or agreed to take any action or
failed to take any action which action or failure to act 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
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or failure to act would jeopardize the qualification of the Merger as a
reorganization within the meaning of Section 368(a) of the Code. The letter of
representation provided or to be provided by the Company to Arthur Andersen LLP
in connection with the pooling letter to be delivered by Arthur Andersen under
Section 6.3(c) has been and will be correct in all material respects.
Section 3.27 Brokers. 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.
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) (1998)). The "Person" (as
defined in 16 C.F.R.ss. 801.1(a)(1) (1998)) of which the Company is included
does not have "annual net sales" (as defined in 16 C.F.R.ss.801.11 (1998)) or
"total assets" (as defined in 16 C.F.R.ss.801.11 (1998)) of $10,000,000 or more.
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 in all material respects carry on its business in the ordinary
course of its business as currently conducted and, to the extent consistent
therewith, use reasonable best efforts to preserve intact its current business
organizations, keep available the services of its current officers and employees
and preserve its relationships with customers, suppliers and others having
business dealings with it to the end that its goodwill and ongoing business
shall be unimpaired at the Effective Time. Without limiting the generality of
the foregoing, and except as otherwise expressly contemplated by this Agreement,
the Company shall not, without the prior written consent of Parent:
(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
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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) the issuance of Company
Stock Options pursuant to the Company Stock Plan relating to not more than
160,000 shares of Company Common Stock in the aggregate, in connection with
the hiring of new employees in the ordinary course of business consistent
with past practice; provided, that a newly hired employee shall not be
granted options for more than 20,000 shares of Company Common Stock;
(iii) amend its charter or bylaws;
(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;
(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 cash management
activities carried on in the ordinary course of business consistent with
past practice and not material to the Company, 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;
(viii) enter into, adopt or amend any severance plan, agreement or
arrangement, Company Plan or employment or consulting agreement, including,
without limitation, the Company Stock Options;
(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, except, (A) in case
of employees other than directors or officers, as may be in the ordinary
course of business consistent with the Company's past practice in
connection with annual compensation reviews or (B) as described in Section
4.1(ix) of the Company Letter, or establish, adopt, enter into, or, except
as may be required to comply with applicable law, amend or
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take action to enhance or 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, 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 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, except as described
in Section 4.1(xiii) of the Company Letter;
(xiv) enter into, amend or terminate (a) any agreement or contract
material to the Company, (b) any noncompetition agreement, (c) any
agreement pursuant to which any third party is granted marketing,
distribution, manufacturing or any other rights with respect to any Company
product, services, processes or technology or (d) any OEM contract; or make
or agree to make any new capital expenditure or expenditures other than the
capital expenditures specifically described in Section 4.1(xiv) of the
Company Letter;
(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; 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.
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Section 4.2 No Solicitation. (a) The Company shall not, 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 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
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, other than the
transactions contemplated by this Agreement.
(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 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 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, injunctions to
prevent any breaches of such agreements and 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, if any, shall (a) knowingly take or fail to take
any action which action or failure to act 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 to act 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.
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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. 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. 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.
Section 5.3 Access to Information. The Company shall 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 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
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Confidentiality Agreement, dated April 1, 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. (a) 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.
(b) Notwithstanding any provision in this Agreement to the contrary,
if this Agreement is terminated by Parent pursuant to Section 7.1(e) or Section
7.1(f), then, in each case, the Company shall (without prejudice to any other
rights that Parent may have against the Company for a breach of this Agreement)
pay to Parent a fee (the "Termination Fee") of $9,000,000 in cash, such payment
to be made promptly, but in no event later than one business day following such
termination.
Section 5.6 Company Stock Plan. At the Effective Time, each Company
Stock Option which is outstanding immediately prior to the Effective Time
pursuant to the Company Stock Plan or the Individual Option Agreement shall
become and represent an option to purchase the number of shares of Parent Common
Stock (a "Substitute Option") (decreased to the nearest
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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 share of Parent Common
Stock (rounded up to the nearest cent) equal to the exercise price per share of
Company Common Stock immediately prior to the Effective Time divided by the
Exchange Ratio. After the Effective Time, except as provided above in this
Section 5.6, 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.
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) Nothing contained in this Agreement, including without limitation
this Section 5.7, shall limit or restrict Parent's and its subsidiaries' ability
to enter into and effect Parent Transactions or its or their activities in
connection with Parent Transactions.
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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.
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 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 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 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) 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,
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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 Stock Exchange Listing. Parent shall use its reasonable
best 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.
Section 5.14 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
reasonably acceptable to Parent.
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 February 1,
2000, and ending no later than 70 days after the termination of the Merger
Agreement, Parent shall loan to the Company up to $1,000,000 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 $3,000,000 in the aggregate, (iii)
any such loan shall bear interest at the rate of 11.5% per annum and shall be
due and payable on the earlier of (A) 90 days following the termination of the
Merger Agreement, (B) June 30, 2000 or (C) the occurrence of any bankruptcy
event 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 upon such breach.
Section 5.16 Employee Benefit Plans. (a) Subject to Section 5.16 of
the Company Letter, 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 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, or cause
to be provided, substantially the same employee benefit plans, programs and
arrangements of the Company provided to employees of the Company as of the date
hereof.
(b) Upon the inclusion of employees of the Company in any benefits
plan maintained or sponsored by Parent or its Subsidiaries, including, without
limitation, any plan or arrangement providing vacation benefits, each Company
employee shall receive credit for service prior to the Effective Time with the
Company and predecessors to the same extent such service was counted under any
similar or corresponding Company plans for the purposes of determining
eligibility to participate, vesting and the level of benefits provided. If any
such Company
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employees or their dependents are included in any medical, dental or health plan
other than the plan or plans they participated in at the Effective Time (each, a
"Parent Successor Plan"), any such Parent Successor Plan shall (i) waive all
limitations as to pre-existing conditions and waiting periods, and (ii) provide
each such employee or dependent with credit for any co-payments or deductibles
paid prior to date of inclusion in the Parent Successor Plan in satisfying any
applicable deductible or out-of-pocket requirements under such Parent Successor
Plan.
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. 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, a Material Adverse Effect on Parent or the Company, shall have been
obtained, shall have been made or shall have occurred.
(d) No Order. No court or other Governmental Entity having
jurisdiction over the Company or Parent, or any of their respective
Subsidiaries, if any, 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.
(e) 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.
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:
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(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 Piper
Marbury Rudnick & Wolfe 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, 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.
In rendering such opinion, Piper Marbury Rudnick & Wolfe 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
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Director of Finance to such effect. Notwithstanding anything contained herein to
the contrary, for the purposes of this Section 6.3(a), a Material Adverse Change
under Section 3.6(b)(i) shall not include (i) any change that results from the
public announcement of the Merger and the transactions contemplated by this
Agreement or (ii) the matters excluded pursuant to Section 6.3(a) of the Company
Letter.
(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, 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.
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 letter,
dated the Effective Time, of Arthur Andersen LLP, stating 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 letter, dated the Effective
Time, of Ernst & Young LLP, stating 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 if consummated in
accordance with the terms of this Agreement. Each of such written letters 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
material agreement or instrument by which the Company 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.
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(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 Director of Finance 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 Secretary to such effect.
(i) Stockholder Approval. This Agreement shall have been duly approved
by holders of (i) a majority of the shares of the Company Common Stock (ii) 60%
of the shares of the Company Series A Preferred Stock, each acting as a separate
class. Parent shall have received a certificate signed on behalf of the Company
by its Chief Executive Officer and its Secretary to such effect.
(j) FIRPTA Certificate. The Company shall have delivered, not more
than 20 days prior to the Closing Date, a statement in accordance with Treas.
Reg. ss.ss. 1.1445-2(c)(3) and 1.897-2(h) certifying that the Company is not,
and has not been, a "United States real property holding corporation" for
purposes of Section 897 and 1445 of the Code, and neither Parent nor Sub shall
have actual knowledge that such statement is false or shall have received a
notice that the statement is false pursuant to Treas. Reg. ss. 1.445-4. The form
of such statement is attached hereto as Exhibit E. In addition, the Company
shall have delivered on the Closing Date the notification to the Internal
Revenue Service, in accordance with the requirements pursuant to Treas. Reg. ss.
1.897-(h)(2), of delivery of the statement referred to in the preceding
sentence, signed by a responsible corporate officer of the Company. The Company
acknowledges that Parent may cause the Company to file such notification with
the Internal Revenue Service on or after the Closing Date. The form of such
notification is attached hereto as Exhibit F.
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;
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(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 April 15, 2000; 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; provided, further, if by April 15, 2000, the Merger
shall not have been effected because the condition set forth in Section 6.1(e)
shall not have been satisfied, such date shall be automatically extended to May
15, 2000;
(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; or
(f) by Parent if (i) the Board of Directors of the Company shall not
have recommended, or shall have resolved not to recommend, or shall have
qualified, modified or withdrawn its recommendation of the Merger or declaration
that the Merger is advisable and fair to and in the best interest of the Company
and its stockholders, or shall have resolved to do so, (ii) any Person (other
than Parent or its Affiliates) acquires or becomes the beneficial owner of 20%
or more of the outstanding shares of Company Common Stock, (iii) 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 or (iv) a tender
offer or exchange offer for 20% or more of the outstanding shares of capital
stock of the Company is commenced, and the Board of Directors of the Company
fails to recommend against acceptance of such tender offer or exchange offer by
its stockholders (including by taking no position with respect to the acceptance
of such tender offer or exchange offer by its stockholders).
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
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on behalf of any party hereto, any Person 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 or
directors (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 another 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.
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(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, investigators, expert witnesses, consultants, 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, and (iii) "Parent Group Members" means
Parent and 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) (other than Sections 3.1, 3.2, 3.3, 3.20 and 3.28, the
certificate delivered pursuant to Section 6.3(a) to the extent it relates to
such Sections, and the certificates delivered pursuant to Sections 6.3(g) and
6.3(h), as to which this proviso shall not apply) only in the event that the
aggregate amount (without duplication) of Loss and Expense borne by the Parent
Group Members with respect thereto exceeds $250,000 and then only to the extent
of such excess. 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
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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
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
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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) 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
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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.
Section 8.6 Stockholder Representatives. (a) The "Stockholder
Representatives" shall be Daniel Simpkins, Peter Barris and Patrick Kerins, 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 and the Indemnity Agent. No bond shall
be required of the Stockholder Representatives, and the Stockholder
Representatives shall receive no compensation for their 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.
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(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.
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
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<PAGE> 134
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
Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60603
Attention: Thomas A. Cole
Imad I. Qasim
Facsimile No.: (312) 853-7036
(b) if to the Company, to
Salix Technologies, Inc.
904 Wind River Lane, #101
Gaithersburg, Maryland 20878
Attention: _______________
Facsimile No.: (301) 990-____
with a copy to:
Piper Marbury Rudnick & Wolfe LLP
1200 Nineteenth Street, N.W.
Washington, D.C. 20036
Attention: Edwin M. Martin, Jr.
Facsimile No.: (202) 223-2085
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 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."
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<PAGE> 135
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 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 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.
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<PAGE> 136
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:
ORIOLE MERGER CORP.
By: ___________________________
Name:
Title:
SALIX TECHNOLOGIES, INC.
By: ___________________________
Name:
Title:
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<PAGE> 137
ANNEX B
FORM OF VOTING AGREEMENT
VOTING AGREEMENT, dated as of December 21, 1999 (this
"Agreement"), by the undersigned stockholder (the "Stockholder") of Salix
Technologies, Inc., a Delaware corporation (the "Company"), for the benefit of
Tellabs, Inc., a Delaware corporation ("Parent").
RECITALS
WHEREAS, Parent, Oriole Merger Corp., 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 December 21, 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 $.01 per share, of the Company ("Company Common Stock"), and
each issued and outstanding share of Preferred Stock, par value $.01 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.
<PAGE> 138
(b) 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.
(c) 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.
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 and except for the Company Stockholder Agreements set
forth in Section 3.2(a) of the Company Letter.
(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.
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<PAGE> 139
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 and deliver to Parent 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 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.
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.
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<PAGE> 140
Name:
By:
-------------------------------
(Title, if applicable):
Number of shares of Company
Common Stock owned on the
date hereof:
----------------
Number of shares of Company
Preferred Stock owned on
the date hereof:
------------
Accepted and Agreed to
as of the date set forth above:
TELLABS, INC.
By:
------------------------
Name:
Title:
B-4
<PAGE> 141
ANNEX C
INDEMNITY ESCROW AGREEMENT
This INDEMNITY ESCROW AGREEMENT (the "Indemnity Agreement"),
is dated as of, ____, among Tellabs, Inc., a Delaware corporation ("Parent"),
Daniel Simpkins, Peter Barris and Patrick Kerins (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, Salix Technologies, Inc., a Delaware corporation (the
"Company"), Oriole Merger Corp., a Delaware corporation ("Sub"), and Parent are
parties to that certain Agreement and Plan of Merger, dated as of December 21,
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").
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:
<PAGE> 142
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 $63.98.
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 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
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<PAGE> 143
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 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 difference between the Current Market
Value of the Sold Shares as of the date of sale and 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 in accordance with this Agreement 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 otherwise, as indicated by a
legend placed on the certificates representing such Sold
Shares, shall not be transferred pursuant to Section 3 except
in accordance with the Company Affiliate Letter or any other
agreement creating such restriction, 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.
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<PAGE> 144
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 dividend 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 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. If the Indemnity Agent ceases
to be so restrained, enjoined or stayed, then, to the extent
practicable, such remaining Subaccounts from which such amount
was withdrawn shall be credited, pro rata, with the amount of
such withdrawal through a deduction from the Subaccount that
was the subject of such restraint, injunction or stay.
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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 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
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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 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 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
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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 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
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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, upon submitting a written request to
the Indemnity Agent, 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 such
reimbursement obligation, payable in the same manner set forth
in Section 5 hereof for payment of claims.
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 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
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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.
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
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.
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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 Earning 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, 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
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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):
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
Bank One Plaza
10 South Dearborn Street
Chicago, IL 60603
Attention: Imad I. Qasim
Facsimile No.: (312) 853-7036
Telephone No.: (312) 853-7094
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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 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 (i) laws (as opposed to conflicts of law provisions) of the
State of Illinois applicable to contracts made and performed wholly therein and
(ii) with respect to corporate law governing the Merger, solely by the law of
the State of Delaware.
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,
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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 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.
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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:
---------------------------
-------------------------------
Daniel Simpkins,
as Stockholder Representative
-------------------------------
Peter Barris,
as Stockholder Representative
-------------------------------
Patrick Kerins,
as Stockholder Representative
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ANNEX D
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:
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a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of record
by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 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
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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 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
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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.
(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.
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<PAGE> 159
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.
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<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. 333-95135)
filed on January 21, 2000.
2.1 -- Agreement and Plan of Merger dated as of December 21, 1999
among Tellabs, Inc., Oriole Merger Corp. and SALIX
Technologies, Inc. (included as Annex A to the proxy
statement and prospectus).
2.2 -- Form of Voting Agreement dated as of December 21, 1999
between Tellabs and certain stockholders of SALIX
Technologies, Inc. (included as Annex B 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 C 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.
II-1
<PAGE> 161
-- Opinion of Sidley & Austin, as to certain United States
federal income tax consequences of the merger.
*8.2 -- Opinion of Piper Marbury Rudnick & Wolfe LLP, as to certain
United States federal income tax consequences of the
merger.
*23.1 -- Consent of Ernst & Young LLP
*23.2 -- Consent of Grant Thornton LLP
*23.3 -- Consent of Arthur Andersen LLP
*23.4 -- Consent of PricewaterhouseCoopers LLP
*23.5 -- Consent of KPMG LLP
*23.6 -- Consent of James M. Sheehan (included in Exhibit 5.1 to
this Registration Statement).
*23.7 -- Consent of Sidley & Austin (included in Exhibit 8.1 to this
Registration Statement).
*23.8 -- Consent of Piper Marbury Rudnick & Wolfe 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 SALIX common
stock and preferred stock.
(b) Not applicable.
(c) Not Applicable.
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
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<PAGE> 162
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.
(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.
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<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, in the city of Lisle, State of Illinois on February 7, 2000.
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 February 7, 2000
- ---------------------------------- (Principal Executive Officer)
Michael J. Birck
* Executive Vice President and Director February 7, 2000
- ---------------------------------- (Principal Financial Officer)
Peter A. Guglielmi
* Vice President February 7, 2000
- ---------------------------------- (Principal Accounting Officer)
Robert E. Swininoga
* Director February 7, 2000
- ----------------------------------
John D. Foulkes, Ph.D.
* Director February 7, 2000
- ----------------------------------
Brian J. Jackman
* Director February 7, 2000
- ----------------------------------
Frederick A. Krehbiel
* Director February 7, 2000
- ----------------------------------
Stephanie Pace Marshall, Ph.D.
* Director February 7, 2000
- ----------------------------------
William F. Souders
* Director February 7, 2000
- ----------------------------------
Jan H. Suwinski
* By: /s/ Michael J. Birck
----------------------------
Michael J. Birck
As Attorney-in-Fact
</TABLE>
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<PAGE> 164
INDEX TO EXHIBITS
2.1 -- Agreement and Plan of Merger dated as of December 21, 1999
among Tellabs, Inc., Oriole Merger Corp. and SALIX
Technologies, Inc. (included as Annex A to the proxy
statement and prospectus).
2.2 -- Form of Voting Agreement dated as of December 21, 1999
between Tellabs and certain stockholders of SALIX
Technologies, Inc. (included as Annex B 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 C 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 Piper Marbury Rudnick & Wolfe LLP, as to certain
United States federal income tax consequences of the
merger.
*23.1 -- Consent of Ernst & Young LLP
*23.2 -- Consent of Grant
Thornton LLP
*23.3 -- Consent of Arthur Andersen LLP
*23.4 -- Consent of PricewaterhouseCoopers LLP
*23.5 -- Consent of KPMG LLP
*23.6 -- Consent of James M. Sheehan (included in Exhibit 5.1 to
this Registration Statement).
*23.7 -- Consent of Sidley & Austin (included in Exhibit 8.1 to this
Registration Statement).
*23.8 -- Consent of Piper Marbury Rudnick & Wolfe 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 SALIX common
stock and preferred stock.
----------------------
* Filed herewith
** Previously filed.
II-5
<PAGE> 1
EXHIBIT 5.1
[TELLABS LETTERHEAD]
February 7, 2000
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: up to 4,688,965 shares of Common Stock,
$.01 par value per share, of Tellabs, Inc.
Ladies and Gentlemen:
I am Assistant General Counsel of Tellabs, Inc., a Delaware corporation
(the "Company"), and, in such capacity, I am familiar with the proceedings to
date in connection with the preparation and filing with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"), of the Company's registration statement on Form S-4 (the
"Registration Statement") relating to the registration of up to 4,688,965
shares of Common Stock, $.01 par value per share, of the Company (the "New
Shares") pursuant to the terms of the Agreement and Plan of Merger dated as of
December 21, 1999 among the Company, Oriole Merger Corp., a Delaware
corporation and a wholly owned subsidiary of the Company ("Sub"), and SALIX
Technologies, Inc., a Delaware corporation ("SALIX"), which provides for the
merger (the "Merger") of Sub with and into SALIX, with SALIX surviving as a
wholly owned subsidiary of the Company.
Based on the foregoing, I am of the opinion that:
1. The Company is duly incorporated and validly existing under the laws
of the State of Delaware.
2. The New Shares will be legally issued, fully paid and non-assessable
when (i) the Registration Statement, as finally amended, shall have become
effective under the Securities Act and (ii) the Merger shall have become
effective under the General Corporation Law of the State of Delaware.
The foregoing opinions are limited to the federal laws of the United
States of America and the General Corporation Law of the State of Delaware. I
express no opinion as to the application of the securities or blue sky laws of
the various states to the sale of the New Shares.
<PAGE> 2
I hereby consent to the filing of this opinion as an Exhibit to the
Registration Statement and to all references to my name included in or made a
part of the Registration Statement.
Very truly yours,
/s/ James M. Sheehan
James M. Sheehan
<PAGE> 1
EXHIBIT 8.1
[SIDLEY & AUSTIN LETTERHEAD]
February 7, 2000
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 December 21, 1999, by and among Tellabs, Inc., a Delaware corporation
("Tellabs"), Oriole Merger Corp., a Delaware corporation and a direct, wholly
owned subsidiary of Tellabs ("Oriole"), and Salix Technologies, Inc., a Delaware
corporation ("Salix"), which provides for the merger (the "Merger") of Oriole
with and into Salix, with Salix as the surviving corporation (the "Surviving
Corporation"), and the stockholders of Salix 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, $.01 par value,
of Salix ("Salix Common Stock") and each issued and outstanding share of
preferred stock, $.01 par value, of Salix ("Salix Preferred Stock") (other than
shares of Salix Common Stock and Salix 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, $.01 par
value, of Tellabs ("Tellabs Common Stock") and (ii) each share of Salix Common
Stock or Salix Preferred Stock that is owned by Salix as treasury stock and each
share of Salix Common Stock or Salix 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
Salix Common Stock and the Salix 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 Salix
stockholders that may arise pursuant to the Agreement.
<PAGE> 2
SIDLEY & AUSTIN CHICAGO
Tellabs, Inc.
February 7, 2000
Page 2
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 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 Salix.
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 Salix contained in the
Tellabs Tax Certificate and Salix Tax Certificate, respectively, each dated on
or about the date hereof, are and will be accurate in all respects, and neither
Tellabs nor Salix will have provided written notification prior to the Effective
Time that a statement made in the Tellabs Tax Certificate or Salix 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 Salix
stockholders 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 Salix Common Stock or
Salix Preferred Stock pursuant to the exercise of employee stock options or
otherwise as compensation.
<PAGE> 3
SIDLEY & AUSTIN CHICAGO
Tellabs, Inc.
February 7, 2000
Page 3
Based upon and subject to the foregoing, it is our opinion, as counsel
for Tellabs, that, for federal income tax purposes, the Merger will constitute a
"reorganization" within the meaning of Section 368(a) of the Code, and Salix,
Tellabs and Oriole will each be a party to that reorganization within the
meaning of Section 368(b) of the Code.
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.
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
[PIPER MARBURY RUDNICK & WOLFE LETTERHEAD]
February 7, 2000
Salix Technologies, Inc.
904 Wind Riverlane #101
Gaithersburg, MD 20878
Re: Agreement and Plan of Merger (the "Merger Agreement"), dated as of
December 21, 1999, by and among Salix Technologies, Inc. (the
"Company"), Tellabs, Inc. (the "Parent") and Oriole Merger Corp.
("Sub")
Ladies and Gentlemen:
We have acted as consel to the Company in connection with the transactions
contemplated by the Merger Agreement, dated as of December 21, 1999, by and
among the Company, Parent and Sub. The delivery of a letter expressing opinions
in substantially the form hereof is a condition to the obligations of the
Company to consummate the Merger pursuant to Section 6.2 of the Merger
Agreement. All capitalized terms used herein, unless otherwise specified, shall
have the meanings ascribed to them in the Merger Agreement.
In rendering our opinions, we have examined and relied upon the accuracy
and completeness of the facts, information, covenants and representations
contained in originals or copies, certified or otherwise identified to our
satisfaction, of the Merger Agreement, and such other documents as we have
deemed necessary or appropriate as a basis for the opinions set forth below.
Our opinions assume, among other things, the accuracy as of the date hereof,
and the accuracy as of the Effective Time, of such facts, information,
covenants, statements and representations, as well as an absence of any change
in the foregoing that are material to such opinions between the date hereof and
the Effective Time.
We have assumed the genuineness of all signatures, the legal capacity of
all natural persons, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such documents. We have also assumed that the transactions related to the
Merger or contemplated by the Merger Agreement that are to be consummated at
the Effective Time will be consummated at the Effective Time in accordance with
the Merger Agreement. In addition, our opinions are expressly conditioned on,
among other things, the accuracy as of the date hereof, and the
<PAGE> 2
Salix Technologies, Inc.
February 7, 2000
Page 2
accuracy as of the Effective Time, of statements and represesntations contained
in certificates executed by officers of Parent and the Company and certain
Company shareholders as to certain facts relating to, and knowledge and
intentions of, Parent and the Company and certain facts relating to the Merger.
In rendering our opinion, we have considered the applicable provisions of
the U.S. Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations promulgated thereunder by the Treasury Department (the
"Regulations"), pertinent judicial authorities, rulings of the U.S. Internal
Revenue Service and such other authorities as we have considered relevant. It
should be noted that the Code, the Regulations, judicial decisions,
administrative interpretations and such other authorities are subject to change
at any time and, in some circumstances, with retroactive effect. A material
change in any of the authorities upon which our opinions are based could affect
our conclusions stated herein. In addition, there can be no assurance that the
Internal Revenue Service would not take a position contrary to that which is
stated in this opinion letter.
Based upon and subject to the foregoing, we are of the opinion that, for
United States federal income tax purposes the Merger will be treated for
federal income tax purposes as a "reorganization" qualifying under the
provisions of Section 368(a) of the Code, and Company, Parent and Sub will each
be a party to the reorganization within the meaning of Section 368(b) of the
Code.
Except as set forth above, we express no opinion to any party as to any
consequences of the Merger or any transactions related thereto. We are
furnishing this opinion to you solely in connection with the transactions
contemplated by the Merger Agreement, and it is not to be used, relied upon,
circulated, quoted or otherwise referred to by any other person for any other
purpose without our prior written consent. Notwithstanding the foregoing, we
hereby consent to the reference to Piper Marbury Rudnick & Wolfe LLP in the
proxy statement/prospectus filed as part of the Registration Statement on Form
S-4 relating to the shares of the Parent's common stock, and to the filing of
this opinion as an exhibit to the Registration Statement. This opinion is
expressed as of the date hereof, and we disclaim any undertaking to advise you
of any subsequent changes of the matters stated, represented or assumed herein
or any subsequent changes in applicable law.
Very truly yours,
/s/ Piper Marbury Rudnick & Wolfe LLP
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Pre-Effective Amendment No. 1 to the Joint Proxy, Prospectus and Registration
Statement (Form S-4 No. 333-95135) of Tellabs, Inc. for the registration of up
to 4,688,965 shares of its common stock and to the incorporation by reference
therein of our report dated November 8, 1999, with respect to the consolidated
financial statements of Tellabs, Inc. included in its Current Report (Form 8-K)
for the year ended January 1, 1999, filed with the Securities and Exchange
Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
February 3, 2000
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated November 5, 1999, accompanying the consolidated
financial statements of Tellabs, Inc. and Subsidiaries as of December 27, 1996
and for the year then ended incorporated by reference in this 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
February 4, 2000
<PAGE> 1
Exhibit 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated September 1, 1999 (and to all references to our Firm) included in or made
a part of this registration statement.
ARTHUR ANDERSEN LLP
Vienna, Virginia
February 2, 2000
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Pre-Effective
Amendment No. 1 to the Registration Statements on Form S-4 (File No. 333-95135)
of Tellabs, Inc. to register 4,688,965 of common stock, $.01 par value of our
report dated April 29, 1999 relating to the financial statements of NetCore
Systems, Inc., (which financial statements are not separately presented), which
report appears in the Form 8-K of Tellabs, Inc. dated November 10, 1999.
/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 7, 2000
<PAGE> 1
EXHIBIT 23.5
The Board of Directors
Tellabs, Inc.
We consent to the incorporation by reference in the registration statement on
Form S-4 of Tellabs, Inc. of our report dated January 23, 1998, with respect to
the consolidated balance sheet of Coherent Communications Systems Corporation
as of December 31, 1997, and the related consolidated statements of operations,
stockholder's equity, and cash flows for each of the years in the two-year
period ended December 31, 1997, which report appears in the Form 8-K of
Tellabs, Inc. dated November 10, 1999.
KPMG LLP
McLean, Virginia
February 7, 2000
<PAGE> 1
EXHIBIT 99.1
SALIX TECHNOLOGIES, INC.
FORM OF PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR A SPECIAL MEETING TO BE HELD ON FEBRUARY 28, 2000
The undersigned stockholder(s) of SALIX Technologies, Inc., a Delaware
corporation (the "Company"), hereby appoint(s) Daniel Simpkins and Peter
Jackson, 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
Gaithersburg Washingtonian Marriott, 9751 Washingtonian Boulevard,
Gaithersburg, Maryland 20878 on Monday, February 28, 2000 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.
<PAGE> 2
SALIX TECHNOLOGIES, INC. PROXY FOR SPECIAL MEETING
This proxy is revocable at any time before it is exercised and the
undersigned reserve(s) the right to attend the meeting and vote in person.
PROPOSAL
The Board of Directors recommends a vote "FOR" the listed proposal.
1. Proposal for approval and adoption of the Agreement and Plan of
Merger dated as of December 21, 1999 by and among Tellabs, Inc., Oriole Merger
Corp. and the Company.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the meeting.
The undersigned hereby ratifies and confirms all that said attorneys and
proxies, or any one or more of them or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof and any prior proxies are
hereby revoked.
Dated: , 2000
-------------------------
-------------------------------------
Signature
-------------------------------------
Signature
Your signature should be as your name
appears hereon. When signed in a
fiduciary or representative capacity
please show your full title as such.
For joint accounts each joint owner
should sign.
PLEASE DATE, SIGN AND RETURN IN THE
ENCLOSED POSTMARKED ENVELOPE
PROMPTLY.
2
